UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended August 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________________
Commission File Number: 1-8422
COUNTRYWIDE CREDIT INDUSTRIES, INC.
----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2641992
- ------------------------------------- -----------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
155 N. Lake Avenue, Pasadena, California 91101
- ------------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
(818) 304-8400
-----------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 14, 1996
----- -------------------------------
Common Stock $.05 par value 103,008,927
<PAGE>
<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
August 31, February 29,
1996 1996
---------------- -----------------
(Dollar amounts in thousands, except per share data)
ASSETS
<S> <C> <C>
Cash $ 9,490 $ 16,444
Receivables for mortgage loans shipped 1,369,833 2,299,979
Mortgage loans held for sale 2,280,778 2,440,108
Other receivables 1,518,001 912,613
Property, equipment and leasehold improvements, at cost - net of
accumulated depreciation and amortization 150,606 140,963
Capitalized servicing fees receivable 750,014 631,784
Mortgage servicing rights 2,044,448 1,691,881
Other assets 624,099 523,881
---------------- -----------------
Total assets $8,747,269 $8,657,653
================ =================
Borrower and investor custodial accounts (segregated in special
accounts - excluded from corporate assets) $1,948,189 $2,548,549
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $5,454,539 $6,097,518
Drafts payable issued in connection with mortgage loan closings 285,756 238,020
Accounts payable and accrued liabilities 996,744 505,148
Deferred income taxes 575,929 497,212
---------------- -----------------
Total liabilities 7,312,968 7,337,898
Commitments and contingencies
- -
Shareholders' equity
Preferred stock - authorized, 1,500,000 shares of $.05 par value;
issued and outstanding, none
- -
Common stock - authorized, 240,000,000 shares of $.05 par value; issued and
outstanding, 102,699,926 shares at August 31, 1996
and 102,242,329 shares at February 29, 1996 5,135 5,112
Additional paid-in capital 827,969 820,183
Retained earnings 601,197 494,460
---------------- -----------------
Total shareholders' equity 1,434,301 1,319,755
---------------- -----------------
Total liabilities and shareholders' equity $8,747,269 $8,657,653
================ =================
Borrower and investor custodial accounts $1,948,189 $2,548,549
================ =================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Six Months
Ended August 31, Ended August 31,
1996 1995 1996 1995
------------------------------ ------------------------------
(Dollar amounts in thousands, except per share data)
Revenues
<S> <C> <C> <C> <C>
Loan origination fees $ 45,597 $ 53,385 $ 101,546 $ 94,906
Gain on sale of loans 58,411 19,283 105,491 32,014
------------------------------ ------------------------------
Loan production revenue 104,008 72,668 207,037 126,920
Interest earned 99,714 92,022 200,426 165,614
Interest charges (76,243) (73,444) (153,309) (135,417)
------------------------------ ------------------------------
Net interest income 23,471 18,578 47,117 30,197
Loan servicing income 175,464 139,131 342,874 268,513
Add (less) amortization and impairment/
recovery of servicing assets (34,623) (53,678) 13,662 (199,421)
Servicing hedge (expense) benefit (17,725) 18,105 (118,151) 135,080
------------------------------ ------------------------------
Net loan administration income 123,116 103,558 238,385 204,172
Commissions, fees and other income 20,220 14,506 41,558 26,984
------------------------------ ------------------------------
Total revenues 270,815 209,310 534,097 388,273
------------------------------ ------------------------------
Expenses
Salaries and related expenses 67,991 55,969 136,989 106,608
Occupancy and other office expenses 31,415 24,538 61,313 51,083
Guarantee fees 39,363 28,259 76,864 54,281
Marketing expenses 9,098 6,589 17,922 12,540
Other operating expenses 20,494 12,369 39,171 21,881
------------------------------ ------------------------------
Total expenses 168,361 127,724 332,259 246,393
------------------------------ ------------------------------
Earnings before income taxes 102,454 81,586 201,838 141,880
Provision for income taxes 39,957 32,634 78,717 56,752
------------------------------ ------------------------------
NET EARNINGS $ 62,497 $ 48,952 $ 123,121 $ 85,128
============================== ==============================
Earnings per share
Primary $0.60 $0.49 $1.18 $0.88
Fully diluted $0.60 $0.49 $1.17 $0.88
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months
Ended August 31,
1996 1995
---------------- -----------------
(Dollar amounts in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 123,121 $ 85,128
Adjustments to reconcile net earnings to net cash provided
(used) by operating activities:
Amortization and impairment/recovery of mortgage
servicing rights (20,998) 162,821
Amortization and impairment of capitalized servicing fees
receivable 7,336 36,600
Depreciation and other amortization 18,742 14,175
Deferred income taxes 78,717 56,752
Servicing hedge unrealized expense (benefit) 88,300 (92,477)
Origination and purchase of loans held for sale (20,172,169) (15,634,664)
Principal repayments and sale of loans 21,261,645 14,212,571
---------------- -----------------
Decrease (increase) in mortgage loans shipped and held for sale 1,089,476 (1,422,093)
Increase in other receivables and other assets (798,943) (161,586)
Increase in accounts payable and accrued liabilities 491,596 92,346
---------------- -----------------
Net cash provided (used) by operating activities 1,077,347 (1,228,334)
---------------- -----------------
Cash flows from investing activities:
Additions to mortgage servicing rights (331,569) (301,289)
Additions to capitalized servicing fees receivable (125,566) (127,927)
Purchase of property, equipment and leasehold
improvements - net (23,348) (3,901)
---------------- -----------------
Net cash used by investing activities (480,483) (433,117)
---------------- -----------------
Cash flows from financing activities:
Net (decrease) increase in warehouse debt and other
short-term borrowings (691,895) 1,414,229
Issuance of long-term debt 210,000 140,000
Repayment of long-term debt (113,348) (96,081)
Issuance of common stock 7,809 205,780
Cash dividends paid (16,384) (14,646)
---------------- -----------------
Net cash (used) provided by financing activities (603,818) 1,649,282
---------------- -----------------
Net decrease in cash (6,954) (12,169)
Cash at beginning of period 16,444 17,624
================ =================
Cash at end of period $ 9,490 $ 5,455
================ =================
Supplemental cash flow information:
Cash used to pay interest $ 152,983 $ 169,642
Cash used to pay income taxes $ 10 -
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended August 31, 1996 are
not necessarily indicative of the results that may be expected for the fiscal
year ending February 28, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the annual
report on Form 10-K for the fiscal year ended February 29, 1996 of Countrywide
Credit Industries, Inc. (the "Company").
Certain amounts reflected in the consolidated financial statements for the
six-month period ended August 31, 1995 have been reclassified to conform to the
presentation for the six-month period ended August 31, 1996.
<TABLE>
<CAPTION>
NOTE B - NOTES PAYABLE
Notes payable consisted of the following.
------------------------------------------------------------------ ---- --------------- --- -------------- --
(Dollar amounts in thousands) August 31, February 29,
1996 1996
------------------------------------------------------------------ ---- --------------- --- -------------- --
<S> <C> <C>
Commercial paper $3,050,501 $2,847,442
Medium-term notes 1,921,800 1,824,800
Repurchase agreements 281,918 808,353
Subordinated notes 200,000 200,000
Unsecured notes payable - 235,000
Pre-sale funding facilities - 181,255
Note payable 320 668
=============== ==============
$5,454,539 $6,097,518
=============== ==============
------------------------------------------------------------------ ---- --------------- --- -------------- --
</TABLE>
Revolving Credit Facility and Commercial Paper
As of August 31, 1996, Countrywide Home Loans, Inc. ("CHL"), the Company's
mortgage banking subsidiary, had an unsecured credit agreement (revolving credit
facility) with fifty commercial banks permitting CHL to borrow an aggregate
maximum amount of $3.5 billion, less commercial paper backed by the agreement.
The amount available under the facility is subject to a borrowing base, which
consists of mortgage loans held for sale, receivables for mortgage loans shipped
and mortgage servicing rights. The facility contains various financial covenants
and restrictions, certain of which limit the amount of dividends that can be
paid by the Company or CHL. The interest rate on direct borrowings is based on a
variety of sources, including the prime rate and the London Interbank Offered
Rates ("LIBOR") for U.S. dollar deposits. This interest rate varies, depending
on CHL's credit ratings. No amount was outstanding on the revolving credit
facility at August 31, 1996. The weighted average borrowing rate on commercial
paper borrowings for the six months ended August 31, 1996 was 5.38%. The
weighted average borrowing rate on commercial paper outstanding as of August 31,
1996 was 5.38%. Under certain circumstances, including the failure to maintain
specified minimum credit ratings, borrowings under the revolving credit facility
and commercial paper may become secured by mortgage loans held for sale,
receivables for mortgage loans shipped and mortgage servicing rights. The
facility expires on May 14, 2000.
<TABLE>
<CAPTION>
Medium-Term Notes
As of August 31, 1996, outstanding medium-term notes issued by CHL under
various shelf registrations filed with the Securities and Exchange Commission
were as follows.
- -----------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)
Outstanding Balance Interest Rate Maturity Date
------------------------------------------- ----------- ---------- ------------- -------------
Floating-Rate Fixed-Rate Total From To From To
------------------------------------------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Series A $ - $ 304,800 $ 304,800 6.10% 8.79% Mar 1997 Mar 2002
Series B 11,000 396,000 407,000 5.83% 6.98% Aug 1997 Aug 2005
Series C 303,000 197,000 500,000 5.88% 8.43% Dec 1997 Mar 2004
Series D 115,000 385,000 500,000 5.68% 6.88% Aug 1998 Sep 2005
Series E 210,000 - 210,000 5.72% 5.72% Aug 2000 Aug 2000
===========================================
Total $639,000 $1,282,800 $1,921,800
===========================================
---------------------------------------------------------------------------------------------------------------
</TABLE>
As of August 31, 1996, all of the outstanding fixed-rate notes had been
effectively converted by interest rate swap agreements to floating-rate notes.
The weighted average borrowing rate on medium-term note borrowings for the six
months ended August 31, 1996, including the effect of the interest rate swap
agreements, was 6.12%. As of August 31, 1996, $790 million was available for
future issuances under the Series E shelf registration.
Repurchase Agreements
As of August 31, 1996, the Company had entered into short-term financing
arrangements to sell mortgage-backed securities ("MBS") under agreements to
repurchase. The weighted average borrowing rate for the six months ended August
31, 1996 was 5.39%. The weighted average borrowing rate on repurchase agreements
outstanding as of August 31, 1996 was 5.42%. The repurchase agreements were
collateralized by MBS. All MBS underlying repurchase agreements are held in
safekeeping by broker-dealers, and all agreements are to repurchase the same or
substantially identical MBS.
Subordinated Notes
The 8.25% subordinated notes are due July 15, 2002. Interest is payable
semi-annually on each January 15 and July 15. The subordinated notes are not
redeemable prior to maturity and are not subject to any sinking fund
requirements.
Pre-Sale Funding Facilities
As of August 31, 1996, CHL had uncommitted revolving credit facilities with
two government-sponsored entities and an affiliate of an investment banking
firm. The credit facilities are secured by conforming mortgage loans which are
in the process of being pooled into MBS. Interest rates are based on LIBOR,
federal funds and/or the prevailing rates for MBS repurchase agreements. The
weighted average borrowing rate for all three facilities for the six months
ended August 31, 1996 was 5.58%. As of August 31, 1996, the Company had no
outstanding borrowings under any of these facilities.
<PAGE>
<TABLE>
<CAPTION>
NOTE C - SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARY
The following tables present summarized financial information for
Countrywide Home Loans, Inc.
-- ----------------------------------------- ---- --------------------------------------------------- -------
(Dollar amounts in thousands) August 31, February 29,
1996 1996
-- ---------------------------------------------- -------- -------------- ---------- -------------- ---------
Balance Sheets:
<S> <C> <C>
Mortgage loans shipped and held for sale $3,650,611 $4,740,087
Other assets 4,113,094 3,441,678
============== ==============
Total assets $7,763,705 $8,181,765
============== ==============
Short- and long-term debt $5,740,295 $6,335,538
Other liabilities 657,404 588,446
Equity 1,366,006 1,257,781
============== ==============
Total liabilities and equity $7,763,705 $8,181,765
============== ==============
-- ---------------------------------------------- -------- -------------- ---------- -------------- ---------
</TABLE>
<TABLE>
<CAPTION>
--- ----------------------------------------- --- -------------------------------------------------- --------
(Dollar amounts in thousands) Six Months Ended August 31,
--------------- ---------- ---------------
1996 1995
--- --------------------------------------------- ------- --------------- ---------- --------------- --------
Statements of Earnings:
<S> <C> <C>
Revenues $485,763 $ 363,793
Expenses 308,346 229,667
Provision for income taxes 69,193 53,650
=============== ===============
Net earnings $108,224 $ 80,476
=============== ===============
--- --------------------------------------------- ------- --------------- ---------- --------------- --------
</TABLE>
<TABLE>
<CAPTION>
NOTE D - SERVICING HEDGE
The following summarizes the notional amounts of servicing hedge derivative
contracts.
- -------------------------------- ----------- ------------ --------------- --------- ------------ ---------- ------------
(Dollar amounts in millions) Long Call
Options on
Interest Long Call Interest Rate Principal Interest
Rate Floors Options Futures Swap - Only Rate
on MBS Caps Swaps Cap Swaptions
- -------------------------------- ----------- ------------ --------------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 29, 1996 $15,750 $ 1,500 $ 3,550 $1,000 $268 $ - $ -
Additions 7,000 - 4,910 - - 500 1,500
Dispositions/Expirations - (1,500) (4,350) - - - -
=========== ============ =============== ========= ============ ========== ------------
Balance, August 31, 1996 $22,750 $ - $ 4,110 $1,000 $268 $500 $1,500
=========== ============ =============== ========= ============ ========== ------------
- -------------------------------- ----------- ------------ --------------- --------- ------------ ---------- ------------
</TABLE>
During the six months ended August 31, 1996, the Company entered into an
interest rate cap agreement ("Cap") and purchased options on interest rate swaps
("Swaptions") as additional components of its Servicing Hedge. The Cap entitles
the Company to receive payments if the selected market interest rate exceeds the
stated rate. The Cap outstanding will expire on April 26, 2001. Under the terms
of the Swaptions, the Company has the option to enter into a receive-fixed,
pay-floating interest rate swap at a future date or to settle the transaction
for cash. The Swaptions outstanding expire from March 11, 1999 to April 15,
2007.
NOTE E - VALUATION ALLOWANCE FOR CAPITALIZED MORTGAGE SERVICING RIGHTS
The following summarizes the aggregate activity in the valuation allowances
for capitalized mortgage servicing rights.
- -------------------------------------------------------- ----------------------
(Dollar amounts in thousands) Aggregate Balances
----------------------
Balances, February 29, 1996 ($61,634)
Recovery 40,526
----------------------
Balances, August 31, 1996 ($21,108)
----------------------
- -------------------------------------------------------- ----------------------
NOTE F - LEGAL PROCEEDINGS
On June 22, 1995, a lawsuit was filed by Jeff and Kathy Briggs, as a
purported class action, against CHL and a mortgage broker in the Northern
Division of the United States District Court for the Middle District of Alabama.
The suit claims, among other things, that in connection with residential
mortgage loan closings, CHL made certain payments to mortgage brokers in
violation of the Real Estate Settlement Procedures Act and induced mortgage
brokers to breach their alleged fiduciary duties to their customers. The
plaintiffs seek unspecified compensatory and punitive damages plus, as to
certain claims, treble damages. CHL's management believes that its compensation
programs to mortgage brokers comply with applicable laws and with long-standing
industry practice, and that it has meritorious defenses to the action. CHL
intends to defend vigorously against the action and believes that the ultimate
resolution of such claims will not have a material adverse effect on the
Company's results of operations or financial position.
The Company and certain subsidiaries are defendants in various lawsuits
involving matters generally incidental to their business. Although it is
difficult to predict the ultimate outcome of these cases, management believes,
based on discussions with counsel, that any ultimate liability will not
materially affect the consolidated financial position or results of operations
of the Company and its subsidiaries.
NOTE G - SUBSEQUENT EVENTS
On September 13, 1996, the Company declared a cash dividend of $0.08 per
common share payable October 31, 1996 to shareholders of record on October 15,
1996.
On September 5, 1996, the Company purchased a new corporate headquarters
facility from Lockheed Martin Corporation for $33 million. The headquarters
facility consists of approximately 225,000 square feet and is located on 20
acres in Calabasas, California.
<PAGE>
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a new
"safe harbor" for certain forward-looking statements. This Quarterly Report on
Form 10-Q contains forward-looking statements which reflect the Company's
current views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those identified below, which could cause actual results to differ
materially from historical results or those anticipated. The words "believe,"
"expect," "anticipate," "intend," "estimate" and other expressions which
indicate future events and trends identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of their dates. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. The following factors could cause
actual results to differ materially from historical results or those
anticipated: (1) the level of demand for mortgage credit, which is affected by
such external factors as the level of interest rates, the strength of the
various segments of the economy and demographics of the Company's lending
markets; (2) the direction of interest rates; (3) the relationship between
mortgage interest rates and the cost of funds; (4) federal and state regulation
of the Company's mortgage banking operations and (5) competition within the
mortgage banking industry.
RESULTS OF OPERATIONS
Quarter Ended August 31, 1996 Compared to Quarter Ended August 31, 1995
Revenues for the quarter ended August 31, 1996 increased 29% to $270.8
million from $209.3 million for the quarter ended August 31, 1995. Net earnings
increased 28% to $62.5 million for the quarter ended August 31, 1996 from $49.0
million for the quarter ended August 31, 1995. The increase in revenues and net
earnings for the quarter ended August 31, 1996 compared to the quarter ended
August 31, 1995 was attributable to a larger gain on sale of loans resulting
from additional types of loans being sold in the quarter ended August 31, 1996,
improved pricing margins on prime credit quality first mortgages, an increase in
the size of the Company's servicing portfolio and higher loan production volume.
These positive factors during the quarter ended August 31, 1996 were partially
offset by increased expenses in the quarter ended August 31, 1996 over the
quarter ended August 31, 1995.
The total volume of loans produced increased 3% to $9.2 billion for the
quarter ended August 31, 1996 from $8.9 billion for the quarter ended August 31,
1995. Refinancings totaled $2.1 billion, or 22% of total fundings, for the
quarter ended August 31, 1996, as compared to $2.6 billion, or 28% of total
fundings, for the quarter ended August 31, 1995. Fixed-rate loan production
totaled $6.4 billion, or 70% of total fundings, for the quarter ended August 31,
1996, as compared to $6.7 billion, or 75% of total fundings, for the quarter
ended August 31, 1995. Production in the Company's Consumer Markets Division
decreased to $1.9 billion for the quarter ended August 31, 1996 from $2.0 for
the quarter ended August 31, 1995. Production in the Company's Wholesale
Division decreased to $1.8 billion for the quarter ended August 31, 1996 from
$2.1 billion for the quarter ended August 31, 1995. The Company's Correspondent
Division purchased $5.5 billion in mortgage loans for the quarter ended August
31, 1996 compared to $4.8 billion for the quarter ended August 31, 1995. The
factors which affect the relative volume of production among the Company's three
divisions include the competitiveness of each Division's product offerings, the
level of mortgage lending activity in each Division's markets, and the success
of each Division's sales and marketing efforts.
Included in the Company's total volume of loans produced are $127
million of home equity loans funded in the quarter ended August 31, 1996 and $58
million funded in the quarter ended August 31, 1995. Sub-prime credit quality
("B&C") loan activity, which is also included in the Company's total production
volume, was $191 million for the quarter ended August 31, 1996 and $1 million
for the quarter ended August 31, 1995.
At August 31, 1996 and 1995, the Company's pipeline of loans in process
was $4.3 billion and $5.2 billion, respectively. In addition, at August 31,
1996, the Company had committed to make loans in the amount of $1.7 billion,
subject to property identification and borrower qualification ("LOCK 'N SHOP(R)
Pipeline"). At August 31, 1995, the LOCK 'N SHOP (R) Pipeline was $1.2 billion.
Historically, approximately 43% to 77% of the pipeline of loans in process has
funded. For the quarters ended August 31, 1996 and 1995, the Company received
116,101 and 115,782 new loan applications, respectively, at an average daily
rate of $185 million and $196 million, respectively. The following actions were
taken during the quarter ended August 31, 1996 on the total applications
received during that quarter: 63,166 loans (54% of total applications received)
were funded and 17,610 applications (15% of total applications received) were
either rejected by the Company or withdrawn by the applicant. The following
actions were taken during the quarter ended August 31, 1995 on the total
applications received during that quarter: 59,502 loans (51% of total
applications received) were funded and 15,764 applications (14% of total
applications received) were either rejected by the Company or withdrawn by the
applicant. The factors that affect the percentage of applications received and
funded during a given time period include the movement and direction of interest
rates, the average length of loan commitments issued, the creditworthiness of
applicants, the production divisions' loan processing efficiency and loan
pricing decisions.
Loan origination fees decreased during the quarter ended August 31,
1996 as compared to the quarter ended August 31, 1995 due primarily to higher
loan production in the Company's Correspondent Division which, due to its lower
cost structure, charges lower origination fees per dollar loaned. Gain on sale
of loans improved during the quarter ended August 31, 1996 as compared to the
quarter ended August 31, 1995 primarily due to the sale during the quarter ended
August 31, 1996 of higher margin B&C loans and improved pricing margins on prime
credit quality first mortgages. There were no B&C loan sales in the quarter
ended August 31, 1995. In general, loan origination fees and gain (loss) on sale
of loans are affected by numerous factors including loan pricing decisions,
interest rate volatility, the general direction of interest rates and the volume
and mix of loans produced and sold.
Net interest income (interest earned net of interest charges) increased
to $23.5 million for the quarter ended August 31, 1996 from $18.6 million for
the quarter ended August 31, 1995. Consolidated net interest income is
principally a function of: (i) net interest income earned from the Company's
mortgage loan warehouse ($15.6 million and $9.4 million for the quarters ended
August 31, 1996 and 1995, respectively); (ii) interest expense related to the
Company's investment in servicing rights ($19.9 million and $15.5 million for
the quarters ended August 31, 1996 and 1995, respectively) and (iii) interest
income earned from the custodial balances associated with the Company's
servicing portfolio ($27.8 million and $24.7 million for the quarters ended
August 31, 1996 and 1995, respectively). The Company earns interest on, and
incurs interest expense to carry, mortgage loans held in its warehouse. The
increase in net interest income from the mortgage loan warehouse was
attributable to an increase in the average mortgage loan warehouse due to
increased production and a longer warehousing period and a higher net earnings
rate. The increase in interest expense on the investment in servicing rights
resulted primarily from a larger servicing portfolio, partially offset by a
decrease in the payments of interest to certain investors pursuant to customary
servicing arrangements with regard to paid-off loans in excess of the interest
earned on these loans through their respective payoff dates ("Interest Costs
Incurred on Payoffs"). The increase in net interest income earned from the
custodial balances was related to an increase in the average custodial balances
(caused by growth of the servicing portfolio and partially offset by a decrease
in prepayments), offset somewhat by a decrease in the earnings rate, from the
quarter ended August 31, 1995 to the quarter ended August 31, 1996.
During the quarter ended August 31, 1996, loan administration income
was positively affected by the continued growth of the loan servicing portfolio.
At August 31, 1996, the Company serviced $148.6 billion of loans (including $2.5
billion of loans subserviced for others) compared to $126.4 billion (including
$1.7 billion of loans subserviced for others) at August 31, 1995, an 18%
increase. The growth in the Company's servicing portfolio during the quarter
ended August 31, 1996 was the result of loan production, partially offset by
prepayments, partial prepayments, and scheduled amortization of mortgage loans.
The weighted average interest rate of the mortgage loans in the Company's
servicing portfolio at both August 31, 1996 and 1995 was 7.8%. It is the
Company's strategy to build and retain its servicing portfolio because of the
returns the Company can earn from such investment and because the Company
believes that servicing income is countercyclical to loan production income.
During the quarter ended August 31, 1996, the prepayment rate of the
Company's servicing portfolio was 9%, as compared to 13% for the quarter ended
August 31, 1995. In general, the prepayment rate is affected by the level of
refinance activity, which in turn is driven by the relative level of mortgage
interest rates, and activity in the home purchase market. The decrease in the
prepayment rate from the quarter ended August 31, 1995 to the quarter ended
August 31, 1996 was primarily attributable to decreased refinance activity
caused by higher interest rates during the quarter ended August 31, 1996 than
during the quarter ended August 31, 1995.
The primary means used by the Company to reduce the sensitivity of its
earnings to changes in interest rates is through a strong production capability
and a growing servicing portfolio. In addition, to mitigate the effect on
earnings of higher amortization and impairment (which are deducted from loan
servicing income) that may result from increased current and projected future
prepayment activity, the Company acquires financial instruments, including
derivative contracts, that increase in value when interest rates decline (the
"Servicing Hedge"). These financial instruments include call options on interest
rate futures and MBS, interest rate floors, interest rate swaps (with the
Company's maximum payment capped) ("Swap Caps"), principal-only ("P/O") swaps,
options on interest rate swaps ("Swaptions") and certain tranches of
collateralized mortgage obligations ("CMOs").
With the Swap Caps, the Company receives and pays interest on a
specified notional amount. The rate received is fixed; the rate paid is
adjustable, is indexed to the London Interbank Offered Rates for U.S. dollar
deposits ("LIBOR") and has a specified maximum or "cap."
The P/O swaps are derivative contracts, the value of which is
determined by changes in the value of the referenced P/O security. The payments
received by the Company under the P/O swaps relate to the cash flows of the
referenced P/O security. The payments made by the Company are based upon a
notional amount tied to the remaining balance of the referenced P/O security
multiplied by a floating rate indexed to LIBOR.
With the Swaptions, the Company has the option to enter into a
receive-fixed, pay-floating interest rate swap at a future date or to settle the
transaction for cash.
The CMOs, which consist primarily of P/O securities, have been
purchased at deep discounts to their par values. As interest rates decrease,
prepayments on the collateral underlying the CMOs should increase. This should
result in a decline in the average lives of the P/O securities and a
corresponding increase in the present values of their cash flows. Conversely, as
interest rates increase, prepayments on the collateral underlying the CMOs
should decrease. These changes should result in an increase in the average lives
of the P/O securities and a decrease in the present values of their cash flows.
The Servicing Hedge instruments utilized by the Company are designed to
protect the value of the investment in servicing rights from the effects of
increased prepayment activity that generally results from declining interest
rates. To the extent that interest rates increase, the value of the servicing
rights increases while the value of the hedge instruments declines. With respect
to the options, cap, swaptions, floors and CMOs, the Company is not exposed to
loss beyond its initial outlay to acquire the hedge instruments. With respect to
the Swap Caps contracts entered into by the Company as of August 31, 1996, the
Company estimates that its maximum exposure to loss over the contractual term is
$28 million. The Company's exposure to loss in the P/O swaps is related to
changes in the market value of the referenced P/O security over the life of the
contract. In the quarter ended August 31, 1996, the Company recognized a net
loss of $17.7 million from its Servicing Hedge. The net loss included unrealized
losses of $0.8 million and realized losses of $16.9 million from the
amortization and sale of various financial instruments that comprise the
Servicing Hedge. In the quarter ended August 31, 1995, the Company recognized a
net gain of $18.1 million from its Servicing Hedge. The net gain included
unrealized gains of $2.4 million and net realized gains of $15.7 million from
the amortization and sale of various financial instruments that comprise the
Servicing Hedge.
The Company recorded amortization and a net recovery of its Servicing
Assets in the quarter ended August 31, 1996 totaling $34.6 million (consisting
of normal amortization amounting to $51.3 million and a net recovery of $16.7
million), compared to $53.7 million of amortization and impairment of its
Servicing Assets in the quarter ended August 31, 1995 (consisting of normal
amortization amounting to $41.2 million and impairment of $12.5 million). The
factors affecting the amount of amortization and impairment or recovery of the
Servicing Assets recorded in an accounting period include the level of
prepayments during the period, the change in estimated future prepayments and
the amount of Servicing Hedge gains or losses.
During the quarter ended August 31, 1996, the Company acquired bulk
servicing rights for loans with principal balances aggregating $44.9 million at
a price of 0.87% of the aggregate outstanding principal balance of the servicing
portfolios acquired. During the quarter ended August 31, 1995, the Company
acquired bulk servicing rights for loans with principal balances aggregating
$0.5 billion at a price of 1.10% of the aggregate outstanding principal balance
of the servicing portfolios acquired.
<TABLE>
<CAPTION>
Salaries and related expenses are summarized below for the quarters
ended August 31, 1996 and 1995.
-- --------------------------- -- -- --------- ------------------------------------------------- -- --- --- -----
(Dollar amounts in Quarter Ended August 31, 1996
thousands)
-- --------------------------- -- -- --------- ------------------------------------------------- -- --- --- -----
Production Loan Corporate Other
Activities Administration Administration Activities Total
-- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- -------------
<S> <C> <C> <C> <C> <C>
Base Salaries $22,319 $10,269 $13,315 $3,117 $49,020
Incentive Bonus 6,306 191 3,852 1,599 11,948
Payroll Taxes and Benefits 3,337 1,752 1,574 360 7,023
------------ ------------- ------------- ------------- -------------
Total Salaries and Related
Expenses $31,962 $12,212 $18,741 $5,076 $67,991
============ ============= ============= ============= -------------
Average Number of 2,246 1,519 1,090 240 5,095
Employees
-- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- -------------
</TABLE>
<TABLE>
<CAPTION>
-- --------------------------- -- --- -------- ------------------------------------------------- ---- --- -- ----
(Dollar amounts in Quarter Ended August 31, 1995
thousands)
-- --------------------------- -- --- -------- ------------------------------------------------- ---- --- -- ----
Production Loan Corporate Other
Activities Administration Administration Activities Total
-- --------------------------- -- ------------ - -------------- - ------------- -- ------------- -- -------------
<S> <C> <C> <C> <C> <C>
Base Salaries $16,506 $7,337 $11,387 $2,389 $37,619
Incentive Bonus 9,355 114 2,356 813 12,638
Payroll Taxes and Benefits 2,680 1,171 1,586 275 5,712
------------ -------------- ------------- ------------- -------------
Total Salaries and Related
Expenses $28,541 $8,622 $15,329 $3,477 $55,969
============ ============== ============= ============= -------------
Average Number of 1,652 1,036 857 189 3,734
Employees
-- --------------------------- -- ------------ - -------------- - ------------- -- ------------- -- -------------
</TABLE>
The amount of salaries increased during the quarter ended August 31,
1996 from the quarter ended August 31, 1995 primarily due to an increased number
of employees resulting from higher loan production and new loan products, a
larger servicing portfolio and growth in the Company's non-mortgage banking
activities. Incentive bonuses decreased during the quarter ended August 31, 1996
despite increased production primarily due to revised bonus payment plans for
loan production personnel.
Occupancy and other office expenses for the quarter ended August 31, 1996
increased to $31.4 million from $24.5 million for the quarter ended August 31,
1995, reflecting the Company's goal of expanding its retail branch network. In
addition, higher loan production, a larger servicing portfolio and growth in the
Company's non-mortgage banking activities also contributed to the increase.
Guarantee fees represent fees paid to guarantee timely and full payment of
principal and interest on MBS and whole loans sold to permanent investors and to
transfer the credit risk of the loans in the servicing portfolio. For the
quarter ended August 31, 1996, guarantee fees increased 39% to $39.4 million
from $28.3 million for the quarter ended August 31, 1995. The factors which
affect the amount of guarantee fees in a period include the size of the
servicing portfolio, the mix of permanent investors and the terms negotiated at
the time of loan sales.
Marketing expenses for the quarter ended August 31, 1996 increased 38% to
$9.1 million from $6.6 million for the quarter ended August 31, 1995, reflecting
the Company's continued implementation of a marketing plan to increase brand
awareness of the Company in the residential mortgage market.
Other operating expenses for the quarter ended August 31, 1996
increased from the quarter ended August 31, 1995 by $8.1 million, or 66%. This
increase was due primarily to higher loan production, a larger servicing
portfolio, increased reserves for bad debts and increased systems development
and operation costs in the quarter ended August 31, 1996 over the quarter ended
August 31, 1995.
Profitability of Loan Production and Servicing Activities
In the quarter ended August 31, 1996, the Company's pre-tax income from
its loan production activities (which include loan origination and purchases,
warehousing and sales) was $33.8 million. In the quarter ended August 31, 1995,
the Company's comparable pre-tax income was $17.9 million. The increase of $15.9
million was primarily attributable to a larger gain on sale of loans resulting
from the sale of higher margin B&C loans and improved pricing margins on prime
credit quality first mortgages. There were no B&C loan sales in the quarter
ended August 31, 1995. These positive results were partially offset by higher
production costs and a change in the internal method of allocating overhead
between the Company's production and servicing activities. In the quarter ended
August 31, 1996, the Company's pre-tax income from its loan servicing activities
(which include administering the loans in the servicing portfolio, selling
homeowners and other insurance, acting as tax payment agent and marketing
foreclosed properties) was $63.7 million as compared to $60.9 million in the
quarter ended August 31, 1995. The increase of $2.8 million was principally due
to an increase in the size of the servicing portfolio and the change in the
internal method of allocating overhead, partially offset by an increase in other
servicing expenses. Additionally, in the quarter ended August 31, 1996, the
total of Servicing Hedge expense and amortization and impairment of Servicing
Assets exceeded the comparable total expense for the quarter ended August 31,
1995 by $16.8 million.
Profitability of Other Activities
In addition to loan production and loan servicing, the Company offers
ancillary products and services related to the mortgage banking business. These
include title insurance and escrow services, home appraisals, credit cards,
management of a publicly traded real estate investment trust ("REIT"),
securities brokerage, servicing rights brokerage and reinsurance. For the
quarter ended August 31, 1996, these activities contributed $4.9 million to the
Company's pre-tax income compared to $2.7 million for the quarter ended August
31, 1995. This increase to pre-tax income primarily results from improved
performance of the title insurance and escrow services and reinsurance.
RESULTS OF OPERATIONS
Six Months Ended August 31, 1996 Compared to Six Months Ended August 31, 1995
Revenues for the six months ended August 31, 1996 increased 38% to
$534.1 million from $388.3 million for the six months ended August 31, 1995. Net
earnings increased 45% to $123.1 million for the six months ended August 31,
1996 from $85.1 million for the six months ended August 31, 1995. The increase
in revenues and net earnings for the six months ended August 31, 1996 compared
to the six months ended August 31, 1995 was attributable to a larger gain on
sale of loans resulting from the sale of higher margin B&C loans in the six
months ended August 31, 1996, improved pricing margins on prime credit quality
first mortgages, an increase in the size of the Company's servicing portfolio
and higher loan production volume. These positive factors were partially offset
by increased expenses in the six months ended August 31, 1996, from the six
months ended August 31, 1995.
The total volume of loans produced increased 29% to $20.2 billion for
the six months ended August 31, 1996 from $15.6 billion for the six months ended
August 31, 1995. Refinancings totaled $6.7 billion, or 33% of total fundings,
for the six months ended August 31, 1996, as compared to $3.6 billion, or 23% of
total fundings, for the six months ended August 31, 1995. Fixed-rate loan
production totaled $15.5 billion, or 77% of total fundings, for the six months
ended August 31, 1996, as compared to $11.2 billion, or 72% of total fundings,
for the six months ended August 31, 1995. Production in the Company's Consumer
Markets Division increased to $4.3 billion for the six months ended August 31,
1996 compared to production of $3.3 billion for the six months ended August 31,
1995. Production in the Company's Wholesale Division totaled $3.9 billion for
the six months ended both August 31, 1996 and 1995. The Company's Correspondent
Division purchased $12.0 billion in mortgage loans in the six months ended
August 31, 1996 compared to $8.4 billion in the six months ended August 31,
1995.
Included in the Company's total
volume of loans produced are $233 million of home equity loans funded in the six
months ended August
31, 1996 and $105 million funded in the six months ended August 31, 1995.
Sub-prime credit quality loan activity, which is also included in the Company's
total production volume, was $379 million for the six months ended August 31,
1996 and $1 million during the six months ended August 31, 1995.
For the six months ended August 31, 1996 and 1995, the Company received
259,563 and 216,987 new loan applications, respectively, at an average daily
rate of $208 million and $178 million, respectively. The following actions were
taken during the six months ended August 31, 1996 on the total applications
received during that six months: 167,042 loans (64% of total applications
received) were funded and 53,560 applications (21% of total applications
received) were either rejected by the Company or withdrawn by the applicant. The
following actions were taken during the six months ended August 31, 1995 on the
total applications received during that six months: 131,694 loans (61% of total
applications received) were funded and 40,674 applications (19% of total
applications received) were either rejected by the Company or withdrawn by the
applicant.
Loan origination fees increased during the six months ended August 31,
1996 as compared to the six months ended August 31, 1995 due to higher loan
production that resulted from a decrease in the level of mortgage interest
rates. The percentage increase in loan origination fees was less than the
percentage increase in total production. This was primarily because production
by the Correspondent Division comprised a greater percentage of total production
in the six months ended August 31, 1996 than in the six months ended August 31,
1995. Gain on sale of loans improved during the six months ended August 31, 1996
as compared to the six months ended August 31, 1995 primarily due to the sale
during the six months ended August 31, 1996 of higher margin B&C loans and
improved pricing margins on prime credit quality first mortgages.
Net interest income (interest earned net of interest charges) increased to
$47.1 million for the six months ended August 31, 1996 from $30.2 million for
the six months ended August 31, 1995. Consolidated net interest income is
principally a function of: (i) net interest income earned from the Company's
mortgage loan warehouse ($31.6 million and $11.6 million for the six months
ended August 31, 1996 and 1995, respectively); (ii) interest expense related to
the Company's investment in servicing rights ($43.8 million and $24.2 million
for the six months ended August 31, 1996 and 1995, respectively) and (iii)
interest income earned from the custodial balances associated with the Company's
servicing portfolio ($59.3 million and $42.8 million for the six months ended
August 31, 1996 and 1995, respectively). The Company earns interest on, and
incurs interest expense to carry, mortgage loans held in its warehouse. The
increase in net interest income from the mortgage loan warehouse was
attributable to an increase in the average amount of the mortgage loan warehouse
due to increased production, offset somewhat by a lower net earnings rate. The
increase in interest expense on the investment in servicing rights resulted
primarily from a larger servicing portfolio and an increase in Interest Costs
Incurred on Payoffs. The increase in net interest income earned from the
custodial balances was related to an increase in the average custodial balances
(caused by growth of the servicing portfolio and an increase in prepayments),
offset somewhat by a decrease in the earnings rate, from the six months ended
August 31, 1995 to the six months ended August 31, 1996.
During the six months ended August 31, 1996, loan administration income
was positively affected by the continued growth of the loan servicing portfolio.
The growth in the Company's servicing portfolio during the six months ended
August 31, 1996 was the result of loan production volume and the acquisition of
bulk servicing rights, partially offset by prepayments, partial prepayments, and
scheduled amortization of mortgage loans.
During the six months ended August 31, 1996, the prepayment rate of the
Company's servicing portfolio was 12%, as compared to 9% for the six months
ended August 31, 1995. The increase in the prepayment rate was due to increased
refinance activity caused by lower interest rates during the six months ended
August 31, 1996 than during the six months ended August 31, 1995.
During the six months ended August 31, 1996, the Company recognized a
net loss of $118.2 million from its Servicing Hedge. The net loss included
unrealized losses of $88.3 million and realized losses of $29.9 million from the
amortization and sale of various financial instruments that comprise the
Servicing Hedge. During the six months ended August 31, 1995, the Company
recognized a net gain of $135.1 million from its Servicing Hedge. The net gain
included unrealized gains of $92.5 million and net realized gains of $42.6
million from the amortization and sale of various financial instruments that
comprise the Servicing Hedge.
The Company recorded amortization and net recovery of its Servicing
Assets in the six months ended August 31, 1996 totaling $13.7 million
(consisting of normal amortization amounting to $103.8 million and net recovery
of $117.5 million), compared to $199.4 million of amortization and impairment
(consisting of normal amortization amounting to $70.3 million and impairment of
$129.1 million) in the six months ended August 31, 1995.
During the six months ended August 31, 1996, the Company acquired bulk
servicing rights for loans with principal balances aggregating $1.1 billion at a
price of approximately 1.76% of the aggregate outstanding principal balance of
the servicing portfolios acquired. During the six months ended August 31, 1995,
the Company acquired bulk servicing rights for loans with principal balances
aggregating $3.5 billion at a price of approximately $44.3 million or 1.28% of
the aggregate outstanding principal balance of the servicing portfolios
acquired.
<TABLE>
<CAPTION>
Salaries and related expenses are summarized below for the six months ended
August 31, 1996 and 1995.
-- --------------------------- -- -- --------- ------------------------------------------------- -- --- --- -----
(Dollar amounts in Six Months Ended August 31, 1996
thousands)
-- --------------------------- -- -- --------- ------------------------------------------------- -- --- --- -----
Production Loan Corporate Other
Activities Administration Administration Activities Total
-- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- -------------
<S> <C> <C> <C> <C> <C>
Base Salaries $43,151 $19,902 $25,442 $6,156 $ 94,651
Incentive Bonus 17,015 343 7,260 2,788 27,406
Payroll Taxes and Benefits 7,216 3,621 3,300 795 14,932
------------ ------------- ------------- ------------- -------------
Total Salaries and Related
Expenses $67,382 $23,866 $36,002 $9,739 $136,989
============ ============= ============= ============= -------------
Average Number of 2,175 1,490 1,047 246 4,958
Employees
-- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- -------------
</TABLE>
<TABLE>
<CAPTION>
-- --------------------------- -- --- -------- ------------------------------------------------- ---- --- -- ----
(Dollar amounts in Six Months Ended August 31, 1995
thousands)
-- --------------------------- -- --- -------- ------------------------------------------------- ---- --- -- ----
Production Loan Corporate Other
Activities Administration Administration Activities Total
-- --------------------------- -- ------------ - -------------- - ------------- -- ------------- -- -------------
<S> <C> <C> <C> <C> <C>
Base Salaries $31,815 $13,990 $21,613 $4,453 $ 71,871
Incentive Bonus 14,925 249 4,786 2,567 22,527
Payroll Taxes and Benefits 5,247 2,373 4,017 573 12,210
------------ -------------- ------------- ------------- -------------
Total Salaries and Related
Expenses $51,987 $16,612 $30,416 $7,593 $106,608
============ ============== ============= ============= -------------
Average Number of 1,603 998 835 167 3,603
Employees
-- --------------------------- -- ------------ - -------------- - ------------- -- ------------- -- -------------
</TABLE>
The amount of salaries increased during the six months ended August 31,
1996 from the six months ended August 31, 1995 primarily due to an increased
number of employees resulting from higher loan production, a larger servicing
portfolio and growth in the Company's non-mortgage banking activities.
Occupancy and other office expenses for the six months ended August 31,
1996 increased to $61.3 million from $51.1 million for the six months ended
August 31, 1995, reflecting the Company's goal of expanding its retail branch
network. In addition, higher loan production, a larger servicing portfolio and
growth in the Company's non-mortgage banking activities also contributed to the
increase.
Guarantee fees for the six months ended August 31, 1996 increased 42%
to $76.9 million from $54.3 million for the six months ended August 31, 1995.
This increase resulted from an increase in the servicing portfolio, changes in
the mix of permanent investors and terms negotiated at the time of loan sales.
Marketing expenses for the six months ended August 31, 1996 increased
43% to $17.9 million from $12.5 million for the six months ended August 31,
1995, reflecting the Company's continued implementation of a marketing plan to
increase brand awareness of the Company in the residential mortgage market.
Other operating expenses for the six months ended August 31, 1996
increased from the six months ended August 31, 1995 by $17.3 million, or 79%.
This increase was due primarily to higher loan production, a larger servicing
portfolio, increased reserves for bad debts and increased systems development
and operation costs in the six months ended August 31, 1996 than in the six
months ended August 31, 1995.
Profitability of Loan Production and Servicing Activities
In the six months ended August 31, 1996, the Company's pre-tax income
from its loan production activities (which include loan origination and
purchases, warehousing and sales) was $64.7 million. In the six months ended
August 31, 1995, the Company's comparable pre-tax earnings were $16.5 million.
The increase of $48.2 million was primarily attributable to a larger gain on
sale of loans resulting from the sale of higher margin B&C loans and improved
pricing margins on prime credit quality first mortgages. There were no B&C loan
sales in the six months ended August 31, 1995. These positive results were
partially offset by higher production costs and a change in the internal method
of allocating overhead between the Company's production and servicing
activities. In the six months ended August 31, 1996, the Company's pre-tax
income from its loan servicing activities (which include administering the loans
in the servicing portfolio, selling homeowners and other insurance, acting as
tax payment agent and marketing foreclosed properties) was $126.4 million as
compared to $120.9 million in the six months ended August 31, 1995. The increase
of $5.5 million was principally due to an increase in the size of the servicing
portfolio and in the rate of servicing and miscellaneous fees earned. This was
partially offset by the total of Servicing Hedge expense and amortization and
impairment of Servicing Assets in the six months ended August 31, 1996 exceeding
the comparable total expense for the six months ended August 31, 1995 by $40.1
million.
Profitability of Other Activities
Other ancillary products and services contributed $10.7 million to the
Company's pre-tax income in the six months ended August 31, 1996, compared to
$4.5 million during the six months ended August 31, 1995. This increase to
pre-tax income primarily results from improved performance of the title
insurance, escrow and REIT management services.
INFLATION
Inflation affects the Company in the areas of loan production and
servicing. Interest rates normally increase during periods of high inflation and
decrease during periods of low inflation. Historically, as interest rates
increase, loan production, particularly from loan refinancings, decreases,
although in an environment of gradual interest rate increases, purchase activity
may actually be stimulated by an improving economy or the anticipation of
increasing real estate values. In such periods of reduced loan production,
production margins may decline due to increased competition resulting from
overcapacity in the market. In a higher interest rate environment,
servicing-related earnings are enhanced because prepayment rates tend to slow
down thereby extending the average life of the Company's servicing portfolio and
reducing both amortization and impairment of the Servicing Assets and Interest
Costs Incurred on Payoffs, and because the rate of interest earned from the
custodial balances tends to increase. Conversely, as interest rates decline,
loan production, particularly from loan refinancings, increases. However, during
such periods, prepayment rates tend to accelerate (principally on the portion of
the portfolio having a note rate higher than the then-current interest rates),
thereby decreasing the average life of the Company's servicing portfolio and
adversely impacting its servicing-related earnings primarily due to increased
amortization and impairment of the Servicing Assets, a decreased rate of
interest earned from the custodial balances and increased Interest Costs
Incurred on Payoffs. The impacts of changing interest rates on servicing-related
earnings are reduced by performance of the Servicing Hedge, which is designed to
mitigate the impact on earnings of higher amortization and impairment that may
result from declining interest rates.
SEASONALITY
The mortgage banking industry is generally subject to seasonal trends.
These trends reflect the general national pattern of sales and resales of homes,
although refinancings tend to be less seasonal and more closely related to
changes in interest rates. Sales and resales of homes typically peak during the
spring and summer seasons and decline to lower levels from mid-November through
February. In addition, delinquency rates typically rise in the winter months,
which results in higher servicing costs. However, late charge income has
historically been sufficient to offset such incremental expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal financing needs are the financing of loan
funding activities and the investment in servicing rights. To meet these needs,
the Company currently utilizes commercial paper supported by CHL's revolving
credit facility, medium-term notes, MBS repurchase agreements, subordinated
notes, and cash flow from operations. In addition, in the past the Company has
utilized whole loan repurchase agreements, servicing-secured bank facilities,
direct borrowings from CHL's revolving credit facility, privately-placed
financings, unsecured notes, pre-sale funding facilities and public offerings of
preferred stock.
Certain of the debt obligations of the Company and CHL contain various
provisions that may affect the ability of the Company and CHL to pay dividends
and remain in compliance with such obligations. These provisions include
requirements concerning net worth, current ratio and other financial covenants.
These provisions have not had, and are not expected to have, an adverse impact
on the ability of the Company and CHL to pay dividends.
The Company continues to investigate and pursue alternative and
supplementary methods to finance its growing operations through the public and
private capital markets. These may include such methods as mortgage loan sale
transactions designed to expand the Company's financial capacity and reduce its
cost of capital and the securitization of servicing income cash flows.
In connection with its derivative contracts, the Company may be
required to deposit cash or certain government securities or obtain letters of
credit to meet margin requirements. The Company considers such potential margin
requirements in its overall liquidity management.
In the course of the Company's mortgage banking operations, the Company
sells to investors the mortgage loans it originates and purchases but generally
retains the right to service the loans, thereby increasing the Company's
investment in loan servicing rights. The Company views the sale of loans on a
servicing-retained basis in part as an investment vehicle. Significant
unanticipated prepayments in the Company's servicing portfolio could have a
material adverse effect on the Company's future operating results and liquidity.
Cash Flows
Operating Activities In the six months ended August 31, 1996, the
Company's operating activities provided cash of approximately $1.1 billion on a
short-term basis primarily from the decrease in its warehouse of mortgage loans.
Mortgage loans shipped and held for sale are generally financed with short-term
borrowings; therefore, the operating cash so provided was used to repay
short-term debt as discussed under "Financing Activities."
Investing Activities The primary investing activity for which cash was
used during the six months ended August 31, 1996 was the investment in
servicing. Net cash used by investing activities increased to $0.5 billion for
the six months ended August 31, 1996 from $0.4 billion for the six months ended
August 31, 1995.
Financing Activities Net cash used by financing activities amounted to
$0.6 billion for the six months ended August 31, 1996. Net cash provided by
financing activities amounted to $1.6 billion for the six months ended August
31, 1995. The decrease in cash provided by financing activities was primarily
the result of net short-term debt repayments by the Company in the six months
ended August 31, 1996 and net short-term borrowings during the six months ended
August 31, 1995.
PROSPECTIVE TRENDS
Applications and Pipeline of Loans in Process
During the six months ended August 31, 1996, the Company received new
loan applications at an average daily rate of $208 million and at August 31,
1996, the Company's pipeline of loans in process was $4.3 billion. This compares
to a daily application rate during the six months ended August 31, 1995 of $178
million and a pipeline of loans in process at August 31, 1995 of $5.2 billion.
The size of the pipeline is generally an indication of the level of future
fundings, as historically 43% to 77% of the pipeline of loans in process has
funded. In addition, the Company's LOCK 'N SHOP (R) Pipeline at August 31, 1996
was $1.7 billion and at August 31, 1995 was $1.2 billion. For the month ended
September 30, 1996, the average daily amount of applications received was $195
million, and at September 30, 1996, the pipeline of loans in process was $4.2
billion and the LOCK 'N SHOP (R) pipeline was $1.8 billion. Interest rates
declined slightly during September 1996. Future application levels and loan
fundings are dependent on numerous factors, including the level of demand for
mortgage credit, the extent of price competition in the market, the direction of
interest rates, seasonal factors and general economic conditions.
Market Factors
During the quarter ended August 31, 1996, interest rates moved upward
slightly. Loan production declined from the quarter ended May 31, 1996 to the
quarter ended August 31, 1996. However, strong home purchase market activity
during the quarter ended August 31, 1996, as evidenced by a steady real estate
market and the seasonal nature of household relocations benefited the Company.
The Company's purchase loan production comprised 78 percent of total fundings
for the quarter ended August 31, 1996 compared to 58 percent of total fundings
in the quarter ended May 31, 1996. In addition, B&C and home-equity loan
fundings, which are generally less sensitive to interest rate fluctuations than
prime credit quality first mortgages, increased during the quarter ended August
31, 1996 versus the quarter ended May 31, 1996. As discussed in "Seasonality,"
sales and resale of homes typically peak in the spring and summer months, which
correspond to the Company's first and second quarters.
Interest rates were slightly higher at the end of the quarter ended
August 31, 1996 than at the beginning of that fiscal quarter. The prepayment
rate in the servicing portfolio declined during the quarter; previously recorded
impairment of the Servicing Assets was recovered and the Servicing Hedge
resulted in an expense.
The Company's primary competitors are commercial banks, savings and
loans and mortgage banking subsidiaries of diversified companies, as well as
other mortgage bankers. Certain commercial banks have expanded their mortgage
banking operations through acquisition of formerly independent mortgage banking
companies, the integration of which has not been completed, or through internal
growth. The Company believes that these transactions and activities have not had
a material impact on the Company or on the degree of competitive pricing in the
market.
Some regions in which the Company operates, particularly some regions
of California, have been experiencing slower economic growth, and real estate
financing activity in these regions has been negatively impacted. As a result,
home lending activity for single- (one-to-four) family residences in these
regions may also have experienced slower growth. The Company's California
mortgage loan production (measured by principal balance) constituted 25% of its
total production during the six months ended August 31, 1996, down from 30% for
the six months ended August 31, 1995. The Company is continuing its efforts to
expand its production capacity outside of California. To the extent that
California's mortgage loan production constitutes a significant portion of the
Company's production, there can be no assurance that the Company's operations
will not continue to be adversely affected to the extent California continues to
experience slow or negative economic growth resulting in decreased residential
real estate lending activity or market factors further impact the Company's
competitive position in the state.
The delinquency rate in the Company-owned servicing portfolio increased
to 3.10% at August 31, 1996 from 2.75% at August 31, 1995. The Company believes
that this increase was primarily the result of portfolio mix changes and aging.
The proportion of government and high loan-to-value conventional loans, which
tend to experience higher delinquency rates than low loan-to-value conventional
loans, has increased from 43% of the portfolio at August 31, 1995 to 47% at
August 31, 1996. In addition, the weighted average age of the portfolio was 27
months at August 31, 1996, up from 23 months at August 31, 1995. Delinquency
rates tend to increase as loans age, reaching a peak at three to five years of
age. However, because the loans in the portfolio are generally serviced on a
non-recourse basis, the Company's exposure to credit loss resulting from
increased delinquency rates is substantially limited. Further, related late
charge income has historically been sufficient to offset incremental servicing
expenses resulting from an increased delinquency rate.
The percentage of loans in the Company's owned servicing portfolio that
are in foreclosure increased to 0.53% at August 31, 1996 from 0.29% at August
31, 1995. Because the Company services substantially all conventional loans on a
non-recourse basis, foreclosure losses are generally the responsibility of the
investor or insurer and not the Company. Accordingly, any increase in
foreclosure activity should not result in significant foreclosure losses to the
Company. However, the Company's expenses may be increased somewhat as a result
of the additional staff efforts required to foreclose on a loan. Similarly,
government loans serviced by the Company (27% of the Company's servicing
portfolio at August 31, 1996) are insured or partially guaranteed against loss
by the Federal Housing Administration or the Veterans Administration. In the
Company's view, the limited unreimbursed costs that may be incurred by the
Company on government foreclosed loans are not material to the Company's
consolidated financial statements.
Servicing Hedge
As previously discussed, the Company's Servicing Hedge is designed to
protect the value of its investment in servicing rights from the effects of
increased prepayment activity that generally results from declining interest
rates. In periods of increasing interest rates, the value of the Servicing Hedge
generally declines and the value of the servicing rights generally increases.
There can be no assurance that, in periods of increasing interest rates, the
increase in value of the Servicing Assets will offset the amount of Servicing
Hedge expense; or in periods of declining interest rates, that the Company's
Servicing Hedge will generate gains or if gains are generated, that they will
fully offset impairment of the Servicing Assets.
Implementation of New Accounting Standards
In June 1996, the Financial Accounting Standard Board issued Statement
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities ("SFAS No. 125"). Among other provisions, this
Statement uses a "financial components" approach that focuses on control to
determine the proper accounting for financial asset transfers, addresses the
accounting for servicing rights on financial assets in addition to mortgage
loans and extends the disaggregated lower of cost or market approach for
measuring servicing rights (including excess servicing) on all financial assets.
The financial asset transfers provisions of SFAS No. 125 are not expected to
have a material impact on the Company's financial position or results of
operations. The impact of the new Statement's servicing rights provisions will
not be known until the implementation date because such impact is dependent on
the fair value of the Company's capitalized servicing fees receivable (excess
servicing) on December 31, 1996.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
COUNTRYWIDE CREDIT INDUSTRIES, INC.
(Registrant)
DATE: October 14, 1996 /s/ Stanford L. Kurland
-------------------------------------
Senior Managing Director and
Chief Operating Officer
DATE: October 14, 1996 /s/ Carlos M. Garcia
-------------------------------------
Managing Director; Chief Financial
Officer and Chief Accounting Officer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
<TABLE>
<CAPTION>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Stockholders was held July 10, 1996.
(b) At the Annual Meeting, the stockholders voted on the following matters:
(1) Election of Directors
Voted For Votes Withheld
<S> <C> <C>
David S. Loeb 86,723,810 810,615
Angelo R. Mozilo 86,758,512 775,913
(2) Approval of annual cash bonus provision of the employment agreements of David S. Loeb and Angelo R. Mozilo
Votes For: 77,774,350
Votes Against: 8,961,730
Votes Abstain: 798,344
(3) Approval of the Countrywide Credit Industries, Inc. Annual Incentive Plan
Votes For: 82,334,535
Votes Against: 4,456,270
Votes Abstain: 743,620
(4) Approval of the Countrywide Credit Industries, Inc. Amended and Restated 1993 Stock Option Plan
Votes For: 53,343,925
Votes Against: 15,927,121
Votes Abstain: 917,635
Broker Non-vote 17,345,744
(5) Approval of selection of Grant Thornton LLP as the independent accountants for the fiscal year ending February 28,
1997
Votes For: 86,916,521
Votes Against: 145,340
Votes Abstain: 472,564
</TABLE>
<PAGE>
PART II. OTHER INFORMATION (Continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
\pnf4
10.1 Restated Employment Agreement for David S. Loeb dated March 26, 1996.
10.2 Restated Employment Agreement for Angelo R. Mozilo dated March 26,
1996.
10.3 Employment Agreement for Stanford L. Kurland dated May 7, 1996.
10.4 Countrywide Credit Industries, Inc. Annual Incentive Plan.
10.5 Countrywide Credit Industries, Inc. Amended and Restated 1993 Stock
Option Plan.
10.5.1 Amendment No. 1 to the Amended and Restated 1993 Stock Option Plan.
11.1 Statement Regarding Computation of Per Share Earnings.
12.1 Computation of the Ratio of Earnings to Fixed Charges.
27 Financial Data Schedules (included only with the electronic filing with
the SEC).
(b) Reports on Form 8-K. None
<PAGE>
Exhibit 10.1
SECOND RESTATED EMPLOYMENT AGREEMENT
THIS RESTATED EMPLOYMENT AGREEMENT (the "Agreement") has been executed
as of March 26, 1996 by and between Countrywide Credit Industries, Inc., a
Delaware corporation ("Employer"), and David S. Loeb ("Officer").
W I T N E S S E T H:
WHEREAS, Officer currently holds the offices of Chairman of the Board
of Directors of Employer (the "Board") and President of Employer; and
WHEREAS, Employer desires to obtain the benefit of continued services
of Officer and Officer desires to continue to render services to Employer; and
WHEREAS, the Board has determined that it is in Employer's best
interest and that of its stockholders to recognize the substantial contribution
that Officer has made and is expected to continue to make to the Company's
business and to retain his services in the future; and
WHEREAS, Employer and Officer set forth the terms and conditions of
Officer's employment with Employer under an employment agreement entered into as
of March 1, 1991 (the "Original Agreement"); and
WHEREAS, Employer and Officer entered into Amendment No. 1 to Employment
Agreement as of November 5, 1992 ("Amendment No. 1"), entered into Amendment No.
2 to Employment Agreement as of November 10, 1992 ("Amendment No. 2") and
entered into a Restated Employment Agreement as of February 2, 1993 (the "First
Restated Agreement"); and
WHEREAS, Employer and Officer desire to set forth the continued terms
and conditions of Officer's employment with Employer under this Agreement;
WHEREAS, the effectiveness of this Agreement is subject to the approval
of Employer's stockholders of the provisions of Section 4(b) hereof and the
amendments to the 1993 Plan (as defined herein) as submitted to stockholders for
approval.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto agree as follows:
1. Term. Employer agrees to employ Officer and Officer agrees to serve
Employer, in accordance with the terms hereof, for a term beginning on the
Effective Date (as defined in Section 8(c) hereof) and ending on February 28,
2001, unless earlier terminated in accordance with the provisions hereof.
2. Specific Position; Duties and Responsibilities. Employer and Officer
hereby agree that, subject to the provisions of this Agreement, Employer will
employ Officer and Officer will serve Employer and its subsidiaries as Chairman
of the Board and President of Employer. Employer agrees that Officer's duties
hereunder shall be the usual and customary duties of the offices of Chairman of
the Board and President and such further duties consistent therewith as may be
designated from time to time by the Board, and shall not be inconsistent with
the provisions of the charter documents of Employer or applicable law. Officer
shall have such executive power and authority as shall reasonably be required to
enable him to discharge his duties in the offices which he may hold. All
compensation paid to Officer by Employer or any of its subsidiaries shall be
aggregated in determining whether Officer has received the benefits provided for
herein.
3. Scope of this Agreement and Outside Affiliations. During the term of
this Agreement, Officer shall devote his full business time and energy, except
as expressly provided below, to the business, affairs and interests of Employer
and its subsidiaries, and matters related thereto, and shall use his best
efforts and abilities to promote its interests. Officer agrees that he will
diligently endeavor to promote the business, affairs and interests of Employer
and its subsidiaries and perform services contemplated hereby, in accordance
with the policies established by the Board, which policies shall be consistent
with this Agreement. Officer agrees to serve without additional remuneration in
such senior executive capacity not below the rank of President for one or more
(direct or indirect) subsidiaries of Employer as the Board may from time to time
request, subject to appropriate authorization by the subsidiary or subsidiaries
involved and any limitation under applicable law. Officer's failure to discharge
an order or perform a function because Officer reasonably and in good faith
believes such would violate a law or regulation or be dishonest shall not be
deemed a breach by him of his obligations or duties pursuant to any of the
provisions of this Agreement, including without limitation pursuant to Section
5(c) hereof.
During the course of Officer's employment as a full-time officer
hereunder, Officer shall not, without the consent of the Board, compete,
directly or indirectly, with Employer in the businesses then conducted by
Employer.
Officer may serve as a director or in any other capacity of any
business enterprise, including an enterprise whose activities may involve or
relate to the business of Employer, provided that such service is expressly
approved by the Board. Officer may make and manage personal business investments
of his choice and serve in any capacity with any civic, educational or
charitable organization, or any governmental entity or trade association,
without seeking or obtaining approval by the Board, provided such activities and
services do not materially interfere or conflict with the performance of his
duties hereunder.
4. Compensation and Benefits.
(a) Base Salary. Employer shall pay to Officer a base salary in each fiscal
year of Employer (a "Fiscal Year") or portion thereof covered by this Agreement
at the annual rate of $1,300,000:
(b) Incentive Compensation. Employer shall pay to Officer for
each of the Fiscal Years ending in 1997 through 2001 an incentive compensation
award in the amount of the incentive compensation award paid to Officer in the
previous Fiscal Year, multiplied by a fraction (the "Performance Ratio") the
numerator of which is the earnings per share on a fully diluted basis of
Employer during such current Fiscal Year as reported in the audited Financial
Statements included in Employer's Annual Report on Form 10-K filed with the
Securities and Exchange Commission (the "EPS") and the denominator of which is
the EPS for the previous Fiscal Year (adjusted proportionately in the event
Employer (A) declares a stock dividend on its common stock, (B) subdivides its
outstanding common stock, (C) combines the outstanding shares of its capital
stock into a smaller number of common stocks or (D) issues any shares of its
capital stock in a reclassification of the common stock (including any such
reclassification in connection with a consolidation or merger in which Employer
is the continuing or surviving corporation)); provided, however, that the
Compensation Committee of the Board (the "Compensation Committee") may reduce
the amount of any incentive compensation award in the event there is a
substantial distortion in EPS for the Fiscal Year in respect of which the award
is being paid resulting from an acquisition, a divestiture, or a change in
accounting standards.
(c) Stock Options. Employer shall grant to Officer a stock
option in respect of 1,000,000 shares of the Employer's common stock on the
first business day following the Effective Date, such option to become
exercisable as to 333,333, 333,333 and 333,334 shares on each of the first three
(3) anniversaries of the date of grant. Employer may also grant to Officer stock
options in respect of each of the Fiscal Years ending in 2000 and 2001 for such
number of shares of Employer's common stock as the Compensation Committee in its
sole discretion determines, taking into account Officer's and Employer's
performance in each of such Fiscal Years and the competitive practices then
prevailing regarding the granting of stock options. All stock options granted in
accordance with this Section 4(c) shall be granted pursuant to the Countrywide
Credit Industries, Inc. 1993 Stock Option Plan, as amended (the "1993 Plan"), or
such other stock option plan or plans as may be or come into effect during the
term of this Agreement and shall have a per share exercise price equal to the
fair market value (as defined in the 1993 Plan or such other plan or plans) of
the common stock at the time of grant. The stock options granted pursuant to
this Section shall consist of incentive stock options to the extent permitted by
law or regulation.
(d) Additional Benefits. Officer shall also be entitled to all
rights and benefits for which he is otherwise eligible under any bonus plan,
stock purchase plan, participation or extra compensation plan, executive
compensation plan, pension plan, profit-sharing plan, life and medical insurance
policy, or other plans or benefits, which Employer or its subsidiaries may
provide for him, or provided he is eligible to participate therein, for senior
officers generally or for employees generally, during the term of this Agreement
(collectively, "Additional Benefits"). This Agreement shall not affect the
provision of any other compensation, retirement or other benefit program or plan
of Employer.
(e) Continuation of Benefits. If Officer's employment is
terminated hereunder, pursuant to Section 5(a), 5(b) or 5(d) hereof, Employer
shall continue for the period specified in Section 5(a) or 5(b) hereof or three
years in the case of a termination pursuant to Section 5(d) hereof, as the case
may be, to provide benefits substantially equivalent to Additional Benefits
(other than qualified pension or profit sharing plan benefits and option, equity
or stock appreciation or other incentive plan benefits as distinguished from
health, disability and welfare type benefits) on behalf of Officer and his
dependents and beneficiaries which were being provided to them immediately prior
to Officer's Termination Date, but only to the extent that Officer is not
entitled to comparable benefits from other employment.
(f) Deferral of Amounts Payable Hereunder. In the event
Officer should desire to defer receipt of any cash payments to which he would
otherwise be entitled hereunder, he may present such a written request to the
Compensation Committee which, in its sole discretion, may enter into a separate
deferred compensation agreement with Officer.
(g) Notwithstanding anything to the contrary contained in this
Agreement, in no event shall the Performance Ratio be less than zero. Employer
shall pay the incentive compensation award described in Section 4(b) hereof for
each Fiscal Year as early after the end of such Fiscal Year as practicable but
in no event more than 90 days after the end of such Fiscal Year; provided,
however, that the incentive compensation award described in Section 4(b) hereof
may be paid, in whole or in part, prior to the end of the Fiscal Year to which
such incentive compensation award relates, on such terms and conditions and at
such times as may otherwise be mutually agreed upon by Employer and Officer. If
the Compensation Committee shall determine to grant to Officer the stock options
described in Section 4(c) hereof in respect of either of the Fiscal Years ending
in 2000 or 2001, such options shall be granted at the same time as Employer
grants stock options to its other senior executives in respect of such Fiscal
Year (but in no event later than June 30 following the end of such Fiscal Year).
5. Termination. The compensation and benefits provided for herein and the
employment of Officer by Employer shall be terminated only as provided for below
in this Section 5:
(a) Disability. In the event that Officer shall fail, because
of illness, injury or similar incapacity ("Disability"), to render for four (4)
consecutive calendar months, or for shorter periods aggregating eighty (80) or
more business days in any twelve (12) month period, services contemplated by
this Agreement, Officer's full-time employment hereunder may be terminated, by
written Notice of Termination from Employer to Officer; and thereafter, Employer
shall continue, from the Termination Date until Officer's death or the fifth
anniversary of such notice, whichever first occurs (the "Disability Payment
Period"), (i) to pay compensation to Officer, in the same manner as in effect
immediately prior to the Termination Date, in an amount equal to (1) fifty
percent (50%) of the then existing base salary payable immediately prior to the
termination, minus (2) the amount of any cash payments to him under the terms of
Employer's disability insurance or other disability benefit plans or Employer's
tax-qualified Defined Benefit Pension Plan, and any compensation he may receive
pursuant to any other employment, and (ii) to provide during the Disability
Payment Period the benefits specified in Section 4(e) hereof.
The determination of Disability shall be made only after 30
days notice to Officer and only if Officer has not returned to performance of
his duties during such 30-day period. In order to determine Disability, both
Employer and Officer shall have the right to provide medical evidence to support
their respective positions, with the ultimate decision regarding Disability to
be made by a majority of Employer's disinterested directors.
(b) Death. In the event that Officer shall die during the term
of this Agreement, Employer shall pay Officer's base salary for a period of
twelve (12) months following the date of Officer's death and in the manner
otherwise payable hereunder, to such person or persons as Officer shall have
directed in writing or, in the absence of a designation, to his estate (the
"Beneficiary"). Employer shall also provide during the twelve-month period
following the date of the Officer's death the benefits specified in Section 4(e)
hereof. If Officer's death occurs while he is receiving payments for Disability
under Section 5(a)(i) above, such payments shall cease and the Beneficiary shall
be entitled to the payments and benefits under this Subsection (b), which shall
continue for a period of twelve months thereafter at the full rate of
compensation in effect immediately prior to the Disability. This Agreement in
all other respects will terminate upon the death of Officer; provided, however,
that the termination of the Agreement shall not affect Officer's entitlement to
all other benefits in which he has become vested or which are otherwise payable
in respect of periods ending prior to its termination.
(c) Cause. Employer may terminate Officer's employment under
this Agreement for "Cause." A termination for Cause is a termination by reason
of (i) a material breach of this Agreement by Officer (other than as a result of
incapacity due to physical or mental illness) which is committed in bad faith or
without reasonable belief that such breach is in the best interests of Employer
and which is not remedied within a reasonable period of time after receipt of
written notice from Employer specifying such breach, or (ii) Officer's
conviction by a court of competent jurisdiction of a felony, or (iii) entry of
an order duly issued by any federal or state regulatory agency having
jurisdiction in the matter removing Officer from office of Employer or its
subsidiaries or permanently prohibiting him from participating in the conduct of
the affairs of Employer or any of its subsidiaries. If Officer shall be
convicted of a felony or shall be removed from office and/or temporarily
prohibited from participating in the conduct of Employer's or any of its
subsidiaries' affairs by any federal or state regulatory authority having
jurisdiction in the matter, Employer's obligations under Sections 4(a), 4(b) and
4(c) hereof shall be automatically suspended; provided, however, that if the
charges resulting in such removal or prohibition are finally dismissed or if a
final judgment on the merits of such charges is issued in favor of Officer, or
if the conviction is overturned on appeal, then Officer shall be reinstated in
full with back pay for the removal period plus accrued interest at the rate then
payable on judgments. During the period that Employer's obligations under
Sections 4(a), 4(b) and 4(c) hereof are suspended, Officer shall continue to be
entitled to receive Additional Benefits under Section 4(d) until the conviction
of the felony or removal from office has become final and non-appealable. When
the conviction of the felony or removal from office has become final and
non-appealable, all of Employer's obligations hereunder shall terminate;
provided, however, that the termination of Officer's employment pursuant to this
Section 5(c) shall not affect Officer's entitlement to all benefits in which he
has become vested or which are otherwise payable in respect of periods ending
prior to his termination of employment.
(d) Good Reason. Officer may terminate his employment for Good
Reason. For purposes of this Agreement, "Good Reason" shall be deemed to occur
if Employer notifies Officer of a termination of his employment other than for
Cause or if Employer breaches this Agreement in any material respect or if the
Board (i) elects a person other than Officer as Employer's President or Chairman
of the Board without Officer's consent, (ii) reorganizes management so as to
require him to report to a person or persons other than the Board, or (iii)
takes any other action which, in Officer's sole judgment, results in the
diminution in Officer's status, title, position and responsibilities other than
an insubstantial action not taken in bad faith and which is remedied by Employer
promptly after receipt of notice by Officer. Notwithstanding the foregoing,
Officer may terminate his employment for any or no reason within one year
following a "Change in Control" (as defined in Appendix A to this Agreement) and
such termination shall be considered a termination for Good Reason hereunder. If
Officer's employment shall be terminated by Employer other than for Cause or by
Officer for Good Reason, then Employer shall pay Officer in a single payment, as
severance pay and in lieu of any further salary and incentive compensation for
periods subsequent to the Termination Date, an amount in cash equal to three
times the sum of (A) Officer's annual base salary at the Termination Date and
(B) the aggregate bonus and/or incentive compensation paid or payable to Officer
in respect of the Fiscal Year preceding the fiscal year in which Officer's
Termination Date occurs.
Notwithstanding anything in this Agreement to the contrary, in
the event it shall be determined that any payment or distribution by Employer or
any other person or entity to or for the benefit of Officer (within the meaning
of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code")), whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise in connection with, or arising out of,
his employment with Employer or a change in ownership or effective control of
Employer or a substantial portion of its assets (a "Payment"), would be subject
to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), the
Payments shall be reduced (but not below zero) if and to the extent that such
reduction would result in Officer retaining a larger amount, on an after-tax
basis (taking into account federal, state and local income taxes and the
imposition of the Excise Tax), than if Officer received all of the Payments. If
the application of the preceding sentence should require a reduction in Payments
or other "parachute payments" (within the meaning of Section 280G of the Code),
unless Officer shall have designated otherwise, such reduction shall be
implemented, first, by reducing any non-cash benefits to the extent necessary
and, second, by reducing any cash benefits to the extent necessary. In each
case, the reductions shall be made starting with the payment or benefit to be
made on the latest date following the Termination Date and reducing payments or
benefits in reverse chronological order therefrom. All determinations concerning
the application of this paragraph shall be made by a nationally recognized firm
of independent accountants, selected by Officer and satisfactory to Employer,
whose determination shall be conclusive and binding on all parties. The fees and
expenses of such accountants shall be borne by Employer.
(e) Resignation. Except as provided in Section 5(d) hereof, if
during the term of this Agreement, Officer shall resign voluntarily, all of his
rights to payment or benefits hereunder shall immediately terminate; provided,
however, that the termination of Officer's employment pursuant to this Section
5(e) shall not affect Officer's entitlement to all benefits in which he has
become vested or which are otherwise payable in respect of periods ending prior
to his termination of employment.
(f) Notice of Termination. Any purported termination by
Employer or by Officer shall be communicated by a written Notice of Termination
to the other party hereto which indicates the specific termination provision in
this Agreement, if any, relied upon and which sets forth in reasonable detail
the facts and circumstances, if any, claimed to provide a basis for termination
of Officer's employment under the provision so indicated. For purposes of this
Agreement, no such purported termination shall be effective without such Notice
of Termination. The "Termination Date" shall mean the date specified in the
Notice of Termination, which shall be no less than 30 or more than 60 days from
the date of the Notice of Termination. Notwithstanding any other provision of
this Agreement, in the event of any termination of Officer's employment
hereunder for any reason, Employer shall pay Officer his full base salary
through the Termination Date, plus any Additional Benefits which have been
earned or become payable, but which have not yet been paid as of such
Termination Date plus (unless Officer has resigned voluntarily pursuant to
Section 5(e) or been terminated for Cause in accordance with Section 5(c)
hereof) the Pro Rata Bonus (as defined below). The "Pro Rata Bonus" shall mean
the amount equal to the product of (x) the bonus or incentive award referred to
in Section 4(b) hereof paid or payable to Officer for the last full Fiscal Year
of Employer prior to Officer's Termination Date and (y) the fraction obtained by
dividing (A) the number of days elapsed since the end of such Fiscal Year
through the Termination Date and (B) 365.
(g) Payments. All payments required under this Agreement
(other than the Additional Benefits payable pursuant to Section 4(e) hereof) as
a result of the termination of Officer's employment hereunder shall be made
within 15 days of the Termination Date or, if any portion is not then reasonably
determinable, within five (5) days after such portion is so determinable. In the
event of a dispute concerning the validity of a purported termination which is
maintained in good faith, the Termination Date shall mean the date the dispute
is finally resolved and Employer will continue to provide Officer with the
compensation and benefits provided for under this Agreement, until the dispute
is finally resolved without any obligation by Officer to repay any of such
amounts to Employer, notwithstanding the final outcome of the dispute. Payments
required to be made by this Section 5(g) are in addition to all other amounts
due under Section 5 of this Agreement and shall not be offset against or reduce
any other amounts due under Section 5 of this Agreement. Officer shall be
required to render services to Employer during the period following his
Termination Date but before the dispute concerning the termination is finally
determined unless Employer fails to provide Officer with a reasonable
opportunity to perform his duties under this Agreement during such period.
6. Reimbursement of Business Expenses. During the term of this
Agreement, Employer shall reimburse Officer promptly for all expenditures
(including travel, entertainment, parking, business meetings, and the monthly
costs (including dues) of maintaining memberships at appropriate clubs) to the
extent that such expenditures meet the requirements of the Code for
deductibility by Employer for federal income tax purposes or are otherwise in
compliance with the rules and policies of Employer and are substantiated by
Officer as required by the Internal Revenue Service and rules and policies of
Employer.
7. Indemnity. To the extent permitted by applicable law, the
Certificate of Incorporation and the By-Laws of Employer (as from time to time
in effect) and any indemnity agreements entered into from time to time between
Employer and Officer, Employer shall indemnify Officer and hold him harmless for
any acts or decisions made by him in good faith while performing services for
Employer, and shall use reasonable efforts to obtain coverage for him under
liability insurance policies now in force or hereafter obtained during the term
of this Agreement covering the other officers or directors of Employer.
8. Miscellaneous.
(a) Succession. This Agreement shall inure to the benefit of
and shall be binding upon Employer, its successors and assigns, but without the
prior written consent of Officer, this Agreement may not be assigned other than
in connection with a merger or sale of substantially all the assets of the
Employer or similar transaction. Employer shall not agree to any such
transaction unless the successor to or assignee of the Company's business and/or
assets in such transaction expressly assumes all obligations of the Employer
hereunder. The obligations and duties of Officer hereby shall be personal and
not assignable.
(b) Notices. Any notices provided for in this Agreement shall
be sent to Employer at 155 North Lake Avenue, Pasadena, California 91101,
Attention: Corporate Counsel/Secretary, with a copy to the Chairman of the
Compensation Committee at the same address, or to such other address as Employer
may from time to time in writing designate, and to Officer at such address as he
may from time to time in writing designate (or his business address of record in
the absence of such designation). All notices shall be deemed to have been given
two (2) business days after they have been deposited as certified mail, return
receipt requested, postage paid and properly addressed to the designated address
of the party to receive the notices.
(c) Effective Date. This Agreement shall become effective on
the date of the annual meeting of Employer's stockholders in 1996 (the
"Effective Date") provided Employer's stockholders vote to approve the
provisions of Section 4(b) hereof and the amendments to the 1993 Plan as
submitted to the stockholders for approval. If either of such matters is not
approved by Employer's stockholders, this Agreement shall be null and void and
the First Restated Agreement shall continue in full force and effect.
(d) Entire Agreement. This instrument contains the entire
agreement of the parties relating to the subject matter hereof, and it replaces
and supersedes any prior agreements between the parties relating to said subject
matter, including, but not limited to, the First Restated Agreement; provided,
however, that until this Agreement shall become effective, the First Restated
Agreement shall continue in full force and effect. No modifications or
amendments of this Agreement (including, but not limited to the provisions of
Section 4 hereof) shall be valid unless made in writing and signed by the
parties hereto.
(e) Waiver. The waiver of the breach of any term or of any
condition of this Agreement shall not be deemed to constitute the waiver of any
other breach of the same or any other term or condition.
(f) California Law. This Agreement shall be construed and interpreted in
accordance with the laws of California.
(g) Attorneys' Fees in Action on Contract. If any litigation
shall occur between the Officer and Employer, which litigation arises out of or
as a result of this Agreement or the acts of the parties hereto pursuant to this
Agreement, or which seeks an interpretation of this Agreement, the prevailing
party in such litigation, in addition to any other judgment or award, shall be
entitled to receive such sums as the court hearing the matter shall find to be
reasonable as and for the attorneys' fees of the prevailing party.
(h) Confidentiality. Officer agrees that he will not divulge
or otherwise disclose, directly or indirectly, any trade secret or other
confidential information concerning the business or policies of Employer or any
of its subsidiaries which he may have learned as a result of his employment
during the term of this Agreement or prior thereto as an employee, officer or
director of or consultant to Employer or any of its subsidiaries, except to the
extent such use or disclosure is (i) necessary or appropriate to the performance
of this Agreement and in furtherance of Employer's best interests, (ii) required
by applicable law, (iii) lawfully obtainable from other sources, or (iv)
authorized by Employer. The provisions of this subsection shall survive the
expiration, suspension or termination, for any reason, of this Agreement.
(i) Remedies of Employer. Officer acknowledges that the
services he is obligated to render under the provisions of this Agreement are of
a special, unique, unusual, extraordinary and intellectual character, which
gives this Agreement peculiar value to Employer. The loss of these services
cannot be reasonably or adequately compensated in damages in an action at law
and it would be difficult (if not impossible) to replace these services. By
reason thereof, Officer agrees and consents that if he violates any of the
material provisions of this Agreement, Employer, in addition to any other rights
and remedies available under this Agreement or under applicable law, shall be
entitled during the remainder of the term to seek injunctive relief, from a
tribunal of competent jurisdiction, restraining Officer from committing or
continuing any violation of this Agreement, or from the performance of services
to any other business entity, or both.
(j) Severability. If any provision of this Agreement is held
invalid or unenforceable, the remainder of this Agreement shall nevertheless
remain in full force and effect, and if any provision is held invalid or
unenforceable with respect to particular circumstances, it shall nevertheless
remain in full force and effect in all other circumstances.
(k) No Obligation to Mitigate. Officer shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking
<PAGE>
other employment or otherwise and, except as provided in
Section 5(a)(i)(2) hereof, no payment hereunder shall be offset or reduced by
the amount of any compensation or benefits provided to Officer in any subsequent
employment.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
COUNTRYWIDE CREDIT INDUSTRIES, INC.
ATTEST:
By:
Secretary Title:
OFFICER:
David S. Loeb, in his
individual capacity
116685.07
<PAGE>
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15
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APPENDIX A
To David Loeb Employment Agreement
A "Change in Control" shall mean the occurrence during the term of the
Agreement, of any one of the following events:
(a) An acquisition (other than directly from Employer) of any common stock
or other "Voting Securities" (as hereinafter defined) of Employer by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
immediately after which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty five percent
(25%) or more of the then outstanding shares of Employer's common stock or the
combined voting power of Employer's then outstanding Voting Securities;
provided, however, in determining whether a Change in Control has occurred,
Voting Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an acquisition which would cause a
Change in Control. For purposes of this Agreement, (1) "Voting Securities" shall
mean Employer's outstanding voting securities entitled to vote generally in the
election of directors and (2) a "Non-Control Acquisition" shall mean an
acquisition by (i) an employee benefit plan (or a trust forming a part thereof)
maintained by (A) Employer or (B) any corporation or other Person of which a
majority of its voting power or its voting equity securities or equity interest
is owned, directly or indirectly, by Employer (for purposes of this definition,
a "Subsidiary"), (ii) Employer or any of its Subsidiaries, or (iii) any Person
in connection with a "Non-Control Transaction" (as hereinafter defined);
(b) The individuals who, as of the date of the Agreement are members of the
Board (the "Incumbent Board"), cease for any reason to constitute at least
two-thirds of the members of the Board; provided, however,
-------- -------
that if the election, or nomination for election by Employer's common
stockholders, of any new director was approved by a vote of at least two-thirds
of the Incumbent Board, such new director shall, for purposes of this Agreement,
be considered as a member of the Incumbent Board; provided further, however,
-------- ------- -------
that no individual shall be considered a member of the Incumbent Board if
such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a "Proxy Contest") including
by reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(c) The consummation of:
(i) A merger, consolidation or reorganization involving Employer, unless
such merger, consolidation or reorganization is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a merger, consolidation or reorganization
of Employer where:
(A) the stockholders of Employer, immediately before such merger,
consolidation or reorganization, own directly or indirectly immediately
following such merger, consolidation or reorganization, at least seventy percent
(70%) of the combined voting power of the outstanding Voting Securities of the
corporation resulting from such merger, consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation or
reorganization;
(B) the individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds of the members of the board of
directors of the Surviving Corporation, or in the event that, immediately
following the consummation of such transaction, a corporation beneficially owns,
directly or indirectly, a majority of the Voting Securities of the Surviving
Corporation, the board of directors of such corporation; and
(C) no Person other than (i) Employer, (ii) any Subsidiary, (iii) any
employee benefit plan (or any trust forming a part thereof) maintained by
Employer, the Surviving Corporation, or any Subsidiary, or (iv) any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of twenty five percent (25%) or more of the then outstanding Voting
Securities or common stock of Employer, has Beneficial Ownership of twenty five
percent (25%) or more of the combined voting power of the Surviving
Corporation's then outstanding Voting Securities or its common stock;
(ii) A complete liquidation or dissolution of Employer; or
(iii) The sale or other disposition of all or substantially all of the
assets of Employer to any Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then outstanding
common stock or Voting Securities as a result of the acquisition of common stock
or Voting Securities by Employer which, by reducing the number of shares of
common stock or Voting Securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Persons; provided, however,
that if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of common stock or Voting Securities by Employer,
and after such share acquisition by Employer, the Subject Person becomes the
Beneficial Owner of any additional common stock or Voting Securities which
increases the percentage of the then outstanding common stock or Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur.
<PAGE>
Exhibit 10.2
SECOND RESTATED EMPLOYMENT AGREEMENT
THIS RESTATED EMPLOYMENT AGREEMENT (the "Agreement") has been executed
as of March 26, 1996 by and between Countrywide Credit Industries, Inc., a
Delaware corporation ("Employer"), and Angelo R. Mozilo ("Officer").
W I T N E S S E T H:
WHEREAS, Officer currently holds the offices of Vice Chairman of the
Board of Directors of Employer (the "Board") and Executive Vice President of
Employer; and
WHEREAS, Employer desires to obtain the benefit of continued services
of Officer and Officer desires to continue to render services to Employer; and
WHEREAS, the Board has determined that it is in Employer's best
interest and that of its stockholders to recognize the substantial contribution
that Officer has made and is expected to continue to make to the Company's
business and to retain his services in the future; and
WHEREAS, Employer and Officer set forth the terms and conditions of
Officer's employment with Employer under an employment agreement entered into as
of March 1, 1991 (the "Original Agreement"); and
WHEREAS, Employer and Officer entered into Amendment No. 1 to Employment
Agreement as of November 5, 1992 ("Amendment No. 1"), entered into Amendment No.
2 to Employment Agreement as of November 10, 1992 ("Amendment No. 2") and
entered into a Restated Employment Agreement as of February 2, 1993 (the "First
Restated Agreement"); and
WHEREAS, Employer and Officer desire to set forth the continued terms
and conditions of Officer's employment with Employer under this Agreement;
WHEREAS, the effectiveness of this Agreement is subject to the approval
of Employer's stockholders of the provisions of Section 4(b) hereof and the
amendments to the 1993 Plan (as defined herein) as submitted to stockholders for
approval.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto agree as follows:
1. Term. Employer agrees to employ Officer and Officer agrees to serve
Employer, in accordance with the terms hereof, for a term beginning on the
Effective Date (as defined in Section 8(c) hereof) and ending on February 28,
2001, unless earlier terminated in accordance with the provisions hereof.
2. Specific Position; Duties and Responsibilities. Employer and Officer
hereby agree that, subject to the provisions of this Agreement, Employer will
employ Officer and Officer will serve Employer and its subsidiaries as Vice
Chairman of the Board and Executive Vice President of Employer. Employer agrees
that Officer's duties hereunder shall be the usual and customary duties of the
offices of Chairman of the Board and President and such further duties
consistent therewith as may be designated from time to time by the Board, and
shall not be inconsistent with the provisions of the charter documents of
Employer or applicable law. Officer shall have such executive power and
authority as shall reasonably be required to enable him to discharge his duties
in the offices which he may hold. All compensation paid to Officer by Employer
or any of its subsidiaries shall be aggregated in determining whether Officer
has received the benefits provided for herein.
3. Scope of this Agreement and Outside Affiliations. During the term of
this Agreement, Officer shall devote his full business time and energy, except
as expressly provided below, to the business, affairs and interests of Employer
and its subsidiaries, and matters related thereto, and shall use his best
efforts and abilities to promote its interests. Officer agrees that he will
diligently endeavor to promote the business, affairs and interests of Employer
and its subsidiaries and perform services contemplated hereby, in accordance
with the policies established by the Board, which policies shall be consistent
with this Agreement. Officer agrees to serve without additional remuneration in
such senior executive capacity not below the rank of Vice President for one or
more (direct or indirect) subsidiaries of Employer as the Board may from time to
time request, subject to appropriate authorization by the subsidiary or
subsidiaries involved and any limitation under applicable law. Officer's failure
to discharge an order or perform a function because Officer reasonably and in
good faith believes such would violate a law or regulation or be dishonest shall
not be deemed a breach by him of his obligations or duties pursuant to any of
the provisions of this Agreement, including without limitation pursuant to
Section 5(c) hereof.
During the course of Officer's employment as a full-time officer
hereunder, Officer shall not, without the consent of the Board, compete,
directly or indirectly, with Employer in the businesses then conducted by
Employer.
Officer may serve as a director or in any other capacity of any
business enterprise, including an enterprise whose activities may involve or
relate to the business of Employer, provided that such service is expressly
approved by the Board. Officer may make and manage personal business investments
of his choice and serve in any capacity with any civic, educational or
charitable organization, or any governmental entity or trade association,
without seeking or obtaining approval by the Board, provided such activities and
services do not materially interfere or conflict with the performance of his
duties hereunder.
4. Compensation and Benefits.
(a) Base Salary. Employer shall pay to Officer a base salary in each fiscal
year of Employer (a "Fiscal Year") or portion thereof covered by this Agreement
at the annual rate of $1,300,000:
(b) Incentive Compensation. Employer shall pay to Officer for
each of the Fiscal Years ending in 1997 through 2001 an incentive compensation
award in the amount of the incentive compensation award paid to Officer in the
previous Fiscal Year, multiplied by a fraction (the "Performance Ratio") the
numerator of which is the earnings per share on a fully diluted basis of
Employer during such current Fiscal Year as reported in the audited Financial
Statements included in Employer's Annual Report on Form 10-K filed with the
Securities and Exchange Commission (the "EPS") and the denominator of which is
the EPS for the previous Fiscal Year (adjusted proportionately in the event
Employer (A) declares a stock dividend on its common stock, (B) subdivides its
outstanding common stock, (C) combines the outstanding shares of its capital
stock into a smaller number of common stocks or (D) issues any shares of its
capital stock in a reclassification of the common stock (including any such
reclassification in connection with a consolidation or merger in which Employer
is the continuing or surviving corporation)); provided, however, that the
Compensation Committee of the Board (the "Compensation Committee") may reduce
the amount of any incentive compensation award in the event there is a
substantial distortion in EPS for the Fiscal Year in respect of which the award
is being paid resulting from an acquisition, a divestiture, or a change in
accounting standards.
(c) Stock Options. Employer shall grant to Officer a stock
option in respect of 1,000,000 shares of the Employer's common stock on the
first business day following the Effective Date, such option to become
exercisable as to 333,333, 333,333 and 333,334 shares on each of the first three
(3) anniversaries of the date of grant. Employer may also grant to Officer stock
options in respect of each of the Fiscal Years ending in 2000 and 2001 for such
number of shares of Employer's common stock as the Compensation Committee in its
sole discretion determines, taking into account Officer's and Employer's
performance in each of such Fiscal Years and the competitive practices then
prevailing regarding the granting of stock options. All stock options granted in
accordance with this Section 4(c) shall be granted pursuant to the Countrywide
Credit Industries, Inc. 1993 Stock Option Plan, as amended (the "1993 Plan"), or
such other stock option plan or plans as may be or come into effect during the
term of this Agreement and shall have a per share exercise price equal to the
fair market value (as defined in the 1993 Plan or such other plan or plans) of
the common stock at the time of grant. The stock options granted pursuant to
this Section shall consist of incentive stock options to the extent permitted by
law or regulation.
(d) Additional Benefits. Officer shall also be entitled to all
rights and benefits for which he is otherwise eligible under any bonus plan,
stock purchase plan, participation or extra compensation plan, executive
compensation plan, pension plan, profit-sharing plan, life and medical insurance
policy, or other plans or benefits, which Employer or its subsidiaries may
provide for him, or provided he is eligible to participate therein, for senior
officers generally or for employees generally, during the term of this Agreement
(collectively, "Additional Benefits"). This Agreement shall not affect the
provision of any other compensation, retirement or other benefit program or plan
of Employer.
(e) Continuation of Benefits. If Officer's employment is
terminated hereunder, pursuant to Section 5(a), 5(b) or 5(d) hereof, Employer
shall continue for the period specified in Section 5(a) or 5(b) hereof or three
years in the case of a termination pursuant to Section 5(d) hereof, as the case
may be, to provide benefits substantially equivalent to Additional Benefits
(other than qualified pension or profit sharing plan benefits and option, equity
or stock appreciation or other incentive plan benefits as distinguished from
health, disability and welfare type benefits) on behalf of Officer and his
dependents and beneficiaries which were being provided to them immediately prior
to Officer's Termination Date, but only to the extent that Officer is not
entitled to comparable benefits from other employment.
(f) Deferral of Amounts Payable Hereunder. In the event
Officer should desire to defer receipt of any cash payments to which he would
otherwise be entitled hereunder, he may present such a written request to the
Compensation Committee which, in its sole discretion, may enter into a separate
deferred compensation agreement with Officer.
(g) Notwithstanding anything to the contrary contained in this
Agreement, in no event shall the Performance Ratio be less than zero. Employer
shall pay the incentive compensation award described in Section 4(b) hereof for
each Fiscal Year as early after the end of such Fiscal Year as practicable but
in no event more than 90 days after the end of such Fiscal Year; provided,
however, that the incentive compensation award described in Section 4(b) hereof
may be paid, in whole or in part, prior to the end of the Fiscal Year to which
such incentive compensation award relates, on such terms and conditions and at
such times as may otherwise be mutually agreed upon by Employer and Officer. If
the Compensation Committee shall determine to grant to Officer the stock options
described in Section 4(c) hereof in respect of either of the Fiscal Years ending
in 2000 or 2001, such options shall be granted at the same time as Employer
grants stock options to its other senior executives in respect of such Fiscal
Year (but in no event later than June 30 following the end of such Fiscal Year).
5. Termination. The compensation and benefits provided for herein and the
employment of Officer by Employer shall be terminated only as provided for below
in this Section 5:
(a) Disability. In the event that Officer shall fail, because
of illness, injury or similar incapacity ("Disability"), to render for four (4)
consecutive calendar months, or for shorter periods aggregating eighty (80) or
more business days in any twelve (12) month period, services contemplated by
this Agreement, Officer's full-time employment hereunder may be terminated, by
written Notice of Termination from Employer to Officer; and thereafter, Employer
shall continue, from the Termination Date until Officer's death or the fifth
anniversary of such notice, whichever first occurs (the "Disability Payment
Period"), (i) to pay compensation to Officer, in the same manner as in effect
immediately prior to the Termination Date, in an amount equal to (1) fifty
percent (50%) of the then existing base salary payable immediately prior to the
termination, minus (2) the amount of any cash payments to him under the terms of
Employer's disability insurance or other disability benefit plans or Employer's
tax-qualified Defined Benefit Pension Plan, and any compensation he may receive
pursuant to any other employment, and (ii) to provide during the Disability
Payment Period the benefits specified in Section 4(e) hereof.
The determination of Disability shall be made only after 30
days notice to Officer and only if Officer has not returned to performance of
his duties during such 30-day period. In order to determine Disability, both
Employer and Officer shall have the right to provide medical evidence to support
their respective positions, with the ultimate decision regarding Disability to
be made by a majority of Employer's disinterested directors.
(b) Death. In the event that Officer shall die during the term
of this Agreement, Employer shall pay Officer's base salary for a period of
twelve (12) months following the date of Officer's death and in the manner
otherwise payable hereunder, to such person or persons as Officer shall have
directed in writing or, in the absence of a designation, to his estate (the
"Beneficiary"). Employer shall also provide during the twelve-month period
following the date of the Officer's death the benefits specified in Section 4(e)
hereof. If Officer's death occurs while he is receiving payments for Disability
under Section 5(a)(i) above, such payments shall cease and the Beneficiary shall
be entitled to the payments and benefits under this Subsection (b), which shall
continue for a period of twelve months thereafter at the full rate of
compensation in effect immediately prior to the Disability. This Agreement in
all other respects will terminate upon the death of Officer; provided, however,
that the termination of the Agreement shall not affect Officer's entitlement to
all other benefits in which he has become vested or which are otherwise payable
in respect of periods ending prior to its termination.
(c) Cause. Employer may terminate Officer's employment under
this Agreement for "Cause." A termination for Cause is a termination by reason
of (i) a material breach of this Agreement by Officer (other than as a result of
incapacity due to physical or mental illness) which is committed in bad faith or
without reasonable belief that such breach is in the best interests of Employer
and which is not remedied within a reasonable period of time after receipt of
written notice from Employer specifying such breach, or (ii) Officer's
conviction by a court of competent jurisdiction of a felony, or (iii) entry of
an order duly issued by any federal or state regulatory agency having
jurisdiction in the matter removing Officer from office of Employer or its
subsidiaries or permanently prohibiting him from participating in the conduct of
the affairs of Employer or any of its subsidiaries. If Officer shall be
convicted of a felony or shall be removed from office and/or temporarily
prohibited from participating in the conduct of Employer's or any of its
subsidiaries' affairs by any federal or state regulatory authority having
jurisdiction in the matter, Employer's obligations under Sections 4(a), 4(b) and
4(c) hereof shall be automatically suspended; provided, however, that if the
charges resulting in such removal or prohibition are finally dismissed or if a
final judgment on the merits of such charges is issued in favor of Officer, or
if the conviction is overturned on appeal, then Officer shall be reinstated in
full with back pay for the removal period plus accrued interest at the rate then
payable on judgments. During the period that Employer's obligations under
Sections 4(a), 4(b) and 4(c) hereof are suspended, Officer shall continue to be
entitled to receive Additional Benefits under Section 4(d) until the conviction
of the felony or removal from office has become final and non-appealable. When
the conviction of the felony or removal from office has become final and
non-appealable, all of Employer's obligations hereunder shall terminate;
provided, however, that the termination of Officer's employment pursuant to this
Section 5(c) shall not affect Officer's entitlement to all benefits in which he
has become vested or which are otherwise payable in respect of periods ending
prior to his termination of employment.
(d) Good Reason. Officer may terminate his employment for Good
Reason. For purposes of this Agreement, "Good Reason" shall be deemed to occur
if Employer notifies Officer of a termination of his employment other than for
Cause or if Employer breaches this Agreement in any material respect or if the
Board (i) elects a person other than Officer as Employer's President or Chairman
of the Board without Officer's consent, (ii) reorganizes management so as to
require him to report to a person or persons other than the Board, or (iii)
takes any other action which, in Officer's sole judgment, results in the
diminution in Officer's status, title, position and responsibilities other than
an insubstantial action not taken in bad faith and which is remedied by Employer
promptly after receipt of notice by Officer. Notwithstanding the foregoing,
Officer may terminate his employment for any or no reason within one year
following a "Change in Control" (as defined in Appendix A to this Agreement) and
such termination shall be considered a termination for Good Reason hereunder. If
Officer's employment shall be terminated by Employer other than for Cause or by
Officer for Good Reason, then Employer shall pay Officer in a single payment, as
severance pay and in lieu of any further salary and incentive compensation for
periods subsequent to the Termination Date, an amount in cash equal to three
times the sum of (A) Officer's annual base salary at the Termination Date and
(B) the aggregate bonus and/or incentive compensation paid or payable to Officer
in respect of the Fiscal Year preceding the fiscal year in which Officer's
Termination Date occurs.
Notwithstanding anything in this Agreement to the contrary, in
the event it shall be determined that any payment or distribution by Employer or
any other person or entity to or for the benefit of Officer (within the meaning
of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code")), whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise in connection with, or arising out of,
his employment with Employer or a change in ownership or effective control of
Employer or a substantial portion of its assets (a "Payment"), would be subject
to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), the
Payments shall be reduced (but not below zero) if and to the extent that such
reduction would result in Officer retaining a larger amount, on an after-tax
basis (taking into account federal, state and local income taxes and the
imposition of the Excise Tax), than if Officer received all of the Payments. If
the application of the preceding sentence should require a reduction in Payments
or other "parachute payments" (within the meaning of Section 280G of the Code),
unless Officer shall have designated otherwise, such reduction shall be
implemented, first, by reducing any non-cash benefits to the extent necessary
and, second, by reducing any cash benefits to the extent necessary. In each
case, the reductions shall be made starting with the payment or benefit to be
made on the latest date following the Termination Date and reducing payments or
benefits in reverse chronological order therefrom. All determinations concerning
the application of this paragraph shall be made by a nationally recognized firm
of independent accountants, selected by Officer and satisfactory to Employer,
whose determination shall be conclusive and binding on all parties. The fees and
expenses of such accountants shall be borne by Employer.
(e) Resignation. Except as provided in Section 5(d) hereof, if
during the term of this Agreement, Officer shall resign voluntarily, all of his
rights to payment or benefits hereunder shall immediately terminate; provided,
however, that the termination of Officer's employment pursuant to this Section
5(e) shall not affect Officer's entitlement to all benefits in which he has
become vested or which are otherwise payable in respect of periods ending prior
to his termination of employment.
(f) Notice of Termination. Any purported termination by
Employer or by Officer shall be communicated by a written Notice of Termination
to the other party hereto which indicates the specific termination provision in
this Agreement, if any, relied upon and which sets forth in reasonable detail
the facts and circumstances, if any, claimed to provide a basis for termination
of Officer's employment under the provision so indicated. For purposes of this
Agreement, no such purported termination shall be effective without such Notice
of Termination. The "Termination Date" shall mean the date specified in the
Notice of Termination, which shall be no less than 30 or more than 60 days from
the date of the Notice of Termination. Notwithstanding any other provision of
this Agreement, in the event of any termination of Officer's employment
hereunder for any reason, Employer shall pay Officer his full base salary
through the Termination Date, plus any Additional Benefits which have been
earned or become payable, but which have not yet been paid as of such
Termination Date plus (unless Officer has resigned voluntarily pursuant to
Section 5(e) or been terminated for Cause in accordance with Section 5(c)
hereof) the Pro Rata Bonus (as defined below). The "Pro Rata Bonus" shall mean
the amount equal to the product of (x) the bonus or incentive award referred to
in Section 4(b) hereof paid or payable to Officer for the last full Fiscal Year
of Employer prior to Officer's Termination Date and (y) the fraction obtained by
dividing (A) the number of days elapsed since the end of such Fiscal Year
through the Termination Date and (B) 365.
(g) Payments. All payments required under this Agreement
(other than the Additional Benefits payable pursuant to Section 4(e) hereof) as
a result of the termination of Officer's employment hereunder shall be made
within 15 days of the Termination Date or, if any portion is not then reasonably
determinable, within five (5) days after such portion is so determinable. In the
event of a dispute concerning the validity of a purported termination which is
maintained in good faith, the Termination Date shall mean the date the dispute
is finally resolved and Employer will continue to provide Officer with the
compensation and benefits provided for under this Agreement, until the dispute
is finally resolved without any obligation by Officer to repay any of such
amounts to Employer, notwithstanding the final outcome of the dispute. Payments
required to be made by this Section 5(g) are in addition to all other amounts
due under Section 5 of this Agreement and shall not be offset against or reduce
any other amounts due under Section 5 of this Agreement. Officer shall be
required to render services to Employer during the period following his
Termination Date but before the dispute concerning the termination is finally
determined unless Employer fails to provide Officer with a reasonable
opportunity to perform his duties under this Agreement during such period.
6. Reimbursement of Business Expenses. During the term of this
Agreement, Employer shall reimburse Officer promptly for all expenditures
(including travel, entertainment, parking, business meetings, and the monthly
costs (including dues) of maintaining memberships at appropriate clubs) to the
extent that such expenditures meet the requirements of the Code for
deductibility by Employer for federal income tax purposes or are otherwise in
compliance with the rules and policies of Employer and are substantiated by
Officer as required by the Internal Revenue Service and rules and policies of
Employer.
7. Indemnity. To the extent permitted by applicable law, the
Certificate of Incorporation and the By-Laws of Employer (as from time to time
in effect) and any indemnity agreements entered into from time to time between
Employer and Officer, Employer shall indemnify Officer and hold him harmless for
any acts or decisions made by him in good faith while performing services for
Employer, and shall use reasonable efforts to obtain coverage for him under
liability insurance policies now in force or hereafter obtained during the term
of this Agreement covering the other officers or directors of Employer.
8. Miscellaneous.
(a) Succession. This Agreement shall inure to the benefit of
and shall be binding upon Employer, its successors and assigns, but without the
prior written consent of Officer, this Agreement may not be assigned other than
in connection with a merger or sale of substantially all the assets of the
Employer or similar transaction. Employer shall not agree to any such
transaction unless the successor to or assignee of the Company's business and/or
assets in such transaction expressly assumes all obligations of the Employer
hereunder. The obligations and duties of Officer hereby shall be personal and
not assignable.
(b) Notices. Any notices provided for in this Agreement shall
be sent to Employer at 155 North Lake Avenue, Pasadena, California 91101,
Attention: Corporate Counsel/Secretary, with a copy to the Chairman of the
Compensation Committee at the same address, or to such other address as Employer
may from time to time in writing designate, and to Officer at such address as he
may from time to time in writing designate (or his business address of record in
the absence of such designation). All notices shall be deemed to have been given
two (2) business days after they have been deposited as certified mail, return
receipt requested, postage paid and properly addressed to the designated address
of the party to receive the notices.
(c) Effective Date. This Agreement shall become effective on
the date of the annual meeting of Employer's stockholders in 1996 (the
"Effective Date") provided Employer's stockholders vote to approve the
provisions of Section 4(b) hereof and the amendments to the 1993 Plan as
submitted to the stockholders for approval. If either of such matters is not
approved by Employer's stockholders, this Agreement shall be null and void and
the First Restated Agreement shall continue in full force and effect.
(d) Entire Agreement. This instrument contains the entire
agreement of the parties relating to the subject matter hereof, and it replaces
and supersedes any prior agreements between the parties relating to said subject
matter, including, but not limited to, the First Restated Agreement; provided,
however, that until this Agreement shall become effective, the First Restated
Agreement shall continue in full force and effect. No modifications or
amendments of this Agreement (including, but not limited to the provisions of
Section 4 hereof) shall be valid unless made in writing and signed by the
parties hereto.
(e) Waiver. The waiver of the breach of any term or of any
condition of this Agreement shall not be deemed to constitute the waiver of any
other breach of the same or any other term or condition.
(f) California Law. This Agreement shall be construed and interpreted in
accordance with the laws of California.
(g) Attorneys' Fees in Action on Contract. If any litigation
shall occur between the Officer and Employer, which litigation arises out of or
as a result of this Agreement or the acts of the parties hereto pursuant to this
Agreement, or which seeks an interpretation of this Agreement, the prevailing
party in such litigation, in addition to any other judgment or award, shall be
entitled to receive such sums as the court hearing the matter shall find to be
reasonable as and for the attorneys' fees of the prevailing party.
(h) Confidentiality. Officer agrees that he will not divulge
or otherwise disclose, directly or indirectly, any trade secret or other
confidential information concerning the business or policies of Employer or any
of its subsidiaries which he may have learned as a result of his employment
during the term of this Agreement or prior thereto as an employee, officer or
director of or consultant to Employer or any of its subsidiaries, except to the
extent such use or disclosure is (i) necessary or appropriate to the performance
of this Agreement and in furtherance of Employer's best interests, (ii) required
by applicable law, (iii) lawfully obtainable from other sources, or (iv)
authorized by Employer. The provisions of this subsection shall survive the
expiration, suspension or termination, for any reason, of this Agreement.
(i) Remedies of Employer. Officer acknowledges that the
services he is obligated to render under the provisions of this Agreement are of
a special, unique, unusual, extraordinary and intellectual character, which
gives this Agreement peculiar value to Employer. The loss of these services
cannot be reasonably or adequately compensated in damages in an action at law
and it would be difficult (if not impossible) to replace these services. By
reason thereof, Officer agrees and consents that if he violates any of the
material provisions of this Agreement, Employer, in addition to any other rights
and remedies available under this Agreement or under applicable law, shall be
entitled during the remainder of the term to seek injunctive relief, from a
tribunal of competent jurisdiction, restraining Officer from committing or
continuing any violation of this Agreement, or from the performance of services
to any other business entity, or both.
(j) Severability. If any provision of this Agreement is held
invalid or unenforceable, the remainder of this Agreement shall nevertheless
remain in full force and effect, and if any provision is held invalid or
unenforceable with respect to particular circumstances, it shall nevertheless
remain in full force and effect in all other circumstances.
(k) No Obligation to Mitigate. Officer shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking
<PAGE>
other employment or otherwise and, except as provided in
Section 5(a)(i)(2) hereof, no payment hereunder shall be offset or reduced by
the amount of any compensation or benefits provided to Officer in any subsequent
employment.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
COUNTRYWIDE CREDIT INDUSTRIES, INC.
ATTEST:
By:
Secretary Title:
OFFICER:
Angelo R. Mozilo, in his
individual capacity
<PAGE>
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14
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APPENDIX A
To Angelo R. Mozilo Employment Agreement
A "Change in Control" shall mean the occurrence during the term of the
Agreement, of any one of the following events:
(a) An acquisition (other than directly from Employer) of any common stock
or other "Voting Securities" (as hereinafter defined) of Employer by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
immediately after which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty five percent
(25%) or more of the then outstanding shares of Employer's common stock or the
combined voting power of Employer's then outstanding Voting Securities;
provided, however, in determining
-------- -------
whether a Change in Control has occurred, Voting Securities which are
acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. For purposes of
this Agreement, (1) "Voting Securities" shall mean Employer's outstanding voting
securities entitled to vote generally in the election of directors and (2) a
"Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit
plan (or a trust forming a part thereof) maintained by (A) Employer or (B) any
corporation or other Person of which a majority of its voting power or its
voting equity securities or equity interest is owned, directly or indirectly, by
Employer (for purposes of this definition, a "Subsidiary"), (ii) Employer or any
of its Subsidiaries, or (iii) any Person in connection with a "Non-Control
Transaction" (as hereinafter defined);
(b) The individuals who, as of the date of the Agreement are members of the
Board (the "Incumbent Board"), cease for any reason to constitute at least
two-thirds of the members of the Board; provided, however, -------- -------
that if the election, or nomination for election by Employer's common
stockholders, of any new director was approved by a vote of at least two-thirds
of the Incumbent Board, such new director shall, for purposes of this Agreement,
be considered as a member of the Incumbent Board; provided further, however,
-------- ------- -------
that no individual shall be considered a member of the Incumbent Board if
such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a "Proxy Contest") including
by reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(c) The consummation of:
(i) A merger, consolidation or reorganization involving Employer, unless
such merger, consolidation or reorganization is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a merger, consolidation or reorganization
of Employer where:
(A) the stockholders of Employer, immediately before such merger,
consolidation or reorganization, own directly or indirectly immediately
following such merger, consolidation or reorganization, at least seventy percent
(70%) of the combined voting power of the outstanding Voting Securities of the
corporation resulting from such merger, consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation or
reorganization;
(B) the individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds of the members of the board of
directors of the Surviving Corporation, or in the event that, immediately
following the consummation of such transaction, a corporation beneficially owns,
directly or indirectly, a majority of the Voting Securities of the Surviving
Corporation, the board of directors of such corporation; and
(C) no Person other than (i) Employer, (ii) any Subsidiary, (iii) any
employee benefit plan (or any trust forming a part thereof) maintained by
Employer, the Surviving Corporation, or any Subsidiary, or (iv) any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of twenty five percent (25%) or more of the then outstanding Voting
Securities or common stock of Employer, has Beneficial Ownership of twenty five
percent (25%) or more of the combined voting power of the Surviving
Corporation's then outstanding Voting Securities or its common stock;
(ii) A complete liquidation or dissolution of Employer; or
(iii) The sale or other disposition of all or substantially all of the
assets of Employer to any Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then outstanding
common stock or Voting Securities as a result of the acquisition of common stock
or Voting Securities by Employer which, by reducing the number of shares of
common stock or Voting Securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Persons; provided, however,
that if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of common stock or Voting Securities by Employer,
and after such share acquisition by Employer, the Subject Person becomes the
Beneficial Owner of any additional common stock or Voting Securities which
increases the percentage of the then outstanding common stock or Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur.
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") has been executed as of
________________ by and between Countrywide Credit Industries, Inc., a Delaware
corporation ("Employer"), and Stanford L. Kurland ("Officer").
W I T N E S S E T H:
WHEREAS, Officer currently holds the offices of Senior Managing Director
and Chief Operating Officer of Employer and President of Countrywide Home Loans,
Inc. ("Home Loans"), a wholly-owned subsidiary of Employer; and
WHEREAS, Employer desires to obtain the benefit of continued services
of Officer and Officer desires to continue to render services to Employer and
its subsidiaries, including Home Loans; and
WHEREAS, the Board of Directors of Employer (the "Board") has
determined that it is in Employer's best interest and that of its stockholders
to recognize the substantial contribution that Officer has made and is expected
to continue to make to the Employer's business and to retain his services in the
future; and
WHEREAS, Employer and Officer desire to set forth the terms and
conditions of Officer's employment with Employer under this Agreement; and
WHEREAS, the effectiveness of this Agreement is subject to the approval
by Employer's stockholders of the Countrywide Credit Industries, Inc. Annual
Incentive Plan (the "Annual Incentive Plan") and the amendments to the 1993 Plan
(as defined in Section 4(c) herein) each as submitted to Employer's stockholders
for approval at its 1996 Annual Meeting.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto agree as follows:
1. Term. Employer agrees to employ Officer and Officer agrees to serve
Employer, in accordance with the terms hereof, for a term beginning on the
Effective Date (as defined in Section 8(c) hereof) and ending on February 28,
1999, unless earlier terminated in accordance with the provisions hereof.
2. Specific Position; Duties and Responsibilities. Employer and Officer
hereby agree that, subject to the provisions of this Agreement, Employer will
employ Officer and Officer will serve Employer as Senior Managing Director and
Chief Operating Officer of Employer and as President of Home Loans. Employer
agrees that Officer's duties hereunder shall be the usual and customary duties
of such offices or such other duties as may be designated from time to time by
the Board consistent with his status as an executive officer of Employer; any
such duties shall be consistent with the provisions of the charter documents of
Employer or applicable law. Officer shall have such executive power and
authority as shall reasonably be required to enable him to discharge his duties
in the offices which he may hold. All compensation paid to Officer by Employer
or any of its subsidiaries shall be aggregated in determining whether Officer
has received the benefits provided for herein.
3. Scope of this Agreement and Outside Affiliations. During the term of
this Agreement, Officer shall devote his full business time and energy, except
as expressly provided below, to the business, affairs and interests of Employer
and its subsidiaries, and matters related thereto, and shall use his best
efforts and abilities to promote its interests. Officer agrees that he will
diligently endeavor to promote the business, affairs and interests of Employer
and its subsidiaries and perform services contemplated hereby, in accordance
with the policies established by the Board, which policies shall be consistent
with this Agreement. Officer agrees to serve without additional remuneration as
an officer of one or more (direct or indirect) subsidiaries of Employer as the
Board may from time to time request, subject to appropriate authorization by the
subsidiary or subsidiaries involved and any limitation under applicable law.
Officer's failure to discharge an order or perform a function because Officer
reasonably and in good faith believes such would violate a law or regulation or
be dishonest shall not be deemed a breach by him of his obligations or duties
pursuant to any of the provisions of this Agreement, including without
limitation pursuant to Section 5(c) hereof.
During the course of Officer's employment as a full-time officer
hereunder, Officer shall not, without the consent of the Board, compete,
directly or indirectly, with Employer in the businesses then conducted by
Employer or any of its subsidiaries.
Officer may serve as a director or in any other capacity of any
business enterprise, including an enterprise whose activities may involve or
relate to the business of Employer, provided that such service is expressly
approved by the Board. Officer may make and manage personal business investments
of his choice and serve in any capacity with any civic, educational or
charitable organization, or any governmental entity or trade association,
without seeking or obtaining approval by the Board, provided such activities and
services do not materially interfere or conflict with the performance of his
duties hereunder.
4. Compensation and Benefits.
(a) Base Salary. Employer shall pay to Officer a base salary
in respect of the portion of the fiscal year of Employer (a "Fiscal Year")
ending in 1997 after the Effective Date at the annual rate of $675,000 (the
"Annual Rate"). In respect of the portion of the Fiscal Year ending in 1997
before the Effective Date, Employer shall, within five (5) days after the
Effective Date, pay to Officer in a lump sum an amount equal to $675,000,
pro-rated for the period between March 1, 1996 and the Effective Date, less the
base salary Officer has received through the Effective Date in respect of that
period. In respect of the Fiscal Years ending in 1998 and 1999, the Compensation
Committee of the Board (the "Compensation Committee") may, based upon the
recommendation of Angelo R. Mozilo (or, if he is no longer an officer of
Employer, the Chairman of Employer), increase the Annual Rate by no less than 5%
and no greater than 10% each year.
(b) Incentive Compensation. Employer shall pay to Officer for
each of the Fiscal Years ending during the term of this Agreement an incentive
compensation award in an amount determined pursuant to the terms and conditions
of the Annual Incentive Plan and set out in the Incentive Matrix attached hereto
as Appendix B.
(c) Stock Options. Employer shall grant to Officer stock
options in respect of each of the Fiscal Years ending during the term of this
Agreement for such number of shares of Employer's common stock as the
Compensation Committee in its sole discretion determines, taking into account
Officer's and Employer's performance in each of such Fiscal Years and the
competitive practices then prevailing regarding the granting of stock options;
provided, however, that the number of shares in respect of each annual stock
option grant shall be no less than 75,000 and no greater than 175,000. The
numbers 75,000 and 175,000 in the preceding sentence shall be adjusted
proportionately in the event Employer (A) declares a stock dividend on its
common stock, (B) subdivides its outstanding common stock, (C) combines the
outstanding shares of its capital stock into a smaller number of common stocks
or (D) issues any shares of its capital stock in a reclassification of the
common stock (including any such reclassification in connection with a
consolidation or merger in which Employer is the continuing or surviving
corporation). The stock options described in this Section 4(c) in respect of a
Fiscal Year shall be granted at the same time as Employer grants stock options
to its other senior executives in respect of such Fiscal Year (but in no event
later than June 30 following the end of such Fiscal Year).
All stock options granted in accordance with this Section 4(c): (i) shall
be granted pursuant to the Countrywide Credit Industries, Inc. 1993 Stock Option
Plan, as amended (the "1993 Plan"), or such other stock option plan or plans as
may be or come into effect during the term of this Agreement, (ii) shall have a
per share exercise price equal to the fair market value (as defined in the 1993
Plan or such other plan or plans) of the common stock at the time of grant,
(iii) shall become exercisable in three equal installments on each of the first
three anniversaries of the date of grant and (iv) shall be subject to such other
terms and conditions as may be determined by the Compensation Committee and set
forth in the agreement evidencing the award. The stock options granted pursuant
to this Section shall consist of incentive stock options to the extent permitted
by law or regulation.
(d) Additional Benefits. Officer shall also be entitled to all
rights and benefits for which he is otherwise eligible under any bonus plan,
stock purchase plan, participation or extra compensation plan, executive
compensation plan, pension plan, profit-sharing plan, life and medical insurance
policy, or other plans or benefits, which Employer or its subsidiaries may
provide for him, or provided he is eligible to participate therein, for senior
officers generally or for employees generally, during the term of this Agreement
(collectively, "Additional Benefits"). This Agreement shall not affect the
provision of any other compensation, retirement or other benefit program or plan
of Employer.
(e) Continuation of Benefits. If Officer's employment is
terminated hereunder pursuant to Section 5(a), 5(b) or 5(d), Employer shall
continue for the period specified in Section 5(a), 5(b) or 5(d) hereof to
provide benefits substantially equivalent to Additional Benefits (other than
qualified pension or profit sharing plan benefits and option, equity or stock
appreciation or other incentive plan benefits as distinguished from health,
disability and welfare type benefits) to Officer and his dependents and
beneficiaries which were being provided to them immediately prior to Officer's
Termination Date, but only to the extent that Officer is not entitled to
comparable benefits from other employment.
(f) Deferral of Amounts Payable Hereunder. In the event
Officer should desire to defer receipt of any cash payments to which he would
otherwise be entitled hereunder, he may present such a written request to the
Compensation Committee which, in its sole discretion, may enter into a separate
deferred compensation agreement with Officer.
5. Termination. The compensation and benefits provided for herein and the
employment of Officer by Employer shall be terminated only as provided for below
in this Section 5:
(a) Disability. In the event that Officer shall fail, because
of illness, injury or similar incapacity ("Disability"), to render for four (4)
consecutive calendar months, or for shorter periods aggregating eighty (80) or
more business days in any twelve (12) month period, services contemplated by
this Agreement, Officer's full-time employment hereunder may be terminated, by
written Notice of Termination from Employer to Officer; and thereafter, Employer
shall continue, from the Termination Date until Officer's death or the fifth
anniversary of such notice, whichever first occurs (the "Disability Payment
Period"), (i) to pay compensation to Officer, in the same manner as in effect
immediately prior to the Termination Date, in an amount equal to (1) fifty
percent (50%) of the then existing base salary payable immediately prior to the
termination, minus (2) the amount of any cash payments to him under the terms of
Employer's disability insurance or other disability benefit plans or Employer's
tax-qualified Defined Benefit Pension Plan, and any compensation he may receive
pursuant to any other employment, and (ii) to provide during the Disability
Payment Period the benefits specified in Section 4(e) hereof.
The determination of Disability shall be made only after 30
days notice to Officer and only if Officer has not returned to performance of
his duties during such 30-day period. In order to determine Disability, both
Employer and Officer shall have the right to provide medical evidence to support
their respective positions, with the ultimate decision regarding Disability to
be made by a majority of Employer's disinterested directors.
(b) Death. In the event that Officer shall die during the term
of this Agreement, Employer shall pay Officer's base salary for a period of
twelve (12) months following the date of Officer's death and in the manner
otherwise payable hereunder, to such person or persons as Officer shall have
directed in writing or, in the absence of a designation, to his estate (the
"Beneficiary"). Employer shall also provide during the twelve-month period
following the date of the Officer's death the benefits specified in Section 4(e)
hereof. If Officer's death occurs while he is receiving payments for Disability
under Section 5(a)(i) above, such payments shall cease and the Beneficiary shall
be entitled to the payments and benefits under this Subsection (b), which shall
continue for a period of twelve months thereafter at the full rate of
compensation in effect immediately prior to the Disability. This Agreement in
all other respects will terminate upon the death of Officer; provided, however,
that the termination of the Agreement shall not affect Officer's entitlement to
all other benefits in which he has become vested or which are otherwise payable
in respect of periods ending prior to its termination.
(c) Cause. Employer may terminate Officer's employment under
this Agreement for "Cause." A termination for Cause is a termination by reason
of (i) a material breach of this Agreement by Officer (other than as a result of
incapacity due to physical or mental illness) which is committed in bad faith or
without reasonable belief that such breach is in the best interests of Employer
and which is not remedied within a reasonable period of time after receipt of
written notice from Employer specifying such breach, or (ii) Officer's
conviction by a court of competent jurisdiction of a felony, or (iii) entry of
an order duly issued by any federal or state regulatory agency having
jurisdiction in the matter removing Officer from office of Employer or its
subsidiaries or permanently prohibiting him from participating in the conduct of
the affairs of Employer or any of its subsidiaries. If Officer shall be
convicted of a felony or shall be removed from office and/or temporarily
prohibited from participating in the conduct of Employer's or any of its
subsidiaries' affairs by any federal or state regulatory authority having
jurisdiction in the matter, Employer's obligations under Sections 4(a), 4(b) and
4(c) hereof shall be automatically suspended; provided, however, that if the
charges resulting in such removal or prohibition are finally dismissed or if a
final judgment on the merits of such charges is issued in favor of Officer, or
if the conviction is overturned on appeal, then Officer shall be reinstated in
full with back pay for the removal period plus accrued interest at the rate then
payable on judgments. During the period that Employer's obligations under
Sections 4(a), 4(b) and 4(c) hereof are suspended, Officer shall continue to be
entitled to receive Additional Benefits under Section 4(d) until the conviction
of the felony or removal from office has become final and non-appealable. When
the conviction of the felony or removal from office has become final and
non-appealable, all of Employer's obligations hereunder shall terminate;
provided, however, that the termination of Officer's employment pursuant to this
Section 5(c) shall not affect Officer's entitlement to all benefits in which he
has become vested or which are otherwise payable in respect of periods ending
prior to his termination of employment.
(d) Severance. (i) Except as provided in Section 5(d)(ii), if
during the term of this Agreement Officer's employment shall be terminated by
Employer other than for Cause, then (A) until February 28, 1999 or the second
anniversary of the Termination Date, whichever is later (the "Severance
Period"), Employer shall (1) continue to pay Officer his annual base salary, at
the rate in effect on the Termination Date, and (2) provide the benefits
specified in Section 4(e) hereof, (B) Employer shall pay Officer, within ten
(10) days after the end of each Fiscal Year ending during the Severance Period,
an amount equal to the incentive compensation paid or payable to Officer
pursuant to Section 4(b) in respect of the Fiscal Year immediately preceding the
Fiscal Year in which Officer's Termination Date occurs (the "Bonus Rate") (such
amount to be pro-rated for any Fiscal Year ending during the Severance Period
that is less than 12 months); provided, however, that in the event the Severance
Period ends on a date prior to the end of a Fiscal Year, Employer shall also pay
Officer an amount equal to the product of (1) the Bonus Rate and (2) the
fraction obtained by dividing (x) the number of days elapsed since the end of
the immediately preceding Fiscal Year through the end of the Severance Period by
(y) 365, and (C) all stock options held by Officer on the Termination Date shall
become immediately and fully exercisable.
(ii) If after a "Change in Control" (as defined in Appendix A to this
Agreement) and during the term of this Agreement Officer's employment shall be
terminated by Employer other than for Cause or by Officer for Good Reason, then
(A) Employer shall pay Officer in a single payment as soon as practicable after
the Termination Date, as severance pay and in lieu of any further salary and
incentive compensation for periods subsequent to the Termination Date, an amount
in cash equal to three times the sum of (1) Officer's annual base salary at the
Termination Date and (2) the incentive compensation paid or payable to Officer
pursuant to Section 4(b) in respect of the Fiscal Year immediately preceding the
Fiscal Year in which Officer's Termination Date occurs, (B) Employer shall
continue to provide for three years from the Termination Date the benefits
specified in Section 4(e) hereof and (C) all stock options held by Officer on
the Termination Date shall become immediately and fully exercisable. For
purposes of this Agreement, "Good Reason" shall be deemed to occur if Employer
(x) breaches this Agreement in any material respect or (y) takes any other
action which results in the diminution in Officer's status, title, position and
responsibilities other than an insubstantial action not taken in bad faith and
which is remedied by Employer promptly after receipt of notice by Officer.
Notwithstanding anything in this Agreement to the contrary, in the event it
shall be determined that any payment or distribution by Employer or any other
person or entity to or for the benefit of Officer (within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")),
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise in connection with, or arising out of, his
employment with Employer or a change in ownership or effective control of
Employer or a substantial portion of its assets (a "Payment"), would be subject
to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), the
Payments shall be reduced (but not below zero) if and to the extent that such
reduction would result in Officer retaining a larger amount, on an after-tax
basis (taking into account federal, state and local income taxes and the
imposition of the Excise Tax), than if Officer received all of the Payments. If
the application of the preceding sentence should require a reduction in Payments
or other "parachute payments" (within the meaning of Section 280G of the Code),
unless Officer shall have designated otherwise, such reduction shall be
implemented, first, by reducing any non-cash benefits to the extent necessary
and, second, by reducing any cash benefits to the extent necessary. In each
case, the reductions shall be made starting with the payment or benefit to be
made on the latest date following the Termination Date and reducing payments or
benefits in reverse chronological order therefrom. All determinations concerning
the application of this paragraph shall be made by a nationally recognized firm
of independent accountants, selected by Officer and satisfactory to Employer,
whose determination shall be conclusive and binding on all parties. The fees and
expenses of such accountants shall be borne by Employer.
(e) Resignation. Except as provided in Section 5(d)(ii)
hereof, if during the term of this Agreement, Officer shall resign voluntarily,
all of his rights to payment or benefits hereunder shall immediately terminate;
provided, however, that the termination of Officer's employment pursuant to this
Section 5(e) shall not affect Officer's entitlement to all benefits in which he
has become vested or which are otherwise payable in respect of periods ending
prior to his termination of employment.
(f) Notice of Termination. Any purported termination by
Employer or by Officer shall be communicated by a written Notice of Termination
to the other party hereto which indicates the specific termination provision in
this Agreement, if any, relied upon and which sets forth in reasonable detail
the facts and circumstances, if any, claimed to provide a basis for termination
of Officer's employment under the provision so indicated. For purposes of this
Agreement, no such purported termination shall be effective without such Notice
of Termination. The "Termination Date" shall mean the date specified in the
Notice of Termination, which shall be no less than 30 or more than 60 days from
the date of the Notice of Termination. Notwithstanding any other provision of
this Agreement, in the event of any termination of Officer's employment
hereunder for any reason, Employer shall pay Officer his full base salary
through the Termination Date, plus any Additional Benefits which have been
earned or become payable, but which have not yet been paid as of such
Termination Date.
(g) Disputes. In the event of a dispute concerning the
validity of a purported termination which is maintained in good faith, the
Termination Date shall mean the date the dispute is finally resolved and
Employer will continue to provide Officer with the compensation and benefits
provided for under this Agreement, until the dispute is finally resolved without
any obligation by Officer to repay any of such amounts to Employer,
notwithstanding the final outcome of the dispute. Payments required to be made
by this Section 5(g) are in addition to all other amounts due under Section 5 of
this Agreement and shall not be offset against or reduce any other amounts due
under Section 5 of this Agreement. Officer shall be required to render services
to Employer during the period following his Termination Date but before the
dispute concerning the termination is finally determined unless Employer fails
to provide Officer with a reasonable opportunity to perform his duties under
this Agreement during such period.
6. Reimbursement of Business Expenses. During the term of this
Agreement, Employer shall reimburse Officer promptly for all expenditures
(including travel, entertainment, parking, business meetings, and the monthly
costs (including dues) of maintaining memberships at appropriate clubs) to the
extent that such expenditures meet the requirements of the Code for
deductibility by Employer for federal income tax purposes or are otherwise in
compliance with the rules and policies of Employer and are substantiated by
Officer as required by the Internal Revenue Service and rules and policies of
Employer.
7. Indemnity. To the extent permitted by applicable law, the
Certificate of Incorporation and the By-Laws of Employer (as from time to time
in effect) and any indemnity agreements entered into from time to time between
Employer and Officer, Employer shall indemnify Officer and hold him harmless for
any acts or decisions made by him in good faith while performing services for
Employer, and shall use reasonable efforts to obtain coverage for him under
liability insurance policies now in force or hereafter obtained during the term
of this Agreement covering the other officers or directors of Employer.
8. Miscellaneous.
(a) Succession. This Agreement shall inure to the benefit of
and shall be binding upon Employer, its successors and assigns, but without the
prior written consent of Officer, this Agreement may not be assigned other than
in connection with a merger or sale of substantially all the assets of the
Employer or similar transaction. Employer shall not agree to any such
transaction unless the successor to or assignee of the Company's business and/or
assets in such transaction expressly assumes all obligations of the Employer
hereunder. The obligations and duties of Officer hereby shall be personal and
not assignable.
(b) Notices. Any notices provided for in this Agreement shall
be sent to Employer at 155 North Lake Avenue, Pasadena, California 91101,
Attention: Corporate Counsel/Secretary, with a copy to the Chairman of the
Compensation Committee at the same address, or to such other address as Employer
may from time to time in writing designate, and to Officer at such address as he
may from time to time in writing designate (or his business address of record in
the absence of such designation). All notices shall be deemed to have been given
two (2) business days after they have been deposited as certified mail, return
receipt requested, postage paid and properly addressed to the designated address
of the party to receive the notices.
(c) Effective Date. This Agreement shall become effective on
the date of the annual meeting of Employer's stockholders in 1996 (the
"Effective Date"), provided Employer's stockholders vote to approve the Annual
Incentive Plan and the amendments to the 1993 Plan as submitted to the
stockholders for approval. If either of such matters is not approved by
Employer's stockholders, this Agreement shall be null and void.
(d) Entire Agreement. This instrument contains the entire
agreement of the parties relating to the subject matter hereof, and it replaces
and supersedes any prior agreements between the parties relating to said subject
matter. No modifications or amendments of this Agreement shall be valid unless
made in writing and signed by the parties hereto.
(e) Waiver. The waiver of the breach of any term or of any
condition of this Agreement shall not be deemed to constitute the waiver of any
other breach of the same or any other term or condition.
(f) California Law. This Agreement shall be construed and interpreted in
accordance with the laws of California.
(g) Attorneys' Fees in Action on Contract. If any litigation
shall occur between the Officer and Employer, which litigation arises out of or
as a result of this Agreement or the acts of the parties hereto pursuant to this
Agreement, or which seeks an interpretation of this Agreement, the prevailing
party in such litigation, in addition to any other judgment or award, shall be
entitled to receive such sums as the court hearing the matter shall find to be
reasonable as and for the attorneys' fees of the prevailing party.
(h) Confidentiality. Officer agrees that he will not divulge
or otherwise disclose, directly or indirectly, any trade secret or other
confidential information concerning the business or policies of Employer or any
of its subsidiaries which he may have learned as a result of his employment
during the term of this Agreement or prior thereto as an employee, officer or
director of or consultant to Employer or any of its subsidiaries, except to the
extent such use or disclosure is (i) necessary or appropriate to the performance
of this Agreement and in furtherance of Employer's best interests, (ii) required
by applicable law, (iii) lawfully obtainable from other sources, or (iv)
authorized by Employer. The provisions of this subsection shall survive the
expiration, suspension or termination, for any reason, of this Agreement.
(i) Remedies of Employer. Officer acknowledges that the
services he is obligated to render under the provisions of this Agreement are of
a special, unique, unusual, extraordinary and intellectual character, which
gives this Agreement peculiar value to Employer. The loss of these services
cannot be reasonably or adequately compensated in damages in an action at law
and it would be difficult (if not impossible) to replace these services. By
reason thereof, Officer agrees and consents that if he violates any of the
material provisions of this Agreement, Employer, in addition to any other rights
and remedies available under this Agreement or under applicable law, shall be
entitled during the remainder of the term to seek injunctive relief, from a
tribunal of competent jurisdiction, restraining Officer from committing or
continuing any violation of this Agreement, or from the performance of services
to any other business entity, or both.
(j) Severability. If any provision of this Agreement is held
invalid or unenforceable, the remainder of this Agreement shall nevertheless
remain in full force and effect, and if any provision is held invalid or
unenforceable with respect to particular circumstances, it shall nevertheless
remain in full force and effect in all other circumstances.
(k) No Obligation to Mitigate. Officer shall not be required
to mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise and, except as provided in Section 5(a)(i)(2)
hereof, no payment hereunder shall be offset or reduced by the amount of any
compensation or benefits provided to Officer in any subsequent employment.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
COUNTRYWIDE CREDIT INDUSTRIES, INC.
ATTEST:
By:
Secretary Title:
OFFICER:
Stanford L. Kurland, in his individual capacity
<PAGE>
- ------------------------------------------------------------------------------
A-3
- ------------------------------------------------------------------------------
APPENDIX A
To Stanford L. Kurland Employment Agreement
A "Change in Control" shall mean the occurrence during the term of the
Agreement, of any one of the following events:
(a) An acquisition (other than directly from Employer) of any common stock
or other "Voting Securities" (as hereinafter defined) of Employer by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
immediately after which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty five percent
(25%) or more of the then outstanding shares of Employer's common stock or the
combined voting power of Employer's then outstanding Voting Securities;
provided, however, in determining
-------- -------
whether a Change in Control has occurred, Voting Securities which are
acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. For purposes of
this Agreement, (1) "Voting Securities" shall mean Employer's outstanding voting
securities entitled to vote generally in the election of directors and (2) a
"Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit
plan (or a trust forming a part thereof) maintained by (A) Employer or (B) any
corporation or other Person of which a majority of its voting power or its
voting equity securities or equity interest is owned, directly or indirectly, by
Employer (for purposes of this definition, a "Subsidiary"), (ii) Employer or any
of its Subsidiaries, or (iii) any Person in connection with a "Non-Control
Transaction" (as hereinafter defined);
(b) The individuals who, as of the date of the Agreement are members of the
Board (the "Incumbent Board"), cease for any reason to constitute at least
two-thirds of the members of the Board; provided, however,
-------- -------
that if the election, or nomination for election by Employer's common
stockholders, of any new director was approved by a vote of at least two-thirds
of the Incumbent Board, such new director shall, for purposes of this Agreement,
be considered as a member of the Incumbent Board; provided further, however,
-------- ------- -------
that no individual shall be considered a member of the Incumbent Board if
such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a "Proxy Contest") including
by reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(c) The consummation of:
(i) A merger, consolidation or reorganization involving Employer, unless
such merger, consolidation or reorganization is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a merger, consolidation or reorganization
of Employer where:
(A) the stockholders of Employer, immediately before such merger,
consolidation or reorganization, own directly or indirectly immediately
following such merger, consolidation or reorganization, at least seventy percent
(70%) of the combined voting power of the outstanding Voting Securities of the
corporation resulting from such merger, consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation or
reorganization;
(B) the individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds of the members of the board of
directors of the Surviving Corporation, or in the event that, immediately
following the consummation of such transaction, a corporation beneficially owns,
directly or indirectly, a majority of the Voting Securities of the Surviving
Corporation, the board of directors of such corporation; and
(C) no Person other than (i) Employer, (ii) any Subsidiary, (iii) any
employee benefit plan (or any trust forming a part thereof) maintained by
Employer, the Surviving Corporation, or any Subsidiary, or (iv) any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of twenty five percent (25%) or more of the then outstanding Voting
Securities or common stock of Employer, has Beneficial Ownership of twenty five
percent (25%) or more of the combined voting power of the Surviving
Corporation's then outstanding Voting Securities or its common stock;
(ii) A complete liquidation or dissolution of Employer; or
(iii) The sale or other disposition of all or substantially all of the
assets of Employer to any Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then outstanding
common stock or Voting Securities as a result of the acquisition of common stock
or Voting Securities by Employer which, by reducing the number of shares of
common stock or Voting Securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Persons; provided, however,
that if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of common stock or Voting Securities by Employer,
and after such share acquisition by Employer, the Subject Person becomes the
Beneficial Owner of any additional common stock or Voting Securities which
increases the percentage of the then outstanding common stock or Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur.
<PAGE>
<TABLE>
<CAPTION>
DRAFT
[3/20/96]
APPENDIX B
INCENTIVE MATRIX
To Determine Fiscal 1997, 1998 and 1999 Awards
% of Target Bonus Paid
(Target Bonus = $650,000)
Less than EPS**
ROE .80 .80 1.20 1.60 $2.00 2.40 2.80 3.20 3.60 4.00 4.40 or more
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20% or more 25 50 75 100 125 150 175 200 225 250 275
- --------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
15% 20 40 60 80 100% 120 140 165 190 215 240
- --------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
10% 15 30 45 60 75 90 105 120 120 120 120
5% 10 20 30 40 50 50 50 50 50 50 50
Less than 5% 0 0 0 0 0 0 0 0 0 0 0
- --------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
* Payouts interpolated between points.
* ROE calculated on quarterly average equity.
* For new equity infusions, first year return target at 10% rather than 15%.
</TABLE>
<PAGE>
Exhibit 10.4
COUNTRYWIDE CREDIT INDUSTRIES, INC.
ANNUAL INCENTIVE PLAN
Section 1: Purposes
The purposes of the Plan are to promote the success and growth of the Company,
thereby enhancing shareholder value; to provide certain Executive Officers with
an opportunity to receive incentive compensation dependent upon that success and
growth; and to attract, retain and motivate such individuals.
Section 2: Definitions
2.1 "Award" means an incentive award made pursuant to the Plan.
2.2 "Beneficiary" mean the person(s) designated by the Participant, in
writing on a form provided by the Committee, to receive payments
under the Plan in the event of his death while a Participant or, in
the absence of such designation, the Participant's estate.
2.3 "Board of Directors" means the Board of Directors of the Company.
2.4 "Cause" means (i) a felony conviction of the Participant; (ii) the
commission by the Participant of an act of fraud or embezzlement
against the Company; (iii) the Participant's willful misconduct or
gross negligence materially detrimental to the Company; (iv) the
Participant's wrongful dissemination or use of confidential or
proprietary information; or (vi) the intentional and habitual neglect
by the Participant of his duties to the Company.
2.5 "Code" means the Internal Revenue Code of 1986, as amended.
2.6 "Committee" means the Compensation Committee of the Board of
Directors, which shall consist of two or more persons, each of whom
is an "outside director" within the meaning of Section 162(m) of the
Code.
2.7 "Company" means Countrywide Credit Industries, Inc. and its successors
and shall include any subsidiaries of the Company, except where the context
indicates otherwise.
2.8 "Disability" means (i) total disability within the meaning of the
Company's long-term disability plan as in effect from time to time or
(ii) if there is no such plan at the applicable time, physical or
mental incapacity as determined solely by the Committee.
2.9 "Employee" means an employee of the Company.
2.10 "Executive Officer" means the Chief Executive Officer of the Company
and any other Employee who is an officer of the Company.
2.11 "Participant" means an Executive Officer designated from time to time
by the Committee pursuant to Section 3 to participate in the Plan.
2.12 "Performance Criteria" means one or more of the criteria set forth
below selected by the Committee to measure performance for a Plan
Year:
(i) Net Income: The net after-tax income of the Company or a business unit
from continuing operations after adjustment to omit the effects of any
extraordinary items and the cumulative effects of changes in accounting
principles.
(ii) Return on Equity: Net Income of the company or of a business unit
divided by the average of the Company's consolidated shareholder equity as of
the beginning and end of the Plan Year.
(iii) Return on Assets: Net Income divided by the average of the Company's
or a business unit's total or net assets as of the beginning and end of the Plan
Year.
(iv) Earnings Per Share (either primary or fully diluted, or the equivalent
thereof) as reported in the Company's annual report to shareholders, adjusted to
omit the effects of any discontinued operations, extraordinary items and the
cumulative effects of changes in accounting principles.
(v) EBIT: Net Income before any charges, expenses or accruals for interest
or taxes.
(vi) Total Shareholder Return: The total return to the Company's
shareholders, measured by stock price appreciation and dividends paid.
Performance Criteria shall be determined in accordance with generally
accepted accounting principles as consistently applied by the Company.
2.13 "Performance Goal" means the level of performance, either in absolute
terms or as compared to one or more other companies or indices, established as
the Performance Goal with respect to a Performance Criteria or indices.
2.14 "Plan" means the Countrywide Credit Industries, Inc. Annual Incentive
Plan.
2.15 "Plan Year" means the fiscal year of the Company.
2.16 "Target Award" means an amount established by the Committee as a
Participant's Target Award upon attainment of a Performance Goal.
Section 3: Participation
3.1 Participants for any Plan Year shall be selected by the Committee from
among the Executive Officers within ninety days of the commencement of a Plan
Year; provided, however that if due to hiring, promotion, or demotion, the
Committee determines thereafter that an Employee should be eligible to
participate in the Plan for a Plan Year, or that a Participant should cease to
be so eligible, in either case, after the commencement of the Plan Year, then
the Committee shall have the discretion to provide that such individual shall be
eligible for a prorated Award, as and to the extent it may determine. The
selection of an Executive Officer as a Participant for a Plan Year shall not
entitle such individual to be selected as a Participant with respect to any
other Plan Year.
Section 4: Awards
4.1. Target Awards and Performance Goals. Within ninety days of the
commencement of a Plan Year, the Committee shall establish for each Participant
for such year Target Awards and Performance Goals and weightings with respect to
one or more Performance Criteria. Once established for a Plan Year, a
Participant's Target Award, Performance Goals and weightings may not be amended
or otherwise modified after such ninetieth day in a manner which could increase
the amount of an Award. Notwithstanding the foregoing, Target Awards,
Performance Criteria, Performance Goals and weightings may vary from Plan Year
to Plan Year and Participant to Participant.
4.2 Determination and Payment of Awards. The actual Award payable to a
Participant will be determined by the Committee based on (i) the Participant's
Target Award (ii) the extent to which the Performance Goals have been achieved,
as certified in writing by the Committee (iii) and the weighting established
with respect to the applicable Performance Criteria. Notwithstanding the
foregoing, the Committee will have the discretion to reduce the amount of the
Award that would otherwise be payable to a Participant. Awards will be paid in a
lump sum cash payment as soon as practicable after the close of the Plan Year
for which they are made. Except as otherwise provided in Section 5, no Award
will be payable to any Participant who is not an Employee on the last day of
such Plan Year. The Committee may, subject to such terms and conditions and
within such limits as it may from time to time establish, permit one or more
Participants to defer the receipt of amounts payable under the Plan.
4.3. Maximum Awards. The maximum Award payable to a Participant for any
Plan Year is two million dollars ($2,000,000).
Section 5: Termination of Employment
5.1 Death or Disability. If a Participant's employment with the Company
terminates due to death or Disability during a Plan Year, the
Participant or his Beneficiary, as the case may be, will be paid a
prorated Award in cash for such year as soon as practicable after
such Plan Year.
5.2 Cause. If a Participant's employment with the Company is terminated
for Cause following the end of a Plan year, his right to the payment
of an Award in respect of that Plan year and all other rights under
this Plan will be forfeited, and no amount will be paid or payable
hereunder to or in respect of such Participant after the date of his
termination of employment.
Section 6: Administration
6.1. In General. Except as otherwise provided in the Plan, the Committee
will have full and complete authority, in its sole and absolute discretion, (i)
to exercise all of the powers granted to it under the Plan, (ii) to construe,
interpret and implement the Plan and any related document, (iii) to prescribe,
amend and rescind rules relating to the Plan, (iv) to make all determinations
necessary or advisable in administering the Plan, and (v) to correct any defect,
supply any omission and reconcile any inconsistency in the Plan.
6.2 Determinations. The actions and determinations of the Committee or its
designee on all matters relating to the Plan and any Awards will be final and
conclusive. Such determinations need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, Awards under
the Plan, whether or not such persons are similarly situated.
6.3 Appointment of Experts. The Committee may appoint such accountants,
counsel, and other experts as it deems necessary or desirable in connection with
the administration of the Plan.
6.4 Books and Records. The Committee shall keep a record of all their
proceedings and actions and shall maintain all such books of account, records
and other data as shall be necessary for the proper administration of the Plan.
6.5 Payment of Expenses. The Company shall pay all expenses of
administering the Plan, including, but not limited to, the payment of
professional and expert fees.
6.6 Code Section 162(m). It is the intent of the Company that this Plan and
Awards hereunder satisfy, and be interpreted in a manner that satisfies, the
applicable requirements of Code Section 162(m) so that the Company's tax
deduction for remuneration in respect of such Awards is not disallowed in whole
or in part by the operation of such Code Section. If any provision of this Plan
or of any Award would otherwise frustrate or conflict with this intent, that
provision to the extent possible shall be interpreted and deemed amended so as
to avoid such conflict. To the extent of any remaining irreconcilable conflict
with such intent, such provision shall be deemed void.
Section 7: Miscellaneous
7.1. Nonassignability. No Award will be assignable or transferable
(including pursuant to a pledge or security interest) other than by will or by
laws of descent and distribution.
7.2 Withholding Taxes. Whenever payments under the Plan are to be made or
deferred, the Company will withhold therefrom, or from any other
amounts payable to or in respect of the Participant, an amount
sufficient to satisfy any applicable governmental withholding tax
requirements related thereto.
7.3 Amendment or Termination of the Plan. The Plan may be amended or
terminated by the Committee in any respect except that no amendment
or termination may be made after the date on which an Executive
Officer is selected as a Participant for a Plan Year which would
adversely affect the rights of such Participant with respect to such
Plan Year.
7.4 Other Payments or Awards. Nothing contained in the Plan will be
deemed in any way to limit, restrict or require the Company from
making or to make any award or payment to any person under any other
plan, arrangement or understanding, whether now existing or hereafter
in effect.
7.5 Payments to Other Persons. If payments are legally required to be
made to any person other than the person to whom any amount is
payable under the Plan, such payments will be made accordingly. Any
such payment will be a complete discharge of the liability of the
Company under the Plan.
7.6 Unfunded Plan. Nothing in this Plan will require the Company to
purchase assets or place assets in a trust or other entity to which
contributions are made or otherwise to segregate any assets for the
purpose of satisfying any obligations under the Plan. Participants
will have no rights under the Plan other than as unsecured general
creditors of the Company.
7.7 Limits of Liability. Neither the Company, the Committee nor any other
person participating in any determination of any question under the
Plan, or in the interpretation, administration or application of the
Plan, will have any liability to any party for any action taken or
not taken in good faith under the Plan.
7.8 No Right of Employment. Nothing in this Plan will be construed as
creating any contract of employment or conferring upon any Employee
or Participant any right to continue in the employ or other service
of the Company or limit in any way the right of the Company to change
such person's compensation or other benefits or to terminate the
employment or other service of such person with or without Cause.
7.9 Section Headings. The section headings contained herein are for
convenience only, and in the event of any conflict, the text of the Plan, rather
than the section headings, will control.
7.10 Invalidity. If any term or provision contained herein is to any
extent invalid or unenforceable, such term or provision will be
reformed so that it is valid, and such invalidity or unenforceability
will not affect any other provision or part hereof.
7.11 Applicable Law. The Plan will be governed by the laws of the state of
California as determined without regard to the conflict of law principles
thereof.
7.12 Effective Date. Subject to the approval of the Company's shareholders,
the Plan shall be effective as of March 1, 1996.
<PAGE>
Exhibit 10.5
COUNTRYWIDE CREDIT INDUSTRIES, INC.
1993 STOCK OPTION PLAN
(Amended and Restated as of March 27, 1996)
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
i FFNY01\YAWMADA\NORMAL\Plan
- -------------------------------------------------------------------------------------------------------------------
COUNTRYWIDE CREDIT INDUSTRIES, INC.
1993 STOCK OPTION PLAN
(Amended and Restated as of March 27, 1996)
<S> <C>
1. Purpose................................................................................................1
2. Definitions............................................................................................1
3. Administration.........................................................................................6
4. Stock Subject to Program...............................................................................7
5. Option Grants for Nonemployee Directors................................................................8
6. Option Grants for Eligible Employees...................................................................9
7. Terms and Conditions Applicable to All Options.........................................................10
8. Adjustment Upon Changes in Capitalization..............................................................12
9. Effect of Certain Transactions.........................................................................12
10. Termination and Amendment of the Plan..................................................................13
11. Non-Exclusivity of the Plan............................................................................13
12. Limitation of Liability................................................................................13
13. Regulations and Other Approvals; Governing Law.........................................................14
14. Miscellaneous..........................................................................................15
15. Effective Date.........................................................................................16
</TABLE>
<PAGE>
Page 38
COUNTRYWIDE CREDIT INDUSTRIES, INC.
1993 STOCK OPTION PLAN
(Amended and Restated as of March 27, 1996)
1. Purpose.
The purpose of this Plan is to strengthen Countrywide Credit
Industries, Inc. by providing an incentive to its key employees and directors
and thereby encouraging them to devote their abilities and industry to the
success of the Company's business enterprise. It is intended that this purpose
be achieved by extending to key employees and directors of the Company and the
Subsidiaries an added long-term incentive for high levels of performance and
unusual efforts through the grant of options to purchase shares of the Company's
common stock under the amended and restated Countrywide Credit Industries, Inc.
1993 Stock Option Plan.
2. Definitions.
For purposes of the Plan:
(a) "Adjusted Fair Market Value" means, in the event of a Change in
Control, the greater of (1) the highest price per Share paid to holders of the
Shares in any transaction (or series of transactions) constituting or resulting
in a Change in Control or (2) the highest Fair Market Value of a Share during
the ninety (90) day period ending on the date of a Change in Control.
(b) "Agreement" means the written agreement between the Company and an
Optionee evidencing the grant of an Option and setting forth the terms and
conditions thereof.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means (1) any act of (A) fraud or intentional
misrepresentation, or (B) embezzlement, misappropriation or conversion of assets
or opportunities of the Company or any direct or indirect majority-owned
subsidiary of the Company, or (2) willful violation of any law, rule or
regulation in connection with the performance of an Optionee's duties (other
than traffic violations or similar offenses).
(e) "Change in Capitalization" means any increase or reduction in the
number of Shares, or exchange of Shares for a different number or kind of shares
or other securities of the Company, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, stock dividend, stock
split or reverse stock split, combination or exchange of shares, or other
similar event.
(f) "Change in Control" means the occurrence of any one of the following
events:
(1) An acquisition (other than directly from Employer) of any common stock
or other "Voting Securities" (as hereinafter defined) of Employer by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
immediately after which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty five percent
(25%) or more of the then outstanding shares of Employer's common stock or the
combined voting power of Employer's then outstanding Voting Securities;
provided, however, in determining whether a Change in Control has
-------- -------
occurred, Voting Securities which are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an acquisition which
would cause a Change in Control. For purposes of this Agreement, (A) "Voting
Securities" shall mean Employer's outstanding voting securities entitled to vote
generally in the election of directors and (B) a "Non-Control Acquisition" shall
mean an acquisition by (i) an employee benefit plan (or a trust forming a part
thereof) maintained by (x) Employer or (y) any corporation or other Person of
which a majority of its voting power or its voting equity securities or equity
interest is owned, directly or indirectly, by Employer (for purposes of this
definition, a "Subsidiary"), (ii) Employer or any of its Subsidiaries, or (iii)
any Person in connection with a "Non-Control Transaction" (as hereinafter
defined);
(2) The individuals who as of March 27, 1996 are members of the Board (the
"Incumbent Board") cease for any reason to constitute at least two-thirds of the
members of the Board; provided, however, that if the election, or nomination for
election by
-------- -------
Employer's common stockholders, of any new director was approved by a vote
of at least two-thirds of the Incumbent Board, such new director shall, for
purposes of this Agreement, be considered as a member of the Incumbent Board;
provided further,
-------- -------
however, that no individual shall be considered a member of the Incumbent
Board if
-------
such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a "Proxy Contest") including
by reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or reorganization involving Employer, unless
such merger, consolidation or reorganization is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a merger, consolidation or reorganization
of Employer where:
(i) the stockholders of Employer, immediately before such merger,
consolidation or reorganization, own directly or indirectly immediately
following such merger, consolidation or reorganization, at least seventy percent
(70%) of the combined voting power of the outstanding Voting Securities of the
corporation resulting from such merger, consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation or
reorganization;
(ii) the individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds of the members of the board of
directors of the Surviving Corporation, or in the event that, immediately
following the consummation of such transaction, a corporation beneficially owns,
directly or indirectly, a majority of the Voting Securities of the Surviving
Corporation, the board of directors of such corporation; and
(iii) no Person other than (w) Employer, (x) any Subsidiary, (y) any
employee benefit plan (or any trust forming a part thereof) maintained by
Employer, the Surviving Corporation, or any Subsidiary, or (z) any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of twenty five percent (25%) or more of the then outstanding Voting
Securities or common stock of Employer, has Beneficial Ownership of twenty five
percent (25%) or more of the combined voting power of the Surviving
Corporation's then outstanding Voting Securities or its common stock;
(B) A complete liquidation or dissolution of Employer; or
(C) The sale or other disposition of all or substantially all of the assets
of Employer to any Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not
be deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then outstanding
common stock or Voting Securities as a result of the acquisition of common stock
or Voting Securities by Employer which, by reducing the number of shares of
common stock or Voting Securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Persons; provided, however,
that if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of common stock or Voting Securities by Employer,
and after such share acquisition by Employer, the Subject Person becomes the
Beneficial Owner of any additional common stock or Voting Securities which
increases the percentage of the then outstanding common stock or Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means a committee consisting of at least two (2)
directors appointed by the Board to administer the Plan and to perform the
functions set forth herein.
(i) "Company" means Countrywide Credit Industries, Inc.
(j) "Director Option" means an Option granted to a Nonemployee Director
pursuant to Section 5.
(k) "Disability" means a physical or mental infirmity which impairs the
Optionee's ability to perform substantially his or her duties for a period of
one hundred eighty (180) consecutive days.
(l) "Disinterested Director" means a director of the Company who is
"disinterested" within the meaning of Rule 16b-3 under the Exchange Act.
(m) "Eligible Employee" means any officer or other key employee of the
Company or a Subsidiary designated by the Committee as eligible to receive
Options subject to the conditions set forth herein.
(n) "Employee Option" means an Option granted to an Eligible Employee
pursuant to Section 6.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(p) "Fair Market Value" on any date means the average of the high and
low sales prices of the Shares on such date on the principal national securities
exchange on which such Shares are listed or admitted to trading, or if such
Shares are not so listed or admitted to trading, the arithmetic mean of the per
Share closing bid price and per Share closing asked price on such date as quoted
on the National Association of Securities Dealers Automated Quotation System or
such other market in which such prices are regularly quoted, or, if there have
been no published bid or asked quotations with respect to Shares on such date,
the Fair Market Value shall be the value established by the Board in good faith
and in accordance with Section 422 of the Code.
(q) "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as an
Incentive Stock Option.
(r) "Nonemployee Director" means a director of the Company who is not an
employee of the Company or any Subsidiary.
(s) "Nonqualified Stock Option" means an Option which is not an Incentive
Stock Option.
(t) "Option" means an Employee Option, a Director Option, or either or both
of them.
(u) "Optionee" means a person to whom an Option has been granted under the
Plan.
(v) "Outside Director" means a director of the Company who is an
"outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
(w) "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the Company.
(x) "Plan" means the Countrywide Credit Industries, Inc. 1993 Stock Option
Plan, as amended and restated effective March 27, 1996.
(y) "Shares" means the common stock, par value $.05 per share, of the
Company.
(z) "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) with respect to
the Company.
(aa) "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a) of the
Code applies.
(bb) "Ten-Percent Stockholder" means an Eligible Employee, who, at the
time an Incentive Stock Option is to be granted to him or her, owns (within the
meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company,
or of a Parent or a Subsidiary.
3. Administration.
(a) The Plan shall be administered by the Committee, which shall hold
meetings at such times as may be necessary for the proper administration of the
Plan. The Committee shall keep minutes of its meetings. A quorum shall consist
of not less than two members of the Committee and a majority of a quorum may
authorize any action. Any decision or determination reduced to writing and
signed by a majority of all of the members shall be as fully effective as if
made by a majority vote at a meeting duly called and held. Each member of the
Committee shall be a Disinterested Director and an Outside Director. No member
of the Committee shall be liable for any action, failure to act, determination
or interpretation made in good faith with respect to this Plan or any
transaction hereunder, except for liability arising from his or her own willful
misfeasance, gross negligence or reckless disregard of his or her duties. The
Company hereby agrees to indemnify each member of the Committee for all costs
and expenses and, to the extent permitted by applicable law, any liability
incurred in connection with defending against, responding to, negotiation for
the settlement of or otherwise dealing with any claim, cause of action or
dispute of any kind arising in connection with any actions in administering this
Plan or in authorizing or denying authorization to any transaction hereunder.
(b) Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time to:
(1) determine those Eligible Employees to whom Employee
Options shall be granted under the Plan and the number of Incentive Stock
Options and/or Nonqualified Stock Options to be granted to each Eligible
Employee and to prescribe the terms and conditions (which need not be identical)
of each such Employee Option, including the purchase price per Share subject to
each Employee Option, and make any amendment or modification to any Agreement
consistent with the terms of the Plan;
(2) to construe and interpret the Plan and the Options granted
hereunder and to establish, amend and revoke rules and regulations for the
administration of the Plan, including, but not limited to, correcting any defect
or supplying any omission, or reconciling any inconsistency in the Plan or in
any Agreement, in the manner and to the extent it shall deem necessary or
advisable so that the Plan complies with applicable law, including Rule 16b-3
under the Exchange Act and the Code to the extent applicable, and otherwise to
make the Plan fully effective. All decisions and determinations by the Committee
in the exercise of this power shall be final, binding and conclusive upon the
Company, its Subsidiaries, the Optionees and all other persons having any
interest therein;
(3) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee on an individual basis without
constituting a termination of employment or service for purposes of the Plan;
(4) to exercise its discretion with respect to the powers and rights
granted to it as set forth in the Plan; and
(5) generally, to exercise such powers and to perform such
acts as are deemed necessary or advisable to promote the best interests of the
Company with respect to the Plan.
4. Stock Subject to Program.
(a) The maximum number of Shares that may be made the subject of
Options granted under the Plan is ten million five hundred thousand
(10,500,000); provided, however, that the maximum number of Shares that may be
the subject of Options granted to any Eligible Employee from and after March 27,
1996 and during the term of the Plan may not exceed three million (3,000,000).
Upon a Change in Capitalization the maximum number of Shares shall be adjusted
in number and kind pursuant to Section 8. The Company shall reserve for the
purposes of the Plan, out of its authorized but unissued Shares or out of Shares
held in the Company's treasury, or partly out of each, such number of Shares as
shall be determined by the Board.
(b) Whenever any outstanding Option or portion thereof expires, is
canceled or is otherwise terminated for any reason (other than upon the
surrender of the Option pursuant to Section 7(e) hereof), the Shares allocable
to the expired, canceled or otherwise terminated Option or portion thereof may
again be the subject of Options granted hereunder.
5. Option Grants for Nonemployee Directors.
(a) Grant. Director Options shall be granted to each Nonemployee
Director on the first business day of June of each year that the Plan is in
effect. The number of Shares and the purchase price therefor of each Director
Option shall be as provided in this Section 5 and such Options shall be
evidenced by an Agreement containing such other terms and conditions not
inconsistent with the provisions of this Plan as determined by the Board.
Notwithstanding the foregoing provisions of this Subsection (a), no Option shall
be granted in any year to a Nonemployee Director who makes a written election
not to receive such Option under the Plan, provided such election is filed with
the Secretary of the Company at least one business day prior to the date such
grant would otherwise be made under the Plan; provided, further, that an
election made pursuant to this sentence shall remain effective until the next
business day following the date a written notice revoking such election is made
and filed with the Secretary of the Company. A Nonemployee Director who makes an
election not to receive an Option will not receive anything from the Company in
lieu thereof.
(b) Number of Shares. Each Director Option granted shall be in respect
of a number of Shares equal to the lesser of (1) 7,500 multiplied by a fraction,
the numerator of which is the earnings per Share on a fully diluted basis of the
Company for the fiscal year of the Company ended immediately before the date of
grant of the Director Option (as reported in the audited Financial Statements
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission ("SEC"), but in no event less than zero) (the "EPS
Numerator Amount") and the denominator of which is $.68, or (2) 7,500 multiplied
by a fraction, the numerator of which is the EPS Numerator Amount and the
denominator of which is the earnings per share on a fully diluted basis of the
Company for the fiscal year immediately preceding the fiscal year in respect of
which the EPS Numerator Amount is determined as reported in the Company's Annual
Report on Form 10-K filed with the SEC. The number 7,500 and the $.68 amount
referred to in the previous sentence shall be equitably adjusted in the event of
a Change in Capitalization.
(c) Purchase Price. The purchase price for Shares under each Director
Option shall be equal to 100% of the Fair Market Value of a Share on the date
the Director Option is granted.
(d) Duration. Director Options shall be for a term of ten (10) years.
(e) Vesting. Subject to Section 7(e) hereof, Director Options shall be
exercisable in whole or in part at any time after one year from the date of
grant of the Director Option.
(f) The provisions in this Section 5 shall not be amended more than
once every six months, other than to comport with changes in the Code or the
rules and regulations thereunder.
(g) Notwithstanding the foregoing, no Director Option will be granted
to any Nonemployee Director pursuant to this Section 5 on any day if such
Nonemployee Director is granted an option pursuant to Section 5 of the Company's
1991 Stock Option Plan on such day.
6. Option Grants for Eligible Employees.
(a) Subject to the provisions of the Plan and to Section 4(a) above,
the Committee shall have full and final authority to select those Eligible
Employees who will receive Employee Options, the terms and conditions of which
shall be set forth in an Agreement; provided, however, that no Eligible Employee
shall receive any Incentive Stock Options unless he or she is an employee of the
Company, a Parent or a Subsidiary at the time the Incentive Stock Option is
granted.
(b) Purchase Price. The purchase price or the manner in which the
purchase price is to be determined for Shares under each Employee Option shall
be determined by the Committee and set forth in the Agreement; provided,
however, that the purchase price per Share under each Employee Option shall not
be less than 100% of the Fair Market Value of a Share on the date the Employee
Option is granted (110% in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder).
(c) Duration. Employee Options granted hereunder shall be for such term
as the Committee shall determine, provided that no Employee Option shall be
exercisable after the expiration of ten (10) years from the date it is granted
(five (5) years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder). The Committee may, subsequent to the granting of any
Employee Option, extend the term thereof but in no event shall the term as so
extended exceed the maximum term provided for in the preceding sentence.
(d) Vesting. Subject to Section 7(e) hereof, each Employee Option
shall, commencing not earlier than the first anniversary of the date of its
grant, become exercisable in such installments (which need not be equal) and at
such times as may be designated by the Committee and set forth in the Agreement.
To the extent not exercised, installments shall accumulate and be exercisable,
in whole or in part, at any time after becoming exercisable, but not later than
the date the Employee Option expires. The Committee may accelerate the
exercisability of any Employee Option or portion thereof at any time.
(e) Modification or Substitution. The Committee may, in its discretion,
modify outstanding Employee Options or accept the surrender of outstanding
Employee Options (to the extent not exercised) and grant new Options in
substitution for them. Notwithstanding the foregoing, no modification of an
Employee Option shall adversely alter or impair any rights or obligations under
the Employee Option without the Optionee's consent.
7. Terms and Conditions Applicable to All Options.
(a) Non-transferability. Unless provided for to the contrary in the
Agreement, no Option granted hereunder shall be transferable by the Optionee to
whom granted otherwise than by will or the laws of descent and distribution, and
an Option may be exercised during the lifetime of such Optionee only by the
Optionee or his or her guardian or legal representative. The terms of such
Option shall be final, binding and conclusive upon the beneficiaries, executors,
administrators, heirs and successors of the Optionee.
(b) Method of Exercise. The exercise of an Option shall be made only by
a written notice delivered in person or by mail to the Secretary of the Company
at the Company's principal executive office, specifying the number of Shares to
be purchased and accompanied by payment therefor and otherwise in accordance
with the Agreement pursuant to which the Option was granted. The purchase price
for any Shares purchased pursuant to the exercise of an Option shall be paid in
full upon such exercise, by any one or a combination of the following: (1) cash,
(2) pursuant to the Company's Stock Option Financing Plan (approved by the
Company's shareholders at the Company's 1987 Annual Meeting) as amended from
time to time or any successor or additional financing plan approved by the
Board, through the execution of a promissory note and pledge agreement or (3)
transferring Shares to the Company. In addition, Options may be exercised
through a registered broker-dealer pursuant to such cashless exercise procedures
(other than Share withholding) which are, from time to time, deemed acceptable
by the Committee. Any Shares transferred to the Company as payment of the
purchase price under an Option shall be valued at their Fair Market Value on the
day preceding the date of exercise of such Option. If requested by the
Committee, the Optionee shall deliver the Agreement evidencing the Option to the
Secretary of the Company who shall endorse thereon a notation of such exercise
and return such Agreement to the Optionee. No fractional Shares (or cash in lieu
thereof) shall be issued upon exercise of an Option and the number of Shares
that may be purchased upon exercise shall be rounded to the nearest number of
whole Shares.
(c) Rights of Optionees. No Optionee shall be deemed for any purpose to
be the owner of any Shares subject to any Option unless and until (1) the Option
shall have been exercised pursuant to the terms thereof, (2) the Company shall
have issued and delivered the Shares to the Optionee and (3) the Optionee's name
shall have been entered as a stockholder of record on the books of the Company.
Thereupon, the Optionee shall have full voting, dividend and other ownership
rights with respect to such Shares.
(d) Termination of Employment. Unless otherwise provided in the
Agreement evidencing the Option, an Option shall terminate upon or following an
Optionee's termination of employment with the Company and its Subsidiaries or
service as a director of the Company and its Subsidiaries as follows:
(1) if an Optionee's employment or service as a director
terminates for any reason other than death, Disability or Cause, the Optionee
may at any time within three (3) months after his or her termination of
employment or service as a director, exercise an Option to the extent, and only
to the extent, that the Option or portion thereof was exercisable on the date of
termination;
(2) in the event the Optionee's employment or service as a
director terminates as a result of Disability, the Optionee may at any time
within one (1) year after such termination exercise such Option to the extent,
and only to the extent, the Option or portion thereof was exercisable at the
date of such termination;
(3) if an Optionee's employment or service as a director terminates for
Cause, the Option shall terminate immediately and no rights thereunder may be
exercised;
(4) if an Optionee dies while a director or an employee of the
Company or any Subsidiary or within three months after termination as described
in clause (1) of this Section 7(d) or within one (1) year after termination as a
result of Disability as described in clause (2) of this Section 7(d), the Option
may be exercised at any time within one (1) year after the Optionee's death by
the person or persons to whom such rights under the Option shall pass by will or
by the laws of descent and distribution; provided, however, that an Option may
be exercised to the extent, and only to the extent, that the Option or portion
thereof was exercisable on the date of death or earlier termination.
Notwithstanding the foregoing, (1) in no event may any Option
be exercised by anyone after the expiration of the term of the Option and (2) a
termination of service as a director shall not be deemed to occur so long as the
director continues to serve the Company as either a director or director
emeritus.
(e) Effect of Change in Control. Notwithstanding anything contained in
the Plan or an Agreement to the contrary, in the event of a Change in Control,
(1) all Options outstanding on the date of such Change in Control shall become
immediately and fully exercisable and (2) an Optionee shall be permitted to
surrender for cancellation within sixty (60) days after such Change in Control,
any Option or portion of an Option to the extent not yet exercised and the
Optionee will be entitled to receive a cash payment in an amount equal to the
excess, if any, of (x) (A) in the case of a Nonqualified Stock Option, the
greater of (i) the Fair Market Value, on the date preceding the date of
surrender, of the Shares subject to the Option or portion thereof surrendered or
(ii) the Adjusted Fair Market Value of the Shares subject to the Option or
portion thereof surrendered or (B) in the case of an Incentive Stock Option, the
Fair Market Value, on the date preceding the date of surrender, of the Shares
subject to the Option or portion thereof surrendered, over (y) the aggregate
purchase price for such Shares under the Option or portion thereof surrendered;
provided, however, that in the case of an Option granted within six (6) months
prior to the Change in Control to any Optionee who may be subject to liability
under Section 16(b) of the Exchange Act, such Optionee shall be entitled to
surrender for cancellation his or her Option during the sixty (60) day period
commencing upon the expiration of six (6) months from the date of grant of any
such Option.
8. Adjustment Upon Changes in Capitalization.
(a) Subject to Section 9, in the event of a Change in Capitalization,
the maximum number and class of Shares or other stock or securities with respect
to which Options may be granted under the Plan in the aggregate and to any
Optionee, the number and class of Shares or other stock or securities which are
subject to outstanding Options granted under the Plan, and the purchase price
therefor, if applicable, shall be appropriately and equitably adjusted by the
Committee.
(b) Any such adjustment in the Shares or other stock or securities
subject to outstanding Incentive Stock Options (including any adjustments in the
purchase price) shall be made in such manner as not to constitute a modification
as defined by Section 424(h)(3) of the Code and only to the extent otherwise
permitted by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, an Optionee shall be
entitled to exercise an Option with respect to new, additional or different
shares of stock or securities, such new, additional or different shares shall
thereupon be subject to all of the conditions which were applicable to the
Shares subject to the Option, as the case may be, prior to such Change in
Capitalization.
9. Effect of Certain Transactions.
Subject to Section 7(e), in the event of (1) the liquidation or
dissolution of the Company or (2) a merger or consolidation of the Company (a
"Transaction"), the Plan and the Options issued hereunder shall continue in
effect in accordance with their respective terms and each Optionee shall be
entitled to receive in respect of each Share subject to any outstanding Options,
as the case may be, upon exercise of any Option, the same number and kind of
stock, securities, cash, property, or other consideration that each holder of a
Share was entitled to receive in the Transaction in respect of a Share. In the
event that, after a Transaction, there occurs any change of a type described in
Section 2(e) hereof with respect to the shares of the surviving or resulting
corporation, then adjustments similar to, and subject to the same conditions as,
those in Section 8 hereof shall be made.
10. Termination and Amendment of the Plan.
(a) The Plan shall terminate on April 7, 2003, and no Option may be
granted thereafter. The Board may sooner terminate or amend the Plan at any time
and from time to time; provided, however, that to the extent necessary under
Section 16(b) of the Exchange Act and the rules and regulations promulgated
thereunder or other applicable law, no amendment shall be effective unless
approved by the stockholders of the Company in accordance with applicable law
and regulations at an annual or special meeting held within twelve (12) months
after the date of adoption of such amendment.
(b) Except as provided in Sections 8 and 9 hereof, rights and
obligations under any Option granted before any amendment or termination of the
Plan shall not be adversely altered or impaired by such amendment or
termination, except with the consent of the Optionee, nor shall any amendment or
termination deprive any Optionee of any Shares which he may have acquired
through or as a result of the Plan.
11. Non-Exclusivity of the Plan.
The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive arrangement
or as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.
12. Limitation of Liability.
As illustrative of the limitations of liability of the Company, but not
intended to be exhaustive thereof, nothing in the Plan shall be construed to:
(a) give any person any right to be granted an Option other than at the
sole discretion of the Committee;
(b) give any person any rights whatsoever with respect to Shares except as
specifically provided in the Plan;
(c) limit in any way the right of the Company to terminate the employment
of any person at any time; or
(d) be evidence of any agreement or understanding, expressed or
implied, that the Company will employ any person at any particular rate of
compensation or for any particular period of time.
13. Regulations and Other Approvals; Governing Law.
(a) This Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of Delaware.
(b) The obligation of the Company to sell or deliver Shares with
respect to Options granted under the Plan shall be subject to all applicable
laws, rules and regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
(c) (1) The Plan is intended to comply with Rule 16b-3 promulgated
under the Exchange Act and the Committee shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent therewith. Any
provisions inconsistent with such Rule shall be inoperative and shall not affect
the validity of the Plan.
(2) The Director Options described in Section 5 are intended
to qualify as formula awards under Rule 16b-3 promulgated under the Exchange Act
(thereby preserving the disinterested status of Nonemployee Directors receiving
such awards) and the Committee shall interpret and administer the provisions of
the Plan or any Agreement in a manner consistent therewith. Any provisions
inconsistent with the foregoing intent shall be inoperative and shall not affect
the validity of the Plan.
(3) Unless otherwise expressly stated in the relevant
Agreement, each Employee Option granted under the Plan is intended to be
performance-based compensation within the meaning of Section 162(m)(4)(C) of the
Code.
(d) The Board may make such changes as may be necessary or appropriate
to comply with the rules and regulations of any government authority, or to
obtain for Eligible Employees granted Incentive Stock Options the tax benefits
under the applicable provisions of the Code and regulations promulgated
thereunder.
(e) Each Option is subject to the requirement that, if at any time the
Committee determines, in its discretion, that the listing, registration or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or the issuance of
Shares, no Options shall be granted or payment made or Shares issued, in whole
or in part, unless listing, registration, qualification, consent or approval has
been effected or obtained free of any conditions as acceptable to the Committee.
(f) Notwithstanding anything contained in the Plan to the contrary, in
the event that the disposition of Shares acquired pursuant to the Plan is not
covered by a then current registration statement under the Securities Act of
1933, as amended (the "Securities Act"), and is not otherwise exempt from such
registration, such Shares shall be restricted against transfer to the extent
required by the Securities Act and Rule 144 or other regulations thereunder. The
Committee may require any individual receiving Shares pursuant to the Plan, as a
condition precedent to receipt of such Shares upon exercise of an Option, to
represent and warrant to the Company in writing that the Shares acquired by such
individual are acquired without a view to any distribution thereof and will not
be sold or transferred other than pursuant to an effective registration thereof
under said Act or pursuant to an exemption applicable under the Securities Act
or the rules and regulations promulgated thereunder. The certificates evidencing
any of such Shares shall be appropriately amended to reflect their status as
restricted securities as aforesaid.
14. Miscellaneous.
(a) Multiple Agreements. The terms of each Option may differ from other
Options granted under the Plan at the same time, or at some other time. The
Committee may also grant more than one Option to a given Eligible Employee
during the term of the Plan, either in addition to, or in substitution for, one
or more Options previously granted to that Eligible Employee.
(b) Withholding of Taxes. (1) The Company shall have the right to
deduct from any distribution of cash to any Optionee, an amount equal to the
federal, state and local income taxes and other amounts as may be required by
law to be withheld (the "Withholding Taxes") with respect to any Option. If an
Optionee is entitled to receive Shares upon exercise of an Option, the Optionee
shall pay the Withholding Taxes to the Company prior to the issuance, or release
from escrow, of such Shares. In satisfaction of the Withholding Taxes to the
Company, the Optionee may make a written election (the "Tax Election"), which
may be accepted or rejected in the discretion of the Committee, to have withheld
a portion of the Shares issuable to him or her upon exercise of the Option
having an aggregate Fair Market Value equal to the Withholding Taxes, provided
that in respect of an Optionee who may be subject to liability under Section
16(b) of the Exchange Act either (A) (i) the Optionee makes the Tax Election at
least six (6) months after the date the Option was granted, (ii) the Option is
exercised during the ten day period beginning on the third business day and
ending on the twelfth business day following the release for publication of the
Company's quarterly or annual statements of earnings (a "Window Period") and
(iii) the Tax Election is made during the Window Period in which the Option is
exercised or prior to such Window Period and subsequent to the immediately
preceding Window Period or (B) (i) the Tax Election is made at least six (6)
months prior to the date the Option is exercised and (ii) the Tax Election is
irrevocable with respect to the exercise of all Options which are exercised
prior to the expiration of six (6) months following an election to revoke the
Tax Election. Notwithstanding the foregoing, the Committee may, by the adoption
of rules or otherwise, (x) modify the provisions in the preceding sentence or
impose such other restrictions or limitations on Tax Elections as may be
necessary to ensure that the Tax Elections will be exempt transactions under
Section 16(b) of the Exchange Act, and (y) permit Tax Elections to be made at
such other times and subject to such other conditions as the Committee
determines will constitute exempt transactions under Section 16(b) of the
Exchange Act.
(2) If an Optionee makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of any Share
or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock
Option within the two-year period commencing on the day after the date of the
grant or within the one-year period commencing on the day after the date of
transfer of such Share or Shares to the Optionee pursuant to such exercise, the
Optionee shall, within ten (10) days of such disposition, notify the Company
thereof, by delivery of written notice to the Company at its principal executive
office, and immediately deliver to the Company the amount of Withholding Taxes.
15. Effective Date.
The effective date of the Amended and Restated Plan shall be the date
of its adoption by the Board, subject only to the approval by the affirmative
votes of the holders of a majority of the securities of the Company present, or
represented, and entitled to vote at a meeting of stockholders duly held in
accordance with the applicable laws of the State of Delaware within twelve (12)
months of such adoption.
Notwithstanding any provision contained herein to the contrary, any
Option outstanding on the date the Board adopts the Amended and Restated Plan
will be governed by the terms of the Plan as in effect immediately prior to such
adoption.
<PAGE>
Exhibit 10.5.1
COUNTRYWIDE CREDIT INDUSTRIES, INC.
1993 STOCK OPTION PLAN
(Amended and Restated as of March 27, 1996)
1. Purpose.
The purpose of this Plan is to strengthen Countrywide Credit
Industries, Inc. by providing an incentive to its key employees and directors
and thereby encouraging them to devote their abilities and industry to the
success of the Company's business enterprise. It is intended that this purpose
be achieved by extending to key employees and directors of the Company and the
Subsidiaries an added long-term incentive for high levels of performance and
unusual efforts through the grant of options to purchase shares of the Company's
common stock under the amended and restated Countrywide Credit Industries, Inc.
1993 Stock Option Plan.
2. Definitions.
For purposes of the Plan:
(a) "Adjusted Fair Market Value" means, in the event of a Change in
Control, the greater of (1) the highest price per Share paid to holders of the
Shares in any transaction (or series of transactions) constituting or resulting
in a Change in Control or (2) the highest Fair Market Value of a Share during
the ninety (90) day period ending on the date of a Change in Control.
(b) "Agreement" means the written agreement between the Company and an
Optionee evidencing the grant of an Option and setting forth the terms and
conditions thereof.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means (1) any act of (A) fraud or intentional
misrepresentation, or (B) embezzlement, misappropriation or conversion of assets
or opportunities of the Company or any direct or indirect majority-owned
subsidiary of the Company, or (2) willful violation of any law, rule or
regulation in connection with the performance of an Optionee's duties (other
than traffic violations or similar offenses).
(e) "Change in Capitalization" means any increase or reduction in the
number of Shares, or exchange of Shares for a different number or kind of shares
or other securities of the Company, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, stock dividend, stock
split or reverse stock split, combination or exchange of shares, or other
similar event.
(f) "Change in Control" means the occurrence of any one of the following
events:
(1) An acquisition (other than directly from Employer) of any common stock
or other "Voting Securities" (as hereinafter defined) of Employer by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
immediately after which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty five percent
(25%) or more of the then outstanding shares of Employer's common stock or the
combined voting power of Employer's then outstanding Voting Securities;
provided, however, in determining whether a Change in Control has
-------- -------
occurred, Voting Securities which are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an acquisition which
would cause a Change in Control. For purposes of this Agreement, (A) "Voting
Securities" shall mean Employer's outstanding voting securities entitled to vote
generally in the election of directors and (B) a "Non-Control Acquisition" shall
mean an acquisition by (i) an employee benefit plan (or a trust forming a part
thereof) maintained by (x) Employer or (y) any corporation or other Person of
which a majority of its voting power or its voting equity securities or equity
interest is owned, directly or indirectly, by Employer (for purposes of this
definition, a "Subsidiary"), (ii) Employer or any of its Subsidiaries, or (iii)
any Person in connection with a "Non-Control Transaction" (as hereinafter
defined);
(2) The individuals who as of March 27, 1996 are members of the Board (the
"Incumbent Board") cease for any reason to constitute at least two-thirds of the
members of the Board; provided, however, that if the election, or nomination for
election by
-------- -------
Employer's common stockholders, of any new director was approved by a vote
of at least two-thirds of the Incumbent Board, such new director shall, for
purposes of this Agreement, be considered as a member of the Incumbent Board;
provided further,
-------- -------
however, that no individual shall be considered a member of the Incumbent
Board if
-------
such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a "Proxy Contest") including
by reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or reorganization involving Employer, unless
such merger, consolidation or reorganization is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a merger, consolidation or reorganization
of Employer where:
(i) the stockholders of Employer, immediately before such merger,
consolidation or reorganization, own directly or indirectly immediately
following such merger, consolidation or reorganization, at least seventy percent
(70%) of the combined voting power of the outstanding Voting Securities of the
corporation resulting from such merger, consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation or
reorganization;
(ii) the individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds of the members of the board of
directors of the Surviving Corporation, or in the event that, immediately
following the consummation of such transaction, a corporation beneficially owns,
directly or indirectly, a majority of the Voting Securities of the Surviving
Corporation, the board of directors of such corporation; and
(iii) no Person other than (w) Employer, (x) any Subsidiary, (y) any
employee benefit plan (or any trust forming a part thereof) maintained by
Employer, the Surviving Corporation, or any Subsidiary, or (z) any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of twenty five percent (25%) or more of the then outstanding Voting
Securities or common stock of Employer, has Beneficial Ownership of twenty five
percent (25%) or more of the combined voting power of the Surviving
Corporation's then outstanding Voting Securities or its common stock;
(B) A complete liquidation or dissolution of Employer; or
(C) The sale or other disposition of all or substantially all of the assets
of Employer to any Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not
be deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then outstanding
common stock or Voting Securities as a result of the acquisition of common stock
or Voting Securities by Employer which, by reducing the number of shares of
common stock or Voting Securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Persons; provided, however,
that if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of common stock or Voting Securities by Employer,
and after such share acquisition by Employer, the Subject Person becomes the
Beneficial Owner of any additional common stock or Voting Securities which
increases the percentage of the then outstanding common stock or Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means a committee consisting of at least two (2)
directors appointed by the Board to administer the Plan and to perform the
functions set forth herein.
(i) "Company" means Countrywide Credit Industries, Inc.
(j) "Director Option" means an Option granted to a Nonemployee Director
pursuant to Section 5.
(k) "Disability" means a physical or mental infirmity which impairs the
Optionee's ability to perform substantially his or her duties for a period of
one hundred eighty (180) consecutive days.
(l) "Disinterested Director" means a director of the Company who is
"disinterested" within the meaning of Rule 16b-3 under the Exchange Act.
(m) "Eligible Employee" means any officer or other key employee of the
Company or a Subsidiary designated by the Committee as eligible to receive
Options subject to the conditions set forth herein.
(n) "Employee Option" means an Option granted to an Eligible Employee
pursuant to Section 6.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(p) "Fair Market Value" on any date means the average of the high and
low sales prices of the Shares on such date on the principal national securities
exchange on which such Shares are listed or admitted to trading, or if such
Shares are not so listed or admitted to trading, the arithmetic mean of the per
Share closing bid price and per Share closing asked price on such date as quoted
on the National Association of Securities Dealers Automated Quotation System or
such other market in which such prices are regularly quoted, or, if there have
been no published bid or asked quotations with respect to Shares on such date,
the Fair Market Value shall be the value established by the Board in good faith
and in accordance with Section 422 of the Code.
(q) "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as an
Incentive Stock Option.
(r) "Nonemployee Director" means a director of the Company who is not an
employee of the Company or any Subsidiary.
(s) "Nonqualified Stock Option" means an Option which is not an Incentive
Stock Option.
(t) "Option" means an Employee Option, a Director Option, or either or both
of them.
(u) "Optionee" means a person to whom an Option has been granted under the
Plan.
(v) "Outside Director" means a director of the Company who is an
"outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
(w) "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the Company.
(x) "Plan" means the Countrywide Credit Industries, Inc. 1993 Stock Option
Plan, as amended and restated effective March 27, 1996.
(y) "Shares" means the common stock, par value $.05 per share, of the
Company.
(z) "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) with respect to
the Company.
(aa) "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a) of the
Code applies.
(bb) "Ten-Percent Stockholder" means an Eligible Employee, who, at the
time an Incentive Stock Option is to be granted to him or her, owns (within the
meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company,
or of a Parent or a Subsidiary.
3. Administration.
(a) The Plan shall be administered by the Committee, which shall hold
meetings at such times as may be necessary for the proper administration of the
Plan. The Committee shall keep minutes of its meetings. A quorum shall consist
of not less than two members of the Committee and a majority of a quorum may
authorize any action. Any decision or determination reduced to writing and
signed by a majority of all of the members shall be as fully effective as if
made by a majority vote at a meeting duly called and held. Each member of the
Committee shall be a Disinterested Director and an Outside Director. No member
of the Committee shall be liable for any action, failure to act, determination
or interpretation made in good faith with respect to this Plan or any
transaction hereunder, except for liability arising from his or her own willful
misfeasance, gross negligence or reckless disregard of his or her duties. The
Company hereby agrees to indemnify each member of the Committee for all costs
and expenses and, to the extent permitted by applicable law, any liability
incurred in connection with defending against, responding to, negotiation for
the settlement of or otherwise dealing with any claim, cause of action or
dispute of any kind arising in connection with any actions in administering this
Plan or in authorizing or denying authorization to any transaction hereunder.
(b) Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time to:
(1) determine those Eligible Employees to whom Employee
Options shall be granted under the Plan and the number of Incentive Stock
Options and/or Nonqualified Stock Options to be granted to each Eligible
Employee and to prescribe the terms and conditions (which need not be identical)
of each such Employee Option, including the purchase price per Share subject to
each Employee Option, and make any amendment or modification to any Agreement
consistent with the terms of the Plan;
(2) to construe and interpret the Plan and the Options granted
hereunder and to establish, amend and revoke rules and regulations for the
administration of the Plan, including, but not limited to, correcting any defect
or supplying any omission, or reconciling any inconsistency in the Plan or in
any Agreement, in the manner and to the extent it shall deem necessary or
advisable so that the Plan complies with applicable law, including Rule 16b-3
under the Exchange Act and the Code to the extent applicable, and otherwise to
make the Plan fully effective. All decisions and determinations by the Committee
in the exercise of this power shall be final, binding and conclusive upon the
Company, its Subsidiaries, the Optionees and all other persons having any
interest therein;
(3) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee on an individual basis without
constituting a termination of employment or service for purposes of the Plan;
(4) to exercise its discretion with respect to the powers and rights
granted to it as set forth in the Plan; and
(5) generally, to exercise such powers and to perform such
acts as are deemed necessary or advisable to promote the best interests of the
Company with respect to the Plan.
4. Stock Subject to Program.
(a) The maximum number of Shares that may be made the subject of
Options granted under the Plan is ten million five hundred thousand
(10,500,000); provided, however, that the maximum number of Shares that may be
the subject of Options granted to any Eligible Employee from and after March 27,
1996 and during the term of the Plan may not exceed three million (3,000,000).
Upon a Change in Capitalization the maximum number of Shares shall be adjusted
in number and kind pursuant to Section 8. The Company shall reserve for the
purposes of the Plan, out of its authorized but unissued Shares or out of Shares
held in the Company's treasury, or partly out of each, such number of Shares as
shall be determined by the Board.
(b) Whenever any outstanding Option or portion thereof expires, is
canceled or is otherwise terminated for any reason (other than upon the
surrender of the Option pursuant to Section 7(e) hereof), the Shares allocable
to the expired, canceled or otherwise terminated Option or portion thereof may
again be the subject of Options granted hereunder.
5. Option Grants for Nonemployee Directors.
(a) Grant. Director Options shall be granted to each Nonemployee
Director on the first business day of June of each year that the Plan is in
effect. The number of Shares and the purchase price therefor of each Director
Option shall be as provided in this Section 5 and such Options shall be
evidenced by an Agreement containing such other terms and conditions not
inconsistent with the provisions of this Plan as determined by the Board.
Notwithstanding the foregoing provisions of this Subsection (a), no Option shall
be granted in any year to a Nonemployee Director who makes a written election
not to receive such Option under the Plan, provided such election is filed with
the Secretary of the Company at least one business day prior to the date such
grant would otherwise be made under the Plan; provided, further, that an
election made pursuant to this sentence shall remain effective until the next
business day following the date a written notice revoking such election is made
and filed with the Secretary of the Company. A Nonemployee Director who makes an
election not to receive an Option will not receive anything from the Company in
lieu thereof.
(b) Number of Shares. Each Director Option granted shall be in respect
of a number of Shares equal to the lesser of (1) 7,500 multiplied by a fraction,
the numerator of which is the earnings per Share on a fully diluted basis of the
Company for the fiscal year of the Company ended immediately before the date of
grant of the Director Option (as reported in the audited Financial Statements
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission ("SEC"), but in no event less than zero) (the "EPS
Numerator Amount") and the denominator of which is $.68, or (2) 7,500 multiplied
by a fraction, the numerator of which is the EPS Numerator Amount and the
denominator of which is the earnings per share on a fully diluted basis of the
Company for the fiscal year immediately preceding the fiscal year in respect of
which the EPS Numerator Amount is determined as reported in the Company's Annual
Report on Form 10-K filed with the SEC. The number 7,500 and the $.68 amount
referred to in the previous sentence shall be equitably adjusted in the event of
a Change in Capitalization.
(c) Purchase Price. The purchase price for Shares under each Director
Option shall be equal to 100% of the Fair Market Value of a Share on the date
the Director Option is granted.
(d) Duration. Director Options shall be for a term of ten (10) years.
(e) Vesting. Subject to Section 7(e) hereof, Director Options shall be
exercisable in whole or in part at any time after one year from the date of
grant of the Director Option.
(f) The provisions in this Section 5 shall not be amended more than
once every six months, other than to comport with changes in the Code or the
rules and regulations thereunder.
(g) Notwithstanding the foregoing, no Director Option will be granted
to any Nonemployee Director pursuant to this Section 5 on any day if such
Nonemployee Director is granted an option pursuant to Section 5 of the Company's
1991 Stock Option Plan on such day.
6. Option Grants for Eligible Employees.
(a) Subject to the provisions of the Plan and to Section 4(a) above,
the Committee shall have full and final authority to select those Eligible
Employees who will receive Employee Options, the terms and conditions of which
shall be set forth in an Agreement; provided, however, that no Eligible Employee
shall receive any Incentive Stock Options unless he or she is an employee of the
Company, a Parent or a Subsidiary at the time the Incentive Stock Option is
granted.
(b) Purchase Price. The purchase price or the manner in which the
purchase price is to be determined for Shares under each Employee Option shall
be determined by the Committee and set forth in the Agreement; provided,
however, that the purchase price per Share under each Employee Option shall not
be less than 100% of the Fair Market Value of a Share on the date the Employee
Option is granted (110% in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder).
(c) Duration. Employee Options granted hereunder shall be for such term
as the Committee shall determine, provided that no Employee Option shall be
exercisable after the expiration of ten (10) years from the date it is granted
(five (5) years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder). The Committee may, subsequent to the granting of any
Employee Option, extend the term thereof but in no event shall the term as so
extended exceed the maximum term provided for in the preceding sentence.
(d) Vesting. Subject to Section 7(e) hereof, each Employee Option
shall, commencing not earlier than the first anniversary of the date of its
grant, become exercisable in such installments (which need not be equal) and at
such times as may be designated by the Committee and set forth in the Agreement.
To the extent not exercised, installments shall accumulate and be exercisable,
in whole or in part, at any time after becoming exercisable, but not later than
the date the Employee Option expires. The Committee may accelerate the
exercisability of any Employee Option or portion thereof at any time.
(e) Modification or Substitution. The Committee may, in its discretion,
modify outstanding Employee Options or accept the surrender of outstanding
Employee Options (to the extent not exercised) and grant new Options in
substitution for them. Notwithstanding the foregoing, no modification of an
Employee Option shall adversely alter or impair any rights or obligations under
the Employee Option without the Optionee's consent.
7. Terms and Conditions Applicable to All Options.
(a) Non-transferability. Unless provided for to the contrary in the
Agreement, no Option granted hereunder shall be transferable by the Optionee to
whom granted otherwise than by will or the laws of descent and distribution, and
an Option may be exercised during the lifetime of such Optionee only by the
Optionee or his or her guardian or legal representative. The terms of such
Option shall be final, binding and conclusive upon the beneficiaries, executors,
administrators, heirs and successors of the Optionee.
(b) Method of Exercise. The exercise of an Option shall be made only by
a written notice delivered in person or by mail to the Secretary of the Company
at the Company's principal executive office, specifying the number of Shares to
be purchased and accompanied by payment therefor and otherwise in accordance
with the Agreement pursuant to which the Option was granted. The purchase price
for any Shares purchased pursuant to the exercise of an Option shall be paid in
full upon such exercise, by any one or a combination of the following: (1) cash,
(2) pursuant to the Company's Stock Option Financing Plan (approved by the
Company's shareholders at the Company's 1987 Annual Meeting) as amended from
time to time or any successor or additional financing plan approved by the
Board, through the execution of a promissory note and pledge agreement or (3)
transferring Shares to the Company. In addition, Options may be exercised
through a registered broker-dealer pursuant to such cashless exercise procedures
(other than Share withholding) which are, from time to time, deemed acceptable
by the Committee. Any Shares transferred to the Company as payment of the
purchase price under an Option shall be valued at their Fair Market Value on the
day preceding the date of exercise of such Option. If requested by the
Committee, the Optionee shall deliver the Agreement evidencing the Option to the
Secretary of the Company who shall endorse thereon a notation of such exercise
and return such Agreement to the Optionee. No fractional Shares (or cash in lieu
thereof) shall be issued upon exercise of an Option and the number of Shares
that may be purchased upon exercise shall be rounded to the nearest number of
whole Shares.
(c) Rights of Optionees. No Optionee shall be deemed for any purpose to
be the owner of any Shares subject to any Option unless and until (1) the Option
shall have been exercised pursuant to the terms thereof, (2) the Company shall
have issued and delivered the Shares to the Optionee and (3) the Optionee's name
shall have been entered as a stockholder of record on the books of the Company.
Thereupon, the Optionee shall have full voting, dividend and other ownership
rights with respect to such Shares.
(d) Termination of Employment. Unless, in the case of an Employee
Option, otherwise provided in the Agreement evidencing the Employee Option, an
Option shall terminate upon or following an Optionee's termination of employment
with the Company and its Subsidiaries or service as a director of the Company
and its Subsidiaries as follows:
(1) if an Optionee's employment or service as a director
terminates for any reason other than death, Disability or Cause, the Optionee
may at any time within three (3) months after his or her termination of
employment or service as a director, exercise an Option to the extent, and only
to the extent, that the Option or portion thereof was exercisable on the date of
termination;
(2) in the event the Optionee's employment or service as a
director terminates as a result of Disability, the Optionee may at any time
within one (1) year after such termination exercise such Option to the extent,
and only to the extent, the Option or portion thereof was exercisable at the
date of such termination;
(3) if an Optionee's employment or service as a director terminates for
Cause, the Option shall terminate immediately and no rights thereunder may be
exercised;
(4) if an Optionee dies while a director or an employee of the
Company or any Subsidiary or within three months after termination as described
in clause (1) of this Section 7(d) or within one (1) year after termination as a
result of Disability as described in clause (2) of this Section 7(d), the Option
may be exercised at any time within one (1) year after the Optionee's death by
the person or persons to whom such rights under the Option shall pass by will or
by the laws of descent and distribution; provided, however, that an Option may
be exercised to the extent, and only to the extent, that the Option or portion
thereof was exercisable on the date of death or earlier termination.
Notwithstanding the foregoing, (1) in no event may any Option
be exercised by anyone after the expiration of the term of the Option and (2) a
termination of service as a director shall not be deemed to occur so long as the
director continues to serve the Company as either a director or director
emeritus.
(e) Effect of Change in Control. Notwithstanding anything contained in
the Plan or an Agreement to the contrary, in the event of a Change in Control,
(1) all Options outstanding on the date of such Change in Control shall become
immediately and fully exercisable and (2) an Optionee shall be permitted to
surrender for cancellation within sixty (60) days after such Change in Control,
any Option or portion of an Option to the extent not yet exercised and the
Optionee will be entitled to receive a cash payment in an amount equal to the
excess, if any, of (x) (A) in the case of a Nonqualified Stock Option, the
greater of (i) the Fair Market Value, on the date preceding the date of
surrender, of the Shares subject to the Option or portion thereof surrendered or
(ii) the Adjusted Fair Market Value of the Shares subject to the Option or
portion thereof surrendered or (B) in the case of an Incentive Stock Option, the
Fair Market Value, on the date preceding the date of surrender, of the Shares
subject to the Option or portion thereof surrendered, over (y) the aggregate
purchase price for such Shares under the Option or portion thereof surrendered;
provided, however, that in the case of an Option granted within six (6) months
prior to the Change in Control to any Optionee who may be subject to liability
under Section 16(b) of the Exchange Act, such Optionee shall be entitled to
surrender for cancellation his or her Option during the sixty (60) day period
commencing upon the expiration of six (6) months from the date of grant of any
such Option.
8. Adjustment Upon Changes in Capitalization.
(a) Subject to Section 9, in the event of a Change in Capitalization,
the maximum number and class of Shares or other stock or securities with respect
to which Options may be granted under the Plan in the aggregate and to any
Optionee, the number and class of Shares or other stock or securities which are
subject to outstanding Options granted under the Plan, and the purchase price
therefor, if applicable, shall be appropriately and equitably adjusted by the
Committee.
(b) Any such adjustment in the Shares or other stock or securities
subject to outstanding Incentive Stock Options (including any adjustments in the
purchase price) shall be made in such manner as not to constitute a modification
as defined by Section 424(h)(3) of the Code and only to the extent otherwise
permitted by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, an Optionee shall be
entitled to exercise an Option with respect to new, additional or different
shares of stock or securities, such new, additional or different shares shall
thereupon be subject to all of the conditions which were applicable to the
Shares subject to the Option, as the case may be, prior to such Change in
Capitalization.
9. Effect of Certain Transactions.
Subject to Section 7(e), in the event of (1) the liquidation or
dissolution of the Company or (2) a merger or consolidation of the Company (a
"Transaction"), the Plan and the Options issued hereunder shall continue in
effect in accordance with their respective terms and each Optionee shall be
entitled to receive in respect of each Share subject to any outstanding Options,
as the case may be, upon exercise of any Option, the same number and kind of
stock, securities, cash, property, or other consideration that each holder of a
Share was entitled to receive in the Transaction in respect of a Share. In the
event that, after a Transaction, there occurs any change of a type described in
Section 2(e) hereof with respect to the shares of the surviving or resulting
corporation, then adjustments similar to, and subject to the same conditions as,
those in Section 8 hereof shall be made.
10. Termination and Amendment of the Plan.
(a) The Plan shall terminate on April 7, 2003, and no Option may be
granted thereafter. The Board may sooner terminate or amend the Plan at any time
and from time to time; provided, however, that to the extent necessary under
Section 16(b) of the Exchange Act and the rules and regulations promulgated
thereunder or other applicable law, no amendment shall be effective unless
approved by the stockholders of the Company in accordance with applicable law
and regulations at an annual or special meeting held within twelve (12) months
after the date of adoption of such amendment.
(b) Except as provided in Sections 8 and 9 hereof, rights and
obligations under any Option granted before any amendment or termination of the
Plan shall not be adversely altered or impaired by such amendment or
termination, except with the consent of the Optionee, nor shall any amendment or
termination deprive any Optionee of any Shares which he may have acquired
through or as a result of the Plan.
11. Non-Exclusivity of the Plan.
The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive arrangement
or as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.
12. Limitation of Liability.
As illustrative of the limitations of liability of the Company, but not
intended to be exhaustive thereof, nothing in the Plan shall be construed to:
(a) give any person any right to be granted an Option other than at the
sole discretion of the Committee;
(b) give any person any rights whatsoever with respect to Shares except as
specifically provided in the Plan;
(c) limit in any way the right of the Company to terminate the employment
of any person at any time; or
(d) be evidence of any agreement or understanding, expressed or
implied, that the Company will employ any person at any particular rate of
compensation or for any particular period of time.
13. Regulations and Other Approvals; Governing Law.
(a) This Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of Delaware.
(b) The obligation of the Company to sell or deliver Shares with
respect to Options granted under the Plan shall be subject to all applicable
laws, rules and regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
(c) (1) The Plan is intended to comply with Rule 16b-3 promulgated
under the Exchange Act and the Committee shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent therewith. Any
provisions inconsistent with such Rule shall be inoperative and shall not affect
the validity of the Plan.
(2) The Director Options described in Section 5 are intended
to qualify as formula awards under Rule 16b-3 promulgated under the Exchange Act
(thereby preserving the disinterested status of Nonemployee Directors receiving
such awards) and the Committee shall interpret and administer the provisions of
the Plan or any Agreement in a manner consistent therewith. Any provisions
inconsistent with the foregoing intent shall be inoperative and shall not affect
the validity of the Plan.
(3) Unless otherwise expressly stated in the relevant
Agreement, each Employee Option granted under the Plan is intended to be
performance-based compensation within the meaning of Section 162(m)(4)(C) of the
Code.
(d) The Board may make such changes as may be necessary or appropriate
to comply with the rules and regulations of any government authority, or to
obtain for Eligible Employees granted Incentive Stock Options the tax benefits
under the applicable provisions of the Code and regulations promulgated
thereunder.
(e) Each Option is subject to the requirement that, if at any time the
Committee determines, in its discretion, that the listing, registration or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or the issuance of
Shares, no Options shall be granted or payment made or Shares issued, in whole
or in part, unless listing, registration, qualification, consent or approval has
been effected or obtained free of any conditions as acceptable to the Committee.
(f) Notwithstanding anything contained in the Plan to the contrary, in
the event that the disposition of Shares acquired pursuant to the Plan is not
covered by a then current registration statement under the Securities Act of
1933, as amended (the "Securities Act"), and is not otherwise exempt from such
registration, such Shares shall be restricted against transfer to the extent
required by the Securities Act and Rule 144 or other regulations thereunder. The
Committee may require any individual receiving Shares pursuant to the Plan, as a
condition precedent to receipt of such Shares upon exercise of an Option, to
represent and warrant to the Company in writing that the Shares acquired by such
individual are acquired without a view to any distribution thereof and will not
be sold or transferred other than pursuant to an effective registration thereof
under said Act or pursuant to an exemption applicable under the Securities Act
or the rules and regulations promulgated thereunder. The certificates evidencing
any of such Shares shall be appropriately amended to reflect their status as
restricted securities as aforesaid.
14. Miscellaneous.
(a) Multiple Agreements. The terms of each Option may differ from other
Options granted under the Plan at the same time, or at some other time. The
Committee may also grant more than one Option to a given Eligible Employee
during the term of the Plan, either in addition to, or in substitution for, one
or more Options previously granted to that Eligible Employee.
(b) Withholding of Taxes. (1) The Company shall have the right to
deduct from any distribution of cash to any Optionee, an amount equal to the
federal, state and local income taxes and other amounts as may be required by
law to be withheld (the "Withholding Taxes") with respect to any Option. If an
Optionee is entitled to receive Shares upon exercise of an Option, the Optionee
shall pay the Withholding Taxes to the Company prior to the issuance, or release
from escrow, of such Shares. In satisfaction of the Withholding Taxes to the
Company, the Optionee may make a written election (the "Tax Election"), which
may be accepted or rejected in the discretion of the Committee, to have withheld
a portion of the Shares issuable to him or her upon exercise of the Option
having an aggregate Fair Market Value equal to the Withholding Taxes, provided
that in respect of an Optionee who may be subject to liability under Section
16(b) of the Exchange Act either (A) (i) the Optionee makes the Tax Election at
least six (6) months after the date the Option was granted, (ii) the Option is
exercised during the ten day period beginning on the third business day and
ending on the twelfth business day following the release for publication of the
Company's quarterly or annual statements of earnings (a "Window Period") and
(iii) the Tax Election is made during the Window Period in which the Option is
exercised or prior to such Window Period and subsequent to the immediately
preceding Window Period or (B) (i) the Tax Election is made at least six (6)
months prior to the date the Option is exercised and (ii) the Tax Election is
irrevocable with respect to the exercise of all Options which are exercised
prior to the expiration of six (6) months following an election to revoke the
Tax Election. Notwithstanding the foregoing, the Committee may, by the adoption
of rules or otherwise, (x) modify the provisions in the preceding sentence or
impose such other restrictions or limitations on Tax Elections as may be
necessary to ensure that the Tax Elections will be exempt transactions under
Section 16(b) of the Exchange Act, and (y) permit Tax Elections to be made at
such other times and subject to such other conditions as the Committee
determines will constitute exempt transactions under Section 16(b) of the
Exchange Act.
(2) If an Optionee makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of any Share
or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock
Option within the two-year period commencing on the day after the date of the
grant or within the one-year period commencing on the day after the date of
transfer of such Share or Shares to the Optionee pursuant to such exercise, the
Optionee shall, within ten (10) days of such disposition, notify the Company
thereof, by delivery of written notice to the Company at its principal executive
office, and immediately deliver to the Company the amount of Withholding Taxes.
15. Effective Date.
The effective date of the Amended and Restated Plan shall be the date
of its adoption by the Board, subject only to the approval by the affirmative
votes of the holders of a majority of the securities of the Company present, or
represented, and entitled to vote at a meeting of stockholders duly held in
accordance with the applicable laws of the State of Delaware within twelve (12)
months of such adoption.
Notwithstanding any provision contained herein to the contrary, any
Option outstanding on the date the Board adopts the Amended and Restated Plan
will be governed by the terms of the Plan as in effect immediately prior to such
adoption.
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11.1
Exhibit 11.1
COUNTRYWIDE CREDIT INDUSTRIES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Six Months
Ended August 31,
1996 1995
---------------- -----------------
(Dollar amounts in thousands, except per share data)
Primary
<S> <C> <C>
Net earnings applicable to common stock $123,121 $85,128
================ =================
Average shares outstanding 102,433 94,875
Net effect of dilutive stock options --
based on the treasury stock method
using average market price 2,028 1,607
---------------- -----------------
Total average shares 104,461 96,482
================ =================
Per share amount $1.18 $0.88
================ =================
Fully diluted
Net earnings applicable to common stock $123,121 $85,128
================ =================
Average shares outstanding 102,433 94,875
Net effect of dilutive stock options --
based on the treasury stock method using
the closing market price, if higher than
average market price. 2,362 2,096
---------------- -----------------
Total average shares 104,795 96,971
================ =================
Per share amount $1.17 $0.88
================ =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.1
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 12.1 - COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
The following table sets forth the ratio of earnings to fixed charges of the
Company for the six months ended August 31, 1996 and 1995 and for the five
fiscal years ended February 29(28), 1996 computed by dividing net fixed charges
(interest expense on all debt plus the interest element (one-third) of operating
leases) into earnings (income before income taxes and fixed charges).
Six Months Ended
August 31, Fiscal Years Ended February 29(28),
------------------------- ------------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
------------ ------------ ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings $123,121 $ 85,128 $195,720 $ 88,407 $179,460 $140,073 $ 60,196
Income tax expense 78,717 56,752 130,480 58,938 119,640 93,382 40,131
Interest charges 153,309 135,417 281,573 205,464 219,898 128,612 69,760
Interest portion of rental
expense 3,675 3,342 6,803 7,379 6,372 4,350 2,814
------------ ------------ ------------- ------------ ------------- ------------ ------------
Earnings available to cover
fixed charges $358,822 $280,639 $614,576 $360,188 $525,370 $366,417 $172,901
============ ============ ============= ============ ============= ============ ============
Fixed charges
Interest charges $153,309 $135,417 $281,573 $205,464 $219,898 $128,612 $ 69,760
Interest portion of rental
expense 3,675 3,342 6,803 7,379 6,372 4,350 2,814
------------ ------------ ------------- ------------ ------------- ------------ ------------
Total fixed charges $156,984 $138,759 $288,376 $212,843 $226,270 $132,962 $ 72,574
============ ============ ============= ============ ============= ============ ============
Ratio of earnings to fixed
charges 2.29 2.02 2.13 1.69 2.32 2.76 2.38
============ ============ ============= ============ ============= ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<CASH> 9,490
<SECURITIES> 0
<RECEIVABLES> 1,518,001
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 236,888
<DEPRECIATION> 86,282
<TOTAL-ASSETS> 8,747,269
<CURRENT-LIABILITIES> 0
<BONDS> 2,122,120
0
0
<COMMON> 5,135
<OTHER-SE> 1,429,166
<TOTAL-LIABILITY-AND-EQUITY> 8,747,269
<SALES> 0
<TOTAL-REVENUES> 534,097
<CGS> 0
<TOTAL-COSTS> 332,259
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 201,838
<INCOME-TAX> 78,717
<INCOME-CONTINUING> 123,121
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123,121
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.17
<FN>
Includes $153,309 of interest expense related to
mortgage loan activities.
</FN>
</TABLE>
