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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For fiscal year ended December 31, 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
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INDYMAC MORTGAGE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 95-3983415
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
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155 North Lake Avenue, Pasadena, California 91101-7211
(Address of principal executive offices) (Zip Code)
(800) 669-2300
Registrant's telephone number, including area code
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Securities registered pursuant to Section 12(b) of the Act:
None
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Title of each class Name of each exchange on which registered
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Common Stock, $.01 Par Value New York Stock Exchange
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
As of March 15, 2000 there were 73,749,721 shares of IndyMac Mortgage
Holdings, Inc. Common Stock, $.01 par value, outstanding. Based on the closing
price for shares of Common Stock on that date, the aggregate market value of
Common Stock held by non-affiliates of the registrant was approximately
$978,796,406. For the purposes of the foregoing calculation only, in addition
to affiliated companies, all directors and executive officers of the
registrant have been deemed affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the 2000 Annual Meeting--Part III
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INDYMAC MORTGAGE HOLDINGS, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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Page
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PART I
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ITEM 1. BUSINESS...................................................... 3
ITEM 2. PROPERTIES.................................................... 19
ITEM 3. LEGAL PROCEEDINGS............................................. 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 20
PART II
ITEM 5. MARKET FOR INDYMAC'S STOCK AND RELATED SECURITY HOLDER
MATTERS...................................................... 21
ITEM 6. SELECTED FINANCIAL DATA....................................... 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK..... 40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .................. 41
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.......... 41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 42
ITEM 11. EXECUTIVE COMPENSATION........................................ 42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-
K............................................................ 43
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PART I
ITEM 1. BUSINESS/1/
General
IndyMac Mortgage Holdings, Inc. ("IndyMac"), was incorporated in the State
of Maryland on July 16, 1985 and reincorporated in the State of Delaware on
March 6, 1987. References to "IndyMac" mean either the parent company alone or
the parent company and the entities consolidated for financial reporting
purposes, while references to the "Company" mean the parent company, its
consolidated subsidiaries and its affiliate, IndyMac, Inc. and its
subsidiaries ("IndyMac Operating"). IndyMac Operating was established in 1993
as a nationwide, third-party lender and securitizer of residential prime and,
to a lesser extent, subprime mortgage loans.
Prior to January 2000, IndyMac Operating was not consolidated with IndyMac
for financial reporting or tax purposes. During this period, all of the
outstanding voting common stock and 1% of the economic interest of IndyMac
Operating was owned by Countrywide Home Loans, Inc. ("CHL"), which is a
subsidiary of Countrywide Credit Industries, Inc. ("CCR"). IndyMac owns all of
the outstanding non-voting preferred stock and 99% of the economic interest of
IndyMac Operating. IndyMac Operating is accounted for under a method similar
to the equity method because IndyMac has the ability to exercise influence
over the financial and operating policies of IndyMac Operating through its
ownership of the preferred stock and through other contracts with IndyMac
Operating. In January of 2000, IndyMac purchased all of the outstanding voting
common stock of IndyMac Operating from CHL.
Through December 31, 1999, IndyMac elected to be taxed as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). As a result of this election, IndyMac has not, with certain
limited exceptions, been taxed at the corporate level on the net income
distributed to IndyMac's shareholders. On December 14, 1999, the shareholders
of IndyMac approved the conversion of IndyMac from a REIT to a fully taxable
entity, effective January 2000. In January of 2000, IndyMac filed a notice
with the Internal Revenue Service revoking its REIT status. See "Federal
Income Tax Considerations," below.
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(1) Except for the historical information contained in this Form 10-K, certain
items herein, including without limitation, certain matters discussed
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Part II, Item 7 and 7A of this Form 10-K
("MD&A") are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1934 and Section 21E of the Securities Exchange
Act of 1934. These statements reflect solely 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 of this Form 10-
K. 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 and construction
lending operations; (5) the actions undertaken by both current and
potential new competitors; (6) certain matters relating to the proposed
acquisition of SGV Bancorp, Inc. ("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 (see discussion on next page); and (7)
other risks and uncertainties detailed in this Form 10-K, including the
MD&A.
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The Company conducts a diversified mortgage banking and servicing business,
engages in portfolio lending activities, and manages a loan and mortgage
securities investment portfolio.
The Company's mortgage banking operations include (1) Consumer Business-to-
Business ("B2B") (formerly referred to as IndyMac's third party lending
division), which purchases loans from mortgage brokers and mortgage bankers
through the use of its proprietary Internet-based underwriting and risk-based
pricing system, e-MITS/2/ (electronic-Mortgage Information and Transaction
System), and (2) LoanWorks/3/ and LoanTown/4/, which facilitate the direct
origination of a variety of residential loans for consumers. The Company
originates and purchases conforming, non-conforming and jumbo residential
prime and subprime mortgage loans. The Company also originated home
improvement and manufactured housing loans through the first and second
quarters of 1999, respectively, at which time originations through the dealer
channel were discontinued. See further discussion under "Other Mortgage
Banking Activities." The Company services many of the loans it originates and
purchases and subsequently sells, along with loans for which it has purchased
the servicing rights, through its master servicing and primary servicing
operations.
The Company conducts its portfolio lending activities through (1) IndyMac
Construction Lending Division ("IndyMac CLD"), which facilitates the purchase
of a variety of residential construction, land and lot loans through its B2B
customers ("sellers") and LoanWorks/LoanTown, (2) Construction Lending
Corporation of America ("CLCA"), which offers a variety of residential
construction, land and lot loan programs for builders and developers, and (3)
warehouse lending activities through Warehouse Lending Corporation of America
("WLCA"), which provides various types of short-term revolving financing to
small-to-medium size mortgage originators.
The Company maintains an investment portfolio comprised of residential
loans acquired from the mortgage banking operations, mortgage servicing
rights, and mortgage securities either retained in connection with the
issuance of mortgage-backed securities or purchased from third parties. The
Company's principal source of income from these investments is the net spread
between interest earned on residential loans held for investment and mortgage
securities and the interest cost associated with the borrowings used to
finance such assets, service fee income, and net gain on sale of mortgage
securities.
In July of 1999, IndyMac announced that it had signed a definitive
agreement to acquire SGVB (the "acquisition"), the holding company for First
Federal Savings and Loan Association of San Gabriel Valley (the "Bank"). SGVB
is a Southern California-based savings and loan holding company whose
federally chartered savings and loan subsidiary had nine branches, $358.2
million in deposits, and 27,000 customer accounts as of December 31, 1999.
IndyMac will acquire SGVB in a cash purchase transaction for $25.00 per share
for all of the SGVB shares outstanding and subject to option as of the date of
purchase. This price is subject to adjustment in the event of changes in the
value of certain assets and liabilities of SGVB. The shareholders of IndyMac
and SGVB approved the acquisition on December 14, 1999. The acquisition is
subject to Office of Thrift Supervision ("OTS") approval.
Mortgage Banking Operations
Consumer Business-to-Business
Operations. B2B purchases and sells conforming, nonconforming, and jumbo
mortgage loans. B2B acts as an intermediary between the originators of
mortgage loans, and permanent investors in whole loans and mortgage-backed
securities secured by or representing an ownership interest in such mortgage
loans. B2B's products include loans that qualify for purchase by or inclusion
in loan guarantee programs sponsored by the
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(2) Registered in U.S. Patent and Trademark Office. Patent pending.
(3) Registered in U.S. Patent and Trademark Office.
(4) Registered in U.S. Patent and Trademark Office.
4
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government and government sponsored entities ("GSEs") such as Federal National
Mortgage Association ("FNMA") and Federal Home Loan Mortgage Corporation
("FHLMC") ("conforming mortgage loans") and mortgage loans that do not qualify
for purchase or inclusion in loan guarantee programs sponsored by the GSEs
("nonconforming mortgage loans"). B2B's operations consist of the purchase and
securitization or whole loan sale of mortgage loans secured by first and
subordinate liens on single (one-to-four units) family residential properties
that are originated in accordance with the Company's underwriting guidelines.
The Company's principal sources of income from its mortgage banking
operations are as follows:
. gains recognized on the sale of mortgage loans and securities,
. the net spread between interest earned on mortgage loans and the
interest costs associated with the borrowings used to finance such loans
pending their securitization, sale or inclusion in the Company's loans
held for investment portfolio, and
. fee income.
The Company generally purchases the rights to service the mortgage loans
delivered by the sellers to the Company. Through LoanWorks Servicing, the
Company services loans for which it has purchased the servicing rights and
which it originates through LoanWorks and LoanTown. See "LoanWorks Servicing"
below.
At the beginning of 1999, the Company officially launched its proprietary
Internet-based underwriting and risk-based pricing system, e-MITS. The
Company's e-MITS system is an automated loan submission, underwriting and
risk-based pricing system that allows mortgage loan sellers to conduct
business with the Company electronically through the Internet at the Company's
www.e-MITS.com website. e-MITS provides sellers with the ability to obtain an
underwriting decision and risk-based pricing, based in part on standard
industry loan loss data, for any borrower or property for which B2B has a
lending program. The system allows mortgage originators to receive an approval
and a risk-based price within minutes. e-MITS also provides sellers a
streamlined documentation process for certain qualified borrowers. This system
provides sellers with alternate product/pricing options and the ability to
immediately lock in the selected price. Additionally, e-MITS provides for the
electronic delivery, via the Internet, of loan documents to closing agents
nationwide. B2B realigned its mortgage banking business during 1999 to
concentrate on the small to mid-sized mortgage originators where it can add
value through the use of e-MITS. During the fourth quarter of 1999,
approximately 69% of B2B's purchase volume was conducted through e-MITS.
Business Risks. The primary risks associated with B2B's business include
fraud risk, compliance risk, and interest rate risk. Fraud risk includes the
risk that a loan purchased by B2B is fraudulently originated by the mortgage
originator. Compliance risk is the risk that loans are not originated in
compliance with applicable laws and regulations, and, in the case of loans
purchased from third parties, to IndyMac standards. Interest rate risk is the
risk that the Company will purchase, or commit to purchase, loans at prices
that differ from those at which the loans can be subsequently sold. Loan
prices are directly impacted by the level of interest rates.
The Company mitigates fraud risk through a number of controls including,
but not limited to, initial due diligence approving the seller to do business
with IndyMac, e.g., MARI check (industry fraud database), credit check,
reference check to validate loan quality, and review of other investor loan
quality reports; annual customer recertification; and requiring that all
sellers carry fidelity insurance.
The Company addresses compliance risk with a quality control program,
through which it monitors the completeness of loan files and identifies
necessary corrective actions to be taken either by its third-party sellers or
in-house origination staff. The Company addresses interest rate risk through a
hedging program that endeavors to match its commitments to sell to investors
its inventory of funded loans and commitments to purchase or fund loans. The
Company's interest rate risk program also employs the purchase and sale of
various financial derivatives to bridge current mismatches between loans, loan
commitments, and commitments to sell loans. Notwithstanding the foregoing
mitigating factors, there can be no assurance that the foregoing factors will
fully mitigate the risks associated with B2B's business.
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Marketing Strategy. The Company's marketing strategy seeks to offer
competitive products and pricing, response time efficiencies in the purchase
process, and direct and frequent contact with loan sellers through a trained
sales force. B2B's product mix and delivery channels are designed to attract
small to mid-size sellers of mortgage loans by offering a variety of products,
pricing, loan underwriting and funding methods designed to be responsive to
sellers' needs. The Company's products include fixed-rate and adjustable-rate
mortgage loans, reduced documentation loans, non-owner occupied loans and
subprime credit quality loans. During 1999, the Company increased its
marketing efforts relating to its subprime loan business, which it conducts
through its LoanTown division. See "LoanWorks/LoanTown" below. The Company
also increased the B2B sales force by 179% during 1999 in conjunction with its
increased focus on the purchase of loans through small to mid-sized mortgage
originators.
LoanWorks/LoanTown
Operations. LoanWorks is the Company's direct-to-consumer origination
division, and began operations in January 1997. LoanWorks offers a variety of
residential mortgage loans directly to consumers, including conforming
conventional mortgage loans, and prime non-conforming mortgage loans. LoanTown
is the Company's direct-to-consumer origination division for subprime mortgage
loans. LoanWorks/LoanTown's operations are centralized in a telemarketing and
processing center located in Irvine, California.
During 1999, the Company incorporated the e-MITS technology into its
proprietary website, www.LoanWorks.com, to provide consumers with an online
automated underwriting, approval and rate-lock process. www.LoanTown.com
provides a similar online automated loan approval and rate-lock process to
consumers in the subprime mortgage market.
Business Risks. The primary risks associated with LoanWorks/LoanTown, and
the Company's method of addressing those risks, are substantially the same as
those inherent in B2B. However, as LoanWorks/LoanTown is a direct originator
of loans, the Company does not face the risks arising from the purchase of the
loans from third party originators.
Marketing Strategy. LoanWorks/LoanTown's primary marketing tools are media
advertising in Southern California, and Internet advertising through its
proprietary websites and through relationships with other websites. Through
LoanWorks/LoanTown's telemarketing operations, LoanWorks/LoanTown's loan
consultants counsel consumers with respect to the loan application process,
process loan applications utilizing the e-MITS technology and render lending
decisions, providing for a streamlined loan application process.
Loan Purchase and Origination Process
Seller Eligibility Requirements. The mortgage loans acquired through the
Company's B2B operations are originated by various sellers, including mortgage
brokers, mortgage bankers, savings and loan associations, banks, and other
mortgage lenders. Sellers generally enter into an agreement that provides for
recourse by the Company against such seller under various circumstances,
including in the event of any material breach of a representation or warranty
made by the seller with respect to mortgage loans sold to the Company, any
fraud or misrepresentation during the mortgage loan origination or acquisition
process or upon early payment default on such loans. However, there can be no
assurance that the seller would have adequate means to provide compensation to
the Company in the event of a loss due to fraud or misrepresentation.
Mortgage Loans Acquired. The Company purchases and originates both
conforming and non-conforming loans through its B2B operations and
LoanWorks/LoanTown. Currently, the maximum principal balance for a conforming
loan is $252.7 thousand. Loans that exceed such maximum principal balance are
referred to as "jumbo loans." The Company generally purchases jumbo loans with
original principal balances of up to $3 million. The Company's loan purchase
activities focus on those regions of the country where higher volumes of
mortgage loans, based on unpaid principal balance, are originated, including
California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Nevada,
New Jersey, New York, Oregon, Texas, Utah,
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Washington and Washington, D.C. The Company's highest concentration of
mortgage loans relates to properties in California because of the generally
higher property values and mortgage loan balances prevalent there. Mortgage
loans secured by California properties accounted for approximately 42% of the
mortgage loans purchased by the Company in 1999.
Mortgage loans acquired by the Company are secured by primarily first liens
on single family dwelling unit residential properties with either fixed or
adjustable interest rates. Fixed-rate mortgage loans accounted for
approximately 95% of the mortgage loans purchased by the Company in 1999
compared to 93% in 1998.
Underwriting and Risk-Based Pricing. The Company has two principal
underwriting methods designed to be responsive to the needs of mortgage loan
sellers: traditional underwriting and e-MITS underwriting. Under the
traditional underwriting method, sellers submit mortgage loans that are
underwritten by the Company in accordance with its guidelines prior to
purchase. As discussed above in "Consumer Business-to-Business," e-MITS is the
Company's automated, Internet-based underwriting and risk-based pricing
system. e-MITS enables the Company to more accurately estimate expected credit
loss and interest rate (or prepayment) risk so that the Company can acquire
loans at prices that more accurately reflect these risks. Risk-based pricing
is based on a number of borrower and loan characteristics, including, among
other loan variables, credit score, occupancy, documentation type, purpose and
loan-to-value ratio, and prepayment assumptions based on an analysis of
interest rates. During 1999, the Company's primary use of risk-based pricing
was through e-MITS. During the fourth quarter of 1999, the Company funded
approximately $967.9 million of prime and subprime loans through e-MITS,
representing 69% of prime and subprime loan production.
Because the Company's risk-based pricing models, including the risk-based
pricing models utilized in e-MITS, are based primarily on standard industry
loan loss data supplemented by the Company's historical loan loss data and
proprietary logic developed by the Company, and the models cannot predict the
effect of financial market and other economic performance factors, there are
no assurances that the Company's risk-based pricing models are a complete and
accurate reflection of the risks associated with the Company's loan products.
Quality Control. Ongoing quality control reviews are conducted by the
Company to ensure that the loans purchased meet the Company's quality
standards. The type and extent of the quality control review is based
primarily on the risk characteristics of the loans. A higher percentage of
mortgage loans with certain specified characteristics are reviewed by the
Company following purchase, including, among other characteristics, loans
purchased from sellers with comparatively high delinquency rates, and all
loans that are delinquent for 90 days or more.
In performing a quality control review on a loan, the Company analyzes the
underlying property and associated appraisal and examines the credit,
employment and income history of the borrower. In addition, all documents
submitted in connection with the loan, including all insurance policies,
appraisals and credit records, and the closing statement, sales contract and
escrow instructions are examined for compliance with the Company's
underwriting guidelines. Furthermore, as a part of the standard fraud review
conducted by the Company, the Company re-verifies, on a sample basis, the
employment, income and source of funds documentation of the borrower and
obtains a new credit report. Independent appraisals are obtained as a part of
the Company's quality control reviews as deemed appropriate.
Hedging Activities. Following the issuance of specific rate-locks related
to loans held for sale, IndyMac Operating is subject to the risk of interest
rate fluctuations with respect to the contractual rate of interest on such
loans, and enters into hedging transactions to diminish such risk. See "Loan
Sale and Securitization Process" below. The nature and quantity of hedging
transactions is determined by management based on various factors, including
market conditions, cash flow considerations, the expected or contracted volume
of mortgage loan purchases and the product types or coupon rates to be
purchased.
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Loan Sale and Securitization Process
General. The Company primarily uses committed repurchase agreements, bank
borrowings, unsecured debt and equity to finance the initial acquisition of
mortgage loans from sellers. When a sufficient volume of loans with similar
characteristics has been accumulated, generally $100 million to $500 million
in principal amount, such loans are resold in bulk whole loan sales,
securitized through the issuance of mortgage-backed securities in the form of
REMICs or CMOs, or sold to GSEs. The length of time between when the Company
purchases a mortgage loan and when it sells or securitizes such mortgage loan
generally ranges from ten to 90 days, depending on certain factors such as the
loan volume by product type and market fluctuations in the prices of mortgage-
backed securities.
Through December 31, 1999, all loans originated or purchased by IndyMac for
which a real estate mortgage investment conduit ("REMIC") transaction or whole
loan sale is contemplated were committed for sale to IndyMac Operating at the
same price at which the loans were acquired by IndyMac, pursuant to the terms
of the Master Forward Commitment and Services Agreement between IndyMac and
IndyMac Operating, which was originally entered into in 1993. In January 2000,
in connection with the conversion of IndyMac from a REIT to a fully taxable
entity, and the related acquisition of the voting common stock of IndyMac
Operating by IndyMac, the Master Forward Commitment and Services Agreement was
terminated.
The Company is subject to various risks due to potential interest rate
fluctuations during the period of time after the Company commits to purchase a
mortgage loan at a pre-determined price until such mortgage loan is committed
for sale. The Company attempts to mitigate such risks through the
implementation of hedging policies and procedures. In accordance with these
policies and procedures, the Company seeks to utilize financial instruments
whose price sensitivity has historically had very close inverse correlation to
the price sensitivity of the related mortgage loans as a result of changes in
applicable interest rates. With respect to the Company's pipeline of jumbo and
non-conforming fixed-rate loans, the financial instrument which has
historically demonstrated close inverse correlation, and also trades in a
relatively liquid and efficient manner, is a forward commitment to sell a FNMA
or FHLMC security of comparable maturity and weighted average interest rate.
However, the Company's private-label mortgage securities typically trade at a
discount (or "spread") compared to the corresponding FNMA or FHLMC securities,
due to the implied government guarantees of certain FNMA or FHLMC obligations.
In a widening spread interest rate environment, fixed rate loans previously
purchased at par by the Company tend to decrease in value as the average
coupon on loans in current production has increased, therefore creating a loss
risk. Conversely, in a narrowing spread interest rate environment, fixed rate
loans tend to increase in value, which would result in a gain on sale of loans
for the Company. Accordingly, while the Company's hedging strategy may
mitigate the impact that changes in interest rates would have on the price of
agency mortgage securities (and therefore to some extent on the price of the
Company's private-label mortgage securities), such strategy does not protect
the Company against the effects of a widening or narrowing in the pricing
spread between agency mortgage securities and the Company's private-label
mortgage securities. Therefore, any significant widening or narrowing of the
spread commanded by agency mortgage securities compared to the Company's
private-label mortgage securities could have a negative or positive effect on
the financial performance of the Company, regardless of the efficiency of the
Company's execution of its hedging strategy. (See "Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations").
The Company's decision to sell whole loans in bulk or to form mortgage-
backed securities in the form of REMICs, agency securities, or CMOs is
influenced by a variety of factors, including the price at which such whole
loans or securities can be sold. The market disruptions of the fourth quarter
of 1998 had a negative effect on the pricing the Company could obtain through
loan securitizations, so the Company began to emphasize the sale of loans
through whole loan sales. Depending on market conditions, this trend could
continue. The Company also has begun to expand its issuance of FNMA and FHLMC
mortgage-backed securities that are backed by loans originated or purchased by
the Company. In these transactions, the Company retains the related servicing
rights. During 1999, the Company sold $3.4 billion, or 53% of all loans sold
through bulk whole loan sales, $1.9 billion or 29% through securitizations,
and $1.1 billion or 18% to GSEs.
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REMIC transactions are generally accounted for as sales of the mortgage
loans and may eliminate or minimize any long-term investment by the Company in
such loans, depending on the extent to which the Company decides to retain an
interest. REMIC securities typically consist of one or more classes of
"regular interests" and a single class of "residual interest." The regular
interests are tailored to the needs of investors and may be issued in multiple
classes with varying maturities, average lives and interest rates. These
regular interests are predominantly senior securities, but, in conjunction
with providing credit enhancement, may be subordinated to the rights of other
regular interests. The residual interest represents the remainder of the cash
flows from the loans over the amounts required to be distributed to the
regular interests.
Since 1993, the Company has been issuing its REMIC securities utilizing a
shelf registration statement established by CWMBS, Inc., a wholly owned
limited purpose finance subsidiary of CCR. Neither CWMBS, Inc. nor CCR derives
any financial benefit from such issuances, other than recoupment of a portion
of the allocable costs of establishing and maintaining the shelf registration.
Beginning in 1998, the Company began issuing subprime mortgage REMIC
securities utilizing a shelf registration statement established by IndyMac
ABS, Inc., a wholly owned limited purpose finance subsidiary of IndyMac
Operating. The Company intends to utilize the IndyMac ABS, Inc. shelf
registration for the issuance of REMIC securities primarily backed by subprime
mortgages and second mortgages. In 1999, IndyMac MBS, Inc., a wholly owned
limited purpose finance subsidiary of IndyMac Operating, filed a shelf
registration statement for the issuance of REMIC securities backed by prime
mortgage loans. Although this shelf registration statement has not yet been
declared effective by the Securities and Exchange Commission, the Company
plans to seek such effectiveness in the first half of 2000 and to begin to
issue its prime mortgage REMIC securities utilizing such shelf registration
statement, at which time it will cease to issue such securities utilizing the
CWMBS, Inc. shelf registration statement.
As an alternative to REMIC sales, the Company may issue CMOs to finance
mortgage loans to maturity. For accounting and tax purposes, the mortgage
loans financed through the issuance of CMOs are treated as assets of the
Company, and the CMOs are treated as debt of the Company. The Company earns
the net interest spread between the interest income on the mortgage loans and
the interest and other expenses associated with the CMO financing. The net
interest spread will be directly impacted by the levels of prepayment of the
underlying mortgage loans and, to the extent CMO classes have variable rates
of interest, may be affected by changes in short-term interest rates. The
Company is required to retain a residual interest in its issued CMOs. The
Company may issue CMOs from time to time based on the Company's current and
future investment needs, market conditions and other factors. CMOs, however,
do not offer the Company the structuring flexibility of REMICs and are
therefore not a significant method of financing the Company's mortgage lending
operations.
Credit Enhancement. REMICs or CMOs created by the Company are structured so
that, in general, substantially all of such securities are rated investment
grade by at least one nationally recognized statistical rating agency. In
contrast to mortgage-backed securities in which the principal and interest
payments are guaranteed by the U.S. government or an agency thereof, private-
label securities created by the Company do not benefit from any such
guarantee. The ratings for the Company's mortgage-backed securities are based
on the perceived credit risk by the applicable rating agency of the underlying
mortgage loans, the structure of the securities and the associated level of
credit enhancement. Credit enhancement is designed to provide protection to
one or more classes of security holders in the event of borrower defaults and
to protect against other losses, including those associated with fraud or
reductions in the principal balances or interest rates on loans as required by
law or a bankruptcy court. The Company can utilize multiple forms of credit
enhancement, including bond insurance guarantees, mortgage pool insurance,
special hazard insurance, reserve funds, letters of credit, surety bonds and
subordination of certain classes of interests to other classes, or any
combination thereof.
In determining whether to provide credit enhancement through bond
insurance, subordination or other credit enhancement methods, the Company
takes into consideration the costs associated with each method. The Company
principally provides credit enhancement through the issuance of mortgage-
backed securities in senior/subordinated structures. The subordinated
securities may be sold, retained by the Company and accumulated for sale in
subsequent transactions, or retained as long term investments.
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Servicing Operations
The Company acts as master servicer with respect to substantially all of
the mortgage loans it sells pursuant to securitizations, and a portion of
those loans sold through whole loan sales. Master Servicing includes
collecting loan payments from servicers of loans and remitting loan payments,
less master servicing fees, to trustees. Through LoanWorks Servicing, the
Company services those loans for which it has acquired the primary servicing
rights.
Master Servicing
Operations. The Company, through its Master Servicing operation, currently
services approximately $16.1 billion of prime, subprime, manufactured housing
and home improvement mortgage loans. As master servicer, the Company monitors
the servicers' compliance with the Company's servicing guidelines and is
required to perform, or to contract with a third party to perform, all
obligations not adequately performed by any servicer. The master servicer may
permit or require the servicer to contract with approved subservicers to
perform some or all of the servicer's servicing duties, but the servicer is
not thereby released from its servicing obligations.
In connection with REMIC securitizations, the Company master services on a
non-recourse basis. Each series of mortgage-backed securities is typically
fully payable from the mortgage assets underlying such series and the recourse
of investors is generally limited to those assets and any credit enhancement
features, such as insurance. As a general rule, any losses in excess of the
accompanying credit enhancement obtained is borne by the security holders.
Except in the case of a breach of the standard representations and warranties
made by the Company when mortgage loans are securitized or sold, the
securities or sales are non-recourse to the Company. In most cases, the
Company has recourse to the sellers of loans for any such breaches, although
there can be no assurance that each such seller will be able to honor its
obligations under such recourse arrangements.
Business Risks. The risks faced by Master Servicing include compliance risk
arising from the Company's master servicing of loans under laws or regulations
or servicing agreement requirements. The Company addresses compliance risk
through its management control program, which monitors and reviews its loans
for compliance with the Real Estate Settlement Procedures Act, FNMA/FHLMC
guidelines, and other investor guidelines.
LoanWorks Servicing
Operations. During 1999, the Company purchased substantially all loans
servicing released (i.e. the Company purchased the right to service the
loans), as a result of its focus on small to mid-sized mortgage brokers, which
do not generally have loan servicing capabilities. The Company, through its
LoanWorks Servicing operation, currently services approximately $10.1 billion
of prime, subprime, manufactured housing and home improvement mortgage loans.
Servicing mortgage loans includes collecting and remitting loan payments;
responding to customers' inquiries; making advances, using corporate funds to
pay property taxes and hazard insurance, when required; accounting for
principal and interest; holding custodial (impound) funds for payment of
property taxes and hazard insurance; making physical inspections of the
mortgaged property, as necessary; counseling delinquent mortgagors;
supervising foreclosures and liquidation of foreclosed property; performing
required tax reporting; and other loan administration functions necessary to
protect investors' interests, respond to borrower needs, and comply with
applicable laws and regulations.
Business Risks. The risks faced by LoanWorks Servicing include compliance
risk arising from the Company's servicing of loans under laws or regulations
or servicing agreement requirements. The Company addresses compliance risk
through its management control program, which monitors and reviews its loans
for compliance with the Real Estate Settlement Procedures Act, FNMA/FHLMC
guidelines, and other investor guidelines.
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Other Mortgage Banking Activities
During 1999 the Company operated two smaller divisions, the Manufactured
Housing Division ("MHD") and the Home Improvement Division ("HID") established
for the purpose of servicing the manufactured housing and home improvement
niche markets. IndyMac MHD focused on the origination, purchase, sale and
servicing of loans to consumers purchasing or refinancing a new or used
manufactured home. This division previously solicited business through
established manufactured housing dealers, mortgage brokers and IndyMac MHD's
direct-to-consumer operations (which were previously conducted under the
"LoanTown" name). During 1999, the manufactured housing dealer channel was
discontinued, the servicing operations were moved to LoanWorks Servicing, and
the collections operations were consolidated into the Company's corporate loss
mitigation operations.
IndyMac HID provided consumer-financing products; previously, these
products were originated through home improvement dealers, specialty brokers,
specialty correspondents and the Company's third party sellers. During 1999,
originations through the dealer channel were also discontinued, with the
servicing operations moved to LoanWorks Servicing, and the collections
operations consolidated into the Company's corporate loss mitigation
operations.
Construction and Warehouse Lending Operations
Consumer Construction Lending
Operations. IndyMac CLD provides financing and administers the related
construction advances for the purchase of combined construction-to-permanent
mortgage loans, home improvement loans, and residential lot loans. These loans
are originated by or sourced through the Company's B2B sellers and
LoanWorks/LoanTown. The Company has also begun to market these loans through
its LoanWorks/LoanTown divisions. Under these programs, all loans are prior-
approved and underwritten to the Company's standard guidelines for borrower
qualifications, as well as other detailed criteria. In general, the maximum
construction-to-permanent mortgage loan size is $3 million. Underwriting
standards for the permanent portion of the construction loans are similar to
those applied by the Company to loans purchased through its B2B operations.
Beginning in the year 2000, the Company will utilize the e-MITS risk-based
pricing technology in the underwriting process for the credit portion of the
construction loans.
Business Risks. The primary risks associated with IndyMac CLD's business
include risks directly related to the construction effort, such as cost
overruns, borrower credit risk and project completion risk, and interest rate
risk. The Company has addressed these risks by requiring a fully funded
interest reserve, charging significant fees to extend the construction phase
of the loan, and reserving the right to renegotiate the interest rate for the
permanent phase of the loan if the borrower requests an extension for the
construction phase of the loan. However, there can be no assurance that the
foregoing factors will fully mitigate the risks associated with IndyMac CLD's
business.
Builder Construction Lending
Operations. CLCA offers residential construction loan programs for builders
and developers. The target project for CLCA's residential construction loan
program is a 15 to 100 unit subdivision, built in one to five phases, that
will be marketed to entry level/first-time or trade-up buyers. In general, the
maximum loan size per project is $15 million. The specific terms of any
construction loan, including the principal amount thereof and the applicable
interest rate, loan fees, and other terms, are based upon, among other things,
the quality of the project and the financial strength, historical performance
and other qualifications of the builder.
Business Risks. The primary risks associated with CLCA's operations are
project risks and market risks. Project risks include cost overruns, borrower
credit risk, project completion risk, general contractor credit risk, and
environmental and other hazard risks. Market risks are risks associated with
the sale of the completed residential units. They include affordability risk,
which is the risk of affordability of financing by borrowers in a
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rising interest rate environment, product design risk, and risks posed by
competing projects. CLCA attempts to mitigate some of these risks through the
management and credit committee review process; however, there can be no
assurance that this review process will fully mitigate the foregoing risks. In
the Company's experience, absorption rates of new single-family homes have
been good in markets served by CLCA. However, it is unclear whether the
economic cycle in certain geographical markets has peaked, which may have an
impact on new loan generation or timely payoff of existing CLCA loans. The
Company has implemented geographic concentration limits and borrower
concentration limits for CLCA, which should serve to mitigate some of the
effects of a slowing in the economic cycles in some areas.
Warehouse Lending
Operations. The Company's warehouse lending group, WLCA, engages in secured
warehouse lending operations for small to mid-sized mortgage originators. The
Company's traditional warehouse lending facilities typically provide short-
term revolving financing to mortgage companies to finance the origination of
mortgage loans during the time between the closing of such loans and their
sale to investors. Loans financed by WLCA through its traditional warehouse
lending activities represent a broader line of mortgage products than those
currently purchased by the Company, including products such as Federal Housing
Authority ("FHA") and Veterans Authority ("VA") loans.
The Company offers two warehouse lending programs: the Traditional program
and the Advantage Line program:
. Under its Traditional program, WLCA offers credit facilities up to a
maximum amount of $25 million to otherwise qualified mortgage
originators with a minimum audited tangible net worth of $100 thousand
and subject to a maximum debt-to-net worth ratio of 22 to 1.
. Under its Advantage Line program, WLCA offers credit facilities up to a
maximum amount of $2 million, at higher rates and fees, to otherwise
qualified mortgage originators with no net worth requirement.
The specific terms of any warehouse line of credit, including the maximum
credit limit, are determined based upon the financial strength, historical
performance and other qualifications of the mortgage originator. All lines of
credit under the Traditional program are subject to the prior approval of a
credit committee comprised of senior officers of IndyMac.
Business Risks. One of the primary risks associated with WLCA's operations
is the risk that a mortgage company borrower fails to sell a loan that is
financed by a WLCA line of credit and is unable to otherwise remove the loan
from the WLCA line of credit. Under these circumstances, WLCA would have the
option to assume the loan from the mortgage company borrower and subsequently
sell the loan; however, WLCA would also be assuming any credit risk associated
with such loan up to its sale. To mitigate this risk, the contractual terms of
all WLCA lines of credit provide for full recourse to the mortgage company
borrowers for the outstanding balance under the lines of credit.
Another risk associated with WLCA's operations is fraud risk, which
includes the risk that a loan financed by a WLCA line of credit is
fraudulently originated by the mortgage company borrower. To mitigate fraud
risk on its Traditional program, the Company requires that mortgage company
borrowers carry fidelity insurance and only transfers funds to approved
closing agents who are required to execute closing protection letters to
ensure that the funds are not misdirected by the mortgage company borrower.
Additionally, WLCA receives personal guarantees from the principals of each
mortgage company borrower involved in the Traditional program. For its
Advantage Line program, WLCA requires mortgage company borrowers to provide
evidence of a commitment to purchase by the ultimate investor (prior approved
by IndyMac) before funds are advanced, and either (a) carry fidelity insurance
or (b) provide a personal guarantee from the principals of each mortgage
company involved in the program. However, there can be no assurances that
these mitigating factors will adequately protect the Company against fraud
risk.
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Investment Portfolio
Loans Held for Investment. In an effort to generate continuing earnings
that are less dependent upon the Company's loan purchase volumes and
securitization activities, the Company seeks to selectively invest in
residential, manufactured housing, and home improvement loans on a long-term
basis. The Company finances the acquisition of such loans with its capital,
borrowings under committed repurchase agreements and other credit facilities
referred to under "Financing Sources" below. The Company has assumed a certain
degree of credit risk in relation to its portfolio of loans held for
investment. See "Credit Risk" below.
Retention of Mortgage-Backed Securities and Other Investments. In
connection with the issuance of mortgage-backed or asset-backed securities in
the form of REMICs, the Company may retain interests in the pooled assets on a
short-term or long-term basis. Any such retained interest may include
principal-only or AAA rated interest-only securities, investment and non-
investment grade securities, residual securities, mortgage servicing rights,
or other interest rate or prepayment-sensitive securities or investments. The
Company has assumed a certain degree of credit risk and interest rate risk in
relation to its portfolio of mortgage securities. See "Credit Risk" and "Part
II, Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Effect of Interest Rate Changes" below.
Business Risks. The primary risk associated with AAA rated interest-only
securities and mortgage servicing rights is that they will lose a substantial
portion of their value as a result of higher-than anticipated prepayments as a
result of declining interest rates. It is also possible that under certain
higher-than anticipated prepayment events, the Company would not recoup its
initial investment in AAA rated interest-only securities or mortgage servicing
rights. Investments in AAA rated interest-only securities and mortgage
servicing rights have values that tend to move inversely to the values of the
retained subordinated and principal-only securities as interest rates change.
For example, as interest rates decline, prepayments would tend to increase and
the value of the Company's mortgage servicing rights and AAA rated interest-
only securities would tend to decrease. By contrast, in a declining interest
rate environment, the value of the Company's portfolio of investment and non-
investment grade securities and principal-only securities would tend to
increase because the rise in prepayments would tend to accelerate the return
of the Company's investment in the principal portion of the underlying loans.
The Company seeks to manage the effects of changing interest rates through
hedging with treasury and mortgage-based cash/derivative instruments. However,
there can be no assurance that this strategy will succeed under any particular
interest rate scenario. See "Part II, Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Effect of Interest
Rate Changes" below.
Operations Following the Acquisition of SGVB
IndyMac anticipates that its acquisition of SGVB will be completed in May
of 2000. In connection with the acquisition, IndyMac Operating will be merged
into SGVB and substantially all of the assets, liabilities and operations of
IndyMac and IndyMac Operating, including the operations of LoanWorks/LoanTown,
CLCA, WLCA, IndyMac CLD and B2B, will be transferred to the Bank.
Following the acquisition of SGVB, IndyMac will generally continue to
operate and develop its existing mortgage and consumer lending businesses, and
will institute new lending strategies and programs as the mortgage and
consumer lending markets evolve. IndyMac expects that the most significant
change from its current operations will be the expansion of its funding
sources to include the federally insured deposit markets through deposit
products offered by the Bank and, to the extent circumstances warrant,
advances to the Bank from the Federal Home Loan Bank ("FHLB") of San
Francisco. In addition to continuing to obtain deposits in California through
the Bank's existing branch network, IndyMac expects to market deposits
nationally through the Internet. IndyMac anticipates that the availability of
these new funding sources will reduce its reliance on the capital markets for
its funding requirements, and will therefore make IndyMac less vulnerable to
future adverse changes in the capital markets.
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Upon completion of the acquisition of SGVB, IndyMac will become subject to
the federal laws and regulations applicable to financial institutions and
their holding companies. Among other sources of regulation, IndyMac will be
regulated by the OTS as a savings and loan holding company, and the Bank will
become subject to regulation by the OTS as a federal savings association and
by the Federal Deposit Insurance Corporation ("FDIC") by reason of the Bank's
federal deposit insurance. See "Regulation of IndyMac Following the
Acquisition of SGVB" below for a discussion of how this regulation may be
expected to affect IndyMac's operations in the future.
Credit Risk
The Company has assumed a certain degree of credit risk in connection with
its investments in certain mortgage securities and loans held for investment,
as well as in connection with its B2B, construction lending and warehouse
lending operations. The Company evaluates and monitors its exposure to credit
losses and has established an allowance for anticipated credit losses based
upon several factors, including, among others, estimated inherent losses on
the loans and trends in portfolio volume. The Company likewise has assumed a
certain degree of credit risk in connection with its investment in non-
investment grade securities. Such securities are recorded net of a discount
that factors in the estimated credit losses associated with such securities as
perceived by the market.
The Company has established risk management and credit committees to manage
the Company's exposure to credit losses in its various business operations.
The Company has established a central risk management committee to monitor its
consumer lending products. The central risk management committee implements
changes that seek to balance the Company's credit risk with the Company's
production, pricing and profitability goals for its B2B and LoanWorks/LoanTown
divisions.
The Company's investments include AAA rated interest-only securities,
principal-only securities, and other mortgage-backed securities, consisting of
both investment grade securities (i.e., rated BBB or higher) and non-
investment grade securities (i.e., rated lower than BBB). As of December 31,
1999, investment grade securities comprised 89% of the Company's mortgage-
backed securities portfolio. In general, non-investment grade securities bear
losses prior to related, more senior investment grade securities and,
therefore, the Company has credit risk with respect to the non-investment
grade securities in its mortgage-backed securities portfolio. The Company's
non-investment grade securities portfolio was recorded at a discount of $18.8
million to such securities' face value, which represents 34% of the face value
of these securities at December 31, 1999.
While management cannot offer any assurance as to the extent to which the
Company will incur credit losses and any related effects on earnings,
management has established control systems that are intended to mitigate
exposure to such risks. There is no assurance that discounts applied to non-
investment grade securities or allowances for credit losses, will accurately
reflect the actual credit losses incurred by the Company related to these
investments. In addition, after the acquisition of SGVB, IndyMac's assets and
business will be subject to regular examination by the OTS, and may also be
examined by the FDIC.
Financing Sources
The Company uses proceeds from the sale of REMIC and agency securities,
committed repurchase agreements, bank borrowings, other borrowings and
issuance of common stock and unsecured debt to meet its working capital needs.
For further information on the material terms of the borrowings utilized by
the Company to finance its inventory of mortgage loans and mortgage-backed
securities, see "Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." The Company continues to investigate and pursue alternative and
supplementary methods to finance its operations through the public and private
capital and credit markets. See "Operations Following Acquisition of SGVB".
In June of 1999, IndyMac's Board of Directors approved a $100 million share
repurchase plan. Through December 31, 1999, the Company had repurchased 4.5
million shares in open market transactions at an average price of
approximately $13.95 per share, completing $63.3 million of the $100 million
plan.
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Regulation of IndyMac Following the Acquisition of SGVB
General
Following the acquisition of SGVB, IndyMac will be a savings and loan
holding company and will be subject to regulation in that capacity by the OTS
under the holding company provisions of the federal Home Owners' Loan Act
("HOLA"). As a federally chartered and insured stock savings association, the
Bank is subject to extensive regulation and supervision by the OTS, which is
the primary federal regulator of savings associations, and the FDIC, in its
role as federal deposit insurer. The primary purpose of the statutory and
regulatory scheme is to protect depositors, the financial institutions and the
financial system as a whole rather than the stockholders of financial
institutions or their holding companies. The following summary is not intended
to be a complete description of the applicable laws and regulations or their
effects on IndyMac or the Bank, and it is qualified in its entirety by
reference to the particular statutory and regulatory provisions described.
Holding Company Regulation
IndyMac will be classified as a unitary savings and loan holding company
under the HOLA, meaning generally that it owns only one savings association.
Prior to the recent enactment of the federal Gramm-Leach-Bliley Act (the "G-L-
B Act") very few restrictions applied to the business activities of a unitary
savings and loan holding company and its non-savings association subsidiaries.
The G-L-B Act generally limits the activities of newly registered unitary
savings and loan holding companies that are not "grandfathered" under the
G-L-B Act to those permissible for bank holding companies and financial
holding companies. See "Financial Modernization Legislation" below. Indymac's
current business activities are generally permissible for bank holding
companies and financial holding companies.
Transactions between a savings association and its "affiliates" are subject
to quantitative and qualitative restrictions under Sections 23A and 23B of the
Federal Reserve Act. Affiliates of a savings association include, among other
entities, the savings association's holding company and non-banking companies
that are under common control with the savings association. In general, the
restrictions of Sections 23A and 23B do not apply to transactions between a
savings association and its subsidiaries, or its parent or sister
organizations that themselves are banks or savings associations.
Regulation of the Bank
General. The Bank is regulated and regularly examined by the OTS and is
required to file periodic reports with the OTS concerning its activities and
financial condition. The OTS has substantial enforcement authority with
respect to savings associations, including authority to bring enforcement
actions against a savings association and any of its "institution-affiliated
parties" (which term includes directors, officers, employees, controlling
stockholders, agents and shareholders who participate in the conduct of the
affairs of the institution). This enforcement authority includes the ability
to institute cease-and-desist proceedings, bring suspension, removal,
prohibition and criminal proceedings against institution-affiliated parties,
or assess substantial civil money penalties. The FDIC also has "backup
enforcement authority" over the Bank and has the power to terminate a savings
association's FDIC deposit insurance.
Federal Home Loan Bank System. The Bank is a member of the FHLB System.
Among other benefits, FHLB membership provides the Bank with a central credit
facility from which it may borrow, generally on a secured basis, in amounts
determined by reference to available collateral. Single family mortgage loans
are the principal collateral that may be used to secure such borrowings,
although certain other types of loans and other assets may be accepted
pursuant to FHLB policies and statutory requirements as well.
Regulatory Capital Requirements. OTS capital regulations require savings
associations to comply with specified minimum capital standards. The OTS may
also require a savings association to maintain capital above the general
minimum capital levels based on the OTS's assessment of the types and risks of
an association's individual operations, financial condition and management.
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The minimum regulatory capital requirements require all savings
associations to meet total risk based capital ("core capital" plus
"supplementary capital") equal to 8% of risk-weighted assets (which includes
the credit risk equivalents of certain off-balance sheet items). Under a
separate "core" or "leverage" requirement, savings associations are generally
required to maintain core capital equal to at least 3% of adjusted total
assets. A savings association is also required to maintain tangible capital
(capital calculated without qualifying intangible assets) equal to at least
1.5% of adjusted total assets.
For purposes of the foregoing requirements, "core" or "leverage" capital
(also referred to as "Tier 1 capital") means common stockholders' equity,
including retained earnings, noncumulative perpetual preferred stock and
related surplus, and minority interests in the equity accounts of subsidiaries
that are not fully consolidated are adjusted for the accumulated losses
(gains) on certain available for sale securities, with the aggregate of such
amounts being reduced in calculating the amount of an institution's core
capital by, among other things, qualifying intangible assets. There are also
special limitations on the extent to which mortgage servicing rights, deferred
tax assets, and loan loss reserves may be included as assets in the regulatory
capital calculations. "Supplementary capital" consists principally of
subordinated debentures meeting specified requirements and cumulative
perpetual preferred stock and general loan loss reserves limited to 1.25% of
risk weighted assets.
The OTS capital regulations contain "prompt corrective action" provisions
that require certain mandatory remedial actions and authorize certain other
discretionary actions to be taken by the OTS against a savings association
that falls within specified categories of capital deficiency. The relevant
regulation establishes five categories of capital classification for this
purpose, ranging from "well capitalized" or "adequately capitalized" through
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized."
In general, the prompt corrective action regulations prohibit an OTS-
regulated institution from declaring any dividends, making any other capital
distribution, or paying a management fee to a controlling person, such as its
parent holding company, if, following the distribution or payment, the
institution would be within any of the three undercapitalized categories.
IndyMac expects that the Bank will be classified as "well capitalized"
under the prompt corrective action regulation upon the completion of the
acquisition of SGVB, including the intended combination of substantially all
of IndyMac's assets and business with those of the Bank. To maintain this
status, it will be required to comply with the following capital ratios: (i)
its total risk-based capital ratio must equal or exceed 10%, (ii) its Tier 1
risk-based capital ratio (the ratio of core capital to risk-weighted assets)
must be 6% or more, and (iii) it must have a core or leverage ratio of 5% or
more.
Capital Distribution Regulation
In addition to the prompt corrective action restriction on paying dividends
described above, OTS regulations limit "capital distributions" by savings
associations, which term includes, among other things, dividends and payments
for stock repurchases.
Under the capital distribution regulations, a savings association that is a
subsidiary of a savings and loan holding company must notify the OTS of an
association capital distribution at least 30 days prior to the declaration of
the capital distribution. The 30-day period provides the OTS an opportunity to
object to the proposed dividend if it believes that the dividend would not be
advisable.
An application to the OTS for specific approval to pay a dividend, rather
than the notice procedure described above, is required if: (a) the total of
all capital distributions made during a calendar year (including the proposed
distribution) exceeds the sum of the institution's year-to-date net income and
its retained income for the preceding two years, (b) the institution is not
entitled under OTS regulations to "expedited treatment" (which is generally
available to institutions the OTS regards as well run and adequately
capitalized), (c) the institution would not be at least "adequately
capitalized" following the proposed capital distribution, or (d) the
distribution would violate an applicable statute, regulation, agreement, or
condition imposed on the institution by the OTS.
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Community Reinvestment Act and the Fair Lending Laws
Savings associations are examined under the Community Reinvestment Act
("CRA") and related regulations of the OTS on the extent of their efforts to
help meet the credit needs of their communities, including low- and moderate-
income neighborhoods. In addition, the Equal Credit Opportunity Act and the
Fair Housing Act (together, the "Fair Lending Laws") prohibit lenders from
discriminating in their lending practices on the basis of characteristics
specified in those statutes. Enforcement of these regulations has been an
important focus of federal regulatory authorities and of community groups in
recent years. An association's failure to comply with the provisions of CRA
could, at a minimum, result in regulatory restrictions on its activities, and
failure to comply with the Fair Lending Laws could result in enforcement
actions by the OTS, as well as other federal regulatory agencies and the
Department of Justice.
Financial Modernization Legislation
The G-L-B Act, enacted in late 1999, is expected to have far-reaching
impacts on the financial services industry. The G-L-B Act authorizes
affiliations between banking, securities and insurance firms that were
previously not permitted and authorizes bank holding companies and national
banks to engage in a variety of new financial activities. Among the new
activities permitted to bank holding companies and national bank subsidiaries
are securities and insurance brokerage, securities underwriting and certain
forms of insurance underwriting. The Federal Reserve Board, in consultation
with the Department of Treasury, may approve additional financial activities.
The G-L-B Act also creates a new entity, the "financial holding company,"
which is authorized to engage in activities that are financial in nature or
incidental to financial activities. The G-L-B Act, however, prohibits future
affiliations between existing unitary savings and loan holding companies and
firms that are engaged in nonfinancial activities and prohibits the formation
of new unitary holding companies by nonfinancial companies. The G-L-B Act also
makes significant revisions to the FHLB System. These changes include a
provision that makes FHLB membership voluntary for federal savings
associations.
Federal and State Income Tax Considerations
General. IndyMac and its subsidiaries, including the Bank (following the
acquisition of SGVB), report their income on a calendar year basis using the
accrual method of accounting and are subject to federal income taxation in the
same manner as other corporations with certain exceptions. The following
discussion of tax matters is intended only as a summary and does not purport
to be a comprehensive description of the tax rules applicable to IndyMac or
the Bank.
Prior REIT Status. Through 1999, IndyMac had elected to be taxed as a REIT
under the Internal Revenue Code of 1986, as amended (the "Code"). As a result
of this election, IndyMac has not, with certain exceptions, been taxed at the
corporate level on net income recognized by it, to the extent that such income
has been distributed to IndyMac's shareholders. On December 14, 1999, the
shareholders of IndyMac approved its conversion to a fully taxable, non-REIT
entity and IndyMac has filed a notice with the Internal Revenue Service
revoking its REIT status, effective January 2000.
Following its conversion to a fully-taxable entity, IndyMac will not be
eligible again to elect REIT status until 2005 (the fifth taxable year that
begins after the year for which IndyMac's election was terminated) unless
certain relief provisions apply. Management presently has no intention of re-
applying for REIT status.
Through 1999, IndyMac Operating was not a qualified REIT subsidiary and was
not consolidated with IndyMac for either tax or financial reporting purposes.
IndyMac Operating's earnings, unlike IndyMac's own "stand-alone" earnings,
have always been subject to applicable federal and state income taxes. As a
result of IndyMac's purchase in January of 2000, of the common stock of
IndyMac Operating not previously owned by it, IndyMac Operating became a
wholly-owned subsidiary of IndyMac and will be consolidated with IndyMac from
that date forward for tax and financial reporting purposes.
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Following termination of IndyMac's status as a REIT, dividends paid by
IndyMac will generally become eligible for protection under the dividends-
received deduction in the hands of its corporate shareholders. As a possible
exception to this general principle, in the course of the year 2000, IndyMac
may elect to designate a portion of the dividends paid by it as so-called
"spillover dividends" (dividends that are attributable to its operations as a
REIT in 1999). Any such dividends would not qualify for the corporate
dividends received deduction.
California Tax. As a savings and loan holding company filing California
franchise tax returns on a combined basis with its subsidiaries, IndyMac will
be subject to California franchise tax at the rate applicable to "financial
corporations." The applicable tax rate is the rate on general corporations
(currently 8.84%) plus 2%, for a total of 10.84%. Under California
regulations, bad debt deductions are available in computing California
franchise taxes using a three or six year average loss experience method.
Competition
In its B2B operations, the Company competes with mortgage bankers, GSEs,
established third party lending programs, investment banking firms, banks,
savings and loan associations, and other lenders and entities purchasing
mortgage assets. Mortgage-backed securities issued through the Company's B2B
operations face competition from other investment opportunities available to
prospective investors.
The GSEs have made and will continue to make significant technological and
economic advances to broaden their customer bases. There has been much debate
and discussion in Congress and in the news media as to the proper role of
these agencies. When the GSEs contract or expand, there are both positive and
negative impacts on the Company's business to business lending operations. The
Company seeks to address these competitive pressures by making a strong effort
to maximize its use of technology, by diversifying into other lines of
business that are less affected by GSEs and by operating in a more cost-
effective manner compared to its competitors, but there can be no assurance
that these efforts will be successful.
Prior to December of 1999, FNMA and FHLMC were not permitted to purchase
mortgage loans with original principal balances above $240 thousand. This was
increased to $252.7 thousand during December of 1999, representing the third
increase in three years. If this dollar limitation continues to increase, FNMA
and FHLMC may be able to purchase a greater percentage of the loans in the
secondary market than they currently acquire, and the Company's ability to
maintain or increase its current loan acquisition levels could be adversely
affected.
LoanWorks/LoanTown's and LoanWorks Servicing's primary competition is from
banks and other financial institutions and mortgage companies. The Company
seeks to compete with these various finance and mortgage companies and
financial institutions through an emphasis on quality of service, diversified
products and maximum use of technology.
WLCA, CLCA and IndyMac CLD face competition from banks and other financial
institutions. Many of these institutions have significantly greater financial
resources and a lower cost of funds than the Company. The Company seeks to
compete with these institutions through an emphasis on quality of service and
diversified products.
The Company plans to continue to compete more effectively in 2000 and
thereafter by (1) Web links to other sites and Web marketing, with the idea of
being "a store in the mall," not a Web portal site, (2) development of a Web-
based program for real estate professionals to build deeper roots in the
purchase mortgage market, (3) converting to a fully taxable entity so that
cumulative earnings can be reinvested in its business, (4) acquiring SGVB to
improve access to various capital and borrowing facilities at a lower cost of
funds, and (5) increasing the existing deposit base of SGVB over the next
several years to between 30 and 50 percent of IndyMac's total liabilities,
through Internet banking and a centralized telemarketing operation.
18
<PAGE>
Relationships with Countrywide Entities
IndyMac and CCR are each publicly traded companies whose shares of common
stock are listed on the New York Stock Exchange. CCR directly or indirectly
owned approximately 4.1% of the outstanding common stock of IndyMac at
December 31, 1999. CHL, a wholly owned subsidiary of CCR, owned all of the
outstanding voting common stock and 1% of the economic interest of IndyMac
Operating through the year ended December 31, 1999. In addition, two directors
and officers of IndyMac and two directors of IndyMac Operating also serve as
directors and/or officers of CCR and/or CHL. See "Part III, Item 13. Certain
Relationships and Related Transactions." IndyMac owns all of the outstanding
non-voting preferred stock and a 99% economic interest in IndyMac Operating,
and in January of 2000 acquired all of the outstanding voting common stock of
IndyMac Operating from CHL. Prior to July 1, 1997, Countrywide Asset
Management Corporation, a wholly owned subsidiary of CCR ("CAMC"), managed
IndyMac.
On July 1, 1997, IndyMac and CCR completed a transaction whereby IndyMac
acquired all of the outstanding stock of its manager, CAMC, from CCR in
exchange for 3,440,860 new shares of common stock of IndyMac. The transaction
was approved in January 1997 by a special committee consisting of the
independent directors of IndyMac, by the full Board of Directors of IndyMac,
and by the full Board of Directors of CCR. The transaction was then approved
by the IndyMac shareholders at their Annual Meeting held on June 24, 1997.
Following consummation of the transaction, CAMC was merged into IndyMac
("Merger"), and IndyMac became self-managed. See "Part III, Item 13. Certain
Relationships and Related Transactions."
See "Part III, Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K," Subsequent Events, for a discussion of IndyMac's reacquisition
of all of the outstanding voting common stock held by CHL.
Employees
As of December 31, 1999, IndyMac had 192 employees and IndyMac Operating
had 814 employees. IndyMac believes that both it and IndyMac Operating have
good relations with their employees.
ITEM 2. PROPERTIES
The primary executive and administrative offices of the Company and its
subsidiaries are located at 155 North Lake Avenue, Pasadena, California, and
consist of approximately 188,000 square feet. The principal lease relating to
this space expires in 2010. IndyMac Operating also maintains 7,500 square feet
of office space in Mount Laurel, NJ. The primary lease associated with that
space expires in 2002. LoanWorks occupies approximately 46,000 square feet of
space in Irvine, CA. The principal lease related to that space expires in
2004. LoanWorks Servicing occupies 29,000 square feet of space in Kalamazoo,
MI. The principal lease related to that space expires in 2003. IndyMac MHD has
closed all of its offices. This included the San Diego, CA, office that closed
in November of 1999 and its Atlanta, GA, office that closed in July of 1999.
IndyMac MHD sold its offices in Vancouver, WA, and Carmel, IN, in June of 1999
and sold its office in Milwaukie, OR, in October of 1999. IndyMac HID closed
its Atlanta, GA, office in May of 1999.
ITEM 3. LEGAL PROCEEDINGS
IndyMac has certain litigation and negotiations in progress resulting from
activities arising from normal operations. In the opinion of management, none
of these matters is likely to have a materially adverse effect on the
Company's results of operations or financial condition.
19
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of IndyMac's shareholders held on December 14, 1999,
the shareholders voted on the following resolutions:
. termination of IndyMac's status as a REIT effective January 1, 2000,
. approval of the acquisition of SGV Bancorp, Inc.,
. change of IndyMac's name to IndyMac Bancorp, Inc. (contingent upon
completion of the acquisition of SGVB)
. deletion of Article VI of IndyMac's Certificate of Incorporation, and
. deletion of Article VII of IndyMac's Certificate of Incorporation.
The votes cast with respect to the above resolutions were as follows:
<TABLE>
<CAPTION>
In Favor Against Abstaining
---------- --------- ----------
<S> <C> <C> <C>
Terminate REIT status...................... 46,692,610 2,385,511 393,323
Acquire SGV Bancorp, Inc................... 46,835,493 2,258,227 377,724
Change name to IndyMac Bancorp, Inc........ 46,882,610 2,197,703 391,131
Delete Article VI of IndyMac's Certificate
of Incorporation.......................... 46,714,767 2,232,045 524,632
Delete Article VII of IndyMac's Certificate
of Incorporation.......................... 46,713,462 2,237,113 520,869
</TABLE>
20
<PAGE>
PART II
ITEM 5. MARKET FOR INDYMAC'S STOCK AND RELATED SECURITY HOLDER MATTERS
IndyMac's common stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "NDE."
The following table sets forth the high and low sales prices (as reported
by Bloomberg Financial Service) for shares of common stock for the years ended
December 31, 1999 and 1998 and the cash dividends per share declared for each
of the periods indicated.
<TABLE>
<CAPTION>
Dividends
1999 1998 Declared
----------------- ---------------- -----------------
High ($) Low ($) High ($) Low ($) 1999 ($) 1998 ($)
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First Quarter.............. 12 5/16 9 13/16 27 3/16 23 0.38 0.50
Second Quarter............. 17 7/16 10 5/8 26 1/8 21 1/2 0.38 0.53
Third Quarter.............. 16 9/16 12 15/16 24 17 3/8 0.60/1/ 0.38
Fourth Quarter............. 15 10 20 1/4 7 3/8 0.00/1/ 0.38
</TABLE>
As of March 15, 2000, 73,749,721 shares of IndyMac's common stock were held
by 4,358 shareholders of record.
- --------
(1) The $0.60 cash dividend declared during the third quarter of 1999 was the
Company's final REIT dividend due to its conversion to a fully taxable
entity effective January of 2000. Payment of future dividends is subject
to declaration by the Company's Board of Directors. However, in December
1999 the Board of Directors of IndyMac adopted a policy of not paying cash
dividends for the foreseeable future.
21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Results for
the Year
Interest income....... $ 346,614 $ 528,825 $ 360,901 $ 242,303 $ 180,465
Interest expense...... 185,623 355,359 242,372 159,365 131,910
---------- ---------- ---------- ---------- ----------
Net interest income
before provision
for loan losses.... 160,991 173,466 118,529 82,938 48,555
Provision for loan
losses............... 16,446 35,892 18,622 12,991 4,037
Equity in earnings
(loss) of
IndyMac, Inc......... 2,109 (58,232) 18,414 19,533 13,801
Net gain (loss) on
sale of securities... (69) (16,206) 2,205 (906) (591)
Other income (loss),
net.................. 3,944 (60) 6,110 3,376 2,018
---------- ---------- ---------- ---------- ----------
Net revenues........ 150,529 63,076 126,636 91,950 59,746
Salaries, general and
administrative....... 34,600 29,286 21,935 14,202 4,213
Management fees to
affiliate............ -- -- 4,406 8,761 5,522
Buy-out of management
contract............. -- -- 76,000 -- --
---------- ---------- ---------- ---------- ----------
Total expenses...... 34,600 29,286 102,341 22,963 9,735
---------- ---------- ---------- ---------- ----------
Net earnings.......... 115,929 $ 33,790 $ 24,295 $ 68,987 $ 50,011
========== ========== ========== ==========
Pro forma provision
for income taxes(1).. 48,373
----------
Pro forma net
earnings............. $ 67,556
==========
Per Share Data
Pro forma basic
earnings per
share(1)............. $ 0.87
Pro forma diluted
earnings per
share(1)............. 0.86
Dividends declared per
share................ $ 1.36 $ 1.79 $ 1.79 $ 1.52 $ 1.25
Book value per share
at December 31....... 11.02 11.01 11.11 9.53 8.55
Average Common Shares
Basic................. 77,596 69,983 56,125 45,644 39,903
Diluted............... 78,290 70,092 56,454 45,806 39,941
Shares Outstanding at
December 31............ 75,077 74,694 63,352 50,200 42,414
Balance Sheet Data at
December 31
Loans held for sale,
net.................. $ 615,243 $1,555,656 $1,458,271 $ 657,208 $ 409,584
Loans held for
investment, net...... 2,339,125 2,559,672 3,290,311 1,948,291 1,744,611
Mortgage securities... 471,231 235,032 558,445 231,780 124,975
Collateral for
collateralized
mortgage
obligations.......... 88,973 162,726 245,474 289,054 184,111
Total assets.......... 3,726,522 4,851,152 5,849,110 3,356,059 2,643,360
Short-term
borrowings........... 2,721,350 3,785,549 4,826,656 2,531,509 2,037,834
Collateralized
mortgage
obligations.......... 82,434 140,810 221,154 264,080 164,760
Senior unsecured
notes................ 60,189 60,031 59,888 59,759 59,649
Shareholders' equity.. 827,530 822,103 703,894 478,424 362,731
</TABLE>
- --------
(1) Pro forma provision for income taxes give effect to the change in the
Company's structure to a fully taxable entity effective January 2000.
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
IndyMac Mortgage Holdings, Inc. ("IndyMac"), was incorporated in Maryland
in July 1985 and reincorporated in Delaware in March 1987. References to
"IndyMac" mean either the parent company alone or the parent company and the
entities consolidated with it for financial reporting purposes, while
references to the "Company" mean the parent company, its consolidated
subsidiaries and IndyMac's affiliate, IndyMac, Inc. ("IndyMac Operating") and
its consolidated subsidiaries, which were not consolidated with IndyMac for
financial reporting or tax purposes prior to January 2000. The Company
conducts a diversified mortgage banking and servicing business, offers
construction and warehouse lending products, and manages a loan and mortgage
securities investment portfolio.
Through December 31, 1999, IndyMac elected to be taxed as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). As a result of this election, IndyMac has not, with certain
limited exceptions, been taxed at the corporate level on the net income
distributed to IndyMac's shareholders. On December 14, 1999, the shareholders
of IndyMac approved the conversion of IndyMac from a REIT to a fully taxable
entity, effective January 2000. This taxable structure will support the
Company's lending and securitization businesses with a more stable and diverse
funding base and increase the Company's growth through reinvestment of its
retained earnings. See "Part III, Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K--Subsequent Events," for further discussion.
In accordance with Securities and Exchange Commission Staff Accounting
Bulletin 55, ("the regulation"), historical net income for 1999 has been
adjusted for the pro forma provision for income taxes calculated assuming the
Company was subject to income taxation. Pro forma earnings per share are
similarly presented for the year ended December 31, 1999, reflecting the pro
forma effect to the change in the Company's taxable structure to a fully
taxable entity effective in January of 2000. Pro forma basic earnings per
share are computed by dividing pro forma income available to common
shareholders by the weighted average number of common shares outstanding. Pro
forma diluted earnings per share takes into consideration common shares
outstanding and potentially dilutive common shares, such as stock options. In
accordance with the regulation, historical net income per share is not
presented, as it is not meaningful based upon the Company's conversion from a
non-taxable REIT to a fully taxable entity effective January 2000.
In July 1999, IndyMac 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 (the "Bank"). SGVB is a
Southern California-based savings and loan holding company whose federally
chartered savings and loan subsidiary had nine branches, $358.2 million in
deposits, and 27,000 customer accounts as of December 31, 1999. The
shareholders of IndyMac and SGVB approved the acquisition on December 14,
1999. IndyMac will acquire SGVB in a cash purchase transaction for $25.00 per
share for all of the SGVB shares outstanding and subject to option as of the
date of purchase. This price is subject to adjustment in the event of changes
in the value of certain assets and liabilities of SGVB. The acquisition is
subject to Office of Thrift Supervision ("OTS") approval. SGVB will remain an
intermediate holding company in the IndyMac structure, continuing to hold all
of the outstanding stock of the Bank.
Mortgage Banking Operations
General
The Company's mortgage banking operations include (1) Consumer Business-to-
Business ("B2B"), formerly referred to as IndyMac's third party lending
division, which purchases loans from mortgage brokers and mortgage bankers
through the use of its proprietary Internet-based underwriting and risk-based
pricing
23
<PAGE>
system, e-MITS/1/ (electronic-Mortgage Information and Transaction System),
and (2) LoanWorks/2/ and LoanTown/3/, which facilitate the direct origination
of a variety of residential loans for consumers. The mortgage banking segment
finances the origination of mortgage loans by mortgage bankers and brokers.
The Company originates and purchases conforming, non-conforming and jumbo
residential, subprime, mortgage-backed securities and other mortgage-related
assets. The Company also originated manufactured housing and home improvement
loans through 1999, at which time these businesses were de-emphasized. The
Company services for investors many of the loans it originates and purchases
and subsequently sells, along with loans for which it has purchased the
servicing rights. The Company's principal sources of income from its B2B
operations are gains recognized on the sale or securitization of mortgage
loans, the net spread between interest earned on mortgage loans and the
interest costs associated with the borrowings used to finance such loans
pending their sale or securitization, and primary and master servicing fee
income.
Through December 31, 1999, all loans originated or purchased by IndyMac,
for which a real estate mortgage investment conduit ("REMIC") transaction or
whole loan sale is contemplated, were committed for sale to IndyMac Operating
at the same price at which the loans were acquired by IndyMac pursuant to a
Master Forward Commitment and Services Agreement. IndyMac Operating does not
purchase any loans from entities other than IndyMac. In connection with the
conversion of IndyMac from a REIT to a fully taxable entity, and the related
acquisition of the voting common stock of IndyMac Operating by IndyMac in
January 2000, the Master Forward Commitment and Services Agreement was
terminated. All loans originated or purchased by IndyMac for which a REMIC or
whole loan sale is contemplated continue to be sold to IndyMac Operating from
time to time. However, since IndyMac Operating is now a wholly owned
subsidiary of IndyMac, no specific commitments with respect to the transfer of
these loans exist and no intercompany fees are paid in connection with the
transfer of these loans.
B2B and LoanWorks/LoanTown
B2B funded $5.2 billion of prime and subprime loans during the year ended
December 31, 1999, compared with $11.3 billion during the year ended December
31, 1998. The decline in production was primarily due to the effect of
increasing mortgage interest rates on loan demand since the beginning of 1999.
B2B's loan production was financed using equity and short-term financing in
the form of repurchase agreements and other credit facilities. The Company
sold $6.2 billion of prime and subprime loans during the year ended December
31, 1999, compared with $11.7 billion of sales during the year ended December
31, 1998. Loans funded through e-MITS during 1999 totaled $2.3 billion,
representing 44% of IndyMac's B2B prime and subprime mortgage production for
the year, up from $555.0 million or 5% of production during the year ended
December 31, 1998.
LoanWorks/LoanTown funded $585.9 million of mortgage loans during the year
ended December 31, 1999, an increase of 19% compared to $491.5 million of
loans during the year ended December 31, 1998.
Servicing
At December 31, 1999 and 1998, IndyMac Operating's master servicing
portfolio had aggregate outstanding principal balances of $16.1 billion and
$17.0 billion, respectively, with weighted average coupons of 8.2% and 8.3%,
respectively. LoanWorks Servicing's portfolio at December 31, 1999 and 1998
was $10.1 billion and $10.5 billion, respectively, with a weighted average
coupon of 8.6% as of December 31, 1999 and 8.3% as of December 31, 1998.
- --------
(1) Registered in U.S. Patent and Trademark Office. Patent pending.
(2) Registered in U.S. Patent and Trademark Office.
(3) Registered in U.S. Patent and Trademark Office.
24
<PAGE>
Construction and Warehouse Lending Operations
General
The Company conducts its construction and warehouse lending activities
through (1) IndyMac Construction Lending Division ("IndyMac CLD"), which
facilitates the purchase of a variety of residential construction, land and
lot loans through its B2B customers ("sellers") and LoanWorks/LoanTown, (2)
Construction Lending Corporation of America ("CLCA"), which offers a variety
of residential construction, land and lot loan programs for builders and
developers, and (3) warehouse lending activities through Warehouse Lending
Corporation of America ("WLCA"), which provides various types of short-term
revolving financing to small-to-medium size mortgage loan originators.
Construction Lending
At December 31, 1999, CLCA had commitments to fund builder construction
loans of $1.3 billion compared to commitments of $1.9 billion at December 31,
1998. At December 31, 1999, IndyMac CLD had commitments to fund consumer
construction loans of $609.2 million compared to commitments of $797.7 million
at December 31, 1998.
Warehouse Lending
At December 31, 1999, IndyMac had extended commitments to make warehouse
and related lines of credit in an aggregate amount of $985.5 million, compared
to commitments of $1.1 billion at December 31, 1998.
Investment Portfolio
The Company invests in residential loans, mortgage servicing rights, and
mortgage securities either retained in connection with the issuance of
mortgage-backed securities or purchased from third parties on a long-term
basis. The Company's principal source of income from these investments is the
net spread between interest earned on residential loans held for investment
and on mortgage securities and the interest cost associated with the
borrowings used to finance such assets, service fee income, and net gain on
sale of mortgage securities.
Operations Following Acquisition of SGVB
IndyMac anticipates that its acquisition of SGVB will be completed in May
of 2000. In connection with the acquisition, IndyMac Operating will be merged
into SGVB and substantially all of the assets, liabilities and operations of
IndyMac and IndyMac Operating, including the operations of LoanWorks/LoanTown,
CLCA, WLCA, IndyMac CLD and B2B, will be transferred to the Bank.
Following the acquisition of SGVB, IndyMac will generally continue to
operate and develop its existing mortgage and consumer lending businesses, and
to institute new lending strategies and programs as the mortgage and consumer
lending markets evolve. IndyMac expects that the most significant change from
its current operations will be the expansion of its funding sources to include
the federally insured deposit markets through deposit products offered by the
Bank and, to the extent circumstances warrant, advances to the Bank from the
Federal Home Loan Bank ("FHLB") of San Francisco. In addition to continuing to
obtain deposits in California through the Bank's existing branch network,
IndyMac expects to market deposits nationally through the Internet. IndyMac
anticipates that the availability of these new funding sources will reduce its
reliance on the capital markets for its funding requirements, and will
therefore make IndyMac less vulnerable to future adverse changes in the
capital markets.
25
<PAGE>
FINANCIAL CONDITION
Loans Held for Sale, Net: The Company's $658.8 million portfolio of loans
held for sale, net, at December 31, 1999 consisted of $543.9 million and
$114.9 million of prime and subprime products, respectively. The Company's
$1.8 billion of 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 62.7% decrease in the loans held for sale, net, from
December 31, 1998 to December 31, 1999 was primarily due to the following two
factors:
. 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.
Mortgage Loans Held For Investment, Net: The $869.2 million portfolio of
mortgage loans held for investment, net, at December 31, 1999 included $906.0
million in outstanding principal, net of $36.8 million in net discounts,
deferred fees, and loan loss reserves. The $906.0 million in outstanding
principal balances consisted of $248.5 million of varying types of adjustable-
rate products which contractually reprice in monthly, semi-annual or annual
periods; $220.4 million of loans which have a fixed interest rate for a period
of three, five, seven or ten years and subsequently convert to adjustable-rate
mortgage loans that reprice annually and $437.0 million of fixed-rate loans.
The weighted average coupon of the mortgage loans included in loans held for
investment, net, was 8.4% at both December 31, 1999 and 1998.
The average balance of mortgage loans held for investment was $643.2
million for the year ended December 31, 1999, compared to the average balance
of $1.4 billion for the year ended December 31, 1998. In response to the
fourth quarter 1998 market disruption, the Company was informally advised by
its lenders, particularly investment banks and repurchase lenders, that
restrictions would be imposed on the amounts, terms and operating conditions
under which uncommitted advances would be made. In response to these
conditions, the Company reduced its assets and borrowings requirements under
uncommitted lines of credit and sold to third parties through IndyMac
Operating $443.6 million of whole loans from its held for investment portfolio
at net book value, thereby increasing liquidity.
The Company finances its loans held for investment with loans and
securities sold with equity capital, borrowings under agreements to repurchase
and other credit facilities that reprice at intervals ranging from overnight
to one month.
Residential Construction: At December 31, 1999, CLCA had outstanding
balances of $692.2 million, compared to outstanding balances of $731.0 million
at December 31, 1998. At December 31, 1999, IndyMac CLD had outstanding
balances of $396.4 million compared to outstanding balances of $508.7 million
at December 31, 1998. Included in consumer construction loans were $28.2
million of manufactured housing loans at December 31, 1998. There were no
manufactured housing loans included in consumer construction loans at December
31, 1999.
CLCA's outstanding balances of $692.2 million and $731.0 million at
December 31, 1999 and 1998, respectively, included $688.3 million and $3.9
million of builder and consumer products at December 31, 1999 and $728.8
million and $2.2 million at December 31, 1998, respectively. IndyMac CLD's
outstanding balances of $396.4 million and $508.7 million at December 31, 1999
and December 31, 1998, respectively, included $44.2 million and $352.2 million
of builder and consumer products at December 31, 1999, respectively, and
$70.9 million and $437.8 million at December 31, 1998, respectively.
Warehouse Lending: At December 31, 1999, IndyMac had revolving warehouse
lines of credit totaling $241.1 million outstanding, compared to the $443.9
million that was 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.
26
<PAGE>
Mortgage and Treasury Securities Available for Sale: At December 31, 1999
and 1998, the fair value of the Company's mortgage and treasury securities
portfolio totaled $650.6 million and $935.4 million, respectively. The
balances consisted of the following types of securities:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(Dollars in
thousands)
<S> <C> <C>
AAA rated interest-only securities....................... $341,447 $335,189
U.S. Treasuries.......................................... -- 302,313
Agency and principal only securities..................... 144,362 43,115
AAA rated senior securities.............................. 46,871 6,621
Other investment grade securities........................ 43,969 113,215
-------- --------
Total investment grade securities...................... 576,649 800,453
-------- --------
Non-investment grade residual securities................. 42,784 65,989
Other non-investment grade securities.................... 31,153 68,997
-------- --------
Total non-investment grade securities.................. 73,937 134,986
-------- --------
Total mortgage securities.............................. $650,586 $935,439
======== ========
</TABLE>
The Company evaluates the carrying value of its AAA rated interest-only
securities and residual securities monthly by discounting estimated net future
cash flows. Estimated net future cash flows are based on assumptions related
to prepayment speeds and expected credit losses on these securities.
Adjustments to the carrying value are recorded as a component of other
comprehensive income in shareholders' equity.
The non-investment grade residual securities are retained primarily from
Asset Backed Securitizations with subprime and manufactured housing loans as
collateral. The other non-investment grade securities are retained primarily
from REMIC securitizations with prime collateral.
A rollforward of the AAA rated interest-only securities and residual
securities for the years ended December 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(Dollars in
thousands)
<S> <C> <C>
AAA rated interest-only securities
Beginning balance........................................ $335,189 $340,807
Retained investments from securitizations................ 18 199,207
Purchases................................................ -- 42,336
Amortization............................................. (74,682) (87,773)
Deferred hedging costs................................... 42,006 --
Valuation gains (losses)................................. 38,916 (159,388)
-------- --------
Ending Balance........................................... $341,447 $335,189
======== ========
Residual securities
Beginning balance........................................ $ 65,989 $ 40,095
Retained investments from securitizations................ 5,544 61,694
Amortization............................................. (23,915) (17,933)
Valuation losses......................................... (4,834) (17,867)
-------- --------
Ending balance........................................... $ 42,784 $ 65,989
======== ========
</TABLE>
27
<PAGE>
The assumptions used to value these securities at December 31, 1999 and
1998 follow:
<TABLE>
<CAPTION>
Actual Valuation Assumptions
----------------------------------- --------------------------
Wtd. Annual
Book Collateral Strip Avg. Prepayment Discount Loss
Value Balance Rate Multiple Speeds Yield Rate
-------- ----------- ----- -------- ---------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999
AAA rated interest-only
securities............. $341,447 $11,019,669 0.9% 3.37 12.7% 12.7% NA
Residual securities
Prime residual
securities........... 8,524 294,189 1.5% 2.65 30.0% 20.0% 0.4%
Subprime residual
securities........... 31,579 890,281 2.6% 2.52 35.1% 20.0% 1.2%
Manufactured housing
securities........... 2,681 402,071 2.5% 0.97 208 20.0% 1.8%
-------- ----------- --- ---- ---- ---
Total residual
securities............. $ 42,784 $ 1,586,541 2.6% 2.00 20.0% 1.2%
======== =========== === ==== ==== ===
December 31, 1998
AAA rated interest-only
securities............. $335,189 $15,015,408 0.9% 2.55 32.5% 12.0% NA
Residual securities
Prime residual
securities........... 7,907 161,513 1.5% 3.35 25.0% 15.0% 0.3%
Subprime residual
securities........... 44,911 1,100,604 2.9% 1.40 30.1% 20.0% 1.6%
Manufactured housing
securities........... 13,171 479,510 1.4% 1.93 200 15.0% 1.9%
-------- ----------- --- ---- ---- ---
Total residual
securities............. $ 65,989 $ 1,741,627 2.4% 1.60 18.2% 1.6%
======== =========== === ==== ==== ===
</TABLE>
The Company's actual prepayment rate on its AAA rated interest-only
securities was 12.9% for the month of December 1999. The actual annual loss
rate on the Company's residual securities was 0.30% as of December 31, 1999.
Actual cash flow generated from AAA rated interest-only securities and
residual securities totaled $148.4 million and $134.1 million during the years
ended December 31, 1999, and 1998, respectively.
The Company had $46.9 million and $6.6 million of AAA rated senior
securities at December 31, 1999 and 1998, respectively. Also included in
mortgage securities are $75.1 million and $182.2 million of other investment
and non-investment grade securities at December 31, 1999 and 1998,
respectively. Fair value is estimated based on market quotes when available or
discounted cash flow techniques using assumptions for prepayment rates, market
yield requirements and credit losses. Adjustments to the carrying value are
recorded as a component of other comprehensive income in shareholders' equity.
28
<PAGE>
Investment and non-investment grade securities by credit rating for non-AAA
rated securities (excluding residual securities) at December 31, 1999 and 1998
follows:
<TABLE>
<CAPTION>
Premium
Current (Discount)
Face To Face Amortized Fair
Value Value Cost Value
-------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1999
AA.................................. $ 208 $ 8 $ 216 $ 206
A................................... 2,690 (117) 2,573 2,407
BBB................................. 46,767 (4,464) 42,303 41,356
-------- -------- -------- --------
Total investment grade............ 49,665 (4,573) 45,092 43,969
BB.................................. 43,987 (9,486) 34,501 28,365
B................................... 1,934 (808) 1,126 1,102
NR.................................. 9,209 (8,531) 678 1,686
-------- -------- -------- --------
Total non-investment grade........ 55,130 (18,825) 36,305 31,153
-------- -------- -------- --------
Total investment and non-
investment grade MBS............. $104,795 $(23,398) $ 81,397 $ 75,122
======== ======== ======== ========
December 31, 1998
AA.................................. $ 6,681 $ (33) $ 6,648 $ 6,728
A................................... 41,105 (1,103) 40,002 40,789
BBB................................. 68,236 (5,620) 62,616 65,698
-------- -------- -------- --------
Total investment grade............ 116,022 (6,756) 109,266 113,215
BB.................................. 62,121 (12,421) 49,700 50,467
B................................... 21,133 (9,000) 12,133 15,284
NR.................................. 19,512 (15,186) 4,326 3,246
-------- -------- -------- --------
Total non-investment grade........ 102,766 (36,607) 66,159 68,997
-------- -------- -------- --------
Total investment and non-
investment grade MBS............. $218,788 $(43,363) $175,425 $182,212
======== ======== ======== ========
</TABLE>
A rollforward of the investment and non-investment grade securities for the
years ended December 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
--------- --------
(Dollars in
thousands)
<S> <C> <C>
Beginning balance....................................... $ 182,212 $165,322
Retained investments from securitizations............... 1,997 39,042
Purchases............................................... 23,293 83,885
Sales................................................... (112,013) (81,899)
Principal paydowns...................................... (13,589) (19,078)
Amortization............................................ 6,281 5,060
Valuation............................................... (13,059) (10,120)
--------- --------
Ending balance.......................................... $ 75,122 $182,212
========= ========
</TABLE>
Mortgage Servicing Rights: At December 31, 1999 and 1998, the Company's
mortgage servicing rights balance totaled $140.3 million and $127.2 million,
respectively. The increase in the mortgage servicing rights balance was
primarily due to additions of $37.8 million and a recovery of impairment
charges of $7.6 million. These were partially offset by amortization and
deferred hedging gains totaling $32.3 million.
29
<PAGE>
Collateralized Mortgage Obligations ("CMO's"): At December 31, 1999 and
1998, the Company's CMO's balance totaled $82.4 million and $140.8 million,
respectively, and the corresponding balance of collateral for CMO's totaled
$89.0 million and $162.7 million at December 31, 1999 and 1998, respectively.
The decrease in the CMO's balance and related collateral was due to principal
repayments on the underlying loan balances. Additionally, collateral totaling
$15.6 million was retired during 1999 in conjunction with the payoff of
certain trusts.
Borrowings: At December 31, 1999 and 1998, the Company's balance of loans
and securities sold under committed agreements to repurchase totaled $2.2
billion and $3.6 billion, respectively. The balance of syndicated bank lines
and commercial paper conduit totaled $792.5 million and $932.4 million at
December 31, 1999 and 1998, respectively. The overall $1.5 billion decrease in
these borrowings was primarily due to the decrease in financed assets
described above. 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 acquisition
of SGVB will enhance the stability of the Company's liquidity and capital
resources by providing access to the federally insured deposits market and to
FHLB borrowings.
Asset Quality
A summary of the Company's non-performing loans as of December 31, 1999 and
1998 follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998
------------------ -----------------
% of % of
Amount Portfolio Amount Portfolio
-------- --------- ------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Non-performing Loans/4/
Single Family Residential ("SFR")
Mortgage Loans......................... $ 58,359 4.76% $58,326 3.05%
Builder Construction and Income Property
Loans.................................. 23,885 2.76% 16,253 1.64%
Consumer Construction Loans............. 2,906 0.80% 9,504 2.01%
Revolving Warehouse Lines of Credit..... 5,731 2.35% 9,806 2.19%
Manufactured Housing Loans.............. 7,396 6.72% 3,599 1.33%
Home Improvement Loans.................. 5,890 2.71% 2,222 0.79%
-------- ---- ------- ----
Totals.................................. $104,167 3.41% $99,710 2.28%
======== ==== ======= ====
</TABLE>
- --------
(4) Non-performing loans are loans delinquent 90 days or more plus loans
identified through individual analysis for cessation of interest accruals.
SFR Mortgage Loans: The balance of non-performing loans for SFR mortgage
loans was comparable at December 31, 1999 and 1998 at $58.4 million and $58.3
million, respectively. Non-performing loans as a percent of the portfolio
increased 171 basis points to 4.76% at December 31, 1999 from 3.05% at
December 31, 1998, primarily due to the decrease in the Company's mortgage
loan portfolio during 1999.
Builder Construction and Income Property Loans: Non-performing loans
increased $7.6 million to $23.9 million at December 31, 1999 compared to $16.3
million at December 31, 1998. The increase in non-performing loans was
primarily the result of the addition of two loans, offset by collections on
non-performing loans as of December 31, 1998. Non-performing loans as a
percent of the portfolio book value increased 112 basis points to 2.76% at
December 31, 1999 compared to 1.64% at December 31, 1998 as a result of the
increase in the non-performing loans balance.
Consumer Construction: Non-performing loans decreased $6.6 million to $2.9
million at December 31, 1999 compared to $9.5 million at December 31, 1998 due
to intense delinquency management resulting in significant improvements in
collections. As a result of the decrease in the non-performing loans balance,
the percent of non-performing loans to the portfolio book value decreased from
2.01% at December 31, 1998 to 0.80% at December 31, 1999.
30
<PAGE>
Revolving Warehouse Lines of Credit: Non-performing loans decreased $4.1
million to $5.7 million at December 31, 1999 compared to $9.8 million at
December 31, 1998 due to the enhancement of operating controls. Although the
balance of non-performing loans decreased during 1999, non-performing loans as
a percent of the portfolio book value increased 16 basis points to 2.35% at
December 31, 1999 compared to 2.19% at December 31, 1998. This was a result of
the decrease in WLCA's outstanding balances to $241.1 million at December 31,
1999 from $443.9 million at December 31, 1998.
Manufactured Housing Loans: Non-performing loans increased $3.8 million to
$7.4 million at December 31, 1999 compared to $3.6 million at December 31,
1998. Over the past few years, the manufactured housing industry has
experienced a sharp downward spiral resulting in a significant increase in
non-performing loans and, ultimately, the Company's decision during the second
quarter of 1999 to de-emphasize this line of business and discontinue the
purchase of loans from the dealer channel. During the third quarter of 1999,
the Company centralized its loss mitigation efforts and formulated a
comprehensive collections strategy.
Home Improvement Loans: Non-performing loans increased $3.7 million to $5.9
million at December 31, 1999 compared to $2.2 million at December 31, 1998.
Due to management's efforts at improving the effectiveness and efficiency of
collections through centralization of loss mitigation, the Company has
experienced stabilization of total delinquencies in this portfolio since April
of 1999.
Allowance for Loan Losses: The Company's allowance for loan losses totaled
$53.9 million at December 31, 1999, or 1.77% 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 year ended December 31, 1999 to maintain the allowance
at prudent levels given the composition of the loan portfolio and management's
assessment of the level of losses inherent in the Company's loan portfolio at
December 31, 1999. Net charge-offs totaled $14.7 million during the year ended
December 31, 1999, compared to $12.5 million during the year ended December
31, 1998.
Real Estate Acquired in Settlement of Loans (REO): At December 31, 1999 and
1998, the Company's REO balance totaled $22.3 million and $7.6 million,
respectively (included in other assets in the consolidated balance sheets).
The Company recognized a total of $354 thousand in net gains on sale of REO
during the year ended December 31, 1999, and a mark to market loss of $845
thousand during the year ended December 31, 1999. The Company records REO at
its estimated net realizable value, and does not expect to incur any material
adjustments to its valuation of REO subsequent to December 31, 1999.
REO consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1999 1998
------- ------
(Dollars in
thousands)
<S> <C> <C>
SFR mortgage loans........................................... $ 7,389 $4,003
Builder construction and income property loans............... 11,107 1,952
Consumer construction loans.................................. 1,182 --
Manufactured housing loans................................... 2,645 1,645
------- ------
$22,323 $7,600
======= ======
</TABLE>
RESULTS OF OPERATIONS: 1999 COMPARED TO 1998
Net Earnings: IndyMac's net earnings before pro forma provision for income
taxes were $115.9 million in 1999, compared to $33.8 million in 1998. The
$82.1 million increase in net earnings before pro forma provision for income
taxes was primarily due to an increase in equity in earnings of IndyMac, Inc.
of $60.3 million and a $16.1 million decrease in loss on sale of securities,
net.
Interest Income: Total interest income was $346.6 million for 1999 and
$528.8 million for 1998. The decrease in interest income of $182.2 million was
primarily the result of a decrease in average interest earning
31
<PAGE>
assets of $2.5 billion, partially offset by an increase in yield of 62 basis
points. The decrease in average interest earning assets during 1999 compared
to 1998 was primarily due to the Company's efforts to reduce asset size to
increase liquidity and reduce borrowings in response to the market liquidity
crisis in the fourth quarter of 1998, and a decrease in loan production
resulting from the increase in interest rates during 1999. The increase in
yield was due to the rising interest rate environment prevailing during 1999
along with the impact of higher impairment losses recognized during 1998 over
1999.
Loans held for sale, net
Interest income on loans held for sale decreased $85.0 million to $92.3
million during 1999, from $177.3 million during 1998. This decrease was
primarily the result of a decrease in the average balance of such loans to
$1.1 billion during 1999, from $2.1 billion during 1998. The decrease in
the average balance year over year was due to a decrease in loan production
resulting from the increase in interest rates during 1999. This reduction
was partially offset by an increase in the effective yield to 8.8% from
8.3%.
Mortgage loans held for investment, net
Interest income on mortgage loans held for investment decreased $48.7
million to $53.1 million during 1999, from $101.9 million during 1998. This
decrease was primarily the result of a decrease in the average balance of
such loans to $643.2 million during 1999, from $1.4 billion during 1998.
This decrease was primarily due to lower production resulting from the
increase in interest rates during 1999. This reduction was partially offset
by an increase in the effective yield to 8.3% from 7.3%.
Residential construction loans
Interest income on residential construction loans totaled $116.4 million
and $120.7 million for the years ended December 31, 1999 and 1998,
respectively. Interest was earned at an effective yield of 10.3% and 10.6%,
respectively, during the years ended December 31, 1999 and 1998. The
average balance of residential construction loans outstanding was unchanged
at $1.1 billion during 1998 and 1999.
Income property loans
Interest income on income property loans increased $7.8 million to $16.7
million during 1999, from $8.9 million during 1998. This increase was
primarily the result of an increase in the average balance of such loans to
$180.1 million during 1999, from $98.0 million during 1998, coupled with an
increase in the effective yield to 9.3% from 9.1%. Originations of income
property loans were discontinued during the fourth quarter of 1998. The
growth in this portfolio was due to the growth of this business line until
it was discontinued in 1998, and to the funding of the remaining unfunded
commitments during 1999.
Revolving warehouse lines of credit
Interest income on revolving warehouse lines of credit decreased $22.9
million to $21.6 million during 1999, from $44.5 million during 1998. This
decrease was primarily the result of a decrease in the average balance of
such lines to $257.8 million during 1999 from $487.0 million during 1998.
This decrease was compounded by a decrease in the effective yield to 8.4%
from 9.1%.
Mortgage securities available for sale and trading
Interest income on mortgage securities decreased $26.7 million to $15.6
million during 1999, from $42.3 million during 1998. This decrease was
primarily the result of a decrease in the average principal balance of such
securities to $246.2 million during 1999, from $773.1 million during 1998.
This reduction was partially offset by an increase in the effective yield
to 6.3% from 5.5%. The increase in the yield period to period was a result
of $17.7 million in impairment losses recorded during 1998 whereas $9.9
million in impairment was recorded during 1999.
32
<PAGE>
Collateral for CMO's
Interest income on collateral for CMO's was $9.4 million and $14.7
million for the years ended December 31, 1999 and 1998, respectively. This
decrease was primarily attributable to a decrease in the average aggregate
principal amount of collateral for CMO's outstanding to $126.4 million from
$208.2 million for the years ended December 31, 1999 and 1998,
respectively.
Interest Expense: Total interest expense decreased $169.7 million to $185.6
million during 1999, from $355.4 million during 1998. This decrease was
primarily the result of a decrease in average borrowings to $3.1 billion, from
$5.7 billion during 1998, coupled with a decrease in the Company's cost of
funds to 6.1% from 6.3%.
Loans and securities sold under agreements to repurchase
Interest expense on loans and securities sold under agreements to
repurchase totaled $128.8 million during 1999 compared to $290.3 million
during 1998. The decrease of $161.6 million was primarily the result of a
decrease in the aggregate average balance of indebtedness outstanding to
$2.1 billion in 1999 from $4.7 billion in 1998. The effective cost of such
borrowings was 6.0% and 6.2% for the years ended December 31, 1999 and
1998, respectively.
Syndicated bank lines and commercial paper conduit
Interest expense on syndicated bank lines and commercial paper conduit
totaled $42.2 million during 1999 compared to $44.3 million during 1998.
This decrease of $2.1 million was primarily the result of a decrease in the
aggregate average balance of indebtedness outstanding to $761.6 million in
1999 from $724.4 million in 1998, and a decrease in the effective cost of
such borrowings to 5.5% from 6.1% for the years ended December 31, 1999 and
1998, respectively.
CMO's
Interest expense on CMO's was $9.1 million and $15.2 million for the
years ended December 31, 1999 and 1998, respectively. The decrease was
primarily attributable to a decrease in average aggregate CMO outstandings
to $106.4 million for 1999 from $184.8 million for 1998.
Senior unsecured notes
Interest expense on senior unsecured notes totaled $5.5 million for each
of the years ended December 31, 1999 and 1998, respectively. The effective
interest rate was 9.2% for both years. The average outstanding balances
were $60.1 million and $60.0 million for the years ended December 31, 1999
and 1998, respectively.
Provision for Loan Losses: The provision for loan losses decreased to $16.4
million during 1999 from $35.9 million during 1998 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. IndyMac's determination of the
level of the allowance for loan losses and correspondingly, the provision for
loan losses, is based on various judgments and assumptions regarding various
matters, including general economic conditions, loan portfolio composition,
delinquency trends and prior loan loss experience.
Equity in Earnings (Loss) of IndyMac Operating: IndyMac had a 99% equity
interest in IndyMac Operating throughout the years presented. To help
facilitate the Company's transition from a REIT to a fully taxable entity,
IndyMac purchased the minority interest in IndyMac Operating from an
affiliated company, Countrywide Home Loans, Inc. in January of 2000. IndyMac
Operating earned $12.1 million during 1999, an increase of $70.9 million from
a loss of $58.8 million during 1998. The loss in 1998 was primarily a result
of the fourth quarter 1998 market disruption in the debt and equity markets.
This disruption caused the Company to react
33
<PAGE>
quickly and sell off assets at or below the Company's investment in the assets
to raise liquidity and lower its leverage ratio. IndyMac Operating recognized
a net loss on sale of securities of $95.6 million in 1998, compared to a loss
of $15.1 million in 1999. The increase in service fee income of $21.7 million
in 1999 was attributable to a $29.4 million loss on valuation of mortgage
servicing rights recognized in 1998 compared to a recovery in value of $7.6
million in 1999. These increases were offset by a $52.4 million increase in
income tax expense, arising from the increases in pre-tax earnings.
Net Loss on Sale of Securities: The Company recorded a loss on sale of
mortgage securities of $69 thousand in 1999, compared to a loss of $16.2
million in 1998. The decrease in the losses is due both to increases in the
fair value of the Company's portfolio of mortgage-backed securities during
1999, and to the Company's reclassification of its mortgage-backed securities
portfolio from trading to available for sale as of December 31, 1998, in
compliance with Statement of Financial Accounting Standards No. 134,
"Accounting for Mortgage-Backed Securities Retained after the Securitization
of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." Changes in
value for mortgage securities classified as available for sale are reflected
as adjustments to shareholders' equity, net of applicable income taxes.
Changes in value relating to mortgage securities classified as trading are
reflected in the Company's results of operations in the period in which the
change in value takes place.
Other Income (Loss): Other income consists primarily of fee income and gain
on sale of assets. Other income (loss) totaled $3.9 million for the year ended
December 31, 1999 and $(60 thousand) for the year ended December 31, 1998,
respectively. The increase in other income in 1999 was primarily due to the
recognition of a loss of $2.7 million related to the accelerated disposition
of $10.7 million of foreclosed real estate during 1998.
Expenses: Total expenses increased $5.3 million to $34.6 million during the
year ended December 31, 1999 compared to the year ended December 31, 1998,
primarily due to a $4.6 million increase in salaries and related benefits to
support the Company's strategic initiatives.
RESULTS OF OPERATIONS: 1998 COMPARED TO 1997
Net Earnings: IndyMac's net earnings were $33.8 million in 1998, compared
to $24.3 million for 1997. Comparing IndyMac's 1998 net earnings of $33.8
million to 1997 earnings of $100.3 million before the non-recurring charge
related to IndyMac's acquisition of Countrywide Asset Management Corporation,
a wholly owned subsidiary of CCR ("CAMC"), net earnings declined $66.5
million. This decline was primarily due to the $76.6 million decrease in the
equity in earnings of IndyMac Operating resulting from the fourth quarter of
1998 market disruption, which effected significant writedowns of IndyMac
Operating's securities. IndyMac also recorded a $16.2 million loss on its
securities during 1998 due to the fourth quarter 1998 market disruption,
compared to a $2.2 million gain in 1997. Offsetting these charges were
increases in net interest income before provision for loan losses of $54.9
million.
Interest Income: Total interest income was $528.8 million for 1998 and
$360.9 million for 1997. The increase in interest income of $167.9 million was
primarily the result of an increase in the average balance of loans held for
sale of $1.2 billion, loans held for investment of $479.1 million, and
mortgage securities of $424.6 million.
Loans held for sale, net
Interest income on loans held for sale increased $97.5 million to $177.3
million during 1998, from $79.8 million during 1997. This increase was
primarily the result of an increase in the average balance of such loans to
$2.1 billion during 1998, from $920.1 million during 1997. This increase
was partially offset by a decrease in the effective yield to 8.3% from
8.7%.
34
<PAGE>
Mortgage loans held for investment, net
Interest income on mortgage loans held for investment totaled $101.9
million during 1998 compared to $125.2 million during 1997. The decrease
from 1997 was the result of a decrease in the average amount of mortgage
loans held for investment during the year of $208.2 million combined with a
decrease in the average effective yield. The average principal balance of
mortgage loans held for investment was $1.4 billion during 1998 with
interest earned at an effective yield of 7.3%, compared to the average
principal balance of mortgage loans held for investment during 1997 of $1.6
billion with interest earned at an effective yield of 7.6%.
Residential construction loans
Interest income on residential construction loans totaled $120.7 million
and $74.9 million, with interest earned at an effective yield of 10.6% and
11.1% for the years ended December 31, 1998 and 1997, respectively. The
average principal balance of construction loans outstanding increased
$463.8 million to $1.1 billion during 1998 from $676.3 million during 1997.
Revolving warehouse lines of credit
Interest income on revolving warehouse lines of credit totaled $44.5
million and $24.8 million, with interest earned at effective yields of 9.1%
for both years ended December 31, 1998 and 1997, respectively. The average
principal balance outstanding increased to $487.0 million from $272.3
million for the years ended December 31, 1998 and 1997, respectively.
Income property loans
Interest income on income property loans increased $8.8 million to $8.9
million during 1998, from $0.1 million during 1997. This increase was
primarily the result of an increase in the average balance of such loans to
$98.0 million during 1998, from $1.4 million during 1997. This increase was
partially offset by a decrease in the effective yield to 9.1% from 9.6%.
Mortgage securities available for sale and trading
Interest income on mortgage securities totaled $42.3 million and $25.3
million, with interest earned at effective yields of 5.5% and 7.3% for the
years ended December 31, 1998 and 1997, respectively. The decline in the
effective yield in 1998 was due to impairment losses taken on the portfolio
as a result of asset devaluation from the market disruption during the
fourth quarter 1998. During 1998, the average principal balance increased
to $773.1 million from $348.5 million in 1997. Mortgage securities
consisted of senior securities, adjustable rate agency securities, non-
investment grade securities, principal-only securities, AAA rated interest-
only securities and inverse floater securities and residuals.
Collateral for CMO's
Interest income on collateral for CMO's was $14.7 million and $20.2
million for the years ended December 31, 1998 and 1997, respectively. This
decrease was primarily attributable to a decrease in the average aggregate
principal amount of collateral for CMO's outstanding to $208.2 million from
$267.0 million for the years ended December 31, 1998 and 1997,
respectively.
Interest Expense: For 1998 and 1997, total interest expense was $355.4
million and $242.4 million, respectively. This increase in interest expense of
$113.0 million was primarily due to an increase in the average balance of
borrowings to $5.7 billion in 1998 from $3.7 billion in 1997, offset in part
by a decrease in the cost of funds to 6.3% from 6.5%.
35
<PAGE>
Loans and securities sold under agreements to repurchase
Interest expense on loans and securities sold under agreements to
repurchase totaled $290.3 million during 1998 compared to $196.5 million
during 1997. This increase of $93.9 million was primarily the result of an
increase in the average balance of repurchase agreements outstanding to
$4.7 billion in 1998 from $3.1 billion in 1997 to support the growth in
average earning assets during 1998. The effective cost of such borrowings
was 6.2% for both of the years ended December 31, 1998 and 1997.
Syndicated bank lines and commercial paper conduit
Interest expense on syndicated bank lines and commercial paper conduit
totaled $44.3 million during 1998 compared to $21.0 million during 1997.
This increase of $23.3 million was primarily the result of an increase in
the average balance of indebtedness outstanding to $724.4 million in 1998
from $320.4 million in 1997. The effective cost of such borrowings was 6.1%
and 6.6% for the years ended December 31, 1998 and 1997, respectively.
CMO's
Interest expense on CMO's was $15.2 million and $19.4 million for the
years ended December 31, 1998 and 1997, respectively. The decrease was
primarily attributable to a decrease in average aggregate CMO's outstanding
to $184.8 million for 1998 from $243.9 million for 1997, offset by an
increase in the effective interest rate of CMO's to 8.2% in 1998 from 7.9%
in 1997.
Senior unsecured notes
Interest expense on senior unsecured notes totaled $5.5 million for each
of the years ended December 31, 1998 and 1997, respectively. The effective
interest rate of 9.2% was the same for the years ended December 31, 1998
and 1997. The average outstanding balances were $60.0 million and
$59.8 million for the years ended December 31, 1998 and 1997, respectively.
Provision for Loan Losses: The provision for loan losses increased to $35.9
million during 1998 from $18.6 million during 1997 primarily as a result of
the higher average outstanding balances of loans held for sale and loans held
for investment during 1998 compared to 1997.
Equity in Earnings of IndyMac Operating: The 1998 loss for IndyMac
Operating of $58.8 million, in which IndyMac had a 99% economic interest,
resulted principally from the fourth quarter 1998 market disruption in the
debt and equity markets. This disruption caused the Company to react quickly
and sell off assets at or below the Company's investment in the assets to
raise liquidity and lower its leverage ratio. As a result, 1998 revenues
declined from 1997 primarily due to a $95.6 million loss on sale of securities
in 1998, compared to a $0.4 million gain in 1997, and service fee income
decreased $11.4 million year over year. These decreases were offset by a $27.6
million increase in gains on sale of loans, and a decrease in income tax
provision of $57.4 million.
Net Gain (Loss) on Sale of Securities: The Company incurred a loss on sale
of mortgage securities of $16.2 million in 1998, compared to a gain of $2.2
million in 1997. The decrease is primarily due to the valuation losses on its
mortgage securities resulting from the market disruption of the fourth quarter
1998.
Expenses: From 1997 to 1998, total expenses decreased $73.1 million. During
1997, the Company acquired its manager at a cost of $76.0 million on July 1,
1997. Management fees totaling $4.4 million were incurred during the six
months ended June 30, 1997. The remaining increase of $7.4 million in expenses
year over year was primarily the result of the increased personnel and
expenses required to support the growth in the operations of IndyMac, as well
as the expense of establishing certain administrative and accounting functions
as part of IndyMac becoming self-managed.
36
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal financing needs are the financing of its mortgage
loan inventory and its investment in mortgage backed securities. The Company's
primary sources of funds used to meet these financing needs include cash flow
from operations, committed and uncommitted borrowings, structured financing,
unsecured debt, and, to a lesser extent, proceeds from the Company's Dividend
Reinvestment and Stock Purchase Plan ("DRIP"). During 1999, the Company
discontinued the optional cash investment portion of its DRIP program as part
of its strategy to increase leverage.
At December 31, 1999, the Company had liquidity approximating $253.0
million, with a leverage ratio (debt to equity) of 3.8:1. 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
and margins on financial collateral required by lenders. It is anticipated
that the acquisition of SGVB will enhance the level and stability of the
Company's liquidity and capital resources by providing access to the federally
insured deposits market and to FHLB borrowings.
The table below summarizes the Company's sources of financing as of
December 31, 1999:
<TABLE>
<CAPTION>
Committed Outstanding
Financial Institution Financing Balances Type of Financing Maturity Date
--------------------- --------- ----------- ----------------- -------------
(Dollars in millions)
<S> <C> <C> <C> <C>
Merrill Lynch........... $1,500 $1,396 Repurchase Agreement May 2001
Paine Webber............ 500 495 Repurchase Agreement September 2001
Morgan Stanley.......... 500 223 Repurchase Agreement June 2001
Credit Suisse First
Boston................. 500 50 Repurchase Agreement November 2000
First Union Bank
Syndicate.............. 900 603 Revolving Bank Line February 2001
Bank of America......... 50 -- Revolving Bank Line September 2000
Bank of America......... 200 190 Commercial Paper Conduit March 2000/5/
Various................. 60 60 Senior Unsecured Notes October 2002
------ ------
Total Committed
Financing.............. 4,210 3,017
Greenwich Capital....... -- 24 Uncommitted Borrowings --
------ ------
Total Financing......... $4,210 $3,041
====== ======
</TABLE>
- --------
(5) During March of 2000, this note was extended through March of 2001, with
similar terms as the previous agreement.
In June of 1999, IndyMac's Board of Directors approved a $100 million share
repurchase plan. Through December 31, 1999, the Company had repurchased 4.5
million shares in open market transactions at an average price of
approximately $13.95 per share, completing $63.3 million of the $100 million
plan.
The Company has filed a shelf registration statement with the Securities
and Exchange Commission, which became effective in January 1998. Under the
terms of the registration statement, the Company is permitted to offer a
variety of debt and equity instruments in an aggregate amount of $500 million.
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 access to federally insured
customer deposits and FHLB borrowings after the pending acquisition of SGVB,
and issuing additional debt or equity from time to time. Decisions by the
Company's lenders and investors to make additional funds available to the
Company in the future will depend upon a number of factors. These include 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, such lenders' and/or investors' own resources and
policies concerning loans and investments, and the relative attractiveness of
alternative investment or lending opportunities. See "Operations Following
Acquisition of SGVB".
37
<PAGE>
In March of 1999, Standard & Poor's Corporation reaffirmed the Company's
senior unsecured credit rating at "BBB-", but with a negative outlook as a
result of the events of the fourth quarter of 1998. Standard & Poor's advised
the Company that its removal from "negative outlook" would depend upon how the
Company successfully implements its business plan for 1999 and beyond. In
October 1998, Fitch IBCA Inc., in response to liquidity concerns and credit
tightening for market funded companies, lowered the Company's rating on its
senior unsecured obligations from "BBB" to "BBB-", maintaining the Company's
investment grade rating. In October 1998, these senior unsecured obligations
were rated "BBB" by Duff & Phelps Rating Co. In February 1999, Fitch IBCA Inc.
lowered its rating for the Company's senior secured revolving credit facility
to "BBB+", and at the same time affirmed the Company's investment grade rating
at "BBB-" and removed the ratings from Rating Alert Negative. Fitch IBCA Inc.
reaffirmed these ratings in December of 1999.
EFFECT OF INTEREST RATE CHANGES
Due to the characteristics of its financial assets and liabilities, and the
nature of its business activities, the Company's financial position and
results of operations may be materially affected by changes in interest rates
in various ways. With respect to its financial assets and liabilities, the
Company has devised and implemented a general asset/liability investment
management strategy which seeks, on an economic basis, to mitigate significant
fluctuations in the financial position and results of operations of the
Company likely to be caused by changes in market interest rates. This strategy
attempts, among other things, to balance investments in various types of
financial instruments whose values could be expected to move inversely to each
other in response to the movement in market interest rates. The Company
invests in servicing and servicing related assets to hedge potential decreases
in production volumes and gain on sale of loans due to increases in interest
rates. The Company also hedges its servicing and servicing related assets to
mitigate losses resulting from prepayments in a declining interest rate
environment. However, there can be no assurance that this strategy (including
assumptions concerning the correlation thought to exist between different
types of instruments) or its implementation will be successful in any
particular interest rate environment. In addition, cash flow considerations
may require the Company to utilize different strategies with respect to
hedging certain assets and/or production pipelines, including utilizing
options as opposed to futures contracts and principal-only mortgage
securities.
Financial assets and other interest rate sensitive assets of the Company
that tend to increase in value as interest rates increase, and decline in
value as interest rates decrease, include AAA rated interest-only securities
and mortgage servicing rights. These financial assets carry an implicit yield
that is based upon estimates of future cash flows on an underlying pool of
mortgage loans. As interest rates increase, the prepayments on the underlying
pool of mortgage loans tend to slow, resulting in higher residual cash flows
than would otherwise have been obtained, and therefore resulting in higher
implicit yields. As of December 31, 1999, IndyMac and IndyMac Operating on a
combined basis held $341.4 million of AAA rated interest-only securities and
$140.3 million of mortgage servicing rights.
Financial instruments of the Company that tend to decrease in value as
interest rates increase, and increase in value as interest rates decline,
include REMIC senior securities, fixed rate investment grade and
non-investment grade securities, adjustable rate agency securities, principal-
only securities and U.S. Treasury bonds. Similar to the AAA rated interest-
only securities, the principal-only securities carry an implicit yield based
upon estimates of future cash flows on an underlying pool of mortgage loans.
However, the principal-only securities generally sell at a discount, similar
to a "zero-coupon" bond, in order to generate a return.
If interest rates increase and prepayments slow in comparison to assumed
prepayment rates, the repayment rate of the principal-only security would tend
to lengthen and thus reduce the implicit yield on the security. Conversely, if
interest rates decrease, the rate of prepayment on the underlying pool of
loans would tend to increase, resulting in a more rapid rate of repayment on
the principal-only security and therefore a higher implicit yield. To a lesser
extent, any mortgage securities held by the Company and supported by
adjustable rate mortgage loans may decline in value as interest rates
increase, if the timing or absolute level of interest rate adjustments on the
underlying loans does not correspond to applicable increases in market
interest rates.
38
<PAGE>
The Company is also subject to certain business and credit risks in
connection with interest rate changes. Increases in interest rates may
discourage potential mortgagors from borrowing or refinancing mortgage loans,
thus decreasing the volume of loans available to be purchased through the
Company's B2B operations, originated through LoanWorks/LoanTown or financed
through the Company's construction and warehouse lending operations.
Additionally, with respect to adjustable rate loans, the rate of delinquency
may increase in periods of increasing interest rates as borrowers face higher
adjusted mortgage payments.
The Company's liquidity position and net interest income could also be
adversely affected by significant interest rate fluctuations. Each of the
Company's collateralized borrowing facilities noted above in "Liquidity and
Capital Resources" permits the lender or lenders thereunder to require the
Company to repay amounts outstanding and/or pledge additional assets in the
event that the value of the pledged collateral declines due to changes in
market interest rates. In addition, increases in short-term borrowing rates
relative to rates earned on asset holdings that have not been financed to
maturity through the issuance of CMO's or other debt securities may also
adversely affect the Company's "spread income" on such assets and thus reduce
the Company's earnings.
To hedge changes in the value of its AAA rated interest-only securities
portfolio and mortgage servicing rights ("MSR"), the Company generally chooses
among several strategies, consisting of either buying mortgage-backed
securities or U.S. Treasuries, futures, or options, depending on several
factors. The Company also from time to time purchases other interest rate
derivatives such as floors or swaps. The Company uses hedging instruments to
reduce its exposure to interest rate risk, not to speculate on the direction
of market interest rates. The Company has managed its interest rate risk in
1999 as described herein.
As part of its interest rate risk management process, the Company performs
various interest rate calculations that quantify the financial impact of
changes in interest rates on its interest-earning assets, commitments and
hedges. As of December 31, 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 in after tax income for IndyMac and IndyMac Operating of $1.5
million. The combined after tax loss on available for sale mortgage
securities, recorded as a component of other comprehensive income, would be
$268 thousand. The net result would be a reduction to comprehensive income of
$1.8 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 and IndyMac Operating of $2.7 million. The combined after tax gain
on available for sale mortgage securities, recorded as a component of other
comprehensive income would be $4.0 million. The net result would be an
increase to comprehensive income of $6.7 million.
As of December 31, 1998, the Company estimated 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 and IndyMac Operating of $1.4 million. The
combined after tax loss on available for sale mortgage securities, recorded as
a component of other comprehensive income was estimated at $20.1 million. The
net result would have been a reduction to comprehensive income of $21.5
million. As of December 31, 1998, the Company estimated 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 and IndyMac Operating of $10.7 million. The
combined after tax gain on available for sale mortgage securities, recorded as
a component of other comprehensive income was estimated at $10.4 million. The
net result would have been an increase to comprehensive income of $21.1
million.
The decrease in the impact of a change in interest rates between 1999 and
1998 was primarily due to the increase in interest rates during 1999. At
December 31, 1998, 10-year Treasury yields were at record lows, and therefore
the Company's hedging strategy was based on the expectation of an increase in
interest rates rather than a decrease in interest rates. As the 10-year
Treasury yield increased nearly 200 basis points during 1999, the Company's
hedging strategy at December 31, 1999 was adjusted to compensate for either a
decrease or increase in interest rates.
39
<PAGE>
The assumptions inherent in the Company's model include valuation changes
in an instantaneous rate shock and include assumptions as to 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 increases in income
associated with the increase in production volume that could 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.
In June of 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133"). This Statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS 133 is effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000 (January 1, 2001 for the
Company), with earlier adoption permitted. The Company is currently in the
process of determining the impact of the adoption of SFAS 133 on its financial
position and results of operations.
SYSTEMS ISSUES ASSOCIATED WITH THE YEAR 2000
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 that all such
systems will continue to function properly. The Company has not experienced
any significant internal Year 2000 problems through the date of this Form 10-
K. All critical vendors have communicated that they did not experience any
Year 2000 problems at year-end 1999. However, there can be no assurance that
Year 2000 problems will not arise after the issuance of this report.
The Company recognized approximately $1.8 million of expenses during the
year ended December 31, 1999 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 costs in future periods.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Effect of Interest Rate Changes" for Quantitative and
Qualitative Disclosure about Market Risk.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-K may be deemed to be forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements include the Company's statements regarding liquidity, provisions
for loan losses, capital resources, and anticipated future expense levels and
other anticipated aspects of future operations. Forward-looking statements
typically include the words "anticipate," "believe," "estimate," "expect,"
"intend," and other similar expressions. These statements reflect the
Company's current views with respect to future events and financial
performance. They are subject to risks and uncertainties, including those
identified below, which could cause future results to differ materially from
historical results or from the results anticipated. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only
as of their dates or as of the date hereof if no other date is identified. The
Company undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
40
<PAGE>
The following factors could cause future results to differ materially from
historical results or those anticipated in any forward-looking statements
herein:
(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;
(5) the actions undertaken by both current and potential new competitors;
(6) 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 possibility that
the assimilation of SGVB's operations upon completion of the
acquisition maybe more difficult or costly, and may take longer than
expected by the Company; and
(7) other risks and uncertainties detailed herein under "Item 7.
Management's Discussion and Analysis of Financial Condition and Results
of Operations."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item 8 is already incorporated by
reference to IndyMac's Consolidated Financial Statements and Report of
Independent Certified Public Accountants beginning at page F-1 of this
Form 10-K.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
41
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 as to directors and executive
officers of IndyMac is hereby incorporated by reference to IndyMac's
definitive proxy statement, to be filed pursuant to Regulation 14A within 120
days after the end of the Company's 1999 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby incorporated by
reference to IndyMac's definitive proxy statement, to be filed pursuant to
Regulation 14A within 120 days after the end of the Company's 1999 fiscal
year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is hereby incorporated by
reference to IndyMac's definitive proxy statement, to be filed pursuant to
Regulation 14A within 120 days after the end of the Company's 1999 fiscal
year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby incorporated by
reference to IndyMac's definitive proxy statement, to be filed pursuant to
Regulation 14A within 120 days after the end of the Company's 1999 fiscal
year.
42
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Schedules
The information required by this section of Item 14 is set forth in the
Index to Financial Statements and Schedules at page F-1 of this Form 10-K.
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2.1* Agreement and Plan of Merger dated as of January 29, 1997 among
IndyMac Mortgage Holdings, Inc., formerly known as CWM Mortgage
Holdings, Inc. ("IndyMac" or the "Company"), Countrywide Asset
Management Corporation ("CAMC"), and Countrywide Credit Industries,
Inc. ("CCR") (incorporated by reference to Appendix A to the
Company's Definitive Proxy Statement filed with the SEC on May 21,
1997).
2.2* Registration Rights Agreement dated as of July 1, 1997 between the
Company and CCR (incorporated by reference to Exhibit A to the
Company's Definitive Proxy Statement filed with the SEC on May 21,
1997).
2.3* Amended and Restated Agreement and Plan of Merger by and between SGV
Bancorp, Inc. ("SGVB") and the Company dated as of July 12, 1999 and
Amended and Restated as of October 25, 1999 (incorporated by
reference to Appendix A to the Definitive Joint Proxy Statement of
the Company and SGVB filed with the SEC on November 5, 1999).
3.1 Certificate of Incorporation of IndyMac, as amended.
3.2 Bylaws of IndyMac, as amended.
4.1* Indenture (the "Indenture"), dated as of December 1, 1985, between
Countrywide Mortgage Obligations, Inc. ("CMO, Inc.") and Bankers
Trust Company, as Trustee ("BTC") (incorporated by reference to
Exhibit 4.1 to CMO, Inc.'s Form 8-K filed with the SEC on January 24,
1986).
4.2* Series A Supplement, dated as of December 1, 1985, to the Indenture
(incorporated by reference to Exhibit 4.2 to CMO, Inc.'s Form 8-K
filed with the SEC on January 24, 1986).
4.3* Series I Supplement, dated as of October 1, 1986, to the Indenture
(incorporated by reference to Exhibit 4.11 to CMO, Inc.'s Amendment
No. 1 to S-11 Registration Statement (No. 33-8705) filed with the SEC
on October 27, 1986).
4.4* Series M Supplement, dated as of January 1, 1987, to the Indenture
(incorporated by reference to Exhibit 4.3 to CMO, Inc.'s Form 8-K
filed with the SEC on March 16, 1987).
4.5* Indenture (the "SPNB Indenture"), dated as of December 1, 1986,
between CMO, Inc. and Security Pacific National Bank, as Trustee
("SPNB") (incorporated by reference to Exhibit 4.1 to CMO, Inc.'s
Form 8-K filed with the SEC on January 9, 1987).
4.6* Series N Supplement, dated as of February 1, 1987, to the SPNB
Indenture (incorporated by reference to Exhibit 4.1 to CMO, Inc.'s
Form 8-K filed with the SEC on March 16, 1987).
4.7* Indenture, dated as of February 1, 1987, between Countrywide Mortgage
Trust 1987-I (the "1987-I Trust") and SPNB (incorporated by reference
to Exhibit 4.18 to the Company's Form 10-K for the year ended
December 31, 1986).
4.8* Indenture Supplement, dated as of September 1, 1987, among Countrywide
Mortgage Obligations III, Inc. ("CMO III, Inc."), CMO, Inc. and BTC
(incorporated by reference to Exhibit 4.1 to CMO III, Inc.'s Form 8-K
filed with the SEC on October 9, 1987).
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
4.9* Indenture Supplement, dated as of September 1, 1987, among CMO III,
Inc., CMO, Inc. and SPNB (incorporated by reference to Exhibit 4.2 to
CMO III, Inc.'s. Form 8-K filed with the SEC on October 9, 1987).
4.10* Indenture dated as of November 20, 1990, between the Countrywide Cash
Flow Bond Trust ("CCFBT") and BTC (incorporated by referenced to
Exhibit 4.22 to the Company's Form 10-K for the year ended December
31, 1990).
4.11* Indenture dated as of March 30, 1993 between Countrywide Mortgage
Trust 1993-I (the "1993-I Trust") and State Street Bank and Trust
Company (the "Bond Trustee") (incorporated by reference to Exhibit
4.1 to the Company's Form 10-Q for the quarter ended March 31, 1993).
4.12* Indenture dated as of April 14, 1993 between Countrywide Mortgage
Trust 1993-II (the "1993-II Trust") and the Bond Trustee
(incorporated by reference to Exhibit 4.2 to the Company's Form 10-Q
for the quarter ended March 31, 1993).
4.13* First Supplemental Indenture dated as of May 24, 1993 between the
1993-II Trust and the Bond Trustee (incorporated by reference to
Exhibit 4.25 to the Company's Form 10-K for the year ended December
31, 1994.)
4.14* 1994 Stock Incentive Plan adopted May 17, 1994 (incorporated by
reference to Exhibit 4.1 to the Company's Form 10-Q for the quarter
ended September 30, 1994).
4.15* 1996 Stock Incentive Plan adopted May 29, 1996, as amended June 24,
1997 (incorporated by reference to Exhibit 4.1 to the Company's Form
10-Q for the quarter ended June 30, 1997).
4.16 1998 Stock Incentive Plan adopted May 19, 1998, as amended.
10.1* 1996 Amended and Extended Loan Purchase and Administrative Services
Agreement, dated as of June 1, 1996, between the Company and
Countrywide Funding Corporation (now known as Countrywide Home Loans,
Inc. ("CHL") (incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended June 30, 1996).
10.2* Servicing Agreement, dated as of February 1, 1987, among the 1987-I
Trust, SPNB and CHL (incorporated by reference to Exhibit 10.18 to
the Company's Form 10-K filed for the year ended December 31, 1985).
10.3* Agreement between CMO II, Inc. and the Company (formerly known as
Countrywide Mortgage Investments, Inc., "CMI"), dated as of February
1, 1987, regarding certain bankruptcy matters (incorporated by
reference to Exhibit 10.19 to the Company's Form 10-K for the year
ended December 31, 1986).
10.4* Transfer Agreement, dated as of May 1, 1987, among CMI, CMO II, Inc.
and CMO III, Inc. (incorporated by reference to Exhibit 10.12 to the
Company's Form 10-Q for the quarter ended June 30, 1987).
10.5* Trust Agreement, dated as of November 20, 1990, between CMO III, Inc.
and Wilmington Trust Company relating to the CCFBT (the "CCFBT Trust
Agreement") (incorporated by reference to Exhibit 10.31 to the
Company's Form 10-K for the year ended December 31, 1990).
10.6* Guaranty, dated as of November 20, 1990, by CMI of obligations of CMO
III, Inc. under the CCFBT Trust Agreement (incorporated by reference
to Exhibit 10.32 to the Company's Form 10-K for the year ended
December 31, 1990).
10.7* Assignment Agreement, dated as of November 21, 1990, between CMO III,
Inc. and CCFBT (incorporated by reference to Exhibit 10.35 to the
Company's Form 10-K for the year ended December 31, 1990).
10.8* Deposit Trust Agreement dated as of March 24, 1993 between CMO II,
Inc. and Wilmington Trust Company (incorporated by reference to
Exhibit 10.1 to the Company's Form 10-Q for the quarter ended March
31, 1993).
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.9* Master Servicing Agreement dated as of March 30, 1993 by and among the
1993-I Trust, CMI and the Bond Trustee (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q for the quarter ended March
31, 1993).
10.10* Servicing Agreement dated as of March 30, 1993 by and among the 1993-I
Trust, CHL and the Bond Trustee (incorporated by reference to Exhibit
10.3 to the Company's Form 10-Q for the quarter ended March 31,
1993).
10.11* First Amendment dated as of March 30, 1993 to Agreement between CMO
II, Inc. and CMI (incorporated by reference to Exhibit 10.5 to the
Company's Form 10-Q for the quarter ended March 31, 1993).
10.12* Deposit Trust Agreement dated as of April 7, 1993 between CMO II, Inc.
and Wilmington Trust Company (incorporated by reference to Exhibit
10.7 to the Company's Form 10-Q for the quarter ended March 31,
1993).
10.13* Master Servicing Agreement dated as of April 14, 1993 by and among the
1993-II Trust, CMI and the Bond Trustee (incorporated by reference to
Exhibit 10.8 to the Company's Form 10-Q for the quarter ended March
31, 1993).
10.14* Servicing Agreement dated as of April 14, 1993 by and among the 1993-
II Trust, CHL and the Bond Trustee (incorporated by reference to
Exhibit 10.9 to the Company's Form 10-Q for the quarter ended March
31, 1993).
10.15* First Amendment to Deposit Trust Agreement dated as of April 13, 1993
between CMO II, Inc. and Wilmington Trust Company, as Owner Trustee
(incorporated by reference to Exhibit 10.11 to the Company's Form 10-
Q for the quarter ended March 31, 1993).
10.16* Contribution and Mortgage Loan Acquisition Agreement dated as of April
19, 1993 between CMI and CHL (incorporated by reference to Exhibit
10.2 to the Company's Amendment No. 3 to S-3 Registration Statement
(No. 33-63034) filed with the SEC on July 16, 1993).
10.17* First Amendment to Deposit Trust Agreement dated as of April 16, 1993
between CMO II, Inc. and Wilmington Trust Company (incorporated by
reference to Exhibit 10.8 to the Company's Form 10-Q for the quarter
ended June 30, 1993).
10.18* Master Forward Commitment and Services Agreement effective January 1,
1996 between the Company and Independent National Mortgage
Corporation (incorporated by reference to Exhibit 10.8 to the
Company's Form 10-Q for the quarter ended March 31, 1996).
10.19* Independent National Mortgage Corporation Capitalization Agreement,
effective as of January 1, 1996, by and among the Company, CHL and
Independent National Mortgage Corporation (incorporated by reference
to Exhibit 10.8 to the Company's Form 10-Q for the quarter ended
March 31, 1996).
10.20* Revolving Working Capital Credit Facility and Credit Support
Agreement, effective as of January 1, 1996, between the Company and
Independent National Mortgage Corporation (incorporated by reference
to Exhibit 10.8 to the Company's Form 10-Q for the quarter ended
March 31, 1996).
10.21* Employment Agreement dated September 1, 1997 between IndyMac, Inc. and
S. Blair Abernathy (incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended September 30, 1997).
10.22* Employment Agreement dated January 1, 1998 between IndyMac and
Carmella Grahn (incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended June 30, 1998).
10.23* Amendment to Employment Agreement dated September 1, 1998 between
IndyMac and S. Blair Abernathy (incorporated by reference to 10.1 to
the Company's Form 10-Q for the quarter ended September 30, 1998).
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.24* Amendment to Employment Agreement dated September 1, 1998 between
IndyMac and Carmella Grahn (incorporated by reference to 10.2 to the
Company's Form 10-Q for the quarter ended September 30, 1998).
10.25* Employment Agreement dated December 30, 1998 between IndyMac and David
S. Loeb (incorporated by reference to 10.57 to the Company's Form 10-
K for the year ended December 31, 1998).
10.26 Employment Agreement dated February 4, 2000 between IndyMac and
Michael W. Perry.
10.27 Employment Agreement dated February 4, 2000 between IndyMac and
Richard H. Wohl.
10.28 Amendment to Employment Agreement dated February 29, 2000 between
IndyMac and David S. Loeb.
21.1 List of Subsidiaries.
23.1 Consent of Grant Thornton LLP
27 Financial Data Schedule
</TABLE>
- --------
*Incorporated by reference.
(b) Reports on Form 8-K
None.
46
<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 March 29, 2000.
INDYMAC MORTGAGE HOLDINGS, INC.
/s/ Michael W. Perry
By: _________________________________
Michael W. Perry
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Michael W. Perry and Richard H. Wohl his true and lawful attorneys-in-fact and
agents, each acting alone, with full powers of substitution, and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this report, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, each acting alone, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David S. Loeb Chairman of the Board of March 29, 2000
____________________________________ Directors
David S. Loeb
/s/ Michael W. Perry Vice Chairman of the Board March 29, 2000
____________________________________ of Directors and Chief
Michael W. Perry Executive Officer
(Principal Executive
Officer)
/s/ Carmella L. Grahn Executive Vice President and March 29, 2000
____________________________________ Chief Financial Officer
Carmella L. Grahn (Principal Financial and
Accounting Officer)
/s/ Angelo R. Mozilo Director March 29, 2000
____________________________________
Angelo R. Mozilo
/s/ Lyle E. Gramley Director March 29, 2000
____________________________________
Lyle E. Gramley
/s/ Thomas J. Kearns Director March 29, 2000
____________________________________
Thomas J. Kearns
/s/ Frederick J. Napolitano Director March 29, 2000
____________________________________
Frederick J. Napolitano
</TABLE>
47
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
INDYMAC MORTGAGE HOLDINGS, INC.
AND SUBSIDIARIES
December 31, 1999, 1998, and 1997
F-1
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants........................ F-3
Financial Statements
Consolidated Balance Sheets............................................. F-4
Consolidated Statements of Earnings..................................... F-5
Consolidated Statements of Shareholders' Equity and Comprehensive
Income................................................................. F-6
Consolidated Statements of Cash Flows................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
Schedules
Schedule IV--Mortgage Loans on Real Estate.............................. F-30
All other schedules have been omitted since the required information is
not present or not present in amounts sufficient to require submission
of the schedules, or because the information required is included in the
consolidated financial statements or notes thereto.
INDYMAC, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants........................ F-31
Financial Statements
Consolidated Balance Sheets............................................. F-32
Consolidated Statements of Operations................................... F-33
Consolidated Statements of Shareholders' Equity and Comprehensive
Income................................................................. F-34
Consolidated Statements of Cash Flows................................... F-35
Notes to Consolidated Financial Statements.............................. F-36
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
IndyMac Mortgage Holdings, Inc.
We have audited the accompanying consolidated balance sheets of IndyMac
Mortgage Holdings, Inc. and Subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of earnings, shareholders' equity and
comprehensive income and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IndyMac
Mortgage Holdings, Inc. and Subsidiaries as of December 31, 1999 and 1998, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
We have also audited Schedule IV as of December 31, 1999 of IndyMac
Mortgage Holdings, Inc. and Subsidiaries. In our opinion, this schedule
presents fairly, in all material respects, the information required to be set
forth therein.
GRANT THORNTON LLP
Los Angeles, California
March 10, 2000
F-3
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Loans held for sale, net
Mortgages--prime..................................... $ 504,755 $ 989,052
Mortgages--subprime.................................. 110,488 145,793
Manufactured housing................................. -- 215,507
Home improvement..................................... -- 205,304
---------- ----------
615,243 1,555,656
Other loans, net
Mortgage loans held for investment................... 869,213 668,523
Residential construction
Builder............................................ 732,466 799,712
Consumer........................................... 356,149 468,735
Revolving warehouse lines of credit.................. 241,123 443,946
Income property...................................... 140,174 178,756
---------- ----------
2,339,125 2,559,672
Mortgage securities available for sale................. 471,231 235,032
Investment in and advances to IndyMac, Inc. ........... 125,353 279,693
Collateral for collateralized mortgage obligations..... 88,973 162,726
Other assets........................................... 86,597 58,373
---------- ----------
Total assets..................................... $3,726,522 $4,851,152
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans and securities sold under agreements to
repurchase............................................ $2,018,010 $2,942,270
Syndicated bank lines and commercial paper conduit..... 703,340 843,279
Collateralized mortgage obligations.................... 82,434 140,810
Senior unsecured notes................................. 60,189 60,031
Accounts payable and accrued liabilities............... 35,019 42,659
---------- ----------
Total liabilities................................ 2,898,992 4,029,049
Shareholders' equity
Preferred stock--authorized, 10,000,000 shares of
$.01 par value; none issued......................... -- --
Common stock--authorized, 200,000,000 shares of $.01
par value; issued 80,720,129 shares (75,076,868
outstanding) at December 31, 1999 and issued
75,794,435 shares (74,693,565 outstanding) at
December 31, 1998................................... 807 758
Additional paid-in capital........................... 1,080,327 1,018,859
Treasury stock, at cost, 5,643,261 shares at December
31, 1999 and 1,100,870 shares at December 31, 1998.. (76,378) (13,062)
Accumulated other comprehensive income (loss)........ 7,433 (18,776)
Cumulative earnings.................................. 393,149 277,220
Cumulative distributions to shareholders............. (577,808) (442,896)
---------- ----------
Total shareholders' equity....................... 827,530 822,103
---------- ----------
Total liabilities and shareholders' equity....... $3,726,522 $4,851,152
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
REVENUES
Interest income
Loans held for sale, net
Mortgages-prime.............................. $ 55,243 $115,091 $56,148
Mortgages-subprime........................... 9,072 27,737 12,752
Manufactured housing......................... 13,038 16,178 9,184
Home improvement............................. 14,995 18,333 1,727
-------- -------- -------
92,348 177,339 79,811
Other loans, net
Mortgage loans held for investment........... 53,146 101,893 125,174
Residential construction
Builder.................................... 81,200 77,226 54,498
Consumer................................... 35,224 43,523 20,368
Revolving warehouse lines of credit.......... 21,553 44,452 24,801
Income property.............................. 16,729 8,922 131
-------- -------- -------
207,852 276,016 224,972
Mortgage securities available for sale and
trading....................................... 15,593 42,252 25,250
Advances to IndyMac, Inc....................... 20,525 17,381 10,075
Collateral for collateralized mortgage
obligations................................... 9,410 14,675 20,202
Other.......................................... 886 1,162 591
-------- -------- -------
Total interest income...................... 346,614 528,825 360,901
Interest expense
Loans and securities sold under agreements to
repurchase.................................... 128,782 290,349 196,489
Syndicated bank lines and commercial paper
conduit....................................... 42,230 44,317 21,003
Collateralized mortgage obligations............ 9,091 15,163 19,363
Senior unsecured notes......................... 5,520 5,530 5,517
-------- -------- -------
Total interest expense..................... 185,623 355,359 242,372
-------- -------- -------
Net interest income before provision for loan
losses.......................................... 160,991 173,466 118,529
Provision for loan losses........................ 16,446 35,892 18,622
-------- -------- -------
Net interest income........................ 144,545 137,574 99,907
Equity in earnings (loss) of IndyMac, Inc........ 2,109 (58,232) 18,414
Gain (loss) on sale of securities, net........... (69) (16,206) 2,205
Other income (loss), net......................... 3,944 (60) 6,110
-------- -------- -------
Net revenues............................... 150,529 63,076 126,636
EXPENSES
Salaries and related benefits.................... 24,168 19,616 12,943
General and administrative....................... 10,432 9,670 8,992
Buy-out of management contract................... -- -- 76,000
Management fees to affiliate..................... -- -- 4,406
-------- -------- -------
Total expenses............................. 34,600 29,286 102,341
-------- -------- -------
NET EARNINGS....................................... 115,929 $ 33,790 $24,295
======== =======
Pro forma provision for income taxes (unaudited,
see notes A and P).............................. 48,373
--------
PRO FORMA NET EARNINGS (unaudited, see notes A and
P)................................................ $ 67,556
========
PRO FORMA EARNINGS PER SHARE (unaudited, see notes
A and P)
Basic EPS........................................ $ 0.87
Diluted EPS...................................... $ 0.86
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Cumulative Total
Common Paid-in Treasury Comprehensive Cumulative Comprehensive Distributions to Shareholders'
Stock Capital Stock Income (Loss) Earnings Income Shareholders Equity
------ ---------- -------- ------------- ---------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1996............. $502 $ 490,695 $ -- $(15,593) $219,135 $(216,315) $478,424
Common stock options
exercised............ -- 569 -- -- -- -- -- 569
Directors' and
officers' notes
receivable........... 3 3,924 -- -- -- -- -- 3,927
Deferred compensation,
restricted stock..... 34 71,966 -- -- -- -- -- 72,000
Net gain on mortgage
securities available
for sale............. -- -- -- 14,088 -- 14,088 -- 14,088
Dividend reinvestment
plan................. 95 206,321 -- -- -- -- -- 206,416
Net earnings.......... -- -- -- -- 24,295 24,295 -- 24,295
Dividends paid........ -- -- -- -- -- -- (95,825) (95,825)
---- ---------- -------- -------- -------- ------- --------- --------
Net change............ 132 282,780 -- 14,088 24,295 38,383 (95,825) 225,470
---- ---------- -------- -------- -------- ------- --------- --------
Balance at December
31, 1997............. 634 773,475 -- (1,505) 243,430 (312,140) 703,894
---- ---------- -------- -------- -------- --------- --------
Common stock options
exercised............ 1 1,032 -- -- -- -- -- 1,033
Directors' and
officers' notes
receivable........... 10 8,743 -- -- -- -- -- 8,753
Deferred compensation,
restricted stock..... 5 1,053 -- -- -- -- -- 1,058
401(k) contribution... -- 760 -- -- -- -- -- 760
Net loss on mortgage
securities available
for sale............. -- -- -- (17,271) -- (17,271) -- (17,271)
Dividend reinvestment
plan................. 108 233,796 -- -- -- -- -- 233,904
Acquisition of
treasury stock....... -- -- (13,062) -- -- -- -- (13,062)
Net earnings.......... -- -- -- -- 33,790 33,790 -- 33,790
Dividends paid........ -- -- -- -- -- -- (130,756) (130,756)
---- ---------- -------- -------- -------- ------- --------- --------
Net change............ 124 245,384 (13,062) (17,271) 33,790 16,519 (130,756) 118,209
---- ---------- -------- -------- -------- ------- --------- --------
Balance at December
31, 1998............. 758 1,018,859 (13,062) (18,776) 277,220 (442,896) 822,103
---- ---------- -------- -------- -------- --------- --------
Common stock options
exercised............ 2 1,779 -- -- -- -- -- 1,781
Directors' and
officers' notes
receivable........... -- 8,503 -- -- -- -- -- 8,503
Deferred compensation,
restricted stock..... 2 2,543 -- -- -- -- -- 2,545
401(k) contribution... 1 704 -- -- -- -- -- 705
Net gain on mortgage
securities available
for sale............. -- -- -- 26,209 -- 26,209 -- 26,209
Dividend reinvestment
plan................. 44 47,939 -- -- -- -- -- 47,983
Acquisition of
treasury stock....... -- -- (63,316) -- -- -- -- (63,316)
Net earnings.......... -- -- -- -- 115,929 115,929 -- 115,929
Dividends paid........ -- -- -- -- -- -- (134,912) (134,912)
---- ---------- -------- -------- -------- ------- --------- --------
Net change............ 49 61,468 (63,316) 26,209 115,929 142,138 (134,912) 5,427
---- ---------- -------- -------- -------- ------- --------- --------
Balance at December
31, 1999............. $807 $1,080,327 $(76,378) $ 7,433 $393,149 $(577,808) $827,530
==== ========== ======== ======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings........................... $ 115,929 $ 33,790 $ 24,295
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Amortization and depreciation......... 52,697 51,969 29,144
Provision for loan losses............. 16,446 35,892 18,622
Equity in (earnings) loss of IndyMac,
Inc. ................................ (2,109) 58,232 (18,414)
Unrealized (gain) loss on trading
securities........................... 966 19,088 (2,206)
Issuance of common stock as
settlement of management contract.... -- -- 72,000
Deferred compensation and 401 (k)
expense.............................. 3,250 1,818 --
Purchases of mortgage loans held for
sale.................................. (5,825,099) (11,695,094) (4,912,560)
Sale of and payments from mortgage
loans held for sale................... 6,153,874 11,568,651 4,210,331
Purchases of manufactured housing loans
held for sale......................... (75,166) (427,532) (309,362)
Sale of and payments from manufactured
housing loans held for sale........... 253,134 416,830 174,852
Net sales (purchases) of home
improvement loans held for sale....... 28,467 (125,065) --
Purchases of trading mortgage
securities............................ -- (152,947) (70,740)
Sale of and payments from trading
mortgage securities................... -- 92,257 4,044
Net (increase) decrease in other
assets................................ (13,999) 30,784 (54,789)
Net (decrease) increase in other
liabilities........................... (7,641) 5,141 14,790
----------- ------------ -----------
Net cash provided by (used in)
operating activities............... 700,749 (86,186) (819,993)
----------- ------------ -----------
Cash flows from investing activities:
Purchases of mortgage loans held for
investment............................ (11,824) (324,184) (1,086,583)
Payments and sales from mortgage loans
held for investment................... 283,049 1,623,935 601,245
Net decrease (increase) in construction
loans receivable...................... 177,396 (494,519) (572,997)
Payments from collateral for
collateralized mortgage obligations... 74,114 81,298 43,529
Purchases of mortgage securities
available for sale.................... (92,673) (634,124) (356,808)
Sales of and payments from mortgage
securities............................ 21,061 927,456 80,704
Net decrease (increase) in revolving
warehouse lines of credit............. 202,381 67,469 (262,026)
Net (increase) decrease in manufactured
housing loans held for investment..... (479) 4,781 (4,387)
Net increase in home improvement loans
held for investment................... (50,255) -- --
Net (decrease) increase in advances to
IndyMac, Inc. ........................ (31,612) (153,237) 12,236
----------- ------------ -----------
Net cash provided by (used in)
investing activities............... 571,158 1,098,875 (1,545,087)
----------- ------------ -----------
Cash flows from financing activities:
Net (decrease) increase in loans and
securities sold under agreements to
repurchase............................ (927,836) (1,470,863) 2,107,873
Net (decrease) increase in syndicated
bank lines and commercial paper
conduit............................... (139,939) 427,421 187,101
Principal payments on collateralized
mortgage obligations.................. (59,934) (81,980) (43,755)
Net proceeds from issuance of common
stock................................. 57,703 243,690 210,912
Acquisition of treasury stock.......... (63,316) (13,062) --
Cash dividends paid.................... (134,912) (130,756) (95,825)
----------- ------------ -----------
Net cash provided by (used in)
financing activities............... (1,268,234) (1,025,550) 2,366,306
----------- ------------ -----------
Net increase (decrease) in cash and
cash equivalents...................... 3,673 (12,861) 1,226
Cash and cash equivalents at beginning
of period............................. 815 13,676 12,450
----------- ------------ -----------
Cash and cash equivalents at end of
period................................ $ 4,488 $ 815 $ 13,676
=========== ============ ===========
Supplemental cash flow information:
Cash paid for interest................ $ 188,564 $ 356,174 $ 218,122
=========== ============ ===========
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 $ -- $ --
=========== ============ ===========
Retirement of collateral for
collateralized mortgage
obligations.......................... $ 15,559 $ -- $ --
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
IndyMac Mortgage Holdings, Inc. and Subsidiaries ("IndyMac") conducts a
diversified mortgage lending business, including the origination and purchase
of and investment in conforming, non-conforming and jumbo residential loans,
subprime loans, construction loans, mortgage-backed securities and other
mortgage-related assets. The financial statements of IndyMac are prepared in
conformity with generally accepted accounting principles ("GAAP"). The
following is a summary of significant accounting and reporting policies used
in preparing the consolidated financial statements.
1. Financial Statement Presentation
The consolidated financial statements include the accounts of IndyMac and
its qualified real estate investment trust ("REIT") subsidiaries. The consumer
business-to-business ("B2B") lending activities are primarily conducted
through IndyMac, Inc. ("IndyMac Operating"), a taxable affiliate of IndyMac.
IndyMac owns all the preferred non-voting stock and has a 99% economic
interest in IndyMac Operating. See Note P--Subsequent Events, for further
information. Accordingly, IndyMac's investment in IndyMac Operating is
accounted for under a method similar to the equity method because IndyMac 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'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's consolidated subsidiaries have been eliminated in consolidation of
IndyMac.
Certain reclassifications have been made to the financial statements for
the years ended December 31, 1998 and 1997 to conform to the December 31, 1999
presentation.
2. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the dates of the financial statements
and the reported amounts of revenues and expenses during the reporting period;
significant estimates include the allowance for loan losses, and certain of
the Company's mortgage-backed securities for which active markets do not
exist. Actual results may differ significantly from those estimates and
assumptions.
3. Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents include
cash on deposit and overnight investments.
4. Loans Held for Sale, Net
Mortgage, manufactured housing and home improvement loans held for sale,
consisting primarily of loans secured by one to four family residential units,
are carried at the lower of cost or market, computed by the aggregate method
by asset type. Premiums paid and discounts obtained on such loans held for
sale are deferred as an adjustment to the carrying value of the loans until
the loans are sold. Interest is recognized as revenue when earned according to
the terms of the loans and when, in the opinion of management, it is
collectible. Loans are evaluated for collectibility, and if appropriate,
previously accrued interest is reversed.
Pursuant to the Master Forward Commitment and Services Agreement between
IndyMac and IndyMac Operating, all loans purchased by IndyMac for which a real
estate mortgage investment conduit ("REMIC")
F-8
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
transaction, securitization or whole loan sale is contemplated are committed
for sale to IndyMac Operating at the same price for which the loans were
acquired by IndyMac. The commitment price is therefore equal to fair value,
which is the carrying value of the loans. At present, IndyMac does not sell
any loans to entities other than IndyMac Operating.
5. Loans Held for Investment, Net
IndyMac purchases certain mortgage loans to be held for investment
purposes. IndyMac may, pursuant to its forward commitment contract with
IndyMac Operating, transfer loans held for sale to the "held for investment"
designation. Such transfers are recorded at the lower of cost or market on the
date of transfer. The resulting market discount is amortized to interest
income over the estimated life of the loan using the interest method. Loans
are classified as held for investment based on management's intent and ability
to hold the loans for the foreseeable future.
Premiums paid and discounts obtained on loans held for investment are
recorded as an adjustment to the carrying amount of the loan and amortized to
income over the estimated life of the loans using the interest method.
Interest is recognized as revenue when earned according to the terms of the
loans and when, in the opinion of management, it is collectible. Loans are
evaluated for collectibility, and if appropriate, previously accrued interest
is reversed.
Construction loans are carried at amortized cost. Construction loans
include deferred loan fees and commissions paid, which are amortized over the
life of the loans to interest income using a method which approximates the
interest method. Interest is recognized as revenue when earned according to
the terms of the loans and when, in the opinion of management, it is
collectible.
6. Collateral for Collateralized Mortgage Obligations
Collateral for collateralized mortgage obligations ("CMO's"), consisting of
mortgage loans and mortgage-backed securities, is carried at the outstanding
principal balances, net of unamortized purchase discounts or premiums. Also
included in collateral for CMO's are guaranteed investment contracts ("GIC's")
held by CMO trustees and interest receivable related to the underlying loans
and securities.
7. Mortgage Securities
Mortgage securities consist primarily of adjustable-rate agency securities,
AAA rated senior securities, investment and non-investment grade securities,
AAA rated interest-only securities, and residual securities. Fair value is
estimated based on market quotes, when available, or discounted cash flow
techniques using assumptions for prepayment rates, market yield requirements
and credit losses. Such assumptions are estimates as of a specific point in
time and will change as interest rates or economic conditions change.
Unrealized gains and losses resulting from fair value adjustments on
mortgage securities identified as available for sale are excluded from
earnings and reported as a separate component of comprehensive income in
shareholders' equity. IndyMac values AAA rated interest-only securities
classified as available for sale by computing the present value of estimated
future cash flows, using current estimates for prepayment rates, discounted at
a market rate of return for an asset of similar duration. When available,
market quotes are used to validate valuation assumptions. An impairment write-
down to fair value is charged to earnings for those securities whose amortized
cost exceeds the present value at the risk-free rate. IndyMac estimates future
prepayment rates based upon current interest rate levels, collateral
seasoning, and market forecasts, as well as relevant characteristics of the
collateral underlying the assets, such as loan types, interest rates and
recent
F-9
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
prepayment experience. Unrealized gains and losses from fair value adjustments
on mortgage securities identified as trading are included in earnings.
In October of 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise" ("SFAS 134"). This Statement
required mortgage-banking enterprises to classify as trading securities any
retained mortgage-backed securities that it commits to sell before or during
the securitization process. It also required mortgage-banking enterprises to
classify mortgage-backed securities of loans previously held for sale, based
on its ability and intent to hold the securities. IndyMac adopted SFAS 134 on
December 31, 1998 and, as a result, reclassified all of its trading securities
to available for sale. The fair value of the portfolio which was reclassified
by IndyMac was $109.3 million.
8. Allowance for Loan Losses
IndyMac maintains an allowance for credit losses on its loan portfolios.
Additions to the allowance are based on assessments of certain factors,
including, but not limited to, estimated inherent losses on the loans, general
economic conditions, and trends in portfolio volume, composition, borrower
credit quality, maturity and delinquency. Additions to the allowance are
provided through a charge to earnings. Specific valuation allowances may be
established for loans that are deemed impaired, if default by the borrower is
deemed probable, and if the fair value of the loan or the collateral is
estimated to be less than the gross carrying value of the loan. Actual losses
on loans are recorded as a reduction to the allowance through charge off.
Subsequent recoveries of items previously charged off are credited to the
allowance.
9. Real Estate Acquired In Settlement of Loans
Real estate acquired in settlement of loans is initially recorded at the
lower of cost or fair value less estimated costs to sell through a charge to
the allowance for loan losses. Subsequent declines in value are charged to
earnings.
10. Collateralized Mortgage Obligations and Deferred Issuance Costs
CMO's are carried at their outstanding principal balances, net of
unamortized original issuance costs. Also included in CMO's is interest
payable on the obligations. Issuance costs have been deferred and are
amortized to interest expense over the estimated life of the CMO's using the
effective interest method. Unamortized deferred issuance costs are included in
other assets in IndyMac's consolidated balance sheets.
11. Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements totaling $717,800 and
$757,000 were included in other assets in the consolidated balance sheets at
December 31, 1999 and 1998, respectively. Property, equipment and leasehold
improvements are stated at cost, less accumulated depreciation and
amortization. Depreciation is provided in amounts sufficient to relate the
cost of depreciable assets to operations over their estimated service lives
using the straight-line method. Estimated service lives generally range from
three to seven years. Leasehold improvements are amortized over the lesser of
the life of the lease or the service lives of the improvements using the
straight-line method. IndyMac capitalizes external direct costs of materials
and services consumed in developing or obtaining internal-use computer
software and salary costs relating to the respective employees' time spent on
the software project during the application development stage.
F-10
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Interest Rate Swap Agreements
IndyMac utilizes interest rate swap agreements to mitigate interest rate
risk inherent in a portion of its portfolio of loans held for investment. The
differential to be received or paid under the agreements is accrued and is
recognized as an adjustment to interest expense for loans and securities sold
under agreements to repurchase. The related amount payable to or receivable
from counterparties is included in either other assets or accrued liabilities.
13. Income Taxes
Effective January 2000, IndyMac converted to a fully taxable entity. See
Note P--Subsequent Events, for further information.
During the years ended December 31, 1999, 1998, and 1997, IndyMac operated
so as to qualify as a REIT under the requirements of the Internal Revenue
Code. Requirements for qualification as a REIT include various restrictions on
ownership of IndyMac REIT's stock, requirements concerning distribution of
taxable income, and certain restrictions on the nature of assets and sources
of income. Among other things, a REIT must distribute at least 95% of its
taxable income to its shareholders, the distribution of which may extend until
timely filing of its tax return for its subsequent taxable year. Qualifying
distributions of its taxable income are deductible by a REIT in computing its
taxable income. Accordingly, no provision for income taxes has been made for
IndyMac. If in any tax year IndyMac should not qualify as a REIT, it would be
taxed as a corporation, and distributions to the shareholders would not be
deductible in computing taxable income. If IndyMac were to fail to qualify as
a REIT in any tax year, it would not be permitted to qualify for that year and
the succeeding four years.
14. Pro forma Earnings Per Share
In accordance with Securities and Exchange Commission Staff Accounting
Bulletin 55 ("the regulation"), historical net income for 1999 has been
adjusted for the pro forma provision for income taxes calculated assuming the
Company was subject to income taxation. Pro forma earnings per share are
similarly presented for the year ended December 31, 1999, reflecting the
pro forma effect to the change in the Company's taxable structure to a fully
taxable entity effective in January of 2000. Pro forma basic earnings per
share are computed by dividing pro forma income available to common
shareholders by the weighted average number of common shares outstanding. Pro
forma diluted earnings per share takes into consideration common shares
outstanding and potentially dilutive common shares, such as stock options. The
Company's actual basic and diluted earnings per share for the year ended
December 31, 1999 were $1.49 and $1.48, respectively; however, these are not
representative of the Company's expected future earnings per share. In
accordance with the regulation, historical net income per share is not
presented, as it is not meaningful based upon the Company's conversion from a
non-taxable REIT to a fully taxable entity effective January 2000. See Note
P--Subsequent Events.
15. Stock-Based Compensation
The Company's stock compensation is provided to employees in accordance
with the 1998 Plan, as amended which allows for the grant of various types of
awards including, but not limited to, nonqualified stock options, incentive
stock options, restricted stock awards, and stock bonuses to employees
(including officers and directors) of IndyMac, IndyMac Operating, and their
respective subsidiaries or affiliates and certain consultants or advisors to
IndyMac, IndyMac Operating, and their respective subsidiaries or affiliates.
Awards are granted based upon the fair market value of IndyMac's stock on the
grant date.
IndyMac accounts for stock awards in accordance with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
("SFAS 123"), which allows companies to continue to
F-11
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
recognize compensation expense pursuant to Accounting Principles Board Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees" but requires
companies to disclose the effect on earnings of compensation expense for stock
options based on the fair value of the options at the grant date.
16. Recent Accounting Pronouncements
In June of 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This Statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. SFAS 133 requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. SFAS 133 is effective for all fiscal
years beginning after June 15, 2000 (January 1, 2001 for the Company), with
earlier adoption permitted. The Company is currently in the process of
determining the impact of the adoption of SFAS 133 on its financial position
and results of operations.
NOTE B--LOANS HELD FOR SALE, NET
Substantially all of the loans purchased by IndyMac are fixed-rate and
adjustable-rate nonconforming loans secured by first liens on single-family
residential properties. Approximately 35.3% of the principal amount of loans
held for sale at December 31, 1999 were collateralized by properties located
in California. In 1999, IndyMac purchased loans held for sale with an
aggregate principal balance of $5.9 billion and sold loans with an aggregate
principal balance of $6.3 billion to IndyMac Operating.
NOTE C--OTHER LOANS, NET
Mortgage loans held for investment, net at December 31, 1999 and 1998 were
$869.2 million and $668.5 million, respectively. As of December 31, 1999,
outstanding principal balances included $373.2 million of adjustable-rate
prime and subprime loans, $202.8 million of fixed-rate prime and subprime
loans, $105.6 million in manufactured housing loans, and $224.4 million of
home improvement loans. As of December 31, 1998, outstanding principal
balances included $427.2 million of adjustable-rate loans, $234.5 million of
fixed-rate loans and $26.1 million in manufactured housing loans. The weighted
average coupon on mortgage loans held for investment was 9.3% and 8.4% at
December 31, 1999 and 1998, respectively. Included in mortgage loans held for
investment at December 31, 1999 are $63.0 million of loans on which interest
income was not accruing due to the non-performing status of such loans. Non-
performing loans at December 31, 1998 totaled $39.3 million.
IndyMac's construction lending program consists of CLCA which offers a
variety of residential construction, land and lot loan programs for builders
and IndyMac CLD which facilitates the purchase of a variety of consumer
residential construction to permanent loans, land and lot loans through its
B2B customers ("sellers"). The carrying amount of builder construction loans
was $732.5 million and $799.7 million at December 31, 1999 and 1998,
respectively. The carrying amount of consumer construction loans was
$356.1 million and $468.7 million at December 31, 1999 and 1998, respectively.
The weighted average coupon on construction loans was 9.2% and 8.7% as of
December 31, 1999 and 1998, respectively.
NOTE D--ALLOWANCE FOR LOAN LOSSES
IndyMac's determination of the level of the allowance for loan losses and
correspondingly, the provision for loan losses, rests upon various judgments
and assumptions, including general economic conditions, loan portfolio
composition, prior loan loss experience, delinquency trends and IndyMac's
ongoing examination process. The allowance for loan losses of $53.7 million is
considered adequate to cover losses inherent in the
F-12
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
loan portfolio at December 31, 1999. However, no assurance can be given that
IndyMac will not, in any particular period, sustain loan losses that exceed
the allowance, or that subsequent evaluation of the loan portfolio, in light
of the factors then-prevailing, including economic conditions, the credit
quality of the assets comprising the portfolio and the ongoing examination
process, will not require significant increases in the allowance for loan
losses.
The table below summarizes the changes to the allowance for loan losses:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at January 1............................ $ 50,112 $ 26,682 $15,264
Provision for the year.......................... 16,446 35,892 18,622
Charge-offs, net of recoveries.................. (12,812) (12,462) (7,204)
-------- -------- -------
Balance at December 31.......................... $ 53,746 $ 50,112 $26,682
======== ======== =======
</TABLE>
NOTE E--MORTGAGE SECURITIES
At December 31, 1999 and 1998, the Company's mortgage securities were
comprised of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
-------- --------
(Dollars in
thousands)
<S> <C> <C>
AAA rated interest-only securities........................ $332,364 $132,163
AAA rated senior securities............................... 46,871 6,621
Agency securities......................................... 39,808 37,047
Other investment grade securities......................... 12,200 9
-------- --------
Total investment grade securities....................... 431,243 175,840
Non-investment grade residual securities.................. 37,230 58,083
Other non-investment grade securities..................... 2,758 1,109
-------- --------
Total non-investment grade securities................... 39,988 59,192
-------- --------
Total mortgage securities............................... $471,231 $235,032
======== ========
</TABLE>
Contractual maturities of the mortgage securities generally range from 10
to 30 years. As of December 31, 1999 and 1998, substantially all of IndyMac's
mortgage securities were pledged as collateral for loans and securities sold
under agreements to repurchase. The following table summarizes the amortized
cost and estimated fair value of mortgage securities classified as available
for sale as of December 31, 1999 and 1998.
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
(Dollars in
thousands)
<S> <C> <C>
Amortized cost........................................... $458,578 $253,398
Gross unrealized gains................................... 37,325 317
Gross unrealized losses.................................. (24,672) (18,683)
-------- --------
Estimated fair value..................................... $471,231 $235,032
======== ========
</TABLE>
IndyMac Operating sold $204.1 million of AAA rated interest-only securities
to IndyMac at the close of business on December 31, 1999, recognizing a pre-
tax gain of $17.1 million ($9.8 million net of tax). This transaction is
reported in the separate financial statements of IndyMac, Inc., however is
eliminated in the equity in earnings of IndyMac, Inc. and has no impact on the
consolidated earnings of IndyMac.
F-13
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Prepayment speed assumptions used to value the Company's AAA rated
interest-only securities portfolio are based primarily on historical
experience, and market expectations developed from collateral coupon and
seasoning. At December 31, 1999, the average constant prepayment rate
assumption approximated 11.5%, and weighted average discount rates ranged from
11% to 14%. The actual constant prepayment rate was 10.5% for the month of
December.
The fair value for IndyMac's residual securities is determined by
discounting estimated net future cash flows, using discount rates that
approximate current market rates and using current expected prepayment rates.
Estimated net future cash flows include assumptions related to expected credit
losses on these securities. IndyMac maintains a model that evaluates the
default rate and severity of loss on the residual securities' collateral,
considering such factors as loss experience, delinquencies, loan to value
ratio, borrower credit scores and property type. As of December 31, 1999, the
weighted average discount rate was 20%, the average constant prepayment rate
approximated 30%, and the annual loss rate was 1.3%.
The change in net unrealized holding gains (losses) on trading securities
totaling $(14.3) million and $2.2 million were included in net earnings during
the years ended December 31, 1998 and 1997, respectively. There were no
trading securities during the year ended December 31, 1999.
NOTE F--COLLATERAL FOR COLLATERALIZED MORTGAGE OBLIGATIONS
Collateral for CMO's consists primarily of fixed-rate mortgage loans,
secured by first liens on single-family residential real estate, and mortgage-
backed securities. All principal and interest collected from the collateral is
remitted to a trustee and, together with any reinvestment income earned
thereon, is available for payment on the CMO's. Credit risk on the mortgage
loans is reduced to an extent, under a pool insurance policy provided by a
private mortgage insurer on certain of the CMO's. Furthermore, IndyMac's
mortgage-backed securities pledged to secure CMO's are guaranteed as to the
repayment of principal and interest of the underlying mortgages by Freddie
Mac. The maximum amount of credit risk related to IndyMac's investment in
mortgage loans included in collateral for CMO's is equal to the outstanding
principal balance of the mortgage loans plus accrued interest.
The weighted average coupon on collateral for CMO's was 7.0% and 7.6% at
December 31, 1999 and 1998, respectively.
NOTE G--BORROWINGS
IndyMac's borrowings consisted of the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(Dollars in
thousands)
<S> <C> <C>
Loans and securities sold under agreements to
repurchase......................................... $2,018,010 $2,942,270
Syndicated bank lines............................... 513,339 659,279
Commercial paper conduit............................ 190,001 184,000
---------- ----------
$2,721,350 $3,785,549
========== ==========
</TABLE>
Loans and securities sold under agreements to repurchase
In May of 1999, the Company renewed a repurchase facility with Merrill
Lynch, Pierce, Fenner & Smith, Inc. and certain of its affiliates, in an
aggregate committed principal amount of $1.5 billion, and uncommitted amounts
to be determined upon mutual agreement. The agreement is committed for a
period of at least two years from the date of execution and currently permits
the Company to finance its prime and subprime lending
F-14
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
operations, mortgage portfolio, warehouse lending, construction lending and
manufactured housing lending assets and operations. The repurchase facility
carries a floating rate of interest based on the London Interbank Offered
Rates ("LIBOR"), plus an applicable margin, which varies by the type of asset
financed. The Company is permitted to borrow additional uncommitted amounts
under this repurchase facility. As of December 31, 1999, the total balance of
outstanding loans from Merrill Lynch was $1.4 billion, of which $1.3 billion
were outstanding borrowings by IndyMac.
In September of 1999, the Company renewed a repurchase facility with
PaineWebber Real Estate Securities, Inc. in an aggregate principal amount of
$500 million. Such repurchase facility is committed for a two-year period from
the date of execution and currently permits the Company to finance its prime
and subprime lending operations, warehouse lending, consumer construction and
mortgage portfolio assets and operations. Such repurchase facility carries a
floating rate of interest based on LIBOR, plus an applicable margin, which
varies by the type of repurchase facility. The Company is permitted to borrow
additional uncommitted amounts under this repurchase facility. As of December
31, 1999, the total balance of outstanding loans from PaineWebber Real Estate
Securities, Inc. was $494.9 million, of which $404.4 million were outstanding
borrowings by IndyMac.
In January of 1999, the Company entered into a one-year committed
repurchase facility with Morgan Stanley Mortgage Capital Inc. in an aggregate
principal amount of $500 million. In December of 1999, this facility was
renewed and extended for an 18-month period. This repurchase facility finances
the Company's prime and subprime mortgage portfolio assets, consumer business-
to-business operations and home improvement portfolio. The repurchase facility
carries a floating rate of interest based on LIBOR, plus an applicable margin,
which varies by type of asset financed. As of December 31, 1999, the total
balance of outstanding loans from this repurchase facility was $223.4 million.
At December 31, 1999, substantially all of the Company's mortgage loans,
manufactured housing loans, home improvement loans, and revolving warehouse
lines of credit were pledged to secure the Company's borrowings under
repurchase facilities. The amount outstanding at December 31, 1999 under
IndyMac's repurchase facilities was $2.0 billion. These facilities generally
reprice on an overnight to one month basis.
IndyMac Operating may borrow under each of the Company's agreements as a
co-borrower. As a condition of this co-borrower agreement, IndyMac obtains
from IndyMac Operating a guarantee fee equal to 75 basis points. As of
December 31, 1999, IndyMac Operating had $170.8 million outstanding under
repurchase agreements.
These repurchase agreements bear interest at rates indexed to LIBOR or the
federal funds rate, plus an applicable margin. For the years ending December
31, 1999 and 1998, the weighted average borrowing rate on these repurchase
agreements was 5.7% and 6.0%, respectively. None of the counterparties is
affiliated with the Company. At December 31, 1999, the Company was in
compliance with all material representations, warranties and covenants under
its repurchase agreements.
Revolving Credit Facility
In May of 1995, the Company entered into a two-year committed credit
facility with a syndicate of nine commercial banks led by First Union National
Bank. This facility primarily finances mortgage loans, construction loans, and
mortgage servicing rights. The interest rates under this credit facility are
based, at the Company's election, on LIBOR or the federal funds rate, plus an
applicable margin, which varies by the type of asset financed. In February of
1998, the Company amended this facility, by among other things, increasing the
available committed borrowings from $500 million to $900 million, expanding
the types of collateral which can be financed thereunder and extending the
term of the commitment to February of 2001. For the years ending
F-15
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998, the weighted average borrowing rate under this
facility was 5.6% and 6.0%, respectively. At December 31, 1999, the Company
was in compliance with all material representations, warranties and covenants
under this revolving credit facility. IndyMac Operating may borrow under this
facility as a co-borrower. As of December 31, 1999, the Company had $602.4
million outstanding in borrowings under this facility, of which $513.3 million
were outstanding borrowings by IndyMac.
Commercial Paper Conduit
In December of 1998, IndyMac entered into a $200 million commercial paper
conduit facility with Bank of America (formerly NationsBank). This facility
finances residential builder construction loans at a floating interest rate
based on the prevailing commercial paper market. The amount outstanding at
December 31, 1999 was $190.0 million. For the year ending December 31, 1999
the weighted average borrowing rate under this facility was 6.0%. This
facility expired in March of 2000, at which time it was renewed through March
of 2001.
At December 31, 1999 and 1998, the Company had commitment fees totaling
$3.7 million and $2.5 million, respectively, net of accumulated amortization
of $3.9 million and $2.0 million. IndyMac amortizes these fees over the
contractual life of its borrowings.
NOTE H--COLLATERALIZED MORTGAGE OBLIGATIONS
Collateralized mortgage obligations are secured by a pledge of mortgage
loans, mortgage-backed securities and residual cash flows from such
securities. As required by the indentures relating to the CMO's, the pledged
collateral is held in the custody of trustees. The trustees collectively also
held investments in GIC's amounting to $0.9 million and $2.1 million on the
CMO collateral as of December 31, 1999 and 1998, respectively, as additional
collateral which is legally restricted to use in servicing the CMO's. The
trustees collect principal and interest payments on the underlying collateral,
reinvest such amounts in the GIC's, and make corresponding principal and
interest payments on the CMO's to the bondholders. Each series is subject to
redemption according to specific terms of the respective indentures. As a
result, the actual maturity of any class of a CMO series may occur earlier
than its stated maturity, which ranges from the year 2000 to the year 2025.
The weighted average coupon on CMO's was 7.0% and 7.2% at December 31, 1999
and 1998, respectively. IndyMac's investment in CMO residuals amounted to $6.6
million and $21.6 million at December 31, 1999 and 1998, respectively.
NOTE I--SENIOR UNSECURED NOTES
In October of 1995, the Company completed the private placement of senior
unsecured notes in the aggregate amount of $60.5 million with certain
institutional lenders. The notes bear interest at 8.9% and mature October 15,
2002. The notes require principal repayment in three equal installments of
$20.2 million on October 15 in each of 2000, 2001 and 2002. The notes are
carried net of discount and issuance costs which are amortized to interest
expense over the life of the notes using the interest method. The effective
interest rate on the notes, including discount and costs of issuance, is 9.2%.
F-16
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE J--PRO FORMA EARNINGS PER SHARE
The following is a reconciliation of the numerator and denominator of the
pro forma basic and pro forma diluted earnings per share calculation for the
year ended December 31, 1999.
<TABLE>
<CAPTION>
Pro forma Average Pro forma
Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- -----------
(unaudited) (unaudited)
(In thousands, except per share data)
<S> <C> <C> <C>
Basic pro forma earnings............... $67,556 77,596 $0.87
Effect of options...................... -- 694 (.01)
------- ------ -----
Diluted pro forma earnings............. $67,556 78,290 $0.86
======= ====== =====
</TABLE>
Antidilutive options totaling 1.1 million shares were not included in the
calculation of pro forma diluted earnings per share for the year ended
December 31, 1999.
NOTE K--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the estimated fair values of the various
classes of financial instruments held by IndyMac as of December 31, 1999 and
1998. The estimated fair value amounts have been determined by IndyMac using
available market information and valuation methods that the Company believes
are appropriate under the circumstances. These estimates are inherently
subjective in nature and involve matters of significant uncertainty and
judgment to interpret relevant market and other data. The use of different
market assumptions and/or estimation methods may have a material effect on the
estimated fair value amounts.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets:
Loans held for sale......... $ 615,243 $ 615,243 $1,555,656 $1,555,656
Loans held for investment... 869,213 877,591 668,523 698,700
Residential construction and
income property loans...... 1,228,789 1,228,789 1,447,203 1,447,203
Warehouse lines of credit... 241,123 241,123 443,946 443,946
Mortgage securities
available for sale......... 471,231 471,231 235,032 235,032
Collateral for CMO's........ 88,973 87,472 162,726 166,035
Liabilities:
Loans and securities sold
under agreements to
repurchase................. 2,018,010 2,018,010 2,942,270 2,942,270
Syndicated bank lines and
commercial paper conduit... 703,340 703,340 843,279 843,279
Collateralized mortgage
obligations................ 82,434 80,552 140,810 143,868
Senior unsecured notes...... 60,189 61,954 60,031 65,094
Off-balance sheet gains
(losses):
Interest rate swaps......... -- -- -- (186)
</TABLE>
The fair value estimates as of December 31, 1999 and 1998 are based on
pertinent information available to management as of those dates. The estimates
have not been comprehensively reevaluated or updated since those dates for
purposes of these financial statements and, therefore, current estimates of
fair value may differ significantly from the amounts presented herein.
F-17
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following describes the methods and assumptions used by IndyMac in
estimating fair values:
Loans Held for Sale. In connection with the Master Forward Commitment and
Services Agreement between IndyMac and IndyMac Operating, mortgage loans
originally purchased by IndyMac are committed for sale to IndyMac Operating at
the same price at which the loans were acquired by IndyMac.
Loans Held for Investment. Fair value is estimated using either prices
offered by the Company for similar types of loans or quoted market prices from
dealers and brokers for similar types of loans.
Residential Construction Loans, Income Property Loans, and Warehouse Lines
of Credit. Fair values approximate the carrying amounts of each of the
aforementioned assets due to their respective short-term nature or short-term
repricing characteristics.
Mortgage Securities Available for Sale. Fair value is estimated using
quoted market prices and by discounting future cash flows using discount rates
that approximate current market rates and prepayment expectations for
securities with the same or similar characteristics.
Collateral for Collateralized Mortgage Obligations. Fair value is estimated
using either offer prices by the Company for similar types of loans or quoted
market prices from dealers and brokers for loans and for securities backed by
similar types of loans.
Collateral for Collateralized Mortgage Obligations cannot be sold until the
related obligations mature or are otherwise paid or redeemed. As a
consequence, the aggregate market values indicated above may not be
realizable. As a REIT, IndyMac's ability to sell these assets for a gain also
is subject to restrictions under the Internal Revenue Code and any such sale
may result in substantial and even punitive additional tax liability.
Loans and Securities Sold Under Agreements to Repurchase, Syndicated Bank
Lines, and Commercial Paper Conduit. Fair values approximate the carrying
amounts for borrowings with remaining maturities of one year or less.
Collateralized Mortgage Obligations. Fair value is estimated using cash
flow analyses based on current interest rates and prepayment expectations.
Senior Unsecured Notes. Fair values are estimated by discounting future
cash flows using rates currently available to IndyMac for debt with similar
terms and remaining maturities.
Commitments to Purchase and Sell Loans. There is no fair value of
commitments to purchase loans as all loans committed for purchase by IndyMac
are committed for sale to IndyMac Operating at IndyMac's purchase price.
Interest Rate Swaps. Fair value is estimated using discounted cash flow
analyses based on current market yields for similar instruments and remaining
maturities.
NOTE L--COMMITMENTS AND CONTINGENCIES
Acquisition
In July of 1999, IndyMac 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, $358.2 million in deposits,
$489.8 million in assets, and 27,000 customer accounts as of December 31, 1999
(unaudited).
F-18
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
IndyMac 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 was approved
by the shareholders of both IndyMac and SGVB on December 14, 1999 and is
pending approval by the Office of Thrift Supervision ("OTS").
Financial Instruments
In the normal course of business, IndyMac is a party to financial
instruments with off-balance sheet risk. These financial instruments include
short-term commitments to extend credit to borrowers which involve elements of
credit risk. Additionally, IndyMac is exposed to credit losses in the event of
nonperformance by counterparties to the various agreements associated with
loan purchases. However, IndyMac does not anticipate nonperformance by such
borrowers or counterparties. Unless noted otherwise, IndyMac does not require
collateral or other security to support such commitments.
IndyMac also uses interest rate swaps to help manage interest rate risk.
While IndyMac does not anticipate nonperformance by the counterparties, the
Company manages credit risk with respect to such financial instruments by
entering into agreements with entities approved by senior management and
initially having a long-term credit rating of single A or better (by one or
more nationally recognized credit rating agencies) at the time the relevant
swap is consummated. These entities are Wall Street firms having primary
dealer status. The Company's exposure to credit risk in the event of default
by the counterparty is the difference between the contract price and the
current market price of the instrument being utilized. Unless noted otherwise,
the Company does not require collateral or other security to support financial
instruments with credit risk with approved counterparties. The following types
of commitments were outstanding at year-end:
Commitments to Purchase and Sell Loans. As of December 31, 1999 and 1998,
IndyMac had entered into commitments to purchase loans totaling $462.1 million
and $498.4 million, respectively, subject to origination or acquisition of
such loans by various approved originators. During the years ended December
31, 1999 and 1998, IndyMac purchased loans totaling $5.8 billion and $11.8
billion, respectively. As of December 31, 1999 and 1998, IndyMac had committed
to sell $1.1 billion and $2.1 billion, respectively, of loans to IndyMac
Operating. After the purchase and sale of the loans, IndyMac's exposure to
credit loss in the event of nonperformance by the mortgagor is limited.
Construction Lending Credit Commitments. As of December 31, 1999 and 1998,
IndyMac had aggregate undisbursed construction loan commitments totaling
$798.6 million and $1.1 billion, respectively. As of December 31, 1999,
IndyMac had entered into various letters of credit totaling $25.3 million. To
the extent these letters of credit were drawn, IndyMac would be obligated to
reimburse the draws.
Revolving Warehouse Credit Commitments. IndyMac's warehouse lending program
provides secured short-term revolving financing to small and medium-size
mortgage originators to finance mortgage loans from the closing of the loans
until they are sold to permanent investors. At December 31, 1999 and 1998,
IndyMac had extended lines of credit under this program in the aggregate
amount of $985.5 million and $1.1 billion, respectively, of which $279.0
million and $447.0 million, respectively, was outstanding (unpaid principal
balance).
Interest Rate Swap. As of December 31, 1998, IndyMac had one interest rate
swap agreement with certain securities dealers with a combined notional amount
of $25.0 million. The effect of this agreement is to convert a portion of
short-term repurchase agreement financing to a medium-term fixed rate
borrowing facility. IndyMac pays a weighted average fixed interest rate of
6.2% and receives a floating interest rate based on the one month LIBOR. This
contract expired during 1999.
F-19
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Lease commitments
IndyMac leases office facilities and equipment under lease agreements
extending through 2003. Future minimum annual rental commitments under these
non-cancelable operating leases, with initial or remaining terms of one year
or more are as follows:
<TABLE>
<CAPTION>
(Dollars
in thousands)
<S> <C>
For the year ending December 31,
2000......................................................... $ 833
2001......................................................... 698
2002......................................................... 62
2003......................................................... 3
2004......................................................... --
Thereafter................................................... --
------
Total minimum lease payments............................... $1,596
======
</TABLE>
Rental expense, net of sublease income, for all operating leases was $1.6
million, $1.1 million, and $0.9 million in 1999, 1998, and 1997, respectively.
In accordance with the Expense Allocation Agreement between IndyMac and
IndyMac Operating, lease expense costs totaling $1.2 million and $0.9 million
were allocated to IndyMac during 1999 and 1998, respectively.
NOTE M--BENEFIT PLANS
Stock Incentive Plans
IndyMac has one stock incentive plan, the 1998 Stock Incentive Plan ("1998
Plan"), which provides for the granting of non-qualified stock options,
incentive stock options, restricted stock awards, performance stock awards,
and stock bonuses to employees of the Company (including officers and
directors). Options and awards are granted at the average market price of the
Company's common stock on the date of grant, and vest over varying periods
generally beginning at least one year from the date of grant, and expiring
five or ten years from date of grant.
Under the 1998 Plan, 287,786 restricted stock awards were granted during
1999 (of which 174,818 restricted stock awards were granted to IndyMac
Operating employees during 1999), for a fair value of $3.4 million and a
weighted average share price of $11.83. As of December 31, 1999 there were
699,745 awards outstanding. Awards forfeited during 1999 were 40,100. Paid-in
capital in excess of par and unearned compensation was recorded for the fair
value of the awards issued. Unearned compensation is being amortized to
compensation expense over the vesting period, not exceeding five years, and is
recorded as a reduction in shareholders' equity. Total compensation expense
for IndyMac during 1999 related to these awards was $1,116,198.
On December 14, 1998, the Company repriced 2,895,326 stock options. At this
repricing date, approximately 50% of such stock options were repriced at $9.78
or fair value, 25% of such stock options were repriced at $12.22 or 125% of
fair value, and the remaining 25% of such stock options were repriced at
$14.67 or 150% of fair value. On January 26, 1999, the Company repriced an
additional 242,252 stock options. At this repricing date, approximately 50% of
such stock options were repriced at $11.16 or fair value, 25% of such stock
options were repriced at $13.95 or 125% of fair value, and the remaining 25%
of such stock options were repriced at $16.73 or 150% of fair value.
Management believes such repricings were necessary to preserve the incentive
originally intended, and were in response to the decline in the Company's
stock price precipitated by
F-20
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the market disruption in the fourth quarter of 1998, which negatively affected
substantially all mortgage companies' stock prices. In accordance with the
provisions of SFAS 123, the compensation cost of the repriced options, at the
options' fair values, were included in the determination of pro forma earnings
for 1999 and 1998 presented below.
As of December 31, 1999, options to purchase 1,902,445 shares were
exercisable. There were 3,712,251 shares reserved for options and future award
grants outstanding under the plans as of December 31, 1999. Stock option
transactions for the years ended December 31, 1999, 1998 and 1997,
respectively, are summarized as follows:
<TABLE>
<CAPTION>
Number of Shares
-------------------------------------
1999 1998 1997
--------- ---------- ---------
<S> <C> <C> <C> <C>
Options outstanding at beginning of
year............................... 3,160,524 2,610,791 1,493,839
Options granted................... 2,365,670 4,833,200 1,517,969
Options exercised................. (159,938) (1,081,225) (312,612)
Options canceled.................. (433,738) (3,202,242) (88,405)
--------- ---------- ---------
Options outstanding at end of year.. 4,932,518 3,160,524 2,610,791
========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
Weighted Average
Exercise Price
--------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Options outstanding at beginning of year............... $12.45 $20.03 $16.36
Options granted...................................... 11.18 16.26 22.51
Options exercised.................................... 11.13 18.18 14.33
Options canceled..................................... 17.56 22.46 20.79
------ ------ ------
Options outstanding at end of year..................... $11.44 $12.45 $20.03
</TABLE>
The following summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average
Number Remaining Weighted Number Weighted
Outstanding Contractual Average Exercisable Average
At Period Life Exercise At Period Exercise
Range of Exercise Prices End (Years) Price End Price
------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$9.78-$11.63............ 3,180,684 4.59 $10.25 987,728 $ 9.95
$12.22-$14.67........... 1,668,063 6.46 13.51 850,969 13.65
$14.72-$23.94........... 83,771 8.35 16.75 63,748 17.01
--------- ---- ------ --------- ------
$9.78-$23.94............ 4,932,518 5.29 $11.44 1,902,445 $11.84
========= =========
</TABLE>
F-21
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Had compensation expense been recorded in accordance with SFAS 123, the
Company's net after tax pro forma earnings and pro forma earnings per share
would have been as follows for the year ended December 31, 1999:
<TABLE>
<CAPTION>
1999
-------------
(Dollars
in thousands,
except per
share data)
<S> <C>
Pro Forma Net Earnings
As reported.................................................. $67,556
Adjusted..................................................... 66,425
Pro Forma Basic Earnings Per Share
As reported.................................................. $ 0.87
Adjusted..................................................... $ 0.86
Pro Forma Diluted Earnings Per Share
As reported.................................................. $ 0.86
Adjusted..................................................... $ 0.85
</TABLE>
Had compensation expense been recorded in accordance with SFAS 123, the
impact to net earnings would have been a reduction of $3.7 million and $2.6
million for the years ended December 31, 1998 and 1997, respectively. The
number of options granted to IndyMac Operating employees and included in the
above calculation were 745,300, 1,618,291 and 438,589 for 1999, 1998, and
1997, respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model modified to consider cash dividends to
be paid. The following weighted average assumptions were used for grants in
1999, 1998, and 1997: dividend yield ranging from 0% to 8%; expected
volatility ranging from 21% to 59%; risk-free interest rates ranging from 4.6%
to 6.2% and expected lives for options granted of three years for each of the
three years ended December 31, 1999. The average fair value of options granted
during 1999, 1998 and 1997 was $2.27, $1.08 and $3.24, respectively.
Pension Plan
In 1998, the Company adopted a defined benefit pension plan (the "Plan")
covering substantially all of its employees. Employees with one or more years
of service are entitled to annual pension benefits beginning at normal
retirement age (65 years of age) equal to a formula approximating 0.9% of
final average compensation multiplied by credited service (not in excess of 35
years), subject to a vesting requirement of five years service. The Company's
policy is to contribute the amount actuarially determined to be necessary to
pay the benefits under the Plan, and in no event to pay less than the amount
necessary to meet the minimum funding standards of ERISA.
The changes in Plan assets during 1999 consisted of the actual return on
assets of $102 thousand, and employer contributions of $227 thousand, for a
net fair value of $329 thousand at December 31, 1999.
Changes in the benefit obligation were as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
---------------
1999 1998
------- ------
(Dollars
in thousands)
<S> <C> <C>
Benefit obligation, beginning of year....................... $ 488 $ 247
Service cost................................................ 267 157
Interest cost............................................... 38 17
Actuarial (gain) loss....................................... (116) 67
------- ------
Benefit obligation, end of year............................. $ 677 $ 488
======= ======
</TABLE>
F-22
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reconciliations of funded status were as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
1999 1998
------ ------
(Dollars
in thousands)
<S> <C> <C>
Funded status............................................... $ (348) $ (488)
Unamortized prior service cost.............................. 221 234
Unrecognized net actuarial (gain) loss...................... (145) 67
------ ------
Accrued pension cost........................................ $ (272) $ (187)
====== ======
</TABLE>
Net periodic expense for the Plan was as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
1999 1998
------ ------
(Dollars
in thousands)
<S> <C> <C>
Service cost................................................. $ 267 $ 157
Interest cost................................................ 38 17
Expected return on assets.................................... (9) --
Amortization of prior service cost........................... 13 13
Recognized net (gain) loss................................... 4 --
------ ------
Net periodic expense......................................... $ 313 $ 187
====== ======
</TABLE>
Weighted average assumptions used in accounting for the Plan were as
follows:
<TABLE>
<CAPTION>
Year
ended
December
31,
----------
1999 1998
---- ----
<S> <C> <C>
Assumed discount rate............................................ 7.50% 6.75%
Rate of compensation increase.................................... 4.00% 4.00%
Expected return on assets........................................ 8.00% 8.00%
</TABLE>
Contribution Plan
In 1997, IndyMac adopted a defined contribution plan (the "401(k) Plan")
covering substantially all of its employees. Employees with one or more years
of service may contribute up to 16% of annual compensation to a maximum of
$10,000 of pre-tax annual compensation. IndyMac may determine, at its
discretion, employer matching contributions to be made.
NOTE N--RELATED PARTY TRANSACTIONS
IndyMac Operating has a revolving credit facility and term borrowings up to
one year with IndyMac whereby funds are advanced to IndyMac Operating
primarily to finance assets in which IndyMac Operating invests. As of December
31, 1999 and 1998, advances due to IndyMac from IndyMac Operating totaled
$34.0 million and $196.2 million, respectively. Such advances bear interest at
rates indexed to the London InterBank Offering Rate. Interest charged on
advances by IndyMac to IndyMac Operating was at a rate of 9.5% at December 31,
1999 and 9.3% at December 31, 1998.
F-23
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On July 1, 1997, IndyMac and Countrywide Credit Industries, Inc. ("CCR")
completed a transaction whereby IndyMac acquired all of the outstanding stock
of its manager, Countrywide Asset Management Corporation ("CAMC"), from CCR in
exchange for 3,440,860 new shares of common stock of IndyMac and became self-
managed. IndyMac accounted for this merger as the settlement of its management
contract for accounting purposes, which resulted in a non-recurring charge of
$76 million. For tax purposes, the transaction represents a tax-free exchange
of shares with CCR; accordingly, the transaction did not have a material
effect on IndyMac's taxable income.
Prior to July 1, 1997, IndyMac operated under an agreement (the "Management
Agreement") with CAMC (the "Manager" or "CAMC") to advise IndyMac on various
facets of its business and manage its operations, subject to review and
supervision by the outside directors on IndyMac's Board of Directors. The
Manager had entered into a subcontract with its affiliate, Countrywide Home
Loans, Inc. ("CHL"), to perform such services for IndyMac as the Manager
deemed necessary. For performing these services, the Manager received (1) a
base management fee of 0.125% per annum of average invested mortgage-related
assets not pledged to secure CMO's and excluding loans held for sale, (2) a
separate management fee equal to 0.2% per annum of the average amounts
outstanding under traditional warehouse lines of credit, and (3) incentive
compensation equal to 25% of the amount by which IndyMac's annualized return
on equity exceeded the ten-year U.S. Treasury Rate plus 2%. IndyMac paid
management fees totaling $4.4 million for the year ended December 1997. Prior
to July 1, 1997, the Manager incurred many of the operating expenses of the
Company, including personnel and related expenses, subject to full
reimbursement by the Company.
The Company's B2B operations are primarily conducted by IndyMac Operating
and all other operations are primarily conducted by IndyMac. Accordingly,
IndyMac Operating incurs the majority of the B2B operation's costs and IndyMac
incurs the other operations' costs.
Prior to July 1, 1997, the Company reimbursed CHL for direct and indirect
expenses incurred by CHL on behalf of the Company. Total expenses incurred by
CHL during the six months ended June 30, 1997 included data processing costs
of $1.0 million, occupancy costs of $0.9 million and personnel costs of
$50,000. Data processing and personnel charges were allocated on the basis of
the number of employees. Occupancy charges were allocated on the basis of
square footage occupied by the Company. The majority of these expenses were
allocated to IndyMac Operating as they related primarily to the Company's B2B
operations.
As part of its acquisition of CAMC, the Company entered into a Cooperation
Agreement with CCR whereby certain services previously provided to the Company
by CCR and its affiliates would be provided during a transition period. The
Cooperation Agreement specifies certain costs for the Company to pay CCR for
services during the transition period. Between July 1, 1997 and December 31,
1997, the Company incurred $2.2 million of charges from CCR and its affiliates
associated with the Cooperation Agreement. In 1999 and 1998, total expenses
incurred under the Cooperation Agreement were $253,100 and $421,000,
respectively. IndyMac incurred certain other expenses in 1999 and 1998 related
to telephone usage and equipment, and delivery services of $811,400 and $1.1
million, respectively.
During 1999 and 1998, IndyMac purchased approximately $50,000 and $418.4
million respectively, in non-conforming mortgage loans from CHL.
In 1987 and 1993, IndyMac entered into servicing agreements appointing CHL
as servicer of pools of mortgage loans collateralizing three series of CMO's
with outstanding balances of approximately $24.3 million at December 31, 1999.
CHL is entitled to an annual fee of up to 0.32% of the aggregate unpaid
principal balance of the pledged mortgage loans. Servicing fees received by
CHL under such agreements were approximately $74,000, $132,000 and $186,000 in
1999, 1998 and 1997, respectively.
F-24
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CHL is a wholly-owned subsidiary of CCR, a diversified financial services
company whose shares of common stock are traded on the New York Stock Exchange
(symbol: CCR). CCR owned 3,090,860 shares, or 4.1%, of IndyMac's outstanding
common stock at December 31, 1999. CHL owns all of the common stock and has a
1% economic interest in IndyMac Operating. See discussion of IndyMac's buyout
of CHL's stock in "Note P--Subsequent Events."
At December 31, 1999 and 1998, the Company had $9.6 million and $10.0
million, respectively, in notes receivable from directors and employees of the
Company. Of these amounts, $1.4 million and $1.7 million were secured by stock
held in the directors/employees names at December 31, 1999 and 1998,
respectively. The remaining balances of $8.2 million and $8.3 million at
December 31, 1999 and 1998, respectively, were unsecured. These unsecured
notes were primarily related to the Company's Chairman and Vice Chairman of
the Board of Directors, and were personally guaranteed by such persons. These
notes bear interest at the applicable federal rate, payable at various terms
over 5 to 20 years.
The Company, through CLCA, has from time to time made loans to builders of
residential construction projects, secured by real property, purchased by such
builders from a company doing business as Loeb Enterprises, LLC, in which
IndyMac's chairman and former chief executive officer, Mr. David S. Loeb, is a
major investor together with his family. The non-family executive managers of
Loeb Enterprises, LLC, who run the day-to-day operations of Loeb Enterprises,
LLC, own approximately 26.6% of the equity and profits of that company. Each
project is part of a master planned community that includes various amenities,
being developed by Loeb Enterprises, LLC. In connection with two of the real
property sales transactions between Loeb Enterprises, LLC and the builders to
which CLCA has made construction loans, Loeb Enterprises, LLC has accepted a
second mortgage from each builder to partially finance each builder's purchase
of real property. As part of CLCA's credit review of each project with a
second mortgage, the amount of the second mortgage was considered a part of
the equity of the builder in the project. In each case, the second mortgage is
subordinate to CLCA's financing facility, although both the CLCA financing
facility and the second mortgage are paid down on a unit-by-unit basis.
In the case of each project financed by CLCA, the builder is not affiliated
with either the Company or Loeb Enterprises, LLC, the general risk
characteristics of the construction loan are comparable to those for similar
projects funded by CLCA, and the construction loan facility between CLCA and
the builder has been negotiated at arms length on terms consistent with those
of similar loans made by CLCA to other unaffiliated builders. Moreover, each
credit facility has been approved by the disinterested members of the Board of
Directors of IndyMac.
As of December 31, 1999, CLCA had extended eight construction loan
facilities to builders secured by property originally purchased from Loeb
Enterprises, LLC, with total dollar commitments of $24.1 million, and total
loans outstanding of $15.4 million. Loeb Enterprises, LLC, has posted a bond
for the completion of certain infrastructure improvements, such as arterial
roads, drainage, and utilities in the portion of the master planned community
in which builders are currently building, and these improvements have been
substantially completed. In addition, the builders are contractually
responsible to the city of Sparks, Nevada for certain other improvements such
as roads, drainage, and utilities, within the specific subdivisions of
property they have purchased.
In addition to the foregoing loans, in May of 1998, CLCA made a land and
water rights acquisition loan, secured by among other things approximately
42,000 acres of real property, to Coyote Springs Investment LLC, a Nevada
limited liability company, in which Mr. Loeb and his wife hold a 45% interest
and for which Mr. Loeb acts as a managing member. The remaining 55% interest
in the limited liability company is held by members who are not affiliated
with Mr. Loeb or IndyMac. The loan is personally guaranteed by Mr. Loeb and
his wife. The property is intended to be used by the limited liability company
to develop a master planned community.
F-25
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The loan was negotiated at arms length, and the general risk characteristics
of the loan are comparable to other loans funded by CLCA. Under the terms of
the loan, interest is paid monthly, with annual scheduled principal
reductions. The original principal loan amount was $11.2 million of which
$10.3 million remained outstanding at December 31, 1999. The primary source of
repayment of the loan is derived from the income generated from the sale of
water rights to a local municipality. The terms of the loan have been
disclosed to and approved by the disinterested members of the Board of
Directors of IndyMac.
NOTE O--SEGMENT REPORTING
IndyMac's reportable operating segments include Mortgage Banking,
Investments and Lending.
The Mortgage Banking segment purchases conforming, jumbo and non-conforming
mortgage loans from B2B originators of mortgage loans, funds loans directly to
consumers through LoanWorks/LoanTown (a division of IndyMac Operating), and,
to a lesser extent, finances manufactured housing loans and home improvement
loans. Mortgage loans purchased by IndyMac are generally committed for sale
and sold to IndyMac Operating pursuant to the terms of a Master Forward
Commitment and Services Agreement. These loans are then securitized through
the issuance of mortgage-backed securities in the form of REMICs, or resold in
bulk whole loan sales to permanent investors. The Mortgage Banking segment's
primary source of income is the net spread between interest earned on loans
and the interest cost associated with the borrowings used to finance such
loans pending their sale to IndyMac Operating.
The Investment segment invests in residential loans and securities on a
long-term basis. The Investment segment's principal source of income is the
net spread between interest earned on residential loans held for investment
and on mortgage securities and the interest cost associated with the
borrowings used to finance such assets.
The Lending segment offers a variety of residential construction, land and
lot loan programs for builders and developers and B2B customers through CLCA
and CLD. This segment also engages in secured warehouse lending operations.
The Lending segment's principal source of income is the net spread between the
interest earned on loans and the interest cost associated with the borrowings
used to finance such loans.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies except that the
segment reporting data includes allocations of certain income and expense
accounts of IndyMac in order to present to the reader the operating segments
as reviewed and managed by the Company's chief operating decision maker.
Through December 31, 1999, IndyMac Operating was accounted for by IndyMac
in a method similar to the equity method. At December 31, 1999, the total
investment by IndyMac in IndyMac Operating was $125.4 million. For the year
ended December 31, 1999 IndyMac Operating contributed earnings of $2.1 million
to IndyMac.
F-26
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Segment information for the years ended December 31, 1999, 1998, and 1997
was as follows:
<TABLE>
<CAPTION>
Mortgage
Banking Investments Lending Adjustment Consolidated
---------- ----------- ---------- ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
1999
Net interest income... $ 43,321 $ 23,130 $ 74,015 $ 20,525 $ 160,991
Net revenues.......... 30,069 30,646 67,180 22,634 150,529
Net earnings.......... 29,154 27,371 36,770 22,634 115,929
Assets as of December
31, 1999............. $ 725,493 $1,369,546 $1,506,130 $125,353 $3,726,522
1998
Net interest income... $ 56,942 $ 22,619 $ 76,524 $ 17,381 $ 173,466
Net revenues
(expenses)........... 44,713 (13,719) 72,933 (40,851) 63,076
Net earnings (loss)... 41,462 (16,888) 50,067 (40,851) 33,790
Assets as of December
31, 1998............. $1,617,588 $1,059,112 $2,091,562 $ 82,890 $4,851,152
1997
Net interest income... $ 34,095 $ 29,360 $ 44,999 $ 10,075 $ 118,529
Net revenues.......... 37,040 17,248 43,859 28,489 126,636
Net earnings (loss)... 33,466 13,878 24,462 (47,511) 24,295
Assets as of December
31, 1997............. $1,514,374 $2,663,093 $1,485,928 $185,715 $5,849,110
</TABLE>
NOTE P--SUBSEQUENT EVENTS
During 1999, IndyMac's Board of Directors and shareholders approved the
termination of its income tax status as a REIT, effective January 2000. As a
result of conversion to a fully taxable status, an after tax gain and related
deferred tax asset of $36.1 million was recorded in January 2000. In addition,
the Company's $393.1 million and $577.8 million balance of cumulative earnings
and distributions in excess of earnings, respectively, were closed against
additional paid-in capital. As a fully taxable entity, IndyMac will no longer
be required to distribute 95% of its taxable income to its shareholders, but
will be taxed on its earnings at a combined federal and state effective rate
of 42%. This taxable structure will provide the Company with the ability to
support its lending and securitization businesses with a more stable and
diverse funding base, grow through reinvestment of its retained earnings and
create new product marketing opportunities.
During January of 2000, IndyMac purchased all of IndyMac Operating's
outstanding common stock, which was held by CHL, for $1.8 million. CHL's
minority interest investment of 1% in IndyMac Operating as of the effective
date of the purchase was $922,300. During the three years ended December 31,
1999, IndyMac's investment in IndyMac Operating was accounted for under a
method similar to the equity method. As IndyMac will own 100% of the
outstanding common and preferred stock of IndyMac Operating subsequent to the
buyout of CHL's common stock, IndyMac will use the consolidation method of
accounting for its investment in IndyMac Operating beginning January of 2000.
F-27
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Following is a pro forma of the consolidated income statements of IndyMac
as (1) a fully taxable entity and (2) if IndyMac REIT had 100% ownership of
IndyMac Operating and had accounted for IndyMac Operating using the
consolidation method of accounting beginning January 1, 1999:
<TABLE>
<CAPTION>
(1) Consolidated
Fully (2) Pro forma
Taxable Buyout Income
Entity of CHL Statement
-------- -------- ------------
<S> <C> <C> <C>
Net interest income before provision for
loan losses............................... $160,991 $ 5,621 $166,612
Net revenues............................... 150,529 115,961 266,490
Net earnings............................... 115,929
Pro forma provision for income taxes....... 48,373
Pro forma net earnings..................... 67,556 120 67,676
Basic earnings per share................... $ 0.87 $ 0.00 $ 0.87
Diluted earnings per share................. $ 0.86 $ 0.00 $ 0.86
</TABLE>
Had IndyMac REIT owned 100% of IndyMac Operating's common and preferred
stock at January 1, 1998, net interest income before provision for loan
losses, net revenues, and net earnings would have been $172.2 million, $132.3
million, and $33.2 million, respectively during the year ended December
31,1998.
F-28
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE Q--QUARTERLY FINANCIAL DATA--UNAUDITED
Selected quarterly financial data follows for the years ended December 31,
1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(Dollars in thousands, except per share
data)
<S> <C> <C> <C> <C>
1999
Net revenues.............. $32,780 $36,725 $40,194 $ 40,830
Pro forma net earnings.... 12,588 15,893 19,019 20,056
Pro forma earnings per
share(1):
Basic................... $ 0.16 $ 0.20 $ 0.24 $ 0.27
Diluted................. 0.16 0.19 0.23 0.26
Dividends declared per
share.................... 0.38 0.38 0.60 --
1998
Net revenues.............. $39,037 $42,824 $46,140 $(64,925)
Net earnings (loss)....... 32,564 35,932 39,023 (73,729)
Dividends declared per
share.................... 0.50 0.53 0.38 0.38
</TABLE>
- --------
(1) Pro forma earnings per share are computed independently for each of the
quarters presented. Therefore, the sum of the quarterly pro forma earnings
per share may not equal the total for the year.
F-29
<PAGE>
INDYMAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE IV--MORTGAGE LOANS ON REAL ESTATE
December 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
--------- -------- ---------- ---------------- --------------- -----------
Face Principal Amount
Range of Amount of of Loans Subject
Carrying Mortgages to Delinquent Amount of Range of
Amounts of Number of Prior (1- Principal or Mortgages Being Interest
Mortgages Loans(1) Liens(1) 5)(7)(9) Interest(1) Forclosed(1)(8) Rates(1)(6)
- ---------- --------- -------- ---------- ---------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 0-50.................. 1,417 $ 49,254 $ 1,518 $ 977 6.88-18.99
51-100.................. 1,954 147,111 7,576 5,821 6.75-15.00
101-150................. 1,411 175,431 11,742 10,137 4.75-14.25
151-200................. 869 152,091 11,936 9,910 5.25-12.13
201-250................. 765 173,237 7,378 4,664 5.38-14.00
251-300................. 528 145,231 3,077 2,227 6.50-14.00
301-350................. 284 91,928 3,565 3,256 6.38-12.63
351-400................. 188 70,842 2,634 1,528 7.00-11.00
401-450................. 82 35,195 850 850 6.50-14.00
451-500................. 67 32,052 1,905 2,371 6.63-11.50
501-550................. 41 21,760 547 547 6.50-10.13
551-600................. 44 25,455 1,138 570 7.25-11.13
601-650................. 29 18,369 2,487 3,109 6.63-11.75
651-700................. 11 7,485 -- -- 7.38-10.00
701-750................. 6 4,417 -- -- 7.25- 9.25
751-800................. 11 8,573 -- -- 7.25-11.00
801-850................. 10 8,325 -- 840 7.25-11.00
851-900................. 11 9,617 1,763 1,793 7.50-10.25
901-950................. 9 8,364 -- -- 7.13-11.13
951-1,000............... 28 27,488 960 960 6.25-10.63
over 1,000.............. 62 -- 109,121 8,703 -- 7.25-11.25
----- --- ---------- ------- -------
7,827 -- $1,321,346 $67,779 $49,560
</TABLE>
- --------
(1) The above amounts are for the Company including both IndyMac and IndyMac
Operating.
(2) All mortgage loans are fixed or adjustable-rate, conventional mortgage
loans secured by single (one-to-four) family residential properties with
initial maturities of 15 to 30 years.
(3) Total mortgage loans were comprised of $660,207 of mortgage loans held for
sale, $576,005 of mortgage loans held for investment, and $85,134 of whole
loans pledged as collateral for CMO's.
(4) Information with respect to the geographic breakdown of first mortgages on
single family residential housing as of December 31, 1999 is as follows:
California 43% with no other state comprising more than 10%.
(5) The aggregate cost for federal income tax purposes is $1,321,346.
(6) Interest earned on mortgages by range of carrying amounts is not reasonably
obtainable.
(7) $50 thousand of mortgage loans purchased during 1999 were acquired from
CHL, an affiliate of the Company.
(8) Of the total amount of mortgages being foreclosed, $40,088 is related to
mortgage loans held for investment, $9,018 is related to mortgage loans
held for sale and $454 is related to collateral for CMO's.
<TABLE>
<CAPTION>
The Company IndyMac Only
-------------------- --------------------
<S> <C> <C> <C> <C>
(9) Balance at beginning of period/1/.... $2,040,702 $1,922,553
New mortgage loans................. 5,808,288 5,808,288
---------- ----------
7,848,990 7,730,841
Deductions during period:
Sales of mortgage loans............ 6,131,364 6,088,290
Collections of principal........... 396,280 6,527,644 364,491 6,452,781
--------- ---------- --------- ----------
Balance at close of period............. $1,321,346 $1,278,060
========== ==========
</TABLE>
- --------
/1/ Balances exclude home improvement loans.
F-30
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
IndyMac, Inc.
We have audited the accompanying consolidated balance sheets of IndyMac,
Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and comprehensive
income and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IndyMac, Inc.
and Subsidiaries as of December 31, 1999 and 1998, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles.
Grant Thornton LLP
Los Angeles, California
March 10, 2000
F-31
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
-------- ----------
<S> <C> <C>
ASSETS
Loans held for sale, net
Mortgages--prime....................................... $ 39,138 $ 90,855
Mortgages--subprime.................................... 4,458 18,539
Manufactured housing................................... -- 27,684
Home improvement....................................... -- 73,008
-------- ----------
43,596 210,086
Mortgage securities available for sale................... 179,355 398,094
Treasury securities available for sale................... -- 302,313
Mortgage servicing rights................................ 140,309 127,229
Other assets............................................. 60,582 65,074
-------- ----------
Total assets......................................... $423,842 $1,102,796
======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans and securities sold under agreements to
repurchase.............................................. $170,753 $ 697,406
Syndicated bank lines.................................... 89,139 89,139
Due to IndyMac Mortgage Holdings, Inc.................... 34,046 196,154
Accounts payable and accrued liabilities................. 37,675 35,714
-------- ----------
Total liabilities.................................... 331,613 1,018,413
Shareholders' equity
Series A preferred stock--authorized, 10,000 shares of
$.05 par value; issued and outstanding, 9,900 shares.. -- --
Common stock--authorized, 10,000 shares of $.01 par
value; issued and outstanding, 100 shares............. -- --
Additional paid-in capital............................. 108,770 108,116
Accumulated other comprehensive loss................... (5,272) (414)
Cumulative earnings.................................... 13,731 1,681
Cumulative distributions to shareholders............... (25,000) (25,000)
-------- ----------
Total shareholders' equity........................... 92,229 84,383
-------- ----------
Total liabilities and shareholders' equity........... $423,842 $1,102,796
======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-32
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1999 1998 1997
-------- --------- -------
<S> <C> <C> <C>
REVENUES
Interest income
Loans held for sale, net
Mortgages-prime............................. $ 7,918 $ 6,761 $ 7,197
Mortgages-subprime.......................... 888 3,176 5,354
Manufactured housing........................ 1,291 2,464 1,339
Home improvement............................ 5,208 1,597 --
-------- --------- -------
15,305 13,998 13,890
Mortgage securities available for sale........ 33,269 29,733 36,822
Treasury securities available for sale........ 8,530 12,193 140
-------- --------- -------
Total interest income..................... 57,104 55,924 50,852
Interest expense
Loans and securities sold under agreements to
repurchase..................................... 25,838 36,002 35,229
Syndicated bank lines........................... 5,120 3,828 3,507
Advances from IndyMac Mortgage Holdings, Inc.... 20,524 17,381 10,075
-------- --------- -------
Total interest expense.................... 51,482 57,211 48,811
-------- --------- -------
Net interest income (expense) before provision for
loan losses...................................... 5,622 (1,287) 2,041
Provision for loan losses......................... 1,027 442 152
-------- --------- -------
Net interest income (expense)................... 4,595 (1,729) 1,889
Gain on sale of mortgage loans, net............... 101,515 98,869 71,336
Gain (loss) on sale of securities, net............ (15,075) (95,631) 389
Service fee income................................ 23,252 1,587 12,940
Other income...................................... 20,860 7,884 3,422
-------- --------- -------
Net revenues.............................. 135,147 10,980 89,976
EXPENSES
Salaries and related benefits................... 60,660 66,138 32,611
General and administrative...................... 50,308 47,136 24,660
Manufactured housing division restructuring
charges........................................ 3,222 -- --
-------- --------- -------
Total expenses............................ 114,190 113,274 57,271
-------- --------- -------
Earnings (loss) before provision (benefit)
for income taxes......................... 20,957 (102,294) 32,705
Provision (benefit) for income taxes............ 8,907 (43,475) 13,898
-------- --------- -------
NET EARNINGS (LOSS)............................... $ 12,050 $ (58,819) $18,807
======== ========= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-33
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Cumulative Total
Common Paid-in Comprehensive Cumulative Comprehensive Distributions to Shareholders'
Stock Capital Income (Loss) Earnings Income Shareholders Equity
------ ---------- ------------- ---------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... $ -- $ 32,476 $(8,512) $ 41,693 $(25,000) $ 40,657
Net gain on mortgage
securities available
for sale............... -- -- 9,018 -- 9,018 -- 9,018
Net earnings............ -- -- -- 18,807 18,807 -- 18,807
----- -------- ------- -------- ------- -------- --------
Net change.............. -- -- 9,018 18,807 27,825 -- 27,825
----- -------- ------- -------- ------- -------- --------
Balance at December 31,
1997................... -- 32,476 506 60,500 (25,000) 68,482
----- -------- ------- -------- -------- --------
Deferred compensation,
restricted stock....... -- 640 -- -- -- -- 640
Capital contribution.... -- 75,000 -- -- -- -- 75,000
Net loss on mortgage
securities available
for sale............... -- -- (920) -- (920) -- (920)
Net loss................ -- -- -- (58,819) (58,819) -- (58,819)
----- -------- ------- -------- ------- -------- --------
Net change.............. -- 75,640 (920) (58,819) (59,739) -- 15,901
----- -------- ------- -------- ------- -------- --------
Balance at December 31,
1998................... -- 108,116 (414) 1,681 (25,000) 84,383
----- -------- ------- -------- -------- --------
Deferred compensation,
restricted stock....... -- 654 -- -- -- -- 654
Net loss on mortgage
securities available
for sale............... -- -- (4,858) -- (4,858) -- (4,858)
Net earnings............ -- -- -- 12,050 12,050 -- 12,050
----- -------- ------- -------- ------- -------- --------
Net change.............. -- 654 (4,858) 12,050 7,192 -- 7,846
----- -------- ------- -------- ------- -------- --------
Balance at December 31,
1999................... $ -- $108,770 $(5,272) $ 13,731 $(25,000) $ 92,229
===== ======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-34
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)..................... $ 12,050 $ (58,819) $ 18,807
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities:
Amortization and depreciation......... 97,469 108,051 34,692
Gain on sale of mortgage loans, net... (101,515) (98,869) (71,336)
(Gain) loss on sale of mortgage
securities, net...................... 15,075 95,631 (389)
Provision for loan losses............. 1,027 442 152
Purchases of loans from IndyMac Mortgage
Holdings, Inc. ........................ (6,050,123) (11,375,461) (4,106,645)
Sale of and payments from mortgage loans
held for sale.......................... 6,214,368 11,440,445 4,198,108
Purchases of manufactured housing loans
held for sale.......................... (206,448) (377,856) (175,266)
Sale of and payments from manufactured
housing loans held for sale............ 233,731 373,782 150,693
Net (purchases) sales of home
improvement loans held for sale........ 71,580 (71,841) --
Purchases of mortgage securities
classified as trading.................. -- (1,453,535) (183,391)
Sale of and payments from mortgage
securities classified as trading....... -- 1,347,234 109,731
Net increase (decrease) in other
assets................................. 3,301 (19,792) (21,467)
Net increase (decrease) in income tax
payable................................ 3,332 (41,777) 12,117
Net increase (decrease) in other
liabilities............................ (2,620) 21,600 (5,851)
----------- ------------ -----------
Net cash provided by (used in)
operating activities............... 291,227 (110,765) (40,045)
----------- ------------ -----------
Cash flows from investing activities:
Purchases of mortgage and treasury
securities classified as available
for sale............................... (553,543) (474,667) (26,840)
Sales of and payments from available for
sale and trading mortgage and treasury
securities............................. 795,087 328,246 29,818
Additions to servicing rights........... (37,801) (102,265) (33,408)
----------- ------------ -----------
Net cash provided by (used in)
investing activities............... 203,743 (248,686) (30,430)
----------- ------------ -----------
Cash flows from financing activities:
Net increase (decrease) in loans and
securities sold under agreements to
repurchase............................. (527,325) 173,123 77,741
Net increase (decrease) in advances from
IndyMac Mortgage Holdings, Inc. ....... 31,612 153,237 (12,236)
Net increase in syndicated bank lines... -- 34,304 4,970
----------- ------------ -----------
Net cash provided by (used in)
financing activities............... (495,713) 360,664 70,475
----------- ------------ -----------
Net change in cash...................... (743) 1,213 --
Cash at beginning of period............. 1,213 -- --
----------- ------------ -----------
Cash at end of period................... $ 470 $ 1,213 $ --
=========== ============ ===========
Supplemental cash flow information:
Cash paid for interest................ $ 50,298 $ 58,761 $ 49,540
Cash paid for income taxes............ 122 9 1,996
Supplemental disclosure of non-cash
activity:
In 1998, $75.0 million of paid in
capital resulted in the form of a
reduction in amounts due to IndyMac
Mortgage Holdings, Inc.
</TABLE>
The accompanying notes are an integral part of these statements.
F-35
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
IndyMac, Inc. ("IndyMac Operating" or the "Company") is the entity through
which its equity-method parent, IndyMac Mortgage Holdings, Inc. ("IndyMac")
conducts certain of its mortgage lending business, including the origination
and sale of conforming, non-conforming and jumbo residential loans. The
financial statements of IndyMac Operating are prepared in conformity with
generally accepted accounting principles ("GAAP"). The following is a summary
of significant accounting and reporting policies used in preparing the
financial statements.
1. Financial Statement Presentation
The consolidated financial statements include the accounts of IndyMac
Operating and its wholly owned subsidiaries, IndyMac ABS, Inc. and IndyMac
Agency, Inc. IndyMac ABS was established solely for the purpose of
facilitating the asset-backed securitization of loans purchased by IndyMac
Operating. Loans to be securitized are transferred from IndyMac Operating to
IndyMac ABS, and immediately transferred from IndyMac ABS to a bank or trust
company as custodian for the securitization entity. IndyMac Agency acts as an
insurance agency primarily selling insurance coverage on manufactured housing
loans. All of the preferred non-voting stock and 99% of the economic interest
in IndyMac Operating is owned by IndyMac. 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 Operating's consolidated subsidiaries have been
eliminated in consolidation.
Certain reclassifications have been made to the financial statements for
the periods ended December 31, 1998 and 1997 to conform to the December 31,
1999 presentation.
2. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the dates of the financial statements
and the reported amounts of revenues and expenses during the reporting period;
significant estimates include the allowance for loan losses, certain of the
Company's mortgage-backed securities for which active markets do not exist,
and mortgage servicing rights. Actual results may differ significantly from
those estimates and assumptions.
3. Loans Held for Sale, Net
Loans held for sale are carried at the lower of cost or market, which is
computed by the aggregate method by asset type. The cost of loans held for
sale is adjusted by gains and losses from hedging transactions, principally
using forward commitments and futures contracts, entered into to protect the
fair value of the inventory of loans arising from changes in interest rates.
Hedge positions are also used to reduce the impact on the Company arising from
its commitments to purchase loans from IndyMac from changes in interest rates.
Gains and losses resulting from changes in the market value of the inventory,
pipeline, and open hedge positions are netted. Any net gain that results is
deferred until the corresponding loans are sold; any net loss that results is
recognized when incurred. Hedging gains and losses realized during the
commitment and warehousing period related to unfunded loan commitments and
loans held for sale are deferred. Hedging losses are recognized currently if
deferring such losses would result in loans held for sale and the unfunded
loan commitments being valued in excess of their estimated net realizable
value.
F-36
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Mortgage Securities
Mortgage securities consist primarily of AAA rated senior securities,
investment and non-investment grade securities, principal-only securities, AAA
rated interest-only securities and residual securities. Fair value is
estimated based on market quotes when available or discounted cash flow
techniques using assumptions for prepayment rates, market yield requirements
and credit losses. Such assumptions are estimates as of a specific point in
time and will change as interest rates or economic conditions change.
Unrealized gains and losses resulting from fair value adjustments on
mortgage securities identified as available for sale are excluded from
earnings and reported net of tax effect as a separate component of
comprehensive income in shareholders' equity. IndyMac Operating values AAA
rated interest-only securities classified as available for sale by computing
the present value of estimated future cash flows using current estimates for
prepayment rates, discounted at a market rate of return. When available,
market quotes are used to validate valuation assumptions. An impairment write-
down to fair value is charged to earnings for those securities whose amortized
cost exceeds the present value at the risk-free rate. IndyMac Operating
estimates future prepayment rates based upon current interest rate levels,
collateral seasoning, and market forecasts, as well as relevant
characteristics of the collateral underlying the assets, such as loan types,
interest rates and recent prepayment experience. Unrealized gains and losses
from fair value adjustments on mortgage securities identified as trading are
included in earnings.
In October of 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise". ("SFAS 134"). This Statement
required mortgage-banking enterprises to classify as trading securities any
retained mortgage-backed securities that it commits to sell before or during
the securitization process. It also required mortgage-banking enterprises to
classify mortgage-backed securities of loans previously held for sale, based
on its ability and intent to hold the securities. IndyMac Operating adopted
SFAS 134 on December 31, 1998 and, as a result, reclassified all of its
trading securities to available for sale. The fair value of the portfolio
which was reclassified by IndyMac Operating was $369.4 million.
5. Mortgage Servicing Rights
IndyMac Operating retains mortgage servicing rights in connection with both
the primary and master servicing responsibilities associated with sales of
loans and securities. IndyMac Operating also acquires, from time to time, the
rights to service, as opposed to master service, loans in connection with the
purchase of such loans. IndyMac Operating recognizes mortgage servicing rights
as assets by allocating total costs incurred between the loan and the
servicing rights retained based on their relative fair values. Mortgage
servicing assets are amortized over the period of, and in proportion to,
estimated net future servicing revenues. Gains on the sale of servicing rights
are recognized when payment, title and all risks and rewards have irrevocably
passed to the buyer (subject to customary representations and warranties) and
there are no significant unresolved contingencies.
The Company assesses impairment of its servicing assets based on the fair
value of those rights on a stratum-by-stratum basis with any impairment
recognized through a valuation allowance for each impaired stratum. For
purposes of measuring impairment, the servicing assets are stratified based on
their predominate risk characteristics, which the Company has determined as
the note type and coupon rate of the underlying mortgage loans in 50 basis
point increments, and by the collateral type which the loans are serviced.
To determine the fair value of the servicing assets, the Company primarily
uses a valuation model that calculates the present value of future estimated
cash flows. Assumptions used in the valuation model include
F-37
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
anticipated prepayment speeds and loan performance. The prepayment speeds are
determined from market sources for mortgages with similar coupons, adjusted
for differences in collateral type.
6. Hedging Instruments
In seeking to protect its financial assets and liabilities from the effects
of changes in market interest rates, the Company has devised and implemented a
general asset/liability investment management strategy which seeks, on an
economic basis, to mitigate significant fluctuations in the financial position
and results of operations of the Company. This strategy includes, among other
things, balancing investments in various types of financial instruments whose
values could be expected to move inversely to each other in response to
movement in market interest rates, and using a "macro-hedge" strategy which
contemplates increased earnings from production volumes at the same time as
losses are incurred on AAA rated interest-only securities and mortgage
servicing rights due to rapid prepayments. The Company complies with the
requirements of Statement of Financial Accounting Standards No. 80,
"Accounting for Futures Contracts," in accounting for its hedging
transactions.
7. Revenue Recognition
Interest is recognized as revenue when earned according to the terms of the
loans and securities and when, in the opinion of management, it is
collectible. Premiums paid and discounts obtained on loans held for sale are
deferred as an adjustment to the carrying value of the loans until the loans
are sold. Gains on sale of loans and securities are recognized upon
settlement.
8. Income Taxes
For income tax purposes, IndyMac Operating files a separate tax return and
is not consolidated with IndyMac. Taxable earnings of IndyMac Operating are
subject to state and federal income taxes at the applicable statutory rates.
Deferred income taxes in the accompanying financial statements are computed
using the liability method.
9. Property, equipment and leasehold improvements
Property, equipment and leasehold improvements totaling $17.2 million and
$13.2 million were included in other assets on the consolidated balance sheets
at December 31, 1999 and 1998, respectively. Property, equipment and leasehold
improvements are stated at cost, less accumulated depreciation and
amortization. Depreciation is provided in amounts sufficient to relate the
cost of amortization assets to operations over their estimated service lives
using the straight-line method. Estimated service lives generally range from
three to seven years. Leasehold improvements are amortized over the lesser of
the life of the lease or service lives of the improvements using the straight-
line method.
IndyMac capitalizes external direct costs of materials and services
consumed in developing or obtaining internal-use computer software and salary
costs relating to the respective employees' time spent on the software project
during the application development stage.
10. Advertising Costs
IndyMac Operating expenses advertising costs as incurred. The Company
expensed $10.4 million, $5.4 million, and $2.2 million in advertising costs
during the years ended December 31, 1999, 1998, and 1997, respectively.
F-38
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Stock-Based Compensation
During 1999, the Company's stock-based compensation was provided to
employees based on the 1998 Plan, as amended which allows for the grant of
various types of awards including, but not limited to, nonqualified stock
options, incentive stock options, stock appreciation rights, restricted stock
awards, performance share awards, and stock bonuses to employees (including
officers and directors) of IndyMac, IndyMac Operating, and their respective
subsidiaries or affiliates and certain consultants or advisors to IndyMac,
IndyMac Operating, and their respective subsidiaries or affiliates. Awards are
granted based upon the fair value of IndyMac's stock on the grant date.
The Company accounts for stock awards in accordance with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123"), which allows companies to continue to recognize
compensation expense pursuant to Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees" but requires companies
to disclose the effect on earnings of compensation expense for stock options
based on the fair value of the options at the grant date.
12. Recent Accounting Pronouncements
In June of 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", ("SFAS 133"). This Statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS 133 is effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000 (January 1, 2001 for the
Company), with earlier adoption permitted. The Company is currently in the
process of determining the impact of the adoption of SFAS 133 on its financial
position and results of operations.
NOTE B--LOANS HELD FOR SALE, NET
Included in loans held for sale are prime and subprime mortgage loans,
manufactured housing loans and home improvement loans. Substantially all of
the mortgage loans purchased by IndyMac Operating from IndyMac are fixed-rate
and adjustable-rate jumbo and nonconforming loans secured by first liens on
single-family residential properties. Approximately 47.8% of the principal
amount of mortgage loans held for sale at December 31, 1999 were
collateralized by properties located in California.
In 1999, 1998 and 1997, IndyMac Operating purchased loans from IndyMac with
an aggregate principal balance of $6.3 billion, $11.8 billion and $4.3
billion, respectively, and sold loans in the form of bulk whole loan sales,
agency whole loan sales or real estate mortgage investment conduit ("REMIC")
securities with an aggregate principal balance of $6.4 billion, $11.7 billion
and $4.2 billion, respectively.
F-39
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE C--MORTGAGE SECURITIES
At December 31, 1999 and 1998, the Company's mortgage securities were
comprised of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
-------- --------
(Dollars in
thousands)
<S> <C> <C> <C>
AAA rated interest-only securities..................... $ 9,083 $203,026
Agency and principal only securities................... 104,554 6,068
Other investment grade securities...................... 31,769 113,206
-------- --------
Total investment grade securities.................... 145,406 322,300
Non-investment grade residual securities............... 5,554 7,906
Other non-investment grade securities.................. 28,395 67,888
-------- --------
Total non-investment grade securities................ 33,949 75,794
-------- --------
Total mortgage securities............................ $179,355 $398,094
======== ========
</TABLE>
Contractual maturities of the mortgage securities generally range from 10
to 30 years. As of December 31, 1999 and 1998, substantially all of IndyMac's
mortgage securities were pledged as collateral for loans and securities sold
under agreements to repurchase. The following table summarizes the amortized
cost and estimated fair value of mortgage securities classified as available
for sale as of December 31, 1999 and 1998.
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Amortized cost..................................... $188,524 $397,859
Gross unrealized gains............................. 3,204 408
Gross unrealized losses............................ (12,373) (173)
-------- --------
Estimated fair value............................... $179,355 $398,094
======== ========
</TABLE>
Prepayment speed assumptions used to value the Company's AAA rated
interest-only securities portfolio are based primarily on historical
experience, collateral coupon and seasoning. At December 31, 1999, the average
constant prepayment rate assumption approximated 13.3%. In addition, these
valuations incorporated weighted average discount rates of 13%. The actual
constant prepayment rate was 13.8% for the month of December.
The change in net unrealized gains and losses totaling $(9.4) million and
$(656,000) during the years ended December 31, 1999 and 1998, respectively,
were net against $4.5 million and $264,000 in related tax expense (benefit),
resulting in a net change in other comprehensive income of $(4.9) million and
$(0.9) million during the years ended December 31, 1999 and 1998,
respectively.
The change in net unrealized holding losses on trading securities totaling
$112.1 million and $6.9 million were included in net earnings during the years
ended December 31, 1998 and 1997, respectively. There were no trading
securities in 1999.
IndyMac Operating sold $204.1 million of AAA rated interest-only securities
to IndyMac at the close of business on December 31, 1999, recognizing a pre-
tax gain of $17.1 million ($9.8 million net of tax). This transaction is
reported in the separate financial statements of IndyMac, Inc. however is
eliminated in the equity in earnings of IndyMac and has no impact on the
consolidated earnings of IndyMac.
F-40
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE D--MORTGAGE SERVICING RIGHTS
At December 31, 1999 and 1998, IndyMac Operating's master servicing
portfolio had an aggregate outstanding principal balance of $16.1 billion and
$17.0 billion respectively, with a weighted average coupon of 8.2% and 8.3%,
respectively. Included in these balances are $2.3 billion and $1.2 billion of
IndyMac owned-loans and loans serviced for others at December 31, 1999 and
1998, respectively. LoanWorks Servicing's portfolio at December 31, 1999 and
1998 was $10.1 billion and $10.5 billion, respectively, with a weighted
average coupon of 8.6% as of December 31, 1999 and 8.3% as of December 31,
1998. Included in these balances are $2.4 billion and $2.9 billion of IndyMac
owned-loans and loans serviced for others at December 31, 1999 and 1998,
respectively.
The fair market value of the Company's capitalized mortgage servicing
rights was $154.0 million and $130.9 million at December 31, 1999 and 1998,
respectively. To determine the fair value of the servicing assets, the Company
primarily uses a valuation model that calculates the present value of future
estimated cash flows. Assumptions used in the valuation model include market
discount rates and anticipated prepayment speeds. The prepayment speeds are
determined from market sources for mortgages with similar coupons, adjusted
for differences in collateral type.
The changes in mortgage servicing rights are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1999 1998 1997
-------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at January 1........................... $127,229 $ 72,784 $54,398
Additions...................................... 37,801 146,846 33,408
Scheduled amortization......................... (31,129) (16,347) (9,266)
Sales.......................................... -- (46,630) --
Deferred hedging costs......................... (1,203) -- --
Valuation/impairment........................... 7,611 (29,424) (5,756)
-------- -------- -------
Balance at December 31......................... $140,309 $127,229 $72,784
======== ======== =======
</TABLE>
Changes in the valuation for impairment of mortgage servicing rights are as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1999 1998 1997
-------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at January 1........................... $(37,699) $ (8,275) $(2,519)
Valuation/impairment........................... 7,611 (29,424) (5,756)
-------- -------- -------
Balance at December 31......................... $(30,088) $(37,699) $(8,275)
======== ======== =======
</TABLE>
F-41
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The assumptions used to value mortgage servicing rights are as follows:
<TABLE>
<CAPTION>
Actual Valuation
---------------------------------------------- ----------
Weighted
Carrying Collateral Gross Servicing Average Prepayment Discount
Assumptions Value Balance WAC Fee Multiple Speeds Yield
----------- -------- ----------- ----- --------- -------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999
Master Servicing........ $ 51,365 $13,829,264 8.2% 0.1% 3.27 238 16.3%
Primary Servicing
Prime/subprime........ 87,548 7,352,119 8.3% 0.3% 3.55 226 12.1%
Manufactured housing.. 1,396 394,545 10.3% 1.0% 0.35 208 15.0%
-------- ----------- ---- --- ---- --- ----
Total primary
servicing.............. 88,944 $ 7,746,664 8.4% 0.4% 3.10 225 12.0%
-------- =========== ==== === ==== === ====
Total mortgage servicing
rights................. $140,309
========
December 31, 1998
Master Servicing........ $ 61,135 $15,820,823 8.2% 0.1% 3.19 378 10.0%
Primary Servicing
Prime/subprime........ 63,076 7,112,631 8.3% 0.3% 3.28 399 10.0%
Manufactured housing.. 3,018 473,052 10.3% 1.0% 0.64 250 15.0%
-------- ----------- ---- --- ---- --- ----
Total primary
servicing.............. 66,094 $ 7,585,683 8.4% 0.3% 3.24 390 10.2%
-------- =========== ==== === ==== === ====
Total mortgage servicing
rights................. $127,229
========
</TABLE>
NOTE E--BORROWINGS
IndyMac Operating is a co-borrower under the Company's loans and securities
sold under agreements to repurchase and the syndicated bank line, subject to
IndyMac's continuing to remain jointly and severally liable for repayment.
These facilities are secured by loans that are ultimately sold in the form of
REMIC securities, agency securities or whole loans, and mortgage-related
securities. During 1999 and 1998, borrowings under such facilities had
original repricings of overnight and less than 30 days.
The facilities bear interest at rates indexed to the London InterBank
Offering Rate or the federal funds rate, plus an applicable margin. For the
years ending December 31, 1999 and 1998, the weighted average borrowing rates
on these facilities were 5.0% and 5.2%, respectively. None of the lenders is
affiliated with IndyMac or IndyMac Operating. At December 31, 1999 and 1998,
the Company had $259.9 million and $786.5 million outstanding, respectively,
under such facilities.
F-42
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE F--INCOME TAXES
The income tax provision for the years ended December 31, 1999, 1998 and
1997 consist of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------ -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Current tax expense (benefit)
Federal.......................................... $ 45 $ (971) $ 319
State............................................ -- -- 137
------ -------- -------
Total current tax expense (benefit)............ 45 (971) 456
------ -------- -------
Deferred tax expense (benefit)
Federal.......................................... 6,532 (32,344) 9,974
State............................................ 2,330 (10,160) 3,468
------ -------- -------
Total deferred tax expense (benefit)........... 8,862 (42,504) 13,442
------ -------- -------
Total income tax expense (benefit)............. $8,907 $(43,475) $13,898
====== ======== =======
</TABLE>
The tax effect of temporary differences that gave rise to significant
portions of deferred tax assets and liabilities as of December 31, 1999 and
1998 are presented below:
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------- -------
(Dollars
in thousands)
<S> <C> <C>
Deferred tax assets
Allowance for loan losses................................ $ 957 $ 1,066
Net operating loss carry forward......................... 252 4,181
Other.................................................... 3,419 743
------- -------
Total net deferred tax assets.......................... 4,628 5,990
------- -------
Deferred tax liabilities
State taxes.............................................. (204) (1,183)
Mortgage securities and servicing rights................. (7,756) (247)
------- -------
Total deferred tax liabilities......................... (7,960) (1,430)
------- -------
Deferred tax asset (liability), net.................... $(3,332) $ 4,560
======= =======
</TABLE>
IndyMac Operating had a net operating loss carry forward for federal income
tax purposes of approximately $700,000 at December 31, 1999 which begins to
expire in 2010, and a net operating loss carry forward for state income tax
purposes of $1.5 million.
The effective income tax rate differed from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory rates.................................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax effect.............. 6.5% 6.5% 7.2%
Other items, net........................................... 1.0% 1.0% 0.3%
---- ---- ----
Effective income tax rate.................................. 42.5% 42.5% 42.5%
==== ==== ====
</TABLE>
F-43
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE G--FINANCIAL INSTRUMENTS
In seeking to protect its financial assets and liabilities, the Company has
devised and implemented a general asset/liability investment management
strategy which seeks, on an economic basis, to mitigate significant
fluctuations in the financial position and results of operations of the
Company likely to be caused by changes in market interest rates. This strategy
includes, among other things, balancing investments in various types of
financial instruments whose values could be expected to move inversely to each
other in response to movement in market interest rates, and using a "macro-
hedge" strategy which contemplates increased earnings from production volumes
at the same time as losses are incurred on AAA rated interest-only securities
and mortgage servicing rights due to rapid prepayments.
With respect to fixed rate mortgage loans held for sale, the Company hedges
its exposure to interest rate risk with forward commitments to sell a Fannie
Mae or Freddie Mac security of comparable maturity and weighted average
interest rate. With respect to AAA rated interest-only securities and mortgage
servicing rights, the Company reduces its exposure to interest rate risk by
investing in other mortgage securities and financial instruments that tend to
increase in value as interest rates decrease including utilizing mortgage-
backed securities, ten year U.S. Treasuries, Treasury futures, or options. The
Company uses hedging instruments to reduce its exposure to interest rate risk.
IndyMac Operating had a $3.2 billion notional amount of interest rate
floors outstanding as of December 31, 1999. The value of interest rate floors
is derived from an underlying instrument or index, however, the notional or
contractual amount is not recognized on the consolidated balance sheets. The
cost of these financial instruments, including the related premium/discount,
is amortized to expense over the contractual life of the contracts.
Unamortized costs totaling $2.4 million are included in other assets on the
consolidated balance sheets as of December 31, 1999.
Subsequent to the reclassification of all securities from trading to
available for sale as of December 31, 1998 and to the extent consistent with
GAAP, IndyMac Operating defers future gains and losses from hedging activities
associated with its mortgage securities portfolio. Future gains and losses
from hedging activities would be added to or deducted from the carrying value
of the associated assets, which will then be marked-to-market, with net
unrealized gains or losses excluded from earnings and included as a separate
component of comprehensive income in shareholder's equity, net of related
income tax effects.
While IndyMac Operating does not anticipate nonperformance by the
counterparties, IndyMac Operating manages credit risk with respect to such
financial instruments by entering into agreements with entities approved by
senior management and initially having a long term credit rating of single A
or better (by one or more nationally recognized credit rating agencies) at the
time the relevant contract is consummated. These entities include Wall Street
firms having primary dealer status. IndyMac Operating's exposure to credit
risk in the event of default by the counterparty is the difference between the
contract price and the current market price of the instrument being utilized.
Unless noted otherwise, IndyMac Operating does not require collateral or other
security to support financial instruments with credit risk with approved
counterparties.
NOTE H--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the estimated fair value of the various
classes of financial instruments as of December 31, 1999 and 1998. The
estimated fair value amounts have been determined by IndyMac Operating using
available market information and valuation methods that IndyMac Operating
believes are appropriate under the circumstances. These estimates are
inherently subjective in nature and involve significant judgment to interpret
relevant market and other data. The use of different market assumptions and/or
estimation methods may
F-44
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
have a material effect on estimated fair value amounts. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts
IndyMac Operating could realize in a current market exchange.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------ -------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets:
Loans held for sale............... $ 41,076 $ 41,076 $211,745 $211,745
Commitments to sell loans and
securities....................... 2,417 2,417 (1,841) (1,841)
Commitments to purchase loans..... 103 103 182 182
Mortgage securities and treasury
securities....................... 179,355 179,355 700,407 700,407
Treasury call options............. -- -- 3,150 3,150
Liabilities:
Loans and securities sold under
agreements to repurchase......... 170,753 170,753 697,406 697,406
Syndicated bank lines............. 89,139 89,139 89,139 89,139
</TABLE>
The fair value estimates as of December 31, 1999 and 1998 are based on
pertinent information available to management as of those dates. The estimates
have not been comprehensively re-evaluated or updated since those dates for
purposes of these financial statements and, therefore, current estimates of
fair value may differ significantly from the amounts presented herein.
The following describes the methods and assumptions used by IndyMac
Operating in estimating fair values:
Loans Held for Sale. Due to the short-term nature of loans held for sale,
the fair value of this portfolio is assumed to be the carrying value.
Commitments to Sell Loans and Securities. IndyMac Operating utilizes
forward commitments to sell private-label mortgage-backed securities, Fannie
Mae mortgage-backed securities and two-year, five-year and ten-year U.S.
Treasury futures contracts to hedge interest rate risk associated with loans
held for sale and commitments to purchase loans. Fair value of these
commitments is determined based upon the difference between the settlement
values of the commitments and the quoted market values of the underlying loans
and securities.
Commitments to Purchase Loans. Fair value is estimated based upon the
difference between the current value of similar loans and the price at which
IndyMac Operating has committed to purchase the loans.
Mortgage Securities and U.S. Treasury Securities. Fair value is estimated
using quoted market prices and by discounting future cash flows using discount
rates that approximate current market rates and prepayment expectations for
securities with the same or similar characteristics. U.S. Treasury securities
are recorded at fair market value based upon quoted prices.
Treasury Call Options. Fair value is estimated based upon quoted market
prices at year-end.
Loans and Securities Sold Under Agreements to Repurchase. Due to the short-
term nature of loans and securities sold under agreements to repurchase, the
fair value of these liabilities is assumed to be the carrying value.
Syndicated Bank Lines. Due to the adjustable interest rate on this
facility, the fair value is assumed to be the carrying value.
F-45
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE I--COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
IndyMac Operating is a party to financial instruments with off-balance
sheet risk in the normal course of business through the acquisition and sale
of loans and the management of interest rate risk. These instruments include
short-term commitments to purchase and sell loans and are entered into for
purposes other than trading. The instruments involve, to varying degrees,
elements of credit and interest rate risk. IndyMac Operating is exposed to
credit loss in the event of nonperformance by the counterparties to the
various agreements. As discussed below, IndyMac Operating's exposure to credit
risk with respect to the master servicing portfolio in the event of
nonperformance by mortgagors is limited due to the non-recourse nature of the
loans in the servicing portfolio. IndyMac Operating's exposure to credit risk
in the event of default by the counterparty is the difference between the
contract price and the current market price of the instrument being utilized.
Unless noted otherwise, IndyMac Operating does not require collateral or other
security to support financial instruments with credit risk with approved
counterparties.
Primary Loan Servicing
On April 2, 1998, IndyMac Operating acquired certain assets of the mortgage
servicing operation of First of America Loan Services, Inc. The servicing
platform, LoanWorks Servicing, is located in Kalamazoo, Michigan. As of
December 31, 1999 and 1998, the LoanWorks Servicing portfolio totaled $7.8
billion and $10.5 billion, respectively, with a weighted average coupon of
8.4% and 8.3% at December 31, 1999 and 1998, respectively. Included in the
$7.8 billion portfolio at December 31, 1999 was $0.8 million of loans serviced
for others.
Master Loan Servicing
As of December 31, 1999 and 1998, IndyMac Operating master serviced loans
totaling $13.8 billion and $17.0 billion, respectively, associated with its
issuance of REMIC securities and whole loan sales. In connection with REMIC
issuances, each series of mortgage-backed securities is typically fully
payable from the mortgage assets underlying such series and the recourse of
investors is limited to those assets and any credit enhancement features, such
as insurance. Generally, losses in excess of the credit enhancement obtained
are borne by the security holders. Except in the case of a breach of the
standard representations and warranties made by IndyMac Operating when loans
are securitized or sold, the loans or securities are nonrecourse to IndyMac
Operating. Typically, IndyMac Operating has recourse to the sellers of such
loans for any breaches of similar representations and warranties made by the
sellers to IndyMac Operating.
As of December 31, 1999, approximately 33.2%, 7.6% and 6.8% of mortgage
loans in IndyMac Operating's master servicing portfolio were secured by
properties located in California, New York and Florida, respectively. The
remainder are geographically dispersed throughout the United States, with no
more than 5% of the mortgage loans collateralized by properties in any other
state.
Commitments to Purchase Loans
As of December 31, 1999 and 1998, IndyMac Operating had entered into
commitments to purchase loans from IndyMac totaling $1.1 billion and $2.1
billion, respectively, including loans subject to purchase from sellers by
IndyMac. During the years ended December 31, 1999 and 1998, IndyMac Operating
purchased loans from IndyMac totaling $5.8 billion, and $11.8 billion,
respectively.
F-46
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Commitments to Sell Loans and Securities
IndyMac Operating hedges its inventory and committed pipeline of mortgage
loans by using temporary cross hedges with forward commitments to sell Fannie
Mae mortgage-backed securities and U.S. Treasury futures contracts. IndyMac
Operating's commitments to sell loans approximated $253.0 million and
$443.0 million, respectively, as of December 31, 1999 and 1998. IndyMac
Operating had forward commitments to sell $836.9 million and $620.0 million of
Fannie Mae mortgage-backed securities as of December 31, 1999 and 1998,
respectively, and $406.9 million of two-year, five-year and ten-year U.S.
Treasury contracts as of December 31, 1998. There were no U.S. Treasury
contracts as of December 31, 1999. The commitments to sell securities had a
net unrealized gain (loss) of approximately $4.6 million and $(2.0) million as
of December 31, 1999 and 1998, respectively. The net unrealized gains (losses)
were deferred as part of IndyMac Operating's lower of cost or market analysis
on its loans held for sale. Cash requirements related to forward commitments
and futures contracts are limited to the interest rate risk exposure resulting
from having fewer closed loans at the committed price than anticipated under
the forward commitments and futures contracts.
In conjunction with the sale of loans, the Company from time to time enters
into contracts whereby there are certain loans sold with recourse. At December
31, 1999, the outstanding balance of the Company's recourse obligation was
$1.3 million.
Lease commitments
IndyMac Operating leases office facilities under lease agreements extending
through 2010. Future minimum annual rental commitments under these non-
cancelable operating leases, net of sublease rentals, with initial or
remaining terms of one year or more are as follows:
<TABLE>
<CAPTION>
Related Non-related
Party Party Total
------- ----------- -------
(Dollars in thousands)
<S> <C> <C> <C>
For the year ending December 31,
2000....................................... $ 4,175 $ 3,362 $ 7,537
2001....................................... 4,174 2,958 7,132
2002....................................... 4,174 2,687 6,861
2003....................................... 4,174 1,863 6,037
2004....................................... 4,174 376 4,550
Thereafter................................. 24,106 2 24,108
------- ------- -------
Total minimum lease payments............... 44,977 11,248 56,225
Sublease rentals........................... (157) (2,714) (2,871)
------- ------- -------
Total minimum lease payments, net of
sublease rentals.......................... $44,820 $ 8,534 $53,354
======= ======= =======
</TABLE>
The related party lease was entered into between the Company and CCR for
real estate in Pasadena, California, which provides office space for the
Company's corporate headquarters. Rental expense, net of sublease income, for
all operating leases was $7.1 million, $4.6 million, and $2.6 million in 1999,
1998, and 1997, respectively. In accordance with the Expense Allocation
Agreement between IndyMac and IndyMac Operating, lease expense costs totaling
$1.2 million and $0.9 million were allocated to IndyMac during 1999 and 1998,
respectively.
F-47
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE J--BENEFIT PLANS
Stock Option Plan
Total restricted stock awards for IndyMac Operating granted in 1999 were
174,818 at a fair market value of $2.2 million and a weighted average share
price of $12.42. As of December 31, 1999 there were 138,090 awards
outstanding. Awards forfeited during 1999 were 36,728. Paid in capital in
excess of par and unearned compensation was recorded for the fair market value
at the date of grant. Unearned compensation is being amortized to compensation
expense over the vesting period and is shown as a reduction in stockholders'
equity. Total compensation expense for 1999 was $1.4 million. Total IndyMac
stock options granted in 1999, 1998, and 1997 to IndyMac Operating employees
were 745,300, 1,618,291 and 438,589, respectively.
Pension Plan
In 1998, IndyMac Operating adopted a defined benefit pension plan (the
"Benefit Plan") covering substantially all of its employees. Employees with
one or more years of service are entitled to annual pension benefits beginning
at normal retirement age (65 years of age) equal to a formula approximating
0.9% of final average compensation multiplied by credited service (not in
excess of 35 years), subject to a vesting requirement of five years service.
IndyMac Operating's policy is to contribute the amount actuarially determined
to be necessary to pay the benefits under the Benefit Plan, and in no event to
pay less than the amount necessary to meet the minimum funding standards of
ERISA.
The changes in Plan assets during 1999 consisted of the actual return on
assets of $363 thousand, and employer contributions of $615 thousand, for a
net fair value of $978 thousand at December 31, 1999.
Changes in benefit obligation were as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
1999 1998
------ ------
(Dollars
in thousands)
<S> <C> <C>
Benefit obligation, beginning of year........................ $1,237 $ 730
Service cost................................................. 671 298
Interest cost................................................ 105 51
Plan amendments.............................................. 66 --
Actuarial (gain) loss........................................ (267) 158
------ ------
Benefit obligation, end of year.............................. $1,812 $1,237
====== ======
</TABLE>
Reconciliations of funded status were as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
1999 1998
----- -------
(Dollars
in thousands)
<S> <C> <C>
Funded status............................................... $(834) $(1,237)
Unamortized prior service cost.............................. 715 691
Unrecognized net actuarial (gain) loss...................... (452) 158
----- -------
Accrued pension cost........................................ $(571) $ (388)
===== =======
</TABLE>
F-48
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net periodic expense for the Plan was as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
1999 1998
------ ------
(Dollars
in thousands)
<S> <C> <C>
Service cost................................................. $ 671 $ 298
Interest cost................................................ 105 51
Expected return on assets.................................... (28) --
Amortization of prior service cost........................... 43 39
Recognized net (gain) loss................................... 7 --
------ ------
Net periodic expense......................................... $ 798 $ 388
====== ======
</TABLE>
Weighted average assumptions used in accounting for the Plan were as
follows:
<TABLE>
<CAPTION>
Year
ended
December
31,
----------
1999 1998
---- ----
<S> <C> <C>
Assumed discount rate............................................ 7.50% 6.75%
Rate of compensation increase.................................... 4.00% 4.00%
Expected return on assets........................................ 8.00% 8.00%
</TABLE>
Contribution Plan
In 1997, IndyMac Operating adopted a defined contribution plan (the "401(k)
Plan") covering substantially all of its employees. Employees with one or more
years of service may contribute up to 16% of annual compensation to a maximum
of $10,000 of pre-tax annual compensation. IndyMac Operating may determine, at
its discretion, employer matching contributions to be made.
NOTE K--RELATED PARTY TRANSACTIONS
As of December 31, 1999 and 1998, advances due by IndyMac Operating to
IndyMac totaled $34.0 million and $196.2 million, respectively. Such funds
were advanced by IndyMac, under a revolving credit facility arrangement and
certain one-year term borrowing arrangements, to finance assets of IndyMac
Operating. Such advances bear interest at rates indexed to LIBOR. The interest
rate charged on such advances was 9.5% and 9.3% at December 31, 1999 and 1998,
respectively.
IndyMac Operating received $75.0 million in capital contribution from
IndyMac in the fourth quarter of 1998.
Prior to July 1, 1997, IndyMac operated under an agreement (the "Management
Agreement") with Countrywide Asset Management Corporation (the "Manager" or
"CAMC") to advise the Company on various facets of its business and manage its
operations, subject to review and supervision by IndyMac's Board of Directors.
The Manager had entered into a subcontract with its affiliate, Countrywide
Home Loans, Inc. ("CHL"), to perform such services for the Company as the
Manager deemed necessary. For performing these services, the Manager received,
(1) a base management fee of 0.125% per annum of average-invested mortgage-
related assets not pledged to secure CMO's, and excluding loans held for sale,
(2) a separate management fee equal to 0.2% per annum of the average amounts
outstanding under traditional warehouse lines of credit, and (3) incentive
compensation equal to 25% of the amount by which IndyMac's annualized return
on equity
F-49
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
exceeded the ten-year U.S. Treasury Rate plus 2%. IndyMac Operating paid
management fees to CAMC totaling $757,000 for the year ended December 31,
1997.
Prior to July 1, 1997, the Manager incurred many of the operating expenses
of the Company, including personnel and related expenses. As part of its
acquisition of CAMC, IndyMac entered into a Cooperation Agreement with
Countrywide Credit Industries, Inc. ("CCR"), whereby certain services
previously provided to IndyMac by CCR would be provided during a transition
period. The Cooperation Agreement specifies certain costs for IndyMac to pay
CCR for services during the transition period. The Company's B2B operations
are primarily conducted by IndyMac Operating and all other operations are
conducted by IndyMac. Accordingly, IndyMac Operating is charged with the
majority of the B2B's costs, and IndyMac is charged with the cost of other
operations.
During 1997, IndyMac Operating entered into a sublease agreement for its
corporate headquarters with CCR, while at the same time, CCR subleased space
from IndyMac Operating in the Company's former headquarters. As a result,
IndyMac Operating paid CCR $3.9 million, $2.6 million and $1.1 million in
1999, 1998 and 1997, respectively, and received $377,900, $31,000 and $189,000
in 1999, 1998 and 1997, respectively, for lease and sublease payments from
CCR.
IndyMac Operating paid CHL $2,500, $1.7 million and $1.9 million in
subservicing fees during 1999, 1998 and 1997, respectively.
In August 1998, IndyMac Operating acquired from Flagstar Bank, FSB, the
servicing rights of a $2.9 billion loan portfolio for $46.4 million. As a
result of the fourth quarter 1998 market disruptions, the Company sold the
servicing rights acquired from Flagstar Bank, FSB, to CHL on October 31, 1998,
at a price of $36.7 million.
All loans purchased by IndyMac for which a 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. IndyMac Operating currently
does not purchase any loans from any entities other than IndyMac.
NOTE L--SEGMENT REPORTING
IndyMac Operating's reportable operating segments include Mortgage Banking
and Investments.
The Mortgage Banking segment purchases all loans from IndyMac for which a
REMIC transaction or whole loan sale is contemplated are committed for sale to
IndyMac Operating pursuant to the terms of a master forward sales agreement.
These loans are then securitized through the issuance of mortgage-backed
securities in the form of REMICs, or resold in bulk whole loan sales to
permanent investors. The Mortgage Banking segment's principal sources of
income are gains recognized on the sale of mortgage loans and the net spread
between interest earned on loans and the interest cost associated with the
borrowings used to finance such loans.
The Investment segment invests in mortgage servicing rights and mortgage
securities either retained in connection with the issuance of mortgage-backed
securities or purchased from third parties. The investment segment's principal
sources of income are spread income on securities, service fee income and net
gain on sale of mortgage securities.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies except that the
segment reporting data includes allocations of certain income and expense
accounts of IndyMac Operating in order to present to the reader the operating
segments as reviewed and managed by the Company's chief operating decision
maker.
F-50
<PAGE>
INDYMAC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Segment information for the years ended December 31, 1999, 1998, and 1997
were as follows:
<TABLE>
<CAPTION>
Total
Mortgage IndyMac,
Banking Investments Adjustments Inc.
-------- ----------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1999
Net interest income......... $ 8,161 $ 17,985 $(20,524) $ 5,622
Net revenues (expenses)..... 133,005 22,666 (20,524) 135,147
Net earnings (loss)......... 15,937 7,914 (11,801) 12,050
Assets as of December 31,
1999....................... $ 50,867 $372,975 -- $ 423,842
1998
Net interest income......... $ 5,209 $ 10,885 $(17,381) $ (1,287)
Net revenues (expenses)..... 127,107 (98,746) (17,381) 10,980
Net earnings (loss)......... 11,362 (60,187) (9,994) (58,819)
Assets as of December 31,
1998....................... $236,567 $866,229 -- $1,102,796
1997
Net interest income......... $ 3,473 $ 8,643 $(10,075) $ 2,041
Net revenues (expenses)..... 80,085 19,966 (10,075) 89,976
Net earnings (loss)......... 15,765 8,835 (5,793) 18,807
Assets as of December 31,
1997....................... $147,712 $673,341 -- $ 821,053
</TABLE>
NOTE M--SUBSEQUENT EVENT
During January of 2000, IndyMac purchased all of IndyMac Operating's
outstanding common stock, which was held by CHL, for $1.8 million. As IndyMac
will own 100% of the outstanding common and preferred stock of IndyMac
Operating subsequent to the buyout of CHL's common stock, IndyMac Operating's
results of operations and its financial position will be consolidated into
IndyMac's financial statements beginning January of 2000.
F-51
<PAGE>
Exhibit 3.1
-----------
CERTIFICATE OF INCORPORATION
OF
COUNTRYWIDE MORTGAGE INVESTMENTS, INC.
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
ARTICLE I
NAME
----
The name of the Corporation is: Countrywide Mortgage Investments, Inc.
(the "Corporation").
ARTICLE II
REGISTERED AGENT
----------------
The address of the registered office of the Corporation in the State of
Delaware is: Corporation Trust Center, 1209 Orange Street, New Castle County,
Wilmington, Delaware 19801. The name of the Corporation's registered agent at
such registered office is The Corporation Trust Company.
<PAGE>
ARTICLE III
PURPOSE
-------
The purpose for which the Corporation is formed is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware as now or hereafter in force.
ARTICLE IV
CAPITAL STOCK
-------------
Section 1. The total number of shares of capital stock which the
Corporation shall have authority to issue is Thirty Million (30,000,000),
consisting of Thirty Million (30,000,000) shares of Common Stock having a par
value of $0.01 per share.
Section 2. All persons who shall acquire stock in the Corporation
shall acquire the same subject to the provisions of this Certificate of
Incorporation and the Bylaws of the Company.
Section 3. Each share of Common Stock shall entitle the owner
thereof to vote at the rate of one (1) vote for each share of Common Stock
held.
2
<PAGE>
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE DIRECTORS
AND STOCKHOLDERS
----------------
Section 1. The number of Directors shall be determined by or in the
manner provided in the Bylaws of the Corporation, as they may be amended from
time to time. The names and mailing addresses of the persons who shall serve as
directors until the first annual meeting of stockholders or until their
successors are duly elected and qualified are:
David S. Loeb
Countrywide Mortgage Investments, Inc.
155 North Lake Avenue
Pasadena, California 91109
Angelo R. Mozilo
Countrywide Mortgage Investments, Inc.
155 North Lake Avenue
Pasadena, California 91109
Frederick J. Napolitano
Pembroke Enterprises, Inc.
281 Independence Boulevard
Suite 626
Virginia Beach, Virginia 23462
Harley W. Snyder
Harley Snyder Company
407 East Lincoln Way
Valparaiso, Indiana 46383
Jack Carlson
9901 Bluegrass Road
Potomac, Maryland 20854
3
<PAGE>
Robert J. Donato
PaineWebber Incorporated
700 South Flower Street
Los Angeles, California 90017
The powers of the Incorporator shall terminate upon the filing of this
Certificate of Incorporation.
Section 2. The Board of Directors of the Corporation is hereby
empowered to authorize the issuance from time to time of shares of capital
stock, whether now or hereafter authorized, for such consideration as the Board
of Directors may deem advisable, subject to such limitations as may be set forth
in this Certificate of Incorporation or in the Bylaws of the Corporation or in
the Delaware General Corporation Law.
Section 3. No holder of shares of capital stock of the Corporation
shall, as such holder, have any right to purchase or subscribe for any shares of
the capital stock of the Corporation or any other security of the Corporation
which it may issue or sell (whether out of the number of shares authorized by
this Certificate of Incorporation, or out of any shares of the capital stock of
the Corporation hereafter authorized or acquired by it after the issue thereof,
or otherwise) other than such right, if any, as the Board of Directors, in its
discretion, may determine.
4
<PAGE>
Section 4. A Director of this Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except for liability (i) for any breach of the
Directors's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the Director derived any
improper personal benefit. If the Delaware General Corporation Law is amended
after the date hereof to permit the further elimination or limitation of the
personal liability of directors, then the liability of a Director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended. Any repeal or modification
of this Section 4 of Article V by the stockholders of the Corporation shall not
adversely affect any right or protection of a Director of the Corporation in
respect of any act or omission occurring prior to the time of such repeal or
modification.
Section 5. The Corporation shall indemnify and shall advance expenses
to each Director, officer, employee and agent of this Corporation to the fullest
extent permitted by the Delaware General Corporation Law as now or hereafter in
5
<PAGE>
force. The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, and the Board of Directors
is expressly authorized to adopt bylaws and/or enter into agreements whereby the
Corporation agrees to indemnify and advance expenses to its Directors, officers,
employees and agents.
Section 6. The Board of Directors of the Corporation may make, alter
or repeal from time to time any of the Bylaws of the Corporation except any
particular Bylaw which is specified in the Bylaws as not subject to alteration
or repeal by the Board of Directors.
Section 7. The Board of Directors may authorize, subject to such
approval of stockholders and other conditions, if any, as may be required by any
applicable statute, bylaw, rule or regulation, the execution and performance by
the Corporation of one or more agreements with any person, corporation,
association, company, trust, partnership (limited or general) or other
organization whereby, subject to the supervision and control of the Board of
Directors, any such other person, corporation, association, company, trust,
partnership (limited or general), or other organization shall
6
<PAGE>
render or make available to the Corporation managerial, investment, advisory
and/or related services, office space and other services and facilities
(including the management or supervision of the investments of the Corporation)
upon such terms and conditions as may be provided in such agreement or
agreements (including the compensation payable thereunder by the Corporation).
Section 8. The Board of Directors may authorize any agreement of the
character described in Section 7 of this Article V or other contract or
transaction with any one or more Directors or officers or between the
Corporation and any other corporation, partnership (limited or general),
association, trust, company or other organization in which one or more of the
Corporation's Directors or officers are directors or officers, or similar
parties, or otherwise have a financial interest, and no such agreement, contract
or transaction shall be void or voidable solely by reason of the existence of
any such relationship or solely because the Director or officer so interested is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the agreement, contract or transaction, or solely
because such Director's votes are counted for such purpose if: (i) the material
facts as to the Director's or officer's relationship or interest and as to the
agreement or transaction are disclosed or are known to the
7
<PAGE>
Board of Directors or such committee and the Board of Directors or committee in
good faith authorizes, approves or ratifies the agreement, contract or
transaction by the affirmative vote of a majority of the disinterested
Directors, even though the disinterested Directors be less than a quorum; or
(ii) the material facts as to such Director's or Officer's relationship or
interest and as to the agreement or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the agreement, contract or
transaction is authorized, approved or ratified in good faith by a majority of
votes cast by the stockholders entitled to vote other than the votes of shares
owned of record or beneficially by the interested Director or officer; or (iii)
the agreement, contract or transaction is fair to the Corporation as of the time
it is authorized, approved or ratified by the Board of Directors, a committee
thereof or the stockholders. Any Director of the Corporation who is also a
director, officer, stockholder or member of such other entity may be counted in
determining the existence of a quorum at any meeting of the Board of Directors
or of a committee which authorizes any such agreement, contract or transaction.
If such a Director votes at a meeting to approve or disapprove a transaction as
described in this Section, such vote shall not affect the validity of such a
transaction provided the provisions of this Section are otherwise satisfied.
8
<PAGE>
Section 9. Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual meeting
or at a special meeting of stockholders of the Corporation. No action may be
taken by the written consent of the stockholders. Action need not be by written
ballot unless the chairman of the meeting shall so direct.
Section 10. The enumeration and definition of particular powers of
the Board of Directors included in the foregoing shall in no way be limited or
restricted by reference to or inference from the terms of any other clause of
this or any other Article of the Certificate of Incorporation of the
Corporation, or construed as or deemed by inference or otherwise in any manner
to exclude or limit the powers conferred upon the Board of Directors under the
General Corporation Law of the State of Delaware as now or hereafter in force.
ARTICLE VI
RESTRICTION ON ACQUISITION AND TRANSFER OF SHARES
-------------------------------------------------
Section 1. Whenever it is deemed by the Board of Directors to be
prudent in protecting the status of the Corporation as a "real estate investment
trust" under the Internal Revenue Code of 1986, as amended (the "Code"), the
9
<PAGE>
Board of Directors may require to be filed with the Corporation as a condition
to permitting any proposed transfer, and/or the registration of any transfer, of
shares of the Corporation a statement or affidavit from any proposed transferee
setting forth the number of shares already owned after application of the
attribution rules (the "Attribution Rules") of Section 544 of the Code by the
transferee and any related person(s) specified in the form prescribed by the
Board of Directors for that purpose. All contracts for the sale or other
transfer of shares of the Corporation shall be subject to this provision.
Section 2. As a condition to the transfer and/or registration of
transfer of any shares of capital stock of the Corporation which would result in
any stockholder owning, directly or indirectly, shares in excess of 9% of the
outstanding shares of capital stock of the Corporation, the transferee of such
shares shall file with the Corporation an affidavit setting forth the number of
shares of capital stock of the Corporation owned directly and indirectly by the
person filing the affidavit. For purposes of this Section, shares of capital
stock not owned directly shall be deemed to be owned indirectly by a person if
that person or a group of which he is a member would be the beneficial owner of
such shares for purposes of Rule 13d-3, or any successor rule thereto,
promulgated by the Securities and Exchange Commission under
10
<PAGE>
the Securities Exchange Act of 1934 (the "Exchange Act"), and/or would be
considered to own such shares by reason of the Attribution Rules. The affidavit
to be filed with the Corporation shall set forth all information required to be
reported in returns filed by stockholders under Regulation 1.857-9 issued by the
Internal Revenue Service, or similar provisions of any successor regulation, and
in reports to be filed under Section 13(d) of the Exchange Act. The affidavit,
or an amendment thereto, must be filed with the Corporation within 10 days after
demand therefor and in any event at least 15 days prior to any transfer,
registration of transfer or transaction which, if consummated, would cause the
filing person to hold shares in excess of 9% of the outstanding shares of
capital stock of the Corporation. No transfer nor any registration of any
purported transfer in violation of the notice provisions of this Section shall
be valid or be given effect. Notwithstanding the foregoing, compliance with the
requirements of this Section 2 shall not validate any purported transfer which
would result in any stockholder owning, directly or indirectly, shares in excess
of the "Limit" as defined in Section 4 of this Article VI.
Section 3. Any acquisition of shares of capital stock of the
Corporation that would result in any stockholder owning, directly or indirectly,
shares in excess of the "Limit" as defined in Section 4 of this Article VI shall
be
11
<PAGE>
void ab initio to the fullest extent permitted under applicable law and the
intended transferee of "Excess Shares," as defined in Section 4 of this Article
VI, shall be deemed never to have had an interest therein. If the foregoing
provision is determined to be void, voidable or invalid by virtue of any legal
decision, statute, rule or regulation, then the transferee of such shares shall
be deemed to have acted as agent on behalf of the Corporation in acquiring such
shares and to hold such shares on behalf of the Corporation.
Section 4. Notwithstanding any other provision hereof to the
contrary, and subject to the provisions of Section 5 of this Article VI, no
person, or persons acting as a group, shall at any time directly or indirectly
acquire ownership in the aggregate of more than 9.8% of the outstanding shares
of capital stock of the Corporation (the "Limit"). Shares which would, but for
this Section 4, be owned by a person or a group of persons in excess of the
Limit at any time shall be deemed "Excess Shares." For the purposes of
determining and dealing with Excess Shares, the term "ownership" shall be
defined to include shares of capital stock constructively owned by a person
under the Attribution Rules and shall also include shares of capital stock
beneficially owned by a person for purposes of Rule 13d-3, or any successor rule
thereto, promulgated by the Securities and Exchange Commission under the
Exchange Act and the term
12
<PAGE>
"group" shall have the same meaning as that term has for purposes of Section
13(d)(3) of such Act. All shares of the Corporation which any person has the
right to acquire upon exercise of outstanding rights, options and warrants, and
upon conversion of any securities convertible into shares, if any, shall be
considered outstanding for purpose of the Limit if such inclusion will cause
such person to own more than the Limit. Unless otherwise required by applicable
law, the Corporation shall refuse to transfer or register the transfer of, and
shall instruct the transfer agent of the Corporation to refuse to transfer or
register the transfer of, shares to the extent that, as a result of such
transfer or registration of transfer, any person would hold Excess Shares.
Section 5. The Limit set forth in Sections 3 and 4 of this Article VI
and the filing requirements of Section 2 of this Article VI shall not apply to
the acquisition of shares of the Corporation by the Corporation, by an
underwriter in connection with a public offering of shares of the Corporation,
or in any transaction involving the issuance of shares by the Corporation, in
which the Board of Directors determines that the underwriter or other person or
party initially acquiring such shares will timely distribute such shares to or
among others such that, following such distribution, none of such shares will be
Excess Shares. The Board of Directors in its discretion may exempt from the
Limit
13
<PAGE>
under Sections 3 and 4 of this Article VI and from the filing requirements of
Section 2 of this Article VI ownership or transfers of certain designated shares
while owned by or transferred to any subsidiary of this Corporation or to any
other person in connection with a reorganization, recapitalization, merger,
liquidation or similar transaction approved by the Board of Directors, provided
that such person has given the Board of Directors evidence and assurances
acceptable to the Board of Directors that the qualification of the Corporation
as a "real estate investment trust" under the Code would not be jeopardized
thereby.
Section 6. Notwithstanding Sections 3 and 4 of this Article VI, if at
any time more than 9.8% of the shares of capital stock of the Corporation has
become concentrated in the hands of a "beneficial owner" (as such term is
defined for purposes of Rule 13d-3, or any successor rule thereto promulgated by
the Securities and Exchange Commission, under the Exchange Act), such beneficial
owner and each of his "affiliates" (as such term is defined on December 1, 1986
in Rule 12b-2 under the Exchange Act) owning any shares of capital stock of the
Corporation shall be deemed to have offered to sell to the Corporation or its
designee, on a date fixed by the Corporation, as specified in the Corporation's
notice of its or its designee's acceptance of such offer of sale, such a number
of shares of capital stock sufficient, in
14
<PAGE>
the opinion of the Board of Directors, to maintain or bring the direct or
indirect ownership of shares of capital stock of the Corporation of such
beneficial owner to no more than the Limit. The price at which the Corporation
or its designee may purchase the outstanding shares of capital stock of the
Corporation pursuant to the preceding sentence of this Section (the "Purchase
Price") shall be equal to the closing sales price for the shares, if then listed
on a national securities exchange, or the average of the closing sales prices
for the shares if then listed on more than one national securities exchange, or
if the shares are not then listed on a national securities exchange, the latest
bid quotation for the shares if then traded over-the-counter, on the last
business day immediately preceding the day on which the Corporation's notice of
its acceptance of the beneficial owner's and/or his affiliates' offer of sale is
sent, or, if no such closing sales prices or quotations are available, then the
Purchase Price shall be equal to the net asset value of such stock (determined
on the basis of the fair market value of the assets of the Corporation) as
determined by the Board of Directors in accordance with the provisions of
applicable law. The Purchase Price of any shares acquired by the Corporation or
its designee shall be paid, at the option of the Corporation, in cash or in the
form of an unsecured, subordinated promissory note of the Corporation or its
designee bearing interest and having a term to maturity (to be
15
<PAGE>
not less than five nor more than twenty years) as shall be determined by the
Board of Directors. Payment of the Purchase Price shall be made at such time and
in such manner as may be determined by the Board of Directors and specified in
the notice of acceptance sent to the beneficial owner and/or his affiliates.
From and after the date fixed for purchase by the Board of Directors and the
tender by the Corporation of the Purchase Price therefor, each as specified in
the Corporation's notice of its acceptance of the offer of sale, the holder of
any shares to be so purchased shall cease to be entitled to any rights as a
holder of such shares, excepting only the right to payment of the Purchase Price
fixed as aforesaid.
Section 7. Nothing contained in this Article VI or in any other
provision hereof shall limit the authority of the Board of Directors to take
such other action as it deems necessary or advisable to protect the Corporation
and the interests of its stockholders by preservation of the Corporation's
status as a "real estate investment trust" under the Code.
Section 8. For purposes of this Article VI only, the term "person"
shall include individuals, corporations, limited partnerships, general
partnerships, joint stock companies or associations, joint ventures,
associations,
16
<PAGE>
consortia, companies, trusts, banks, trust companies, land trusts, common law
trusts, business trusts and other entities, and governments and agencies and
political subdivisions thereof; provided, however, that such term shall not
include this Corporation or any of its subsidiaries.
Section 9. If any provision of this Article VI or any application of
any such provision is determined to be invalid by any federal or state court
having jurisdiction over the issues, the validity of the remaining provisions
shall not be affected and other applications of such provision shall be affected
only to the extent necessary to comply with the determination of such court.
ARTICLE VII
AMENDMENTS
----------
The Corporation reserves the right to adopt, repeal, rescind, alter,
restate or amend in any respect any provision contained in this Certificate of
Incorporation in the manner now or hereafter prescribed by applicable law, and
all rights conferred on stockholders herein are granted subject to this
reservation.
17
<PAGE>
ARTICLE VIII
INCORPORATOR
------------
The name of the incorporator is Andrea J. Melville. The Incorporator's
mailing address is 400 South Hope Street, Los Angeles, California 90071-2899.
IN WITNESS WHEREOF, the undersigned incorporator of Countrywide
Mortgage Investments, Inc. hereby executes the foregoing Certificate of
Incorporation and acknowledges the same to be her act and further acknowledges
that, to the best of her knowledge, the matters and facts set forth therein are
true in all material respects under the penalties of perjury.
Dated this 19th day of January, 1987.
---- -------
\s\ Andrea Melville
- -------------------
18
<PAGE>
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, dated as of Feb. 26, 1987, is entered into
between Country-wide Mortgage Investments, Inc., a Maryland corporation ("CMI
Maryland"), and Countrywide Mortgage Investments, Inc., a Delaware corporation
("CMI Delaware"). CMI Maryland and CMI Delaware are hereinafter sometimes
collectively referred to as the "Constituent Corporations."
W I T N E S S E T H:
WHEREAS, CMI Maryland is a corporation duly organized and existing under
the laws of the State of Maryland;
WHEREAS, CMI Delaware is a corporation duly organized and existing under
the laws of the State of Delaware;
WHEREAS, on the date of this Agreement, CMI Maryland has authority to issue
10,000,000 shares of capital stock, consisting of 10,000,000 shares of Common
Stock, par value $.01 per share ("Maryland Common Stock"), of which 7,875,000
shares are issued and outstanding or reserved for issuance;
WHEREAS, on the date of this Agreement, CMI Delaware has authority to issue
30,000,000 shares of capital stock, consisting of 30,000,000 shares of Common
Stock, par value $.01 per share ("Delaware Common Stock"), of which 100 shares
are issued and outstanding and owned by CMI Maryland;
WHEREAS, the respective Boards of Directors of CMI Maryland and CMI
Delaware have deter-mined that it is advisable and in the best interests of each
of such corporations that CMI Maryland merge with and into CMI Delaware upon the
terms and subject to the conditions set forth in this Agreement for the purpose
of effecting the change of the state of incorporation of CMI Maryland from
Maryland to Delaware;
WHEREAS, the respective Boards of Directors of CMI Maryland and CMI
Delaware have, by resolutions duly adopted, approved this Agreement;
WHEREAS, CMI Maryland has approved this Agreement as the sole stockholder
of CMI Delaware; and
WHEREAS, the Board of Directors of CMI Maryland has directed that this
Agreement be submitted to a vote of its shareholders.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, CMI Maryland and CMI Delaware hereby agree as follows:
1. Merger. CMI Maryland shall be merged with and into CMI Delaware (the
"Merger"), and CMI Delaware shall be the surviving corporation (hereinafter
sometimes referred to as the "Surviving Corporation"). The Merger shall
become effective upon the date and at the time of filing of appropriate
articles of merger, providing for the Merger, with the Maryland State
Department of Assessments and Taxation or an appropriate certificate of
merger, providing for the Merger, with the Secretary of State of the State of
Delaware, whichever later occurs (the "Effective Time").
19
<PAGE>
2. Governing Documents. The Certificate of Incorporation of CMI Delaware,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation without change or amendment
until thereafter amended in accordance with the provisions thereof and
applicable laws, and the Bylaws of CMI Delaware, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
without change or amendment until thereafter amended in accordance with the
provisions thereof, of the Certificate of Incorporation of the Surviving
Corporation and applicable laws.
3. Succession. At the Effective Time, the separate corporate existence of
CMI Maryland shall cease, and CMI Delaware shall posses all the rights,
privileges, powers and franchises, of a public and private nature and be
subject to all the restrictions, disabilities and duties of each of the
Constituent Corporations; and all and singular, the rights, privileges, powers
and franchises of each of the Constituent Corporations, and all property,
real, personal and mixed, and all debts due to each of the Constituent
Corporations on whatever account, as well for stock subscriptions as all other
things in action belonging to each of the Constituent Corporations, shall be
vested in the Surviving Corporation; and all property, rights, privileges,
powers and franchises, and all and every other interest shall be thereafter as
effectually the property of the Surviving Corporation as they were of the
respective Constituent Corporations, and the title to any real estate vested
by deed or otherwise, in either of such Constituent Corporations shall not
revert or be in any way impaired by reason of the Merger; but all rights of
creditors and all liens upon any property of CMI Maryland shall be preserved
unimpaired. To the extent permitted by law, any claim existing or action or
proceeding pending by or against either of the Constituent Corporations may be
prosecuted as if the Merger had not taken place. All debts, liabilities and
duties of the respective Constituent Corporations shall thenceforth attach to
the Surviving Corporation and may be enforced against it to the same extent as
if such debts, liabilities and duties had been incurred or contracted by it.
All corporate acts, plans, policies, agreements, arrangements, approvals and
authorizations of CMI Maryland, its shareholders, Board of Directors and
committees thereof, officers and agents which were valid and effective
immediately prior to the Effective Time, shall be taken for all purposes as
the acts, plans, policies, agreements, arrangements, approvals and
authorizations of the Surviving Corporation and shall be as effective and
binding thereon as the same were with respect to CMI Maryland. The employees
and agents of CMI Maryland shall become the employees and agents of the
Surviving Corporation and continue to be entitled to the same rights and
benefits which they enjoyed as employees and agents of CMI Maryland. The
requirements of any plans or agreements of CMI Maryland involving the issuance
or purchase by CMI Maryland of certain shares of its capital stock shall be
satisfied by the issuance or purchase of a like number of shares of the
Surviving Corporation.
4. Directors and Officers. The Directors and Officers of CMI Maryland on
the Effective Time shall be and become Directors and Officers, holding the
same titles and positions, of the Surviving Corporation on the Effective Time,
and after the Effective Time shall serve in accordance with the Bylaws of the
Surviving Corporation.
5. Further Assurances. From time to time, as and when required by the
Surviving Corporation or by its successors or assigns, there shall be executed
and delivered on behalf of CMI Maryland such deeds and other instruments, and
there shall be taken or caused to be taken by it all such further and other
action, as shall be appropriate, advisable or necessary in order to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation
the title to and possession of all property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of CMI Maryland, and
otherwise to carry out the purposes of this Agreement, and the officers and
directors of the Surviving Corporation
20
<PAGE>
are fully authorized in the name and on behalf of CMI Maryland or otherwise,
to take any and all such action and to execute and deliver any and all such
deeds and other instruments.
6. Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:
(a) each share of Maryland Common Stock outstanding immediately prior to
the Effective Time shall be changed and converted into and shall be one
fully paid and nonassessable share of Delaware Common Stock; and
(b) the 100 shares of Delaware Common Stock presently issued and
outstanding in the name of CMI Maryland shall be cancelled and retired and
resume the status of authorized and unissued shares of Delaware Common
Stock, and no shares of Delaware Common Stock or other securities of CMI
Delaware shall be issued in respect thereof.
7. Condition to Merger. The Merger shall have received the requisite
approval of the holders of Maryland Common Stock pursuant to the General
Corporation Law of the State of Maryland.
8. Stock Certificates. At and after the Effective Time, all of the
outstanding certificates which, immediately prior to the Effective Time,
represented shares of Maryland Common Stock shall, respectively, be deemed for
all purposes to evidence ownership of, and to represent, shares of Delaware
Common Stock into which the shares of Maryland Common Stock, formerly
represented by such certificates, have been convened as herein provided. The
registered owner on the books and records of the Surviving Corporation or its
transfer agents of any such outstanding stock certificate shall, until such
certificate shall have been surrendered for transfer or otherwise accounted
for to the Surviving Corporation or its transfer agents, have and be entitled
to exercise any voting and other rights with respect to, and to receive any
dividends and other distributions upon, the shares of Delaware Common Stock
evidenced by such outstanding certificate as above provided.
9. Options. Each option to purchase shares of Maryland Common Stock
granted under the 1985 Stock Option Plan (the "Plan") of CMI Maryland which is
outstanding immediately prior to the Effective Time, shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and become an option to purchase the same number of shares of Delaware
Common Stock at the same option price per share, and upon the same terms and
subject to the same conditions as set forth in the Plan, as in effect at the
Effective Time. The same number of shares of Delaware Common Stock shall be
reserved for purposes of said Plan as is equal to the number of shares of
Maryland Common Stock so reserved as of the Effective Time. As of the
Effective Time, CMI Delaware hereby assumes the Plan and all obligations of
CMI Maryland under the Plan, including the outstanding options or awards or
portions thereof granted pursuant to the Plan, and the shares subject to such
Plan shall thereafter be the shares of Delaware Common Stock reserved for
issuance thereunder.
10. Amendment. Subject to applicable law, this Agreement may be amended,
modified or supplemented by written agreement of the parties hereto at any
time prior to the Effective Time with respect to any of the terms contained
herein; provided, however, that no such amendment, modification or supplement
not adopted and approved by the shareholders of CMI Maryland and CMI Delaware
shall affect the rights of either or both of such shareholders in a manner
which is materially adverse to either or both of them.
21
<PAGE>
11. Abandonment. At any time prior to the Effective Time, this Agreement
may be terminated and the Merger may be abandoned by the Board of Directors of
CMI Maryland, notwithstanding approval of this Agreement by the stockholder of
CMI Delaware or by the shareholders of CMI Maryland, or both, if, in the
opinion of the Board of Directors of CMI Maryland, circumstances arise which,
in the opinion of such Board of Directors, make the Merger for any reason
inadvisable.
12. Counterparts. In order to facilitate the filing and recording of this
Agreement, the same may be executed in two or more counterparts, each of which
shall be deemed to be an original and the same agreement.
IN WITNESS WHEREOF, CMI Maryland and CMI Delaware have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
COUNTRYWIDE MORTGAGE
INVESTMENTS, INC.,
a Maryland corporation
By: \s\ Angelo R. Mozilo
--------------------
Angelo R. Mozilo,
President
ATTEST:
By: \s\ Thomas H. Boone
-------------------
Thomas H. Boone,
Secretary
COUNTRYWIDE MORTGAGE
INVESTMENTS, INC.,
a Delaware corporation
By: \s\ Angelo R. Mozilo
--------------------
Angelo R. Mozilo,
President
ATTEST:
By: \s\ Thomas H. Boone
-------------------
Thomas H. Boone,
Secretary
22
<PAGE>
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
Angelo R. Mozilo and Thomas H. Boone certify that:
1. They are the President and the Secretary, respectively, of Countrywide
Mortgage Investments, Inc., a Delaware corporation.
2. The Agreement of Merger in the form attached was duly approved by the
Board of Directors and the sole stockholder of this corporation.
3. There is only one class of shares of capital stock of this corporation
outstanding, Common Stock, $.01 par value. The number of shares of Common Stock
outstanding is 100.
4. The shareholder approval was by the holder of 100% of the outstanding
shares of this corporation. The approval of a majority of the outstanding
shares of Common Stock is required to approve the Agreement of Merger.
Date: Feb. 26, 1987
\s\ Angelo R. Mozilo
--------------------
Angelo R. Mozilo, President
ATTEST: \s\ Thomas H. Boone
-------------------
Thomas H. Boone, Secretary
(Delaware)
23
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On February 26, 1987 before me, the undersigned, a Notary Public in and for
said State, personally appeared ANGELO R. MOZILO personally known to me or
proved to me on the basis of satisfactory evidence to be the person who executed
the within instrument as the President, and THOMAS H. BOONE personally known to
me or proved to me on the basis of satisfactory evidence to be the person who
executed the within instrument as the Secretary, of COUNTRYWIDE MORTGAGE
INVESTMENT, INC., a Delaware corporation, one of the corporations that executed
the within instrument and acknowledged to me that COUNTRYWIDE MORTGAGE
INVESTMENTS, INC. executed the within instrument pursuant to its by-laws or a
resolution of its board of directors.
WITNESS my hand and official seal.
Signature \s\ Ayda Zenian
---------------
24
<PAGE>
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE
AND OF REGISTERED AGENT
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is
COUNTRYWIDE MORTGAGE INVESTMENTS, INC.
2. The registered office of the corporation within the State of Delaware is
hereby changed to 32 Loockerman Square, Suite L-100, City of Dover 19901,
County of Kent.
3. The registered agent of the corporation within the State of Delaware is
hereby changed to The Prentice-Hall Corporation System, Inc., the business
office of which is identical with the registered office of the corporation as
hereby changed.
4. The corporation has authorized the changes hereinbefore set forth by
resolution of its Board of Directors.
Signed on February 16, 1993.
\s\ Sandor E. Samuels
---------------------------------------
SANDOR E. SAMUELS Sr. Vice - President
Attest:
\s\ Gwen J. Eells
- ------------------------------
GWEN J. EELLS Asst. Secretary
25
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COUNTRYWIDE MORTGAGE INVESTMENTS, INC.
Countrywide Mortgage Investments, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
hereby certifies as follows:
1. That at a meeting of the Board of Directors of Countrywide
Mortgage Investments, Inc., (the "Corporation") resolutions were duly adopted
setting forth a proposed amendment of the Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and calling for the
proposal to be presented to the shareholders of the Corporation at a Special
Meeting of the Shareholders. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, That the Certificate of Incorporation of the Corporation be
amended by revising Article IV, Section 1 thereof so that, as amended,
Article IV, Section 1 shall read as follows:
"CAPITAL STOCK
-------------
Section 1. The total number of shares of capital stock which the
Corporation shall have authority to issue is Sixty Million (60,000,000),
consisting of Sixty Million (60,000,000) shares of Common Stock having a
par value of $0.01 per share."
2. That thereafter, the Special Meeting of the Stockholders, held on
December 9, 1993, of said corporation was duly called and held, upon notice in
accordance with Section 222 of the General Corporation Law of the State of
Delaware at which meeting the necessary number of shares as required by statue
were voted in favor of the amendment.
3. That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
26
<PAGE>
IN WITNESS WHEREOF, said Countrywide Mortgage Investments, Inc. has
caused this certificate to be signed by Angelo R. Mozilo, its President, and
Sandor E. Samuels, its Secretary, this 11th day of December, 1993.
BY: \s\ Angelo R. Mozilo
--------------------
Angelo R. Mozilo
President
ATTEST:
\s\ Sandor E. Samuels
- -----------------------
Sandor E. Samuels
Secretary
27
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COUNTRYWIDE MORTGAGE INVESTMENTS, INC.
Countrywide Mortgage Investments, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
hereby certifies as follows:
1. That at a meeting of the Board of Directors of Countrywide
Mortgage Investments, Inc., (the "Corporation") resolutions were duly adopted
setting forth proposed amendments of the Certificate of Incorporation of said
Corporation, declaring said amendments to be advisable and calling for the
proposal to be presented to the stockholders of the Corporation at the Annual
Meeting of the Stockholders. The resolutions setting forth the proposed
amendments are as follows:
RESOLVED, That the Certificate of Incorporation of the Corporation be
amended by revising ARTICLE I so that, as amended, ARTICLE I shall read as
follows:
ARTICLE I
"NAME"
------
The name of the Corporation is: CWM Mortgage Holdings, Inc. (the
"Corporation").
RESOLVED FURTHER, That the Certificate of Incorporation of the Corporation
be further amended by adding a new ARTICLE VII to read as follows and by
renumbering the existing ARTICLES VII and VIII as ARTICLES VIII and IX,
respectively:
ARTICLE VII
ACQUISITION OF SHARES BY CERTAIN ORGANIZATIONS
----------------------------------------------
Section 1. Whenever it is deemed by the Board of Directors to be
prudent in avoiding
(a) the direct or indirect imposition of a penalty tax on the
Corporation (including the imposition of an entity-level tax on one or
more real estate mortgage investment conduits ("REMICs") or one or
more taxable mortgage pools in which the Corporation has acquired or
plans to acquire an interest) or
(b) the endangerment of the tax status of one or more REMICs or one
or more taxable mortgage pools in which the Corporation has acquired
or plans to acquire an interest, the Board of Directors may require to
be filed with the Corporation a statement or affidavit from any holder
or proposed transferee of capital stock of the Corporation stating
whether the holder or proposed transferee is
(i) the United States, any state or political subdivision
thereof, any possession of the United States, any foreign
government, any international organization, or any agency or
instrumentality of the foregoing, or any other organization that
is exempt from federal income taxation (including taxation under
the unrelated business taxable income provisions of the Code) (a
"Disqualified Organization") or
(ii) a partnership, trust, real estate investment trust,
regulated investment company, or other pass-through entity in
which a Disqualified Organization holds or is permitted to hold a
direct or indirect beneficial interest (a "Pass-Through Entity").
28
<PAGE>
Any contract for the sale or other transfer of shares of capital
stock of the Corporation shall be subject to this provision.
Furthermore, the Board of Directors shall have the right, but shall
not be required, to refuse to transfer any shares of capital stock of
the Corporation purportedly transferred, if either
(a) a statement or affidavit requested pursuant to this
Section 1 has not been received, or
(b) the proposed transferee is a Disqualified Organization or
Pass-Through Entity.
Section 2. Any acquisition of shares of capital stock of the
Corporation that could or would
(a) result in the direct or indirect imposition of a penalty
tax on the Corporation (including the imposition of an entity-level
tax on one or more REMICs or one or more taxable mortgage pools in
which the Corporation has acquired or plans to acquire an interest) or
(b) endanger the tax status of one or more REMICs or one or
more taxable mortgage pools in which the Corporation has acquired or
plans to acquire an interest shall be void ab initio to the fullest
extent permitted under applicable law and the intended transferee of
the subject shares shall be deemed never to have had an interest
therein.
If the foregoing provision is determined to be void or invalid by
virtue of any legal decision, statute, rule or regulation, then the
transferee of those shares shall be deemed, at the option of the
Corporation, to have acted as agent on behalf of the Corporation in
acquiring those shares and to hold those shares on behalf of the
Corporation.
Section 3. Whenever it is deemed by the Board of Directors to be
prudent in avoiding
(a) the direct or indirect imposition of a penalty tax on the
Corporation (including the imposition of an entity-level tax on one or
more REMICs or one or more taxable mortgage pools in which the
Corporation has acquired or plans to acquire an interest) or
(b) the endangerment of the tax status of one or more REMICs
or one or more taxable mortgage pools in which the Corporation has
acquired or plans to acquire an interest, the Corporation may redeem
shares of its capital stock.
Any such redemption shall be conducted in accordance with the
procedures set forth in Section 6 of Article VI.
Section 4. Nothing contained in this Article or in any other provision
hereof shall limit the authority of the Board of Directors to take any and
all other action as it in its sole discretion deems necessary or advisable
to protect the Corporation or the interests of its stockholders by avoiding
(a) the direct or indirect imposition of a penalty tax on the
Corporation (including the imposition of an entity-level tax on one or
more REMICs or one or more taxable mortgage pools in which the
Corporation has acquired or plans to acquire an interest) or
(b) the endangerment of the tax status of one or more REMICs
or one or more taxable mortgage pools in which the Corporation has
acquired or plans to acquire an interest.
29
<PAGE>
Section 5. If any provision of this Article or any application of any
such provision is determined to be invalid by any federal or state court
having jurisdiction over the issue, the validity of the remaining
provisions shall be affected only to the extent necessary to comply with
the determination of that court.
2. That thereafter, the Annual Meeting of the Stockholders of the
Corporation was duly called and held on May 17, 1994, upon notice in accordance
with Section 222 of the General Corporation Law of the State of Delaware at
which meeting the necessary number of shares as required by statute were voted
in favor of the amendments.
3. That said amendments were duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Countrywide Mortgage Investments, Inc. has
caused this certificate to be signed by Sterling Blair Albernathy, its Senior
Vice President, and Richard H. Wohl, its Secretary, this 20th day of May, 1994.
BY: \s\ Sterling Blair Abernathy
----------------------------
Sterling Blair Abernathy
Senior Vice President
ATTEST:
\s\ Richard H. Wohl
- ----------------------
Richard H. Wohl
Secretary
30
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CWM MORTGAGE HOLDINGS, INC.
CWM Mortgage Holdings, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, hereby
certifies as follows:
1. That at a meeting of the Board of Directors of CWM Mortgage Holdings,
Inc. (the "Corporation") resolutions were duly adopted setting forth a proposed
amendment of the Certificate of Incorporation of said Corporation, declaring
said amendment to be advisable and calling for the proposal to be presented to
the shareholders of the Corporation at the Annual Meeting of the Shareholders.
The resolution setting forth the proposed amendment is as follows:
RESOLVED, That the Certificate of Incorporation of the Corporation be
amended by revising Article IV, Section 1 thereof so that, as amended,
Article IV, Section 1 shall read in full as follows:
"CAPITAL STOCK
-------------
Section 1. The total number of shares of capital stock which the
Corporation shall have authority to issue is One Hundred Million
(100,000,000), consisting of One Hundred Million (100,000,000) shares of
Common Stock having a par value of $0.01 per share."
2. That thereafter, the Annual Meeting of the Shareholders of the
Corporation was duly called and held on May 17, 1995, upon notice in accordance
with Section 222 of the General Corporation Law of the State of Delaware at
which meeting the necessary number of shares as required by statute were voted
in favor of the amendment.
3. That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
31
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Michael W. Perry, its Executive Vice President, and Richard H. Wohl,
its Secretary, this 18th day of May, 1995.
\s\ Michael W. Perry
------------------------
Michael W. Perry
Executive Vice President
ATTEST:
\s\ Richard H. Wohl
- -------------------
Richard H. Wohl
Secretary
32
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
INDEPENDENT LENDING CORPORATION
INTO CWM MORTGAGE HOLDINGS, INC.
(PURSUANT TO SECTION 253 OF THE GENERAL
CORPORATION LAW OF DELAWARE)
CWM Mortgage Holdings, Inc. a Delaware corporation (the "Company"), does
hereby certify:
FIRST: That the Company is incorporated pursuant to the General
Corporation Law of the State of Delaware.
SECOND: That the Company owns all of the outstanding shares of the capital
stock of Independent Lending Corporation, a Delaware corporation.
THIRD: That the Company, by the following resolutions of its Board of
Directors, duly adopted on the 20th day of January, 1997, determined to merge
into itself Independent Lending Corporation:
"WHEREAS, The Board of Directors has been presented with a proposal
by the Company to merge Independent Lending Corporation, a wholly owned
subsidiary, with and into the Company (the "ILC Merger");
WHEREAS, Section 253 of the Delaware General Corporation Law
authorizes the merger of a wholly owned subsidiary with and into its parent
corporation; and
WHEREAS, It is the determination of the Board of Directors that the
ILC Merger would be in the best interests of the Company;
NOW, THEREFORE, BE IT RESOLVED, That the merger of Independent
Lending Corporation with and into the Company is hereby approved;
RESOLVED FURTHER, That the officers of the Company be, and each of
them hereby is, authorized, empowered and directed to execute such documents and
to take or cause to be taken any and all such other actions as he or they may
deem necessary, appropriate or advisable in order to carry out the intent and
purposes of the foregoing resolution; and
RESOLVED FURTHER, That any actions heretofore taken by any officer
of the Company in connection with the ILC Merger be, and they hereby are,
ratified, confirmed and approved."
33
<PAGE>
IN WITNESS WHEREOF, CWM Mortgage Holdings, Inc. has caused its corporate
seal to be affixed and this certificate to be signed by Michael W. Perry, its
authorized officer, this 31st day of January, 1997.
CWM MORTGAGE HOLDINGS, INC.
\s\ Michael W. Perry
--------------------
Michael W. Perry
President and Chief Operating Officer
34
<PAGE>
CERTIFICATE OF MERGER OF
COUNTRYWIDE ASSET MANAGEMENT CORPORATION
INTO CWM MORTGAGE HOLDINGS, INC.
Pursuant to Section 251 of the
General Corporation Law of the State of Delaware
The undersigned hereby certifies as follows:
FIRST: The names of the constituent corporations are CWM Mortgage
Holdings, Inc. ("CWM") and Countrywide Asset Management Corporation ("CAMC").
Each constituent corporation is incorporated under the laws of the State of
Delaware.
SECOND: An Agreement and Plan of Merger (the "Merger Agreement") dated as
of January 29, 1997 by and among CWM, CAMC, and Countrywide Credit Industries,
Inc. has been approved, adopted, certified, executed and acknowledged by each of
the constituent corporations in accordance with Section 251 of the General
Corporation Law of the State of Delaware.
THIRD: The name of the corporation surviving the merger is CWM Mortgage
Holdings, Inc. The Certificate of Incorporation of CWM as in effect at the
Effective Time shall be the Certificate of Incorporation of the corporation
surviving the Merger (the "Surviving Corporation").
FOURTH: An executed copy of the Merger Agreement is on file at the
principal place of business of the Surviving Corporation at 155 North Lake
Avenue, Pasadena, California 91101, and a copy of the Merger Agreement will be
furnished by the Surviving Corporation, on request and without cost, to any
stockholder of either constituent corporations.
IN WITNESS WHEREOF, CWM has caused this Certificate of Merger to be
executed in its corporate name by its President and Chief Operating Officer and
attested by its Secretary this 1st day of July, 1997.
CWM MORTGAGE HOLDINGS, INC.
\s\ Michael W. Perry
--------------------
Michael W. Perry
President and Chief Operating Officer
Attest:
\s\ Richard H. Wohl
- -------------------
Richard H. Wohl
Secretary
35
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
CWM MORTGAGE HOLDINGS, INC.
CWM Mortgage Holdings, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Company"), hereby certifies as follows:
1. That at a meeting of the Board of Directors of the Company resolutions
were duly adopted setting forth a proposed amendment of the Certificate of
Incorporation of the Company, declaring said amendment to be advisable and
calling for the proposal to be presented to the shareholders of the Company at
the Annual Meeting of the Shareholders. The resolution setting forth the
proposed amendment is as follows:
NOW, THEREFORE, BE IT RESOLVED, That subject to the requisite approval
of the shareholders of the Company at the Annual Meeting of Shareholders,
Article I of the Company's Certificate of Incorporation be amended to read
in full as follows:
"ARTICLE I
NAME
----
The name of the Corporation is: INMC Mortgage Holdings, Inc. (the
"Corporation")."
2. That thereafter, the Annual Meeting of the Shareholders of the Company
was duly called and held on June 24, 1997, upon notice in accordance with
Section 222 of the General Corporation Law of the State of Delaware, at which
meeting the necessary number of shares as required by statute were voted in
favor of the amendment.
3. That said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this certificate to be signed by
Michael W. Perry, its President, and Richard H. Wohl, its Secretary, this 1st
day of July, 1997.
\s\ Michael W. Perry
--------------------
Michael W. Perry
President
ATTEST:
\s\ Richard H. Wohl
- -------------------
Richard H. Wohl
Secretary
36
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
INMC MORTGAGE HOLDINGS, INC.
INMC Mortgage Holdings, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Company"), hereby certifies as follows:
1. That at a meeting of the Board of Directors of the Company
resolutions were duly adopted setting forth proposed amendments of the
Certificate of Incorporation of the Company, declaring said amendments to be
advisable and calling for the proposals to be presented to the shareholders of
the Company at the Annual Meeting of the Shareholders. The resolutions setting
forth the proposed amendments are as follows:
NOW, THEREFORE, BE IT RESOLVED, That subject to the requisite approval
of the shareholders of the Company at the Annual Meeting of Shareholders,
Article I of the Company's Certificate of Incorporation be amended to read
in full as follows:
"ARTICLE I
NAME
----
The name of the Corporation is: IndyMac Mortgage Holdings, Inc. (the
"Corporation")."
NOW THEREFORE, BE IT RESOLVED, That subject to the requisite approval
of the shareholders of the Company at the Annual Meeting of Shareholders,
Article IV, Section 1 of the Company's Certificate of Incorporation be
amended to read in full as follows:
"ARTICLE IV
Capital Stock
-------------
Section 1. The total number of shares of capital stock which INMC shall
have authority to issue is Two Hundred Ten Million (210,000,000),
consisting of (i) Two Hundred Million (200,000,000) shares of Common Stock
having a par value of $0.01 per share and (ii) Ten Million (10,000,000)
shares of preferred stock ("Preferred Stock") having a par value of $0.01
per share.
The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of Article IV, to provide for the
issuance of shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each
such series, and to fix the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof.
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, determination of the
following:
(a) the number of shares constituting that series and the distinctive
designation of that series;
(b) the dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends
on shares of that series;
37
<PAGE>
(c) whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such
voting rights;
(d) whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board
of Directors shall determine;
(e) whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption,
including the date or date upon or after which they shall be
redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and
at different redemption dates;
(f) whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(g) the rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of
payment of shares of that series;
(h) any other relative rights, preferences and limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the common shares with respect to the
same dividend period.
If upon any voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the assets available for distribution to
holders of shares of Preferred Stock of all series shall be insufficient to
pay such holders the full preferential amount to which they are entitled,
then such assets shall be distributed ratably among the shares of all
series of Preferred Stock in accordance with the respective preferential
amounts (including unpaid cumulative dividends, if any) payable with
respect thereto."
2. That thereafter, the Annual Meeting of the Shareholders of the Company
was duly called and held on May 19, 1998, upon notice in accordance with Section
222 of the General Corporation Law of the State of Delaware, at which meeting
the necessary number of shares as required by statute were voted in favor of the
amendment.
3. That said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this certificate to be signed by
Michael W. Perry, its President, and Richard H. Wohl, its Secretary, this 19th
day of May, 1998.
\s\ Michael W. Perry
--------------------
Michael W. Perry
President
ATTEST:
\s\ Richard H. Wohl
- -------------------
Richard H. Wohl
Secretary
38
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
IndyMac Mortgage Holdings, Inc., (the "Company") a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Certificate of Incorporation of the Company is hereby
amended by deleting Articles VI and VII of such certificate in their entirety
and replacing such Articles with the following language:
"Article VI - Reserved"
"Article VII - Reserved"
SECOND : That at a meeting of the Board of Directors of the Company,
duly called and convened, resolutions were duly adopted setting forth the
amendments to the Certificate of Incorporation of the Company, declaring said
amendments to be advisable and directing that the proposed amendments be
considered at the Special Meeting of the stockholders of the Company to be held
on December 14, 1999.
THIRD: That thereafter, the Special Meeting of the stockholders of
the Company was duly called and held on December 14, 1999, upon notice in
accordance with Section 222 of the General Corporation law of the state of
Delaware, at which meeting the necessary number of shares as required by statute
were voted in favor of the amendments.
FOURTH: That said amendments were duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, IndyMac Mortgage Holdings, Inc. has caused this
certificate to be signed by Michael W. Perry, its Chief Executive Officer, and
Melissa K. Gerard, its Secretary, this third day of January, 2000.
_______________________
Michael W. Perry
Chief Executive Officer
ATTEST:
________________________
Melissa K. Gerard
Secretary
39
<PAGE>
EXHIBIT 3.2
-----------
COUNTRYWIDE MORTGAGE INVESTMENTS, INC.
A DELAWARE CORPORATION
___________________
BYLAWS
___________________
ARTICLE I
Offices
SECTION 1. Registered Office. The registered office of the Corporation in
the State of Delaware shall be located at the principal place of business in
that state of the entity acting as the corporation's registered agent in the
State of Delaware.
SECTION 2. Principal Executive Office. The principal executive office of
the Corporation shall be in the City of Pasadena, State of California.
SECTION 3. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
Meetings of Stockholders
SECTION 1. Place of Meetings. Meetings of stockholders shall be held on
such date, at such time and at such place within the United States as shall be
determined from time to time by the Board of Directors and stated in the notice
of meeting or in a duly executed waiver of notice thereof.
SECTION 2. Annual Meeting. The annual meeting of stockholders of the
Corporation shall be held on such date, at such time and at such place as shall
be designated annually by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof, at which meeting the
stockholders shall elect a Board of Directors and transact such other business
as may properly be brought before the meeting.
SECTION 3. Special Meetings. At any time in the interval between annual
meetings, special meetings of the stockholders, unless otherwise provided by law
or by the Certificate of Incorporation, may be called by a majority of the Board
of Directors, a majority of the Unaffiliated Directors (as defined in Article
III, Section 3), the President or the Chairman of the Board of Directors. The
date, time and place of a special meeting shall be determined by the Board of
Directors or the officer calling the meeting and shall be stated in the written
notice of the meeting, which notice shall state the purpose or purposes for
which the meeting is called.
<PAGE>
Business of the Corporation transacted at any special meeting of stockholders by
whomever called shall be limited to the purposes stated in the written notice
thereof.
SECTION 4. Notice of Meetings; Waiver of Notice; Adjournment. Not less than
ten nor more than sixty days before the date of every stockholders' meeting, the
Secretary shall give to each stockholder of record entitled to vote at such
meeting, and to each stockholder not entitled to vote who is entitled by statute
to notice, written or printed notice stating the date, time and place of the
meeting and the purpose or purposes for which the meeting is called, either by
mail or by presenting it personally to the stockholder or by leaving it at his
residence or usual place of business. If mailed with postage thereon prepaid,
such notice shall be deemed to be given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors after the adjournment shall fix a
new record date for an adjourned meeting or the adjournment is for more than
thirty days after the original record date, notice of such adjourned meeting
need not be given if the time and place to which the meeting shall be adjourned
were announced at the meeting at which the adjournment is taken.
SECTION 5. Quorum. At any meeting of stockholders the presence in person or
by proxy of stockholders entitled to cast a majority of the shares of stock
entitled to vote at the meeting shall constitute a quorum, unless otherwise
provided by any statute or by the Certificate of Incorporation. In the absence
of a quorum no business may be transacted, except that the holders of a majority
of the shares of stock present in person or by proxy and entitled to vote may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, except as required by Section 4 above, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally noticed.
SECTION 6. Voting. The affirmative vote of a majority of the shares of
common stock which are present in person or represented by proxy and entitled to
vote on the matter at a meeting of stockholders, duly called and at which a
quorum is present, shall be sufficient to constitute the act of the stockholders
as to any matter which properly comes before the meeting, unless more than a
majority of the votes shall be required by statute or by the Certificate of
Incorporation. If a vote shall be taken on any question other than the election
of directors (which shall be by written ballot), then unless required by statute
or these bylaws, or determined by the chairman of the meeting to be advisable,
any such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholders voting, or by his proxy, and shall state the number
of shares voted.
Unless a statute or the Certificate of Incorporation provides otherwise, each
holder of record of outstanding shares of stock of the Corporation having voting
power shall be entitled to one vote for every share of such stock on each matter
submitted to a vote at a meeting of
<PAGE>
stockholders. A stockholder may vote only the shares owned by him as shown an
the record of stockholders of the Corporation as of the record date determined
pursuant to Section 7 below or pursuant to applicable law and may cast his
shares in person or by proxy executed in writing by the stockholder or by his
duly authorized attorney-in-fact, but no proxy shall be valid after three years
from its date, unless otherwise provided in the proxy. At all meetings of
stockholders, unless the voting is conducted by inspectors, all questions
relating to the qualification of voters and the validity of proxies and the
acceptance or rejection of votes shall be decided by the chairman of the
meeting.
SECTION 7. Fixing of Record Date. The Board of Directors may fix, in
advance, a record date not more than sixty not less than ten days before the
date then fixed for the action requiring determination by the stockholders. All
persons who were holders of record of shares at such time, and no others, shall
be entitled to vote at such meeting and any adjournment thereof.
SECTION 8. Organization and Order of Business. At each meeting of the
stockholders, the Chairman of the Board of Directors, or in his absence or
inability to act, the President, or in the absence or inability to act of the
Chairman of the Board and the President, a Vice President, shall act as chairman
of the meeting. The Secretary, or in his absence or inability to act, any
person appointed by the chairman of the meeting, shall act as secretary of the
meeting and keep the minutes thereof. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
SECTION 9. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may, and on
the request of any stockholder entitled to vote thereat shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them.
No director or candidate for the office of director shall act as inspector of an
election of directors. Inspectors need not be stockholders.
ARTICLE III
Board of Directors
SECTION 1. Number of Directors. The number of directors of the Corporation
shall be six. By vote of a majority of the entire Board of Directors, the
number of directors fixed by
<PAGE>
these Bylaws may be increased or decreased by resolution from time to time, but
may not exceed nine nor be less than three. The tenure of office of a director
shall not be affected by any decrease in the number of directors so made by the
Board.
SECTION 2. General Powers. The business and affairs of the Corporation
shall be managed under the direction of its Board of Directors, which may
exercise all of the powers of the Corporation, except such as are by law or by
the Certificate of Incorporation or by these Bylaws conferred upon or reserved
to the stockholders.
SECTION 3. Affiliations of Board Members. A majority of the members of the
Board of Directors shall at all times be persons who are not Affiliates of an
individual or corporate management company to whom the Board has delegated
management duties as permitted in Section 18 of this Article and Article V,
Section 7 of the Certificate of Incorporation (a "Management Company") (such
directors being referred to as "Unaffiliated Directors").
As used in these Bylaws, the term "Affiliate" of another person means any
person directly or indirectly owning, controlling, or holding with power to
vote, five percent (5%) or more of the outstanding voting securities of such
other person or of any person directly or indirectly controlling, controlled by
or under common control with such other person; any person five percent (5%) or
more of whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by such other person; any person directly
or indirectly controlling, controlled by or under common control with, such
other person, and, any officer, director, partner, or employee of such other
person. The term "person" includes a natural person, corporation, partnership,
trust, company or other entity.
SECTION 4. Election and Term. Until the first annual meeting of
stockholders or until successors are duly elected and qualified, the Board shall
consist of the persons named as such in the Certificate of Incorporation. At
the first annual meeting of stockholders and at each annual meeting thereafter,
the stockholders shall elect directors, who need not be stockholders in the
Corporation, to hold office until the next annual meeting and until their
successors are elect and qualified or until their earlier resignation or
removal. Directors are eligible for re-election, and a director may resign at
any time by giving written notice to the Corporation.
SECTION 5. Vacancies. Any vacancy occurring in the Board of Directors for
any cause other than by reason of increase in the number of directors may be
filled by a majority of the remaining members of the Board of Directors,
although such majority is less than a quorum. Any vacancy occurring by reason
of an increase in the number of directors may be filled by action of a majority
of the entire Board of Directors. The vacancy for any reason of any director
who is not an Affiliate of a Management Company shall be filled by a majority
vote of the remaining members of the Board of Directors, including a majority
vote of the remaining Unaffiliated Directors. A director elected by the Board
of Directors to fill a vacancy shall be elected to hold office until the next
annual meeting of stockholders and until his or her successor is elected and
qualifies.
SECTION 6. Removal of Directors. Any director may be removed either with or
without cause, as provided by the General Corporation Law of the State of
Delaware.
<PAGE>
SECTION 7. Place of Meetings. Meetings of the Board of Directors, regular
or special, may be held in or out of the State of Delaware at such place as the
Board of Directors may from time to time determine or as shall be specified in
the notice of such meeting.
SECTION 8. Annual Meeting. The first meeting of each newly elected Board of
Directors shall be held as soon as practicable after the annual meeting of the
stockholders at which the directors were elected. The meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors. or as shall be
specified in a written waiver signed by all of the directors, except that no
notice shall be necessary if such meeting is held immediately after the
adjournment, and at the site, of the annual meeting of stockholders.
SECTION 9. Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and place as shall from time to time be
determined by the Board of Directors.
SECTION 10. Special Meetings. Special meetings of the Board of Directors
may be called by two or more directors of the Corporation or by the Chairman of
the Board of Directors or the President.
SECTION 11. Notice of Special Meetings. Notice of each special meeting of
the Board of Directors shall be given by the Secretary as hereinafter provided.
Such notice shall state the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone,
telegraph, cable or wireless, at least twenty-four hours before the time at
which such meeting is to be held, or by first-class mail, postage prepaid, or
established nationwide courier service, delivery cost prepaid, addressed to each
director at his or her post-office address as it appears on the records of the
Corporation, at least four days before the day on which such meeting is to be
held. If mailed, such notice shall be deemed to be given when deposited in the
United States mail addressed to the director at his or her address as it appears
in the records of the Secretary. Special meetings of the Board of Directors may
be held at any time without notice if all directors are present or if those
directors not present waive notice of the meeting in writing either before or
after the date of the meeting.
SECTION 12. Quorum and Voting. At all meetings of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business, and the action of a majority of the directors present
at any meeting at which a quorum is present shall be the action of the Board of
Directors unless the concurrence of a greater proportion is required for such
action by statute, the Certificate of Incorporation or these Bylaws. If a
quorum shall not be present at any meeting of directors, the directors present
at the meeting may by a majority vote adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present.
Notwithstanding the first paragraph of this Section 12, any action pertaining
to a transaction involving the Corporation in which any Management Company, any
director or officer of the Corporation or any Affiliate of any of the foregoing
persons has an interest shall
<PAGE>
be approved in specific as to any isolated transactions or in general as to any
series of similar transactions by a majority of the members of the Board of
Directors who are not Affiliates of such interested party, even if the non-
interested directors constitute less than a quorum. In approving any such
transaction or series of transactions the non-interested directors must
determine that
(a) the transaction as contemplated is fair as to the Corporation and its
stockholders at the time it is authorized, approved or ratified;
(b) if an acquisition of property other than mortgage loans is involved,
the total consideration is not in excess of the appraised value of such
property being acquired; and
(c) if the transaction involves compensation to any Management Company or
its Affiliates for services rendered in a capacity other than that
contemplated by the management arrangements, to the knowledge of the
directors such compensation is not greater than the customary charges for
comparable services generally available from other competent unaffiliated
persons.
SECTION 13. Organization. The Chairman of the Board shall preside at each
meeting of the Board. In the absence or inability of the Chairman of the Board
to preside at a meeting, the President, or, in his absence or inability to act,
another director chosen by a majority of the directors present, shall act as
chairman of the meeting and preside thereat. The Secretary (or, in his absence
or inability to act, any person appointed by the Chairman) shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 14. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting of the Board of Directors or any
committee thereof by means of a conference telephone or similar communications
equipment if all persons participating in the meeting can hear each other at the
same time. Participation in a meeting by these means constitutes presence in
person at a meeting.
SECTION 15. Consent in Lieu of Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if a written consent to such action is signed by
all members of the Board of Directors or of such committee, as the case may be,
and such written consent is filed with the minutes of proceedings of the Board
or committee.
SECTION 16. Compensation. Directors may receive compensation for services
to the Corporation in their capacities as directors in such manner and in such
amounts as may be fixed from time to time by the Board of Directors, and
expenses of attendance at each regular or special meeting of the Board of
Directors, or of any committee thereof.
SECTION 17. Investment Policies and Restrictions. The investment policies
of the Corporation and the restrictions thereon shall be established from time
to time by the Board of Directors, including a majority of the Unaffiliated
Directors; provided, however, that the investment policies of the Corporation
and the limitations thereon shall be at all times in
<PAGE>
compliance with the restrictions applicable to real estate investment trusts
pursuant to the Internal Revenue Code of 1986, as it may be amended from time to
time. The Unaffiliated Directors shall review the investment policies of the
Corporation at least annually to determine that the policies then being followed
by the Corporation are in the best interests of its stockholders. Each such
determination and the basis therefor shall be set forth in the minutes of the
Board of Directors.
SECTION 18. Management Arrangements. The Board may delegate the duty of
management of the assets and the administration of the Corporation's day-to-day
operations to a Management Company pursuant to a written contract or contracts,
or any renewal thereof, which have obtained the requisite approvals of the Board
of Directors, including a majority of the Unaffiliated Directors, or the
stockholders of the Corporation, as provided in the Certificate of
Incorporation.
The Board of Directors shall evaluate the performance of the Management
Company before entering into or renewing any management arrangement. The
minutes of meetings with respect to such evaluation shall reflect the criteria
used by the Board of Directors in making such evaluation. Upon any termination
of the initial management arrangements reflected in the Registration Statement,
the Board of Directors shall determine that any successor Management Company
possess sufficient qualifications (a) to perform the management function for the
Corporation and (b) to justify the compensation provided for in its contract
with the Corporation. Each contract for the services of a Management Company
entered into by the Board of Directors shall have a term of no more than one
year, but may be renewed annually at or prior to the expiration of the contract.
Each contract shall be terminable by a majority of the Unaffiliated Directors,
or the Management Company on sixty (60) days' written notice without cause.
The Unaffiliated Directors shall determine at least annually that the
compensation which the Corporation contracts to pay the Management Company is
reasonable in relation to the nature and quality of services performed and shall
also supervise performance of the Management Company and the compensation paid
to it by the Corporation to determine that the provisions of such contract are
being carried out. Each such determination shall be based upon the following
factors and all other factors the Unaffiliated Directors may deem relevant and
the findings of the Unaffiliated Directors on each of such factors shall be
recorded in the minutes of the Board of Directors:
(a) The size of the management fee in relation to the size, compensation
and profitability of the investment portfolio of the Corporation;
(b) The success of the Management Company in generating opportunities that
meet the investment objectives of the Corporation;
(c) The rates charged to other corporations similar to the Corporation and
to other investors by advisers performing similar services;
<PAGE>
(d) Additional revenues realized by the Management Company and its
Affiliates through their relationship with the Corporation, including loan
administration, underwriting or broker commissions, servicing, engineering,
inspection and other fees, whether paid by the Corporation or by others with
whom the Corporation does business;
(e) The quality and extent of service and advice furnished to the
Corporation;
(f) The performance of the investment portfolio of the Corporation,
including income, conservation or appreciation of capital, frequency of
problem investments and competence in dealing with distress situations; and
(g) The quality of the investment portfolio or the Corporation in
relationship to the investments generated by the Management Company for its
own account.
SECTION 19. Total Expenses. The Unaffiliated Directors shall determine,
from time to time but at least annually, that the total fees and expenses of the
Corporation are reasonable in light of all relevant factors. Within sixty days
after the end of any fiscal quarter of the Corporation for which "Total
Operating Expenses" (for the twelve months then ended) exceed two percent (2%)
of "Average Invested Assets" or twenty-five percent (25%) of the "Net Income",
whichever is greater, there shall be sent to the stockholders of the Corporation
a written disclosure of such fact, together with an explanation of the factors
the Unaffiliated Directors considered in arriving at the conclusion that such
higher operating expenses were justified. The Corporation shall also publish to
the stockholders quarterly (i) the ratio of the cost of raising capital during
the quarter to the capital raised and (ii) the aggregate amount of advisory fees
and the aggregate amount of other fees paid to any Management Company and all
Affiliates of such Management Company by the Corporation and including fees or
charges paid to such Management Company and all of its Affiliates by third
parties doing business with the Corporation.
As used herein, the following terms shall have the following meanings:
(a) "Total Operating Expenses" for any period shall mean the aggregate
expenses of every character which constitute ordinary operating expenses,
including additional expenses paid directly or indirectly by the Corporation
to a Management Company, its Affiliates or third parties based upon their
relationship with the Corporation, including loan administration, servicing,
and all other expenses paid by the Corporation, exclusive of expenses related
to raising capital, for interest, taxes and direct property acquisition,
disposition, operation, maintenance and management costs.
(b) "Average Invested Assets" for any period shall mean the average of the
aggregate book value of the assets of the Corporation, determined on a
consolidated basis, invested, directly or indirectly, in loans secured by
real estate, before deduction of reserves for depreciation and similar non-
cash reserves, computed taking the average of such values at the end of each
calendar month during such period.
<PAGE>
(c) "Net Income" for any period shall mean total revenues applicable to
such period, less the expenses applicable to such period determined in
accordance with generally accepted accounting principles.
ARTICLE IV
Committees of Directors
SECTION 1. Executive and Other Committees. The Board of Directors may, by
resolution adopted by a majority of the Board, appoint from among its members an
Executive Committee, an Audit Committee or other committees each composed of two
or more directors. At least a majority of the members of any such committee
shall be composed of directors who are Unaffiliated Directors. Any such
committee shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation
and may authorize the seal of the Corporation to be affixed to all papers which
may require it except that no such committee shall have such power or authority
with respect to amending the Bylaws or Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to shareholders the sale,
lease or exchange of all or substantially all of the Corporation's property or
assets or the dissolution or the revocation of a dissolution of the Corporation,
and, unless the resolution or the Bylaws or Certificate of Incorporation
specifically so provides, no such committee shall have the power or authority to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger.
SECTION 2. Minutes and Reports. The committees shall keep minutes of their
proceedings and shall report the same to the Board of Directors when requested
to do so, and any action taken by the committees shall be subject to revision
and alteration by the Board of Directors, provided that no rights of third
persons shall be affected by any such revision or alteration.
SECTION 3. Notice. Notice of committee meetings shall be given in the same
manner as notice for special meetings of the Board, and a waiver thereof in
writing, signed by the directors entitled to such notice and filed with the
records of the meeting, whether before or after the holding thereof, or actual
attendance at the committee meeting in person shall be deemed equivalent to the
giving of such notice to such director.
SECTION 4. Quorum, Voting and General. One-third, but not less than two, of
the members of any committee shall be present in person at any meeting of such
committee in order to constitute a quorum for the transaction of business. The
act of a majority of the committee members present at such meeting shall be an
act of the committee. The Board may designate a chairman of any committee and
such chairman or any two members of any committee may fix the time and place of
its meetings unless the Board shall otherwise provide. In the event of the
absence or disqualification of any member of any committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he, she or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. The Board shall have the power at any time to
change the membership of any committee, to fill all
<PAGE>
vacancies, to designate alternate members, to replace any absent or disqualified
member or to dissolve any such committee.
ARTICLE V
Officers and Agents
SECTION 1. Number and Qualification. The officers of the Corporation shall
be chosen by the Board of Directors and shall be a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary and a Treasurer. The
Corporation may also have as officers one or more Assistant Secretaries and one
or more Assistant Treasurers. Two or more offices may be held by the same
person but no officer shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law, the Certificate
of Incorporation or these Bylaws to be executed, acknowledged or verified by two
or more officers. Such officers shall be elected by the Board of Directors at
its first meeting after each annual meeting of stockholders and shall serve at
the pleasure of the Board of Directors until resignation, removal,
disqualification or until their successors are chosen and qualified. The Board
of Directors may appoint such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board.
SECTION 2. Compensation. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
SECTION 3. Removal and Vacancies. Any officer or agent may be removed by
the Board of Directors whenever in its judgment the best interests of the
Corporation will be served thereby. If the office of any officer becomes vacant
for any reason, the vacancy shall be filled by the Board of Directors for the
unexpired portion of the term of the office which shall be vacant.
SECTION 4. The Chairman of the Board. The Chairman of the Board shall be
the chief executive officer of the Corporation. He shall direct, coordinate and
control the Corporation's business and activities and its operating expenses and
capital expenditures, and shall have general authority to exercise all the
powers necessary for the chief executive officer of the Corporation, all in
accordance with basic policies established by and subject to the control of the
Board of Directors. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers. He shall have general authority to execute bonds, deeds and
contracts in the name and on behalf of the Corporation. As provided in Section
8 of Article II, he shall act as chairman at all meetings of the stockholders at
which he is present, and, as provided in Section 13 of Article III, he shall
preside at all meetings of the Board of Directors at which he is present. In
the absence of the Chairman of the Board, his duties shall be performed and his
authority may be exercised by the President, and, in the absence of the Chairman
of the Board and the President, such duties shall be performed and such
authority may be exercised by the Vice Presidents in order of their rank as
fixed by the Board of Directors, or if not ranked, the Vice President designated
by the Board of Directors, or in the absence of such Vice President, by such
officer
<PAGE>
as may have been designated by the most senior officer of the Corporation who
has made any such designation, with the right reserved to the Board of Directors
to make the designation or supersede any designation so made.
SECTION 5. The President. The President shall be the chief operating
officer of the Corporation. He shall implement the general directives, plans and
policies formulated by the Chairman of the Board pursuant to the Bylaws, in
general shall have authority to exercise all powers delegated to him by the
Chairman of the Board and shall establish operating and administrative plans and
policies and direct and coordinate the Corporation's organizational components,
within the scope of the authority delegated to him by the Board of Directors or
the Chairman of the Board. He shall have general authority to execute bonds,
deeds and contracts in the name and on behalf of the Corporation and
responsibility for the employment or appointment and discharge of such
employees, agents and officers, except such as shall be appointed by the Board,
as may be required to carry on the operation of the business. As provided in
Section 4 of this Article V, in the absence of the Chairman of the Board, the
President shall perform all the duties and exercise the authority of the
Chairman of the Board. In the absence of the President, his duties shall be
performed and his authority may be exercised by the Vice Presidents in order of
their rank as fixed by the Board of Directors, or if not ranked, the Vice
President designated by the Board of Directors, and, in the absence of the
President and such Vice President, by such officer as may have been designated
by the most senior officer of the Corporation who has made any such designation,
with the right reserved to the Board of Directors to make the designation or
supersede any designation so made.
SECTION 6. Vice Presidents. The Vice Presidents in order of their rank as
fixed by the Board of Directors, or if not ranked, the Vice President designated
by the Board of Directors, shall, in the absence or disability of the President,
perform the duties and exercise the powers of the President, and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
SECTION 7. Secretary. The Secretary shall attend all meetings of the Board
of Directors and all meetings of the stockholders and shall record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors, the Chairman of the Board or the President, under whose
supervision he shall act. He shall keep in safe custody the seal of the
Corporation and, when authorized by the Board of Directors, affix the same to
any instrument requiring it and, when so affixed, it shall be attested by his
signature.
SECTION 8. Assistant Secretaries. Each Assistant Secretary shall perform
such duties as may be assigned to him, and shall be under the supervision of
such officer, as the Board of Directors or, in the absence of action by it, as
the Chairman of the Board or the President may from time to time prescribe. In
the event of the absence or disability of the Secretary, the duties of the
Secretary shall be performed by such Assistant Secretary, or if there be more
than one such then by the one designated by the Chairman of the Board or the
President.
<PAGE>
SECTION 9. Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as Treasurer
and of the financial condition of the Corporation. If required by the Board of
Directors, he shall give the Corporation a bond in such sum and with such surety
or sureties as shall be satisfactory to the Board for the faithful performance
of the duties of his office and for the restoration to the Corporation, in case
of his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession or
under his control belonging to the Corporation.
SECTION 10. Assistant Treasurers. Each Assistant Treasurer shall perform
such duties as may be assigned to him, and shall be under the supervision of
such officer, as the Board of Directors or, in the absence of action by it, as
the Chairman of the Board or the President may from time to time prescribe. In
the event of the absence or disability of the Treasurer, the duties of the
Treasurer shall be performed by such Assistant Treasurer, or if there be more
than one such then by the one designated by the Chairman of the Board or the
President.
SECTION 11. Delegation of Duties. In case of the absence of any officer of
the Corporation, or for any other reason that the Board may deem sufficient, the
Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.
ARTICLE VI
Certificates of Stock
SECTION 1. Form and Number. Each stockholder shall be entitled upon request
to a certificate or certificates in such form as shall be approved by the Board
which shall represent and certify the number and kind and class of shares owned
by him in the Corporation; provided, however, that certificates for fractional
shares shall not be issued. Each certificate shall be signed by the Chairman of
the Board or the President or a Vice President and countersigned by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
and may be sealed with the corporate seal. The signatures may be either manual
or facsimile signatures and the seal may be either facsimile or any other form
of seal. In case any officer who has signed any certificate ceases to be an
officer of the Corporation before the certificate is issued, the certificate may
nevertheless be issued by the Corporation with the same effect as if the officer
had not ceased to be such officer as of the date of its issue. Each stock
certificate shall include on its face the name of the Corporation, the name of
the stockholder and the class of stock and number of shares represented by the
certificate. A stock certificate
<PAGE>
may not be issued by the Corporation until the stock represented by it is fully
paid by the stockholder.
SECTION 2. Legends. Every stock certificate representing shares of stock
which are restricted as to transferability by the Corporation shall contain a
full statement of the restriction or state that the Corporation will furnish
information about the restriction to the stockholder on request and without
charge.
SECTION 3. Transfers of Shares. No transfers of shares of stock of the
Corporation shall be made if (i) void ab initio pursuant to Article VI of the
Corporation's Certificate of Incorporation, or (ii) the Board of Directors,
pursuant to such Article VI, shall have refused to transfer such shares.
Permitted transfers of shares of stock of the Corporation shall be made on the
stock records of the Corporation only upon the instruction of the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary or with a transfer agent or transfer
clerk, and on surrender of the certificate or certificates, if issued, for such
shares properly endorsed or accompanied by a duly executed stock transfer power
and the payment of all taxes thereon. Upon Surrender to the Corporation or the
transfer agent of the Corporation of the certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, as to any transfers not prohibited by such Article VI of the
Certificate of Incorporation or by action of the Board of Directors thereunder,
it shall be the duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
SECTION 4. Regulations. The Board of Directors may make such additional
rules and regulations, not inconsistent with these Bylaws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer agents or one or more transfer clerks
and one or more registrars and may require all certificates for shares of stock
to bear the signature or signatures of any of them.
SECTION 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
stolen, lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such stolen, lost or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and to give the Corporation a bond,
with sufficient surety, to indemnify it against any loss or claim which may
arise by reason of the issuance of a new certificate.
<PAGE>
ARTICLE VII
Dividends
Dividends upon the capital stock of the Corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in the Corporation's own shares,
subject to the provisions of any statute and of the Certificate of
Incorporation. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interests of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
The Board may fix, in advance, a date not more than sixty days preceding the
date fixed for the payment of any dividend or the making of any distribution or
the allotment of rights to subscribe for securities of the Corporation, or for
the delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of stock or other securities, as the record date
for the determination of the stockholders entitled to receive any such dividend,
distribution, allotment, rights or interests, and in such case only the
stockholders of record at the time so fixed shall be entitled to receive such
dividend, distribution, allotment, rights or interests.
ARTICLE VIII
Indemnification
SECTION 1. Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the General Corporation Law of the State of Delaware, as
the same exists or may hereafter be amended, (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment) against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) actually and reasonably incurred
or suffered by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of his or her heirs,
<PAGE>
executors and administrators. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the General Corporation Law
of the State of Delaware requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise.
SECTION 2. Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
SECTION 3. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of the State of Delaware.
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall be the same as the calendar year and
shall end on December 31 of each year.
ARTICLE X
Depositories and Custodians
SECTION 1. Depositories. The funds of the Corporation shall be deposited
with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
SECTION 2. Custodians. All securities and other investments shall be
deposited in the safe keeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine.
<PAGE>
ARTICLE XI
Execution of Instruments
Checks, notes, drafts, acceptances, bills of exchange and other orders or
obligations for the payment of money shall be signed by such officer or officers
or person or persons as the Board of Directors by resolution shall from time to
time designate.
ARTICLE XII
Independent Public Accountants
A firm of independent public accountants shall sign or certify the annual
financial statements of the Corporation and shall be selected annually by the
Board of Directors.
ARTICLE XIII
Stock Ledger, List of Shareholders, Books and Records
SECTION 1. Stock Ledger. The Corporation shall maintain at its principal
executive office, or at the office of its transfer agent or registrar, an
original stock ledger containing the names and addresses of all stockholders and
the number of shares held by each stockholder. Such stock ledger may be in
written form or any other form capable of being converted into written form
within a reasonable time for visual inspection.
SECTION 2. Stockholder List. The Secretary or other officer in charge of
the stock ledger of the Corporation shall prepare and make, at least ten (10)
days prior to a meeting of stockholders, a complete list of stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares of stock of the Corporation
registered in the name of each stockholder. Such list shall be open to
examination by any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list also shall be
produced and kept at the place and time of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 3. Inspection of Books and Records. There shall be kept at the
principal executive office of the Corporation correct and complete books and
records of account of all the business and transactions of the Corporation.
In accordance with the General Corporation Laws of Delaware, any stockholder
of the Corporation or his agent may inspect and copy during usual business hours
the Corporation's stock ledger, an existing list of stockholders and other books
and records.
<PAGE>
ARTICLE XIV
Amendments
The Board of Directors shall have the power, at any regular meeting or at any
special meeting if notice thereof be included in the notice of such special
meeting, to alter, modify or repeal any Bylaws of the Corporation and to make
new Bylaws, except that the Board of Directors shall not alter, modify or repeal
any of the following provisions of the Bylaws
(a) Article III, Section 3;
(b) The third sentence of Article III, Section 5;
(c) The second paragraph of Article III, Section 12;
(d) Article III, Section 17-19;
(e) The second sentence of Article IV, Section 1; and
(f) This Article XIV.
The stockholders shall have the power, at any annual meeting or at any
special meeting if notice thereof be included in the notice of such special
meeting, to alter, modify or repeal any Bylaws of the Corporation and to make
new Bylaws.
<PAGE>
AMENDMENT TO BYLAWS OF
----------------------
COUNTRYWIDE MORTGAGE INVESTMENTS, INC.
--------------------------------------
(Adopted by the Board of Directors on July 22, 1993)
The following resolution was duly adopted by the Board of Directors of
the Company, by unanimous written consent without a meeting, effective as of
July 22, 1993:
NOW, THEREFORE, BE IT RESOLVED, that the Bylaws of the Company be
hereby amended as follows:
Article VI of the Bylaws is hereby amended by deleting the first
sentence of Section 3 of said Article and adding in its place a new sentence to
read in full as set forth below:
"No transfers of shares of stock of the Company shall be made if (i)
void ab initio pursuant to Article VI of the Company's Certificate of
Incorporation, (ii) the Board of Directors, pursuant to such Article VI, shall
have refused to transfer such shares, or (iii) prohibited pursuant to Article XV
of the Bylaws."
The Bylaws of the company are hereby further amended by adding a new
Article XV to read in full as set forth below:
"ARTICLE XV
ACQUISITION OF SHARES BY CERTAIN ORGANIZATIONS
Section 1. Affidavits of Stockholders and Transferees. Whenever it is
deemed by the Board of Directors to be prudent in avoiding
(a) the direct or indirect imposition of a penalty tax on the Company
(including the imposition of an entity-level tax on one or more real estate
mortgage investment conduits ("REMICs") or one or more taxable mortgage
pools in which the Company has acquired or plans to acquire an interest) or
(b) the endangerment of the tax status of one or more REMICs or one or
more taxable mortgage pools in which the Company has acquired or plans to
acquire an interest, the Board of Directors may require to be filed with
the Company a statement or affidavit from any holder or proposed transferee
of capital stock of the Company stating whether the holder or proposed
transferee is
(i) the United States, any state or political subdivision
thereof, any possession of the United States, any foreign government,
any international organization, or any agency or instrumentality of
the foregoing, or any other organization that is exempt from federal
income taxation (including taxation
<PAGE>
under the unrelated business taxable income provisions of the Code) (a
"Disqualified Organization") or
(ii) a partnership, trust, real estate investment trust,
regulated investment company, or other pass-through entity in which a
Disqualified Organization holds or is permitted to hold a direct or
indirect beneficial interest (a "Pass-Through Entity").
Any contract for the sale or other transfer of shares of capital stock of the
Company shall be subject to this provision. Furthermore, the Board of
Directors shall have the right, but shall not be required, to refuse to
transfer any shares of capital stock of the Company purportedly transferred, if
either
(a) a statement or affidavit requested pursuant to this Section 1 has
not been received, or
(b) the proposed transferee is a Disqualified Organization or Pass-
Through Entity.
Section 2. Void Transfers. Any acquisition of shares of capital stock of
the Company that could or would
(a) result in the direct or indirect imposition of a penalty tax on
the Company (including the imposition of an entity-level tax on one or more
REMICs or one or more taxable mortgage pools in which the Company has
acquired or plans to acquire an interest) or
(b) endanger the tax status of one or more REMICs or one or more
taxable mortgage pools in which the company has acquired or plans to
acquire an interest
shall be void ab initio to the fullest extent permitted under applicable law
and the intended transferee of the subject shares shall be deemed never to have
had an interest therein.
If the foregoing provision is determined to be void or invalid by
virtue of any legal decision, statute, rule or regulation, then the transferee
of those shares shall be deemed, at the option of the Company, to have acted as
agent on behalf of the Company in acquiring those shares and to hold those
shares on behalf of the Company.
Section 3. Redemption of Shares. Whenever it is deemed by the Board of
Directors to be prudent in avoiding
(a) the direct or indirect imposition of a penalty tax on the Company
(including the imposition of an entity-level tax on one or more REMICs or
one or more taxable mortgage pools in which the Company has acquired or
plans to acquire an interest) or
<PAGE>
(b) the endangerment of the tax status of one or more REMICs or one or
more taxable mortgage pools in which the Company has acquired or plans to
acquire an interest,
the Company may redeem shares of its capital stock.
Any such redemption shall be conducted in accordance with the
procedures set forth in Article VI, Section 6 of the Certificate of
Incorporation of the Company regarding the repurchase of Excess Shares (as
defined therein).
Section 4. Application of Article. Nothing contained in this Article or in
any other provision hereof shall limit the authority of the Board of Directors
to take any and all other action as it in its sole discretion deems necessary or
advisable to protect the Company or the interests of its stockholders by
avoiding
(a) the direct or indirect imposition of a penalty tax on the Company
(including the imposition of an entity-level tax on one or more REMICs or
one or more taxable mortgage pools in which the Company has acquired or
plans to acquire an interest) or
(b) the endangerment of the tax status of one or more REMICs or one or
more taxable mortgage pools in which the Company has acquired or plans to
acquire an interest.
Section 5. Severability. If any provision of this Article or any
application of any such provision is determined to be invalid by any federal or
state court having jurisdiction over the issue, the validity of the remaining
provisions shall be affected only to the extent necessary to comply with the
determination of that court."
<PAGE>
AMENDMENT TO BYLAWS OF
-----------------------
CWM MORTGAGE HOLDINGS, INC.
---------------------------
(adopted by the Board on 5/17/95)
The following resolution was duly adopted by the Board of Directors of
the Corporation at a meeting duly called and held on May 17, 1995:
NOW, THEREFORE, BE IT RESOLVED, that the Bylaws of the Corporation be
amended by adding to ARTICLE II a new Section 10 to read as follows:
"SECTION 10. Nominations for Directors. Nominations for the election
of members of the Board of Directors at the annual meeting of stockholders
may be made by the Board of Directors or by any holder of any outstanding
class of voting stock of the Corporation entitled to vote for the election
of directors. Nominations for the election of members of the Board of
Directors shall be stated in writing and filed with the Secretary of the
corporation on or before thirty days prior to the date of the annual
meeting of stockholders, and such nominations so stated, proposed and filed
with the Secretary shall be considered at the annual meeting."
<PAGE>
AMENDMENT TO THE BYLAWS OF
--------------------------
CWM MORTGAGE HOLDINGS, INC.
---------------------------
(Adopted by the Board of Directors on January 20, 1997
and Approved by the Shareholders on June 24, 1997)
Article II, Section 3 of the Bylaws of the Company is hereby amended to delete
the clause, "a majority of the Unaffiliated Directors (as defined in Article
III, Section 3),"
Article III, Section 3 of the Bylaws of the Company is hereby amended to delete
the first sentence thereof, which reads:
"A majority of the members of the Board of Directors shall at all times be
persons who are not Affiliates of an individual or corporate management company
to whom the Board has delegated management duties as permitted in Section 18 of
this Article and Article V, Section 7 of the Certificate of Incorporation (a
'Management Company') (such directors being referred to as 'Unaffiliated
Directors')."
Article III, Section 5 of the Bylaws of the Company is hereby amended to delete
the third sentence thereof, which reads:
"The vacancy for any reason of any director who is not an Affiliate of a
Management Company shall be filled by a majority vote of the remaining members
of the Board of Directors, including a majority vote of the remaining
Unaffiliated Directors."
and replace such sentence with the following new sentence to read in full as set
forth below:
"The vacancy for any reason of any director shall be filled by a majority vote
of the remaining members of the Board of Directors."
Article III, Section 12 of the Bylaws of the Company is hereby amended to make
the following changes to the second paragraph:
(i) delete the clause, "Notwithstanding the first paragraph of this
Section 12, any action pertaining to a transaction involving the Corporation in
which any Management Company, any director or officer of the Corporation or any
Affiliate of any of the foregoing persons has an interest" and replace such
clause with the following new clause, "Notwithstanding the first paragraph of
this Section 12, any action pertaining to a transaction involving the
Corporation in which any director or officer of the Corporation or any Affiliate
of any of the foregoing persons has an interest";
(ii) add the word "and" after the semicolon in subsection (a);
(iii) remove the word "and" from after the semicolon in section (b);
and
<PAGE>
(iv) delete subsection (c), which reads: "(c) if the transaction
involves compensation to any Management Company or its affiliates for services
rendered in a capacity other than that contemplated by the management
arrangements, to the knowledge of the directors such compensation is not greater
than the customary charges for comparable services generally available from
other competent unaffiliated persons."
Article III, Section 17 of the Bylaws of the Company is hereby amended:
(i) to delete the clause, ", including a majority of the Unaffiliated
Directors"; and
(ii) to delete the following sentences, "The Unaffiliated Directors
shall review the investment policies of the Corporation at least annually to
determine that the policies then being followed by the Corporation are in the
best interests of its stockholders. Each such determination and the basis
therefor shall be set forth in the minutes of the Board of Directors."
Article III, Section 18 of the Bylaws of the Company is hereby deleted in its
entirety and replaced with the following statement: "Section 18. [RESERVED]".
Article III, Section 19 of the Bylaws of the Company is hereby deleted in its
entirety and replaced with the following statement: "Section 19. [RESERVED]".
Article IV, Section 1 of the Bylaws of the Company is hereby amended to delete
the second sentence, which reads:
"At least a majority of the members of any such committee shall be composed of
directors who are Unaffiliated Directors."
Article XIV of the Bylaws of the Company is hereby amended:
(i) to delete subsection (b);
(ii) to re-letter subsection (c) as subsection (b);
(iii) to replace subsection (d) with the following, "(c) Article III,
Section 17; and";
(iv) to delete subsection (e); and
(v) to re-letter subsection (f) as subsection (d).
<PAGE>
AMENDMENT TO THE BYLAWS OF
INDYMAC MORTGAGE HOLDINGS, INC.
(Adopted by the Board of Directors on July 21, 1998)
The Bylaws of IndyMac Mortgage Holdings, Inc. are hereby amended to
revise ARTICLE II so that the current Section 10 shall be deleted and the
following Section 10 and Section 11 shall be added to the end of ARTICLE II:
"Section 10. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the Corporation, except as may be otherwise provided in the
Certificate of Incorporation of the Corporation with respect to the right of
holders of preferred stock of the Corporation to nominate and elect a specified
number of directors in certain circumstances. Nominations of persons for
election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (a) by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 10 and on the record date for the
determination of stockholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in this Section 10.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (a)
in the case of an annual meeting, not less than ninety (90) days nor more than
one hundred twenty (120 ) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
-------- -------
that the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of
<PAGE>
directors pursuant to Section 14 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder; and (b) as to the stockholder giving the notice (i) the name and
record address of such stockholder, (ii) the class or series and number of
shares of capital stock of the Corporation which are owned beneficially or of
record by such stockholder, (iii) a description of all arrangements or
understandings between such stockholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by such stockholder, (iv) a representation that such stockholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in its notice and (v) any other information relating to such stockholder
that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. Such notice must be accompanied by a written
consent of each proposed nominee to being named as a nominee and to serve as a
director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section 10.
If the Chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
Section 11. Notice of Meetings. No business may be transacted at an
annual meeting of stockholders, other than business that is either (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors (or any duly authorized committee thereof),
(b) otherwise properly brought before the annual meeting of stockholders by or
at the direction of the Board of Directors (or any duly authorized committee
thereof) or (c) otherwise properly brought before the annual meeting by any
stockholder of the Corporation (i) who is a stockholder of record on the date of
the giving of the notice provided for in this Section and on the record date for
the determination of stockholders entitled to vote at such annual meeting and
(ii) who complies with the notice procedures set forth in this Section.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than ninety (90) days nor more than one hundred twenty (120) days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
-------- -------
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made, whichever
first occurs.
<PAGE>
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such stockholder, (iii) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 11, provided, however, that, once business has been
-------- -------
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 11 shall be deemed to preclude discussion by any
stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted."
<PAGE>
AMENDMENT TO THE BYLAWS OF
INDYMAC MORTGAGE HOLDINGS, INC.
(Adopted by the Board of Directors on January 20, 1999)
The Bylaws of IndyMac Mortgage Holdings, Inc. are hereby amended to
revise ARTICLE V as follows:
1. Section 4 shall be deleted in its entirety and replaced with the
following :
"Section 4. The Chairman of the Board. The Chairman of the Board
shall act as chairman at all meetings of the stockholders at which he is
present, and shall preside at all meetings of the Board of Directors at
which he is present. In the absence of the Chairman of the Board, his
duties shall be performed and his authority may be exercised by the Chief
Executive Officer, and, in the absence of the Chairman of the Board and the
Chief Executive Officer, such duties shall be performed and such authority
may be exercised by the President, and in the absence of the Chairman of
the Board, the Chief Executive Officer and the President, such duties shall
be performed and such authority may be exercised by the Chief Operating
Officer. In the absence of the Chairman of the Board, the Chief Executive
Officer, the President and the Chief Operating Officer, such duties shall
be performed and such authority may be exercised by the Vice Presidents in
order of their rank as fixed by the Board of Directors, or if not ranked,
the Vice President designated by the Board of Directors, or in the absence
of such Vice President, by such officer as may have been designated by the
most senior officer of the Corporation who has made any such designation,
with the right reserved to the Board of Directors to make the designation
or supersede any designation made. The Chairman of the Board shall have
such other powers and duties as may be assigned by the Board of Directors
from time to time. The Board of Directors may in its discretion appoint
one individual to hold the positions of Chairman of the Board and Chief
Executive Officer."
2. A new Section 4A shall be added as follows:
"Section 4A. The Chief Executive Officer. The Chief Executive
Officer shall direct, coordinate and control the Corporation's business and
activities and its operating expenses and capital expenditures, and shall
have general authority to exercise all the powers necessary for the chief
executive officer of the Corporation, all in accordance with basic policies
established by and subject to the control of the Board of Directors. The
Chief Executive Officer may employ and discharge employees and agents of
the Corporation, and he may delegate these powers. He shall have general
authority to execute bonds, deeds and contracts in the name and on behalf
of the Corporation. As provided in Section 4 of this Article V, in the
absence of the Chairman of the Board, the Chief Executive Officer shall
perform all the duties and exercise the authority of the Chairman of the
Board. In the absence of the Chairman of the Board and the Chief Executive
Officer, the duties of the Chairman of the Board
<PAGE>
shall be performed and his authority may be exercised by the President, and
in the absence of the Chairman of the Board, the Chief Executive Officer
and the President, the Vice Presidents in order of their rank as fixed by
the Board of Directors, or if not ranked, the Vice President designated by
the Board of Directors, and, in the absence of such Vice President, by such
officer as may have been designated by the most senior officer of the
Corporation who has made any such designation, with the right reserved to
the Board of Directors to make the designation or supersede any designation
so made. The Board of Directors may in its discretion appoint one
individual to hold the positions of Chairman of the Board and Chief
Executive Officer."
3. Section 5 shall be deleted in its entirety and replaced with the
following:
"Section 5. The President. The President shall implement the general
directives, plans and policies formulated by the Chief Executive Officer
pursuant to the Bylaws and, in general, shall have authority to exercise
all powers delegated to him by the Chief Executive Officer. He shall have
general authority to execute bonds, deeds and contracts in the name and on
behalf of the Corporation and responsibility for the employment or
appointment and discharge of such employees, agents and officers, as may be
required to carry on the operation of the business. As provided in Section
4 of this Article V, in the absence of the Chairman of the Board and the
Chief Executive Officer, the President shall perform all the duties and
exercise the authority of the Chairman of the Board. In the absence of the
Chairman of the Board, the Chief Executive Officer and the President, the
duties of the Chairman of the Board shall be performed and his authority
may be exercised by the Vice Presidents in order of their rank as fixed by
the Board of Directors, or if not ranked, the Vice President designated by
the Board of Directors, and, in the absence of such Vice President, by such
officer as may have been designated by the most senior officer of the
Corporation who has made any such designation, with the right reserved to
the Board of Directors to make the designation or supersede any designation
so made. The Board of Directors may in its discretion appoint one
individual to hold the positions of President and Chief Operating Officer."
4. A new Section 5A shall be added as follows:
"Section 5A. The Chief Operating Officer. The Chief Operating Officer
shall establish operating and administrative plans and policies and direct
and coordinate the Corporation's organizational components, within the
scope of the authority delegated to him by the Board of Directors. He
shall have general authority to execute bonds, deeds and contracts in the
name and on behalf of the Corporation. As provided in Section 4 of this
Article V, in the absence of the Chairman of the Board, the Chief Executive
Officer and the President, the Chief Operating Officer shall perform all
the duties and exercise the authority of the Chairman of the Board. In the
absence of the Chairman of the Board, the Chief Executive Officer, the
President and the Chief Operating Officer, the duties of the Chairman of
the Board shall be performed and his authority may be exercised by the Vice
Presidents in order of their rank as fixed by the Board of Directors, or if
not ranked, the Vice President designated by the Board of
<PAGE>
Directors, and, in the absence of such Vice President, by such officer as
may have been designated by the most senior officer of the Corporation who
has made any such designation, with the right reserved to the Board of
Directors to make the designation or supersede any designation so made. The
Board of Directors may in its discretion appoint one individual to hold the
positions of President and Chief Operating Officer."
<PAGE>
AMENDMENT TO THE BYLAWS OF
INDYMAC MORTGAGE HOLDINGS, INC.
(Adopted by the Board of Directors on December 14, 1999)
The Bylaws of IndyMac Mortgage Holdings, Inc. are hereby amended to
revise ARTICLE III as follows:
Section 17 shall be amended to read as follows:
"Section 17. Investment Policies and Restrictions. The investment
policies of the Corporation and the restrictions thereon shall be
established from time to time by the Board of Directors."
The Bylaws of IndyMac Mortgage Holdings, Inc. are hereby amended to
revise ARTICLE VI as follows:
Section 3 shall be amended by: (1) deleting the first sentence of
Section 3 of said Article in its entirety and (2) deleting the last
sentence of Section 3 of said Article in its entirety and replacing it with
the following sentence:
"Section 3. Transfers of Shares. Upon surrender to the Corporation
or the transfer agent of the Corporation of the certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment
or authority to transfer, it shall be the duty of the Corporation to
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books."
<PAGE>
AMENDMENT TO THE BYLAWS OF
INDYMAC MORTGAGE HOLDINGS, INC.
(Adopted by the Board of Directors on March 1, 2000)
The Bylaws of IndyMac Mortgage Holdings, Inc. are hereby amended as
follows:
1. Article V, Section 1 shall be amended by deleting the first two
sentences of said Section 1 in their entirety and replacing them with the
following sentences:
"The officers of the Corporation shall be chosen by the Board of
Directors and shall be a Chairman of the Board, Chief Executive Officer,
one or more Vice Presidents, a Secretary and a Treasurer. The
Corporation may also have as officers, a President, a Chief Operating
Officer, one or more Assistant Secretaries and one or more Assistant
Treasurers."
<PAGE>
EXHIBIT 4.16
------------
INMC MORTGAGE HOLDINGS, INC.
1998 STOCK INCENTIVE PLAN
1. Purpose of Plan. The purpose of this 1998 Stock Incentive Plan
---------------
("Plan") of INMC Mortgage Holdings, Inc. (d.b.a. IndyMac Mortgage Holdings,
Inc.), formerly known as CWM Mortgage Holdings, Inc., a Delaware corporation
(the "Company"), is to enable the Company, IndyMac, Inc. ("IndyMac") and any of
their respective subsidiaries or affiliates to attract, retain and motivate
their employees, consultants, agents, officers and directors by providing
incentives related to equity interests in and the financial performance of the
Company.
2. Persons Eligible Under Plan. Any person, including any director of
---------------------------
the Company or IndyMac, who is an officer or employee of the Company, IndyMac,
or any of their respective subsidiaries or affiliates or an individual who
performs services for the Company, IndyMac, or any of their respective
subsidiaries or affiliates of a nature similar to those performed by officers or
employees, such as consultants and agents, and any non-employee director of
IndyMac who is not also a member of the Board (as hereinafter defined) (any of
the foregoing, an "Employee") shall be eligible to be considered for the grant
of an Award (as defined in Section 5 below) or Awards under Section 5 of this
Plan. No member of the Board of Directors of the Company (the "Board") who is
not an officer or employee of the Company, IndyMac, or any of their respective
subsidiaries or affiliates (a "Non-Employee Director") shall be eligible to
receive any Awards under this Plan, except for nonqualified stock options
granted automatically under the provisions of Section 10 of this Plan ("Director
Options").
3. Stock Subject to Plan.
---------------------
(a) ISO Limit. The maximum number of Common Shares, $0.01 par value
---------
per share, of the Company (the "Common Shares") that may be issued pursuant
to options intended to qualify as incentive stock options ("Incentive Stock
Options") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), granted under this Plan is 6,400,000, and provided
further that, except as otherwise provided herein, the aggregate Fair
Market Value (as defined in Section 10) of Common Shares with respect to
which options intended to qualify as Incentive Stock Options are
exercisable for the first time by any individual during any calendar year
shall not exceed the limit, if any, set forth in Section 422(d) of the Code
or any successor provision thereto. For purposes of this subsection (a),
the Fair Market Value (as defined in Section 10) of any Common Shares shall
be determined as of the time the Incentive Stock Option with respect to the
Common Shares is granted. Pursuant to Section 422(a)(2) of the Code, only
employees (as that term is used in Section 422(a)(2) of the Code) of the
Company or the Company's wholly-owned subsidiaries may receive options
intended to qualify as Incentive Stock Options under this Plan.
1
<PAGE>
(b) Aggregate/Individual Share Limit.
--------------------------------
(i) The maximum number of Common Shares that may be issued
pursuant to all Awards (including Incentive Stock Options, as set
forth in subsection (a) above) granted under this Plan, other than
Common Shares that are issued pursuant to Awards and subsequently
reacquired by the Company pursuant to the terms and conditions of such
Awards ("Reacquired Common Shares"), is 6,000,000, subject to
adjustment as provided in or pursuant to Section 6 or 10 hereof (such
maximum number, as so adjusted, shall be referred to as the "Share
Limit").
(ii) Notwithstanding anything contained herein to the contrary,
the aggregate number of Common Shares subject to options, stock
appreciation rights, and awards of restricted stock granted during any
calendar year to any individual shall be limited to 500,000.
(c) Share Reservation. No Award may be granted under this Plan
-----------------
unless, on the date of grant, the sum of (i) the maximum number of Common
Shares issuable at any time pursuant to such Award, plus (ii) the number of
Common Shares that have previously been issued pursuant to Awards granted
under this Plan, other than Reacquired Common Shares available for reissue,
plus (iii) the maximum number of Common Shares that may be issued at any
time after such date of grant pursuant to Awards that are outstanding on
such date, does not exceed the Share Limit. Common Shares distributed
under the Plan may be treasury shares, authorized but unissued shares or
shares purchased in the open market for this purpose.
(d) Reissue of Awards and Common Shares. Awards payable in cash or
-----------------------------------
Common Shares that are forfeited or for any reason are not so paid under
this Plan, as well as Common Shares subject to Awards that expire or for
any reason are terminated and are not issued or constitute Reacquired
Common Shares, shall again be available for subsequent Awards under the
Plan.
(e) Fractional Shares/Minimum Issue. Fractional share interests shall
-------------------------------
be disregarded, but may be accumulated. No fewer than 100 Common Shares
may be purchased on exercise of any option granted under this Plan
("Option") at one time unless the number purchased is the total number at
the time available for purchase under the Option.
(f) Privileges of Stock Ownership. Except as otherwise expressly
-----------------------------
authorized by this Plan, an Award recipient shall not be entitled to any
privilege of stock ownership as to any Common Shares subject to an Option
granted under this Plan prior to the satisfaction of all conditions to the
valid exercise of the Option.
2
<PAGE>
4. Administration of Plan.
----------------------
(a) The Committee. Except for the provisions of Section 10 (which to
-------------
the maximum extent feasible shall be self-effectuating), this Plan shall be
administered by a committee of the Board (the "Committee") consisting of
two or more directors, each of whom is a "Non-Employee Director," as such
term is defined in Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and an "Outside Director," as such term is
defined for purposes of Section 162(m) of the Code.
(b) Powers of the Committee. Subject to the express provisions of
-----------------------
this Plan, the Committee shall be authorized and empowered to do all things
necessary or desirable in connection with the administration of this Plan
including, without limitation, the following:
(i) adopt, amend and rescind rules and regulations relating to
this Plan;
(ii) determine which persons meet the requirements of Section 2
hereof for eligibility under this Plan and to which of such eligible
persons, if any, Awards will be granted hereunder;
(iii) grant Awards to eligible persons and determine the terms
and conditions thereof, including, but not limited to, the number of
Common Shares issuable pursuant thereto, the time not more than ten
(10) years after the date of an Award at which time the Award shall
expire or (if not vested) terminate, and the conditions upon which
Awards become exercisable or vest or shall expire or terminate, and
the consideration, if any, to be paid upon receipt, exercise or
vesting of Awards;
(iv) determine whether, and the extent to which, adjustments are
required pursuant to Section 6 hereof;
(v) interpret and construe this Plan and the terms and
conditions of any Award granted under Section 5, whether before or
after the date set forth in Section 7; and
(vi) determine the circumstances under which, consistent with
the provisions of Section 7, any outstanding Award under Section 5 may
be amended;
which authority (except as to clauses (ii) and (iii) above) shall remain in
effect so long as any Award remains outstanding under this Plan.
(c) Specific Committee Responsibility and Discretion Regarding Awards.
-----------------------------------------------------------------
Subject to the express provisions of this Plan, the Committee, in its sole
and absolute discretion, shall determine all of the terms and conditions of
each Award granted under
3
<PAGE>
Section 5 of this Plan, which terms and conditions may include, subject to
such limitations as the Committee may from time to time impose, among other
things, provisions that:
(i) permit the recipient of such Award, including any recipient
who is a director or officer of the Company, to pay the purchase price
of the Common Shares or other property issuable pursuant to such
Award, or such recipient's tax withholding obligation upon such
issuance or in respect of such Award or Shares, in whole or in part,
by any one or more of the following:
(A) the delivery of previously owned shares of capital
stock of the Company (including shares acquired as or pursuant to
Awards) then having been owned by the recipient for at least six
(6) months (or such other period required under applicable law)
or the delivery of other property, or
(B) the delivery of a promissory note, under any applicable
financing plan or on such other terms and conditions, as in
either case authorized by the Committee, consistent with
applicable law;
(ii) accelerate the receipt of benefits pursuant to such Award
upon the occurrence of specified events, including, without
limitation, a change of control of the Company, an acquisition of a
specified percentage of the voting power of the Company, the
dissolution or liquidation of the Company, a sale of substantially all
of the property and assets of the Company or an event of the type
described in Section 6 hereof, or pursuant to the provisions of an
employment contract not inconsistent with the terms of this Plan, or
in other circumstances or upon the occurrence of other events as
deemed appropriate by the Committee;
(iii) qualify such Award as an Incentive Stock Option;
(iv) extend the exercisability or term of any or all such
outstanding Awards, change the price of any or all such outstanding
Awards or otherwise change previously imposed terms and conditions, in
the specified events described in clause (ii) above or in other
circumstances or upon the occurrence of other events as deemed
appropriate by the Committee, in each case subject to Section 7;
(v) authorize the conversion, succession or substitution of
outstanding Awards under Section 5 upon the occurrence of any event of
the type described in Section 6, or in other circumstances or upon the
occurrence of other events as deemed appropriate by the Committee;
and/or
(vi) provide for automatic grants of Awards or successive
Awards.
4
<PAGE>
(d) Binding Determinations. Any action taken by, or inaction of, the
----------------------
Company, the Board or the Committee relating or pursuant to this Plan shall
be within the absolute discretion of that entity or body and shall be
conclusive and binding upon all persons. No member of the Board or officer
of the Company shall be liable for any such action or inaction of the
entity or body, of another person or, except in circumstances involving bad
faith, of himself or herself.
(e) Reliance on Experts. In making any determination or in taking or
-------------------
not taking any action under this Plan, the Board and the Committee may
obtain and may rely upon the advice of experts, including professional
advisors to the Company. No director, officer or agent of the Company
shall be liable for any such action or determination taken or made or
omitted in good faith.
(f) Delegation. The Committee may delegate ministerial, non-
----------
discretionary functions to individuals who are officers or employees of the
Company. The Committee also may delegate to certain officer(s) of the
Company (i) the authority to grant Awards pursuant to Section 5 of the
Plan, provided that such delegation is set forth in writing and includes
--------
all applicable limitations and parameters to such Awards, and provided
--------
further that such Awards are subsequently ratified by the Committee; and
-------
(ii) with respect to unvested Awards that are Incentive Stock Options that
have been granted to an employee of the Company (other than an employee who
is subject to Section 16 of the Exchange Act), the authority to accelerate
the exercisability of such Incentive Stock Options to allow them to be
exercised within the three-month period commencing upon the date that the
employee's employment by the Company terminates by reason of the transfer
of such employee to employment by IndyMac, provided, however, that to the
-------- -------
extent (A) such accelerated Options are not exercised prior to the
expiration of such three-month period, or (B) the acceleration of the
exercisability of such Options causes such Options to fail to satisfy the
requirements of Section 422(d) of the Code, such Options shall
automatically be converted into non-qualified Options and shall continue to
be exercisable in accordance with their terms (as accelerated Options)
until they expire or otherwise terminate under the terms of the Plan.
5. Awards.
------
(a) Types of Awards. The Committee, on behalf of the Company, is
---------------
authorized under this Plan to enter into any type of arrangement with an
Employee that is not inconsistent with the provisions of this Plan and that
by its terms, involves or might involve the issuance of (i) Common Shares,
(ii) an option, warrant, convertible security, stock appreciation right or
similar right with an exercise or conversion privilege at a fixed or
variable price related to the Common Shares or other equity securities of
the Company and/or the passage of time, the occurrence of one or more
events, or the satisfaction of performance criteria or other conditions, or
any combination of these variables, or any similar security contemplated by
subsection (b) below, or (iii) any similar security with a value derived
from the value of the Common Shares or other equity securities of the
5
<PAGE>
Company, all of which may or may not involve the payment of cash
consideration, subject to subsection (e) below. The authorization of any
such arrangement (including any benefits described in Section 5(e)) is
referred to herein as the grant of an "Award". The date of grant may be at
or after (but not before) the date the Committee authorizes the Award. All
Awards shall be evidenced by a writing with a schedule memorializing the
grant of the Award to the recipient and setting forth certain specifics
with respect to the terms and conditions of the Award ("Award Memorandum").
(b) Form of Awards. Awards are not restricted to any specified form
--------------
or structure and may include, without limitation, sales or bonuses of
stock, restricted stock, performance restricted stock, stock options,
reload stock options, stock purchase warrants, other rights to acquire
stock, securities convertible into or redeemable for stock, stock
appreciation rights, limited stock appreciation rights, phantom stock,
dividend equivalents, performance units or performance shares, and an Award
may consist of one such security or benefit, or two or more of them in any
combination or alternative. In addition, any Award that is intended to
qualify as an Incentive Stock Option will automatically be converted into a
non-qualified stock option to the extent that such Award does not satisfy
any applicable requirement under Section 422 of the Code.
(c) Restricted Stock Awards. If expressly provided by the Committee,
-----------------------
and without limiting subsection (b) above, Awards of restricted Common
Shares ("Restricted Stock") may be made to the holder of any Option, based
upon dividends or distributions that would have been received had the
Common Shares covered by the Option been issued and outstanding on the
applicable dividend record date. The terms and conditions of any such
Awards of Restricted Stock shall be specified in the applicable Award
Memorandum.
(d) Time and Method of Exercise. Awards may be exercised in whole or
---------------------------
in part at such time or times as shall be determined by the Committee and
set forth in the applicable Award Memorandum. Awards shall be exercised in
accordance with procedures established by the Committee, subject to Section
4(c)(i) and any holding periods required under applicable law.
(e) Price; Consideration; Option Pricing Limit. Common Shares may be
------------------------------------------
issued pursuant to an Award for any lawful consideration as determined by
the Committee, including, without limitation, cash, Common Shares (valued
at then Fair Market Value, as defined in Section 10), or services rendered
by the recipient of such Award; provided that no Common Shares shall be
--------
issued for less than the minimum lawful consideration and no Option which
is intended to be an Incentive Stock Option shall be granted with an
exercise price that is less than the Fair Market Value (as defined in
Section 10) of the underlying Common Shares on the date of grant.
(f) Effect of Termination of Service or Death; Change in Subsidiary
---------------------------------------------------------------
Status. Subject to Section 4(c)(ii), each Option and all other rights
------
thereunder, to the extent not
6
<PAGE>
exercised (whether or not presently exercisable), shall terminate and
become null and void at such time as the holder of such Option terminates
service as an Employee, except that
(i) if the holder terminates service as an Employee for a
reason other than cause (as determined by the Committee in its sole
discretion), death or permanent and total disability (as defined in
clause (ii) below), the holder may at any time within a period of
three months after such termination exercise such Option to the extent
such Option was exercisable on the date of such termination;
(ii) if the holder terminates service as an Employee by reason
of permanent and total disability (within the meaning of Section
22(e)(3) of the Code), or if the holder becomes permanently and
totally disabled within three months after termination described in
clause (i), the holder may at any time within a period of twelve (12)
months after such termination exercise such Option to the extent such
Option was exercisable on the date of such termination; and
(iii) if the holder terminates service as an Employee by reason
of death, or within three months after a termination described in
clauses (i) or (ii), then such Option may be exercised within a period
of twelve (12) months after the holder's termination of service as an
Employee, to the extent such Option was exercisable on the date of
such termination;
provided, however, that in no event may any such Option be exercised by any
-------- -------
holder after its expiration date.
Notwithstanding any of the foregoing provisions of this subsection
(f), if the holder of an Option is an Employee of IndyMac or one of its
subsidiaries or affiliates and IndyMac or the Employee ceases to provide
services to the Company, or if the holder of an Option is an Employee of an
entity which is a subsidiary or affiliate of the Company or IndyMac and
such entity ceases to be such a subsidiary or affiliate, such event shall
be deemed for purposes of this subsection (f) to be a termination of the
holder's service as an Employee described in clause (i) above. Absence
from work caused by military service or authorized sick leave shall not be
considered a termination of service as an Employee for purposes of this
subsection (f).
(g) Cash Awards; Loans. The Committee shall have the express
------------------
authority to create, add or include a cash payment or benefit under this
Plan, whether in lieu of, in addition to or as an Award or as a component
of another type of Award, and to make or authorize loans to finance, or to
otherwise accommodate the financing, acquisition or exercise of an Award or
the satisfaction of any related tax liability.
(h) Transfer Restrictions. Unless otherwise permitted in the
---------------------
applicable Award Memorandum pursuant to the discretion of the Committee, no
Award granted hereunder
7
<PAGE>
shall be transferable other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order.
(i) Tax Withholding. Upon the issuance of Common Shares, the payment
---------------
of cash or any other taxable event in respect of an Award under this Plan,
such number of shares or amount of cash or other consideration, as the case
may be, otherwise issuable or payable may be reduced by the amount
necessary to satisfy the minimum applicable tax withholding requirements
imposed on the Company, IndyMac or any of their respective subsidiaries or
affiliates in respect of such Award or event, all to the extent and in such
manner as the Committee may determine.
6. Adjustments and Acceleration.
----------------------------
(a) Adjustments. If (i) the outstanding securities of the class then
-----------
subject to this Plan (the "outstanding shares") (A) are increased,
decreased, exchanged or converted as a result of a stock split
(including a split in the form of a stock dividend), reverse stock
split, recapitalization, or similar event or (B) are exchanged for or
converted into cash, property or a different number or kind of
securities (or if cash, property or securities are distributed in
respect of the outstanding shares), as a result of a reorganization,
merger, consolidation, exchange, recapitalization, restructuring or
reclassification, or (ii) substantially all of the property and assets
of the Company are sold as an entirety, or (iii) the Company is
liquidated and dissolved, then, the Committee (or, in the case of
Director Options, the Board) shall, in such manner and to such extent
(if any) as is equitable and appropriate, make proportionate
adjustments in (x) the number and type of shares or other securities
or cash or other property that may be acquired pursuant to Options and
other Awards previously granted under this Plan (and, where
applicable, the exercise price thereof so as to maintain the same
aggregate exercise price), (y) the maximum number and type of shares
or other securities, cash, or property that may be issued or delivered
pursuant to Options (including Incentive Stock Options and Director
Options) and other Awards thereafter granted under this Plan, and (z)
such other terms as necessarily are affected by such event. In the
case of an extraordinary distribution, merger, reorganization,
consolidation, combination, sale of assets, exchange or spin off, the
Committee (or the Board, in the case of Director Options) may make
provisions for a substitution or exchange of any or all outstanding
Options or other Awards or rights (or for the securities, cash or
property deliverable upon exercise of such outstanding Options or
other Awards or rights), based upon the distribution or consideration
payable to holders of the Common Shares of the Company upon or in
respect of such event.
8
<PAGE>
(b) Acceleration.
------------
(i) A "Change in Control" for purposes of this Plan shall mean
the occurrence of any one of the following events:
(A) An acquisition (other than directly from the Company) of
any common stock or other "Voting Securities" (as hereinafter
defined) of the Company by any "Person" (as the term person is
used for purposes of Sections 13(d) or 14(d) of the Exchange Act,
immediately after which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 under the Exchange Act) of
twenty five percent (25%) or more of the then outstanding shares
of the Company's common stock or the combined voting power of the
Company's then outstanding Voting Securities; provided, however,
-------- -------
that 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 Plan, (1) "Voting Securities" shall mean the Company's
outstanding voting securities entitled to vote generally in the
election of directors and (2) a "Non-Control Acquisition" shall
mean an acquisition by (a) an employee benefit plan (or a trust
forming a part thereof) maintained by (x) the Company, (y)
IndyMac or, (z) any corporation or other Person of which a
majority of its voting power or its voting equity securities or
equity interest is owned, directly or indirectly, by the Company
(for purposes of this definition, a "Subsidiary"), (b) the
Company or any of its Subsidiaries, or (c) any Person in
connection with a "Non-Control Transaction" (as hereinafter
defined);
(B) The individuals who as of January 27, 1998 are members
of the Board (the "Incumbent Board") cease for any reason to
constitute at least two-thirds of the members of the Board;
provided, however, that if the election, or nomination for
-------- -------
election by the Company's common stockholders, of any new
director was approved by a vote of at least two-thirds of the
Incumbent Board, such new director shall, for purposes of this
Plan, be considered as a member of the Incumbent Board; provided
--------
further, however, that no individual shall be considered a member
------- -------
of the Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened "Election
Contest" (as described in Rule 14a-11 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
9
<PAGE>
(C) The consummation of: (1) A merger, consolidation or
reorganization involving the Company, unless such
merger, consolidation or reorganization is a "Non-
Control Transaction." A "Non-Control Transaction"
shall mean a merger, consolidation or reorganization of
the Company where: (a) the stockholders of the Company,
immediately before such merger, consolidation or
reorganization, own directly or indirectly immediately
following such merger, consolidation or reorganization,
at least seventy percent (70%) of the combined voting
power of the outstanding Voting Securities of the
corporation resulting from such merger, consolidation
or reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of
the Voting Securities immediately before such merger,
consolidation or reorganization; (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 (w) the
Company, (x) any Subsidiary, (y) any employee benefit
plan (or any trust forming a part thereof) maintained
by the Company, IndyMac, the Surviving Corporation, or
any Subsidiary, or (z) any Person who, immediately
prior to such merger, consolidation or reorganization
had Beneficial Ownership of twenty-five percent (25%)
or more of the then outstanding Voting Securities or
common stock of the Company, has Beneficial Ownership
of twenty-five percent (25%) or more of the combined
voting power of the Surviving Corporation's then
outstanding Voting Securities or its common stock;
(2) A complete liquidation or dissolution of the
Company, or
(3) The sale or other disposition of all or
substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).
10
<PAGE>
Notwithstanding the foregoing provisions of this Section 6(b)(i),
a Change in Control shall not be deemed to occur solely because any
Person (the "Subject Person") acquired Beneficial Ownership of more
than the permitted amount of the then outstanding common stock or
Voting Securities as a result of the acquisition of common stock or
Voting Securities by the Company which, by reducing the number of
shares of common stock or Voting Securities then outstanding,
increases the proportional number of shares Beneficially Owned by the
Subject Persons; provided, however, that if a Change in Control would
-------- -------
occur (but for the operation of this sentence) as a result of the
acquisition of common stock or Voting Securities by the Company, and
after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional common stock or Voting
Securities which increases the percentage of the then outstanding
common stock or Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.
(ii) Except as otherwise provided in Section 10(j), prior to a
Change in Control, the Committee may determine in respect of Awards
held by Employees that upon or in anticipation of the occurrence of
the Change in Control benefits under Awards shall be accelerated only
for a limited period of time, which period of time shall not be less
than a period of time reasonably necessary to realize the benefits of
such acceleration nor more than one year after the Change in Control.
If such a determination is not made, then (subject to the last
sentence of this clause) upon the occurrence of a Change in Control
and without further action by the Board or the Committee, (A) each
Option and stock appreciation right shall become immediately
exercisable, (B) performance Restricted Stock shall immediately vest
free of restrictions, and (C) each performance share Award shall
become payable to the Employee. The Committee may override the
limitations on acceleration in this Section 6(b)(ii) by express
provision in the Award Memorandum or otherwise, and may accord any
holder of an Award a right to refuse any acceleration, whether
pursuant to the Award Memorandum or otherwise, in such circumstances
as the Committee may approve. Any acceleration of Awards shall comply
with any applicable regulatory and financial accounting requirements,
including without limitation Section 422 of the Code.
(iii) Any Awards that are (or but for a holder's rejection of
acceleration would have been) accelerated under this Section 6 and
that are not exercised or vested prior to a dissolution of the Company
or a reorganization event described in Section 6(a) that the Company
does not survive shall terminate, provided that if provision has been
--------
made, consistent with the terms hereof, for the substitution, exchange
or other settlement of Awards, such Awards shall be substituted,
exchanged or otherwise settled in accordance with such provision.
(iv) Any Awards that are (or but for the holder's rejection of
the acceleration would have been) accelerated that are not exercised
or vested prior to
11
<PAGE>
an abandonment or termination of a transaction subject to shareholder
approval that triggered the Change in Control (as evidenced by public
announcement, Board resolution, execution of documents terminating the
transaction, or other action or document objectively confirming such
abandonment or termination), shall be restored to their prior status
(except for the effects of the passage of time) as if no Change in
Control had occurred.
7. Amendment and Termination of Plan.
---------------------------------
(a) No Award shall be granted under this Plan after January 27,
2008. Although Common Shares may be issued after January 27, 2008 pursuant
to Awards granted prior to such date, no Common Shares otherwise shall be
issued under this Plan after such date. Notwithstanding the foregoing, any
Award granted prior to such date may vest or be amended after such date in
any manner that would have been permitted prior to such date, except that
(except as provided herein) no such amendment shall increase the number of
shares subject to or comprising such Award, or extend the final expiration
date of the Award or reduce (below the Fair Market Value (as defined in
Section 10) on the date of the amendment) the exercise price of or under
such Award.
(b) The Board may, without shareholder approval, at any time and from
time to time, suspend, discontinue or amend this Plan in any respect
whatsoever, except that no such amendment shall impair any rights under any
Award theretofore made under the Plan without the consent of the holder of
such Award. Furthermore, and except as and to the extent otherwise
permitted by the provisions hereof, no such amendment shall, without
shareholder approval, cause the Plan to cease to satisfy any applicable
condition of Rule 16b-3 under the Exchange Act or cause any Award under the
Plan to cease to qualify for any applicable exception under Section 162(m)
of the Code.
8. Effective Date of Plan: Shareholder Approval. This Plan shall be
--------------------------------------------
effective as of January 27, 1998, the date upon which it was approved by the
Board; provided, however, that no Common Shares may be issued under this Plan
-------- -------
until it has been approved by the affirmative votes of the holders of a majority
of the Common Shares of the Company present, or represented, and entitled to
vote at a meeting duly held in accordance with applicable law.
12
<PAGE>
9. Legal Issues.
------------
(a) Compliance and Choice of Law: Severability. This Plan, the
------------------------------------------
granting and vesting of Awards under this Plan and the issuance and
delivery of Common Shares and/or the payment of money under this Plan or
under Awards granted hereunder are subject to compliance with all
applicable federal and state laws, rules and regulations (including but not
limited to state and federal securities law and federal margin
requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company,
be necessary or advisable in connection therewith. Any securities
delivered under this Plan shall be subject to such restrictions as the
Company may deem necessary or desirable to assure compliance with all
applicable legal requirements. This Plan, the Awards, all documents
evidencing Awards and all other related documents shall be governed by, and
construed in accordance with, the laws of the State of Delaware. If any
provision shall be held by a court of competent jurisdiction to be invalid
and unenforceable, the remaining provisions of this Plan (subject to
Section 9(b)) shall continue in effect.
(b) Plan Construction. It is the intent of the Company that this Plan
-----------------
and Awards hereunder satisfy and be interpreted in a manner that in the
case of recipients who are or may become persons subject to Section 16 of
the Exchange Act satisfies the applicable requirements of Rule 16b-3 under
the Exchange Act so that such persons will be entitled to the benefits of
Rule 16b-3 or other exemptive rules under Section 16 of the Exchange Act
and will not be subjected to avoidable liability thereunder. If any
provision of this Plan or of any Award would otherwise frustrate or
conflict with the intent expressed above, that provision to the extent
possible shall be interpreted and deemed amended so as to avoid such
conflict, but to the extent of any remaining irreconcilable conflict with
such intent as to such persons in the circumstances, such provision shall
be deemed inoperative.
(c) REIT Qualification.
------------------
(i) It is the intent of the Company that this Plan and Awards
hereunder satisfy and be interpreted in a manner consistent with the
Company's continued status as a "qualified real estate investment
trust" under the Code. If any provision of this Plan or any Award
would otherwise frustrate or conflict with the intent expressed above,
that provision to the extent possible shall be interpreted and deemed
amended so as to avoid such conflict, but to the extent of any
remaining irreconcilable conflict with such intent as to the Company,
such provision shall be deemed inoperative.
(ii) Notwithstanding anything contained herein to the contrary,
no participant may receive any Common Shares upon the grant, exercise
or vesting of an option or right or other Award to the extent it will
cause such person to beneficially or constructively own equity shares
in excess of 9.8% of the equity
13
<PAGE>
shares of the Company. In the event that a participant would be
otherwise entitled to claim or seek to exercise any right which upon
delivery of Common Shares would cause such participant to beneficially
or constructively own equity shares in excess of the ownership limit,
the Company shall have the right, notwithstanding any option or right
previously granted to the participant, to deliver a check or cash to
the participant in lieu thereof.
(d) Non-Exclusivity of Plan. Nothing in this Plan shall limit or be
-----------------------
deemed to limit the authority of the Board or the Committee to grant awards
or authorize any other compensation, with or without reference to the
Common Shares, under any other plan or authority.
10. Non-Employee Director Options
-----------------------------
(a) Participation. Awards relating to the Common Shares authorized
-------------
under this Plan shall be made under this Section 10 only to Non-Employee
Directors.
(b) Certain Definitions. The following definitions shall apply to
-------------------
this Section 10:
(i) "Business Day" shall mean any day, other than Saturday,
Sunday or any statutory holiday in the state of California.
(ii) "Director Option" shall mean an Option granted to a Non-
Employee Director pursuant to this Section 10.
(iii) "Disability" shall mean a "permanent and total disability"
within the meaning of Section 22(e)(3) of the Code.
(iv) "Fair Market Value" on a specified date shall mean (A) if
the Common Shares are listed or admitted to trade on a national
securities exchange, the average of the high and low reported sales
prices of the Common Shares on the Composite Tape on such date, as
published in the Western Edition of The Wall Street Journal, on the
principal national securities exchange on which the Common Shares are
so listed or admitted to trade, or, if there is no trading of the
Shares on such date, then the average of the high and low reported
sales prices of the Common Shares as quoted on such Composite Tape on
the next preceding date on which there was trading in such Shares; (B)
if the Common Shares are not listed or admitted to trade on a national
securities exchange, the average of the high and low reported prices
for the Common Shares on such date, as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National Market Reporting System (or a similar organization, if the
NASD is no longer reporting such information); (C) if the Common
Shares are not listed or admitted to trade on a national securities
exchange and are not
14
<PAGE>
reported on the National Market Reporting System, the arithmetic mean
between the bid and asked prices for the Shares on such date, as
furnished by the NASD or a similar organization; or (D) if the Common
Shares are not listed or admitted to trade on a national securities
exchange nor reported on the National Market Reporting System and if
bid and asked prices for the stock are not furnished by the NASD or a
similar organization, the value as established by the Board at such
time for purposes of this Plan.
(v) "Retirement" shall mean retirement or resignation as a
director after at least five (5) years service as a director.
(c) Annual Awards. On the first Business Day in June in each calendar
-------------
year during the term of the Plan, commencing in June 1998, there shall be
granted automatically (without any action by the Committee or the Board) a
nonqualified stock option (the grant date of which shall be such date in
June) to each Non-Employee Director then in office to purchase the number
of Common Shares equal to 30,000 multiplied by a fraction, the numerator of
which is the earnings per Common Share (on a fully diluted basis, excluding
the one time charge to earnings resulting from the acquisition by the
Company of its manager in June 1997) of the Company for the fiscal year of
the Company ended immediately before the date of grant of the Non-Employee
Director option (as reported in the audited Financial Statements included
in the Company's Annual report on Form 10-K filed with the Securities and
Exchange Commission ("SEC"), but in no event less than zero) (the "EPS
Numerator Amount") and the denominator of which is (i) in 1998, $1.51; and
(ii) in each year after 1998, the greater of (A) $1.79 compounded at a rate
of 15% per year (i.e., in 1999, $2.06; in 2000, $2.37; in 2001, $2.72; in
2002, $3.13), or (B) the EPS Numerator Amount for the fiscal year of the
Company ended immediately before the fiscal year used in determining the
EPS Numerator Amount. The number 30,000 and the specific dollar amounts
herein are subject to adjustment in those events set forth in subsection
(h) below. The formula contained in this Section 10(c) may be amended by
subsequent action of the Board to provide either for an alternative formula
for calculating the number of Common Shares to be awarded annually, or to
provide for the annual award of a fixed number of Common Shares; provided
--------
that, in either case, (i) the number of Common Shares to be awarded
----
annually to Non-Employee Directors under such alternative formula or fixed
number is no greater than that provided for under the formula set forth
herein, and (ii) each Non-Employee Director receives the same number of
Common Shares as every other Non-Employee Director under such alternative
formula or fixed number.
(d) Maximum and Minimum Number of Shares. Notwithstanding anything to
------------------------------------
the contrary contained herein, a Non-Employee Director shall not receive
Options for less than 20,000 nor more than 50,000 Common Shares pursuant to
this Section 10 in any year.
15
<PAGE>
(e) Purchase Price. The exercise price for Shares under each Non-
--------------
Employee Director option shall be equal to 100% of the Fair Market Value of
a Common Share on the date the Director Option is granted. The exercise
price of any option granted under this Section 10 shall be paid in full at
the time of each purchase in cash equivalent or in Common Shares valued at
their Fair Market Value on the date of exercise of such option, or partly
in such shares and partly in cash, provided that any such Common Shares
-------- ----
used in payment shall have been owned by the Non-Employee Director at least
six months prior to the date of exercise.
(f) Option Period and Exercisability. Each Director Option granted
--------------------------------
under this Section 10 shall become fully exercisable, in whole or in part,
on the first anniversary of the grant date. Each option granted under this
Section 10 and all rights or obligations thereunder shall expire on the
earlier of the tenth anniversary of the date of grant or the liquidation or
dissolution of the Company and shall be subject to earlier termination as
provided below.
(g) Termination of Directorship. If a Non-Employee Director's
---------------------------
services as a member of the Board terminate by reason of death, Disability
or Retirement, an option granted pursuant to this Section 10 then held by
such Non-Employee Director shall immediately become and shall remain
exercisable for one year after the date of such termination or until the
expiration of the stated term of such option, whichever first occurs. If a
Non-Employee Director's services as a member of the Board terminate for any
other reason (other than Cause), any option granted pursuant to this
Section 10 which is not then exercisable shall terminate and any such
option which is then exercisable may be exercised for three months after
the date of such termination or until the expiration of the stated term,
which ever first occurs. If a Non-Employee Director is terminated for
Cause, all Director Options granted to such Non-Employee Director shall be
forfeited and shall no longer be exercisable, effective on the date of such
termination for Cause. For purposes of this Section 10, "Cause" shall
mean, with respect to any Non-Employee Director, termination on account of
any act of (i) fraud or intentional misrepresentation, (ii) embezzlement,
misappropriation or conversion of assets or opportunities of the Company or
any affiliate, or (iii) conviction of a felony.
(h) Adjustments. The provisions of this Section 10 and Director
-----------
Options granted hereunder shall be subject to Section 6. If there shall
occur any event described in Section 6(a), then in addition to the matters
contemplated thereby, the Board shall, in such manner and to such extent
(if any) as is appropriate and equitable, proportionately adjust the dollar
amounts set forth elsewhere in this Section 10.
(i) Loans. Subject to the requirements of applicable law, the Board
-----
may authorize loans to Non-Employee Directors to finance the exercise of
Awards; provided, however, that no loan shall be made to any Non-Employee
-------- -------
Director to finance the exercise of an Award made under this Section 10
unless (i) such loan is made pursuant to a full recourse promissory note,
and (ii) such loan, if secured by Common Shares
16
<PAGE>
(whether issuable under the Award in question or otherwise), is made in
compliance with Regulation G of the Federal Reserve Board.
(j) Acceleration Upon a Change in Control. Upon the occurrence of a
-------------------------------------
Change in Control referred to in Section 6(b), each Director Option granted
under this Section 10 shall become immediately exercisable in full subject
to the terms thereof (other than with respect to the Committee's
discretion). To the extent that any Director Option granted under this
Section 10 is not exercised prior to (i) a dissolution of the Company or
(ii) a merger or other corporate event that the Company does not survive,
and no provision is (or consistent with the provisions of Section 9 or 10
can be) made for the assumption, conversion, substitution or exchange of
the option, the Director Option shall terminate upon the occurrence of such
event.
(k) Other Provisions. The provisions of Sections 3(e)-(f), 5(h) and 7
----------------
through 9 are incorporated herein by this reference.
17
<PAGE>
AMENDMENT TO THE 1998 STOCK INCENTIVE PLAN OF
INDYMAC MORTGAGE HOLDINGS, INC.
(Adopted by the Board of Directors on July 21, 1998)
The 1998 Stock Incentive Plan of IndyMac Mortgage Holdings, Inc. is hereby
amended to revise Section 10(b)(iv) so that, as amended, Section 10(b)(iv) shall
read as follows:
"Fair Market Value" on a specified date shall mean (A) if the
Common Shares are listed or admitted to trade on a national securities
exchange, the average of the average of the high and low reported
sales prices of the Common Shares on the Composite Tape, as published
in the Western Edition of The Wall Street Journal, on the ten days
preceding such date on which the Common Shares trade on such principal
national securities exchange; (B) if the Common Shares are not listed
or admitted to trade on a national securities exchange, the average of
the average of the high and low reported prices for the Common Shares
on the ten days preceding such date on which such prices for the
Common Shares are furnished by the National Association of Securities
Dealers, Inc. ("NASD") through the NASDAQ National Market Reporting
System (or a similar organization, if the NASD is no longer reporting
such information); (C) if the Common Shares are not listed or admitted
on a national securities exchange and are not reported on the National
Market Reporting System, the arithmetic mean of the arithmetic mean
between the bid and asked prices for the Common Shares on the ten days
preceding such date on which bid and asked prices for the Common
Shares are furnished by the NASD or a similar organization; or (D) if
the Common Shares are not listed or admitted to trade on a national
securities exchange nor reported on the National Reporting System, and
if bid and asked prices for the Common Shares are not furnished by the
NASD or a similar organization, the value as established by the Board
at such time for purposes of this Plan."
18
<PAGE>
AMENDMENTS TO THE 1998 STOCK INCENTIVE PLAN OF
INDYMAC MORTGAGE HOLDINGS, INC.
(Adopted by the Board of Directors on January 20, 1999)
(1)
The 1998 Stock Incentive Plan of IndyMac Mortgage Holdings, Inc. is
hereby amended to revise Section 10(b)(iv) so that, as amended, Section
10(b)(iv) shall read as follows:
"Fair Market Value" on a specified date shall mean (A) if the
Common Shares are listed or admitted to trade on a national securities
exchange, the average of the high and low reported sales prices of the
Common Shares on the Composite Tape on such date, as published in the
Western Edition of The Wall Street Journal, on the principal national
securities exchange on which the Common Shares are so listed or
admitted to trade, or, if there is no trading of the Shares on such
date, then the average of the high and low reported sales prices of
the Common Shares as quoted on such Composite Tape on the next
preceding date on which there is trading in such Shares; (B) if the
Common Shares are not listed or admitted to trade on a national
securities exchange, the average of the high and low reported prices
for the Common Shares on such date, as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National Market Reporting System (or a similar organization, if the
NASD is no longer reporting such information); (C) if the Common
Shares are not listed or admitted to trade on a national securities
exchange and are not reported on the National Market Reporting System,
the arithmetic mean between the bid and asked prices for the Shares on
such date, as furnished by the NASD or a similar organization; or (D)
if the Common Shares are not listed or admitted to trade on a national
securities exchange nor reported on the National Market Reporting
System and if bid and asked prices for the stock are not furnished by
the NASD or a similar organization, the value as established by the
Board at such time for purposes of this Plan."
19
<PAGE>
AMENDMENTS TO THE 1998 STOCK INCENTIVE PLAN OF
INDYMAC MORTGAGE HOLDINGS, INC.
(Adopted by the Board of Directors on January 20, 1999)
(2)
The 1998 Stock Incentive Plan of IndyMac Mortgage Holdings, Inc. is
hereby amended to revise Section 10(e) so that, as amended, Section 10(e)
shall read as follows:
"The exercise price for Shares under any Director Option shall be
equal to 100% of the Fair Market Value of a Common Share on the date
the Director Option is granted. The exercise price for Shares under
any Director Option may be modified by a separate vote of the members
of the Board who are officers of the Company, as well as the full
Board; provided, that the modified exercise price shall be no less
than 100% of the Fair Market Value of a Common Share on the date the
exercise price of the Director Option is modified. The exercise price
of any option granted under this Section 10 shall be paid in full at
the time of each purchase in cash equivalent or in Common Shares
valued at their Fair Market Value on the date of exercise of such
option, or partly in such shares and partly in cash, provided that any
-------- ----
such Common Shares used in payment shall have been owned by the Non-
Employees Director at least six months prior to the date of exercise."
20
<PAGE>
AMENDMENT TO THE 1998 STOCK INCENTIVE PLAN OF
INDYMAC MORTGAGE HOLDINGS, INC.
(Adopted by the Board of Directors on March 1, 1999)
The 1998 Stock Incentive Plan of IndyMac Mortgage Holdings, Inc. is hereby
amended to add the following sentence to the end of Section 10(c) of the 1998
Plan:
"Notwithstanding the foregoing, beginning with calendar year 1999
and for each calendar year thereafter during the term of the Plan, the
annual award of stock options to Non-Employee Directors shall be on
the same date as the annual grant of Awards to Employees pursuant to
this Plan."
21
<PAGE>
AMENDMENT TO THE 1998 STOCK INCENTIVE PLAN OF
INDYMAC MORTGAGE HOLDINGS, INC.
(Adopted by the Board of Directors on January 20, 1999 and
approved by the Shareholders on June 3, 1999)
Section 3(b)(ii) of the IndyMac Mortgage Holdings, Inc. 1998 Stock
Incentive Plan is replaced in its entirety with the following:
"Notwithstanding anything contained herein to the contrary, the
aggregate number of Common Shares subject to options, stock
appreciation rights, and awards of restricted stock granted during
any calendar year to any individual shall be limited to 1,000,000."
22
<PAGE>
AMENDMENTS TO THE 1998 STOCK INCENTIVE PLAN OF
INDYMAC MORTGAGE HOLDINGS, INC.
(Adopted by the Board of Directors on February 4, 2000)
1. Section 2 of the 1998 Stock Incentive Plan ("1998 Plan") shall be deleted
and replaced in its entirety with the following:
"Persons Eligible Under Plan. Any person, including any director of
---------------------------
the Company or any of its subsidiaries or affiliates, who is an
officer or employee of the Company or any of its subsidiaries or
affiliates or an individual who performs services for the Company or
any of its subsidiaries or affiliates of a nature similar to those
performed by officers or employees, such as consultants and agents
(any of the foregoing, an "Employee") shall be eligible to be
considered for the grant of an Award (as defined in Section 5 below)
or Awards under Section 5 of this Plan. Members of the Board of
Directors of the Company (the "Board"), and members of the boards of
directors of any of the Company's subsidiaries or affiliates who are
not officers or employees of the Company or any of its subsidiaries or
affiliates (any of the foregoing, "Non-Employee Directors") shall be
eligible to receive Awards under this Plan only in the form of
nonqualified stock options granted automatically under the provisions
of Section 10 of this Plan ("Director Options")."
2. The first sentence of Section 5(f) of the 1998 Plan shall be deleted and
replaced in its entirety with the following:
"Subject to Section 4(c)(ii), and except as otherwise provided in the
applicable Award Memorandum or otherwise specified or approved by the
Committee, each Option and all other rights thereunder, to the extent
not exercised (whether or not presently exercisable), shall terminate
and become null and void at such time as the holder of such Option
terminates service as an Employee, except that:"
3. Section 9(c) of the 1998 Plan shall be deleted in its entirety and Section
9(d) of the 1998 Plan shall be renumbered 9(c).
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4. A new Section 10(l) shall be added to the end of Section 10 of the 1998
Plan as follows:
"Grant of Options to Newly Elected Non-Employee Directors. Upon the
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election of a newly elected Non-Employee Director, there shall be granted
automatically (without any action by the Committee or the Board) a
nonqualified stock option (the grant date of which shall be the date of
such election) to each newly elected Non-Employee Director as follows: (i)
if the Non-Employee Director is elected within six months of the date on
which the most recent Director Options were granted to existing Non-
Employee Directors, a non-qualified stock option to purchase the same
number of Common Shares for which the most recent Director Options were
granted to existing Non-Employee Directors, and (ii) if the Non-Employee
Director is elected more than six months following the date on which the
most recent Director Options were granted to existing Non-Employee
Directors, but prior to the date in the following calendar year on which
Director Options are granted to existing Non-Employee Directors, a non-
qualified stock option to purchase one-half the number of Common Shares for
which the most recent Director Options were granted to existing Non-
Employee Directors."
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Exhibit 10.26
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") has been executed as of
February 4, 2000 by and between IndyMac Mortgage Holdings, Inc. and
IndyMac, Inc. (each of which is individually and collectively referred to
as the "Employer") and Michael W. Perry ("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 February 5,
2003, 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 as Chief Executive Officer of Employer.
Employer agrees that Officer's duties hereunder shall be the usual and
customary duties of such offices and such further duties shall not be
inconsistent with the provisions of applicable law. Officer shall have such
executive power and authority as shall reasonably be required to enable him
to discharge his duties in the offices which he may hold. All compensation
paid to Officer by Employer or any of its 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.
Employer agrees that it will nominate Officer to be elected to the Board of
Directors of Employer (subject to shareholder approval) and that, as long
as Officer serves on the Board of Directors, he will serve as Vice Chairman
of the Board. In the event Officer is not elected to the Board of
Directors, Officer can elect to treat such action as a Termination Other
Than For Cause pursuant to Section 5(d).
In the event of a material diminution in Officer's position, powers,
reporting requirements, duties or responsibilities as Chief Executive
Officer, which is not cured within thirty (30) days after receipt by
Employer of written notice of such material diminution, Officer can elect
to treat such action as a Termination Other Than For Cause pursuant to
Section 5(d).
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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, which policies shall be consistent with this Agreement. Officer
agrees to serve without additional remuneration as an officer or director
of one or more (direct or indirect) subsidiaries or affiliates of Employer
as the Board may from time to time request, subject to appropriate
authorization by the affiliate or subsidiary involved and any limitation
under applicable law. Officer's failure to discharge an order or perform a
function because Officer reasonably and in good faith believes such would
violate a law or regulation or be dishonest shall not be deemed a breach by
him of his obligations or duties pursuant to any of the provisions of this
Agreement, including without limitation pursuant to Section 5(c) hereof.
During the course of Officer's employment as a full-time officer hereunder,
Officer shall not, without the consent of the Board, compete, directly or
indirectly, with Employer in the 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 portion of the fiscal year of Employer (a "Fiscal Year") ending
December 31, 2000 at the annual rate of $760,000 (the "Annual Rate"),
beginning on the date hereof. On or after the beginning of each Fiscal
Year commencing January 1, 2001, the Compensation Committee of the
Board (the "Compensation Committee") may, based upon the recommendation
of the chairman of the Compensation Committee and Board of Directors'
approval 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 such increase will be at
least an increase of 10% of the Annual Rate, but could vary from such
percentage in the judgment of the Compensation Committee.
b. Incentive Compensation. Generally, Employer shall pay to Officer for
each of the Fiscal Years ending during the term of this Agreement no
incentive compensation award, provided, however, that the decision
whether or not to award Officer incentive compensation (including
without limitation additional stock incentives, compensation or
benefits) and the amount, if any, shall be at the sole and absolute
discretion of the Compensation Committee.
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c. Stock Options. Employer shall grant to Officer a stock option grant of
1,000,000 shares of the Employer's common stock on February 4, 2000 and
1,000,000 shares of the Employer's common stock on February 5, 2001.
These stock option grants shall vest equally over 5 years from their
respective date of grant.
Officer agrees that any stock options or restricted stock granted to
him under his prior Employment Agreements shall be subject to the
vesting schedule provided therein and shall otherwise be subject to the
terms of this Agreement.
All stock options and restricted stock governed by 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 stock
option plan or such other plan or plans) of the common stock at the
time of grant, (iii) shall become immediately and fully vested and
granted if not yet vested or granted in the event of a Change in
Control (as defined in Appendix A) or in the event that Officer's
employment is terminated due to death or Disability or by Employer
other than for Cause ("Cause" as defined in Section 5(c)) or in the
event that this Agreement terminates according to its terms (as
provided in Section 5(g)), and (iv) shall give Officer the right, upon
termination of his employment hereunder, other than for Cause, to
exercise such options for a period of twelve (12) months after such
termination (but in no event later than their expiration date).
All stock options and restricted stock 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 memorandum 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, deferred
compensation plan, life and medical insurance policy, or other plans or
benefits, which Employer or its subsidiaries may provide for him, or
provided he is eligible to participate therein, for senior officers
generally or for employees generally, during the term of this Agreement
(collectively, "Additional Benefits"). This Agreement shall not affect
the provision of any other compensation, retirement or other benefit
program or plan of Employer. 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 the life, disability,
and medical insurance policies 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.
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e. Certain Perquisites.
(i) Club Memberships. Employer shall pay standard annual and monthly
membership fees and any business related charges for Officer's
participation in the Young Presidents' Organization, the San
Gabriel Country Club, the California Club, and such other
memberships as may be approved by the Compensation Committee.
(ii) Car Allowance. Employer shall either provide Officer with an
appropriate luxury automobile for Officer's exclusive use or pay
Officer an equivalent monthly automobile allowance, such
automobile or amount to be mutually agreed to by the Compensation
Committee and Officer.
(iii) Travel. In connection with business travel. Officer shall be
permitted to travel first class, or by chartered service where
appropriate, and to be reimbursed by Employer for such travel
expenses.
(iv) Financial Planning Services. Employer shall pay for the financial
planning and tax services of AYCO for Officer, including a full
tax gross-up for any imputed income to Officer resulting from
such benefit. The annual amount that Employer shall be required
to pay for such services shall not exceed $25,000, exclusive of
the tax gross-up.
(v) Split Dollar Life Insurance. Employer shall provide a split
dollar life insurance policy in a face amount equal to four (4)
times Officer's Base Salary, on the life of Officer. The terms of
such life insurance will be set forth in a separate memorandum.
f. Employer Liability. IndyMac Mortgage Holdings, Inc. and IndyMac, Inc.
are fully liable for the full amount of compensation and benefits
payable to Officer. It is anticipated that initially all compensation
will be paid by IndyMac, Inc. and that any allocation of the costs of
such compensation between IndyMac Mortgage Holdings, Inc. and IndyMac,
Inc. will be set forth in a separate agreement between those two
entities.
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 six (6)
consecutive months or for shorter periods aggregating one hundred
twenty (120) 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 February 5, 2003, whichever
first occurs (the "Disability Payment Period"), (i) to pay compensation
to Officer,
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in the same manner as in effect immediately prior to the Termination
Date, in an amount equal to (1) fifty percent (50%) of the then
existing base salary payable immediately prior to the termination,
minus (2) the amount of any cash payments to him under the terms of
Employer's disability insurance or other disability benefit plans or
Employer's tax-qualified Defined Benefit Pension Plan, and any
compensation he may receive pursuant to any other employment, and (ii)
to provide during the Disability Payment Period the benefits specified
in the last sentence of Section 4(d) hereof.
The determination of Disability shall be made only after Officer has
failed to render services for the above stated time periods and shall
be made only after 30 days notice to Officer (which may run
concurrently with the Notice of Termination). In order to determine
Disability, both employer and Officer shall have the right to provide
medical evidence to support their respective positions, with the
ultimate decision regarding Disability to be made by a majority of
Employer's disinterested directors.
b. Death. In the event that Officer shall die during the term of this
Agreement, Employer shall pay to such person or persons as Officer
shall have directed in writing or, in the absence of a designation, to
his estate (the "Beneficiary") an amount equal to $5,000,000.00, which
amount shall be in addition to any other benefits to be paid upon
Officer's death, including any life insurance payments. Such payment
will be made within 30 days of the death of Officer. 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 Subsection 5(b). 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, for any breach that is remediable, is
not remedied within a reasonable period of time after receipt of
written notice from Employer specifying such breach, or (ii) Officer's
conviction by a court of competent jurisdiction of a felony involving
acts of fraud, embezzlement, dishonesty or moral turpitude, or (iii)
entry of an order duly issued by any federal or state regulatory agency
having jurisdiction in the matter removing Officer from office of
Employer or its affiliates or permanently prohibiting him from
participating in a material portion of the affairs of Employer of any
of its affiliates, provided that the order resulted from act(s) of
Officer which were committed in bad faith and without reasonable belief
that such act(s) were in the best interests of Employer. If Officer
shall be convicted of a felony or shall be removed from office and/or
temporarily prohibited from participating in
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<PAGE>
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), 4(c), and
4(f) 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), 4(c), and 4(f) hereof are suspended, Officer shall continue
to be entitled to receive Additional Benefits under Section 4(d) until
the conviction of the felony or removal from office has become final
and non-appealable. When the conviction of the felony or removal from
office has become final and non-appealable, all of Employer's
obligations hereunder shall terminate; provided, however, that the
termination of Officer's employment pursuant to this Section 5(c) shall
not affect Officer's entitlement to all benefits in which he has become
vested or which are otherwise payable in respect of periods ending
prior to his termination of employment. Upon termination for Cause,
Officer is not entitled to any severance and no unvested stock options
or restricted stock will vest because of the termination. Anything
herein to the contrary notwithstanding, termination for Cause shall not
include termination by reason of Officer's job performance or a job
performance rating given to Officer for his job performance or the
financial performance of Employer or any affiliated company.
d. Termination Other Than For Cause.
(i) If during the term of this Agreement, Officer's employment shall
be terminated by Employer other than for Cause, 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, an amount in cash equal to $5,000,000 and
(2) until the earlier of (a) the date Officer obtains other
employment which provides similar benefits or (b) the second
anniversary of the Termination Date, provide the benefits
specified in the last sentence of Section 4(d) hereof.
(ii) If within two (2) years after a "Change in Control" (as defined
in Appendix A to this Agreement) and during the term of this
Agreement, Officer's position, powers, reporting requirements,
duties, or responsibilities as Chief Executive Officer or Vice
Chairman of the Board of Directors, or such other higher position
held by Officer are materially altered from those in effect
immediately prior to the Change in Control, then Officer can
terminate this Agreement upon thirty days (30) notice, and
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, an amount in cash equal to
$5,000,000 and (2) until the earlier of (a) the date Officer
obtains other employment which provides similar benefits or (b)
the second anniversary of the Termination Date, provide the
benefits specified in the last sentence of Section 4(d)
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hereof.
(iii) 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 include gross-up for any excise taxes
due under IRC 280g or similar "golden parachute" provisions plus
any excise, income, or payroll taxes owed on the payment on the
excise tax amount.
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. If Officer resigns as a result of a material
breach by Employer, including a deemed breach pursuant to Section 8(a),
which breach is not cured by Employer within 30 days receipt of written
notice, then Officer's resignation will be considered as a Termination
Other Than For Cause pursuant to Section 5(d) for all purposes under
this Agreement.
f. Notice of Termination. Any purported termination by Employer or by
Officer shall be communicated by a written Notice of Termination to the
other party hereto which indicates the specific termination provision
in this Agreement, if any, relied upon and which sets forth in
reasonable detail the facts and circumstances, if any, claimed to
provide a basis for termination of Officer's employment under the
provision so indicated. For purposes of this Agreement, no such
purported termination shall be effective without such Notice of
Termination. The "Termination Date" shall mean the date specified in
the Notice of Termination, which shall be no less than 30 or more than
60 days from the date of the Notice of Termination. Notwithstanding any
other provision of this Agreement, in the event of any termination of
Officer's employment hereunder for any reason, Employer shall pay
Officer his full base salary through the Termination Date, plus any
Additional Benefits which have been earned or become payable, but which
have not yet been paid as of such Termination Date.
g. Non-Renewal of Agreement. In the event that this Agreement terminates
according to its terms on February 5, 2003, and is not renewed on terms
mutually acceptable to Employer and Officer, such termination of
Officer's employment pursuant to this Section 5(g) shall not affect
Officer's entitlement to all benefits in which he has become vested or
which are otherwise payable with respect to
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periods ending on or prior to his termination of employment, provided
that, to the extent not otherwise vested, all outstanding stock options
and restricted stock granted to Officer pursuant to Section 4(c) or
prior to this Agreement shall thereupon vest. Employer shall also (1)
pay Officer in a single payment as soon as practicable after the
termination, but in no event later than thirty (30) days thereafter, an
amount in cash equal to $5,000,000.00, and (2) until the earlier of (a)
the date Officer obtains other employment or (b) the second anniversary
of the termination of employment, provide the benefits specified in the
last sentence of Section 4(e) hereof.
6. Reimbursement of Business Expenses. During the term of this Agreement,
Employer shall reimburse Officer promptly for all reasonable and
appropriate business expenditures to the extent that such expenditures are
substantiated by Officer as required by the Internal Revenue Service and
rules and policies of Employer.
7. Indemnity. To the extent permitted by applicable law, the Certificate of
Incorporation and the By-Laws of Employer (as from time to time in effect)
and any indemnity agreements entered into from time to time between
Employer and Officer, Employer shall indemnify Officer and hold him
harmless for any acts or decisions made by him in good faith while
performing services for Employer, and shall maintain coverage for him under
liability insurance policies of a minimum amount of fifty million dollars
covering officers or directors of Employer.
8. Miscellaneous.
a. Successorship. 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 to or with a company with a
larger net worth, higher credit rating and greater profit than
Employer. 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.
b. Notices. Any notices provided for in this Agreement shall be sent to
Employer at its corporate headquarters, Attention: Corporate
Counsel/Secretary, with a copy to the Chairman of the Compensation
Committee at the same address, or to such other address as Employer may
from time to time in writing designate, and to Officer at such address
as he may from time to time in writing designate (or his business
address of record in the absence of such designation). All notices
shall be deemed to have been given two (2) business days after they
have been deposited as certified mail, return receipt requested,
postage paid and properly addressed to the designated address of the
party to receive the notices.
c. Entire Agreement. This instrument contains the entire agreement of the
parties relating to the subject matter hereof, and it replaces and
supersedes any prior
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agreements between the parties relating to said subject matter;
provided, however, that Officer hereby expressly acknowledges that
Officer has executed Employer's standard Arbitration Agreement to the
extent not replaced or superseded by this Agreement. 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.
f. Attorneys' Fees in Action on Contract. If any arbitration or litigation
shall occur between the Officer and Employer, which arbitration or
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
arbitration or 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 attorney's fees of the
prevailing party.
g. Confidentiality. Officer agrees that he will not divulge or otherwise
disclose, directly or indirectly, any trade secret or other
confidential information concerning the business or policies of
Employer or any of its subsidiaries which he may have learned as a
result of his employment during the term of this Agreement or prior
thereto as an employee, officer or director of or consultant to
Employer or any of its subsidiaries, except to the extent such use or
disclosure is (i) necessary or appropriate to the performance of this
Agreement and in furtherance of Employer's best interests as determined
in Officer's business judgment, (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,
without posting any bond, from a tribunal of competent jurisdiction,
restraining Officer from committing or continuing any violation of this
Agreement.
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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 if he voluntarily
resigns or if he is terminated for Cause or Other Than For Cause
(the "Non-Compete Period"), he shall not, 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
material business of Employer (or its subsidiaries or
affiliates) as conducted on the date Officer's employment
terminated;
(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 material client of Employer
(or its subsidiaries or affiliates) (including without
limitation any lessee, vendor or supplier); or
(C) solicit for employment, 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, unless Officer shall have received the prior
written consent of Employer.
(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
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5(d).
(iii) 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
seek 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.
l. Location of Services. Officer is required to perform his services under
this Agreement at such present or future business location of Company
as may be designated by the Chairman of the Board of Directors in the
Counties of Los Angeles, Orange or Ventura, California or wherever the
Corporate Headquarters of the Employer may be located. If Employer
requests Officer to relocate outside of the locations referenced above,
Officer shall have the option of agreeing to such relocation and the
terms of this Agreement shall continue in full force and effect. If
Officer declines to relocate, either the Officer or Employer shall
provide the other party with a Notice of Termination in accordance with
Section 5(f) and the Officer will be deemed to have been terminated
pursuant to Section 5(d).
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first a written.
EMPLOYER
By: ____________________________
Name:___________________________
Title:__________________________
OFFICER:
--------------------------------
in his individual capacity
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APPENDIX A
A "Change in Control" shall mean the occurrence during the term of the
Agreement, of any one of the following events:
A. An acquisition (other than directly from Employer) of any common stock or
other "Voting Securities" (as hereinafter defined) of Employer by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
immediately after which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty five
percent (25%) or more of the then outstanding shares of Employer's common
stock or the combined voting power of Employer's then outstanding Voting
Securities; provided, however, in determining whether a Change in Control
has occurred, Voting Securities which are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an acquisition
which would cause a Change in Control. For purposes of this Agreement, (1)
"Voting Securities" shall mean Employer's outstanding voting securities
entitled to vote generally in the election of directors and (2) a "Non-
Control Acquisition" shall mean an acquisition by (i) an employee benefit
plan (or a trust forming a part thereof) maintained by (A) Employer or (B)
any corporation or other Person of which a majority of its voting power or
its voting equity securities or equity interest is owned, directly or
indirectly, by Employer (for purposes of this definition, a "Subsidiary"),
(ii) Employer or any of its Subsidiaries, or (iii) any Person in connection
with a "Non-Control Transaction" (as hereinafter defined).
B. The individuals who, as of the date of the Agreement are members of the
Board (the "Incumbent Board"), cease for any reason to constitute at least
two-thirds of the members of the Board; provided, however, that if the
election, or nomination for election by Employer's common stockholders, of
any new director was approved by a vote of at least two-thirds of the
Incumbent Board, such new director shall, for purposes of this Agreement,
be considered as a member of the Incumbent Board; provided further,
however, that no individual shall be considered a member of the Incumbent
Board if such individual initially assumed office as a result of either an
actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
C. The consummation of:
(i) A merger, consolidation or reorganization involving Employer, unless
such merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger,
consolidation or reorganization of Employer where:
a. the stockholders of Employer, immediately before such merger,
consolidation or reorganization, own directly or indirectly
immediately following such merger, consolidation or
reorganization at least seventy
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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 thereat)
maintained by Employer, the Surviving Corporation or any
Subsidiary, or (iv) any Person who, immediately prior to such
merger, consolidation or reorganization had Beneficial Ownership
of twenty-five percent (25%) or more of the then outstanding
Voting Securities or common stock of Employer, has Beneficial
Ownership of twenty-five percent (25%) or more of the combined
voting power of the Surviving Corporation's then outstanding
Voting Securities or its common stock;
(ii) A complete liquidation or dissolution of Employer; or
(iii) The sale or other disposition of all or substantially all of the
assets of Employer to any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the then outstanding common stock or Voting
Securities as a result of the acquisition of common stock or Voting Securities
by Employer which, by reducing the number of shares of common stock or Voting
Securities then outstanding, increases the proportional number of shares
Beneficially Owned by the Subject 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.
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EXHIBIT 10.27
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EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") has been executed as of February 4,
2000 by and between IndyMac Mortgage Holdings, Inc. and IndyMac, Inc. (each of
which is individually and collectively referred to as the "Employer") and
Richard H. Wohl ("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 February 5,
2003, 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 as Senior Executive Vice President (or such
other comparable or higher office rank as the Chief Executive Officer may
designate) of Employer or its affiliated companies, as determined by
Employer. Affiliated companies shall include, without limitation, any
direct or indirect subsidiary of Employer in which Employer holds less than
100% but at least a majority of the beneficial interest and voting control
(a "New Public Company"). 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 shall have such executive power and authority as shall reasonably
be required to enable him to discharge his duties in the offices which he
may hold. All compensation paid to Officer by Employer or any of its
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.
Officer agrees that Employer shall make a determination as to the portion
of the total
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compensation payable to Officer hereunder which shall be allocated to and
deemed paid by Employer for purposes of section 162(m) and related
provisions of the Internal Revenue Code.
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, which policies shall be consistent with this Agreement. Officer
agrees to serve without additional remuneration as an officer or director
of one or more (direct or indirect) subsidiaries or affiliates of Employer
as the Board may from time to time request, subject to appropriate
authorization by the affiliate or subsidiary involved and any limitation
under applicable law. Officer's failure to discharge an order or perform a
function because Officer reasonably and in good faith believes such would
violate a law or regulation or be dishonest shall not be deemed a breach by
him of his obligations or duties pursuant to any of the provisions of this
Agreement, including without limitation pursuant to Section 5(c) hereof.
During the course of Officer's employment as a full-time officer hereunder,
Officer shall not, without the consent of the Board, compete, directly or
indirectly, with Employer in the 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 portion of the fiscal year of Employer (a "Fiscal Year") ending
December 31, 2000 at the annual rate of $450,000 (the "Annual Rate").
In respect of the Fiscal Years ending in 2001 and 2002, the
Compensation Committee of the Board (the "Compensation Committee")
may, based upon the recommendation of the chairman of the Compensation
Committee and Board approval 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 such increase will be at least an increase of 10% of the
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Annual Rate, but could vary from such percentage in the judgment of
the Compensation Committee.
b. Incentive Compensation. The 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 Agreement, as
mutually agreed upon by Employer and Officer. For the first year of
this Agreement, the maximum incentive compensation award is
$200,000.00. If a new annual incentive plan is not executed by
Employer and Officer for any reason by the end of the first quarter
of the Fiscal Year (or within 90 days of the date of this Agreement
for the year 2000), then the maximum incentive compensation award
for the new Fiscal Year shall be the difference between the Base
Salary and the Guaranteed Minimum Annual Compensation. In order to
be eligible for the incentive compensation award, Officer must
still be employed as of March 31st of the Fiscal Year following the
relevant Fiscal Year. The incentive compensation award shall be
paid no later than thirty (30) days after completion and
publication of the applicable audited financial statements for such
Fiscal Year.
c. Guaranteed Minimum Annual Compensation. For each of the Fiscal
Years ending during the term of this Agreement, Officer shall
receive a guaranteed minimum annual cash compensation of $500,000,
the components of which shall include his base salary for such
Fiscal Year and any incentive compensation award applicable to such
Fiscal Year, provided Officer is still employed by Employer as of
December 31 of such Fiscal Year.
d. Stock Options. Employer shall grant to Officer a stock option
grant of 500,000 shares of the Employer's common stock on February
4, 2000 and 500,000 shares of the Employer's common stock on
February 5, 2001. These stock option grants shall vest equally over
5 years from their respective date of grant.
Officer agrees that any stock options or restricted stock granted
to him under his prior Employment Agreements, or granted separate
from such Employment Agreement(s), shall be subject to the terms of
the 2000 Stock Option Plan except as may be expressly provided
otherwise in this Agreement.
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All stock options and restricted stock granted in accordance with
this Section 4(d): (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 five equal installments on each of the first five
anniversaries of the date of grant, (iv) shall become immediately
and fully vested in the event of a change in control (as declared
by the Board) or in the event that Officer's employment is
terminated due to death or Disability; (v) in the event that
Officer's employment is terminated through resignation or by
Employer for Cause ("Cause") (as defined in Section 5(c)), shall,
if not then vested, immediately terminate; and (vi) in the event of
a termination by Employer other than for Cause (as defined in
Section 5(c)), or in the event that this Agreement terminates
according to its terms (as provided in Section 5(g)), shall become
immediately and fully vested to the extent that such stock options
or restricted stock would, under the terms of the stock option or
restricted stock award, vest within 12 months of such termination,
and shall give officer the right to exercise such options for a
period of twelve (12) months after such termination (but in no
event later than their expiration date).
Provided however, with respect to unvested stock options and
restricted stock previously issued to Officer prior to the date of
this Employment Agreement, fifty percent (50%) of such stock
options and restricted stock shall immediately vest at the
Termination Date in the event of a termination other than for Cause
(Section 5(c)) or a termination according to its terms (Section
5(g)).
In the event that a New Public Company is formed and Officer is
assigned by the Chief Executive Officer to be employed by that New
Public Company, if such New Public Company is traded on the New
York Stock Exchange or the NASDAQ, then in the discretion of the
Chief Executive Officer, up to 50% of the not-yet-vested stock
options and restricted stock of Officer (whether previously granted
hereunder or otherwise) may be terminated and replaced with such
alternate incentive compensation (which may include stock options
and/or restricted stock of the New Public Company) as the Chief
Executive Officer may determine in his sole and absolute
discretion, provided such replacement compensation is equivalent to
the value of the replaced stock options and restricted stock. Such
alternate incentive compensation may be granted on such terms and
conditions as determined by the Chief Executive
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Officer, which terms and conditions may differ from those in this
Agreement for comparable compensation, provided such terms and
conditions provide an equivalent value to the replaced
compensation. The Company shall select and retain a nationally
recognized firm to determine the value of the stock options and
restricted stock to be replaced and the value of the replacement
compensation, and such firm's final valuation shall be accepted by
both parties.
e. 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, deferred compensation plan, life and medical insurance
policy, or other plans or benefits, which Employer or its
subsidiaries may provide for him, or provided he is eligible to
participate therein, for senior officers generally or for employees
generally, during the term of this Agreement (collectively,
"Additional Benefits"). This Agreement shall not affect the
provision of any other compensation, retirement or other benefit
program or plan of Employer. 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 the life,
disability, and medical insurance policies on behalf of Officer and
his dependents and beneficiaries which were being provided to them
immediately prior to Officer's Termination Date, but only to the
extent that Officer is not entitled to comparable benefits from
other employment.
f. Deferral of Amounts Payable Hereunder. In the event Officer should
desire to defer receipt of any cash payments to which he would
otherwise be entitled hereunder, he may present such a written
request to the Compensation Committee which, in its sole
discretion, may enter into a separate deferred compensation
agreement with Officer.
g. Club Memberships. Employer shall pay standard annual and monthly
membership fees and any business related charges for Officer's
participation in the La Canada Flintridge Country Club and such
other memberships as may be approved by the Chief Executive
Officer.
h. Financial Planning Services. Employer shall pay for the financial
planning service of AYCO for Officer, including a full tax gross-up
for any implied income to Officer resulting from such benefit. The
annual amount that Employer shall be required to pay for such
services shall not
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exceed $16,500 for the first year of services, or $10,000 for any
subsequent year of services, exclusive of the tax gross-up.
i. Car Allowance. Employer shall provide Officer with an appropriate
luxury automobile (either a Mercedes E320 or BMW 5 Series of a
comparable cost) for Officer's exclusive use; provided Officer
agrees to maintain such automobile and pay for appropriate
insurance.
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 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
February 5, 2003, whichever first occurs (the "Disability Payment
Period"), (i) to pay compensation to Officer, in the same manner as
in effect immediately prior to the Termination Date, in an amount
equal to (1) fifty percent (50%) of the then existing base salary
payable immediately prior to the termination, minus (2) the amount
of any cash payments to him under the terms of Employer's
disability insurance or other disability benefit plans or
Employer's tax-qualified Defined Benefit Pension Plan, and any
compensation he may receive pursuant to any other employment, and
(ii) to provide during the Disability Period the benefits specified
in the last sentence of Section 4(e) hereof.
The determination of Disability shall be made only after 30 days
notice to Officer (which may run concurrently with the Notice of
Termination). In order to determine Disability, both employer and
Officer shall have the right to provide medical evidence to support
their respective positions, with the ultimate decision regarding
Disability to be made by a majority of Employer's disinterested
directors.
b. Death. In the event that Officer shall die during the term of this
Agreement, Employer shall pay to such person or persons as Officer
shall have directed in writing or, in the absence of a designation,
to his estate (the "Beneficiary") an amount equal to three times
the guaranteed annual compensation as defined in Section 4(c). Such
payment will be made within 30 days of the death of Officer. 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
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payments and benefits under this Subsection 5(b). 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, or (ii) Officer's
conviction by a court of competent jurisdiction of a felony, or
(iii) entry of an order duly issued by any federal or state
regulatory agency having jurisdiction in the matter removing
Officer from office of Employer or its 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 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), 4(c), 4(d) and 4(f) 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), 4(c), 4(d) and 4(f) hereof are suspended,
Officer shall continue to be entitled to receive Additional
Benefits under Section 4(e) until the conviction of the felony or
removal from office has become final and non-appealable. When the
conviction of the felony or removal from office has become final
and non-appealable, all of Employer's obligations hereunder shall
terminate; provided, however, that the termination of Officer's
employment pursuant to this Section 5(c) shall not affect Officer's
entitlement to all benefits in which he has become vested or which
are otherwise payable in respect of periods ending prior to his
termination of employment. Following a termination for Cause,
Officer shall be entitled to payment of his base salary through his
last day of
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employment, and any accrued vacation pay, but no other
payments or benefits hereunder or otherwise whatsoever.
d. Termination Other Than For Cause.
(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, then Officer
shall be entitled to:
(1) payment of his base salary through his last day of
employment, but no payment on account of any further
incentive compensation hereunder; and
(2) within 30 days after such last day, a single payment in an
amount in cash equal to three times the guaranteed minimum
annual compensation as defined in Section 4(c), and
(3) for a period of one year following such last day, the
benefits specified in the last sentence of Section 4(e)
hereof.
(ii) Except as otherwise provided for below, 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"), then,
for the calendar year for which the Officer will be subject to
the Excise Tax, the Employer will pay the Officer an
additional amount of compensation equal to the Excise Tax
(calculated without taking into consideration this additional
compensation). Notwithstanding the foregoing, the Employer and
Officer may agree to reduce, to the extent necessary, the
Payment amount so that no Excise Tax would be imposed. Unless
the Employer and Officer agree 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
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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 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, Officer shall be entitled to payment of his
base salary through his last day of employment, but all other
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 10(f) and 10(j) shall expressly survive such termination.
If Officer resigns as a result of a material breach by Employer,
which breach is not cured by Employer within 30 days receipt of
written notice, then Officer's resignation will be considered as a
Termination Other Than For Cause pursuant to Section 5(d) for all
purposes under this Agreement.
f. Notice of Termination. Any purported termination by Employer or by
Officer shall be communicated by a written Notice of Termination to
the other party hereto which indicates the specific termination
provision in this Agreement, if any, relied upon and which sets
forth in reasonable detail the facts and circumstances, if any,
claimed to provide a basis for termination of Officer's employment
under the provision so indicated. For purposes of this Agreement,
no such purported termination shall be effective without such
Notice of Termination. The "Termination Date" shall mean the date
specified in the Notice of Termination, which shall be no less than
30 or more than 60 days from the date of the Notice of Termination.
Notwithstanding any other provision of this Agreement, in the event
of any termination of Officer's employment hereunder for any
reason, Employer shall pay Officer his full base salary through the
Termination Date, plus any Additional Benefits which have been
earned or become payable, but which have not yet been paid as of
such Termination Date.
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g. Non-Renewal of Agreement. In the event that this Agreement
terminates according to its terms on February 5, 2003, or February
5, 2005, if the terms of this Agreement are renewed pursuant to
Section 6, and Officer's employment is terminated, such termination
of Officer's employment pursuant to this Section 5(g) shall not
affect Officer's entitlement to all benefits in which he has become
vested or which are otherwise payable with respect to periods
ending on or prior to his termination of employment. Employer shall
also (1) pay Officer in a single payment as soon as practicable
after the termination, but in no event later than thirty (30) days
thereafter, an amount in cash equal to three times the guaranteed
minimum annual compensation as provided in Section 4(c), and (2)
until the first anniversary of the Termination Date, provide the
benefits specified in the last sentence of Section 4(e) hereof.
Upon such termination of Officer's employment, any stock options or
restricted stock granted under this Agreement that were scheduled
to vest within the 12 months following the termination of
employment will immediately vest. Finally, fifty percent (50%) of
any unvested stock options and restricted stock previously issued
to Officer prior to the date of this Employment Agreement will
immediately vest at the termination of employment.
6. Renewal of Agreement. Employer, at its option, may extend the term of this
Agreement for two additional years. Upon such extension, the guaranteed
minimum annual compensation as defined in Section 4(c) would be increased
to $750,000.00. No additional stock options would be granted for such
extension. All other terms of this Agreement would continue.
7. Location of Services. Officer is required to perform his services under
this Agreement at such present or future business location of Company as
may be designated by the Chief Executive Officer in the Counties of Los
Angeles, Orange or Ventura, California or wherever the Corporate
Headquarters of the Employer or the Mortgage Banking Division of
Employer may be located. If Employer requests Officer to relocate outside
of the locations referenced above, Officer shall have the option of
agreeing to such relocation and the terms of this Agreement shall continue
in full force and effect. If Officer declines to relocate, either the
Officer or Employer shall provide the other party with a Notice of
Termination in accordance with Section 5(f) and the Officer will be deemed
to have been terminated pursuant to Section 5(d).
8. 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
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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.
9. Indemnity. To the extent permitted by applicable law, the Certificate of
Incorporation and the By-Laws of Employer (as from time to time in effect)
and any indemnity agreements entered into from time to time between
Employer and Officer, Employer shall indemnify Officer and hold him
harmless for any acts or decisions made by him in good faith while
performing services for Employer, and shall use reasonable efforts to
obtain coverage for him under liability insurance policies now in force or
hereafter obtained during the term of this Agreement covering the other
officers or directors of Employer.
10. Miscellaneous.
a. Successorship. 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. 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.
b. Notices. Any notices provided for in this Agreement shall be sent to
Employer at its corporate headquarters, Attention: General Counsel,
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, provided, however, that all provisions of Employer's
Employee Handbook shall be incorporated herein by this reference and
Officer hereby expressly acknowledges that all provisions of the
Employee Handbook are applicable to his employment relationship with
Employer, except to the extent that any such provisions directly
conflict with any term contained in this Agreement; provided, further,
that
-11-
<PAGE>
Officer hereby expressly acknowledges that Officer has executed
Employer's standard Arbitration Agreement. 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.
f. Confidentiality. Officer agrees that he will not divulge or otherwise
disclose, directly or indirectly, any trade secret or other
confidential information concerning the business or policies of
Employer or any of its subsidiaries which he may have learned as a
result of his employment during the term of this Agreement or prior
thereto as an employee, officer or director of or consultant to
Employer or any of its subsidiaries, except to the extent such use or
disclosure is (i) necessary or appropriate to the performance of this
Agreement and in furtherance of Employer's best interests, (ii)
required by applicable law 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.
g. 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.
h. 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
-12-
<PAGE>
unenforceable with respect to particular circumstances, it shall
nevertheless remain in full force and effect in all other
circumstances.
i. 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.
j. 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 if he voluntarily resigns
or if he is terminated for Cause or Other Than For Cause (the
"Non-Compete Period"), he shall not, within North America:
(1) 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) 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;
(2) 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); or
(3) solicit for employment, 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
-13-
<PAGE>
employment terminated, unless Officer shall have received the
prior written consent of Employer.
(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.
k. Regulatory Intervention. Notwithstanding anything in this Agreement to
the contrary, this Agreement is subject to the following terms and
conditions:
(i) If Officer is suspended and/or temporarily prohibited from
participating in the conduct of Employer's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. 1818 (e)(3) and (g)(1)), Employer's
obligations hereunder shall be suspended as of the date of
service unless stayed by appropriate proceedings. If the charges
in the notice are dismissed, Employer shall (x) pay Officer all
or part of the compensation withheld while Employer's contract
obligations were suspended, and (y) reinstate any of Employer's
obligations which were suspended.
(ii) If Officer is removed and/or permanently prohibited from
participating in the conduct of Employer's affairs by an order
-14-
<PAGE>
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. 1818 (e)(4) and (g)(1)), all obligations
of Employer under this Agreement shall terminate as of the
effective date of the order, but vested rights of the parties
shall not be affected.
(iii) If Employer is in default (as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act (12 U.S.C. 1813 (x)(1)), all
obligations under this Agreement shall terminate as of the date
of default, but any vested rights of Officer shall not be
affected.
(iv) All obligations under this Agreement shall be terminated, except
to the extent determined that continuation of the contract is
necessary for the continued operation of Employer, (x) by the
Office of Thrift Supervision ("OTS") at the time the Federal
Deposit Insurance Corporation ("FDIC") enters into an agreement
to provide assistance to or on behalf of Employer under the
authority contained in Section 13(c) of the Federal Deposit
Insurance Act (12 U.S.C. 1823 (c)); or (y) by the OTS at the time
the OTS approves a supervisory merger to resolve problems related
to operation of Employer or when Employer is determined by the
OTS to be in an unsafe or unsound condition. Any rights of
Officer that shall have vested under this Agreement shall not be
affected by such action.
(v) With regard to the provisions of this Section 10(i) through (iv):
(1) Employer agrees to use its best efforts to oppose any such
notice of charges as to which there are reasonable defenses;
(2) In the event the notice of charges is dismissed or otherwise
resolved in a manner that will permit Employer to resume its
obligations to pay compensation hereunder, Employer will
promptly make such payment hereunder; and
(3) During the period of suspension, the vested rights of the
contracting parties shall not be affected except to the
extent precluded by such notice.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first a written.
EMPLOYER
By:
----------------------------
Name: Michael W. Perry
Title: Chief Executive Officer
OFFICER:
-------------------------------
in his individual capacity
-16-
<PAGE>
Exhibit 10.28
-------------
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT (the "Amendment"), effective as of February 29, 2000, by and
between IndyMac Mortgage Holdings, Inc., a Delaware corporation ("Employer"),
and David S. Loeb ("Officer"), amends that certain Employment Agreement, dated
as of December 30, 1998, by and between Employer and Officer (the "Employment
Agreement").
In consideration of the mutual promises and covenants herein contained, the
parties hereto agree as follows:
1. Termination of Affiliation with Countrywide. The last paragraph of
-------------------------------------------
Section 3 of the Employment Agreement is hereby deleted in its entirety and
replaced by the following:
"Employer and Officer acknowledge that the Employment Agreement formerly
recognized and permitted Officer's service as an officer and director of
Countrywide Credit Industries, Inc. ("Countrywide") and certain of its
subsidiaries. However, due to the potential conflict of interest presented
by Officer's continued affiliation with Countrywide or its subsidiaries or
affiliates, Officer shall immediately resign from the Board of Directors of
Countrywide and from any position(s) he currently holds with any subsidiary
or affiliate of Countrywide and shall not hereafter, during the term of
this Agreement as the same may be extended from time to time, accept any
position as an employee, director, consultant or otherwise with Countrywide
or any subsidiary or affiliate of Countrywide; provided, however, that
nothing herein shall prohibit Officer from (i) participating in any health
or welfare benefit plan of Countrywide, (ii) accepting an honorary title at
Countrywide as long as such title does not require or entitle Officer to
vote or engage in consultation or similar activities, or (iii) part-time
employment with Countrywide or its subsidiaries or affiliates pursuant to
that certain Part-Time Employment Agreement between Officer and
Countrywide, dated as of February 28, 2000, receipt of a copy of which
Employer hereby acknowledges."
2. Annual Stock Option Grants. The parenthetical phrase in the second
--------------------------
sentence of Section 4(c) of the Employment Agreement is hereby deleted in its
entirety. The following sentence is added as the third sentence in Section 4(c)
of the Employment Agreement:
"Notwithstanding the foregoing sentence, beginning with Fiscal Year 2000
and in each Fiscal Year thereafter during the term of this Agreement,
Officer shall be granted stock options to purchase 125,000 shares of common
stock of the Company."
-1-
<PAGE>
3. Exercise of Stock Options. The following sentence is hereby added at
-------------------------
the end of Section 4(c) of the Employment Agreement:
"Notwithstanding the terms of the 1998 Plan (or other applicable stock
incentive plan) to the contrary, Officer shall have the right, upon
termination of his employment hereunder, other then for Cause, to exercise
stock options governed by this Section 4(c) for a period twelve (12) months
after such termination (but in no event later then their applicable
expiration dates)."
4. Ratification of Employment Agreement. As amended hereby, the
------------------------------------
Employment Agreement shall be and remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
INDYMAC MORTGAGE HOLDINGS, INC.
ATTEST
By:
- ------------------------ ---------------------------
Secretary
Title:
------------------------
OFFICER
------------------------------
David S. Loeb, in his individual capacity
-2-
<PAGE>
Exhibit 21.1
------------
SUBSIDIARIES OF INDYMAC MORTGAGE HOLDINGS, INC.
-----------------------------------------------
<TABLE>
<CAPTION>
SUBSIDIARY STATE OF INCORPORATION OWNERSHIP
OR ORIGINATION
<S> <C> <C>
IndyMac, Inc. Delaware Direct
IndyMac CLCA SPC I, Inc. Delaware Direct
IndyMac CLCA SPC II, Inc. Delaware Direct
IndyMac Escrow Company, Inc. Delaware Direct
IndyMac Mortgage Obligations, Inc. Delaware Direct
IndyMac Mortgage Obligations II, Inc. Delaware Direct
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We have issued our report dated March 10, 2000, accompanying the consolidated
financial statements and schedule included in the Annual Report of IndyMac
Mortgage Holdings, Inc. on Form 10-K for the year ended December 31, 1999. We
hereby consent to the incorporation by reference of said report in the
Registration Statements of IndyMac Mortgage Holdings, Inc. on Form S-8 (File No.
033-56267, effective October 31, 1994, File No. 333-08905, effective July 26,
1996, File No. 333-36085, effective September 22, 1997 and File No. 333-55907,
effective June 3, 1998) and on Form S-3 (File No. 333-41329, effective January
2, 1998, File No. 333-61625, effective September 1, 1998 and File No. 333-71329,
effective March 1, 1999).
/s/ Grant Thornton LLP
Los Angeles, California
March 10, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,488
<SECURITIES> 471,231
<RECEIVABLES> 3,304,549
<ALLOWANCES> (53,746)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,726,522
<CURRENT-LIABILITIES> 35,019
<BONDS> 2,863,973
0
0
<COMMON> 807
<OTHER-SE> 826,723
<TOTAL-LIABILITY-AND-EQUITY> 3,726,522
<SALES> 0
<TOTAL-REVENUES> 166,975<F1>
<CGS> 0
<TOTAL-COSTS> 34,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 16,446
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 115,929
<INCOME-TAX> 0
<INCOME-CONTINUING> 115,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,929
<EPS-BASIC> 1.49
<EPS-DILUTED> 1.48
<FN>
<F1>includes 185,623 of interest expense related to mortgage loan activities.
</FN>
</TABLE>
