<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for use of
[X] Definitive Proxy Statement Commission only
[_] Definitive Additional Materials (as permitted by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CWM MORTGAGE HOLDINGS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CWM MORTGAGE HOLDINGS, INC.
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PER UNIT PRICE PROPOSED
SECURITIES TO OR OTHER MAXIMUM
TITLE OF EACH CLASS OF WHICH UNDERLYING AGGREGATE AMOUNT OF
SECURITIES TO WHICH TRANSACTION VALUE OF VALUE OF FILING
TRANSACTION APPLIES APPLIES(1) TRANSACTION(1) TRANSACTION(1) FEE(1)(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock............. 3,404,255 $23.50 $80,000,000 $16,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the filing fee
pursuant to Rule 0-11 under the Securities Exchange Act of 1934, as
amended.
(2) The fee was computed in accordance with Rule 0-11(c)(1)(i) based upon the
market value of a share of Common Stock on February 11, 1997.
----------------
[X] Fee paid previously with preliminary materials: $16,000.
[X]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount previously paid: $16,000
2) Form, Schedule or Registration Statement No.: Schedule 14A
3) Filing Party: CWM Mortgage Holdings, Inc.
4) Date Filed: February 19, 1997
<PAGE>
[LOGO](SM) CWM MORTGAGE HOLDINGS, INC.
May 21, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
CWM Mortgage Holdings, Inc. ("CWM"), which will be held on Tuesday, June 24,
1997 at 10:00 a.m. local time, at The Ritz-Carlton Huntington Hotel, 1401
South Oak Knoll Avenue, Pasadena, California 91106. The matters to be
considered and voted upon at this meeting are of significant importance to
your investment and to the future of CWM.
At the Annual Meeting, you will be asked to consider and vote upon a
proposal to approve the merger of Countrywide Asset Management Corporation, a
Delaware corporation which is the manager of CWM ("CAMC"), with and into CWM
(the "Merger") pursuant to an Agreement and Plan of Merger dated as of January
29, 1997 (the "Merger Agreement"), among CWM, CAMC and Countrywide Credit
Industries, Inc. ("CCI"), a Delaware corporation and the sole stockholder of
CAMC (the "Merger Proposal"). Under the Merger Agreement, the outstanding
shares of common stock, par value $0.10 per share, of CAMC will be converted
into an aggregate of 3,597,122 shares of common stock, par value $0.01 per
share, of CWM (the "CWM Common Stock"), subject to certain adjustments based
on the market price of the CWM Common Stock.
Since its inception, CWM has engaged CAMC to provide CWM and certain of its
affiliates with management, advisory and other services. The Merger will
result in the discontinuance of CAMC and the existing management agreement
with CAMC and allow CWM to become a "self-administered" real estate investment
trust ("REIT").
The Merger is conditioned upon, among other things, the affirmative vote of
the holders of a majority of the shares of the CWM Common Stock. Dean Witter
Reynolds Inc. ("Dean Witter") has rendered an opinion to a special committee
consisting of the independent directors of the Board of Directors (the
"Special Committee") of CWM that the consideration to be paid by CWM to CCI is
fair, from a financial point of view, to CWM. Based on this fairness opinion
and other considerations, the Special Committee has recommended to CWM's Board
of Directors that it approve the Merger.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS (WITH INTERESTED
DIRECTORS ABSTAINING) HAS UNANIMOUSLY APPROVED THE MERGER. THE BOARD AND THE
SPECIAL COMMITTEE BELIEVE THAT THE TERMS OF THE MERGER ARE FAIR TO AND IN THE
BEST INTERESTS OF CWM AND ITS STOCKHOLDERS AND THE BOARD UNANIMOUSLY
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER PROPOSAL.
In addition, you will be asked to consider and vote upon (1) an amendment to
the Bylaws of CWM to delete therefrom references to the management of CWM by
an outside management company and certain related provisions (the "Bylaws
Proposal"), (2) an amendment to the Certificate of Incorporation of CWM to
change the name (the "Name Change Proposal") of CWM to "INMC Mortgage
Holdings, Inc.", (3) the election of members of the Board of Directors, (4) an
amendment to the 1996 Stock Incentive Plan to increase the annual per person
limit for benefits payable under such plan, (5) the annual cash bonus
provisions of the employment agreement of Michael W. Perry and (6) the
ratification of the selection by the Board of Directors of Grant Thornton LLP
as independent accountants for CWM for the year ending December 31, 1997.
<PAGE>
THE APPROVAL OF THE BYLAWS PROPOSAL IS CONDITIONED UPON THE APPROVAL OF THE
MERGER PROPOSAL. ACCORDINGLY, IF THE MERGER IS NOT APPROVED, THE BYLAWS WILL
NOT BE AMENDED. EACH OF THE REMAINING PROPOSALS IS INDEPENDENT OF ALL OTHER
PROPOSALS REFERRED TO IN THE PROXY STATEMENT. THE BOARD RECOMMENDS THAT YOU
VOTE IN FAVOR OF EACH PROPOSAL.
The Merger (including conflicts of interest with respect thereto) and other
matters referred to above are more completely described in the accompanying
Proxy Statement. I urge you to review carefully the Proxy Statement and
accompanying Appendices, which discuss all of the proposals in more detail. A
copy of the Merger Agreement (with exhibits) and a copy of Dean Witter's
fairness opinion are attached as Appendices A and B, respectively, to the
accompanying Proxy Statement.
We appreciate the support of our stockholders as we pursue our goal of
making CWM one of the leading REITs in the industry. I hope that after reading
the accompanying materials, you will continue to support the objectives of CWM
by voting "FOR" the Merger Proposal, the Bylaws Proposal and each of the other
proposals described in the Proxy Statement.
YOUR VOTE IS IMPORTANT TO CWM, WHETHER YOU OWN FEW OR MANY SHARES. Failure
to return your proxy card or vote would have the same effect as a vote against
the Merger Proposal, the Bylaws Proposal and the Name Change Proposal. Please
complete, date and sign the enclosed proxy card and return it in the
accompanying postage paid envelope, even if you plan to attend the Annual
Meeting. If you attend the Annual Meeting, you may, if you wish, withdraw your
proxy and vote in person.
Sincerely,
/s/ David S. Loeb
David S. Loeb
Chairman of the Board
QUESTIONS AND REQUESTS FOR ASSISTANCE IN VOTING YOUR SHARES CAN BE DIRECTED TO
MORROW & CO. INC., WHICH IS ASSISTING CWM WITH THE SOLICITATION OF PROXIES,
TOLL FREE AT (800) 566-9061.
<PAGE>
CWM MORTGAGE HOLDINGS, INC.
35 NORTH LAKE AVENUE
PASADENA, CALIFORNIA 91101-7211
----------------
NOTICE OF ANNUAL MEETING TO BE HELD ON
JUNE 24, 1997
----------------
To the Stockholders of
CWM Mortgage Holdings, Inc.:
Notice Is Hereby Given that the Annual Meeting of Stockholders (the "Annual
Meeting") of CWM Mortgage Holdings, Inc., a Delaware corporation ("CWM"), will
be held on Tuesday, June 24, 1997, 10:00 a.m., local time, at the Ritz-Carlton
Huntington Hotel, 1401 South Oak Knoll Avenue, Pasadena, California 91106, for
the following purposes:
1. to approve the merger of Countrywide Asset Management Corporation, a
Delaware corporation which is the manager of CWM ("CAMC"), with and into
CWM (the "Merger") pursuant to an Agreement and Plan of Merger dated as of
January 29, 1997 (the "Merger Agreement"), among CWM, CAMC and Countrywide
Credit Industries, Inc. ("CCI"), the sole stockholder of CAMC (the "Merger
Proposal"). Pursuant to the Merger Agreement, the outstanding shares of
Common Stock, par value $0.10 per share, of CAMC (the "CAMC Common Stock")
will be converted into an aggregate of 3,597,122 shares of Common Stock,
par value $0.01 per share, of CWM (the "CWM Common Stock"), subject to
certain adjustments based on the market price of the CWM Common Stock;
2. to amend the Bylaws of CWM (the "Bylaws") to delete therefrom
references to the management of CWM by an outside management company and
certain related provisions (the "Bylaws Proposal");
3. to amend the Certificate of Incorporation of CWM (the "Certificate of
Incorporation") to change the name (the "Name Change Proposal") of CWM to
"INMC Mortgage Holdings, Inc.";
4. to elect members of the Board of Directors for the ensuing year;
5. to amend the 1996 Stock Incentive Plan (the "1996 Stock Incentive
Plan") to increase the annual per person limit for benefits payable under
such plan;
6. to approve the annual cash bonus provisions of the employment
agreement of Michael W. Perry (the "Employment Agreement");
7. to ratify the selection by the Board of Directors of Grant Thornton
LLP as independent accountants for CWM for the year ending December 31,
1997; and
8. to transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
THE APPROVAL OF THE BYLAWS PROPOSAL IS CONDITIONED UPON THE APPROVAL OF THE
MERGER PROPOSAL. ACCORDINGLY, IF THE MERGER IS NOT APPROVED, THE BYLAWS
WILL NOT BE AMENDED. EACH OF THE REMAINING PROPOSALS IS INDEPENDENT OF ALL
OTHER PROPOSALS REFERRED TO IN THIS PROXY STATEMENT.
Each of the proposals referred to above is more fully described in the
accompanying Proxy Statement and Appendices thereto, which form a part of this
Notice.
During the course of the Annual Meeting, management will report on the
current activities of CWM and comment on its future plans. A discussion period
is planned so that stockholders will have an opportunity to ask questions and
present their comments.
<PAGE>
The Board of Directors has fixed the close of business on April 28, 1997 as
the record date (the "Record Date") for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting or adjournment or
postponement thereof. Only stockholders of record on the Record Date will be
entitled to notice of and to vote at the Annual Meeting or any adjournments or
postponements thereof. A list of such stockholders will be available for
inspection at the offices of CWM at 35 North Lake Avenue (effective June 1,
1997, 155 North Lake Avenue), Pasadena, California 91101, at least ten days
prior to the Annual Meeting.
If you plan to be present, please notify the undersigned so that
identification can be prepared for you. Whether or not you plan to attend the
Annual Meeting, please execute, date and return promptly the enclosed proxy. A
return envelope is enclosed for your convenience and requires no postage for
mailing in the United States. If you are present at the Annual Meeting you
may, if you wish, withdraw your proxy and vote in person. Thank you for your
interest and consideration.
Sincerely,
/s/ Richard H. Wohl
Richard H. Wohl
Secretary
May 21, 1997
YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE
THE ENCLOSED PROXY AND MAIL IT IN THE ENCLOSED RETURN ENVELOPE.
<PAGE>
CWM MORTGAGE HOLDINGS, INC.
35 NORTH LAKE AVENUE
PASADENA, CALIFORNIA 91101-7211
ANNUAL MEETING OF STOCKHOLDERS
JUNE 24, 1997
PROXY STATEMENT
----------------
This Proxy Statement is being furnished to stockholders of CWM Mortgage
Holdings, Inc., a Delaware corporation, in connection with the solicitation of
proxies by CWM's Board of Directors for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on Tuesday, June 24, 1997, at
10:00 a.m., local time, at the Ritz-Carlton Huntington Hotel, 1401 South Oak
Knoll Avenue, Pasadena, California 91106, and any adjournments or
postponements thereof. In this Proxy Statement references to "CWM" mean CWM
Mortgage Holdings, Inc. or CWM Mortgage Holdings, Inc. and its consolidated
subsidiaries (as the context may require), and references to the "Company"
mean CWM Mortgage Holdings, Inc., its consolidated subsidiaries and
Independent National Mortgage Corporation, a Delaware corporation that
conducts substantially all of CWM's mortgage conduit operations and which is
not consolidated with CWM for financial reporting or tax purposes ("Indy
Mac").
At the Annual Meeting, stockholders of CWM of record as of the close of
business on April 28, 1997 will be asked to consider and vote upon a proposal
to approve the merger of Countrywide Asset Management Corporation, a Delaware
corporation ("CAMC") which is the manager of the Company, with and into CWM
(the "Merger") pursuant to an Agreement and Plan of Merger dated as of January
29, 1997 (the "Merger Agreement"), among CWM, CAMC and Countrywide Credit
Industries, Inc. ("CCI"), a Delaware corporation and the sole stockholder of
CAMC (the "Merger Proposal"). Upon consummation of the Merger, the outstanding
shares of common stock, par value $0.10 share, of CAMC (the "CAMC Common
Stock") will be converted into an aggregate of 3,597,122 shares of common
stock, par value $.01 per share, of CWM (the "CWM Common Stock"), subject to
certain adjustments based on the market price of the CWM Common Stock.
Because the Merger is between affiliated parties and the members of CWM's
negotiating team as well as certain interlocking directors have conflicts of
interest in connection therewith, the Board of Directors established a special
committee consisting entirely of CWM's independent directors (the "Special
Committee") to direct the merger negotiations and to consider the Merger and
the Merger Agreement. For a description of these conflicts, see "Risk
Factors--Conflicts of Interest."
In addition, stockholders will be asked to consider and vote upon (i) an
amendment to the Bylaws of CWM (the "Bylaws") to delete therefrom references
to the management of the Company by an outside management company and certain
related provisions (the "Bylaws Proposal"), (ii) an amendment to the
Certificate of Incorporation to change the name (the "Name Change Proposal")
of CWM to "INMC Mortgage Holdings, Inc.", (iii) the election of members of the
Board of Directors, (iv) an amendment to the 1996 Stock Incentive Plan (the
"1996 Stock Incentive Plan") to increase the annual per person limit for
benefits payable under such plan, (v) the annual cash bonus provisions of the
employment agreement of Michael W. Perry (the "Employment Agreement") and (vi)
the ratification of the selection of Grant Thornton LLP as independent
accountants for CWM for the year ending December 31, 1997.
THE APPROVAL OF THE BYLAWS PROPOSAL IS CONDITIONED UPON THE APPROVAL OF THE
MERGER PROPOSAL. ACCORDINGLY, IF THE MERGER IS NOT APPROVED, THE BYLAWS WILL
NOT BE AMENDED. EACH OF THE REMAINING PROPOSALS IS INDEPENDENT OF ALL OTHER
PROPOSALS REFERRED TO IN THIS PROXY STATEMENT.
The CWM Common Stock is traded on the New York Stock Exchange (the "NYSE")
under the symbol "CWM". On May 19, 1997, the last reported sale price for CWM
Common Stock on the NYSE was $20.00 per share.
All information concerning the Company contained in this Proxy Statement has
been furnished by CWM, and certain information concerning CAMC and CCI
contained in this Proxy Statement has been furnished by CAMC or CCI. No person
is authorized to make any representation with respect to the matters described
in this Proxy Statement other than those contained herein, and if given or
made, such information or representation must not be relied upon as having
been authorized by CWM, CAMC, CCI or any other person.
----------------
SEE "RISK FACTORS" ON PAGE 19 FOR A DISCUSSION OF CERTAIN FACTORS WHICH
SHOULD BE CONSIDERED IN EVALUATING THE PROPOSED MERGER.
----------------
THIS PROXY STATEMENT AND THE ACCOMPANYING FORM OF PROXY ARE FIRST BEING
MAILED OR DELIVERED TO THE STOCKHOLDERS OF CWM ON OR ABOUT MAY 22, 1997.
----------------
THE DATE OF THIS PROXY STATEMENT IS MAY 21, 1997.
<PAGE>
AVAILABLE INFORMATION
CWM is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith
files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information may be
inspected and copied at public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at 13th Floor, 7 World
Trade Center, New York, New York 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and copies may be obtained
at the prescribed rates from the Public Reference Section of the Commission at
its principal office in Washington, D.C. The Commission also maintains an
internet web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including CWM. The address of the web site is http://www.sec.gov.
In addition, CWM Common Stock is currently listed on the NYSE, and such
materials may be inspected at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
CAMC is not subject to the informational requirements of the Exchange Act.
This Proxy Statement incorporates by reference documents relating to CWM
which are not presented herein or delivered herewith. Documents relating to
CWM (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference) are available without charge upon
request by any person, including any beneficial owner, to whom this Proxy
Statement is delivered, from CWM Mortgage Holdings, Inc., Attention: Investor
Relations, 35 North Lake Avenue (effective June 1, 1997, 155 North Lake
Avenue), Pasadena, California 91101 (the principal executive offices of CWM),
telephone (800) 669-2300. In order to ensure timely delivery of the documents,
requests should be received by June 10, 1997.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... ii
SUMMARY................................................................... 1
UNAUDITED PRO FORMA FINANCIAL STATEMENTS.................................. 9
COMPARATIVE PER SHARE DATA................................................ 14
COMPARATIVE PER SHARE MARKET INFORMATION.................................. 15
THE ANNUAL MEETING........................................................ 16
General................................................................. 16
Matters to Be Considered................................................ 16
Recommendations of the Board of Directors............................... 16
Record Date; Shares Entitled to Vote; Quorum............................ 16
Proxies; Proxy Solicitation............................................. 17
Vote Required........................................................... 17
Effects of Abstentions and Broker Non-Votes............................. 18
RISK FACTORS.............................................................. 19
Conflicts of Interest................................................... 19
CAMC Employees May Not Become Employees of CWM or Indy Mac.............. 19
Ability of CCI to Control Indy Mac through its Ownership of Indy Mac
Voting Stock........................................................... 19
Potential Loss of Certain Intangible Benefits from being Associated with
CCI.................................................................... 20
Tax Risks............................................................... 20
Potential Employer Liabilities.......................................... 20
PROPOSAL ONE
THE MERGER................................................................ 21
Background.............................................................. 21
Opinion of the Financial Advisor to the Special Committee............... 24
Reasons for the Merger; Recommendations of the Special Committee and the
Board of Directors..................................................... 28
Conflicts of Interest................................................... 29
Regulatory Matters...................................................... 30
Registration Rights..................................................... 30
Special Purchase Rights................................................. 30
Cooperation Agreement................................................... 32
Effect of the Merger on Relationship between CWM and Indy Mac........... 32
Effect of the Merger on the Rights of Existing Stockholders............. 33
Accounting Treatment.................................................... 33
THE MERGER AGREEMENT...................................................... 34
Terms of the Merger..................................................... 34
Adjustment to Share Consideration....................................... 34
Indemnification......................................................... 34
Effective Time of the Merger............................................ 36
Exchange of Shares of CAMC Common Stock................................. 36
Representations and Warranties.......................................... 36
Covenants............................................................... 38
Employee Matters........................................................ 39
Conditions to Consummation of the Merger................................ 40
Amendment; Waiver; Termination.......................................... 41
Indemnification of CAMC Directors and Officers.......................... 42
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Resale of Shares of CWM Common Stock Issued in the Merger............... 42
Survival of Representations, Warranties and Covenants................... 43
Expenses and Fees....................................................... 43
FEDERAL INCOME TAX CONSIDERATIONS......................................... 44
General................................................................. 44
Tax Treatment of the Merger............................................. 44
Built-in Gain Rules..................................................... 44
Consequences of Merger on CWM's Qualification as a REIT--Earnings and
Profits Distribution Requirement....................................... 44
COUNTRYWIDE ASSET MANAGEMENT CORPORATION.................................. 46
SELECTED FINANCIAL DATA................................................... 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 47
General................................................................. 47
Results of Operations................................................... 47
Liquidity and Capital Resources......................................... 48
MANAGEMENT ARRANGEMENTS RELATING TO CWM................................... 49
The Management Agreement................................................ 49
The Submanagement Agreement Between CAMC and CHL........................ 50
PROPOSAL TWO
AMENDMENTS TO THE BYLAWS.................................................. 51
PROPOSAL THREE
CHANGING THE NAME OF CWM.................................................. 51
PROPOSAL FOUR
ELECTION OF DIRECTORS..................................................... 51
General................................................................. 51
PRINCIPAL STOCKHOLDERS.................................................... 52
SECURITY OWNERSHIP OF MANAGEMENT.......................................... 53
Director Nominees....................................................... 53
Vote Required; Board Recommendation..................................... 54
Board Meetings and Attendance........................................... 54
EXECUTIVE OFFICERS........................................................ 55
Executive Compensation.................................................. 56
SUMMARY COMPENSATION TABLE................................................ 57
Stock Option Plans...................................................... 59
Change of Control Arrangement........................................... 63
Employment Agreements................................................... 63
Compensation Committee Interlocks and Insider Participation............. 65
Certain Transactions with Management and Business Relationships......... 66
Stock Performance Graph................................................. 67
Section 16 Disclosure................................................... 67
PROPOSAL FIVE
AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN................................ 68
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROPOSAL SIX
APPROVAL OF ANNUAL CASH BONUS PROVISIONS OF THE EMPLOYMENT AGREEMENT OF
MICHAEL W. PERRY........................................................ 69
PROPOSAL SEVEN
RATIFYING THE SELECTION OF INDEPENDENT ACCOUNTANTS....................... 70
CERTAIN TRANSACTIONS AND RELATIONSHIPS................................... 70
Indy Mac............................................................... 70
CHL.................................................................... 71
CCI.................................................................... 72
SELECTED FINANCIAL DATA.................................................. 73
INDEPENDENT ACCOUNTANTS.................................................. 75
OTHER MATTERS............................................................ 75
ANNUAL REPORT AND FORM 10-K.............................................. 75
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING............................ 75
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 75
INDEX TO FINANCIAL STATEMENTS............................................ F-1
MERGER AGREEMENT (AND ATTACHED EXHIBITS)................................. A-1
FAIRNESS OPINION OF DEAN WITTER REYNOLDS INC............................. B-1
FORM OF BYLAWS AMENDMENTS................................................ C-1
FORM OF AMENDMENT TO CERTIFICATE OF INCORPORATION........................ D-1
FORM OF AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN....................... E-1
MR. PERRY'S INCENTIVE MATRIX............................................. F-1
</TABLE>
v
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement. This summary does not purport to be complete and is qualified
in its entirety by, and is subject to, the more detailed information
incorporated by reference and contained elsewhere in this Proxy Statement and
the Appendices hereto. Stockholders are urged to read the Proxy Statement and
its Appendices in their entirety before voting on the matters discussed herein.
THE ANNUAL MEETING
Date, Time and Place........ The Annual Meeting will be held on Tuesday, June
24, 1997 at 10:00 a.m., local time, at the Ritz-
Carlton Huntington Hotel, 1401 South Oak Knoll
Avenue, Pasadena, California 91106. See "The
Annual Meeting--General."
Record Date................. Only holders of record of CWM Common Stock as of
the close of business on April 28,, 1997 are
entitled to notice of and to vote at the Annual
Meeting. On that date, 53,018,584 shares of CWM
Common Stock were outstanding, each of which will
be entitled to one vote on each matter to be
acted upon or which may properly come before the
Annual Meeting. See "The Annual Meeting--Record
Date; Shares Entitled to Vote."
Matters to be Considered.... At the Annual Meeting, holders of shares of CWM
Common Stock will be asked to consider and vote
upon (i) a proposal to approve the Merger, (ii) a
proposal to amend the Bylaws, (iii) an amendment
to the Certificate of Incorporation to change the
name of CWM to "INMC Mortgage Holdings, Inc.,"
(iv) the election of members of the Board of
Directors of CWM (the "Board of Directors") for
the ensuing year, (v) an amendment to the 1996
Stock Incentive Plan (the "1996 Stock Incentive
Plan"), (vi) the annual cash bonus provisions of
the employment agreement of Michael W. Perry (the
"Employment Agreement"), (vii) the ratification
of the selection of Grant Thornton LLP as CWM's
independent accountants for the year ending
December 31, 1997 and (viii) such other business
as may properly come before the Annual Meeting or
any adjournment or postponement thereof. THE
APPROVAL OF THE BYLAWS PROPOSAL IS CONDITIONED
UPON THE APPROVAL OF THE MERGER PROPOSAL.
ACCORDINGLY, IF THE MERGER IS NOT APPROVED, THE
BYLAWS WILL NOT BE AMENDED. EACH OF THE REMAINING
PROPOSALS IS INDEPENDENT OF ALL OTHER PROPOSALS
REFERRED TO IN THIS PROXY STATEMENT. See "The
Annual Meeting--Matters to be Considered."
Vote Required............... Although neither the Delaware General Corporation
Law (the "DGCL") nor CWM's Certificate of
Incorporation or Bylaws requires CWM to obtain
stockholder approval of the Merger Proposal, CWM
has determined to submit such proposal to the
stockholders for their approval since the Merger
is between affiliated
1
<PAGE>
parties. CWM further determined that the standard
for approving the Merger Proposal should be a
majority of the outstanding shares of CWM Common
Stock entitled to vote at the Annual Meeting,
which is the standard that would be applicable if
stockholder approval of the Merger were required
by the DGCL. In addition, New York Stock Exchange
policies require stockholder approval of the
Special Purchase Rights (as defined below under
"--Proposal One--The Merger--Special Purchase
Rights") proposed to be granted to CCI in
connection with the Merger, and such requirement
will be satisfied if the Merger is so approved.
See "The Merger--Special Purchase Rights."
Neither the related Bylaws Proposal nor the Name
Change Proposal will take effect unless, in each
case, the affirmative vote of the holders of a
majority of the outstanding shares of CWM Common
Stock entitled to vote thereon vote in favor of
such proposal. Approval of each other proposal
referred to herein requires the affirmative vote
of a majority of the shares of CWM Common Stock
present in person or represented by proxy and
entitled to vote thereon. See "The Annual
Meeting--Vote Required."
PROPOSAL ONE--THE MERGER
Self-Administration of the CWM began operations in 1985 and contracted with
Company.................... CAMC, a wholly-owned subsidiary of CCI, to
provide the Company with management and advisory
services, accounting systems, professional and
support personnel, and office facilities and
equipment. The Board of Directors believes that
the scope of the Company's current operations and
business activities and the present and future
growth of the Company have made it increasingly
important for CWM to take control of its own
employees and operations. The Merger will result
in the discontinuance of CAMC and the existing
management agreement with CAMC and allow CWM to
become a self-administered real estate investment
trust ("REIT"). See "The Merger--Background."
Countrywide Asset
Management Corporation.....
CAMC is a wholly-owned subsidiary of CCI. CAMC
manages the day-to-day operations of the Company
and advises it on various facets of its business
under a management agreement. At present, all
officers of the Company and other personnel
managing its affairs are employees of CAMC. CAMC
has subcontracted with Countrywide Home Loans,
Inc. ("CHL"), also a wholly-owned subsidiary of
CCI, to provide the Company with general
administrative and operational support. CAMC's
principal executive office is located at 155
North Lake Avenue, Pasadena, California 91101,
and its telephone number is (818) 304-8400. See
"Countrywide Asset Management Corporation."
2
<PAGE>
General..................... Upon the closing of the Merger (the "Closing"),
CAMC will merge with and into CWM, which will
become a self-administered and self-managed REIT
and will cease to pay a management fee. Following
consummation of the Merger, CWM anticipates that
employees who are currently employed by CAMC will
continue to work for the Company, and will be
hired by either CWM and/or Indy Mac, as
determined by the nature of each entity's
business activities, the duties of the employees
concerned, and negotiated arrangements between
CWM and Indy Mac. As a result of becoming a self-
administered REIT, the Company will incur certain
administrative and other expenses that are
greater than those currently borne by CAMC. These
expenses are not expected to be significant for
the Company.
Pursuant to the Merger Agreement, the outstanding
shares of CAMC Common Stock will be converted
into an aggregate of 3,597,122 shares of CWM
Common Stock, subject to certain adjustments
based on the market price of the CWM Common Stock
(the "Share Consideration"). See "The Merger
Agreement--Adjustment to Share Consideration."
Based on the capitalization of CWM as of March
31, 1997, CCI (i) owned prior to the Merger
approximately 2.13% of the issued and outstanding
shares of CWM Common Stock and (ii) assuming no
adjustment is made to the aggregate number of
shares of CWM Common Stock to be issued upon the
Closing, will own after the Merger approximately
8.39% of the issued and outstanding shares of CWM
Common Stock.
Recommendations of the
Special Committee and the
Board of Directors.........
Because the Merger is between affiliated parties
and the members of CWM's negotiating team as well
as certain interlocking directors have conflicts
of interest in connection therewith, the Board of
Directors established a special committee
consisting entirely of CWM's independent
directors, who are not members of management or
employees of CAMC, CCI, CHL or Indy Mac (the
"Special Committee"), to direct the merger
negotiations and to consider the Merger and the
Merger Agreement. In connection therewith, the
Special Committee retained Dean Witter Reynolds
Inc. ("Dean Witter") to act as its financial
advisor and to deliver a written opinion as to
the fairness, from a financial point of view, to
CWM of the Share Consideration to be paid by CWM
to CCI in the Merger. See "The Merger--Opinion of
the Financial Advisor to the Special Committee."
After careful consideration, the Special
Committee has determined the Merger Agreement to
be fair and in the best interests of CWM and its
stockholders and has unanimously recommended to
the Board of Directors that the Merger Agreement
be approved. The Board of Directors (with
interested members abstaining), after considering
the recommendation of the Special Committee, has
unanimously approved the Merger and the Merger
Agreement and recommends that the stockholders of
CWM approve
3
<PAGE>
the Merger. For a discussion of the factors
considered by the Special Committee and the Board
of Directors, see "The Merger--Reasons for the
Merger; Recommendations of the Special Committee
and the Board of Directors."
Opinion of Financial Dean Witter has delivered its written opinion,
Advisor.................... dated January 20, 1997, and its bringdown opinion
dated May 21, 1997, to the Special Committee to
the effect that, as of the respective dates of
its opinions and subject to certain assumptions,
qualifications and limitations stated in such
opinions, the Share Consideration to be paid by
CWM to CCI pursuant to the Merger Agreement is
fair, from a financial point of view, to CWM. A
copy of the bringdown opinion of Dean Witter,
which sets forth the assumptions made, matters
considered and limits of its review, is attached
to this Proxy Statement as Appendix B and should
be read in its entirety. See "The Merger--Opinion
of the Financial Advisor to the Special
Committee."
Effective Time of the Promptly following the satisfaction or waiver
Merger..................... (where permissible) of the conditions of the
Merger, the Merger will be consummated and become
effective on the date and at the time the
Certificate of Merger is duly filed with the
Secretary of State of the State of Delaware or
such later date and time as may be specified in
such Certificate of Merger (the "Effective
Time"). See "The Merger Agreement--Effective Time
of the Merger" and "--Conditions to Consummation
of the Merger." CWM anticipates that, if
approved, the Merger will become effective on or
about July 1, 1997 (the "Closing Date").
Conditions of the Merger.... The Merger is subject to the satisfaction or
waiver (where permissible) on or prior to the
Closing Date of certain conditions set forth in
the Merger Agreement. See "The Merger Agreement--
Conditions to Consummation of the Merger."
Termination................. The Merger Agreement may be terminated at any
time prior to the Effective Time, whether before
or after approval of the Merger by CWM's
stockholders, by mutual written consent of CWM
and CCI or by either of CWM or CCI under certain
circumstances, including if (i) any required vote
of CWM's stockholders has not been obtained or
(ii) the market price of CWM Common Stock has
increased or decreased beyond certain thresholds.
See "The Merger Agreement--Amendment; Waiver;
Termination."
Indemnification............. In the Merger Agreement, CWM and CCI have agreed,
subject to certain limitations, to indemnify each
other for damages arising from certain matters
following the Closing Date. See "The Merger
Agreement--Indemnification."
Tax Treatment of the CWM believes that the Merger will constitute a
Merger..................... tax-free reorganization for federal income tax
purposes under the Internal Revenue Code of 1986,
as amended (the "Code"). See "Federal Income Tax
Considerations--Tax Treatment of the Merger."
4
<PAGE>
Accounting Treatment........ The Merger will be accounted for by CWM as the
settlement of a management contract and treated
as an expense in the period in which the
transaction closes.
Restrictions on Resale of
Shares of CWM Common Stock
Issued in the Merger.......
Pursuant to the Merger Agreement, CCI has agreed
not to sell or otherwise transfer any shares of
the CWM Common Stock constituting the Share
Consideration received by CCI for a two-year
period commencing on the Closing Date (other than
pursuant to incidental registrations, under an
agreement (the "Registration Rights Agreement")
to be entered into between CWM and CCI in
connection with the Merger) and, during the 12-
month period after such two-year period, not more
than 50% of all such shares. See "The Merger
Agreement--Resale of Shares of CWM Common Stock
Issued in the Merger."
Registration Rights
Following the Merger.......
The shares of CWM Common Stock to be issued
pursuant to the Merger will not be registered
under the Securities Act of 1933, as amended (the
"Securities Act"). In connection with the Merger,
CWM and CCI will enter into the Registration
Rights Agreement, pursuant to which CCI, among
other things, may require CWM to register up to
two transactions in which CCI could potentially
sell all of such shares, under certain
circumstances and subject to certain limitations.
See "The Merger--Registration Rights."
Special Purchase Rights..... In connection with the Merger, CWM has granted
CCI a right of first offer to participate in
future offerings of CWM's voting stock (the
"Right of First Offer") and the right to
participate in CWM's dividend reinvestment plan
(the "Right to Participate" and together with the
Right of First Offer, the "Special Purchase
Rights"). In general, the Special Purchase Rights
will enable CCI to maintain, in each case, its
then proportionate voting interest in CWM when
and if such Special Purchase Rights are
exercised. The Special Purchase Rights are
subject to the subsequent reapproval by the
stockholders of CWM upon the fifth, tenth and
fifteenth anniversary of the initial approval.
The Special Purchase Rights shall expire on the
earlier to occur of certain dates including,
among others, if CCI ceases to beneficially own
2% or more of the outstanding CWM Common Stock.
See "The Merger--Special Purchase Rights."
Business of CAMC Pending
the Merger.................
CAMC has agreed that, prior to the Effective Time
or the earlier termination of the Merger
Agreement, except as permitted by the Merger
Agreement, CAMC will pursue its business in the
ordinary course and will not engage in certain
actions specified in the Merger Agreement. See
"The Merger Agreement--Covenants--Business of
CAMC Pending the Merger."
5
<PAGE>
Management of the Company
Following the Merger.......
Mr. Angelo R. Mozilo, the Chief Executive Officer
of CWM, has expressed his current intention to
continue to serve as the Chief Executive Officer
for at least two years subsequent to the Closing
Date. Mr. Michael W. Perry, the President and
Chief Operating Officer, has entered into a long-
term employment contract with CAMC, which CWM
will assume as a condition to the Merger. CWM
expects that substantially all members of CAMC's
senior management team as well as other employees
of CAMC will become employees of the Company
following the Merger. In addition, Mr. David S.
Loeb and Mr. Mozilo have expressed their current
intention to continue to serve as Chairman and
Vice Chairman, respectively, of the Board of
Directors of CWM.
Conflicts of Interests...... Certain directors and executive officers of CWM,
who were involved in discussions and negotiations
relating to the Merger, also hold positions with
CAMC, CCI, CHL or Indy Mac, as the case may be,
and, therefore, may have interests in connection
with the Merger that are in addition to or
conflict with those of CWM and its stockholders.
In particular, both members of the team
designated by the Special Committee to negotiate
the terms of the Merger (Messrs. Perry and Wohl)
are directors and executive officers of CAMC and
Indy Mac and, as employees of CAMC, receive
compensation and other benefits directly or
indirectly from CCI for services rendered to CWM
pursuant to the Management Agreement. Mr. Perry
is the President and Chief Operating Officer of
CWM and CAMC, and Mr. Wohl is the Executive Vice
President, General Counsel and Secretary of CWM
and CAMC. Additionally, Mr. David S. Loeb, who is
a director of CWM, is also a director and
executive officer of CCI, and a director of CAMC,
CHL and Indy Mac. Mr. Angelo Mozilo, who is a
director and an executive officer of CWM, is also
a director and an executive officer of CCI, CAMC,
CHL and Indy Mac. Neither Mr. Loeb nor Mr. Mozilo
participated on CWM's or CCI's negotiating team
in connection with the Merger, although in
certain instances issues relating to the Merger
were discussed directly between Mr. Mozilo for
CCI and Mr. Perry for CWM. Because of their
positions with CWM, CCI, CAMC, CHL and Indy Mac,
Messrs. Loeb and Mozilo have abstained from the
vote of the Board of Directors of CWM and the
Board of Directors of CCI relating to the Merger.
As of March 31, 1997, the executive officers and
directors of CWM beneficially owned approximately
1.08% of the issued and outstanding shares of CWM
Common Stock. Also as of such date, Messrs. Loeb
and Mozilo together, and the executive officers
and directors of CWM as a group (excluding
Messrs. Loeb and Mozilo), held approximately 2%
and significantly less than 1%, respectively, of
the issued and outstanding shares of CCI common
stock.
6
<PAGE>
Regulatory Matters.......... No material regulatory approvals are required in
order to effect the Merger. See "The Merger--
Regulatory Matters."
Risk Factors................ See "Risk Factors" for factors which should be
considered in evaluating the Merger.
Dissenters' Rights.......... Under the DGCL, holders of shares of CWM Common
Stock will not be entitled to dissenters' rights
in connection with the Merger.
7
<PAGE>
PROPOSAL TWO--AMENDMENTS TO THE BYLAWS
In connection with the Merger, the stockholders will be asked to vote upon
certain amendments to the Bylaws of CWM to delete therefrom references to the
management of the Company by an outside management company and certain related
provisions. THE APPROVAL OF THE BYLAWS PROPOSAL IS CONDITIONED UPON APPROVAL OF
THE MERGER PROPOSAL. ACCORDINGLY, IF THE MERGER IS NOT APPROVED, THE BYLAWS
WILL NOT BE AMENDED. See "The Merger--Amendment to the Bylaws" and "Proposal
Two-Amendments to the Bylaws."
PROPOSAL THREE--APPROVING THE NAME CHANGE PROPOSAL
The stockholders will be asked to approve an amendment to the Certificate of
Incorporation to change the name of CWM to "INMC Mortgage Holdings, Inc." CWM
has reserved the symbol "NDE" with the NYSE and will seek to adopt such symbol
if the stockholders approve the Name Change Proposal. See "Proposal Three--
Approving the Name Change Proposal."
PROPOSAL FOUR--ELECTION OF DIRECTORS
The following individuals have been nominated to the Board of Directors of
CWM: David S. Loeb, Angelo R. Mozilo, Lyle E. Gramley, Thomas J. Kearns and
Fredrick J. Napolitano. See "Proposal Four--Election of Directors--Director
Nominees."
PROPOSAL FIVE--AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN
The stockholders will be asked to vote upon an amendment to the 1996 Stock
Incentive Plan to increase the annual per person limit for benefits payable
under such plan. See "Proposal Five--Amendment to the 1996 Stock Incentive
Plan."
PROPOSAL SIX--APPROVAL OF THE ANNUAL CASH BONUS PROVISIONS OF THE EMPLOYMENT
AGREEMENT OF MICHAEL W. PERRY
The stockholders will be asked to vote upon the annual cash bonus provisions
of the Employment Agreement that relate to Mr. Perry's performance during
fiscal 1997 through 2000. CWM is submitting this component of Mr. Perry's
compensation to stockholders for their approval so that such compensation may
qualify as a tax deduction pursuant to Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). See "Proposal Six--Approval of the
Annual Cash Bonus Provisions of the Employment Agreement of Michael W. Perry."
PROPOSAL SEVEN--RATIFYING THE SELECTION OF INDEPENDENT ACCOUNTANTS
The stockholders will be asked to ratify the Board of Directors' selection of
Grant Thornton LLP as CWM's independent accountants for the year ending
December 31, 1997. See "Proposal Seven--Ratifying the Selection of Independent
Accountants."
8
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements reflect the financial
position and results of operations of CWM, with adjustments to show the effect
of the proposed transaction. The adjustments to the balance sheet of CWM, which
consist primarily of additional paid in capital offset by a reduction to
cumulative earnings as a result of the one-time charge equal to the value of
the CWM Common Stock to be issued in connection with the Merger and transaction
expenses associated with the settlement of the management contract, reflect the
transaction as if it had occurred at the end of the period in the pro forma
balance sheet. The adjustments to the income statement of CWM, which are
comprised primarily of reversal of management fee expense and improved equity
in earnings of Indy Mac, are presented in the pro forma statement of income as
if the transaction occurred at the beginning of the period presented.
The unaudited pro forma financial statements presented below do not purport
to be indicative of results of operations or financial position that would have
occurred had the proposed transaction been consummated on January 1, 1996 or
March 31, 1997, as the case may be, nor do they purport to be indicative of
actual or future results of operations or financial condition. In addition, the
following pro forma financial statements are subject to a number of
assumptions, limitations and qualifications.
9
<PAGE>
PRO FORMA
BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
CWM PRO FORMA
HISTORICAL ADJUSTMENTS(A) PRO FORMA
---------- -------------- ----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Mortgage assets
Mortgage loans held for
investment, net.................. $1,452,367 $ -- $1,452,367
Mortgage loans held for sale--
prime............................ 495,629 -- 495,629
Mortgage loans held for sale--
subprime......................... 173,711 -- 173,711
Manufactured housing loans held
for sale......................... 109,515 -- 109,515
Manufactured housing loans held
for investment................... 26,463 -- 26,463
Construction loans receivable,
net.............................. 580,847 -- 580,847
Collateral for CMOs............... 280,408 -- 280,408
Mortgage securities............... 234,254 -- 234,254
Revolving warehouse lines of
credit, net....................... 197,286 -- 197,286
Investment in and advances to Indy
Mac............................... 175,316 -- 175,316
Cash and cash equivalents.......... 3,709 -- 3,709
Other assets....................... 60,932 -- 60,932
---------- -------- ----------
Total assets..................... $3,790,437 -- $3,790,437
========== ======== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Repurchase agreements and other
credit facilities................. $2,902,346 $ -- $2,902,346
Collateralized mortgage
obligations....................... 256,070 -- 256,070
Senior unsecured notes............. 59,790 -- 59,790
Accounts payable and accrued
liabilities....................... 31,384 2,000 (d) 33,384
---------- -------- ----------
Total liabilities................ 3,249,590 2,000 3,251,590
Commitments and contingencies...... -- -- --
SHAREHOLDERS' EQUITY
Common stock--authorized,
100,000,000 shares of $.01 par
value; issued and outstanding,
52,600,148 shares; pro forma
issued and outstanding,
56,197,270 at March 31, 1997(c).. 526 36 (b) 562
Additional paid-in capital........ 541,174 67,464 (b) 608,638
Net unrealized loss on available-
for-sale mortgage securities:
held by CWM...................... (3,329) -- (3,329)
held by Indy Mac................. (1,160) -- (1,160)
Cumulative earnings............... 240,479 (69,500)(b) 170,979
Cumulative distributions to
shareholders..................... (236,843) -- (236,843)
---------- -------- ----------
Total shareholders' equity....... 540,847 (2,000) 538,847
---------- -------- ----------
Total liabilities and
shareholders' equity........... $3,790,437 $ -- $3,790,437
========== ======== ==========
</TABLE>
- --------
(a) Assumes that the issuance of shares to settle the management contract
occurred at period-end.
(b) $67.5 million combined increase in CWM Common Stock and additional paid in
capital and corresponding decrease in cumulative earnings represents the
estimated fair value of the CWM Common Stock to be issued, reflecting a 10%
market discount due to restrictions placed on registration and sale of the
stock. The reduction in cumulative earnings is due to the fact that the
proposed transaction is accounted for as the settlement of the management
contract. The reduction in cumulative earnings also includes $2 million in
estimated expenses associated with the transaction and transition expenses.
(c) Represents the 52,600,148 shares of CWM Common Stock outstanding at March
31, 1997 plus the 3,597,122 shares of CWM Common Stock estimated to be
issued in the proposed transaction, calculated assuming a negotiated
payment of $75 million at $20.85 per share.
(d) Represents the accrual of estimated costs of attorneys, accountants and
investment bankers and transition expenses associated with the proposed
transaction.
10
<PAGE>
PRO FORMA
STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
CWM PRO FORMA
HISTORICAL ADJUSTMENTS(A)(B) PRO FORMA
---------- ----------------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C> <C>
REVENUES
Interest income
Mortgage loans held for
investment............... $ 26,933 $ -- $ 26,933
Mortgage loans held for
sale..................... 15,172 -- 15,172
Manufactured housing loans
......................... 2,893 -- 2,893
Construction loans........ 14,713 -- 14,713
Collateral for CMOs....... 5,400 -- 5,400
Mortgage securities....... 3,323 -- 3,323
Revolving warehouse lines
of credit................ 4,029 -- 4,029
Advances to Indy Mac...... 2,710 -- 2,710
Other..................... 45 -- 45
---------- --------- ----------
Total interest income.... 75,218 -- 75,218
Interest expense
Repurchase agreements and
other credit facilities.. 41,567 -- 41,567
Collateralized mortgage
obligations.............. 5,203 -- 5,203
Senior unsecured notes.... 1,378 -- 1,378
---------- --------- ----------
Total interest expense... 48,148 -- 48,148
---------- --------- ----------
Net interest income....... 27,070 -- 27,070
Provision for loan
losses................... 3,900 -- 3,900
---------- --------- ----------
Net interest income after
provision for loan
losses................... 23,170 -- 23,170
Equity in earnings of Indy
Mac...................... 4,257 358 (c),(d) 4,615
Other, net................ 1,312 -- 1,312
---------- --------- ----------
Net revenues.............. 28,739 358 29,097
EXPENSES
Salaries, general and
administrative........... 5,086 131 (c) 5,217
Management fees to
affiliate................ 2,309 (2,309)(d) --
---------- --------- ----------
Total expenses........... 7,395 (2,178) 5,217
---------- --------- ----------
NET EARNINGS............... $ 21,344 $ 2,536 $ 23,880(a)
========== ========= ==========
EARNINGS PER SHARE......... $ 0.42 $ 0.44(a)
========== ==========
Weighted average shares
outstanding............... 51,291,755 3,597,122 (e) 54,888,877(f)
</TABLE>
(a) At the time the proposed transaction is consummated, CWM would record a
one-time charge to account for the transaction as a settlement of a
contract. The one-time charge would aggregate $69.5 million and would
consist of $67.5 million estimated fair value of CWM Common Stock to be
issued, reflecting a 10% discount to the current price due to restrictions
placed on the registration and sale of the stock and $2 million of
estimated transaction and transition expenses associated with the
settlement of the contract. This $69.5 million is not reflected in pro
forma net earnings or earnings per share since it is a non-recurring
expense. If these non-recurring expenses were included in pro forma net
earnings and earnings per share, the earnings would reflect a net loss of
$45.6 million and the adjusted net loss per share would be $0.83 per share.
(b) Assumes that the issuance of shares to settle the management contract
occurred as of January 1, 1996.
(c) Represents cost of additional employees and systems under the proposed
self-management structure to perform certain functions previously performed
by CCI, including personnel in human resources, accounting, and other
administrative areas. Included in the equity in earnings of Indy Mac is
$81,000, net of tax, for such additional expenses.
(d) Subsequent to the settlement of the management contract, CWM and Indy Mac
would have been self-administered and, as such would not have paid
management fees. Included in the management fees are approximately $36,000
of expenses associated with providing human resource and accounting
services to CWM and Indy Mac. The adjustment to the equity in earnings of
Indy Mac is shown net of taxes.
(e) Estimated number of shares of CWM Common Stock to be issued in the proposed
transaction. Assumes a negotiated payment of $75 million at $20.85 per
share as specified in the Merger Agreement.
(f) Represents the 51,291,755 weighted average shares of CWM common stock for
the quarter ended March 31, 1997 plus the 3,597,122 estimated shares of CWM
Common Stock to be issued in the proposed transaction.
11
<PAGE>
PRO FORMA
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CWM PRO FORMA
HISTORICAL ADJUSTMENTS(A)(B) PRO FORMA
---------- ----------------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C> <C>
REVENUES
Interest income
Mortgage loans held for
investment............... $ 94,237 $ -- $ 94,237
Mortgage loans held for
sale..................... 57,746 -- 57,746
Manufactured housing loans
held for sale............ 2,259 -- 2,259
Manufactured housing loans
held for investment...... 1,308 -- 1,308
Construction loans........ 30,158 -- 30,158
Collateral for CMOs....... 22,648 -- 22,648
Securitized master
servicing fees, net...... 9,502 -- 9,502
Mortgage securities....... 1,002 -- 1,002
Revolving warehouse lines
of credit................ 15,523 -- 15,523
Advances to Indy Mac...... 7,676 -- 7,676
Other..................... 244 -- 244
---------- --------- ----------
Total interest income.... 242,303 -- 242,303
Interest expense
Repurchase agreements and
other credit facilities.. 131,389 -- 131,389
Collateralized mortgage
obligations.............. 22,478 -- 22,478
Senior unsecured notes.... 5,498 -- 5,498
---------- --------- ----------
Total interest expense... 159,365 -- 159,365
---------- --------- ----------
Net interest income....... 82,938 -- 82,938
Provision for loan
losses................... 12,991 -- 12,991
---------- --------- ----------
Net interest income after
provision for loan
losses................... 69,947 -- 69,947
Equity in earnings of Indy
Mac...................... 19,533 851 (c),(d) 20,384
Other, net................ 2,470 -- 2,470
---------- --------- ----------
Net revenues.............. 91,950 851 92,801
EXPENSES
Salaries, general and
administrative........... 14,202 523 (c) 14,725
Management fees to
affiliate................ 8,761 (8,761)(d) --
-- --
---------- --------- ----------
Total expenses........... 22,963 (8,238) 14,725
---------- --------- ----------
NET EARNINGS............... $ 68,987 $ 9,089 $ 78,076
========== ========= ==========
EARNINGS PER SHARE......... $ 1.51 $ 1.59
========== ==========
Weighted average shares
outstanding............... 45,643,885 3,597,122 (e) 49,241,007(f)
----------
</TABLE>
12
<PAGE>
- --------
(a) At the time the proposed transaction is consummated, CWM would record a
one-time charge to account for the transaction as a settlement of a
contract. The one-time charge would aggregate $69.5 million and would
consist of $67.5 million estimated fair value of CWM Common Stock to be
issued, reflecting a 10% discount to the current market price due to
restrictions placed on the registration and sale of the stock, and $2
million of estimated transaction and transition expenses associated with
the settlement of the contract. This $69.5 million is not reflected in pro
forma net earnings or earnings per share since it is a non-recurring
expense. If these non-recurring expenses were included in pro forma net
earnings and earnings per share, the adjusted net earnings would be $8.6
million and adjusted earnings per share would be $0.17 per share. In the
quarter in which the transaction occurs, it is anticipated that the Company
would report a substantial net loss.
(b) Assumes that the issuance of shares to settle the management contract
occurred as of January 1, 1996.
(c) Represents the cost of additional employees and systems under the proposed
self-management structure to perform certain functions previously performed
by CCI, including personnel for human resources, accounting, and other
administrative areas. Included in the equity in earnings of Indy Mac is
$325,000, net of tax, for such additional expenses.
(d) Subsequent to the settlement of the management contract, CWM and Indy Mac
would have been self-administered and, as such, would not have been
required to pay management fees. The adjustment to the equity in earnings
of Indy Mac is shown net of taxes. Included in the management fees are
approximately $144,000 of expenses associated with providing human resource
and accounting services for CWM and Indy Mac.
(e) Estimated number of shares of CWM Common Stock to be issued in the proposed
transaction. Assumes a negotiated payment of $75 million at $20.85 per
share, as specified in the Merger Agreement.
(f) Represents the 45,643,885 weighted average shares of CWM Common Stock for
the year ended December 31, 1996 plus the 3,597,122 estimated shares of CWM
Common Stock to be issued in the proposed transaction.
13
<PAGE>
COMPARATIVE PER SHARE DATA
The following per share data for CWM on a pro forma basis assumes, in the
case of net income and cash distributions data, that the issuance of shares to
settle the management contract occurred on January 1, 1996 and, in the case of
book value data, that the proposed transaction occurred on December 31, 1996 or
March 31, 1997, respectively.
The following unaudited pro forma financial information does not purport to
be indicative of net income, cash distributions or book value that would have
occurred had the proposed transaction been consummated on January 1, 1996,
December 31, 1996, January 1, 1997 or March 31, 1997, as the case may be, nor
does it purport to be indicative of actual or future net income, cash
distributions or book value. In addition, the pro forma financial information
presented below is subject to many of the same assumptions, limitations and
qualifications that are applicable to the unaudited pro forma financial
statements set forth above, and such information should be read in conjunction
with, and is qualified in its entirety by reference to, such unaudited pro
forma financial statements and the separate historical consolidated financial
statements of CWM incorporated herein by reference.
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR
QUARTER ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
CWM
Historical
Book value.................................. $10.28 $9.53
Cash dividends declared for earnings of the
period..................................... 0.42 1.52
Net income.................................. 0.42 1.51
Pro forma
Book value (a).............................. 9.59 8.86
Cash dividends declared for earnings of the
period (b)................................. 0.44 1.59
Net income (c).............................. 0.44 1.59
</TABLE>
- --------
(a) For purposes of computing the pro forma book value of CWM, it has been
assumed that issuance of shares to settle the management contract occurred
on December 31, 1996 or March 31, 1997. In the pro forma book value
calculation, outstanding shares were increased by 3,597,122 (reflecting a
negotiated payment of $75 million at $20.85 per share).
(b) For purposes of computing pro forma cash dividends declared by CWM, it has
been assumed that the proposed transaction occurred on January 1, 1996. In
general, it is CWM's policy to distribute dividends in an amount equal to
its GAAP earnings. However, to avoid tax on its income, as determined for
tax purposes, CWM must distribute an amount equal to its taxable income.
Because the transaction will result in a one-time charge to CWM's GAAP
earnings equal to the amount paid to settle the contract and there will not
be a corresponding deduction for tax purposes, CWM will need to make a
distribution which is in excess of its book income to avoid tax on its
income.
(c) For purposes of computing pro forma net income of CWM, it has been assumed
that the proposed transaction occurred on January 1, 1996. However, the pro
forma earnings per share do not reflect the one-time charges associated
with the settlement of the management contract and transaction costs. Had
these charges been included, the net loss per share would have been $0.83
per share for the quarter ended March 31, 1997 and earnings per share would
have been $0.17 for the year ended December 31, 1996.
14
<PAGE>
COMPARATIVE PER SHARE MARKET INFORMATION
CWM
CWM Common Stock currently is listed on the NYSE under the symbol "CWM" and
began trading on the NYSE in November 1986. The table below sets forth, for the
fiscal periods indicated, the high and low sale prices per share of CWM Common
Stock on the NYSE and the distributions declared relating to such periods.
<TABLE>
<CAPTION>
PRICE PER SHARE OF DISTRIBUTIONS
CWM COMMON STOCK DECLARED
------------------- -------------
1997 HIGH LOW
- ---- --------- ---------
<S> <C> <C> <C>
First Quarter................................. $ 23.625 $ 19.375 $0.42
1996
- ----
First Quarter................................. 18.00 14.75 0.36
Second Quarter................................ 18.75 14.75 0.37
Third Quarter................................. 20.50 16.125 0.39
Fourth Quarter................................ 21.875 19.00 0.40
</TABLE>
On November 4, 1996, the last full trading day prior to announcement of the
proposed Merger, the last reported NYSE sale price per share of CWM Common
Stock was $20.875. On May 19, 1997, the last reported NYSE sale price per share
of CWM Common Stock was $ 20.00.
Holders of shares of CWM Common Stock are entitled to receive distributions
when, as and if declared by CWM's Board of Directors out of any assets legally
available for payment. In order to maintain its status as a REIT under the
Code, CWM is required to distribute annually to its stockholders at least 95%
of its "REIT Taxable Income," which is generally defined as taxable income from
operations (net of depreciation deductions), excluding gains from the sale of
properties.
CAMC
There is no public market for shares of CAMC Common Stock. As of the date
hereof, CCI was the sole holder of CAMC Common Stock. CAMC paid to CCI
dividends of $718.10, $500 and $0 per share during the year ended February
28(29), 1997, 1996 and 1995, respectively. During the year ended February 29,
1996, CAMC adopted the general policy of not retaining a substantial amount of
retained earnings and remitting periodic dividends to its parent, CCI, as it
deems appropriate.
15
<PAGE>
THE ANNUAL MEETING
GENERAL
This Proxy Statement is being furnished to holders of shares of CWM Common
Stock in connection with the solicitation of proxies by the Board of Directors
of CWM for use at the Annual Meeting to be held on June 24, 1997, 10:00 a.m.,
local time, at the Ritz-Carlton Huntington Hotel, 1401 South, Oak Knoll
Avenue, Pasadena, California 91106, and at any adjournment or postponement
thereof. This Proxy Statement, the attached Notice of the Annual Meeting and
the accompanying form of proxy are first being mailed to holders of shares of
CWM Common Stock on or about May 22, 1997.
MATTERS TO BE CONSIDERED
At the Annual Meeting, holders of record of shares of CWM Common Stock will
consider and vote upon (i) the Merger of CAMC with and into CWM, (ii) an
amendment to the Bylaws to delete references to the management of the Company
by an outside management company and certain related provisions, (iii) an
amendment to the Certificate of Incorporation to change the name of CWM to
"INMC Mortgage Holdings, Inc.", (iv) the election of members of the Board of
Directors of CWM for the ensuing year, (v) an amendment to the 1996 Stock
Incentive Plan, (vi) the annual cash bonus provisions of the Employment
Agreement of Michael W. Perry, (vii) the ratification of the selection of
Grant Thornton LLP as independent accountants for CWM for the year ending
December 31, 1997 and (viii) such other business as may properly come before
the Annual Meeting or any adjournment or postponement thereof.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
Upon recommendation of the Special Committee, the Board of Directors (with
interested directors abstaining) has unanimously approved the Merger and the
Merger Agreement, having concluded that the Merger and the Merger Agreement
are fair to and in the best interests of CWM and its stockholders. The Board
of Directors (with interested directors abstaining) unanimously recommends
that stockholders of CWM vote FOR approval of the Merger Proposal. For further
information, see "The Merger--Reasons for the Merger; Recommendations of the
Special Committee and the Board of Directors." In addition, the Board of
Directors recommends a vote FOR the Bylaws Proposal, a vote FOR the amendment
to the Certificate of Incorporation to change the name of CWM, a vote FOR each
person nominated to be elected to the Board of Directors, a vote FOR the
amendment to the 1996 Stock Incentive Plan, a vote FOR the annual cash bonus
provisions of the Employment Agreement of Michael W. Perry and a vote FOR the
ratification of the selection of Grant Thornton LLP as CWM's independent
accountants for the year ending December 31, 1997. See "Proposal Two-
Amendments to the Bylaws," "Proposal Three-Changing the Name of CWM,"
"Proposal Four-Election of Directors," "Proposal Five-Amendment to the 1996
Stock Incentive Plan," "Proposal Six--Approval of the Annual Cash Bonus
Provisions of the Employment Agreement of Michael W. Perry" and "Proposal
Seven--Ratifying the Selection of Independent Accountants."
It is currently expected that representatives of Grant Thornton LLP, CWM's
independent accountants, will be present at the Annual Meeting, where they
will have the opportunity to make a statement if they so decide and will be
available to respond to appropriate questions.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
The Board of Directors has fixed the close of business on April 28, 1997 as
the record date (the "Record Date") for determining the holders of shares of
CWM Common Stock who are entitled to notice of and to vote at the Annual
Meeting. As of the Record Date, 53,018,584 shares of CWM Common Stock were
outstanding and held of record by approximately 3,500 stockholders. The
holders of record on the Record Date of shares of CWM Common Stock are
entitled to one vote per share of CWM Common Stock. Pursuant to CWM's Bylaws
and the DGCL, the presence of the holders of shares representing a majority of
the outstanding shares of CWM Common Stock entitled to vote, whether in person
or by properly executed proxy, is necessary to constitute a
16
<PAGE>
quorum for the transaction of business at the Annual Meeting. Under the DGCL,
abstentions and "broker non-votes" (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the
beneficial owner or other persons entitled to vote shares as to a matter with
respect to which the brokers or nominees do not have discretionary power to
vote) will be treated as present for purposes of determining the presence of a
quorum.
PROXIES; PROXY SOLICITATION
Shares of CWM Common Stock represented by properly executed proxies received
at or prior to the Annual Meeting that have not been revoked will be voted at
the Annual Meeting in accordance with the instructions indicated on the
proxies. Shares of CWM Common Stock represented by properly executed proxies
for which no instruction is given will be voted FOR approval of all proposals.
Stockholders are requested to complete, sign, date and promptly return the
enclosed proxy card in the postage-prepaid envelope provided for this purpose
to ensure that their shares are voted.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of CWM, at or before the taking of the vote at the Annual
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later dated proxy relating to the same shares of CWM
Common Stock and delivering it to the Secretary of CWM before the taking of
the vote at the Annual Meeting, or (iii) attending the Annual Meeting and
voting in person (although attendance at the Annual Meeting will not in and of
itself constitute a revocation of a proxy). Any written notice of revocation
or subsequent proxy should be sent so as to be delivered to CWM Mortgage
Holdings, Inc., 35 North Lake Avenue (effective June 1, 1997, 155 North Lake
Avenue), Pasadena, California 91101, Attention: Corporate Secretary, or hand
delivered to the Secretary of CWM or his representative at or before the
taking of the vote at the Annual Meeting.
If the Annual Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Annual Meeting all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Annual Meeting (except for any proxies that have theretofore effectively
been revoked or withdrawn), notwithstanding that they may have been
effectively voted on the same or any other matter at a previous meeting.
CWM will bear the cost of soliciting proxies from its stockholders. CWM will
pay Morrow & Co. Inc. a fee of $8,000 to cover its services in soliciting the
forwarding and return of proxy material. In addition, CWM will reimburse
Morrow & Co. Inc. for out-of-pocket expenses incurred in connection therewith.
In addition to solicitation by mail, directors, officers and employees of CWM
may solicit proxies by telephone, telegram or otherwise. Such directors,
officers and employees of CWM will not be additionally compensated for such
solicitation, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Brokerage firms, fiduciaries and other custodians who
forward soliciting material to the beneficial owners of shares of CWM Common
Stock held of record by them will be reimbursed for their reasonable expenses
incurred in forwarding such material.
VOTE REQUIRED
The Merger Proposal. Although neither the DGCL nor CWM's Certificate of
Incorporation or Bylaws requires CWM to obtain stockholder approval of the
Merger Proposal, CWM has determined to submit such proposal to the
stockholders for their approval since the Merger is between affiliated parties
and certain directors and executive officers of CWM have conflicts of interest
in connection with the Merger. CWM further determined that the standard for
approving the Merger Proposal should be a majority of the outstanding shares
of CWM Common Stock entitled to vote at the Annual Meeting, which is the
standard that would be applicable if stockholder approval of the Merger were
required by the DGCL. In the event that stockholders approve the Merger and
the transaction is subsequently challenged in a derivative action, CWM may be
entitled under Delaware law to assert stockholder approval as a defense to
such action. In addition, New York Stock Exchange
17
<PAGE>
policies require stockholder approval of the Special Purchase Rights (as
defined herein) proposed to be granted to CCI in connection with the Merger,
and such requirement will be satisfied if the Merger is so approved. Pursuant
to the terms of the Merger Agreement, CCI is required to vote its shares of
CWM Common Stock in favor of the Merger Proposal. If the Merger Proposal is
not approved by the stockholders at the Annual Meeting, CWM may consider
alternative ways in which it can restructure the relationship among itself,
CAMC, CCI, CHL and Indy Mac.
The Bylaws Proposal. Since the Bylaws need to be amended only if the
stockholders of CWM approve the Merger Proposal, the Bylaws Proposal, by its
terms, is conditioned upon a majority of the outstanding shares of CWM Common
Stock entitled to vote at the Annual Meeting voting in favor of both it and
the Merger Proposal.
The Name Change Proposal. Under the DGCL, the Name Change Proposal requires
an amendment to the Certificate of Incorporation, which may not be effected
unless the holders of shares representing a majority of the outstanding shares
of CWM Common Stock entitled to vote at the Annual Meeting vote in favor
thereof.
All Other Matters. Each other matter to be voted upon at the Annual Meeting
requires the affirmative vote of a majority of the votes present or
represented by proxy at the Annual Meeting and entitled to vote thereon.
EFFECTS OF ABSTENTIONS AND BROKER NON-VOTES
For purposes of determining approval of any of the proposals to be presented
at the Annual Meeting, abstentions will be deemed present and entitled to vote
and will, therefore, have the same legal effect as a vote "against" a matter
presented at the meeting. With respect to the Merger Proposal, the Bylaws
Proposal and the Name Change Proposal, broker non-votes will have the same
legal effect as a vote "against" such proposal. With respect to each of the
other proposals referred to herein, a broker non-vote will be deemed not
entitled to vote on the subject matter as to which the non-vote is indicated
and will, therefore have no legal effect on the vote on that particular
matter.
18
<PAGE>
RISK FACTORS
The following factors should be considered carefully by the stockholders of
CWM in connection with voting upon the Merger Proposal and the transactions
contemplated thereby.
CONFLICTS OF INTEREST. Certain directors and executive officers of CWM, who
were involved in discussions and negotiations relating to the Merger, also
hold positions with CAMC, CCI, CHL or Indy Mac, as the case may be, and,
therefore, may have interests in connection with the Merger that are in
addition to or conflict with those of CWM and its stockholders. In particular,
both members of the team designated by the Special Committee to negotiate the
terms of the Merger (Messrs. Perry and Wohl) are directors and executive
officers of CAMC and Indy Mac and, as employees of CAMC, receive compensation
and other benefits directly or indirectly from CCI for services rendered to
CWM pursuant to the Management Agreement. Mr. Perry is the President and Chief
Operating Officer of CWM and CAMC, and Mr. Wohl is the Executive Vice
President, General Counsel and Secretary of CWM and CAMC. Although the Special
Committee was established to ensure that the Merger would be considered by
persons who did not have any conflicts of interest in connection with the
transaction, there can be no assurance that the terms of the Merger are the
same as would have been obtained in negotiations between unrelated parties.
Additionally, Mr. David S. Loeb, who is a director of CWM, is also a director
and executive officer of CCI, and a director of CAMC, CHL and Indy Mac. Mr.
Angelo Mozilo, who is a director and an executive officer of CWM, is also a
director and an executive officer of CCI, CAMC, CHL and Indy Mac. Neither Mr.
Loeb nor Mr. Mozilo participated on CWM's or CCI's negotiating team in
connection with the Merger, although in certain instances issues relating to
the Merger were discussed directly between Mr. Mozilo for CCI and Mr. Perry
for CWM. Because of their positions with CWM, CCI, CAMC, CHL and Indy Mac,
Messrs. Loeb and Mozilo have abstained from the vote of the Board of Directors
of CWM and the Board of Directors of CCI relating to the Merger. Messrs. Loeb
and Mozilo together, and the executive officers and directors of CWM as a
group (excluding Messrs. Loeb and Mozilo), held approximately 2% and
significantly less than 1%, respectively, of the issued and outstanding CCI
common stock, as of March 31, 1997. See "The Merger--Conflicts of Interest--
Executive Officers and Directors" and "--Background."
CAMC EMPLOYEES MAY NOT BECOME EMPLOYEES OF CWM OR INDY MAC. Although CWM
expects that substantially all members of CAMC's senior management as well as
other employees will become employees of CWM or Indy Mac, there can be no
assurance that any or all of CAMC's current employees will choose to do so. As
part of the Merger Agreement, CAMC and CCI have agreed to use reasonable
efforts to encourage the officers and employees of CAMC to become employees of
CWM or Indy Mac. In addition, three key officers of CWM are under contract
with CAMC, and it is the intention of CWM, as part of the Merger, to assume
these contracts, one of which is with Mr. Michael W. Perry, CWM's President
and Chief Operating Officer. See "Proposal Four-Election of Directors-
Employment Agreements." The failure of certain members of CAMC's senior
management and certain other employees to become employees of CWM or Indy Mac
could result in a temporary disruption in those areas of the Company's
operations for which such managers or employees are responsible.
ABILITY OF CCI TO CONTROL INDY MAC THROUGH ITS OWNERSHIP OF INDY MAC VOTING
STOCK. CWM's mortgage conduit operations are conducted primarily through Indy
Mac. Although CWM owns all of Indy Mac's outstanding non-voting preferred
stock, which represents 99% of the economic interest of Indy Mac, CHL, a
wholly-owned subsidiary of CCI, owns all of Indy Mac's outstanding voting
common stock, which represents 1% of the economic interest of Indy Mac.
Accordingly, CCI has the power to change the composition of the Board of
Directors, to appoint officers and, consequently, to direct the day-to-day
operations of CHL and Indy Mac. If the Merger is approved, CCI will no longer
control the manager of Indy Mac and may have less incentive to exercise its
voting power to operate Indy Mac in a manner consistent with the interests of
CWM. In an effort to protect CWM's investment in Indy Mac in the event of
certain potential changes in the nature of the relationship between CWM and
CCI, CCI has agreed, as part of the Merger Agreement, to amend the certificate
of incorporation of Indy Mac (the "Indy Mac Charter Amendment") to permit CWM,
in its sole discretion, to dissolve Indy Mac if CCI experiences a change of
control (a "CCI Change of Control") (as such term is referred to in the Merger
Agreement), or if CCI ceases to beneficially own more than 5.0% of the issued
and outstanding shares of CWM Common Stock, or if neither Mr. Loeb nor Mr.
Mozilo is a director of CWM. If CWM elects to
19
<PAGE>
dissolve Indy Mac, it will receive in the related distribution upon
dissolution all assets of Indy Mac, other than an amount of cash, which will
be payable to CCI in an amount equal to 3% of the book value of Indy Mac,
unless CCI requests an independent appraisal. If such appraisal is requested,
CCI will receive such higher or lower value that corresponds to 1% of the fair
market value of Indy Mac's assets. The Indy Mac Charter Amendment also will
prohibit a holder of Indy Mac securities from causing any assets of Indy Mac
to be used for any purpose other than in furtherance of Indy Mac's business.
In addition, under the Merger Agreement CWM has agreed that, in the event that
CWM (i) establishes or acquires a majority ownership interest in an entity the
business activities of which are substantially the same as all of the business
activities then being conducted by Indy Mac or (ii) transfers to such other
entity substantially all of the assets of Indy Mac, then CWM shall be
required, at CCI's option, to purchase CCI's interest in Indy Mac at a
purchase price equal to the amount required to be paid to CCI in the event of
a dissolution of Indy Mac as described above.
POTENTIAL LOSS OF CERTAIN INTANGIBLE BENEFITS FROM BEING ASSOCIATED WITH
CCI. Since its inception the Company has been managed by CAMC. The Company
believes that it has realized benefits from CCI's mortgage banking experience,
management expertise, capital markets presence and status as the nation's
largest independent residential mortgage lender and servicer. Although CWM and
CCI will continue to have certain interlocking directors and ongoing
arrangements, and CCI will become a more significant stockholder of CWM as
provided for or contemplated by the Merger Agreement, CWM's association with
CCI may become less certain as a result of the Merger. Accordingly, CWM may
lose some or all of the intangible benefits previously enjoyed from its
relationship with CCI. In addition, when the Management Agreement is
terminated upon consummation of the Merger, certain contractual remedies that
CWM might have asserted against its manager for failure to perform its
obligations thereunder will be eliminated.
TAX RISKS. In order to maintain its status as a REIT, CWM is not permitted
to have earnings and profits, for federal income tax purposes, carried over
from CAMC. After the Merger, CAMC will no longer be eligible to be a member of
the group of corporations filing a consolidated federal income tax return with
CCI, and as a result, will have its earnings and profits eliminated for most,
but not all, federal income tax purposes. Because such earnings and profits
may not be eliminated for purposes of satisfying the REIT requirements of the
Code solely as a result of CAMC's leaving the CCI federal consolidated group,
CWM has obtained a study from Price Waterhouse LLP to determine whether CAMC
as of the date of the Merger would otherwise have earnings and profits. Based
on such study, and subject to the assumptions and qualifications contained
therein, CWM believes that as of the date of the Merger CAMC will not have any
earnings and profits, although there can be no assurance of this. In the event
the IRS subsequently determines, and successfully asserts, that CWM acquired
earnings and profits from CAMC and failed to distribute, during the taxable
year in which the Merger occurs, all of the earnings and profits acquired from
CAMC, CWM would lose its REIT qualification for the year of the Merger and,
perhaps, subsequent years. For any taxable year that CWM fails to qualify as a
REIT, it would not be entitled to a deduction for dividends paid to its
stockholders in calculating its taxable income. Consequently, the net assets
of CWM and distributions to stockholders would be substantially reduced
because of the increased tax liability of CWM. Furthermore, to the extent that
distributions had been made in anticipation of CWM's qualification as a REIT,
CWM might be required to borrow additional funds or to liquidate certain of
its investments in order to pay the applicable tax on its income. See "Federal
Income Tax Considerations--Consequences of Merger on CWM's Qualification as a
REIT--Earnings and Profits Distribution Requirement."
POTENTIAL EMPLOYER LIABILITIES. At present, CWM does not directly employ any
employees or maintain any benefit or retirement plans. As a result of the
Merger, CWM will directly employ persons who are currently employees of CAMC
and will establish certain retirement and other employee benefit plans. As an
employer, CWM will be subject to those potential liabilities that are commonly
faced by employers, such as workers' disability and compensation claims,
potential labor disputes and other employee-related grievances.
20
<PAGE>
PROPOSAL ONE
The Merger
BACKGROUND
CWM was formed in 1985 to make long-term investments in single-family,
first-lien, residential mortgage loans and mortgage-backed securities
representing interests in such loans. In 1993, CWM adopted a new business plan
pursuant to which Indy Mac was formed, and the Company began operating
primarily as a mortgage conduit and warehouse lender, with management of such
operations being performed by CAMC under contract. Since that time, CAMC has
provided services exclusively to the Company. As the Company's operations
expanded and the Company entered into additional businesses such as
construction lending, manufactured housing lending and subprime mortgage
lending, the Company became increasingly dependent upon the expertise of the
employees provided by CAMC and, accordingly, CWM began to explore alternative
means of ensuring that such employees would remain dedicated to the Company's
businesses.
Toward this end, in May 1996 the Board of Directors of CWM commenced
discussions of certain measures designed to strengthen the relationship
between CWM and the employees of CAMC, including the possible long-term
extension of the 1996 Amended and Extended Management Agreement between CWM
and CAMC (the "Management Agreement"). At a special meeting on July 25, 1996,
the Board of Directors of CWM approved a proposed amendment (the "1996
Amendment") to the Management Agreement that, while leaving the term of the
Management Agreement unchanged, provided, among other things, that certain key
management employees of CAMC (other than Messrs. David S. Loeb and Angelo R.
Mozilo, who are officers and directors of CCI) would be required to perform
services exclusively for the Company. In connection therewith, CWM agreed that
it would not hire such CAMC employees without CAMC's prior consent. The
independent directors on the Board noted that, while the 1996 Amendment would
constitute a positive step toward strengthening the Company's relationship
with such employees, it should explore additional measures, including the
direct hiring by the Company of all key employees. At the suggestion of the
independent directors, Mr. Michael W. Perry, who was then the Executive Vice
President and Chief Operating Officer of CWM, agreed that CWM's senior
management would review the relationship between the Company and CAMC, CCI and
CHL, and consider various other potential strategies and provide the
independent directors with various proposals to ensure an ongoing relationship
with the key management and other employees of CAMC.
At a special meeting of the Board of Directors of CWM on September 13, 1996,
Mr. David S. Loeb explained to the Board that in considering the appropriate
relationship between CWM and CAMC, CCI and CHL, CWM's management had focused
on a proposal to merge CAMC into CWM with the purchase price payable to CCI in
shares of CWM Common Stock which merger would entail, among other things, the
hiring by the Company of substantially all CAMC employees. CWM's management
undertook to prepare a memorandum outlining the potential terms of the
proposal and some of the significant related issues and questions. It was then
proposed that a special committee (the "Special Committee") consisting of the
independent directors of CWM (Messrs. Gramley, Kearns, and Napolitano) be
appointed to consider any proposed transaction. The Board of Directors
approved the formation of the Special Committee and authorized it to (1)
consider and evaluate various proposals regarding the appropriate structure
for the continuing relationship among CWM, Indy Mac, CCI, CAMC and CHL,
including, but not limited to, the possible issuance of CWM Common Stock to
acquire all of the business, assets, properties, and employees of CAMC; (2)
negotiate on behalf of CWM the terms of any such proposal or resulting
transaction; (3) authorize the execution and delivery of all necessary
agreements to consummate any such proposal; and (4) take such other actions as
it deemed necessary or appropriate to discharge its fiduciary duties to CWM's
stockholders.
During the course of its deliberations and negotiations concerning a
possible merger between CWM and CAMC, the Special Committee met nine times
over a four month period commencing in September 1996. Some of the more
significant Special Committee meetings and related events are described below.
21
<PAGE>
The first meeting of the Special Committee was convened on September 13,
1996. Following a general discussion of the nature and scope of its authority
and duties, the Special Committee elected Mr. Thomas J. Kearns to serve as its
Chairman. The Special Committee also considered the selection of accounting,
tax and legal advisors. The Special Committee appointed Price Waterhouse LLP,
Grant Thornton LLP and Brown & Wood LLP as its tax, accounting and legal
advisors, respectively, noting that each of these firms was familiar with the
Company and would be best qualified to advise the Special Committee. The
Special Committee also discussed the selection of an appropriate financial
advisor and discussed potential candidates. The Special Committee then
approved a resolution designating Mr. Perry and Mr. Richard H. Wohl, who was
then CWM's Senior Vice President, Secretary and General Counsel, as the
negotiating team for CWM to conduct negotiations relating to the proposed
transaction. The Special Committee then discussed alternatives to the proposed
merger of CAMC into CWM. Specifically, the Special Committee considered the
ramifications of canceling or not extending the Management Agreement and
having CWM build its own staff of employees. The Special Committee determined,
however, that not only would this approach be disruptive to the Company's
business but that it would also potentially deprive the Company of access to
key members of the CAMC management team that had been responsible for
developing and successfully implementing the Company's business plan.
On September 19, 1996, CWM's management completed and forwarded to the
members of the Special Committee a memorandum summarizing a proposal to merge
CAMC into CWM by issuing shares of CWM Common Stock to CCI in return for all
of the stock of CAMC. The memorandum indicated that such a transaction would
be desirable because, among others things: (1) CWM would, in effect, be
purchasing and securing the management team and other assets developed by CAMC
which CWM's management expected, based on past results, would be critical to
CWM's successful performance in the future, (2) CWM would be able to eliminate
its current obligations with respect to payment of annual base and incentive
management fees under the Management Agreement, (3) CWM would be able to
operate consistently with recent market trends that favor self-management of
REITs, and (4) assuming that the economic terms of the transaction are
appropriately structured, the net effect should be an accretion to CWM's
current and future anticipated earnings and dividends per share compared to a
continuance of the current Management Agreement and its associated management
fees.
On September 20, 1996, the Special Committee held its second meeting, at
which a representative from Brown & Wood LLP reviewed with the Special
Committee members their duties as members of the Board of Directors of CWM and
as members of the Special Committee. Following discussions, the Special
Committee determined to pursue the proposal to acquire the stock of CAMC and
merge it into CWM. The Special Committee concluded that the Merger Proposal
appeared preferable to the other alternatives under consideration in that it
would enable the employees of CAMC, who had been critical to the Company's
past operations and successful performance, to become employees of the Company
without disrupting the Company's ongoing business operations. The Special
Committee also determined that such a merger, if properly implemented, should
also enjoy the advantages set forth in management's September 19 memorandum.
The meeting of the Special Committee was then joined by representatives of
Dean Witter Reynolds Inc. ("Dean Witter") who discussed the firm's experience
in the industry and as financial advisor to independent committees in similar
transactions, including in providing valuations and fairness opinions. The
Special Committee then met with representatives of CWM's management team, as
well as Price Waterhouse LLP and Grant Thornton LLP, to discuss tax and
accounting issues relating to the proposed transaction. Thereafter, Dean
Witter sent written materials to the members of the Special Committee for
their review.
The Special Committee next met on September 24, 1996, and determined that,
based on its interview with representatives from Dean Witter and its review of
Dean Witter's written proposal, the selection of Dean Witter as the
independent financial advisor to the Special Committee would be in the best
interests of CWM's stockholders. The Special Committee then appointed Dean
Witter as financial advisor to the Special Committee.
Thereafter, Dean Witter conducted a financial investigation of the business,
operations and prospects of CWM and CAMC and performed certain valuation
analyses. Among other things, representatives of Dean Witter met with officers
and key employees of CWM and CAMC, reviewed various documents, financial
statements
22
<PAGE>
and projections and other reports and material provided by CWM and CAMC and
held preliminary discussions with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), the financial advisor to CCI.
On October 3, 1996 representatives from Dean Witter had discussions with the
members of the Special Committee, the CWM negotiating team and the Chief
Financial Officer of CWM. During these discussions, Dean Witter made its
initial presentation of its financial analyses regarding the proposed merger
of CWM and CAMC. Dean Witter also discussed the framework for a draft proposal
to CCI regarding the proposed merger.
The Special Committee then met on October 11, 1996 and reviewed certain
materials, including the draft proposal and financial analyses that had been
prepared and furnished by Dean Witter. There was a consensus among the members
of the Special Committee that further review would improve the quality of the
Special Committee's conclusions and ultimate recommendation. The Special
Committee determined to continue its review of the materials at its next
meeting scheduled for October 15, 1996. The Special Committee requested that
representatives of Dean Witter be present at that meeting and be prepared to
review in detail its financial analysis of the proposed transaction.
On October 15, 1996, the Special Committee met and reviewed, discussed, and
analyzed written materials prepared by Dean Witter, including a draft merger
proposal to CCI. The Special Committee noted that the proposed transactions
would address a series of concerns of the Special Committee including (1) the
desirability of taking steps to enable the employees of CAMC to become
employees of the Company, so as to substantially mitigate CWM's and Indy Mac's
dependence on CAMC and CCI, (2) a trend toward self management among other
REITs of CWM's size and stature, (3) concerns over potential increases in the
management fee if the Company's asset base and profitability continue to grow
and (4) concerns over potential conflicts of interest with CHL and CCI as the
Company seeks to expand its existing businesses and enter into new lines of
business. The Special Committee determined that the consummation of the
transactions contemplated by the proposal would be in the best interest of
CWM. The Special Committee then approved the proposal, with certain
modifications, and directed that it be submitted to CCI and that CWM's
negotiating team (Messrs. Perry and Wohl) and Dean Witter discuss the terms of
the proposal with CCI and its financial advisor. The Special Committee also
authorized and directed its Chairman to enter into engagement letters with
Grant Thornton LLP, Price Waterhouse LLP and Dean Witter.
On October 23, 1996, the Special Committee members received from CCI a
counter-proposal to the October 15 proposal, and on October 26, 1996, met and
discussed the terms of such counter-proposal. The Special Committee thereupon
developed and approved a response to such counter-proposal, directed Dean
Witter to submit it to CCI and authorized the negotiating team (Messrs. Perry
and Wohl) to discuss it with CCI.
On November 1, 1996, CCI responded to the Special Committee's October 26
terms, and later that day, the Special Committee met and considered in detail
each term of such response. After extensive discussion, the Special Committee
found the terms to be acceptable and a merger on such terms to be in the
Company's best interest. The Special Committee thereupon approved such terms
and directed the officers of CWM to prepare and negotiate a definitive merger
agreement substantially consistent therewith.
On November 5, 1996, CWM publicly announced that it intended to merge with
CAMC.
On November 20, 1996, Brown & Wood LLP circulated an initial draft of the
proposed Merger Agreement. There ensued over the next 60 days a series of
conference calls and negotiations followed by numerous revisions and
recirculations of drafts of the proposed Merger Agreement and the related
Registration Rights Agreement.
On January 20, 1997, the Special Committee met and discussed the proposed
Merger and the terms of the Merger Agreement. After an extensive discussion
and considering such factors as the fairness of the share consideration to be
paid to CCI, from a financial point of view, and the terms of the Merger
Agreement and the Registration Rights Agreement, the Special Committee
determined that the Merger is in the best interests of CWM and its
stockholders and recommended that the Board of Directors approve the Merger.
On the same date,
23
<PAGE>
the Board of Directors met and determined, with Messrs. Loeb and Mozilo
abstaining, that the Merger would be in the best interest of CWM and its
stockholders and is on terms that are fair and commercially reasonable to CWM.
Accordingly, the Board of Directors (with interested directors abstaining)
approved the Merger and recommended that stockholders approve the Merger
Proposal at the Annual Meeting.
On January 24, 1997, the Board of Directors of CCI (with Messrs. Loeb and
Mozilo abstaining) approved the Merger, and on January 29, 1997, the Merger
Agreement was executed and delivered by each party thereto. A joint press
release announcing the execution of the Merger Agreement was issued by CCI and
CWM on January 30, 1997.
The negotiations regarding the terms of the Merger were conducted on behalf
of CWM, by Messrs. Perry and Wohl, acting under the supervision of CWM's
Special Committee, and on behalf of CCI, principally by Messrs. Eric Sieracki
and Sandor Samuels, each managing directors of CCI (and, in the case of Mr.
Sieracki, a director of CAMC), acting at the direction of CCI's Board of
Directors. Each party's negotiating team also was assisted by its respective
financial, legal, tax and accounting advisors. In certain instances, issues
were discussed directly between Mr. Perry for CWM and Mr. Mozilo for CCI. Upon
conclusion of the negotiations, the Merger was approved by CWM's Special
Committee and CWM's Board of Directors (with Messrs. Loeb and Mozilo
abstaining).
OPINION OF THE FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
On January 20, 1997, Dean Witter delivered its written opinion to the
Special Committee of the Board of Directors of CWM to the effect that as of
such date and subject to certain assumptions, qualifications and limitations
stated therein, the Share Consideration to be paid by CWM pursuant to the
Merger was fair to CWM from a financial point of view.
In connection with the preparation of its opinion, Dean Witter, among other
things:
(1) reviewed the Merger Agreement;
(2) reviewed the Annual Report on Form 10-K and related publicly
available financial information of CWM for the two most recent fiscal years
ended December 31, 1994 and 1995, the Quarterly Reports on Form 10-Q of CWM
for the periods ended March 31, 1996, June 30, 1996 and September 30, 1996;
(3) reviewed five-year financial forecasts of CWM, as furnished to Dean
Witter by CWM;
(4) reviewed the audited balance sheet of CAMC as of February 29, 1996,
the unaudited balance sheets of CAMC as of February 28, 1995 and November
30, 1996, the unaudited statements of income and cash flows for the fiscal
years ended February 28, 1994 and February 28, 1995 and the nine-month
periods ended November 30, 1995 and November 30, 1996, all as furnished to
Dean Witter by CAMC;
(5) reviewed the Management Agreement, as amended by the 1996 Amendment;
(6) conducted discussions with members of senior management of CWM, CAMC
and CCI, respectively, concerning the past and current business,
operations, assets, present financial condition and future prospects of CWM
and CAMC, respectively;
(7) reviewed the historical reported market prices and trading activity
for the CWM Common Stock;
(8) compared certain financial information, operating statistics and
market trading information relating to CWM with published financial
information, operating statistics and market trading information relating
to selected public companies that Dean Witter deemed to be reasonably
similar to CWM; and compared certain financial information and operating
statistics relating to CAMC with published financial information and
operating statistics relating to selected public companies that Dean Witter
deemed to be reasonably similar to CAMC;
24
<PAGE>
(9) compared the financial terms of the Merger with the financial terms,
to the extent publicly available, of selected other recent acquisitions
that Dean Witter deemed to be relevant; and
(10) reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as Dean
Witter deemed necessary.
At the meeting of the Special Committee of the Board of Directors of CWM on
January 20, 1997, Dean Witter presented certain financial analyses accompanied
by written materials in connection with the delivery of its fairness opinion.
The principal analyses and other considerations presented by Dean Witter to
the Special Committee at the time are summarized below.
ANALYSIS OF PRECEDENT REIT TRANSACTIONS. Dean Witter analyzed selected
transactions in which REITs acquired their external advisor. These
transactions included Berkshire Realty Company's acquisition of Berkshire
Companies Ltd., CRIIMI MAE, Inc.'s acquisition of CRI, Inc., Realty Income
Corporation's acquisition of R.I.C. Advisors, Inc., Health Care REIT's
acquisition of First Toledo Advisor Company, Shurgard Storage Centers'
acquisition of Shurgard, Inc., Bradley Real Estate Trust's acquisition of R.M.
Bradley & Co., Burnham Pacific Properties' acquisition of Burnham Investment
Group, Inc. and Meditrust's acquisition of A.M.A. Advisory Corporation
(collectively, the "Precedent REIT Transactions"). Dean Witter compared the
purchase price paid in each transaction with (i) the latest twelve months or
reported period, on an annualized basis, advisory fees paid to the target
advisor and EBITDA (defined as earnings before interest, taxes, depreciation
and amortization) of the target advisor and (ii) the equity market
capitalization (defined as shares of common stock outstanding multiplied by
the closing market trading price of the acquiring REIT on the day of closing)
of the acquiring REIT and calculated the following ranges of multiples or
percentages: a range of purchase price to advisory fees paid to the target
advisor of 0.8x to 7.1x with a mean of 4.3x; a range of purchase price to
advisor EBITDA of 4.5x to 15.4x with a mean of 8.7x; a range of purchase price
to equity market capitalization of the acquiring REIT of 1.6% to 15.5% with a
mean of 5.7%. Dean Witter applied the multiple and percentage ranges to the
projected advisory fees to be paid to CAMC in 1996 as reflected in CWM's
projections and CWM's equity market capitalization as of January 15, 1997. The
average of the implied ranges yielded a range of values for CAMC from $23.9
million to $130.6 million, with a mean of $77.3 million. Dean Witter believes
that this analysis supports the fairness, from a financial point of view, of
the Share Consideration to be paid in the Merger, given that $80.0 million,
the maximum value of such consideration, is within the range of values of CAMC
derived from the mean of the acquisition multiples and percentages of the
Precedent REIT Transactions.
DISCOUNTED CASH FLOW ANALYSIS. Dean Witter performed a discounted cash flow
analysis of the forecasted financial performance of CAMC. This analysis was
based on forecasted advisor fees for the years 1996 through 2000 using CWM
management's base case financial projections in which interest rates are
assumed to remain constant. Under this analysis, Dean Witter determined a
range of values for CAMC by adding (i) the present value of the estimated
EBIDA (defined as earnings before interest, depreciation and amortization) of
CAMC for each of the years in the five-year period ending December 31, 2000
and (ii) the present value of the terminal value of CAMC at the end of 2000.
The terminal value was determined by applying a range of exit multiples from
4.0x to 8.0x to the year 2000 estimated EBIDA of CAMC. The EBIDA streams and
terminal value were discounted to present values using discount rates that
ranged from 10% to 20%. To find a range of values for CAMC, Dean Witter
applied an EBIDA exit multiple of 6.0x and assumed that the advisory fees were
taxed (i) at 10.5% (based on taxes deductible on the Indy Mac portion of the
advisory fee), and (ii) at 40%. The average of the results of (i) and (ii)
above resulted in a range of discounted cash flow values for CAMC from $98.4
million to $134.0 million. Given that the maximum value of the Share
Consideration to be paid in the Merger is below the range of values for CAMC
derived from the discounted cash flow analysis, Dean Witter believes that this
analysis supports the fairness, from a financial point of view, of the Share
Consideration to be paid in the Merger.
SELECTED ASSET MANAGEMENT COMPANIES. Dean Witter selected publicly-traded
companies that act as asset managers or advisors of financial assets as a
basis of comparison to CAMC. These companies included Eaton Vance Corporation,
Franklin Resources, Inc., John Nuveen Company, T. Rowe Price Associates and
25
<PAGE>
United Asset Management Corporation (collectively, the "Selected Asset
Managers"). Dean Witter compared the aggregate value (equity market
capitalization plus debt) of each of the Selected Asset Managers with its
respective EBDIT (defined as earnings before depreciation, interest and taxes)
and the closing market trading price as of January 15, 1997 ("Market Price")
of each of the Selected Asset Managers to its respective estimated 1997
earnings per share ("EPS"). The Selected Asset Managers traded in the
following ranges: a range of aggregate value to latest twelve months EBDIT of
4.4x to 13.3x with a mean of 8.6x, and a range of Market Price to estimated
1997 EPS of 11.1x to 24.4x with a mean of 15.7x. Applying the average of the
trading multiples to CAMC's projected advisory fees as reflected in CWM's
projections and net income (defined here as CAMC's 1997 projected advisory fee
taxed at 40%), yielded an implied range of values for CAMC from $65.8 million
to $164.1 million. All 1997 earnings estimates for the Selected Asset Managers
were based on First Call Consensus Estimates as of January 15, 1997. "First
Call" is a data service that monitors and publishes a compilation of earnings
estimates produced by selected research analysts regarding companies of
interest to institutional investors. Given that the maximum Share
Consideration to be paid in the Merger is within the range of values for CAMC
derived from the mean trading multiples of the Selected Asset Managers, Dean
Witter believes that this analysis supports the fairness, from a financial
point of view, of the Share Consideration to be paid in the Merger.
PRO FORMA COMBINATION ANALYSIS. Dean Witter also analyzed the pro forma
effects of the Merger on CWM's earnings per share and the accretion to CWM's
earnings per share resulting from the Merger. This analysis is based on CWM's
projections for the years 1996 and 1997 and uses CWM management's base case
financial projections. In the analysis, Dean Witter calculated the low end of
the range by subtracting goodwill amortization from the pro forma combined net
income of CWM and CAMC, assuming, as directed by the Special Committee, that
goodwill is equal to 100% of the transaction purchase price and is amortized
over 25 years, and the high end of the range using only the pro forma combined
net income of CWM and CAMC. Based on an advisory fee of $9.6 million
(reflecting the CWM 1996 projected advisory fee less the taxes deductible on
the Indy Mac portion of the advisory fee), Dean Witter calculated the
following ranges: at the 0% accretion level, a range of 1996 implied values of
CAMC of $85.2 million to $132.6 million and a range of 1997 implied values of
CAMC of $93.2 million to $138.9 million; at the 2.5% accretion level, a range
of 1996 implied values of CAMC of $69.2 million to $106.4 million and a range
of 1997 implied values of CAMC of $74.0 million to $109.6 million; and at the
5.0% accretion level, a range of 1996 implied values of CAMC of $53.7 million
to $81.6 million and a range of 1997 implied values of CAMC of $55.5 million
to $81.5 million. The range of the mean implied values of CAMC for 1996 is
$69.4 million to $106.9 million and for 1997 is $74.2 million to $110.0
million. Given that the maximum value of the Share Consideration to be paid in
the Merger is within the range of values for CAMC derived from the mean
implied values of CAMC at the above accretion levels, Dean Witter believes
that this analysis supports the fairness, from a financial point of view, of
the Share Consideration to be paid in the Merger.
CONTRIBUTION ANALYSIS. Dean Witter reviewed certain operating and financial
information (including EBITDA and net income, which reflects the tax payable
on the Indy Mac portion of the advisory fee) for CWM and CAMC. The analysis
indicated that CCI would receive 7.1% of the outstanding CWM Common Stock
pursuant to the Merger. Dean Witter also analyzed the relative income
statement and operating contributions of CWM and CAMC to the combined company
based on results for the nine months ended September 30, 1996 (the "Nine Month
Comparison") for CWM and CAMC, the 1996 projections (the "1996 Comparison")
for CWM and CAMC, and the 1997 projections (the "1997 Comparison") for CWM and
CAMC. Dean Witter observed that, under the Nine Month Comparison, the 1996
Comparison and the 1997 Comparison, CAMC would contribute 11.8%, 12.0% and
11.6%, respectively, to the combined EBITDA, and 12.8%, 12.4% and 11.5%,
respectively, to the combined net income. Dean Witter observed that the range
of CAMC's pro forma contributions exceeded the proportion of CWM Common Stock
to be received by CCI in the Merger in all cases. Dean Witter thus believes
that this analysis supports the fairness, from a financial point of view, of
the Share Consideration to be paid in the Merger.
26
<PAGE>
The preparation of a fairness opinion is a complex process and not
necessarily susceptible to summary description. Dean Witter believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all factors
and analyses, could create a misleading view of the processes underlying its
opinion. In its analyses, Dean Witter made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond management's control. Any estimates
contained in Dean Witter's analyses are not necessarily indicative of actual
values, which may be significantly more or less favorable than as set forth
herein. Estimated values do not purport to be appraisals and do not
necessarily reflect the prices at which companies or their securities may be
sold in the future and such estimates are inherently subject to uncertainty.
In rendering its fairness opinion, Dean Witter relied, without assuming
responsibility for independent verification, on the accuracy and completeness
of all financial and operating data, financial analyses, reports and other
information that were publicly available, compiled or otherwise furnished or
communicated to Dean Witter by or on behalf of CWM and CAMC. With respect to
the financial and operating forecasts furnished to Dean Witter, Dean Witter
assumed that they reflected the best current judgment of management of CWM and
CAMC as to future financial performance, and that there was a reasonable
probability that the projections would prove to be substantially correct. The
forecasts used by Dean Witter are subject to numerous contingencies beyond the
control of the management and are thus not necessarily indicative of future
results.
The fairness opinion of Dean Witter is limited to the fairness as of its
date, from a financial point of view, of the Share Consideration to be paid in
the Merger and does not address the underlying business decision to effect the
Merger (or alternatives thereto) nor does it constitute a recommendation to
any stockholder of CWM as to how such stockholder should vote with respect to
the Merger. Dean Witter did not make an independent evaluation or appraisal of
any assets and was not furnished with any evaluation or appraisal.
Furthermore, Dean Witter expresses no opinion as to the price or trading
range at which shares of CWM Common Stock will trade following the completion
of the Merger.
As described above, the Dean Witter fairness opinion to the Special
Committee of the Board of Directors of CWM was one of the many factors taken
into consideration by the Special Committee in making its determination to
approve the Merger.
On May 21, 1997, Dean Witter delivered its written bringdown opinion to the
Special Committee of the Board of Directors of CWM confirming its opinion
dated January 20, 1997, which bringdown opinion took into account, among other
things, that the Merger will be treated for accounting and financial reporting
purposes as the settlement of a management contract rather than as a purchase
by CWM of CAMC. A copy of the bringdown opinion, dated May 21, 1997, is
attached hereto as Appendix B and incorporated herein by reference.
Stockholders of CWM are urged to read in its entirety the opinion of Dean
Witter, which sets forth the assumptions made and matters considered.
Pursuant to an agreement dated as of October 1, 1996, CWM has paid Dean
Witter an advisory fee of $100,000 per month from October 1996 through
December 1996, in connection with the delivery of its opinion dated January
20, 1997, a fee of $50,000 in connection with its bringdown opinion dated May
21, 1997, and is obligated to pay Dean Witter an additional fee of $200,000,
which is contingent and payable upon consummation of the Merger. The fees paid
or payable to Dean Witter are not contingent upon the contents of the opinion
delivered. CWM has agreed to indemnify Dean Witter against certain liabilities
arising out of or in conjunction with its rendering of services under its
engagement. In addition, CWM has agreed to reimburse Dean Witter for its
reasonable fees and expenses of legal counsel.
In the past, Dean Witter has co-managed several common stock offerings by
CWM, the most recent having been completed on February 1, 1995, and received a
fee for its services. Dean Witter has also co-managed several common stock
offerings by CCI, the most recent having been completed on June 26, 1995, and
received a fee
27
<PAGE>
for its services. In addition, in the ordinary course of its business, Dean
Witter actively trades in the securities of CWM and CCI for its own account
and for the accounts of customers and, accordingly, may at any time hold a
long or short position in such securities.
Dean Witter is an internationally recognized investment banking firm and is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, secondary distributions of listed and unlisted securities and
private placements.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD
OF DIRECTORS
Special Committee. In reaching its conclusion to recommend that the Board of
Directors approve the Merger, the Special Committee considered, without
assigning relative weights to, a number of factors, including the following:
(i) the proven expertise and substantial experience of the employees of
CAMC, who will become employees of the Company through the Merger, in
conducting the day-to-day mortgage conduit, warehouse lending, construction
lending and manufactured housing lending operations of the Company;
(ii) the desirability of substantially mitigating the Company's
dependence on CAMC and CCI;
(iii) the continuing close relationship with CCI as CWM's largest
stockholder after the consummation of the Merger;
(iv) the reduction in potential future conflicts of interest that could
develop between the Company and CCI;
(v) the efficiencies arising from a self-managed structure, including the
elimination of management fees and a potentially accretive effect on CWM's
net income per share;
(vi) the benefits associated with the acquisition of all assets of CAMC
including, among other things, workforce in place, business books and
records, operating systems, contract rights and information bases and
systems;
(vii) the possibility that CWM, as a self-managed and self-administered
REIT, may be more attractive to certain investors and may enjoy enhanced
market perceptions;
(viii) the terms and conditions of the Merger Agreement, including the
type and amount of consideration being paid to CCI;
(ix) the alternatives to the Merger, including the direct and indirect
relative costs and benefits of (a) continuing to be advised by CAMC or (b)
terminating the Management Agreement and hiring a new management team and
employees or a new outside advisor;
(x) the ownership by the Company of all rights to the names "Independent
National Mortgage Corporation" and "Indy Mac" and the goodwill associated
with those names;
(xi) the valuation analyses performed by Dean Witter, including the
precedent REIT transactions, discounted cash flow, selected asset
management companies, pro forma combination and contribution analyses; and
(xii) the written opinion of Dean Witter expressed to the Special
Committee on January 20, 1997 that, on such date and subject to certain
assumptions, qualifications and limitations stated therein, the Share
Consideration to be paid by CWM in the Merger is fair to CWM, from a
financial point of view.
The Special Committee also considered certain factors which could, as a
result of the Merger, negatively affect the Company and its stockholders.
These factors included the following:
(i) the conflicts of interest of the negotiating team and certain members
of the Board of Directors of CWM in the Merger, including their respective
positions at CAMC, CCI, CHL and Indy Mac, as well as the compensation
and/or other benefits received by such persons, either directly or
indirectly, from CCI;
28
<PAGE>
(ii) the possibility that not all employees of CAMC, including key
management employees, would choose to become employees of the Company, and
the impact that the occurrence of such possibility could have on the
Company;
(iii) the ability of CCI to control Indy Mac and its employees through
the ownership of all of the Indy Mac voting stock, and the possibility
that, with CCI no longer controlling the manager of Indy Mac, it may have
less incentive to exercise its voting power to operate Indy Mac in a manner
consistent with the interests of CWM;
(iv) the potential loss of certain intangible benefits from being
associated with CCI, including CCI's management expertise and capital
markets presence;
(v) the potential adverse tax consequences to CWM should any of CAMC's
earnings and profits be carried over to CWM as a result of the Merger;
(vi) the potential liabilities associated with the direct employment of
personnel, including workers' disability and compensation claims, labor
disputes and other employee-related grievances; and
(vii) the potential additional expenses expected to be incurred by the
Company.
The Special Committee has unanimously determined that, in light of all the
factors that it considered, it believes the Merger to be fair to and in the
best interests of CWM and its stockholders. ACCORDINGLY, THE SPECIAL COMMITTEE
HAS UNANIMOUSLY RECOMMENDED THAT THE BOARD OF DIRECTORS APPROVE THE MERGER.
Board of Directors. The Board of Directors (with interested directors,
Messrs. Loeb and Mozilo, abstaining) has determined that the Merger is fair
to, and in the best interests of, CWM's stockholders based on the analyses and
conclusions of the Special Committee (which were adopted by the Board of
Directors as its own), and on the arm's-length negotiations between CWM's
negotiating team, as directed by the Special Committee, and the
representatives of CCI, and on the Dean Witter opinion delivered to the
Special Committee. The Board of Directors did not quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. The Board of Directors (with interested directors abstaining)
has unanimously approved the Merger and recommends that CWM's stockholders
vote "FOR" approval of the Merger.
CONFLICTS OF INTEREST
Executive Officers and Directors of CWM. Certain directors and executive
officers of CWM, who were involved in discussions and negotiations relating to
the Merger, also hold positions with CAMC, CCI, CHL or Indy Mac, as the case
may be, and, therefore, may have interests in connection with the Merger that
are in addition to or conflict with those of CWM and its stockholders. In
particular, both members of the team designated by the Special Committee to
negotiate the terms of the Merger (Messrs. Perry and Wohl) are directors and
executive officers of CAMC and Indy Mac and, as employees of CAMC, receive
compensation and other benefits directly or indirectly from CCI for services
rendered to CWM pursuant to the Management Agreement. Mr. Perry is the
President and Chief Operating Officer of CWM and CAMC and Mr. Wohl is the
Executive Vice President, General Counsel and Secretary of CWM and CAMC.
Additionally, Mr. David S. Loeb, who is a director of CWM, is also a director
and executive officer of CCI, and a director of CAMC, CHL and Indy Mac. Mr.
Angelo Mozilo, who is a director and an executive officer of CWM, is also a
director and an executive officer of CCI, CAMC, CHL and Indy Mac. Neither Mr.
Loeb nor Mr. Mozilo participated on CWM's or CCI's negotiating team in
connection with the Merger, although in certain instances issues relating to
the Merger were discussed directly between Mr. Mozilo for CCI and Mr. Perry
for CWM. Because of their positions with CWM, CCI, CAMC, CHL and Indy Mac,
Messrs. Loeb and Mozilo have abstained from the vote of the Board of Directors
of CWM and the Board of Directors of CCI relating to the Merger. Additionally,
as of March 31, 1997, Messrs. Loeb and Mozilo together, and the executive
officers and directors of CWM as a group (excluding Messrs. Loeb and Mozilo),
held approximately 2% and significantly less than 1%, respectively, of the
issued and outstanding shares of CCI common stock.
Ownership of CWM Common Stock by CCI. As of March 31, 1997, CCI held
approximately 1,120,000 shares, or approximately 2.13% of the issued and
outstanding shares of CWM Common Stock. Pursuant to the
29
<PAGE>
Merger Agreement, CCI is required to vote its shares in favor of the Merger
Proposal at the Annual Meeting. Following the Merger, based upon the
52,600,098 shares of CWM Common Stock outstanding at March 31, 1997 and
assuming that 3,597,122 shares of CWM Common Stock are issued in the Merger,
CCI will own approximately 8.39% of the issued and outstanding shares of CWM
Common Stock, assuming no adjustments are made to the Share Consideration.
REGULATORY MATTERS
CWM, CAMC and CCI are not aware of any material approval or other action by
any state, federal or foreign governmental agency that would be required prior
to the consummation of the Merger in order to effect the Merger or of any
license or regulatory permit that is material to the businesses of the Company
or CAMC and which is likely to be adversely affected by the consummation of
the Merger.
REGISTRATION RIGHTS
As a condition to the Merger, CWM has agreed to enter into an agreement with
CCI (the "Registration Rights Agreement") pursuant to which CCI may require,
under certain circumstances and subject to certain limitations, that CWM
register any or all of the CWM Common Stock to be issued to CCI in connection
with the Merger. Under the Registration Rights Agreement, CCI, on two
occasions commencing two years after the date of the Registration Rights
Agreement, may request that CWM file a registration statement covering the CWM
Common Stock to be issued pursuant to the Merger ("Demand Registration"). Only
one request for a Demand Registration may be made during any 9 month period.
Each Demand Registration request must be for a minimum of (i) 1,250,000 shares
of CWM Common Stock or (ii) the number of shares of CWM Common Stock having a
market value of $20,000,000, whichever is less. A Demand Registration will not
be deemed to have been effected until the registration statement filed in
connection therewith is declared effective by the Commission. All costs of the
registration, including, among other things, registration and filing fees,
printing expenses, attorneys' fees, accountants' fees and other reasonable
expenses, will be borne by CWM.
If CWM determines that, in light of the pendency of a material transaction,
it would be materially detrimental to CWM and its stockholders to file a
registration statement pursuant to a request for a Demand Registration, CWM
may defer such Demand Registration for not more than 90 days after receipt of
such request. CWM also is permitted to defer the filing of a registration
statement pursuant to a request for a Demand Registration for an additional
period of 60 days after the expiration of the initial 90 day period in order
to satisfy its disclosure obligations under the Securities Act with respect to
certain material transactions.
If CWM proposes to file a registration statement covering the CWM Common
Stock under the Securities Act (except for registration (a) on Form S-8, or a
successor or substantially similar form, of an employee share option, share
purchase or compensation plan or of CWM Common Stock issued or issuable
pursuant to any such plan, (b) of a dividend reinvestment plan or (c) on Form
S-4, or a successor or substantially similar form, of shares issuable in
connection with any acquisition, merger, exchange or similar transaction) CWM
will, subject to certain limitations, use its best efforts to arrange to
include in such registration statement all of the CWM Common Stock as to which
it has received a request for inclusion. Such CWM Common Stock will not be
included, however, to the extent that the underwriters indicate that such
inclusion will interfere with the successful marketing of CWM Common Stock
being issued by CWM.
SPECIAL PURCHASE RIGHTS
In connection with the Merger, CWM has granted CCI the right (the "Right of
First Offer") to purchase from CWM in an offering (an "Offering") of voting
capital stock (or a security convertible or exchangeable into or exercisable
for voting capital stock) such number of shares of the capital stock as may be
required for CCI to maintain its then proportionate voting interest in CWM.
Any purchase by CCI pursuant to the Right of First Offer shall be made on the
terms and be subject to the conditions applicable to other purchasers in the
Offering.
30
<PAGE>
In addition, CCI will be entitled to participate (the "Right to Participate"
and together with the "Right of First Offer" the "Special Purchase Rights") in
CWM's existing dividend reinvestment plan or any successor thereto (the
"DRIP") on the same terms and subject to the same conditions and procedures
applicable to other participants, subject to the following additional
provisions:
(i) With respect to CWM Common Stock to be issued pursuant to the
optional cash payment feature of the DRIP, CWM shall notify CCI, at least
four (4) business days prior to the applicable "Threshold Price and Waiver
Discount Set Date" (as defined in the existing DRIP), of (x) the dollar
amount of shares of CWM Common Stock (expressed as an aggregate cash price)
which CWM desires to accept from its stockholders on the next occurring
"Investment Date" (as defined in the DRIP or the comparable date under any
successor plan) (such aggregate desired dollar amount being referred to
herein as the "Maximum Investment Amount") and (y) the aggregate number of
shares of CWM Common Stock outstanding as of the last day of the
immediately preceding month. For any Investment Date under the optional
cash payment feature of the DRIP, the maximum dollar amount permitted to be
invested by CCI pursuant to the Right to Participate shall be calculated as
(x) CCI's "Participation Percentage" (as defined below), multiplied by (y)
the Maximum Investment Amount (such product being referred to herein as the
"Maximum CCI Investment"). No later than two (2) business days following
receipt of such notice from CWM, CCI shall specify in writing to CWM (1)
the number of shares of CWM Common Stock beneficially owned by CCI on such
date, and (2) whether, with respect to the CWM Common Stock to be issued on
the next occurring Investment Date, CCI wishes to make any optional cash
payment and the actual dollar amount thereof, which may be any dollar
amount up to and including the Maximum CCI Investment for such month (such
actual dollar amount being referred to herein as the "Requested CCI
Investment"). Any election by CCI to participate in the optional cash
payment feature of the DRIP hereunder (and the related election of the
Requested CCI Investment) shall be irrevocable for the applicable
Investment Date, and any failure by CCI to make such election shall be
deemed to be an election not to participate for the applicable Investment
Date. In the event CWM elects to increase the Maximum Investment Amount for
the applicable Investment Date, CCI shall be provided with notice of such
increase and an opportunity to increase the Requested CCI Investment on a
pro rata basis. In the event CWM elects to reduce the Maximum Investment
Amount for the applicable Investment Date, and/or the Maximum Investment
Amount is subject to reduction under the terms of the DRIP (such reduced
amount, in either case, being referred to herein as the "Actual Investment
Amount"), CWM shall so notify CCI, and the Requested CCI Investment shall
in such event be reduced on a pro rata basis. In administering the optional
cash investment feature of the DRIP, CWM shall include the Requested CCI
Investment as a portion of the Maximum Investment Amount proposed to be
raised, and in the event that for any Investment Date, the Maximum
Investment Amount is reduced to the Actual Investment Amount, the Requested
CCI Investment (as reduced pro rata) shall be included as a portion of said
Actual Investment Amount. Subject to the limitations and adjustments
applicable to the Requested CCI Investment provided herein, CCI shall be
entitled to make such Requested CCI Investment. CCI's Participation
Percentage shall be defined as a percentage (expressed as a decimal)
calculated as (x) the shares of the CWM Common Stock beneficially owned by
CCI at any date of determination, divided by (y) the aggregate shares of
CWM Common Stock outstanding at such date of determination;
(ii) with respect to the dividend reinvestment feature of the DRIP, CWM
shall notify CCI, within ten (10) days after the "Record Date" (as defined
in the DRIP) for the payment of the applicable dividend for the applicable
fiscal quarter of CWM, of the percentage of the outstanding shares of CWM
Common Stock (expressed as a decimal and without giving effect to any
shares of CWM Common Stock beneficially owned by CCI) which have
theretofore validly elected to participate in the DRIP with respect to the
next occurring dividend payment (the "Maximum Reinvestment Percentage"). No
later than two (2) business days following receipt of such notice from CWM,
CCI shall pursuant to the Right to Participate specify in writing to CWM
whether (x) CCI wishes to elect for its beneficially owned shares of CWM
Common Stock to participate in the dividend reinvestment feature of the
DRIP for the next occurring Investment Date, and (y) the actual percentage
(expressed as a decimal) of CCI's beneficially owned CWM Common Stock which
CCI elects to participate on such Investment Date, which may be any
percentage up to and including the Maximum Reinvestment Percentage for such
Investment Date (such actual percentage being referred to
31
<PAGE>
herein as the "CCI Reinvestment Percentage"). Any election by CCI to
participate in the dividend reinvestment feature of the DRIP hereunder (and
the related election of the CCI Reinvestment Percentage) shall be
irrevocable for the applicable Investment Date, and any failure by CCI to
make such election shall be deemed to be an election not to participate for
the applicable Investment Date; and
(iii) under the Right to Participate, CCI may elect, in respect of the
CWM Common Stock, to participate in the optional cash payment feature of
the DRIP, and/or to participate in the dividend reinvestment feature of the
DRIP, only to the extent that such optional cash payment and/or such
dividend reinvestment, together with all other shares of CWM Common Stock
beneficially owned by CCI, would not cause the percentage of shares of CWM
Common Stock beneficially owned by CCI in the aggregate to exceed the then-
current Participation Percentage.
(iv) except as otherwise specified, the Right to Participate may be
exercised only in accordance with and subject to the terms of the DRIP in
effect for CWM at the time of any such exercise. Nothing shall be deemed or
construed to require CWM to create, maintain or renew any DRIP or similar
plan or program; provided, however, that CWM may amend or modify the DRIP
so long as such amendments or modifications would not have a material
adverse effect on CCI's Right to Participate in the manner and on the terms
applicable to other participants.
The Special Purchase Rights are subject to the initial approval by the
holders of at least a majority of the shares of CWM Common Stock present and
entitled to vote on the matter and the subsequent re-approval by stockholders
on the fifth, tenth and fifteenth anniversary of the initial approval. The
Special Purchase Rights shall expire on the earlier of (i) the twentieth
anniversary of the Effective Time, (ii) the date on which CCI ceases to
beneficially own 5% or more of the outstanding shares of CWM Common Stock
(excluding from the number of shares of CWM Common Stock outstanding for
purposes of such calculation, all outstanding shares of CWM Common Stock
issued subsequent to the Effective Time pursuant to any employee stock option,
employee stock purchase or compensation plan and all shares of CWM Common
Stock issued after the Effective Time as consideration in making
acquisitions), (iii) the date on which CCI ceases to beneficially own 2% or
more of the outstanding shares of CWM Common Stock and (iv) the date of a CCI
Change of Control. The Special Purchase Rights are not assignable or otherwise
transferrable (except that any transferee of CWM Common Stock may participate
in the DRIP) and cannot be exercised in connection with any issuance of CWM
Common Stock (or securities convertible or exchangeable into or exercisable
for CWM Common Stock) pursuant to any employee stock option, employee stock
purchase or compensation plan of CWM or as consideration in making
acquisitions.
COOPERATION AGREEMENT
CCI and CWM have agreed, as a condition to the Merger, to enter into an
agreement, the form and substance of which will be reasonably satisfactory to
the parties, relating to certain interim sharing and service arrangements (the
"Cooperation Agreement"). Although the terms of the Cooperation Agreement have
not been determined as of the date hereof, CWM expects that CCI will grant it
the right to use certain services and facilities on the terms and subject to
the conditions similar to those in effect prior to the Effective Time of the
Merger, subject to reimbursement by CWM for fairly allocable costs. CWM
expects that the Cooperation Agreement will address certain interim issues,
including personnel and human resource functions, purchasing, insurance
policies and facilities planning, and certain long-term issues, including
investor relations, computer networks, telephone systems, mailroom and package
distribution and corporate security.
EFFECT OF THE MERGER ON RELATIONSHIP BETWEEN CWM AND INDY MAC
The Company currently consists of two principal operating entities, CWM,
which is a REIT, and Indy Mac, which is a taxable corporation that is not
consolidated with CWM for financial reporting or tax purposes. At present, CWM
conducts the Company's construction lending and warehouse lending activities,
and also purchases certain prime and subprime mortgage loans and manufactured
housing loans pending their delivery to Indy Mac pursuant to the terms of a
Master Forward Commitment and Services Agreement between CWM and Indy Mac, a
copy of which has been filed as an exhibit to CWM's Quarterly Report on Form
10-Q for the quarter
32
<PAGE>
ended March 31, 1996 and is incorporated by reference herein. See "Available
Information." Indy Mac currently conducts the Company's mortgage and asset-
backed securitization activities; performs a variety of marketing,
underwriting and loan acquisition services; hedges against interest rate risk
on loans held by CWM which Indy Mac has committed to purchase under the Master
Forward Commitment and Services Agreement; and performs all servicing
activities with respect to manufactured housing loans and all master servicing
activities with respect to all mortgage loans. CWM and Indy Mac also maintain
separate portfolios of mortgage-related assets, in the case of CWM consisting
of mortgage loans held for sale, manufactured housing loans held for sale,
construction loans, mortgage loans held for investment, mortgage-backed
securities held as available for sale, securitized master servicing and
mortgage loans securing collateralized mortgage obligations, and in the case
of Indy Mac, consisting of mortgage securities held as available for sale,
mortgage loans held for sale and master servicing assets.
Prior to the Merger, CWM and Indy Mac have separately reimbursed CCI on
behalf of CAMC, for management and advisory services and the expenses of
employees devoted to each entity's respective businesses and operations.
Following the Merger, CWM and Indy Mac intend to employ different groups of
the former CAMC employees, as determined on the basis of each entity's
respective business activities, each employee's current and expected duties,
and appropriate arrangements negotiated between CWM and Indy Mac. In the case
of certain employees whose duties relate to businesses conducted by both CWM
and Indy Mac, the two companies may enter into cost sharing arrangements from
time to time. By virtue of its 99% economic ownership of Indy Mac, CWM
believes that it will benefit from having certain former CAMC employees be
employed by Indy Mac rather than by CWM.
EFFECT OF THE MERGER ON THE RIGHTS OF EXISTING STOCKHOLDERS
The Special Purchase Rights will permit CCI to purchase shares of CWM Common
Stock from time to time in order to maintain its then proportionate voting
interest, subject to certain conditions. See "The Merger--Special Purchase
Rights." No stockholder of CWM other than CCI will have rights substantively
similar to the Special Purchase Rights.
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, the Merger will be
accounted for as the settlement of a management contract and treated as an
expense in the period in which the transaction closes.
33
<PAGE>
THE MERGER AGREEMENT
The description of the Merger Agreement set forth below does not purport to
be complete and is qualified in its entirety by, and made subject to, the more
complete and detailed information set forth in the Merger Agreement among CWM,
CAMC and CCI (including a copy of the Registration Rights Agreement between
CWM and CCI included as an exhibit thereto), a copy of which is attached as
Appendix A to this Proxy Statement and incorporated herein by reference.
TERMS OF THE MERGER
The Merger. Subject to the terms and conditions of the Merger Agreement,
CAMC will merge with and into CWM at the Effective Time. The separate
corporate existence of CAMC will then cease, and the internal corporate
affairs of CWM (the "Surviving Corporation") will continue to be governed by
the laws of the State of Delaware.
Certificate of Incorporation and Bylaws. The Merger Agreement provides that
CWM's Certificate of Incorporation and Bylaws in effect immediately before the
Effective Time will be the Certificate of Incorporation and the Bylaws of the
Surviving Corporation. Although not contemplated by the Merger Agreement,
amendments will be made to CWM's Certificate of Incorporation and Bylaws if
stockholders approve the Bylaws Proposal and the Name Change Proposal at the
Annual Meeting.
Conversion of CAMC Common Stock in the Merger. At the Effective Time, all
the issued and outstanding shares of CAMC Common Stock will be converted into
an aggregate of 3,597,122 shares of CWM Common Stock subject to certain
adjustments as described below.
Directors and Officers. Mr. Angelo R. Mozilo, the Chief Executive Officer of
CWM, has expressed his intention to continue to serve as Chief Executive
Officer, for at least two years subsequent to the date of the closing of the
Merger (the "Closing Date"). Mr. Michael W. Perry, the President and Chief
Operating Officer of CWM, has entered into a long-term employment contract
with CAMC, which CWM will assume in the Merger. CWM expects that substantially
all of the members of CAMC's senior management team as well as other employees
of CAMC will become employees of the Company following the Merger. In
addition, Messrs. Loeb and Mozilo have each expressed their current intention
to continue to serve as Chairman and Vice Chairman, respectively, of the Board
of Directors of CWM. The directors of the Surviving Corporation will be
determined by stockholders at the Annual Meeting and each will serve until his
successor has been duly elected and qualified or until his earlier death,
resignation or removal.
ADJUSTMENT TO SHARE CONSIDERATION
The Share Consideration will be subject to the following adjustments in the
event that the Pre-Closing Market Value (as defined below) has increased or
decreased beyond certain limitations. If the Pre-Closing Market Value is less
than $19.46, the Share Consideration will be adjusted and increased to that
number of shares of CWM Common Stock that is determined by dividing
$70,000,000 by the Pre-Closing Market Value. Alternatively, if the Pre-Closing
Market Value is more than $22.24, the Share Consideration shall be adjusted
and reduced to that number of shares of CWM Common Stock that is determined by
dividing $80,000,000 by the Pre-Closing Market Value.
References to "Pre-Closing Market Value" mean the per-share value of the CWM
Common Stock based on the average sale price thereof for the 10 business days
next preceding the Closing Date, using for each such business day the last
reported sale price on the New York Stock Exchange.
INDEMNIFICATION
CCI, as sole stockholder of CAMC, has agreed to indemnify and hold harmless
CWM and its directors, officers, employees, affiliates, agents and permitted
assigns from and against: (i) any and all Damages (as such
34
<PAGE>
term is defined below) (excluding those items referred to in subsection (ii)
of this paragraph) asserted against, imposed upon or incurred or suffered by
it, directly or indirectly, as a result of, or based upon or arising from any
inaccuracy in or breach or nonfulfillment of any of the representations,
warranties or covenants or agreements made by CAMC or CCI in the Merger
Agreement; (ii) (A) Taxes (as such term is defined below) payable by or on
behalf of CAMC for any taxable period ending on or prior to the Effective Time
including Taxes of any member of a consolidated or combined tax group of which
CAMC is, or was at any time, part, for which CAMC is jointly or severally
liable as a result of its inclusion in such group prior to the Effective Time,
(B) any claim or demand for reimbursement or indemnification resulting from
any transfer of tax benefits or credits by CAMC to any other person and (C)
any Taxes payable by CWM as a result of any breach of any representation or
warranty contained in a specified section of the Merger Agreement relating to
taxes; and (iii) except for liabilities relating to employee matters expressly
assumed by CWM, any Damages arising out of or relating to any employee
retirement or benefit plan maintained or sponsored by CCI or any affiliate and
covering CAMC employees (an "Employee Plan"), (iv) any Damages arising out of
or relating to any employee retirement or benefit plan maintained by CCI or
any affiliate which is not an Employee Plan. Subject to certain exceptions,
CWM has agreed to indemnify and hold harmless CCI and its directors, officers,
employees, affiliates, agents and permitted assigns, without duplication, from
and against any and all Damages asserted against, imposed upon or incurred or
suffered by any of them, directly or indirectly, as a result of, or based upon
or arising from (x) any inaccuracy in or breach or non-fulfillment of any of
the representations, warranties or covenants or agreements made by CWM in the
Merger Agreement or (y) termination or any change in employment status,
compensation or benefits by CWM of any employees employed by CAMC at the time
of Closing. Subject to certain limited exceptions, CCI will have no obligation
to indemnify CWM for any Damages as a result of CWM failing to qualify as a
REIT under the Code, and CWM will have no obligation to indemnify CCI for any
Damages as a result of the Merger failing to qualify as a reorganization under
Section 368(a) of the Code.
Except with respect to certain tax matters, if any action or proceeding
(including any governmental investigation) is brought or asserted against a
party to the Merger Agreement (or its officers, directors, trustees or agents)
or any person controlling such party with respect to a matter for which
indemnity is required, the party from whom such indemnification is required
(the "Indemnifying Party"), will assume the defense thereof, including the
employment of counsel reasonably satisfactory to the party to whom such
indemnification is owed (the "Indemnified Party"), and shall assume the
payment of all expenses. The Indemnified Party or any such officer, director,
trustee, agent or controlling person shall have the right to employ separate
counsel (approved by the Indemnified Party) in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnified Party or such officer, director,
trustee, agent or controlling person unless certain conditions are met. The
Indemnifying Party will not be liable for any settlement of any such action or
proceeding effected without the Indemnifying Party's written consent, but if
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, the Indemnifying Party agrees to
indemnify and hold harmless the Indemnified Party and its officers, directors,
trustees, agents and controlling person from and against any loss or liability
by reason of such settlement or judgment. Claims for indemnification relating
to breaches of representations and warranties are subject to a $500,000
deductible. No deductible applies for claims made pursuant to sections (ii),
(iii) and (iv) of the prior paragraph. Claims for indemnification will be
subject to a $15,000,000 cap, subject to certain exceptions for claims
concerning Taxes, employee retirement and benefit plan matters and the
accuracy, in all material respects, of this Proxy Statement. No Damages shall
be deemed to have been sustained by a party to the extent of (i) the value of
any tax savings actually realized or to be realized by such party with respect
thereto or (ii) any proceeds received by such party from any insurance
policies with respect thereto, net of any increase in premiums or other costs
associated with such insurance recovery.
References to "Damages" mean any loss, liability, damage, Tax, demand,
claim, action, judgment or cause of action, assessment, cost, obligation or
expense (including, without limitation, interest, penalties, reasonable costs
of investigation, defense and prosecution of litigation and reasonable
attorneys' and accountants' fees) incurred by CWM or CCI, as the case may be.
35
<PAGE>
References to "Tax" or "Taxes" mean all federal, state, local, non-U.S. and
other taxes imposed by or on behalf of any governmental body, including,
without limitation: (i) net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, lease, service, service
use, withholding, payroll, employment, unemployment, excise, severance, stamp,
occupation, premium, real and personal property, gift or windfall profits
taxes, (ii) customs or duties and (iii) all other taxes, fees, assessments or
charges of any kind whatever, together with any interest and any penalties,
additions to tax, supplemental or retroactive assessments or additional
amounts with respect thereto.
EFFECTIVE TIME OF THE MERGER
Promptly following the satisfaction or waiver (where permissible) of the
conditions to the Merger, the Merger will be consummated and become effective
on the date and at the time the certificate of merger is duly filed with the
Secretary of State of the State of Delaware or at such later time, not later
than five business days thereafter, as may be specified in the certificate of
merger. See "The Merger Agreement--Conditions to Consummation of the Merger."
EXCHANGE OF SHARES OF CAMC COMMON STOCK
All CAMC Common Stock will be converted to shares of CWM Common Stock at the
Effective Time. CAMC Common Stock will cease to exist and CCI, as the holder
of CAMC shares, shall cease to have any rights with respect to such shares,
except to surrender such shares for CWM Common Stock (or cash, in the case of
fractional shares). No fractional shares of CWM Common Stock will be issued in
the Merger, and cash will be paid instead.
REPRESENTATIONS AND WARRANTIES
Representations and Warranties Regarding CAMC. The Merger Agreement includes
representations and warranties of CAMC and CCI as to, among other things: (i)
the corporate organization, good standing and corporate power and authority of
CAMC to conduct its business and to enter into and perform the Merger
Agreement and the transactions contemplated thereby, (ii) the absence of any
interest of CAMC in any subsidiary or partnership, (iii) the due authorization
of the Merger Agreement and the transactions contemplated thereby by the Board
of Directors of CAMC and CCI, as sole stockholder, and the enforceability of
the Merger Agreement, (iv) the capitalization of CAMC, the validity of the
CAMC Common Stock, and the absence of any options, warrants or other similar
rights with respect to its capital stock, (v) the absence, other than as
specifically disclosed, of any pending, or to the knowledge of CAMC and CCI,
threatened litigation that would, individually or in the aggregate, have a
material adverse effect (a "Material Adverse Effect") on CAMC, and the absence
of certain defaults by CAMC or unsatisfied judgments against CAMC that would
have a Material Adverse Effect on CAMC, (vi) the completeness and accuracy of
the disclosure concerning the compensation of officers, directors and
employees of CAMC, (vii) CAMC's liabilities under and compliance with
specified applicable laws and regulations applicable with respect to its
employee plans and similar agreements and certain other matters relating to
ERISA, (viii) certain matters relating to the payment of taxes and the tax
status of CAMC, (ix) the absence of any lien, encumbrance (except liens and
encumbrances in favor of the licensor, sublicensor or other owner) or claim of
infringement on any of the intellectual property rights to be transferred to
CWM in the Merger, and the absence of any consent, approval or waiver
necessary to transfer CAMC's interests in such intellectual property to CWM,
(x) the fair presentation, in all material respects, of CAMC's financial
position, results of operations and cash flows, and the compliance with
generally accepted accounting principles, in the financial statements of CAMC,
(xi) the accuracy, in all material respects, of the books of account and other
financial records of CAMC, (xii) the absence of any change in the business,
operations, properties, assets or condition (financial or otherwise) of CAMC
since August 31, 1996, which would, individually or in the aggregate, have a
Material Adverse Effect, except for certain fees and transactions, (xiii) the
material completeness and accuracy of the minute books and other records of
CAMC made available to CWM for certain specified periods, (xiv) the
completeness and accuracy of the disclosure concerning all material contracts,
leases, agreements or understandings of CAMC, and the absence of any material
breach or default with respect to any
36
<PAGE>
material agreement to which CAMC is a party, (xv) the absence of any ownership
interest or leasehold interest of CAMC in any real property, either past or
present and (xvi) the accuracy of certain information concerning CAMC supplied
by CAMC or CCI for use in this Proxy Statement.
Representations and Warranties Regarding CCI. The Merger Agreement also
includes representations and warranties of CCI as to, among other things: (i)
its power and authority to enter into the Merger Agreement, the Registration
Rights Agreement and the Cooperation Agreement, and to consummate the
transactions contemplated thereby, (ii) the taking of all necessary actions to
authorize the Merger Agreement, the Registration Rights Agreement and the
Cooperation Agreement and the consummation of the transactions contemplated
thereby, and the enforceability of the Merger Agreement, the Registration
Rights Agreement and the Cooperation Agreement, (iii) the status of CCI as a
United States person for federal income tax purposes, (iv) that the
transaction is not subject to tax withholding, (v) the absence of any present
intention by CCI to dispose of the CWM Common Stock to be received in the
Merger such that the value of its stock interest in CWM would be reduced to
less than 50% of CAMC's value as of the date of the Merger, (vi) CCI's
acknowledgement of certain securities laws restrictions on transferability of
the CWM Common Stock to be received by CCI in connection with the Merger, and
(vii) the absence of any contracts or arrangements with any brokers or
finders, except for the arrangement with Merrill Lynch.
Representations and Warranties Regarding CWM. The Merger Agreement also
includes representations and warranties of CWM as to, among other things: (i)
the corporate organization, good standing and corporate power and authority of
CWM to carry on its business, to enter into the Merger Agreement, the
Registration Rights Agreement and the Cooperation Agreement and to consummate
the transactions contemplated thereby, (ii) the capitalization of CWM, the
validity of the CWM Common Stock, and the absence of any options, warrants or
other similar rights with respect to the CWM Common Stock, except as reserved
for CWM's stock option plan, DRIP or the Special Purchase Rights, (iii) the
due authorization and approval of the Merger Agreement, the Registration
Rights Agreement and the Cooperation Agreement and the transactions
contemplated thereby by the Board of Directors, including the Special
Committee, and the enforceability of the Merger Agreement, the Registration
Rights Agreement and the Cooperation Agreement subject to approval by CWM's
stockholders, (iv) the validity of the CWM Common Stock to be issued to CCI as
Share Consideration, (v) the absence of any contracts or arrangements with any
brokers or finders, except for the arrangement with Dean Witter, (vi) the fair
presentation, in all material respects, of CWM's financial condition, results
of operations and cash flows, and the compliance with generally accepted
accounting principles, in the financial statements of CWM, (vii) the absence
of any change in the business, operations, properties, assets or conditions
(financial or otherwise) of CWM since September 30, 1996, which would,
individually or in the aggregate, have a Material Adverse Effect on CWM,
(viii) the completeness and accuracy, in all material respects, of the books
and records of CWM made available to CCI and CAMC for certain specified
periods, (ix) the timely filing of all SEC reports, proxy statements or other
documents required to be filed by CWM by the SEC since January 1, 1996 and the
material conformity of all such documents to the Exchange Act and the rules
and regulations promulgated thereunder, (x) the accuracy, in all material
respects, of this Proxy Statement, except the information provided by CAMC or
CCI, and the conformity of the Proxy Statement to the requirements of the
Exchange Act and the rules promulgated thereunder, (xi) the absence of any
pending, or to the knowledge of CWM, threatened litigation, and the likelihood
that any such litigation, would, individually or in the aggregate, have a
Material Adverse Effect on CWM, and the absence of certain defaults by CWM or
unsatisfied judgment against CWM that would have a Material Adverse Effect on
CWM, and (xii) the absence of any plan by CWM to reacquire any of the CWM
Common Stock to be issued to CCI in the Merger or to dispose of any of the
assets of CAMC, other than in the ordinary course.
37
<PAGE>
COVENANTS
The Merger Agreement contains a number of customary and transaction-specific
covenants including the following:
Business of CAMC Pending the Merger. CCI has agreed that, except as
contemplated by the Merger Agreement, during the period from the date of the
Merger Agreement to the Effective Time, CCI will not, and will not cause CAMC
to, take any action that adversely affects the ability of CAMC to pursue its
business in the ordinary course, to seek to preserve intact its current
business organization, to keep available the service of its current officers
and employees and to preserve its relationships with customers, suppliers and
others having business dealings with it. CAMC and CCI have each agreed that
they will use reasonable efforts to encourage the officers and employees of
CAMC to become employees of the Company. CCI has also agreed that before the
Effective Time, unless CWM agrees in writing, it will not allow CAMC to, among
other things: (i) issue, deliver, sell, pledge or encumber any shares of its
capital stock or other securities, convertible into or exchangeable therefor
or any other securities in lieu thereof or in substitution therefor, (ii)
redeem or acquire any of its outstanding securities, (iii) split, combine or
reclassify any shares of its capital stock or make any payment (other than of
a distribution or dividend consistent with CAMC's past practice or necessary
to comply with the terms of the Merger Agreement) to CCI, as sole stockholder,
(iv) grant any increase in the compensation of any of its directors, officers
or employees other than in the ordinary course of business consistent with
past practice or as approved by the Special Committee, (v) adopt a plan of
merger, consolidation, reorganization, recapitalization, complete or partial
liquidation or dissolution, other than the Merger Agreement, (vi) make any
acquisition, by means of merger, consolidation or otherwise, of any direct or
indirect ownership interest in, or assets comprising, any business enterprise
or operation, (vii) amend its Certificate of Incorporation or Bylaws, (viii)
incur any indebtedness or guaranty such indebtedness not in the ordinary
course of its business, (ix) engage in any business materially different from
the business in which CAMC is currently engaged, (x) enter into any agreement
providing for acceleration of payment or performance or other consequences as
a result of a change of control of CAMC, except for the employment agreement
of Mr. Michael W. Perry, (xi) enter into an agreement to purchase goods or
services over a period greater than 12 months which is not cancelable without
penalty on 30 or fewer days' notice, other than in the ordinary course of
business, (xii) forgive any debt owed to CAMC or convert or contribute such
debt as a capital contribution, (xiii) authorize or enter into any agreement
providing for management services to be provided by CAMC to any third party or
an increase in management fees payable to it under existing agreements, (xiv)
mortgage, pledge, encumber, sell, lease or transfer any material assets of
CAMC except with the prior written consent of CWM or as contemplated in the
Merger Agreement or (xv) perform any act or omit to take any action that would
make any of the representations in the Merger Agreement inaccurate or
materially misleading as of the Effective Time.
Significant Business Line. Except for the management of Indy Mac's business,
for a period of at least one year following the Effective Time, CWM has agreed
to continue the historic business that was managed by CAMC prior to the Merger
and to use the historic assets received from CAMC in the Merger for such
business.
Approval of the Merger. CWM has agreed to take steps necessary to arrange
for an annual or special meeting, as the case may be, of CWM stockholders at
which time the stockholders will have an opportunity to vote upon the Merger.
Subject to its fiduciary duties to CWM's stockholders, CWM has agreed to take
all lawful action to solicit and use reasonable efforts to obtain stockholder
approval of the Merger.
Cooperation. The Merger Agreement contains various covenants of the parties
to cooperate in the investigation of CAMC's business, in the receipt of all
assignments or consents with respect to the intellectual property rights to be
transferred to CWM and in the preparation of this Proxy Statement.
Management Fee Adjustment. CWM will pay CAMC for all fees accrued and unpaid
and all reimbursable expenses incurred up until the Effective Time. However,
if the Effective Time occurs prior to the record date for the regular
quarterly dividend of CWM payable in respect of a given quarter, CAMC waives
its rights to receive an incentive fee pursuant to the Management Agreement
for such quarterly period.
38
<PAGE>
Continuing Arrangements, Etc. During the two-year period commencing on the
Closing Date, CCI will not, without the written prior consent of CWM, form,
manage, sponsor or own any interest in, or in any other manner directly or
indirectly participate in a REIT. In addition, during the four-year period
commencing on the Closing Date, (i) CCI will not employ, seek to employ, or
otherwise retain the services of any employee of CWM without having obtained
prior approval of CWM's Board of Directors; and (ii) CWM will not employ, seek
to employ or otherwise retain the services of any employee of CCI without
prior approval of certain specified executive officers of CCI.
As long as CCI beneficially owns more than 5.0% of the issued and
outstanding CWM Common Stock, or any director, officer or other employee or
designee of CCI is also a member of the Board of Directors of CWM, CCI will
continue to make available to Indy Mac the CWMBS, Inc. mortgage pass-through
shelf registration statement (CWMBS, Inc. is a wholly-owned subsidiary of CCI)
on a basis, and at a cost, substantially consistent with past practices.
As long as CCI beneficially owns more than 5.0% of the issued and
outstanding CWM Common Stock, if either, or both, of Messrs. David S. Loeb or
Angelo R. Mozilo shall not be serving as a director of CWM, CWM shall cause
one other person designated by CCI to be nominated to serve as a member of
CWM's Board of Directors, except in certain circumstances.
CCI has agreed, as part of the Merger Agreement, to file the Indy Mac
Charter Amendment with the Secretary of State of the State of Delaware by the
Effective Time. The Indy Mac Charter Amendment will provide that if a CCI
Change of Control occurs, or if CCI ceases to beneficially own more than 5.0%
of the issued and outstanding shares of CWM Common Stock, or if neither Mr.
Loeb nor Mr. Mozilo is a director of CWM, CWM will be entitled, in its sole
discretion, to compel the dissolution of Indy Mac and to receive in the
related distribution upon dissolution all assets of Indy Mac, other than an
amount of cash equal to 3% of the book value of Indy Mac, unless CCI requests
an independent appraisal. If such appraisal is requested, CCI shall receive
such higher or lower value that corresponds to 1% of the fair market value of
Indy Mac's assets. The Indy Mac Charter Amendment will also prohibit a holder
of Indy Mac securities from causing any assets of Indy Mac to be used for any
purpose other than in furtherance of Indy Mac's business. In addition, under
the Merger Agreement CWM has agreed that, in the event that CWM (i)
establishes or acquires a majority ownership interest in an entity the
business activities of which are substantially the same as all of the business
activities then being conducted by Indy Mac or (ii) transfers to such other
entity substantially all of the assets of Indy Mac, then CWM shall be
required, at CCI's option, to purchase CCI's interest in Indy Mac at a
purchase price equal to the amount required to be paid to CCI in the event of
a dissolution of Indy Mac as described above. As of December 31, 1996, the
book value of Indy Mac was $40.7 million (with 3% of the book value equaling
$1.2 million).
Letter from CAMC's Accountants. CAMC shall use reasonable efforts to cause
to be delivered to CWM an "agreed-upon procedures" report of Grant Thornton
LLP, CAMC's independent accountant, covering the financial statements and
other financial and statistical information of CAMC set forth in the Proxy
Statement, in form and substance reasonably satisfactory to CWM and customary
in scope and substance for reports delivered by independent public accountants
in connection with proxy statements relating to mergers where the
consideration paid is registered on Form S-4 under the Securities Act.
EMPLOYEE MATTERS
As of the Closing Date, CWM and Indy Mac intend to establish a multi-
employer defined benefit pension plan (the "CWM DB Plan") providing comparable
benefits to the employees currently employed by CAMC who become employees of
CWM ("Transferring Employees") and who were as of the Closing Date covered by
CCI's defined benefit pension plan (the "CCI DB Plan"). The Merger Agreement
provides that, following its date, the parties will negotiate in good faith
the terms of a transfer of assets and liabilities of present and former
employees of CAMC (the "CAMC Employees") from the CCI DB Plan to the CWM DB
Plan, and CCI will provide the information requested by one or more actuarial
firms acceptable to the parties to make the actuarial determinations
concerning such a transfer. If an agreement cannot be reached, there will be
no transfer of assets
39
<PAGE>
and liabilities from the CCI DB Plan, the CCI DB Plan will retain the
liability for all benefits accrued under such plan through the Closing Date in
respect of the CAMC Employees, and CCI will amend the CCI DB Plan, effective
as of the Closing Date, to provide that the service of Transferring Employees
for CWM and its affiliates will be counted solely for vesting purposes under
the CCI DB Plan with respect to benefits accrued as of the Closing Date by the
Transferring Employees.
As of the Closing Date, all CAMC Employees who participated in the defined
contribution plan of CCI established in accordance with Section 401(k) of the
Code (the "CCI 401(k) Plan") immediately prior to the Closing Date and who are
Transferring Employees (the "Savings Participants") will become participants
under a defined contribution plan meeting the requirements of Section 401(k)
of the Code established or maintained by CWM or Indy Mac (the "CWM 401(k)
Plan"). Provided that CWM has complied with certain requirements in the Merger
Agreement, CCI will cause the trustee of the CCI 401(k) Plan to transfer to
the trustee of the CWM 401(k) Plan an amount equal to the fair market value of
the aggregate account balances of the Savings Participants. Effective as of
the Closing Date, CWM or Indy Mac will offer to cover all salaried CAMC
Employees who are Transferring Employees under replacement vacation, health,
dental, prescription drug, life insurance, disability and other health and
welfare benefit plans as it may determine in its sole discretion to be
appropriate. Additionally, the Merger Agreement provides that, following its
date, the parties will negotiate in good faith the terms of a transfer of
assets and liabilities from CCI's deferred compensation plan and supplemental
executive retirement plan to such plans of CWM or Indy Mac as CWM and Indy Mac
may reasonably establish in its discretion with respect to the CAMC Employees,
and CCI will provide the information requested by one or more actuarial firms
acceptable to the parties to make the actuarial determinations concerning such
a transfer. If an agreement cannot be reached, there will be no transfer of
assets and liabilities from such plans, and CCI will retain the liability for
all benefits accrued under such plans through the Closing Date in respect of
the CAMC Employees, and CCI will amend its deferred compensation plan and
supplemental executive retirement plan, effective as of the Closing Date, to
provide that the service of Transferring Employees for CWM and its affiliates
will be counted solely for vesting purposes under such plans with respect to
benefits accrued as of the Closing Date by the Transferring Employees. All
reasonable expenses of any actuaries and consultants, as well as the mechanics
of the Transferring Employees and the accrued benefits, will be borne by CWM.
CONDITIONS TO CONSUMMATION OF THE MERGER
Conditions to Each Party's Obligations to Effect the Merger. The respective
obligations of CWM, CAMC and CCI to effect the Merger will be subject to
certain conditions, including the following: (i) the Merger will have been
duly approved by the holders of CWM Common Stock, (ii) there will not be in
effect any judgment, writ, order, injunction or decree of any court or
governmental body enjoining or otherwise preventing consummation of the
transactions contemplated by the Merger Agreement nor will there be pending or
threatened by any governmental body or other person any suit, action or
proceeding seeking to restrain or restrict the consummation of the Merger or
seeking damages in connection therewith which, in the reasonable judgment of
CWM or CAMC could have a Material Adverse Effect on CWM or CAMC or the ability
of CWM, CAMC or CCI to perform their respective obligations under the Merger
Agreement, the Registration Rights Agreement or the Cooperation Agreement,
(iii) at the Effective Time, there will be no suspension of trading activity
in the stock market, banking moratoriums, suspension of the extension of
credit by lending institutions, war or other major calamities (or any material
worsening thereof), which in the sole judgment of CWM would have a Material
Adverse Effect on CAMC or, in the sole judgment of CCI, would have a Material
Adverse Effect on CWM, (iv) CWM and CCI shall have entered the Registration
Rights Agreement and the Cooperation Agreement and other contracts and
agreements contemplated by the Merger Agreement and (v) the parties shall have
executed and delivered a new long-term lease or sublease for certain specified
real property. The consent of CCI and CWM is required to waive any of the
foregoing conditions.
Conditions to the Obligations of CWM. In addition to the foregoing
conditions, the obligation of CWM to effect the Merger is further subject to
satisfaction or waiver of the following conditions: (i) the representations
40
<PAGE>
and warranties of CAMC and CCI contained in the Merger Agreement will be true
and correct in all material respects as of the Closing Date; (ii) CAMC and CCI
will have performed, in all material respects, their respective obligations
which are contained in the Merger Agreement and are required to be performed
on or prior to the Closing Date; (iii) CWM will have received the favorable
opinion of (A) Fried, Frank, Harris, Shriver & Jacobson, special counsel to
CCI, in form and substance satisfactory to CWM, as to (w) the corporate
existence and authority of each of CCI and CAMC, (x) the due authorization,
execution and delivery of the Merger Agreement by each of CCI and CAMC, (y)
the due authorization, execution and delivery of the Registration Rights
Agreement by CCI, and (z) the enforceability of each of the Merger Agreement
and the Registration Rights Agreement and (B) Sandor E. Samuels, General
Counsel to CCI, in form and substance satisfactory to CWM, as to the due
authorization, issuance, validity, nonassessability and ownership of the CAMC
Common Stock; (iv) since August 31, 1996, there will not have occurred or have
been threatened any material adverse changes in the business, properties,
operations or condition of CAMC except as contemplated by the Merger
Agreement; (v) Dean Witter shall have delivered, prior to the date the Proxy
Statement is mailed to stockholders, at the request of the Special Committee,
its opinion that, subject to certain assumptions, qualifications and
limitations stated therein, the consideration to be paid to CCI is fair, from
a financial point of view; (vi) CCI will have provided CWM an affidavit
stating its taxpayer identification number and that it is not a foreign person
within the meaning of the Code; (vii) CWM will have received written comfort
from Price Waterhouse LLP that CAMC will not have any current or accumulated
earnings and profits at the Effective Time; (viii) CWM will have received from
each of Messrs. Loeb and Mozilo an expression of his current intention to
continue to serve as Chairman and Vice Chairman, respectively, of the Board of
Directors of CWM, subject to certain conditions, which include CCI maintaining
beneficial ownership of in excess of 5.0% of the outstanding CWM Common Stock;
(ix) CWM will have received from Mr. Mozilo an expression of his current
intention to continue to serve as Chief Executive Officer of CWM for at least
two years after the Closing Date, subject to certain conditions, which include
CCI maintaining beneficial ownership of in excess of 5.0% of the outstanding
CWM Common Stock; and (x) the Indy Mac Charter Amendment, in a form and
substance satisfactory to CWM, will have been filed with the Secretary of
State of the State of Delaware, and have taken effect.
Conditions to the Obligations of CCI and CAMC. In addition to the foregoing
conditions, the obligations of CCI and CAMC to effect the Merger are further
subject to satisfaction or waiver of the following conditions: (i) the
representations and warranties of CWM contained in the Merger Agreement will
be true and correct in all material respects as of the Closing Date; (ii) CWM
will have performed, in all material respects, all obligations and agreements
required to be performed by it on or prior to the Closing Date; (iii) since
September 30, 1996, there will not have occurred or been threatened any
material adverse change in the business, properties, operations or condition
of CWM; (iv) the limitation on percentage ownership of shares of CWM Common
Stock in CWM's Certificate of Incorporation, if applicable, shall have been
waived for CCI for the purposes of the Merger; (v) CAMC and CCI shall have
received the favorable opinion of Brown & Wood LLP, special counsel to the
Special Committee, in form and substance satisfactory to CCI, as to (A) the
corporate existence and authority of CWM, (B) the due authorization, execution
and delivery of the Merger Agreement and the Registration Rights Agreement by
CWM, (C) the enforceability of each of the Merger Agreement and the
Registration Rights Agreement and (D) the due authorization, issuance,
delivery, validity and nonassessability of the Share Consideration; and (vi)
CCI shall have received an opinion of Fried, Frank, Harris, Shriver & Jacobson
that the Merger will be treated as a reorganization within the meaning of
Section 368(a) of the Code.
AMENDMENT; WAIVER; TERMINATION
Amendment. The Merger Agreement, the Registration Rights Agreement and the
Cooperation Agreement may be amended at any time by written agreement signed
by CWM, CCI, and CAMC (prior to the Effective Time), as applicable; provided,
however, that an amendment to the Merger Agreement made subsequent to the
adoption of the Merger Agreement by the stockholders of CWM shall not alter or
change (i) the amount or kind of consideration to be received in exchange for
or on conversion of the shares of CAMC, (ii) any term of the Certificate of
Incorporation of CWM, or (iii) any of the terms and conditions of the Merger
Agreement if such alteration or change would adversely affect CWM's
stockholders.
41
<PAGE>
Waiver. Any party to the Merger Agreement, the Registration Rights Agreement
and the Cooperation Agreement may extend the time for the performance of any
of the obligations or other acts of any other party thereto, or waive
compliance with any of the agreements or any condition to the obligations
thereunder of any other party thereto, to the extent that such obligations,
agreements and conditions are intended for its benefit.
Termination. The Merger may be abandoned and the Merger Agreement may be
terminated prior to the Effective Time, before or after approval by CCI or the
stockholders of CWM, either by the mutual written consent of CWM and CCI or by
the mutual action of the Board of Directors of CCI and the Special Committee
of the Board of Directors of CWM. The Merger may also be abandoned and the
Merger Agreement may be terminated by action of the Board of Directors of CCI
or the Special Committee if (a) the Pre-Closing Market Value is greater than
$26.16 or less than $16.92 or (b) a United States federal or state court,
regulatory agency or other governmental body will have issued an order, decree
or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by the Merger Agreement
and such order, decree ruling or other action will have become final and non-
appealable, provided, that the party seeking to terminate the Merger Agreement
will have used all reasonable efforts to remove such order, decree, ruling or
injunction. In addition, the Special Committee may abandon the Merger and
terminate the Merger Agreement if the conditions to CWM's obligations set
forth in the Merger Agreement are not satisfied. Likewise, the Board of
Directors of CCI may abandon the Merger and terminate the Merger Agreement if
the conditions to the obligations of CCI or CAMC are not satisfied. Any
termination of the Merger Agreement will relieve all parties of any liability
or further obligation as a result of the Merger or the Merger Agreement.
INDEMNIFICATION OF CAMC DIRECTORS AND OFFICERS
As part of the Merger Agreement, CCI has agreed to keep in effect the
current provisions in its Certificate of Incorporation and Bylaws providing
for limitation of director liability and indemnification of directors,
officers, employees and agents. Such provisions will not be amended, repealed
or otherwise modified in any manner that would adversely affect the rights of
individuals who at any time prior to the Effective Time were directors,
officers, employees or agents of CAMC in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation,
the transactions contemplated by the Merger Agreement), unless such
modification is required by law.
Under the Merger Agreement, CCI has agreed to maintain in effect for not
fewer than 60 months from the Effective Time policies of directors' and
officers' liability insurance currently in force for its own officers and
directors to cover those persons who are or were directors or officers of
CAMC, unless such policies cannot be obtained or maintained on terms that are
commercially reasonable. CCI may substitute for its current policies providing
coverage in an aggregate amount of $20 million, the terms and conditions of
which are no less advantageous than those contained in the policies currently
in force. In the event that any claim or claims are asserted or made within
such 60 months, such coverage will not be terminated until the final
disposition of all such claims. CWM shall reimburse CCI for the cost of
obtaining or maintaining such policies on behalf of persons who were officers
and directors of CAMC, provided that the amount of such reimbursement does not
exceed $50,000 in the aggregate. In the event that CCI (i) consolidates with
or merges into any other entity and is not the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any person, then provisions
will be made so that the successors and assigns of CCI assume such
obligations.
RESALE OF SHARES OF CWM COMMON STOCK ISSUED IN THE MERGER
The shares of the CWM Common Stock issued pursuant to the Merger Agreement
will not be registered under the Securities Act (unless subsequently
registered pursuant to the Registration Rights Agreement) and therefore will
not be freely transferable under the Securities Act. Such shares must be held
indefinitely unless (i) the distribution thereof is registered under the
Securities Act, (ii) they are sold in conformity with Rule 144 promulgated by
the Commission under the Securities Act, or (iii) some other exemption from
registration is available. Pursuant to the Merger Agreement, CCI has agreed
not to sell or otherwise transfer any shares of
42
<PAGE>
CWM Common Stock constituting the Share Consideration for a two-year period
commencing on the Closing Date unless CCI receives the prior written consent
of CWM or CWM proposes to file a registration statement relating to the CWM
Common Stock and CCI elects to participate in the offering pursuant to the
Registration Rights Agreement. During the 12-month period following such two-
year period, CCI may transfer up to 50% of all such shares of CWM Common
Stock, and, thereafter, CCI may transfer up to 100% of any such shares of CWM
Common Stock not previously transferred. See "The Merger--Registration
Rights."
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
The representations and warranties of the parties contained in the Merger
Agreement or in any certificate delivered pursuant to or in connection with
the Merger Agreement will survive the Closing Date but will terminate on the
first anniversary of the Closing Date, except that certain representations and
warranties of CAMC and CCI concerning employee benefits plans, tax matters and
information supplied in this Proxy Statement will terminate upon the
expiration of statute of limitations applicable to such matters. The covenants
and agreements set forth in the Merger Agreement will not survive the Closing
Date, except those that expressly contemplate performance after the Closing
Date. The obligations of CWM for termination or any change in employment
status, compensation or benefits by CWM of any employees employed by CAMC at
the time of Closing will survive the Closing, but will terminate upon the
expiration of the statute of limitations applicable to such matters.
Notwithstanding the preceding sentences, any covenant, agreement,
representation or warranty in respect of which indemnity may be sought
pursuant to the Merger Agreement shall survive the time at which it would
otherwise terminate pursuant to the preceding sentence, if written notice of
the inaccuracy or breach thereof, specifying Damages (including the amount
thereof) giving rise to such right to indemnity will have been given to the
party against whom such indemnity may be sought prior to such time. If any
governmental taxing authority asserts a deficiency with respect to a tax
matter which, if conceded, could result in a claim for which indemnification
is expressly contemplated under the Merger Agreement, CWM will be permitted to
give notice of the related alleged breach of a representation, warranty,
covenant, or agreement and specify the amount of Damages asserted,
notwithstanding CWM's intent to dispute such claims.
EXPENSES AND FEES
Unless expressly provided for in the Merger Agreement, each party will bear
its own expenses, including the fees and expenses of any attorneys,
accountants, investment bankers, brokers, finders or other intermediaries,
incurred in connection with the Merger Agreement and the transactions
contemplated thereby; provided, however, that if the Merger occurs, CWM will
bear all expenses of CAMC and CCI associated with the transfer of employees of
CAMC to CWM, the preparation of this Proxy Statement and certain other matters
specified in the Merger Agreement.
43
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes material federal income tax
considerations from the Merger to CWM and its stockholders. This discussion
does not address the tax consequences to CAMC or CCI arising from the Merger.
This discussion is general in nature and is not tax advice. In addition, no
representations are made as to state, local or foreign tax consequences to CWM
or any stockholder of CWM resulting from the Merger.
TAX TREATMENT OF THE MERGER
General. CWM intends to treat the Merger as a tax free reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, CWM will have the same tax basis in the assets of CAMC as CAMC
had in its assets. If the Merger fails to qualify as a tax-free
reorganization, the Merger would be treated as a taxable sale by CAMC of its
assets to CWM in exchange for CWM Common Stock, followed by CAMC's
distribution to CCI of the CWM Common Stock received in the exchange in
complete liquidation of CAMC. CWM would not directly recognize gain or loss as
a result of the failure of the Merger to qualify as a reorganization under
Section 368(a) of the Code. CWM could be liable for CAMC's tax liability from
the deemed sale of the CAMC assets if CWM's actions cause the Merger to fail
as a tax free reorganization. In addition, if CCI were unable to pay tax
liabilities either from this transaction or unrelated transactions, CWM could
be liable for such taxes as a successor to CAMC.
BUILT-IN GAIN RULES
Under the "Built-in Gain Rules" of IRS Notice 88-19 (and Treasury
Regulations that have not yet been promulgated), a REIT is subject to a
corporate tax if it disposes of any assets acquired from a C-corporation in a
carryover basis transaction (including a merger) during the 10-year period
beginning on the date of the transaction (the "Recognition Period"). This tax
is imposed at the top regular corporate rate (currently 35%) on the lesser of
(i) any gain recognized during the Recognition Period on the disposition of
such asset, or (ii) the "Built-in Gain" in such asset (i.e., the excess of (a)
the fair market value of such asset over (b) CWM's adjusted basis in such
asset) as of the beginning of such Recognition Period. CWM's adjusted basis in
the assets it is acquiring from CAMC will be de minimis, and therefore any
sale of assets would be expected to generate gain. The results described above
with respect to the recognition of Built-in Gain assume that the REIT will
make a certain election pursuant to Notice 88-19 or applicable future
administrative rules or Treasury Regulations.
The extent to which the Built-in Gain Rules apply to the merger of a C-
corporation (such as CAMC) into a REIT (such as CWM) is unclear. However, CWM
does not intend to dispose of any of the assets acquired in the Merger during
the Recognition Period.
CWM has agreed to make the election described in Notice 88-19. If CWM fails
to make such election, CAMC may be taxed on all or a portion of the Built-in
Gain as of the Effective Time at regular corporate tax rates for which CWM
would be liable pursuant to the terms of the Merger Agreement.
CONSEQUENCES OF MERGER ON CWM'S QUALIFICATION AS A REIT--EARNINGS AND PROFITS
DISTRIBUTION REQUIREMENT
A REIT is not permitted to have accumulated earnings and profits
attributable to non-REIT years. A REIT has until the close of its first
taxable year in which it has non-REIT earnings and profits to distribute such
earnings and profits. In a corporate reorganization qualifying as a tax-free
statutory merger, the acquired corporation's earnings and profits are
generally carried over to the surviving corporation. However, under
regulations applicable to taxpayers filing consolidated federal income tax
returns, the acquisition of a member of a consolidated group eliminates such
member's earnings and profits for most purposes of the Code. There is no
authority directly addressing whether earnings and profits are eliminated for
the REIT provisions of the Code. Any earnings and profits treated as having
been acquired by a REIT through such a merger will be treated as
44
<PAGE>
accumulated earnings and profits of the REIT attributable to non-REIT years.
Therefore, CAMC's earnings and profits may be eliminated as a result of the
Merger solely because it will no longer be a member of the group of
corporations that filed a consolidated return with CCI. However, because any
earnings and profits of CAMC may carry over to CWM, CWM has requested that
Price Waterhouse LLP determine the earnings and profits of CAMC for purposes
of the earnings and profits distribution requirement. Subject to certain
qualifications and assumptions, Price Waterhouse LLP has preliminarily
determined that CAMC will not have any earnings and profits as of the date of
the Merger.
The calculation of the amount of Acquired Earnings is subject to challenge
by the IRS. The IRS may examine prior tax returns in which CAMC was included
and propose adjustments that would increase its taxable income, which would
result in corresponding increases in CAMC's earnings and profits.
If the IRS determines, and successfully asserts, that CWM has acquired
earnings and profits from CAMC ("Acquired Earnings") and CWM has not
distributed all of the Acquired Earnings prior to the end of the taxable year
of CWM during which the Merger occurs, CWM would fail to qualify as a REIT in
such year. However, CWM may make an additional distribution within 90 days of
such a determination by the IRS to distribute the Acquired Earnings and would
be required to pay to the IRS an interest charge based on 50% of the amount
not previously distributed. If such additional distribution is made, CWM's
failure to distribute the Acquired Earnings would not prevent it from
qualifying as a REIT for years subsequent to the taxable year of CWM during
which the Merger occurs but would prevent it from qualifying for the taxable
year in question.
If CWM fails to qualify for taxation as a REIT in any taxable year, CWM will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. As a result, CWM's failure to
qualify as a REIT will reduce the cash available for distribution by CWM to
its stockholders. Distributions to stockholders of CWM in any year in which
CWM fails to qualify will not be deductible by CWM nor will they be required
to be made. In addition, if CWM fails to qualify as a REIT, all distributions
to stockholders of CWM will be taxable as ordinary income to the extent of
current and accumulated earnings and profits, and, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. In addition, in the absence of certain relief,
CWM could not elect to be taxed as a REIT for the four years following such
disqualification and could be subject to taxation on its built-in gain upon
re-electing REIT status as described under the "Built-In Gain Rules" above.
45
<PAGE>
COUNTRYWIDE ASSET MANAGEMENT CORPORATION
SELECTED FINANCIAL DATA
The following selected financial information is derived from the historical
financial statements of CAMC. The financial information set forth below should
be read in conjunction with CAMC's financial statements, related notes and
other financial information included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28 (29),
-----------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENTS OF EARNINGS
DATA
Management fee and dividend
income........................... $10,237 $ 8,605 $ 1,413 $ 84 $ 831
Interest income................... 386 306 120 89 159
Net expenses...................... -- 1 (10) 663 1,219
Provision for income taxes........ 4,143 3,564 617 (196) (91)
------- ------- ------- ------- -------
Net earnings (loss)............... $ 6,480 $ 5,346 $ 926 $ (294) $ (138)
======= ======= ======= ======= =======
Earnings (loss) per share......... $648.00 $534.60 $ 92.60 $(29.40) $(13.80)
======= ======= ======= ======= =======
Dividends declared per share...... $718.10 $500.00 $ -- $ -- $ --
Weighted average shares
outstanding...................... 10,000 10,000 10,000 10,000 10,000
SELECTED BALANCE SHEET DATA AT
PERIOD END
Total assets...................... $ 1,907 $ 2,678 $ 2,268 $ 1,335 $ 1,630
Shareholder's equity.............. $ 1,907 $ 2,678 $ 2,268 $ 1,335 $ 1,630
Number of shares outstanding...... 10,000 10,000 10,000 10,000 10,000
Book value per share.............. $190.70 $267.80 $226.80 $133.50 $163.00
</TABLE>
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
CAMC was incorporated in the State of Delaware in July 1985. CAMC was formed
by CCI to manage the investments and oversee the day-to-day operations of CWM.
In return for performing these services, CAMC receives a base and incentive
management fee pursuant to the terms of the Management Agreement, a summary of
which is provided below. CWM and Indy Mac also reimburse CAMC for all direct
costs and expenses incurred by CAMC in connection with its management
activities. Although no provision of CAMC's Certificate of Incorporation or
Bylaws restricts CAMC from providing services to entities other than the
Company, CAMC has provided services exclusively to the Company. In performing
its obligations under the Management Agreement, CAMC has contracted with CHL
to provide certain loan servicing, production and related services pursuant to
the terms of the 1996 Amended and Extended Submanagement Agreement, dated as
of June 1, 1996, between CAMC and CHL (the "Submanagement Agreement"), a
summary of which is also provided below.
CAMC is a wholly-owned subsidiary of CCI and is consolidated with CCI for
tax and accounting purposes. CAMC employs all of CWM's officers and other
operating personnel. CAMC's board of directors is comprised of Angelo R.
Mozilo, who is Chairman of the Board and Chief Executive Officer of CAMC as
well as Chief Executive Officer and Vice Chairman of the Board of CWM and Vice
Chairman of the Board and Executive Vice President of CCI; David S. Loeb, who
is Vice Chairman of the Board as well as Chairman of the Board of CWM and
Chairman of the Board and President of CCI; Michael W. Perry, who is President
and Chief Operating Officer of CAMC and CWM; Richard H. Wohl, who is Executive
Vice President, General Counsel and Secretary of CAMC and CWM; and Eric P.
Sieracki, who is a Managing Director of CCI and in charge of corporate finance
and communications for CCI and CWM. As of February 7, 1997, CAMC had a total
of 510 employees, all of whom were dedicated to CWM's mortgage conduit,
warehouse lending, construction lending, manufactured housing lending and
other operations. CAMC's principal executive office is located at 155 North
Lake Avenue, Pasadena, California 91101, and its telephone number is (818)
304-8400.
RESULTS OF OPERATIONS
Year Ended February 28, 1997 Compared with Year Ended February 29, 1996
Management fee income increased from $8.6 million for the year ended
February 29, 1996 to $10.2 million for the year ended February 28, 1997, or
19%. This increase was primarily due to an increase in incentive compensation
earned from management of CWM and is directly related to the increase in CWM's
earnings during the respective periods.
Net interest earned increased from $0.3 million for the year ended February
29, 1996 to $0.4 million for the year ended February 28, 1997, or 26%. CAMC
earns interest income on the amount due from its parent, CCI. The increase in
the amount of interest income relates to an increase in the average receivable
balance from CAMC's parent, CCI, which in turn is caused by CCI's collection
of the management fee from CWM on CAMC's behalf.
Dividend income decreased from $24,000 for the year ended February 29, 1996
to $22,000 for the year ended February 28, 1997, or 8%. CAMC's dividend income
was earned on 20,000 shares of CWM Common Stock, which CAMC owned for all of
the year ended February 29, 1996 and for a portion of the year ended February
28, 1997. During the year ended February 28, 1997, CAMC transferred these
shares as a dividend in kind to CCI to enable CCI to retain ownership of such
shares following the Merger. The resulting decrease in CAMC's dividend income
is partially offset by an increase in the amount of dividends paid on the CWM
Common Stock during the period it was owned by CAMC.
Amounts incurred by, and reimbursed to, CAMC in connection with its
management of CWM totaled $17.1 million and $29.2 million for the years ended
February 28(29), 1996 and 1997, respectively, or a 71% increase.
47
<PAGE>
CAMC paid dividends amounting to $5.0 million for the year ended February
29, 1996 and $7.2 million for the year ended February 28, 1997, or a 44%
increase. CAMC's general policy is to not retain a substantial amount of
retained earnings and to remit periodic dividends to CCI.
Year Ended February 29, 1996 Compared with Year Ended February 28, 1995
Management fee income increased from $1.4 million for the year ended
February 28, 1995 to $8.6 million for the year ended February 29, 1996, or
514%. This increase was primarily due to an increase in incentive compensation
earned from management of the Company and is directly related to the increase
in CWM's earnings during the respective periods. During calendar year 1994,
CAMC waived 25% of the incentive compensation portion of the management fee.
This was done to demonstrate CAMC's support of and faith in, and to facilitate
and encourage the adoption of, the Company's new business plan.
Net interest earned increased from $0.1 million for the year ended February
28, 1995 to $0.3 million for the year ended February 29, 1996, or 155%. The
increase in the amount of interest income relates to an increase in the
average receivable balance from CAMC's parent, CCI, which in turn is caused by
CCI's collection of the management fee from the Company on CAMC's behalf.
The increase in dividend income from $14,000 for the year ended February 28,
1995 to $24,000 for the year ended February 29, 1996 is attributable to an
increase in dividends paid by CWM.
Amounts incurred by and reimbursed to CAMC in connection with its management
of the Company totaled $9.9 million and $17.1 million for the years ended
February 28(29), 1995 and 1996, respectively, or a 73% increase.
CAMC paid dividends amounting to $5 million for the year ended February 29,
1996. No dividends were paid for the year ended February 28, 1995. During the
year ended February 29, 1996, CAMC adopted the general policy of not retaining
a substantial amount of retained earnings and remitting periodic dividends to
its parent, CCI.
LIQUIDITY AND CAPITAL RESOURCES
CAMC utilizes intercompany debt to finance its management activities of the
Company on a short-term basis. In connection with those activities, CAMC
incurs the operating expenses of the Company and is subsequently reimbursed
for such costs by the Company.
48
<PAGE>
MANAGEMENT ARRANGEMENTS RELATING TO CWM
THE MANAGEMENT AGREEMENT
General. Since its inception, CWM has negotiated a management agreement with
CAMC on an annual basis. Pursuant to the Management Agreement, CAMC currently
advises the Company on various facets of its business and manages its day-to-
day operations, subject to the supervision of CWM's Board of Directors. CAMC's
employees conduct the day-to-day mortgage conduit, warehouse lending,
construction lending and manufactured housing lending operations. As described
below, CAMC has subcontracted with CHL, a residential mortgage lender, to
provide certain management services to the Company.
Subject to its duty of overall supervision, CWM's Board of Directors has
delegated to CAMC the power and duty to, among other things: (i) conduct the
day-to-day mortgage loan conduit, warehouse lending, construction lending,
manufactured housing lending and other operations of the Company, including,
but not limited to (x) the purchase, accumulation, financing and
securitization of mortgage loans and manufactured housing loans, (y) the
establishment and financing of warehouse lending and construction lending
programs, and (z) the management of assets and investments and the
administration thereof; (ii) maintain bank accounts and records of the Company
deemed appropriate or requested by CWM's Board of Directors; and (iii) provide
office space and equipment and executive and office personnel.
In performing its services under the Management Agreement, CAMC may utilize
facilities, personnel and support services of various of its affiliates. Under
the terms of the Management Agreement, the Company will reimburse CAMC for its
operating expenses on a monthly basis if certain conditions are met.
Compensation. Under the terms of the Management Agreement with CWM, CAMC is
entitled to receive (i) a base management fee of 1/8 of 1% per annum of the
average invested assets of CWM's mortgage conduit (which, for purposes of the
Management Agreement, means the average of the aggregate book value of the
assets of the mortgage conduit invested in loans secured by real estate, but
excluding any mortgage loans or agency securities securitized through the
issuance of mortgage-backed securities in the form of real estate mortgage
investment conduits or collateralized mortgage obligations or pledged to
secure other mortgage collateralized debt); (ii) a warehouse lending
management fee equal to 1/5 of 1% of the average daily balance of the
outstanding amounts under CWM's warehouse lending facilities; and (iii)
incentive compensation in the amount of 25% of any excess of CWM's "annualized
return on equity" during any fiscal quarter over the then current Ten Year
U.S. Treasury Rate plus 2% (in calculating CAMC's incentive compensation, the
term (x) "annualized return on equity" means the annualized return on
stockholders' equity during a quarter, calculated by dividing CWM's annualized
"net income" for the quarter by its "average net worth" for the quarter, in
each case determined in accordance with generally accepted accounting
principles; (y) "net income" of CWM means total revenues less expenses; and
(z) "average net worth" is defined as the arithmetic average of the sum (as of
the beginning of each quarter and at the end of each calendar month in the
quarter) of the gross proceeds from any offering of equity securities by CWM,
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 CWM). For the year ended February 28, 1997, CAMC received management
fees of approximately $10.2 million, consisting of approximately $1.6 million
in base compensation and approximately $8.6 million in incentive management
fees. CAMC earned management fees totaling $8.6 million, $1.4 million and
$75,000 for the years ended February 28(29), 1996, 1995 and 1994,
respectively. In order to demonstrate CAMC's support of and faith in, and to
facilitate and encourage the adoption of, the Company's new business plan
adopted in 1993, CAMC waived all management fees in 1993 and 25% of incentive
compensation earned in 1994.
Competition Between CAMC and CWM. The Management Agreement restricts CCI and
any of its affiliates from sponsoring another REIT or electing to be taxed as
a REIT, unless it receives prior approval from a majority of CWM's
unaffiliated directors. Other than the foregoing, the Management Agreement
does not restrict CAMC or any of its affiliates from engaging in other
businesses or 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. At
49
<PAGE>
present, however, all of CAMC's activities relate to managing the Company's
mortgage portfolio and matters pertaining thereto. Pursuant to the 1996
Amendment, CAMC agreed that certain listed key employees would work
exclusively on the business affairs and day-to-day operations of the Company.
In return, CWM agreed not to hire any of the listed key employees for stated
periods of time.
Termination. On April 28, 1997, the Management Agreement was amended to
extend its term to provide for termination of such agreement on the earlier of
the last day of the month following the date on which CWM's stockholders
approve the Merger (assuming the Merger is approved) and May 31, 1998. The
Management Agreement may be further extended only with the consent of CAMC and
the unaffiliated directors of CWM. The Management Agreement may be terminated
for any reason upon 60 days written notice by either party to the Management
Agreement, or by majority vote of either the unaffiliated directors or the
stockholders of CWM. CWM may, upon 30 days' written notice, terminate the
Management Agreement for cause. In the event the Management Agreement is
terminated or not renewed by CAMC according to its terms, the 1996 Amendment
provides that CAMC will not be permitted to create, sponsor or manage any
other REIT for a period of not less than two years. If CWM terminates or fails
to renew the Management Agreement, then CWM would be prohibited, by the terms
of the 1996 Amendment, from hiring any of a group of specified key employees
of CAMC at or above the level of Executive Vice President of CAMC for a period
of two years, and in the case of all other specified key employees, for a
period of not less than one year.
The Management Agreement defines cause as any of the following events
occurring: (i) CAMC has violated any provision of the Management Agreement
and, after notice of such violation, shall have failed to cure such default
within 30 days; (ii) there is entered an order for relief or similar decree or
order with respect to CAMC by a court having jurisdiction in the premises in
an involuntary case under the federal bankruptcy laws or under any applicable
federal or state bankruptcy, insolvency or other similar laws; (iii) CAMC
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; (iv) CAMC 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 CAMC 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 CAMC and continue undismissed for 30 days; (v)
CAMC 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
or 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 CAMC without such authorization, application
or consent and remain undismissed for 30 days or result in adjudication of
bankruptcy or insolvency; or (vi) CAMC 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.
THE SUBMANAGEMENT AGREEMENT BETWEEN CAMC AND CHL
Since 1985, CAMC has entered into an annual submanagement agreement with CHL
pursuant to which CHL has agreed to provide certain management services to
CWM, including personnel, facilities, equipment, data processing, legal and
accounting services, as well as other administrative services. The
Submanagement Agreement applies to CHL the same limitations on engaging in
other businesses or rendering services to other persons as the Management
Agreement extends to CAMC. In carrying out its obligations under the
Submanagement Agreement, CHL has agreed to accept responsibility for any of
its services not performed in good faith. The Submanagement Agreement will
terminate by its terms on May 31, 1997, as long as certain triggering events
do not occur. Triggering events include the termination of the Management
Agreement, certain assignments by CHL and the default, insolvency or
bankruptcy of CHL. The Submanagement Agreement may also be terminated by CAMC
or CHL on 60 days' written notice.
50
<PAGE>
The foregoing descriptions of the Management Agreement and the Submanagement
Agreement are summaries, and do not purport to be complete and are subject to
and qualified in their entirety by reference to the complete text of the
Management Agreement and the Submanagement Agreement, copies of which have
been filed as exhibits to CWM's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 and are incorporated by reference herein. See
"Available Information."
PROPOSAL TWO
Amendments to the Bylaws
Article III, Section 18 of the Bylaws of CWM authorizes CWM to delegate the
duty of management and the administration of day-to-day operations to a third
party management company. If the Merger occurs, CAMC, CWM's external manager,
will merge with and into CWM, removing any future need for an external
manager. Therefore, the stockholders of CWM are being asked to approve certain
amendments to the Bylaws to delete therefrom the text of Article III, Section
18 and related provisions contained elsewhere in such Bylaws (including, among
others, provisions requiring that a majority of the members of CWM's Board of
Directors be unaffiliated with CAMC and that certain actions not be taken
unless approved by a majority of such unaffiliated directors). These
amendments will effect no other changes to the Bylaws. THE BYLAWS PROPOSAL IS
CONDITIONED UPON THE APPROVAL OF THE MERGER PROPOSAL. ACCORDINGLY, IF THE
MERGER PROPOSAL IS NOT APPROVED, THE BYLAWS WILL NOT BE AMENDED. In contrast,
the Merger Proposal is not conditioned upon the approval of the Bylaws
Proposal, and it is contemplated that if the Merger Proposal is approved, the
Merger will be consummated whether or not the Bylaws Proposal is approved.
The foregoing paragraph indicates the general effect of the proposed
amendments to CWM's Bylaws and is qualified by reference to the text of such
amendments, which is set forth in the form of the Amendments to the Bylaws, a
copy of which is attached as Appendix C to this Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENTS TO THE BYLAWS.
PROPOSAL THREE
Changing the Name of CWM
The Board of Directors has determined that, whether or not the Merger
Proposal is approved, it would be in the best interests of CWM to amend
Article I of its Certificate of Incorporation to change CWM's name to "INMC
Mortgage Holdings, Inc." in order to reflect the increasingly distinctive
market identity of the Company and its businesses and proprietary products.
Indy Mac has granted CWM a license to use the initials "INMC", and CWM has
reserved the symbol "NDE" with the NYSE for use if the Name Change Proposal is
approved by stockholders. The text of the proposed amendment is included as
Appendix D to this Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE CERTIFICATE
OF INCORPORATION.
PROPOSAL FOUR
Election of Directors
GENERAL
CWM currently has five directors. The five current directors are nominees
for election as directors to serve until the next annual meeting after their
election and until their successors are elected and have qualified. In the
absence of contrary instructions, it is the intention of the persons named in
the accompanying proxy to vote for the nominees listed below. In the event any
nominee becomes unavailable for any reason, an event the Board of
51
<PAGE>
Directors does not anticipate, the proxies will be voted for the election of
the person, if any, who is designated by the Board of Directors to replace the
nominee.
The Bylaws of CWM, as currently in effect, provide that the majority of the
members of the Board of Directors and of any committee of the Board of
Directors will at all times be "Unaffiliated Directors," defined as persons
who are not "Affiliates" of CAMC, CWM's manager and a wholly owned subsidiary
of CCI. The term "Affiliate" of another person is defined in CWM's Bylaws to
mean any person directly or indirectly owning, controlling, or holding with
power to vote 5% or more of the outstanding voting securities of such other
person or of any person directly or indirectly controlling, controlled by or
under common control with 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
person, and any officer, director, partner or employee of such other person.
The term "person" includes a natural person, a corporation, partnership,
trust, company or other entity. Two of the five directors listed below are
also officers of CWM and three are Unaffiliated Directors. In the event that a
majority of the stockholders approves the Bylaws Proposal at the Annual
Meeting, the Bylaws will no longer require a majority of the Board of
Directors to be "Unaffiliated Directors." The Bylaws Proposal eliminates the
"Unaffiliated Director" classification because, if the Merger occurs, CWM will
no longer have a third party manager and there will no longer be any
requirement that the Unaffiliated Directors review and approve the Management
Agreement on an annual basis.
PRINCIPAL STOCKHOLDERS
The following table shows, with respect to each person or entity known by
CWM to be the beneficial owner of more than 5% of CWM Common Stock as of March
31, 1997, (i) the number of shares of CWM Common Stock so owned and (ii) the
percentage of all shares outstanding represented by such ownership (based upon
the number of shares outstanding as of March 31, 1997).
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
------------------------------------ ---------------- ----------------
<S> <C> <C>
Neuberger & Berman LLC (1).................... 4,160,175 7.9%
605 Third Avenue
New York, NY 10158
</TABLE>
- --------
(1) Based upon a Schedule 13G dated February 10, 1997 filed with the
Securities and Exchange Commission.
52
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information concerning the beneficial
ownership of CWM Common Stock by each director, CWM's Chief Executive Officer,
each of CWM's other four most highly compensated executive officers, two
additional officers of CWM who were executive officers during part of 1996 and
for whom information is required to be disclosed and all officers and
directors as a group, as of March 31, 1997. Except as otherwise indicated, all
persons listed below have (i) sole voting power and investment power with
respect to their shares, except to the extent that authority is shared by
spouses under applicable law, and (ii) record and beneficial ownership with
respect to their shares. The shares and percentages set forth below include
shares of CWM Common Stock which were outstanding or issuable within 60 days
upon the exercise of options outstanding as of March 31, 1997.
<TABLE>
<CAPTION>
SHARES OF COMMON
YEAR FIRST STOCK OWNED
BECAME BENEFICIALLY AS OF PERCENT
NAME AGE A DIRECTOR MARCH 31, 1997(1)(2) OF CLASS
---- --- ---------- -------------------- --------
<S> <C> <C> <C> <C>
David S. Loeb.................... 73 1985 800 *
Angelo R. Mozilo................. 58 1985 140,431(3) *
Lyle E. Gramley(4)............... 70 1993 86,225(5) *
Thomas J. Kearns(4).............. 58 1990 117,550 *
Frederick J. Napolitano(4)....... 67 1985 121,500 *
Michael W. Perry................. -- -- 75,000 *
Richard H. Wohl.................. -- -- 5,333 *
S. Blair Abernathy............... -- -- 4,133 *
James P. Gross................... -- -- 0 *
Carmella L. Grahn(6)............. -- -- 5,333 *
Kellie A. Johnson(6)............. -- -- 3,333 *
All directors and executive
officers as a group (12
persons)........................ 566,500 1.077%
</TABLE>
- --------
* Less than one percent of class.
(1) Unless otherwise indicated, sole voting and investment power.
(2) Includes shares which may be purchased through stock options exercisable
within 60 days of March 31, 1997 held by the following persons: Mr.
Mozilo, 41,398 shares; Mr. Gramley, 25,800 shares; Mr. Kearns, 55,800
shares; Mr. Perry, 50,698 shares; Mr. Wohl, 333 shares; all directors and
executive officers as a group, 179,862.
(3) Includes 1,000 shares owned by Phyllis Mozilo, the wife of Angelo Mozilo,
as to which shares he disclaims any beneficial interest.
(4) Unaffiliated Director.
(5) Includes 9,425 shares owned by Marlys Gramley, the wife of Lyle Gramley.
(6) Ms. Grahn and Ms. Johnson served as executive officers of CWM until
October 1996, and continue to serve as officers of CWM, but due to changes
in each of their responsibilities they are no longer deemed to be
executive officers.
DIRECTOR NOMINEES
The following persons have each been nominated to serve as a director for
CWM for the ensuing year:
DAVID S. LOEB has been Chairman of the Board of Directors of CWM since its
formation in 1985. From 1985 to January 1997, Mr. Loeb served as Chief
Executive Officer of CWM. He is also a co-founder of CCI and has been
President and Chairman of CCI since its formation in March 1969. Mr. Loeb also
serves as the Vice Chairman of the Board of Directors of CAMC, a wholly owned
subsidiary of CCI. In addition, Mr. Loeb serves as Chairman of Indy Mac, an
affiliate of CWM.
53
<PAGE>
ANGELO R. MOZILO has been the Chief Executive Officer of CWM since January
1997. Prior to becoming the Chief Executive Officer, Mr. Mozilo served as the
President of CWM since its formation in 1985. Mr. Mozilo has been Vice
Chairman of the Board of Directors since 1993 and a director since October 31,
1985. Mr. Mozilo is also a co-founder of CCI and has been Vice Chairman of the
Board of Directors and Executive Vice President of CCI since its formation in
March 1969. Mr. Mozilo serves as Chairman of the Board of CAMC and as its
Chief Executive Officer. Mr. Mozilo served as President of CHL, a subsidiary
of CCI which is engaged in certain transactions with CWM, from 1978 to March
1995. Mr. Mozilo currently serves as Chairman and Chief Executive Officer of
CHL. In addition, Mr. Mozilo serves as Vice Chairman of Indy Mac.
LYLE E. GRAMLEY became a director of CWM in January 1993. He is a former
member of the Board of Governors of the Federal Reserve System. Since
September 1985, he has been employed by the Mortgage Bankers Association of
America as its chief economist and more recently as a consulting economist,
and during that period he has also been self-employed as an economic
consultant. He serves on the Board of Trustees of the following mutual funds
distributed by Dreyfus Service Corporation: Cash Management, Cash Management
Plus, Inc., Government Cash Management, Treasury Cash Management, Treasury
Prime Cash Management, Tax Exempt Cash Management, Municipal Cash Management
Plus and New York Municipal Cash Management. He also serves on the Board of
Directors, and the Compensation Committee of the Board of Directors of NuWave
Technologies, Inc., a company specializing in video imaging.
THOMAS J. KEARNS has been a director of CWM since June 1990. He is President
of Thomas J. Kearns Inc., a financial consulting firm, and has been in the
securities business for 30 years. Since April 1995, he has been Senior Vice
President and Director of Financial Services for Josephthal Lyon & Ross, Inc.,
an investment banking firm. He spent approximately 16 years with Merrill Lynch
Capital Markets as a First Vice President and he was a Managing Director of
Commonwealth Associates from April 1994 to February 1995. Mr. Kearns serves on
the Board of Directors, and the Compensation Committee of the Board of
Directors of Jameson Inns, Inc., a hotel real estate investment trust.
FREDERICK J. NAPOLITANO has been a director of CWM since its formation in
1985 and has been Chairman of the Board of Pembroke Enterprises, Inc., a real
estate development company located in Virginia, since 1973. He was also a
director of Home Mortgage Access Corporation and serves on the Board of
Directors and executive committee of the National Association of Home Builders
and was President of the National Association of Home Builders in 1982. He
served on the Federal Home Loan Bank Board Advisory Council from 1983 to 1985,
Federal Home Loan Mortgage Corporation Advisory Committee from 1981 to 1983,
Federal National Mortgage Association Advisory Board from 1984 to 1985, was
chairman of the Hampton Roads Chamber of Commerce in 1989, and was a member of
the Industrial Development Services Advisory Board for the Commonwealth of
Virginia.
VOTE REQUIRED; BOARD RECOMMENDATION
A majority of the votes cast at the Annual Meeting, at which a quorum is
present, is sufficient to elect a director.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE
NOMINEES.
BOARD MEETINGS AND ATTENDANCE
During the fiscal year ended December 31, 1996, the Board of Directors held
seven meetings, in person or by telephone. Each Board member attended 75% or
more of the board and applicable committee meetings held during the fiscal
year ended December 31, 1996.
The Audit Committee of the Board of Directors consults with and reviews
reports and recommendations of CWM's independent certified public accountants
and reports thereon to the Board. The Audit Committee held four meetings
during the fiscal year ended December 31, 1996. This committee consists of
Messrs. Gramley, Kearns and Napolitano.
54
<PAGE>
The Compensation Committee of the Board of Directors administers CWM's Stock
Option Plans as well as CWM's Deferred Compensation Plan and Loan Plans, and
approves the compensation of CWM's executive officers by CAMC. The
Compensation Committee held seven meetings during the fiscal year ended
December 31, 1996. This committee consists of Messrs. Gramley, Kearns and
Napolitano.
The Board of Directors does not have a nominating committee.
EXECUTIVE OFFICERS
The executive officers of CWM are:
<TABLE>
<CAPTION>
OFFICER
NAME AGE OFFICE SINCE
---- --- ------ -------
<S> <C> <C> <C>
David S. Loeb........... 73 Chairman of the Board of Directors 1985
Angelo R. Mozilo........ 58 Vice Chairman of the Board of Directors and 1985
Chief Executive Officer
Michael W. Perry........ 34 President and Chief Operating Officer 1993
Richard H. Wohl......... 38 Executive Vice President, General Counsel 1994
and Secretary
Kathleen H. Rezzo....... 43 Executive Vice President/Construction 1994
Lending-Builder Division
Sterling Blair 35 Senior Vice President and Chief Investment 1994
Abernathy.............. Officer
James P. Gross.......... 47 Senior Vice President and Chief Financial 1996
Officer
</TABLE>
Biographical information with respect to Messrs. Loeb and Mozilo is set
forth above under "Election of Directors--Director Nominees."
MICHAEL W. PERRY is currently the President and Chief Operating Officer of
CWM. From January 1993 to January 1997, Mr. Perry had served as Executive Vice
President and Chief Operating Officer of CWM. Mr. Perry is also the President
and Chief Operating Officer of CAMC and the President and Chief Executive
Officer of Indy Mac. Mr. Perry has been with CWM since January 1993 and has
direct responsibility for the management of CWM and its subsidiaries and Indy
Mac. From May 1987 to December 1992, he served as Senior Executive Vice
President in charge of the Mortgage Banking Division of Commerce Security
Bank. He has 13 years of business experience with financial institutions, real
estate firms and mortgage banking companies, including four years as a
certified public accountant with KPMG Peat Marwick LLP.
RICHARD H. WOHL is currently Executive Vice President, General Counsel and
Secretary of CWM and also serves as Executive Vice President, Legal Affairs,
for Indy Mac. Mr. Wohl is also a director of CAMC and Indy Mac. Prior to
joining the Company in April 1994, Mr. Wohl practiced as an attorney with
Morrison & Foerster in Los Angeles. In that capacity, he worked extensively in
the institutional lending and corporate areas, and represented a number of
major warehouse lenders and other financial institutions in the mortgage
banking industry. Mr. Wohl graduated with distinction from Stanford University
and received his J.D. from the Harvard Law School, where he was an editor of
the Harvard Law Review.
KATHLEEN H. REZZO is currently the Executive Vice President/Construction
Lending-Builder Division of CWM and the President and Chief Executive Officer
of the Builder Division of the Construction Lending Corporation of America
("CLCA"), a division of CWM. Prior to 1997, Ms. Rezzo served as Senior Vice
President of CWM. Until joining the Company in August 1994, Ms. Rezzo held
various positions at Security Pacific National Bank, which included Chief
Credit Officer and positions within the Commercial Lending Group and the Real
Estate Industries Group. Ms. Rezzo also managed the Participating Mortgage
Unit, and held the position of Senior Vice President/Los Angeles Division
Manager for Real Estate Industries Division, of Bank of America, where she was
responsible for a loan portfolio in excess of $2 billion and a staff of forty.
55
<PAGE>
STERLING BLAIR ABERNATHY is currently Senior Vice President and Chief
Investment Officer of CWM and Executive Vice President of Secondary Marketing
of Indy Mac. Mr. Abernathy is responsible for the hedging, trading, asset
liability management, and secondary market functions of the Company. Prior to
joining the Company in February 1994, Mr. Abernathy managed the accounting and
investment functions of Commerce Security Bank, a state chartered bank in
Sacramento, California, as its Senior Vice President and Chief Financial
Officer. He also served as the Vice President and Controller of Sunrise
Bancorp of California, a $300 million, publicly traded bank holding company
with banking and mortgage banking subsidiaries.
JAMES P. GROSS is currently the Senior Vice President and Chief Financial
Officer of CWM. Mr. Gross is responsible for accounting, treasury, financial
planning and analysis and master servicing. Prior to joining the Company, Mr.
Gross was Chief Financial Officer of J.I. Kislak, Inc. and Senior Vice
President and Chief Financial Officer of J.I. Kislak Mortgage Corporation from
1990 through September 30, 1996. Mr. Gross was Executive Vice President and
Chief Financial Officer of CenTrust Savings Bank from 1987 through 1989.
Previously, Mr. Gross spent ten years with "Big Six" public accounting firms
specializing in banking and mortgage banking. Mr. Gross received his B.A.
degree from Ohio Wesleyan University with a major in economics and his M.B.A.
from Rutgers University.
EXECUTIVE COMPENSATION
Director Compensation. During 1996, each director was paid an annual
retainer of $35,000 and was reimbursed for expenses related to attendance at
each meeting. Each director who served on the Special Committee was paid a fee
of $500 for each Special Committee meeting attended in person and was
reimbursed for related expenses. On June 1, 1996, each Unaffiliated Director
received a grant of stock options for 32,609 shares, each at an exercise price
of $17.5625 per share. These options will become exercisable one year after
the grant date. On June 3, 1996, Messrs. Loeb and Mozilo, who were both
officers of CWM during the fiscal year ended December 31, 1996, each received
a grant of stock options for 200,000 shares, each at an exercise price of
$17.5625 per share. These options will become exercisable one year after the
grant date.
Effective July 21, 1995, the Board of Directors adopted a deferred
compensation plan allowing payment of directors' fees to be deferred until the
following year. No directors' fees earned in the fiscal year ended December
31, 1996 were deferred until 1997.
General. CWM has no salaried employees. Beginning in 1993, CWM agreed to
reimburse CAMC for operating expenses, including personnel costs, incurred by
CAMC in operating CWM's business. If the Merger is consummated, it is expected
that CWM will employ various salaried personnel hired from CAMC and other
companies.
56
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(10) OPTIONS(#) COMPENSATION(11)
- --------------------------- ---- -------- -------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
David S. Loeb............ 1996 $ 35,000(1) $ -- -- 200,000 --
Chairman of the Board 1995 31,200(1) -- -- 100,000 --
1994 27,500(1) -- -- 30,000 --
Angelo R. Mozilo......... 1996 35,000(1) -- -- 200,000 --
Vice Chairman of the
Board and 1995 31,200(1) -- -- 100,000 --
Chief Executive Officer 1994 27,500(1) -- -- 30,000 --
Michael W. Perry(2)...... 1996(3) 475,000 817,500 3,092 200,000 $25,823
President and Chief 1995 350,000 550,000 1,075 20,000 19,298
Operating Officer 1994 275,000 400,000 1,196 120,000 10,750
Richard H. Wohl(2)....... 1996(4) 200,000 205,000 17 20,000 5,625
Executive Vice
President, 1995 175,000 130,000 -- 10,000 1,750
Secretary and 1994(5) 103,385 87,500 -- 10,000 --
General Counsel
James P. Gross(2)........ 1996(6) 46,250 50,000 -- 15,000 31,496
Senior Vice President
and
Chief Financial Officer
S. Blair Abernathy(2).... 1996(7) 180,000 160,000 499 15,000 9,634
Senior Vice President
and 1995 180,000 100,000 -- 10,000 3,015
Chief Investment Officer 1994 149,000 60,000 -- 10,000 --
Carmella L. Grahn(2)..... 1996(8) 113,410 100,000 459 15,000 5,127
Senior Vice President,
MIS 1995 120,000 100,000 -- 10,000 3,600
Operations and
Administration 1994 96,667 64,000 -- 10,000 --
Kellie A. Johnson(2)..... 1996(9) 190,000 125,000 91 15,000 15,630
Senior Vice President,
Operations 1995 180,000 168,190 -- 10,000 2,370
--Third Party
Originations 1994 92,647 342,885 -- 10,000 2,400
</TABLE>
- --------
(1) Mr. Loeb is a director and an executive officer of CWM. Mr. Mozilo is a
director and an executive officer of CWM. The amounts in this column
represent fees paid for their services as directors of CWM. Messrs. Loeb
and Mozilo received no salary or bonus for their services as officers of
CWM.
(2) Messrs. Perry, Wohl, Gross and Abernathy and Mesdames Grahn and Johnson
were executive officers of CWM and/or Indy Mac during the fiscal year
ended December 31, 1996, as well as employees of CAMC which paid their
compensation. Mesdames Grahn and Johnson continue to serve as officers of
CWM, but due to changes in each of their responsibilities are no longer
deemed to be executive officers. CWM reimburses CAMC for its operating
expenses, including the salaries and bonuses paid to these individuals.
See "CAMC Compensation Committee Report on Executive Compensation."
(3) Compensation includes $88,333 of salary and $81,750 of bonus deferred
until January 2001.
(4) Compensation includes $1,167 of salary deferred until January 2001.
(5) Employed by CAMC beginning in April 1994, so the 1994 annual compensation
listed reflects compensation for less than a full year.
(6) Employed by CAMC beginning in October 1996, so the 1996 annual
compensation listed reflects compensation for less than a full year.
(7) Compensation includes $45,000 of salary and $120,000 of bonus deferred
until January 2001.
(8) Compensation includes $42,519 of salary and $100,000 of bonus deferred
until retirement.
(9) Compensation includes $12,000 of bonus deferred until retirement.
(10) The amount of other annual compensation consists of interest accrued on
deferred compensation in excess of the applicable federal rate.
57
<PAGE>
(11) Amounts shown for 1996 consist of the following: (i) Mr. Perry: Company
contribution to deferred compensation account--$10,000; split-dollar life
insurance premiums paid by the Company--$9,698; Company contribution to
401(k) Plan--$6,125 (includes an adjustment of $1,625 relating to Mr.
Perry's 1994 and 1995 contributions); (ii) Mr. Wohl: Company contribution
to 401(k) Plan--$5,625 (includes an adjustment of $875 relating to Mr.
Wohl's 1995 contributions); (iii) Mr. Gross: interim housing related
expenses paid by the Company -$6,614; closing costs related to home
purchase paid by the Company--$24,882; (iv) Mr. Abernathy: Company
contribution to deferred compensation account--$4,500; Company
contribution to 401(k) Plan--$5,134 (includes an adjustment of $634
relating to Mr. Abernathy's 1995 contributions); (v) Ms. Grahn: Company
contribution to deferred compensation account--$3,000; Company
contribution to 401(k) Plan--$2,127; and (vi) Ms. Johnson: Company
contribution to deferred compensation account--$9,000; Company
contribution to 401(k) Plan--$6,630 (includes an adjustment of $2,130
relating to Ms. Johnson's 1995 contributions).
58
<PAGE>
STOCK OPTION PLANS
General. Pursuant to CWM's 1985 Stock Option Plan (the "1985 Plan") and 1996
Stock Incentive Plan (the "1996 Plan") (the 1985 Plan and the 1996 Plan are
collectively referred to herein as the "Stock Option Plans"), stock options
may be granted to directors and officers of CWM, among others. Stock options
were granted previously to certain directors and executive officers of CWM
under the 1994 Stock Incentive Plan (the "1994 Plan"), which was cancelled in
connection with CWM's adoption of the 1996 Plan. The cancellation of the 1994
Plan did not affect the validity of stock options, certain of which are
currently outstanding, granted thereunder prior to such cancellation.
STOCK OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE
OPTIONS TO EMPLOYEES PRICE EXPIRATION GRANT DATE
NAME GRANTED(#) IN FISCAL YEAR ($/SHARE)(6) DATE PRESENT VALUE(7)
---- ---------- --------------- ------------ ---------- ----------------
<S> <C> <C> <C> <C> <C>
David S. Loeb........... 200,000(1) 17.19% $17.5625 6/03/01 $494,832
Angelo R. Mozilo........ 200,000(1) 17.19% 17.5625 6/03/01 $494,832
Michael W. Perry........ 200,000(2) 17.19% 19.7500 12/10/01 $556,608
Richard H. Wohl......... 20,000(3) 1.72% 17.5625 6/03/01 $ 49,483
James P. Gross.......... 15,000(4) 1.29% 20.7500 10/16/01 $ 43,859
S. Blair Abernathy...... 15,000(5) 1.29% 17.5625 6/03/01 $ 37,122
Carmella L. Grahn....... 15,000(5) 1.29% 17.5625 6/03/01 $ 37,122
Kellie A. Johnson....... 15,000(5) 1.29% 17.5625 6/03/01 $ 37,122
</TABLE>
- --------
(1) Option was granted on June 3, 1996 and becomes exercisable on the first
anniversary of the grant date, except in the event of a "Change of
Control" as defined in the 1996 Plan (as used herein, a "CWM Change of
Control"). Upon a CWM Change in Control, all options become immediately
exercisable.
(2) Option was granted on December 10, 1996 and becomes exercisable as
follows, except in the event of a CWM Change in Control: one-third on the
first anniversary of the grant date, one-third on the second anniversary
of the grant date, and one-third on the third anniversary of the grant
date. Upon a CWM Change in Control, all options become immediately
exercisable.
(3) Option was granted on June 3, 1996 and becomes exercisable on the first
anniversary of the grant date, except in the event of a CWM Change of
Control. Upon a CWM Change in Control, all options become immediately
exercisable.
(4) Option was granted on October 16, 1996 and becomes exercisable as follows,
except in the event of a CWM Change in Control: one-third on the first
anniversary of the grant date, one-third on the second anniversary of the
grant date, and one-third on the third anniversary of the grant date. Upon
a CWM Change in Control, all options become immediately exercisable.
(5) Options were granted on June 3, 1996 and become exercisable as follows,
except in the event of a CWM Change in Control: one-third on the first
anniversary of the grant date, one-third on the second anniversary of the
grant date, and one-third on the third anniversary of the grant date. Upon
a CWM Change in Control, all options become immediately exercisable.
(6) The exercise price is the market value (defined as the average of the high
and low stock prices on the New York Stock Exchange) on the date of grant.
(7) The present value of the options as of the grant date was calculated using
the Black-Scholes options pricing model which has been modified to
consider estimated cash dividends to be paid. The assumptions used in the
model were: expected volatility of 30%, risk-free rate of return
(approximately equal to the three year Treasury rate at the grant date) of
6.3%, dividend yield of 9% and time to exercise of three years. No
discounting was done to account for non-transferability or vesting. The
actual value, if any, an executive officer may realize will depend on the
excess of the stock price over the exercise price on the date the option
is exercised.
59
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996 AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(#) AT FY-END($)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David S. Loeb........... 155,000 $1,096,075 0 200,000 $ 0 $687,500
Angelo R. Mozilo........ 8,602 44,623 91,398 200,000 856,858 687,500
Michael W. Perry........ 59,302 554,482 50,698 200,000 570,904 250,000
Richard H. Wohl......... 3,000 16,575 333 26,667 3,122 131,253
James P. Gross.......... 0 0 0 15,000 0 3,750
S. Blair Abernathy...... 3,333 17,707 0 21,667 0 114,066
Carmella Grahn.......... 3,333 28,331 0 21,667 0 114,066
Kellie A. Johnson....... 3,333 17,290 0 21,667 0 114,066
</TABLE>
Loan Plans. The Board of Directors has adopted three Loan Plans (the "Loan
Plans") under which loans may be made to officers and directors of CWM in
connection with the exercise of stock options granted under the 1985 Plan, the
1994 Plan and the 1996 Plan. Under the 1994 Loan Plan and the 1996 Loan Plan,
the principal of any loan may not exceed (x) the purchase price required to be
paid to CWM upon the exercise of one or more options, plus (y) any applicable
withholding taxes (so long as the sum of the preceding (x) and (y) does not
exceed the fair market value of the stock on the date of the loan), less (z)
any margin or other legally required amount, and any loan proceeds must be
paid directly to CWM in connection with the exercise of such options. The 1985
Plan, by contrast, does not provide for loan amounts to include applicable
withholding taxes. Under the 1985, 1994 and 1996 Loan Plans, loans may be
extended for a period of five years, which term may be renewed, at an interest
rate which is set by the Compensation Committee and is, at the option of the
borrower, either fixed for the term of the loan or adjustable annually by the
Compensation Committee, with such interest rate to be at all times at least
sufficient to avoid imputed interest under the Internal Revenue Code of 1986,
as amended. The loans under the Loan Plans are recourse loans and are secured
by pledges of the Common Stock purchased upon the exercise of the stock
options to which they relate. In the event of the sale or transfer of any of
the shares of Common Stock pledged as security, except under certain limited
conditions, the unpaid principal balance and accrued interest shall become
immediately due and payable to the extent of the proceeds (net of brokerage
fees) realized from such sale or transfer. The principal and interest on the
loans made under the Loan Plans are payable quarterly, with any dividends paid
on the pledged stock being applied against such installments. To the extent
that a dividend for any quarter is insufficient to pay the accrued interest
for a quarterly installment, the difference is added to the principal of the
loan, and to the extent a quarterly dividend is insufficient to pay a
quarterly installment of principal, the difference is payable at the end of
the term of the loan.
60
<PAGE>
The following table sets forth information as of December 31, 1996 relating
to loans made by CWM to certain executive officers and directors of CWM under
the Loan Plans in connection with the exercise of stock options under the 1985
Plan and the 1996 Plan.
<TABLE>
<CAPTION>
HIGHEST
NOTES BALANCE AT BALANCE INTEREST
NAME OUTSTANDING DECEMBER 31, 1996 DURING 1996 RATE
---- ----------- ----------------- ----------- --------
<S> <C> <C> <C> <C>
David S. Loeb.............. Note 1 $ 0 $ 61,587 7.70%*
Note 2 0 169,843 6.08%*
Note 3 0 280,575 4.17%*
Angelo R. Mozilo........... Note 1 $ 0 $198,995 5.97%**
Note 2 0 192,570 6.19%**
Note 3 96,560 101,099 6.58%*
Lyle E. Gramley............ Note 1 $143,981 $186,539 6.87%*
Thomas J. Kearns........... Note 1 $ 0 $ 27,667 4.17%*
Note 2 0 82,662 4.17%*
Note 3 0 85,694 6.66%*
Frederick J. Napolitano.... Note 1 $ 0 $118,900 6.20%*
Note 2 27,350 122,086 7.70%*+
Note 3 0 250,988 6.08%*
Note 4 117,418 147,695 6.83%*
Note 5 128,705 165,614 6.83%*
Michael W. Perry........... Note 1 $ 91,351 $102,404 5.61%*
</TABLE>
- --------
* Fixed rate note.
** Adjustable rate note. Rate will be adjusted each subsequent year after the
origination date according to the Applicable Federal Rate in effect at that
time.
+ Loan renewed for an additional five-year period on February 4, 1996. New
fixed rate--5.49%.
61
<PAGE>
DEFINED BENEFIT PENSION PLAN
The following table illustrates annual pension benefits under CCI's Defined
Benefit Pension Plan (the "Pension Plan"), under which officers of CWM
participate as a result of their employment with CAMC, for participants
retiring in 1997 at age 65 payable in the form of a life annuity under various
levels of compensation and years of service. The pension benefits in the table
are not subject to deduction for Social Security or other offset amounts.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE ------------------------------------------
COMPENSATION(1) 10 15 20 25 30 35
--------------- ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
$ 125,000........................... 19,650 30,830 38,880 46,920 54,970 77,740
150,000........................... 24,020 37,700 47,620 57,540 67,470 95,240
175,000........................... 24,020 37,720 49,730 61,740 73,740 95,240
200,000........................... 24,590 43,470 57,350 71,240 85,120 99,000
225,000........................... 27,090 47,900 63,220 78,540 93,870 109,190
250,000........................... 27,090 47,900 63,220 78,540 93,870 109,190
300,000........................... 27,090 47,900 63,220 78,540 93,870 109,190
400,000........................... 27,090 47,900 63,220 78,540 93,870 109,190
450,000........................... 27,090 47,900 63,220 78,540 93,870 109,190
500,000........................... 27,090 47,900 63,220 78,540 93,870 109,910
600,000........................... 27,090 47,900 63,220 78,540 93,870 109,910
1,000,000........................... 27,090 47,900 63,220 78,540 93,870 109,910
</TABLE>
- --------
(1) As a result of a limitation, effective January 1, 1994, under the Internal
Revenue Code of 1986, as amended (the "Code"), annual compensation in
excess of $150,000 is not taken into account when calculating benefits
under the Pension Plan.
The compensation used for Pension Plan purposes is the amount shown in the
Salary column of the Summary Compensation Table, subject to the $150,000
limitation under the Code. The following table sets forth the number of years
of credited service of each executive officer listed in the Summary
Compensation Table.
<TABLE>
<CAPTION>
CREDITED
YEARS OF
NAME SERVICE
---- --------
<S> <C>
Michael W. Perry................................................. 4
Richard H. Wohl.................................................. 3
S. Blair Abernathy............................................... 3
James P. Gross................................................... 0
Carmella L. Grahn................................................ 3
Kellie A. Johnson................................................ 4
</TABLE>
Benefits are 100% vested after five years of service. A participant shall be
fully vested in his accrued normal retirement benefit regardless of his length
of service if his employment is terminated by CAMC other than for "Cause"
within two-year period following a "Change in Control" (as both items are
defined in the Pension Plan).
CCI adopted a Supplemental Executive Retirement Plan (the "SERP"), effective
in fiscal 1995, designed to provide executives, including the executive
officers of CWM, with retirement income equal to 70% of their average annual
salary determined by averaging the five highest salaried years out of the ten
years preceding retirement. Benefits under the SERP are reduced by benefits
the participant receives from (i) the Pension Plan and (ii) CAMC's
contributions to the participant's deferred compensation account, for which
CWM reimburses
62
<PAGE>
CAMC pursuant to the Management Agreement. The annual benefit under the SERP
will be: Mr. Perry (assuming retirement at age 65) $657,315.
CHANGE OF CONTROL ARRANGEMENT
The SERP provides for a lump sum payment to a participant, including an
executive officer listed in the Summary Compensation Table, in the event of a
Change in Control (as defined in the SERP). The term Change of Control does
not include the Merger. The lump sum payment is to be made within 60 days of
the Change in Control, and the amount paid is to be determined as if
employment terminated on the date the Change in Control became effective.
EMPLOYMENT AGREEMENTS
On November 14, 1996, Michael W. Perry, the President and Chief Operating
Officer of CWM, entered into an employment agreement with CAMC (the
"Employment Agreement"), which CWM will assume as a condition to the Merger.
Subject to certain exceptions, the Employment Agreement will expire, by its
terms, on December 31, 2000. The Employment Agreement provides that Mr. Perry
will serve as an executive officer of CWM and certain of its affiliates, and
use his best efforts to promote their respective interests.
In consideration of his agreement generally not to compete with CAMC within
North America for a period of one year after his employment is terminated (the
"Covenant Not to Compete"), Mr. Perry will receive certain severance payments
if his employment is terminated for reasons other than Cause or Good Reason
(as such terms are defined in the Employment Agreement). The amount of Mr.
Perry's severance payment will equal the sum of his annual base salary at the
time of termination, the incentive compensation relating to the immediately
preceding fiscal year, any unpaid incentive compensation that relates to the
prior fiscal year, and any proportional payment of incentive compensation due
for the current year, based on the aggregate incentive compensation for the
immediately preceding fiscal year (if such termination occurs on a date prior
to the end of a fiscal year). In the event that Mr. Perry is terminated within
two years after a Change of Control (as such term is defined in the Employment
Agreement), Mr. Perry's severance payment will equal twice the sum of the
foregoing amount (or $3,253,750 had the Change of Control occurred on April 1,
1997). The Merger does not constitute a Change of Control for purposes of the
Employment Agreement. After careful review of the Employment Agreement, the
Compensation Committee determined that the compensation to be paid to Mr.
Perry is reasonable and that the Employment Agreement is in the best interests
of CWM.
The Employment Agreement provides that Mr. Perry is eligible to receive base
compensation, incentive compensation, stock options, as well as certain other
specified benefits. Commencing July 1, 1996, Mr. Perry was paid base
compensation at an annual rate of $550,000, subject to potential annual
increases. Although the Employment Agreement contemplates that a 15% increase
in CWM's earnings per share over the preceding fiscal year normally would
result in a 10% increase in the annual rate of base compensation, the amount
of such increase, if any, is to be determined by the Compensation Committee.
According to the terms of the Employment Agreement, Mr. Perry is also eligible
to receive incentive compensation, the amount of which will be determined by
reference to an incentive matrix. The two variables in the incentive matrix
are the earnings per share of CWM for the applicable fiscal year and the
percentage change in earnings per share from the prior year. The maximum
amount of the annual cash bonus to which Mr. Perry is entitled under the
matrix is $1.6 million, which assumes earnings per share of $3.30 and a 30%
increase in earnings per share over the prior year. For his performance during
fiscal 1996, Mr. Perry will receive a cash bonus in the amount of $817,500. In
April 1997, the Employment Agreement was amended so that, subject to
stockholder approval of the provisions of the Employment Agreement that relate
to the payment of cash incentive compensation for the fiscal years 1997
through 2000, such compensation would qualify for a tax deduction pursuant to
Section 162(m) of the Code. Section 162(m) limits the corporate deduction for
compensation paid to the executive officers named in the Summary Compensation
Table to $1 million unless the amount by which such compensation exceeds the
$1 million threshold is based upon performance goals that are subject to
stockholder approval. CWM is submitting this component of Mr. Perry's cash
incentive compensation to stockholders for their approval at the Annual
Meeting. See "Proposal Six-Approval of the Annual Cash Bonus Provisions of the
Employment Agreement of
63
<PAGE>
Michael W. Perry." In the event that stockholders do not approve the annual
cash bonus provisions of the Employment Agreement, Mr. Perry will be entitled
to renegotiate the terms of the Employment Agreement in their entirety. If the
parties cannot, in good faith, agree on the terms of a new employment
agreement, Mr. Perry will be entitled to terminate the Employment Agreement
and be released from the Covenant Not to Compete.
The Employment Agreement also provides that promptly after its execution,
Mr. Perry was to receive an option to purchase 200,000 shares of CWM Common
Stock exercisable at the fair market value at the time of the grant. In
accordance with this provision, the Compensation Committee awarded Mr. Perry
an option to purchase 200,000 shares of CWM Common Stock on December 10, 1996.
For the fiscal years 1997 through 2000, the Employment Agreement contemplates
that the Compensation Committee may grant to Mr. Perry, in its sole
discretion, an annual stock option with respect to between 100,000 and 150,000
shares, with each annual grant targeted at 125,000 for "good performance." All
stock options granted to Mr. Perry will be awarded pursuant to CWM's current
stock option plan, will have an exercise price equal to the fair market value
of the CWM Common Stock at the time of the grant, will become exercisable in
three equal installments on each of the first three anniversaries of the date
of the grant, and will become immediately and fully exercisable in the event
of a Change of Control (a term which does not include the Merger) or in the
event that Mr. Perry's employment is terminated due to death or disability or
by CAMC (or any successor thereto) other than for Cause (as such terms are
defined in the Employment Agreement).
At present, the maximum number of shares subject to stock options and stock
appreciation rights that the Compensation Committee may grant to officers of
CWM, including Mr. Perry, is 250,000 per year. CWM is seeking stockholder
approval to raise this limit to 500,000 shares per year at the Annual Meeting.
See "Proposal Five--Amendment to the 1996 Stock Incentive Plan."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General. The Compensation Committee is composed of Messrs. Gramley, Kearns
and Napolitano, who are Unaffiliated Directors of CWM. CWM does not directly
pay any employee or officer compensation; such compensation is paid by CAMC
and ultimately charged to CWM pursuant to the expense reimbursement provisions
of the management agreement. See "CAMC--The Management Agreement." CAMC's
determinations with respect to monetary compensation are made on the basis of
its policies and procedures. Pursuant to a policy adopted by the Board of
Directors, the Compensation Committee reviews and approves such compensation
paid by CAMC to CWM's executive officers on an annual basis. In reviewing
CAMC's determinations, the Compensation Committee considers the following
criteria: the degree to which the executive officers have been able to
successfully implement CWM's operating plan, CWM's earnings per share during
the year and the corresponding level of dividends paid to stockholders, CWM's
general performance relative to the performance of its peers during the year,
CWM's growth during the year as evidenced by the market share and
profitability of its principal businesses, and general product development.
Compensation of Executive Officers. On April 22, 1997, the Compensation
Committee reviewed the overall compensation paid by CAMC to CWM's executive
officers based on the criteria set forth in the preceding paragraph and
determined that such compensation was reasonable, in accordance with the
Company's objectives and in relation to the Company's performance during 1996.
Certain executive officers, namely Messrs. Loeb and Mozilo, did not receive
any base or incentive compensation in connection with their services as
executive officers during 1996, but did receive stock options as described
below.
In January 1996, the Committee adopted a compensation plan for Mr. Perry
which provided that Mr. Perry would receive annual base compensation of
$400,000 for his services during 1996. Mr. Perry's base compensation was
increased in connection with the adoption of the Employment Agreement to an
annual rate of $550,000, retroactive to July 1, 1996. Accordingly, Mr. Perry
received a blended rate of $475,000 ($200,000 + $275,000) for his services
during 1996. Pursuant to the terms of the Employment Agreement, Mr. Perry is
eligible to receive this increased rate of base compensation until December
31, 2000, subject to additional annual increases determined in the discretion
of the Committee.
64
<PAGE>
The Employment Agreement provides that Mr. Perry's annual incentive
compensation is to be determined by reference to an incentive matrix, which is
included as an exhibit to the Employment Agreement. The incentive matrix is
intended to serve as an objective measure of Mr. Perry's performance by basing
his annual cash bonus on CWM's earnings per share for the applicable period
and the percentage change in earnings per share from the prior period. For his
services during 1996, Mr. Perry will receive a cash bonus in the amount of
$817,500 based on earnings per share of $1.51 for CWM's 1996 fiscal year and a
21% increase in earnings per share from fiscal 1995.
As part of his compensation, Mr. Perry, like other officers of CWM, is also
eligible to receive awards pursuant to CWM's stock incentive plan. The
Employment Agreement provides that promptly after its execution, Mr. Perry was
to receive an option to purchase 200,000 shares of CWM Common Stock,
exercisable at fair market value on the date of grant. In accordance with this
provision, the Committee granted Mr. Perry an option to purchase 200,000
shares of CWM Common Stock on December 10, 1996. Although the Employment
Agreement contemplates that Mr. Perry will receive an option to purchase
between 100,000 and 150,000 shares for each of the fiscal years 1997 through
2000, with each annual grant targeted at 125,000 shares for "good
performance," the amount of such awards will be determined in the discretion
of the Committee.
On April 1, 1997, the Compensation Committee approved an amendment to the
Employment Agreement which provides that Mr. Perry will not receive
compensation determined by the incentive matrix for his performance in fiscal
1997 through 2000 unless such compensation receives stockholder approval. CWM
is submitting this component of Mr. Perry's compensation to stockholders for
their approval so that such compensation may qualify as a tax deduction
pursuant to Section 162(m) of the Code. See "Proposal Six--Approval of Annual
Cash Bonus Provisions of the Employment Agreement of Michael W. Perry."
After careful review of the Employment Agreement, the Compensation Committee
determined that the compensation to be paid to Mr. Perry is reasonable and
that the Employment Agreement is in the best interests of CWM.
Stock Options. In addition to reviewing the compensation arrangements of
executive officers, the Compensation Committee awarded stock options pursuant
to the 1996 Stock Incentive Plan (the "1996 Plan"), which was approved by
stockholders on May 29, 1996. Under the 1996 Plan, executive officers are
eligible to receive options, stock appreciation rights and certain other share
related awards. The Compensation Committee determined such awards by using the
criteria set forth in the 1996 Plan, which includes the responsibilities and
contributions of the individual and the other compensation payable to such
person. The award to Mr. Perry during 1996 was determined according to the
provisions of the Employment Agreement.
Stock options are awarded to the Unaffiliated Directors of CWM pursuant to a
formula set forth in the 1996 Plan that operates automatically. During 1996,
Messrs. Loeb and Mozilo, who are both officers of CWM, received options for
200,000 shares, which was a greater amount than the Unaffiliated Directors
received as a result of Messrs. Loeb's and Mozilo's status as both directors
and executive officers of CWM.
The Compensation Committee
Lyle E. Gramley
Thomas J. Kearns
Frederick J. Napolitano
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, Messrs. Gramley, Kearns and Napolitano served as members
of the Compensation Committee. No member of the Compensation Committee was,
during the fiscal year, an officer or employee of CWM, nor was any member of
the Compensation Committee formerly an officer of CWM. No executive officer
65
<PAGE>
of CWM served (i) as a member of the compensation committee or board of
directors of another entity, one of whose executive officers served on the
Compensation Committee or (ii) as a member of the compensation committee of
another entity, one of whose executive officers served on the Board of
Directors.
CERTAIN TRANSACTIONS WITH MANAGEMENT AND BUSINESS RELATIONSHIPS
The Company, through its CLCA Division, has from time to time made loans to
builders of residential construction projects secured by real property
purchased by such builders from a company doing business as Loeb Enterprises,
LLC, in which CWM's chairman and former chief executive officer is a major
investor together with his family. The non-family executive managers of Loeb
Enterprises, LLC, who run the day-to-day operations of Loeb Enterprises, LLC,
own approximately 34 percent of the equity and profits of that company. Each
project is part of a master planned community being developed by Loeb
Enterprises, LLC, which includes various amenities, including an 18 hole golf
course.
In the case of each project financed by the CLCA Division, the builder is
not affiliated with either the Company or Loeb Enterprises, LLC, the general
risk characteristics of the construction loan are comparable to those for
similar projects funded by the CLCA Division, and the construction loan
facility between the CLCA Division and the builder has been negotiated at
arms' length on terms consistent with those of similar loans made by the CLCA
Division to other unaffiliated builders. Moreover, the terms of each credit
facility have been disclosed to and approved by the disinterested members of
the Board of Directors of CWM pursuant to Section 144 of the DGCL.
As of December 31, 1996, the CLCA Division had extended three construction
loan facilities to builders secured by property originally purchased from Loeb
Enterprises, LLC, with total dollar commitments of $11,457,445, and total loan
outstandings of $4,485,484. Loeb Enterprises, LLC, has posted a bond for the
completion of certain infrastructure improvements such as arterial roads,
drainage, and utilities in the portion of the master planned community in
which builders are currently building, and these improvements have been
substantially completed. In addition, the builders are contractually
responsible to the city of Sparks, Nevada for certain other improvements such
as roads, drainage, and utilities, within the specific subdivisions of
property they have purchased.
During 1996, the Company utilized the services of Kathryn Raymond
Productions, a company owned by Mr. Perry's sister, for graphic design
services relating to the Company's marketing materials and Annual Report to
Shareholders. Kathryn Raymond Productions was the sole provider of graphic
design services to the Company during 1996, and the total amount paid to
Kathryn Raymond Productions for such services was $108,983. The contract for
services rendered by Kathryn Raymond Productions was negotiated at arms'
length by managers of the Company other than Mr. Perry, on terms consistent
with terms of similar third party transactions.
From time to time, certain directors and executive officers of the Company
and associates of such persons were indebted to the Company, as customers, in
connection with mortgage loans and other extensions of credit by the Company.
These transactions were in the ordinary course of business; they were
substantially on the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with unrelated
persons, except that for some loan products interest rates charged were the
same as the lowest interest rates charged other persons or were more favorable
for Company employees and directors than for other persons; and they did not
involve more than the normal risk of collectibility or present other
unfavorable features. In addition, directors, officers and employees of the
Company are entitled to receive certain discounts or waivers of fees or
commissions for certain products and services offered by the Company.
66
<PAGE>
STOCK PERFORMANCE GRAPH
The following chart compares the total stockholder return (stock price
increase plus dividends) on the CWM Common Stock from January 1, 1992 through
December 31, 1996 with the total stockholder returns for the NYSE Market Index
and the Peer Group Index. The graph assumes that the value of the investment in
the CWM Common Stock and each index was $100 on January 1, 1992 and that all
dividends were reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
[GRAPH APPEARS HERE]
<TABLE>
AMONG CWM MORTGAGE HOLDINGS, INC., NYSE MARKET INDEX AND MG GROUP INDEX
<CAPTION>
Measurement period CWM Mortgage NYSE Market MG Group
(Fiscal year Covered) Holdings, Inc. Index Index
- --------------------- --------- --------- ---------
<S> <C> <C> <C>
Measurement PT -
01/01/91 $ 100 $ 100 $ 100
FYE 01/01/92 $ 97.25 $ 108.09 $ 104.7
FYE 01/01/93 $ 193.55 $ 126.33 $ 118.88
FYE 01/01/94 $ 180.38 $ 127.39 $ 116.57
FYE 01/01/95 $ 392.69 $ 149.62 $ 151.15
FYE 01/01/96 $ 539.92 $ 200.03 $ 182.08
</TABLE>
ASSUMES $100 INVESTED ON JAN. 1, 1992
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31, 1996
(1) Peer group is Media General Financial Services industry group of real estate
investment trusts, which includes CWM.
SECTION 16 DISCLOSURE
Section 16 of the Securities Exchange Act of 1934, as amended, requires CWM's
directors and executive officers to report their ownership of and transactions
in CWM's Common Stock to the SEC and the New York Stock Exchange. Copies of
these reports are also required to be supplied to CWM. Specific dates for
filing these reports have been established by the SEC, and CWM is required to
report in this Proxy Statement any failure of its directors and executive
officers to file by the relevant due date any of these reports during 1996.
Based solely on its review of the copies of the reports prepared or received by
it, CWM believes that all such filing requirements are satisfied.
67
<PAGE>
PROPOSAL FIVE
Amendment to the 1996 Stock Incentive Plan
The 1996 Stock Incentive Plan consists of two components: the Staff Program
and Director Program. The proposed amendment to the 1996 Stock Incentive Plan
will increase the aggregate amount of CWM Common Stock subject to options and
stock appreciation rights (collectively, "SARs") granted during any calendar
year to any individual from 250,000 to 500,000. This change to Section 3(b)(2)
of the 1996 Stock Incentive Plan will affect only the Staff Program. If the
amendment is approved, CWM will be able to grant SARs to eligible persons for
amounts up to 500,000. The amendment will make no other changes to the 1996
Stock Incentive Plan. The text of the proposed amendment is included as
Appendix E to this Proxy Statement.
Persons eligible to receive awards under the Staff Program include officers
of CWM and its subsidiaries and certain other individuals, including
employees, who perform services for CWM and its subsidiaries of a nature
similar to those performed by employees, such as agents and consultants. The
Staff Program, however, does not require any participant to remain in the
continuous employ of CWM or to serve for any particular period of time.
Although CWM does not currently have any direct employees (see "Executive
Compensation--General"), 39 officers of CWM are, and approximately 510
employees of CAMC may be, considered eligible under the Staff Program at the
present time, subject to the power of the Committee to determine all eligible
employees and other persons (other than ineligible directors) to whom awards
will be granted.
If the proposed amendment is approved, the Committee will consider whether
to grant more than 250,000 options to purchase CWM Common Stock for 1997 to
CWM's Chairman, David S. Loeb, and CWM's Chief Executive Officer, Angelo R.
Mozilo. In July 1996, the Committee adopted guidelines intended to aid the
Committee's annual determination of appropriate stock option awards for Mr.
Loeb and Mr. Mozilo. The guidelines are discretionary and do not constitute a
binding commitment on the part of the Committee to grant specific awards to
Mr. Loeb and Mr. Mozilo, and may be revised or revoked by the Committee at any
time. If the Committee elects to follow the guidelines for 1997, Mr. Loeb and
Mr. Mozilo would each receive option awards of approximately 285,000 shares of
CWM Common Stock.
The guidelines seek to condition the award of stock options to Mr. Loeb and
Mr. Mozilo on the growth (if any) in the Company's aggregate earnings, and on
whether the Company meets its earnings per share goals as established by the
Board of Directors for each fiscal year. The guidelines create a formula which
takes (a) prior fiscal year aggregate earnings for the Company, multiplied by
(b) a multiplier factor of .003, multiplied by (c) a percentage which varies
between 125% to 50%, based on whether the Company exceeded or failed to meet
its earnings per share goal for the prior fiscal year, multiplied by (d) a
fraction, the numerator of which is aggregate earnings for the Company for the
prior fiscal year, and the denominator of which is aggregate earnings for the
Company for the fiscal year preceding the prior fiscal year. The multiplier
factor of .003 was determined by taking the number of options awarded to each
of Mr. Loeb and Mr. Mozilo for 1995 (150,000) divided by the Company's
aggregate earnings for 1995 ($50,000,000). The guidelines also provide for a
minimum award of 150,000 shares and a maximum award of 0.5% of the total CWM
Common Stock outstanding at the time of the grant.
The Committee adopted the guidelines with a view toward creating long-term
incentives for performance on the part of Mr. Loeb and Mr. Mozilo, and to
better align their interests with those of the Company's stockholders. The
Committee recognized that Mr. Loeb and Mr. Mozilo contribute substantial time
and experience to the business affairs of the Company, and that they receive
no base, incentive or other compensation besides stock options and directors'
fees.
As of the date of this Proxy Statement, no individual has ever received a
stock option award in excess of the current maximum permitted award under the
Stock Incentive Plan of 250,000. As of the same date, the maximum number of
stock options ever awarded to an individual in any one year under the Stock
Incentive Plan are the grants during 1996 of 200,000 stock options each to
Angelo R. Mozilo, David S. Loeb and to Michael W. Perry, in Mr. Perry's case
pursuant to his Employment Agreement, described above in "Compensation
Committee Report on Executive Compensation".
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE 1996 STOCK
INCENTIVE PLAN.
68
<PAGE>
PROPOSAL SIX
Approval of Annual Cash Bonus Provisions of the Employment Agreement of
Michael W. Perry
Stockholder approval of the annual cash bonus provisions of the Employment
Agreement that relate to Mr. Perry's performance during the fiscal years 1997
through 2000 is required in order for amounts paid thereunder not to be
subject to the deduction limitation of Section 162(m) of the Code. In the
absence of stockholder approval of this Proposal, such provisions of the
Employment Agreement will not take effect for such fiscal years. See
"Executive Compensation--Employment Agreement."
Section 162(m) of the Code generally disallows a federal income tax
deduction to any publicly held corporation for compensation in excess of $1
million paid in any tax year to the chief executive officer or any of the
other four most highly compensated executive officers who are employed by the
corporation on the last day of the tax year. Section 162(m) does not, however,
disallow a federal income tax deduction for qualified "performance-based
compensation," the material terms of which are disclosed to and approved by
stockholders. The Company has structured the annual cash bonus provisions with
the intention that compensation resulting therefrom would be qualified
"performance-based compensation."
One of the purposes of the Employment Agreement is to provide incentives to
Mr. Perry to dedicate himself to the financial success of CWM as measured
based on objective financial criteria. To this end, the annual cash bonus
provisions of the Employment Agreement provide for an annual cash bonus to Mr.
Perry for each of the fiscal years ending in 1997 through 2000 in relation to
the increase or decrease in earnings per share for the applicable period. The
precise amount of the annual cash bonus to be paid to Mr. Perry will be
determined by reference to an incentive matrix included as an exhibit to the
Employment Agreement. The annual cash bonus can be determined for the
applicable fiscal year by interpolating between two variables: earnings per
share for the applicable fiscal year and the percentage change in earnings per
share from the prior period. Depending on the value of these two variables,
the amount of Mr. Perry's annual cash bonus will fall within a range of $0 to
$1.6 million. The maximum amount of the annual cash bonus is achieved when
earnings per share reaches $3.30 for the applicable fiscal year and earnings
per share increases by 30% over the prior fiscal year. No cash bonus is
required to be paid if the earnings per share is less than $1.10 regardless of
the magnitude of the percentage increase or decrease in earnings per share
from the prior fiscal year. For more information, see "Appendix F- Mr.
Perry's Incentive Matrix." The annual cash bonus provisions of the Employment
Agreement that relate to Mr. Perry's performance during fiscal 1997 through
2000, which are the subject of this Proposal, cannot be amended or modified in
any material respect without stockholder approval.
Since cash bonuses payable pursuant to the Employment Agreement for the
fiscal years 1997 through 2000 are not determinable, the following table sets
forth only the annual bonus that Mr. Perry received relating to his
performance during the fiscal year ended December 31, 1996, based on earnings
per share of $1.51 for CWM's 1996 fiscal year and a 21% increase in earnings
per share from fiscal 1995.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
NAME AND POSITION AMOUNT
----------------- --------
<S> <C>
Michael W. Perry
President and Chief Operating Officer................................. $817,500
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE EMPLOYMENT AGREEMENT OF
MICHAEL W. PERRY.
69
<PAGE>
PROPOSAL SEVEN
Ratifying the Selection of Independent Accountants
The Board of Directors has selected the accounting firm of Grant Thornton
LLP to audit CWM's financial statements for the year ending December 31, 1997.
Grant Thornton LLP has acted as the independent accounting firm for CWM since
1985. In accordance with a resolution of the Board of Directors, this
selection is being presented to stockholders for ratification at this meeting.
A representative of Grant Thornton LLP will be present at the Annual Meeting,
will have an opportunity to make a statement if he or she wishes to do so and
will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF GRANT THORNTON
LLP AS CWM'S INDEPENDENT ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1997.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
The following paragraphs contain a description of certain transactions and
relationships between CWM or any of its affiliates and CAMC or any of its
affiliates. A description of the Management Agreement between CWM and CAMC,
the Submanagement Agreement between CAMC and CHL, management interlocks and
stock ownership appear elsewhere in this Proxy Statement. See "Management
Arrangements Relating to CWM," "--the Submanagement Agreement Between CAMC and
CHL," "The Merger--Conflicts of Interest" and "Risk Factors".
INDY MAC
CWM's mortgage conduit operations are primarily conducted through Indy Mac,
a taxable corporation which is not consolidated with CWM for tax or financial
reporting purposes. Although CWM owns all of Indy Mac's outstanding non-voting
preferred stock and 99% of the economic interest in Indy Mac, CHL, a wholly-
owned subsidiary of CCI, owns all of Indy Mac's outstanding voting common
stock and 1% of the economic interest in Indy Mac. Accordingly, CCI, through
its stock ownership of CHL, has the power to elect directors and officers of
CHL and Indy Mac, and consequently CCI has the power to direct CHL and Indy
Mac's day-to-day operations. Currently, two officers and two directors of Indy
Mac are officers or directors, as the case may be, of CCI or CHL, and all
officers and directors of Indy Mac are officers and/or directors, as the case
may be, of CAMC. See "Risk Factors--Ownership by CCI of the Voting Stock of
Indy Mac."
CCI has agreed, as part of the Merger Agreement, to amend the certificate of
incorporation of Indy Mac. The Indy Mac Charter Amendment will provide that if
a CCI Change of Control occurs, or if CCI ceases to beneficially own more than
5.0% of the issued and outstanding shares of CWM Common Stock, or if neither
Mr. Loeb nor Mr. Mozilo is a director of CWM, CWM will be entitled, in its
sole discretion, to compel the dissolution of Indy Mac and to receive all
assets of Indy Mac, other than a certain amount of cash, which will be payable
to CCI in an amount equal to 3% of the book value of Indy Mac, unless CCI
requests an independent appraisal. If such appraisal is requested, CCI shall
receive such higher or lower value that corresponds to 1% of the fair market
value of Indy Mac's assets. The Indy Mac Charter Amendment will also prohibit
a holder of Indy Mac securities (such as CCI) from causing any assets of Indy
Mac to be used for any purpose other than in furtherance of Indy Mac's
business.
CWM has agreed in the Merger Agreement that, in the event that CWM (i)
establishes or acquires a majority ownership interest in an entity, the
business activities of which are substantially the same as all of the business
activities then being conducted by Indy Mac or (ii) transfers to such other
entity substantially all of the assets of Indy Mac, then CWM shall be
required, at CCI's option, to purchase CCI's interest in Indy Mac at a
purchase price equal to the amount required to be paid to CCI in the event of
a dissolution of Indy Mac as described above.
70
<PAGE>
In 1996, Indy Mac purchased all of the mortgage loans that it subsequently
securitized from CWM, consistent with its past practice. In January 1996, CWM
and Indy Mac entered into a Master Forward Commitment and Services Agreement
pursuant to which CWM agrees to sell and Indy Mac agrees to purchase certain
mortgage loans, and Indy Mac agrees to act as the master servicer with respect
to certain assets acquired by CWM for an annual fee, which equals the product
of .025% and the aggregate unpaid principal balance of assets under its
management. A copy of the Master Forward Commitment and Services Agreement has
been filed as an exhibit to CWM's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996.
Indy Mac has granted CWM a license to use the initials "INMC" to enable CWM
to change its name as described in Proposal Three--"Changing the Name of CWM"
above. The name change of CWM is intended to reflect the increasingly
distinctive market identity of the Company in connection with the proposed
termination of its management relationship with CCI.
Following consummation of the Merger, CWM anticipates that the operating
personnel currently employed by CAMC will be hired by CWM or Indy Mac, on the
basis of the respective business activities of each entity, the current and
expected duties of each employee and any time-sharing arrangements negotiated
between CWM and Indy Mac. In addition, CWM and Indy Mac will arrange for
appropriate cost sharing arrangements with respect to any employees whose
services encompass the business activities of both entities.
CHL
CWM's mortgage loan conduit operations consist of the purchase of
residential mortgage loans by CWM from originators and the sale of such
mortgage loans to Indy Mac, securitization of the mortgage loans and the sale
of the resulting securities to investors or sales of the mortgage loans on a
whole loan basis. CWM and the sellers of the mortgage loans negotiate whether
the seller will retain, or CWM will purchase, the rights to service the
mortgage loans purchased by CWM and Indy Mac. Since the Company does not
generally perform primary servicing on its portfolio of mortgage loans held
for sale or investment, the Company has negotiated contractual arrangements
with established servicers, including CHL, a wholly-owned subsidiary of CCI,
to sub-service loans for which the Company acquires the servicing rights. The
sub-servicing arrangement between the Company and CHL is governed by the 1987
Amended and Restated Servicing Agreement, as amended (the "Sub-Servicing
Agreement"). Under the Sub-Servicing Agreement, CHL retains a monthly fee of
$6.25 per loan for "A" paper loans and $15.00 per loan for subprime loans. In
addition, CHL retains setup fees in the normal course. Under the Sub-Servicing
Agreement CHL earned sub-servicing fees of approximately $1.1 million and
$461,000 for the years ended December 31, 1996 and December 1995,
respectively. In the opinion of management, the overall terms of the sub-
servicing arrangements with CHL are as favorable to CWM as could have been
negotiated with unaffiliated parties. The Company and CHL are in the process
of negotiating a new sub-servicing agreement.
The Company purchases a relatively small portion of the mortgage loans it
securitizes from CHL pursuant to the 1996 Amended and Extended Loan Purchase
and Administrative Services Agreement (the "Purchase and Service Agreement").
Pursuant to the Purchase and Service Agreement, CHL retains the servicing
rights on all conforming loans it sells to the Company. During the years ended
December 31, 1996 and 1995, the Company purchased mortgage loans from CHL with
principal balances aggregating approximately $30.7 million and $74.6 million,
respectively.
In addition, CHL services the mortgage loans that secure three series of
CMOs issued by a subsidiary of CWM or trusts established by a subsidiary of
CWM pursuant to servicing agreements entered into in 1987 and 1993. These
agreements provide for servicing fees up to .32% of the aggregate unpaid
principal balance of the mortgage loans being serviced. CHL received servicing
fees of approximately $200,398 and $250,000 under these agreements for the
years ended December 31, 1996 and 1995, respectively.
71
<PAGE>
CCI
CCI maintains certain employee benefit plans on behalf of executive officers
of CWM and other employees of CAMC who render services to the Company. These
employee benefits include the CCI DB Plan, the CCI 401(k) Plan, a deferred
compensation plan, a supplemental executive retirement plan as well as health,
dental, life, disability and workers compensation insurance. Currently, the
Company reimburses CAMC for contributions to such plans on behalf of CWM's
officers and the employees of CAMC who render services to the Company. If the
Merger is approved, CWM and Indy Mac intend to establish similar plans to
cover the employees of CAMC who become CWM and/or Indy Mac employees, subject
to certain conditions. For a description of the covenants of CCI and CWM with
respect to such plans, see "The Merger Agreement--Employee Matters" and
"Appendix A--The Merger Agreement."
As a condition to the Merger Agreement, CCI will enter into the Registration
Rights Agreement and the Cooperation Agreement. For a description of these
agreements, see "The Merger--Registration Rights", "--Special Purchase Rights"
and "--the Cooperation Agreement."
72
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial information is derived from the historical
consolidated financial statements of CWM. The financial information set forth
below should be read in conjunction with CWM's consolidated financial
statements, related notes and other financial information incorporated by
reference in this Proxy Statement.
CWM MORTGAGE HOLDINGS, INC.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED
STATEMENT OF
EARNINGS DATA
Interest income........ $ 75,218 $ 59,016 $ 242,303 $ 180,465 $ 92,119 $ 65,504 $ 106,070
Interest expense....... 48,148 40,523 159,365 131,910 66,700 65,312 107,511
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
(expense)............. 27,070 18,493 82,938 48,555 25,419 192 (1,441)
Provision for loan
losses................ 3,900 2,403 12,991 4,037 500 -- --
Equity in earnings of
Indy Mac.............. 4,257 3,546 19,533 13,801 5,624 2,523 --
Gain on sale of
mortgage loans and
securities............ -- -- -- -- -- 917 9,031
Other income........... 1,312 208 2,470 1,427 885 797 --
Expenses:
Salaries, general and
administrative........ 5,086 2,415 14,202 4,213 2,402 1,549 1,606
Management fees to
affiliate............. 2,309 2,069 8,761 5,522 1,195 400 997
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings........... 21,344 16,360 68,987 50,011 27,831 2,480 4,987
========== ========== ========== ========== ========== ========== ==========
Earnings per share..... $ 0.42 $ 0.36 $ 1.51 $ 1.25 $ 0.86 $ 0.13 $ 0.36
========== ========== ========== ========== ========== ========== ==========
Dividends declared per
share for earnings of
the period............ $ 0.42 $ 0.36 $ 1.52 $ 1.25 $ 0.87 $ 0.48 $ 0.48
Weighted average shares
outstanding........... 51,291,755 43,105,573 45,643,885 39,902,680 32,183,850 18,578,307 13,978,683
SELECTED CONSOLIDATED
BALANCE SHEET DATA AT
PERIOD END
Mortgage and
manufactured housing
loans held for
investment, net....... $1,478,830 $1,236,713 $1,424,583 $ 899,672 $ -- $ --
Mortgage and
manufactured housing
loans held for sale... 778,855 657,208 409,584 608,240 794,132 --
Construction loans,
net................... 580,847 460,546 129,323 6,370 -- --
Collateral for CMOs.... 280,408 289,054 184,111 233,690 402,503 620,411
Mortgage securities.... 234,254 231,780 124,975 121,441 -- --
Revolving warehouse
lines of credit, net.. 197,286 251,032 190,705 69,591 92,058 --
Total assets........... 3,790,437 3,356,059 2,643,360 1,999,541 1,396,738 714,225
Short-term borrowings.. 2,902,346 2,531,509 2,037,834 1,534,189 770,334 21,944
Collateralized mortgage
obligations........... 256,070 264,080 164,760 202,259 365,886 571,857
Senior unsecured
notes................. 59,790 59,759 59,649 -- -- --
Shareholders' equity... 540,847 478,424 362,731 257,917 250,608 119,995
Number of shares
outstanding........... 52,600,148 50,200,146 42,413,842 32,281,156 32,020,484 13,980,387
Book value per share... $ 10.28 $ 9.53 $ 8.55 $ 7.99 $ 7.83 $ 8.58
SELECTED OTHER DATA
Mortgage and
manufactured housing
loans acquired........ $1,240,031 $4,185,789 $4,186,392 $5,985,466 $3,420,263 $ --
Indy Mac master
servicing portfolio... 11,413,000 11,131,000 9,419,000 6,818,000 1,977,000 --
</TABLE>
73
<PAGE>
CWM MORTGAGE HOLDINGS, INC.
PRO FORMA SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE FOR THE
QUARTER ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
SELECTED CONSOLIDATED STATEMENT OF EARNINGS
DATA
Interest income.............................. $ 75,218 $ 242,303
Interest expense............................. 48,148 159,365
----------- -----------
Net interest income.......................... 27,070 82,938
Provision for loan losses.................... 3,900 12,991
Equity in earnings of Indy Mac (b)(c)........ 4,615 20,384
Other income................................. 1,312 2,470
Expenses:
Salaries, general and administrative (c)..... 5,217 14,725
Management fees to affiliate (d)............. -- --
=========== ===========
Net earnings (a)............................. 23,880 $ 78,076
=========== ===========
Earnings per share (a)....................... $ 0.44 $ 1.59
=========== ===========
Dividends declared per share for earnings of
the period (e).............................. $ 0.44 $ 1.59
Weighted average share outstanding (f)....... 54,888,877 49,241,007
SELECTED CONSOLIDATED BALANCE SHEET DATA AT
PERIOD END
Mortgage and manufactured housing loans held
for investment, net......................... $ 1,478,830 $ 1,236,713
Mortgage and manufactured housing loans held
for sale.................................... 778,885 657,208
Construction loans, net...................... 580,847 460,546
Collateral for CMOs.......................... 280,408 289,054
Mortgage securities.......................... 234,254 231,780
Revolving warehouse lines of credit, net..... 197,286 251,032
Total assets................................. 3,790,437 3,356,059
Short-term borrowings........................ 2,902,346 2,531,509
Collateralized mortgage obligations.......... 256,070 264,080
Senior unsecured notes....................... 59,790 59,759
Shareholders' equity......................... 538,847 476,424
Number of shares outstanding (g)............. 56,197,270 53,797,268
Book value per share......................... $ 9.59 $ 8.86
SELECTED OTHER DATA
Mortgage and manufactured housing loans
acquired.................................... $ 1,240,031 $ 4,185,789
Indy Mac master servicing portfolio.......... 11,413,000 11,131,000
</TABLE>
- --------
(a) At the time the proposed transaction is consummated, CWM would record a
one-time charge to account for the transaction as a settlement of a
contract. The one-time charge would aggregate $69.5 million and would
consist of $67.5 million estimated fair value of CWM Common Stock to be
issued, reflecting a 10% discount to the current market price due to
restrictions placed on the registration and sale of the stock, and $2
million of estimated transaction and transition expenses associated with
the settlement of the contract. This $69.5 million is not reflected in pro
forma net earnings or earnings per share since it is a non-recurring
expense. If these non-recurring expenses were included in pro forma net
earnings and earnings per share for the three months ended March 31, 1997,
the adjusted net earnings would reflect a net loss of $45.6 million and
adjusted net loss per share would have been $0.83. If the non-recurring
expenses were included in the pro forma earnings and earnings per share
for the year ended December 31, 1996, the adjusted net earnings would be
$8.6 million and adjusted earnings per share would be $0.17 per share.
(b) Subsequent to the settlement of the management contract, Indy Mac would
not have paid management fees. The adjustment to the equity in earnings of
Indy Mac is shown net of taxes.
(c) Includes the cost of additional employees and systems under the proposed
self-managed structure to perform certain functions previously performed
by CCI, including personnel in the human resources, accounting, and other
administrative areas. Included in the equity in earnings of Indy Mac is
$81,000 and $325,000, net of tax, for such additional expenses for the
quarter ended March 31, 1997 and the year ended December 31, 1996,
respectively.
(d) Subsequent to the settlement of the management contract, CWM would have
been self-administered and, as such, would not have paid management fees.
(e) In general, it is CWM's policy to distribute dividends in an amount equal
to its GAAP earnings. However, to avoid tax on its income, as determined
for tax purposes, CWM must distribute an amount equal to its taxable
income. Because the proposed transaction will result in a one-time charge
to CWM's GAAP earnings equal to the purchase price of CAMC and there will
not be a corresponding deduction for tax purposes, CWM will need to make a
distribution which is in excess of its book income to avoid tax on its
income.
(f) Represents the weighted average shares of CWM Common Stock for the period,
plus the 3,597,122 estimated shares of CWM Common Stock to be issued in
the proposed transaction, calculated assuming a $75 million payment at
$20.85 per share, as specified in the Merger Agreement.
(g) Represents the shares of CWM Common Stock outstanding at period-end plus
the 3,597,122 estimated shares of CWM Common Stock to be issued in the
proposed transaction.
74
<PAGE>
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and financial statement schedules of
CWM for each of the years in the three-year period ended December 31, 1996
included in CWM's Annual Report on Form 10-K (as amended by Form 10-K/A and
Form 10-K/A dated May 20, 1997) for the fiscal year ended December 31, 1996
incorporated by reference in this Proxy Statement, and the financial
statements of CAMC as of February 28(29), 1997 and 1996 and for the years then
ended have been audited by Grant Thornton LLP.
The Board of Directors has retained Grant Thornton LLP as CWM's independent
accountants for the current fiscal year and has been advised that Grant
Thornton LLP is independent with respect to CWM and its subsidiaries within
the meaning of the Securities Act and the applicable published rules and
regulations thereunder. Representatives of Grant Thornton LLP are expected to
be present at the Annual Meeting and will have the opportunity to make
statements if they desire and to respond to appropriate questions from
stockholders.
OTHER MATTERS
The Directors of CWM know of no other business to be presented at the Annual
Meeting. If other matters properly come before the meeting in accordance with
CWM's Bylaws, the persons named as proxies will vote on them in accordance
with their best judgment.
ANNUAL REPORT AND FORM 10-K
The 1996 Annual Report to Stockholders containing the consolidated financial
statements of CWM for the year ended December 31, 1996 has previously been
mailed to stockholders.
STOCKHOLDERS MAY OBTAIN WITHOUT CHARGE A COPY OF CWM'S ANNUAL REPORT ON FORM
10-K (AS AMENDED BY FORM 10-K/A AND FORM 10-K/A DATED MAY 20, 1997) FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1996 AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION WITHOUT THE ACCOMPANYING EXHIBITS, BY WRITING TO INVESTOR
RELATIONS, CWM MORTGAGE HOLDINGS, INC., 155 NORTH LAKE AVENUE, P.O. BOX 7137,
PASADENA, CALIFORNIA 91109-7137. A LIST OF EXHIBITS IS INCLUDED IN THE FORM
10-K (AS AMENDED BY FORM 10-K/A AND FORM 10-K/A DATED MAY 20, 1997), AND
EXHIBITS ARE AVAILABLE FROM CWM UPON THE PAYMENT TO CWM OF THE COSTS OF
FURNISHING THEM.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
All proposals of stockholders intended to be presented at CWM's 1998 Annual
Meeting of Stockholders must be received by the Secretary of CWM by January
21, 1998 to be considered for possible inclusion in the proxy statement used
in connection with such annual meeting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by CWM are incorporated by
reference in this Proxy Statement:
(i) CWM's Annual Report on Form 10-K (as amended by Form 10-K/A and Form
10-K/A dated May 20, 1997) for the fiscal year ended December 31, 1996;
and
(ii) CWM's Quarterly Report on Form 10-Q for the three months ended March
31, 1997.
All documents filed by CWM with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
date of the Annual Meeting shall be deemed to be incorporated by reference
herein and shall be part hereof from the date of filing of such documents. See
75
<PAGE>
"Available Information." Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Proxy Statement to the
extent that a statement in this Proxy Statement or in any other subsequently
filed document which is or is deemed to be incorporated by reference modifies
or supersedes such statement. Any such statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part
of this Proxy Statement.
You are urged to complete, date, sign and return your Proxy Card promptly to
make certain your shares will be voted at the Annual Meeting, even if you plan
to attend the meeting in person. If you desire to vote your shares in person
at the meeting, your proxy may be revoked. For your convenience in returning
the Proxy Card, a pre-addressed and postage paid envelope has been enclosed.
YOUR PROXY IS IMPORTANT
WHETHER YOU OWN FEW OR MANY SHARES
Please date, sign and mail the enclosed Proxy Card today.
By Order of the Board of Directors
/s/ Richard H. Wohl
Richard H. Wohl
Secretary
Dated: May 21, 1997
76
<PAGE>
COUNTRYWIDE ASSET MANAGEMENT CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
FINANCIAL STATEMENTS
Balance Sheets at February 28, 1997 and February 29, 1996................ F-2
Statement of Earnings and Retained Earnings for the years ended February
28(29), 1997, 1996 and 1995............................................. F-3
Statement of Cash Flows for the years ended February 28(29), 1997, 1996
and 1995................................................................ F-4
Notes to Financial Statements............................................ F-5
Report of Independent Certified Public Accountants on financial state-
ments as of and for the years ended February 28, 1997 and February 29,
1996.................................................................... F-7
</TABLE>
F-1
<PAGE>
COUNTRYWIDE ASSET MANAGEMENT CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
COUNTRYWIDE CREDIT INDUSTRIES, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28(29),
---------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Due from parent and affiliate............................ $1,649,000 $2,016,000
Property, equipment and leasehold improvements, at cost--
net of accumulated depreciation of $371,000 and $283,000
at February 28(29), 1997 and 1996, respectively......... 258,000 347,000
Investment in CWM Common Stock (20,000 shares)........... -- 315,000
---------- ----------
Total assets........................................... $1,907,000 $2,678,000
========== ==========
SHAREHOLDER'S EQUITY
Capital stock--$0.10 par value; authorized, 10,000
shares; issued and outstanding, 10,000 shares........... $ 1,000 $ 1,000
Accumulated unrealized holding gain on investment in CWM
Common Stock............................................ -- 70,000
Retained earnings........................................ 1,906,000 2,607,000
---------- ----------
Total shareholder's equity............................. $1,907,000 $2,678,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
COUNTRYWIDE ASSET MANAGEMENT CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
COUNTRYWIDE CREDIT INDUSTRIES, INC.)
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28(29),
------------------------------------
1997 1996 1995
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES
Management fee income.................. $10,215,000 $8,581,000 $1,399,000
Net interest earned.................... 386,000 306,000 120,000
Dividend income........................ 22,000 24,000 14,000
----------- ---------- ----------
Total revenues....................... 10,623,000 8,911,000 1,533,000
Net expenses............................. -- 1,000 (10,000)
----------- ---------- ----------
Earnings before income taxes............. 10,623,000 8,910,000 1,543,000
Provision for income taxes........... 4,143,000 3,564,000 617,000
----------- ---------- ----------
NET EARNINGS............................. 6,480,000 5,346,000 926,000
Retained earnings at beginning of year... 2,607,000 2,261,000 1,335,000
Less: dividends paid..................... (7,181,000) (5,000,000) --
----------- ---------- ----------
Retained earnings at end of year......... $ 1,906,000 $2,607,000 $2,261,000
=========== ========== ==========
Earnings per share....................... $ 648.00 $ 534.60 $ 92.60
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
COUNTRYWIDE ASSET MANAGEMENT CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
COUNTRYWIDE CREDIT INDUSTRIES, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28(29),
-----------------------------------
1997 1996 1995
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................. $6,480,000 $5,346,000 $ 926,000
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation........................... 88,000 88,000 88,000
---------- ---------- ----------
Net cash provided by operating activi-
ties.................................. 6,568,000 5,434,000 1,014,000
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in due from parent
and affiliate........................... 367,000 (434,000) (930,000)
Purchase of property, equipment and
leasehold improvements--net............. -- -- (84,000)
---------- ---------- ----------
Net cash provided (used) by investing ac-
tivities................................ 367,000 (434,000) (1,014,000)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid...................... (6,935,000) (5,000,000) --
---------- ---------- ----------
Net cash used by financing activities.. (6,935,000) (5,000,000) --
---------- ---------- ----------
Net increase (decrease) in cash............ -- -- --
Cash at beginning of year.................. -- -- --
---------- ---------- ----------
Cash at end of year........................ $ -- $ -- $ --
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
COUNTRYWIDE ASSET MANAGEMENT CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF COUNTRYWIDE CREDIT INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28(29), 1997, 1996 AND 1995
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Countrywide Asset Management Corporation ("CAMC") manages the investments
and oversees the day-to-day operations of an affiliate, CWM Mortgage Holdings,
Inc. ("CWM") and its subsidiaries. All of CAMC's revenues, except for certain
intercompany interest income, were generated entirely from transactions with
CWM and its subsidiaries.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
1. Organization
CAMC is a wholly-owned subsidiary of Countrywide Credit Industries, Inc.
("CCI" and the "Parent").
2. Income Taxes
CCI and its subsidiaries, including CAMC, have elected to file consolidated
federal and combined state income and franchise tax returns. The policy of CCI
is for each member of the consolidated group to recognize tax expense based on
that member's financial statement income. The income tax liability generated
by CAMC as well as payments thereof, are reflected in the amount due from
Parent.
3. Investment in CWM Common Stock
The investment in CWM Common Stock has been categorized as available for
sale and, as a result, is stated at fair value based on quoted market prices.
Unrealized holding gains and losses, net of applicable deferred taxes, are
included as a component of shareholder's equity until realized. During the
year ended February 28, 1997, CAMC transferred its investment in CWM Common
Stock with a market value of $413,000 to its Parent as a dividend in kind.
4. Fair Value of Amounts Due from Parent and Affiliate
The fair value of the amounts due from Parent and affiliate cannot be
determined.
5. Earnings per Share
Earnings per share is computed based on the 10,000 common shares outstanding
during each year.
NOTE B--TRANSACTIONS WITH AFFILIATES
CAMC entered into an agreement (the "Management Agreement") with CWM, a real
estate investment trust. CAMC has entered into a subcontract with its
affiliate, Countrywide Home Loans, Inc. ("CHL"), to perform such services for
CWM and its subsidiaries and Indy Mac as CAMC deems necessary. In accordance
with the Management Agreement, CAMC advises CWM on various facets of its
business and manages its operations subject to the supervision of CWM's Board
of Directors. For performing these services, CAMC receives a base management
fee of 0.125% per annum of average-invested mortgage related assets not
pledged to secure CMOs, and excluding mortgage loans held for sale. CAMC also
receives a separate management fee
F-5
<PAGE>
COUNTRYWIDE ASSET MANAGEMENT CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF COUNTRYWIDE CREDIT INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
equal to 0.2% per annum of the average amounts outstanding under traditional
warehouse lines of credit. In addition, CAMC receives incentive compensation
equal to 25% of the amount by which CWM's annualized return on equity exceeds
the ten-year U.S. Treasury rate plus 2%. During the fiscal years ended
February 28(29), 1997, 1996 and 1995, CAMC earned $1.6 million, $2.0 million
and $0.3 million, respectively, in base management fees from CWM and its
subsidiaries. In addition, during the fiscal years ended February 28(29),
1997, 1996 and 1995, CAMC recorded $8.6 million, $6.6 million and $1.1
million, respectively, in incentive compensation. The Management Agreement is
renewable annually and expires on the earlier of the last day of the month
following the date on which CWM's stockholders approve the Merger (assuming
the Merger is approved) and May 31, 1998.
CAMC incurs many of the operating expenses related to the operations of CWM
and its subsidiaries, for which it is reimbursed by CWM. During the fiscal
years ended February 28(29), 1997, 1996 and 1995, the total expenses incurred
by CAMC in connection with its management of CWM were $29.2 million, $17.1
million and $9.9 million, respectively.
NOTE C--EMPLOYEE BENEFIT PLANS
Eligible full-time employees of CAMC are covered under CCI's defined benefit
pension and tax deferred savings and investment plans (employee benefit
plans). A portion of the employee benefit plan expense is allocated to CAMC
based upon the percentage of CAMC's salary expense to the total salary
expenses of CCI and its subsidiaries. CAMC's employee benefit plan expense was
$400,000, $255,000 and $122,000 for the years ended February 28(29), 1997,
1996 and 1995, respectively.
NOTE D--MERGER
On January 30, 1997, CCI and CWM announced that they executed a definitive
Agreement and a Plan of Merger (the "Merger Agreement") whereby CAMC will be
merged with and into CWM. Under the Merger Agreement, CCI will receive
approximately 3.6 million newly issued common shares of CWM. The Merger
Agreement, and a related Registration Rights Agreement which addresses the
status and rights associated with the CWM Common Stock to be issued to CCI,
have been approved by a Special Committee consisting of the independent
Directors of CWM, by the full Board of Directors of CWM, and by the Board of
Directors of CCI (with only the unaffiliated directors of each company's full
board of directors voting). It is expected that the transaction will be
presented for approval at the Annual Meeting of CWM's shareholders, currently
scheduled for June 24, 1997, following the filing of a proxy statement with
the Securities and Exchange Commission and a subsequent proxy distribution to
CWM's shareholders. However, depending upon the timing and results of
regulatory review, the approval of CWM's shareholders may instead be sought at
a later special meeting.
F-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholder
Countrywide Asset Management Corporation
(a wholly-owned subsidiary of Countrywide Credit Industries, Inc.)
We have audited the accompanying balance sheet of Countrywide Asset
Management Corporation (a wholly-owned subsidiary of Countrywide Credit
Industries, Inc.) as of February 28(29), 1997 and 1996, and the related
statements of earnings and retained earnings and cash flows for the years then
ended. These financial statements are the responsibility of CAMC's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Countrywide Asset
Management Corporation as of February 28(29), 1997 and 1996, and the results
of its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
Grant Thornton LLP
Los Angeles, California
March 7, 1997
F-7
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG CWM MORTGAGE HOLDINGS, INC., COUNTRYWIDE ASSET
MANAGEMENT CORPORATION AND COUNTRYWIDE CREDIT
INDUSTRIES, INC.
This Agreement and Plan of Merger (this "Agreement") dated as of January 29,
1997, is by and among CWM Mortgage Holdings, Inc., a Delaware corporation
("CWM REIT"), Countrywide Asset Management Corporation, a Delaware corporation
("CAMC Advisor"), and Countrywide Credit Industries, Inc., a Delaware
corporation ("CCR").
WITNESSETH:
WHEREAS, the parties hereto wish to merge CAMC Advisor with and into CWM
REIT pursuant to Delaware law, with CWM REIT being the surviving entity (the
"Merger"); and
WHEREAS, Section 251 of the General Corporation Law of the State of
Delaware, 8 Del.C. (S) 101, et seq. (the "DGCL"), authorizes the merger of a
Delaware corporation with and into another Delaware corporation; and
WHEREAS, CWM REIT's Certificate of Incorporation and Bylaws permit, and
resolutions adopted by a majority of CWM REIT's independent directors and by
the CWM REIT Board of Directors authorize, this Agreement and the consummation
of the Merger, and as provided herein, this Agreement will be submitted to the
stockholders of CWM REIT for approval; and
WHEREAS, CAMC Advisor's Certificate of Incorporation and Bylaws permit, and
resolutions adopted by CAMC Advisor's Board of Directors and CCR (as the sole
shareholder of CAMC Advisor), respectively, authorize, this Agreement and the
consummation of the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties to this Agreement covenant and agree as
follows:
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE 1
DEFINITIONS
<C> <S> <C>
1.1 Terms Defined in this Section....................................... A-2
1.2 Terms Defined in Section 5.7........................................ A-5
ARTICLE 2
THE MERGER
2.1 The Merger, Surviving Corporation................................... A-5
2.2 Closing............................................................. A-5
2.3 Effective Time...................................................... A-5
2.4 Effect of the Merger................................................ A-5
ARTICLE 3
THE SURVIVING CORPORATION
3.1 Name................................................................ A-5
3.2 Certificate of Incorporation and Bylaws............................. A-5
3.3 Officers and Directors.............................................. A-6
ARTICLE 4
MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF
CAMC ADVISOR COMMON STOCK; ADJUSTMENTS
4.1 Share Consideration; Conversion or Cancellation of CAMC Shares...... A-6
4.2 Payment for CAMC Shares in the Merger............................... A-6
4.3 Fractional CAMC Shares.............................................. A-7
4.4 Transfer of CAMC Shares............................................. A-7
4.5 Lost, Stolen or Destroyed Certificates.............................. A-7
4.6 Indemnification..................................................... A-7
4.7 Further Assurances.................................................. A-9
ARTICLE 5
REPRESENTATIONS AND WARRANTIES REGARDING CAMC ADVISOR
5.1 Organization, Etc. of CAMC Advisor.................................. A-9
5.2 Partnerships; Subsidiaries.......................................... A-9
5.3 Agreement........................................................... A-9
5.4 Capital Stock....................................................... A-9
5.5 Litigation.......................................................... A-9
5.6 Compensation and Employee Matters................................... A-9
5.7 Employee Benefit Plans.............................................. A-9
5.8 Taxes............................................................... A-13
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
5.9 Intellectual Property............................................... A-13
5.10 No Material Adverse Change.......................................... A-14
5.11 Financial Statements................................................ A-14
5.12 Books and Records................................................... A-14
5.13 Proxy Statement..................................................... A-14
5.14 Contracts and Leases................................................ A-14
5.15 Real Property....................................................... A-14
</TABLE>
ARTICLE 6
REPRESENTATIONS AND WARRANTIES REGARDING CCR
<TABLE>
<C> <S> <C>
6.1 Power and Authority................................................. A-15
6.2 Agreement........................................................... A-15
6.3 Foreign Person...................................................... A-15
6.4 No Withholding...................................................... A-15
6.6 Brokers and Finders................................................. A-15
6.7 Securities Act Representations...................................... A-15
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF CWM REIT
7.1 Organization, Etc. of CWM REIT...................................... A-16
7.2 Capital Stock....................................................... A-16
7.3 Agreement........................................................... A-17
7.4 Authorization for CWM Common Stock.................................. A-17
7.5 Brokers and Finders................................................. A-17
7.6 SEC Reports and Financial Statements................................ A-17
7.7 Information......................................................... A-18
7.8 Books and Records................................................... A-18
7.9 Litigation.......................................................... A-18
7.10 General............................................................. A-18
ARTICLE 8
COVENANTS OF THE PARTIES
8.1 Maintenance of Business, Prohibited Acts............................ A-19
8.2 Officers and Employees.............................................. A-20
8.3 Significant Business Line........................................... A-20
8.4 Meeting of Stockholders............................................. A-20
8.5 Proxy Materials..................................................... A-20
8.6 Fillings, Other Action.............................................. A-21
8.7 Access to Information............................................... A-21
8.8 Management Fee Adjustment........................................... A-21
8.9 Intellectual Property Rights........................................ A-22
8.10 Tax Matters......................................................... A-22
8.11 Covenant Not to Compete, Continuing Arrangements Etc................ A-24
8.12 Reorganization...................................................... A-24
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
8.13 Public Statements................................................. A-25
8.14 Letter of CAMC Advisor's Accountants.............................. A-25
8.15 Employee Matters.................................................. A-25
8.16 Notice of Certain Events.......................................... A-27
8.17 Director and Officer Indemnification.............................. A-27
8.18 Further Action.................................................... A-28
8.19 Books and Records................................................. A-28
8.20 Restrictions on Resale of Share Consideration..................... A-28
8.21 CAMC Advisor Shareholder Approval................................. A-28
8.22 Waiver of Limitations on Percentage Ownership..................... A-28
8.23 Delivery of Certain Financial Statements.......................... A-28
8.24 Distributions..................................................... A-28
8.25 Sales and Use Taxes, Etc. ........................................ A-29
ARTICLE 9
CONDITIONS TO THE MERGER
9.1 Conditions to Each Party's Obligations............................ A-29
(a)CWM REIT Stockholder Approval.................................. A-29
(b)HSR Act........................................................ A-29
(c)No Injunction or Proceedings................................... A-29
(d)No Suspension of Trading, Etc.................................. A-29
(e)Registration Rights Agreement.................................. A-29
(f)Cooperation Agreement.......................................... A-29
(g)Employment Contract............................................ A-30
(h)Physical Facility.............................................. A-30
9.2 Conditions to Obligations of CCR and CAMC Advisor to Effect the
Merger............................................................ A-30
9.3 Conditions to Obligation of CWM REIT to Effect the Merger......... A-30
ARTICLE 10
TERMINATION; AMENDMENT; WAIVER
10.1 Termination by Mutual Consent..................................... A-31
10.2 Termination by Either CWM REIT or CAMC Advisor.................... A-31
10.3 Effect of Termination and Abandonment............................. A-32
10.4 Amendment......................................................... A-32
10.5 Waiver............................................................ A-32
ARTICLE 11
MISCELLANEOUS
11.1 Expenses.......................................................... A-32
11.2 Notices, Etc...................................................... A-32
11.3 Survival.......................................................... A-33
11.4 No Assignment..................................................... A-34
11.5 Entire Agreement.................................................. A-34
11.6 Specific Performance.............................................. A-34
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
11.7 Remedies Cumulative................................................ A-34
11.8 No Waiver.......................................................... A-34
11.9 No Third-Party Beneficiaries....................................... A-34
11.10 Jurisdiction and Venue............................................. A-34
11.11 Governing Law...................................................... A-34
11.12 Name, Captions, Etc. .............................................. A-34
11.13 Severability....................................................... A-34
11.14 Counterparts....................................................... A-35
11.15 Gender; Number..................................................... A-35
11.16 Ambiguities........................................................ A-35
</TABLE>
A-iv
<PAGE>
ARTICLE 1
DEFINITIONS
1.1 Terms Defined in this Section. As used in this Agreement, the following
terms shall have the respective meanings set forth below:
"Affiliate": As defined in Rule 12b-2 under the Exchange Act.
"Agreement": As defined in the preamble.
"Authorization": Any consent, approval or authorization of, expiration or
termination of any waiting period requirement (including pursuant to the HSR
Act) by, or filing, registration, qualification, declaration or designation
with, any Governmental Body.
"Business Combination": As defined in Section 4.1(a).
"Business Day": means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions are authorized
or required by law, regulation or executive order to close in The City of New
York or in Los Angeles, California.
"CAMC Advisor": As defined in the preamble.
"CAMC Advisor Common Stock": CAMC Advisor's common stock, $0.10 par value.
"CAMC Advisor Disclosure Schedule": As defined in Article 5.
"CAMC Advisor Financial Statements": As defined in Section 5.11.
"CAMC Shares": As defined in Section 4.1(a).
"CCR": As defined in the preamble.
"CCR DB Plan": As defined in Section 8.15(a).
"CWM Common Stock": CWM REIT's common stock, par value $.01 per share.
"CWM REIT": As defined in the preamble.
"CWM REIT DB Plan": As defined in Section 8.15(a).
"CWM REIT E&P Committee": A Committee consisting of no more than six
employees of, or advisors to, CWM REIT to be designated by the chief operating
officer of CWM REIT.
"CWM REIT 401(k) Plan": As defined in Section 8.15(b).
"CWM REIT Stockholders Meeting": As defined in Section 8.4.
"Certificate of Merger": The certificate of merger with respect to the
Merger containing the provisions required by, and executed in accordance with,
DGCL Section 251.
"Certificates": As defined in Section 4.l(b).
"Change of Control": As defined in the CCR 1993 Stock Option Plan, as
amended and restated as of March 27, 1996, without reference to any subsequent
amendments, modifications or alterations thereof.
"Closing": The closing of the Merger.
A-2
<PAGE>
"Closing Date": The date on which the Closing occurs.
"Code": As defined in the Recitals.
"Cooperation Agreement": As defined in Section 9.1(f).
"DGCL": As defined in the Recitals.
"Damages": Any loss, liability, damage, Tax, demand, claim, action, judgment
or cause of action, assessment, cost, obligation or expense (including,
without limitation, interest, penalties, reasonable costs of investigation,
defense and prosecution of litigation and reasonable attorneys' and
accountants' fees) incurred by CWM REIT or CCR, as the case may be, subject in
all events to Section 4.6(f).
"Dean Witter": Dean Witter Reynolds Inc.
"Effective Time": As defined in Section 2.3.
"Estimated Transfer Amount": As defined in Section 8.15(b).
"Exchange": Each national securities exchange (as defined in Section 12(b)
of the Exchange Act) upon which the CWM Common Stock is then listed for
trading and/or quotation system on which the CWM Common Stock is then quoted,
which on the date of this Agreement is the New York Stock Exchange.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"February 29 Balance Sheet": The audited balance sheet of CAMC Advisor dated
February 29, 1996.
"Governmental Body": Any federal, state, municipal, political subdivision or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"HSR Act": The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"Indemnified Party": As defined in Section 4.6(c).
"Indemnifying Party": As defined in Section 4.6(c).
"Indy Mac": Independent National Mortgage Corporation.
"Indy Mac Charter Amendment": As defined in Section 8.11(e).
"Intellectual Property Rights": All intellectual property rights referred to
in the letter, dated the date hereof, from CWM REIT to CCR and CAMC Advisor,
including patents, patent applications, trademarks, trademark applications and
registrations, service marks, service mark applications and registrations,
tradenames, tradename applications and registrations, copyrights, copyright
applications and registrations, licenses, logos, corporate and partnership
names, and customer lists, proprietary processes, formulae, inventions, trade
secrets, know-how, development tools and other proprietary rights, and all
documentation and media constituting, describing or relating to the above,
including, but not limited to, manuals, memoranda, know-how, notebooks,
software, records and disclosures.
"Knowledge": The terms "knowledge" and "aware" and any derivatives thereof
when applied to any party to this Agreement shall refer to the knowledge or
awareness, as the case may be, which such party or, if applicable, any
director or executive officer thereof has, or reasonably should have had,
after due inquiry of the other officers and employees of such party; provided,
however, for the purposes of determining whether CCR or CAMC Advisor is in
breach of any representation or warranty hereunder which is based on the
knowledge or awareness of CCR or CAMC Advisor, no such breach shall exist if a
director or senior officer of CWM REIT
A-3
<PAGE>
(other than David S. Loeb or Angelo R. Mozilo) has knowledge or awareness of
the facts or circumstances which would otherwise constitute such breach; and
provided, further for the purposes of determining whether CWM REIT is in
breach of any representation or warranty hereunder which is based on the
knowledge or awareness of CWM REIT, no such breach shall exist if a director
or senior officer of CCR has knowledge or awareness of the facts or
circumstances which would otherwise constitute such breach.
"Management Agreement": The Amended and Extended Management Agreement dated
as of June 1, 1996 by and between CWM REIT and CAMC Advisor, as amended by the
First Amendment to 1996 Amended and Extended Management Agreement dated as of
July 25, 1996, by and between such parties.
"Material Adverse Effect": As to any Person, a material adverse effect on
the business, properties, operations or condition (financial or other) of such
Person.
"Merger": As defined in the Recitals.
"Merrill Lynch": Merrill Lynch, Pierce, Fenner & Smith Incorporated.
"Person": Any individual or corporation, company, partnership, trust,
incorporated or unincorporated association, joint venture or other entity of
any kind.
"Pre-Closing Market Value": The per-share value of the CWM Common Stock
based on the average sale price thereof for the 10 Business Days next
preceding the Closing Date, using for each such Business Day the last reported
sale price on the New York Stock Exchange.
"Proxy Statement": As defined in Section 8.5.
"Quarterly Financial Statements": As defined in Section 7.6(c).
"Registration Rights Agreement": That certain agreement between CCR and CWM
REIT to be entered pursuant to and in accordance with Section 9.1(e) hereof.
"Savings Participants": As defined in Section 8.15(b).
"SEC": The Securities and Exchange Commission.
"SEC Reports": As defined in Section 7.6.
"Securities Act": The Securities Act of 1933, as amended.
"Share Consideration": As defined in Section 4.1(a).
"Special Committee": The Special Committee of the three independent members
of the Board of Directors of CWM REIT, appointed specifically for the purpose
of negotiating the terms of any proposed merger with CAMC Advisor and any
alternatives to such transaction and to make recommendations to the CWM REIT
Board of Directors and stockholders with respect to same.
"Special Purchase Rights": As defined in the Registration Rights Agreement.
"Stock": As defined in Section 8.15(b).
"Subsidiary": As to any Person, any other Person of which at the time of
determination the first Person owns or controls directly or indirectly more
than 50% of the outstanding common stock; provided, however, that for purposes
of this term whenever used in this Agreement, Indy Mac shall be deemed to be a
Subsidiary of CWM REIT and not a Subsidiary of CCR.
"Tax" or "Taxes": All federal, state, local, non-U.S. and other taxes
imposed by or on behalf of any Governmental Body, including, without
limitation: (i) net income, gross income, gross receipts, sales, use, ad
A-4
<PAGE>
valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, unemployment, excise, severance, stamp,
occupation, premium, real and personal property, gift or windfall profits
taxes, (ii) customs or duties and (iii) all other taxes, fees, assessments or
charges of any kind whatever, together with any interest and any penalties,
additions to tax, supplemental or retroactive assessments or additional
amounts with respect thereto.
"Tax Matter": As defined in Section 8.10(c).
"Tax Return": Any return, declaration of estimated tax, tax report, customs
declaration, claim for refund or information return or statement relating to
Taxes, including any amendment thereto.
"Transfer Amount": As defined in Section 8.15(b).
"Transferring Employees": As defined in Section 8.15(a).
1.2 Terms Defined in Section 5.7. Capitalized terms defined in Section 5.7
shall have the respective meanings set forth therein whenever such capitalized
terms appear in this Agreement.
ARTICLE 2
THE MERGER
2.1 The Merger, Surviving Corporation. Subject to the terms and conditions
set forth in this Agreement, at the Effective Time CAMC Advisor shall be
merged with and into CWM REIT pursuant to Section 251 of the DGCL, and the
separate existence of CAMC Advisor shall cease. CWM REIT shall be the
surviving corporation in the Merger and shall continue to be governed by the
DGCL.
2.2 Closing. Subject to Article 10 hereof and the fulfillment or waiver of
the conditions set forth in Article 9, the Closing shall take place at (i) the
offices of Brown & Wood LLP, One World Trade Center, New York, New York, at
10:00 a.m. New York City time, on the second business day following the
fulfillment or waiver of the conditions set forth in Article 9 (other than
conditions which by their nature are intended to be fulfilled at the Closing)
or (ii) such other place or time or on such other date as CWM REIT and CCR may
agree or as may be necessary to permit the fulfillment or waiver of the
conditions set forth in Article 9.
2.3 Effective Time. In accordance with Sections 251 and 103 of the DGCL, the
Merger shall become effective (the "Effective Time") upon the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware, or
at such later time, not later than five business days thereafter, as may be
specified in the Certificate of Merger. For Tax purposes, the parties agree
that the Effective Time shall be deemed to occur after the close of business
on the date on which the Effective Time occurs, and neither party shall take a
position inconsistent therewith, except as may be required by law. All other
filings or recordings required by Delaware law in connection with the Merger
shall also be made.
2.4 Effect of the Merger. The Merger shall have the effects set forth in
Section 259 of the DGCL.
ARTICLE 3
THE SURVIVING CORPORATION
3.1 Name. The name of the surviving corporation shall be CWM Mortgage
Holdings, Inc. or such other name as may be approved by the stockholders of
CWM REIT.
3.2 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation and Bylaws of CWM REIT as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation and Bylaws of CWM
REIT unless and until amended in accordance with their terms and applicable
law.
A-5
<PAGE>
3.3 Officers and Directors. Except as otherwise contemplated by this
Agreement, the officers of CWM REIT immediately prior to the Effective Time
shall continue as officers of CWM REIT and remain officers until their
successors are duly appointed or their prior resignation, removal or death.
The directors of CWM REIT immediately prior to the Effective Time shall
continue as directors of CWM REIT and shall remain directors until their
successors are duly elected and qualified or their prior resignation, removal
or death.
ARTICLE 4
MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF
CAMC ADVISOR COMMON STOCK; ADJUSTMENTS
4.1 Share Consideration; Conversion or Cancellation of CAMC Shares.
(a) Subject to the provisions of this Article 4, at the Effective Time, by
virtue of the Merger and without any action by holders thereof, all of the
shares of CAMC Advisor Common Stock issued and outstanding immediately prior
to the Effective Time (collectively, the "CAMC Shares") shall be converted
into an aggregate of 3,597,122 shares of CWM Common Stock, subject to
adjustment in accordance with Section 4.1(c) (the "Share Consideration").
Prior to the Effective Time, CWM REIT will not split or combine the CWM Common
Stock, or pay a stock dividend or other stock distribution in shares of CWM
Common Stock, or in rights or securities exchangeable or convertible into or
exercisable for CWM Common Stock, or otherwise change the CWM Common Stock
into, or exchange the CWM Common Stock for, any other securities (whether
pursuant to or as part of a merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation of CWM REIT as a result of
which CWM REIT stockholders receive cash, stock or other property in exchange
for, or in connection with, their CWM Common Stock (a "Business Combination")
or otherwise), or make any other dividend or distribution on or of CWM Common
Stock (other than regular monthly or quarterly cash dividends paid on the CWM
Common Stock or any distribution pursuant to CWM REIT's dividend reinvestment
plan), without the parties hereto having first entered into an amendment to
this Agreement pursuant to which the Share Consideration will be adjusted to
reflect such split, combination, dividend, distribution, Business Combination
or change.
(b) All CAMC Shares to be converted into CWM Common Stock pursuant to this
Section 4.1 shall cease to be outstanding, shall be canceled and retired and
shall cease to exist, and CCR, as the holder of a certificate or certificates
representing such CAMC Shares (a "Certificate" or the "Certificates") shall
thereafter cease to have any rights with respect to such CAMC Shares, except
the right to receive for all of the CAMC Shares, upon the surrender of such
Certificates in accordance with Section 4.2, the CWM Common Stock specified
above and cash in lieu of fractional shares of CWM Common Stock as
contemplated by Section 4.3.
(c) The Share Consideration shall be calculated and adjusted as follows:
(i) In the event that the Pre-Closing Market Value is less than $19.46,
the Share Consideration shall be adjusted and increased to that number of
shares of CWM Common Stock that is determined by dividing $70,000,000 by
the Pre-Closing Market Value, subject to the termination provisions of
Section 10.2(c)(i) hereof.
(ii) In the event that the Pre-Closing Market Value is more than $22.24,
the Share Consideration shall be adjusted and decreased to that number of
shares of CWM Common Stock that is determined by dividing $80,000,000 by
the Pre-Closing Market Value, subject to the termination provisions of
Section 10.2(c)(i) hereof.
(d) At the Effective Time, by virtue of the Merger and without any action by
holders thereof, all of the shares of CWM REIT Common Stock issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding.
4.2 Payment for CAMC Shares in the Merger. At or after the Effective Time,
upon surrender by CCR of its Certificates for cancellation to CWM REIT,
together with any other required documents, CCR shall receive
A-6
<PAGE>
for the CAMC Shares represented by such Certificates (i) the Share
Consideration and (ii) cash in lieu of fractional shares of CWM Common Stock
as contemplated by Section 4.3, and the Certificates so surrendered shall
forthwith be canceled. Until surrendered, the outstanding Certificates shall,
upon and after the Effective Time, be deemed for all purposes (other than to
the extent provided in the following sentence) to evidence ownership of the
number of shares of CWM Common Stock into which such CAMC Shares have been
converted pursuant to Section 4.1 hereof and the other rights contemplated in
the preceding sentence.
4.3 Fractional CAMC Shares. No fractional shares of CWM Common Stock shall
be issued in the Merger. In lieu of any such fractional securities, CCR will
be paid an amount in cash (without interest) equal to the Pre-Closing Market
Value of one share of CWM Common Stock, multiplied by such fraction.
4.4 Transfer of CAMC Shares. (a) No transfers of CAMC Shares shall be made
on the stock transfer books of CAMC Advisor after the date of this Agreement,
and (b) CCR agrees not to transfer any CAMC Shares after the date of this
Agreement and before the Closing Date.
4.5 Lost, Stolen or Destroyed Certificates. In the event any Certificate
shall have been lost, stolen or destroyed, upon receipt of an affidavit of
that fact from CCR and if reasonably satisfied that adequate provision for
indemnification has been made, CWM REIT will issue in exchange for such lost,
stolen or destroyed Certificate shares of CWM Common Stock, cash in lieu of
fractional shares, and unpaid dividends and distributions on shares of CWM
Common Stock as provided in Section 4.2, deliverable in respect thereof
pursuant to this Agreement.
4.6 Indemnification.
(a) Subject to Section 11.3, CCR agrees to indemnify and hold harmless CWM
REIT and its directors, officers, employees, affiliates, agents and permitted
assigns, without duplication, from and against: (i) any and all Damages
(excluding those items referred to in subsection (ii) of this Section 4.6(a))
asserted against, imposed upon or incurred or suffered by any of them,
directly or indirectly, as a result of, or based upon or arising from any
inaccuracy in or breach or non-fulfillment of any of the representations,
warranties or covenants or agreements made by CAMC Advisor or CCR in this
Agreement; (ii) (A) any Taxes payable by or on behalf of CAMC Advisor for any
taxable period ending on or prior to the Effective Time, including Taxes of
any member of a consolidated or combined tax group of which CAMC Advisor is,
or was at any time, part, for which CAMC Advisor is jointly or severally
liable as a result of its inclusion in such group prior to the Effective Time,
(B) any claim or demand for reimbursement or indemnification resulting from
any transfer of tax benefits or credits by CAMC Advisor to any other person,
and (C) any Taxes payable by CWM REIT as a result of any breach of any
representation or warranty contained in Section 5.8; and (iii)(A) except for
liabilities (including liabilities arising under Title IV of ERISA or Section
412 of the Code) assumed by CWM REIT pursuant to Section 8.15, any Damages
arising out of or relating to any Employee Plan maintained or sponsored by CCR
or any ERISA Affiliate and (B) any Damages (including liabilities arising
under Title IV of ERISA or Section 412 of the Code) relating to or arising out
of any employee benefit plan maintained by CCR or any ERISA Affiliate which is
not an Employee Plan.
(b) Subject to Section 11.3, CWM REIT agrees to indemnify and hold harmless
CCR and its directors, officers, employees, affiliates, agents and permitted
assigns, without duplication, from and against any and all Damages asserted
against, imposed upon or incurred or suffered by any of them, directly or
indirectly, as a result of, or based upon or arising from (i) any inaccuracy
in or breach or non-fulfillment of any of the representations, warranties or
covenants or agreements made by CWM REIT in this Agreement or (ii) termination
or any change in employment status, compensation or benefits by CWM REIT of
any employees employed by CAMC Advisor at the time of Closing.
(c) Except with respect to matters addressed in Section 8.10(c), which
matters shall be governed solely by such Section, if any action or proceeding
(including any governmental investigation) shall be brought or asserted
against a party hereto (or its officers, directors, trustees or agents) or any
person controlling such party in respect of which indemnity is required from
the other party hereunder (such party to whom indemnification is required
A-7
<PAGE>
is referred to herein as the "Indemnified Party;" the party from whom such
indemnification is required is referred to herein as the "Indemnifying
Party"), the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to the Indemnified Party,
and shall assume the payment of all expenses. The Indemnified Party or any
such officer, director, trustee, agent or controlling person shall have the
right to employ separate counsel (approved by the Indemnified Party) in any
such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of the Indemnified Party or
such officer, director, trustee, agent or controlling person unless (i) the
Indemnifying Party shall have failed to assume the defense of such action or
proceeding and employ counsel reasonably satisfactory to the Indemnified Party
in any such action or proceeding or (ii) the named parties to any such action
or proceeding (including any impleaded parties) include both the Indemnified
Party or such officer, director, trustee, agent or controlling person and the
Indemnifying Party, and the Indemnified Party or such officer, director,
trustee, agent or controlling person shall have been advised by counsel that
there may be one or more legal defenses available to it which are different
from or additional to those available to the Indemnifying Party (in which
case, if the Indemnified Party or such officer, director, trustee, agent or
controlling person notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such
action or proceeding on behalf of the Indemnified Party or such officer,
director, trustee, agent or controlling person, it being understood, however,
that the Indemnifying Party shall not, in connection with any one such action
or proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with local counsel) at any time for
the Indemnified Party and its officers, directors, trustees, agents and
controlling persons, which firm shall be designated in writing by the
Indemnified Party). The Indemnifying Party shall not be liable for any
settlement of any such action or proceeding effected without the Indemnifying
Party's written consent, but if settled with its written consent, or if there
be a final judgment for the plaintiff in any such action or proceeding, the
Indemnifying Party agrees to indemnify and hold harmless the Indemnified Party
and its officers, directors, trustees, agents and controlling person from and
against any loss or liability (to the extent stated above) by reason of such
settlement or judgment.
(d) (i) The obligations of CCR pursuant to Section 4.6 (a)(i) shall survive
the Closing if and to the extent that the related representation, warranty,
covenant or agreement survives the Closing as provided in Section 11.3. The
obligations of CCR pursuant to Section 4.6 (a)(ii) and (iii) shall survive the
Closing, but shall terminate upon the expiration of the applicable statute of
limitations with respect to the matters covered thereby.
(ii) The obligations of CWM REIT pursuant to Section 4.6(b)(i) shall survive
the Closing if and to the extent that the related representation, warranty,
covenant or agreement survives the Closing as provided in Section 11.3. The
obligations of CWM REIT pursuant to Section 4.6(b)(ii) shall survive the
Closing, but shall terminate upon the expiration of the applicable statute of
limitations with respect to the matters covered thereby.
(e) (i) Notwithstanding anything in this Section 4.6 to the contrary, to the
extent indemnification for any inaccuracy in or breach of any representation
or warranty in Section 5, 6 or 7, as the case may be, is sought under Section
4.6(a)(i) or Section 4.6(b) hereof, CCR or CWM REIT, as the case may be, shall
be required to provide indemnification only to the extent the aggregate amount
of Damages arising under Section 4.6(a)(i) or 4.6(b), as the case may be,
exceeds $500,000.
(ii) Notwithstanding anything in Section 4.6(a)(i) to the contrary, the
aggregate amount payable by CCR with respect to any Damages under Section
4.6(a)(i) for any inaccuracy in or breach of any representation or warranty in
Section 5 or 6 shall not exceed $15,000,000 (excluding for such purposes,
however, any Damages arising out of the breach of any of the representations
and warranties contained in Sections 5.7, 5.8 and 5.13).
(iii) Notwithstanding anything in Section 4.6(b) to the contrary, the
aggregate amount of Damages payable by CWM REIT with respect to Damages under
Section 4.6(b) for any inaccuracy in or breach of any representation or
warranty in Section 7 shall not exceed $15,000,000 (excluding for such
purposes, however, any Damages with respect to the representations and
warranties contained in Sections 7.7 and 7.10).
A-8
<PAGE>
(f) In case any event shall occur which would otherwise entitle any party to
assert any claim for indemnification hereunder, no Damages shall be deemed to
have been sustained by such party to the extent of (i) the value of any tax
savings actually realized or to be realized (including savings attributable to
an increase in the tax basis of an asset held by such party) by such party
with respect thereto or (ii) any proceeds received by such party from any
insurance policies with respect thereto, net of any increase in premiums or
other costs associated with such insurance recovery.
(g) The indemnification provisions of this Section 4.6 shall be the sole and
exclusive remedy of the parties against one another with respect to any money
damages under this Agreement.
(h) Anything to the contrary contained in this Agreement notwithstanding,
(i) CCR shall have no obligation to indemnify CWM REIT for any Damages as a
result of CWM REIT failing to be treated as a real estate investment trust
under the Code, unless such failure was solely a result of the breach by CCR
of any of its obligations under Section 8.10(c) of this Agreement and the
remedy of specific performance with respect thereto would not provide adequate
relief to CWM REIT, and (ii) CWM REIT shall have no obligation to indemnify
CCR for any Damages as a result of the Merger failing to qualify as a
reorganization under Code Section 368(a), unless such failure was solely a
result of the breach by CWM REIT of any of its obligations under Sections 7.10
and 8.3 of this Agreement.
4.7 Further Assurances. If at any time CWM REIT shall consider or be advised
that any further assignment, conveyance or assurance is necessary or advisable
to vest, perfect or confirm of record in CWM REIT the title to any property or
right of CAMC Advisor, or otherwise to carry out the provisions hereof, the
proper representatives of CCR or CAMC Advisor as of the Effective Time shall
execute and deliver any and all proper deeds, assignments and assurances, and
do all things necessary and proper to vest, perfect or convey title to such
property or right in CWM REIT and otherwise to carry out the provisions
hereof.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES REGARDING CAMC ADVISOR
CAMC Advisor and CCR hereby jointly and severally represent and warrant to
CWM REIT that, except as set forth in the disclosure schedule delivered by
CAMC Advisor and CCR to CWM REIT on the date hereof (the "CAMC Advisor
Disclosure Schedule") as of the date hereof:
5.1 Organization, Etc. of CAMC Advisor. CAMC Advisor is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
lease and operate its properties, to carry on its business as now conducted by
CAMC Advisor, to enter into this Agreement and to carry out the provisions of
this Agreement and consummate the transactions contemplated hereby. CAMC
Advisor is duly qualified and in good standing in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure
to so qualify or to be in good standing has not had or would not have a
Material Adverse Effect on CAMC Advisor. True and correct copies of CAMC
Advisor's Certificate of Incorporation and Bylaws have been made available to
CWM REIT.
5.2 Partnerships; Subsidiaries. CAMC Advisor is not, directly or indirectly,
a partner in any partnership. CAMC Advisor does not have, directly or
indirectly, any Subsidiaries.
5.3 Agreement. This Agreement and the consummation of the transactions
contemplated hereby have been approved by the Board of Directors of CAMC
Advisor and have been duly authorized by all other necessary corporate action
on the part of CAMC Advisor including the written consent of CCR, as sole
stockholder. This Agreement has been duly executed and delivered by a duly
authorized officer of CAMC Advisor and constitutes a valid and binding
agreement of CAMC Advisor, enforceable against CAMC Advisor in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general application that
may affect the enforcement of creditors' rights generally and by general
A-9
<PAGE>
equitable principles and except to the extent that public policy
considerations may limit the enforcement of indemnification of obligations.
CAMC Advisor has delivered to CWM REIT true and correct copies of resolutions
adopted by the Board of Directors of CAMC Advisor and CCR, respectively,
approving this Agreement and the transactions contemplated hereby.
5.4 Capital Stock. The authorized capital stock of CAMC Advisor consists of
10,000 shares of common stock, of which 10,000 shares are outstanding as of
the date hereof. All outstanding shares of such common stock are duly
authorized, validly issued, fully paid and nonassessable, and no class of
capital stock of CAMC Advisor is entitled to preemptive or similar rights.
There are outstanding on the date hereof no options, warrants, calls, rights,
commitments or any other agreements of any character to which CAMC Advisor is
a party or by which it may be bound, requiring it to issue, transfer, sell,
purchase, redeem or acquire any shares of capital stock or any securities or
rights convertible into, exchangeable for or evidencing the right to subscribe
for or acquire any shares of its capital stock.
5.5 Litigation. Except as set forth in Section 5.5 of the CAMC Advisor
Disclosure Schedule, there are no actions, suits, investigations or legal
proceedings pending or, to the knowledge of CAMC Advisor and CCR, threatened
against CAMC Advisor or any property of CAMC Advisor (including the
Intellectual Property Rights) in any court or before any arbitrator of any
kind or before or by any Governmental Body or before any arbitrator of any
kind except for such actions, suits, investigations or legal proceedings that
would not have a Material Adverse Effect on CAMC Advisor. Except as set forth
in Section 5.5 of the CAMC Advisor Disclosure Schedule, CAMC Advisor is not in
default with respect to any judgment, order, writ, injunction or decree of any
arbitrator, court or Governmental Body, and there are no unsatisfied judgments
against CAMC Advisor except for such defaults or unsatisfied judgments as
would not have a Material Adverse Effect on CAMC Advisor.
5.6 Compensation and Employee Matters. A true, correct and complete list of
all directors, officers and personnel of CAMC Advisor, and the annual salary,
bonuses paid or accrued for the year ending February 29, 1996, and for the
period from March 1, 1996 through November 30, 1996, and any commitments by
CAMC Advisor entered into on or prior to the date hereof to pay any further
bonuses for or increase the salary of each such person is set forth in Section
5.6 of the CAMC Advisor Disclosure Schedule.
5.7 Employee Benefit Plans.
(a) Definitions. The following terms, when used in this Section 5.7 or
elsewhere in this Agreement, shall have the following meanings. Any of these
terms may, unless the context otherwise requires, be used in the singular or
the plural depending on the reference.
(i) Benefit Arrangement. Any employment, consulting, severance or other
similar contract, arrangement (written or oral), program, policy, plan,
agreement or commitment providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
life, health, disability or accident benefits (including, without
limitation, any "voluntary employees' beneficiary association" as defined
in Section 501(c)(9) of the Code, providing for the same or other benefits)
or for deferred compensation, profit sharing bonuses, stock options, stock
appreciation rights, stock purchases or other forms of incentive
compensation or post-retirement insurance, compensation or benefit which
(A) is not a Welfare Plan, Pension Plan or Multiemployer Plan, (B) is
entered into, maintained, contributed to or required to be contributed to,
as the case may be, by CAMC Advisor or under which CAMC Advisor may incur
any liability, and (C) covers any CAMC Employee (with respect to his or her
relationship with CAMC Advisor).
(ii) CAMC Employee. Any employee or former employee of CAMC Advisor.
(iii) Employee Plans. All Benefit Arrangements, Multiemployer Plans,
Pension Plans and Welfare Plans.
(iv) ERISA. The Employee Retirement Income Security Act of 1974, as
amended.
A-10
<PAGE>
(v) ERISA Affiliate. "ERISA Affiliate" shall mean any entity which is (or
at any relevant time was) a member of a "controlled group of corporations"
with, under "common control" with or a member of an affiliated service
group with CAMC Advisor as defined in Section 414(b), (c) or (m) of the
Code.
(vi) IRS. The Internal Revenue Service.
(vii) Multiemployer Plan. Any "multiemployer plan," as defined in Section
4001(a)(3) of ERISA, (A) which CAMC Advisor or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or,
after September 25, 1980, maintained, administered, contributed to or was
required to contribute to, or under which CAMC Advisor or any ERISA
Affiliate may incur any liability and (B) which covers any CAMC Employee
(with respect to his or her relationship with CAMC Advisor).
(viii) PBGC. The Pension Benefit Guaranty Corporation.
(ix) Pension Plan. Any "employee pension benefit plan" as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) (A) which CAMC
Advisor or any ERISA Affiliate maintains, administers, contributes to or is
required to contribute to, or, within the five years prior to the date
hereof, maintained, administered, contributed to or was required to
contribute to, or under which CAMC Advisor or any ERISA Affiliate may incur
any liability and (B) which covers any CAMC Employee (with respect to his
or her relationship with CAMC Advisor).
(x) Welfare Plan. Any "employee welfare benefit plan" as defined in
Section 3(1) of ERISA, (A) which CAMC Advisor or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or
under which CAMC Advisor or any ERISA Affiliate may incur any liability and
(B) which covers any CAMC Employee (with respect to his or her relationship
with CAMC Advisor).
(b) Disclosure; Delivery of Copies of Relevant Documents and Other
Information. Section 5.7(b) of the CAMC Advisor Disclosure Schedule contains a
complete list of Employee Plans which cover or have covered CAMC Employees
(with respect to their relationship with CAMC Advisor). True and complete
copies of each of the following documents have been delivered to CWM REIT: (i)
each Welfare Plan, Pension Plan and Multiemployer Plan (and, if applicable,
related trust agreements, annuity contracts or other funding instruments)
which covers or has covered CAMC Employees (with respect to their relationship
with CAMC Advisor) and all amendments thereto, and all annuity contracts or
other funding instruments, (ii) each Benefit Arrangement which covers or has
covered CAMC Employees (with respect to their relationship with CAMC Advisor),
(iii) the most recent determination letter issued by the IRS, with respect to
each Pension Plan which covers or has covered CAMC Employees (with respect to
their relationship with CAMC Advisor) and any outstanding request for a
determination letter, (iv) any ruling letter or interpretive letter issued by
the Department of Labor, the IRS, or any other governmental agency with
respect to each Employee Plan which covers or has covered CAMC Employees (with
respect to their relationship with CAMC Advisor), (v) for the most recent plan
year (or, in the case of a defined benefit pension plan the two most recent
plan years) annual reports on Form 5500 Series required to be filed with any
governmental agency for each Pension Plan which covers or has covered CAMC
Employees (with respect to their relationship with CAMC Advisor), (vi) all
actuarial reports prepared for the last two plan years for each Pension Plan
which covers or has covered CAMC Employees (with respect to their relationship
with CAMC Advisor), (vii) a description of complete age, salary, service and
related data as of the last day of the last plan year for CAMC Employees, and
(viii) a description setting forth the amount of any liability of CAMC Advisor
as of the date of this Agreement for payments more than thirty days past due
with respect to each Welfare Plan which covers or has covered CAMC Employees.
(c) Representations.
(i) All material Employee Plans are maintained and sponsored by CCR. CAMC
Advisor is not the sponsor of and does not maintain any material Employee
Plan.
(ii) Pension Plans
(A) The funding method used in connection with each Pension Plan which is
subject to the minimum funding requirements of ERISA complies in all
material respects with applicable law and the actuarial
A-11
<PAGE>
assumptions used in connection with funding each such plan are reasonable.
No "accumulated funding deficiency" (for which an excise tax is due or
would be due in the absence of a waiver) as defined in Section 412 of the
Code or as defined in Section 302(a)(2) of ERISA, whichever may apply, has
been incurred with respect to any Pension Plan with respect to any plan
year, whether or not waived. CAMC Advisor does not have any liability for
past due contributions with respect to any Pension Plan that has not been
accrued for on the February 29 Balance Sheet and as of the date hereof.
(B) The CCR DB Plan (as defined in Section 8.15(a)) and the CCR 401(k)
Plan are each the subject of a favorable determination letter received from
the IRS with respect to their qualified status under the provisions of Code
Section 401(a), and CCR is not aware of any circumstance that would
adversely affect that determination and which could not be corrected
without material liability to CAMC Advisor.
(C) Each of the plans described in paragraph (c) (ii) (B) above or
Section 8.15(d) presently complies and has been maintained in all material
respects in compliance with its terms during the period from its adoption
to date and, both as to form and in operation, in all material respects
with the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such plans, including but not limited
to ERISA and the Code.
(D) CAMC Advisor has paid all premiums (and interest charges and
penalties for late payment, if applicable) due the PBGC with respect to
each Pension Plan for each plan year thereof for which such premiums are
required. There has been no "reportable event" (as defined in Section
4043(b) of ERISA and the PBGC regulations under such Section) with respect
to any Pension Plan (other than reportable events with respect to which the
PBGC has waived the reporting requirement). No proceeding has been
commenced by the PBGC to terminate any Pension Plan. No material liability
to the PBGC has been incurred by CAMC Advisor or any ERISA Affiliate on
account of the termination of any Pension Plan. Neither CAMC Advisor nor
any ERISA Affiliate has, at any time, (x) ceased operations at a facility
so as to become subject to the provisions of Section 4068(f) of ERISA, (y)
withdrawn as a substantial employer so as to become subject to the
provisions of Section 4063 of ERISA, or (z) ceased making contributions on
or before the Closing Date to any Pension Plan subject to Section 4064(a)
of ERISA to which CAMC Advisor or any ERISA Affiliate made contributions
during the five years prior to the Closing Date.
(iii) Multiemployer Plans. There are no Multiemployer Plans covering any
CAMC Employees. Neither CAMC Advisor nor any ERISA Affiliate has engaged in,
or is a successor or parent corporation to an entity that has engaged in, a
transaction described in Section 4212(c) of ERISA.
(iv) Welfare Plans.
(A) Each Welfare Plan which is maintained or sponsored by CAMC Advisor
and which covers or has covered CAMC Employees (with respect to their
relationship with CAMC Advisor) has been maintained in all material
respects in compliance with its terms and, both as to form and operation in
all material respects, with the requirements prescribed by any and all
statutes, orders, rules and regulations which are applicable to such
Welfare Plan, including but not limited to ERISA and the Code.
(B) Except as may be required by applicable law, CAMC Advisor has no
obligation to make any payment to or with respect to any CAMC Employee
pursuant to any retiree medical benefit plan, or other retiree Welfare
Plan.
(C) Each Welfare Plan which covers or has covered CAMC Employees and
which is a "group health plan," as defined in Section 607(1) of ERISA, has
been operated in all material respects in compliance with provisions of
Part 6 of Title I of ERISA and Section 4980B of the Code at all times
except where any failure to comply would not result in material liability
to CAMC Advisor.
(v) Benefit Arrangements. Each Benefit Arrangement which is sponsored or
maintained by CAMC Advisor and which covers or has covered CAMC Employees has
been maintained in compliance in all material respects with its terms and with
the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Benefit Arrangement, including but
not limited to the Code.
A-12
<PAGE>
(vi) Payments. CAMC Advisor has made all contributions, paid all premiums
and satisfied all liabilities with respect to each Employee Plan which have
accrued and become due and payable.
(vii) Litigation. There is no action, order, writ, injunction, judgment or
decree outstanding or claim, suit, litigation, proceeding, arbitral action,
governmental audit or governmental investigation relating to or seeking
benefits under any Employee Plan that is pending or, to the knowledge of CAMC
Advisor, threatened or anticipated, against CAMC Advisor, CCR or, to the
knowledge of CAMC Advisor or CCR, any ERISA Affiliate or any Employee Plan
that would result in material liability to CAMC Advisor.
(viii) No Amendments. Except as may be required by law, neither CCR nor CAMC
Advisor has any announced plan or legally binding commitment to create any
additional Employee Plans which are intended to cover CAMC Employees (with
respect to their relationship with CAMC Advisor) or to amend or modify any
existing Employee Plan which covers or has covered CAMC Employees (with
respect to their relationship with CAMC Advisor), in either case in a manner
that would result in material liability to CAMC Advisor.
(ix) No Acceleration or Creation of Rights. Except as the parties may
otherwise provide pursuant to Section 8.15, neither the execution and delivery
of this Agreement by CAMC Advisor nor the consummation of the transactions
contemplated hereby will result in the acceleration or creation of any rights
of any person to benefits under any Pension Plan or Welfare Plan (including,
without limitation, the acceleration of the accrual or vesting of any benefits
under any Pension Plan or the acceleration or creation of any rights under any
severance, parachute or change in control agreement).
5.8 Taxes.
(a) Neither CAMC Advisor nor any consolidated or combined group of which it
is a member or required to be included as a member has filed a consent,
binding on CAMC Advisor, under Section 341(f) of the Code concerning
collapsible corporations.
(b) CAMC Advisor operates at least one significant historic business line,
or owns at least a significant portion of its historic business assets, in
each case within the meaning of Treasury Regulation Section 1.368-1(d).
(c) CAMC Advisor will not own as of the Effective Time any equity interest
or other security in another partnership, corporation or other entity or a fee
interest in less than 100% of any property (for example as a tenant-in-
common), unless such equity interest or other security (i) would be classified
as cash or a cash item within the meaning of Section 856(c)(5)(A) of the Code
and does not represent more than 10% of the voting securities of any issuer or
(ii) is CWM Common Stock.
(d) CAMC Advisor is not an "investment company" as defined in Section
368(a)(2)(F) of the Code and the regulations thereunder.
(e) The liabilities of CAMC Advisor to be assumed by CWM REIT in the Merger,
and the liabilities to which the assets of CAMC Advisor to be transferred to
CWM REIT in the Merger are subject, were incurred by CAMC Advisor in the
ordinary course of its business.
(f) CAMC Advisor is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(g) The fair market value of the assets of CAMC Advisor to be transferred to
CWM REIT in the Merger will equal or exceed the sum of the liabilities to be
assumed by CWM REIT plus the amount of liabilities, if any, to which the
transferred assets are subject.
5.9 Intellectual Property. To the knowledge of CCR and CAMC Advisor, none of
the Intellectual Property Rights is subject to any lien, encumbrance or claim
of infringement (except liens and encumbrances in favor of the licensor,
sublicensor or other owner of such Intellectual Property Rights), nor requires
any consent, approval or waiver to be transferred to CWM REIT by way of the
Merger.
A-13
<PAGE>
5.10 No Material Adverse Change. Since August 31, 1996, there have not been
any changes in the business, operations, properties, assets or condition,
financial or otherwise, of CAMC Advisor that would, individually or in the
aggregate, have a Material Adverse Effect except for changes resulting from
(i) fees or other amounts earned by CAMC Advisor under the Management
Agreement or (ii) any transactions contemplated by this Agreement, including
Section 8.8.
5.11 Financial Statements. CAMC Advisor has provided to CWM REIT true and
correct copies of its audited balance sheet as of February 29, 1996 and
unaudited balance sheets as of February 28, 1995 and November 30, 1996, and
related audited statements of income and cash flows for the year ended
February 29, 1996 and unaudited statements of income and cash flows for the
fiscal years ended February 28, 1994 and February 28, 1995 and the nine-month
period ended November 30, 1996 (collectively, the "CAMC Advisor Financial
Statements"). Each of such balance sheets (including the related notes)
presents fairly, in all material respects, the financial position of CAMC
Advisor as of the respective dates thereof, and such related statements
(including the related notes) present fairly, in all material respects, the
results of its operations and cash flows for the respective periods or as of
the respective dates set forth therein, all in conformity with generally
accepted accounting principles consistently applied during the periods
involved, except as otherwise noted in the auditors' report or in the notes
thereto, subject, in the case of interim financial statements, to normal year-
end adjustments.
5.12 Books and Records. (a) The books of account and other financial records
of CAMC Advisor are in all material respects true and correct.
(b) The minute books and other similar records of CAMC Advisor have been
made available to CWM REIT and contain in all material respects accurate
records of the minutes of all meetings and all corporate action taken by
written consent of the stockholders and Board of Directors of CAMC Advisor, in
each case prior to April 6, 1994.
5.13 Proxy Statement. None of the information supplied or to be supplied in
writing by CCR or CAMC Advisor for inclusion in the Proxy Statement will, at
the time of filing the Proxy Statement with the SEC, at the time of mailing
the Proxy Statement to the Stockholders of CWM REIT, at the time of the CWM
REIT Stockholders Meeting or at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under
which they are made, not misleading.
5.14 Contracts and Leases. To the knowledge of CAMC Advisor, the letter
dated the date hereof from CWM REIT to CCR and CAMC Advisor contains an
accurate and complete listing of all material contracts, leases, agreements or
understandings, whether written or oral, of CAMC Advisor (the "Material
Agreements"). A contract, lease, agreement or understanding is "material" if
it involves (i) obligations (contingent or otherwise) of, or payments to, CAMC
Advisor in excess of $25,000 per annum, (ii) management or advisory agreements
providing for payments to or by CAMC Advisor in excess of $25,000 per annum,
or (iii) the license of any patent, copyright, trade secret or other
proprietary right (A) to CAMC Advisor which is necessary to carry on its
business, other than any software license or similar agreement which is
generally available to the public or businesses or (B) from CAMC Advisor which
materially limits the ability of CAMC Advisor to carry on its business.
Neither CAMC Advisor nor, to the knowledge of CAMC Advisor and CCR, any other
party thereto has materially breached any Material Agreement or is in material
default thereunder, no event has occurred which, with the passage of time or
the giving of notice, or both, would constitute such a material breach or
material default by CAMC Advisor, or to the knowledge of CAMC Advisor and CCR,
any other party thereto, no claim of material default thereunder has been
asserted or threatened by CAMC Advisor against any such party thereto or, to
the knowledge of CAMC Advisor and CCR, asserted or threatened against CAMC
Advisor by any other party thereto, and neither CAMC Advisor nor, to the
knowledge of CAMC Advisor and CCR, any other party thereto is seeking the
renegotiation thereof or substitute performance thereunder.
5.15 Real Property. CAMC Advisor does not own or lease (as lessee) and has
not at any time owned or leased, in whole or in part, any real property.
A-14
<PAGE>
ARTICLE 6
REPRESENTATIONS AND WARRANTIES REGARDING CCR
CCR hereby represents and warrants to CWM REIT that as of the date hereof:
6.1 Power and Authority. CCR has all requisite corporate power and
authority, as applicable, to enter into this Agreement, the Cooperation
Agreement, and the Registration Rights Agreement and to carry out the
provisions hereof and thereof and consummate the transactions contemplated
hereby and thereby.
6.2 Agreement. CCR has taken all corporate action necessary to authorize
this Agreement, the Cooperation Agreement and the Registration Rights
Agreement and the consummation of the transactions contemplated hereby and
thereby. This Agreement has been duly executed and delivered by CCR and
constitutes, and each of the Registration Rights Agreement and Cooperation
Agreement when duly executed and delivered by a duly authorized officer of CCR
will constitute, a valid and binding agreement of CCR, enforceable against CCR
in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general application that may affect the enforcement of creditors' rights
generally and by general equitable principles and except to the extent that
public policy considerations may limit the enforcement of indemnification of
obligations.
6.3 Foreign Person. CCR is a United States person within the meaning of
Section 7701(a) of the Code.
6.4 No Withholding. The transaction contemplated hereby is not, insofar as
concerns CCR, subject to the tax withholding provisions of Section 3406 of the
Code, or of Subchapter A of Chapter 3 of the Code or of any other provision of
law.
6.5 No Intention to Dispose. There is not, and as of the date of the Merger
will not be, any plan or intention by CCR to sell, exchange, or otherwise
dispose of the shares of CWM REIT that CCR receives in the Merger such that
the value of its stock interest in CWM REIT would be reduced to an amount less
than 50% of CAMC Advisor's value as of the date of the Merger.
6.6 Brokers and Finders. Neither CCR nor CAMC Advisor has entered into any
contract, arrangement or understanding with any person or firm which may
result in the obligation of CAMC Advisor or CWM REIT to pay any investment
banking fees, finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby. The fees and expenses
paid or payable to Merrill Lynch and any claims by Merrill Lynch arising in
connection therewith are the sole obligation of CCR.
6.7 Securities Act Representations.
(a) CCR represents that it understands that the CWM Common Stock to be
issued and delivered to it at Closing pursuant to this Agreement will not have
been registered pursuant to the registration requirements of the Securities
Act and that the resale of all shares of CWM Common Stock is subject to Rule
144 of the rules and regulations thereunder or registration under the
Securities Act. CCR represents that it is acquiring the CWM Common Stock for
its own account, not as a nominee or agent, and not with a view to the
distribution thereof in violation of applicable securities laws. CCR further
represents that it has been advised and understands that since the CWM Common
Stock has not been registered under the Securities Act, the CWM Common Stock
must be held indefinitely unless (A) the distribution of the CWM Common Stock
has been registered under the Securities Act, (B) a sale of the CWM Common
Stock is made in conformity with the holding period, volume and other
limitations of Rule 144 promulgated by the SEC under the Securities Act, or
(C) in the opinion of counsel reasonably acceptable to CWM REIT, some other
exemption from registration is available with respect to any proposed sale,
transfer or other disposition of the CWM Common Stock.
(b) CCR represents that it has been advised and understands that, subject to
applicable securities laws, stop transfer instructions will be given to CWM
REIT's transfer agents with respect to the CWM Common Stock
A-15
<PAGE>
constituting the Share Consideration and that a legend setting forth the
following restrictions on transfer will be set forth on the certificates for
the CWM Common Stock issuable under Article 4, or any substitutions therefor:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT'), AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE. NEITHER THE SHARES EVIDENCED BY THIS CERTIFICATE NOR ANY
INTEREST THEREIN MAY BE SOLD OR OTHERWISE PLEDGED, HYPOTHECATED OR
TRANSFERRED IN THE ABSENCE OF (i) REGISTRATION UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii) A VALID EXEMPTION
THEREFROM."
(c) CCR represents that it has such knowledge and experience in financial
and business affairs that it is capable of evaluating, alone, the merits and
risks of an investment in CWM REIT. CCR represents that it has received and
reviewed copies of (i) the most recent annual report on Form 10-K, (ii) the
three most recent quarterly reports on Form 10-Q, (iii) any current reports on
Form 8-K since December 31, 1995, in each case as filed by CWM REIT under the
Exchange Act, and (iv) the most recent annual report to stockholders of CWM
REIT. CCR represents that it has had an opportunity to ask questions and
receive answers concerning the terms of this Agreement, the Cooperation
Agreement and the Registration Rights Agreement and the foregoing information
provided by CWM REIT and to obtain any other information from CWM REIT as CCR
deems necessary or appropriate in connection with evaluating the merits of an
investment in CWM REIT.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF CWM REIT
CWM REIT herein represents and warrants to CAMC Advisor and CCR that as of
the date hereof:
7.1 Organization, Etc. of CWM REIT. CWM REIT is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
lease and operate its properties, to carry on its business as now conducted
and proposed by CWM REIT to be conducted, to enter into this Agreement, the
Cooperation Agreement and the Registration Rights Agreement and to carry out
the provisions thereof and consummate the transactions contemplated hereby and
thereby. CWM REIT is duly qualified and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so qualified or in good standing has not had or would not have a
Material Adverse Effect on CWM REIT and its Subsidiaries taken as a whole.
True and correct copies of CWM REIT's Certificate of Incorporation and Bylaws
have been made available to CAMC Advisor.
7.2 Capital Stock. The authorized capital stock of CWM REIT consists of
100,000,000 shares of CWM Common Stock, of which 50,200,176 shares are
outstanding as of December 31, 1996. Since December 31, 1996, CWM REIT has not
issued any shares of capital stock except pursuant to the exercise of options
to purchase shares of CWM Common Stock outstanding on such date or pursuant to
CWM REIT's dividend reinvestment plan. All outstanding shares of CWM Common
Stock are, and all shares of CWM Common Stock issuable under stock option
plans of CWM REIT, pursuant to CWM REIT's dividend reinvestment plan or
pursuant to the Special Purchase Rights will be when issued in accordance with
the terms thereof, duly authorized, validly issued, fully paid and
nonassessable. Except for the 3,869,353 shares of CWM Common Stock reserved
for issuance pursuant to stock option plans of CWM REIT, CWM REIT's dividend
reinvestment plan or for purposes of the Special Purchase Rights, there are
outstanding on the date hereof no options, warrants, calls, rights,
commitments or any other agreements of any character to which CWM REIT is a
party or by which it may be bound, requiring it to issue, transfer, sell,
purchase, register, redeem or acquire any shares of capital stock or any
securities or rights convertible into, exchangeable for or evidencing the
right to subscribe for or acquire any shares of its capital stock.
A-16
<PAGE>
7.3 Agreement. This Agreement, the Cooperation Agreement and the
Registration Rights Agreement and the consummation of the transactions
contemplated hereby and thereby have been approved by the Board of Directors
of CWM REIT and have been duly authorized by all other necessary corporate
action on the part of CWM REIT (except for the approval of CWM REIT's
stockholders contemplated by Section 8.4), including without limitation, the
approval of the Special Committee. This Agreement has been duly executed and
delivered by a duly authorized officer of CWM REIT and, subject to CWM REIT
stockholder approval, constitutes, and each of the Cooperation Agreement and
the Registration Rights Agreement when duly executed and delivered by a duly
authorized officer of CWM REIT will constitute, valid and binding agreements
of CWM REIT, enforceable against CWM REIT in accordance with their terms,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application that may affect the
enforcement of creditors' rights generally and by general equitable principles
and except to the extent that public policy considerations may limit the
enforcement of indemnification of obligations. CWM REIT has delivered to CAMC
Advisor true and correct copies of resolutions adopted by the Board of
Directors of CWM REIT approving this Agreement and the transactions
contemplated hereby and, prior to the Closing Date, will deliver to CAMC
Advisor true and correct copies of resolutions adopted by the stockholders of
CWM REIT approving this Agreement and the transactions contemplated hereby.
7.4 Authorization for CWM Common Stock. The Share Consideration will, when
issued, be duly authorized, validly issued, fully paid and nonassessable, and
no stockholder of CWM REIT will have any preemptive right or similar rights of
subscription or purchase in respect thereof. The Share Consideration will,
subject to the accuracy of CCR's representations in Section 6.7 hereof, be
exempt from registration under the Securities Act and will be registered or
exempt from registration under all applicable state securities laws.
7.5 Brokers and Finders. Except for the fees and expenses paid to Dean
Witter with respect to the delivery of a fairness opinion to the Special
Committee and as financial advisor to the Special Committee, which fees are
reflected in its agreement with the Special Committee and CWM REIT (a copy of
which has been delivered to CAMC Advisor), CWM REIT has not entered into any
contract, arrangement or understanding with any person or firm that may result
in the obligation of CCR or CAMC Advisor to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby. Except for the fees and expenses paid to Dean Witter by
CWM REIT, there is no claim for payment by CWM REIT of any investment banking
fees, finder's fees, brokerage or agent's commissions or other like payments
in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby. The fees and expenses
paid or payable to Dean Witter and any claims by Dean Witter arising in
connection therewith are the sole obligation of CWM REIT.
7.6 SEC Reports and Financial Statements.
(a) CWM REIT has timely filed with the SEC all reports, definitive proxy
statements or other documents required to be filed by CWM REIT with the SEC
under Section 13(a), 14 or 15(d) of the Exchange Act since January 1, 1996
(collectively, and in each case including all exhibits and schedules thereto
and all documents incorporated by reference therein, the "SEC Reports"). As of
their respective dates, the SEC Reports complied in all material respects with
the requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable, as the case may be, to such SEC Reports,
and none of the SEC Reports contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading.
(b) The consolidated balance sheets as of December 31, 1995 and December 31,
1994 and the related consolidated statements of earnings, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1995 (including the related notes and schedules thereto) of CWM REIT contained
in its Form 10-K for the year ended December 31, 1995 included in the SEC
Reports complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto
A-17
<PAGE>
and present fairly, in all material respects, the consolidated financial
position, results of operations and cash flows of CWM REIT, its consolidated
subsidiaries and Indy Mac as of the dates or for the periods presented therein
in conformity with generally accepted accounting principles consistently
applied during the periods involved, except as otherwise noted in the
auditors' report or in the notes thereto.
(c) The consolidated balance sheets and the related statements of earnings
and cash flows (including the related notes thereto) of CWM REIT contained in
its Forms 10-Q for the periods ended September 30, 1996, June 30, 1996 and
March 31, 1996 included in the SEC Reports (collectively, the "Quarterly
Financial Statements") have been prepared in accordance with the requirements
for interim financial statements contained in Regulation S-X. The Quarterly
Financial Statements present fairly, in all material respects, the
consolidated financial position, results of operations and cash flows of CWM
REIT, its consolidated subsidiaries and Indy Mac as of the dates or for the
periods presented therein in conformity with GAAP consistently applied during
the periods involved except as otherwise noted in the notes thereto, and
reflect all adjustments, which include only normal recurring adjustments,
necessary to such fair presentation.
(d) Since September 30, 1996, there have not been any changes in the
business, operations, properties, assets or conditions, financial or
otherwise, of CWM REIT that would, individually or in the aggregate, have a
Material Adverse Effect on CWM REIT.
7.7 Information. The Proxy Statement will not at the time filed with the
SEC, at the time of mailing the Proxy Statement to the stockholders of CWM
REIT, at the time of the CWM REIT Stockholders Meeting or at the Effective
Time contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, except that no representation is made by CWM with
respect to statements made therein based on information supplied by CCR or
CAMC Advisor in writing for inclusion in the Proxy Statement. The Proxy
Statement will comply as to form in all material respects with the provisions
of the Exchange Act and the rules and regulations promulgated thereunder.
7.8 Books and Records.
(a) The books of account and the financial records of CWM REIT are in all
material respects true and correct.
(b) The minute books and other similar records of CWM REIT have been made
available to CCR and CAMC Advisor and contain in all material respects
accurate records of the minutes of all meetings and all corporate action taken
by written consent of the stockholders and Board of Directors of CWM REIT, in
each case on and after April 6, 1994.
7.9 Litigation. There are no actions, suits, investigations or legal
proceedings, pending or, to the knowledge of CWM REIT, threatened against CWM
REIT or any property of CWM REIT in any court or before any arbitrator of any
kind or before or by any Governmental Body or before any arbitrator of any
kind except for such actions, suits, investigations or legal proceedings that
would not have a Material Adverse Effect on CWM REIT. CWM REIT is not in
default with respect to any judgment, order, writ, injunction or decree of any
arbitrator, court or Governmental Body, and there are no unsatisfied judgments
against CWM REIT except for such defaults or unsatisfied judgments as would
not have a Material Adverse Effect on CWM REIT.
7.10 General.
(a) CWM REIT has no plan or intention to reacquire any of its stock issued
in the Merger.
(b) CWM REIT has no plan or intention to sell or otherwise dispose of any of
the assets of CAMC Advisor acquired in the Merger, except for dispositions
made in the ordinary course of business.
(c) CWM REIT has made or will make a valid and effective election under
Notice 88-19, 1988-1 C.B. 486, to be subject to rules similar to those set
forth in Section 1374 of the Code with respect to assets acquired from CAMC
Advisor in connection with the Merger.
A-18
<PAGE>
ARTICLE 8
COVENANTS OF THE PARTIES
8.1 Maintenance of Business, Prohibited Acts. During the period from the
date of this Agreement to the Effective Time, CCR will not, and will not cause
CAMC Advisor to, take any action that adversely affects the ability of CAMC
Advisor (i) to pursue its business in the ordinary course, (ii) to seek to
preserve intact its current business organization, (iii) to keep available the
service of its current officers and employees and (iv) preserve its
relationships with customers, suppliers and others having business dealings
with it; and CCR will not allow CAMC Advisor to, without CWM REIT's prior
written consent:
(a) issue, deliver, sell, dispose of, pledge or otherwise encumber, or
authorize or propose the issuance, delivery, sale, disposition or pledge or
other encumbrances of (i) any additional shares of its capital stock of any
class (including the CAMC Shares), or any securities or rights convertible
into, exchangeable for or evidencing the right to subscribe for any shares
of its capital stock, or any rights, warrants, options, calls, commitments
or any other agreements of any character to purchase or acquire any shares
of its capital stock or any securities or rights convertible into,
exchangeable for or evidencing the right to subscribe for any shares of its
capital stock, or (ii) any other securities in respect of, in lieu of or in
substitution for CAMC Shares outstanding on the date hereof;
(b) redeem, purchase or otherwise acquire, or propose to redeem, purchase
or otherwise acquire, any of its outstanding securities (including the CAMC
Shares);
(c) split, combine, subdivide or reclassify any shares of its capital
stock or otherwise make any payments to CCR in its capacity as sole
stockholder; provided, however, that nothing shall prohibit: (i) the
payment of any ordinary distribution or dividend in respect of its capital
stock at such times and in such manner and amount as may be consistent with
CAMC Advisor's past practice (which in any event shall include any and all
compensation paid or payable or expenses reimbursed or reimbursable for the
period from January 1, 1996 through the Effective Time, to the extent not
otherwise paid or distributed to CCR), (ii) the payment of any dividend as
shall be required to be paid by CAMC Advisor in order to permit Price
Waterhouse LLP to issue the letter required by Section 9.3(e), (iii) any
distribution of property necessary for the representation and warranty set
forth in Section 5.8(c) to be true and correct or (iv) the distributions
referred to in Section 8.24.
(d) (i) grant any increases in the compensation of any of its directors,
officers or employees, except in the ordinary course of business consistent
with past practice (except within the parameters noted in Section 5.6 of
the CAMC Advisor Disclosure Schedule or as approved by the Special
Committee), (ii) pay or agree to pay any pension retirement allowance or
other employee benefit not required or contemplated by any Employee Plan or
Benefit Arrangement as in effect on the date hereof to any such director,
officer or employee, whether past or present, (iii) enter into any new or
amend any existing employment or severance agreement with any such
director, officer or employee, except as approved by CWM REIT in its sole
discretion, (iv) pay or agree to pay any bonus to any director, officer or
employee (whether in the form of cash, capital stock or otherwise) except
as approved by the Special Committee, or (v) except as may be required to
comply with applicable law, amend any existing, or become obligated under
any new Employee Plan or Benefit Arrangement, except in the case of (i)
through (v), inclusive, under and pursuant to the employment agreement
referred to in Section 9.1(g);
(e) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization
(other than the Merger);
(f) make any acquisition, by means of merger, consolidation or otherwise,
of any direct or indirect ownership interest in or assets comprising any
business enterprise or operation;
(g) adopt any amendments to its Certificate of Incorporation or Bylaws;
(h) incur any indebtedness for borrowed money or guarantee such
indebtedness or agree to become contingently liable, by guaranty or
otherwise, for the obligations or indebtedness of any other person or
A-19
<PAGE>
make any loans, advances or capital contributions to, or investments in,
any other corporation, any partnership or other legal entity or to any
other persons, except for bank deposits and other investments in marketable
securities and cash equivalents made in the ordinary course of its
business;
(i) engage in the conduct of any business the nature of which is
materially different from the business in which CAMC Advisor is currently
engaged;
(j) enter into any agreement providing for acceleration of payment or
performance or other consequence as a result of a change of control of CAMC
Advisor except under the employment agreement referred to in Section
9.1(g);
(k) enter into any contract, arrangement or understanding requiring the
purchase of equipment, materials, supplies or services over a period
greater than 12 months which is not cancelable without penalty on 30 or
fewer days' notice, except in the ordinary course of business;
(l) forgive any indebtedness owed to CAMC Advisor or convert or
contribute by way of capital contribution any such indebtedness owed;
(m) authorize or enter into any agreement providing for management
services to be provided by CAMC Advisor to any third-party or an increase
in management fees paid by any third-party under existing management
agreements;
(n) mortgage, pledge, encumber, sell, lease or transfer any material
assets of CAMC Advisor except with the prior written consent of CWM REIT or
as contemplated by this Agreement;
(o) authorize or announce an intention to do any of the foregoing, or
entering any contract, agreement, commitment or arrangement to do any of
the foregoing; or
(p) perform any act or omit to take any action that would make any of the
representations made above inaccurate or materially misleading as of the
Effective Time.
8.2 Officers and Employees. Each of CAMC Advisor and CCR severally agree
that prior to the Effective Time it will use its reasonable efforts to
encourage the officers and employees of CAMC Advisor, to the extent they are
in good standing, to become employees of CWM REIT or Indy Mac, as determined
by CWM REIT in its sole discretion.
8.3 Significant Business Line. Except for the management of Indy Mac's
business, for a period of at least one year following the Effective Time, CWM
REIT shall continue the historic business that was managed by CAMC Advisor
prior to the Merger and shall use a significant portion of the business assets
of CAMC Advisor that are received by CWM REIT in the Merger in CWM REIT's
historic business.
8.4 Meeting of Stockholders. CWM REIT will take all action necessary in
accordance with applicable law and CWM REIT's Certificate of Incorporation and
Bylaws to arrange for its stockholders to consider and vote upon the approval
of the Merger and the issuance of shares of CWM Common Stock in the Merger at
the annual or special stockholders' meeting (the "CWM REIT Stockholders
Meeting") to be held in connection with the transactions contemplated by this
Agreement. Subject to the fiduciary duties of CWM REIT's Board of Directors
under applicable law as advised by counsel, the Board of Directors of CWM REIT
shall recommend and declare advisable such approval and CWM REIT shall take
all lawful action to solicit, and use all reasonable efforts to obtain, such
approval, including, without limitation, the inclusion of the recommendation
of the CWM REIT Board of Directors and of the Special Committee in the Proxy
Statement that the stockholders of CWM REIT vote in favor of the approval of
the Merger and the adoption of this Agreement.
8.5 Proxy Materials. After the date hereof, CWM REIT shall promptly prepare,
and CAMC Advisor and CCR shall cooperate in the preparation of, and CWM REIT
shall file with the SEC as soon as practicable a proxy statement and a form of
proxy, in connection with the vote of CWM REIT's stockholders with respect to
the Merger (such proxy statement, together with any amendments thereof or
supplements thereto, in each case in the form or forms mailed to CWM REIT's
stockholders, is herein called the "Proxy Statement"). CWM REIT will
A-20
<PAGE>
use all reasonable efforts to cause the Proxy Statement to be mailed to
stockholders of CWM REIT at the earliest practicable date as permitted by the
SEC and will take all such action as may be necessary to qualify the Share
Consideration for offering and sale under state securities or blue sky laws.
If at any time prior to the Effective Time any event relating to or affecting
CAMC Advisor, CCR or CWM REIT shall occur as a result of which it is
necessary, in the opinion of counsel for CAMC Advisor and CCR or of counsel
for CWM REIT, to supplement or amend the Proxy Statement in order to make such
document not misleading in light of the circumstances existing at the time
approval of the stockholders of CWM REIT is sought, CAMC Advisor, CCR and CWM
REIT, respectively, will notify the others thereof and, in the case of CAMC
Advisor or CCR, it will cooperate with CWM REIT in preparing, and, in the case
of CWM REIT, it will prepare and file, an amendment or supplement with the SEC
and, if required by law or Exchange rule, applicable state securities
authorities and each Exchange such that such document, as so supplemented or
amended, will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances existing at such time, not misleading, and CWM REIT
will, as required by law, disseminate to its stockholders such amendment or
supplement.
8.6 Filings, Other Action. CAMC Advisor, CCR and CWM REIT shall: (a) to the
extent required, promptly make all filings and thereafter make any other
required submissions under the HSR Act with respect to the Merger; (b) use all
reasonable efforts to cooperate with one another to (i) determine which
Authorizations are required to be made or obtained prior to the Effective Time
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and (ii) timely make and
seek all such Authorizations; (c) use all reasonable efforts to obtain in
writing any consents required from third parties in form reasonably
satisfactory to CWM REIT and CCR necessary to effectuate the Merger; (d) use
all reasonable efforts to promptly take, or cause to be taken, all other
actions and do, or cause to be done, all other things necessary, proper or
appropriate to satisfy the conditions set forth in Article 9 and to consummate
and make effective the transactions contemplated by this Agreement on the
terms and conditions set forth herein as soon as practicable (including
seeking to remove promptly any injunction or other legal barrier that may
prevent such consummation); and (e) not take any action which might reasonably
be expected to impair the ability of the parties to consummate the Merger at
the earliest possible time.
8.7 Access to Information. (a) From the date hereof until the Effective
Time, CAMC Advisor and CCR (i) will give CWM REIT, its counsel, financial
advisors, auditors and other authorized representatives full access to the
offices, properties, books and records of CAMC Advisor during reasonable
business hours, (ii) will furnish copies to CWM REIT, its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data and other information as such persons may reasonably request,
and which is in the possession of or can be obtained by CAMC Advisor or CCR
without undue expense and (iii) will instruct CAMC Advisor's or CCR'S, as the
case may be, employees, counsel and financial advisors to cooperate with CWM
REIT in its investigation of the business of CAMC Advisor.
(b) From the date hereof until the Effective Time, CWM REIT (i) will give
CCR, its counsel, financial advisors, auditors and other authorized
representatives full access to the offices, properties, books and records of
CWM REIT during reasonable business hours, (ii) will furnish copies to CCR,
its counsel, financial advisors, auditors and other authorized representatives
such financial and operating data and other information as such persons may
reasonably request, and which is in the possession of or can be obtained by
CWM REIT without undue expense, and (iii) will instruct CWM REIT's employees,
counsel and financial advisors to cooperate with CCR in its investigation of
the business of CWM REIT.
8.8 Management Fee Adjustment. CWM REIT shall pay to CAMC Advisor all fees
accrued and unpaid and reimbursable expenses payable to CAMC Advisor under the
Management Agreement in respect of periods up to the Effective Time (as if the
Management Agreement had been terminated as of the Effective Time and payment
was to be made under Section 17 thereof, without giving effect for such
purposes to Section 10(d) of the Management Agreement); provided that, in the
event that the Effective Time occurs prior to the record date for the regular
quarterly dividend of CWM REIT in respect of the quarter in which the
Effective Time occurs, CAMC Advisor hereby irrevocably waives that portion of
CAMC Advisor's compensation attributable to the
A-21
<PAGE>
incentive fee under Section 10(c) of the Management Agreement for the
quarterly period during which the Effective Time occurs.
8.9 Intellectual Property Rights. Prior to the Closing, CAMC Advisor shall
use all reasonable efforts to cooperate with CWM REIT in obtaining all
assignments or other consents necessary with respect to the Intellectual
Property Rights, to the extent not already owned by CAMC Advisor, including
all interests that may hereafter become Intellectual Property Rights prior to
Closing. CCR acknowledges that upon Closing, it will have no right, title or
interest in or to the names "Indy Mac" and "Independent National Mortgage
Corporation" (including derivations and abbreviations thereof).
8.10 Tax Matters.
(a) Each of CCR, CAMC Advisor and CWM REIT agrees to report the Merger on
all Tax Returns and, if applicable, other filings as a reorganization under
Section 368(a) of the Code to the extent permitted by law.
(b) CCR shall prepare or cause to be prepared and filed on behalf of CAMC
Advisor, at its sole cost and expense, any federal, state, and local Tax
Returns required to be filed with respect to any short taxable year of CAMC
Advisor ending as of the Closing Date.
(c) If the U.S. Internal Revenue Service (the "IRS") or any other taxing
authority initiates an audit or examination of any Tax Return of CAMC Advisor
or any consolidated or combined group of which it was a member or required to
be included as a member (a "Tax Matter"), CCR shall--
(i) promptly, but not less frequently than quarterly, provide CWM REIT
with a summary of each issue raised in each unresolved Tax Matter, and if
in the course of reviewing such Tax Matters CCR becomes aware that such Tax
Matters could affect the amount of the current or accumulated earnings and
profits of CAMC Advisor as of the close of business on the date of the
Effective Time, CCR shall so advise CWM;
(ii) as requested by CWM REIT, provide additional information sufficient
(A) to inform CWM REIT as to the nature of each such issue, and (B) to
permit CWM REIT to exercise its rights described in this Section 8.10(c);
(iii) keep CWM REIT regularly and promptly advised of the course of each
such issue which has been reasonably determined by CWM REIT to be a CAMC
Tax Issue (as defined below in this Section) pursuant to the procedure
described in this Section 8.10(c);
(iv) provide CWM REIT (not later than 10 Business Days prior to the
anticipated date of delivery or filing, or promptly after receipt as
applicable) with a copy of all pleadings or other documents to be delivered
to, received from, or filed with, any court or other tribunal, the IRS or
other taxing authority with respect to (A) any CAMC Tax Issue (which may be
redacted to eliminate all information not germane to any CAMC Tax Issue),
and (B) any Tax Matter which had not previously been summarized for CWM
REIT or with respect to which CWM REIT had requested and not received
additional information (excluding from clause (B) documents or pleadings
not filed by or on behalf of CCR or any consolidated or combined group of
which it is a member);
(v) cooperate with CWM REIT and its counsel, accountants and other
advisors in connection with each such CAMC Tax Issue;
(vi) in connection with each such CAMC Tax Issue, not submit to the IRS,
any taxing authority or any court or other tribunal any pleading or other
document without the written consent of CWM REIT (provided, however, that
CWM REIT (A) shall be deemed to so consent if it has not communicated
written notice of its non-consent to CCR before the close of business on
the 10th business day following its receipt of such pleading or other
document and (B) shall so consent unless it reasonably determines that any
position taken in such pleading or other document, if accepted, could
jeopardize CWM REIT's status as a real estate investment trust under the
Code. The determination of CWM REIT that a position taken in a pleading or
other document could jeopardize its status as a real estate investment
trust shall be deemed
A-22
<PAGE>
reasonable for this purpose if such determination is based on the advice of
its counsel or accountants, which advice shall be presented to CCR in
writing within five Business Days after CWM REIT communicates its notice of
non-consent to CCR (or such earlier time not sooner than the second
Business Day thereafter as CCR shall reasonably determine to be necessary)
unless CCR agrees to waive its right to see such advice in writing, to the
effect that the position taken, if accepted, would give the IRS a
reasonable basis for asserting that CWM REIT failed to continue to qualify
as a real estate investment trust under the Code as a consequence of its
acquisition of CAMC Advisor; and
(vii) not settle, compromise or consent to the entry of any order, decree
or judgment with respect to any CAMC Tax Issue or fail to pursue an
available appeal of any such CAMC Tax Issue (a "Resolution") without the
written consent of CWM REIT (provided, however, that CWM REIT (A) shall be
deemed to so consent if it has not communicated written notice of its non-
consent to CCR before the close of business on the 10th business day
following its receipt of notice of such proposed settlement, compromise or
consent and (B) shall so consent unless it reasonably determines that such
Resolution would jeopardize CWM REIT's status as a real estate investment
trust under the Code. The determination of CWM REIT that a Resolution would
jeopardize its status as a real estate investment trust shall be deemed
reasonable for this purpose if such determination is based on the advice of
its counsel or accountants, which advice shall be delivered to CCR in
writing within five Business Days after CWM REIT communicates its notice of
non-consent to CCR (or such earlier time not sooner than the second
Business Day thereafter as CCR shall reasonably determine to be necessary)
unless CCR agrees to waive its right to see such advice in writing, to the
effect that the Resolution would give the IRS a reasonable basis for
asserting that CWM REIT failed to continue to qualify as a real estate
investment trust under the Code as a consequence of its acquisition of CAMC
Advisor.
An issue raised in a Tax Matter shall be identified as a "CAMC Tax Issue" if
CWM REIT communicates written notice to CCR that it has determined, with
respect to a particular issue, that it is possible that the resolution of such
issue could jeopardize its status as a real estate investment trust under the
Code. The determination of CWM REIT that a possible resolution of a Tax Matter
could jeopardize its status as a real estate investment trust shall be deemed
reasonable for this purpose if such determination is based on the advice of
its counsel or accountants, which advice shall be delivered to CCR in writing
within five Business Days after CWM REIT communicates its determination to CCR
(or such earlier time not sooner than the second Business Day thereafter as
CCR shall reasonably determine to be necessary) unless CCR agrees to waive its
right to see such advice in writing, to the effect that a possible resolution,
would give the IRS a reasonable basis for asserting that CWM REIT failed to
continue to qualify as a real estate investment trust under the Code as a
consequence of its acquisition of CAMC Advisor. In any such CAMC Tax Issue,
CWM REIT may at its expense engage counsel, accountants, or other advisors.
Any CCR tax or financial information revealed to CWM REIT, its employees or
any of its advisors in connection with matters described in this Section
8.10(c) shall be treated as strictly confidential by CWM REIT, its employees
and such advisors.
(d) Any refunds or credits of Taxes (including any interest thereon) due to
or on behalf of CAMC Advisor received by or credited to CWM REIT shall be for
the benefit of CCR, and CWM REIT shall use its best efforts to obtain any such
refunds and shall pay over to CCR any such refunds immediately upon receipt
thereof.
(e) After the Effective Time, CWM REIT shall make available to CCR, as
reasonably requested, all information, records or documents relating to tax
liabilities or potential tax liabilities of CAMC Advisor and shall preserve
all such information, records and documents until the expiration of any
applicable statute of limitations or extensions thereof. CWM REIT shall
prepare and provide to CCR such federal, state, local and foreign tax
information packages as CCR shall request for the use of CCR in preparing any
Tax Return that relates to CAMC Advisor. Such tax information packages shall
be completed by CWM REIT and provided to CCR within 45 days after CCR's
request therefor.
(f) Other than pursuant to this Agreement, CWM REIT shall have no rights or
obligations under any tax sharing agreement among CAMC Advisor and CCR and/or
any of its affiliates.
A-23
<PAGE>
(g) CAMC Advisor and CCR shall make available, or shall cause to be made
available to Price Waterhouse LLP or the CWM REIT E&P Committee, on a strictly
confidential basis, as reasonably requested by Price Waterhouse LLP or the CWM
REIT E&P Committee, all information, records or documents of CAMC Advisor, or
of any consolidated or combined group of which CAMC Advisor was a member,
which (i) is reasonably available to CCR, and (ii) Price Waterhouse LLP or the
CWM REIT E&P Committee reasonably deems relevant to the preparation and
delivery (by Price Waterhouse LLP) or review (by the CWM REIT E&P Committee)
of the written comfort described in Section 9.3(e).
8.11 Covenant Not to Compete, Continuing Arrangements Etc.
(a) During the two-year period commencing on the Closing Date, CCR will not,
without the written prior consent of CWM REIT, form, manage, sponsor or own
any interest in, or in any other manner directly or indirectly including
through any other Person participate in, a real estate investment trust (the
parties hereto acknowledge and agree that the foregoing covenant is provided
in connection with the Merger and the issuance of the CWM Common Stock and is
intended to preserve the value of the goodwill and other intangible assets
being acquired by CWM REIT in the Merger).
(b) During the four-year period commencing on the Closing Date, (i) CCR will
not employ, seek to employ, recruit, hire, or otherwise retain the services of
any employee of CWM REIT without having obtained prior approval of CWM's Board
of Directors, and (ii) CWM REIT will not employ, seek to employ, recruit, hire
or otherwise retain the services of any employee of CCR without prior approval
of the Chairman, Vice Chairman or a Senior Managing Director of CCR.
(c) As long as CCR beneficially owns more than 5.0% of the issued and
outstanding Common Stock of CWM REIT, or any director, officer or other
employee or designee of CCR is also a member of the Board of Directors of CWM
REIT, CCR will continue to make available to Indy Mac the CWMBS, Inc. REMIC
shelf registration statement on a basis, and at a cost, substantially
consistent with past practices.
(d) As long as CCR beneficially owns more than 5.0% of the issued and
outstanding Common Stock of CWM REIT, (i) if either of Messrs. David S. Loeb
or Angelo R. Mozilo shall not be serving as a director of CWM REIT, CWM REIT
shall cause one other person designated by CCR to be nominated to serve as a
member of CWM REIT's Board of Directors in lieu of Mr. Loeb or Mr. Mozilo, as
the case may be, and (ii) if neither Mr. Loeb nor Mr. Mozilo is serving as a
director of CWM REIT, CWM REIT shall cause one person designated by CCR to be
nominated to serve as a member of CWM REIT's Board of Directors; provided,
however, that no person shall be nominated to serve as a director of CWM REIT
pursuant to this Section 8.11(d) whose nomination to or service on CWM REIT's
Board of Directors would require disclosure pursuant to Item 401(f) of
Regulation S-K under the Securities Act.
(e) At the Effective Time, CCR shall cause the Certificate of Indy Mac to be
amended (the "Indy Mac Charter Amendment") to the effect that if (i) CCR shall
cease to beneficially own more than 5.0% of the issued and outstanding Common
Stock of CWM REIT, (ii) neither Mr. Loeb nor Mr. Mozilo is a director of CWM
REIT, or (iii) there shall occur a Change of Control, CWM REIT shall be
entitled, in its sole discretion, to compel the dissolution of Indy Mac and to
receive in the related distribution all assets thereof other than an amount of
cash, which shall be payable to CCR or its assignee, equal to three percent
(3%) of the book value of Indy Mac (with each share of capital stock of Indy
Mac, whether common, preferred or other, representing an equal economic
interest without regard to any control premium) unless CCR, in its sole
discretion, shall request an independent appraisal thereof and an appraiser
mutually acceptable to CWM REIT and CCR determines that one percent (1%) of
the fair market value of Indy Mac's assets either exceeds or is less than
three percent (3%) of Indy Mac's book value, in which event CCR or its
assignee shall receive such higher or lower value, as the case may be. The
cost of such appraisal shall be borne by CCR. Additionally, the Indy Mac
Charter Amendment shall prohibit the holder or holders of Indy Mac common
stock, or any security into which it may be converted or for which it may be
exchanged, from causing any assets, whether tangible or intangible, of Indy
Mac to be used for any purpose other than in furtherance of Indy Mac's
business.
A-24
<PAGE>
(f) In the event CWM REIT (i) establishes or acquires a majority ownership
interest in an entity the business activities of which are substantially the
same as all of the business activities then being conducted by Indy Mac or
(ii) transfers to such other entity substantially all of the assets of Indy
Mac, then CWM REIT shall be required, at CCR's option, to purchase CCR's
interest in Indy Mac at a purchase price equal to the amount required to be
paid to CCR or its assignee in the event of a liquidation of Indy Mac pursuant
to paragraph (e) above.
8.12 Reorganization. From and after the date hereof and prior to the
Effective Time, except for the transactions contemplated or permitted herein,
none of CAMC Advisor, CCR or CWM REIT shall knowingly take any action that
would be inconsistent with the representations and warranties made by it
herein, including, but not limited to, knowingly taking any action, or
knowingly failing to take any action, that is known to cause disqualification
of the Merger as a reorganization within the meaning of Section 368(a) of the
Code. Furthermore, from and after the date hereof and prior to the Effective
Time, except for the transactions contemplated or permitted herein, each of
CWM REIT, CCR and CAMC Advisor shall use reasonable efforts to conduct its
business and file Tax Returns in a manner that would not jeopardize the
qualification of CWM REIT after the Effective Time as a real estate investment
trust as defined within Section 856 of the Code.
8.13 Public Statements. The parties shall consult with each other prior to
issuing any public announcement or statement with respect to this Agreement or
the transactions contemplated hereby and shall not issue any such public
announcement or statement prior to such consultation, except as may be
required by law or by the rules of the Exchange.
8.14 Letter of CAMC Advisor's Accountants. CAMC Advisor shall use reasonable
efforts to cause to be delivered to CWM REIT an "agreed-upon procedures"
report of Grant Thornton LLP covering the financial statements and other
financial and statistical information of CAMC Advisor set forth in the Proxy
Statement and dated a date within five business days before the date on which
the Proxy Statement shall be mailed to the stockholders of CWM REIT and
addressed to CWM REIT, in form and substance reasonably satisfactory to CWM
REIT and customary in scope and substance for reports delivered by independent
public accountants in connection with proxy statements relating to mergers
where the consideration paid is registered on Form S-4 under the Securities
Act.
8.15 Employee Matters.
(a) As of the Closing Date or as soon as practicable thereafter but
effective as of the Closing Date, CWM REIT shall establish a defined benefit
pension plan (the "CWM REIT DB Plan") providing comparable benefits to the
employees currently employed by CAMC Advisor who become employees of CWM REIT
("Transferring Employees") and who were as of the Closing Date covered by
CCR's defined benefit pension plan (the "CCR DB Plan"). Following the date
hereof, the parties shall negotiate in good faith the terms of a transfer of
assets and liabilities from the CCR DB Plan to the CWM REIT DB Plan in respect
of the CAMC Employees and CCR will provide the information required by one or
more actuarial firms acceptable to the parties to make the actuarial
determinations concerning such a transfer. If such an agreement cannot be
reached, there will be no transfer of assets and liabilities from the CCR DB
Plan, the CCR DB Plan shall retain the liability for all benefits accrued
under such plan through the Closing Date in respect of the CAMC Employees and
CCR will amend the CCR DB Plan, effective as of the Closing Date, to provide
that the service of Transferring Employees for CWM REIT and its affiliates
will be counted solely for vesting purposes under the CCR DB Plan with respect
to benefits accrued as of the Closing Date by the Transferring Employees. CCR
acknowledges that if assets are transferred (representing the cost of the
accrued benefits) from the CCR DB Plan to the CWM REIT DB Plan, they shall be
considered to have been attributable to amounts paid by CWM REIT pursuant to
the provisions of the Management Agreement. All reasonable expenses of any
actuaries, consultants and mechanics of the Transferring Employees and the
accrued benefits (except the direct costs thereof referred to above) shall be
borne by CWM REIT.
A-25
<PAGE>
(b) (1) Effective as of the Closing Date, all CAMC Employees who
participated in the CCR 401(k) Plan immediately prior to the Closing Date and
who are Transferring Employees (the "Savings Participants") shall become
participants under a defined contribution plan meeting the requirements of
Section 401(k) of the Code established by CWM REIT or maintained by CWM REIT
or an Affiliate of the CWM REIT (the "CWM REIT 401(k) Plan"). The CWM REIT
401(k) Plan shall (i) provide for the transfer to the trust under the CWM REIT
401(k) Plan of the assets attributable to the accounts of the Savings
Participants under the CCR 401(k) Plan and the crediting and maintenance of
such accounts under the CWM REIT 401(k) Plan, (ii) preserve for the Savings
Participants all benefits required to be preserved under Section 411(d)(6) of
the Code with respect to their accounts transferred to CWM REIT 401(k) Plan,
and (iii) provide that periods of employment with CAMC Advisor, its Affiliates
or other predecessor employers, to the extent recognized under the CCR 401(k)
Plan immediately prior to the Closing Date, shall be taken into account for
purposes of determining, as applicable, eligibility for participation,
distributions, vesting and amount of employer contributions of any Savings
Participant under the CWM REIT 401(k) Plan. Without limiting the foregoing,
the CWM REIT 401(k) Plan shall (i) accept the transfer of participant loans
from the CCR 401(k) Plan and shall provide for the continued administration of
such transferred participant loans for the remainder of their terms in
accordance with the provisions thereof and (ii) accept the transfer of shares
of CCR common stock ("Stock") in respect of Savings Participants' interest in
the CCR Stock Fund maintained under the CCR 401(k) Plan.
(2) As promptly as practicable after the Closing, CWM REIT shall provide to
CCR documentation satisfactory to CCR regarding the qualified status of the
CWM REIT 401(k) Plan under Section 401(a) of the Code either in the form of a
favorable determination letter issued by the IRS or an opinion of outside
counsel to CWM REIT. CWM REIT covenants and agrees to take all such action as
may be necessary to establish and maintain the qualified status of the CWM
REIT 401(k) Plan through the asset transfer date referred to in paragraph
(b)(1) above.
(3) Provided that CWM REIT has complied with the foregoing requirements of
this Section 8.15, CCR shall cause the trustee of the CCR 401(k) Plan to
transfer to the trustee of CWM REIT 401(k) Plan, and CWM REIT shall cause the
trustee of CWM REIT 401(k) Plan to accept such transfer, an amount equal to
the fair market value of the aggregate account balances of the Savings
Participants determined as of the Valuation Date (the "Transfer Amount");
provided, however, that such transfer shall be made in two tranches as
follows: the first tranche shall be transferred on the Valuation Date and
shall be an amount equal to not less than 90% of the amount which CCR in good
faith reasonably estimates to be the Transfer Amount (the "Estimated Transfer
Amount") and the second tranche shall be transferred not more than 30 days
after the Valuation Date and shall be an amount equal to the difference
between the Transfer Amount and the Estimated Transfer Amount; and provided,
further, however, that such transfer shall consist only of cash, participant
loans (including any promissory notes or other documents evidencing such
participant loans) and shares of Stock.
(c) Effective as of the Closing Date, CWM REIT shall offer to cover all
salaried CAMC Employees who are Transferring Employees under replacement
vacation, health, dental, prescription drug, life insurance, disability and
other health and welfare benefit plans as it may determine in its sole
discretion to be appropriate; provided, however, that in any event CWM REIT
shall (1) waive any limitation of coverage of such CAMC Employees (and their
eligible dependents) due to pre-existing conditions which were covered under
CCR's Welfare Benefit Plans, (2) credit each such CAMC Employee with all
deductible payments and co-payments paid by such CAMC Employee under CCR's
Welfare Benefit Plans during the year in which the Closing occurs for the
purpose of determining the extent to which any such CAMC Employee has
satisfied his or her deductible and whether he or she has reached the out-of-
pocket maximum under CWM REIT's health and welfare benefit plans for such year
and (3) credit each such CAMC Employee for all service with CCR and its
Affiliates with their respective predecessors prior to the closing for all
purposes for which such service was recognized by CCR. Except with respect to
liabilities arising under plans described in Sections 8.15(a), (b) and (d)
(the treatment of which is provided for in those Sections), (i) CWM REIT shall
be liable for all benefits accrued and claims incurred on and after the
Closing Date by or in respect of Transferring Employees (including in the case
of claims for medical or dental benefits, all medical and dental expenses
incurred on and after the Closing Date) and (ii)
A-26
<PAGE>
CCR shall have no liability with respect thereto; and CCR shall be liable for
all benefits accrued and claims incurred prior to the Closing Date (including
in the case of medical or dental benefits, all medical and dental expenses
incurred prior to the Closing Date) and CWM REIT shall have no liability with
respect thereto (other than its obligations relating thereto pursuant to the
Management Agreement for periods through the Closing Date).
(d) Following the date hereof, the parties shall negotiate in good faith the
terms of a transfer of assets and liabilities from CCR's deferred compensation
plan and supplemental executive retirement plan to such plans of CWM REIT as
CWM REIT may reasonably establish in respect of the CAMC Employees and CCR
will provide the information required by one or more actuarial firms
acceptable to the parties to make the actuarial determinations concerning such
a transfer. If such an agreement cannot be reached, there will be no transfer
of assets and liabilities from its deferred compensation plan and supplemental
executive retirement plan, CCR's deferred compensation plan and supplemental
executive retirement plan shall retain the liability for all benefits accrued
under such plan through the Closing Date in respect of the CAMC Employees and
CCR will amend CCR's deferred compensation plan and supplemental executive
retirement plan, effective as of the Closing Date, to provide that the service
of Transferring Employees for CWM REIT and its affiliates will be counted
solely for vesting purposes under such plans with respect to benefits accrued
as of the Closing Date by the Transferring Employees. CCR acknowledges that if
assets are transferred (representing the cost of the accrued benefits) from
CCR's deferred compensation plan and supplemental executive retirement plan to
such plans of CWM REIT, they shall be considered to have been attributable to
amounts paid by CWM REIT pursuant to the provisions of the Management
Agreement. All reasonable expenses of any actuaries, consultants and mechanics
of the Transferring Employees and the accrued benefits (except the direct
costs thereof referred to above) shall be borne by CWM REIT.
8.16 Notice of Certain Events. Each party hereto shall promptly notify the
other party of (i) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement; (ii) any notice or other
communication from any Governmental Body in connection with the transactions
contemplated by this Agreement; and (iii) any actions, suits, claims,
investigations or proceedings commenced or, to its knowledge, threatened
against, relating to or involving or otherwise affecting either such party or
any of its Subsidiaries which, if pending on the date of this Agreement, would
have been required to have been disclosed on Section 5.5 of the CAMC Advisor
Disclosure Schedule or which relate to the consummation of the transactions
contemplated by this Agreement.
8.17 Director and Officer Indemnification. From and after the Effective
Date, CCR shall not amend, repeal or otherwise modify the current provisions
in its Certificate of Incorporation or Bylaws providing for limitation of
director liability and indemnification of directors, officers, employees and
agents in any manner that would adversely affect the rights thereunder of
individuals who at any time prior to the Effective Time were directors,
officers, employees or agents of CAMC Advisor in respect of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement), unless such
modification is required by law. CCR shall also cause to be maintained in
effect for not fewer than 60 months from the Effective Time policies of
directors' and officers' liability insurance currently in force for its own
officers and directors to cover those persons who are or were directors and/or
officers of CAMC Advisor (provided that CCR may substitute therefor policies
providing coverage in an aggregate amount of $20 million, the other terms and
conditions of which are no less advantageous than those contained in the
policies currently in force) with respect to matters occurring prior to the
Effective Time, unless it can be shown that such policies cannot be obtained
or maintained, as the case may be, by CCR on terms that are commercially
reasonable at such time; provided, that, in the event any claim or claims are
asserted or made within such 60 months, such coverage in respect thereof shall
not be terminated until final disposition of all such claims. CWM REIT shall
reimburse CCR for the cost of obtaining or maintaining, as the case may be,
such policies to the extent that such cost is reasonably allocable to $20
million of coverage in respect of actions or omissions of directors, officers,
employees or agents of CAMC Advisor prior to the Effective Time, provided that
the amount of such reimbursement shall not exceed $50,000 in the aggregate.
This Section 8.17 which shall survive the
A-27
<PAGE>
consummation of the Merger and the Effective Time, and except as set forth
herein, shall continue without limit, is intended to benefit each present and
former director and officer of CAMC Advisor and their heirs and legal
representatives (who shall be entitled to enforce the provisions hereof) and
shall be binding on all successors and assigns of CAMC Advisor and CCR. In the
event that CCR or any of its successors or assigns (i) consolidates with or
merges into any other Person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any person, then and in such
case, proper provisions shall be made so that the successors and assigns of
CCR assume the obligations set forth in this Section 8.17.
8.18 Further Action. Each party hereto shall, subject to the fulfillment or
waiver at or before the Effective Time of each of the conditions of
performance set forth herein, perform such further acts and execute such
documents as may reasonably be required to effect the Merger.
8.19 Books and Records. Unless otherwise consented to in writing by CCR, CWM
REIT will not, and will not cause or permit any of its Affiliates or
Subsidiaries to, destroy or otherwise dispose of any of the books and records
of CAMC Advisor prior to the tenth anniversary of the Closing Date, and CWM
REIT will, and will cause its Affiliates and Subsidiaries to, grant CCR and
its representatives reasonable access thereto during normal business hours and
permit them to make copies thereof and, prior to destroying or discarding any
of such party's books and records, shall provide the other party hereto the
opportunity to retain copies of such records.
8.20 Restrictions on Resale of Share Consideration. Without the prior
written consent of CWM REIT or except pursuant to Section 2.2 of the
Registration Rights Agreement (a) CCR will neither sell, pledge nor otherwise
transfer any of the CAMC Share Consideration or shares of the CWM Common Stock
acquired in the exercise of its Special Purchase Rights for a two-year period
commencing upon the Closing Date and (b) during the 12 month period following
such two-year period, CCR may transfer up to 50% of all of such shares.
Thereafter, CCR may transfer up to 100% of any of such shares not previously
so transferred.
8.21 CAMC Advisor Shareholder Approval. CCR hereby agrees to vote the shares
of CWM Common Stock owned by CCR, and CAMC Advisor hereby agrees to vote the
shares of CWM Common Stock owned by CAMC Advisor, in favor of the Agreement
and the transactions contemplated hereby.
8.22 Waiver of Limitations on Percentage Ownership. In the event that CWM
REIT shall waive the application of the limitation on percentage ownership of
shares of CWM Common Stock set forth in Section 3 of CWM REIT's Certificate of
Incorporation with respect to any Person, CWM REIT shall waive the application
of such limitation in the same manner and to the same extent with respect to
CCR.
8.23 Delivery of Certain Financial Statements. Promptly after they are
available, and in any event not later than the tenth business day prior to the
Closing Date, CAMC Advisor shall provide to CWM REIT (i) true and correct
copies of its unaudited consolidated balance sheet as of February 28, 1997,
and related unaudited statements of income and cash flows for the fiscal year
ended on February 28, 1996 and 1997 and (ii) true and correct copies of its
unaudited balance sheet as of the last day of each month occurring after the
date hereof and prior to the Closing Date and the related unaudited statements
of income and cash flows for the year to date ending on the last day of each
such month. Delivery of such financial statements shall be deemed to be a
representation by CAMC Advisor that to its knowledge such balance sheet
(including the related notes, if any) presents fairly, in all material
respects, the financial position of CAMC Advisor as of the specified date, and
the other related statements (including the related notes, if any) included
therein present fairly, in all material respects, the results of its
operations and cash flows for the respective periods or as of the respective
dates set forth therein, all in conformity with generally accepted accounting
principles consistently applied during the periods involved, except as
otherwise stated in the notes thereto, subject to normal year-end audit
adjustments.
8.24 Distributions. CAMC Advisor shall declare and pay a dividend payable to
CCR immediately prior to the Effective Time in an amount equal to the amount
(i) determined by Price Waterhouse LLP to enable it to express the written
comfort required by Section 9.3(e) and (ii) timely communicated to CCR. CAMC
Advisor
A-28
<PAGE>
shall also declare a dividend payable to CCR and payable immediately prior to
the Effective Time of any property, known or unknown, owned by CAMC Advisor
that, in the absence of such distribution, would result in the breach of the
representation and warranty contained in Section 5.8(c).
8.25 Sales and Use Taxes, Etc. All sales, use, transfer, recording and
similar Taxes imposed on and payable by CWM REIT, CCR, or CAMC Advisor arising
out of or in connection with the transactions effected pursuant to this
Agreement shall be borne equally by CCR and CWM REIT.
ARTICLE 9
CONDITIONS TO THE MERGER
9.1 Conditions to Each Party's Obligations. The respective obligations of
CWM REIT, CAMC Advisor and CCR to consummate the transactions contemplated by
this Agreement are subject to the fulfillment at or prior to the Closing Date
of each of the following conditions, which conditions may be waived only with
the consent of CCR and CWM REIT:
(a) CWM REIT Stockholder Approval. The Agreement, the transactions
contemplated hereby and any proposed amendments to or waivers in respect of
CWM REIT's Certificate of Incorporation and Bylaws necessary to carry out
the transactions contemplated hereby as to which stockholder approval is
being sought in the Proxy Statement shall have been duly approved, in each
case by the requisite holders of CWM Common Stock in accordance with
applicable provisions of the Exchange, the DGCL, and CWM REIT's Certificate
of Incorporation and Bylaws.
(b) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act, if applicable, shall have expired or been
terminated.
(c) No Injunction or Proceedings. There shall not be in effect any
judgment, writ, order, injunction or decree of any court or Governmental
Body of competent jurisdiction restraining, enjoining or otherwise
preventing consummation of the transactions contemplated by this Agreement
or permitting such consummation only subject to any condition or
restriction unacceptable to either of CWM REIT or CAMC Advisor, each in its
reasonable judgment, nor shall there be pending or threatened by any
Governmental Body any suit, action or proceeding seeking to restrain or
restrict the consummation of the transactions contemplated hereby or
seeking damages in connection therewith, which, in the reasonable judgment
of either CWM REIT or CAMC Advisor could have (i) a Material Adverse Effect
on CWM REIT or CAMC Advisor, or (ii) a material adverse effect on the
ability, of CWM REIT, CCR or CAMC Advisor to perform its respective
obligations under this Agreement, the Cooperation Agreement or the
Registration Rights Agreement.
(d) No Suspension of Trading, Etc. At the Effective Time, there shall be
no suspension of trading in, or limitation on prices for, securities
generally on the Exchange, declaration of a banking moratorium by federal
or state authorities or any suspension of payments by banks in the United
States (whether mandatory or not) or of the extension of credit by lending
institutions in the United States, or commencement of war, armed hostility,
or other international or national calamity directly or indirectly
involving the United States, which war, hostility or calamity (or any
material acceleration or worsening thereof), in the sole judgment of CWM
REIT, would have a Material Adverse Effect on CAMC Advisor or, in the sole
judgment of CCR, would have a Material Adverse Effect on CWM REIT.
(e) Registration Rights Agreement. The Registration Rights Agreement, in
substantially the form of Exhibit A attached hereto, except for such
changes therein as may be agreed upon by CCR and CWM REIT, shall have been
executed and delivered by the parties thereto.
(f) Cooperation Agreement. An agreement between CCR and CWM REIT relating
to certain interim sharing and service arrangements (the "Cooperation
Agreement"), in form and substance reasonably satisfactory to the parties
thereto, shall have been executed and delivered by each such party.
A-29
<PAGE>
(g) Employment Contract. Michael W. Perry, the Executive Vice President
and Chief Operating Officer of CAMC Advisor, shall have entered into a
long-term employment contract with CAMC Advisor, and CWM REIT shall have
assumed such contract.
(h) Physical Facility. A new long-term lease or sublease agreement (or
other satisfactory arrangement) relating to space at 35 North Lake Avenue
or 155 North Lake Avenue, in form and substance reasonably satisfactory to
each party to the lease or sublease agreement, shall have been executed and
delivered by each such party.
9.2 Conditions to Obligations of CCR and CAMC Advisor to Effect the
Merger. The obligations of CCR and CAMC Advisor to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions, unless waived in writing by CCR and CAMC Advisor:
(a) CWM REIT shall have performed in all material respects its
obligations and agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of CWM REIT contained in this Agreement shall be true and
correct in all material respects as of the Closing Date as if made on the
Closing Date (except for changes therein contemplated or permitted by this
Agreement), and CAMC Advisor shall have received a certificate of the
Executive Vice President and Chief Operating Officer of CWM REIT, dated the
Closing Date, certifying to such effect.
(b) Since September 30, 1996, there shall not have occurred or been
threatened any material adverse changes in the business, properties,
operations or condition (financial or other) of CWM REIT.
(c) The limitation on percentage ownership of shares of CWM Common Stock
set forth in Section 3 of CWM REIT's Certificate of Incorporation, if
applicable, shall have been duly waived for CCR for the purposes of the
Merger and such waiver shall be valid and in full force and effect. Such
waiver shall also apply to the exercise of the Special Purchase Rights of
CCR.
(d) CAMC Advisor and CCR shall have received the favorable opinion of
Brown & Wood LLP, in form and substance satisfactory to CCR, as to (i) the
corporate existence and authority of CWM REIT, (ii) the due authorization,
execution and delivery of this Agreement and the Registration Rights
Agreement by CWM REIT, (iii) the enforceability of each of this Agreement
and the Registration Rights Agreement and (iv) the due authorization,
issuance, delivery, validity and nonassessability of the Share
Consideration.
(e) CCR shall have received an opinion of Fried, Frank, Harris, Shriver &
Jacobson, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of
the Code.
9.3 Conditions to Obligation of CWM REIT to Effect the Merger. The
obligations of CWM REIT to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions,
unless waived in writing by CWM REIT:
(a) CAMC Advisor and CCR shall have performed in all material respects
their respective obligations and agreements contained in this Agreement
required to be performed on or prior to the Closing Date and the
representations and warranties of CAMC Advisor and CCR contained in this
Agreement shall be true and correct in all material respects as of the
Closing Date as if made on the Closing Date (except for changes therein
contemplated or permitted by this Agreement), and CWM REIT shall have
received a certificate of the Chairman, Vice Chairman, or a Senior Managing
Director of CCR and of the President of CAMC Advisor, respectively, dated
the Closing Date, certifying to such effect.
(b) Since August 31, 1996, there shall not have occurred or been
threatened any material adverse changes in the business, properties,
operations or condition (financial or other) of CAMC Advisor, except for
changes resulting from (i) fees or other amounts earned by CAMC Advisor
under the Management Agreement or (ii) any transactions contemplated by
this Agreement, including Section 8.8.
A-30
<PAGE>
(c) If required by the Special Committee, Dean Witter shall have
delivered to the Special Committee prior to the date that the Proxy
Statement is mailed to the Stockholders of CWM REIT its opinion that the
consideration to be paid to CCR is fair, from a financial point of view.
(d) CWM REIT shall have received an appropriate affidavit from CCR
stating CCR's United States taxpayer identification number and that the CCR
is not a foreign person within the meaning of Section 1445(b)(2) of the
Code.
(e) CWM REIT shall have received written comfort in form and substance
reasonably satisfactory to it from Price Waterhouse LLP that CAMC Advisor
will not have any accumulated or current earnings and profits within the
meaning of Section 312 of the Code as of the Effective Time. CCR shall
provide to the CWM REIT E&P Committee and Price Waterhouse LLP all
information reasonably available to CCR that is necessary to calculate the
accumulated and current earnings and profits of CAMC Advisor as of the
Effective Time, including but not limited to all federal income Tax Returns
of CAMC Advisor and any consolidated group of which CAMC Advisor and CCR
are or have been members, working papers created with respect to such Tax
Returns, and information with respect to any federal income Tax
controversy, either pending or resolved, with respect to such returns. Any
such information shall be treated as strictly confidential by the CWM REIT
E&P Committee, Price Waterhouse LLP and every employee of, and advisor to,
CWM REIT and Price Waterhouse LLP.
(f) CWM REIT shall have received the favorable opinion of (i) Fried,
Frank, Harris, Shriver & Jacobson, in form and substance satisfactory to
CWM REIT, as to (A) the corporate existence and authority of each of CCR
and CAMC Advisor, (B) the due authorization, execution and delivery of this
Agreement by each of CCR and CAMC Advisor, (C) the due authorization,
execution and delivery of the Registration Rights Agreement by CCR, and (D)
the enforceability of each of this Agreement and the Registration Rights
Agreement and (ii) Sandor E. Samuels, General Counsel to CCR, in form and
substance satisfactory to CWM REIT, as to the due authorization, issuance,
validity, nonassessability and ownership of the CAMC Shares.
(g) CWM REIT shall have received from each of Messrs. David S. Loeb and
Angelo R. Mozilo an expression of his current intention to continue to
serve as Chairman and Vice Chairman, respectively, of the Board of
Directors of CWM REIT, subject to (i) CCR's maintaining beneficial
ownership of in excess of 5.0% of the issued and outstanding CWM Common
Stock, (ii) his death or disability, and (iii) the wishes of CWM REIT's
Board of Directors and stockholders.
(h) CWM REIT shall have received from Mr. Angelo R. Mozilo an expression
of his current intention to continue to serve as of Chief Executive Officer
of CWM REIT for at least two years following the Closing Date, subject to
(i) CCR's maintaining beneficial ownership of in excess of 5.0% of the
issued and outstanding CWM Common Stock, (ii) his death or disability, and
(iii) the wishes of CWM REIT's Board of Directors and stockholders.
(i) The Indy Mac Charter Amendment, in form and substance satisfactory to
CWM REIT, shall have been filed with the Secretary of State of the State of
Delaware and shall be in effect.
ARTICLE 10
TERMINATION; AMENDMENT; WAIVER
10.1 Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by CCR or the stockholders of CWM REIT, respectively,
either by the mutual written consent of CWM REIT and CCR or by mutual action
of the Board of Directors of CCR and the Special Committee of CWM REIT.
10.2 Termination by Either CWM REIT or CAMC Advisor. This Agreement may be
terminated and the Merger may be abandoned (a) by action of the Special
Committee in the event of a failure of a condition to the
A-31
<PAGE>
obligations of CWM REIT set forth in Article 9 of this Agreement; (b) by
action of the Board of Directors of CCR in the event of a failure of a
condition to the obligations of CCR or CAMC Advisor set forth in Article 9 of
this Agreement; or (c) by action of the Board of Directors of CCR or the
Special Committee if (i) the Pre-Closing Market Value is greater than $26.16
or less than $16.92 or (ii) a United States federal or state court of
competent jurisdiction or United States federal or state Governmental Body
shall have issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and non-appealable, provided, that the party seeking
to terminate this Agreement pursuant to this clause (c)(ii) shall have used
all reasonable efforts to remove such order, decree, ruling or injunction; and
provided, in the case of a termination pursuant to clause (a) or (b) above,
that the terminating party shall not have breached in any material respect its
obligations under this Agreement in any manner that shall have approximately
contributed to the occurrence of the failure referred to in said clause.
10.3 Effect of Termination and Abandonment. In the event of termination of
this Agreement and abandonment of the Merger pursuant to this Article 10, no
party hereto (or any of its directors or officers) shall have any liability or
further obligation to any other party to this Agreement, except that nothing
herein will relieve any party from liability for any breach of this Agreement.
10.4 Amendment. This Agreement, the Cooperation Agreement and the
Registration Rights Agreement may be amended at any time by written agreement
signed by CWM REIT, CAMC Advisor (provided that the signature of CAMC Advisor
signed by CWM REIT, CAMC Advisor (provided that the signature of CAMC Advisor
shall only be required for amendments prior to the Effective Time) and CCR;
provided, however, that an amendment to this Agreement made subsequent to the
adoption by the stockholders of CWM REIT of this Agreement shall not alter or
change (i) the amount or kind of consideration to be received in exchange for
or on conversion of all or any of the shares of CAMC Advisor, (ii) any term of
the Certificate of Incorporation of CWM REIT, or (iii) any of the terms and
conditions of this Agreement if such alteration or change would adversely
affect the stockholders of CWM REIT.
10.5 Waiver. Any party to this Agreement, the Cooperation Agreement or the
Registration Rights Agreement may extend the time for the performance of any
of the obligations or other acts of any other party hereto, or waive
compliance with any of the agreements of any other party or with any condition
to the obligations hereunder, in any case only to the extent that such
obligations, agreements and conditions are intended for its benefit.
ARTICLE 11
MISCELLANEOUS
11.1 Expenses. Except as otherwise expressly provided herein, each party
shall bear its own expenses, including the fees and expenses of any attorneys,
accountants, investment bankers, brokers, finders or other intermediaries or
other Persons engaged by it, incurred in connection with this Agreement and
the transactions contemplated hereby; provided, however, that in the event
that the Merger occurs, CWM REIT shall bear all out-of-pocket fees and
expenses of CAMC Advisor and CCR arising out of or incurred in connection with
(a) the transfer of the CAMC Employees to CWM REIT and compliance by CAMC
Advisor and CCR with the provisions of Sections 8.15 and 8.17 hereof,
including, without limitation, all actuarial, consulting and other fees and
expenses, (b) the audit of the CAMC financial statements referred to in
Section 5.11, (c) the letter of Grant Thornton LLP referred to in Section 8.14
(including the fees and expenses of Grant Thornton LLP related thereto), (d)
any of the matters described in Section 8.17 and (e) the Proxy Statement and
the CWM REIT Stockholders Meeting, including all printing, mailing,
solicitation, legal, accounting and other fees and expenses.
11.2 Notices, Etc. All notices, requests, demands or other communications
required by or otherwise with respect to this Agreement shall be in writing
and shall be deemed to have been duly given to any party when delivered
personally (by courier service or otherwise), when delivered by facsimile and
confirmed by return
A-32
<PAGE>
facsimile, or seven days after being mailed by first-class mail, postage
prepaid and return receipt requested in each case to the applicable addresses
set forth below:
If to CAMC Advisor or to CCR:
c/o Countrywide Credit Industries, Inc.
155 North Lake Avenue
Pasadena, CA 91101
Attention: General Counsel
Facsimile: (818) 584-2397
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Attention: Kenneth R. Blackman
Facsimile: (212) 859-4000
If to CWM REIT:
CWM Mortgage Holdings, Inc.
35 North Lake Avenue
Pasadena, CA 91101
Attention: General Counsel
Facsimile: (818) 304-7575
with a copy to:
Brown & Wood LLP
One World Trade Center
New York, NY 10048-0557
Attention: Edward J. Fine
Facsimile: (212) 839-5599
or to such other address as such party shall have designated by notice so
given to each other party.
11.3 Survival. The representations and warranties of the parties hereto
contained in this Agreement or in any certificate delivered pursuant hereto or
in connection herewith shall survive the Closing, but shall terminate on the
first anniversary of the Closing Date, except that those contained in Sections
5.7, 5.8 and 5.13 shall terminate upon expiration of the applicable statute of
limitations with respect to the matters covered thereby. The covenants and
agreements set forth in this Agreement shall not survive the Closing except in
such cases where such covenants and agreements by their terms contemplate
performance after the Closing Date. Notwithstanding the preceding sentences,
any covenant, agreement, representation or warranty in respect of which
indemnity may be sought pursuant to Section 4.6 shall survive the time at
which it would otherwise terminate pursuant to the preceding provisions of
this Section 11.3, if written notice of the inaccuracy or breach thereof,
specifying Damages (including the amount thereof) giving rise to such right to
indemnity shall have been given to the party against whom such indemnity may
be sought. If any governmental taxing authority asserts a deficiency with
respect to a tax matter which, if conceded, could result in a claim for which
indemnity could be sought pursuant to Section 4.6, CWM REIT shall be permitted
to give notice of the breach of a representation, warranty, covenant, or
agreement and specify Damages in the amount so asserted (including applicable
interest and penalties), notwithstanding CWM REIT's intent to dispute such
claims. The amount of the claim shall be deemed to be the amount of the
settlement or adjudicated damages.
A-33
<PAGE>
11.4 No Assignment. This Agreement shall be binding upon and shall inure to
the benefit of and be enforceable by the parties and their respective
successors and assigns; provided that, except as otherwise expressly set forth
in this Agreement, neither the rights nor the obligations of any party may be
assigned or delegated without the prior written consent of the other party.
11.5 Entire Agreement. Except as otherwise provided herein, this Agreement,
the Cooperation Agreement and the Registration Rights Agreement embody the
entire agreement and understanding among the parties relating to the subject
matter hereof and supersede all prior agreements and understandings relating
to such subject matter, and there are no representations, warranties or
covenants by the parties hereto relating to such matter other than those
expressly set forth herein (including the CAMC Advisor Disclosure Schedule) or
therein and any writings expressly required hereby or thereby.
11.6 Specific Performance. The parties acknowledge that, except for breaches
of Sections 4.6 and 8.20 as to which the sole remedy shall be money damages,
money damages are not an adequate remedy for violations of this Agreement and
that any party may, in its sole discretion, apply to a court of competent
jurisdiction for specific performance or injunctive or such other relief as
such court may deem just and proper to enforce this Agreement or to prevent
any violation hereof.
11.7 Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by any party shall not preclude the simultaneous or
later exercise of any other such right, power or remedy by such party.
11.8 No Waiver. The failure of any party hereto to exercise any right, power
or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by
such party of its right to exercise any such or other right, power or remedy
or to demand such compliance.
11.9 No Third-Party Beneficiaries. Except for the successors and assigns
referred to in Section 11.4 and the directors, officers, employees,
affiliates, agents and assigns referred to in Section 4.6, and in each such
section, only to the extent of the rights and benefits set forth therein, this
Agreement is not intended to be for the benefit of and shall not be
enforceable by any Person or entity who or which is not a party hereto.
11.10 Jurisdiction and Venue. Each party hereby irrevocably submits to the
exclusive jurisdiction of the United States District Court for the Central
District of California or any court of the State of California located in the
City of Los Angeles in any action suit or proceeding arising in connection
with this Agreement, and agrees that any such action, suit or proceeding shall
be brought only in such court (and waives any objection based on forum non
conveniens or any other objection to venue therein); provided, however, that
such consent to jurisdiction is solely for the purpose referred to in this
Section 11.10 and shall not be deemed to be a general submission to the
jurisdiction of said courts or in the State of California other than for such
purpose.
11.11 Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the internal laws of
the State of Delaware, without regard to principles of conflict of laws.
11.12 Name, Captions, Etc. The name assigned to this Agreement and the
section captions used herein are for convenience of reference only and shall
not affect the interpretation or construction hereof. Unless otherwise
specified (a) the terms "hereof," "herein" and similar terms refer to this
Agreement as a whole and (b) references herein to Articles or Sections refer
to articles or sections of this Agreement.
11.13 Severability. If any term of this Agreement or the application thereof
to any party or circumstance shall be held invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such
A-34
<PAGE>
term to the other parties or circumstances shall not be affected thereby and
shall be enforced to the fullest extent permitted by applicable law, provided
that in such event the parties shall negotiate in good faith in an attempt to
agree to another provision (in lieu of the term or application held to be
invalid or unenforceable) that will be valid and enforceable and will carry
out the parties' intentions hereunder.
11.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one instrument. Each counterpart may consist
of a number of copies, each signed by less than all, but together signed by
all, the parties hereto.
11.15 Gender; Number. All references to gender or number in this Agreement
shall be deemed interchangeably to have a masculine, feminine, neuter,
singular or plural meaning, as the context requires.
11.16 Ambiguities. Notwithstanding any rules or canons of construction to
the contrary, the parties hereto agree that the terms and provisions contained
herein shall be construed as if each party hereto participated equally in the
drafting and preparation of this Agreement.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by an officer duly authorized to do so, all as of the day and year
first above written.
CWM MORTGAGE HOLDINGS, INC., a
Delaware corporation
By: /s/ Michael W. Perry
---------------------------------
COUNTRYWIDE ASSET MANAGEMENT
CORPORATION, a Delaware corporation
By: /s/ James P. Gross
---------------------------------
COUNTRYWIDE CREDIT INDUSTRIES, INC.,
a Delaware corporation
By: /s/ Stanford L. Kurland
---------------------------------
A-35
<PAGE>
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement dated as of , 1997, is made and
entered into by and between CWM Mortgage Holdings, Inc., a Delaware
corporation ("CWM REIT" or the "Company"), and Countrywide Credit Industries,
Inc. ("CCR") in connection with the issuance by CWM REIT of shares of common
stock, par value $0.01 per share ("Common Stock"), pursuant to the Agreement
and Plan of Merger, dated as of January 29, 1997 (the "Merger Agreement"),
among CWM REIT, Countrywide Asset Management Corporation, a Delaware
corporation ("CAMC Advisor"), and CCR, as sole stockholder of CAMC Advisor.
Capitalized terms used herein without definition shall have the meanings
ascribed to them in the Merger Agreement.
WHEREAS, the execution and delivery of this Registration Rights Agreement is
a condition to the closing of the transactions contemplated by the Merger
Agreement; and
WHEREAS, to induce CWM REIT to provide certain registration rights to CCR
and to perform its obligations hereunder and under the Merger Agreement, on
the one hand, and in order to induce CCR to enter into the Merger Agreement
and to perform its obligations hereunder and under the Merger Agreement, on
the other hand, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, CWM REIT and CCR hereby agree as
follows:
Section 1.1 Definitions
"Act" means the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
"Commission" means the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, and the rules and
regulations of the Commission promulgated thereunder.
"Registrable Security" means each of the shares of Common Stock acquired by
CCR pursuant to the Merger Agreement upon original issue thereof and at all
times subsequent thereto (including through the exercise of the Special
Purchase Rights granted pursuant to Section 2.4 of this Agreement), until (i)
it has been disposed of pursuant to an effective registration statement under
the Act covering it, (ii) it is distributed to the public pursuant to Rule 144
under the Act, as such Rule may be amended from time to time (or any similar
provision then in effect) ("Rule 144"), or (iii) it is sold, assigned or
otherwise transferred in any other transaction not requiring registration
under the Act.
"Special Purchase Rights" as defined in Section 2.4.
"Triggering Date" means the second anniversary of the Effective Time.
Section 2.1 Demand Registration
(a) Request for Registration. At any time and from time to time on and after
the Triggering Date and subject to the terms and conditions hereof, CCR may
make a written request to CWM REIT to file with the Commission a registration
statement ("Demand Registration Statement") and such other documents,
including a prospectus, as may be necessary in order to comply with the
provisions of the Act so as to permit a public offering and sale of up to all
of the Registrable Securities (subject to the limitations set forth in Section
8.20 of the Merger Agreement). Any registration effected under this paragraph
(a) is hereinafter referred to as a "Demand Registration." CCR may make, in
the aggregate, not more than two (2) requests for a Demand Registration. CCR
shall have the right to withdraw any such request by giving written notice to
CWM REIT of its request to withdraw at any time prior to effectiveness of the
registration statement therefor; provided that in
1
<PAGE>
the event of such withdrawal, CCR shall be responsible for all fees and
expenses (including fees and expenses of counsel) incurred by CWM REIT prior
to such withdrawal and provided further that such requested registration shall
not count toward the two Demand Registration requests permitted pursuant to
this Section 2.1(a). Any request to effect a Demand Registration shall specify
the number of shares of Registrable Securities proposed to be sold and shall
also specify the intended method of disposition thereof. There shall be
permitted hereunder only one Demand Registration during any nine (9) month
period, measured in each case from the effective date of the most recent
Demand Registration. The minimum aggregate number of Registrable Securities
that must be covered by any Demand Registration Statement request shall be the
lesser of (i) 1,250,000 shares of Common Stock and (ii) Registrable Securities
having a market value of $20,000,000.
(b) Effective Registration. A registration will not be deemed to have been
effected as a Demand Registration unless and until it has been declared
effective by the Commission and CWM REIT has complied in all material respects
with its obligations under this Registration Rights Agreement with respect
thereto; provided that if, after it has become effective, the offering of
securities pursuant to such registration is or becomes the subject of any stop
order, injunction or other order or requirement of the Commission or any other
governmental or administrative agency, or if any court prevents or otherwise
limits the sale of such securities pursuant to the registration, such
registration will be deemed not to have been effected as to the shares subject
to such stop order, injunction, other order, requirement or limitation unless
such stop order, injunction, other order, requirement or limitation is
rescinded or the issuance of such stop order, injunction, other order,
requirement or limitation is imposed in response to an act or omission on the
part of CCR. If a registration requested pursuant to this Section 2.1 is
deemed not to have been effected and such failure to have been effected is not
the result of any act or omission of CCR (other than a withdrawal of such
request by CCR prior to the effectiveness of the registration statement
therefor), then CWM REIT shall continue to be obligated to effect such
registration pursuant to this Section 2.1 (and such registration shall not
count toward the two Demand Registration requests permitted pursuant to
Section 2.1(a)).
(c) Selection of Underwriters. If CCR so elects, the offering of Registrable
Securities pursuant to a Demand Registration shall be in the form of an
underwritten offering, in which case CWM REIT and CCR shall jointly select one
or more nationally recognized firms of investment bankers to act as the
managing underwriters (the "Underwriters") in connection with such offering.
(d) Deferral. Notwithstanding the foregoing, if CWM REIT shall furnish to
CCR a certificate signed by a duly authorized officer of CWM REIT stating that
the Board of Directors of CWM REIT has, by duly authorized resolution,
determined in good faith that, in light of the pendency of a Material
Transaction (as defined below), it would be materially detrimental to CWM REIT
and its shareholders for such registration statement to be filed and it is
therefore in the best interest of CWM REIT to defer the filing of such
registration statement, CWM REIT shall have the right to defer such filing for
a period of not more than ninety (90) days after receipt of the request for a
Demand Registration. CCR acknowledges that it would be materially detrimental
to CWM REIT and its shareholders for such registration statement to be filed
and therefore in the best interest of CWM REIT to defer such filing if such
filing would impose an undue burden upon the ability of CWM REIT to proceed
with any reorganization, merger, consolidation or acquisition of the
securities or assets of another firm or corporation or disposition of the
securities or assets of CWM REIT or a public offering by CWM REIT of common
stock or other securities of CWM REIT registered under the Act which, in each
case, is material to CWM REIT (a "Material Transaction"). If CWM REIT shall
have delivered the certificate referred to above and thereafter (if
applicable) shall have entered into a definitive agreement or filed a
registration statement or a proxy statement in connection with a Material
Transaction, CWM REIT shall, upon written notice to CCR, have the right to
defer the filing of the registration statement requested to be filed by CCR
but in no event for longer than sixty (60) days from the expiration of the
initial ninety (90) day extension period referred to above as is reasonably
necessary to enable CWM REIT to satisfy its disclosure obligations under the
Act in such registration statement with respect to the Material Transaction.
(e) Reduction of Offering. CWM REIT may include in a Demand Registration
pursuant to this Section 2.1 shares of Common Stock for the account of CWM
REIT and for the account of any other person or entity
2
<PAGE>
who holds shares of Common Stock; provided, however, that if the lead managing
Underwriter of any underwritten offering described in this Section 2.1 shall
have informed CWM REIT in writing that in its opinion the total number of
shares of Common Stock that CCR, CWM REIT and any other persons or entities
desiring to participate in such registration intend to include in such
offering is such as to materially and adversely affect the success of such
offering, then CWM REIT shall include in such Demand Registration all
Registrable Securities requested to be included in such registration by CCR up
to such number of shares of Common Stock that the lead managing Underwriter
has informed CWM REIT may be included in such registration without adversely
affecting the success of such offering; provided that, if the number of such
Registrable Securities requested to be included by CCR is less than the number
of shares that the lead managing Underwriter has informed CWM REIT may be
included in such registration without adversely affecting the success of such
offering, then CWM REIT shall include in such Demand Registration the shares
of Common Stock that CWM REIT and any other persons or entities desiring to
participate in such registration desire to include in such registration;
provided further that the number of shares of Common Stock to be offered for
the account of CWM REIT and all such other persons and entities participating
in such registration shall be reduced or limited pro rata in proportion to the
respective number of shares of Common Stock requested to be registered by such
persons and entities to the extent necessary to reduce the respective total
number of shares of Common Stock requested to be included in such offering to
the number of shares of Common Stock recommended by such lead managing
Underwriter.
(f) Filings. Whenever CWM REIT is required to effect or cause the
registration of Registrable Securities pursuant to this Section 2.1, CWM REIT
will use its reasonable efforts to effect the registration of such Registrable
Securities in accordance with the intended method of disposition thereof as
promptly as practicable, and in connection with any such request CWM REIT will
as expeditiously as possible (and in no event more than forty-five (45) days
from the date of receipt of written request from CCR pursuant to Section
2.1(a) to register Registrable Securities) prepare and file with the
Commission a registration statement as described in Section 4.1 hereof.
(g) Registration Rights of Other Parties. CWM REIT will not grant
registration rights superior to or inconsistent with the registration rights
granted to CCR under this Registration Rights Agreement.
Section 2.2 Incidental Offerings
If CWM REIT at any time proposes to file a registration statement covering
any of its Common Stock under the Act (other than any registration by CWM REIT
(A) on Form S-8 or a successor or substantially similar form of an employee
share option, share purchase or compensation plan or of Common Stock issued or
issuable pursuant to any such plan, (B) of a dividend reinvestment plan or (C)
on Form S-4 or a successor or substantially similar form of shares issuable in
connection with any acquisition, merger, exchange or similar transaction), CWM
REIT will give prompt notice to CCR of its intention to do so. Upon the
written request of CCR made within fifteen (15) days after the receipt of any
such notice (which request shall specify the number of Registrable Securities
intended to be disposed of by CCR), CWM REIT will use its best efforts to
arrange to include all the Registrable Securities as to which it has received
such requests, provided that if the registration statement relates to an
underwritten offering of Common Stock and if the lead managing Underwriter of
such underwritten offering shall by letter inform CWM REIT that in its opinion
the inclusion in such underwritten distribution of all or a specified number
of such Registrable Securities or of any other shares of Common Stock
requested to be included would interfere with the successful marketing of the
Common Stock in such distribution by the Underwriters, then CWM REIT may, upon
written notice to CCR, exclude from such underwritten offering (i) in the
event the registration statement relates to an offering for the account of CWM
REIT, shares of Common Stock requested to be included by any persons or
entities other than CWM REIT, pro rata in proportion to the respective number
of shares of Common Stock requested to be included by such persons and
entities, to the extent necessary to reduce the respective total number of
shares of Common Stock requested to be included in such offering to the number
of shares of Common Stock recommended by such Underwriter and (ii) in the
event
3
<PAGE>
the registration statements relates to an offering for the account of any
person or entity other than CWM REIT, (A) first, shares of Common Stock
requested to be registered by CWM REIT, (B) second, to the extent reduction as
a result of clause (A) is insufficient, shares of Common Stock requested to be
registered for the account of any persons or entities other than the person or
entity making the initial request for such registration (the "Requesting
Party"), pro rata in proportion to the respective number of shares of Common
Stock requested to be registered by such other persons and entities to the
extent necessary to reduce the respective total number of shares of Common
Stock requested to be included in such offering to the number of shares of
Common Stock recommended by such Underwriter and (C) third, to the extent
reduction as a result of clauses (A) and (B) is insufficient, shares of Common
Stock requested to be registered for the account of the Requesting Party.
The Company may decline to file a registration statement referred to in this
Section 2.2 after giving notice to CCR, or withdraw such a registration
statement after filing, or otherwise abandon any such proposed underwritten
offering, provided that the Company shall promptly notify CCR in writing of
any such action.
Section 2.3 CCR's Rights and Obligations
CCR may not participate in any underwritten offering under Section 2.1 or
Section 2.2 hereof unless it completes and executes all customary
questionnaires, powers of attorney, custody agreements, underwriting
agreements, and other customary documents required under the terms of such
underwriting arrangements. In connection with any underwritten offering under
Section 2.1 or 2.2, each of CCR and CWM REIT shall be a party to the
underwriting agreement with the Underwriters and may be required to make
certain customary representations and warranties (in the case of CCR as to the
Registrable Securities being sold by CCR in such underwritten offering) and
provide certain customary indemnifications for the benefit of the
Underwriters.
Section 2.4 Special Purchase Rights
(a) Prior to the offering of any voting capital stock of CWM REIT (or
security convertible or exchangeable into or exercisable for voting capital
stock), other than shares of Common Stock (or securities convertible or
exchangeable into or exercisable for Common Stock) issued (i) pursuant to any
employee stock option plan or employee stock purchase plan, (ii) as
consideration in making acquisitions or (iii) pursuant to the existing CWM
REIT dividend reinvestment plan or any successor thereto (the "DRIP"), (an
"Offering") CCR may offer and shall have the right (the "Right of First
Offer") to purchase from CWM REIT such number of shares of such capital stock
or securities as may be required to maintain its proportional voting interest
(based on the total voting interest of the Company's capital stock outstanding
immediately prior to such Offering). CWM REIT shall provide CCR notice of any
Offering within 30 days prior to the commencement thereof, and within 10
Business Days following receipt of such notice, CCR shall advise CWM REIT in
writing that it intends to purchase all or a portion of its proportional
percentage of the shares proposed to be issued in the Offering. Any purchase
by CCR pursuant hereto shall be made on the terms and be subject to the
conditions applicable to other purchasers in the Offering. Subject to Section
2.4(e), this Right of First Offer shall expire on the earlier of (i) the 20th
anniversary of the Effective Time, (ii) the date on which CCR ceases to
beneficially own 5% or more of the outstanding shares of Common Stock
(excluding from the number of shares of Common Stock outstanding for purposes
of such calculation all outstanding shares of Common Stock issued after the
effective time pursuant to any employee stock option, employee stock purchase
or compensation plan and all shares of Common Stock issued after the effective
time as consideration in making acquisitions), (iii) the date on which CCR
ceases to beneficially own 2% or more of the outstanding shares of Common
Stock, and (iv) the date of a Change of Control.
(b) CCR shall be entitled to participate (the "Right to Participate" and
together with the Right of First Offer, the "Special Purchase Rights") in the
DRIP on the same terms and subject to the same conditions and procedures
applicable to other participants, subject to and in accordance with the
following additional provisions:
(i) With respect to Common Stock to be issued pursuant to the optional
cash payment feature of the DRIP, CWM REIT shall notify CCR, at least four
(4) Business Days prior to the applicable "Threshold
4
<PAGE>
Price and Waiver Discount Set Date" (as defined in the existing DRIP), of
(x) the dollar amount of shares of Common Stock (expressed as an aggregate
cash price) which CWM REIT desires to accept from its shareholders on the
next occurring "Investment Date" (as defined in the DRIP or the comparable
date under any successor plan) (such aggregate desired dollar amount being
referred to herein as the "Maximum Investment Amount") and (y) the
aggregate number of shares of Common Stock of CWM REIT outstanding as of
the last day of the immediately preceding month. For any Investment Date
under the optional cash payment feature of the DRIP, the maximum dollar
amount permitted to be invested by CCR pursuant to the Right to Participate
shall be calculated as (x) CCR's "Participation Percentage" (as defined
below), multiplied by (y) the Maximum Investment Amount (such product being
referred to herein as the "Maximum CCR Investment"). No later than two (2)
Business Days following receipt of such notice from CWM REIT, CCR shall
specify in writing to CWM REIT (1) the number of shares of Common Stock
beneficially owned by CCR on such date, and (2) whether, with respect to
the Common Stock to be issued on the next occurring Investment Date, CCR
wishes to make any optional cash payment and the actual dollar amount
thereof, which may be any dollar amount up to and including the Maximum CCR
Investment for such month (such actual dollar amount being referred to
herein as the "Requested CCR Investment"). Any election by CCR to
participate in the optional cash payment feature of the DRIP hereunder (and
the related election of the Requested CCR Investment) shall be irrevocable
for the applicable Investment Date, and any failure by CCR to make such
election shall be deemed to be an election not to participate for the
applicable Investment Date. In the event CWM REIT elects to increase the
Maximum Investment Amount for the applicable Investment Date, CCR shall be
provided with notice of such increase and an opportunity to increase the
Requested CCR Investment on a pro rata basis. In the event CWM REIT elects
to reduce the Maximum Investment Amount for the applicable Investment Date,
and/or the Maximum Investment Amount is subject to reduction under the
terms of the DRIP (such reduced amount, in either case, being referred to
herein as the "Actual Investment Amount"), CWM REIT shall so notify CCR,
and the Requested CCR Investment shall in such event be reduced on a pro
rata basis. In administering the optional cash investment feature of the
DRIP, CWM REIT shall include the Requested CCR Investment as a portion of
the Maximum Investment Amount proposed to be raised, and in the event that
for any Investment Date, the Maximum Investment Amount is reduced to the
Actual Investment Amount, the Requested CCR Investment (as reduced pro
rata) shall be included as a portion of said Actual Investment Amount.
Subject to the limitations and adjustments applicable to the Requested CCR
Investment provided herein, CCR shall be entitled to make such Requested
CCR Investment. For purposes of this Section 2.4(b), CCR's Participation
Percentage shall be defined as a percentage (expressed as a decimal)
calculated as (x) the outstanding shares of the Common Stock beneficially
owned by CCR at any date of determination, divided by (y) the aggregate
shares of Common Stock of CWM REIT outstanding at such date of
determination.
(ii) With respect to the dividend reinvestment feature of the DRIP, CWM
REIT shall notify CCR, within ten (10) days after the "Record Date" (as
defined in the DRIP) for the payment of the applicable dividend for the
applicable fiscal quarter of CWM REIT, of the percentage of the outstanding
shares of Common Stock (expressed as a decimal and without giving effect to
any shares of Common Stock beneficially owned by CCR) which have
theretofore validly elected to participate in the DRIP with respect to the
next occurring dividend payment (the "Maximum Reinvestment Percentage"). No
later than two (2) Business Days following receipt of such notice from CWM
REIT, CCR shall pursuant to the Right to Participate specify in writing to
CWM REIT whether (x) CCR wishes to elect for its outstanding beneficially
owned shares of Common Stock to participate in the dividend reinvestment
feature of the DRIP for the next occurring Investment Date, and (y) the
actual percentage (expressed as a decimal) of CCR's outstanding
beneficially owned Common Stock which CCR elects to participate on such
Investment Date, which may be any percentage up to and including the
Maximum Reinvestment Percentage for such Investment Date (such actual
percentage being referred to herein as the "CCR Reinvestment Percentage").
Any election by CCR to participate in the dividend reinvestment feature of
the DRIP hereunder (and the related election of the CCR Reinvestment
Percentage) shall be irrevocable for the applicable Investment Date, and
any failure by CCR to make such election shall be deemed to be an election
not to participate for the applicable Investment Date.
5
<PAGE>
(iii) The Right to Participate shall expire on the earlier of (A) the
20th anniversary of the Effective Time, (B) the date on which CCR ceases to
beneficially own 5% or more of the outstanding shares of Common Stock
(excluding from the number of shares of Common Stock outstanding for
purposes of such calculation all outstanding shares of Common Stock issued
after the effective time pursuant to any employee stock option, employee
stock purchase or compensation plan and all shares of Common Stock issued
after the Effective Time as consideration in making acquisitions), (C) the
date on which CCR ceases to beneficially own 2% or more of the outstanding
shares of Common Stock and (D) the date of a Change of Control.
(iv) Under the Right to Participate, CCR may elect, in respect of the
Common Stock, to participate in the optional cash payment feature of the
DRIP, and/or to participate in the dividend reinvestment feature of the
DRIP, only to the extent that such optional cash payment and/or such
dividend reinvestment, together with all other shares of Common Stock
beneficially owned by CCR, would not cause the percentage of shares of
Common Stock beneficially owned by CCR in the aggregate to exceed the then-
current Participation Percentage.
(v) Except as otherwise specified in this Section 2.4(b) the Right to
Participate may be exercised only in accordance with and subject to the
terms of the DRIP in effect for CWM REIT at the time of any such exercise.
Nothing in this Section 2.4 or in this Agreement shall be deemed or
construed to require CWM REIT to create, maintain or renew any DRIP or
similar plan or program; provided, however, that CWM REIT may amend or
modify the DRIP so long as such amendments or modifications would not have
a material adverse effect on CCR's Right to Participate in the manner, and
subject to the limitations, set forth in Section 2.4(b).
(c) Neither the Right of First Offer nor the Right to Participate may be
assigned or otherwise transferred, but nothing herein shall preclude any
transferee of Common Stock owned by CCR from participating in the DRIP.
(d) Neither the Right of First Offer nor the Right to Participate may be
exercised in connection with any issuance of Common Stock pursuant to any
employee stock option, employee stock purchase or compensation plan of CWM
REIT or as consideration in making acquisitions.
(e) Notwithstanding any other provision of this Section 2.4 (i) the Special
Purchase Rights shall be subject to, and become effective only upon, the
approval of the holders of at least a majority of the shares of Common Stock
CWM REIT present and entitled to vote on the matter (the "Approval") and (ii)
the Special Purchase Rights shall be subject to the subsequent re-approval of
the holders of at least a majority of the shares of the Common Stock present
and entitled to vote on the matter upon each of the fifth, tenth and fifteenth
anniversary of the date immediately succeeding the fifth, tenth or fifteenth
anniversary of the date of the Approval. In the event that any subsequent re-
approval of the holders of Common Stock shall not be obtained, the Special
Purchase Rights shall terminate upon the date immediately succeeding the
fifth, tenth or fifteenth anniversary of the Approval, as the case may be. In
furtherance of the foregoing, in connection with the annual meetings of
stockholders of CWM REIT corresponding with the fifth, tenth and fifteenth
anniversary of the date of the Approval, subject to the fiduciary duties of
CWM REIT's Board of Directors under applicable law as advised by counsel, the
Board of Directors of CWM REIT shall recommend and declare advisable the re-
approval of the Special Purchase Rights and CWM REIT shall take all lawful
action to solicit, and use all reasonable efforts to obtain, such re-
approvals, including in each case, the inclusion of the recommendation of the
CWM REIT Board of Directors in the related proxy statement that the
stockholders of CWM REIT vote in favor of the re-approval of the Special
Purchase Rights.
Section 3.1 Holdback Agreement
In the case of the registration of any underwritten primary offering of
Common Stock or Convertible Securities by CWM REIT and in which CCR will not
be participating in accordance with Section 2.2 hereof, CCR agrees, if
requested in writing by the lead managing Underwriter administering such
offering, not to effect
6
<PAGE>
any offer, sale or distribution of Registrable Securities (or any option or
right to acquire Registrable Securities) during the period (not to exceed
forty (40) days) commencing on the tenth day prior to the effective date of
the registration statement covering such underwritten primary equity offering
and ending on the date specified by such managing Underwriter or Underwriters
in such written request to CCR.
Section 4.1 Registration Procedures
In connection with CWM REIT's obligations under this Registration Rights
Agreement, CWM REIT shall:
(a) Prepare and file a Demand Registration Statement pursuant to Section
2.1 on the appropriate form available for the sale of the Registrable
Securities in accordance with the intended method or methods of
distribution thereof, and use its reasonable efforts to cause such Demand
Registration Statement to become effective and remain effective; and no
fewer than five days prior to the filing of any Registration Statement (as
defined below) or any amendment thereto (including, without limitation, any
document incorporated or deemed to be incorporated by reference therein and
any post-effective amendment), and not fewer than five days prior to the
filing or (if not filed) the first day of public availability of any
related preliminary prospectus or prospectus or any amendments or
supplements thereto (including any document incorporated or deemed to be
incorporated therein by reference), CWM REIT shall furnish to CCR copies of
all such documents, and shall cause the officers and directors of CWM REIT,
counsel to CWM REIT, and independent certified public accountants to CWM
REIT to respond to such inquiries as shall be necessary, in the opinion of
CCR's counsel, to conduct a reasonable investigation within the meaning of
the Act. CWM REIT shall not file the Demand Registration Statement or any
related prospectus or any amendments or supplements thereto to which CCR
shall reasonably object on a timely basis;
(b) Prepare and file with the Commission such amendments, including post-
effective amendments, to any Demand Registration Statement and any
registration statement filed with the Commission in connection with an
offering in which CCR is or will be offering or selling Registrable
Securities pursuant to Section 2.2 (an "Incidental Registration Statement";
the Demand Registration Statement and Incidental Registration Statement are
hereinafter called, collectively, "Registration Statements" and,
individually, a "Registration Statement" (including documents incorporated
or deemed to be incorporated by reference therein)) as may be required by
law; cause the related prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed if, as and when
required pursuant to Rule 424 (or any similar provisions then in effect)
under the Act; and comply with the provisions of the Act and the Exchange
Act with respect to the disposition of all Registrable Securities covered
by such Registration Statement;
(c) Notify CCR promptly (i) with respect to any Registration Statement or
any post-effective amendment thereto, when the same has become effective;
(ii) of any request by the Commission or any other federal or state
governmental authority for amendments or supplements to any Registration
Statement (including, without limitation, any documents incorporated or
deemed to be incorporated by reference therein) or a related prospectus or
for additional information, or of the receipt from the Commission or any
other federal or state governmental authority of any comment letter with
respect to any of the foregoing; (iii) of the issuance by the Commission of
any stop order suspending the effectiveness of any Registration Statement
or the initiation of any proceedings for that purpose; (iv) of the receipt
by CWM REIT of any notification with respect to the suspension of the
qualification of any of the Registrable Securities for offer or sale in any
jurisdiction within the United States, or the initiation or threatening of
any proceeding for such purpose; and (v) upon the occurrence of any event
which makes any statement in (or incorporated or deemed to be incorporated
in) any Registration Statement or any related prospectus or any amendments
or supplements thereto untrue in any material respect;
(d) Furnish to CCR without charge, such number of conformed copies as it
may reasonably request, of each Registration Statement and each amendment
or supplement thereto, including exhibits, financial statements and
schedules;
7
<PAGE>
(e) Deliver to CCR without charge, as many copies of the preliminary
prospectus or prospectuses and the prospectus or prospectuses related to
each Registration Statement and each amendment or supplement thereto as it
may reasonably request;
(f) Prior to any public offering of Registrable Securities, use its best
efforts to register or qualify (or to obtain an exemption from registration
or qualification) of such Registrable Securities for offer and sale under
the securities or Blue Sky laws of all jurisdictions within the United
States; keep each such registration or qualification (or exemption
therefrom) effective until such time as such distribution has been
completed, and do any and all other acts or things necessary or advisable
to enable the disposition in such jurisdictions of the Registrable
Securities; provided, however, that CWM REIT shall not be required to
qualify generally to do business in any jurisdiction where it is not then
so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or
subject CWM REIT to any tax in any such jurisdiction where it is not then
so subject;
(g) Promptly file all documents required to be filed under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act during any period when the
prospectus related to a Registration Statement is required to be delivered
under the Act:
(h) If any prospectus relating to Registrable Securities contains an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, prepare and, if required, file with the Commission, a
supplement or amendment to such prospectus or any document incorporated or
deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, such prospectus will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading;
(i) Use its best efforts to cause all Registrable Securities to be listed
on each Exchange on which the shares of Common Stock are then listed and
make all other necessary or appropriate filings with each such Exchange;
(j) In connection with any underwritten offering in which CCR shall
participate, (i) cause each opinion delivered to CWM REIT (and any updates
thereof) also to be addressed to CCR (or expressly to provide therein or in
a separate letter that CCR may rely thereon); and (ii) (to the extent that
the independent public accountants are entitled to do so under Statement on
Auditing Standards No. 72 or any other applicable accounting standards)
cause each comfort letter from any independent certified public accountants
that is delivered to the Underwriters (and any update thereof) also to be
addressed to CCR (or expressly to provide therein or in a separate letter
that CCR may rely thereon); and
(k) Make reasonably available to CCR and its counsel and any accountant,
auditor or investment advisor retained by CCR, that information which such
parties would customarily require to satisfy their due diligence
obligations with respect to the offering and sale of the Registrable
Securities and cause CWM REIT's officers, directors and employees to supply
all information reasonably requested by any such person in connection with
such due diligence investigation; provided, however, that any information
that is designated by CWM REIT in writing as confidential at the time of
delivery of such information shall be kept confidential by such persons,
unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities or self-regulatory organizations, or is necessary or advisable
in connection with any litigation (commenced or threatened), or any
investigation or proceeding (commenced or threatened) by any governmental
agency or body, relating to the offer or sale of Registrable Securities, or
(ii) disclosure of such information, in the opinion of counsel to such
person, is required by law or pursuant to this Registration Rights
Agreement.
CWM REIT may require CCR to furnish to CWM REIT such information regarding
CCR and the distribution of such Registrable Securities as is required by law
to be disclosed in the relevant Registration
8
<PAGE>
Statement, and CWM REIT may exclude from such registration or offering the
Registrable Securities if CCR unreasonably fails to furnish such information
within a reasonable time after receiving such request.
Section 5.1 Registration Expenses
Except as provided in Section 2.1(a) hereof, all expenses incident to CWM
REIT's performance of or compliance with this Registration Rights Agreement,
including, without limitation, all registration and filing fees, fees and
expenses of compliance with securities or Blue Sky laws (including reasonable
fees and disbursements of counsel in connection with Blue Sky qualifications
of the Registrable Securities), printing expenses, messenger and delivery
expenses, fees and expenses incurred in connection with the listing of the
securities to be registered on each Exchange, and fees and disbursements of
counsel for CWM REIT and its independent certified public accountants
(including the expenses of any special audit or comfort letters required by or
incident to such performance), the reasonable fees and expenses of any special
experts retained by CWM REIT in connection with such registration, and fees
and expenses of other Persons retained by CWM REIT (but not including any
underwriting or brokerage discounts or commissions attributable to the sale of
Registrable Securities) (all such included expenses being herein referred to
as the "Registration Expenses"), shall be borne by CWM REIT.
Section 6.1 Indemnification; Contribution
(a) Indemnification by CWM REIT. CWM REIT agrees to indemnify and hold
harmless CCR, its officers, directors, trustees and agents and each person, if
any, who controls CCR within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of
investigation), as incurred, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in (or incorporated
or deemed to be incorporated in) any Registration Statement or any related
prospectus or preliminary prospectus or in (or incorporated in or deemed to be
incorporated in) any amendment or supplement to any of the foregoing, or
arising out of or based upon any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any such
untrue statement or omission or allegation thereof based upon and in
conformity with information furnished in writing to CWM REIT by CCR expressly
for use therein.
(b) Conduct of Indemnification Proceedings. If any action or proceeding
(including any governmental investigation) shall be brought or asserted
against CCR (or its officers, directors, trustees or agents) or any person
controlling CCR in respect of which indemnity is required from CWM REIT
hereunder, CWM REIT shall assume the defense thereof, including the employment
of counsel reasonably satisfactory to CCR, and shall assume the payment of all
expenses. CCR or any such officer, director, trustee, agent or controlling
person shall have the right to employ separate counsel (approved by CCR) in
any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of CCR or such officer,
director, trustee, agent or controlling person unless (i) CWM REIT shall have
failed to assume the defense of such action or proceeding and employ counsel
reasonably satisfactory to CCR in any such action or proceeding or (ii) the
named parties to any such action or proceeding (including any impleaded
parties) include both CCR or such officer, director, trustee, agent or
controlling person and CWM REIT, and CCR or such officer, director, trustee,
agent or controlling person shall have been advised by counsel that there is
an actual conflict of interest that would prevent one law firm from
representing all such persons in the same action (in which case, if CCR or
such officer, director, trustee, agent or controlling person notifies CWM REIT
in writing that it elects to employ separate counsel at the expense of CWM
REIT, CWM REIT shall not have the right to assume the defense of such action
or proceeding on behalf of CCR or such officer, director, trustee, agent or
controlling person, it being understood, however, that CWM REIT shall not, in
connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys
(together with local counsel) at any time for CCR and its officers, directors,
trustees, agents and controlling persons, which firm shall be designated in
writing by CCR). CWM REIT shall not be liable for any
9
<PAGE>
settlement of any such action or proceeding effected without CWM REIT's
written consent, but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action or proceeding, CWM REIT
agrees to indemnify and hold harmless CCR and its officers, directors,
trustees, agents and controlling person from and against any loss or liability
(to the extent stated above) by reason of such settlement or judgment.
(c) Indemnification by CCR of Registrable Securities. CCR agrees to
indemnify and hold harmless CWM REIT, its directors, each officer of CWM REIT
who signed a Registration Statement and each person, if any, who controls CWM
REIT within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act, to the same extent as the foregoing indemnity from CWM REIT to
CCR, but only with respect to untrue statements or omissions or alleged untrue
statements or omissions made in the Registration Statement pursuant to which
Registrable Securities of CCR have been registered under the Act, or in any
related prospectus or amendment or supplement thereto or any related
preliminary prospectus, in each case based upon and in conformity with
information furnished in writing by CCR for use therein. In case any action or
proceeding shall be brought against CWM REIT or its directors or any such
officers or controlling person, in respect of which indemnity may be sought
against CCR, CCR shall have the rights and duties given to CWM REIT, and CWM
REIT or its directors or such officers or controlling person shall have the
rights and duties given to CCR, by the preceding paragraph.
(d) Contribution. If the indemnification provided for in this Section 6.1 is
unavailable or insufficient to hold an indemnified party for any reason
harmless in respect of any losses, claims, damages, liabilities or judgments
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities and
judgments, as incurred, in such proportion as is appropriate to reflect the
relative fault of such indemnifying party, on the one hand, and such
indemnified party on the other, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations. The relative fault of CWM
REIT on the one hand and of CCR and its officers, directors, agents, trustees
and controlling persons on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by such party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, however, that CCR shall not be liable
for contribution under this Section 6.1(d) in an aggregate amount which
exceeds the total net proceeds received by CCR from the sale of its
Registrable Securities under the relevant Registration Statement.
CWM REIT and CCR agree that it would not be just and equitable if
contribution pursuant to this Section 6.1(d) were determined by pro rata
allocation or by any other method of allocation which does not take into
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities, or judgments referred to
in the immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
Section 7.1 Rule 144.
CWM REIT shall timely file the reports required to be filed by it under the
Act and the Exchange Act and shall take such further action as CCR may
reasonably request, all to the extent required from time to time to enable CCR
to sell Registrable Securities without registration under the Act within the
applicable limitations of Rule 144 (or any successor thereto).
Section 8.1 Termination
The parties hereto agree that this Registration Rights Agreement shall
terminate and the obligations of the parties hereto contained herein shall be
released without further action by any party if all of the Registrable
10
<PAGE>
Securities have been (A) disposed of pursuant to an effective Registration
Statement or Registration Statements under the Act covering them, (B)
distributed to the public pursuant to Rule 144 under the Act, or (C) sold,
assigned or otherwise transferred in any other transaction not requiring
registration under the Act.
Section 9.1 Miscellaneous
(a) Amendments and Waivers. The provisions of this Registration Rights
Agreement may be amended, modified or supplemented by written instrument
executed by CWM REIT and CCR. Any party to this Registration Rights Agreement
may extend the time for the performance of any of the obligations or other
acts of any other party hereto, or waive compliance with any of the agreements
or obligations of any other party or with any condition, in each case to the
extent that such obligations, agreements and conditions are intended for its
benefit; provided that each such extension or waiver shall be in writing.
(b) Notices. All notices and other communications provided for or permitted
hereunder shall be made by hand-delivery or registered first-class mail:
(i) if to CCR, at Countrywide Credit Industries, Inc., 155 North Lake
Avenue, Pasadena, California 91101-7211, Attention: General Counsel;
(ii) if to CWM REIT, at CWM Mortgage Holdings, Inc., 35 North Lake
Avenue, Pasadena, California 91101-7211, Attention: General Counsel.
All such notices and communications shall be deemed to have been duly given
when delivered by hand or air or similar courier or, if sent by mail, seven
days after being deposited in the mail, postage prepaid.
(c) Counterparts. This Registration Rights Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same agreement.
(d) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
(e) Severability. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Registration Rights Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable.
(f) Headings. The headings in this Registration Rights Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Further Assurances. From and after the date hereof, CWM REIT and CCR
each covenants and agrees to execute and deliver all such agreements,
instruments and documents and to take all such further actions as any such
respective party may reasonably deem necessary from time to time (at the
requesting party's expense) to carry out the intent and purposes of this
Registration Rights Agreement and to consummate and fully effect the
transactions contemplated hereby.
(h) Entire Agreement; Integration. This Registration Rights Agreement
contains the entire agreement of the parties hereto with respect to its
subject matter and there are no promises or undertakings with respect thereto
relative to the subject matter hereof not expressly set forth or referred to
herein.
11
<PAGE>
(i) Successor Entity. In the event of any merger or consolidation of CWM
REIT with or into any other entity in which CWM REIT is not the surviving
entity, or in the event of any sale, lease or other disposition of all or
substantially all of the assets of CWM REIT to any other entity in a
transaction in which Registrable Securities are converted into securities of
such other entity, appropriate provision shall be made so that the successor
or transferee entity, as the case may be, shall assume the obligations of CWM
REIT set forth in this Agreement.
(j) Ambiguities. Notwithstanding any rules or canons of construction to the
contrary, the parties hereto agree that the terms and provisions contained
herein shall be construed as if each party hereto participated equally in the
drafting and preparation of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Registration Rights Agreement on the day of , 1997.
CWM MORTGAGE HOLDINGS, INC.
By: _________________________________
Michael W. Perry Executive Vice
President and Chief Operating
Officer
COUNTRYWIDE CREDIT INDUSTRIES, INC.
By: _________________________________
12
<PAGE>
APPENDIX B
DEAN WITTER REYNOLDS INC.
Two World Trade Center
New York, New York 10048
(212) 392-2222
May 21, 1997
Special Committee of the
Board of Directors
CWM Mortgage Holdings, Inc.
35 North Lake Avenue
Pasadena, CA 91101
Gentlemen:
CWM Mortgage Holdings, Inc., a Delaware corporation ("CWM REIT"),
Countrywide Asset Management Corporation, a Delaware corporation ("CAMC
Advisor"), and Countrywide Credit Industries, Inc., a Delaware corporation
("CCR"), have entered into an Agreement and Plan of Merger, dated as of
January 29, 1997 (the "Agreement"), providing for CAMC Advisor to be merged
with and into CWM REIT, whereupon the separate existence of CAMC Advisor shall
cease, and CWM REIT shall be the surviving corporation (the "Merger"). The
Agreement provides that all shares of common stock, $0.10 par value per share,
of CAMC Advisor ("CAMC Advisor Common Stock") outstanding immediately prior to
the Effective Time (as defined in the Agreement), shall be converted into an
aggregate of 3,597,122 shares (the "Share Consideration") of common stock,
$0.01 par value per share, of CWM REIT (the "CWM Common Stock").
The Share Consideration may be adjusted prior to the Closing Date as
follows: in the event that the Pre-Closing Market Value (as defined in the
Agreement) is (a) less than $19.46 per share, the Share Consideration shall be
adjusted and increased to that number of shares of CWM Common Stock that is
determined by dividing $70,000,000 by the Pre-Closing Market Value or (b) more
than $22.24, the Share Consideration shall be adjusted and decreased to that
number of shares of CWM Common Stock that is determined by dividing
$80,000,000 by the Pre-Closing Market Value.
The Agreement is terminable, among other reasons, by either the Special
Committee of the Board of Directors of CWM REIT (the "Special Committee") or
the Board of Directors of CCR if the Pre-Closing Market Value is greater than
$26.16 or less than $16.92.
The Special Committee has requested our opinion, as investment bankers, as
of the date hereof, as to the fairness, from a financial point of view, to CWM
REIT of the issuance of the Share Consideration pursuant to the conversion of
the CAMC Advisor Common Stock.
In arriving at the opinion set forth below, we have, among other things:
(1) reviewed the Agreement and the form of Registration Rights Agreement by
and between CWM REIT and CCR attached as an exhibit to the Agreement;
(2) reviewed the Annual Report on Form 10-K (including all amendments
thereto through the date hereof) and related publicly available
financial information of CWM REIT for the three most recent fiscal
years ended December 31, 1994, 1995 and 1996, and the Quarterly Report
on Form 10-Q of CWM REIT for the period ended March 31, 1997;
(3) reviewed five-year financial forecasts of CWM REIT, as furnished to us
by CWM REIT;
B-1
<PAGE>
Special Committee of the Board of Directors
CWM Mortgage Holdings, Inc.
May 21, 1997
Page 2
(4) reviewed the audited balance sheet of CAMC Advisor as of February
29(28), 1996 and 1997, the unaudited balance sheets of CAMC Advisor as
of February 28, 1995 and November 30, 1996, the audited statements of
income and cash flows for the year ended February 29(28), 1996 and
1997, the unaudited statements of income and cash flows for the fiscal
years ended February 28, 1994 and 1995 and the nine-month periods ended
November 30, 1995 and 1996, all as furnished to us by CAMC Advisor;
(5) reviewed the 1996 Amended and Extended Management Agreement, dated as
of June 1, 1996, by and between CWM REIT and CAMC Advisor, as amended
by the First Amendment to the 1996 Amended and Extended Management
Agreement, dated as of July 25, 1996, by and between such parties and
the Second Amendment to the 1996 Amended and Extended Management
Agreement, dated as of April 28, 1997, by and between such parties;
(6) conducted discussions with members of senior management of CWM REIT,
CAMC Advisor and CCR, respectively, concerning the past and current
business, operations, assets, present financial condition and future
prospects of CWM REIT and CAMC Advisor, respectively;
(7) reviewed the historical reported market prices and trading activity for
CWM Common Stock;
(8) compared certain financial information, operating statistics and market
trading information relating to CWM REIT with published financial
information, operating statistics and market trading information
relating to selected public companies that we deemed to be reasonably
similar to CWM REIT; compared certain financial information and
operating statistics relating to CAMC Advisor with published financial
information and operating statistics relating to selected companies
that we deemed to be reasonably similar to CAMC Advisor;
(9) compared the financial terms of the Merger with the financial terms, to
the extent publicly available, of selected other recent acquisitions
that we deemed to be relevant; and
(10) reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information supplied to us by CWM REIT
or CAMC Advisor or that is publicly available, and we have not independently
verified such information. We also have relied upon the management of CWM REIT
as to the reasonableness and achievability of the financial forecasts of CWM
REIT (and the assumptions and bases thereof) provided to us or prepared on the
basis of information and assumptions furnished to us, and with your consent we
have assumed that such forecasts have been reasonably prepared on the basis
reflecting the best currently available estimates and judgments of such
management as to the future operating performance of CWM REIT. Furthermore, we
assumed the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended. We have not
been requested to make, and we have not made, an independent appraisal or
evaluation of the assets, properties, facilities or liabilities of CWM REIT or
CAMC Advisor, and we have not been furnished with any such appraisal or
evaluation.
It should be noted that this opinion necessarily is based upon prevailing
market conditions (including current market prices of CWM Common Stock) and
other circumstances and conditions as they exist and can be evaluated at this
time (with historical financial information being limited to those items
described above), and does not represent our opinion as to what the actual
value of the CWM Common Stock will be at any time after the date hereof.
B-2
<PAGE>
Special Committee of the Board of Directors
CWM Mortgage Holdings, Inc.
May 21, 1997
Page 3
In the past, we have co-managed several common stock offerings by CWM REIT,
the most recent having been completed on February 1, 1995, and we have
received a fee for our services. We have also co-managed several common stock
offerings by CCR, the most recent having been completed on June 26, 1995, and
we have received a fee for our services. Lastly, in the ordinary course of our
business, we actively trade the securities of CWM REIT and CCR for our own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
On the basis of, and subject to the foregoing and other matters that we
consider pertinent, we are of the opinion that, as of the date hereof, the
issuance of the Share Consideration pursuant to the conversion of the CAMC
Common Stock is fair, from a financial point of view, to CWM REIT.
Very truly yours,
DEAN WITTER REYNOLDS INC.
B-3
<PAGE>
APPENDIX C
AMENDMENTS TO THE BYLAWS
Article II, Section 3 of the Bylaws of the Company is hereby amended to
delete the clause, "a majority of the Unaffiliated Directors (as defined in
Article III, Section 3),"
Article III, Section 3 of the Bylaws of the Company is hereby amended to
delete the first sentence thereof, which reads:
"A majority of the members of the Board of Directors shall at all times
be persons who are not Affiliates of an individual or corporate management
company to whom the Board has delegated management duties as permitted in
Section 18 of this Article and Article V, Section 7 of the Certificate of
Incorporation (a "Management Company') (such directors being referred to as
"Unaffiliated Directors')."
Article III, Section 5 of the Bylaws of the Company is hereby amended to
delete the third sentence thereof, which reads:
"The vacancy for any reason of any director who is not an Affiliate of a
Management Company shall be filled by a majority vote of the remaining
members of the Board of Directors, including a majority vote of the
remaining Unaffiliated Directors."
and replace such sentence with the following new sentence to read in full as
set forth below:
"The vacancy for any reason of any director shall be filled by a majority
vote of the remaining members of the Board of Directors."
Article III, Section 12 of the Bylaws of the Company is hereby amended to
make the following changes to the second paragraph:
(i) delete the clause, "Notwithstanding the first paragraph of this
Section 12, any action pertaining to a transaction involving the
Corporation in which any Management Company, any director or officer of the
Corporation or any Affiliate of any of the foregoing persons has an
interest" and replace such clause with the following new clause,
"Notwithstanding the first paragraph of this Section 12, any action
pertaining to a transaction involving the Corporation in which any director
or officer of the Corporation or any Affiliate of any of the foregoing
persons has an interest";
(ii) add the word "and" after the semicolon in subsection (a);
(iii) remove the word "and" from after the semicolon in section (b); and
(iv) delete subsection (c), which reads: "(c) if the transaction involves
compensation to any Management Company or its affiliates for services
rendered in a capacity other than that contemplated by the management
arrangements, to the knowledge of the directors such compensation is not
greater than the customary charges for comparable services generally
available from other competent unaffiliated persons."
Article III, Section 17 of the Bylaws of the Company is hereby amended:
(i) to delete the clause, ", including a majority of the Unaffiliated
Directors"; and
(ii) to delete the following sentences, "The Unaffiliated Directors shall
review the investment policies of the Corporation at least annually to
determine that the policies then being followed by the Corporation are in
the best interests of its stockholders. Each such determination and the
basis therefor shall be set forth in the minutes of the Board of
Directors."
C-1
<PAGE>
Article III, Section 18 of the Bylaws of the Company is hereby deleted in
its entirety and replaced with the following statement: "Section 18.
[RESERVED]".
Article III, Section 19 of the Bylaws of the Company is hereby deleted in
its entirety and replaced with the following statement: "Section 19.
[RESERVED]".
Article IV, Section 1 of the Bylaws of the Company is hereby amended to
delete the second sentence, which reads:
"At least a majority of the members of any such committee shall be
composed of directors who are Unaffiliated Directors."
Article XIV of the Bylaws of the Company is hereby amended:
(i) to delete subsection (b);
(ii) to re-letter subsection (c) as subsection (b);
(iii) to replace subsection (d) with the following, "(c) Article III,
Section 17; and";
(iv) to delete subsection (e); and
(v) to re-letter subsection (f) as subsection (d).
C-2
<PAGE>
APPENDIX D
AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
CWM MORTGAGE HOLDINGS, INC.
The Certificate of Incorporation of CWM Mortgage Holdings, Inc. is hereby
amended to revise ARTICLE I so that, as amended, ARTICLE I shall read as
follows:
"Article I
NAME
The name of the Corporation is:
INMC Mortgage Holdings, Inc. (the "Corporation")."
D-1
<PAGE>
APPENDIX E
AMENDMENT TO
CWM MORTGAGE HOLDINGS, INC.
1996 STOCK INCENTIVE PLAN
(Adopted by the Board of Directors on January 20, 1997)
Section 3(b)(2) of the CWM Mortgage Holdings, Inc. 1996 Stock Incentive Plan
is replaced in its entirety with the following:
"(2) Notwithstanding anything contained herein to the contrary, the
aggregate number of Common Shares subject to options and stock appreciation
rights granted during the calendar year to any individual shall be limited
to 500,000."
E-1
<PAGE>
APPENDIX F
MR. PERRY'S INCENTIVE MATRIX*
ANNUAL INCENTIVE EARNED ($000)
<TABLE>
<CAPTION>
PERCENT CHANGE IN EPS OVER PRIOR YEAR
-------------------------------------------
-30% 30% OR
EPS ACHIEVED OR LESS -20% -10% 0% 10% 20% MORE
--------------- ------- ---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Less than $1.10 0 0 0 0 0 0 0
1.10 $ 0 $100 $250 $400 $ 550 $ 700 $ 850
1.30 50 150 300 450 600 750 900
1.50 100 200 350 500 650 800 950
1.70 150 250 400 550 700 850 1,000
1.90 200 300 450 600 750 900 1,050
2.10 250 350 500 650 800 950 1,100
2.30 300 400 550 700 850 1,000 1,150
2.50 300 450 600 750 900 1,050 1,200
2.70 300 500 650 800 950 1,100 1,300
2.90 300 500 700 850 1,000 1,200 1,400
3.10 300 500 750 900 1,100 1,300 1,500
3.30 or more 300 500 800 950 1,200 1,400 1,600
</TABLE>
- --------
* Interpolate between indicated amounts.
F-1
<PAGE>
[ ]
UNMARKED PROXIES SHALL BE VOTED IN FAVOR OF EACH OF THE FOLLOWING MATTERS unless
specified to the contrary.
(i) Election of Directors
FOR all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS
listed below [ ] for all nominees listed below [ ] [ ]
Nominees: David S. Loeb, Angelo R. Mozilo, Lyle E. Gramley, Thomas J. Kearns,
Frederick J. Napolitano
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided below.)
*Exceptions ___________________________________________________________________
(ii) Approval of the merger of Countrywide Asset Management Corporation with
and into CWM Mortgage Holdings, Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(iii) Amendment of the Bylaws to delete references to the management of CWM
Mortgage Holdings, Inc. by an outside management company. The approval of
the Bylaws proposal is conditioned upon approval of the merger proposal.
If the merger is not approved, the Bylaws will not be amended.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(iv) Amendment of the Certificate of Incorporation to change the name of the
Corporation.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(v) Amendment of the 1996 Stock Incentive Plan to increase the annual per
person limit for benefits payable under such plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(vi) Approval of the annual cash bonus provisions of the employment agreement
of Michael W. Perry, President and Chief Operating Officer.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(vii) Ratification of Grant Thornton LLP as independent accountants.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Receipt of copies of the Notice of the
Annual Meeting of Stockholders and the
Proxy Statement dated May 21, 1997 is
hereby acknowledged.
Please date and sign exactly as name
appears on this proxy. Joint owners
should each sign. If the signer is a
corporation, please sign full corporate
name by duly authorized officer,
Executors, trustees, etc. should give
full title as such.
Dated:______________________________,1997
_________________________________________
Signature(s)
_________________________________________
Signature(s)
Votes must be indicated
(X) In Black or Blue Ink [ ]
PLEASE RETURN PROMPTLY IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE U.S.A.
CWM MORTGAGE HOLDINGS, INC.
P R O X Y
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Annual Meeting of Stockholders, June 24, 1997
The undersigned hereby appoints David S. Loeb and Angelo R. Mozilo, or either
of them, with full power of substitution, the attorney and proxy of the
undersigned, to appear and to vote all of the shares of stock of CWM Mortgage
Holdings, Inc. (the "Company") which the undersigned would be entitled to vote
if personally present at the Annual Meeting of Stockholders of the Company to be
held at the Ritz-Carlton Huntington Hotel, 1401 South Oak Knoll Avenue,
Pasadena, California on June 24, 1997 at 10:00 a.m. and any adjournment thereof.
(Continued and to be signed on reverse side)
CWM MORTGAGE HOLDINGS, INC.
P.O. BOX 11294
NEW YORK, N.Y. 10203-0294
