<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 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 1-8972
CWM MORTGAGE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3983415
(State or other jurisdiction of (I. R. S. Employer Identification No.)
incorporation or organization)
35 NORTH LAKE AVENUE, PASADENA, CALIFORNIA 91101-1857
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (800) 669-2300
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
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 close of the period covered by this report.
Common stock outstanding as of June 30, 1996: 45,259,751 shares
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
CWM MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Mortgage assets
Mortgage loans held for investment, net $1,103,036 $1,424,583
Mortgage loans held for sale - prime 359,230 379,363
Mortgage loans held for sale - subprime 227,868 30,221
Collateral for CMOs 310,100 184,111
Construction loans receivable, net 219,301 129,323
Securitized master servicing fees 112,425 120,281
Revolving warehouse lines of credit, net 174,847 190,705
Investment in and advances to Indy Mac 140,615 145,537
Manufactured housing loans held for sale 15,648 -
Cash and cash equivalents 2,269 8,049
Other assets 26,131 31,440
---------- ----------
Total assets $2,691,470 $2,643,613
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Repurchase agreements and other credit facilities $1,947,892 $2,037,834
Collateralized mortgage obligations 285,089 164,760
Senior unsecured notes 59,699 59,649
Accounts payable and accrued liabilities 19,984 18,386
---------- ----------
Total liabilities 2,312,664 2,280,629
Commitments and contingencies - -
Shareholders' equity
Common stock - authorized, 100,000,000 shares of
$.01 par value; issued and outstanding, 45,259,751 shares
at June 30, 1996 and 42,413,842 at December 31, 1995 453 424
Additional paid-in capital 398,425 353,965
Net unrealized gain (loss) on available-for-sale mortgage
securities held by Indy Mac (21,541) 7,845
Cumulative earnings 181,875 150,148
Cumulative distributions to shareholders (180,406) (149,398)
---------- ----------
Total shareholders' equity 378,806 362,984
---------- ----------
Total liabilities and shareholders' equity $2,691,470 $2,643,613
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
CWM MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
--------------------------- ----------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Interest income
Mortgage loans held for investment $ 22,627 $ 20,978 $ 49,709 $ 41,184
Mortgage loans held for sale 14,248 10,135 28,223 20,770
Collateral for CMOs 6,034 4,562 11,367 9,243
Construction loans 5,939 1,090 10,422 1,510
Securitized master servicing fees, net 2,330 3,096 4,797 6,011
Revolving warehouse lines of credit 3,831 2,137 7,650 3,342
Advances to Indy Mac 2,133 1,908 3,906 3,303
Other 58 33 142 64
----------- ----------- ----------- -----------
Total interest income 57,200 43,939 116,216 85,427
Interest expense
Repurchase agreements and other credit facilities 30,634 26,706 64,202 50,817
Collateralized mortgage obligations 5,917 4,520 11,526 9,396
Senior unsecured notes 1,347 - 2,694 -
----------- ----------- ----------- -----------
Total interest expense 37,898 31,226 78,422 60,213
----------- ----------- ----------- -----------
Net interest income 19,302 12,713 37,794 25,214
Provision for loan losses 2,646 1,075 5,049 1,317
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 16,656 11,638 32,745 23,897
Equity in earnings of Indy Mac 3,646 2,493 7,191 1,870
Other, net 913 341 1,120 545
----------- ----------- ----------- -----------
Net revenues 21,215 14,472 41,056 26,312
EXPENSES
Salaries, general and administrative 2,772 923 5,186 1,767
Management fees to affiliate 2,075 1,586 4,143 2,353
----------- ----------- ----------- -----------
Total expenses 4,847 2,509 9,329 4,120
----------- ----------- ----------- -----------
NET EARNINGS $ 16,368 $ 11,963 $ 31,727 $ 22,192
=========== =========== =========== ===========
EARNINGS PER SHARE $ 0.37 $ 0.30 $ 0.72 $ 0.57
=========== =========== =========== ===========
Weighted average shares outstanding 44,649,927 40,456,769 43,877,750 38,727,712
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CWM MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 31,727 $ 22,192
Adjustments to reconcile net earnings
to net cash provided by (used in) operating activities:
Amortization and depreciation 11,629 6,975
Provision for loan losses 5,049 1,317
Equity in earnings of Indy Mac (7,191) (1,870)
Purchases of mortgage loans held for sale (2,112,762) (2,156,719)
Principal repayments and proceeds from sale of mortgage loans 1,928,652 2,151,699
Net increase in manufactured housing loans held for sale (15,648) -
Change in accrued income and expense 439 (1,318)
----------- -----------
Net cash provided by (used in) operating activities (158,105) 22,276
Cash flows from investing activities:
Collateral for CMOs:
Principal payments on collateral 27,072 12,258
Net change in GICs held by trustees 2,339 1,150
----------- -----------
29,411 13,408
Purchases of mortgage loans held for investment - (176,916)
Principal payments on mortgage loans held for investment 170,787 43,259
Investment in securitized master servicing fees - (19,117)
Net (increase) decrease in revolving warehouse lines of credit 15,560 (82,233)
Net increase in construction loans receivable (91,225) (37,042)
Investment in Indy Mac - (15,842)
Advances to Indy Mac, net of cash repayments (17,274) (61,671)
Increase (decrease) in other assets 2,591 (7,300)
----------- -----------
Net cash provided by (used in) investing activities 109,850 (343,454)
Cash flows from financing activities:
Collateralized mortgage obligations:
Proceeds from issuance of securities 146,931 -
Principal payments on securities (27,057) (13,862)
----------- -----------
119,874 (13,862)
Net borrowings (repayments) on repurchase agreements and
other credit facilities (89,942) 286,231
Net proceeds from issuance of common stock 44,489 70,233
Cash dividends paid (31,008) (21,821)
Increase (decrease) in other liabilities (938) 3,164
----------- -----------
Net cash provided by financing activities 42,475 323,945
----------- -----------
Net increase (decrease) in cash and cash equivalents (5,780) 2,767
Cash and cash equivalents at beginning of period 8,049 2,605
----------- -----------
Cash and cash equivalents at end of period $ 2,269 $ 5,372
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ 77,089 $ 56,736
=========== ===========
Supplemental disclosure of non-cash activity:
$154.6 million of mortgage loans held for investment were transferred to
collateral for CMOs in 1996 in association with the issuance of a CMO.
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CWM MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
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. The consolidated financial statements include the accounts of CWM
Mortgage Holdings, Inc. and its qualified REIT subsidiaries ("CWM"). The
mortgage loan conduit operations are primarily conducted through Independent
National Mortgage Corporation, Inc. ("Indy Mac"), a taxable corporation. CWM
owns all of the preferred stock and a 99% economic interest in Indy Mac. CWM's
investment in Indy Mac is accounted for under a method similar to the equity
method. In addition, Indy Mac is not consolidated for income tax purposes. As
used herein, the "Company" includes CWM and Indy Mac and their respective
subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation of CWM. Certain reclassifications have been made to the financial
statements for the period ended June 30, 1995 to conform to the June 30, 1996
financial statement presentation.
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 months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. For further information, refer to the consolidated financial statements
and footnotes thereto included in CWM's annual report on Form 10-K for the year
ended December 31, 1995.
NOTE B - ALLOWANCE FOR CREDIT LOSSES
During the six months ended June 30, 1996, CWM added $5.0 million to its
allowance for credit losses. The allowance for credit losses totaled $9.4
million at June 30, 1996, and includes reserves for mortgage loans held for
investment, construction loans and warehouse lines of credit in the amounts of
$7.1 million, $1.4 million and $947,000, respectively. CWM recorded chargeoffs
of $23,000 and $42,000 during the six months ended June 30, 1996 and 1995,
respectively.
5
<PAGE>
NOTE C - INVESTMENT IN INDY MAC (UNAUDITED)
- -------------------------------------------
Summarized financial information for Indy Mac follows (in thousands).
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------------------------------
<S> <C> <C>
Mortgage loans held for sale, net $ 5,072 $ 92,088
Mortgage securities available-for-sale 366,980 350,752
Securitized master servicing fees 194,080 116,851
Master servicing fees receivable 40,891 36,570
Other assets 27,748 22,953
------------------------------------
Total assets $634,771 $619,214
====================================
Repurchase agreements and other credit facilities $475,766 $441,305
Due to CWM 100,866 83,592
Other liabilities 17,988 31,746
Shareholders' equity 40,151 62,571
------------------------------------
Total liabilities and
shareholders' equity $634,771 $619,214
====================================
</TABLE>
<TABLE>
<CAPTION>
Quarter ended Six months ended
June 30, June 30,
-------------------------------- ---------------------------
1996 1995 1996 1995
-------------------------------- ---------------------------
<S> <C> <C> <C> <C>
Interest income
Mortgage loans held for sale $ 829 $ 13,421 $ 2,307 $25,282
Mortgage securities
available-for-sale 8,082 4,669 15,412 8,073
Securitized master servicing fees, 2,308 387 4,201 387
net
Master servicing fees receivable, net 438 1,801 1,184 3,025
-------------------------------- ---------------------------
Total interest income 11,657 20,278 23,104 36,767
Interest expense 10,112 14,952 18,854 27,307
-------------------------------- ---------------------------
Net interest income 1,545 5,326 4,250 9,460
Provision for loan losses - 650 - 650
-------------------------------- ---------------------------
Net interest income after
provision for loan losses 1,545 4,676 4,250 8,810
Gain on sale of mortgage loans and
securities 11,456 5,073 20,857 4,260
Other 477 - 725 -
-------------------------------- ---------------------------
Net revenues 13,478 9,749 25,832 13,070
Salaries, general and administrative
expense 6,604 5,183 12,170 9,581
Management fees to affiliate 467 224 910 232
-------------------------------- ---------------------------
Total expenses 7,071 5,407 13,080 9,813
-------------------------------- ---------------------------
Earnings before income tax provision 6,407 4,342 12,752 3,257
Income tax provision 2,724 1,824 5,488 1,368
-------------------------------- ---------------------------
Net earnings $ 3,683 $ 2,518 $ 7,264 $ 1,889
================================ ===========================
</TABLE>
6
<PAGE>
Allowance for Credit Losses. The allowance for credit losses related to
mortgage loans held for sale totaled $1.8 million at June 30, 1996. Indy Mac
recorded charge-offs of $18,000 during the six months ended June 30, 1996. There
were no charge-offs recorded by Indy Mac during the six months ended June 30,
1995.
Mortgage Securities Available-For-Sale. Mortgage securities consist of mortgage
derivative products including subordinated securities, principal-only and
interest-only securities and inverse floater securities. These securities
primarily consist of securities retained upon the issuance of Indy Mac's REMIC
securities. Contractual maturities on the mortgage securities range from 10 to
30 years. The following is a disclosure of the estimated fair value of mortgage
securities as of June 30, 1996 and December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
ESTIMATED GROSS GROSS
AMORTIZED FAIR UNREALIZED UNREALIZED
COST VALUE GAINS LOSSES
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
June 30, 1996 $404,495 $366,980 $ 7,308 $44,823
=================================================
December 31, 1995 $337,088 $350,752 $17,158 $ 3,494
=================================================
</TABLE>
During the quarter ended June 30, 1996, Indy Mac sold mortgage securities
classified as available-for-sale with an amortized cost of $72.7 million (based
upon specific identification) for proceeds of $70.9 million, resulting in gross
realized gains of $252,000 and gross realized losses of $2.1 million. For the
six month period ended June 30, 1996, Indy Mac sold mortgage securities
classified as available-for-sale with an amortized cost of $113.5 million for
proceeds of $116.7 million, resulting in a net gain of $3.2 million. This net
gain was comprised of gross realized gains and gross realized losses of $5.3
million and $2.1 million respectively. The estimated fair value as of June 30,
1996 in the above table reflects increases in market interest rates during the
first six months of 1996, combined with lower expectations of prepayment rates.
As of June 30, 1996, all of Indy Mac's mortgage securities were pledged as
collateral under repurchase agreements.
NOTE D - SUBSEQUENT EVENT
On July 18, 1996, the Board of Directors declared a cash dividend of $0.37 per
share to be paid on September 3, 1996 to shareholders of record on July 29,
1996.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
CWM Mortgage Holdings, Inc. was incorporated in the state of Maryland in July
1985 and reincorporated in the state of Delaware in March 1987. References to
"CWM" mean either the parent company alone or the parent company and the
entities consolidated for financial reporting purposes, while references to the
"Company" mean the parent company, its consolidated subsidiaries and Indy Mac
and its subsidiary which are not consolidated with CWM for financial reporting
or tax purposes.
In its mortgage loan conduit business, the Company acts as an intermediary
between the originators of mortgage loans and permanent investors in mortgage-
backed securities ("MBS") secured by or representing an ownership interest in
such mortgage loans. The Company purchases "jumbo" and other "nonconforming"
mortgage loans from mortgage originators. The Company and its sellers negotiate
whether such sellers will retain, or the Company will purchase the rights to
service the mortgage loans delivered by such sellers to the Company. All loans
purchased by CWM, for which a Real Estate Mortgage Investment Conduit ("REMIC")
transaction or whole loan sale is contemplated, are committed for sale to Indy
Mac at the same price at which the loans were acquired by CWM. At present, Indy
Mac does not purchase any loans from entities other than CWM.
The Company's conduit operations were expanded during 1995 through the
commencement of operations of two divisions of Indy Mac: the Subprime Mortgage
Division and the Manufactured Housing Division (formerly Independent National
Finance Corporation and Independent National Housing Services, respectively)
The Subprime Mortgage Division was formed to purchase, securitize and sell
subprime mortgage loans (i.e., "B through D" paper mortgages). The Manufactured
Housing Division was formed to facilitate the purchase or origination,
securitization and sale of consumer loans secured by manufactured housing.
The Company's principal sources of income from its conduit operations are gains
recognized on the sale and securitization of loans, the net spread between
interest earned on loans and the interest costs associated with the borrowings
used to finance such loans pending their securitization, the net interest earned
on the Company's mortgage securities, and master servicing fee income.
In addition to its conduit operations, the Company earns fee income and net
interest income through its portfolio of mortgage loans held for investment and
its construction and warehouse lending programs. The construction lending
operation consists of two distinct divisions: (i) the Builder Division, which
provides tract construction loans, builder custom home loans, model home loans
and lot financing on a nationwide basis to small-to-medium-size builders, and
(ii) the Consumer Division, which provides construction-to-permanent financing,
home improvement loans and lot financing to individual borrowers who wish to
construct or remodel their principal or secondary residences. The Company's
warehouse lending operation provides financing to small-to-medium-size mortgage
originators for the origination and sale of mortgage loans, and has provided
financing for the retention, acquisition or sale of servicing rights and the
carrying of mortgage loans pending foreclosure and/or repurchase from an
investor.
In the first quarter of 1996, Indy Mac purchased Guaranty Asset Protection
Services (GAPS), a mortgage fraud detection company located in West Hills,
California. The acquisition of GAPS will allow the Company to help prevent
fraud on its existing purchase volume as well as offer fraud detection services
to the Company's base of customers and other entities.
8
<PAGE>
FINANCIAL CONDITION
CONDUIT OPERATIONS: During the first six months of 1996, CWM purchased $2.1
billion of non-conforming mortgage loans, including $212.6 million of subprime
mortgage loans. In addition, the company purchased $15.6 million of
manufactured housing loans. These loans were financed on an interim basis using
equity and short-term financing in the form of repurchase agreements and other
credit facilities. In general, the Company, through Indy Mac, sells the loans
in the form of REMIC securities or whole loan sales or, alternatively, through
CWM invests in the loans on a long-term basis using financing provided by CMOs
or repurchase agreements and other credit facilities. During the first six
months of 1996, Indy Mac sold $1.9 billion of mortgage loans through the
issuance of eight series of multiple-class MBS in the form of REMIC securities,
and through its Subprime Mortgage Division, sold $9.9 million in a whole loan
transaction. At June 30, 1996, the Company was committed to purchase $412.3
million of mortgage loans from various mortgage originators. The Indy Mac master
servicing portfolio at quarter-end had an aggregate outstanding principal
balance of $10.4 billion with a weighted average coupon of 8.39%.
MORTGAGE LOANS HELD FOR INVESTMENT: The $1.1 billion portfolio of mortgage loans
held for investment at June 30, 1996 consisted of $776.7 million of varying
types of adjustable-rate products which contractually reprice in monthly, semi-
annual or annual periods $178.4 million of mortgage loans which have a fixed
rate for a period of three to ten years and subsequently convert to adjustable-
rate mortgage loans that reprice annually, and $154.7 million of fixed-rate
mortgage loans. The weighted average coupon of mortgage loans held for
investment at June 30, 1996 was 8.86%. The Company finances mortgage loans held
for investment with repurchase agreements and other credit facilities which
reprice in periods ranging from overnight to 11 months as of June 30, 1996. The
Company also utilizes interest rate swap agreements to manage the interest rate
exposure on its portfolio of mortgage loans held for investment. The allowance
for losses related to mortgage loans held for investment totaled $7.1 million at
quarter end. Charge-offs related to mortgage loans held for investment totaled
$23,000 for the six months ended June 30, 1996.
CONSTRUCTION LENDING OPERATIONS: At June 30, 1996, the Builder Division had
loans outstanding totaling $157.4 million, net of reserves, with $288.7 million
of remaining commitments to fund tract and custom home loans. The Consumer
Division had loans outstanding at June 30, 1996 totaling $61.9 million with
remaining commitments to fund construction-to-permanent and home improvement
loans of $43.1 million. The allowance for losses related to construction loans
totaled $1.4 million at June 30, 1996. There were no charge-offs of construction
loans during the six months ended June 30, 1996. The Company had outstanding
borrowings totaling $92.7 million at June 30, 1996, under a revolving credit
facility associated with the financing of construction loans.
WAREHOUSE LENDING OPERATIONS: At June 30, 1996, CWM had extended committed
warehouse and related lines of credit in an aggregate amount of $456.2 million,
of which $174.8 million was outstanding, net of reserves. The allowance for loan
losses related to warehouse lines of credit totaled $946,000 at June 30, 1996.
There were no charge-offs of warehouse lines of credit during the six months
ended June 30, 1996. Repurchase agreements associated with CWM's financing of
these lines of credit totaled $113.4 million at June 30, 1996.
9
<PAGE>
CMO PORTFOLIO: As of June 30, 1996, the CMO Portfolio was comprised of 12 series
of CMOs. Collateral for CMOs increased from $184.1 million at December 31, 1995
to $310.1 million at June 30, 1996. This increase of $126.0 million is primarily
the result of the addition of $154.6 million of collateral related to the
issuance of a CMO in January 1996, offset by repayments (including prepayments
and premium and discount amortization) of $27.1 million, a decrease in
guaranteed investment contracts ("GICs") held by trustees of $2.3 million and an
increase in accrued interest receivable of $800,000. The fair value of the
collateral for CMOs totaled $298.5 million and $185.2 million at June 30, 1996
and December 31, 1995, respectively. CWM's CMOs outstanding increased to $285.1
million at June 30, 1996 from $164.8 million at December 31, 1995. This increase
of $120.3 million resulted from issuance proceeds of $146.9 million in January
1996, offset by principal payments and discount amortization on CMOs of $27
million and an increase in accrued interest payable on CMOs of $500,000.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1996 COMPARED TO QUARTER ENDED JUNE 30, 1995
NET EARNINGS: CWM's net earnings were $16.4 million or $0.37 per share, based on
44,649,927 weighted average shares outstanding for the quarter ended June 30,
1996, compared to $12.0 million or $0.30 per share, based on 40,456,769 weighted
average shares outstanding for the quarter ended June 30, 1995.
The increase of $4.4 million in second quarter earnings resulted primarily from
an increase in net interest income of $6.6 million and an increase of $1.2
million in equity in earnings from Indy Mac, offset by an increase of $1.6
million in the provision for loan losses and increases of $1.8 million and
$489,000 in general and administrative expenses and management fees,
respectively.
INTEREST INCOME: Total interest income was $57.2 million for the quarter ended
June 30, 1996 and $43.9 million for the quarter ended June 30, 1995. This
increase in interest income of $13.3 million is primarily due to increases in
interest earnings on construction loans, mortgage loans held for sale, warehouse
lines of credit, mortgage loans held for investment, and collateral for CMOs of
$4.8 million, $4.1 million, $1.7 million, $1.6 million and $1.5 million
respectively, offset by a decrease of $766,000 in interest income earned on
securitized master servicing fees.
Interest income on mortgage loans held for investment, consisting primarily of
adjustable rate mortgages, totaled $22.6 million and $21.0 million, resulting
in an effective yield of 7.95% and 7.98% for the quarters ended June 30, 1996
and 1995, respectively.
Interest income earned on mortgage loans held for sale totaled $14.2 million and
$10.1 million, resulting in an effective yield of 8.91% and 9.48% for the
quarters ended June 30, 1996 and 1995, respectively. The average outstanding
balance rose to $642.7 million for the quarter ended June 30, 1996 from $429.4
million for the quarter ended June 30, 1995.
Interest income on construction loans totaled $5.9 million and $1.1 million,
with interest earned at an effective yield of 12.71% and 13.92% for the quarters
ended June 30, 1996 and 1995, respectively.
Interest income earned on revolving warehouse lines of credit totaled $3.8
million and $2.1 million, at an effective yield of 8.74% and 9.61% for the
quarters ended June 30, 1996 and 1995, respectively.
Interest income on collateral for CMOs was $6.0 million and $4.6 million for the
quarters ended June 30, 1996 and 1995, respectively. The increase was primarily
attributable to an increase in the average aggregate principal amount of
collateral for CMOs outstanding to $319.7 million for the quarter ended June 30,
1996 compared to $222.1 million for the quarter ended June 30, 1995. This
increase was offset by a decrease in the effective yield earned on the
collateral for CMOs to 7.59% in the second quarter of 1996 from 8.24% in the
second quarter of 1995. Interest income on collateral for CMOs includes the
impact of amortization of premiums paid in connection with acquiring the loan
portfolio and the impact of the
10
<PAGE>
delay in the receipt of prepayments and temporary investment in lower yielding
short-term holdings (GICs) until such amounts are used to make payments on CMOs.
Investments in securitized master servicing fees have characteristics comparable
to "excess servicing" insofar as their value tends to decline as market interest
rates decline and prepayment rates increase. Accordingly, the yield on such
investments could decline considerably as a result of rapid actual or projected
future prepayments occasioned by declining interest rates. It is also possible
that under certain high prepayment scenarios the Company would not recoup its
initial investment in such assets. In such a scenario, the Company would write
down its securitized master servicing fees asset so that the remaining asset
does not exceed the estimated present value of future net master servicing
income. Gross master servicing income for CWM was $6.2 million and $7.2 million
for the three months ended June 30, 1996 and 1995, respectively. This gross
income was offset by amortization of the securitized master servicing fees of
$3.9 million and $4.1 million, for the three months ended June 30, 1996 and
1995, respectively. As of June 30, 1996, securitized master servicing fees of
$112.4 million were pledged to secure borrowings totaling $66.8 million.
INTEREST EXPENSE: For the quarters ended June 30, 1996 and 1995, total interest
expense was $37.9 million and $31.2 million, respectively. This increase in
interest expense of $6.7 million was due to an increase in interest expense on
repurchase agreements and other credit facilities, senior unsecured notes and
CMOs of $3.9 million, $1.4 million and $1.4 million, respectively.
Interest expense on repurchase agreements and other credit facilities used to
finance mortgage loans held for sale and investment, revolving warehouse lines
of credit, construction loans and master servicing fees receivable totaled $30.6
million for the quarter ended June 30, 1996, compared to $26.7 million for the
quarter ended June 30, 1995. This increase was principally the result of an
increase in the aggregate average balance of indebtedness outstanding for the
period to $2.0 billion for the quarter ended June 30, 1996 compared to $1.6
billion for the quarter ended June 30, 1995. Such increase was offset by a
decrease in the weighted average effective rate applicable to such indebtedness
to 6.17% for the quarter ended June 30, 1996 from 6.80% for the quarter ended
June 30, 1995.
Interest expense on senior unsecured notes totaled $1.4 million resulting in an
effective rate of 9.22% for the second quarter of 1996. There were no senior
unsecured notes outstanding during the second quarter of 1995.
Interest expense on CMOs was $5.9 million and $4.5 million for the quarters
ended June 30, 1996 and 1995, respectively. This increase was primarily
attributable to an increase in average aggregate CMOs outstanding to $293.0
million for the quarter ended June 30, 1996 from $192.6 million for the quarter
ended June 30, 1995, partially offset by a decrease in the effective rate on the
CMOs to 8.12% in the first quarter of 1996 from 9.42% in the second quarter of
1995.
EQUITY IN EARNINGS OF INDY MAC: The 1996 second quarter earnings of $3.7
million for Indy Mac, in which CWM has a 99% economic interest, resulted
principally from net interest income of $1.5 million and gain on sale of
mortgage loans and securities of $11.5 million, offset by expenses of $6.6
million, management fee expense of $467,000, and income taxes of $2.7 million.
Indy Mac's net income related to securitized master servicing fees totaled $2.3
million during the second quarter of 1996, including gross income of $11.1
million, offset by amortization of the related asset balances of $8.8 million.
Net income related to master servicing fees receivable totaled $438,000 during
the second quarter of 1996, including gross income of $4.4 million offset by
amortization of the related asset balances of $4.0 million.
During the second quarter of 1995, Indy Mac's earnings totaled $2.5 million
which resulted principally from net interest income of $5.3 million and gain on
sale of mortgage loans and securities of $5.1 million, offset by expenses of
$5.2 million, management fee expense of $224,000 and income taxes of $1.8
million.
11
<PAGE>
Indy Mac's net income related to securitized master servicing fees totaled
$387,000 during the three months ended June 30, 1995, including gross income of
$880,000 offset by amortization of $493,000. Net income related to master
servicing fees receivable totaled $1.8 million during the three months ended
June 30, 1995, including gross income of $3.7 million offset by amortization of
the related asset balances of $1.9 million.
SALARIES, GENERAL AND ADMINISTRATIVE EXPENSE: The increase of $1.8 million for
the three months ended June 30, 1996 compared to the three months ended June 30,
1995 is primarily the result of the increased personnel and expenses required to
support the growth in the operations of CWM and its qualified REIT subsidiaries.
MANAGEMENT FEES: For the three months ended June 30, 1996, management fees were
$2.1 million compared to $1.6 million for the three months ended June 30, 1995.
The increase in the management fee of $467,000 was primarily due to an
increase in incentive compensation for the second quarter of 1996, directly
related to the increase in CWM's earnings in comparison to the second quarter of
1995. Regular management fees also increased due to increased average balances
of CMW's mortgage loans held for investment and warehouse lines of credit.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
NET EARNINGS: CWM'S net earnings were $31.7 million or $0.72 per share, based on
43,877,750 weighted average shares outstanding for the six months ended June 30,
1996, compared to $22.2 million or $0.57 per share, based on 38,727,712 weighted
average shares outstanding for the six months ended June 30, 1995.
The increase of $9.5 million in 1996 earnings resulted primarily from an
increase in net interest income of $12.6 million and an increase of $5.3 million
in equity in earnings from Indy Mac, offset by an increase of $3.7 million in
the provision for loan losses and increases of $3.4 million and $1.8 million in
salaries, general and administrative expenses and management fees, respectively.
INTEREST INCOME: Total interest income was $116.2 million for the six months
ended June 30, 1996 and $85.4 million for the six months ended June 30, 1995.
This increase in interest income of $30.8 million is primarily due to an
increase in interest on construction loans of $8.9 million with additional
increases in mortgage loans held for investment, mortgage loans held for sale,
warehouse lines of credit, and collateral for CMOs of $8.5 million, $7.5
million, $4.3 million and $2.1 million, respectively. Such increases were offset
by a decrease of $1.2 million in interest earned on securitized master servicing
fees.
Interest income on mortgage loans held for investment totaled $49.7 million and
$41.2 million, resulting in an effective yield of 8.23% and 8.12%, for the six
months ended June 30, 1996 and 1995, respectively. Interest income on mortgage
loans held for sale totaled $28.2 million and $20.8 million, resulting in an
effective yield of 8.80% and 9.47%, for the six months ended June 30, 1996 and
1995, respectively.
Interest income earned on revolving warehouse lines of credit totaled $7.7
million and $3.3 million with interest earned at an effective yield of 8.72% and
9.75% for the six month periods ended June 30, 1996 and 1995, respectively.
Interest income on construction loans totaled $10.4 million and $1.5 million,
with interest earned at an effective yield of 12.65% and 13.87% for the six
month periods ended June 30, 1996 and 1995, respectively.
Interest income on collateral for CMOs was $11.4 million and $9.2 million for
the six month periods ended June 30, 1996 and 1995, respectively. The increase
was primarily attributable to an increase in the average aggregate principal
amount of collateral for CMOs outstanding to $303.9 million for the six months
ended June 30, 1996 compared to $224.9 million for the six month period ended
June 30, 1995, offset by a decrease in the effective yield earned on the
collateral for CMOs to 7.52% in the first half of 1996 from 8.29% in the first
half of 1995. Interest income on collateral for CMOs includes the impact of
amortization of premiums paid in connection with acquiring the loan portfolio
and the impact of the
12
<PAGE>
delay in the receipt of prepayments and temporary investment in lower yielding
short-term holdings (GICs) until such amounts are used to make payments on CMOs.
SECURITIZED MASTER SERVICING FEES, NET: Gross master servicing income for CWM
was $12.7 million and $13.6 million for the six months ended June 30, 1996 and
1995, respectively. This gross income was offset by amortization of the
securitized master servicing fees of $7.9 million and $7.6 million, for the six
months ended June 30, 1996 and 1995, respectively.
INTEREST EXPENSE: For the six months ended June 30, 1996 and 1995, total
interest expense was $78.4 million and $60.2 million, respectively. This
increase in interest expense of $18.2 million was due to an increase in interest
expense on repurchase agreements and other credit facilities, senior unsecured
notes and CMOs of $13.4 million, $2.7 million and $2.1 million, respectively.
Interest expense on repurchase agreements and other credit facilities used to
finance mortgage loans held for sale and investment, revolving warehouse lines
of credit, construction loans and master servicing fees receivable totaled $64.2
million for the six months ended June 30, 1996, compared to $50.8 million for
the six months ended June 30, 1995. This increase was principally the result of
an increase in the aggregate average balance of indebtedness outstanding for the
period to $2.1 billion for the six months ended June 30, 1996 compared to $1.5
billion for the six months ended June 30, 1995, offset by a decrease in the
weighted average effective rate applicable to such indebtedness to 6.28% for the
six months ended June 30, 1996 from 6.75% for the six months ended June 30,
1995.
Interest expense on senior unsecured notes totaled $2.7 million resulting in an
effective rate of 9.22% for the first half of 1996. There were no senior
unsecured notes outstanding during the first half of 1995.
Interest expense on CMOs was $11.5 million and $9.4 million for the six months
ended June 30, 1996 and 1995, respectively. This increase was primarily
attributable to an increase in average aggregate CMOs outstanding to $278.3
million for the six months ended June 30, 1996 from $195.5 million for the six
months ended June 30, 1995, partially offset by a decrease in the effective rate
on the CMOs to 8.33% in the first half of 1996 from 9.69% in the first half of
1995.
EQUITY IN EARNINGS OF INDY MAC: Net earnings for Indy Mac for the six months
ended June 30, 1996 of $7.3 million, in which CWM has a 99% economic interest,
resulted principally from net interest income of $4.3 million and gain on sale
of mortgage loans and securities of $20.9 million, offset by expenses of $12.2
million, management fee expense of $910,000, and income taxes of $5.5 million.
Indy Mac's net income related to securitized master servicing fees totaled $4.2
million during the first six months of 1996, including gross income of $20.5
million offset by amortization of the related asset balances of $16.3 million.
Net income related to master servicing fees receivable totaled $1.2 million
during the first six months of 1996, including gross income of $8.9 million
offset by amortization of the related asset balances of $7.7 million.
During the first six months of 1995, Indy Mac earnings totaled $1.9 million
which resulted principally from net interest income of $9.5 million, gain on
sale of mortgage loans and securities of $4.3 million, expenses of $9.6 million,
management fee expense of $232,000 and income taxes of $1.4 million.
Indy Mac's income related to net securitized master servicing fees totaled
$387,000 during the first six months of 1995, including gross income of $880,000
offset by amortization of 493,000. Net income related to master servicing fees
receivable totaled $3.0 million during the first six months of 1995, including
gross income of $6.1 million offset by amortization of the related asset balance
of $3.1 million.
SALARIES, GENERAL AND ADMINISTRATIVE EXPENSE: The increase of $3.4 million for
the six months ended June 30, 1996 compared to the six months ended June 30,
1995 is primarily the result of an increase in personnel and expenses required
to support the growth in the operations of CWM and its qualified REIT
subsidiaries.
13
<PAGE>
MANAGEMENT FEES: For the six months ended June 30, 1996, management fees were
$4.1 million compared to $2.3 million for the six months ended June 30, 1995.
The increase in the management fee of $1.8 million was primarily due to an
increase in incentive compensation for the first six months of 1996, directly
related to the increase in CWM's earnings in comparison to the first six months
of 1995. Regular management fees also increased due to increased average
balances of CWM's mortgage loans held for investment and warehouse lines of
credit.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses proceeds from the issuance of CMOs, repurchase agreements, bank
debt, other borrowings and common stock to meet its working capital needs. In
addition, in connection with its mortgage conduit operations, Indy Mac issues
REMIC securities to help meet such needs.
During the first six months of 1996 the Company raised $43.3 million of new
capital primarily through the optional cash investment feature of CWM's Dividend
Reinvestment and Stock Purchase Plan.
The REIT provisions of the Internal Revenue Code restrict CWM's ability to
retain earnings and thereby replenish the capital committed to its mortgage
portfolio by requiring CWM to distribute to its shareholders substantially all
of its taxable income from operations.
Management believes that the Company's cash flow from operations and the
Company's current and potential financing arrangements are sufficient to meet
current liquidity requirements. The Company's ability to meet future liquidity
requirements is subject to the renewal of credit facilities and/or obtaining
other sources of financing, including raising additional debt or equity from
time to time.
EFFECT OF INTEREST RATE CHANGES
The Company's earnings may be affected by changes in interest rates in a variety
of ways. For example, higher interest rates may depress the market value of the
Company's investment portfolio if the yield on such holdings does not keep pace
with increases in interest rates. Decreased market values could require the
Company to borrow additional funds and pledge additional assets to maintain
financing for its holdings that have not been financed to maturity through the
issuance of CMOs or other long-term debt securities. Increases in short-term
borrowing rates relative to rates earned on holdings that have not been financed
to maturity may also adversely affect the Company's earnings. However, the
Company has implemented a hedging strategy which is designed to mitigate this
adverse effect. In addition, high levels of interest rates tend to decrease the
rate at which mortgages prepay. A decrease in the rate of prepayments may
lengthen the estimated average lives of the underlying mortgages supporting
securitized master servicing fees and master servicing fees receivable and
classes of the CMOs issued by the Company and may result in higher residual cash
flows from such assets than would otherwise have been obtained. However, higher
rates of interest may also discourage potential mortgagors from borrowing or
refinancing mortgage loans, thus decreasing the volume of loans available to be
purchased through the Company's mortgage conduit operations or financed through
the Company's construction and warehouse lending operations.
Conversely, lower interest rates tend to increase the rate at which mortgages
prepay, which may have an adverse effect on the value of the Company's
securitized master servicing fees and master servicing fees receivable.
However, lower interest rates also tend to improve the Company's mortgage
origination and production volumes and increase the market value, to an extent,
of the Company's mortgage loan and mortgage securities available for sale
portfolio.
14
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the annual meeting of CWM's stockholders held on May 29, 1996, the
stockholders voted to re-elect CWM's directors. The votes cast in this regard
were as follows: David S. Loeb - 40,355,687 for and 368,017 withheld; Angelo R.
Mozilo - 40,349,391 for and 374,313 withheld; Lyle E. Gramley - 40,441,013 for
and 282,691 withheld; Thomas J. Kearns - 40,450,513 for and 273,191 withheld;
and Frederick J. Napolitano - 40,445,963 for and 277,741 withheld. In addition,
the stockholders voted to approve the CWM 1996 Stock Incentive Plan, which was
adopted by the Board of Directors on April 1, 1996. The votes cast on this
proposal were as follows: 17,015,232 in favor; 5,869,111 opposed; 1,212,048
abstaining; and 16,627,313 broker non-vote. Finally, the stockholders voted to
ratify the selection of Grant Thornton LLP as CWM's independent certified
public accountants for the fiscal year ending December 31, 1996. The votes cast
on this proposal were as follows: 40,257,389 in favor; 162,583 opposed; 303,732
abstaining; and 0 broker non-vote.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits
--------
4 1996 Stock Incentive Plan adopted May 29, 1996 (Incorporated by
reference to Exhibit 4 to CWM's Form S-8 filed with the SEC on July
26, 1996).
10.1 Amended Compensation Plan for Richard Wohl effective January 1, 1996.
10.2 1996 Amended and Extended Loan Purchase and Administrative Services
Agreement dated as of June 1, 1996 by and between CWM Mortgage
Holdings, Inc. and Countrywide Home Loans Inc.
10.3 1996 Amended and Extended Management Agreement extended as of June 1,
1996 by between CWM Mortgage Holdings Inc. and Countrywide Asset
Management Corporation.
27 Financial Data Schedule
Reports on Form 8-K.
--------------------
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Pasadena, State of California, on August 14, 1996.
CWM MORTGAGE HOLDINGS, INC.
By: /s/ Michael W. Perry
--------------------
Michael W. Perry
Executive Vice President and Chief
Operating Officer
By: /s/ Carmella L. Grahn
---------------------
Carmella L. Grahn
Senior Vice President and Chief Accounting Officer
16
<PAGE>
EXHIBIT 10.1
COMPENSATION PLAN
-----------------
Name: RICHARD H. WOHL
Effective Date: January 1, 1996
Effective Period: Calendar Year 1996
. Title: Senior Vice President, General Counsel and Secretary
Description of Key Individual and Department/Business Unit Goals: See
Schedule A.
----------
. Base Salary: $200,000 per annum.
. Production/Profitability Bonus:
*Maximum Amount: $60,000 Minimum Amount: $0
*Criteria: See Schedule B.
----------
. Discretionary Bonus:
*Maximum Amount: $175,000 Minimum Amount: $0
*Criteria: See Schedule C.
----------
. Regular Benefits: Standard Countrywide Asset Management Corp. ("CAMC")
dental, medical and insurance plans. Eligible for participation in CAMC
401(k) plan on the first day of the calendar quarter following completion of
one year of service.
. Additional Benefits: Standard Countrywide senior executive benefits (deferred
compensation plan, etc.)
. Vacation: Three (3) weeks per year.
<PAGE>
This Compensation Plan is intended to outline the general terms of the base
salary, bonus and benefits that will apply to your position during the period
specified above. This Compensation Plan shall not be construed as a contract of
employment and may be amended or revised at any time by the Chief Operating
Officer of CAMC.
Please note that an employee's employment and compensation can be terminated at
any time, with or without cause and with or without notice, at the option of
either CAMC or the employee, and the "at-will" nature of such employment cannot
be changed by any verbal representation or assurance, by implication, or based
upon longevity of service or any other factor. In order to be eligible for any
bonus contemplated by this Compensation Plan, whether related to production,
profitability, performance or otherwise, you must be employed by CAMC on the
date of distribution of such bonus.
This Compensation Plan is the sole, entire and complete document relating in any
way to the subject matter hereof, and expressly supersedes any prior or
contemporaneous agreements or representations, whether oral or written.
/s/ Michael W. Perry By: /s/ Richard H. Wohl
- ------------------------------- ------------------------------
Michael W. Perry Name: Richard H. Wohl
Executive Vice President and Title: Senior Vice President, General
Chief Operating Officer Counsel and Secretary
Date: May 17, 1996
2
<PAGE>
SCHEDULE B
----------
(Production/Profitability Bonus)
<TABLE>
<CAPTION>
1996 Earnings per Share (fully diluted)
for CWM Mortgage Holdings, Inc. Profitability Bonus Amount
- --------------------------------------- --------------------------
<C> <C>
$1.20 or less $0
$1.21 to $1.30 $20,000 to $29,999
$1.31 to $1.40 $30,000 to $39,999
$1.41 to $1.50 $40,000 to $49,999
$1.51 to $1.60 $50,000 to $59,999
$1.61 or more $60,000
</TABLE>
Earnings per share for CWM Mortgage Holdings, Inc. shall be determined on the
basis of the annual audit conducted by CWM's independent accountants.
If earnings per share for CWM Mortgage Holdings, Inc. fall between any two
threshold amounts set forth above, the Profitability Bonus Amount payable shall
be interpolated by the corresponding percentage.
<PAGE>
SCHEDULE C
----------
(Discretionary Bonus)
1. Potential Discretionary Bonus Amount for Legal Affairs and Contract
-------------------------------------------------------------------
Administration: From $0 up to $125,000, based on your manager's evaluation
--------------
of your performance.
2. Potential Discretionary Bonus Amount for Product Development and Compliance:
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maximum Potential Performance Percentage:
Goal/Objective Discretionary Bonus Amount Excellent/Good/Satisfactory/Poor
-------------- -------------------------- --------------------------------
<S> <C> <C>
a. Pursue and complete $ 5,000 100% / 75% / 50% / 0%
development of current new
products (Merrill 100, Nest
Egg, etc.)
b. Hire experienced product $10,000 100% / 75% / 50% / 0%
development and compliance
officers, create functional
and efficient departments
and carefully manage costs
c. Develop at least five new or $20,000 100% / 80% / 60% / 40% / 20% / 0%
enhanced products
d. Develop and implement federal $10,000 100% / 75% / 50% / 0%
compliance plan for all
mortgage banking entities
e. Develop federal compliance plan $ 5,000 100% / 75% / 50% / 0%
for commercial lending entities
-------
Total: $50,000
</TABLE>
The Potential Discretionary Bonus Amount for Product Development and
Compliance shall be calculated by (1) multiplying (x) the Performance
Percentage for each Goal/Objective times (y) the Maximum Potential
Discretionary Bonus Amount for such Goal/Objective, and (2) adding all sums
determined pursuant to the preceding clause (1) for each Goal/Objective. The
Maximum Potential Discretionary Bonus Amount for Product Development and
Compliance shall be $50,000.
3. Bonus Discount Factor for Company Earnings:
------------------------------------------
<TABLE>
<CAPTION>
1996 Earnings per Share (fully diluted)
for CWM Mortgage Holdings, Inc. Discretionary Bonus Amount
------------------------------- --------------------------
<C> <C>
less than $1.00 0%
$1.00 to $1.24 50%
$1.25 to $1.34 75%
greater than $1.35 100%
</TABLE>
Earnings per share for CWM Mortgage Holdings, Inc. shall be determined on the
basis of the annual audit conducted by CWM's independent accountants.
If earnings per share for CWM Mortgage Holdings, Inc. fall between any two
threshold amounts set forth above, the Bonus Discount Factor shall not be
interpolated by the corresponding percentage.
4. Actual Discretionary Bonus Amount.
---------------------------------
The Actual Discretionary Bonus Amount shall be calculated by multiplying (x)
the sum of the Potential Discretionary Bonus Amounts in Part 1 and Part 2
above (from $0 up to $175,000) times (y) the Bonus Discount Factor determined
pursuant to Part 2 above.
Example: $125,000 (Potential Discretionary Bonus Amount) x 50% ($1.20 per
------- share earnings for 1996) = $67,500 (Actual Discretionary Bonus
Amount).
4
<PAGE>
EXHIBIT 10.2
1996 AMENDED AND EXTENDED
LOAN PURCHASE AND ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of June 1, 1996, by and between
CWM Mortgage Holdings, Inc. (formerly known as Countrywide Mortgage Investments,
Inc.), a Delaware corporation (the "Company"), and Countrywide Home Loans, Inc.
(formerly known as Countrywide Funding Corporation), a New York corporation
("CHL").
WITNESSETH:
WHEREAS, the Company has elected to qualify for the tax benefits accorded
by Sections 856 to 860 of the Internal Revenue Code of 1986, as amended; and
WHEREAS, the Company, directly or through Subsidiaries, in the conduct of
its business primarily operates a mortgage loan conduit, engages in warehouse
lending and construction lending, and invests in mortgage loans, manufactured
housing loans and mortgage-related securities meeting the investment criteria
established from time to time by the Board of Directors; and
WHEREAS, the Company may desire to purchase mortgage loans originated or
purchased by CHL and may request CHL to cause the issuance of Agency Securities
supported by pools of such mortgage loans on its behalf; and
WHEREAS, the Company may desire to appoint CHL to service mortgage loans
originated by others and purchased by the Company through its mortgage loan
conduit operations; and
WHEREAS, the Company and CHL desire to amend and extend the Loan Purchase
and Administrative Services Agreement originally entered into as of September 3,
1985, as amended and extended thereafter on an annual basis, for a one-year
period through May 31, 1997, upon the terms and subject to the conditions set
forth in this Agreement.
NOW THEREFORE, in consideration of the mutual agreements herein set forth,
the parties hereto agree as follows:
Section 1. Definitions. Whenever used in this Agreement, the following
--------- -----------
terms, unless the context otherwise requires, shall have the following meanings:
(a) "Affiliate" shall have the meaning attributed to such term in the
Management Agreement.
(b) "Agency Securities" shall mean GNMA Certificates, FHLMC Certificates
and/or FNMA Certificates.
(c) "Agreement" shall mean this 1996 Amended and Extended Loan Purchase and
Administrative Services Agreement.
(d) "Board of Directors" shall mean the Board of Directors of the Company.
1
<PAGE>
(e) "Conforming Loan" shall mean an FHA Loan, a VA Loan or a conventional
mortgage loan eligible for sale to FNMA or FHLMC.
(f) "FHA Loan" shall mean any mortgage loan insured by the Federal Housing
Administration under the National Housing Act.
(g) "FHLMC" shall mean the Federal Home Loan Mortgage Corporation, a
corporation organized and existing under the laws of the United States, or any
successor thereto.
(h) "FHLMC Certificate" shall mean a mortgage participation certificate,
guaranteed as to payment of interest and principal by FHLMC and backed by a pool
of conventional mortgage loans.
(i) "FNMA" shall mean the Federal National Mortgage Association, a
corporation organized and existing under the laws of the United States, or any
successor thereto.
(j) "FNMA Certificate" shall mean a guaranteed mortgage pass-through
certificate, guaranteed as to timely payment of interest and principal by FNMA
and backed by a pool of FHA Loans, VA Loans, and/or conventional mortgage loans.
(k) "GNMA" shall mean the Government National Mortgage Association, a
wholly owned corporate instrumentality of the United States within the
Department of Housing and Urban Development, or any successor thereto.
(l) "GNMA Certificate" shall mean a fully modified pass-through mortgage-
backed certificate guaranteed as to timely payment of interest and principal by
GNMA and backed by a pool of FHA Loans or VA Loans.
(m) "Jumbo Loan" shall mean any mortgage loan which is not a Conforming
Loan.
(n) "Management Agreement" shall mean that certain agreement dated as
of June 1, 1996 between the Company and the Manager governing the management of
the Company's investments and day-to-day operations.
(o) "Manager" shall mean Countrywide Asset Management Corporation, or any
successor thereto, under a Management Agreement with the Company.
(p) "Mortgage Backed Securities" shall have the meaning attributed to such
term in the Management Agreement.
(q) "Subsidiary" shall have the meaning attributed to such term in the
Management Agreement.
(r) "Unaffiliated Directors" shall mean those members of the Board of
Directors who are not Affiliates of the Manager.
(s) "VA Loan" shall mean any mortgage loan guaranteed by the Veterans
Administration under the Servicemen's Readjustment Act of 1944, as amended, or
Chapter 37 of Title 38, United States Code.
2
<PAGE>
Section 2. Purchase of Mortgage Loans and Agency Securities from CHL by
--------- ------------------------------------------------------------
the Company.
- -----------
(a) CHL may sell to the Company mortgage loans, Agency Securities and other
mortgage-related assets meeting the Company's investment criteria. CHL agrees
that all such sales shall be made in accordance with the normal and customary
industry practices with respect to the sale of mortgage loans, Agency Securities
and other mortgage-related assets. CHL agrees that all mortgage loans or other
investments sold by it to the Company will meet the investment criteria of the
Company in effect at the time of sales.
(b) CHL agrees that, any sale of mortgage loans, Agency Securities and
other mortgage-related assets from CHL to the Company will be made at prices no
less favorable to the Company than are available to CHL from other purchasers.
(c) The Company agrees that prior to the delivery of each mortgage loan
purchased, it shall have no interest in such mortgage loan. CHL shall bear all
expenses and costs associated with the mortgage loans prior to delivery,
including the costs associated with mortgage loans that are not sold. Upon the
delivery of such mortgage loan, the Company shall be the sole beneficial owner
of such mortgage loan although legal title to the mortgage and the mortgage note
will be held by CHL if so directed by the Company to permit the issuance of
Agency Securities under Section 3.
(d) Notwithstanding the fact that the Company is the beneficial owner of
the mortgage loans it purchases, the Company and CHL agree that from and after
the date first written above, the Conforming Loans sold to the Company under
this Agreement shall be sold "servicing retained" and the servicing rights
therefor shall remain with CHL. Notwithstanding the foregoing, CHL may not
assign its servicing rights to such Conforming Loans without the consent of the
Company prior to the issuance of Agency Securities backed by such Conforming
Loans. The Company agrees that it will not unreasonably withhold its consent to
such an assignment of servicing rights. CHL's rights to assign the servicing
rights to Conforming Loans that have been pooled and exchanged for Agency
Securities shall be subject to Subsection 3(c).
(e) CHL hereby represents and warrants that at the time of sale of mortgage
loans to the Company, such mortgage loans will meet the representations and
warranties required to be made by sellers of mortgage loans to the Company or
any Subsidiary pursuant to the Seller/Servicer Guide incorporated by reference
into the Seller/Servicer Contract executed by CHL.
(f) CHL shall act as an independent contractor and not as an agent of the
Company for purposes of originating and purchasing mortgage loans and selling to
the Company mortgage loans and Agency Securities and other investments.
Section 3. Pooling of Mortgage Loans; Issuance of Agency Securities;
--------- ---------------------------------------------------------
Payments of Certain Amounts to Company. (a) If directed by the Company, CHL on
- --------------------------------------
behalf of the Company will pool any FHA Loans and VA Loans purchased by the
Company in accordance with the requirements of FNMA and will use its best
efforts to have GNMA Certificates issued backed by such FHA Loans and VA Loans.
In connection therewith, CHL will (i) apply to GNMA for a commitment to
guarantee mortgage-backed securities by the issuance of such GNMA Certificates;
(ii) once such a commitment has been issued by GNMA, deliver the pool of
mortgage loans to a custodian (selected by CHL and acceptable to the Company,
subject to GNMA requirements) to be held for the benefit of the holder of the
Certificates; and (iii) once the custodian verifies to GNMA that it has custody
of the pool, enter into or cause to be created an appropriate GNMA guaranty
pursuant to which CHL will issue a GNMA Certificate owned by and registered in
the name of or deposited into a depository institution for the account of the
3
<PAGE>
Company. After the issuance of such GNMA Certificates, CHL will retain all
responsibilities and duties to GNMA, including the payment of all GNMA guaranty
fees, with respect to such FHA Loans, VA Loans and GNMA Certificates and will
service such FHA Loans and VA Loans after the issuance of the GNMA Certificates
in accordance with GNMA requirements.
(b) If directed by the Company, CHL on behalf of the Company will pool any
conventional mortgage loans and/or FHA Loans and VA Loans purchased by the
Company in accordance with the requirements of FNMA and/or the requirements of
FHLMC and will use its best efforts to have FNMA Certificates and/or FHLMC
Certificates issued backed by such conventional mortgage loans, FHA Loans and VA
Loans, but only if CHL in its sole discretion determines that such conventional
mortgage loans, FHA Loans and VA Loans meet all FNMA or FHLMC underwriting and
other requirements for such issuance. In connection therewith, CHL will (i)
apply to FNMA or FHLMC for a commitment to issue FNMA Certificates or FHLMC
Certificates and (ii) once such commitment has been approved, CHL will contract
with FNMA or FHLMC to pool such conventional mortgage loans, FHA Loans and VA
Loans and cause to be issued FNMA Certificates or FHLMC Certificates backed by
such loans, which FNMA Certificates or FHLMC Certificates will be owned by and
will be registered in the name of or deposited into a depository institution for
the account of the Company. After the issuance of such FNMA Certificates and
FHLMC Certificates, CHL will retain all responsibilities and duties to FNMA and
FHLMC, including the payment of all FNMA or FHLMC guaranty fees, with respect to
such conventional mortgage loans, FHA Loans, VA Loans, FNMA Certificates and
FHLMC Certificates and will service such conventional mortgage loans, FHA Loans
and VA Loans after the issuance of the FNMA or FHLMC Certificates which they
back, in accordance with FNMA and FHLMC requirements.
(c) If Agency Securities are issued to the Company pursuant to this
Section, CHL agrees that for such time as it is servicing the mortgage loans
underlying each Agency Security on behalf of the Company, in addition to all
duties and obligations imposed on CHL by the servicing agreement which
incorporates the appropriate GNMA, FNMA or FHLMC requirements, CHL shall remit
to the Company at the same time it remits each periodic installment of principal
and interest on the Agency Security, the amount, if any, representing the
difference between (i) the scheduled installment of principal and interest on
the mortgage loans underlying the Agency Security, less the applicable GNMA,
FNMA or FHLMC guaranty fee and CHL's servicing fee as agreed to between the
Company and CHL, and (ii) the scheduled installment of principal and interest on
the Agency Security. The obligation of CHL to remit such amounts to the Company
shall arise upon receipt by CHL from the mortgagor of the scheduled installment
of principal and interest on the underlying mortgage loan. CHL agrees that in
the event it assigns its right to service the mortgage loans underlying Agency
Securities, either the successor servicer of such mortgage loans will continue
to remit the amounts referred to above to the Company or CHL will remit to the
Company an amount representing the present value of the anticipated amounts
which would otherwise be received by the Company over the life of the mortgage
loans under this Subsection.
Section 4. Obligation to Assume Servicing. In the event the Company or
--------- ------------------------------
any Subsidiary acquires rights to service mortgage loans or terminates the
servicing rights of any entity which has sold mortgage loans to the Company or
any Subsidiary on a servicing retained basis, and if requested by the Company,
CHL agrees to negotiate a servicing agreement with the Company pursuant to which
CHL may assume the servicing function.
Section 5. Additional Activities of CHL. Nothing herein shall prevent CHL
--------- ----------------------------
or its Affiliates from engaging in other businesses or from rendering services
of any kind to any other person or entity, including the performance of
monitoring, administering or servicing activities for others investing in any
type of real estate investment.
4
<PAGE>
Section 6. Bank Accounts. Fidelity Bond. (a) CHL may establish and
--------- ------------------------------
maintain in connection with the services performed hereunder one or more bank
accounts in the name of the Company, at the direction of the Company, and may
collect and deposit into any such account or accounts, and disburse from any
such account or accounts, moneys on behalf of the Company, under such terms and
conditions as the Company may approve; and CHL shall from time to time render
appropriate accountings of such collections and payments to the Company and,
when requested, to the auditors of the Company.
(b) CHL shall maintain a fidelity bond with a responsible surety company in
an amount approved by the Board of Directors covering all officers and employees
of CHL handling funds of the Company and any documents or papers, which bond
shall protect the Company against all losses of any such property from acts of
such officers and employees through theft, embezzlement, fraud, negligent acts,
errors and omissions or otherwise, the premium for said bond to be paid by CHL.
Section 7. Records; Confidentiality. CHL shall maintain appropriate
--------- ------------------------
books of account and records relating to services performed hereunder, which
books of account and records shall be accessible for inspection and copying by
the Company at any time during normal business hours. CHL agrees to keep
confidential any and all information it obtains from time to time in connection
with the services it renders hereunder and shall not disclose any portion
thereof to nonaffiliated third parties except with the prior written consent of
the Company.
Section 8. Term; Termination. (a) This Agreement shall continue in force
--------- -----------------
through May 31, 1997, and thereafter it may be extended only with the consent of
CHL and by the affirmative vote of a majority of the Unaffiliated Directors.
Each extension shall be executed in writing by both parties hereto before the
expiration of this Agreement or of any extension thereof.
(b) CHL may terminate this Agreement upon 30 days' written notice if at any
time any of the Affiliates of Countrywide Credit Industries, Inc. are no longer
serving as Manager.
(c) Notwithstanding any other provision herein to the contrary, this
Agreement, or any extension hereof, may be terminated by the Company with cause,
upon 30 days' written notice, or by either party without cause, upon 60 days'
written notice, by majority vote of the Unaffiliated Directors or by vote of the
holders of a majority of the outstanding shares of common stock of the Company,
in the case of termination by the Company, or in the case of termination by CHL,
by majority vote of the Directors of CHL.
Section 9. Assignment. This Agreement shall not be assignable in whole or
--------- ----------
in part by CHL, unless such assignment is to a corporation, association, trust
or other organization which shall acquire the property and carry on the business
of CHL, if at the time of such assignment a majority of the voting stock of such
assignee organization shall be owned, directly or indirectly, by Countrywide
Credit Industries, Inc. or unless such assignment is consented to in writing by
the Company with the consent of a majority of the Unaffiliated Directors. Such
an assignment shall bind the assignee hereunder in the same manner as CHL is
bound hereunder, and, to further evidence its obligations hereunder, the
assignee shall execute and deliver to the Company a counterpart of this
Agreement. This Agreement shall not be assignable by the Company without the
consent of CHL, except in the case of an assignment by the Company to a
corporation or other organization which is a successor (by merger, consolidation
or purchase of assets) to the Company, in which case such successor organization
shall be bound hereunder by the terms of said assignment in the same manner as
the Company is bound hereunder.
5
<PAGE>
Section 10. Termination by Company for Cause. At the option solely of the
---------- --------------------------------
Company, this Agreement may be and become terminated upon receipt of 30 days'
written notice of termination from the Board of Directors to CHL if any of the
following events shall occur:
(a) If CHL shall violate any provisions of this Agreement and, after notice
of such violation, shall not cure such default within 30 days; or
(b) There is entered an order for relief or similar decree or order with
respect to CHL by a court having jurisdiction in the premises in an involuntary
case under the federal bankruptcy laws as now or hereafter constituted or under
any applicable federal or state bankruptcy, insolvency or other similar laws; or
CHL (i) ceases or admits in writing its inability to pay its debts as they
become due and payable, or makes a general assignment for the benefit of, or
enters into any composition or arrangement with, creditors; (ii) applies for, or
consents (by admission of material allegations of a petition or otherwise) to
the appointment of a receiver, trustee, assignee, custodian, liquidator or
sequestrator (or other similar official) of CHL or of any substantial part of
its properties or assets, or authorizes such an application or consent, or
proceedings seeking such appointment are commenced without such authorization,
consent or application against CHL and continue undismissed for 30 days; (iii)
authorizes or files a voluntary petition in bankruptcy, or applies for or
consents (by admission of material allegations of a petition or otherwise) to
the application of any bankruptcy, reorganization, arrangement, readjustment of
debt, insolvency, dissolution, liquidation or other similar law of any
jurisdiction, or authorizes such application or consent, or proceedings to such
end are instituted against CHL without such authorization, application or
consent and remain undismissed for 30 days or result in adjudication of
bankruptcy or insolvency; or (iv) permits or suffers all or any substantial part
of its properties or assets to be sequestered or attached by court order and the
order remains undismissed for 30 days.
(c) CHL agrees that if any of the events specified in paragraph (b) of this
Section 10 shall occur, it will give prompt written notice thereof to the Board
of Directors after the happening of such event.
Section 11. Action Upon Termination. From and after the effective date of
---------- -----------------------
termination of this Agreement, pursuant to Sections 8, 9 or 10 hereof, CHL shall
not be entitled to compensation for further services hereunder, but shall be
paid all compensation accruing to the date of termination. CHL shall forthwith
upon such termination:
(a) Pay over to the Company any money collected and held for the account of
the Company pursuant to this Agreement or otherwise, after deducting any accrued
compensation to which it is then entitled;
(b) Deliver to the Board of Directors a full accounting, including a
statement showing any payments collected by it and a statement of any money held
by it, covering the period following the date of the last accounting furnished
to the Board of Directors; and
(c) Deliver to the Board of Directors all property and documents of the
Company then in the custody of CHL, except to the extent that to do so would
conflict with the terms of its servicing agreement with the Company.
Section 12. Release of Money or other Property Upon Written Request. CHL
---------- -------------------------------------------------------
agrees that any money or other property of the Company held by CHL under this
Agreement shall be held for the Company in a custodial capacity, and CHL's
records shall be appropriately marked to clearly reflect the ownership of such
money or other property of the Company. CHL shall release its custody of any
money or other property only in accordance with written instructions from the
Company.
6
<PAGE>
Section 13. Notices. Any notice, report or other communication required
---------- -------
or permitted to be given hereunder shall be in writing, unless some other method
of giving such notice, report or other communication is accepted by the party
to whom it is given, and shall be given by being delivered at the following
addresses of the parties hereto:
The Company: CWM Mortgage Holdings, Inc.
35 North Lake Avenue
Pasadena, California 91101-1857
Attention: General Counsel
CHL: Countrywide Home Loans, Inc.
155 North Lake Avenue
Post Office 7137
Pasadena, California 91109-7137
Attention: General Counsel
Either party may at any time give notice in writing to the other party of a
change of its address for the purpose of this Section 13.
Section 14. No Joint Venture. The Company and CHL are not partners or joint
---------- ----------------
venturers with each other and nothing herein shall be construed to make them
such partners or joint venturers or impose any liability as such on either of
them.
Section 15. Amendments. This Agreement shall not be amended, changed,
---------- ----------
modified, terminated or discharged in whole or in part, and the performance of
any obligation hereunder may not be waived, except by an instrument in writing
signed by both parties hereto, or their respective successors or permitted
assigns, or otherwise as provided herein.
Section 16. Successors and Assigns. This Agreement shall bind any
---------- ----------------------
successors or permitted assigns of the parties hereto as herein provided.
Section 17. Severability. The invalidity or unenforceability of any
---------- ------------
provision of this Agreement shall not affect the validity of any other
provision, and all other provisions shall remain in full force and effect.
Section 18. Entire Agreement. This instrument contains the entire
---------- ----------------
agreement between the parties as to the rights granted and the obligations
assumed in this instrument.
Section 19. Waiver. Any forbearance by a party to this Agreement in
---------- ------
exercising any right or remedy under this Agreement or otherwise afforded by
applicable laws shall not be a waiver of or preclude the exercise of that or any
other right or remedy.
Section 20. Governing Law. This Agreement shall be governed by, construed
---------- -------------
under and interpreted in accordance with the laws of the State of California.
Section 21. Headings and Cross-References. The section headings hereof
---------- -----------------------------
have been inserted for convenience of reference only and shall not be construed
to affect the meaning, construction or effect of this Agreement. Any reference
in this Agreement to a "Section" or "Subsection" shall be construed,
respectively, as referring to a section of this Agreement or a subsection of a
section of this Agreement in which the reference appears.
Section 22. Execution in Counterparts. This Agreement may be executed in
---------- -------------------------
one or more counterparts, any of which shall constitute an original as against
any party whose
7
<PAGE>
signature appears on it, and all of which shall together constitute a single
instrument. This Agreement shall become binding when one or more counterparts,
individually or taken together, bear the signatures of both parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized as of the day and year
first above written.
CWM MORTGAGE HOLDINGS, INC.
By: /s/ Michael W. Perry
------------------------
Name: Michael W. Perry
Title: Executive Vice President
COUNTRYWIDE HOME LOANS, INC.
By: /s/ Stanford L. Kurland
------------------------
Name: Stanford L. Kurland
------------------------
Title: President
-----------------------
The undersigned, as Manager, consents to the foregoing terms and provisions
of this Agreement and agrees to be bound by them in performing its duties as
Manager of the Company.
COUNTRYWIDE ASSET MANAGEMENT
CORPORATION
By: /s/ Angelo R. Mozilo
-------------------------
Name: Angelo R. Mozilo
-------------------------
Title: Chairman of the Board
------------------------
8
<PAGE>
EXHIBIT 10.3
1996 AMENDED AND EXTENDED
MANAGEMENT AGREEMENT
THIS AGREEMENT, initially made as of September 3, 1985 and amended and
extended from time to time thereafter, is amended and extended as of June 1,
1996 by and between CWM MORTGAGE HOLDINGS, INC. (formerly known as Countrywide
Mortgage Investments, Inc.), a Delaware corporation which has elected to qualify
as a real estate investment trust (the "Company"), and COUNTRYWIDE ASSET
MANAGEMENT CORPORATION, a Delaware corporation, and its permitted successors and
assigns under this agreement (the "Manager").
WITNESSETH
WHEREAS, the Company has elected to qualify for the tax benefits
accorded by Sections 856 to 860 of the Internal Revenue Code of 1986, as
amended; and
WHEREAS, the Company, directly or through Subsidiaries, in the conduct
of its business primarily operates a mortgage loan conduit, engages in warehouse
lending and construction lending, purchases and sells credit-impaired mortgage
loans, purchases and sells manufactured housing loans, and invests in mortgage
loans, mortgage-related securities and asset-backed securities and receivables
meeting the investment criteria established from time to time by its Board of
Directors; and
WHEREAS, the Company desires to retain the Manager to manage the
operations and investments of the Company and its Subsidiaries and to perform
administrative services for the Company and its Subsidiaries, each in the manner
and on the terms set forth in this Agreement; and
WHEREAS, the Company and the Manager wish to amend and extend their
agreement originally entered into as of September 3, 1985 for a one year period
through May 31, 1997;
NOW, THEREFORE, in consideration of the mutual agreements set forth in
this Agreement, the Company and the Manager agree as follows:
Section 1. Definitions. Whenever used in this Agreement, the
--------- -----------
following terms, unless the context otherwise requires, shall have the following
meanings:
(a) "Affiliate" of another person shall mean any person directly or
indirectly owning, controlling or holding with power to vote, more than 5% of
the outstanding voting securities of such other person; any person 5% or more of
whose outstanding voting securities are directly or indirectly owned, controlled
or held with power to vote by such other person; any person directly or
indirectly controlling, controlled by or under common control with, such other
<PAGE>
person; and any officer, director, partner or employee of such other person.
The term "person" includes a natural person, corporation, partnership, trust,
company or other entity.
(b) "Agency Securities" shall mean (i) fully modified pass-through
mortgage-backed certificates guaranteed as to timely payment of principal and
interest by the Government National Mortgage Association, (ii) mortgage
participation certificates guaranteed as to payment of interest and principal by
the Federal Home Loan Mortgage Corporation and (iii) mortgage pass-through
certificates guaranteed as to payment of interest and principal by the Federal
National Mortgage Association.
(c) "Agreement" shall mean this 1996 Amended and Extended Management
Agreement.
(d) "Average Invested Assets" for any period shall mean the average of
the aggregate book value of the assets of the mortgage conduit operations of the
Company and its Subsidiaries invested, directly or indirectly, in loans secured
by real estate (including without limitation whole mortgage loans, retained
undivided interests in mortgage loans and Agency Securities, but not including
any whole mortgage loans, retained undivided interests in mortgage loans, or
Agency Securities pledged to secure the issuance of collateralized mortgage
obligations or other mortgage collateralized debt or sold in the form of
mortgage backed securities in transactions entered into by the Company or a
Subsidiary), computed by taking the average of such values at the end of each
calendar month during such period.
(e) "Average Net Worth" for any period shall mean the arithmetic
average of the Net Worth of the Company at the beginning of such period and at
the end of each calendar month during such period.
(f) "Board of Directors" shall mean the Board of Directors of the
Company.
(g) "CCI" shall mean Countrywide Credit Industries, Inc., a Delaware
corporation.
(h) "CHL" shall mean Countrywide Home Loans, Inc., a Subsidiary of
CCI, and a New York corporation.
(i) "Commitment" shall mean any document containing the terms pursuant
to which the Company or any Subsidiary agrees to purchase on a forward basis any
specified mortgage loans, including purchases from Affiliates of the Manager.
(j) "Consolidated Average Invested Assets" for any period shall mean
the Average Invested Assets for the Company and its consolidated subsidiaries
taken as a whole, computed by taking the average of such values at the end of
each calendar month during such period.
2
<PAGE>
(k) "Governing Instruments" shall mean the articles or certificate of
incorporation, trust agreement and bylaws of the Company or any Subsidiary, as
applicable.
(l) "INMC" shall mean Independent National Mortgage Corporation, a
Delaware corporation.
(m) "Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended.
(n) "Loan Purchase Agreement" shall mean the 1996 Amended and Extended
Loan Purchase and Administrative Services Agreement, dated as of June 1, 1996,
as thereafter amended or supplemented, between the Company and CHL.
(o) "Mortgage Backed Securities" shall mean the collateralized
mortgage obligations, mortgage collateralized debt, mortgage pass-through
securities including real estate mortgage investment conduits or other mortgage-
related securities issued by the Company or a Subsidiary of the Company.
(p) "Net Income" for any period shall mean total revenues applicable
to such period, less the expenses applicable to such period determined in
accordance with generally accepted accounting principles.
(q) "Net Worth" at any time shall mean the sum of the gross proceeds
from any offerings of equity securities by the Company (before deducting any
underwriting discounts and commissions and other expenses and costs relating to
the offering), plus or minus any retained earnings or losses of the Company,
computed in accordance with generally accepted accounting principles.
(r) "Return on Equity" for a period shall be calculated by dividing
the Company's Net Income for such period by the Company's Average Net Worth for
such period.
(s) "Servicing Agreement" shall mean an agreement between the Company
or any Subsidiary and each seller or servicer of mortgage loans purchased by the
Company, including CHL, which agreement governs the sale and/or servicing of
such mortgage loans.
(t) "Shareholders" shall mean the owners of the shares of the Company.
(u) "Subsidiary" shall mean any corporation, whether now existing or
in the future established, of which the Company, directly or indirectly, owns
more than 50% of the outstanding voting securities of any class or classes, any
business trust, partnership or similar non-corporate form in which the Company,
directly or indirectly, owns more than 50% of the beneficial interests, and
INMC.
3
<PAGE>
(v) "Ten Year Average Yield" shall mean the average yield to maturity
for actively traded marketable U.S. Treasury fixed interest rate securities
(adjusted to constant maturities of 10 years).
(w) "Ten Year U.S. Treasury Rate" for a quarterly period shall mean
the arithmetic average of the weekly per annum Ten Year Average Yields published
by the Federal Reserve Board during such quarter. In the event that the Federal
Reserve Board does not publish a weekly per annum Ten Year Average Yield during
any week in a quarter, then the Ten Year U.S. Treasury Rate for such week shall
be the weekly per annum Ten Year Average Yields published by any Federal Reserve
Bank or by any U.S. Government department or agency selected by the Company for
such week. In the event that the Company determines in good faith that for any
reason the Company cannot determine the Ten Year U.S. Treasury Rate for any
quarter as provided above, then the Ten Year U.S. Treasury Rate for such quarter
shall be the arithmetic average of the per annum average yields to maturity
based upon the daily closing bids during such quarter for each of the issues of
actively traded marketable U.S. Treasury fixed interest rate securities (other
than securities which can, at the option of the holder, be surrendered at face
value in payment of any federal estate tax) with a final maturity date not less
than eight nor more than twelve years from the date of each such quotation, as
chosen and quoted for each business day (or less frequently if daily quotations
shall not be generally available) in each such quarterly period in New York City
to the Company by at least three recognized dealers in U.S. Government
securities selected by the Company.
(x) "Unaffiliated Directors" shall mean those members of the Board of
Directors of the Company who are not Affiliates of the Manager.
Section 2. General Duties of the Manager. Subject to the supervision
--------- -----------------------------
of the Board of Directors and in accordance with the Governing Instruments, the
Manager shall provide services to the Company and INMC, and to the extent
directed by the Board of Directors, shall provide similar services to any other
Subsidiary of the Company, as follows:
(a) conduct the day-to-day mortgage loan conduit, warehouse lending,
construction lending, manufactured housing and other operations of the Company
and INMC, as approved by the Board of Directors, including without limitation,
the purchase, accumulation, financing and securitization of mortgage loans and
manufactured housing loans, the establishment and financing of warehouse lending
and construction lending facilities, the management of assets and investments
and the administration thereof; and
(b) provide such reports and analysis to the Board of Directors
regarding the operating strategies and results of the Company and its
Subsidiaries as the Board may reasonably request.
The Manager shall perform its duties and shall take actions on behalf
of the Company and its Subsidiaries consistent with (i) the operating policies
and criteria established from time to time by the Board of Directors or any
authorized officer with respect thereto, and (ii) the obligations of the Company
and its Subsidiaries under the various agreements to which
4
<PAGE>
each is a party. So long as the Manager is serving as the Manager under this
Agreement, it shall be and remain a Subsidiary of and wholly owned, directly or
indirectly, by CCI.
Section 3. Additional Activities of Manager. Except as provided in
--------- --------------------------------
the Letter Agreement between CCI and the Company attached hereto as Exhibit A,
nothing herein shall prevent the Manager or its Affiliates from engaging in
other businesses or from rendering services of any kind to any other person or
entity, including investment in or advisory service to others investing in any
type of real estate investment, including investments which meet the principal
investment objectives of the Company or any Subsidiary of the Company.
Directors, officers, employees and agents of the Manager or Affiliates of the
Manager may serve as directors, officers, employees, agents, nominees or
signatories for the Company or any Subsidiary of the Company, to the extent
permitted by its Governing Instruments, as from time to time amended, or by any
resolutions duly adopted by the Board of Directors pursuant to its Governing
Instruments. When executing documents or otherwise acting in such capacities
for the Company or any Subsidiary of the Company, such persons shall use their
respective titles in the Company or such Subsidiary.
Section 4. Purchases and Sales of Investments and Loans from the
--------- -----------------------------------------------------
Manager and its Affiliates. The Manager agrees that sales of investments to and
- --------------------------
purchases of investments from the Manager and its Affiliates, including without
limitation purchases and sales of mortgage loans, Agency Securities and
Commitments, shall only be made as stated in an agreement therefor setting forth
in general the operating policies and guidelines within which such sales or
purchases may be made, which agreement has been approved by the Board of
Directors, including a majority of the Unaffiliated Directors. Notwithstanding
the terms of any other agreements between the Manager or its Affiliates and the
Company, the Manager further agrees that all such sales and purchases will be
made upon terms no less favorable to the Company than are generally available to
other third parties. The Manager shall purchase or exercise the Company's
option to purchase mortgage loans from CHL in accordance with the Company's
rights and obligations under the Loan Purchase Agreement or any other applicable
agreement between the Company and CHL which is approved by the Board of
Directors, including a majority of the Unaffiliated Directors.
Section 5. Repurchase Obligation.
--------- ---------------------
(a) The Manager agrees that if the Company purchases any mortgage
loan, Agency Security or other investment which does not meet the investment
and/or purchase criteria and policies of the Company and/or INMC as applicable
at the time of purchase, the Manager will repurchase or will cause the
repurchase of such mortgage loan, manufactured housing loan, Agency Security or
other investment from the Company for an amount not less than the unpaid
principal balance of the mortgage loan, manufactured housing loan, Agency
Security or other investment as of the date of repurchase, less any amounts
received by the Company representing prepaid interest not accrued as of the date
of repurchase, plus any amounts representing accrued and unpaid interest to the
date of repurchase and any amounts incurred by the Company, including, but not
limited to reasonable fees and out-of-pocket expenses of counsel, in enforcing
the obligation of the Manager to repurchase or cause the repurchase of such
mortgage loan,
5
<PAGE>
manufactured housing loan, Agency Security or other investment. In lieu of
repurchasing or causing the repurchase of any mortgage loan, manufactured
housing loan, Agency Security or other investment, the Manager may, in its
discretion, substitute or cause the substitution, respectively, of a mortgage
loan, manufactured housing loan, Agency Security or other investment having an
unpaid principal amount and yield at least equivalent to and a maturity not
later than the defective mortgage loan, manufactured housing loan, Agency
Security or other investment and otherwise meeting the investment and/or
purchase criteria and policies of the Company and/or INMC as applicable and the
terms of the agreement, if any, pursuant to which the mortgage loan,
manufactured housing loan, Agency Security or other investment has been
securitized.
(b) The Manager shall be subrogated to any and all rights of the
Company or any Subsidiary, and the Company agrees to assign to the Manager or
direct its Subsidiary to assign to the Manager its rights, under any Servicing
Agreement with any third party with respect to any mortgage loan or manufactured
housing loan repurchased or substituted for, by or on behalf of the Manager
under Subsection (a).
Section 6. Bank Accounts. The Manager may establish and maintain one
--------- -------------
or more bank accounts in the name of the Company or any Subsidiary, at the
direction of the Board of Directors, and may collect and deposit into any such
account or accounts, and disburse from any such account or accounts, any money
on behalf of the Company or any Subsidiary, under such terms and conditions as
the Board of Directors may approve; and the Manager shall from time to time
render appropriate accountings of such collections and payment to the Board of
Directors and, when requested, to the auditors of the Company or any Subsidiary.
Section 7. Records; Confidentiality. The Manager shall maintain
--------- ------------------------
appropriate books of account and records relating to services performed
hereunder, which books of account and records shall be accessible for inspection
by the Company or any Subsidiary at any time during normal business hours. The
Manager agrees to keep confidential any and all information it obtains from time
to time in connection with the services it renders under this Agreement and
shall not disclose any portion thereof to non-affiliated third parties except
with the prior written consent of the Company.
Section 8. Obligations of Manager.
--------- ----------------------
(a) The Manager shall use its best efforts to provide that each
mortgage loan or manufactured housing loan conforms to the purchase criteria of
the Company or INMC as applicable and shall require each seller or transferor of
mortgage loans or manufactured housing loans to the Company or INMC in
connection with such purchase or transfer to make all applicable representations
and warranties contained in the Servicing Agreement for such loans. The Manager
shall take such other action as the Manager deems necessary or appropriate with
regard to the protection of the Company's or INMC's investments.
(b) Anything else in this Agreement to the contrary notwithstanding,
the Manager shall refrain from any action which in its sole judgment made
in good faith would
6
<PAGE>
adversely affect the status of the Company, or any Subsidiary which elects to so
qualify, as a real estate investment trust as defined and limited in Section 856
through 860 of the Internal Revenue Code or which in its sole judgment made in
good faith would violate any law, rule or regulation of any governmental body or
agency having jurisdiction over the Company or any Subsidiary or which would
otherwise not be permitted by the Company's or its Subsidiary's Governing
Instruments except if such action shall be ordered by the Board of Directors, in
which event the Manager shall promptly notify the Board of Directors of the
Manager's judgment that such action would adversely affect such status or
violate any such law, rule or regulation or the Governing Instruments and shall
refrain from taking such action pending further clarification or instructions
from the Board of Directors. If the Board of Directors thereafter instructs the
Manager, despite the Manager's notification as provided herein, to take any such
action and the Manager so acts upon the instructions given, the Manager shall
not be responsible for any loss of the Company's or Subsidiary's status as a
real estate investment trust or violation of any law, rule or regulation or the
Governing Instruments caused thereby.
Section 9. Fidelity Bond. The Manager shall maintain a fidelity bond
--------- -------------
with a responsible surety company in an amount approved by the Board of
Directors covering all officers and employees of the Manager handling funds of
the Company or any Subsidiary and any documents or papers, which bond shall
protect the Company or any Subsidiary against all losses of any such property
from acts of such officers and employees through theft, embezzlement, fraud,
negligent acts, errors and omissions or otherwise. The premium for said bond
shall be paid by the Manager.
Section 10. Compensation.
---------- ------------
(a) Manager will receive a base management fee equal to the Average
Invested Assets multiplied by 1/8 of 1%.
(b) The Manager shall be paid for services rendered with respect to
warehouse lending and construction lending activities a management fee in an
amount equal to two tenths of 1% of the average daily balance of the amounts
outstanding under warehouse lines of credit extended by the Company or its
Subsidiaries to originators of mortgage loans.
(c) If the Company's annualized Return on Equity during any fiscal
quarter (computed by multiplying the Return on Equity for such fiscal quarter by
four) is in excess of the Ten Year U.S. Treasury Rate, plus 2% after taking into
account any recovery of the Manager's fees under Subsection (d), the Company
will pay the Manager as incentive compensation for such quarter an amount equal
to 25% of the amount by which the annualized Return on Equity of the Company for
such fiscal quarter exceeds the Ten Year U.S. Treasury Rate plus 2%, but in no
event shall any payment of incentive compensation under this Subsection reduce
the Company's annualized Return on Equity for such quarter to less than the Ten
Year U.S. Treasury Rate plus 2%. For purposes of the calculation contained in
this Subsection, all Net Income of the Company and any Subsidiaries shall be
deemed to have been distributed on the last day of each quarter. The incentive
compensation shall be paid to the Manager within 60 days after the end of each
fiscal quarter on an interim basis, subject to adjustment under Subsection (d).
7
<PAGE>
(d) The Manager shall compute the compensation payable under
Subsections (a), (b) and (c) within 45 days after the end of each fiscal
quarter. A copy of the computations made by the Manager to calculate its
compensation shall thereafter be promptly delivered to the Company and, upon
such delivery, payment of the interim compensation earned under Subsections (a),
(b) and (c) shown therein shall be due and payable within 60 days after the end
of such fiscal quarter. The aggregate amount of the Manager's compensation for
each fiscal year shall be adjusted within 120 days after the end of such fiscal
year so as to provide compensation for such year in the annual amounts stated in
Subsections (a), (b) and (c) and any excess owed to, or shortfall owed by, the
Manager with respect to such compensation, collectively, shall be promptly
remitted by, or paid to, the Company.
(e) Notwithstanding the definition of Average Invested Assets, in the
event the Company implements a strategy of investing directly or indirectly in
loans secured by real estate which are not intended to be securitized, the base
management fee in Subsection (a) shall be paid with respect to these assets.
Section 11. Operating Expenses. The Manager shall be reimbursed by the
---------- ------------------
Company for its operating expenses on a monthly basis. Any allocation of general
administrative costs and overhead by the Manager to the Company shall be
supported by documentation establishing that each other applicable affiliate of
the Manager is also charged a pro rata share of such expenses. Promptly
following the end of each month for which reimbursement is due, the Manager
shall submit an itemized accounting of its expenses to the Company, and the
Company shall pay within 30 days of the receipt of the accounting. The Board of
Directors shall have the authority to approve the incurrence of any expenses by
the Manager for the account of the Company, either prior to or after such
expenses have been incurred. The Manager shall be required to request and
receive the approval of the Board of Directors with respect to the compensation
and expense reimbursement provided to the executive officers of the Company. In
the event the Company determines that any expenses, costs or overhead charged by
the Manager can be reduced by the Company's utilizing another provider or
source, the Company shall so notify the Manager, and thirty (30) days after the
delivery of such notice (the "Notice Effective Date"), the Company shall have
the right to utilize any other such provider or source pursuant to such
arrangements as the Company may from time to time make; provided that any
expenses, costs or overhead allocable by the Manager to the Company in
accordance with the terms of this section shall be reimbursed by the Company for
the period up to and including the Notice Effective Date.
Section 12. Limits of Manager Responsibility. The Manager assumes no
---------- --------------------------------
responsibility under this Agreement other than to render the services called for
hereunder in good faith and shall not be responsible for any action of the Board
of Directors in following or declining to follow any advice or recommendations
of the Manager, including as set forth in Subsection 8(b) above. The Manager,
its directors, officers, shareholders and employees will not be liable to the
Company, any Subsidiary, the Unaffiliated Directors of the Company or the
Company's or any Subsidiary's shareholders for any acts performed by the
Manager, its directors, officers, shareholders or employees in accordance with
this Agreement, except by reason of acts
8
<PAGE>
constituting bad faith, willful misconduct, gross negligence or reckless
disregard of their duties. The Company or any Subsidiaries, as applicable, shall
reimburse, indemnify and hold harmless the Manager, its shareholders, directors,
officers or employees for and from any and all expenses, losses, damages,
liabilities, demands, charges and claims of any nature whatsoever in respect of
or arising from any acts or omissions of the Manager, its shareholders,
directors, officers and employees made in good faith in the performance of the
Manager's duties under this Agreement and not constituting bad faith, willful
misconduct, gross negligence or reckless disregard of duties.
Section 13. No Joint Venture. The Company and the Manager are not
---------- ----------------
partners or joint venturers with each other and nothing herein shall be
construed to make them such partners or joint venturers or impose any liability
as such on either of them.
Section 14. Term; Termination. This Agreement shall continue in force
---------- -----------------
through May 31, 1997, and thereafter it may be extended only with the consent of
the Manager and by the affirmative vote of a majority of the Unaffiliated
Directors.
Each extension shall be executed in writing by all parties hereto
before the expiration of this Agreement or of any extension thereof. Each such
extension shall be effective for a period in no case exceeding twelve months.
Notwithstanding any other provision to the contrary, this Agreement,
or any extension hereof, may be terminated by any party, upon sixty (60) days'
written notice, by majority vote of the Unaffiliated Directors or by majority
vote of the Shareholders, in the case of termination by the Company, or, in the
case of termination by the Manager, by majority vote of the directors of the
Manager.
If this Agreement is terminated pursuant to this Section, such
termination shall be without any further liability or obligation of either party
to the other, except as provided in Section 17.
Section 15. Assignment; Subcontract.
---------- -----------------------
(a) This Agreement may not be assigned, in whole or in part, by the
Manager, unless such assignment is to a corporation, association, trust or other
organization which shall acquire the property and carry on the business of the
Manager, if at the time of such assignment a majority of the voting stock of
such assignee organization shall be owned, directly or indirectly, by CCI or any
of its Affiliates or unless such assignment is consented to in writing by the
Company with the consent of a majority of the Unaffiliated Directors. Such a
permitted assignment shall bind the assignee hereunder in the same manner as the
Manager is bound under this Agreement and, to further evidence its obligations,
under this Agreement, the assignee shall execute and deliver to the Company a
counterpart of this Agreement. This Agreement shall not be assignable by the
Company without the consent of the Manager, except in the case of assignment by
the Company to a real estate investment trust or other organization which is a
successor (by merger, consolidation, or otherwise purchase of assets) to the
Company, in which
9
<PAGE>
case such successor organization shall be bound hereunder and by the terms of
said assignment in the same manner as the Company is bound hereunder.
(b) Notwithstanding the foregoing, the Company and the Manager agree
that the Manager may enter into a subcontract with CHL or any of its Affiliates
pursuant to which CHL or such Affiliate will provide such of the management
services required under this Agreement as the Manager deems necessary, and the
Company hereby consents to the entering into and performance of such
subcontract; provided, however, that no such arrangement between the Manager and
CHL or any of its Affiliates shall relieve the Manager of any of its duties or
obligations under this Agreement; and, provided further, that if any subcontract
results in operating expenses to be paid by the Company to the Manager, such
expenses shall be in the amount actually incurred by the Manager. In the event
the Company determines that any expenses, costs or overhead charged by such
subcontractor can be reduced by the Company's utilizing another provider or
source, the Company shall so notify the Manager, and thirty (30) days after the
delivery of such notice (the "Notice Effective Date"), the Company shall have
the right to utilize any other such provider or source pursuant to such
arrangements as the Company may from time to time make; provided that any
expenses, costs or overhead allocable by the Manager to the Company in
accordance with the terms of this section shall be reimbursed by the Company for
the period up to and including the Notice Effective Date.
Section 16. Termination by Company for Cause. At the option solely of
---------- --------------------------------
the Company, this Agreement shall be and become terminated upon thirty days'
written notice of termination from the Board of Directors to the Manager if any
of the following events shall occur:
(a) If the Manager shall violate any provision of this Agreement and,
after notice of such violation, shall not cure such default within 30 days; or
(b) There is entered an order for relief or similar decree or order
with respect to the Manager by a court having jurisdiction in the premises in an
involuntary case under the federal bankruptcy laws as now or hereafter
constituted or under any applicable federal or state bankruptcy, insolvency or
other similar laws; or the Manager (i) ceases or admits in writing its inability
to pay debts as they become due and payable, or makes a general assignment for
the benefit of, or enters into any composition or arrangement with, creditors;
(ii) applies for, or consents (by admission of material allegations of a
petition or otherwise) to the appointment of a receiver, trustee, assignee,
custodian, liquidator or sequestrator (or other similar official) of the Manager
or of any substantial part of its properties or assets, or authorizes such an
application or consent, or proceedings seeking such appointment are commenced
without such authorization, consent or application against the Manager and
continue undismissed for 30 days; (iii) authorizes or files a voluntary petition
in bankruptcy, or applies for or consents (by admission of material allegations
of a petition or otherwise) to the application of any bankruptcy,
reorganization, arrangement, readjustment of debt, insolvency, dissolution,
liquidation or other similar law of any jurisdiction, or authorizes such
application or consent, or proceedings to such end are instituted against the
Manager without such authorization, application or consent and remain
undismissed for 30 days or result in adjudication of bankruptcy or insolvency;
or (iv) permits or
10
<PAGE>
suffers all or any substantial part of its properties or assets to be
sequestered or attached by court order and the order remains undismissed for 30
days.
(c) The Manager agrees that if any of the events specified in
paragraph (b) of this Section 16 shall occur, it will give prompt written notice
thereof to the Board of Directors after the happening of such event.
Section 17. Action Upon Termination. From and after the effective date
---------- -----------------------
of termination of this Agreement, pursuant to Sections 14, 15, or 16 hereof, the
Manager shall not be entitled to compensation for further services hereunder,
but shall be paid all compensation accruing to the date of termination, subject
to adjustment on an annualized basis in accordance with Section 10(d). The
Manager shall forthwith upon such termination:
(a) Pay over to the Company or any Subsidiary, as applicable, all
money collected and held for the account of the Company or any Subsidiary
pursuant to this Agreement, after deducting any accrued compensation and
reimbursement for its expenses to which it is then entitled;
(b) Deliver to the Board of Directors a full accounting, including a
statement showing all payments collected by it and a statement of all money held
by it, covering the period following the date of the last accounting furnished
to the Board of Directors with respect to the Company or any Subsidiary; and
(c) Deliver to the Board of Directors all property and documents of
the Company or any Subsidiary then in the custody of the Manager.
Section 18. Release of Money or Other Property Upon Written Request.
---------- -------------------------------------------------------
The Manager agrees that any money or other property of the Company or any
Subsidiary held by the Manager under this Agreement shall be held for the
Company or such Subsidiary in a custodial capacity, and the Manager's records
shall be appropriately marked to reflect clearly the ownership of such money or
other property by the Company or such Subsidiary. Upon the receipt by the
Manager of a written request signed by a duly authorized officer of the Company
requesting the Manager to release to the Company or any Subsidiary any money or
other property then held by the Manager for the account of the Company or any
Subsidiary under this Agreement, the Manager shall release such money or other
property to the Company or any Subsidiary within a reasonable period of time,
but in no event later than 60 days following such request. The Manager shall not
be liable to the Company, any Subsidiary, the Unaffiliated Directors, or the
Company's Shareholders for any acts thereafter performed or omissions thereafter
to act by the Company or any Subsidiary of the Company in connection with the
money or other property released to the Company or any Subsidiary in accordance
with this Section. The Company and any Subsidiary receiving released money or
other property hereby agree to indemnify the Manager, its directors, officers,
shareholders and employees against any and all expenses, losses, damages,
liabilities, demands, charges and claims of any nature whatsoever, which arise
in connection with the Manager's release of such money or other property to the
Company or such Subsidiary in accordance with the terms of this Section unless
11
<PAGE>
the Manager's release of such money constitutes bad faith, willful misconduct,
gross negligence or reckless disregard of duties. This provision shall be in
addition to any right of the Manager to indemnification under Section 12.
Section 19. Representations and Warranties.
---------- ------------------------------
(a) The Company hereby represents and warrants to the Manager as
follows:
(i) Corporate Existence. The Company is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power to own its assets and to transact the
business in which it is now engaged and is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification, except for failures to be so qualified, authorized or licensed
that could not in the aggregate have a material adverse effect on the business
operations, assets or financial condition of the Company and its Subsidiaries,
taken as a whole. The Company does not do business under any fictitious business
name.
(ii) Corporate Power; Authorization; Enforceable Obligations. The
Company has the corporate power, authority and legal right to execute, deliver
and perform this Agreement and all obligations required hereunder and has taken
all necessary corporate action to authorize this Agreement on the terms and
conditions hereof and its execution, delivery and performance of this Agreement
and all obligations required hereunder. Except such as have been obtained, no
consent of any other person including, without limitation, shareholders and
creditors of the Company, and no license, permit, approval or authorization of,
exemption by, notice or report to, or registration, filing or declaration with,
any governmental authority is required by the Company in connection with this
Agreement or the execution, delivery, performance, validity or enforceability of
this Agreement and all obligations required hereunder. This Agreement has been,
and each instrument or document required hereunder will be, executed and
delivered by a duly authorized officer of the Company, and this Agreement
constitutes, and each instrument or document required hereunder when executed
and delivered hereunder will constitute, the legally valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms.
(iii) No Legal Bar to This Agreement. The execution, delivery and
performance of this Agreement and the documents or instruments required
hereunder, will not violate any provision of any existing law or regulation
binding on the Company, or any order, judgment, award or decree of any court,
arbitrator or governmental authority binding on the Company, or the certificate
of incorporation or by-laws of, or any securities issued by the Company or of
any mortgage, indenture, lease, contract or other agreement, instrument or
undertaking to which the Company is a party or by which the Company or any of
its assets may be bound, the violation of which would have a material adverse
effect on the business, operations, assets or financial condition of the Company
and its Subsidiaries, taken as a whole, and will not result in, or require, the
creation or imposition of any lien on any of its property,
12
<PAGE>
assets or revenues pursuant to the provisions of any such mortgage, indenture,
lease, contract or other agreement, instrument or undertaking.
(b) The Manager hereby represents and warrants to the Company as
follows:
(i) Corporate Existence. The Manager is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power to own its assets and to transact the
business in which it is now engaged and is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification, except for failures to be so qualified, authorized or licensed
that could not in the aggregate have a material adverse effect on the business
operations, assets or financial condition of the Manager and its Subsidiaries,
taken as a whole. The Manager does not do business under any fictitious business
name.
(ii) Corporate Power; Authorization; Enforceable Obligations. The
Manager has the corporate power, authority and legal right to execute, deliver
and perform this Agreement and all obligations required hereunder and has taken
all necessary corporate action to authorize this Agreement on the terms and
conditions hereof and its execution, delivery and performance of this Agreement
and all obligations required hereunder. Except such as have been obtained, no
consent of any other person including, without limitation, stockholders and
creditors of the Manager, and no license, permit, approval or authorization of,
exemption by, notice or report to, or registration, filing or declaration with,
any governmental authority is required by the Manager in connection with this
Agreement or the execution, delivery, performance, validity or enforceability of
this Agreement and all obligations required hereunder. This Agreement has been,
and each instrument or document required hereunder will be, executed and
delivered by a duly authorized officer of the Manager, and this Agreement
constitutes, and each instrument or document required hereunder when executed
and delivered hereunder will constitute, the legally valid and binding
obligation of the Manager enforceable against the Manager in accordance with its
terms.
(iii) No Legal Bar to This Agreement. The execution, delivery and
performance of this Agreement and the documents or instruments required
hereunder, will not violate any provision of any existing law or regulation
binding on the Manager, or any order, judgment, award or decree of any court,
arbitrator or governmental authority binding on the Manager, or the certificate
of incorporation or by-laws of, or any securities issued by the Manager or of
any mortgage, indenture, lease, contract or other agreement, instrument or
undertaking to which the Manager is a party or by which the Manager or any of
its assets may be bound, the violation of which would have a material adverse
effect on the business, operations, assets or financial condition of the Manager
and its Subsidiaries, taken as a whole, and will not result in, or require, the
creation or imposition of any lien on any of its property, assets or revenues
pursuant to the provisions of any such mortgage, indenture, lease, contract or
other agreement, instrument or undertaking.
13
<PAGE>
Section 20. Notices. Any notice, report, or other communication
---------- -------
required or permitted to be given hereunder shall be in writing unless some
other method of giving such notice, report, or other communication is accepted
by the party to whom it is given, and shall be given by being delivered at the
following addresses of the parties hereto:
The Company: CWM Mortgage Holdings, Inc.
35 North Lake Avenue
P.O. Box 7211 Pasadena, California 91109-7311
Attention: General Counsel
The Manager: Countrywide Asset Management Corporation
155 North Lake Avenue
P.O. Box 7137
Pasadena, California 91109-7137
Attention: General Counsel
Either party may at any time give notice in writing to the other party
of a change of its address for the purpose of this Section 20.
Section 21. Name Change Upon Termination of Management Agreement. The
---------- ----------------------------------------------------
Company agrees that, if at any time the Manager or any Affiliate of CCI shall
cease to serve generally as manager of the Company or any Subsidiary, upon
receipt of a written request from the Manager, the Company and such Subsidiary
will cause their Governing Instruments to be amended so as to change their names
to a name that does not include "Countrywide" or any approximation thereof;
provided, however, that such requirement shall not apply to any trust in which
the Company or any of its Subsidiaries has sold a majority of the beneficial
interest, and which has issued Mortgage Backed Securities that remain
outstanding in whole or in part.
Section 22. Amendments. This Agreement shall not be amended, changed,
---------- ----------
modified, terminated or discharged in whole or in part except by an instrument
in writing signed by all parties hereto, or their respective successors or
assigns, or otherwise as provided herein.
Section 23. Successors and Assigns. This Agreement shall bind any
---------- ----------------------
successors or assigns of the parties hereto as herein provided.
Section 24. Governing Law. This Agreement shall be governed, construed
---------- -------------
and interpreted in accordance with the laws of the State of California.
Section 25. Headlines and Cross References. The section headings
---------- ------------------------------
hereof have been inserted for convenience of reference only and shall not be
construed to affect the meaning, construction or effect of this Agreement. Any
reference in this Agreement to a "Section" or "subsection" shall be construed,
respectively, as referring to a section of this Agreement or a subsection of a
section of this Agreement in which the reference appears.
14
<PAGE>
Section 26. Severability. The invalidity or unenforceability of any
---------- ------------
provision of this Agreement shall not affect the validity of any other
provision, and all other provisions shall remain in full force and effect.
Section 27. Entire Agreement. This instrument contains the entire
---------- ----------------
agreement between the parties as to the rights granted and the obligations
assumed in this instrument.
Section 28. Waiver. Any forbearance by a party to this Agreement in
---------- ------
exercising any right or remedy under this Agreement or otherwise afforded by
applicable law shall not be a waiver of or preclude the exercise of that or any
other right or remedy.
Section 29. Execution in Counterparts. This Agreement may be executed
---------- -------------------------
in one or more counterparts, any of which shall constitute an original as
against any party whose signature appears on it, and all of which shall together
constitute a single instrument. This Agreement shall become binding when one or
more counterparts, individually or taken together, bear the signatures of both
parties.
Section 30. Guaranty of Manager's Obligations. The Manager agrees that
---------- ---------------------------------
in order to insure the performance of its duties under this Agreement, it will
be necessary for CHL to guarantee the full performance of the Manager, and this
Agreement is conditioned upon the execution and delivery to the Company of a
Guaranty Agreement in the form attached to this Agreement as Exhibit B. Such
Guaranty Agreement shall remain in effect through the term of this Agreement,
including any renewals or extensions; provided, however, that the Guaranty
Agreement may be terminated by the Guarantor as provided therein at such time as
the Manager and the Guarantor are no longer Affiliates.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers thereunto duly authorized as of the day and year
first above written.
CWM MORTGAGE HOLDINGS, INC.
By: /s/ Michael W. Perry
------------------------
Michael W. Perry
Executive Vice President
COUNTRYWIDE ASSET MANAGEMENT CORPORATION
By: /s/ Angelo R. Mozilo
----------------------------
Name: Angelo R. Mozilo
----------------------
Title: Chairman of the Board
----------------------
15
<PAGE>
EXHIBIT A
---------
August 29, 1985
Countrywide Mortgage Investments, Inc.
155 North Lake Avenue
P.O. Box 7137
Pasadena, California 91109-7137
Gentlemen:
In order to induce Countrywide Mortgage Investments, Inc. (the "Company") to
enter into a Management Agreement with Countywide Asset Management Corporation
(the "Manager"), the Manager's parent corporation, Countrywide Credit
Industries, Inc. ("CCI") agrees that so long as the Manager or any affiliated
company of CCI is serving as the Manager of the Company pursuant to a management
agreement neither CCI nor any of its affiliated companies will either sponsor
another real estate investment trust or elect, or cause the election by any such
affiliate, to be taxed as a real estate investment trust without the prior
approval of a majority of the members of the Board of Directors of the Company
who are not affiliated with CCI or any of its affiliates.
COUNTRYWIDE CREDIT INDUSTRIES, INC.
(SEAL) By: /s/ Angelo R. Mozilo
--------------------------
Title: Executive Vice President
ATTEST:
By: /s/ Wayne Turkheimer
------------------------
Title: Secretary
----------------------
<PAGE>
EXHIBIT B
---------
GUARANTY
--------
THIS GUARANTY (the "Guaranty"), dated as of September 3, 1985, is made by
Countrywide Funding Corporation (the "Guarantor") to Countrywide Asset
Management Corporation (the "Manager") and Countrywide Mortgage Investments,
Inc. (the "Company").
R E C I T A L S
A. Pursuant to the Management Agreement, dated as of September 3, 1985,
(the "Agreement"), entered into between the Manager and the Company concurrently
with the execution of this Guaranty, the Manager has agreed to manage the
investments and the day-to-day operations of the Company, including the issuance
of commitments on behalf of the Company to acquire mortgage loans meeting the
investment criteria set from time to time by the Company's Board of Directors;
B. The Manager is a newly organized corporation which is a wholly-owned
subsidiary of Countrywide Credit Industries, Inc.;
C. The Guarantor is an experienced originator and servicer of mortgage
loans which is also a wholly-owned subsidiary of Countrywide Credit Industries,
Inc., and in order to induce the parties thereto to enter into the Agreement,
has agreed to guarantee the full performance of the Manager of its obligations
under the Agreement; and
D. The Guarantor will benefit from the relationship embodied in the
Agreement between the Company and the Manager.
NOW THEREFORE, for the consideration recited above and other good and
valuable consideration, the Guarantor agrees as follows:
1. The Guarantor hereby unconditionally guarantees to the Company the due
and punctual payment, performance and discharge of all duties, obligations,
debts and liabilities of the Manager to the Company under the Agreement (the
"Obligations"), together with any and all expenses of, for and incidental to
collection of the Obligations, including attorneys' fees and court costs.
Nothing shall discharge or satisfy the liability of the Guarantor hereunder
except the full performance and payment of the Obligations to the Company.
2. The Guarantor hereby waives notice of acceptance hereof, notice of the
amount of the Obligations of the Manager to the Company from time to time,
notice of any adverse change in the Manager's financial condition or any other
fact which might increase the Guarantor's risk. The Guarantor waives all (x)
set-offs, counterclaims, presentments and (y) protests, notices of protest,
notices of dishonor and notices of any action or non-action, including
acceptance of this
-1-
<PAGE>
Guaranty, notices of default under the Agreement or any agreement related
thereto and notice of any other extension of credit to the Manager. The
Guarantor further waives any rights granted by statute or otherwise to require
the Company to institute suit against the Manager or to exhaust its rights and
remedies against the Manager, it being acknowledged that the Guarantor is bound
for the payment of all Obligations of the Manager to the Company now existing or
hereafter occurring as fully as if such Obligations were owing directly to the
Company by the Guarantor. The Guarantor waives all rights of exoneration granted
by statute or otherwise in the event this Agreement is altered in any respect by
or with the consent of the Manager without the consent of the Guarantor. The
Guarantor shall not be released from any liability by reason of the Manager's
personal disability.
3. The Guarantor consents and agrees that without notice to the Guarantor
and without affecting or impairing the obligations of the Guarantor hereunder,
the Company may compromise or settle, extend the period or duration of time for
payment or discharge of performance of, or may refuse to enforce or may release
all or any parties to any and all of the Obligations, or may grant other
indulgences to the Manager with respect thereof, or may amend or modify in any
manner any documents or agreements relating to such obligations.
4. The Guarantor agrees to pay any and all expenses incurred by the
Company in connection with the enforcement of its obligations under this
Guaranty, as well as court costs, collections charges and attorneys' fees and
disbursements.
5. This Guaranty is a primary, original obligations of the Guarantor and
is an absolute, unconditional, continuing and irrevocable guaranty of payment
and performance and, except as provided in Section 10, shall remain in full
force and effect throughout the term of the Agreement without respect to future
changes in conditions, including any change of law or any invalidity or
irregularity with respect to the issuance of any Obligations of the Manager to
the Company. This is a continuing Guaranty relating to the Obligations,
including that arising under successive transactions under the Agreement which
shall either continue the Obligations or from time to time renew any or all of
them. The obligations hereunder are independent of the Obligations of the
Manager and the obligations of any other guarantor of the Obligations of the
Manager under the Agreement, and a separate action or actions may be brought and
prosecuted against the Guarantor whether any action is brought against the
Manager or any of such other guarantors or whether the Manager be joined any
such action or actions; and the Guarantor waives all principles or provisions of
law, statutory or otherwise, which are or might be in conflict with the terms of
this Guaranty. However, this Guaranty shall not limit the effect of any
provisions in the Agreement or any principles or provisions of law, statutory or
otherwise, which provide legal rights to the Manager, and to the extent the
Guarantor is required to perform any of the Obligations under this Guaranty, it
shall be entitled to seek enforcement of such principles or provisions of law to
the same extent as the Manager.
6. The Company shall have the right to seek recourse against the
Guarantor to the full extent provided for herein and in any other document or
instrument evidencing the Obligations and against the Manager to the full extent
provided for in the Agreement. No election to proceed in one form of action or
proceeding, or against any party, or on any
-2-
<PAGE>
Obligations, shall constitute a waiver of the Company's right to proceed in any
other form of action or proceeding or against other parties.
7. The Guarantor agrees that all the rights, benefits and privileges
herein shall vest in, and be enforceable by, the Company and its successors and
assigns.
8. So long as any Obligations shall be owing to the company, the
Guarantor shall not, without the prior consent of the Company, commence or join
with any other person in commencing any bankruptcy, reorganization or insolvency
proceedings of or against the Manager. The obligations of the Guarantor under
this Guaranty shall not be altered, limited or affected by any proceeding,
voluntary or involuntary, involving the bankruptcy, insolvency, receivership,
reorganization, liquidation or arrangement of the Manager or by any defense
which the Manager may have by reason of the order, decree or decision of any
court or administrative body resulting from any such proceeding. The Company
shall have the sole right to accept or reject any plan proposed in such
proceeding and to take any other action which a party filing a claim is entitled
to take. In the event that all or any portion of the Obligations is paid or
performed by the Manager, the obligations of Guarantor hereunder shall continue
and remain in full force and effect in the event that all or any part of such
payment(s) or performance(s) is avoided or recovered directly or indirectly from
the Company as a preference, fraudulent transfer or otherwise in such
proceeding.
9. In order to induce the Company to accept this Guaranty and to make the
Agreement, Guarantor hereby represents the warrants to the Company that the
following statements are true and correct:
(i) Corporate Existence. Guarantor is duly organized, validly existing
-------------------
and in good standing under the laws of the jurisdiction of its incorporation,
has the corporate power to own its assets and to transact the business in which
it is now engaged and is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification, except for
failures to be so qualified, authorized or licensed that could not in the
aggregate have a material adverse effect on the business operations, assets or
financial condition of Guarantor and its subsidiaries, taken as a whole.
Guarantor does not do business under any fictitious business name.
(ii) Corporate Power; Authorization; Enforceable Obligations.
-------------------------------------------------------
Guarantor has the corporate power, authority and legal right to execute, deliver
and perform the Guaranty and all obligations required hereunder and has taken
all necessary corporate action to authorize its Guaranty hereunder on the terms
and conditions hereof and its execution, delivery and performance of this
Guaranty and all obligations required hereunder. No consent of any other person
including, without limitation, stockholders and creditors of Guarantor, and no
license, permit, approval or authorization of, exemption by, notice or report
to, or registration, filing or declaration with, any governmental authority is
required by Guarantor in connection with this Guaranty or the execution,
delivery, performance, validity or enforceability of this Guaranty and all
obligations required hereunder. This Guaranty has been, and each instrument or
document required hereunder will be, executed and delivered by a duly authorized
officer of Guarantor, and
-3-
<PAGE>
this Guaranty constitutes, and each instrument of document required hereunder
when executed and delivered hereunder will constitute, the legally valid and
binding obligation of Guarantor enforceable against Guarantor in accordance with
its terms.
(iii) No Legal Bar to This Guaranty. The execution, delivery and
-----------------------------
performance of this Guaranty and the documents or instruments required hereunder
will not violate any provision of any existing law or regulation binding on
Guarantor, or any order, judgment, award or decree of any court, arbitrator or
governmental authority binding on Guarantor, or the certificate of incorporation
or by-laws of, or any securities issued by Guarantor, or of any mortgage,
indenture, lease, contract or other agreement, instrument or undertaking to
which Guarantor is a party or by which Guarantor or any of its assets may be
bound, the violation of which would have a material adverse effect on the
business operation, assets or financial condition of Guarantor and its
subsidiaries, taken as a whole, and will not result in, or require, the creation
or imposition of any lien on any of its property, assets or revenues pursuant to
the provisions of any such mortgage, indenture, lease, contract or other
agreement, instrument or undertaking.
10. This Guaranty shall remain in effect through the term of the
Agreement, including any renewals or extensions thereof; provided however, that
this Guaranty may be terminated by the Guarantor at such time as the Manager and
the Guarantor are not longer "Affiliates" as such term is defined in the
Agreement.
11. This Guaranty, all acts and transactions hereunder, and the rights and
obligations of the parties hereto shall be governed by, construed under and
interpreted in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the Guarantor executed this Guaranty as of the 3rd day
of September, 1985.
COUNTRYWIDE FUNDING CORPORATION
By: /s/ Angelo R. Mozilo
---------------------------------------
Title: President, Chief Executive Officer
----------------------------------
Attest: /s/ Wayne Turkheimer
----------------------------------
Title: Secretary
----------------------------------
(CORPORATE SEAL)
-4-
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,269
<SECURITIES> 0
<RECEIVABLES> 2,632,677
<ALLOWANCES> (9,357)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,691,470
<CURRENT-LIABILITIES> 0
<BONDS> 285,089
0
0
<COMMON> 453
<OTHER-SE> 378,353
<TOTAL-LIABILITY-AND-EQUITY> 2,691,470
<SALES> 0
<TOTAL-REVENUES> 46,105
<CGS> 0
<TOTAL-COSTS> 9,329
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,049
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 31,727
<INCOME-TAX> 0
<INCOME-CONTINUING> 31,727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,727
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.72
</TABLE>
