<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number 1-8972
INDYMAC MORTGAGE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-3983415
(State or other jurisdiction of incorporation or organization) (I. R. S. Employer Identification No.)
155 NORTH LAKE AVENUE, PASADENA, CALIFORNIA 91101-7211
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (800) 669-2300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes X No _____
--------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
Common stock outstanding as of September 30, 1999: 76,617,809 shares
1
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
ASSETS (Unaudited)
<S> <C> <C>
Loans held for sale, net
Mortgages-prime $ 464,733 $ 989,052
Mortgages-subprime 57,665 145,793
Manufactured housing - 215,507
Home improvement - 205,304
---------- ----------
522,398 1,555,656
Loans held for investment, net
Mortgage loans 873,644 668,523
Residential construction
Builder 717,613 799,712
Consumer 330,940 468,735
Income property 167,600 178,756
Revolving warehouse lines of credit 215,742 443,946
----------- ----------
2,305,539 2,559,672
Mortgage securities available for sale 261,069 235,032
Collateral for collateralized mortgage obligations 111,091 162,726
Investment in and advances to IndyMac, Inc. 210,913 279,693
Cash 11,793 815
Other assets 74,747 57,558
------------ -----------
Total assets $3,497,550 $4,851,152
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans and securities sold under agreements to repurchase $1,773,449 $2,942,270
Syndicated bank lines and commercial paper conduit 675,190 843,279
Collateralized mortgage obligations 90,045 140,810
Senior unsecured notes 60,148 60,031
Accounts payable and accrued liabilities 41,773 42,659
---------- ----------
Total liabilities 2,640,605 4,029,049
Shareholders' Equity
Preferred stock - authorized, 10,000,000 shares of $.01 par value;
none issued - -
Commonstock - authorized, 200,000,000 shares of $.01 par value;issued
80,604,770 shares (76,617,770 outstanding) at September30, 1999 and
74,794,435 shares (74,693,565 outstanding) at December 31, 1998 806 758
Additional paid-in capital 1,078,438 1,018,859
Treasury stock, at cost, 3,896,961 shares at September 30, 1999 and 1,100,870
shares at December 31, 1998 (54,065) (13,062)
Accumulated other comprehensive income (loss) 2,138 (18,776)
Cumulative earnings 361,783 277,220
Cumulative distributions to shareholders (532,155) (442,896)
---------- ----------
Total shareholders' equity 856,945 822,103
---------- ----------
Total liabilities and shareholders' equity $3,497,550 $4,851,152
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
------- -------- ------- -------
<S> <C> <C> <C> <C>
REVENUES
Interest income
Loans held for sale, net
Mortgages-prime $13,831 $35,852 $41,582 $ 89,223
Mortgages-subprime 2,285 15,418 7,360 24,094
Manufactured housing 1,832 2,416 13,038 11,814
Home improvement 4,929 5,821 14,995 12,513
-------- -------- -------- ---------
22,877 59,507 76,975 137,644
Loans held for investment, net
Mortgage loans 10,619 24,293 33,330 82,658
Residential construction
Builder 20,238 21,177 61,049 57,331
Consumer 8,339 9,749 27,399 29,534
Income property 4,544 3,751 13,267 4,738
Revolving warehouse lines of credit 4,920 10,952 16,706 35,426
-------- -------- -------- ---------
48,660 69,922 151,751 209,687
Mortgage securities available for sale 6,830 14,828 9,840 49,134
Collateral for collateralized mortgage obligations 2,162 3,499 7,546 11,821
Advances to IndyMac, Inc. 5,112 5,134 16,023 12,920
Other 70 190 722 437
-------- -------- -------- ---------
Total interest income 85,711 153,080 262,857 421,643
Interest expense
Loans and securities sold under agreements to repurchase 29,503 85,549 97,630 232,681
Syndicated bank lines and commercial paper conduit 10,195 12,514 31,770 31,211
Collateralized mortgage obligations 1,808 3,535 7,520 11,782
Senior unsecured notes 1,386 1,383 4,156 4,146
-------- -------- -------- ---------
Total interest expense 42,892 102,981 141,076 279,820
Net interest income before provision for loan losses 42,819 50,099 121,781 141,823
Provision for loan losses 4,412 7,285 12,310 22,892
-------- -------- -------- ---------
Net interest income 38,407 42,814 109,471 118,931
Equity in earnings (loss) of IndyMac, Inc. 1,658 4,826 (2,647) 9,717
Other income (loss) 129 (1,500) 2,875 (647)
-------- -------- -------- ---------
Net revenues 40,194 46,140 109,699 128,001
EXPENSES
Salaries and related benefits 5,554 5,205 17,308 14,240
General and administrative 2,791 1,912 7,828 6,242
-------- -------- -------- ---------
Total expenses 8,345 7,117 25,136 20,482
-------- -------- -------- ---------
NET EARNINGS $31,849 $39,023 $84,563 $107,519
======== ======== ======== =========
EARNINGS PER SHARE
Basic $ 0.40 $ 0.54 $ 1.07 $ 1.57
Diluted 0.39 0.54 1.06 1.57
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 79,998 72,070 79,014 68,314
Diluted 81,082 72,154 79,759 68,489
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 84,563 $ 107,519
Adjustments to reconcile net earnings
to net cash provided by (used in) operating activities:
Provision for loan losses 12,310 22,892
Unrealized loss on trading securities and loans held for investment 2,202 2,089
Equity in (earnings) loss of IndyMac, Inc. 2,647 (9,717)
Amortization and depreciation 44,440 39,380
Purchases of mortgage loans held for sale (4,395,437) (9,245,825)
Sales of and payments from mortgage loans held for sale 4,891,985 8,588,903
Purchases of manufactured housing loans held for sale (75,166) (358,552)
Sales of and payments from manufactured housing loans held for sale 251,200 411,067
Net (purchases) sales of home improvement loans held for sale 25,758 (169,471)
Purchases of trading mortgage securities - (96,834)
Sales of and payments from trading mortgage securities - 25,145
Net decrease in other assets 866 4,785
Net increase (decrease) in other liabilities (886) 1,256
------------ ------------
Net cash provided by (used in) operating activities 844,482 (677,363)
------------ ------------
Cash flows from investing activities:
Purchases of mortgage loans held for investment (9,869) (265,286)
Payments from mortgage loans held for investment 242,726 1,012,412
Net decrease (increase) in construction loans receivable 179,871 (433,895)
Purchases of mortgage securities available for sale (76,310) (603,444)
Net decrease in revolving warehouse lines of credit 228,049 51,517
Net (increase) decrease in manufactured housing loans held for investment (25,421) 2,410
Net increase in home improvement loans held for investment (50,474) -
Net (increase) decrease in advances to IndyMac, Inc. net of cash
payments 71,984 (138,395)
Sales of and payments from available for sale and trading mortgage
securities 16,381 331,535
Payments from collateral for collateralized mortgage obligations 51,923 58,617
------------ ------------
Net cash provided by investing activities 628,860 15,471
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in loans and securities sold under agreements
to repurchase (1,171,381) 169,966
Net increase (decrease) in syndicated bank lines and commercial paper
conduit (168,089) 422,159
Principal payments on collateralized mortgage obligations (52,259) (59,035)
Net proceeds from issuance of common stock 59,627 222,087
Acquisition of treasury stock (41,003) -
Cash dividends paid (89,259) (102,612)
------------ ------------
Net cash provided by (used in) financing activities (1,462,364) 652,565
------------ ------------
Net increase (decrease) in cash and cash equivalents 10,978 (9,327)
Cash and cash equivalents at beginning of period 815 13,676
------------ ------------
Cash and cash equivalents at end of period $ 11,793 $ 4,349
============ ============
Supplemental cash flow information:
Cash paid for interest $ 143,054 $ 275,601
============ ============
Supplemental disclosure of noncash investing and financing activities:
Transfer of manufactured housing loans held for sale to loans held
for investment $ 91,559 $ 1,716
============ ============
Transfer of home improvement loans held for sale to loans held for
investment $ 223,181 $ -
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHARESHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-in Treasury Accumulated other comprehensive income (loss)
---------------------------------------------
Stock Capital Stock REIT Operating Total
-------- ---------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 634 $ 773,475 $ - $ (2,006) $ 501 $ (1,505)
Common stock options exercised 1 3,913 - - - -
Director's and officer's notes
receivable 10 (8,140) - - - -
Deferred compensation,
restricted stock 1 760 - - - -
401(k) contribution - 546 - - - -
Net gain (loss) on available for sale
mortgage securities - - - (6,334) 1,390 (4,944)
Dividend reinvestment plan 100 224,896 - - - -
Net earnings - - - - - -
Dividends paid - - - - - -
-------- ---------- --------- ---------- --------- ---------
Net change 112 221,975 - (6,334) 1,390 (4,944)
-------- ---------- --------- ---------- --------- ---------
Balance at September 30, 1998 $ 746 $ 995,450 $ - $ (8,340) $ 1,891 $ (6,449)
======== ========== ========= ========== ========= =========
Balance at December 31, 1998 $ 758 $1,018,859 $ (13,062) $ (18,366) $ (410) $ (18,776)
Common stock options exercised 2 1,705 - - - -
Director's and officer's notes receivable - 8,435 - - - -
Deferred compensation,
restricted stock 2 1,909 - - - -
401(k) contribution - 539 - - - -
Net gain on available for sale mortgage
securities - - 15,454 5,460 20,914
Dividend reinvestment plan 44 46,991 - - - -
Acquisition of treasury stock - - (41,003) - - -
Net earnings - - - - - -
Dividends paid - - - - - -
-------- ---------- --------- ---------- --------- ---------
Net change 48 59,579 (41,003) 15,454 5,460 20,914
-------- ---------- --------- ---------- --------- ---------
Balance at September 30, 1999 $ 806 $1,078,438 $ (54,065) $ (2,912) $ 5,050 $ 2,138
======== ========== ========= ========== ========= =========
<CAPTION>
Cumulative Total
Cumulative Comprehensive Distributions to Shareholders'
Earnings Income Shareholders Equity
---------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ 243,430 $ (312,140) $ 703,894
Common stock options exercised - - - 3,914
Director's and officer's notes
receivable - - - (8,130)
Deferred compensation,
restricted stock - - - 761
401(k) contribution - - - 546
Net gain (loss) on available for sale
mortgage securities - (4,944) - (4,944)
Dividend reinvestment plan - - - 224,996
Net earnings 107,519 107,519 - 107,519
Dividends paid - - (102,612) (102,612)
--------- ----------- ----------- -----------
Net change 107,519 102,575 (102,612) 222,050
--------- ----------- ----------- -----------
Balance at September 30, 1998 $ 350,949 $ (414,752) $ 925,944
========= =========== ===========
Balance at December 31, 1998 $ 277,220 $ (442,896) $ 822,103
Common stock options exercised - - - 1,707
Director's and officer's notes receivable - - - 8,435
Deferred compensation,
restricted stock - - - 1,911
401(k) contribution - - - 539
Net gain on available for sale mortgage
securities - 20,914 - 20,914
Dividend reinvestment plan - - - 47,035
Acquisition of treasury stock - - - (41,003)
Net earnings 84,563 84,563 - 84,563
Dividends paid - - (89,259) (89,259)
---------- ----------- ----------- -----------
Net change 84,563 105,477 (89,259) 34,842
---------- ----------- ------------ -----------
Balance at September 30, 1999 $ 361,783 $ (532,155) $ 856,945
========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements.
IndyMac Mortgage Holdings, Inc. ("IndyMac REIT") has elected to be treated as a
real estate investment trust ("REIT") under the Internal Revenue Code of 1986,
as amended. The consolidated financial statements include the accounts of
IndyMac REIT and its qualified REIT subsidiaries. IndyMac, Inc. ("IndyMac
Operating") acts as an intermediary between the originators of mortgage loans
and permanent investors in whole loans and mortgage backed securities ("MBS")
through its third party and direct lending businesses. IndyMac Operating is a
taxable affiliate of IndyMac REIT, and was established in 1993. IndyMac REIT
owns all the preferred non-voting stock and has a 99% economic interest in
IndyMac Operating. IndyMac REIT's investment in IndyMac Operating is accounted
for under a method similar to the equity method because IndyMac REIT has the
ability to exercise influence over the financial and operating policies of
IndyMac Operating through its ownership of the preferred stock and other
contracts. Under this method, original investments are recorded at cost and
adjusted by IndyMac REIT's share of earnings or losses and decreased by
dividends received. References to the "Company" mean the parent company, its
consolidated subsidiaries, and IndyMac Operating and its consolidated
subsidiaries. All significant intercompany balances and transactions with
IndyMac REIT's consolidated subsidiaries have been eliminated in consolidation
of IndyMac REIT.
Certain reclassifications have been made to the financial statements for the
period ended September 30, 1998 to conform to the September 30, 1999
presentation. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the quarter ended September 30, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in IndyMac REIT's annual
report on Form 10-K for the year ended December 31, 1998.
NOTE B - ALLOWANCE FOR LOAN LOSSES
IndyMac REIT's determination of the level of the allowance and correspondingly,
the provision for loan losses, rests upon various judgments and assumptions,
including general economic conditions, loan portfolio composition, prior loan
loss experience and the Company's ongoing risk assessment process. IndyMac REIT
recognized a $4.4 million provision for loan losses during the third quarter of
1999, compared to a $1.2 million provision for loan losses during the second
quarter of 1999. The allowance for loan losses was increased through the
provision for loan losses during the quarter ended September 30, 1999 to
maintain the allowance at levels judged prudent given the composition of the
Company's loan portfolio and management's assessment of the losses inherent
therein at September 30, 1999. The $53.8 million allowance for loan losses was
considered adequate to cover losses inherent in the loan portfolio at September
30, 1999. However, no assurance can be given that IndyMac REIT will not, in any
particular period, sustain loan losses that exceed the amount provided for, or
that subsequent evaluations of the loan portfolio, in light of the then-
prevailing factors, including economic conditions, the credit quality of the
assets comprising IndyMac REIT's portfolio and the Company's ongoing risk
assessment process, will not require significant increases in the allowance for
loan losses.
6
<PAGE>
The table below summarizes the changes to the allowance for loan losses for the
three and nine months ended September 30, 1999:
<TABLE>
<CAPTION>
(Dollars in thousands) Three months ended Nine months ended
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
Beginning balance $52,077 $50,112
Provision 4,412 12,310
Net charge-offs (2,675) (8,608)
------- -------
Ending balance $53,814 $53,814
======= =======
</TABLE>
NOTE C - AVAILABLE FOR SALE MORTGAGE SECURITIES
A summary of IndyMac REIT's available for sale mortgage securities as of
September 30, 1999 and December 31, 1998 follows:
<TABLE>
<CAPTION>
(Dollars in thousands) September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Amortized cost $263,981 $253,398
Gross unrealized gains 13,398 317
Gross unrealized losses (16,310) (18,683)
-------- --------
Estimated fair value $261,069 $235,032
======== ========
</TABLE>
At September 30, 1999, IndyMac REIT's available for sale mortgage securities
included $128.8 million of AAA-rated interest-only securities, $48.5 million of
senior securities, $41.2 million of residual securities, $27.4 million of agency
securities, $12.3 million of other investment grade securities, and $2.9 million
of non-investment grade securities.
The fair value of IndyMac REIT's interest-only and residual securities is
determined by estimating net future cash flows using estimates of future
prepayment rates and, for residual securities, credit losses. The estimated
cash flows are discounted using discount rates that approximate current market
rates. Prepayment speed assumptions used to estimate the value of IndyMac
REIT's interest-only and residual securities are based primarily on expectations
of future prepayment levels based on collateral coupon, seasoning and historical
experience.
At September 30, 1999, the fair value of interest-only securities of $2.9
million was estimated using an average constant prepayment rate assumption of
approximately 14%, and weighted average discount rates ranging from 12% to 13%.
The fair values of residual securities, collateralized by prime, subprime and
manufactured housing loans, was estimated using a weighted average discount rate
of 20%, assumed weighted average annual credit losses on underlying collateral
of 1.2% and average annual constant prepayment rates ranging from 30% to 35%.
The estimated fair value of the non-investment grade securities of $2.9 million
at September 30, 1999 was net of a $5.5 million discount to face and valuation
allowance for credit losses.
NOTE D - SEGMENT REPORTING
IndyMac REIT's reportable operating segments include Mortgage Banking,
Investments and Lending. The Mortgage Banking segment purchases and sells
conforming, jumbo and non-conforming mortgage loans from third party originators
of mortgage loans, loans funded directly to consumers through LoanWorks (a
division of IndyMac Operating), and to a lesser extent, in financing
manufactured housing loans and home improvement loans. The Investments segment
invests in residential loans and securities on a long-term basis. The Lending
segment offers a variety of residential construction, land and lot loan programs
for builders and developers and third party customers through its Construction
Lending Corporation of America division and Construction Lending Division. This
segment also engages in secured warehouse lending operations.
7
<PAGE>
Segment information for the three and nine months ended September 30, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Mortgage
Banking Investments Lending Adjustment(1) Consolidated
------- ----------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Three months ended September 30, 1999
Net interest income before provision for
loan losses $ 12,896 $ 6,480 $ 18,331 $ 5,112 $ 42,819
Net revenues 6,416 4,090 22,895 6,793 40,194
Net earnings 6,108 3,320 15,628 6,793 31,849
Three months ended September 30, 1998
Net interest income before provision for
loan losses $ 18,604 $ 7,953 $ 18,408 $ 5,134 $ 50,099
Net revenues 15,809 3,108 17,263 9,960 46,140
Net earnings 15,045 2,737 11,281 9,960 39,023
Nine months ended September 30, 1999
Net interest income before provision for
loan losses $ 32,003 $ 16,752 $ 57,003 $ 16,023 $ 121,781
Net revenues 23,583 23,849 48,891 13,376 109,699
Net earnings 22,911 21,185 27,091 13,376 84,563
Nine months ended September 30, 1998
Net interest income before provision for
loan losses $ 45,413 $ 30,946 $ 52,544 $ 12,920 $ 141,823
Net revenues 41,094 15,207 49,063 22,637 128,001
Net earnings 39,335 13,552 31,995 22,637 107,519
Assets as of September 30, 1999 $ 647,657 $ 1,168,362 $ 1,470,618 $210,913 $ 3,497,550
Assets as of September 30, 1998 $2,068,534 $ 2,326,483 $ 1,875,934 $335,739 $ 6,606,690
</TABLE>
(1) Represents intercompany interest and earnings from investment in IndyMac
Operating.
8
<PAGE>
NOTE E - INVESTMENT IN INDYMAC OPERATING
Summarized financial information for IndyMac Operating follows:
<TABLE>
<CAPTION>
(Dollars in thousands) September 30, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Loans held for sale, net $ 43,126 $ 210,086
Mortgage securities available for sale 379,100 398,094
Treasury securities - 302,313
Mortgage servicing rights 129,433 127,229
Other assets 66,722 65,074
-------- ----------
Total assets $618,381 $1,102,796
======== ==========
Loans and securities sold under agreements to repurchase $281,235 $ 697,406
Syndicated bank lines 89,139 89,139
Due to IndyMac Mortgage Holdings, Inc. 124,170 196,154
Accounts payable and accrued liabilities 36,218 35,714
Shareholders' equity 87,619 84,383
-------- ----------
Total liabilities and shareholders' equity $618,381 $1,102,796
======== ==========
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands) Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Interest income
Loans held for sale, net $ 3,549 $ 3,541 $ 14,156 $ 9,560
Mortgage securities available for sale 10,235 8,308 23,397 25,288
Treasury securities 1,374 4,299 8,530 11,337
------- ------- -------- -------
Total interest income 15,158 16,148 46,083 46,185
Interest expense 12,367 16,828 41,313 45,025
------- ------- -------- -------
Net interest income (expense) before provision
for loan losses 2,791 (680) 4,770 1,160
Provision for loan losses 599 - 1,027 36
------- ------- -------- -------
Net interest income (expense) 2,192 (680) 3,743 1,124
Gain on sale of mortgage loans, net 17,401 39,846 81,310 84,334
Gain (loss) on sale of securities, net 375 (1,109) (32,065) (4,568)
Service fee income (expense) 5,873 (2,748) 16,215 1,812
Other income 5,954 5,769 15,573 12,023
------- ------- -------- -------
Net revenues 31,795 41,078 84,776 94,725
Total expenses 28,882 32,600 89,426 77,655
------- ------- -------- -------
Earnings (loss) before income tax provision (benefit) 2,913 8,478 (4,650) 17,070
Income tax provision (benefit) 1,238 3,603 (1,976) 7,255
------- ------- -------- -------
Net earnings (loss) $ 1,675 $ 4,875 ($2,674) $ 9,815
======= ======= ======== =======
</TABLE>
Allowance for Loan Losses
IndyMac Operating's allowance for loss on sale of loans related to loans held
for sale totaled $267 thousand at September 30, 1999.
9
<PAGE>
Available for Sale Mortgage Securities
A summary of IndyMac Operating's available for sale mortgage securities as of
September 30, 1999 and December 31, 1998 follows:
(Dollars in thousands) September 30, December 31,
1999 1998
------------- ------------
Amortized cost $370,228 $397,859
Gross unrealized gains 21,006 408
Gross unrealized losses (12,134) (173)
-------- --------
Estimated fair value $379,100 $398,094
======== ========
At September 30, 1999, IndyMac Operating's available for sale mortgage
securities included $215.2 million of AAA-rated interest-only securities, $127.6
million of investment grade securities, $26.7 million of non-investment grade
securities, a $5.2 million residual security, and $4.4 million of principal-only
securities.
The fair value of IndyMac Operating's interest-only and residual securities is
determined by estimating net future cash flows using estimates of future
prepayment rates and, for residual securities, credit losses. The estimated
cash flows are discounted using discount rates that approximate current market
rates. Prepayment speed assumptions used to value IndyMac Operating's interest-
only and residual securities are based primarily on expectations of future
prepayment levels based on collateral coupon, seasoning and historical
experience.
At September 30, 1999, the fair value of IndyMac Operating's interest-only
securities was estimated using an average constant prepayment rate assumption of
approximately 14%, and weighted average discount rates ranging from 13% to 14%.
The estimated fair value of the non-investment grade securities of $26.7 million
at September 30, 1999 was net of a $11.1 million discount to face and valuation
allowance for credit losses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
GENERAL
In its third party lending business ("IndyMac TPL"), the Company acts as an
intermediary between the originators of mortgage loans and permanent investors
in whole loans and mortgage-backed securities ("MBS") secured by or representing
an ownership interest in such mortgage loans. The Company has realigned IndyMac
TPL to concentrate on mortgage originations through the use of its proprietary
Internet-based underwriting and risk-based pricing system, e-MITS/1/
(electronic-Mortgage Information and Transaction System). The Company purchases
conforming, jumbo and other non-conforming mortgage loans, as well as
manufactured housing and home improvement loans, from mortgage originators.
IndyMac Operating also originates conforming, jumbo and other non-conforming
mortgage loans through its direct-to-consumer LoanWorks/2/ division through its
proprietary website at www.loanworks.com, other internet relationships, and
-----------------
direct-to-consumer marketing methods.
IndyMac Operating, through its LoanWorks Servicing division, services loans that
it has purchased and that it originates through LoanWorks. All loans purchased
or originated by IndyMac REIT for which a real estate mortgage investment
conduit ("REMIC") transaction or whole loan sale is contemplated are committed
for sale to IndyMac Operating at the same price at which the loans were acquired
by IndyMac REIT pursuant to a Master Forward Commitment and Services Agreement.
At present, IndyMac Operating does not purchase any loans from entities other
than IndyMac REIT.
_____________________________
/1/ Registered in the U.S. Patent and Trademark Office. Patent pending.
/2/ Registered in the U.S. Patent and Trademark Office.
10
<PAGE>
The Company's principal sources of income from its third party and direct
lending operations are gains recognized on the sale or securitization of
mortgage and consumer loans, the net spread between interest earned on mortgage
and consumer loans and the interest costs associated with the borrowings used to
finance such loans, and primary and master loan servicing fee income.
In addition to its prime and subprime mortgage loans, the Company earns net
interest income and fee income through its other consumer lending operations,
and earns net interest income on its investment portfolio of mortgage and
consumer loans and mortgage securities. The Company's consumer lending
operations include: IndyMac Construction Lending Division ("IndyMac CLD"), which
facilitates the purchase of a variety of residential construction, land and lot
loans through sellers; LoanWorks, which facilitates the direct origination of a
variety of residential loans from consumers; and LoanWorks Servicing, which
performs servicing for mortgage loans acquired by the Company or originated
through LoanWorks. The Company's commercial lending operations include
Construction Lending Corporation of America ("CLCA"), which provides a variety
of residential construction, land and lot loan programs to builders and
developers, and Warehouse Lending Corporation of America ("WLCA"), which
provides various types of short-term revolving financing to small-to-medium-size
mortgage originators and offers builder inventory lines of credit.
In June of 1999, IndyMac REIT's Board of Directors approved, subject to
shareholder approval, the termination of its status as a REIT, to be effective
after December 31, 1999. If the termination of its status as a REIT is
approved, the Company will no longer be required to distribute 95% of its
taxable income to its shareholders, but will be taxed on its earnings. This
taxable structure will provide the Company with the ability to support its
lending and trading/securitization businesses with a more stable and diverse
funding base, grow through reinvestment of its retained earnings and create new
product marketing opportunities.
In July of 1999, the Company announced that it had signed a definitive agreement
to acquire SGV Bancorp, Inc. ("SGVB"), the holding company for First Federal
Savings and Loan Association of San Gabriel Valley. SGVB is a Southern
California-based, federally chartered savings and loan holding company whose
savings and loan subsidiary had nine branches, $363 million in deposits, and
27,000 customer accounts as of September 30, 1999.
The Company will acquire SGVB in a cash purchase transaction for $25.00 per
share, or $62.5 million, for all of the SGVB shares outstanding and subject to
option. This price is subject to adjustment as a result of changes in the value
of certain assets and liabilities of SGVB. The acquisition is subject to Office
of Thrift Supervision ("OTS") approval as well as approval by the shareholders
of both the Company and SGVB. The Company filed an application on September 1,
1999 with the OTS to approve the acquisition and filed a response to the OTS'
request for additional information on October 29, 1999. The Company and SGVB
mailed a joint proxy statement to their respective shareholders in the beginning
of November 1999 in conjunction with the special shareholder meetings being
held by the Company and SGVB on December 14, 1999.
OVERVIEW OF OPERATIONS
Third Party Lending: IndyMac TPL produced $1.2 billion of prime and subprime
loans during the third quarter of 1999, compared with $1.4 billion and $3.9
billion during the second quarter of 1999 and the third quarter of 1998,
respectively. This decline was due to the effect of increasing mortgage
interest rates on loan demand since the beginning of the year. IndyMac TPL loan
production was financed on an interim basis using equity and short-term
financing in the form of repurchase agreements and other credit facilities. The
Company sold $1.5 billion of loans during the third quarter of 1999, compared
with $1.7 billion sold during the second quarter of 1999 and $4.3 billion sold
in the third quarter of 1998.
During 1999, the Company refocused its third party lending business to
concentrate on soliciting origination from smaller mortgage originators, for
whom it can add value through the use of its proprietary website, www.e-
------
MITS.com. Loans funded through e-MITS in the third quarter of 1999 totaled $694
- --------
million,
11
<PAGE>
representing 53 percent of IndyMac's third party prime and subprime mortgage
production for this period, up from $486 million or 36 percent of production
during the second quarter of 1999.
LoanWorks funded $125 million of mortgage loans during the third quarter of
1999, a reduction of 25 percent in comparison to $166 million of loans during
the second quarter of 1999. LoanWorks' purchase mortgage volume as a percentage
of total volume increased from 21 percent in the second quarter to 36 percent
during the third quarter of 1999. The number of loans funded totaled 839 and 739
in the second and third quarters of 1999, respectively.
At September 30, 1999 and December 31, 1998, IndyMac Operating's master
servicing portfolio had an aggregate outstanding principal balance of $14.0
billion and $15.8 billion, respectively, with a weighted average coupon of 8.2%
for both periods, while LoanWorks Servicing's portfolio at September 30, 1999
and December 31, 1998 was $7.0 billion and $7.1 billion, respectively, with a
weighted average coupon of 8.2% as of September 30, 1999 and 8.3% as of December
31, 1998. The decrease in the master servicing portfolio of $1.8 million was
primarily due to principal payments and amortization totaling $2.9 billion,
offset by net additions of $1.1 billion during the year.
Construction Lending: At September 30, 1999, CLCA had commitments to fund
construction loans of $1.5 billion, with outstanding balances of $666.3 million
compared to commitments of $1.6 billion with outstanding balances of $731.0
million at December 31, 1998. At September 30, 1998, CLCA had commitments to
fund construction loans of $1.6 billion, with outstanding balances of $722.7
million.
CLCA's Income Property division had commitments to fund construction loans of
$155.1 million and $290.8 million at September 30, 1999 and December 31, 1998,
respectively. CLCA's Income Property division had outstanding balances on term
and construction loans of $56.9 million and $110.7 million, respectively, at
September 30, 1999, and $53.6 million and $125.2 million, respectively, at
December 31, 1998. At September 30, 1998, CLCA's Income Property division had
outstanding balances on its term and construction loans totaling $162.0 million.
At September 30, 1999, IndyMac CLD had commitments to fund construction-to-
permanent loans, lot loans and home improvement loans of $556.3 million with
outstanding balances of $382.3 million compared with commitments of $797.7
million and outstanding balances of $508.7 million at December 31, 1998. At
September 30, 1998, IndyMac CLD had commitments to fund construction-to-
permanent loans, lot loans and home improvement loans of $880.7 million with
outstanding balances of $487.1 million. Included in consumer construction loans
were $28.7 million of manufactured housing loans at December 31, 1998 and $20.7
million of manufactured housing loans at September 30, 1998.
CLCA's outstanding balances of $666.3 million and $731.0 million at September
30, 1999 and December 31, 1998, respectively, included $663.1 million and $3.2
million of builder and consumer products at September 30, 1999 and $728.8
million and $2.2 million at December 31, 1998, respectively. IndyMac CLD's
outstanding balances of $382.3 million and $508.7 million at September 30, 1999
and December 31, 1998, respectively, included $54.6 million and $327.7 million
of builder and consumer products at September 30, 1999, respectively and $70.9
million and $437.8 million at December 31, 1998, respectively.
Warehouse Lending: At September 30, 1999, IndyMac REIT had extended commitments
to make warehouse and related lines of credit in an aggregate amount of $1.0
billion, of which $215.7 million was outstanding, compared to $443.9 million
outstanding at December 31, 1998. The decrease in the outstanding balances
resulted primarily from lower production volumes and a significant reduction in
the average length of time that customer borrowings remain outstanding.
FINANCIAL CONDITION
Loans Held for Sale, Net: The Company's $565.5 million portfolio of loans held
for sale, net, at September 30, 1999 consisted of $503.8 million and $61.7
million of prime and subprime products, respectively. The Company's $1.8
billion loans held for sale, net, portfolio balance at December 31, 1998
consisted of $1.1 billion, $164.3 million, $243.2 million, and $278.3 million of
prime, subprime, manufactured housing, and home improvement loans, respectively.
The overall 68% decrease in the loans held for sale, net, from December 31, 1998
to September 30, 1999 was primarily due to the following two factors:
12
<PAGE>
. Loan production decreased due to overall lower demand in the market caused
by the increase in interest rates during 1999, and
. At September 30, 1999, the Company transferred its $91.6 million
outstanding balance of manufactured housing loans held for sale and its
$223.2 million balance of home improvement loans held for sale to its held
for investment portfolio given management's decision during 1999 to de-
emphasize its focus on these business lines. The Company has both the
ability and the intent to hold these loans for the foreseeable future.
Loans Held For Investment, Net: The Company's $873.6 million portfolio of loans
held for investment, net (excluding construction and warehouse lending
operations) at September 30, 1999 consisted of $159.4 million of varying types
of adjustable-rate loans which contractually reprice in monthly, semi-annual or
annual periods; $180.2 million of loans which have a fixed rate for a period of
three, five, seven or ten years and subsequently convert to adjustable-rate
mortgage loans that reprice annually and $202.6 million of fixed-rate loans. The
Company's loans held for investment, net portfolio included $531.5 million and
$640.7 million of prime loans at September 30, 1999 and December 31, 1998,
respectively. Also included in the loans held for investment, net portfolio at
September 30, 1999 was $108.2 million of manufactured housing loans, $223.2
million of home improvement loans, and $10.7 million of subprime loans. At
December 31, 1998 the Company held $25.0 million of manufactured housing loans
and $2.8 million of subprime loans in its held for investment portfolio. The
increase of $205.1 million from December 31, 1998 to September 30, 1999 in the
balance of loans held for investment, net, was due to the transfer of $91.6
million of manufactured housing loans and $223.2 million of home improvement
loans from the held for sale classification. The weighted average coupon of the
prime product held in the mortgage loans held for investment, net portfolio at
September 30, 1999 and December 31,1998 was 8.3% and 8.4%, respectively.
Available for Sale Mortgage and Treasury Securities: At September 30, 1999 and
December 31, 1998, the Company's mortgage and treasury securities portfolio, at
fair value, totaled $640.2 million and $935.4 million, respectively. The
Company's portfolio included $344.0 million of AAA rated interest-only
securities, $135.2 million of agency securities, $84.9 million of investment
grade private-label mortgage-backed securities, $46.4 million of non-investment
grade residuals, and $29.7 million of non-investment grade securities. The
decrease in the balance of mortgage and treasury securities of $295.2 million
from December 31, 1998 was primarily due to the sale of 100% of the Company's
treasury securities portfolio (balance totaled $302.3 million at December 31,
1998), and the sale of investment and non-investment grade securities totaling
$108.0 million during 1999. These sales were made as a result of the Company's
continued focus on portfolio management and cash flow. The decrease of $410.3
million of the mortgage private-labeled mortgage backed securities balance
resulting from these sales was partially offset by the purchase of $102.5
million of agency securities.
Collateralized mortgage obligations (CMO): At September 30, 1999 and December
31, 1998, the Company's CMO balance totaled $90.0 million and $140.8 million,
respectively, and the corresponding balance of collateral for CMO totaled $111.1
million and $162.7 million at September 30, 1999 and December 31, 1998,
respectively. The decrease in the CMO balance and related collateral was due to
principal repayments on the underlying loan balances.
Borrowings: At September 30, 1999 and December 31, 1998, the Company's balance
of loans and securities sold under agreements to repurchase totaled $2.1 billion
and $3.6 billion, respectively. The
13
<PAGE>
balance of syndicated bank lines and commercial paper conduit totaled $764.3
million and $932.4 million at September 30, 1999 and December 31, 1998,
respectively. The overall $1.8 billion decrease in these borrowings was due to
the Company's emphasis on improved liquidity, cash flows, and lower leverage.
The Company is continuing to pursue strategic alternatives to manage its
liabilities, with an emphasis on procuring committed financing, and longer-term
facilities where advances are not subject to fluctuations in the fair values of
underlying collateral. It is anticipated that the merger with SGVB will enhance
the stability of the Company's liquidity and capital resources due to access to
deposits and FHLB borrowings.
Asset Quality
A summary of the Company's non-performing loans as of September 30, 1999 and
December 31, 1998 follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------------------------- ----------------------------
% of % of
Amount Portfolio Amount Portfolio
-------------- ------------ --------- -------------
<S> <C> <C> <C> <C>
Non-performing Loans/6/:
Single Family Residential ("SFR") Mortgage Loans $50,022 4.46% $58,326 3.05%
Builder Construction and Income Property Loans 26,062 2.87% 16,253 1.64%
Consumer Construction Loans 5,279 1.57% 9,504 2.01%
Revolving Warehouse Lines of Credit 7,307 3.35% 9,806 2.19%
Manufactured Home Loans 6,677 5.85% 3,599 1.33%
Home Improvement Loans 3,859 1.69% 2,222 0.79%
------- -------
Totals $99,206 3.39% $99,710 2.28%
======= =======
</TABLE>
SFR Mortgage Loans: Non-performing loans decreased $8.3 million to $50.0 million
at September 30, 1999 from $58.3 million at December 31, 1998 due to decreases
in the size of the Company's loan portfolio, along with management's efforts
aimed at improving the quality and efficiency of the Company's collection
efforts. Non-performing loans as a percent of the portfolio increased 141 basis
points to 4.46% at September 30, 1999 from 3.05% at December 31, 1998 primarily
due to the decrease of the portfolio balance from $1.9 billion at December 31,
1998 to $1.1 billion at September 30, 1999.
Builder Construction and Income Property Loans: Non-performing loans increased
$9.8 million to $26.1 million at September 30, 1999 from $16.3 million at
December 31, 1998. The increase was primarily related to one loan totaling $7.8
million. This loan is secured by a property that is currently in the process of
foreclosure, with no losses anticipated. There were two additional non-
performing loans at September 30, 1999 totaling $4.3 million that are subject to
forebearance agreements. Subsequent to September 30, 1999, $7.1 million of the
non-performing loans at September 30, 1999 were brought current, or paid off,
with no losses incurred by the Company. All non-performing loans at September
30, 1999 consist of subdivision construction collateral, and have been
thoroughly evaluated and appraised. Non-performing loans as a percent of the
builder construction and income property portfolio increased 123 basis points to
2.87% at September 30, 1999 from 1.64% at December 31, 1998 as a result of the
increase in the non-performing loans balance.
Consumer Construction: Non-performing loans decreased $4.2 million to $5.3
million at September 30, 1999 from $9.5 million at December 31, 1998 due to
significant improvements in collections. As a result of the decrease in the
non-performing loans balance (partially offset by decreasing unpaid principal
balances), the percent of non-performing loans to the portfolio decreased from
2.01% at December 31, 1998 to 1.57% at September 30, 1999.
_____________________
/6/ Non-performing loans are loans delinquent 90 days or more plus loans
identified through individual analysis for cessation of interest accruals.
14
<PAGE>
Revolving Warehouse Lines of Credit: Non-performing loans decreased $2.5 million
to $7.3 million at September 30, 1999 from $9.8 million at December 31, 1998.
The $7.3 million of non-performing loans at September 30, 1999 was primarily
concentrated in one borrower, which represented $4.5 million, or 61% of the
total. Although the balance of non-performing loans decreased from December 31,
1998 to September 30, 1999, non-performing loans as a percent of the portfolio
increased 116 basis to 3.35% at September 30, 1999 from 2.19% at December 31,
1998. This was a result of the decrease in WLCA's outstanding balances from
$443.9 million at December 31, 1998 to $215.7 million at September 30, 1999,
primarily due to market-wide reductions in new loan volume resulting from rising
interest rates during the nine months ended September 30, 1999.
Manufactured Home Loans: Non-performing loans increased $3.1 million to $6.7
million at September 30, 1999 from $3.4 million at December 31, 1998.
Inconsistent loan quality from the dealer channel and the reduced demand in the
secondary market for manufactured home loans, among other factors, led to the
Company's decision during the second quarter of 1999 to restructure its
manufactured home loan business.
Home Improvement Loans: Non-performing loans increased $1.6 million to $3.9
million at September 30, 1999 from $2.2 million at December 31, 1998. Due to
management efforts at improving the effectiveness and efficiency of collections,
the Company has experienced stabilization of delinquencies since April of 1999.
With continued focus on collection efforts, the Company expects the non-
performing loan balance to decrease going forward.
Allowance for Loan Losses: The Company's allowance for loan losses totaled $54.1
million at September 30, 1999, or 1.85% of the book value of loans, compared to
$51.1 million at December 31, 1998, or 1.17% of the book value of loans. The
allowance for loan losses was increased through the provision for loan losses
during the nine months ended September 30, 1999 to maintain the allowance at
prudent levels given the composition and management's assessment of the level of
losses inherent in the Company's loan portfolio at September 30, 1999. Net
charge-offs totaled $10.3 million during the nine months ended September 30,
1999, compared to $9.9 million during the nine months ended September 30, 1998.
RESULTS OF OPERATIONS
Three months ended September 30, 1999 compared to three months ended September
30, 1998
Highlights for the three months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
(Dollars in thousands) For the three months ended
September 30, September 30,
1999 1998
-------- --------
<S> <C> <C>
Net interest income before provision for loan losses $ 42,819 $ 50,099
Net earnings 31,849 39,023
Return on average assets 3.33% 2.10%
Return on average equity 14.20% 17.38%
Interest spread
Yield on interest-earning assets 9.89% 8.30%
Cost of interest-bearing liabilities 6.04% 6.29%
Interest spread 3.85% 2.01%
Net interest margin 4.93% 2.47%
</TABLE>
Net earnings
IndyMac REIT's net earnings were $31.8 million, or $0.40 basic and $0.39 diluted
earnings per share for the three months ended September 30, 1999, compared to
net earnings of $39.0 million, or $0.54 basic and diluted earnings per share for
the three months ended September 30, 1998. The $7.2 million decrease in net
earnings was primarily due to a decrease in the average outstanding balances of
loans held for sale,
15
<PAGE>
loans held for investment and mortgage securities as a result of the Company's
balance sheet restructuring effort to improve liquidity, cash flow and reduce
leverage. This decrease in the outstanding loan balance and mortgage securities
resulted in a decrease in interest income of $67.4 million from the three months
ended September 30, 1998 to September 30, 1999. The decrease in interest income
was partially offset by a decrease of $60.1 million in interest expense as a
result of the Company's lower outstanding borrowings during the same period. The
provision for loan losses decreased $2.9 million, primarily as a result of the
decrease in the outstanding balances of loans held for sale and loans held for
investment. IndyMac REIT's equity in earnings of IndyMac Operating decreased
$3.1 million primarily due to a $22.4 million decrease in IndyMac Operating's
net gain on sale of mortgage loans due to lower sales volumes. This decrease in
IndyMac Operating's net gain on sale of mortgage loans was partially offset by
increases in net interest income of $2.9 million, net gain on sale of
securities, service fee income, and other income totaling $10.3 million, and a
decrease in expenses of $3.7 million.
Interest Income
Total interest income decreased $67.4 million for the third quarter of 1999 to
$85.7 million, from $153.1 million for the third quarter of 1998. This decrease
was the result of a reduction in the average outstanding loan balances resulting
from lower production volumes in 1999. The reduction in interest income was
primarily comprised of a reduction in interest income on loans held for sale of
$36.6 million, mortgage loans held for investment of $13.7 million, mortgage
securities of $8.0 million, and revolving warehouse lines of credit of $6.0
million, partially offset by an increase in interest income on income property
loans of $793 thousand.
Loans held for sale
-------------------
Interest income on loans held for sale decreased $36.6 million to $22.9
million for the third quarter of 1999, from $59.5 million for the third
quarter of 1998. This decrease was primarily the result of a decrease in
the average balance of such loans to $979.8 million for the third quarter
of 1999, from $2.8 billion for the third quarter of 1998. This reduction
was partially offset by an increase in the effective yield to 9.1% from
8.3%.
Loans held for investment
-------------------------
Interest income on mortgage loans held for investment decreased $13.7
million to $10.6 million for the third quarter of 1999, from $24.3 million
for the third quarter of 1998. This decrease was primarily the result of a
decrease in the average balance of such loans to $529.3 million for the
third quarter of 1999, from $1.3 billion for the third quarter of 1998.
This reduction was partially offset by an increase in the effective yield
to 7.9% from 7.2%. The decrease in the average balance of loans held for
investment was due to the Company's strategy to reduce its assets and
borrowing levels under uncommitted lines of credit. During the fourth
quarter of 1998, as a result of the financial market disruption, the
Company sold $443.6 million of whole loans from its held for investment
portfolio to third parties through IndyMac Operating thereby increasing
liquidity.
Residential construction loans
------------------------------
Interest income on residential construction loans totaled $28.6 million and
$30.9 million for the three months ended September 30, 1999 and 1998,
respectively. Interest was earned at an effective yield of 10.6% during the
three months ended September 30, 1999 and 1998. The average balance of
residential construction loans outstanding decreased $94.4 million to $1.1
billion at September 30, 1999 from $1.2 billion at September 30, 1998.
Revolving warehouse lines of credit
-----------------------------------
Interest income on revolving warehouse lines of credit decreased $6.0
million to $4.9 million for the third quarter of 1999, from $11.0 million
for the third quarter of 1998. This decrease was primarily the result of a
decrease in the average balance of such lines to $257.3 million for the
third quarter of 1999, from $495.1 million for the third quarter of 1998.
16
<PAGE>
This decrease was compounded by a decrease in the effective yield to 8.2%
from 9.1%.
Income property loans
---------------------
Interest income on income property loans increased $793 thousand to $4.5
million for the third quarter of 1999, from $3.8 million for the third
quarter of 1998. This increase was primarily the result of an increase in
the average balance of such loans to $191.4 million for the third quarter
of 1999, from $156.1 million for the third quarter of 1998. This increase
was partially offset by a decrease in the effective yield to 9.4% from
9.5%.
Mortgage securities
-------------------
Interest income on mortgage securities decreased $8.0 million to $6.8
million for the third quarter of 1999, from $14.8 million for the third
quarter of 1998. This decrease was primarily the result of a decrease in
the average principal balance of securities to $272.0 million for the third
quarter of 1999, from $908.3 million for the third quarter of 1998. This
reduction was partially offset by an increase in the effective yield to
9.8% from 6.4%. The decrease in the average principal balance was primarily
the result of the sale of certain of the Company's mortgage securities in
response to the Company's strategy to reduce the balance sheet. The
increase in the yield period to period was a result of $2.0 million in
impairment losses recorded during the three months ended September 30, 1998
whereas no impairment was recorded during the three months ended September
30, 1999.
Interest expense
Total interest expense decreased $60.1 million to $42.9 million for the third
quarter of 1999, from $103.0 million for the third quarter of 1998. This
decrease was primarily the result of a decrease in the average outstanding
balance of repurchase agreements and other credit facilities to $2.8 billion,
from $6.5 billion at September 30, 1998, coupled with a decrease in the
Company's cost of funds to 6.0% from 6.3%.
Provision for loan losses
The provision for loan losses decreased from $7.3 million in the third quarter
of 1998 to $4.4 million in the third quarter of 1999 primarily as a result of
the lower average outstanding balances of loans held for sale and loans held for
investment during 1999 compared to 1998.
Equity in earnings (loss) of IndyMac Operating
IndyMac REIT has a 99% equity interest in IndyMac Operating. IndyMac Operating
earned $1.7 million for the third quarter of 1999, down $3.2 million from
earnings of $4.8 million for the third quarter of 1998. This decrease was
primarily the result of IndyMac's decrease in net gain on sale of loans of $22.4
million to $17.4 million for the three months ended September 30, 1999 from
$39.8 million for the three months ended September 30, 1998 due to lower sales
volumes period to period. The volume of loans sold decreased from $4.3 billion
during the three months ended September 30, 1998 to $1.5 billion during the
three months ended September 30, 1999. IndyMac Operating's third quarter of 1999
net income was also impacted by increases in net interest income of $2.9
million, net gain on sale of securities, service fee income, and other income
totaling $10.3 million, and a decrease in expenses of $3.7 million.
17
<PAGE>
Nine months ended September 30, 1999 compared to nine months ended September 30,
1998
Highlights for the nine months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
(Dollars in thousands) For the nine months ended
September 30, September 30,
1999 1998
-------------- --------------
<S> <C> <C>
Net interest income before provision for loan losses $121,781 $141,823
Net earnings 84,563 107,519
Return on average assets 2.79% 2.11%
Return on average equity 12.86% 17.34%
Interest spread
Yield on interest-earning assets 9.27% 8.45%
Cost of interest-bearing liabilities 5.91% 6.32%
Interest spread 3.36% 2.13%
Net interest margin 4.30% 2.62%
</TABLE>
Net earnings
IndyMac REIT's net earnings were $84.6 million, or $1.06 earnings per diluted
share and $1.07 earnings per basic share, for the nine months ended September
30, 1999, compared to $107.5 million, or $1.57 basic and diluted earnings per
share for the nine months ended September 30, 1998. The decrease in net
earnings of $22.9 million was primarily due to a decrease in the outstanding
balances of loans held for sale, loans held for investment and mortgage
securities as a result of the Company's balance sheet restructuring effort to
improve liquidity, cash flow and reduce leverage. This decrease in the
outstanding loan balances and mortgage securities resulted in a decrease in
interest income of $158.8 million partially offset by a decrease of $138.7
million in interest expense as a result of the Company's lower outstanding
borrowings. IndyMac REIT's equity in earnings of IndyMac Operating decreased
$12.4 million primarily due to an increase of $27.5 million in net loss on
securities, a $3.0 million decrease in net gain on sale of mortgage loans, and a
$3.2 million charge to IndyMac Operating's other expenses for the restructuring
of its manufactured housing dealer business. These losses were partially offset
by an $18.0 million increase in service fee and other income.
Interest Income
Total interest income was $262.9 million for the nine months ended September 30,
1999 and $421.6 million for the nine months ended September 30, 1998. The
$158.8 million decrease in interest income was the result of a reduction in the
average outstanding loan balances in 1999 resulting from the Company's strategy
to reduce balance sheet size through sales of loans and securities and to lower
production volumes in 1999. This resulted in decreases in interest income
related to mortgage loans held for sale of $60.7 million, loans held for
investment of $49.3 million, mortgage securities of $39.3 million and revolving
warehouse lines of credit of $18.7 million, partially offset by increases
related to income property loans of $8.6 million, residential construction loans
of $1.6 million and advances to IndyMac Operating of $3.1 million.
Loans held for sale
-------------------
Interest income on mortgage loans held for sale totaled $77.0 million and
$137.6 million for the nine months ended September 30, 1999 and
1998,respectively. The decrease of $60.6 million resulted primarily from a
decrease in the average principal balance of such loans to $1.2 billion
from $2.2 billion for the nine months ended September 30, 1999 and 1998,
respectively. This reduction was partially offset by an increase in the
effective yield to 8.6% from 8.4%.
Loans held for investment
-------------------------
Interest income on mortgage loans held for investment decreased $49.3
million for the nine months ended September 30, 1999 to $33.3 million, from
$82.7 million for the nine months ended September
18
<PAGE>
30, 1998. This decrease was primarily the result of a decrease of $939.5
million in the average balance of such loans to $566.0 million for the nine
months ended September 30, 1999, from $1.5 billion for the nine months
ended September 30, 1998. This reduction was partially offset by an
increase in the effective yield to 7.8% from 7.3%.
Residential construction loans
------------------------------
Interest income on residential construction loans totaled $88.4 million and
$86.9 million for the nine months ended September 30, 1999 and 1998,
respectively. Interest was earned at an effective yield of 10.2% and 10.6%
for the nine months ended September 30, 1999 and 1998, respectively. The
average balance of construction loans outstanding increased $59.3 million
to $1.2 billion during the nine months ended September 30, 1999 from $1.1
billion during the nine months ended September 30, 1998.
Income property loans
---------------------
Interest income on income property loans increased $8.5 million to $13.3
million for the nine months ended September 30, 1999, from $4.7 million for
the nine months ended September 30, 1998. This increase was primarily the
result of an increase of $118.1 million in the average balance of such
loans to $189.7 million for the nine months ended September 30, 1999, from
$71.6 million for the nine months ended September 30, 1998. The effective
yield increased from 8.9% to 9.4%, period to period.
Revolving warehouse lines of credit
-----------------------------------
Interest income on revolving warehouse lines of credit decreased $18.7
million to $16.7 million for the nine months ended September 30, 1999, from
$35.4 million for the corresponding period of 1998. This decrease resulted
primarily from a decrease in the average balance of such loans to $274.3
million for the nine months ended September 30, 1999, down $242.5 million
from the average of $516.8 million for the nine months ended September 30,
1998. This decrease was compounded by a decrease in the effective yield to
8.1% from 9.2%.
Mortgage securities
-------------------
Interest income on mortgage securities decreased $39.3 million to $9.8
million for the nine months ended September 30, 1999, from $49.1 million
for the nine months ended September 30, 1998. This decrease was primarily
the result of a decrease in the average principal balance of securities to
$240.5 million for the nine months ended September 30, 1999, down $626.2
million from $866.7 million for the nine months ended September 30, 1998.
This decrease was compounded by a decrease in the effective yield to 5.3%
from 7.5%. The decrease in the average principal balance was primarily the
result of the sale of certain of the Company's mortgage securities in
response to the Company's strategy to reduce the balance sheet size to
improve liquidity and cash flows. Impairment losses on residual and
interest-only securities of $8.3 million were recognized as a reduction in
interest income during nine months ended September 30, 1999 (of which $5.3
million related to manufactured housing residuals), compared to $2.0
million in impairment losses recognized during the nine months ended
September 30, 1998.
Interest Expense
For the nine months ended September 30, 1999 and 1998, total interest expense
was $141.1 million and $279.8 million, respectively. The $138.7 million
decrease in interest expense was primarily due to a decrease of $2.8 billion in
the average balance outstanding of repurchase agreements and other credit
facilities to $3.2 billion for the nine months ended September 30, 1999 from
$5.9 billion for the nine months ended September 30, 1998, coupled with a
decrease in the cost of funds to 5.9% from 6.3% for the nine months ended
September 30, 1999 and 1998, respectively.
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Provision for loan losses
The provision for loan losses decreased from $22.9 million during the nine
months ended September 30, 1998 to $12.3 million during the nine months ended
September 30, 1999 primarily as a result of the lower average outstanding
balances of loans held for sale and loans held for investment during 1999
compared to 1998.
Equity in earnings (loss) of IndyMac Operating
IndyMac Operating incurred a $2.7 million loss for the nine months ended
September 30, 1999, compared to earnings of $9.8 million for the nine months
ended September 30, 1998. This decrease was primarily the result of realized
losses on sale of treasury securities of $32.4 million during the nine months
ended September 30, 1999, compared to a $4.6 million loss on sale of securities
in the nine months ended September 30, 1998, as well as a $3.2 million charge to
other expenses related to the restructuring of its manufactured housing dealer
business. Due to lower sales volumes, IndyMac Operating's net gain on sale of
loans decreased $3.0 million to $81.3 million. These reductions were offset by
an increase in service fee income of $14.4 million to $16.2 million from $1.8
million for the nine months ended September 30, 1999 and 1998, respectively. The
increase in service fee income was due primarily to an increase of $17.6 million
in the valuation allowance during the nine months ended September 30, 1998
compared to a reduction of $1.5 million in the valuation allowance during the
nine months ended September 30, 1999 due to changes in market conditions. This
$19.1 million difference in the valuation allowance was partially offset by
increased amortization due to higher prepayment speeds (i.e. faster collateral
paydowns).
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds include monthly principal and interest
payments on its loans held for sale and investment portfolios, principal and/or
interest on mortgage securities, committed borrowings, structured financing,
proceeds from the sale of loans and other assets, issuance of REMIC and asset-
backed securities, and master and primary servicing fees.
At September 30, 1999, the Company had liquidity approximating $324 million,
with a leverage ratio of 3.6:1 compared to 5.9:1 at December 31, 1998 and 6.9:1
at September 30, 1998. The Company believes that its liquidity levels and
borrowing capacity are sufficient to meet its current operating requirements.
However, the Company's liquidity and capital resources will continue to depend
on factors such as cash flow from operations, margins on financial collateral
required by lenders, margin calls and the Company's ability to raise funds in
the capital markets. It is anticipated that the merger with SGVB will enhance
the stability of the Company's liquidity and capital resources due to access to
deposits and FHLB borrowings.
In June of 1999, IndyMac REIT's Board of Directors approved a $100 million share
repurchase plan. Through September 30, 1999, the Company had repurchased 2.9
million shares in open market transactions at an average price of approximately
$14.22 per share, completing $41 million of the $100 million plan.
20
<PAGE>
The table below summarizes the Company's sources of financing as of September
30, 1999:
Committed Outstanding Maturity
(Dollars in millions) Financing Balances Date
------------------------------------------
Merrill Lynch $1,500 $1,408 May 2001
First Union Bank Syndicate 900 572 February 2001
Paine Webber 500 377 September 2001
Morgan Stanley 500 63 June 2001
Bank of America 200 192 December 1999
Bank of America 50 - September 2000
Senior unsecured notes 60 60 October 2002
Uncommitted borrowings - 147 -
------ ------
Total $3,710 $2,819
====== ======
The Company's ability to meet its long-term liquidity requirements is subject to
the renewal of its repurchase and credit facilities and/or obtaining other
sources of financing, including issuing additional debt or equity from time to
time. Any decision by the Company's lenders and/or investors to make additional
funds available in the future will depend upon a number of factors, such as the
Company's compliance with the terms of its existing credit arrangements, the
Company's financial performance, industry and market trends in the Company's
various businesses, the general availability of and rates applicable to
financing and investments, lenders' and/or investors' own resources and policies
concerning loans and investments, and the relative attractiveness of alternative
investment or lending opportunities. From time to time, the Company may enter
into uncommitted financing arrangements to take advantage of preferable pricing
opportunities. However, it is the Company's practice to maintain its balance of
total outstanding borrowings at an amount less than or equal to its committed
financing.
SYSTEMS ISSUES ASSOCIATED WITH THE YEAR 2000
Summary
The Year 2000 issue relates to the effects of potentially date sensitive
calculation errors by computers whose programs may not properly recognize the
year 2000. The Company's Year 2000 strategy was to identify all systems that
internally and externally impact its business, and determine Year 2000
compliance. Internal impact relates to the Company's internally developed
programs and vendor purchased software programs which are operated in-house by
the Company. External impact refers to embedded technology equipment and
systems, vendors that supply the Company with goods and services (including data
processing service bureaus), and business partners. The goals of the Company
related to Year 2000 were to determine its state of readiness, identify risks
and develop and implement plans including contingency plans to mitigate those
risks and to identify costs associated with Year 2000 issues.
State of Readiness and Identification of Risk
The identification and assessment of internal systems, remediation, testing, and
implementation phases have all been completed. Most of the Company's internally
developed systems were developed over the past five years, and were designed to
be Year 2000 compliant.
In 1998, the Company began its communication with significant third parties to
determine the extent to which the Company may be affected by those third
parties' failure to remediate their own Year 2000 issues. All critical outside
vendors have confirmed that they will be Year 2000 compliant by year-end 1999.
The Company will continue to monitor the progress of critical and non-critical
third party testing and implementation procedures throughout 1999.
An inventory of embedded technology equipment and systems has been compiled in
order to ensure that all components are Year 2000 compliant. Embedded
technology equipment and systems include
21
<PAGE>
equipment, machinery or building infrastructure that are controlled, monitored
or operated by embedded computer devices.
The Company has completed its review of its computer systems and has received
certification from a nationally recognized Year 2000 consulting firm that the
Company's systems are Year 2000 compliant. Included in the Year 2000 validation
process were the Company's consumer mortgage servicing and origination systems
as well as the Company's critical service providers and outside vendors.
Risks and Contingency Plans
The Company has identified material potential risks related to its Year 2000
issues. These risks are that the Company's primary lenders, depository
institutions and collateral custodians do not become Year 2000 compliant before
year-end 1999, which could materially impact the Company's ability to access
funds and collateral necessary to operate its various businesses. The Company
has assessed the risks related to these and other Year 2000 issues, and has
received assurances that the computer systems of its lenders, depository
institutions, collateral custodians, business partners, and service bureaus,
will be Year 2000 compliant by year-end 1999.
The Company has developed contingency plans for dealing with potential Year 2000
issues at year-end 1999 and beyond. Contingency plans include identifying
alternative processing platforms and alternative sources for services and
businesses provided by critical non-Year 2000 compliant financial depository
institutions, vendors and business partners. The Company believes that its plans
for internal systems and related processing are sufficient to mitigate most of
the major effects of Year 2000 issues. However, there can be no assurance that
the Company's lenders, depository institutions, custodians, vendors and business
partners resolve their own Year 2000 compliance issues in a timely manner.
Neither are there any assurances that any failure by these other parties to
resolve such issues would not have an adverse effect on the Company's operations
and financial condition.
Costs Related to Year 2000
The Company recognized approximately $1.4 million of expenses year-to-date to
ensure the readiness of the Company's computer systems for Year 2000 compliance.
No significant additional expenditures are expected to be recorded for Year 2000
compliance in future periods.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- ------------------------------------------------------------------
The Company's primary risk affecting market risk sensitive instruments is
interest rate risk. When interest rates fluctuate, the Company can be adversely
impacted because the fair value of its assets and commitments to purchase assets
changes. In addition to gains or losses on sale, the Company realizes income or
losses from the differential or spread between the interest earned on loans,
investments, and other interest-earning assets and the interest incurred on
borrowings. Any changes in overall interest rates may affect both the amount of
interest income received on interest-earning assets and the amount of interest
expense incurred on interest-bearing liabilities. Since the change in amount
received may not equal the change in amount paid, the spread (defined as the
difference between the two) can be adversely affected.
Financial instruments of the Company that tend to decrease in value as interest
rates decrease include interest-only securities and mortgage servicing assets
since prepayments tend to increase, resulting in lower residual cash flows over
time than would otherwise have been obtained in a stable or increasing interest
rate environment. Financial instruments of the Company that tend to increase in
value as interest rates decrease include REMIC senior securities, fixed rate
investment and non-investment grade securities, adjustable rate agency
securities, principal-only securities and U.S. Treasury bonds, off-balance sheet
instruments such as futures, call options, floors, and purchase commitments.
To minimize the adverse impact on net income and shareholders' equity due to
changes in the fair market value of its assets and commitments to purchase
assets, the Company hedges its loans held for sale, mortgage securities and
mortgage servicing rights.
22
<PAGE>
As part of its interest rate risk management process, the Company performs
various interest rate calculations that quantify the net financial impact of
changes in interest rates on its interest-earning assets, commitments and
interest-bearing liabilities. As of September 30, 1999, the Company estimates
that a parallel downward shift in U.S. Treasury bond rates and short-term
indices of 50 basis points, or 0.50%, all else being constant, would result in a
combined reduction to after tax income for IndyMac REIT and IndyMac Operating of
$1.7 million. The combined after tax loss on available for sale mortgage
securities, recorded as a component of other comprehensive income would be $6.6
million. The net result would be a reduction to comprehensive income of $8.3
million. The Company estimates that a parallel upward shift in U.S. Treasury
bond rates and short-term indices of 50 basis points, or 0.50%, all else being
constant, would result in a combined increase to after tax income for IndyMac
REIT and IndyMac Operating of $1.1 million. The combined after tax gain on
available for sale mortgage securities, recorded as a component of other
comprehensive income would be $2.5 million. The net result would be an increase
to comprehensive income of $3.6 million. The assumptions inherent in this model
include an instantaneous rate shock and a degree of correlation between the
hedges and hedged assets and as a result are subject to basis risk (i.e., the
spread-widening risk between the change in rates on U.S. Treasury bonds and
mortgage-backed securities). These sensitivity analyses are limited by the fact
that they are performed at a particular point in time and do not incorporate
other factors that would impact the Company's financial performance in such a
scenario, such as the increase in income associated with the increase in
production volume that would result from the decrease in interest rates.
Consequently, the preceding estimates should not be viewed as a forecast and
there can be no assurance that actual results would not vary significantly from
the analysis discussed above.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q may be deemed to be forward-
looking statements that reflect the Company's current views with respect to
future events and financial performance. These forward-looking statements are
subject to certain risks and uncertainties, including those identified below,
which could cause future results to differ materially from historical results or
those anticipated. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates, and if no date
is provided, then such statements speak only as of the date hereof. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The following factors could cause future results to differ materially from
historical results or those anticipated: (1) the level of demand for consumer
loans, mortgage loans, construction loans and commercial term loans, which is
affected by such external factors as the level of interest rates, the strength
of various segments of the economy and demographics of the Company's lending
markets; (2) the availability of funds from the Company's lenders and other
sources of financing to support the Company's lending activities; (3) the
direction of interest rates and the relationship between interest rates and the
cost of funds; (4) federal and state regulation of the Company's consumer
lending operations and federal regulation of the Company's real estate
investment trust status; (5) the actions undertaken by both current and
potential new competitors; (6) certain matters relating to the proposed
acquisition of SGVB, including the timing and uncertainty of the regulatory
approval process and other consents and approvals that may be required, the
changing nature and size of the surviving corporation's business, and the
assimilation of SGVB operations upon completion of the acquisition; and (7)
other risks and uncertainties detailed in this Management's Discussion and
Analysis of Financial Condition and Results of Operations.
23
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
--------
2.1 Agreement and Plan of Merger by and between SGV Bancorp, Inc. and
IndyMac Mortgage Holdings, Inc., dated as of July 12, 1999
(incorporated by reference to Exhibit 2.1 to the Company's Form 8-K
filed with the SEC on July 14, 1999)
10.1 Employment agreement dated January 1, 1998 between IndyMac, Inc. and
Gary D. Clark
10.2 Amendment to employment agreement dated September 1, 1998, between
IndyMac, Inc. and Gary D. Clark
10.3 Employment agreement dated April 1, 1999 between IndyMac Mortgage
Holdings, Inc. and Mark C. Nelson
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Pasadena,
State of California, on November 12, 1999 for the nine months ended September
30, 1999.
INDYMAC MORTGAGE HOLDINGS, INC.
By: /s/ Michael W. Perry
--------------------------------------
Michael W. Perry
Director and Chief Executive Officer
By: /s/ Carmella Grahn
--------------------------------------
Carmella Grahn
Executive Vice President and
Chief Financial Officer
25
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") has been executed as of January 1,
1998 by and between IndyMac, Inc. ("Employer") and Gary Clark ("Officer").
WITNESSETH:
WHEREAS, Employer desires to obtain the benefit of continued services of Officer
and Officer desires to continue to render services to Employer and its
affiliates.
WHEREAS, Employer and Officer desire to set forth the terms and conditions of
Officer's employment with Employer and its affiliates under this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants herein
contained, the parties hereto agree as follows:
1. Term. Employer agrees to employ Officer and Officer agrees to serve
Employer and its affiliates, in accordance with the terms hereof, for a
term beginning on the date first written above and ending on December 31,
2000, unless earlier terminated in accordance with the provisions hereof.
2. Position, Duties and Responsibilities. Employer and Officer hereby agree
that, subject to the provisions of this Agreement, Employer will employ
Officer and Officer will serve Employer, as a senior manager of either
IndyMac Mortgage Holdings, Inc. ("NDE") or Employer, or a similarly
structured entity in which NDE owns the majority of the economic interest,
as determined in the sole discretion of Employer. Officer's role may, from
time to time, be redefined by Employer, except that Officer shall at all
times remain a senior manager. Employer agrees that Officer's duties
hereunder shall be the usual and customary duties of such office and such
further duties shall not be inconsistent with the provisions of applicable
law. Officer agrees that Employer may add to or change Officer's duties as
business considerations dictate, as determined by the President of
Employer. Officer shall have such official power and authority as shall
reasonably be required to enable him to discharge his duties in the offices
which he may hold. All compensation paid to Officer by Employer or any of
its affiliates shall be aggregated in determining whether Officer has
received the benefits provided for herein, but without prejudice to the
allocation of costs among the entities to which Officer renders services
hereunder. If Employer requests Officer to relocate outside of Los Angeles
County, Ventura County or Orange County in connection with the relocation
of Employer's headquarters, Officer shall have the option of agreeing to
such relocation and the terms of this contract shall continue in full
force and effect. If Officer declines to relocate, either Officer or
Employer shall provide the other party with a Notice of Termination in
accordance with Section 5(f) and all of the rights and obligations of both
parties under this Agreement shall cease upon such termination and no
provisions shall survive (including, without limitation, Sections 5(d) and
8(k)), except for Section 8(g) and the right to enforce that provision
through injunctive relief pursuant to Section 8(h). If Employer requests
Officer to relocate outside of Los Angeles County, Ventura County or Orange
County and Employer's headquarters are not also relocating, Officer shall
have the option of agreeing to such relocation and
1
<PAGE>
the terms of this contract shall continue in full force and effect. If
Officer declines to relocate, Employer's request to relocate shall be
deemed a termination other than for Cause pursuant to Section 5(d).
3. Scope of this Agreement and Outside Affiliations. During the term of this
Agreement, Officer shall devote his full business time and energy, except
as expressly provided below, to the business, affairs and interests of
Employer and its affiliates, and matters related thereto, and shall use his
best efforts and abilities to promote their respective interests. Officer
agrees that he will diligently endeavor to promote the business, affairs
and interests of Employer and its affiliates and perform services
contemplated hereby, in accordance with the policies established by the
Board of the applicable entity, which policies shall be consistent with
this Agreement. Officer agrees to serve without additional remuneration as
an officer of one or more (direct or indirect) subsidiaries or affiliates
of Employer as Employer may from time to time request, subject to
appropriate authorization by the affiliate or subsidiary involved and any
limitation under applicable law.
During the course of Officer's employment as a full-time officer hereunder,
Officer shall not, without the consent of Employer, compete, directly or
indirectly, with Employer in the business then conducted by Employer or any
of its affiliates.
Officer may make and manage personal business investments of his choice and
serve in any capacity with any civic, educational or charitable
organization, or any governmental entity or trade association, without
seeking or obtaining approval by the Board, provided such activities and
services do not materially interfere or conflict with the performance of
his duties hereunder.
4. Compensation and Benefits.
a. Base Salary. Employer shall pay to Officer a base salary in respect of
the fiscal year of Employer (a "Fiscal Year") ending December 31, 1998
at the annual rate as set forth on Appendix A (the "Annual Rate"). In
respect of the Fiscal Years ending in 1999 and 2000, the Compensation
Committee of the Board (the "Compensation Committee) may, based upon
the recommendation of Michael W. Perry and the performance of Officer
and Employer, increase the Annual Rate. While any such increase shall
be at the discretion of the Compensation Committee, it is anticipated
that, for any Fiscal Year, a performance rating of good would result
in an increase in the Annual Rate of between 5% and 15%. During the
term of this Agreement, Employer may not decrease the Annual Rate
below the amount set forth in Appendix A unless decreased by the same
percentage for all officers at Officer's level.
b. Incentive Compensation. Employer shall pay to Officer for each of the
Fiscal Years ending during the term of this Agreement an incentive
compensation award in an amount determined pursuant to the Annual
Incentive Plan attached hereto as Appendix A. The terms of the Annual
Incentive Plan shall be determined in the first quarter of each Fiscal
year during the term of this Contract, as mutually agreed upon by
Employer and Officer. The incentive compensation award payable to
Officer for any Fiscal Year shall be paid no later than thirty (30)
days after completion and publication of the applicable audited
financial statements for such Fiscal Year.
2
<PAGE>
c. Stock Options. Beginning with the 1998 Fiscal Year and in respect of
each of the following Fiscal Years during the term of this Agreement,
NDE may grant to Officer stock options for such number of shares of
NDE's common stock as the Compensation Committee in its sole
discretion determines, taking into account Officer's and NDE's
performance and the competitive practices then prevailing regarding
the granting of stock options. Subject to the foregoing, it is
anticipated that the number of shares in respect of each annual stock
option grant shall be in accordance with the number of shares granted
to officers of Employer at a level similar to Officer's level. The
stock options described in this Section 4(c) in respect of a Fiscal
Year shall be granted at the same time as NDE grants stock options to
its other officers in respect of such Fiscal Year.
All stock options granted in accordance with this Section 4(c): (i)
shall be granted pursuant to NDE's current stock option plan, or such
other stock option plan or plans as may be or come into effect during
the term of this Agreement, (ii) shall have a per share exercise price
equal to the fair market value (as defined in the current Plan or such
other plan or plans) of the common stock at the time of grant, (iii)
shall become exercisable in three equal installments on each of the
first three anniversaries of the date of grant, (iv) shall become
immediately and fully exercisable in the event of a Change in Control
(as defined in Appendix B) or in the event that Officer's employment
is terminated due to death or Disability or by Employer other than for
Cause (as defined in Section 5(c)), and (v) shall be subject to such
other reasonable and consistent terms and conditions as may be
determined by the Compensation Committee and set forth in the
agreement evidencing the award.
d. Additional Benefits. Officer shall also be entitled to all rights and
benefits for which he is otherwise eligible under any bonus plan,
stock purchase plan, participation or extra compensation plan,
executive compensation plan, pension plan, profit-sharing plan, life
and medical insurance policy, or other plans or benefits, which
Employer or its subsidiaries may provide for him, or provided he is
eligible to participate therein, for senior officers generally or for
employees generally, during the term of this Agreement (collectively,
"Additional Benefits"). Officer shall also be entitled to three (3)
weeks of vacation each Fiscal Year, subject to all applicable policies
of Employer relating to vacation time. This Agreement shall not affect
the provision of any other compensation, retirement or other benefit
program or plan of Employer. If Officer's employment is terminated
hereunder, pursuant to Section 5(a), 5(b) or 5(d), Employer shall
continue for the period specified in Section 5(a), 5(b) or 5(d)
hereof, to provide benefits substantially equivalent to Additional
Benefits (other than qualified pension or profit sharing plan benefits
and option, equity or stock appreciation or other incentive plan
benefits as distinguished from health, disability and welfare type
benefits) on behalf of Officer and his dependents and beneficiaries
which were being provided to them immediately prior to Officer's
Termination Date, but only to the extent that Officer is not entitled
to comparable benefits from other employment.
5. Termination. The compensation and benefits provided for herein and the
employment of Officer by Employer shall be terminated only as provided for
below in this Section 5:
a. Disability. In the event that Officer shall fail, because of illness,
injury or similar incapacity ("Disability"), to render for four (4)
consecutive calendar months, or for shorter periods
3
<PAGE>
aggregating eighty (80) or more business days in any twelve (12) month
period, services contemplated by this Agreement, Officer's full-time
employment hereunder may be terminated, by written Notice of
Termination from Employer to Officer; and thereafter, Employer shall
continue, from the Termination Date until Officer's death or December
31, 2000, whichever first occurs (the "Disability Payment Period"),
(i) to pay compensation to Officer, in the same manner as in effect
immediately prior to the Termination Date, in an amount equal to (1)
fifty percent (50%) of the then existing base salary payable
immediately prior to the termination, minus (2) the amount of any cash
payments due to him under the terms of Employer's disability insurance
or other disability benefit plans or Employer's tax-qualified Defined
Benefit Pension Plan, and any compensation he may receive pursuant to
any other employment, and (ii) to provide during the Disability
Payment Period the additional benefits specified in the last sentence
of Section 4(d) hereof.
The determination of Disability shall be made only after 30 days'
notice to Officer and only if Officer has not returned to performance
of his duties during such 30-day period. In order to determine
Disability, both Employer and Officer shall have the right to provide
medical evidence to support their respective positions, with the
ultimate decision regarding Disability to be made by a majority of the
members of Employer's Benefits Committee.
b. Death. In the event that Officer shall die during the term of this
Agreement, Employer shall pay Officer's base salary for a period of
twelve (12) months following the date of Officer's death and in the
manner otherwise payable hereunder, to such person or persons as
Officer shall have directed in writing or, in the absence of a
designation, to his estate (the "Beneficiary"). Employer shall also
(1) pay to such Beneficiary (x) an amount equal to the incentive
compensation that would have been payable to Officer pursuant to
Section 4(b) in respect of the Fiscal Year in which the Officer's
death occurs multiplied by a fraction, the numerator of which is the
number of days in such Fiscal Year through the date of Officer's death
and the denominator of which is 365 and (y) any unpaid incentive
compensation payable to Officer pursuant to Section 4(b) in respect of
the Fiscal Year immediately preceding the Fiscal Year in which his
death occurs and (2) provide during the twelve-month period following
the date of Officer's death the additional benefits specified in the
last sentence of Section 4(d) hereof. If Officer's death occurs while
he is receiving payments for Disability under Section 5(a) above, such
payments shall cease and the Beneficiary shall be entitled to the
payments and benefits under this Section 5(b), which shall continue
for a period of twelve months thereafter at the full rate of base
salary in effect immediately prior to the Disability. This Agreement
in all other respects will terminate upon the death of Officer;
provided, however, that (i) the termination of the Agreement shall not
affect Officer's entitlement to all other benefits in which he has
become vested or which are otherwise payable in respect of periods
ending prior to its termination, and (ii) to the extent not otherwise
vested, all outstanding stock options granted to Officer pursuant to
Section 4(c) will vest upon his death.
c. Cause. Employer may terminate Officer's employment under this
Agreement for "Cause." A termination for Cause is a termination by
reason of (i) a material breach of this Agreement by, Officer (other
than as a result of incapacity due to physical or mental illness)
which is committed in bad faith or without reasonable belief that such
breach is in the best interests of Employer and which is not remedied
within a reasonable period of time after receipt of written notice
from
4
<PAGE>
Employer specifying such breach, or (ii) Officer's conviction by a
court of competent jurisdiction of a felony or misdemeanor carrying a
jail term of one year or more, or (ii) entry of an order duly issued
by any federal or state regulatory agency having jurisdiction in the
matter removing Officer from office of Employer or its affiliates or
permanently prohibiting him from participation in the conduct of the
affairs of Employer of any of its affiliates. If Officer shall be
convicted of a felony or misdemeanor carrying a jail term, or shall be
removed from office and/or temporarily prohibited from participating
in the conduct of Employer's or any of its affiliates' affairs by any
federal or state regulatory authority having jurisdiction in the
matter, Employer's obligations under Sections 4(a), 4(b), and 4(c)
hereof shall be automatically suspended provided, however, that if the
charges resulting in such removal or prohibition are finally dismissed
or if a final judgment on the merits of such charges is issued in
favor of Officer, or if the conviction is overturned on appeal, then
Officer shall be reinstated in full with back pay for the removal
period plus accrued interest at the rate then payable on judgments.
During the period that Employer's obligations under Sections 4(a),
4(b), and 4(c) hereof are suspended, Officer shall continue to be
entitled to receive Additional Benefits under Section 4(d) until the
conviction of the felony, or misdemeanor carrying a jail term, or
removal from office has become final and non-appealable. When the
conviction of the felony or removal from office has become final and
non-appealable, all of Employer's obligations hereunder shall
terminate; provided, however, that the termination of Officer's
employment pursuant to this Section 5(c) shall not affect Officer's
entitlement to all benefits in which he has become vested or which are
otherwise payable in respect of periods ending prior to his
termination of employment.
d. Severance.
(i) Except as provided in Section 5(d)(ii) below, if during the
term of this Agreement, Officer's employment shall be
terminated by Employer other than for Cause, or by Officer
because Employer has committed a "Material Breach" of this
Agreement, then Employer shall (1) pay Officer in a single
payment as soon as practicable after the Termination Date, but
in no event later than thirty (30) days thereafter, (A) an
amount in cash equal to one year of Officer's base salary at
the Annual Rate at the Termination Date and (B) an amount
equal to the incentive compensation paid or payable to
Officer pursuant to Section 4(b) in respect of the Fiscal Year
immediately preceding the Fiscal Year in which Officer's
Termination Date occurs (the "Bonus Rate"); provided,
however, that in the event the first anniversary of the
Termination Date occurs on a date prior to the end of a
Fiscal Year, Employer shall also pay Officer an amount equal
to the product of (x) the Bonus Rate and (y) a fraction, the
numerator of which is (I) the number of days elapsed since the
end of the immediately preceding Fiscal Year through the end
of the Severance Period and (II) the denominator of which is
365, and (2) until the first anniversary of the Termination
Date, provide the benefits specified in the last sentence of
Section 4(d) hereof. Employer shall also pay in a single
payment as soon as practicable after the Termination Date,
but in no event later than thirty (30) days thereafter, any
unpaid incentive compensation payable to Officer pursuant to
Section 4(b) in respect of the Fiscal Year immediately
preceding the Fiscal Year in which Officer's Termination Date
occurs, as calculated pursuant to the terms and conditions
of this Agreement, including, but not limited to, the terms
of Appendix A. For the purpose of this provision, the term
"Material Breach" shall mean a material breach of this
Agreement by Employer which is committed in bad faith
5
<PAGE>
and which is not remedied within a reasonable period of time
after receipt of written notice from Officer specifying such
breach.
(ii) If within two (2) years after a "Change in Control" (as
defined in Appendix B to this Agreement) and during the term
of this Agreement, Officer's employment shall be terminated by
Employer other than for Cause or by Officer for Good Reason,
then (A) Employer shall pay Officer in a single payment as
soon as practicable after the Termination Date, but in no
event later than thirty (30) days thereafter, (x) as severance
pay and in lieu of any further salary and incentive
compensation for periods subsequent to the Termination Date,
an amount in cash equal to one times the sum of (1) Officer's
base salary at the Annual Rate at the Termination Date and (2)
the incentive compensation paid or payable to Officer pursuant
to Section 4(b) in respect of the Fiscal Year immediately
preceding the Fiscal Year in which Officer's Termination Date
occurs and (y) any unpaid incentive compensation payable to
Officer pursuant to Section 4(b) in respect of the Fiscal Year
immediately preceding the Fiscal Year in which Officer's
Termination Date occurs, and (B) Employer shall continue to
provide for one year from the Termination Date the benefits
specified in the last sentence of Section 4(d) hereof.
(iii) For purposes of this Agreement, "Good Reason" shall be deemed
to occur if Employer (x) commits a Material Breach of this
Agreement (as defined in Section 5(d)(i)) or (y) takes any
other action which results in the substantial diminution in
Officer's status, title, position, authority and
responsibilities.
(iv) Notwithstanding anything in this Agreement to the contrary, in
the event it shall be determined that any payment or
distribution by Employer or any other person or entity to or
for the benefit of Officer (within the meaning of Section
28OG(b)(2) of the Internal Revenue Code of 1986, as amended
(the "Code"), whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, his
employment with Employer or a change in ownership or effective
control of Employer or a substantial portion of its assets (a
"Payment"), would be subject to the excise tax imposed by
Section 4999 of the Code (the "Excise Tax"), the Payments
shall be reduced (but not below zero) to the extent necessary
so that no Excise Tax would be imposed. If the application of
the preceding sentence should require a reduction in Payments
or other "parachute payment" (within the meaning of Section
280G of the Code), unless Officer shall have designated
otherwise, such reduction shall be implemented, first, by
reducing any non-cash benefits (other than stock options) to
the extent necessary, second, by reducing any cash benefits to
the extent necessary and, third, by reducing any stock options
to the extent necessary. In each case, the reductions shall
be made starting with the payment or benefit to be made on the
latest date following the Termination Date and reducing
payments or benefits in reverse chronological order therefrom.
All determinations concerning the application of this
paragraph shall be made by a nationally recognized firm of
independent accountants, selected by Officer and satisfactory
to Employer, whose determination shall be conclusive and
binding on all parties. The fees and expenses of such
accountants shall be borne by Employer.
6
<PAGE>
e. Resignation. If during the term of this Agreement, Officer shall resign
voluntarily, all of his rights to payment or benefits hereunder shall
immediately terminate; provided, however, that the termination of
Officer's employment pursuant to this Section 5(e) shall not affect
Officer's entitlement to all benefits in which he has become vested or
which are otherwise payable in respect of periods ending prior to his
termination of employment, and all obligations of Officer under Sections
8(g) and 8(k) shall expressly survive such termination.
f. Notice of Termination. Any purported termination by Employer or by Officer
shall be communicated by a written Notice of Termination to the other
party hereto which indicates the specific termination provision in this
Agreement, if any, relied upon and which sets forth in reasonable detail
the facts and circumstances, if any, claimed to provide a basis for
termination of Officer's employment under the provision so indicated
(except in the event of Officer's death or physical incapacity, in which
case such written Notice of Termination shall be provided by Officer's
executor or legal representative). For purposes of this Agreement, no such
purported termination shall be effective without such Notice of
Termination. The "Termination Date" shall mean the date specified in the
Notice of Termination, which shall be no less than 30 or more than 60 days
from the date of the Notice of Termination. Notwithstanding any other
provision of this Agreement, in the event of any termination of Officer's
employment hereunder for any reason, Employer shall pay Officer his full
base salary through the Termination Date, plus any Additional Benefits
which have been earned or become payable, but which have not yet been
paid, as of such Termination Date.
6. Reimbursement of Business Expenses. During the term of this Agreement,
Employer shall reimburse Officer promptly for all business expenditures to
the extent that such expenditures meet the requirements of the Code for
deductibility by Employer for federal income tax purposes or are otherwise in
compliance with the rules and policies of Employer and are substantiated by
Officer as required by the Internal Revenue Service and rules and policies of
Employer.
7. Indemnity. To the extent permitted by applicable law, the Certificate of
Incorporation and the By-Laws of Employer (as from time to time in effect)
and any indemnity agreements entered into from time to time between Employer
and Officer, Employer shall defend and indemnify Officer and hold him
harmless for any acts or decisions made by him in good faith while performing
services for Employer (including any subsidiary or affiliate of Employer),
and shall use reasonable efforts to obtain coverage for him under liability
insurance policies now in force or hereafter obtained during the term of this
Agreement covering the other officers or directors of Employer.
8. Miscellaneous.
a. Succession. This Agreement shall inure to the benefit of and shall be
binding upon Employer, its successors and assigns, but without the prior
written consent of Officer, this Agreement may not be assigned other than
in connection with a merger or sale of substantially all the assets of
Employer or similar transaction. Notwithstanding the foregoing, Employer
may assign, whether by assignment agreement, merger, operation of law or
otherwise, this Agreement to NDE or IndyMac, or to any successor or
affiliate of either of them, subject to such assignee's express assumption
of all obligations of Employer hereunder, and Officer hereby consents to
any such
7
<PAGE>
assignment. The failure of any successor to or assignee of the Employer's
business and/or assets in such transaction to expressly assume all
obligations of Employer hereunder shall be deemed a material breach of
this Agreement by Employer, triggering the severance provision of Section
5(d).
The obligations and duties of Officer hereby shall be personal and not
assignable.
b. Notices. Any notices provided for in this Agreement shall be sent to
Employer at its corporate headquarters, Attention: Chief Administrative
Officer, with a copy to the Director of Human Resources at the same
address, or to such other address as Employer may from time to time in
writing designate, and to Officer at such address as he may from time to
time in writing designate (or his business address of record in the
absence of such designation). All notices shall be deemed to have been
given two (2) business days after they have been deposited as certified
mail, return receipt requested, postage paid and properly addressed to the
designated address of the party to receive the notices.
c. Entire Agreement This instrument contains the entire agreement of the
parties relating to the subject matter hereof, and it replaces and
supersedes any prior agreements between the parties relating to said
subject matter. No modifications or amendments of this Agreement shall be
valid unless made in writing and signed by the parties hereto.
d. Waiver. The waiver of the breach of any term or of any condition of this
Agreement shall not be deemed to constitute the waiver of any other breach
of the same or any other term or condition.
e. California Law. This Agreement shall be construed and interpreted in
accordance with the laws of California, without reference to its
conflicts of laws principles.
f. Attorneys' Fees in Action on Contract. If any litigation shall occur
between the Officer and Employer, which litigation arises out of or as a
result of this Agreement or the acts of the parties hereto pursuant to
this Agreement, or which seeks an interpretation of this Agreement, the
prevailing party in such litigation, in addition to any other judgment or
award, shall be entitled to receive such sums as the court hearing the
matter shall find to be reasonable as and for the attorneys' fees of the
prevailing party.
g. Confidentiality. Officer hereby acknowledges and agrees that Employer and
its affiliates have developed and own valuable information related to
their business, personnel and customers, including, but not limited to,
concepts, ideas, customer lists, business lists, business and strategic
plans, financial data, accounting procedures, secondary marketing and
hedging models, trade secrets, computer programs and plans, and
information related to officers, directors, employees and agents. Officer
hereby agrees that all such information, and all codes, concepts, copies
and forms relating to such information, Employer's plans and intentions
with respect thereto, and any information provided by Employer or its
affiliates to Officer with respect to any of the foregoing, shall be
considered "Confidential Information" for the purpose of this Agreement.
Officer acknowledges and agrees that all such Confidential Information is
a valuable asset of Employer, and if developed by Officer, is developed by
Officer in the course of Officer's employment with
8
<PAGE>
Employer, and is the sole property of Employer. Officer agrees that he
will not divulge or otherwise disclose, directly or indirectly, any
Confidential Information concerning the business or policies of Employer
or any of its affiliates which he may have learned as a result of his
employment during the term of this Agreement or prior thereto as an
employee, officer or director of or consultant to Employer or any of its
affiliates, except to the extent such use or disclosure is (i) necessary
or appropriate to the performance of this Agreement and in furtherance of
Employer's best interests, (ii) required by applicable law or in response
to a lawful inquiry from a governmental or regulatory authority, (iii)
lawfully obtainable from other sources, or (iv) authorized by Employer.
The provisions of this subsection shall survive the expiration, suspension
or termination, for any reason, of this Agreement.
h. Remedies of Employer. Officer acknowledges that the services he is
obligated to render under the provisions of this Agreement are of a
special, unique, unusual, extraordinary and intellectual character, which
gives this Agreement peculiar value to Employer. The loss of these
services cannot be reasonably or adequately compensated in damages in an
action at law and it would be difficult (if not impossible) to replace
these services. By reason thereof, Officer agrees and consents that if he
violates any of the material provisions of this Agreement, Employer, in
addition to any other rights and remedies available under this Agreement
or under applicable law, shall be entitled during the remainder of the
term to seek injunctive relief, from a tribunal of competent jurisdiction,
restraining Officer from committing or continuing any violation of this
Agreement. The provisions of this subsection shall survive the expiration,
suspension or termination, for any reason, of this Agreement.
i. Severability. If any provision of this Agreement is held invalid or
unenforceable, the remainder of this Agreement shall nevertheless remain
in full force and effect, and if any provision is held invalid or
unenforceable with respect to particular circumstances, it shall
nevertheless remain in full force and effect in all other circumstances.
j. No Obligation to Mitigate. Officer shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise and, except as provided in Section 5(a)(i)(2)
hereof, no payment hereunder shall be offset or reduced by the amount of
any compensation or benefits provided to Officer in any subsequent
employment.
k. Covenant Not to Compete
(i) In General. Officer agrees that while he is employed by Employer
during the term of this Agreement and for a period of one year after
the termination of such employment for whatever reason other than (x)
any termination by Employer, either for Cause or other than for Cause
or (y) the expiration of this Agreement according to its terms (the
"Non-Compete Period"), he shall not, unless Officer shall have
received the prior written consent of Employer within North America:
(A) engage in any business, whether as an employee, consultant,
partner, principal, agent, representative or stockholder (other
than as a stockholder of less than a one percent (1%) equity
interest) or in any other corporate or representative capacity
with any other
9
<PAGE>
business whether in corporate, proprietorship, or partnership form
or otherwise, where such business is engaged in any activity which
competes with the business of Employer (or its subsidiaries or
affiliates, excluding Countrywide Credit Industries and its
subsidiaries, other than Employer) as conducted on the date
Officer's employment terminated or which will compete with any
proposed business activity of Employer (or its subsidiaries or
affiliates) in the planning stage on such date;
(B) solicit business from, or perform services for, any company or
other business entity which at any time during the two-year period
immediately preceding Officer's termination of employment with
Employer was a client of Employer (or its subsidiaries or
affiliates) (including without limitation any lessee, vendor or
supplier); provided that Officer may solicit business from another
company or business entity during such time as Officer is employed
by Employer (and prior to a Notice of Termination being provided
pursuant to Section 5(f)), so long as such solicitation is solely
for the intended benefit of Employer and carried out in the
ordinary course of the performance of Officer's duties; or
(C) offer, or cause to be offered, employment, either on a full-time,
part-time or consulting basis, to any person who was employed by
Employer (or its subsidiaries or affiliates) on the date Officer's
employment terminated.
(ii) Consideration. The consideration for the foregoing covenant not to
compete, the sufficiency of which is hereby acknowledged, is
Employer's agreement to continue to employ Officer and provide
compensation and benefits pursuant to this Agreement, including but
not limited to Section 5(d).
10
<PAGE>
(iii) Equitable Relief and Other Remedies. Officer acknowledges and agrees
that Employer's remedies at law for a breach or threatened breach of
any of the provisions of this Section would be inadequate and, in
recognition of this fact, Officer agrees that, in the event of such a
breach or threatened breach, in addition to any remedies at law,
Employer, without posting any bond, shall be entitled to obtain
equitable relief in the form of specific performance, a temporary
restraining order, a temporary or permanent injunction or any other
equitable remedy which may then be available.
(iv) Reformation. If the foregoing covenant not to compete would otherwise
be determined invalid or unenforceable by a court of competent
jurisdiction, such court shall exercise its discretion in reforming
the provisions of this Section to the end that Officer be subject to
a covenant not to compete, reasonable under the circumstances,
enforceable by Employer.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
EMPLOYER
By: /s/ Michael W. Perry
--------------------------
Name: Michael W. Perry
-------------------------
Title: President and Chief
------------------------
Executive Officer
------------------------
Officer:
/s/ Gary Clark
--------------------------
in his individual capacity
11
<PAGE>
APPENDIX A
ANNUAL INCENTIVE PLAN
Annual Base Rate for 1998: $205,000
Target Bonus for 1998: $356,000 Maximum Bonus for 1998: $402,280
Annual Incentive Award:
- ----------------------
Officer shall be eligible for an Annual Incentive Award which shall be
comprised of the following five components and their corresponding
weightings:
1. Financial Plan Goals (50%)
2. Operations/Systems Controls/Loan Quality (15%)
3. Cost Control (15%)
4. Earnings Per Share Growth (10%)
5. Discretionary/Subjective (10%)
These components shall be measured as follows:
1. Financial Plan Goals for 1998 (50%):
-----------------------------------
Attached hereto as Exhibit A, is the Financial Plan for 1998 for Officer's areas
of responsibilities. The Financial Plan for 1999 and 2000 shall be determined by
January 15 of each respective Fiscal Year, as mutually agreed upon by Employer
and Officer. Any production goals set forth in the Financial Plans for 1999 and
2000 shall be reasonable in light of Employer's financial, business and
strategic plans as a whole.
Year Target Amount Maximum Amount Minimum Amount
1998 $178,000 $213,600 $0
1999 $204,700 $245,640 $0
2000 $235,405 $282,486 $0
______________________________________________________________________________
Division % of Total Target Amount Maximum Net Income % of Net
Target Amount AECPTACS Income
______________________________________________________________________________
TPL West 40% $ 71,200 $85,440 $43,176,418 00.16%
------------------------------------------------------------------------------
TPL East 30% $ 53,400 $64,080 $ 5,034,790 01.06%
------------------------------------------------------------------------------
WLCA 15% $ 26,700 $32,040 $ 8,809,444 00.30%
------------------------------------------------------------------------------
CLD 15% $ 26,700 $32,040 $12,462,767 00.21%
------------------------------------------------------------------------------
Officer shall be paid a Financial Plan Incentive Award to be determined by
summing the amounts determined as follows for each of Officer's profit centers.
1
<PAGE>
TPL West, TPL East & WLCA
- -------------------------
The Financial Plan Incentive Award shall be determined by calculating the
specified percentage of Net Income After Earnings Credit Plus Tax Affected
Corporate Support (as calculated in Exhibit A) for each of Officer's profit
centers, as determined by the Head of Financial Planning and President of
Employer, in their sole discretion, subject to the applicable Maximum Amount set
forth above. The 1998 goal for Net Income After Earnings Credit Plus Tax
Affected Corporate Support for each of Officer's profit centers is set forth
above. This goal assumes a Return on Equity Plus Tax Affected Corporate Support
of greater than 25% (as calculated in Exhibit A).
CLD
- ---
The Financial Plan Incentive Award shall be determined by (i) calculating the
specified percentage of Net Income After Earnings Credit Plus Tax Affected
Corporate Support (as calculated in Exhibit A) for CLD, as determined by the
Head of Financial Planning and President of Employer, in their sole discretion,
subject to the applicable Maximum Amount set forth above and (ii) multiplying
such amount by the applicable Fully Leveraged Return On Equity Factor set forth
below. The 1998 goal for Net Income After Earnings Credit Plus Tax Affected
Corporate Support is set forth above.
<TABLE>
<CAPTION>
Return on Equity - Fully Leveraged Plus Tax Affected Corporate Support
<S> <C> <C> <C> <C> <C>
Actual ROE 20% * Target 10% * Target Target 10% ** Target 20% ** Target
ROE Factor 50% 75% 100% 110% 125%
</TABLE>
* Less Than
** More Than
The Target Return on Equity - Fully Leveraged Plus Tax Affected Corporate
Support (ROE - FLPTACS as calculated in Exhibit A) for the CLD division for 1998
is 34.54%. The Target ROE - FLPTACS for CLD for 1999 and 2000 shall be
determined by January 15 of each respective Fiscal Year, as mutually agreed upon
by Employer and Officer.
2. Operations/Systems Controls/Loan Qualify Goals (15%):
----------------------------------------------------
<TABLE>
<CAPTION>
Target Incentive Performance Percentage:
Goal Amount Excellent Good Satisfactory Poor
----
<S> <C> <C> <C> <C> <C>
a. Introduction and implementation of $13,400 110% 100% 50% 0%
automated underwriting and
risk based pricing (e-MITS) to
a select group of clients, and
expansion of this client base
as the technology is refined,
50% of our correspondent business
handled by e-MITS by year end.
b. Full use and implementation of sales $10,000 110% 100% 50% 0%
force accountability system by 6/30/98.
c. Completion of a customer profitability, $10,000 110% 100% 50% 0%
accountability, and measurement
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Target Incentive Performance Percentage:
Goal Amount Excellent Good Satisfactory Poor
----
<S> <C> <C> <C> <C> <C>
system to be implemented by December
31, 1998.
d. Implementation of operational staff $10,000 110% 100% 50% 0%
accountability system by May 31, 1998.
e. Shall minimize turnover in 4 and 3 $10,000 110% 100% 50% 0%
rated employees, and shall have a
minimum of 50% turnover in 2 rated
employees, and 100% turnover in 1
rated employees. Turnover includes an
employee leaving the company or being
reclassified due to either improved or
decreased performance.
Total incentive amount: $53,400
- ---------------------- (max. $58,740)
</TABLE>
The Incentive Award for Operations/Systems Controls/Loan Quality Goals for
Officer shall be calculated by (1) multiplying (x) the Performance Percentage
for each Goal times (y) the Target Incentive Amount for such Goal/Objective, and
-----
(2) adding all sums determined pursuant to the preceding clause (1) for each
Goal. The Target Incentive Award for Operations/Systems Controls/Loan Quality
Goals for 1998 shall be $53,400 and the Maximum shall be $58,740.
The Target Incentive Award for Operations/Systems Controls/Loans Quality Goals
for Officer for 1999 shall be $61,410 and for 2000 shall be S70,622. The
Operations/Systems Controls/Loan Quality Goals for 1999 and 2000 and the
Incentive Award amount applicable to each goal or objective shall be determined
by January 15 of each respective Fiscal Year, as mutually agreed upon by
Employer and Officer.
3. Cost Control Goals (15%):
------------------------
The following are Officer's 1998 cost control goals:
<TABLE>
<CAPTION>
Maximum Performance Percentage:
Goal Incentive 100%-95% 94%-90% 89%-80% * 80%
---- Amount
<S> <C> <C> <C> <C> <C>
a. Hold the level of direct expenses for $26,700 100% 80% 50% 0%
TPL Western Region at or below 50 basis
points of funded volume for 1998.
</TABLE>
* Less Than
** More Than
3
<PAGE>
<TABLE>
<CAPTION>
Goal Maximum Performance Percentage:
---- Incentive 100%-95% 94%-90% 89%-80% * 80%
Amount
<S> <C> <C> <C> <C> <C>
b. Hold the level of direct expenses for $16,020 100% 80% 50% 0%
TPL Eastern Region at or below 60
basis points of funded volume for 1998.
c. Maintain direct expenses as percentage $ 5,340 100% 80% 50% 0%
of net revenues for WLCA at 47,8% for
1998.
d. Maintain direct expenses as percentage $ 5,340 100% 80% 50% 0%
of net revenues for CLD at 34.7% for
1998.
Total incentive amount: $53,400
- -----------------------
</TABLE>
The Incentive Award for Cost Control Goals for Officer shall be calculated by
(1) multiplying (x) the Performance Percentage for each Goal times (y) the
-----
Maximum Incentive Amount for such Goal, and (2) adding all sums determined
pursuant to the preceding clause (1) for each Goal. The Maximum Incentive Award
for Cost Control Goals for Officer for 1998 shall be $53,400.
The Maximum Incentive Award for Cost Control Goals for Officer for 1999 shall be
$61,410 and for 2000 shall be $70,622. The Cost Control Goals for 1999 and 2000
and the Incentive Award amount applicable to each goal shall be determined by
January 15 of each respective Fiscal Year, as mutually agreed upon by Employer
and Officer.
4
<PAGE>
4. Earnings Per Share Growth (10%):
--------------------------------
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Earnings Per Share Target $ 2.10 TBD TBD
- ------------------------------------------------------------------------------------------------------------------------------
Target Incentive Award $35,600 $40,940 $47,081
- ------------------------------------------------------------------------------------------------------------------------------
Maximum Incentive Award $40,940 $47,081 $54,143
- ------------------------------------------------------------------------------------------------------------------------------
If Earnings Per Share $1,369 for each $.01 $TBD for each $.01 $TBD for each $.01
exceed target, incentive in excess of target in excess of target in excess of target
award shall be increased by: earnings per share, earnings per share, earnings per share,
subject to Maximum subject to Maximum subject to Maximum
- ------------------------------------------------------------------------------------------------------------------------------
If Earnings Per Share do not $2,738 for each $.01 $TBD for each $.01 $TBD for each $.01
meet target, incentive award below target below target earnings below target earnings
shall be decreased by: earnings per share per share per share
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5. Discretionary/Subjective (10%):
------------------------------
Officer shall be eligible for an additional Discretionary/Subjective Incentive
Award. Whether a Discretionary/Subjective Incentive Award shall be granted and
the amount of any such award shall be determined by the President of Employer,
in his sole and absolute discretion. Factors which will be included in the
determination of a Discretionary/Subjective Incentive Award shall be Officer's
management skills, ability to be a corporate team player and such other factors
as shall be determined by the President of Employer, in his sole and absolute
discretion. The fact that a Discretionary/Subjective Incentive Award is granted
in any year is no indication whether any such award will be granted in following
years. The maximum Discretionary/Subjective Incentive Award that Officer shall
be eligible for is as follows:
1998: up to $35,600
1999: up to $40,940
2000: up to $47,081
5
<PAGE>
6. Net lncome After Earnings Credit Plus Tax Affected Corporate Support (Net
--------------------------------------------------------------------------
Income AECPTACS) Discount Factor
---------------------------------
% of Net Income AECPTACS Goal Met Net Income Discount Factor
- --------------------------------- --------------------------
* 89% of Net Income AECPTACS 100%
80% - 89% of Net Income AECPTACS 90%
70% - 79% of Net Income AECPTACS 70%
60% - 69% of Net Income AECPTACS 50%
** 60% of Net Income AECPTACS 0%
7. Total Annual Incentive Award
----------------------------
The total Annual Incentive Award shall be calculated by multiplying (X) the sum
of the amounts calculated pursuant to Paragraphs 2, 3, 4 and 5 above times (y)
the Net Income Discount Factor determined pursuant to Paragraph 6 above and
adding such amount to the amount determined pursuant to Paragraph 1 above.
* Greater Than
** Less Than
6
<PAGE>
EXHIBIT A
INDYMAC
1999 FINANCIAL PLAN
EARNINGS BY BUSINESS LINE FOR BONUS CALCULATIONS
DOLLAR AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
Third Party Investment Master LoanWorks
Combined Lending Portfolio Servicing Servicing CLCA
-------- ----------- ---------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
I. NET INCOME AFTER EARNINGS CREDIT PLUS TAX EFFECTED
CORPORATE SUPPORT
Net Income after Earnings Credit 131,070 47,067 38,028 295 (9,358) 20,882
Corporate Support 33,798 11,883 2,957 882 3,187 2,836
Taxes on Corporate Support 10,681 5,050 860 375 0 0
----------------------------------------------------------------------
Corporate Support, Net of taxes 23,117 6,833 2,097 507 3,187 2,836
----------------------------------------------------------------------
Net Income after Earnings Credit plus Tax Effected
Corporate Support @ 100% 154,187 53,900 40,125 803 (6,171) 23,718
======================================================================
Net Income after Earnings Credit plus Tax Effected
Corporate Support @ 80% 123,350 43,120 32,100 642 (4,936) 18,974
Net Income after Earnings Credit plus Tax Effected
Corporate Support @ 150% 231,281 80,850 60,187 1,204 (9,256) 35,577
II. CONTROLLABLE RETURN ON EQUITY
Net Income-Fully Leveraged 120,303 40,477 38,028 295 (9,358) 19,552
Corporate Support 33,798 11,883 2,957 882 3,187 2,836
Taxes on Corporate Support 10,681 5,050 860 375 0 0
----------------------------------------------------------------------
Corporate Support, Net of taxes 23,117 6,833 2,097 507 3,187 2,836
----------------------------------------------------------------------
Net Income-Fully Leveraged plus Tax Effected
Corporate Support 143,420 47,310 40,125 803 (6,171) 22,388
======================================================================
Average Equity-Fully Leveraged 676,115 18,334 479,841 (796) (4,278) 97,877
======================================================================
Corporate Support Net Liability Allocative 52,736 18,542 4,614 1,376 4,973 4,425
----------------------------------------------------------------------
Fully Leveraged Equity before Corporate Support 728,851 36,876 484,455 589 695 102,302
======================================================================
----------------------------------------------------------------------
ROE-Fully Leveraged-before CS balance sheet allocative 19.68% 128.29% 8.28% 138.40% 887.65% 21.88%
======================================================================
<CAPTION>
Income IndyMac Tax Benefit
Property CLD WLCA LoanWorks MHD HID Adjustment
-------- ------- ------ --------- ----- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
I. NET INCOME AFTER EARNINGS CREDIT PLUS TAX EFFECTED
CORPORATE SUPPORT
Net Income after Earnings Credit 4,549 9,194 7,234 2,702 4,653 1,846 3,977
Corporate Support 537 1,920 2,518 1,768 3,265 2,045 0
Taxes on Corporate Support 0 33 0 751 1,388 869 1,355
----------------------------------------------------------------------
Corporate Support, Net of taxes 537 1,887 2,518 1,016 1,877 1,176 (1,355)
----------------------------------------------------------------------
Net Income after Earnings Credit plus Tax Effected
Corporate Support @ 100% 5,086 11,081 9,752 3,719 6,530 3,022 2,623
======================================================================
Net Income after Earnings Credit plus Tax Effected
Corporate Support @ 80% 4,069 8,865 7,801 2,975 5,224 2,418 2,098
Net Income after Earnings Credit plus Tax Effected
Corporate Support @ 150% 7,630 16,621 14,628 5,578 9,796 4,533 3,934
II. CONTROLLABLE RETURN ON EQUITY
Net Income-Fully Leveraged 4,407 8,513 6,270 2,702 4,036 1,401 3,977
Corporate Support 537 1,920 2,518 1,768 3,265 2,045 0
Taxes on Corporate Support 0 33 0 751 1,388 869 1,355
----------------------------------------------------------------------
Corporate Support, Net of taxes 537 1,887 2,518 1,016 1,877 1,176 (1,355)
----------------------------------------------------------------------
Net Income-Fully Leveraged plus Tax Effected
Corporate Support 4,945 10,400 8,788 3,719 5,914 2,577 2,623
======================================================================
Average Equity-Fully Leveraged 34,376 35,623 9,163 83 (484) 6,377 0
======================================================================
Corporate Support Net Liability Allocative 839 2,995 3,929 2,758 5,094 3,191 0
----------------------------------------------------------------------
Fully Leveraged Equity before Corporate Support 35,214 38,618 13,091 2,841 4,611 9,567 0
======================================================================
----------------------------------------------------------------------
ROE-Fully Leveraged-before CS balance sheet allocative 14.04% 26.93% 67.13% 130.91% 128.26% 26.94% N/A
======================================================================
</TABLE>
<PAGE>
APPENDIX B
A "Change in Control" shall mean the occurrence during the term of the
Agreement, of any one of the following events:
A. An acquisition (other than directly from Employer) of any common stock
or other "Voting Securities" (as hereinafter defined) of Employer by any
"Person" (as the term person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of twenty five percent (25%) or more of the then
outstanding shares of Employer's common stock or the combined voting
power of Employer's then outstanding Voting Securities; provided,
however, in determining whether a Change in Control has occurred, Voting
Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an acquisition which would
cause a Change in Control. For purposes of this Agreement, (1) "Voting
Securities" shall mean Employer's outstanding voting securities entitled
to vote generally in the election of directors and (2) a "Non-Control
Acquisition" shall mean an acquisition by (i) an employee benefit plan
(or a trust forming a part thereof) maintained by (A) Employer or (B)
any corporation or other Person of which a majority of its voting power
or its voting equity securities or equity interest is owned, directly or
indirectly, by Employer (for purposes of this definition, a
"Subsidiary"), (ii) Employer or any of its Subsidiaries, (iii) any
Person in connection with a "Non-Control Transaction" (as hereinafter
defined) or (iv) Countrywide Credit Industries, Inc. or any of its
affiliates or subsidiaries ("Countrywide Credit").
B. The individuals who, as of the date of the Agreement are members of the
Board (the "Incumbent Board"), cease for any reason to constitute at
least two-thirds of the members of the Board; provided, however, that if
the election, or nomination for election by Employer's common
stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes
of this Agreement, be considered as a member of the Incumbent Board;
provided further, however, that no individual shall be considered a
member of the Incumbent Board if such individual initially assumed
office as result of either an actual or threatened "Election Contest"
(as described in Rule 14A-11 promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board (a "Proxy Contest") including by
reason of any agreement intended to avoid or settle any Election Contest
or Proxy Contest; or
1
<PAGE>
C. The consummation of:
(i) A merger, consolidation or reorganization involving Employer, unless such
merger, consolidation or reorganization is a "Non-Control Transaction". A
"Non-Control Transaction" shall mean a merger, consolidation or
reorganization of Employer into, with or involving Countrywide Credit, NDE
or where:
a. the stockholders of Employer, immediately before such merger,
consolidation or reorganization, own directly or indirectly
immediately following such merger, consolidation or reorganization,
at least seventy percent (70%) of the combined voting power of the
outstanding Voting Securities of the corporation resulting from such
merger, consolidation or reorganization (the "Surviving Corporation")
in substantially the same proportion as their ownership of the Voting
Securities immediately before such merger, consolidation or
reorganization;
b. the individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least two-thirds of the
members of the board of directors of the Surviving Corporation, or in
the event that, immediately following the consummation of such
transaction, a corporation beneficially owns, directly or indirectly,
a majority of the Voting Securities of the Surviving Corporation, the
board of directors of such corporation: and
c. no Person other than (i) Employer, (ii) any Subsidiary, (iii) any
employee benefit plan (or any trust forming a part thereof)
maintained by the Employer, the Surviving Corporation, or any
Subsidiary, (iv) Countrywide Credit, or (v) any Person who,
immediately prior to such merger, consolidation or reorganization had
Beneficial Ownership of twenty five percent (25%) or more of the
combined voting power of the Surviving Corporation's then outstanding
Voting Securities or its common stock, owns directly or indirectly
more than twenty five percent (25%) or more of the combined voting
power of the Surviving Corporation's then outstanding Voting
Securities or its common stock;
(ii) A complete liquidation or dissolution or Employer; or
(iii) The sale or other disposition of all or substantially all of the
assets of Employer to any Person (other than a transfer to a
Subsidiary of Countrywide Credit).
2
<PAGE>
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the then outstanding common stock or Voting
Securities as a result of the acquisition of common stock or Voting Securities
by Employer which, by reducing the number of shares of common stock or Voting
Securities then outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Person; provided, however, that if a Change of
Control would occur (but for the operation of this sentence) as a result of the
acquisition of common stock or Voting Securities by Employer, and after such
share acquisition by Employer, the Subject Person becomes the Beneficial Owner
of any additional common stock or Voting Securities which increases the
percentage of the then outstanding common stock or Voting Securities
Beneficially Owned by the Subject Person, then a Change in Control shall occur.
3
<PAGE>
EXHIBIT 10.2
AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made, dated and
effective as of September 1, 1998 by and between IndyMac, Inc. ("Employer") and
Gary Clark ("Officer"). Capitalized terms not otherwise defined herein shall
have the respective meanings given such terms in the Employment Agreement (as
defined below).
WITNESSETH
WHEREAS, Employer and Officer have entered into that certain Employment
Agreement dated as of January 1, 1998 (the "Employment Agreement"), pursuant to
which Officer has agreed to serve, among other positions, as Executive Vice
President, of Employer;
WHEREAS, Employer has proposed and Officer has agreed to amend the
Employment Agreement to provide for the grant of restricted stock, in addition
to stock options, and to clarify certain provisions of the Employment Agreement;
and
WHEREAS, Employer and Officer wish to amend the Employment Agreement on the
terms and subject to the conditions set forth herein below.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Section 4(c) of the Employment Agreement is hereby amended to read in
its entirety as follows:
"Stock Options and Restricted Stock". Beginning with the 1998 Fiscal Year
and in respect of each of the following Fiscal Years during the term of
this Agreement, Holdings may grant to Officer stock options and/or
restricted stock for such number of shares of Holdings' common stock as the
Compensation Committee in its sole discretion determines, taking into
account Officer's and Holdings' performance and the competitive practices
then prevailing regarding the granting of stock options and restricted
stock. Subject to the foregoing, it is anticipated that the number of
shares in respect of each annual stock option and/or restricted stock grant
shall be in accordance with the number of shares granted to officers of
Employer at a level similar to Officer's level. The stock options and/or
restricted stock described in this Section 4(c) in respect of a Fiscal Year
shall be granted at the same time as Holdings grants stock options and/or
restricted stock to its other officers in such Fiscal Year.
<PAGE>
All stock options granted in accordance with this Section 4(c): (i) shall
be granted pursuant to Holdings' current stock option plan, or such other
stock option plan or plans as may be in effect or come into effect during
the term of this Agreement, (ii) shall have a per share exercise price
equal to the fair market value (as defined in the current Plan or such
other plan or plans) of the common stock at the time of grant, (iii) shall
become exercisable in three equal installments on each of the first three
anniversaries of the date of grant, (iv) shall become immediately and fully
exercisable in the event of a Change in Control (as defined in Appendix B)
or in the event that Officer's employment is terminated due to death or
Disability or by Employer other than for Cause (as defined in Section
5(c)), and (v) shall be subject to such other reasonable and consistent
terms and conditions as may be determined by the Compensation Committee and
set forth in the agreement or other document evidencing the award. All
restricted stock granted in accordance with this Section 4(c): (i) shall be
granted pursuant to Holdings' current stock option plan, or such other
stock option plan or plans as may be in effect or come into effect during
the term of this Agreement, (ii) shall be priced and vest in accordance
with the terms set by the Compensation Committee, (iii) shall become
immediately and fully vested in the event of a Change in Control (as
defined in Appendix B) or in the event that Officer's employment is
terminated due to death or Disability or by Employer other than for Cause
(as defined in Section 5(c)), provided, however, that with respect to a
termination by Employer other than for Cause, restricted stock granted in
accordance with this Section 4(c) shall become immediately and fully vested
only to the extent that such restricted stock would, under the terms of
such restricted stock, vest within twelve (12) months of such termination,
and (iv) shall be subject to such other reasonable and consistent terms and
conditions as may be determined by the Compensation Committee and set forth
in the agreement or other document evidencing the award."
2. The last sentence of Section 5(b) is hereby amended to read in its
entirety as follows:
"This Agreement in all other respects will terminate upon the death of
Officer; provided, however, that (i) the termination of the Agreement shall
not affect Officer's entitlement to all other benefits in which he/she has
become vested or which are otherwise payable in respect of periods ending
prior to its termination, and (ii) to the extent not otherwise vested, all
outstanding stock options and restricted stock granted to Officer pursuant
to Section 4(c) will vest upon his/her death."
3. Section 5(d)(i) of the Employment Agreement is hereby amended to read in
its entirety as follows:
"Except as provided in Section 5(d)(ii) below, if during the term of this
Agreement, Officer's employment shall be terminated by Employer other than
for
2
<PAGE>
Cause, or by Officer because Employer has committed a "Material Breach" of
this Agreement, then Employer shall:
(1) pay Officer in a single payment as soon as practicable after the
Termination Date, but in no event later than thirty (30) days
thereafter, (A) an amount in cash equal to one year of Officer's
base salary at the Annual Rate at the Termination Date and (B) an
amount equal to the incentive compensation paid or payable to
Officer pursuant to Section 4(b) in respect of the Fiscal Year
immediately preceding the Fiscal Year in which Officer's
Termination Date occurs; provided, however, that in the event the
first anniversary of the Termination Date occurs on a date prior
to the end of a Fiscal Year, Employer shall also pay Officer an
amount equal to the product of (x) the incentive compensation paid
or payable to Officer pursuant to Section 4(b) in respect of the
Fiscal Year immediately preceding the Fiscal Year in which
Officer's Termination Date occurs and (y) a fraction, the
numerator of which is (I) the number of days elapsed since the end
of the immediately preceding Fiscal Year through Officer's
Termination Date and (II) the denominator of which is 365, and
(2) until the first anniversary of such Termination Date, provide the
benefits specified in the last sentence of Section 4(d) hereof.
Employer shall also pay in a single payment as soon as practicable after
the Termination Date, but in no event later than thirty (30) days
thereafter, any unpaid incentive compensation payable to Officer pursuant
to Section 4(b) in respect of the Fiscal Year immediately preceding the
Fiscal Year in which Officer's Termination Date occurs, as calculated
pursuant to the terms and conditions of this Agreement, including, but not
limited to, the terms of Appendix A. For the purpose of this provision, the
term "Material Breach" shall mean a material breach of this Agreement by
Employer which is committed in bad faith and which is not remedied within a
reasonable period of time after receipt of written notice from Officer
specifying such breach.
4. Section 8(k)(i)(A) of the Employment Agreement is hereby amended to read
in its entirety as follows:
"engage in any business, whether as an employee, consultant, partner,
principal, agent, representative or stockholder (other than as a
stockholder of less than a one percent (1%) equity interest) or in any
other corporate or representative capacity with any other business whether
in corporate, proprietorship, or partnership form or otherwise, where such
business is engaged in any activity which competes with the business of
Employer (or its subsidiaries or affiliates, including Countrywide Credit
Industries, Inc. and its subsidiaries) as conducted on the date Officer's
employment terminated or which will compete with any proposed business
3
<PAGE>
activity of Employer (or its subsidiaries or affiliates, including
Countywide Credit Industries, Inc. and its subsidiaries) in the planning
stage on such date;"
5. No Other Amendment. Except as expressly amended herein, the Employment
------------------
Agreement shall remain in full force and effect as currently written.
6. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
INDYMAC, INC
By: /s/ Christina Ching
-------------------------
Name:Christina Ching
Title: Senior Vice President
GARY CLARK
/s/ Gary Clark
---------------------------
4
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") has been executed as of April 1,
1999 by and between IndyMac Mortgage Holdings, Inc. ("Employer") and Mark Nelson
("Officer").
WITNESSETH:
WHEREAS, Employer desires to obtain the benefit of continued services of Officer
and Officer desires to continue to render services to Employer and its
affiliates.
WHEREAS, Employer and Officer desire to set forth the terms and conditions of
Officer's employment with Employer and its affiliates under this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants herein
contained, the parties hereto agree as follows:
1. Term. Employer agrees to employ Officer and Officer agrees to serve
Employer and its affiliates, in accordance with the terms hereof, for a
term beginning on the date first written above and ending on December 31,
2001, unless earlier terminated in accordance with the provisions hereof.
2. Position, Duties and Responsibilities. Employer and Officer hereby agree
that, subject to the provisions of this Agreement, Employer will employ
Officer and Officer will serve Employer, as Executive Vice President and
Chief Financial Officer, IndyMac Commercial Lending, and Senior Vice
President of Employer, or a similarly structured entity in which Employer
owns the majority of the economic interest, as determined in the sole
discretion of Employer. Employer agrees that Officer's duties hereunder
shall be the usual and customary duties of such office and such further
duties shall not be inconsistent with the provisions of applicable law.
Officer agrees that Employer may add to or change Officer's duties as
business considerations dictate, provided such changes are consistent with
Officer's role as Chief Financial Officer, IndyMac Commercial Lending as
determined by the Chief Executive Officer of Employer. Officer shall have
such official power and authority as shall reasonably be required to
enable him to discharge his duties in the offices which he may hold. All
compensation paid to Officer by Employer or any of its affiliates shall be
aggregated in determining whether Officer has received the benefits
provided for herein, but without prejudice to the allocation of costs among
the entities to which Officer renders services hereunder. If Employer
requests Officer to relocate outside of Los Angeles County, Officer shall
have the option of agreeing to such relocation and the terms of this
contract shall continue in full force and effect. If Officer declines to
relocate, either Officer or Employer shall provide the other party with a
Notice of Termination in accordance with Section 5(f) and all of the
rights and obligations of both parties under this Agreement shall cease
upon such termination and no provisions shall survive (including, without
limitation, Sections 5(d) and 8(k)), except for Section 8(g) and the right
to enforce that provision through injunctive relief pursuant to Section
8(h).
<PAGE>
3. Scope of this Agreement and Outside Affiliations. During the term of this
Agreement, Officer shall devote his full business time and energy, except
as expressly provided below, to the business, affairs and interests of
Employer and its affiliates, and matters related thereto, and shall use his
best efforts and abilities to promote their respective interests. Officer
agrees that he will diligently endeavor to promote the business, affairs
and interests of Employer and its affiliates and perform services
contemplated hereby, in accordance with the policies established by the
Board of the applicable entity, which policies shall be consistent with
this Agreement. Officer agrees to serve without additional remuneration as
an officer of one or more (direct or indirect) subsidiaries or affiliates
of Employer as Employer may from time to time request, subject to
appropriate authorization by the affiliate or subsidiary involved and any
limitation under applicable law.
During the course of Officer's employment as a full-time officer hereunder,
Officer shall not, without the consent of Employer, compete, directly or
indirectly, with Employer in the business then conducted by Employer or any
of its affiliates.
Officer may make and manage personal business investments of his choice and
serve in any capacity with any civic, educational or charitable
organization, or any governmental entity or trade association, without
seeking or obtaining approval by the Board, provided such activities and
services do not materially interfere or conflict with the performance of
his duties hereunder.
4. Compensation and Benefits.
a. Base Salary. Employer shall pay to Officer a base salary in respect of
the fiscal year of Employer (a "Fiscal Year") ending December 31, 1999
at the annual rate as set forth on Appendix A (the "Annual Rate").
During the term of this Agreement, Employer may not decrease the
Annual Rate below the amount set forth in Appendix A.
b. Incentive Compensation. Employer shall pay to Officer for each of the
Fiscal Years ending during the term of this Agreement an incentive
compensation award in an amount determined pursuant to the Annual
Incentive Plan attached hereto as Appendix A. The terms of the Annual
Incentive Plan shall be determined in the first quarter of each Fiscal
year during the term of this Contract, as mutually agreed upon by
Employer and Officer. The incentive compensation award payable to
Officer for any Fiscal Year shall be paid no later than thirty (30)
days after completion and publication of the applicable audited
financial statements for such Fiscal Year.
c. Stock Options and Restricted Stock. Beginning with the 1999 Fiscal
Year and in respect of each of the following Fiscal Years during the
term of this Agreement, Employer may grant to Officer stock options
and/or restricted stock for such number of shares of Employer's common
stock as the Compensation Committee of the Board (the "Compensation
Committee") in its sole discretion determines, taking into account
Officer's and Employer's performance and the competitive practices
then prevailing regarding the granting of stock options. Subject to
the foregoing, it is anticipated that the number of shares in respect
of each annual stock option and/or restricted stock grant shall be in
accordance with the number of shares granted to officers of Employer
at a level similar to Officer's level. The stock options and/or
restricted stock described in this Section 4(c) in respect of a Fiscal
Year shall be granted at the same time as Employer grants stock
options
2
<PAGE>
and/or restricted stock to its other officers in respect of such
Fiscal Year. For 1999 Fiscal Year, Employer will grant Officer 20,000
stock options.
All stock options granted in accordance with this Section 4(c): (i)
shall be granted pursuant to Employer's current stock option plan, or
such other stock option plan or plans as may be or come into effect
during the term of this Agreement, (ii) shall have a per share
exercise price equal to the fair market value (as defined in the
current Plan or such other plan or plans) of the common stock at the
time of grant, (iii) shall become exercisable in three equal
installments on each of the first three anniversaries of the date of
grant, (iv) shall become immediately and fully exercisable in the
event of a Change in Control (as defined in Appendix B) or in the
event that Officer's employment is terminated due to death or
Disability or by Employer other than for Cause (as defined in Section
5(c)), and (v) shall be subject to such other reasonable and
consistent terms and conditions as may be determined by the
Compensation Committee and set forth in the agreement evidencing the
award. All restricted stock granted in accordance with this Section
4(c): (i) shall be granted pursuant to Employer's current stock option
plan, or such other stock option plan or plans as may be in effect or
come into effect during the term of this Agreement, (ii) shall be
priced and vest in accordance with the terms set by the Compensation
Committee, ( iii) shall become immediately and fully vested in the
event of a Change in Control (as defined in Appendix B) or in the
event that Officer's employment is terminated due to death or
Disability or by Employer other than for Cause (as defined in Section
5(c)), provided, however, that with respect to a termination by
Employer other than for Cause (as defined in Section 5(c)), restricted
stock granted in accordance with this Section 4(c) shall become
immediately and fully vested only to the extent that such restricted
stock would, under the terms of such restricted stock, vest within
twelve (12) months of such termination, and (iv) shall be subject to
such other reasonable and consistent terms and conditions as may be
determined by the Compensation Committee and set forth in the
agreement or other document evidencing the award. Notwithstanding the
foregoing, in the event that Officer's employment is terminated by
Employer other than for Cause (as defined in Section 5(c)) and the
Board of Directors of Employer determines, in its sole and absolute
discretion, that the Officer is performing "seriously below
expectations" (as defined below), then the Board of Directors of the
Employer may determine, in its sole and absolute discretion, that the
provisions set forth in subsections (iv) and (iii) of the preceding
two sentences, respectively, shall not apply. For purposes of this
provision, Officer's performance shall be deemed to be "seriously
below expectations" if (i) in the case of an Officer who is a profit
center manager, Officer has failed to meet at least 50% of the volume
and cost control goals set forth in Appendix A hereto for the
applicable Fiscal Year, and (ii) in the case of an Officer who is a
cost center manager, Officer has failed to meet (x) the top two Goals
and Objectives of Officer set forth in Appendix A hereto for the
applicable Fiscal Year and (y) at least 50% of the cost control goals
set forth in Appendix A hereto for the applicable Fiscal Year;
provided, however, that the Board of Directors of Employer will
consider allowances to the foregoing in the event that Employer takes
action that impedes Officer's ability to meet the foregoing goals
(e.g., the Employer discontinues a business or product line).
----
d. Additional Benefits. Officer shall also be entitled to all rights and
benefits for which he is otherwise eligible under any bonus plan,
stock purchase plan, participation or extra compensation plan,
executive compensation plan, pension plan, profit-sharing plan, life
and medical insurance
3
<PAGE>
policy, or other plans or benefits, which Employer or its subsidiaries
may provide for him, or provided he is eligible to participate
therein, for senior officers generally or for employees generally,
during the term of this Agreement (collectively, "Additional
Benefits"). Officer shall also be entitled to three (3) weeks of
vacation each Fiscal Year, subject to all applicable policies of
Employer relating to vacation time. This Agreement shall not affect
the provision of any other compensation, retirement or other benefit
program or plan of Employer. If Officer's employment is terminated
hereunder, pursuant to Section 5(a), 5(b) or 5(d), Employer shall
continue for the period specified in Section 5(a), 5(b) or 5(d)
hereof, to provide benefits substantially equivalent to Additional
Benefits (other than qualified pension or profit sharing plan benefits
and option, equity or stock appreciation or other incentive plan
benefits as distinguished from health, disability and welfare type
benefits) on behalf of Officer and his dependents and beneficiaries
which were being provided to them immediately prior to Officer's
Termination Date, but only to the extent that Officer is not entitled
to comparable benefits from other employment.
5. Termination. The compensation and benefits provided for herein and the
employment of Officer by Employer shall be terminated only as provided for
below in this Section 5:
a. Disability. In the event that Officer shall fail, because of illness,
injury or similar incapacity ("Disability"), to render for four (4)
consecutive calendar months, or for shorter periods aggregating eighty
(80) or more business days in any twelve (12) month period, services
contemplated by this Agreement, Officer's full-time employment
hereunder may be terminated, by written Notice of Termination from
Employer to Officer; and thereafter, Employer shall continue, from the
Termination Date until Officer's death or December 31, 2001, whichever
first occurs (the "Disability Payment Period"), (i) to pay
compensation to Officer, in the same manner as in effect immediately
prior to the Termination Date, in an amount equal to (1) fifty percent
(50%) of the then existing base salary payable immediately prior to
the termination, minus (2) the amount of any cash payments due to him
under the terms of Employer's disability insurance or other disability
benefit plans or Employer's tax-qualified Defined Benefit Pension
Plan, and any compensation he may receive pursuant to any other
employment, and (ii) to provide during the Disability Payment Period
the additional benefits specified in the last sentence of Section 4(d)
hereof.
The determination of Disability shall be made only after 30 days'
notice to Officer and only if Officer has not returned to performance
of his duties during such 30-day period. In order to determine
Disability, both Employer and Officer shall have the right to provide
medical evidence to support their respective positions, with the
ultimate decision regarding Disability to be made by a majority of the
members of Employer's Benefits Committee.
b. Death. In the event that Officer shall die during the term of this
Agreement, Employer shall pay Officer's base salary for a period of
twelve (12) months following the date of Officer's death and in the
manner otherwise payable hereunder, to such person or persons as
Officer shall have directed in writing or, in the absence of a
designation, to his estate (the "Beneficiary"). Employer shall also
(1) pay to such Beneficiary (x) an amount equal to the incentive
compensation that would have been payable to Officer pursuant to
Section 4(b) in respect of the Fiscal Year in which the Officer's
death occurs multiplied by a fraction, the numerator of which is the
number of days in
4
<PAGE>
such Fiscal Year through the date of Officer's death and the
denominator of which is 365 and (y) any unpaid incentive compensation
payable to Officer pursuant to Section 4(b) in respect of the Fiscal
Year immediately preceding the Fiscal Year in which his death occurs
and (2) provide during the twelve-month period following the date of
Officer's death the additional benefits specified in the last sentence
of Section 4(d) hereof. If Officer's death occurs while he is
receiving payments for Disability under Section 5(a) above, such
payments shall cease and the Beneficiary shall be entitled to the
payments and benefits under this Section 5(b), which shall continue
for a period of twelve months thereafter at the full rate of base
salary in effort immediately prior to the Disability. This Agreement
in all other respects will terminate upon the death of Officer;
provided, however, that (i) the termination of the Agreement shall not
affect Officer's entitlement to all other benefits in which he has
become vested or which are otherwise payable in respect of periods
ending prior to its termination, and (ii) to the extent not otherwise
vested, all outstanding stock options and restricted stock granted to
Officer pursuant to Section 4(c) will vest upon his death.
c. Cause. Employer may terminate Officer's employment under this
Agreement for "Cause." A termination for Cause is a termination by
reason of (i) a material breach of this Agreement by Officer (other
than as a result of incapacity due to physical or mental illness)
which is committed in bad faith or without reasonable belief that such
breach is in the best interests of Employer and which is not remedied
within a reasonable period of time after receipt of written notice
from Employer specifying such breach; provided, however, that the
parties hereto acknowledge that a breach of the confidentiality
provisions set forth in Section 8(g) of this Agreement shall not be
remediable and, therefore, Employer shall not be required to provide a
remedy period in connection with a termination pursuant to this
provision by reason of a breach of Section 8(g), (ii) an act or
omission to act by the Officer involving gross negligence, gross
misconduct, commission of a fraud, theft, dishonesty, or any knowing
or deliberate action or inaction in contravention of a direct order
from the Officer's direct supervisor which is within the scope of this
Agreement and does not involve the performance of an illegal act or
omission to act, each of which the parties hereto acknowledge shall
not be remediable and, therefore, no remedy period shall be required,
(iii) Officer's conviction by a court of competent jurisdiction of a
felony or misdemeanor carrying a jail term of one year or more, or
(iv) entry of an order duly issued by any federal or state regulatory
agency having jurisdiction in the matter removing Officer from office
of Employer or its affiliates or permanently prohibiting him from
participation in the conduct of the affairs of Employer of any of its
affiliates. If Officer shall be convicted of a felony or misdemeanor
carrying a jail term, or shall be removed from office and/or
temporarily prohibited from participating in the conduct of Employer's
or any of its affiliates' affairs by any federal or state regulatory
authority having jurisdiction in the matter, Employer's obligations
under Sections 4(a), 4(b), and 4(c) hereof shall be automatically
suspended; provided, however, that if the charges resulting in such
removal or prohibition are finally dismissed or if a final judgment on
the merits of such charges is issued in favor of Officer, or if the
conviction is overturned on appeal, then Officer shall be reinstated
in full with back pay for the removal period plus accrued interest at
the rate then payable on judgments. During the period that Employer's
obligations under Sections 4(a), 4(b), and 4(c) hereof are suspended,
Officer shall continue to be entitled to receive Additional Benefits
under Section 4(d) until the conviction of the felony, or misdemeanor
carrying a jail term, or removal from office has become final and non-
appealable. When the conviction of the felony or removal from office
has
5
<PAGE>
become final and non-appealable, all of Employer's obligations
hereunder shall terminate; provided, however, that the termination of
Officer's employment pursuant to this Section 5(c) shall not affect
Officer's entitlement to all benefits in which he has become vested or
which are otherwise payable in respect of periods ending prior to his
termination of employment.
d. Severance.
(i) Except as provided in Section 5(d)(ii) below, if during the term
of this Agreement, Officer's employment shall be terminated by
Employer other than for Cause, or by Officer because Employer has
committed a "Material Breach" of this Agreement, then Employer shall:
(1) pay Officer in a single payment as soon as practicable after
the Termination Date, but in no event later than thirty (30)
days thereafter, (A) an amount in cash equal to six months
of Officer's base salary at the Annual Rate at the
Termination Date and (B) an amount equal to one-half the
incentive compensation paid or payable to Officer pursuant
to Section 4(b) in respect of the Fiscal Year immediately
preceding the Fiscal Year in which Officer's Termination
Date occurs; provided, however, that in the event the first
anniversary of the Termination Date occurs on a date prior
to the end of a Fiscal Year, Employer shall also pay Officer
an amount equal to the product of (x) the incentive
compensation paid or payable to Officer pursuant to Section
4(b) in respect of the Fiscal Year immediately preceding the
Fiscal Year in which Officer's Termination Date occurs and
(y) a fraction, the numerator of which is (I) the number of
days elapsed since the end of the immediately preceding
Fiscal Year through Officer's Termination Date and (II) the
denominator of which is 365, and
(2) until the first anniversary of such Termination Date,
provide the benefits specified in the last sentence of
Section 4(d) hereof.
Employer shall also pay in a single payment as soon as practicable
after the Termination Date, but in no event later than thirty (30)
days thereafter, any unpaid incentive compensation payable to Officer
pursuant to Section 4(b) in respect of the Fiscal Year immediately
preceding the Fiscal Year in which Officer's Termination Date occurs,
as calculated pursuant to the terms and conditions of this Agreement,
including, but not limited to, the terms of Appendix A. For the
purpose of this provision, the term "Material Breach" shall mean a
material breach of this Agreement by Employer which is committed in
bad faith and which is not remedied within a reasonable period of time
after receipt of written notice from Officer specifying such breach.
(ii) If within two (2) years after a "Change in Control" (as defined
in Appendix B to this Agreement) and during the term of this
Agreement, Officer's employment shall be terminated by Employer
other than for Cause or by Officer for Good Reason, then (A)
Employer shall pay Officer in a single payment as soon as
practicable after the Termination Date, but in no event later
than thirty (30) days thereafter, (x) as severance pay and in
lieu of any further salary and incentive compensation for periods
subsequent to the Termination Date, an amount in cash equal to
one-half the sum of (1) Officer's base salary at the Annual Rate
at the Termination Date and (2) the incentive compensation paid
or payable to Officer pursuant to
6
<PAGE>
Section 4(b) in respect of the Fiscal Year immediately preceding
the Fiscal Year in which Officer's Termination Date occurs and
(y) any unpaid incentive compensation payable to Officer
pursuant to Section 4(b) in respect of the Fiscal Year
immediately preceding the Fiscal Year in which Officer's
Termination Date occurs, and (B) Employer shall continue to
provide for six months from the Termination Date the benefits
specified in the last sentence of Section 4(d) hereof.
(iii) For purposes of this Agreement, "Good Reason" shall be deemed to
occur if Employer (x) commits a Material Breach of this
Agreement (as defined in Section 5(d)(i)) or (y) takes any other
action which results in the substantial diminution in Officer's
status, title, position, authority and responsibilities.
(iv) Notwithstanding anything in this Agreement to the contrary, in
the event it shall be determined that any payment or
distribution by Employer or any other person or entity to or for
the benefit of Officer (within the meaning of Section 280G(b)(2)
of the Internal Revenue Code of 1986, as amended (the "Code"),
whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise in connection with,
or arising out of, his employment with Employer or a change in
ownership or effective control of Employer or a substantial
portion of its assets (a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Code (the "Excise
Tax"), the Payments shall be reduced (but not below zero) to the
extent necessary so that no Excise Tax would be imposed. If the
application of the preceding sentence should require a reduction
in Payments or other "parachute payment" (within the meaning of
Section 28OG of the Code), unless Officer shall have designated
otherwise, such reduction shall be implemented, first, by
reducing any noncash benefits (other than stock options) to the
extent necessary, second, by reducing any cash benefits to the
extent necessary and, third, by reducing any stock options to
the extent necessary. In each case, the reductions shall be made
starting with the payment or benefit to be made on the latest
date following the Termination Date and reducing payments or
benefits in reverse chronological order therefrom. All
determinations concerning the application of this paragraph
shall be made by a nationally recognized firm of independent
accountants, selected by Officer and satisfactory to Employer,
whose determination shall be conclusive and binding on all
parties. The fees and expenses of such accountants shall be
borne by, Employer.
e. Resignation. If during the term of this Agreement, Officer shall
resign voluntarily, all of his rights to payment or benefits hereunder
shall immediately terminate; provided, however, that the termination
of Officer's employment pursuant to this Section 5(e) shall not affect
Officer's entitlement to all benefits in which he has become vested or
which are otherwise payable in respect of periods ending prior to his
termination of employment, and all obligations of Officer under
Sections 8(g) and 8(k) shall expressly survive such termination.
f. Notice of Termination. Any purported termination by Employer or by
Officer shall be communicated by a written Notice of Termination to
the other party hereto which indicates the specific termination
provision in this Agreement, if any, relied upon and which sets forth
in reasonable detail the facts and circumstances, if any, claimed to
provide a basis for termination of
7
<PAGE>
Officer's employment under the provision so indicated (except in the
event of Officer's death or physical incapacity, in which case such
written Notice of Termination shall be provided by Officer's executor
or legal representative). For purposes of this Agreement, no such
purported termination shall be effective without such Notice of
Termination. The "Termination Date" shall mean the date specified in
the Notice of Termination, which shall be no less than 30 or more than
60 days from the date of the Notice of Termination. Notwithstanding
any other provision of this Agreement, in the event of any termination
of Officer's employment hereunder for any reason, Employer shall pay
Officer his full base salary through the Termination Date, plus any
Additional Benefits which have been earned or become payable, but
which have not yet been paid, as of such Termination Date.
6. Reimbursement of Business Expenses. During the term of this Agreement,
Employer shall reimburse Officer promptly for all business expenditures to
the extent that such expenditures meet the requirements of the Code for
deductibility by Employer for federal income tax purposes or are otherwise
in compliance with the rules and policies of Employer and are substantiated
by Officer as required by the Internal Revenue Service and rules and
policies of Employer.
7. Indemnity. To the extent permitted by applicable law, the Certificate of
Incorporation and the By-Laws of Employer (as from time to time in effect)
and any indemnity agreements entered into from time to time between
Employer and Officer, Employer shall defend and indemnify Officer and hold
him harmless for any acts or decisions made by him in good faith while
performing services for Employer (including any subsidiary or affiliate of
Employer), and shall use reasonable efforts to obtain coverage for him
under liability insurance policies now in force or hereafter obtained
during the term of this Agreement covering the other officers or directors
of Employer.
8. Miscellaneous.
a. Succession. This Agreement shall inure to the benefit of and shall be
binding upon Employer, its successors and assigns, but without the
prior written consent of Officer, this Agreement may not be assigned
other than in connection with a merger or sale of substantially all
the assets of Employer or similar transaction. Notwithstanding the
foregoing, Employer may assign, whether by assignment agreement,
merger, operation of law or otherwise, this Agreement to IndyMac,
Inc., or to any successor or affiliate of Employer or IndyMac, Inc.,
subject to such assignee's express assumption of all obligations of
Employer hereunder, and Officer hereby consents to any such
assignment. The failure of any successor to or assignee of the
Employer's business and/or assets in such transaction to expressly
assume all obligations of Employer hereunder shall be deemed a
material breach of this Agreement by Employer, triggering the
severance provision of Section 5(d).
The obligations and duties of Officer hereby shall be personal and not
assignable.
b. Notices. Any notices provided for in this Agreement shall be sent to
Employer at its corporate headquarters, Attention: Chief
Administrative Officer, with a copy to the Director of Human Resources
at the same address, or to such other address as Employer may from
time to time in writing designate, and to Officer at such address as
he may from time to time in writing designate
8
<PAGE>
(or his business address of record in the absence of such
designation). All notices shall be deemed to have been given two (2)
business days after they have been deposited as certified mail, return
receipt requested, postage paid and properly addressed to the
designated address of the party to receive the notices.
c. Entire Agreement. This instrument contains the entire agreement of the
parties relating to the subject matter hereof, and it replaces and
supersedes any prior agreements between the parties relating to said
subject matter. No modifications or amendments of this Agreement shall
be valid unless made in writing and signed by the parties hereto.
d. Waiver. The waiver of the breach of any term or of any condition of
this Agreement shall not be deemed to constitute the waiver of any
other breach of the same or any other term or condition.
e. California Law. This Agreement shall be construed and interpreted in
accordance with the laws of California, without reference to its
conflicts of laws principles.
f. Attorneys' Fees In Action on Contract. If any litigation shall occur
between the Officer and Employer, which litigation arises out of or as
a result of this Agreement or the acts of the parties hereto pursuant
to this Agreement, or which seeks an interpretation of this Agreement,
the prevailing party in such litigation, in addition to any other
judgment or award, shall be entitled to receive such sums as the court
hearing the matter shall find to be reasonable as and for the
attorneys' fees of the prevailing party.
g. Confidentiality. Officer hereby acknowledges and agrees that Employer
and its affiliates have developed and own valuable information related
to their business, personnel and customers, including, but not limited
to, concepts, ideas, customer lists, business lists, business and
strategic plans, financial data, accounting procedures, secondary
marketing and hedging models, trade secrets, computer programs and
plans, and information related to officers, directors, employees and
agents. Officer hereby agrees that all such information, and all
codes, concepts, copies and forms relating to such information,
Employer's plans and intentions with respect thereto, and any
information provided by Employer or its affiliates to Officer with
respect to any of the foregoing, shall be considered "Confidential
Information" for the purpose of this Agreement. Officer acknowledges
and agrees that all such Confidential Information is a valuable asset
of Employer, and if developed by Officer, is developed by Officer in
the course of Officer's employment with Employer, and is the sole
property of Employer. Officer agrees that he will not divulge or
otherwise disclose, directly or indirectly, any Confidential
Information concerning the business or policies of Employer or any of
its affiliates which he may have learned as a result of his employment
during the term of this Agreement or prior thereto as an employee,
officer or director of or consultant to Employer or any of its
affiliates, except to the extent such use or disclosure is (i)
necessary or appropriate to the performance of this Agreement and in
furtherance of Employer's best interests, (ii) required by applicable
law or in response to a lawful inquiry from a governmental or
regulatory authority, (iii) lawfully obtainable from other sources, or
(iv) authorized by Employer. The provisions of this subsection shall
survive the expiration, suspension or termination, for any reason, of
this Agreement.
9
<PAGE>
h. Remedies of Employer. Officer acknowledges that the services he is
obligated to render under the provisions of this Agreement are of a
special, unique, unusual, extraordinary and intellectual character,
which gives this Agreement peculiar value to Employer. The loss of
these services cannot be reasonably or adequately compensated in
damages in an action at law and it would be difficult (if not
impossible) to replace these services. By reason thereof, Officer
agrees and consents that if he violates any of the material provisions
of this Agreement, Employer, in addition to any other rights and
remedies available under this Agreement or under applicable law, shall
be entitled during the remainder of the term to seek injunctive
relief, from a tribunal of competent jurisdiction, restraining Officer
from committing or continuing any violation of this Agreement. The
provisions of this subsection shall survive the expiration, suspension
or termination, for any reason, of this Agreement.
i. Severability. If any provision of this Agreement is held invalid or
unenforceable, the remainder of this Agreement shall nevertheless
remain in full force and effect, and if any provision is held invalid
or unenforceable with respect to particular circumstances, it shall
nevertheless remain in full force and effect in all other
circumstances.
j. No Obligation to Mitigate. Officer shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking
other employment or otherwise and, except as provided in Section
5(a)(i)(2) hereof, no payment hereunder shall be offset or reduced by
the amount of any compensation or benefits provided to Officer in any
subsequent employment.
k. Covenant Not to Compete
(i) In General. Officer agrees that while he is employed by Employer
during the term of this Agreement and for a period of six months
after the termination of such employment for whatever reason
other than (x) any termination by Employer, either for Cause or
other than for Cause, (y) a termination by Officer pursuant to
Section 5(d)(i) due to Employer having committed a "Material
Breach" or pursuant to Section 5(d)(ii) for "Good Reason," or (z)
the expiration of this Agreement according to its terms (the
"Non-Compete Period"), he shall not, unless Officer shall have
received the prior written consent of Employer within North
America:
(A) engage in any business, whether as an employee, consultant,
partner, principal, agent, representative or stockholder
(other than as a stockholder of less than a one percent (1%)
equity interest) or in any other corporate or representative
capacity with any other business whether in corporate,
proprietorship, or partnership form or otherwise, where such
business is engaged in any activity which competes with the
business of Employer (or its subsidiaries or affiliates,
including Countrywide Credit Industries, Inc. ("Countrywide
Credit") and its subsidiaries) as conducted on the date
Officer's employment terminated or which will compete with
any proposed business activity of Employer (or its
subsidiaries or affiliates, including Countrywide Credit and
its subsidiaries) in the planning stage on such date;
10
<PAGE>
(B) solicit business from, or perform services for, any company or other
business entity which at any time during the two-year period
immediately preceding Officer's termination of employment with
Employer was a client of Employer (or its subsidiaries or affiliates)
(including without limitation any lessee, vendor or supplier);
provided that Officer may solicit business from another company or
business entity during such time as Officer is employed by Employer
(and prior to a Notice of Termination being provided pursuant to
Section 5(f)), so long as such solicitation is solely for the intended
benefit of Employer and carried out in the ordinary course of the
performance of Officer's duties; and which solicitation or performance
of services is not for the intended benefit of Employer and carried
out in the ordinary course of the performance of Officer's duties; or
(C) offer, or cause to be offered, employment, either on a full-time,
part-time or consulting basis, to any person who was employed by
Employer (or its subsidiaries or affiliates) on the date Officer's
employment terminated.
(ii) Consideration. The consideration for the foregoing Covenant not to
compete, the sufficiency of which is hereby acknowledged, is Employer's
agreement to continue to employ Officer and provide compensation and
benefits pursuant to this Agreement including but not limited to Section
5(d).
(iii) Equitable Relief and Other Remedies. Officer acknowledges and agrees that
Employer's remedies at law for a breach or threatened breach of any of the
provisions of this Section would be inadequate and, in recognition of this
fact, Officer agrees that, in the event of such a breach or threatened
breach, in addition to any remedies at law, Employer, without posting any
bond, shall be entitled to obtain equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent
injunction or any other equitable remedy which may then be available.
(iv) Reformation. If the foregoing covenant not to compete would otherwise be
determined invalid or unenforceable by a court of competent jurisdiction,
such court shall exercise its discretion in reforming the provisions of
this Section to the end that Officer be subject to a covenant not to
compete, reasonable under the circumstances, enforceable by Employer.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
EMPLOYER
By:/s/ Stephanie Irey
---------------------------
Name: Stephanie Irey
-------------------------
Title: EVP, CAO
------------------------
Officer:
/s/ Mark Nelson
------------------------------
in his individual capacity
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<PAGE>
APPENDIX A
ANNUAL INCENTIVE PLAN
Annual Base Rate for 1999: $200,000.00
Target Bonus for 1999: $ 80,000.00 Maximum Bonus for 1999: $90,000.00
Annual Incentive Award:
- ----------------------
Officer shall be eligible for an Annual Incentive Award which shall be
comprised of the following five components:
1. Meeting Business Plan/ROE Goals (30%)
2. Operations/Systems Controls/Loan Quality (30%)
3. Cost Control (20%)
4. Earnings Per Share Growth (10%)
5. Discretionary/Subjective (10%)
These components shall be measured as follows:
1. Business Plan/ROE Goals for Officer for 1999 (30%):
---------------------------------------------------
Attached hereto as Exhibit A, is the Business Plan for 1999 for Officer's areas
of responsibilities: CLCA and Income Property.
Year Target Amount Maximum Amount Minimum Amount
(125% of Target, if ROE is 20%* than target)
1999 $24,000.00 $30,000.00 $0
Officer shall be paid a Business Plan/ROE Incentive Award to be determined
by (i) calculating .07% of Net Income After Earnings Credit Plus Tax
Affected Corporate Support (as defined below) of Officer's profit
center(s), as determined by the Head of Financial Planning and President of
Employer, in their sole discretion, subject to the applicable Maximum
Amount set forth above, and (ii) multiplying such amount by the applicable
Return On Equity Factor set forth below.
Net Income After Earnings Credit Plus Tax Affected Corporate Support shall
mean Net Earnings, before Corporate Overhead Allocation and after Earnings
Credit (goal for Net Income After Earnings Credit Plus Tax Affected
Corporate Support is $28,804,000.00.)
Return on Equity Factor
Actual ROE 20%**Target 10%**Target Target 10%*Target 20%*Target
ROE Factor 50% 75% 100% 110% 125%
The Target Return on Equity for CLCA for 1999 is 21.88% (weighted 82%) and for
Income Property is 14.04% (weighted 18%).
* greater than
** less than
<PAGE>
2. Operations/Systems Controls/Loan Quality Goals and Objectives (30%):
-------------------------------------------------------------------
<TABLE>
<CAPTION>
Target Potential Performance Percentage:
Goal/Objective Discretionary Excellent/Good/Satisfactory/Poor
--------------
Incentive Amount
----------------
<S> <C> <C>
a. Timely, accurate and automated reporting to $ 4,000.00 110%/100%/50%/0%
Treasury, Accounting, Bankers Trust and lenders
and other appropriate internal and external
recipients. Financial reporting systems should
be integrated to primary related loan accounting
and other systems to provide for efficient
processing of data. Financial reporting and
analysis to include monthly profit center
performance analysis and budget variance
analysis.
b. Establish and lead an Information Technology $ 2,000.00 110%/100%/50%/0%
Development Team comprised of appropriate
representatives of each of CLCA's operating
groups and Corporate MIS personnel. The
charter of this team is to provide strategic
oversight to the development of our IT and
business process systems, establish priorities for
development, evaluate and rationalize
investments in IT systems and software, and
maintain and monitor project development
efforts.
c. Introduce and facilitate Strategia strategic $ 2,000.00 110%/100%/50%/0%
planning, implementation and review process
and integrate into monthly and other periodic
review sessions with CLCA and IndyMac
management personnel
d. Assist in sourcing of sufficient capital that is $16,000.00 110%/100%/50%/0%
adequate for CLCA/Income Property to
maximize Plan projections. Assist in due
diligence efforts as required. Develop borrowing
capacity analysis models to evaluate the adequacy of
our financing sources and to assist in managing our
borrowing within committed limits. The borrowing
capacity analysis should provide a 12-month
rolling projection of principal outstandings
to targeted outstandings for each financing
facility for CLCA/Income Property.
Total discretionary incentive amount: $24,000 (max. $26,400)
- -------------------------------------
</TABLE>
The Discretionary Incentive Award for Operations/Systems Controls/Loan Quality
Goals and Objectives for Officer shall be calculated by (1) multiplying (x) the
Performance Percentage for each Goal/Objective times (y) the Target Potential
-----
Discretionary Incentive Amount for such Goal/Objective, and (2) adding all
2
<PAGE>
sums determined pursuant to the preceding clause (1) for each Goal/Objective.
The Target Potential Discretionary Incentive Award for Operations/Systems
Controls/Loan Quality Goals and Objectives for Officer for 1999 shall be
$24,000.00 and the Maximum shall be $26,400.00.
3. Cost Control Goals (20%):
------------------------
The following are Officer's 1999 cost control goals:
<TABLE>
<CAPTION>
Maximum Potential Performance Percentage:
Goal/Objective Discretionary 100%-95%94%-90%/89%-
--------------
Incentive Amount 80%/*/80%
----------------
<S> <C> <C>
a. 100% of Direct Expenses as per 1999 $16,000.00 100%/80%/50%/0%
business plans for CLCA and Income
Property
</TABLE>
The Discretionary Incentive Award for Cost Control Goals and Objectives for
Officer shall be calculated by multiplying (x) the applicable Performance
Percentage for the Goal/Objective times (y) the Maximum Potential Discretionary
-----
Incentive Amount for such Goal/Objective. The Maximum Potential Discretionary
Incentive Award for Cost Control Goals and Objectives for Officer for 1999 shall
be $16,000.00.
4. Earnings Per Share Growth (10%):
--------------------------------
1999
----
- -------------------------------------------------------------
Earnings Per Share Target $ 1.57
- -------------------------------------------------------------
Target Incentive Award $8,000.00
- -------------------------------------------------------------
If Earnings Per Share $500 for each $.01
exceed target, incentive in excess of target
award shall be increased by: earnings per share
- -------------------------------------------------------------
If Earnings Per Share does $350 for each- $.01
not Meet target, incentive below target
awards shall be decreased by: earnings per share
- --------------------------------------------------------------
* means less than
<PAGE>
5. Subjective (10%):
----------------
Officer shall be eligible for an additional Subjective Incentive Award. Whether
a Subjective Incentive Award shall be granted and the amount of any such award
shall be determined by the President of Employer, in his sole and absolute
discretion. Factors which will be included in the determination of a Subjective
Incentive Award shall be Officer's management skills, ability to be a corporate
team player and such other factors as shall be determined by the President of
Employer, in his sole and absolute discretion. The fact that a Subjective
Incentive Award is granted in any year is no indication whether any such award
will be granted in following years. The maximum Subjective Incentive Award that
Officer shall be eligible for is as follows:
1999: up to $8,000.00
6. EPS Discount Factor
-------------------
% of EPS Target Met EPS Discount Factor
------------------- -------------------
*90% 100%
80% - 89% 90%
70% - 79% 70%
*70% 0%
* greater than
** less than
7. Total Annual Incentive Award
----------------------------
The total Annual Incentive Award shall be calculated by multiplying (x) the sum
of the amounts calculated pursuant to Paragraphs 1, 2, 3, 4 and 5 above times
(y) the EPS Discount Factor determined pursuant to Paragraph 6 above.
4
<PAGE>
EXHIBIT A
INDYMAC
1999 FINANCIAL PLAN
EARNINGS BY BUSINESS LINE FOR BONUS CALCULATIONS
DOLLLAR AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
Third Party Investment Master LoanWorks Income
Combined Lending Portfolio Servicing Servicing CLCA Property
--------- ----------- ---------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
I. NET INCOME AFTER EARNINGS CREDIT PLUS TAX
EFFECTED CORPORATE SUPPORT
Net Income after Earnings Credit 131,070 47,067 38,028 295 (9,358) 20,882 4,549
Corporate Support 33,798 11,883 2,957 882 3,187 2,836 537
Taxes on Corporate Support 10,681 5,050 860 375 0 0 0
----------------------------------------------------------------------------
Corporate Support, Net of taxes 23,117 6,883 2,097 507 3,187 2,836 537
----------------------------------------------------------------------------
Net Income after Earnings Credit plus Tax Effected
Corporate Support @ 100% 154,187 53,900 40,125 803 (6,171) 23,718 5,086
============================================================================
Net Income after Earnings Credit plus Tax Effected
Corporate Support @ 80% 123,350 43,120 32,100 642 (4,936) 18,974 4,069
Net Income after Earnings Credit plus Tax Effected
Corporate Support @ 150% 231,281 80,850 60,187 1,204 (9,256) 35,577 7,630
II. CONTROLLABLE RETURN ON EQUITY
Net Income-Fully Leveraged 120,303 40,477 38,028 295 (9,358) 19,552 4,407
Corporate Support 33,798 11,883 2,957 882 3,187 2,836 537
Taxes on Corporate Support 10,681 5,050 860 375 0 0 0
----------------------------------------------------------------------------
Corporate Support, Net of Taxes 23,117 6,833 2,097 507 3,187 2,836 537
----------------------------------------------------------------------------
Net Income-Fully Leveraged plus Tax Effected
Corporate Support 143,420 47,310 40,125 803 (6,171) 22,388 4,945
============================================================================
Average Equity-Fully Leverage 676,115 18,334 479,841 (796) (4,278) 97,877 34,376
============================================================================
Corporate Support Net Liability Allocaties 52,736 18,542 4,614 1,376 4,973 4,425 839
----------------------------------------------------------------------------
Fully Leverage Equity before Corporate Support 728,851 36,876 484,455 589 695 102,302 35,314
============================================================================
----------------------------------------------------------------------------
ROE-Fully Leverage-before CS balance sheet
allocation 19.68% 128.29% 8.28% 138.40% 887.65% 21.88% 14.04%
============================================================================
<CAPTION>
IndyMac Tax Benefit
CLD WLCA LoanWorks MHB HID Adjustment
----------- ---------- --------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
I. NET INCOME AFTER EARNINGS CREDIT PLUS TAX
EFFECTED CORPORATE SUPPORT
Net Income after Earnings Credit 9,194 7,234 2,702 4,653 1,846 3,977
Corporate Support 1,920 2,518 1,768 3,265 2,045 0
Taxes on Corporate Support 33 0 751 1,388 869 1,355
--------------------------------------------------------------------
Corporate Support, Net of taxes 1,887 2,518 1,016 1,877 1,176 (1,355)
--------------------------------------------------------------------
Net Income after Earnings Credit plus Tax Effected
Corporate Support @ 100% 11,081 9,752 3,719 6,530 3,022 2,623
====================================================================
Net Income after Earnings Credit plus Tax Effected
Corporate Support @ 80% 8,865 7,801 2,975 5,224 2,418 2,098
Net Income after Earnings Credit plus Tax Effected
Corporate Support @ 150% 16,621 14,628 5,578 9,796 4,533 3,934
II. CONTROLLABLE RETURN ON EQUITY
Net Income-Fully Leveraged 8,513 6,270 2,702 4,036 1,401 3,977
Corporate Support 1,920 2,518 1,768 3,265 2,045 0
Taxes on Corporate Support 33 0 751 1,388 869 1,355
--------------------------------------------------------------------
Corporate Support, Net of taxes 1,887 2,518 1,016 1,877 1,176 (1,355)
--------------------------------------------------------------------
Net Income-Fully Leveraged plus Tax Effected
Corporate Support 10,400 8,788 3,719 5,914 2,577 2,623
====================================================================
Average Equity-Fully Leverage 35,623 9,163 83 (454) 6,377 0
====================================================================
Corporate Support Net Liability Allocaties 2,995 3,929 2,758 5,094 3,191 0
--------------------------------------------------------------------
Fully Leverage Equity before Corporate Support 38,618 13,091 2,841 4,611 9,567 0
====================================================================
--------------------------------------------------------------------
ROE-Fully Leverage-before CS balance sheet
allocation 26.93% 67.13% 130.91% 128.26% 26.94% N/A
====================================================================
</TABLE>
<PAGE>
APPENDIX B
A "Change in Control" shall mean the occurrence during the term of the
Agreement, of any one of the following events:
A. An acquisition (other than directly from Employer) of any common stock
or other "Voting Securities" (as hereinafter defined) of Employer by
any "Person" (as the term person is used for purposes of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended
(the"Exchange Act")), immediately after which such Person has
"Beneficial Ownership"(within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of twenty five percent (25%) or more of the
then outstanding shares of Employer's common stock or the combined
voting power of Employer's then outstanding Voting Securities;
provided, however, in determining whether a Change in Control has
occurred, Voting Securities which are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. For purposes of
this Agreement, (1) "Voting Securities" shall mean Employer's
outstanding voting securities entitled to vote generally in the
election of directors and (2) a "Non-Control Acquisition" shall mean
an acquisition by (i) an employee benefit plan (or a trust forming a
part thereof) maintained by (A) Employer or (B) any corporation or
other Person of which a majority of its voting power or its voting
equity securities or equity interest is owned, directly or indirectly,
by Employer (for purposes of this definition, a "Subsidiary"), (ii)
Employer or any of its Subsidiaries, (iii) any Person in connection
with a "Non-Control Transaction" (as hereinafter defined) or (iv)
Countrywide Credit Industries, Inc. or any of its affiliates or
subsidiaries ("Countrywide Credit").
B. The individuals who, as of the date of the Agreement are members of
the Board (the "Incumbent Board"), cease for any reason to constitute
at least two-thirds of the members of the Board; provided, however,
that if the election, or nomination for election by Employer's common
stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for
purposes of this Agreement, be considered as a member of the Incumbent
Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual
initially assumed office as result of either an actual or threatened
"Election Contest" (as described in Rule 14A-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board (a "Proxy
Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
C. The consummation of
(i) A merger, consolidation or reorganization involving Employer, unless
such merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger,
consolidation or
13
<PAGE>
reorganization of Employer into, with or involving Countrywide Credit, IndyMac,
Inc. or where:
a. the stockholders of Employer, immediately before such merger,
consolidation or reorganization, own directly or indirectly
immediately following such merger, consolidation or reorganization,
at least seventy percent (70%) of the combined voting power of the
outstanding Voting Securities of the corporation resulting from such
merger, consolidation or reorganization (the "Surviving Corporation")
in substantially the same proportion as their ownership of the Voting
Securities immediately before such merger, consolidation or
reorganization;
b. the individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least two-thirds of the
members of the board of directors of the Surviving Corporation, or in
the event that, immediately following the consummation of such
transaction, a corporation beneficially owns, directly or indirectly,
a majority of the Voting Securities of the Surviving Corporation, the
board of directors of such corporation: and
c. no Person other than (i) Employer, (ii) any Subsidiary, (iii) any
employee benefit plan (or any trust forming a part thereof)
maintained by the Employer, the Surviving Corporation, or any
Subsidiary, (iv) Countrywide Credit, or (v) any Person who,
immediately prior to such merger, consolidation or reorganization had
Beneficial Ownership of twenty five percent (25%) or more of the
combined voting power of the Surviving Corporation's then outstanding
Voting Securities or its common stock, owns directly or indirectly
more than twenty five percent (25%) or more of the combined voting
power of the Surviving Corporation's then outstanding Voting
Securities or its common stock;
(ii) A complete liquidation or dissolution or Employer; or
(iii) The sale or other disposition of all or substantially all of the
assets of Employer to any Person (other than a transfer to a
Subsidiary of Countrywide Credit).
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the then outstanding common stock or Voting
Securities as a result of the acquisition of common stock or Voting Securities
by Employer which, by reducing the number of shares of common stock or Voting
Securities then outstanding, increases the proportional number of shares
Beneficially
14
<PAGE>
Owned by the Subject Person; provided, however, that if a Change of Control
would occur (but for the operation of this sentence) as a result of the
acquisition of common stock or Voting Securities by Employer, and after such
share acquisition by Employer, the Subject Person becomes the Beneficial Owner
of any additional common stock or Voting Securities which increases the
percentage of the then outstanding common stock or Voting Securities
Beneficially Owned by the Subject Person, then a Change in Control shall occur.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,793
<SECURITIES> 261,069
<RECEIVABLES> 3,170,744
<ALLOWANCES> 53,944
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,497,550
<CURRENT-LIABILITIES> 41,773
<BONDS> 2,598,832
0
0
<COMMON> 806
<OTHER-SE> 856,139
<TOTAL-LIABILITY-AND-EQUITY> 3,497,550
<SALES> 0
<TOTAL-REVENUES> 122,009<F1>
<CGS> 0
<TOTAL-COSTS> 25,136
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,310
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 84,563
<INCOME-TAX> 0
<INCOME-CONTINUING> 84,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,563
<EPS-BASIC> 1.07
<EPS-DILUTED> 1.06
<FN>
<F1>Includes 141,076 of interest expense related to mortgage loan activities.
</FN>
</TABLE>
