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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 0-20526
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ARCADIA FINANCIAL LTD.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1664848
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7825 WASHINGTON AVENUE SOUTH, MINNEAPOLIS, MINNESOTA 55439-2435
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 942-9880
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Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK ($.01 PAR VALUE)
CLASS A PREFERRED STOCK RIGHTS ($.01 PAR VALUE)
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: NONE
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. / /
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing sale price of the Common Stock as quoted on the
New York Stock Exchange on February 17, 1998 was approximately $246.9 million.
The number of shares of the registrant's Common Stock outstanding as of
February 17, 1998 was 38,917,493.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the documents listed below have been incorporated by
reference into the indicated part of this Form 10-K.
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DOCUMENT INCORPORATED PART OF FORM 10-K
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Proxy Statement for 1998 Annual Meeting of Shareholders Items 10, 11, 12 and 13
to be held May 28, 1998 of Part III
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FORM 10-K INDEX
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<S> <C> <C>
PART I
Item 1. Business........................................................................ 3
Item 2. Properties...................................................................... 17
Item 3. Legal Proceedings............................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders............................. 18
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........... 19
Item 6. Selected Financial Data......................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 22
Item 8. Financial Statements and Supplementary Data..................................... 38
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................... 63
PART III
Item 10. Directors and Executive Officers of the Registrant.............................. 63
Item 11. Executive Compensation.......................................................... 63
Item 12. Security Ownership of Certain Beneficial Owners and Management.................. 63
Item 13. Certain Relationships and Related Transactions.................................. 63
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................ 63
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SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements under the captions "Business," "Legal Proceedings,"
"Market for Registrant's Common Equity and Related Stockholder Matters,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and elsewhere in this Form 10-K constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements may be identified by the use of
terminology such as "may," "will," "expect," "anticipate," "estimate," "should,"
or "continue" or the negative thereof or other variations thereon or comparable
terminology. Such forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or from those results presently anticipated or projected.
Such factors include, among other things, the following: increased delinquency
and loan loss rates; modifications to the Company's retail disposition program;
accounting and regulatory changes; interest rate fluctuations; difficulties or
delays in the securitization of automobile loans; availability of adequate
short- and long-term financing; general economic and business conditions; and
other matters set forth under the caption "Cautionary Statements" in exhibit
99.1 filed herewith.
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PART I.
ITEM 1. BUSINESS
GENERAL
The Company purchases, securitizes and services consumer automobile loans
originated primarily by car dealers affiliated with major foreign and domestic
manufacturers. Loans are purchased through 18 regional buying centers located in
15 states, supplemented by a network of dealer development representatives
("DDRs") which develop and maintain relationships with car dealers operating
within each "hub's" immediate market area or in surrounding market areas
referred to as "spokes." Credit approval and loan processing are generally
performed at the "hub" or at the Company's headquarters in Minneapolis,
Minnesota. The Company acts as the servicer of all loans originated and
securitized by it in return for a monthly servicing fee. To perform its
servicing responsibilities the Company operates a national customer service
center in Minneapolis, Minnesota and four regional collection centers located in
Charlotte, North Carolina; Dallas, Texas; Denver, Colorado; and Minneapolis,
Minnesota.
The Company purchases each loan in accordance with its underwriting
procedures, which focus on a borrower's credit characteristics and collateral
value. The Company's underwriting criteria do not distinguish between new and
used vehicles, which represented approximately 16% and 84%, respectively, of the
Company's loan purchases in 1997. The Company seeks to maximize gross interest
rate spreads relative to expected net losses by maintaining a tiered pricing
system based on the borrower's credit characteristics as measured by the
Company's underwriting and proprietary credit scoring criteria. The Company
markets its loan products to dealers under two programs, designated Premier and
Classic. "Premier" and "Classic" are proprietary trademarks of the Company.
Premier borrowers generally have stronger credit characteristics than those of
Classic borrowers. The Company has been expanding the level of loan purchases
under its Classic program primarily to increase gross interest rate spreads. In
1997, 55% of the principal amount of loans purchased by the Company were
purchased under the Classic program compared with 36% in 1996 and 17% in 1995.
The Company may change its loan purchase mix at any time and from time to time.
The Company considers substantially all of the loans it purchases under both the
Premier and Classic programs to be in the "prime" or "non-prime" loan
categories, but does not consider the loans it purchases to be in the
"sub-prime" loan category.
In accordance with prevailing industry practice, the Company pays an
up-front dealer participation to the originating dealer for each loan purchased.
These dealer participations vary in amount among the Company's loan products and
are generally greater under the Premier program than under the Classic program.
The Company primarily uses warehouse facilities to fund its initial purchase
of loans. The Company securitizes purchased loans as asset-backed securities,
generally on a quarterly or more frequent basis. In its securitizations, the
Company, through a special purpose subsidiary, transfers loans to newly-formed
securitization trusts which issue one or more classes of asset-backed
securities. The asset-backed securities are simultaneously sold to investors and
the Company recognizes a gain on the sale of the loans. Each month, collections
of principal and interest on the securitized loans are used by the trustee to
pay the holders of the related asset-backed securities, to establish and
maintain spread accounts as a source of cash to cover shortfalls in collections
and to pay expenses associated with the securitizations and subsequent
servicing. After such application by the trustee, amounts in excess of those
necessary to satisfy requirements associated with the asset-backed securities
are generally distributed to the Company, subject to its agreements with
Financial Security Assurance Inc. ("FSA"). All of the Company's securitization
trusts and one of the Company's warehouse facilities are credit-enhanced through
financial guaranty insurance policies, issued by FSA, which insure payments of
principal and interest due on the related asset-backed securities. Asset-backed
securities insured by FSA have been rated AAA by Standard & Poor's and Aaa by
Moody's Investors Service, Inc.
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The Company is a Minnesota corporation, incorporated on March 8, 1990. Its
principal executive offices are located at 7825 Washington Avenue South,
Minneapolis, Minnesota 55439-2435, and its telephone number is (612)942-9880.
STRATEGIES
The Company's business objective is to deliver predictable and sustainable
profitability. To achieve this objective, the Company utilizes the following
strategies:
- EMPHASIS ON DEALER RELATIONSHIPS -- The Company believes that the volume
and quality of the loans it acquires depends upon its ability to establish
and maintain satisfactory relationships with automobile dealers. When
presented with a loan application, the Company attempts to notify the
dealer within one hour or less whether it will approve, conditionally
approve or deny the automobile loan for purchase from the dealer. The
Company's business hours generally coincide with those of the dealership
and, in some cases, the Company will provide loan processing on the
dealer's premises during dealer promotions. When the Company considers a
borrower's credit quality to be adequate, the Company may provide the
dealer with flexibility in developing loan structures to accommodate a
borrower's needs, such as extended payment terms or low down-payment
requirements. To further assist the dealer, the Company may perform more
in-depth underwriting analysis when warranted by special circumstances. A
DDR maintains frequent contacts with the dealer to assure a high level of
service. By employing consistent loan purchasing practices, the Company
believes that it provides the dealer with a reliable source of financing.
- TIERED PRICING STRATEGY -- The Company maintains a tiered pricing system,
allowing it to price different loan products according to the profiles of
borrowers' credit characteristics as measured by the Company's proprietary
credit scoring system and various analytical tools. The Company's tiered
pricing system seeks to (i) maximize gross interest rate spreads relative
to expected net losses within each credit tier, (ii) provide a greater
opportunity to expand its automobile loan market share through loan
products that address a greater variety of customer needs, and (iii)
reduce the Company's initial cash requirements for Classic loans relative
to the Premier program because the Company offers lower dealer
participations on Classic loans. The Company therefore generally obtains
significantly higher interest rates under the Classic program than under
the Premier program. The higher interest rates of the Classic program is
intended to compensate the Company for the expected greater delinquency
and default rates associated with the Classic program, which the Company
addresses through higher loan loss reserves.
- MAINTENANCE OF UNDERWRITING PROCEDURES -- The Company has developed a
proprietary credit scoring system designed to maintain consistent
underwriting procedures for its loan authorizations. The Company's credit
scoring system monitors six evaluation criteria: debt-to-income,
payment-to-income, loan-to-value, credit bureau score, credit score and
loan size. Using the results of the credit scoring system, each loan
application is reviewed by one of the Company's credit specialists and, as
appropriate under the Company's underwriting procedures, one or more
credit managers, to determine whether the loan should be approved. To
monitor the integrity of the underwriting procedures, management tracks on
a daily basis the approval rates and delinquency and loss rates by credit
specialist, buying center and dealer. In addition, the Company regularly
evaluates its underwriting procedures through the use of various
analytical tools and compares expected to actual performance outcomes to
determine if enhancements are necessary.
- SERVICING -- The Company operates a national servicing center in
Minneapolis, Minnesota and four regional collection centers located in
Charlotte, North Carolina; Dallas, Texas; Denver, Colorado; and
Minneapolis, Minnesota. These centers are staffed with trained personnel
responsible for various servicing, collection and repossession activities.
Collectors are assisted by highly automated telephone dialing systems and
a computerized collection system which improve the Company's
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ability to make early contact with delinquent obligors. The Company
regularly monitors and evaluates its servicing and collection operations
with a view to improving procedures as needed.
- FUNDING AND LIQUIDITY THROUGH WAREHOUSING AND SECURITIZATIONS -- The
Company funds the acquisition of automobile loans principally through
three warehouse facilities with asset-backed commercial paper programs.
Currently, these facilities provide sufficient capacity to handle the
Company's loan purchases. The Company securitizes purchased loans as
asset-backed securities and uses such securitizations as a cost
competitive source of capital compared to traditional sources of corporate
debt financing. Securitization enables the Company to sell automobile
loans on a regular basis, while retaining the right to receive future
servicing fees and excess cash flows. Securitization also allows the
Company to use the net proceeds from such sales to fund the purchase of
additional automobile loans.
- RETAILING OF REPOSSESSED AUTOMOBILES -- In addition to wholesale
distribution channels, the Company has regularly disposed of repossessed
vehicles through the retail markets, primarily retail used car consignment
lots. The Company believes that the greater recoveries available from the
retail market justify the costs of maintaining unsold repossession
inventory and managing the retail program. In addition, the use of retail
markets provides the Company with an opportunity to finance the sale of
repossessed automobiles to new buyers. The extent to which the Company
utilizes retail distribution channels is dependent upon numerous factors,
including but not limited to, the level of repossessed inventory, used car
market conditions and the continuing cost to maintain the strategy. The
Company may, as it has in the past, increase or decrease its use of retail
markets after considering such factors.
AUTOMOBILE DEALER PROGRAM
The Company believes that the volume and quality of the loans it acquires
depends upon its ability to establish and maintain satisfactory relationships
with automobile dealers. The Company's DDRs and other loan purchasing personnel
emphasize dealer service. The Company attempts to identify the particular
service needs of dealers and to provide a reliable source of financing for
qualified automobile buyers. DDRs are the Company's primary contact with its
dealers and are responsible for prospecting new dealerships, selling the
Company's programs and cultivating dealer relationships. DDRs train dealer
personnel in the Company's programs and meet with dealer management periodically
in an effort to ensure the dealer's needs and expectations are being satisfied.
DDRs operate out of one of the Company's regional buying centers or out of one
of the Company's "spokes," which are typically within a 200-mile radius of a
regional buying center. The Company's cost in maintaining DDRs is primarily
limited to compensation.
During 1997, the Company expanded its technical resources and developed more
in-depth analysis of loan performance and profitability by dealer. This has
helped the Company identify dealers that have consistently provided loan
applications meeting the Company's underwriting guidelines, thereby allowing the
Company to focus its marketing efforts on those dealers which provide the most
profitable origination opportunities.
LOAN PURCHASES AND UNDERWRITING
LOAN PURCHASES. Retail automobile buyers are customarily directed to a
dealer's finance and insurance department to finalize their purchase agreement
and to review potential financing sources and rates available from the dealer.
If the customer elects to pursue financing through the dealer, an application is
taken for submission to the dealer's financing sources. The Company's agreements
with its dealers are non-exclusive and, typically, a dealer will submit the
purchaser's application to more than one financing source for review. The dealer
in consultation with the borrower will decide which source will finance the
automobile purchase based upon the rates being offered, the terms for approval,
dealer
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participations or incentives that may be offered from time to time in accordance
with captive wholesale financing arrangements with the dealer's primary supplier
of automobiles.
When presented with a loan application, the Company attempts to notify the
dealer within an hour or less whether it will approve, conditionally approve or
deny the loan for purchase from the dealer. A loan purchase by the Company
generally occurs simultaneously with the purchase by the buyer of the related
automobile and the making of the loan to the buyer by the dealer. The buyer's
purchase generally is not completed until the Company or another financing
source approves a loan. If the application is approved by the Company and the
buyer accepts the terms of the financing, the buyer enters into an installment
contract or secured note with the dealer on a form prepared and provided to the
dealer by the Company. At the bottom or reverse of the contract or note is an
assignment of the loan to the Company that is signed by the dealer.
UNDERWRITING. The Company purchases each loan based on its established
underwriting procedures. The Company's underwriting procedures include scoring
the borrower's loan application in accordance with the Company's proprietary
credit scoring system and comparing such credit scores to established
underwriting criteria. For borrowers with credit scores falling outside
predetermined criteria, the Company's policies require additional review and
approval by supervisory personnel in order to determine whether to approve such
loans. These procedures are intended to assess the applicant's ability to repay
the amounts due on the loan and the adequacy of the financed vehicle as
collateral. The Company's underwriting procedures do not distinguish between new
and used vehicles. The Company maintains a tiered pricing system, allowing it to
price loans according to the borrower's credit characteristics. The Company
markets its loan products to automobile dealers through its Premier and Classic
programs. Premier borrowers generally have stronger credit characteristics than
those of Classic borrowers.
Each applicant for a loan is required to complete and sign an application
which lists the applicant's assets, liabilities, income, credit and employment
history and other personal information. Upon receipt of the completed loan
application, the Company's administrative personnel order a minimum of one
credit bureau report on the applicant to document the applicant's credit
history. The application and the credit bureau report(s) are given to one of the
Company's credit specialists for analysis under the Company's proprietary credit
scoring system.
The Company's credit scoring system evaluates the credit applicant with an
emphasis on cash flow as a principal indicator of repayment capability and
provides credit scores which are utilized by the Company as a basis to determine
if the applicant initially falls within the parameters of the Company's
underwriting criteria for a particular loan product. Assuming that the applicant
qualifies, the Company will expand its credit review procedures and purchase
from a credit bureau an additional credit bureau score which attempts to assess
the likelihood of borrower payment ability. If the applicant meets the Company's
underwriting standards, the Company generally will approve the application. For
Classic borrowers (and, if certain scoring criteria are not satisfied, for
Premier borrowers), this data is subject to further investigation. This
investigation typically consists of direct telephone confirmations, when
feasible, of the applicant's employment and may also include direct credit
references from banks and financial institutions noted on the application.
Once scoring and verifications have been completed, one of the Company's
credit specialists reviews the application to ensure that it meets the
requirements of the Company's internal system and also reviews the various
banking and employment verifications obtained. The credit specialist also
considers the amount to be financed in relation to the purchase price and market
value of the automobile. If the vehicle is used, the Company determines market
value based upon the Kelly Blue Book value or the National Automobile Dealers
Association's ("NADA") Guide on Retail and Wholesale Values. Consistent with
industry standards, this assessment does not include inspection of the
automobile. The Company does not reject an applicant solely because of the age
of the automobile.
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Objective credit scoring criteria provide the factual background for lending
decisions, but such decisions frequently require the credit judgment of the
Company's credit specialists. To the extent an applicant fails to meet one or
more of the scoring benchmarks for the proposed loan, the Company generally
requires higher levels of management scrutiny before such loans are approved. In
1996 and 1997, a substantial majority of Classic loans and a substantial number
of Premier loans purchased by the Company failed to meet at least one applicable
scoring benchmark and generally were subject to additional management review
before approval.
Upon completion of the credit analysis, the Company decides whether it will
approve, conditionally approve or deny the loan application as submitted.
Conditioning approval of the application involves amending the dealer's proposed
terms of the loan to qualify the application according to Company procedures.
Typical conditions include, but are not limited to, requiring a co-applicant,
amending the length of the proposed term, requiring additional down payment,
substantiating certain credit information, or requiring proof of resolution of
certain credit deficiencies as noted on the applicant's credit history.
Approved, declined or conditioned application decisions are promptly
communicated to the dealer by phone or facsimile. Additionally, the applicant is
informed by the Company of any credit denial or other adverse action by mail, in
compliance with applicable statutory requirements.
The Company regularly reviews the quality of the loans it purchases and
conducts internal compliance reviews on a monthly basis.
RESALE AND FINANCING OF REPOSSESSIONS. In addition to wholesale
distribution channels, the company has regularly disposed of repossessed
vehicles through retail markets, primarily retail used car consignment lots. The
Company believes that the greater recoveries available from the retail market
justify the costs of maintaining higher levels of unsold repossession inventory
and managing the retail program. In addition, the use of retail markets provides
the Company with an opportunity to finance the repossessed vehicles with new
buyers. The extent to which the Company retails its repossessed inventory is
dependent in part on inventory levels, used car market conditions, and the
continuing cost to operate such strategy. The Company may, as it has in the
past, increase or decrease its use of retail markets after considering such
factors. During 1997, such an analysis resulted in a reduction in the
utilization of retail markets (see "Management's Discussion and
Analysis--"SPECIAL CHANGES").
During 1997, approximately 46% of repossessed vehicles sold were liquidated
through retail markets, of which the Company financed approximately 94% of these
sales. During 1996, the Company sold approximately 70% of its repossession
inventory through retail markets and financed approximately 90% of these sales.
The Company believes this strategy had the effect of reducing the Company's loan
losses in 1996 and, to a lesser extent, in 1997 (relative to a wholesale-based
strategy) while delaying cash distributed from securitization trusts as a result
of slower inventory turnover. The strategic benefits of the retail program were
partially offset in 1996 and 1997 by the performance of the Company's portfolio
of financed repossessed automobiles, which experienced delinquency, default and
loss rates substantially higher than the Company's other loan products, and by
lower retail prices for used cars in 1997.
The Company applies the same underwriting methodology and procedures to the
financing of repossessed automobiles as it applies to the purchase of other loan
products, but it allows credit specialists and managers greater latitude in the
financed repossession product to approve exceptions (with appropriate management
authorization) to underwriting criteria as compared to other products in the
Premier and Classic programs. The principal amount of retail repossession sales
financed by the Company increased from $96.9 million (2.56% of the total
servicing portfolio) at December 31, 1996 to $169.7 million (3.42% of the total
servicing portfolio) at December 31, 1997. The delinquency, default and loss
rates of the Company's portfolio of repossessed automobile loans have
significantly exceeded the rates of the Company's other loan products,
accounting for a disproportionate amount of the Company's overall delinquencies,
defaults and losses in 1997. In particular, since the latter part of 1996, the
Company has taken a series of steps intended to improve the performance of its
financed repossession portfolio, including introducing
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greater verification of credit applications, tightening supervision of the
buying center process and lowering the loan-to-value ratios on loans purchased.
However, acceptable levels of delinquencies, defaults and losses in the
repossession loan portfolio, as determined by management, are likely to exceed
levels typically experienced in the Company's other loan products.
DEALER PARTICIPATIONS. The Company remits to the dealer the amount financed
pursuant to the terms of the loan and, consistent with industry practice, a
dealer participation for selling such loan to the Company. The Company computes
the dealer participation by calculating the amount of cash flow arising from the
rate differential between the interest rate charged by the automobile dealer to
the borrower and the rate offered by the Company to the dealer. The Company
generally offers two alternative methods for payment of the dealer
participation. Under the "shared participation" method, the dealer generally
receives a percentage of the total participation at the time of sale in exchange
for a shorter charge-back period. During the charge-back period the Company is
entitled to recover the upfront percentage received by the dealer in the event
of a prepayment or default during the first 90 to 180 days. Under an alternative
method, the Company pays the full participation to the dealer less approximately
1% of the outstanding loan balance which is held in reserve to allow for future
charges to the dealer in the event of early prepayment or default. Under the
alternative method, the Company is entitled to recover from the dealer the
unearned portion of the dealer participation in the event of a prepayment or
default in excess of the amount withheld at any point prior to contractual
maturity and the entire reserve amount if the loan defaults within its first 12
months. A substantial majority of the Company's dealers elect the "shared
participation" method.
MARKETS AND EXPANSION
The following table illustrates the loan purchasing volume and percentage of
total loan purchases by regional buying center during the three years ended
December 31, 1997:
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(Dollars in thousands) OPENING
REGIONAL BUYING CENTER DATE 1997 1996 1995
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Minnesota................ 6/90 $ 163,418 5.71% $ 160,376 5.83% $ 117,253 5.71%
Colorado................. 4/92 157,525 5.50 161,880 5.89 145,552 7.09
North Texas.............. 11/92 279,580 9.77 299,673 10.90 260,775 12.71
Washington............... 3/93 166,186 5.80 198,580 7.22 176,241 8.59
Arizona.................. 7/93 184,777 6.45 204,717 7.44 124,921 6.09
Florida.................. 8/93 189,988 6.64 144,042 5.24 123,308 6.01
Georgia.................. 11/93 176,922 6.18 189,346 6.88 143,289 6.98
South Texas (1).......... 2/94 169,495 5.92 278,457 10.12 335,317 16.34
Northern California...... 6/94 147,905 5.17 192,794 7.01 149,291 7.27
Missouri................. 6/94 151,553 5.29 173,381 6.30 172,569 8.41
Massachusetts............ 8/94 131,007 4.58 131,794 4.79 108,090 5.27
Tennessee................ 10/94 191,202 6.68 141,491 5.15 99,951 4.87
Ohio..................... 3/95 102,905 3.59 57,267 2.08 9,844 0.48
North Carolina........... 5/95 241,468 8.43 202,255 7.35 85,978 4.18
Southern California...... 12/95 107,332 3.75 57,858 2.10 34 --
New York................. 3/96 78,210 2.73 44,516 1.62 -- --
West Texas............... 7/96 177,780 6.22 112,126 4.08 -- --
Maryland................. 3/97 45,568 1.59 -- -- -- --
------------ ----------- ------------ ----------- ------------ -----------
Totals............... $ 2,862,821 100.00% $ 2,750,553 100.00% $ 2,052,413 100.00%
------------ ----------- ------------ ----------- ------------ -----------
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(1) Prior to July 1996, the West Texas region was included in the South Texas
region.
The Company regularly evaluates its "hub and spoke" strategy and from time
to time has expanded into new markets through the establishment of additional
regional buying centers and "spoke" operations. The Company's expansion program
is directed by personnel with backgrounds in credit administration,
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finance and operations, information systems, facilities development, sales and
marketing and human resources. In considering potential markets for expansion,
the Company reviews such factors as population, income per capita, retail sales
per capita, city work force, number of households, average annual income,
automobile registrations, driver licenses issued and number of dealerships in
the state and standard metropolitan statistical areas and the competitive
environment for automobile financing. The Company also considers other general
expansion criteria, including but not limited to, recruiting and staffing,
training, compensation and benefits, policies and procedures, demographics, and
legal and licensing requirements. The Company also reviews the performance of
existing buying centers to evaluate their continuing contribution to the
Company's strategy.
FINANCING
WAREHOUSE FACILITIES. The Company uses warehouse facilities to finance its
purchase of loans on a short-term basis pending securitization. At December 31,
1997, the Company had an aggregate borrowing capacity of approximately $875.0
million under three primary warehouse facilities, of which $844.0 million was
available. The Company, through a wholly-owned special purpose subsidiary,
Arcadia Receivables Finance Corp. ("ARFC"), has a $400.0 million receivables
warehouse facility with Receivables Capital Corporation ("RCC"), a commercial
paper conduit sponsored by Bank of America (the "BofA Facility"). The Company,
through its wholly-owned special purpose subsidiary, Arcadia Receivables Finance
Corp. II ("ARFC II"), has an approximately $175.0 million receivables warehouse
facility with a commercial paper conduit managed by Morgan Guaranty Trust
Company of New York (the "Morgan Guaranty Trust Facility"). The Company, through
its wholly-owned special purpose subsidiary, Arcadia Receivables Finance Corp.
III ("ARFC III"), has a $300.0 million receivables warehouse facility with DLJ
Mortgage Capital, Inc., a subsidiary of Donaldson, Lufkin & Jenrette (the "DLJ
Facility").
Under the BofA Facility, the Company, through ARFC, sells loans to another
wholly-owned special purpose subsidiary, Arcadia Receivables Conduit Corp.
("ARCC"), and ARCC purchases the loans from ARFC and agrees to transfer the
loans back to ARFC on ARFC's demand (at the time, and for the purpose, of
securitization). ARFC is also obligated to repurchase loans from ARCC on or
before the date which is twelve months following their conveyance to ARCC and
upon the occurrence of a default or certain other events. The BofA Facility
provides for the purchase of loans for an aggregate purchase price outstanding
at any time not to exceed $400.0 million. ARCC finances its purchase of loans
from ARFC by issuing an asset-backed note (the "ARCC Note") to RCC. FSA provides
credit enhancement with respect to the BofA Facility in the form of a financial
guaranty insurance policy guaranteeing certain payments on the ARCC Note. The
BofA Facility will continue until the earlier of December 2, 1999 or the
occurrence of certain events, subject to early termination as described below.
The purchase price payable to ARFC by ARCC is 98% of the principal balance of
each loan except in the case of loans used to finance the purchase of vehicles
previously repossessed by the Company, in which case the purchase price is 85%
of the principal balance of the loan. At the time the Company accesses the
public asset-backed securities market, ARFC repurchases the loans from ARCC, and
ARCC repays the Note, using proceeds from the securitization. The loans and the
collection account are pledged to secure payment of the ARCC Note. Any excess in
the collection account over certain amounts required to be retained in the
account is released to a spread account. The spread account is
cross-collateralized with the spread accounts established in connection with the
Company's securitization trusts. If no default exists with respect to the BofA
Facility, all amounts deposited into the spread account in excess of 1% of the
outstanding balance of loans in the BofA Facility are released to ARFC. In the
event that ARFC or ARCC, respectively, defaults under any payment obligation
under the BofA Facility, ARFC and ARCC are prohibited from paying dividends or
making other distributions to the Company.
RCC's purchase of the ARCC Note and concurrent issuance of commercial paper
is supported by a liquidity facility provided by financial institutions (the
"BofA liquidity banks"). This liquidity facility is a revolving obligation that
must be renewed annually. Failure by the BofA liquidity banks to renew this
9
<PAGE>
liquidity facility would lead to an early termination of the BofA Facility. The
BofA Facility also includes eligibility criteria for loans warehoused, normal
and customary representations, warranties and covenants designed to protect RCC,
FSA and the BofA liquidity banks from various risks relating to the pool of
automobile loans supporting the BofA Facility.
The Company pays usage and non-usage fees to FSA and Bank of America, in
connection with the BofA Facility. The ARCC Note bears an interest rate equal to
the rate at which funds are obtained by RCC from time to time in the commercial
paper market plus a margin. In the event the ARCC Note is funded by the BofA
liquidity banks, the rate of interest will be the reserve-adjusted interbank
offered rate in effect from time to time plus a margin.
Under the Morgan Guaranty Trust Facility, the Company, through ARFC II, may
from time to time warehouse automobile loans by selling them to an owner trust
(the "Owner Trust"). The Company may obtain up to 100% of the principal balance
of the receivables sold to the Owner Trust, but must deposit 6% of such
principal balance (subject to increase to 7% from retained excess spread, and
further increases upon the occurrence of certain events) into a spread account.
The Owner Trust simultaneously issues a Variable Funding Note ("VFN") to a
commercial paper conduit, representing 88% of the outstanding principal balance
of the receivables, and issues certificates (the "Certificates") to the Company
and an institutional investor, representing 12% of the outstanding principal
balance of the receivables. If this facility were drawn on, the Company would be
required to purchase approximately 52% of the Certificates, but it would be free
to resell such certificates if it could obtain a price satisfactory to the
Company. The purchase of the VFN will be funded through the issuance of
commercial paper by the commercial paper conduit. The Morgan Guaranty Trust
Facility will continue until the earlier of July 30, 1998 or the occurrence of
certain events. At the time the Company accesses the public asset-backed
securitization market, the Company's securitization subsidiary (currently ARFC)
purchases the loans using the proceeds from the securitization and the VFN and
the Certificates are redeemed by the Owner Trust. The Company may use the Morgan
Guaranty Trust Facility as a source of permanent funding for a designated pool
of automobile loans, but the pricing on the facility would be increased under
those circumstances.
The commercial paper conduit's purchase of the VFNs and concurrent issuance
of commercial paper is supported by a liquidity facility provided by financial
institutions (the "conduit liquidity banks"). The liquidity facility is a
revolving obligation that must be renewed annually. In addition to credit
enhancement through the subordination of the Certificates, the spread account
and the liquidity facility, the Morgan Guaranty Trust Facility includes
eligibility criteria for loans warehoused, normal and customary representations
and warranties, covenants, and portfolio triggers designed to protect the
commercial paper conduit, the liquidity providers, and the private investors
purchasing the Certificates from various risks relating to the automobile loans
supporting the warehouse facility. In addition, the Morgan Guaranty Trust
Facility contains a capital base covenant with respect to the Company, and a
purchase termination event based on a change in control of the Company.
The Company pays a commitment fee on the daily unused portion of the Morgan
Guaranty Trust Facility. The VFNs bear an interest rate equal to the rate at
which funds are obtained by the commercial paper conduit, from time to time in
the commercial paper market plus a margin. The Certificates require a higher
market rate. In the event the VFN is purchased by the conduit liquidity banks,
the rate of interest will be the applicable adjusted Eurodollar rate or base
rate (as defined) plus a margin, if applicable.
Under the DLJ Facility, the Company, through ARFC III, may from time to time
warehouse automobile loans by borrowing up to 95% of the principal balance of
Premier loans, up to 93% of the principal balance of Classic loans except in the
case of loans used to finance the purchase of vehicles previously repossessed by
the Company, and up to 85% of the principal balance of Classic loans used to
finance the purchase of vehicles previously repossessed by the Company. The
Company must deposit 1% of the amount of each borrowing (subject to increase to
2% from retained excess spread) into a reserve account. The loans, the reserve
account and the collection account are pledged to secure the loans made
10
<PAGE>
under the DLJ Facility. DLJ Mortgage Capital, Inc. (or an affiliate to which it
assigns its obligations) is the lender under the DLJ Facility, although funding
is expected to be obtained from one or more unaffiliated parties. The DLJ
Facility will continue until earlier of October 20, 1999 or the occurrence of
certain events. At the time the Company accesses the public asset-backed
securities market, the Company's securitization subsidiary (currently ARFC)
purchases the loans from ARFC III using the proceeds from the securitization and
the loans under the DLJ Facility are repaid.
In addition to the discounted advance rate for loans under the DLJ Facility
and the reserve account, the DLJ Facility also includes eligibility criteria
loans warehoused, normal and customary representations and warranties,
covenants, portfolio triggers and other facility termination events to protect
the lender and its funding sources from various risks relating to the automobile
loans securing the DLJ Facility. In addition, the DLJ Facility contains facility
termination events based on the net worth of the Company and any change in
control of the Company.
The Company pays a commitment fee on the daily unused portion of the DLJ
Facility. The loans made under the DLJ Facility bear interest at the London
Interbank Offered Rate plus a margin.
SECURITIZATION OF LOANS. The Company pursues a strategy of securitizing
loans through the sale of asset-backed securities on a quarterly or more
frequent basis, based on the availability of loans, profitability and other
relevant factors. Securitization is used as a cost-competitive source of capital
compared to traditional corporate debt financing alternatives. The Company
utilizes the net proceeds from securitizations to purchase additional automobile
loans and to pay down outstanding warehouse facilities, thereby making such
short-term sources available for future loan purchases.
In its securitizations, the Company (through its special purpose subsidiary,
ARFC) transfers automobile loans to newly-formed securitization trusts which
issue one or more classes of asset-backed securities. The asset-backed
securities are simultaneously sold to investors. Each month, collections of
principal and interest on the automobile loans are used by the trustee to pay
the holders of the related asset-backed securities, to fund spread accounts as a
source of cash to cover shortfalls in collections, if any, and to pay expenses.
The Company continues to act as the servicer of the automobile loans held by the
trust in return for a monthly fee.
To improve the level of profitability from the sale of securitized loans,
the Company uses credit enhancement to achieve a desired credit rating on the
asset-backed securities issued. The credit enhancement for the Company's
securitizations has generally taken the form of subordinated tranches of asset-
backed securities, initial deposits and financial guaranty insurance policies
issued by FSA. FSA insures payments of principal and interest due on the
asset-backed securities. Asset-backed securities insured by FSA have been rated
AAA by Standard & Poor's and Aaa by Moody's Investors Service, Inc. The Company
has limited reimbursement obligations to FSA related only to violations of
representations and warranties and not credit performance. However, spread
accounts established in connection with the securitizations provide a source of
cash to cover shortfalls in collections (as described below) and to reimburse
FSA for claims made under the policies issued with respect to the Company's
securitizations.
The Company's agreements with FSA provide that the Company must maintain
specified levels of excess cash in a spread account for each insured
securitization trust during the life of the trust. The spread account for any
securitization trust is generally funded with the interest collected on the
loans that exceeds the sum of the interest payable to holders of asset-backed
securities and certain other amounts. In certain securitization trusts, the
spread account is also funded in part through an initial deposit by the Company.
Funds may be withdrawn from the spread account to cover any shortfalls in
amounts payable on insured asset-backed securities issued by the related trust
or to reimburse FSA for draws or advances under its financial guaranty insurance
policy. In addition, under cross-collateralization arrangements with FSA, the
funds on deposit in the spread account for any one securitization may be used to
cover shortfalls in amounts payable or to reimburse FSA in connection with other
FSA-insured securitizations. ARFC is entitled to receive excess cash monthly
from securitization trusts to the extent that, after payments to
11
<PAGE>
holders of asset-backed securities, the amounts deposited in spread accounts
exceed predetermined required minimum levels. The spread accounts cannot be
accessed by the Company or ARFC without the consent of FSA until such levels
have been reached.
Each month, excess cash from each securitization trust is used to fund the
Company's spread account obligations related to that securitization trust and to
replenish any spread account deficiencies under other securitization trusts
before distribution of any remaining excess cash flow from that securitization
to ARFC. The spread account for each securitization is cross-collateralized to
the spread accounts established in connection with the Company's other
securitization trusts and the BofA Facility such that excess cash flow from a
performing securitization trust may be used to support negative cash flow from,
or to replenish a deficient spread account in connection with, a nonperforming
securitization trust, thereby further restricting excess cash flow available to
ARFC. If excess cash flow from all insured securitization trusts in any month is
not sufficient to fund current spread account obligations or replenish any prior
deficiencies in all such spread accounts, no cash flow would be available to
ARFC for that month. Otherwise, excess cash flow from the securitization trusts
is distributed to ARFC and is available for dividends to the Company by ARFC.
Each insured securitization trust has certain portfolio performance tests
relating to the following: (i) the average delinquency ratio; (ii) the
cumulative default rate; and (iii) the cumulative net loss rate. In each case,
these portfolio performance tests will be triggered if the above ratios equal or
exceed an agreed-upon percentage of the principal balance of loans included in
the securitization trust related to such series for a given time period. For the
cumulative default rate and the cumulative net loss rate, the ratios applicable
to the securitization trusts reflect the relationship between loan delinquencies
and repossession rates at various stages of a loan repayment term, including the
fact that the probability of a loan becoming delinquent or going into default is
highest during the six- to fourteen-month period from the date of origination of
the loan. If any of these levels are exceeded, the amount required to be
retained in the related spread account, and not passed through to ARFC, may be
increased. FSA and the Company have an arrangement under which, if any insured
securitization trusts exceeds the specified portfolio performance tests, ARFC
may, in lieu of retaining the excess cash from that securitization trust in the
related spread account, pledge an equivalent amount of cash, which has the
effect of preventing the violation of the portfolio performance test. More
adverse portfolio performance with respect to performance tests described above
(if such performance is in excess of specified levels) would cause the requisite
minimum spread account level to be further increased and all other spread
accounts would deposit any excess cash flows sinto the affected spread account
until the requisite minimum level is reached. In such event, ARFC (and thus the
Company) might receive no excess cash from any FSA insured securitization trust
during this period. In addition, certain adverse events with respect to the
Company (including insolvency and default on certain long-term obligations)
would cause the Company to be in default under its insurance agreement with FSA
and distributions of cash flow to ARFC from the related securitization trust may
be suspended until the asset-backed securities have been paid in full or
redeemed. Such levels have periodically been exceeded and the Company has
obtained waivers from FSA to permit distributions of cash from certain accounts
to ARFC. There can be no assurance that such thresholds will not be exceeded in
the future or that, if exceeded, waivers will be available from FSA permitting
such payments to ARFC. In the event ARFC defaults under any payment obligation
with respect to any loan securitization, ARFC would be prohibited from paying
dividends or making other distributions to the Company. FSA also has a
collateral security interest in the stock of ARFC. If FSA were to foreclose on
such security interest following an event of default under an insurance
agreement with respect to a securitization trust, FSA could preclude payment of
dividends by ARFC to the Company, thereby eliminating the Company's right to
receive distributions of excess cash flow from all the FSA-insured
securitization trusts.
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<PAGE>
SERVICING
Under the terms of its warehouse facilities and securitizations, the Company
acts as servicer with respect to the automobile loans warehoused or securitized.
The Company receives servicing fees for servicing securitized loans and loans
held under certain warehouse facilities equal to one percent per annum of the
outstanding principal balance of the loans securitized prior to September 1997
and a servicing fee of 1.25 percent per annum for loans subsequently
securitized. The Company services the loans by collecting payments due from the
obligors and remitting these payments to the trusts or warehouse facility in
accordance with the terms of servicing agreements for pass through to holders of
asset-backed securities and holders of warehouse debt. The Company maintains
computerized records with respect to each loan to record all receipts and
disbursements. The Company is permitted to perform servicing activities through
subcontractors, but has not delegated servicing activities, except for the
repossession of automobiles. Delegation of duties does not relieve the Company
of its responsibility to the trusts with respect to those duties.
The following table represents the amount of the Company's servicing
portfolio and the percentage of the total servicing portfolio by state.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Arizona................. $ 242,479 4.89% $ 201,965 5.33% $ 127,292 5.61%
California.............. 331,495 6.69 226,381 5.97 99,278 4.38
Colorado................ 175,782 3.55 156,637 4.13 132,570 5.85
Connecticut............. 69,001 1.39 50,090 1.32 29,769 1.31
Florida................. 308,510 6.22 213,209 5.62 146,629 6.47
Georgia................. 326,556 6.59 269,600 7.11 161,260 7.12
Illinois................ 53,671 1.08 45,209 1.19 20,741 0.91
Kentucky................ 70,199 1.42 38,585 1.02 7,287 0.32
Massachusetts........... 115,988 2.34 103,221 2.72 63,752 2.81
Minnesota............... 116,048 2.34 107,971 2.85 105,386 4.65
Missouri................ 210,134 4.24 186,624 4.92 124,541 5.49
Nevada.................. 122,131 2.46 102,734 2.71 52,683 2.32
New Mexico.............. 75,333 1.52 65,641 1.73 27,760 1.22
New York................ 99,755 2.01 44,806 1.18 1,970 0.09
North Carolina.......... 172,221 3.47 101,957 2.69 34,035 1.50
Oklahoma................ 228,576 4.61 173,531 4.58 88,334 3.90
Oregon.................. 135,454 2.73 106,208 2.80 61,971 2.73
South Carolina.......... 181,268 3.66 118,738 3.13 54,282 2.39
Tennessee............... 254,189 5.13 160,930 4.24 81,380 3.59
Texas................... 960,842 19.40 826,749 21.80 564,606 24.91
Washington.............. 168,240 3.39 163,707 4.32 128,859 5.68
Wisconsin............... 69,013 1.39 57,035 1.50 26,497 1.17
All Other States........ 469,205 9.48 270,329 7.14 126,225 5.58
------------ --------- ------------ --------- ------------ ---------
Total............... $ 4,956,090 100.00% $ 3,791,857 100.00% $ 2,267,107 100.00%
------------ --------- ------------ --------- ------------ ---------
------------ --------- ------------ --------- ------------ ---------
</TABLE>
DELINQUENCY, COLLECTION AND REPOSSESSION ACTIVITIES. As servicer, the
Company is responsible for monitoring collections, collecting delinquent
accounts and, when necessary, repossessing and selling automobiles. Delinquency
rates for all loans purchased by each loan buyer are monitored, and loan buyers
are incented to maintain loan quality. In response to the rapid growth of its
servicing portfolio, continued expansion of its Classic program (which generally
requires greater collection efforts than its Premier program), and increases in
delinquencies and default rates on its servicing portfolio, the Company
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<PAGE>
substantially increased its servicing and collection staff and, in October 1996,
implemented a strategy to regionalize its collection activities into four
locations: Charlotte, North Carolina; Dallas, Texas; Denver, Colorado; and
Minneapolis, Minnesota. At December 31, 1997, the Company employed over 800
service representatives and collection employees who are responsible for various
aspects of the collection and repossession procedures, compared with 510 and 188
at December 31, 1996 and 1995, respectively. The Company also substantially
expanded the capacity of its highly automated telephone dialing systems (the
"autodialer") in connection with its establishment of its four regional
collection centers and continues to utilize a computerized collection system to
aid its servicing and collection employees. The Company regularly evaluates its
staffing needs based on anticipated growth in its servicing portfolio and
estimated delinquency and repossession rates. During 1997, low unemployment
driven by economic growth and the continued expansion of the consumer credit
markets contributed to an increase in employee turnover rate relative to
historical levels, especially among the Company's collection personnel.
The Company generally utilizes the autodialer in its initial contact with
delinquent obligors. Based on parameters established by the Company for each of
its loan programs, the autodialer will phone the obligor within five to ten days
after a past due date. Once the call is answered, the autodialer will
immediately transfer the call to an available customer service representative
located in one of the Company's four regional collection centers and will
automatically display the obligor's loan information on the representative's
computer screen. The autodialer will continue to follow up with obligors at
various times throughout the first 30 days after a past due date (typically
every third day) if previous efforts do not result in the account deficiency
being cured. In addition to telephone inquiries, the Company's computerized
collection system generates past due notices, which are typically mailed to the
obligor at various intervals during the first 30 days after a past due date. The
first such correspondence is generally sent approximately 13 days after a past
due date.
If the collection effort during the first 20 days after a past due date does
not result in a satisfactory resolution of the delinquent account, then the
account is forwarded to collection specialists. These collection specialists
will typically send a final demand letter to the delinquent obligor allowing the
obligor a specified number of days to bring the account current. During this
period, the collection specialist generally will make a recommendation as to
whether the automobile should be repossessed or other action, such as a contract
extension, should be taken. The Company, like other consumer finance companies,
grants extensions in the ordinary course of business, following a re-evaluation
of the obligor's creditworthiness and approval by a collection department
manager. The terms of the Company's securitization trusts and the Company's
policies restrict the number of contract extensions that the Company may grant.
When an extension is granted, the maturity of the loan is extended for one month
and the interest for the delinquent period is added to the loan balance.
Contract extensions are more frequently granted with respect to Classic and
financed repossession loans than with respect to Premier loans, and are
seasonally highest during the Christmas holiday period. Under special
circumstances, the Company, like other consumer finance companies, may agree to
other contract modifications, such as lengthening the term to maturity or
adjusting interest rates, subject to limitations set forth in securitization
trusts and agreements with FSA.
The Company uses independent contractors to perform repossessions. Once an
automobile is repossessed, a letter is sent giving the obligor a specified
number of days to pay the entire loan balance in order to recover the
automobile. At the expiration of this time period, the Company will prepare the
automobile for sale and determine the method of sale. The Company has
historically sold repossessed automobiles through retail consignment lots and
wholesale auto auctions. Under the retail method, the Company retains control of
repossessed automobiles on behalf of the relevant securitization trust until
they are resold through independent dealers. The Company has a remarketing
department responsible for the management of its repossession inventory, which
decides whether to sell each vehicle repossessed in the retail or wholesale
market, manages reconditioning and repairs when necessary, tracks vehicles until
sold
14
<PAGE>
and selects and monitors the retail consignment lots used by the Company. At
December 31, 1997, the Company had arrangements with 60 consignment lots
compared with 67 at December 31, 1996.
PROPRIETARY INFORMATION
The Company has developed a credit scoring system for evaluating loan
applications submitted by dealers. The credit scoring system ranks the credit
quality of the applicant. The system is intended by the Company to act as a
predictor of loan repayment probability or loan defaults and serves as the basis
for the Company's underwriting procedures. Although asset-based lenders utilize
a variety of scoring and credit evaluation systems, the Company considers its
credit scoring system to be proprietary and attempts to maintain the system as a
trade secret.
COMPETITION
Competition in the field of financing retail automobile sales is intense.
Competitors include banks, savings and loans, small loan companies, credit
unions, a variety of local, regional and national consumer financing
institutions and captive finance companies of automobile manufacturers, such as
Ford Motor Credit Company, Chrysler Credit Corp. and General Motors Acceptance
Corporation. Many of these competitors have substantially greater capital
resources than the Company and a number offer other forms of financing to
automobile dealers, including, but not limited to, vehicle floor plan financing
and leasing. Captive automobile finance companies also, from time to time, have
national promotions offering below-market interest rates on select vehicles to
automobile purchasers. The Company believes it competes on the basis of
providing a high level of service, offering flexible loan terms which meet
dealers' needs and maintaining good relationships with its dealers. From time to
time, competing finance companies may offer to refinance borrowers' loans
originally purchased by the Company. As a result of such an offer, a borrower
may refinance and prepay an existing loan, or the Company may agree to amend the
terms of the borrower's loan.
REGULATION
The Company's operations are subject to regulation, supervision and
licensing under various federal, state and local statutes, ordinances and
regulations. At December 31, 1997 the Company's business operations were
conducted in 45 states, the laws and regulations of which govern the Company's
operations conducted therein. The Company is required to be, and is, licensed as
a sales finance company in 27 states. The Company is required to be, and is,
licensed under the Ohio Mortgage Loan Act. To the extent the Company expands its
operations into additional states, it will be required to comply with the laws
of those states.
CONSUMER PROTECTION LAWS. Numerous federal and state consumer protection
laws and related regulations impose substantive disclosure requirements upon
lenders and servicers involved in consumer finance. The Federal Trade Commission
("FTC") has adopted the so-called "holder-in-due-course" rule which has the
effect of subjecting persons who finance consumer credit transactions (and
certain related lenders and their assignees) to all claims and defenses which
the purchaser could assert against the seller of the goods and services. The
FTC's Rule on Sale of Used Vehicles requires that all sellers of used vehicles
prepare, complete and display a "Buyer's Guide" which explains the warranty
coverage (if any) for such vehicles. The "Credit Practices Rule" of the FTC
imposes additional restrictions on loan provisions and credit practices.
A majority of states in which the Company operates have adopted motor
vehicle retail installment sales acts or variations thereof. These laws
regulate, among other things, the interest rate and terms and conditions of
motor vehicle retail installment loans. These laws also impose restrictions on
consumer transactions, and some require loan disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply. In addition, the laws of
15
<PAGE>
certain states grant to the purchasers of vehicles certain rights of rescission
under so-called "lemon laws". Under such statutes, purchasers of motor vehicles
may be able to seek recoveries from, or assert defenses against, the Company. A
number of states impose interest rate limitations under applicable usury laws
and regulate the Company's ability to collect late fees and other charges.
SECURED PARTY RIGHTS AND OBLIGATIONS. In the event of default by an
obligor, the Company has all the remedies of a secured party under the Uniform
Commercial Code ("UCC"), except where specifically limited by other state laws.
The remedies of a secured party under the UCC generally include the right of
repossession by self-help means, unless such means would constitute a breach of
the peace. In the event of default by the obligor, some jurisdictions require
that the obligor be notified of the default and be given a period of time in
which to cure the default prior to repossession. In addition, courts have
applied general equitable principles to secured parties pursuing repossession or
litigation involving deficiency balances. The obligor also has the right to
redeem the collateral prior to actual sale.
The proceeds from resale of financed vehicles generally will be applied
first to the expenses of repossession and resale and then to the satisfaction of
the automobile loans. A deficiency judgment can be sought in most states subject
to satisfaction of statutory procedural requirements by the secured party and
certain limitations as to the initial sale price of the motor vehicle. Certain
state laws require the secured party to remit the surplus to any holder of a
lien with respect to the vehicle, or, if no such lienholder exists, the UCC
requires the secured party to remit the surplus to the former owner of the
financed vehicle.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including Federal bankruptcy laws and related state
laws, may interfere with or affect the ability of the Company to realize upon
collateral or enforce a deficiency judgment. The repossession process and the
costs thereof generally result in losses on the underlying automobile loans, and
such losses generally reduce the amounts available for distribution from the
spread accounts of related securitized loan pools.
EMPLOYEES
The Company employs personnel experienced in all areas of loan origination,
documentation, collection and administration. The Company employs and trains
specialists in loan processing and servicing with minimal cross-over of duties.
As of December 31, 1997, the Company had 1,598 employees. None of the Company's
employees is covered by a collective bargaining agreement.
EXECUTIVE OFFICERS
Set forth below are the names, ages and positions of the executive officers
of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------
<S> <C> <C>
Richard A. Greenawalt 54 Director, President and Chief Executive Officer
Scott H. Anderson 40 Director, Vice Chairman, Credit and Collections
James D. Atkinson III 49 Senior Vice President, Corporate Counsel and
Secretary
Robert A. Barbee, Jr. 39 Executive Vice President, Loan Origination
Duane E. White 42 Executive Vice President, Corporate Services
John A. Witham 46 Executive Vice President, Chief Financial Officer
</TABLE>
RICHARD A. GREENAWALT was appointed a Director and elected President and
Chief Executive Officer of the Company on January 27, 1997 and commenced
employment with the Company on January 29, 1997. Prior to joining the Company
Mr. Greenawalt served as President, Chief Operating Officer, and a Director of
Advanta from November 1987. Prior to joining Advanta, Mr. Greenawalt served as
President of Transamerica Financial Corp. from May 1986. From 1971 to 1986, Mr.
Greenawalt held senior positions
16
<PAGE>
with Citicorp, including Chairman and Chief Executive Officer of Citicorp
Person-to-Person and President and Chief Executive Officer of Citicorp Retail
Services.
SCOTT H. ANDERSON was appointed Vice Chairman in December 1995. Mr. Anderson
had previously functioned as Executive Vice President and has been the Company's
Credit and Collections Officer since April 1991. From 1987 until joining the
Company, Mr. Anderson served as Vice President, Division Manager of Loan
Administration for Marquette Bank Minneapolis, N.A. Prior thereto Mr. Anderson
served as a Regional Vice President for First Bank System, Inc. Mr. Anderson has
held both direct lending positions and lending supervision positions for over 15
years.
JAMES D. ATKINSON III was appointed Senior Vice President, Corporate Counsel
in December 1995 and Secretary of the Company in January 1995. Mr. Atkinson had
previously served as Vice President, corporate counsel since September 1994 and
as outside corporate counsel since 1990. Prior to joining the Company, Mr.
Atkinson practiced law for sixteen years, specializing in corporate legal issues
and compliance.
ROBERT A. BARBEE, JR. was appointed Senior Vice President, Sales and
Marketing in September 1994. In December 1995, Mr. Barbee was appointed
Executive Vice President, Loan Origination. From June 1983 to September 1994,
Mr. Barbee was employed as a Regional Vice President for Pat Ryan & Associates,
a provider of specialty insurance products.
DUANE E. WHITE was appointed Executive Vice President, Corporate Services,
in May 1997, with management responsibility for the Information Services, Human
Resources, Legal, Credit Examination and Loan Servicing functions. From 1993 to
1996 Mr. White served as President at FBS Mortgage Inc., and from 1991-1993 he
served as Senior Vice President of Acquisitions Integration at First Bank
System, Inc. From 1988 to 1991 Mr. White served as Senior Vice President of
Sales, Marketing, and Customer Service at Apertus Technologies Incorporated;
from 1984 to 1988 as a Senior Vice President of Marketing and Product
Development at First Bank System, Inc., and from 1981 to 1984 as Engagement
Manager at McKinsey and Company.
JOHN A. WITHAM was appointed Executive Vice President in December 1995 and
has served as Chief Financial Officer of the Company since February 1994. From
January 1985 to January 1994, Mr. Witham held various management positions with
subsidiaries of PHH Corporation, a diversified financial services company,
including Senior Vice President, Finance of PHH Relocation and Real Estate from
August 1992 to January 1994, Senior Vice President, Finance of PHH Europe PLC,
in Swindon, England from August 1989 to August 1992 and Senior Vice President,
Finance of PHH FleetAmerica from January 1985 to August 1989.
All executive officers of the Company hold office until they are removed or
their successors are elected and qualify.
ITEM 2. PROPERTIES
The Company's executive offices are located at 7825 Washington Avenue South,
Minneapolis, Minnesota 55439-2435. These facilities consist of 52,000 square
feet of leased space pursuant to a lease expiring in 2002. Additionally, the
Company leases a 21,000 square foot operations facility in a suburb of
Minneapolis which is utilized for customer service and loan document processing.
The Company also leases offices for its regional buying centers in Atlanta,
Baltimore, Boston, Buffalo, Charlotte, Cincinnati, Dallas, Denver, Houston,
Minneapolis, Nashville, Orlando, Phoenix, Sacramento, San Antonio, San Diego,
Seattle and St. Louis. The size of these offices range from 5,000 square feet to
13,000 square feet. Regional buying center leases are generally for a term of
five to seven years. Furthermore, the Company leases offices for a national
service center in Minneapolis, Minnesota and four regional collection centers
located in Charlotte, North Carolina; Dallas, Texas; Denver, Colorado; and
Minneapolis, Minnesota. These centers range in size from 15,000 to 22,000 square
feet and have lease terms ranging from 5 to
17
<PAGE>
10 years. See Note 10 of Notes to Consolidated Financial Statements for a
description of the Company's rental obligations under these leases.
ITEM 3. LEGAL PROCEEDINGS
On March 4, 1997 a shareholder commenced an action against the Company and
certain named directors and officers of the Company entitled Taran v. Olympic
Financial Ltd. et al. in the United States District Court for the District of
Minnesota. Four similar lawsuits, three of them in the United States District
Court for the District of Minnesota (Frank Dibella, on behalf of himself and all
others similarly situated vs. Olympic Financial Ltd. et al., Michael Diemer vs.
Olympic Financial Ltd. et al. and Howard Pisnoy vs. Olympic Financial Ltd. et
al.) and one in the United States District Court for the Eastern District of New
York (North River Trading, LLC, and Allan Farkas, and All Others Similarly
Situated vs. Olympic Financial Ltd. et al.) were filed after that time. These
suits have been consolidated in one suit, In re Olympic Financial Ltd.
Securities Litigation, in the United States District Court for the District of
Minnesota. Plaintiffs in the consolidated action allege that during the period
from July 20, 1995 through March 3, 1997 the defendants, in violation of federal
securities laws, engaged in a scheme that had the effect of artificially
inflating, maintaining and otherwise manipulating the value of the Company's
Common Stock by, among other things, making baseless, false and misleading
statements about the current state and future prospects of the Company,
particularly with respect to the Classic program and the refinancing of
repossessed automobiles. Plaintiffs allege that this scheme included making
false and misleading statements and/or concealing material adverse facts. The
consolidated action is in the preliminary stages and the parties have not begun
discovery. The Company has reviewed the complaint in the consolidated action and
believes that the consolidated action is without merit and intends to defend it
vigorously. There can, however, be no assurance that the Company will prevail in
such defense or that any order, judgment, settlement or decree arising out of
this litigation will not have a material adverse effect on the Company's
financial condition, results of operations or liquidity.
Another case which was filed November 8, 1996, Powell et al. v. Arcadia
Financial Ltd. et al., involves a complaint by 200 borrowers who purchased
vehicles from a dealer which sold certain of Arcadia's repossessed vehicles on a
consignment basis. The plaintiffs in this case allege that Arcadia is either
directly or vicariously liable for damages incurred as a result of the
consignment dealer's alleged wrongful actions. The Company is seeking to resolve
the matter through the mediation process. There can, however, be no assurance
that the Company will prevail in such defense or that any order, judgment,
settlement or decree arising out of this litigation will not have a material
adverse effect on the Company's financial condition, results of operation or
liquidity.
The nature of the Company's business is such that it is routinely a party or
subject to other items of pending or threatened litigation, including litigation
involving actions against borrowers to collect amounts on loans or to repossess
vehicles and litigation challenging the terms of loans purchased by the Company.
Although the ultimate outcome of certain of these matters cannot be predicted,
management of the Company believes, based upon information currently available
and the advice of counsel, that the resolution of those various matters
currently pending will not result in any material adverse effect on the
Company's financial condition, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders through the
solicitation of proxies or otherwise during the quarter ended December 31, 1997.
18
<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "AAC." The following table provides quarterly high and low sales
prices for the Company's Common Stock for the two years ended December 31, 1997.
The Company's Common Stock began trading on the New York Stock Exchange on March
27, 1996. The Company's Common Stock had been traded on the Nasdaq National
Market since January 30, 1992.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996
First quarter....................................................... $ 19.63 $ 12.50
Second quarter...................................................... 26.25 18.25
Third quarter....................................................... 26.63 15.38
Fourth quarter...................................................... 25.00 13.13
1997
First quarter....................................................... 19.38 8.88
Second quarter...................................................... 11.38 6.75
Third quarter....................................................... 11.88 8.50
Fourth quarter...................................................... 12.44 6.25
</TABLE>
The Company has not paid dividends on its Common Stock. The current policy
of the Company's Board of Directors is to retain earnings to provide for the
Company's growth. Consequently, no cash dividends are expected to be paid on the
Company's Common Stock in the foreseeable future. In addition, the terms of the
Company's 11.5% Senior Notes due 2007 restrict the making of certain payments
with respect to the Common Stock, including cash dividends on the Common Stock,
unless certain financial tests are met. Under the most restrictive of these
covenants, approximately $4.4 million was available for cash dividends on the
Common Stock as of December 31, 1997. Additional indebtedness incurred by the
Company in the future may include similar restrictions.
In October 1996, the Board of Directors adopted a Shareholder Rights Plan in
which Preferred Stock Purchase Rights were distributed as a dividend at the rate
of one Right for each share of the Company's Common Stock on November 22, 1996
to shareholders of record as of such date. In January 1998, the Company amended
its Shareholder Rights Plan increasing the percentage of the Company's
outstanding Common Stock a person or group must beneficially own to be deemed an
Acquiring Person under the plan from 15% or more up to 18% or more. All shares
of Common Stock issued thereafter will be issued together with one Right per
share.
At January 30, 1998, the Company had 1,346 shareholders of record.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data and
other operating information of the Company. The following selected consolidated
information, for each of the five years in the period ended December 31, 1997,
is derived from the consolidated financial statements of the Company. The
selected consolidated financial information should be read in conjunction with
the Consolidated Financial Statements and Notes thereto and other financial
information included herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
(Dollars in thousands except per share amounts) 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA (1):
Net interest margin............................... $ 64,499 $ 54,083 $ 27,194 $ 9,820 $ 2,377
Gain on sale of loans (2)......................... 2,818 115,773 62,182 13,579 7,650
Servicing fee income.............................. 67,794 43,514 19,152 4,560 1,831
Other non-interest income......................... 302 125 204 829 26
----------- ----------- ----------- ----------- -----------
Total revenues................................ 135,413 213,495 108,732 28,788 11,884
Operating expenses................................ 162,017 92,298 42,727 17,342 8,691
Long term debt and other interest expense......... 41,216 25,193 17,170 5,416 1,798
----------- ----------- ----------- ----------- -----------
Total expenses................................ 203,233 117,491 59,897 22,758 10,489
----------- ----------- ----------- ----------- -----------
Operating income (loss) before income taxes and
extraordinary item.............................. (67,820) 96,004 48,835 6,030 1,395
Income tax provision (benefit).................... (25,841) 35,688 19,518 1,845 --
----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary items.......... (41,979) 60,316 29,317 4,185 1,395
Extraordinary items, net of tax (3)............... (15,828) -- (3,856) -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)................................. $ (57,807) $ 60,316 $ 25,461 $ 4,185 $ 1,395
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
BASIC EARNINGS PER SHARE (4):
Income (loss) per share before extraordinary
items........................................... $ (1.08) $ 1.91 $ 1.57 $ 0.19 $ 0.12
Extraordinary items per share..................... (0.41) -- (0.22) -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) per share....................... $ (1.49) $ 1.91 $ 1.35 $ 0.19 $ 0.12
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
DILUTED EARNINGS PER SHARE (4):
Income (loss) per share before extraordinary
items........................................... $ (1.08) $ 1.65 $ 1.11 $ 0.19 $ 0.12
Extraordinary items per share..................... (0.41) -- (0.15) -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) per share....................... $ (1.49) $ 1.65 $ 0.96 $ 0.19 $ 0.12
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic............................................. 38,700,346 30,897,426 17,718,603 9,842,173 9,749,723
Diluted........................................... 39,256,788 36,449,995 26,435,765 16,683,380 11,186,033
FINANCIAL RATIOS AND OTHER DATA: (5)
Ratio of earnings to fixed charges................ 4.64x 3.75x 2.06x 1.72x
Deficiency in earnings to fixed charges........... $ 67,820 -- -- -- --
SELECTED CASH FLOW DATA:
Total cash used in operating activities........... $ (130,165) $ (253,127) $ (135,659) $ (78,774) $ (51,056)
Total cash used in investing activities........... (7,310) (6,600) (2,588) (917) (455)
Total cash provided by financing activities....... 138,692 274,444 122,970 93,572 31,040
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash................... $ 1,217 $ 14,717 $ (15,277) $ 13,881 $ (20,471)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents......................... $ 17,274 $ 16,507 $ 1,340 $ 16,617 $ 2,736
Finance income receivable......................... 371,985 362,916 186,001 58,540 26,247
Cash in restricted spread accounts................ 250,297 142,977 63,580 21,408 15,109
Total long-term debt.............................. 421,780 206,418 161,929 46,804 33,506
Total preferred shareholders' equity.............. -- -- 25,379 27,279 27,289
Total common shareholders' equity................. 347,942 393,093 155,434 33,583 31,410
OPERATING DATA:
Automobile loan purchases......................... $ 2,862,821 $ 2,750,553 $ 2,052,413 $ 743,256 $ 305,823
Automobile loan securitizations................... 2,864,120 2,787,412 1,933,525 712,211 336,077
Operating expenses as a percentage of average
servicing portfolio............................. 3.63% 3.06% 2.78% 3.28% 4.39%
SERVICING DATA:
Servicing portfolio (at period end)............... $ 4,956,090 $ 3,791,857 $ 2,267,107 $ 837,095 $ 316,933
Average servicing portfolio during the period..... 4,458,977 3,015,411 1,534,720 528,577 198,018
Delinquencies of more than 30 days as a percentage
of servicing portfolio (at period end).......... 3.63% 2.64% 1.33% 0.82% 0.96%
Net losses as a percentage of average servicing
portfolio during the period (6)................. 3.48% 0.99% 0.67% 0.66% 0.52%
</TABLE>
- --------------------------
(1) In conjunction with the adoption of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," effective January 1, 1997, the Company began
recognizing collection fees and interest on collection accounts earned by
the Company as servicer of the loans as a component of servicing fee income.
Previously, collection fees and interest on collection accounts had been
included as components of non-interest income and net interest margin,
respectively. All years presented have been restated for this
reclassification. This reclassification had no impact on total revenues or
net income (loss).
(2) Included in gain on sale of loans during the year ended December 31, 1997,
is a non-recurring pretax charge to gain on sale of loans of $98.0 million.
The special charge was due primarily to (i) a change in estimated recovery
rates on current repossessed inventory and anticipated future inventory
arising from existing securitizations and (ii) a change in the Company's
accounting policy with respect to the estimated recovery rate realized upon
disposition of repossessed inventory. See "Management's Discussion and
Analysis--Results of Operations-- SPECIAL CHARGES."
(3) Extraordinary items relate to prepayment fees and charge-off of capitalized
debt financing costs in connection with early extinguishment of certain debt
obligations.
(4) Earnings per share amounts for all years presented have been restated to
comply with Statement of Financial Accounting Standards No. 128, "Earnings
per Share."
(5) For purposes of calculating the ratio of earnings to fixed charges, earnings
are defined as income before taxes plus fixed charges. Fixed charges consist
of interest expense, amortization of debt discount and the interest factor
in rental expenses.
(6) A change in the Company's estimated recovery rate for repossessed inventory,
as discussed in note (2) above, resulted in a write down of existing
inventory and an increase in net losses during the year ended December 31,
1997. See "Management's Discussion and Analysis--Results of
Operations--SPECIAL CHARGES."
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company derives substantially all of its earnings from the purchase,
securitization and servicing of automobile loans. At the time of purchase of
each loan, the Company pays a portion of the annual rate of interest paid by the
obligor ("APR") to the dealer for originating the loan ("dealer participation").
To fund the purchase of loans prior to securitization, the Company utilizes its
available cash balances and short-term borrowing and repurchase arrangements
with financial institutions and institutional lenders ("warehouse facilities").
Pending securitization, automobile loans held for sale by the Company generate
net interest income resulting from the difference between the interest rate
earned on automobile loans held for sale and the interest costs associated with
the Company's short-term borrowings (the "net interest rate spread").
The Company purchases loans under a tiered pricing system, allowing it to
price loans according to the borrower's credit characteristics. The Company
prices its loan products in order to maximize gross interest rate spreads
relative to expected net losses within each tier. Classic loans purchased in
1997 represented 55% of total purchasing volume compared with 36% during 1996
and 17% during 1995 and had APRs typically ranging from 16% to 22% while loans
purchased under the Premier program had APRs typically ranging from 9% to 16%.
The higher APRs of the Classic program are intended to compensate the Company
for anticipated higher delinquency, default and loss rates associated with the
Classic program, which the Company addresses through higher reserves for loan
losses. At December 31, 1997, the Company maintained $235.6 million in loan loss
reserves, or 4.75% of its servicing portfolio, compared to $95.0 million, or
2.51%, respectively, at December 31, 1996.
The Company aggregates the automobile loans it purchases and sells them to a
trust, which in turn sells asset-backed securities to investors. By securitizing
its loans, the Company is able to fix the initial difference ("gross interest
rate spread") between the APR on automobile loans purchased and the interest
rate on the asset-backed securities sold ("securitization rate"). When the
Company securitizes its automobile loans, it records a gain on sale and
establishes an asset referred to as finance income receivable. Gain on sale is
determined by the difference between the net proceeds received and the basis of
the loans sold as defined by Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125") and is adjusted for any hedging
gains and losses. Finance income receivable represents the Company's retained
interest in the loans sold and is determined by allocating the carrying amount
of loans sold based on the relative fair value of such loans and the estimated
future cash flows expected to be received by the Company discounted at a
market-based rate. The Company's estimate of future excess cash flows takes into
consideration (i) contractual obligations of the obligors, (ii) amounts due to
the investors in asset-backed securities, (iii) amounts paid to dealers for
dealer participations, (iv) various costs of the securitizations, and (v) the
effect of estimated prepayments of loans, losses incurred in connection with
defaults, and corresponding reductions in the weighted average APR of loans
sold. Subsequent to securitization, the Company continues to service the
securitized loans, for which it recognizes servicing fee income over the life of
the securitization as earned.
In addition to the present value of estimated future cash flows from
securitizations, finance income receivable includes accrued interest receivable
on automobile loans held for sale through the date of sale, which will be
returned to the Company through the securitization trust, and the interest
earned on previously discounted cash flows, calculated at the present value
discount rate used in determining the initial estimate of future cash flows. As
noted above, future servicing fee income is recognized as earned and is not
included in finance income receivable. Finance income receivable is reduced
based on distributions to the Company of excess cash flows from spread accounts.
The Company uses a combination of its own historical experience, industry
statistics and expectations of future performance to estimate the amount and
timing of prepayments, losses upon defaults and corresponding changes in the
weighted
22
<PAGE>
average APR. The Company regularly reviews the carrying amount of its finance
income receivable to assess the impact of actual prepayment and loss experience
compared with the Company's estimates. Any impairment of finance income
receivable, deemed to be permanent, is reflected as a reduction of current
period earnings. The Company recorded such an adjustment during 1997 (see
"SPECIAL CHARGES").
RESULTS OF OPERATIONS
SPECIAL CHARGES. Included in the Company's 1997 financial results are two
special charges taken in March 1997. These charges include a non-cash after-tax
charge of approximately $63.9 million, due primarily to a change in accounting
estimate and modifications to the Company's retail disposition strategy, and an
extraordinary charge of approximately $15.8 million, net of tax, due to the
early extinguishment of the Company's 13% Senior Term Notes, due 2000 (see
"EXTRAORDINARY ITEMS").
Approximately $60.8 million of the $63.9 million after-tax charge is due to
(i) a change in estimated recovery rates on current repossessed inventory and
anticipated future inventory arising from existing securitization transactions,
and (ii) a change in the Company's accounting policy with respect to the
estimated recovery rate realized upon disposition of repossessed inventory. The
remaining $3.1 million after-tax charge relates to various litigation and
severance charges (see "OPERATING EXPENSES").
The recovery rate on repossessed inventory is measured by the liquidation
amount realized on the repossessed vehicles as a percentage of the outstanding
principal balance of the charged-off loans associated with the repossessed
vehicles. The Company's change in estimated recovery rates was based, in part,
on a decline in the weighted average recovery rate experienced by the Company
during the first three months of 1997. During the first quarter of 1997, the
weighted average recovery rate on repossessed vehicles declined to approximately
70% from approximately 83% for the year ended December 31, 1996. This reduction
in recovery rates primarily reflected an increase in the Company's liquidation
of repossessed inventory through wholesale auctions. The Company increased its
use of wholesale auctions after a review by the Company's new chief executive
officer and other members of management conducted in mid-March 1997 indicated
that based on the number of retail dispositions during the first half of March
1997 the Company's retail distribution channels were not sufficient to liquidate
vehicles at a pace satisfactory to management and would not, in the foreseeable
future, be adequate to exceed the number of additional repossessions expected
each month. In order to reduce the Company's repossessed inventory to a level
more acceptable to management, the Company sold a significantly increased number
of repossessed vehicles at wholesale auctions during the last half of March
1997. As a result, the Company sold approximately 35% of first quarter sales of
repossessed vehicles through wholesale auctions, as compared with 30% during
calendar year 1996. The Company's recovery rates were also affected during the
first quarter of 1997 by lower pricing of repossessed vehicles sold through the
Company's retail distribution channels in an attempt to accelerate the
liquidation of repossessed vehicles while maintaining consistent credit quality.
Estimated recovery rates are also determined by an analysis of anticipated
recovery trends in future periods. Based on its evaluation of certain events
occurring late in the first quarter of 1997, the Company believed that recovery
rates were not likely to increase above the level experienced during the first
quarter of 1997 and that certain events might cause a further decline in these
rates in future periods. As explained above, the Company did not believe that it
had sufficient capacity to sell an increasing number of repossessed vehicles
through its existing network of retail consignment dealers. Accordingly, the
Company expects to control the size of its repossessed inventory by continuing
to increase the use of wholesale auctions to dispose of repossessed vehicles. In
April 1997, the Company's new chief executive officer completed a review of the
Company's retail disposition strategy. Consequently, based on the recommendation
of the new chief executive officer, the Company adopted modifications to its
retail disposition strategy that were intended to reduce liquidity requirements
of this strategy and establish more efficient operating procedures. The
Company's retail disposition strategy generally requires it to hold a
repossessed vehicle in inventory for a longer period of time than would a
wholesale disposition strategy, and as a consequence
23
<PAGE>
delays the receipt of excess cash flows from securitization trusts following
default of a loan. In light of this, in April 1997 the Company established a
policy that limits the length of time a repossessed vehicle may be held for
resale through retail channels. The limitation on the length of time a
repossessed vehicle is held for sale is intended to reduce delays in cash flow,
but may reduce overall recovery rates due to an increased use of wholesale
auctions. The Company intends to measure the effectiveness of the modified
retail distribution strategy by the program's profitability as compared to a
wholesale disposition strategy. Management of the retail disposition program
will be accountable for optimizing the recovery rates on the repossessed
inventory and achieving acceptable profitability levels. As a result, management
expects that the managers responsible for the modified retail disposition
program will increase the use of wholesale auctions to control inventory size
and the costs associated with the operation of the program. The Company's retail
disposition strategy, as modified, is relatively new and evolving, and
therefore, the Company's management has concluded that recoveries under the
program are uncertain and may be subject to further change.
In addition, in early 1997 the Company anticipated a continued softening of
the used car market and therefore lower retail and wholesale prices. Factors
contributing to this market softening included the start-up of superstore
competition and forecasted levels of used lease vehicles that will be available
in the market. Further, the Company considered the risk of potentially higher
interest rates, which have a direct impact on pricing of vehicles. The Company
concluded that, for the reasons described above, future recovery rates (after
giving effect to related costs) would be lower for the foreseeable future than
those reflected in the Company's prior accounting estimates. In light of these
items, the Company elected to record an after-tax charge of approximately $45.3
million in March 1997 which reflected an adjustment of current inventory and
estimated reduction to future cash flows due to lower expected recovery rates on
future repossessed inventory arising from existing securitization trusts.
At the same time as the Company changed its estimated recovery rates, the
Company also deemed it appropriate to review its accounting policy concerning
the valuation of repossessed vehicles in light of the modifications to its
retail disposition strategy and other factors. As a result of this review, the
Company decided to change its accounting policy concerning the valuation of
repossessed vehicles. This change in policy requires the Company to record all
current and expected repossessed vehicles at recovery rates that reflect
expected values to be achieved through wholesale auctions, regardless of the
specific asset disposition strategy to be employed. To the extent actual results
are more favorable than estimates, greater recoveries are reflected in current
period earnings when the vehicles are liquidated. As a consequence of this
policy change, the Company's results of operations will depend, in part, on
sales prices for used vehicles in wholesale auctions.
Declines in wholesale recovery rates may adversely affect the Company's
results unless offset by higher retail recovery rates during the period. The
Company believes that the revised accounting policy will better reflect its
modified retail disposition strategy and accommodate a better understanding by
users of the Company's financial statements. Moreover, the Company believes this
change in accounting policy provides a financial presentation that is more
comparable to that of other consumer finance companies and responds to recent
events in the consumer finance industry which, the Company believes, provide
further evidence that lower estimated recovery rates are appropriate. For these
reasons, the Company believes the change in accounting policy adopted in April
1997 reflects a preferable application of generally accepted accounting
principles. Because the change in policy is inseparable from the estimation
process referred to above, it is appropriate to reflect the effect of the change
in accounting policy of approximately $15.5 million after-tax as a reduction to
current period earnings.
NET INTEREST MARGIN. The Company's net interest margin represents the sum
of (i) net interest on loans held for sale based on the net interest rate
spread, (ii) investment earnings on short-term investments and other cash
accounts and (iii) the recognition of the interest component of previously
discounted cash
24
<PAGE>
flows, calculated at the present value discount rate used in the calculation of
gain on sale. The components of net interest margin for each of the three years
in the period ended December 31, 1997 were:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest income on loans, net................................ $ 33,383 $ 29,614 $ 16,038
Interest income on short-term investments and other cash
accounts................................................... 11,047 6,353 3,945
Recognition of present value discount........................ 23,037 18,890 7,368
Provision for credit losses on loans held for sale........... (2,968) (774) (156)
--------- --------- ---------
Net interest margin...................................... $ 64,499 $ 54,083 $ 27,195
--------- --------- ---------
--------- --------- ---------
</TABLE>
The rise in net interest margin is primarily due to (i) growth in the
average balances of loans held for sale pending securitization, (ii) wider net
interest rate spreads earned on loans held for sale and (iii) interest earned on
securitization related cash accounts, partially offset by an increase in the
provision for credit losses on loans held for sale. The reduction in the rate of
increase of net interest margin during 1997 compared to 1996 reflects the slow
down in the growth of loan purchases partially offset by a rise in net interest
rate spreads.
The Company's loan purchasing and securitization volume for each of the
three years ended December 31, 1997 is set forth in the table below.
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Premier............................................. $ 1,302,380 $ 1,768,933 $ 1,699,874
Classic............................................. 1,560,441 981,620 352,539
------------ ------------ ------------
Total automobile loan purchases................. $ 2,862,821 $ 2,750,553 $ 2,052,413
------------ ------------ ------------
------------ ------------ ------------
Automobile loans securitized........................ $ 2,864,120 $ 2,787,412 $ 1,933,525
</TABLE>
In 1995, the Company initiated a program to increase the proportion of
Classic loans in its loan purchase mix in order to maximize gross interest rate
spreads relative to expected net losses within each credit tier, to expand its
share of the automobile loan market and to reduce initial cash requirements
relative to those required by the Premier program because the Company offers
lower dealer participations on Classic loans. As a result, approximately 55% of
the Company's aggregate loan purchases were being made under the Classic program
during 1997, compared with 36% in 1996 and 17% in 1995. The Company may change
its loan purchase mix at any time and from time to time.
The rise in loan purchasing volume resulted in an increase in the average
monthly balance of loans held for sale to $245.0 million during 1997, up from
$219.5 million and $162.7 million during 1996 and 1995, respectively, on which
the Company earns net interest rate spread until such loans are securitized. The
weighted average net interest rate spread earned during 1997 rose to 10.24%
compared with 8.67% and 6.71% during 1996 and 1995, respectively. The rise in
net interest spread earned on loans held for sale is principally due to higher
average annual percentage rates ("APR") paid by obligors primarily resulting
from expansion of the Company's higher rate Classic loan program.
Interest income on short-term investments increased 74% between 1996 and
1997 and 61% between 1995 and 1996. This increase is primarily due to growth in
the aggregate balance of securitization-related cash accounts associated with
the continued expansion of the securitization program. Income from the
recognition of present value discount grew due to the increased volume of
securitizations.
GAIN ON SALE OF LOANS. During 1997, the Company recognized a non-recurring
pre-tax charge to gain on sale of loans of $98.0 million (see "SPECIAL
CHARGES"). Excluding this non-recurring charge, the Company realized a gain on
sale of loans of approximately $100.8 million, compared with $115.8 million and
$62.2 million during 1996 and 1995, respectively. The reduction in gain on sale
of loans during 1997,
25
<PAGE>
before the non-recurring charge, is primarily due to increases in the loss rate,
servicing fee and discount factor assumptions utilized in the Company's
computation of estimated future cash flows (see "SPECIAL CHARGES"). This impact
was partially mitigated by a 3% increase in loan securitization volume and a 133
basis point widening of the gross interest rate spread earned on loans
securitized (see table below). The increase in gain on sale of loans in 1996
over 1995 resulted primarily from the growth in the volume of loans securitized,
increased gross interest rate spreads, and a decline in the participation rate
paid to dealers for loan originations, partially offset by an increase in the
reserve for loan losses established in connection with an increased volume of
Classic loans.
The following table summarizes the Company's gross interest rate spreads for
each of the three years in the period ended December 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Weighted average APR of loans securitized......................... 16.00% 14.56% 14.22%
Weighted average securitization rate.............................. 6.42 6.31 6.38
--------- --------- ---------
Gross interest rate spread (1)................................ 9.58% 8.25% 7.84%
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Before gains/losses on hedge transactions.
The rise in the gross interest rate spread during 1996 and 1997 is primarily
due to an increased proportion of higher-yielding Classic loans, resulting in an
increased APR earned on loans purchased and subsequently securitized.
Any unamortized balance of participations paid to dealers is expensed at the
time the related loans are securitized and recorded as a reduction to the gain
on sale. Due to the increased proportion of Classic loan purchases, which
generally require lower participation rates than Premier loans, and a reduction
of the maximum participation rate allowable under the Premier program,
participations paid as a percentage of the principal balance of loan purchases
declined to 3.13% during 1997 from 3.45% and 4.21% during 1996 and 1995,
respectively.
Gain on sale of loans has been adjusted for $8.7 million, $0.3 million and
$11.7 million of net realized losses on hedging transactions during 1997, 1996
and 1995, respectively (see "HEDGING AND PRE-FUNDING STRATEGY").
SERVICING FEE INCOME. The components of servicing fee income for each of
the three years in the period ended December 31, 1997 were:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Contractual servicing fee income............................. $ 46,022 $ 28,284 $ 13,987
Other servicing income....................................... 21,772 15,230 5,165
--------- --------- ---------
Servicing Fee Income......................................... $ 67,794 $ 43,514 $ 19,152
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company earns contractual servicing fee income for servicing loans sold
to investors through securitizations. The servicing fee is 1% per annum of the
outstanding principal balance of the loans for all securitizations entered into
prior to September 1997 and 1.25% per annum on loans included in and subsequent
to the third quarter 1997 securitization. The growth in contractual servicing
fee income is primarily related to an increase in the average servicing
portfolio outstanding.
Other servicing income consists primarily of collection fees, such as late
payment fees and insufficient fund charges, and interest on collection accounts
earned by the Company as servicer of the loans. The rise in other servicing
income is principally due to increases in income from late fees and insufficient
fund charges reflecting the increase in delinquency rates and growth in the
Company's servicing portfolio (see
26
<PAGE>
"Delinquency, Loan Loss and Repossession Experience") and increased collection
account interest attributable to the growth in the average servicing portfolio
outstanding and related obligor repayments.
The following table reflects the growth in the Company's servicing portfolio
from 1995 to 1997.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
(Dollars in thousands, except as noted) 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Principal balance of automobile loans held
for sale.............................................................. $ 47,815 $ 35,365 $ 113,840
Principal balance of loans serviced under securitizations............... 4,908,275 3,756,492 2,153,267
------------ ------------ ------------
Servicing portfolio..................................................... $ 4,956,090 $ 3,791,857 $ 2,267,107
------------ ------------ ------------
------------ ------------ ------------
Average outstanding principal balance (actual dollars).................. $ 12,046 $ 12,537 $ 12,239
Number of loans serviced................................................ 411,429 302,450 185,241
</TABLE>
The Company's servicing portfolio increased 31% from 1996 to 1997 and 67%
between 1995 and 1996. This increase reflects loan purchases and subsequent
securitizations of $2.9 billion and $2.8 billion during 1997 and 1996,
respectively, partially offset by defaults and scheduled repayments. The decline
in average outstanding principal balance of loans during 1997 reflects an
increase in the proportion of used to new cars financed by the Company.
SALARIES AND BENEFITS EXPENSE. Salaries and benefits increased to $61.8
million during 1997 from $40.8 million and $20.1 million during 1996 and 1995,
respectively, representing an increase of 51% during 1997 and 103% during 1996.
This increase is primarily due to growth in number of employees. The Company had
1,598 employees at December 31, 1997, compared with 1,230 and 650 at December
31, 1996 and 1995, respectively. Increased staffing has been necessary to
accommodate the rise in loan purchasing volume and the subsequent servicing of
such loans and reflects additional employees hired to staff four regional
collection centers opened from October through December of 1996.
GENERAL AND ADMINISTRATIVE AND OTHER OPERATING EXPENSES ("OTHER OPERATING
EXPENSES"). Other operating expenses increased during 1997 to $100.3 million,
up from $51.5 million in 1996 and $22.6 million in 1995. Other operating
expenses include occupancy and equipment leasing charges, depreciation, outside
professional fees, communication costs, servicing and collection expenses,
marketing expenses, recruiting and staffing fees, travel, office supplies and
other. The increase in other operating costs during 1997 is primarily a result
of the higher percentage of Classic program loans in the portfolio which
generally require greater collection efforts and related costs (including
increased telephone, fax, postage and repossession expenses) than Premier
program loans. In addition, an overall increase in delinquency rates during 1997
further contributed to an increase in loan and collection expenses. The Company
has also experienced an increase in operating lease expense during 1997
attributable to a shift from the utilization of capital leases to operating
leases. Also included in the operating costs during 1997 is a one-time pre-tax
charge of approximately $5.0 million primarily related to legal costs associated
with defending litigation against the Company as well as costs associated with
resolving legal issues involving alleged improper practices at certain of the
Company's initial consignment dealers. The Company has since terminated its
business relationship with such dealers. Also included in the special charge
were severance expenses for certain former executives of the Company. The
increase in other operating expenses during 1996 was driven by the growth in
loan purchasing volume and the Company's servicing portfolio, as well as an
increase in occupancy and equipment charges related to the expansion of the
regional collection and buying centers during 1995 and 1996. As a result of the
items noted above, total operating expenses, including salaries and benefits,
rose to 3.63% of average servicing portfolio during 1997 compared with 3.06% and
2.78% in 1996 and 1995, respectively.
IMPACT OF YEAR 2000. The Company recognizes that the arrival of the Year
2000 poses a unique worldwide challenge to the ability of all computer systems
to recognize the date change from December 31,
27
<PAGE>
1999 to January 1, 2000 and, like other companies, is assessing, enhancing and
updating its computer applications and business processes to provide for their
continued functionality after said date. In connection with its initiative to
replace and enhance key operating systems, the Company has engaged outside
consultants to assist in the design and implementation of various systems that
will be Year 2000 compliant. The Company anticipates that the testing and
implementation of such systems will be completed by mid-1999, which is prior to
any anticipated impact on its operating systems. The Company believes that with
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems. However, if such conversions are
not made, or are not completed in a timely manner, the Year 2000 issue could
have a material impact on the operations of the Company.
The costs associated with the Year 2000 project will be primarily for the
purchase of the new software being developed to replace and enhance the
Company's current operating systems. Consistent with its capitalization policy,
the costs of the Company's new operating software will be capitalized and
amortized over its expected useful life. As such, the Company believes that the
impact of the Year 2000 issue will not have a material effect on the results of
operations.
LONG TERM DEBT AND OTHER INTEREST EXPENSE. Long-term debt and other
interest expense rose 63.6% during 1997 and 46.7% in 1996. The increase in 1997
is primarily due to the issuance of $375.0 million of 11.5% Senior Notes during
1997, partially offset by the concurrent extinguishment of $145.0 million of 13%
Senior Term Notes. The increase in 1996 was primarily due to the issuance of
$30.0 million of 10.125% Subordinated Notes in March 1996 and $145.0 million of
13% Senior Term Notes in April 1995 (subsequently extinguished in 1997).
INCOME TAX EXPENSE. Due to the difference in the basis of the finance
income receivable for financial reporting purposes and income tax purposes, the
Company continues to have available $161.8 million of tax net operating loss
carryforwards, a portion of which may be available to offset against income
taxes in 1998 and future years, subject to applicable limitations. The $35.5
million income tax benefit during 1997 (including the tax effect of an
extraordinary item) primarily reflects the Company's estimated reduction to its
deferred tax liability as of December 31, 1997 resulting primarily from a
special charge during the first quarter of 1997.
EXTRAORDINARY ITEMS. In March 1997, the Company issued $300.0 million 11.5%
Senior Notes and utilized approximately $173.5 million of the proceeds to
repurchase and covenant defease the Company's $145.0 million 13% Senior Term
Notes, including accrued interest of $7.9 million and a premium of approximately
$20.3 million. These charges and additional professional fees incurred to retire
such debt have been treated as an extraordinary item, net of tax.
In February 1995, the Company entered into a temporary financing facility
(the "Facility") under which it borrowed $55.0 million through the issuance of
senior notes during February and April of 1995, and utilized the proceeds to
retire the Company's then outstanding $30.0 million of 11.75% Senior Secured
Notes. In April 1995, the Company issued Common Stock and $145.0 million of 13%
Senior Term Notes and applied the proceeds to retire the notes issued under the
facility and the Company's then outstanding 9.875% Senior Subordinated Notes.
The prepayment fees for the early extinguishment of debt and the charge-off of
capitalized debt financing costs associated with such debt were accounted for as
extraordinary items, net of tax.
PREFERRED DIVIDENDS. The Company paid dividends on its preferred stock
outstanding of $1.2 million and $2.2 million for 1996 and 1995, respectively.
The decrease in dividends paid from 1995 to 1996 is due to the conversion of
preferred shares into common stock of the Company. As of December 31, 1996, all
preferred shares had been redeemed or converted.
28
<PAGE>
FINANCIAL CONDITION
DUE FROM SECURITIZATION TRUST. At December 31, 1997 and December 31, 1996,
the Company had delivered $107.2 million and $177.1 million, respectively, of
loans into a securitization trust for which the Company received cash from the
trust concurrent with the legal closing of the transaction in January 1998 and
January 1997, respectively. The decrease in due from securitization trust is due
to a reduction in the purchasing volume of loans during the fourth quarter of
1997 compared to the fourth quarter of 1996.
AUTOMOBILE LOANS HELD FOR SALE. The Company holds automobile loans for sale
in its portfolio prior to securitization. The Company's portfolio of loans held
for sale increased to $49.1 million at December 31, 1997 from $36.3 million at
December 31, 1996, primarily due to the timing in delivery of loans associated
with the Company's securitizations.
FINANCE INCOME RECEIVABLE. Finance income receivable increased to $372.0
million at December 31, 1997 from $362.9 million at December 31, 1996. The
increase represents amounts capitalized upon completion of securitization
transactions during 1997 related to the present value of estimated cash flows.
Finance Income Receivable at December 31, 1997 was also reduced by a
non-recurring $98.0 million pre-tax charge recorded in March of 1997 (see
"SPECIAL CHARGES"). Reserve for losses on securitized loans is included as a
component of finance income receivable.
RESTRICTED CASH IN SPREAD ACCOUNTS. Restricted cash in spread accounts
increased to $250.3 million at December 31, 1997 from $143.0 million at December
31, 1996. This increase reflects the Company's continued securitization of loan
purchases and the related accumulation of excess cash flows to levels defined
within each securitization agreement and due to initial deposits related to
certain securitizations, partially offset by the release of excess cash flows to
the Company through its wholly-owned subsidiary, Arcadia Receivables Finance
Corp.
FURNITURE, FIXTURES AND EQUIPMENT. Furniture, fixtures and equipment
increased 27% to $17.4 million at December 31, 1997 from $13.6 million at
December 31, 1996, primarily due to the Company's investment in new computer
hardware and software technology, as well as office equipment for expansion of
the regional collection and buying centers.
SENIOR NOTES. Senior notes increased to $365.6 million at December 31, 1997
compared with $145.0 million at December 31, 1996. The increase reflects the
issuance of $300.0 million and $75.0 million of 11.5% Senior Notes in March 1997
and October 1997, respectively, partially offset by the concurrent
extinguishment of $145.0 million of 13% Senior Notes in March 1997. The Senior
Notes issued in March included detachable warrants that when exercised entitle
the holders to acquire an aggregate 2,052,000 shares of the Company's Common
Stock. The value of the warrants, determined at the time of debt issuance, was
treated as a discount on the Senior Notes issued and will be amortized to
interest expense over the life of the Senior Notes.
DEFERRED INCOME TAXES. Deferred income tax assets and liabilities reflect
the tax effect of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and income tax purposes,
principally net operating loss carryforwards for income tax purposes and the
finance income receivable, respectively. The Company's estimated net deferred
tax liability at December 31, 1997, was $18.9 million, compared to $54.4 million
at December 31, 1996. This decrease reflects the recognition of a tax benefit
from the two special charges taken in March 1997 (see "SPECIAL CHARGES").
OTHER LIABILITIES. Accounts payable and accrued liabilities increased to
$26.3 million at December 31, 1997 compared to $13.2 million at December 31,
1996. This 99% increase is primarily due to interest accruals associated with
the increase in the outstanding principal amount of senior notes (see "SENIOR
TERM NOTES").
29
<PAGE>
DELINQUENCY, LOAN LOSS AND REPOSSESSION EXPERIENCE
The Company's operating performance, financial condition and liquidity are
materially affected by the performance of the automobile loans purchased,
securitized and serviced by the Company. In connection with the servicing of
automobile loans, the Company is responsible for managing delinquent loans,
repossessing the underlying collateral in the event of default and selling
repossessed collateral. The Company provides an allowance for credit losses
inherent in sold loans and includes such allowance as a component of the fair
value of finance income receivable utilized to allocate the carrying amount of
loans sold in determining gain on sale. Management believes that the Company's
allowance for estimated credit losses adequately provides for potential future
losses on securitized loans.
The following tables describe the delinquency, credit loss and repossession
experience, respectively, of the Company's servicing portfolio for the three
years in the period ended December 31, 1997. A delinquent loan may result in the
repossession and foreclosure of the collateral for the loan. Losses resulting
from repossession and disposition of automobiles are charged against applicable
allowances, which management reviews on a monthly basis. There can be no
assurance that future delinquency, credit loss and repossession experience will
be comparable to that set forth below.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------
DELINQUENCY EXPERIENCE (1): 1997 1996 1995
---------------------- ---------------------- ----------------------
NUMBER OF NUMBER OF NUMBER OF
LOANS BALANCES LOANS BALANCES LOANS BALANCES
----------- --------- ----------- --------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Servicing portfolio at end
of period................. 411,429 $4,956,090 302,450 $3,791,857 185,241 $2,267,107
Delinquencies:
31-60 days................ 8,297 $ 100,161 3,884 $ 47,225 1,536 17,667
61-90 days................ 3,635 45,485 1,255 15,877 520 5,694
91 days or more........... 3,019 34,047 2,911 37,019 614 6,881
----------- --------- ----------- --------- ----------- ---------
Total loans delinquent
31 or more days........... 14,951 $ 179,693 8,050 $ 100,121 2,670 $ 30,242
Delinquencies as a
percentage of number of
loans and amount
outstanding at end of
period (2)................ 3.63% 3.63% 2.66% 2.64% 1.44% 1.33%
Amount in repossession
(3)....................... 6,083 $ 55,300 4,651 $ 64,929 1,489 $ 17,676
----------- --------- ----------- --------- ----------- ---------
Total delinquencies and
amount in
repossession (2)(3)....... 21,034 $ 234,993 12,701 $ 165,050 4,159 $ 47,918
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
</TABLE>
- ------------------------
(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each loan. The information in the table includes previously sold
loans which the Company continues to service.
(2) Amounts shown do not include loans which are less than 31 days delinquent.
(3) Amount in repossession represents financed automobiles which have been
charged-off but not yet liquidated.
30
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
CREDIT LOSS/REPOSSESSION EXPERIENCE (1): 1997 1996 1995
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Average servicing portfolio outstanding during the
period................................................ $ 4,458,977 $ 3,015,411 $ 1,534,720
Average number of loans outstanding during the period... 362,626 242,419 128,783
Number of charge-offs................................... 24,616 14,403 5,020
Gross charge-offs (2)................................... $ 165,233 $ 35,642 $ 11,247
Recoveries (3).......................................... 9,855 5,653 911
------------ ------------ ------------
Net losses.............................................. $ 155,378 $ 29,989 $ 10,336
------------ ------------ ------------
------------ ------------ ------------
Gross charge-offs as a percentage of average servicing
portfolio............................................. 3.71% 1.18% 0.73%
Net losses as a percentage of average servicing
portfolio............................................. 3.48% 0.99% 0.67%
</TABLE>
- ------------------------
(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each loan. The information in the table includes previously sold
loans which the Company continues to service.
(2) Gross charge-offs represent principal amounts which management estimated to
be uncollectable after the consideration of anticipated proceeds from the
disposition of repossessed assets and selling expenses.
(3) Includes post-disposition amounts received on previously charged off loans.
The increase in delinquencies, gross charge-offs and net losses during 1997
is primarily due to the continued seasoning of the Company's existing servicing
portfolio to include a greater proportion of loans in the period of highest
probability for delinquencies and defaults (generally six to 14 months from the
date of origination), especially with respect to the Company's Premier loan
portfolio. Much of the increase in performance statistics is due to performance
of loans originated in 1995 and the first half of 1996 which represent
approximately 30% of the servicing portfolio. As expected, performance
statistics have also increased during 1997 as a result of a rise in the
proportion of Classic loans in the Company's portfolio. At December 31, 1997,
the portfolio consisted of approximately 43% Classic loans compared to 29% at
the same time a year ago. Net losses during the year have been further affected
by selling an increased proportion of repossessed vehicles through wholesale
auctions. During 1997, the Company liquidated approximately 54% of all
repossessed vehicles sold through wholesale auctions compared to 30% during
1996. Because recovery rates are generally lower on vehicles sold at auction
compared to those liquidated through retail channels, the increased utilization
of auctions has increased net losses experienced by the Company. Included in the
1997 gross charge-off and net loss statistics is a special charge of
approximately $25 million resulting from a revision to the Company's inventory
valuation policy (see "SPECIAL CHARGES").
The increase in the rate of delinquencies, gross charge-offs, net losses and
repossessions during 1996, experienced by both the Premier and Classic programs,
was primarily due to (i) increased demands on the Company's servicing and
collection resources as the result of rapid growth in its servicing portfolio
and as a result of continued expansion of the Classic loan program (which
generally requires greater collection efforts than the Premier program), (ii)
the performance of the Company's discontinued Classic product for first time
automobile buyers and the Company's financed repossession program, which
experienced significantly higher delinquencies, repossessions and losses than
the Company's other products and programs and (iii) the continued seasoning of
the Company's servicing portfolio. The significant rise in repossession
inventory levels during 1996 was the result of the growth in the Company's
servicing portfolio and increased utilization of retail distribution channels to
liquidate repossessed automobiles.
31
<PAGE>
LIQUIDITY
The Company's business requires substantial cash to support its operating
activities. The principal cash requirements include (i) amounts necessary to
purchase and finance automobile loans pending securitization, (ii) dealer
participations, (iii) cash held from time to time in restricted spread accounts
to support securitizations and warehouse facilities and other securitization
expenses, (iv) interest advances to securitization trusts, (v) repossession
inventory, and (vi) interest expense. The Company also uses significant amounts
of cash for operating expenses. The Company receives cash principally from
interest on loans held pending securitization, from excess cash flow received
from securitization trusts and from fees earned through servicing of loans held
by such trusts. The Company has operated on a negative operating cash flow basis
and expects to continue to do so in the near future. The Company has
historically funded, and expects to continue to fund, these negative operating
cash flows, subject to limitations in various debt covenants, principally
through borrowings from financial institutions, sales of equity securities and
sales of senior and subordinated notes, among other resources, although there
can be no assurance that the Company will have access to capital markets in the
future or that financing will be available to satisfy the Company's operating
and debt service requirements or to fund its future growth. See "Capital
Resources".
PRINCIPAL USES OF CASH IN OPERATING ACTIVITIES
PURCHASES AND FINANCING OF AUTOMOBILE LOANS. Automobile loan purchases
represent the Company's most significant cash flow requirement. The Company
funds the purchase price of loans primarily through the use of warehouse
facilities. However, because advance rates under the warehouse facilities
generally provide funds ranging from 93% to 97% of the principal balance of the
loans, the Company is required to fund the remainder of all purchases prior to
securitization with other available cash resources. The Company purchased $2.9
billion of loans in 1997, compared with $2.8 billion in 1996 and $2.1 billion in
1995. Amounts borrowed under warehouse facilities are repaid upon securitization
of the loans. The Company regularly completes securitizations to optimize its
use of available warehouse facilities and the Company's cash investment in loans
held for sale.
DEALER PARTICIPATIONS. Consistent with industry practice, the Company pays
dealers participations for selling loans to the Company. When loans are
securitized, the related dealer participation is expensed and subsequently
recovered over the estimated life of the underlying loans through the return to
the Company of excess cash flow from securitization trusts. Aggregate
participations paid by the Company to dealers in 1997 were $89.7 million,
compared with $94.9 million in 1996 and $86.5 million in 1995. These
participations typically require the Company to advance an up-front amount to
dealers, which represented 3.13% of the principal balance of loans purchased
during 1997 compared to 3.45% in 1996 and 4.21% in 1995. The decrease in dealer
participations paid as a percentage of the principal balance of loans purchased
reflects the growth in volume of loans purchased under the Classic program,
which generally requires a lower participation payout rate and a reduction in
the cap on participation rates paid on Premier loans. The Company has some
limited ability to recover dealer participations from the dealers by offset
against future participations in the event of prepayment or default on the
related loan within a specified period of time. However, to the extent the loan
does not prepay or default within that period of time, the Company expects to
recover the cash used to pay dealer participations over the estimated life of
the underlying loans through the return to the Company of excess cash flows from
securitization spread accounts. This relationship between the up-front payment
of cash to the dealers and the deferred recovery through collection of excess
cash flow will continue to represent a significant demand on capital resources
to the extent the Company expands the growth of loan purchases.
SECURITIZATION OF AUTOMOBILE LOANS. In connection with securitizations, the
Company incurs certain expenses, including underwriting fees, credit enhancement
fees, trustee fees and other costs, and is required to fund spread accounts
related to each transaction. The Company funds these spread accounts by
foregoing receipt of excess cash flow until these spread accounts exceed
predetermined levels (generally
32
<PAGE>
within 14 months of the formation of the securitization trust). In certain
securitizations, the Company also has been required to provide initial cash
deposits into such accounts. The amount of time required to initially fund each
spread account varies depending on numerous factors, including, but not limited
to (i) the size of any required initial deposit, (ii) the gross interest rate
spread, (iii) defaults, (iv) delinquencies, (v) losses and (vi) turnover of
repossession inventory. The Company had $250.3 million of restricted cash in
spread accounts at December 31, 1997, compared with $143.0 million at December
31, 1996.
ADVANCES DUE TO SERVICER. As the servicer of loans sold in securitizations,
the Company periodically makes interest advances to the securitization trusts to
provide for temporary delays in the receipt of required interest payments by
borrowers. In accordance with the relevant servicing agreements, the Company
makes advances only in the event that it expects to recover such advances
through the ultimate payments from the obligor over the life of the loan.
Beginning in December 1996, the Company's servicing agreements were modified to
require interest advances only when the related loan is 31 days delinquent or
greater.
REPOSSESSION INVENTORY. At December 31, 1997, repossessed inventory managed
or owned by the Company and held for resale was $55.3 million, compared with
$64.9 million at December 31, 1996. The rate of repossessed inventory turnover
impacts cash available for spread accounts under securitization trusts and,
consequently, the excess cash available for distribution to the Company. At
December 31, 1997, repossessed inventory was 1.1% of the total servicing
portfolio compared with 1.7% at December 31, 1996. Any improvement in excess
cash flows due to an increase in the inventory turnover rate may be partially
reduced by lower recoveries realized through an increased use of wholesale
auctions.
INTEREST EXPENSE. Although the Company records net interest margin as
earned, a significant portion of the interest income component is generally
received in cash from excess cash flow, while the interest expense component
(primarily warehousing interest) is paid prior to securitization.
PRINCIPAL SOURCES OF CASH IN OPERATING ACTIVITIES
EXCESS CASH FLOW. The Company receives excess cash flow from securitization
trusts, including the realization of gain on sale, the recovery of dealer
participations, and the recovery of accrued interest receivable earned, but not
yet collected, on loans held for sale. Recovery of dealer participations and
accrued interest receivable, which occur throughout the life of the
securitization, result in a reduction of the finance income receivable and,
because they have been considered in the original determination of the gain on
sale of loans, have no effect on the Company's results of operations in the year
in which the participations and interest are recovered from the securitization
trust. During 1997, the Company received $89.0 million of excess cash flow,
compared with $43.4 million in 1996 and $21.1 million in 1995. The rate of
increase in excess cash flow during 1997 exceeded the rate of increase in loans
securitized principally because spread accounts related to 1996 securitizations
have reached required reserve levels and have begun releasing cash during the
current year. These obligations generally reach pre-determined spread account
levels within 14 months following the formation of the securitization trust.
SERVICING FEES. The Company also receives servicing fees for servicing
securitized loans included in various securitization trusts. The servicing fee
for loans in securitization trusts is equal to one percent per annum of the
outstanding principal balance of the loans for all securitizations entered into
prior to September 1997 and 1.25 percent per annum on loans subsequently
securitized. The Company received cash for such services in the amount of $65.6
million, $42.2 million and $16.2 million during 1997, 1996 and 1995,
respectively, which is reflected in the Company's revenues as earned.
CAPITAL RESOURCES
The Company finances the acquisition of automobile loans primarily through
(i) warehouse facilities, pursuant to which loans are sold or financed generally
on a temporary basis and (ii) the securitization of loans, pursuant to which
loans are sold as asset-backed securities. Additional financing is required to
fund the Company's operations.
33
<PAGE>
WAREHOUSE FACILITIES. Automobile loans held for sale are funded on a
short-term basis primarily through warehouse facilities. At December 31, 1997,
the Company had three warehouse facilities in place with various financial
institutions and institutional lenders with an aggregate capacity of $875.0
million, of which $844.0 million was available. Two of the liquidity facilities
supporting the warehouse facilities are subject to renewal or extension at
various times in 1998 at the option of the lenders. The Company has a commitment
extending into 1999 for the third facility. Proceeds from securitizations,
generally received within seven to ten days following the cut-off date
established for the securitization transaction, are applied to repay amounts
then outstanding under warehouse facilities.
SECURITIZATION PROGRAM. An important capital resource for the Company has
been its ability to sell automobile loans in the secondary markets through
securitizations. The following table summarizes the Company's securitizations
during the three years ended December 31, 1997, all of which have been publicly
issued and were rated AAA by Standard & Poor's and Aaa by Moody's Investor
Services, Inc.
<TABLE>
<CAPTION>
REMAINING
REMAINING BALANCE AS A CURRENT WEIGHTED GROSS
(Dollars in thousands) BALANCE AS PERCENTAGE WEIGHTED AVERAGE INTEREST
ORIGINAL OF DECEMBER OF ORIGINAL AVERAGE SECURITIZATION RATE
DATE BALANCE 31, 1997 BALANCE APR RATE SPREAD
- ------------------- ------------ ------------ ------------ --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
February 95 $ 158,400 $ 40,129 25.33% 13.70% 7.88% 5.82%
March 95 300,000 78,084 26.03 14.26 7.31 6.95
June 95 470,000 144,124 30.66 14.05 6.20 7.85
September 95 525,000 184,083 35.06 13.65 6.03 7.62
December 95 600,000 237,196 39.53 13.63 5.88 7.75
March 96 600,000 275,019 45.84 13.52 5.81 7.71
June 96 650,000 357,558 55.01 14.28 6.62 7.66
September 96 725,000 454,218 62.65 14.71 6.75 7.96
December 96 730,000 510,997 70.00 15.13 6.08 9.05
March 97 775,000 602,785 77.78 15.53 6.54 8.99
June 97 775,000 663,807 85.65 15.86 6.50 9.36
September 97 775,000 722,168 93.18 16.38 6.36 10.02
December 97 (1) 600,000 497,199 82.87 16.62 6.23 10.39
------------ ------------
$ 7,683,400 $4,767,367
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) At December 31, 1997, $501.7 million of automobile loans had been delivered
to the trust and $98.3 million cash remained in the pre-funded portion of
the trust. In January 1998, the Company delivered sufficient loans to the
trust and obtained the release of the remaining cash in the pre-funded
portion of the trust. See "Hedging and Pre-funding Strategy" below.
The Company utilizes net proceeds from securitizations to invest in
additional loan purchases and to repay warehouse indebtedness, thereby making
its warehouse facilities available for further purchases of automobile loans. At
December 31, 1997, the Company had securitized approximately $8.7 billion of
automobile loans since its inception in 1990, and had remaining balances of
approximately $4.9 billion.
All of the Company's securitization trusts and one of the Company's
warehouse facilities are credit-enhanced through financial guaranty insurance
policies issued by FSA, which insure payment of principal and interest due on
the related asset-backed securities. In order to obtain FSA insurance, the
Company is obligated to establish spread accounts, and to maintain such spread
accounts at pre-determined levels, in connection with each insured
securitization through the collection and restriction of excess cash flow from
the loans securitized. These spread accounts are funded through initial
deposits, when required, and out of excess cash flow from the related
securitization trust. Thereafter, during each month excess cash flow due to ARFC
from all insured securitization trusts is first used to replenish spread
accounts to predetermined
34
<PAGE>
levels and is then distributed to the Company. If excess cash flow from all
insured securitization trusts is not sufficient to replenish all spread
accounts, no cash flow would be available to the Company from ARFC for that
month. Excess cash flows include cash received from the liquidation of
repossessions under defaulted receivables. Such cash is generally received in
months subsequent to default and can therefore result in timing differences as
to when excess cash flows are released to the Company. The spread account for
each insured securitization trust is cross-collateralized with the spread
accounts established for the Company's other insured securitization trusts.
Excess cash flow from performing securitization trusts insured by FSA may be
used to support negative cash flow from, or to replenish a deficit spread
account in connection with, non-performing securitization trusts insured by FSA.
The Company's obligations to FSA in respect of insured securitizations and one
of the Company's warehouse facilities are limited to the amounts on deposit in
the spread accounts and excess cash flow.
In connection with its securitizations, the Company continually seeks to
improve its structures to reduce up-front costs and to maximize excess cash flow
available to the Company. The Company may consider alternative securitization
structures, including senior/subordinated tranches, and alternative forms of
credit enhancement, such as letters of credit and surety bonds. During 1995, the
Company realized a portion of its finance income receivable by selling an
interest-only strip in its September 1995 securitization. Proceeds from the sale
of the interest-only strips were approximately $6.1 million in 1995. There were
no interest-only strips sold during 1996 or 1997. The structure of each
securitized sale of loans will depend on market conditions, costs of
securitization and the availability of credit enhancement options to the
Company.
HEDGING AND PRE-FUNDING STRATEGY. The Company employs hedging strategies,
including the use of pre-funding accounts in connection with securitization
transactions and forward U.S. Treasuries, to manage its gross interest rate
spread. Through the use of these hedging strategies, the Company is able to
determine its approximate financing cost prior to, or near to, the purchase of
loans and thereby maintain its gross interest rate spread within a desired
range. Because interest rates on asset-backed securities for automobile loans
generally tend to rise or fall when other shorter-term interest rates fluctuate,
a material increase in interest rates prior to securitization could adversely
affect the profitability of such securitization to the Company in the absence of
a hedging strategy.
By utilizing pre-funding accounts in connection with securitization
transactions, the Company mitigates its exposure to interest rate risk through a
pre-funding strategy in which it securitizes its loans then held for sale along
with future loans in a pre-funded securitization. In a pre-funded
securitization, the principal amount of the asset-backed securities issued in
the securitization exceeds the principal balance of loans initially delivered to
the securitization trust. The proceeds from the pre-funded portion are held in
trust earning money market yields until released upon delivery of additional
loans. The Company agrees to deliver additional loans into the securitization
trust from time to time (generally monthly) equal in the aggregate to the amount
by which the principal balance of the asset-backed securities exceeds the
principal balance of the loans initially delivered. In pre-funded
securitizations, the Company predetermines the borrowing costs with respect to
loans it subsequently purchases and delivers into the securitization trust.
However, the Company incurs an expense in pre-funding securitizations equal to
the difference between the money market yields earned on the proceeds held in
trust prior to the subsequent delivery of loans and the interest rate paid on
the asset-backed securities. The Company also has some interest rate exposure to
falling interest rates to the extent that the Company's offered rates decline
after the Company has engaged in a pre-funded securitization, although the
Company's offered rates generally respond less rapidly to rate fluctuations than
financing costs.
By selling forward U.S. Treasuries that most closely parallel the average
life of its portfolio of loans held for sale, the Company is able to obtain an
inverse relationship between the loans being hedged and the U.S. Treasury
market. The hedging gain or loss is netted against the gain on sale of loans.
Such hedges include certain risks created by the cash versus non-cash
relationship of the hedging instrument and the related securitization. This
relationship arises because U.S. Treasury forward contracts are settled with
35
<PAGE>
current cash payments and the gain on sale of loans represents the present value
of estimated future cash flows. To the extent hedging gains or losses resulting
from U.S. Treasury forward contracts are significant, the resulting up-front
cash payments or receipts may impact the Company's liquidity. The Company
receives the up-front gains or losses back over time through a higher or lower
spread at the time of securitization. Hedging transactions required an initial
net use of cash of $8.7 million, $0.3 million and $11.7 million during 1997,
1996 and 1995, respectively.
Management has controls and policies in place to assess and monitor its risk
from hedging activities. Management reviews the interest rate movements in the
U.S. Treasury markets and receives a daily internal report tracking such
movements. Daily, management receives an interest rate report that describes not
only interest rate movements, but also the amount of corresponding increase or
decrease in the value of its hedged securitizations. The amount and timing of
hedging transactions are determined by members of the Company's senior
management, and are subject to approval by the Company's Chief Executive
Officer. In connection with this, management assesses factors including the
interest rate environment, loan production levels and open positions of current
hedging positions.
OTHER CAPITAL RESOURCES
Historically, the Company has utilized various debt and equity financings to
offset negative operating cash flows and support its operations.
In March 1997, the Company sold to the public $300.0 million aggregate
principal amount of 11.50% Senior Notes due 2007 (the "Senior Notes") and
received net proceeds of approximately $291.2 million. Each Senior Note included
a detachable warrant, and such warrants when exercised entitle the holders to
acquire an aggregate of 2,052,000 shares of the Company's common stock. In
October 1997, the warrants were detached from the Senior Notes and began trading
separately from the Senior Notes. The warrants are exercisable at a price of
$11.00 per share. Interest on the Senior Notes is payable semi-annually on March
15 and September 15 of each year, beginning September 15, 1997. The Senior Notes
may not be redeemed prior to March 15, 2002. At any time on such date or
thereafter, the Company may at its option elect to redeem the Senior Notes, in
whole or in part, at a premium ranging from 105.75% to 101.92% of the principal
amount of Senior Notes redeemed between the years 2002-2004, respectively, or
100% thereof on or after March 15, 2005, plus accrued interest to and including
the redemption date. The Senior Notes are general, unsecured obligations of the
Company and will rank pari passu in right of payment to all existing and future
unsecured, unsubordinated indebtedness of the Company (as defined in the
indenture governing the Senior Notes). Approximately $173.5 million of the net
proceeds from the issuance of the Senior Notes was used to repurchase and
covenant defease the Company's 13% Senior Term Notes (including a prepayment
premium and accrued interest) and the remainder was made available for working
capital. The premium paid for the early extinguishment of debt (approximately
$20.3 million) and the charge-off of remaining capitalized debt financing costs
(approximately $3.2 million) were recognized and accounted for as an
extraordinary item.
In October 1997, the Company sold to the public $75.0 million aggregate
principal amount of 11.50% Senior Notes due 2007 (the "Notes") and received net
proceeds of approximately $71.2 million. Interest on the Notes is payable
semi-annually on March 15 and September 15 of each year, beginning March 15,
1998. The Notes may not be redeemed prior to March 15, 2002. At any time on such
date or thereafter, the Company may at its option elect to redeem the Notes, in
whole or in part, at a premium ranging from 105.75% to 101.92% of the principal
amount of Notes redeemed between the years 2002-2004, respectively, or 100%
thereof on or after March 15, 2005, plus accrued interest to and including the
redemption date. The Notes are general, unsecured obligations of the Company and
will rank pari passu in right of payment to all existing and future unsecured,
unsubordinated indebtedness of the Company (as defined in the indenture
governing the Notes). The net proceeds from the issuance of the Notes are being
used to support the purchase of automobile loans, for working capital and for
other general corporate purposes.
36
<PAGE>
During 1996, the Company completed a public offering of 8,050,000 shares of
Common Stock and received net proceeds of approximately $146.0 million. In March
1996, the Company issued to the public $30.0 million aggregate principal amount
of 10.125% Subordinated Notes Series 1996-A, due 2001 and received net proceeds
of approximately $29.0 million. Proceeds from the 1996 offerings were made
available as working capital for loan purchases and general operations.
In February 1995, the Company entered into a temporary financing facility
(the "Facility") in order to provide cash pending completion of the common stock
and senior debt offerings described below and to repay $30.0 million of
outstanding Senior Secured Notes. Under the Facility, the Company borrowed $55.0
million through the issuance of Senior Unsecured Increasing Rate Notes. In April
1995, proceeds from the common stock and senior term debt offerings described
below were used to retire the notes issued under the Facility at par plus
accrued interest.
In April 1995, the Company issued to the public 9,849,900 shares of Common
Stock and $145.0 million principal amount of Senior Term Notes. The Company
received aggregate net proceeds from the issuance of the Common Stock and 13%
Senior Term Notes of approximately $231.0 million and applied $56.2 million of
such proceeds to retire the notes issued under the Facility plus accrued
interest, $15.6 million to retire the Company's 9.875% Senior Subordinated Notes
(including a prepayment fee of $0.5 million and accrued interest of $0.1
million), and $9.4 million to fund a reserve account established for future
payment of interest on the 13% Senior Term Notes. The remaining proceeds of
$149.8 million were made available as working capital for loan purchases and
general operations.
Pursuant to demand registration rights of certain holders of warrants issued
by the Company between 1992 and 1994 in connection with its issuance of Senior
Secured and Senior Subordinated Notes, the Company filed separate registration
statements during April and October 1995 covering 213,000 and 3,871,364 shares
of Common Stock, respectively, issuable upon exercise of the warrants for
secondary sale at market should the holders decide to do so. The Company has
received aggregate proceeds of approximately $12.2 million in connection with
the exercise of such warrants. As of December 31, 1997, 52,000 warrants remain
outstanding.
The Company has a program to sell up to $50.0 million of unsecured
subordinated notes (the "Junior Subordinated Notes") to be offered to the public
from time to time (the "Note Program"). Issuance of Junior Subordinated Notes
under the Note Program is subject to restrictions under the Senior Note
indenture. The Note Program includes Junior Subordinated Notes extendible by the
investor having maturities of 30, 60, 90 and 180 days and one year after the
date of issue and fixed-term Junior Subordinated Notes having maturities of one,
two, three, four, five and 10 years after the date of issue. Interest rates on
any unsold Junior Subordinated Notes are subject to change by the Company from
time to time based on market conditions. Interest rates on extendible Junior
Subordinated Notes may be adjusted at any roll-over date. At December 31, 1997,
the Company had $20.8 million of Junior Subordinated Notes outstanding.
37
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Arcadia Financial Ltd.
We have audited the accompanying consolidated balance sheets of Arcadia
Financial Ltd. as of December 31, 1997 and 1996 and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. 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 Arcadia
Financial Ltd. at December 31, 1997 and 1996 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Minneapolis, Minnesota
January 23, 1998
38
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
(Dollars in thousands, except share and per share amounts) 1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................... $ 17,274 $ 16,057
Due from securitization trust........................................... 107,207 177,076
Auto loans held for sale................................................ 49,133 36,285
Finance income receivable............................................... 371,985 362,916
Restricted cash in spread accounts...................................... 250,297 142,977
Furniture, fixtures and equipment....................................... 17,371 13,630
Other assets............................................................ 32,483 29,289
--------- ---------
Total assets........................................................ $ 845,750 $ 778,230
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Amounts due under warehouse facilities.................................. $ 30,880 $ 111,140
Senior term notes....................................................... 365,640 145,000
Subordinated notes...................................................... 50,772 53,689
Capital lease obligations............................................... 5,368 7,729
Deferred income taxes................................................... 18,846 54,387
Accounts payable and accrued liabilities................................ 26,302 13,192
--------- ---------
Total liabilities................................................... 497,808 385,137
Commitments and contingencies
Shareholders' equity:
Capital stock, $.01 par value, 100,000,000 shares authorized:
Common stock, 38,813,735 and 37,012,605 shares respectively, issued
and outstanding..................................................... 388 370
Additional paid-in capital.............................................. 322,819 310,181
Retained earnings....................................................... 24,735 82,542
--------- ---------
Total shareholders' equity.......................................... 347,942 393,093
--------- ---------
$ 845,750 $ 778,230
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
39
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
(Dollars in thousands, except per share amounts) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Net interest margin................................... $ 64,499 $ 54,083 $ 27,194
Gain on sale of loans................................. 2,818 115,773 62,182
Servicing fee income.................................. 67,794 43,514 19,152
Other non-interest income............................. 302 125 204
---------- ---------- ----------
Total revenues.................................... 135,413 213,495 108,732
EXPENSES:
Salaries and benefits................................. 61,756 40,751 20,079
General and administrative and other operating
expenses............................................ 100,261 51,547 22,648
---------- ---------- ----------
Total operating expenses.......................... 162,017 92,298 42,727
Long-term debt and other interest expense............. 41,216 25,193 17,170
---------- ---------- ----------
Total expenses.................................... 203,233 117,491 59,897
---------- ---------- ----------
Operating income (loss) before income taxes and
extraordinary items................................. (67,820) 96,004 48,835
Income tax provision (benefit)........................ (25,841) 35,688 19,518
---------- ---------- ----------
Income (loss) before extraordinary items.............. (41,979) 60,316 29,317
Extraordinary items, net of tax....................... (15,828) -- (3,856)
---------- ---------- ----------
Net income (loss)..................................... $ (57,807) $ 60,316 $ 25,461
---------- ---------- ----------
---------- ---------- ----------
BASIC EARNINGS PER SHARE:
Income (loss) per share before extraordinary items.... $ (1.08) $ 1.91 $ 1.53
Extraordinary items per share......................... (0.41) -- (0.22)
---------- ---------- ----------
Net income (loss) per share....................... $ (1.49) $ 1.91 $ 1.31
---------- ---------- ----------
---------- ---------- ----------
DILUTED EARNINGS PER SHARE:
Income (loss) per share before extraordinary items $ (1.08) $ 1.65 $ 1.11
Extraordinary items per share......................... (0.41) -- (0.15)
---------- ---------- ----------
Net income (loss) per share....................... $ (1.49) $ 1.65 $ 0.96
---------- ---------- ----------
---------- ---------- ----------
Weighted average shares outstanding:
Basic............................................... 38,700,346 30,897,426 17,718,603
Diluted............................................. 39,256,788 36,449,995 26,435,765
</TABLE>
See notes to consolidated financial statements.
40
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF ADDITIONAL
(Dollars in thousands, except PREFERRED COMMON PREFERRED COMMON PAR PAID IN RETAINED
share amounts) SHARES SHARES PAR VALUE VALUE CAPITAL EARNINGS TOTAL
--------- --------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31,
1994......................... 1,150,000 9,920,710 $ 12 $ 99 $ 60,621 $ 130 $ 60,862
Issuance of Common Stock:
Public offering.............. -- 9,849,900 -- 98 87,559 -- 87,657
Benefit plans................ -- 619,887 -- 6 930 -- 936
Amortization of deferred
compensation................. -- -- -- -- 837 -- 837
Exercise of options and
warrants..................... -- 1,736,735 -- 17 7,256 -- 7,273
Preferred Stock conversion to
Common Stock................. (78,964) 368,128 (1) 4 (3) -- --
Payment of dividends on
Preferred Stock.............. -- -- -- -- -- (2,213) (2,213)
Net income..................... -- -- -- -- -- 25,461 25,461
--------- --------- --- ----- --------- --------- ---------
BALANCES AT DECEMBER 31,
1995......................... 1,071,036 22,495,360 11 224 157,200 23,378 180,813
Issuance of Common Stock:
Public offering.............. -- 8,050,000 -- 81 145,925 -- 146,006
Benefit plans................ -- 373,762 -- 4 1,161 -- 1,165
Amortization of deferred
compensation................. -- -- -- -- 1,038 -- 1,038
Exercise of options and
warrants..................... -- 1,101,269 -- 11 4,902 -- 4,913
Preferred Stock redemption and
conversion to Common Stock... (1,071,036) 4,992,214 (11) 50 (45) -- (6)
Payment of dividends on
Preferred Stock.............. -- -- -- -- -- (1,152) (1,152)
Net income..................... -- -- -- -- -- 60,316 60,316
--------- --------- --- ----- --------- --------- ---------
BALANCES AT DECEMBER 31,
1996......................... -- 37,012,605 -- 370 310,181 82,542 393,093
Issuance of warrants........... -- -- -- -- 8,590 -- 8,590
Issuance of Common Stock:
Benefit plans................ -- 292,485 -- 3 565 -- 568
Amortization of deferred
compensation................. -- -- -- -- 991 -- 991
Exercise of options and
warrants..................... -- 1,508,645 -- 15 2,492 -- 2,507
Net income (loss).............. -- -- -- -- -- (57,807) (57,807)
--------- --------- --- ----- --------- --------- ---------
BALANCES AT DECEMBER 31,
1997......................... -- 38,813,735 $ -- $ 388 $ 322,819 $ 24,735 $ 347,942
--------- --------- --- ----- --------- --------- ---------
--------- --------- --- ----- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
41
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
(Dollars in thousands) 1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ (57,807) $ 60,316 $ 25,461
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization........................ 7,003 4,286 1,881
Loss on sale of furniture, fixtures and equipment.... 17 119 153
(Increase) decrease in assets:
Automobile loans held for sale:
Purchases of automobile loans...................... (2,913,097) (2,750,553) (2,052,413)
Sales of automobile loans.......................... 2,864,120 2,787,412 1,933,525
Repayments of automobile loans..................... 36,129 45,412 24,200
Finance income receivable............................ (4,355) (176,916) (127,461)
Restricted cash in spread accounts................... (107,320) (79,397) (42,172)
Due from securitization trusts....................... 69,869 (177,076) 88,481
Prepaid expenses and other assets.................... (2,293) (5,787) (10,402)
Increase (decrease) in liabilities:
Deferred income taxes.............................. (35,541) 35,688 16,947
Accounts payable and accrued liabilities........... 13,110 3,369 6,141
------------- ------------- -------------
Total cash used in operating activities...... (130,165) (253,127) (135,659)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of furniture, fixtures and
equipment............................................ 98 26 37
Purchase of furniture, fixtures and equipment.......... (8,873) (5,108) (1,089)
Purchase of subordinated certificates.................. -- (2,596) (2,046)
Collections on subordinated certificates............... 1,465 1,078 510
------------- ------------- -------------
Total cash used in investing activities...... (7,310) (6,600) (2,588)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Common Stock............. 3,075 152,079 95,866
Payment of dividends on Preferred Stock................ -- (1,152) (2,213)
Proceeds from borrowings under warehouse facilities.... 3,157,863 2,159,523 1,605,583
Repayment of borrowings under warehouse facilities..... (3,238,123) (2,074,913) (1,685,241)
Unsecured subordinated notes, net...................... (2,917) 40,684 12,699
Proceeds from issuance of long-term debt............... 373,500 -- 200,000
Repayments of long-term debt........................... (145,000) -- (100,000)
Deferred debt issuance cost, net....................... (7,080) (13) (2,541)
Reduction of capital lease obligations................. (2,626) (1,764) (1,183)
------------- ------------- -------------
Total cash provided by financing
activities................................. 138,692 274,444 122,970
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents... 1,217 14,717 (15,277)
Cash and cash equivalents at beginning of period....... 16,057 1,340 16,617
------------- ------------- -------------
Cash and cash equivalents at end of period............. $ 17,274 $ 16,057 $ 1,340
------------- ------------- -------------
------------- ------------- -------------
Supplemental disclosures of cash flow information:
Non cash activities:
Additions to capital leases........................ $ 265 $ 5,569 $ 3,609
Cash paid for:
Interest........................................... 41,248 33,448 19,630
Taxes.............................................. -- -- 92
</TABLE>
See notes to consolidated financial statements
42
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Arcadia Financial Ltd. (the "Company") operates in a single industry,
purchases, securitizes and services consumer automobile retail installment loans
originated primarily by car dealers affiliated with major foreign and domestic
manufacturers. The Company does not purchase more than 1.0% of its loans from
any one dealer. Since its founding in March 1990, the Company has established 18
regional buying centers in Arizona, Northern and Southern California, Colorado,
Florida, Georgia, Maryland, Massachusetts, Minnesota, Missouri, New York, North
Carolina, Ohio, Tennessee, North, South and West Texas, and Washington. The
Company's dealer network includes dealers in 45 states. At December 31, 1997,
the Company's only significant geographic concentration in its servicing
portfolio was to borrowers in the state of Texas which consisted of
approximately 19% of the total servicing portfolio. Management does not believe
that the Company has any current material exposures to geographic or dealer
concentrations.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The consolidated financial statements have
been prepared in conformity with generally accepted accounting principles.
Certain reclassifications have been made to the December 31, 1996 and 1995
balances to conform to current period presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company considers all significant investments with an original maturity
of three months or less to be cash equivalents.
DUE FROM SECURITIZATION TRUST
Under Arcadia's securitization structures, the Company delivers loans to a
securitization trust and subsequently receives cash from the trust for such
loans concurrent with the legal closing of the transaction typically six to 10
days after delivery. All terms of the transfer of assets to the trust are fixed
and determinable at the time of delivery.
AUTOMOBILE LOANS HELD FOR SALE
Loans are carried at the lower of their principal amount outstanding
(amortized cost), including related unearned dealer participations, or market
value. Market value is estimated based on the characteristics of the loans held
for sale and the terms of recent sales of similar loans completed by the
Company. Interest on these loans is accrued and credited to interest income
based upon the daily principal amount outstanding.
43
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In accordance with Emerging Issues Task Force ("EITF") Issue 92-10, LOAN
ACQUISITIONS INVOLVING TABLE FUNDING ARRANGEMENTS, the EITF set forth specific
criteria providing the distinction between purchasers and originators of loans.
For financial reporting purposes, the Company is in substance an originator of
automobile loans. Therefore, participations paid to dealers are deferred and
amortized over the life of the underlying loan in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 91, "Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases." Any unamortized deferred costs remaining at the time the loan
is sold are considered a portion of the basis of loans held for sale and charged
to expense as a component of any subsequent gain or loss on sale.
Dealer participations are calculated by amortizing the customer loan at the
interest rate charged by the automobile dealer to the automobile purchaser and
at the rate offered by the Company to the dealer and recognizing the difference
between these two aggregate interest amounts as the dealer participation. This
amount is paid to the dealer at or near the original purchase date of the loan.
A portion of this amount is generally recoverable from the dealer in the event
of a default or prepayment within a time period specified in the dealer
agreement. The balance is recovered over time as a portion of excess cash flows
released from securitization trusts.
FINANCE INCOME RECEIVABLE
During 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinquishments of Liabilities" ("SFAS 125"). SFAS 125
establishes accounting and reporting standards for transfers and servicing of
financial assets and extinquishments of liabilities based on the application of
a financial components approach which focuses on control of the assets and
liabilities that exist after the transfer. SFAS 125 prescribes the methodology
for recognition of gain or loss upon the transfer of assets as well as the
valuation of finance income receivable. SFAS 125 is effective for transactions
occurring after December 31, 1996, and is to be applied prospectively.
Retroactive application is not permitted. The Company adopted SFAS 125 on
January 1, 1997. During 1997, the implementation of SFAS 125 did not have a
material effect on the Company's consolidated financial statements.
Finance income receivable represents the Company's retained interest in the
estimated future cash flows of loans sold and is determined by allocating the
carrying amount of loans sold based on the relative fair values of such loans
and the estimated future cash flows to be received by the Company discounted at
a market-based rate. Estimated future cash flows represent the difference
between the weighted average coupon rate of the loans sold and the interest rate
on the asset-backed securities issued to investors less dealer participations,
contractual servicing fees, costs of securitization, estimated prepayments and
an allowance for loan losses. Accrued interest on loans through the date of
securitization, which will be returned to the Company through the securitization
trust, is also included in finance income receivable. The Company's discounted
rate is based on current market conditions and prepayments assumptions based on
historical experience.
The Company's servicing fee approximates adequate compensation as defined by
SFAS 125 and therefore, the Company has not recorded a servicing asset or
liability at December 31, 1997.
Finance income receivable is carried at the lower of its unamortized
originally allocated cost or market value based on the application of current
discount rate assumptions to the estimated remaining excess cash flows. Any
unrealized gain or loss is reported net of related income taxes as a separate
44
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
component of shareholder's equity until realized. Finance income receivable is
reviewed periodically for other than temporary impairment with such impairment,
if any, charged to current period earnings through gain on sale. As a result of
a change in the Company's accounting policy with respect to valuation of
repossessed vehicles, the Company recorded a $98.0 million charge to gain on
sale in March 1997 after determining that such change resulted in a permanent
reduction in the value of finance income receivable. There were no material
adjustments to finance income receivable during 1996 or 1995.
RESTRICTED CASH IN SPREAD ACCOUNTS
The Company is required to maintain spread accounts to protect investors in
securitization transactions and credit enhancers against credit losses. The
initial deposit, if required, and excess cash flows from securitization
transactions are retained for each securitization until the spread account
balance increases to a specified percentage of the underlying loans included in
the securitization. Funds in excess of specified percentages are remitted to the
Company, through its wholly-owned subsidiary Arcadia Receivables Finance Corp.
("ARFC"), over the remaining life of the securitization. For each securitization
trust, there is no recourse to the Company beyond the balance in the spread
accounts or the trust's future earnings.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are stated at cost less accumulated
depreciation and amortization. Owned properties are depreciated on a
straight-line basis over their useful lives. Capital lease assets are amortized
on a straight- line basis over the lesser of their estimated useful lives or
their lease terms.
ADVANCES DUE TO SERVICER
As servicer of loans sold in securitizations, the Company periodically makes
interest advances to the securitization trusts to provide for temporary delays
in the receipt of required interest payments by borrowers. In accordance with
the Company's servicing agreements, the Company makes advances only in the event
it expects to recover them through the ultimate payments from the obligor on the
loan.
DEFERRED DEBT ISSUANCE COSTS
The Company capitalizes costs incurred related to the issuance of long-term
debt. These costs are deferred and amortized on a straight-line basis over the
contractual maturity of the related debt and recognized as a component of
interest expense.
SERVICING FEE RECEIVABLE
The Company earns a servicing fee for servicing loans sold to investors
through securitization. These fees are paid to the Company by the securitization
trust on a monthly basis.
INCOME TAXES
Deferred tax assets and liabilities are recognized for future tax
consequences related to differences between the current carrying amounts of
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured based on enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
45
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INTEREST MARGIN
The Company's net interest margin represents the sum of (i) net interest on
loans held for sale based on the net interest rate spread, (ii) investment
earnings on short-term investments and other cash accounts and (iii) the
recognition of the interest component of previously discounted cash flows,
calculated at the present value discount rate used in determining the gain on
sale.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" ("SFAS 128"). SFAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effect of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the SFAS 128
requirements.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into hedging transactions to manage its gross interest
rate spread on loans held for sale. The Company sells U.S. Treasuries that most
closely parallel the average life of its portfolio of loans held for sale.
Recognition of unrealized gains or losses is deferred until the sale of loans.
On the date of sale, hedging deferred gains and losses are recognized in the
consolidated statement of income as a component of the gain on sale of loans.
2. ACCOUNTING CHANGES
REPORTING COMPREHENSIVE INCOME.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which establishes standards for reporting and displaying
comprehensive income and its components in the financial statements.
Comprehensive income is the total of net income and all nonowner changes in
shareholders' equity. The Statements is effective for fiscal years beginning
after December 15, 1997, with earlier application permitted. The Statement will
require new disclosures by the Company, but is not expected to have an impact on
the financial condition or results of operations.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"), was issued by the Financial Accounting Standards Board in June 1997. It
introduced new guidance on segment reporting. The Statement is effective for
fiscal years beginning after December 15, 1997, with earlier application
encouraged. The Statement is not expected to have a material impact on the
financial condition or results of operations for the Company.
3. AUTOMOBILE LOANS HELD FOR SALE
The weighted average interest rate on automobile loans held for sale was
16.59% and 15.22% at December 31, 1997 and 1996, respectively. Accrued interest
receivable on automobile loans held for sale aggregated $0.7 million and $0.2
million as of December 31, 1997 and 1996, respectively.
46
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. FINANCE INCOME RECEIVABLE
The following table sets forth the components of finance income receivable
as of December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
----------- ----------
<S> <C> <C>
Estimated cash flows on loans sold, net of estimated prepayments............... $ 735,557 $ 549,876
Deferred servicing income...................................................... (88,282) (59,473)
Reserve for loan losses........................................................ (235,599) (95,005)
----------- ----------
Undiscounted cash flows on loans sold, net of estimated prepayments............ 411,676 395,398
Discount to present value...................................................... (39,691) (32,482)
----------- ----------
$ 371,985 $ 362,916
----------- ----------
----------- ----------
Reserve for loan losses as a percentage of servicing portfolio................. 4.75% 2.51%
</TABLE>
The following represents the roll-forward of the finance income receivable
balance for the two years ended December 31, 1996:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Balance, December 31, 1995................................................................. $ 186,001
Estimated cash flows on loans sold, net of estimated prepayments......................... 256,910
Recognition of present value effect of discounted cash flows............................. 18,890
Less:
Excess cash flows on loans deposited in spread accounts................................ (98,885)
-----------
Balance, December 31, 1996................................................................. 362,916
Estimated cash flows on loans sold, net of estimated prepayments......................... 250,631
Recognition of present value effect of discounted cash flows............................. 23,038
Less:
Excess cash flows on loans deposited in spread accounts................................ (166,600)
Change in estimate of future recovery rates............................................ (98,000)
-----------
Balance, December 31, 1997................................................................. $ 371,985
-----------
-----------
</TABLE>
47
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. RESTRICTED CASH IN SPREAD ACCOUNTS
The following represents the roll-forward of restricted cash in spread
accounts:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Balance, December 31, 1995.................................................................. $ 63,580
Excess cash flows deposited to spread accounts............................................ 98,885
Initial spread account deposits........................................................... 19,377
Interest earned on spread accounts........................................................ 4,486
Less:
Excess cash flows released to the Company............................................... (43,351)
----------
Balance, December 31, 1996.................................................................. 142,977
Excess cash flows deposited to spread accounts............................................ 166,600
Initial spread account deposits........................................................... 19,375
Interest earned on spread accounts........................................................ 10,295
Less:
Excess cash flows released to the Company............................................... (88,950)
----------
Balance, December 31, 1997.................................................................. $ 250,297
----------
----------
</TABLE>
6. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment, as of December 31, consists of the
following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
--------- ---------
<S> <C> <C>
OWNED
Office furniture and equipment.............................................................. $ 9,524 $ 6,637
Automobiles................................................................................. 368 313
Computer equipment.......................................................................... 1,853 1,003
Software.................................................................................... 4,528 --
--------- ---------
Total................................................................................... 16,273 7,953
CAPITALIZED LEASES
Office furniture and equipment.............................................................. 4,851 4,280
Computer equipment.......................................................................... 5,296 5,545
Software.................................................................................... 330 --
--------- ---------
Total................................................................................... 10,477 9,825
--------- ---------
Total furniture, fixtures and equipment..................................................... 26,750 17,778
Less:
Accumulated depreciation and amortization................................................. (9,379) (4,148)
--------- ---------
Furniture, fixtures and equipment, net...................................................... $ 17,371 $ 13,630
--------- ---------
--------- ---------
</TABLE>
Depreciation expense including amortization of assets under capital lease
obligations for the years ended December 31, 1997, 1996 and 1995 was $5.3
million, $3.2 million and $1.0 million, respectively.
48
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. OTHER ASSETS
Other assets, as of December 31, consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
--------- ---------
<S> <C> <C>
Advances due to servicer.......................................................... $ 6,072 $ 8,140
Deferred debt issuance costs...................................................... 11,518 4,438
Investment in subordinated certificates........................................... 2,864 4,329
Servicing fee receivable.......................................................... 4,389 3,121
Prepaid expenses.................................................................. 1,078 2,755
Repossessed assets................................................................ 1,181 1,577
Other assets...................................................................... 5,381 4,929
--------- ---------
$ 32,483 $ 29,289
--------- ---------
--------- ---------
</TABLE>
8. AMOUNTS DUE UNDER WAREHOUSE FACILITIES
At December 31, 1997, the Company had three warehouse facilities with an
aggregate capacity of $875.0 million in place with various financial
institutions and institutional lenders of which $844.0 million was available.
Borrowings under these facilities are collateralized by certain loans held for
sale. The weighted average interest rate on outstanding borrowings under the
warehouse facilities was 5.80% and 5.90% for the years ended December 31, 1997
and 1996, respectively.
9. LONG-TERM DEBT
SENIOR NOTES
In March 1997, the Company sold to the public $300.0 million aggregate
principal amount of 11.50% Senior Notes, due 2007 (the "Senior Notes") and
received net proceeds of approximately $291.2 million. Each Senior Note included
a detachable warrant, and such warrant when exercised entitles the holder to
acquire an aggregate of 2,052,000 shares of the Company's common stock. In
October 1997, the warrants were detached from the Senior Notes and began trading
separately from the Senior Notes. The warrants are exercisable at a price of
$11.00 per share. Interest on the Senior Notes is payable semi-annually on March
15 and September 15 of each year, beginning September 15, 1997. The Senior Notes
may not be redeemed prior to March 15, 2002. At any time on such date or
thereafter, the Company may at its option elect to redeem the Senior Notes, in
whole or in part, at a premium ranging from 105.75% to 101.92% of the principal
amount of Senior Notes redeemed between the years 2002-2004, respectively, or
100% thereof on or after March 15, 2005, plus accrued interest to and including
the redemption date. The Senior Notes are general, unsecured obligations of the
Company and will rank pari passu in right of payment to all existing and future
senior debt (as defined in the indenture governing the Senior Notes).
Approximately $173.5 million of the net proceeds from the issuance of the Senior
Notes was used to repurchase and covenant defease the Company's 13% Senior Term
Notes (including a prepayment premium and accrued interest). The premium paid
for the early extinquishment of debt (approximately $20.3 million) and the
charge-off of remaining capitalized debt financing costs (approximately $3.2
million) were recognized and accounted for as an extraordinary item.
In October 1997, the Company sold to the public $75.0 million aggregate
principal amount of 11.50% Senior Notes, due 2007 (the "Notes") and received net
proceeds of approximately $71.2 million. Interest on the Notes is payable
semi-annually on March 15 and September 15 of each year, beginning March 15,
1998. The Notes may not be redeemed prior to March 15, 2002. At any time on such
date or thereafter, the
49
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
Company may at its option elect to redeem the Notes, in whole or in part, at a
premium ranging from 105.75% to 101.92% of the principal amount of Notes
redeemed between the years 2002-2004, respectively, or 100% thereof on or after
March 15, 2005, plus accrued interest to and including the redemption date. The
Notes are general, unsecured obligations of the Company and will rank pari passu
in right of payment to all existing and future senior debt (as defined in the
indenture governing the Senior Notes).
SUBORDINATED NOTES
Subordinated notes outstanding as of December 31, are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
--------- ---------
<S> <C> <C>
Senior subordinated notes, Series 1996-A................................ $ 30,000 $ 30,000
Junior subordinated notes............................................... 20,772 23,689
--------- ---------
$ 50,772 $ 53,689
--------- ---------
--------- ---------
</TABLE>
In March 1996, the Company sold to the public $30.0 million aggregate
principal amount of its 10.125% Subordinated Notes, Series 1996-A due 2001 (the
"Senior Subordinated Notes"). Interest on the Senior Subordinated Notes is
payable monthly beginning May 15, 1996. The Senior Subordinated Notes may not be
redeemed prior to May 15, 1998. At any time on such date or thereafter, the
Company may at its option elect to redeem the Senior Subordinated Notes, in
whole or in part, at 101.5% of the principal amount of Senior Subordinated Notes
redeemed, or 100% thereof on or after May 15, 1999, plus accrued interest to and
including the redemption date. The Senior Subordinated Notes are unsecured
general obligations of the Company and are subordinated in right of payment to
all existing and future Senior Debt (as defined in the indenture governing the
Senior Subordinated Notes).
In September 1994, the Company completed a shelf registration to issue up to
$50.0 million of Junior Subordinated Notes. The Junior Subordinated Notes are
issued in minimum denominations of $1,000 and include extendible notes having
maturities ranging from 30 days to one year from the date of issue and fixed
term notes having maturities of one to ten years from date of issue. The Company
may adjust interest rates on unsold notes prior to sale and on extendible notes
at any roll-over date based on current market conditions. As of December 31,
1997, the weighted average maturity and interest rate of the Junin Subordinated
Notes were 14.9 months and 9.37%, respectively.
Maturities of long-term debt outstanding at December 31, 1997 were:
<TABLE>
<S> <C>
(Dollars in thousands)
YEAR ENDING
1998............................................................................ $ 8,284
1999............................................................................ 1,248
2000............................................................................ 6,529
2001............................................................................ 30,596
2002............................................................................ 737
2003 and thereafter............................................................. 369,018
----------
Total....................................................................... $ 416,412
----------
----------
</TABLE>
50
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
The Company leases furniture, fixtures and equipment under capital and
operating leases with terms in excess of one year. Additionally, the Company
leases its office space under operating leases. Total rent expense on operating
leases was $13.5 million, $4.7 million and $1.8 million for the years ended
December 31, 1997, 1996, and 1995, respectively.
Future minimum lease payments required under capital and noncancelable
operating leases with terms of one year or more, at December 31, 1997 were:
<TABLE>
<CAPTION>
CAPITAL OPERATING
(Dollars in thousands) LEASES LEASES
--------- -----------
<S> <C> <C>
YEAR ENDING
1998................................................................... $ 2,873 $ 12,872
1999................................................................... 1,428 12,519
2000................................................................... 1,145 8,966
2001................................................................... 763 6,936
2002................................................................... 62 3,638
2003 and thereafter.................................................... -- 2,232
--------- -----------
Total.............................................................. 6,271 $ 47,163
-----------
-----------
Less amounts representing interest....................................... (903)
---------
Present value of net minimum lease payments.............................. $ 5,368
---------
---------
</TABLE>
Under the terms of sales of automobile loans completed through
securitization transactions, the Company may be obligated to repurchase certain
automobile loans due to failure of the assets to meet specifically defined
criteria. The Company may substitute other assets for those repurchased because
of failure to meet the specifically defined criteria. The Company's potential
obligation for defaulted automobile loans, if realized, is expected to be
satisfied through the use of cash collateral accounts included in the
securitization transactions. The Company may not substitute other assets for
defaulted automobile loans.
11. SHAREHOLDERS' EQUITY
The Company's authorized capital stock is 100,000,000 shares. The Company
had reserved shares of authorized but unissued Common Stock at December 31,
1997, as follows:
<TABLE>
<S> <C>
Warrants......................................... 2,104,000
Employee stock purchase plan..................... 242,139
Stock options.................................... 7,037,639
---------
9,383,778
---------
---------
</TABLE>
COMMON STOCK
In March 1997, in connection with the issuance of $300.0 million of 11.5%
Senior Notes, the Company issued warrants to purchase an aggregate of 2,052,000
shares of the Company's Common Stock. The warrants were detached and began
trading separately from the Senior Notes in October 1997. In April 1996, the
Company completed a public offering of 8,050,000 shares of its Common Stock at
$19.25 per share, including an over-allotment option of 1,050,000 shares. In
April 1995, the Company completed a secondary public offering of 9,849,900
shares of its Common Stock at $10.00 per share including an over-
51
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SHAREHOLDERS' EQUITY (CONTINUED)
allotment option of 1,284,900 shares and 65,000 shares pursuant to the exercise
of warrants. Additionally, pursuant to demand registration rights of certain
warrants issued by the Company between 1992 and 1994 in connection with its
issuance of 11.75% Senior Secured and 9.875% Senior Subordinated Notes, the
Company filed separate registration statements during April and October 1995,
covering 213,000 and 3,871,364 shares of Common Stock, respectively, issuable
upon exercise of the warrants for secondary sale at market should the holders
decide to do so. During 1996 and 1997, 754,520 and 1,421,539 shares of Common
Stock had been issued in connection with the exercise of warrants for aggregate
proceeds of $3.1 million and $5.9 million, respectively. As of December 31,
1997, the Company had remaining warrants outstanding for the purchase of
2,104,000 shares of Common Stock at exercise prices ranging from $4.75 to $11.00
per share.
8% CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
In December 1993, the Company sold 1,150,000 shares of its 8% Cumulative
Convertible Exchangeable Preferred Stock (the "Preferred Stock") at $25 per
share. In October 1996, the Company called for redemption on December 2, 1996,
all of its outstanding Preferred Stock. The total redemption price (including
accrued and unpaid dividends) was $27.12 per share. As an alternative to having
their Preferred Stock redeemed for cash, all but 200 shares of Preferred Stock
converted into Common Stock at a rate of 4.662 shares of Common Stock for each
share of preferred prior to the redemption date. The remaining 200 shares were
redeemed.
SHAREHOLDER RIGHTS PLAN
In October 1996, the Board of Directors adopted a Shareholder Rights Plan in
which Preferred Stock Purchase Rights were distributed as a dividend at the rate
of one Right for each share of the Company's Common Stock held on November 22,
1996. The Rights expire on October 28, 2006. Each Right generally will entitle
shareholders, in certain circumstances, to buy one-thousandth of a newly issued
share of Class A Preferred Stock of the Company at an exercise price of $90.00
per share. In January 1998, the Company amended its Shareholder Rights Plan
increasing the percentage of the Company's outstanding Common Stock a person or
group must beneficially own to be deemed an Acquiring Person under the plan from
15% or more up to 18% or more. Under the amended Shareholder Rights Plan, if any
person becomes an Acquiring Person, then each Right not owned by a 18% or more
shareholder or certain related parties will generally entitle its holders to
purchase, at the Right's then-current exercise price, shares of Common Stock
(or, in certain circumstances as determined by the Board, cash, other property
or other securities) having a value of twice the Right's exercise price. In
addition, if, after any person has become an Acquiring Person the Company is
involved in a merger or other business combination transaction with another
person in which its Common Stock is changed or converted, or sells 50% or more
of its assets or earning power to another person, each Right will entitle its
holder to purchase, at the Right's then-current exercise price, shares of Common
Stock of such other person having a value twice the Right's exercise price. The
Company will generally be entitled to redeem the Rights at $.01 per Right at any
time until the tenth day following public disclosure that a person or group has
become an Acquiring Person under the Plan.
52
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE BENEFITS AND STOCK INCENTIVE PLANS
RESTRICTED STOCK ELECTION PLANS
In July of 1994, the Board of Directors of the Company adopted a Restricted
Stock Election Plan (the "1994 Stock Election Plan"). The purpose of the 1994
Stock Election Plan is to reward management performance and to build each
participant's equity interest in the stock of the Company by providing long-term
incentives and rewards to officers and other key management employees of the
Company and its subsidiaries. The 1994 Stock Election Plan allows certain
employees of the Company to elect to receive all or a portion of certain bonuses
they are entitled to receive from the Company in 1994 through 1997 in the form
of shares of the Company's Common Stock. The 1994 Stock Election Plan authorizes
the granting of awards in the form of restricted shares of the Company's Common
Stock, subject to certain risks of forfeiture which may be eliminated over time
based upon achievement of certain performance criteria by the eligible employee
and/or the Company. A total of 800,000 shares of Common Stock are set aside for
awards under the 1994 Stock Election Plan. As of December 31, 1997 there have
been 520,954 shares granted under the plan, with 190,494 shares remaining
subject to restriction.
In December 1995, the Board of Directors of the Company adopted a second
Restricted Stock Election Plan (the "1998 Stock Election Plan"). The purpose of
this Plan is the same as that of the 1994 Stock Election Plan except that it is
applicable to bonuses which may be earned by certain key employees of the
Company in the years 1998 through 2000. As with the 1994 Stock Election Plan,
the 1998 Stock Election Plan authorizes the granting of awards in the form of
restricted shares of the Company's Common Stock, subject to certain risks of
forfeiture which may be eliminated over time based upon achievement of certain
performance criteria by the eligible employee and/or the Company. A total of
600,000 shares of the Common Stock have been set aside for awards under the 1998
Stock Election Plan. As of December 31, 1997 there have been 428,319 shares
granted under the 1998 Stock Election Plan, all of which remain subject to
restriction.
In accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees", the Company recorded deferred compensation as a reduction to
shareholders' equity for the portion of the restricted stock award not yet
earned. The deferred compensation will be amortized and recognized as
compensation expense ratably over the shorter of the period in which management
anticipates restrictions will be lifted or the maximum vesting period. In
connection with the 1994 and 1998 Stock Election Plans, the Company recognized
$1.0 million, $1.0 million and $0.8 million of compensation expense for the
years ended December 31, 1997, 1996 and 1995, respectively.
EMPLOYEE STOCK PURCHASE PLAN
In July 1993, the Company adopted an Employee Stock Purchase Plan (the
"Plan"). This Plan is available to all employees, including officers, who are
employed for at least 20 hours per week and more than five months in a calendar
year. All employees are eligible except those who own and/or hold outstanding
options to purchase stock possessing 5% or more of the total combined voting
power or value of the capital stock of the Company. The participants purchase
stock on each exercise date (June 30 and December 31).
The exercise price is determined to be 85% of the lower of the Company's
Common Stock on January 1, at the date the participant becomes eligible, or on
each exercise date. A total of 500,000 shares of Common Stock has been reserved
for issuance under the Plan. As of December 31, 1997, 257,861 shares of Common
Stock have been issued to the Company's employees under the Plan. The Plan is
noncompensatory and results in no expense to the Company.
53
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE BENEFITS AND STOCK INCENTIVE PLANS (CONTINUED)
DIRECTOR OPTION PLAN
The 1992 Director Stock Option Plan (the "DSOP") was approved by the
shareholders at the 1992 Annual Meeting. The DSOP provides for the automatic
grant of options to purchase the Company's Common Stock to outside directors
according to fixed terms. The DSOP provides that a new outside director
automatically receives options to purchase 15,000 shares upon first becoming an
outside director and an additional 15,000 shares on each anniversary date of the
original grant, up to a maximum of 120,000 shares. During 1997, each outside
director received an additional one-time grant of options to purchase 10,000
shares. The maximum aggregate number of shares of the Company's Common Stock
which may be issued pursuant to the DSOP is 840,000. As of December 31, 1997,
275,000 options to outside directors have been issued and remain outstanding at
exercise prices ranging from $5.13 to $23.88. At December 31, 1997, 1996 and
1995 there were 160,000 options, 175,000 options and 285,000 options,
respectively, exercisable under the DSOP.
STOCK OPTION PLANS
The Company has a Stock Option Plan (the "1990 Plan") which provides for the
granting of incentive and nonqualified options to designated employees and
non-employees, including consultants of the Company, to purchase up to a maximum
of 5,000,000 shares of the Company's Common Stock. The 1990 Plan is administered
by the Compensation Committee of the Board of Directors and has the authority
and discretion to determine the employees, officers, directors and others who
are to receive options, the type of option to be granted, the number of shares
subject to each option and the exercise price of each option (not to be less
than fair market value for incentive options). Options may not be granted under
the 1990 Plan after January 17, 2001. The term of each option, which is fixed by
the Compensation Committee, generally may not exceed ten years from the date the
option is granted. The 1990 Plan is noncompensatory and results in no expense to
the Company. At December 31, 1997, 1996 and 1995, there were 1,138,724 options,
702,450 options and 548,165 options, respectively, exercisable under the 1990
Plan.
A summary of stock option activity under the 1990 Plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------------------
RESERVED SHARES NUMBER PRICE PER SHARE
--------------- ---------- ---------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1994......................................... 1,000,000 895,137 $0.48-$6.00
Granted.......................................................... 1,000,000 515,000 6.00-16.19
Exercised........................................................ -- (71,166) 3.00-6.00
Canceled......................................................... -- (48,000) 4.63-5.88
--------------- ---------- ---------------
BALANCE, DECEMBER 31, 1995......................................... 2,000,000 1,290,971 0.48-16.19
Granted.......................................................... -- 520,000 14.06-20.75
Exercised........................................................ -- (116,749) 0.48-7.63
Canceled......................................................... -- -- -- --
--------------- ---------- ---------------
BALANCE, DECEMBER 31, 1996......................................... 2,000,000 1,694,222 0.48-20.75
Granted.......................................................... 3,000,000 564,594 8.94-14.88
Exercised........................................................ -- (72,106) 0.48-7.63
Canceled......................................................... -- (112,879) 7.63-16.19
--------------- ---------- ---------------
BALANCE, DECEMBER 31, 1997......................................... 5,000,000 2,073,831 $0.48-$20.75
--------------- ---------- ---------------
--------------- ---------- ---------------
</TABLE>
54
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE BENEFITS AND STOCK INCENTIVE PLANS (CONTINUED)
In addition to stock option activity under the 1990 Plan, in 1997, 1996 and
1995, the Company granted to a director options to purchase a total of 70,160;
325,000; 40,000 shares, respectively, of the Company's Common Stock under
separate Non-statutory Stock Option Agreements. These options were granted in
connection with such director's appointment as Chairman of the Executive
Committee of the Board of Directors while the Company searched for a new chief
executive officer in 1996 and in consideration for certain consulting
arrangements entered into between the Company and the director and have exercise
prices ranging from $5.13 to $17.38. At December 31, 1997, 1996 and 1995, there
were 535,160; 240,000; 100,000 options, respectively, exercisable under such
Non-statutory Stock Option Agreements (including agreements entered into prior
to 1995).
Also in 1997, the Company granted the option to purchase 1,200,000 shares of
the Company's Common Stock under a separately adopted stock option plan in
connection with an employment agreement with its newly elected Chief Executive
Officer. The options are exercisable at $14.88 per share, ratably over a three
year period beginning in 1998.
Effective January 1, 1996 the Company adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123"). SFAS 123 provides for companies to recognize compensation expense
associated with stock based compensation plans over the anticipated service
period based on the fair value of the award on the date of grant. However, SFAS
123 allows companies to continue to measure compensation costs prescribed by APB
Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25"). Companies
electing to continue accounting for stock based compensation plans under APB 25
must make pro forma disclosures of net income and earnings per share, as if SFAS
123 had been adopted. The Company has continued to account for stock-based
compensation plans under APB 25. The pro forma disclosure of the effect of SFAS
123 on net income and earnings per share for the years ended December 31, is
presented below. The fair value of the options was estimated at date of grant
using a Black-Scholes option pricing model with the following assumptions for
1997, 1996, and 1995, respectively: weighted-average risk-free interest rate of
5.6%, 6.7%, and 6.7%, volatility factor of the expected market price of the
Company's Common Stock of .71, .68 and .68, and option lives up to ten years.
Fair value calculations assume no dividends will be paid on the Company's Common
Stock.
<TABLE>
<CAPTION>
(Dollars in thousands, expect per share data) 1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Pro forma net income (loss)................................. $ (63,059) $ 57,935 $ 24,697
Pro forma earnings (loss) per share:
Basic..................................................... $ (1.63) $ 1.84 $ 1.27
Diluted................................................... $ (1.63) $ 1.59 $ 0.93
</TABLE>
The weighted average fair value of options granted during 1997, 1996 and
1995 was $8.75, $13.53 and $10.00, respectively.
CASH SURRENDER VALUE OF LIFE INSURANCE
In October 1995, the Company entered into split-dollar insurance agreements
with certain employees of the Company. Under the terms of the agreements, the
Company pays the premium due on life insurance policies owned by the employee
that build cash surrender value while also providing life insurance benefits for
the employee. The Company is entitled to a refund of all previously paid
premiums or the cash surrender value of the policy, whichever is lower, if the
agreement or the policy is terminated. In the event of death of the insured, the
Company will be entitled to a refund of all previously paid premiums. These
55
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE BENEFITS AND STOCK INCENTIVE PLANS (CONTINUED)
policies had cash surrender values of $759,000 and $958,000 at December 31, 1997
and 1996, respectively. Beginning in 1997, the Company began to utilize the cash
surrender value from the related life insurance policies to fund the premiums
due on the policies.
13. INCOME TAXES
The components of income tax expense (benefit) for the three years ended
December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Provision for deferred taxes:
Federal................................................... $ (21,964) $ 32,641 $ 17,078
State..................................................... (3,877) 3,047 2,440
---------- --------- ---------
Provision for income taxes.............................. (25,841) 35,688 19,518
Tax effect of extraordinary items......................... (9,700) -- (2,571)
---------- --------- ---------
Applicable income tax expense (benefit), after
extraordinary items................................... $ (35,541) $ 35,688 $ 16,947
---------- --------- ---------
---------- --------- ---------
</TABLE>
The reconciliation between income tax expense (benefit) and the amount
computed by applying the statutory federal income tax rate of 35% for the three
years ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Federal tax at statutory rate............................... $ (23,737) $ 33,601 $ 17,078
State income tax, net of federal benefit.................... (2,294) 3,715 2,440
Other....................................................... 190 (1,628) --
---------- --------- ---------
Provision for income taxes................................ (25,841) 35,688 19,518
Tax effect of extraordinary items........................... (9,700) -- (2,571)
---------- --------- ---------
Applicable income taxes, after extraordinary items........ $ (35,541) $ 35,688 $ 16,947
---------- --------- ---------
---------- --------- ---------
Effective income tax rate................................. (38.0%) 37.2% 40.0%
</TABLE>
Deferred income taxes are provided for temporary differences between pretax
income for financial reporting purposes and taxable income. The tax-effected
temporary differences and carryforwards which
56
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES (CONTINUED)
comprise the significant components of the Company's deferred tax assets and
liabilities as of December 31, are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
---------- ----------
<S> <C> <C>
Deferred Tax Assets:
Securitization expenses................................................................. $ 6,849 $ 5,089
Other................................................................................... 2,154 1,364
---------- ----------
Gross deferred tax assets............................................................... 9,003 6,453
Deferred Tax Liabilities:
Gain on securitizations................................................................. (87,301) (84,595)
Other................................................................................... (2,032) (3,796)
---------- ----------
Gross deferred tax liabilities.......................................................... (89,333) (88,391)
---------- ----------
Net temporary differences................................................................. (80,330) (81,938)
Net operating loss carryforwards (expiring 2006-2012)..................................... 61,484 27,551
---------- ----------
Net deferred tax liability.............................................................. $ (18,846) $ (54,387)
---------- ----------
---------- ----------
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $161.8 million which are available
to offset future federal taxable income and expire no earlier than 2006. No
valuation allowance was required as of December 31, 1997 or 1996 because it is
more likely than not that the deferred tax asset will be realized against future
taxable income. The timing of the realization of the benefits related to a
portion of the income tax net operating loss carryforwards is limited on an
annual basis under Section 382 of the Internal Revenue Code.
14. DERIVATIVE ACTIVITIES AND OFF-BALANCE SHEET RISK
During the three years ended December 31, 1997, the Company entered into
several hedging transactions to manage its gross interest rate spread on loans
held for sale. The Company agreed to sell forward U.S. Treasuries that most
closely parallel the average life of its portfolio of loans held for sale.
Hedging gains and losses are recognized as a component of the gain on sale of
loans on the date such loans are sold. As of December 31, 1997 and 1996, the
Company had entered into the following agreements to sell forward two year U.S.
Treasuries:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
---------- ----------
<S> <C> <C>
Notional amount outstanding........................................... $ 800,000 $ 700,000
Unrealized gains (losses) on outstanding hedging transactions......... $ (6,071) $ 484
</TABLE>
The hedging transactions outstanding at December 31, 1997 are expected to
close in March through June 1998.
Net realized hedging gains (losses) during the three year period ended
December 31 1997 were:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
Realized gains (losses)...................................... $ (8,709) $ (349) $ (11,719)
</TABLE>
See discussion of the Company's hedging policy in "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Capital
Resources--Hedging and Pre-funding Strategy."
57
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" (SFAS 107) requires the disclosure of estimated
fair values of all asset, liability and off-balance sheet financial instruments.
Fair value estimates under SFAS 107 are determined as of a specific point in
time utilizing various assumptions and estimates.
Estimated carrying values, fair values and various methods and assumptions
used in valuing the Company's financial instruments as of December 31, 1997 and
1996 are set forth below:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
CARRYING CARRYING
(Dollars in thousands) VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents.................. $ 17,274 $ 17,274 $ 16,057 $ 16,057
Due from securitization trust.............. 107,207 107,207 177,076 177,076
Auto loans held for sale................... 49,133 49,133 36,285 36,285
Finance income receivable.................. 371,985 371,985 362,916 362,916
Restricted cash in spread accounts......... 250,297 250,297 142,977 142,977
Financial liabilities:
Amounts due under warehouse facilities..... 30,880 30,880 111,140 111,140
Senior term notes.......................... 365,640 372,113 145,000 161,000
Senior subordinated notes.................. 30,000 28,800 30,000 29,550
Junior subordinated notes.................. 20,772 20,772 23,689 23,689
</TABLE>
CASH AND CASH EQUIVALENTS, DUE FROM SECURITIZATION TRUST, RESTRICTED CASH IN
SPREAD ACCOUNTS, AMOUNTS DUE UNDER WAREHOUSE FACILITIES AND JUNIOR SUBORDINATED
NOTES. Due to the nature of these accounts, carrying value approximates fair
value.
FINANCE INCOME RECEIVABLE. At December 31, 1997 the carrying value is stated
at fair value in accordance with SFAS 125. At December 31, 1996 the carrying
value approximates fair value determined based upon discounting future cash
flows at market rates using historical prepayment speeds and loss provisions.
SENIOR TERM NOTES. The fair value is determined using available market
quotes.
SENIOR SUBORDINATED NOTES. The fair value is determined using available
market quotes.
58
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts) 1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Numerator:
Net income (loss) before extraordinary items...................... $ (41,979) $ 60,316 $ 29,317
Preferred dividends............................................... -- (1,153) (2,213)
------------- ------------- -------------
------------- ------------- -------------
Numerator for basic earnings per share--income (loss) before
extraordinary items available to common stockholders............ (41,979) 59,163 27,104
Effect of dilutive securities:
Preferred Stock Dividends......................................... -- 1,153 2,213
------------- ------------- -------------
Numerator for diluted earnings per share--income (loss) before
extraordinary items available to common shareholders after
assumed conversions............................................. $ (41,979) $ 60,316 $ 29,317
------------- ------------- -------------
------------- ------------- -------------
Denominator:
Denominator for basic earnings per share--weighted average
shares.......................................................... 38,700,346 30,897,426 17,718,603
Effect of dilutive securities:
Options and Warrants.............................................. 556,442 2,484,195 3,723,992
Convertible Exchangeable Preferred Stock.......................... -- 3,068,374 4,993,170
------------- ------------- -------------
Dilutive potential common shares.................................... 556,442 5,552,569 8,717,162
------------- ------------- -------------
Denominator for diluted earnings per share--adjusted weighted
average shares and assumed conversions.......................... 39,256,788 36,449,995 26,435,765
------------- ------------- -------------
------------- ------------- -------------
Basic earnings (loss) per share before extraordinary items.......... $ (1.08) $ 1.91 $ 1.53
------------- ------------- -------------
------------- ------------- -------------
Diluted earnings (loss) per share before
Extraordinary items (1)........................................... $ (1.08) $ 1.65 $ 1.11
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
- ------------------------
(1) In 1997, the weighted average shares under the diluted computation have an
anti-dilutive effect, therefore diluted earnings per share will be shown
equal to basic earnings per share.
Options to purchase 4.9 million shares of common stock at prices between
$10.50 and $23.88 per share were outstanding during 1997 but were not included
in the computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares and,
therefore, the effect would be antidulitive. For additional disclosures
regarding the employee stock options and the warrants, see Notes 11 and 12 to
the Consolidated Financial Statements.
59
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. UNAUDITED SELECTED QUARTERLY DATA
FOURTH QUARTER RESULTS OF OPERATIONS
The Company purchased $582.1 million of automobile loans in the fourth
quarter of 1997 compared to $740.9 million for the same period in 1996, and
securitized $587.8 million in 1997 compared to $720.2 million in 1996. Net
income in the fourth quarter of 1997 was $4.0 million compared to $17.4 million
in 1996. The reduction in loan securitization volume, as well as an increase in
the loss rate, servicing fee and discount factor assumptions utilized in the
Company's computation of gain on sale in the fourth quarter of 1997, resulted in
a decrease in gain on sale to $25.5 million from $35.0 million in the same
period a year ago. Servicing fee income increased to $20.3 million in the fourth
quarter of 1997 from $12.6 million for the same period in 1996 primarily due to
an increase in the average servicing portfolio outstanding to $4.9 billion
during the fourth quarter of 1997 compared with $3.6 billion in the same period
of 1996. Operating expenses increased to $41.7 million in the fourth quarter of
1997 from $29.0 million in the same period of 1996 primarily due to increased
salaries and benefits reflecting an increase in employees as well as increased
servicing and collection costs associated with an increase in the proportion of
Classic loans included in the Company's servicing portfolio and an increase in
the seasoning of the overall servicing portfolio.
60
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. UNAUDITED SELECTED QUARTERLY DATA (CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
(Dollars in thousands except per share DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30,
amounts) 1997 1997 1997 1997 1996 1996
------------ ------------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES: (1)
Net interest margin........................... $ 14,942 $ 17,157 $ 16,328 $ 16,072 $ 15,240 $ 15,571
Gain on sale of auto loans.................... 25,458 28,788 26,459 (77,887) 34,979 30,113
Service fee income............................ 20,311 17,614 15,992 13,877 12,551 11,465
Other non-interest income..................... 62 105 60 75 114 (77)
------------ ------------- --------- --------- ------------ -------------
Total revenues.............................. 60,773 63,664 58,839 (47,863) 62,884 57,072
EXPENSES:
Salaries and benefits......................... 15,933 16,230 15,115 14,478 12,555 10,286
General and administrative and other operating
expenses.................................... 25,815 24,471 23,810 26,165 16,397 13,107
Long-term debt and other interest expense..... 12,574 10,400 10,651 7,591 6,584 6,660
------------ ------------- --------- --------- ------------ -------------
Total expenses.............................. 54,322 51,101 49,576 48,234 35,536 30,053
------------ ------------- --------- --------- ------------ -------------
Operating income (loss) before income tax and
extraordinary item.......................... 6,451 12,563 9,263 (96,097) 27,348 27,019
Income tax provision (benefit)................ 2,451 4,774 3,520 (36,586) 9,982 9,862
------------ ------------- --------- --------- ------------ -------------
Income (loss) before extraordinary item....... 4,000 7,789 5,743 (59,511) 17,366 17,157
Extraordinary item, net of tax................ -- -- -- (15,828) -- --
------------ ------------- --------- --------- ------------ -------------
Net income (loss)........................... $ 4,000 $ 7,789 $ 5,743 $ (75,339) $ 17,366 $ 17,157
------------ ------------- --------- --------- ------------ -------------
------------ ------------- --------- --------- ------------ -------------
BASIC EARNINGS PER SHARE: (2)
Income (loss) per share before extraordinary
item........................................ $ 0.10 $ 0.20 $ 0.15 $ (1.55) $ 0.48 $ 0.50
Extraordinary item per share.................. -- -- -- (0.41) -- --
------------ ------------- --------- --------- ------------ -------------
Net income (loss) per share................. $ 0.10 $ 0.20 $ 0.15 $ (1.96) $ 0.48 $ 0.50
------------ ------------- --------- --------- ------------ -------------
------------ ------------- --------- --------- ------------ -------------
DILUTED EARNINGS PER SHARE: (2)
Income (loss) per share before extraordinary
item........................................ $ 0.10 $ 0.20 $ 0.15 $ (1.55) $ 0.45 $ 0.44
Extraordinary item per share.................. -- -- -- (0.41) -- --
------------ ------------- --------- --------- ------------ -------------
Net income (loss) per share................. $ 0.10 $ 0.20 $ 0.15 $ (1.96) $ 0.45 $ 0.44
------------ ------------- --------- --------- ------------ -------------
------------ ------------- --------- --------- ------------ -------------
Weighted average shares outstanding:
Basic....................................... 38,806,897 38,740,078 38,702,011 38,358,743 35,883,440 33,478,304
Diluted..................................... 39,242,445 39,231,962 39,182,748 38,358,743 38,935,961 39,260,562
<CAPTION>
(Dollars in thousands except per share JUNE 30, MARCH 31,
amounts) 1996 1996
--------- ---------
<S> <C> <C>
REVENUES: (1)
Net interest margin........................... $ 13,391 $ 9,881
Gain on sale of auto loans.................... 25,452 25,229
Service fee income............................ 10,657 8,841
Other non-interest income..................... 43 45
--------- ---------
Total revenues.............................. 49,543 43,996
EXPENSES:
Salaries and benefits......................... 8,813 9,097
General and administrative and other operating
expenses.................................... 11,124 10,919
Long-term debt and other interest expense..... 6,433 5,516
--------- ---------
Total expenses.............................. 26,370 25,532
--------- ---------
Operating income (loss) before income tax and
extraordinary item.......................... 23,173 18,464
Income tax provision (benefit)................ 8,458 7,386
--------- ---------
Income (loss) before extraordinary item....... 14,715 11,078
Extraordinary item, net of tax................ -- --
--------- ---------
Net income (loss)........................... $ 14,715 $ 11,078
--------- ---------
--------- ---------
BASIC EARNINGS PER SHARE: (2)
Income (loss) per share before extraordinary
item........................................ $ 0.46 $ 0.46
Extraordinary item per share.................. -- --
--------- ---------
Net income (loss) per share................. $ 0.46 $ 0.46
--------- ---------
--------- ---------
DILUTED EARNINGS PER SHARE: (2)
Income (loss) per share before extraordinary
item........................................ $ 0.40 $ 0.37
Extraordinary item per share.................. -- --
--------- ---------
Net income (loss) per share................. $ 0.40 $ 0.37
--------- ---------
--------- ---------
Weighted average shares outstanding:
Basic....................................... 31,019,492 23,138,424
Diluted..................................... 37,178,197 29,931,178
</TABLE>
- ------------------------------
(1) As of January 1, 1997, in conjunction with the adoption of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities", the Company began
recognizing collection fees and interest on collection accounts earned by
the Company as servicer of the loans as a component of servicing fee income.
This change affects the presentation of net interest margin, other
non-interest income and servicing fee income for all quarters presented.
This reclassification had no impact on total revenue or net income (loss).
(2) Earnings per share amounts for all quarters presented have been restated to
comply with Statement of Financial Accounting Standards No. 128, "Earnings
per Share."
61
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
(Dollars in thousands) 1997 1997 1997 1997 1996
------------- ------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........................ $ 17,274 $ 17,720 $ 28,135 $ 23,596 $ 16,057
Due from securitization trust.................... 107,207 149,430 168,211 157,694 177,076
Auto loans held for sale......................... 49,133 55,630 47,472 40,037 36,285
Finance income receivable........................ 371,985 353,019 338,092 301,045 362,916
Restricted cash in spread accounts............... 250,297 226,566 189,643 164,091 142,977
Other assets..................................... 49,854 49,891 51,041 52,086 42,919
------------- ------------- --------- ----------- -------------
Total assets................................... $ 845,750 $ 852,256 $ 822,594 $ 738,549 $ 778,230
------------- ------------- --------- ----------- -------------
------------- ------------- --------- ----------- -------------
LIABILITIES & EQUITY
Amounts due under warehouse facilities........... $ 30,880 $ 126,263 $ 97,722 $ 30,927 $ 111,140
Senior notes..................................... 365,640 291,886 291,671 291,457 145,000
Subordinated notes............................... 50,772 51,294 51,742 52,804 53,689
Capital lease obligations........................ 5,368 5,942 6,583 7,218 7,729
Deferred income taxes............................ 18,846 16,394 11,620 8,100 54,387
Accounts payable and accrued liabilities......... 26,302 16,495 27,986 18,940 13,192
Shareholders' equity............................. 347,942 343,982 335,270 329,103 393,093
------------- ------------- --------- ----------- -------------
Total liabilities and equity................... $ 845,750 $ 852,256 $ 822,594 $ 738,549 $ 778,230
------------- ------------- --------- ----------- -------------
------------- ------------- --------- ----------- -------------
<CAPTION>
SEPTEMBER 30, JUNE 30, MARCH 31,
(Dollars in thousands) 1996 1996 1996
------------- --------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................ $ 3,593 $ 22,575 $ 22,552
Due from securitization trust.................... 188,373 151,635 115,000
Auto loans held for sale......................... 18,925 52,300 82,857
Finance income receivable........................ 307,953 264,466 232,007
Restricted cash in spread accounts............... 122,071 101,948 79,779
Other assets..................................... 42,910 37,735 33,542
------------- --------- -----------
Total assets................................... $ 683,825 $ 630,659 $ 565,737
------------- --------- -----------
------------- --------- -----------
LIABILITIES & EQUITY
Amounts due under warehouse facilities........... $ 38,486 $ 17,837 $ 127,224
Senior notes..................................... 145,000 145,000 145,000
Subordinated notes............................... 53,563 52,288 46,595
Capital lease obligations........................ 8,049 7,446 6,635
Deferred income taxes............................ 44,405 34,543 26,085
Accounts payable and accrued liabilities......... 20,059 16,748 21,633
Shareholders' equity............................. 374,263 356,797 192,565
------------- --------- -----------
Total liabilities and equity................... $ 683,825 $ 630,659 $ 565,737
------------- --------- -----------
------------- --------- -----------
</TABLE>
62
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Company is incorporated herein by
reference to the descriptions set forth under the caption "Election of
Directors" in the Proxy Statement for the Annual Meeting of Shareholders to be
held May 28, 1998 (the "1998 Proxy Statement"). Information regarding executive
officers of the Company is incorporated herein by reference to Item 1 of this
Form 10-K under the caption "Executive Officers" on page 16.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by
reference to the descriptions set forth under the caption "Executive
Compensation" in the 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management of the Company is incorporated herein by reference to the information
set forth under the caption "Security Ownership of Certain Beneficial Owners and
Management" in the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions with
the Company is incorporated herein by reference to the information set forth
under the caption "Certain Transactions" in the 1998 Proxy Statement.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report.
(1) Financial Statements of Arcadia Financial Ltd.:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Financial statement schedules have been omitted because they are not
applicable or because the required information is contained in the
financial statements or notes thereto.
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(3) Exhibits
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3.1 Restated Articles of Incorporation of the Registrant, as amended
(incorporated by reference to Exhibit No. 3.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
3.2 Restated Bylaws of the Registrant, as amended (incorporated by reference to
Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997).
4.1 Rights Agreement dated as of November 1, 1996, between the Registrant and
Norwest Bank Minnesota, National Association, as Rights Agent
(incorporated by reference to Exhibit 1 to the Registrant's Registration
Statement on Form 8-A filed November 7, 1996).
4.2 Amendment No. 1 to Rights Agreement, dated January 16, 1998, to Rights
Agreement, dated as of November 1, 1996 between Arcadia Financial Ltd. And
Norwest Bank Minnesota, N.A. (incorporated by reference to exhibit 4.1 to
the Registrant's current report on Form 8-K dated January 8, 1998 and
filed January 20, 1998).
4.3 First Amendment and Restatement, dated as of April 28, 1995, of Indenture,
dated July 1, 1994, between the Registrant and Norwest Bank Minnesota,
National Association, as Trustee, relating to the Registrant's unsecured
Extendible Notes and Fixed-Term Notes, including forms of Notes
(incorporated by reference to Exhibit No. 4.8.1 to Post-Effective
Amendment No. 2 on Form S-3 to Registrant's Registration Statement on Form
S-1, File No. 33-81512).
4.4 Second Supplemental Indenture dated as of March 11, 1997 to Indenture dated
as of April 28, 1995 between the Registrant and Norwest Bank Minnesota,
National Association (incorporated by reference to Exhibit 4.7 to the
Registrant's current report on Form 8-K dated March 12, 1997 and filed
March 18, 1997).
4.5 Indenture dated as of March 15, 1996, between the Registrant and Norwest
Bank Minnesota, National Association, as Trustee, relating to the
Registrant's Subordinated Notes, Series 1996-A due 2001 (incorporated by
reference to Exhibit 4.5 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996).
4.6 First Supplemental Indenture, dated as of March 15, 1996, to Indenture,
dated as of March 15, 1996, between the Registrant and Norwest Bank
Minnesota, National Association, as Trustee, relating to the Registrant's
Subordinated Notes, Series 1996-A due 2001 (incorporated by reference to
Exhibit 4.6 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996).
4.7 Indenture dated as of March 12, 1997, between the Registrant and Norwest
Bank Minnesota, National Association, as Trustee (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K
dated March 12, 1997 and filed March 18, 1997).
4.8 First Supplemental Indenture, dated as of March 12, 1997 between the
Registrant and Norwest Bank Minnesota, National Association, as Trustee
(incorporated by reference to Exhibit 4.2 to the Registrant's Current
Report on Form 8-K dated March 12, 1997 and filed March 18, 1997).
4.9 Warrant Agreement, dated as of March 12, 1997 by and between the Registrant
and Norwest Bank Minnesota, National Association, as Warrant Agent
(incorporated by reference to Exhibit 4.3 to the Registrant's Current
Report on Form 8-K dated March 12, 1997 and filed March 18, 1997).
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4.10 Form of Unit (incorporated by reference to Exhibit 4.4 to the Registrant's
Current Report on Form 8-K dated March 12, 1997 and filed March 18, 1997).
4.11 Form of 11.5% Senior Notes due March 15, 2007 (incorporated by reference to
Exhibit 4.5 to the Registrant's Current Report on Form 8-K dated March 12,
1997 and filed March 18, 1997).
4.12 Form of Initial Warrant Certificate (incorporated by reference to Exhibit
4.6 to the Registrant's Current Report on Form 8-K dated March 12, 1997
and file March 18, 1997).
4.13 Second Supplemental Indenture, dated as of October 8, 1997, to Indenture,
dated as of March 12, 1997, between the Registrant and Norwest Bank
Minnesota, National Association, as Trustee, including Form of Notes
(incorporated by reference to Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated October 8, 1997, filed October 15, 1997).
10.1 Amended and Restated Trust Agreement, dated as of July 31, 1997, between
Arcadia Receivables Finance Corp. II and Wilmington Trust Company
(incorporated by reference to Exhibit 10.5 to the Registrant's Current
Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
10.2 Amended and Restated Indenture, dated as of July 31, 1997, between Olympic
Automobile Receivables Warehouse Trust and Norwest Bank Minnesota,
National Association (incorporated by reference to Exhibit 10.6 to the
Registrant's Current Report on Form 8-K dated October 1, 1997, filed
October 1, 1997).
10.3 Amended and Restated Receivables Purchase Agreement and Assignment, dated as
of July 31, 1997, between Arcadia Receivables Finance Corp. II and Arcadia
Financial Ltd. (incorporated by reference to Exhibit 10.7 to the
Registrant's Current Report on Form 8-K dated October 1, 1997, filed
October 1, 1997).
10.4 Amended and Restated Sale and Servicing Agreement, dated as of July 31,
1997, among Olympic Automobile Receivables Warehouse Trust, Arcadia
Receivables Finance Corp. II, Arcadia Financial Ltd. and Norwest Bank
Minnesota, National Association (incorporated by reference to Exhibit 10.8
to the Registrant's Current Report on Form 8-K dated October 1, 1997,
filed October 1, 1997).
10.5 Amended and Restated Note Purchase Agreement, dated as of July 31, 1997,
among Olympic Automobile Receivables Warehouse Trust, Arcadia Financial
Ltd., Delaware Funding Corporation and Morgan Guaranty Trust Company of
New York (incorporated by reference to Exhibit 10.10 to the Registrant's
Current Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
10.6 Amended and Restated Certificate Purchase Agreement, dated as of July 31,
1997, among Olympic Automobile Receivables Warehouse Trust, Arcadia
Financial Ltd., each Purchaser (as defined) and Morgan Guaranty Trust
Company of New York (incorporated by reference to Exhibit 10.11 to the
Registrant's Current Report on Form 8-K dated October 1, 1997, filed
October 1, 1997).
10.7 Asset Purchase Agreement, dated as of July 31, 1997, among Morgan Guaranty
Trust Company of New York and certain parties listed therein (incorporated
by reference to Exhibit 10.12 to the Registrant's Current Report on Form
8-K dated October 1, 1997, filed October 1, 1997).
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10.8 Receivables Purchase Agreement and Assignment between Olympic Receivables
Finance Corp. ("ORFC") and the Registrant (incorporated by reference to
Exhibit 10.29 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.9 Repurchase Agreement dated as of December 3, 1996 among Arcadia Receivables
Conduit Corp. ("ARCC") and ORFC (incorporated by reference to Exhibit
10.30 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.10 First Amendment, dated as of August 4, 1997, to Repurchase Agreement, dated
as of December 3, 1996, by and between Arcadia Receivables Conduit Corp.
and Arcadia Receivables Finance Corp. (incorporated by reference to
Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated October
1, 1997, filed October 1, 1997).
10.11 Second Amendment, dated as of November 14, 1997, to the Receivables Purchase
Agreement and Assignment between Olympic Receivables Finance Corp. and the
Registrant (filed herewith).
10.12 Servicing Agreement dated as of December 3, 1996 among ARCC, ORFC, the
Registrant, in its individual capacity and as Servicer, Bank of America
National Trust and Savings Association, as agent, and Norwest Bank
Minnesota, National Association, as backup servicer, collateral agent and
indenture trustee (incorporated by reference to Exhibit 10.31 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996).
10.13 First Amendment, dated as of August 4, 1997 to Servicing Agreement, dated as
of December 3, 1996, among Arcadia Receivables Conduit Corp., Arcadia
Financial Ltd. (formerly known as Olympic Financial Ltd.), in its
individual capacity and as Servicer, and Bank of America National Trust
and Savings Association (incorporated by reference to Exhibit 10.3 to the
Registrant's Current Report on Form 8-K dated October 1, 1997, filed
October 1, 1997).
10.14 Second Amendment, dated as of November 14, 1997 to Servicing Agreement,
dated as of December 3, 1996, among Arcadia Receivables Conduit Corp.,
Arcadia Financial Ltd. (formerly known as Olympic Financial Ltd.), in its
individual capacity and as Servicer, and Bank of America National Trust
and Savings Association (filed herewith).
10.15 Third Amended and Restated Stock Pledge Agreement dated as of December 3,
1996 among the Registrant and Norwest Bank Minnesota, National
Association, as collateral agent (incorporated by reference to Exhibit
10.32 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.16 Amended and Restated Custodian Agreement, dated as of July 31, 1997, among
Arcadia Financial Ltd., Norwest Bank Minnesota, National Association, and
Olympic Automobile Receivables Warehouse Trust (incorporated by reference
to Exhibit 10.9 to the Registrant's Current Report on Form 8-K dated
October 1, 1997, filed October 1, 1997).
10.17 Security Agreement dated as of December 3, 1996 among the Registrant, ORFC,
ARCC, Financial Security Assurance Inc. ("FSA"), Bank of America National
Trust and Savings Association and Norwest Bank Minnesota, National
Association, as indenture trustee and collateral agent (incorporated by
reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996).
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10.18 Indenture dated as of December 3, 1996 between ARCC and Norwest Bank
Minnesota, National Association, as trustee and collateral agent
(incorporated by reference to Exhibit 10.34 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.19 First Supplemental Indenture, dated as of November 14, 1997, to the
Indenture dated as of December 3, 1996 between ARCC and Norwest Bank
Minnesota, National Association, as trustee and collateral agent (filed
herewith).
10.20 Insurance and Indemnity Agreement dated as of December 3, 1996 among FSA,
the Registrant, ORFC and ARCC (incorporated by reference to Exhibit 10.35
to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1996).
10.21 First Amendment, dated as of August 1, 1997 to the Insurance and Idemnity
Agreement, dated as of December 3, 1996, among Financial Security
Assurance Inc., Arcadia Receivables Conduit Corp., Arcadia Receivables
Finance Corp. and Arcadia Financial Ltd. (formerly known as Olympic
Financial Ltd.), as Servicer, and Bank of America National Trust and
Savings Association (incorporated by reference to Exhibit 10.4 to the
Registrant's Current Report on Form 8-K dated October 1, 1997, filed
October 1, 1997).
10.22 Second Amendment, dated as of November 14, 1997 to the Insurance and
Idemnity Agreement, dated as of December 3, 1996, among Financial Security
Assurance Inc., Arcadia Receivables Conduit Corp., Arcadia Receivables
Finance Corp. and Arcadia Financial Ltd. (formerly known as Olympic
Financial Ltd.), as Servicer (filed herewith).
10.23 US $300,000,000 Floating Rate FSA Insured Automobile Receivables-backed Note
Purchase Agreement dated as of December 3, 1996 among ARCC, Receivables
Capital Corporation, and Bank of America National Trust and Savings
Association, as administrator of Receivables Capital Corporation and as
agent for the liquidity providers (incorporated by reference to Exhibit
10.36 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.24 First Amendment, dated as of August 9, 1997 to Note Purchase Agreement,
dated as of December 3, 1996, among Arcadia Financial Ltd. (formerly known
as Olympic Financial Ltd.), Arcadia Receivables Conduit Corp., Receivable
Capital Corporation and Bank of America National Trust and Savings
Association (incorporated by reference to Exhibit 10.1 to the Registrant's
Current Report on Form 8-K dated October 1, 1997 and filed October 1,
1997).
10.25 Second Amendment, dated as of November 14, 1997, to Note Purchase Agreement,
dated as of December 3, 1996, among Arcadia Financial Ltd. (formerly known
as Olympic Financial Ltd.), Arcadia Receivables Conduit Corp., Receivable
Capital Corporation and Bank of America National Trust and Savings
Association (filed herewith).
10.26 Spread Account Agreement dated as of March 25, 1993, as amended and restated
as of December 16, 1997, among the Registrant, Arcadia Receivables Finance
Corp. ("ARFC"), Financial Security Assurance Inc. ("FSA"), The Chase
Manhattan Bank, as Trustee and Norwest Bank Minnesota, National
Association, as Collateral Agent (filed herewith).
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10.27 Warehousing Series Supplement dated as of December 3, 1996 to Spread Account
Agreement dated as of March 25, 1993, as amended and restated as of
December 3, 1996, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as trustee and collateral agent
(incorporated by reference to Exhibit 10.38 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.28 Amendment, dated as of December 16, 1997, among the Registrant, ARFC, FSA
and Norwest Bank Minnesota, National Association, to the Series 1997-C
Supplement, Series 1997-B Supplement, Series 1997-A Supplement, Series
1996-D Supplement, Series 1996-C Supplement, Series 1996-B Supplement,
Series 1996-A Supplement, Series 1995-E Supplement, Series 1995-D
Supplement, Series 1995-C Supplement, Series 1995-B Supplement, Series
1995-A Supplement, Series 1994-B Supplement, Series 1994-A Supplement,
Series 1993-C Supplement, and Series 1993-B Supplement to the Spread
Account Agreement (filed herewith).
10.29 Series 1997-A Supplement, dated March 20, 1997, to Spread Account Agreement,
dated as of March 25, 1993, as amended and restated as of March 1, 1997,
among the Registrant, Olympic Receivables Finance Corp., Financial
Security Assurance Inc. and Norwest Bank Minnesota, National Association,
as Trustee and Collateral Agent (incorporated by reference to Exhibit 10.2
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997).
10.30 Series 1997-B Supplement, dated June 19, 1997, to Spread Account Agreement,
dated as of March 25, 1993, as amended and restated as of June 1, 1997,
among the Registrant, Arcadia Receivables Finance Corp., Financial
Security Assurance Inc., The Chase Manhattan Bank, as Trustee, and Norwest
Bank Minnesota, National Association, as Collateral Agent (incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997).
10.31 Series 1997-C Supplement, dated as of September 18, 1997, to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of June
1, 1997, among Arcadia Financial Ltd., Arcadia Receivables Finance Corp.,
Financial Security Assurance Inc., The Chase Manhattan Bank and Norwest
Bank Minnesota, National Association (incorporated by reference to Exhibit
10.13 to the Registrant's Current Report on Form 8-K dated October 1,
1997, filed October 1, 1997).
10.32 Series 1997-D Supplement, dated as of December 16, 1997, to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of June
1, 1997, among Arcadia Financial Ltd., Arcadia Receivables Finance Corp.,
Financial Security Assurance Inc., The Chase Manhattan Bank and Norwest
Bank Minnesota, National Association (filed herewith).
10.33 Insurance and Indemnity Agreement, dated as of March 20, 1997, among the
Registrant, Financial Security Assurance Inc., Olympic Automobile
Receivables Trust, 1997-A, Olympic First GP Inc., Olympic Second GP Inc.,
and Olympic Receivables Finance Corp. (incorporated by reference to
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997).
10.34 Insurance and Indemnity Agreement, dated as of June 19, 1997, among the
Registrant, Financial Security Assurance Inc., Arcadia Automobile
Receivables Trust, 1997-B and Arcadia Receivables Finance Corp.
(incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997).
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10.35 Insurance and Indemnity Agreement, dated as of September 18, 1997, among
Financial Assurance Inc., Arcadia Automobile Receivables Trust, 1997-C,
Arcadia Receivables Finance Corp. and Arcadia Financial Ltd. (incorporated
by reference to Exhibit 10.14 to the Registrant's Current Report on Form
8-K dated October 1, 1997 and filed October 1, 1997).
10.36 Insurance and Indemnity Agreement, dated as of December 16, 1997, among
Financial Assurance Inc., Arcadia Automobile Receivables Trust, 1997-D
Arcadia Receivables Finance Corp. and Arcadia Financial Ltd. (filed
herewith).
10.37 Amendment, dated as of December 16, 1997, to the Series 1997-C Insurance and
Indemnity Agreement, the Series 1997-B Insurance and Indemnity Agreement,
the Series 1997-A Insurance and Indemnity Agreement, the Series 1996-D
Insurance and Indemnity Agreement, the Series 1996-C Insurance and
Indemnity Agreement, the Series 1996-B Insurance and Indemnity Agreement,
the Series 1996-A Insurance and Indemnity Agreement, the Series 1995-E
Insurance and Indemnity Agreement, the Series 1995-D Insurance and
Indemnity Agreement, the Series 1995-C Insurance and Indemnity Agreement,
the Series 1995-B Insurance and Indemnity Agreement, the Series 1995-A
Insurance and Indemnity Agreement, the Series 1994-B Insurance and
Indemnity Agreement, the Series 1994-A Insurance and Indemnity Agreement,
the Series 1993-D Insurance and Indemnity Agreement, the Series 1993-C
Insurance and Indemnity Agreement, the Series 1993-B Insurance and
Indemnity Agreement, the Series 1993-A Insurance and Indemnity Agreement
(filed herewith).
10.38 Receivables Purchasing Agreement and Assignment, dated as of October 17,
1997, between Arcadia Receivables Finance Corp. III ("ARFC III") and the
Registrant (filed herewith).
10.39 Receivables Funding and Servicing Agreement, dated as of October 17, 1997,
among ARFC III, the Registrant, DLJ Mortgage Capital, Inc. ("DLJM"), as
Lenders and DLJM, as agent (filed herewith).
10.40 Collateral Agent Agreement, dated October 17, 1997, among DLJM, as agent,
Norwest Bank Minnesota, National Association, as collateral agent, the
Registrant and ARFC III (filed herewith).
10.41 Employment Agreement, dated as of January 6, 1997, between the Registrant
and Richard A. Greenawalt (incorporated by reference to Exhibit 10.59 to
the Registrant's Annual Report Form 10-K for the year ended December 31,
1996).
10.42 Employment Agreement, dated April 1, 1991, between the Registrant and Scott
H. Anderson and Amendment, dated September 3, 1991 (incorporated by
reference to Exhibit No. 10.29 to Registrant's Registration Statement on
Form S-18, File No. 33-43270C).
10.43 Extension and Amendment of Employment Agreement, dated July 1, 1993, between
the Registrant and Scott H. Anderson (incorporated by reference to Exhibit
No. 10.107 to Registrant's Annual Report on Form 10-K for the year ended
June 30, 1992).
10.44 Extension and Amendment of Employment Agreement, dated July 1, 1994, by and
between Scott H. Anderson and the Registrant (incorporated by reference to
Exhibit No. 10.36 to Registrant's Registration Statement on Form S-4, File
No. 33-81588).
10.45 Extension and Amendment of Employment Agreement, dated as of July 31, 1995,
between the Registrant and Scott H. Anderson (incorporated by reference to
Exhibit 10.37 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
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10.46 Amendment of Employment Agreement, dated as of December 20, 1995, by and
between the Registrant and Scott H. Anderson (incorporated by reference to
Exhibit 10.71 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.47 Employment Retention Agreement, dated as of November 7, 1996, between the
Registrant and Scott H. Anderson (incorporated by reference to Exhibit
10.72 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.48 Employment Agreement, dated February 1, 1994, between the Registrant and
John A. Witham (incorporated by reference to Exhibit No. 10.111 to the
Registrant's Registration Statement on Form S-1, File No. 33-81512).
10.49 Extension and Amendment of Employment Agreement, dated as of December 20,
1995, by and between the Registrant and John A. Witham (incorporated by
reference to Exhibit 10.39 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.50 Employment Retention Agreement, dated as of November 7, 1996, between the
Registrant and John A. Witham (incorporated by reference to Exhibit 10.75
to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1996).
10.51 Employment Agreement, dated December 5, 1994, between the Registrant and A.
Mark Berlin, Jr. (incorporated by reference to Exhibit 10.35 to
Registrant's Registration Statement on Form S-2, File No. 33-90108).
10.52 Extension and Amendment of Employment Agreement, dated as of December 20,
1995, by and between the Registrant and A. Mark Berlin, Jr. (incorporated
by reference to Exhibit 10.41 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995).
10.53 Employment Retention Agreement, dated as of November 7, 1996, between the
Registrant and A. Mark Berlin, Jr. (incorporated by reference to Exhibit
10.78 to the Registrant's Annual Report on form 10-K for the year ended
December 31, 1996).
10.54 Employment and Non-Compete Agreement, dated August 29, 1994, by and between
the Registrant and James D. Atkinson III (incorporated by reference to
Exhibit 10.43 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.55 Extension and Amendment of Employment Agreement, dated as of July 31, 1995,
by and between the Registrant and James D. Atkinson III (incorporated by
reference to Exhibit 10.44 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.56 Amendment of Employment Agreement, dated as of December 20, 1995, by and
between the Registrant and James D. Atkinson III (incorporated by
reference to Exhibit 10.81 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996).
10.57 Employment Retention Agreement, dated as of November 7, 1996, between the
Registrant and James D. Atkinson III (incorporated by reference to Exhibit
10.82 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.58 Amendment of Employment Retention Agreement, dated as of December 31, 1996,
by and between the Registrant and James D. Atkinson III (incorporated by
reference to Exhibit 10.83 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996).
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10.59 Employment and Non-Compete Agreement, dated September 21, 1994, by and
between the Registrant and Robert A. Barbee (incorporated by reference to
Exhibit 10.49 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.60 Extension and Amendment of Employment Agreement, dated as of November 1,
1995, by and between the Registrant and Robert A. Barbee (incorporated by
reference to Exhibit 10.50 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.61 Amendment of Employment Agreement, dated as of December 20, 1995, by and
between the Registrant and Robert A. Barbee (incorporated by reference to
Exhibit 10.86 to the Registrant's Annual Report on form 10-K for the year
ended December 31, 1996).
10.62 Employment Retention Agreement, dated as of November 7, 1996, between the
Registrant and Robert A. Barbee (incorporated by reference to Exhibit
10.87 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.63 Consulting Agreement, dated December 19, 1994, between the Registrant and
Warren Kantor (incorporated by reference to Exhibit 10.36 to Registrant's
Registration Statement on Form S-2, File No. 33-90108).
10.64 Consulting Agreement, dated as of January 1, 1996 between the Registrant and
Warren Kantor (incorporated by reference to Exhibit 10.89 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996).
10.65 Letter Agreement, dated August 26, 1996, between the Registrant and Warren
Kantor (incorporated by reference to Exhibit 10.90 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.66 Letter Agreement, dated December 18, 1996, between the Registrant and Warren
Kantor (incorporated by reference to Exhibit 10.91 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.67 Consulting Agreement, dated as of January 1, 1997, by and between the
Registrant and Warren Kantor (incorporated by reference to Exhibit 10.92
to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1996).
10.68 Non-Statutory Stock Option Agreement, dated December 19, 1994, between the
Registrant and Warren Kantor (incorporated by reference to Exhibit 10.37
to Registrant's Registration Statement on Form S-2, File No. 33-90108).
10.69 Non-Statutory Stock Option Agreement, dated January 1, 1996, by and between
the Registrant and Warren Kantor (incorporated by reference to Exhibit
10.60 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.70 Non-Statutory Stock Option Agreement, dated August 26, 1996, between the
Registrant and Warren Kantor (incorporated by reference to Exhibit 10.95
to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1996).
10.71 Non-Statutory Stock Option Agreement, dated December 18, 1996, between the
Registrant and Warren Kantor (incorporated by reference to Exhibit 10.96
to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1996).
10.72 Non-Statutory Stock Option Agreement, dated January 1, 1997, between the
Registrant and Warren Kantor (incorporated by reference to Exhibit 10.97
to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1996).
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10.73 Employment Agreement, dated as of May 1, 1997, between the Registrant and
Duane E. White (incorporated by reference to Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997).
10.74 Form of Identification Agreement by and between the Registrant and certain
of its officers and directors (incorporated by reference to Exhibit 10.15
to the Registrant's Current Report on Form 8-K dated October 1, 1997,
filed October 1, 1997).
10.75 Olympic Financial Ltd. 1990 Stock Option Plan, as amended to date
(incorporated by reference to Exhibit 10.12 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997).
10.76 1992 Director Option Plan, as amended to date (incorporated by reference to
Exhibit 10.13 to the Registrant's Quarterly Report on form 10-Q for the
quarter ended June 30, 1997).
10.77 Olympic Financial Ltd. Stock Purchase Plan (incorporated by reference to
Exhibit No. 10.90 to Registrant's Annual Report on Form 10-K for the year
ended June 30, 1992).
10.78 1994-1997 Restricted Stock Election Plan (incorporated by reference to
Exhibit 10.41 to Registrant's Registration Statement on Form S-2, File No.
33-90108).
10.79 1998-2000 Restricted Stock Election Plan, as amended to date (incorporated
by reference to Exhibit 10.102 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).
10.80 Warrant to Purchase Common Stock, dated August 11, 1992, between the
Registrant and Lincoln National Life Insurance Company (incorporated by
reference to Exhibit No. 10.85 to Registrant's Annual Report on Form 10-K
for the year ended June 30, 1992).
10.81 Warrant to Purchase Common Stock, dated August 11, 1992, between the
Registrant and Security Connecticut Life Insurance Company (incorporated
by reference to Exhibit No. 10.86 to Registrant's Annual Report on Form
10-K for the year ended June 30, 1992).
10.82 Warrant to Purchase Common Stock, dated June 24, 1992, between the
Registrant and NAP & Company (incorporated by reference to Exhibit No.
10.87 to Registrant's Annual Report on Form 10-K for the year ended June
30, 1992).
10.83 Warrant to Purchase Common Stock, dated June 24, 1992, between the
Registrant and Fuelship & Company (incorporated by reference to Exhibit
No. 10.88 to Registrant's Annual Report on Form 10-K for the year ended
June 30, 1992).
10.84 Warrant to Purchase Common Stock, dated June 24, 1992, between the
Registrant and BCI Growth L.P. (incorporated by reference to Exhibit No.
10.89 to Registrant's Annual Report on Form 10-K for the year ended June
30, 1992).
10.85 Warrant to Purchase Common Stock, dated December 17, 1993, between the
Registrant and John G. Kinnard and Company, Incorporated (incorporated by
reference to Exhibit 10.47 to Registrant's Registration Statement on Form
S-2, File No. 33-90108).
10.86 Warrant to Purchase Common Stock, dated September 1, 1994, between the
Registrant and Cede & Co. (incorporated by reference to Exhibit 10.48 to
Registrant's Registration Statement on Form S-2, File No. 33-90108).
10.87 Warrant to Purchase Common Stock, dated September 1, 1994, between the
Registrant and Booth & Co. (incorporated by reference to Exhibit 10.49 to
Registrant's Registration Statement on Form S-2, File No. 33-90108).
</TABLE>
72
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<C> <S>
10.88 Warrant to Purchase Common Stock, dated September 1, 1994, between the
Registrant and Sun Life Insurance Company of America (incorporated by
reference to Exhibit 10.50 to Registrant's Registration Statement on Form
S-2, File No. 33-90108).
12.1 Computation of Ratio of Earnings to Fixed Charges (filed herewith).
12.2 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends (filed herewith).
21.1 Subsidiaries of the Registrant (filed herewith).
23.1 Consent of Ernst & Young LLP (filed herewith).
27.1 Financial Data Schedule (filed herewith).
99.1 Cautionary Statement (filed herewith).
</TABLE>
- ------------------------
(a) On October 1, 1997, the Registrant filed a Current Report on Form 8-K, dated
October 1, 1997, reporting the $75 million 11 1/2% Senior Notes Indenture.
On October 6, 1997, the Registrant filed a Current Report on Form 8-K, dated
October 3, 1997, reporting that the Registrant agreed to sell $75 million of
the Registrant's 11.5% Senior Notes due 2007.
On October 7, 1997, the Registrant filed an amendment to the Current Report
on Form 8-K dated October 3, 1997, reporting the legal opinion of Dorsey &
Whitney LLP in connection with the Registrant's 11.5% Senior Notes due 2007.
On November 13, 1997, the Registrant filed a Current Report in Form 8-K,
dated October 8, 1997 reporting the Second Supplemental Indenture to the
Indenture dated as of March 12, 1997, relating to the Registrant's 11 1/2%
Senior Notes due 2007.
On November 24, 1997, the Registrant filed a Current Report on Form 8-K,
dated November 5, 1997, reporting certain information with regard to the
Registrant's performance as servicer of Olympic Automobile Receivables
Trust, 1997-A.
On November 24, 1997, the Registrant filed a Current Report on Form 8-K,
dated November 5, 1997, reporting certain information with regard to the
Registrant's performance as servicer of Arcadia Automobile Receivables
Trust, 1997-B.
On November 24, 1997, the Registrant filed a Current Report on Form 8-K,
dated November 5, 1997, reporting certain information with regard to the
Registrant's performance as servicer of Arcadia Automobile Receivables
Trust, 1997-C.
73
<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 Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized.
ARCADIA FINANCIAL LTD.
Date: March 10 , 1998 By: /s/ RICHARD A. GREENAWALT
------------------------------------------
Richard A. Greenawalt
PRESIDENT, CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard A. Greenawalt and John A. Witham, or
either of them (with full power to act alone), as his true and lawful
attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Annual Report on Form 10-K,
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, full power and authority to do and perform
each and every act and thing requisite or 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, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant, and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES
- ----------------------------------------------
<C> <S> <C>
/s/ RICHARD A. GREENAWALT President, Chief Executive Officer
----------------------------------- and Director (Principal Executive March 10, 1998
Richard A. Greenawalt Officer)
/s/ JOHN A. WITHAM Executive Vice President and Chief
----------------------------------- Financial Officer (Principal March 10, 1998
John A. Witham Financial Officer)
/s/ BRIAN S. ANDERSON Senior Vice President, Corporate
----------------------------------- Controller and Assistant Secretary March 10, 1998
Brian S. Anderson (Principal Accounting Officer)
/s/ WARREN KANTOR
----------------------------------- Chairman of the Board and Director March 10, 1998
Warren Kantor
/s/ SCOTT H. ANDERSON
----------------------------------- Director March 10, 1998
Scott H. Anderson
/s/ LAWRENCE H. BISTODEAU
----------------------------------- Director March 10, 1998
Lawrence H. Bistodeau
/s/ ROBERT J. CRESCI
----------------------------------- Director March 10, 1998
Robert J. Cresci
/s/ JAMES L. DAVIS
----------------------------------- Director March 10, 1998
James L. Davis
/s/ ROBERT A. MARSHALL
----------------------------------- Director March 10, 1998
Robert A. Marshall
</TABLE>
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INDEX TO EXHIBITS
(3) EXHIBITS
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EXHIBITS DESCRIPTION PAGE
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3.1 Restated Articles of Incorporation of the Registrant, as amended (incorporated by reference to
Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997).
3.2 Restated Bylaws of the Registrant, as amended (incorporated by reference to Exhibit 3.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
4.1 Rights Agreement dated as of November 1, 1996, between the Registrant and Norwest Bank Minnesota,
National Association, as Rights Agent (incorporated by reference to Exhibit 1 to the
Registrant's Registration Statement on Form 8-A filed November 7, 1996).
4.2 Amendment No. 1 to Rights Agreement, dated January 16, 1998, to Rights Agreement, dated as of
November 1, 1996 between Arcadia Financial Ltd. and Norwest Bank Minnesota, N.A. (incorporated
by reference to Exhibit 4.1 to the Registrant's current report on Form 8-K dated January 8,
1998 and filed January 20, 1998).
4.3 First Amendment and Restatement, dated as of April 28, 1995, of Indenture, dated July 1, 1994,
between the Registrant and Norwest Bank Minnesota, National Association, as Trustee, relating
to the Registrant's unsecured Extendible Notes and Fixed-Term Notes, including forms of Notes
(incorporated by reference to Exhibit No. 4.8.1 to Post-Effective Amendment No. 2 on Form S-3
to Registrant's Registration Statement on Form S-1, File No. 33-81512).
4.4 Second Supplemental Indenture dated as of March 11, 1997 to Indenture dated as of April 28, 1995
between the Registrant and Norwest Bank Minnesota, National Association (incorporated by
reference to Exhibit 4.7 to the Registrant's current report on Form 8-K dated March 12, 1997
and filed March 18, 1997).
4.5 Indenture dated as of March 15, 1996, between the Registrant and Norwest Bank Minnesota, National
Association, as Trustee, relating to the Registrant's Subordinated Notes, Series 1996-A due
2001 (incorporated by reference to Exhibit 4.5 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996).
4.6 First Supplemental Indenture, dated as of March 15, 1996, to Indenture, dated as of March 15,
1996, between the Registrant and Norwest Bank Minnesota, National Association, as Trustee,
relating to the Registrant's Subordinated Notes, Series 1996-A due 2001 (incorporated by
reference to Exhibit 4.6 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
4.7 Indenture dated as of March 12, 1997, between the Registrant and Norwest Bank Minnesota, National
Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated March 12, 1997 and filed March 18, 1997).
4.8 First Supplemental Indenture, dated as of March 12, 1997 between the Registrant and Norwest Bank
Minnesota, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the
Registrant's Current Report on Form 8-K dated March 12, 1997 and filed March 18, 1997).
</TABLE>
75
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EXHIBITS DESCRIPTION PAGE
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4.9 Warrant Agreement, dated as of March 12, 1997 by and between the Registrant and Norwest Bank
Minnesota, National Association, as Warrant Agent (incorporated by reference to Exhibit 4.3 to
the Registrant's Current Report on Form 8-K dated March 12, 1997 and filed March 18, 1997).
4.10 Form of Unit (incorporated by reference to Exhibit 4.4 to the Registrant's Current Report on Form
8-K dated March 12, 1997 and filed March 18, 1997).
4.11 Form of 11.5% Senior Notes due March 15, 2007 (incorporated by reference to Exhibit 4.5 to the
Registrant's Current Report on Form 8-K dated March 12, 1997 and filed March 18, 1997).
4.12 Form of Initial Warrant Certificate (incorporated by reference to Exhibit 4.6 to the Registrant's
Current Report on Form 8-K dated March 12, 1997 and filed March 18, 1997).
4.13 Second Supplemental Indenture, dated as of October 8, 1997, to Indenture, dated as of March 12,
1997, between the Registrant and Norwest Bank Minnesota, National Association, as Trustee,
including Form of Notes (incorporated by reference to Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated October 8, 1997, filed October 15, 1997).
10.1 Amended and Restated Trust Agreement, dated as of July 31, 1997, between Arcadia Receivables
Finance Corp. II and Wilmington Trust Company (incorporated by reference to Exhibit 10.5 to the
Registrant's Current Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
10.2 Amended and Restated Indenture, dated as of July 31, 1997, between Olympic Automobile Receivables
Warehouse Trust and Norwest Bank Minnesota, National Association (incorporated by reference to
Exhibit 10.6 to the Registrant's Current Report on Form 8-K dated October 1, 1997, filed
October 1, 1997).
10.3 Amended and Restated Receivables Purchase Agreement and Assignment, dated as of July 31, 1997,
between Arcadia Receivables Finance Corp. II and Arcadia Financial Ltd. (incorporated by
reference to Exhibit 10.7 to the Registrant's Current Report on Form 8-K dated October 1, 1997,
filed October 1, 1997).
10.4 Amended and Restated Sale and Servicing Agreement, dated as of July 31, 1997, among Olympic
Automobile Receivables Warehouse Trust, Arcadia Receivables Finance Corp. II, Arcadia Financial
Ltd. And Norwest Bank Minnesota, National Association (incorporated by reference to Exhibit
10.8 to the Registrant's Current Report on Form 8-K dated October 1, 1997, filed October 1,
1997).
10.5 Amended and Restated Note Purchase Agreement, dated as of July 31, 1997, among Olympic Automobile
Receivables Warehouse Trust, Arcadia Financial Ltd., Delaware Funding Corporation and Morgan
Guaranty Trust Company of New York (incorporated by reference to Exhibit 10.10 to the
Registrant's Current Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
10.6 Amended and Restated Certificate Purchase Agreement, dated as of July 31, 1997, among Olympic
Automobile Receivables Warehouse Trust, Arcadia Financial Ltd., each Purchaser (as defined) and
Morgan Guaranty Trust Company of New York (incorporated by reference to Exhibit 10.11 to the
Registrant's Current Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
</TABLE>
76
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10.7 Asset Purchase Agreement, dated as of July 31, 1997, among Morgan Guaranty Trust Company of New
York and certain parties listed therein (incorporated by reference to Exhibit 10.12 to the
Registrant's Current Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
10.8 Receivables Purchase Agreement and Assignment between Olympic Receivables Finance Corp. ("ORFC")
and the Registrant (incorporated by reference to Exhibit 10.29 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.9 Repurchase Agreement dated as of December 3, 1996 among Arcadia Receivables Conduit Corp.
("ARCC") and ORFC (incorporated by reference to Exhibit 10.30 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996).
10.10 First Amendment, dated as of August 4, 1997, to Repurchase Agreement, dated as of December 3,
1996, by and between Arcadia Receivables Conduit Corp. and Arcadia Receivables Finance Corp.
(incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated
October 1, 1997, filed October 1, 1997).
10.11 Second Amendment, dated as of November 14, 1997, to the Repurchase Agreement and Assignment
between Olympic Receivables Finance Corp. and the Registrant (filed herewith).
10.12 Servicing Agreement dated as of December 3, 1996 among ARCC, ORFC, the Registrant, in its
individual capacity and as Servicer, Bank of America National Trust and Savings Association, as
agent, and Norwest Bank Minnesota, National Association, as backup servicer, collateral agent
and indenture trustee (incorporated by reference to Exhibit 10.31 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.13 First Amendment, dated as of August 4, 1997 to Servicing Agreement, dated as of December 3, 1996,
among Arcadia Receivables Conduit Corp., Arcadia Financial Ltd. (formerly known as Olympic
Financial Ltd.), in its individual capacity and as Servicer, and Bank of America National Trust
and Savings Association (incorporated by reference to Exhibit 10.3 to the Registrant's Current
Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
10.14 Second Amendment, dated as of November 14, 1997 to Servicing Agreement, dated as of December 3,
1996, among Arcadia Receivables Conduit Corp., Arcadia Financial Ltd. (formerly known as
Olympic Financial Ltd.), in its individual capacity and as Servicer, and Bank of America
National Trust and Savings Association (filed herewith)........................................
10.15 Third Amended and Restated Stock Pledge Agreement dated as of December 3, 1996 among the
Registrant and Norwest Bank Minnesota, National Association, as collateral agent (incorporated
by reference to Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.16 Amended and Restated Custodian Agreement, dated as of July 31, 1997, among Arcadia Financial
Ltd., Norwest Bank Minnesota, National Association, and Olympic Automobile Receivables
Warehouse Trust (incorporated by reference to Exhibit 10.9 to the Registrant's Current Report
on Form 8-K dated October 1, 1997, filed October 1, 1997).
</TABLE>
77
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10.17 Security Agreement dated as of December 3, 1996 among the Registrant, ORFC, ARCC, Financial
Security Assurance Inc. ("FSA"), Bank of America National Trust and Savings Association and
Norwest Bank Minnesota, National Association, as indenture trustee and collateral agent
(incorporated by reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996).
10.18 Indenture dated as of December 3, 1996 between ARCC and Norwest Bank Minnesota, National
Association, as trustee and collateral agent (incorporated by reference to Exhibit 10.34 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1996).
10.19 First Supplemental Indenture, dated as of November 14, 1997, to the Indenture dated as of
December 3, 1996 between ARCC and Norwest Bank Minnesota, National Association, as trustee and
collateral agent (filed herewith)..............................................................
10.20 Insurance and Indemnity Agreement dated as of December 3, 1996 among FSA, the Registrant, ORFC
and ARCC (incorporated by reference to Exhibit 10.35 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).
10.21 First Amendment, dated as of August 1, 1997, to the Insurance and Indemnity Agreement, dated as
of December 3, 1996, among Financial Security Assurance Inc., Arcadia Receivables Conduit
Corp., Arcadia Receivables Finance Corp. and Arcadia Financial Ltd. (formerly known as Olympic
Financial Ltd.), as Servicer (incorporated by reference to Exhibit 10.4 to the Registrant's
Current Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
10.22 Second Amendment, dated as of November 14, 1997, to the Insurance and Indemnity Agreement, dated
as of December 3, 1996, among Financial Security Assurance Inc., Arcadia Receivables Conduit
Corp., Arcadia Receivables Finance Corp. and Arcadia Financial Ltd. (formerly known as Olympic
Financial Ltd.), as Servicer (filed herewith)..................................................
10.23 US $300,000,000 Floating Rate FSA Insured Automobile Receivables-backed Note Purchase Agreement
dated as of December 3, 1996 among ARCC, Receivables Capital Corporation, and Bank of America
National Trust and Savings Association, as administrator of Receivables Capital Corporation and
as agent for the liquidity providers (incorporated by reference to Exhibit 10.36 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1996).
10.24 First Amendment, dated as of August 9, 1997, to Note Purchase Agreement, dated as of December 3,
1996, among Arcadia Financial Ltd. (formerly known as Olympic Financial Ltd.), Arcadia
Receivables Conduit Corp., Receivable Capital Corporation and Bank of America National Trust
and Savings Association (incorporated by reference to Exhibit 10.1 to the Registrant's Current
Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
10.25 Second Amendment, dated as of November 14, 1997, to Note Purchase Agreement, dated as of December
3, 1996, among Arcadia Financial Ltd. (formerly known as Olympic Financial Ltd.), Arcadia
Receivables Conduit Corp., Receivable Capital Corporation and Bank of America National Trust
and Savings Association (filed herewith).......................................................
10.26 Spread Account Agreement, dated as of March 25, 1993, as amended and restated as of December 16,
1997 among the Registrant, Arcadia Receivables Finance Corp. ("ARFC"), Financial Security
Assurance Inc. ("FSA"), The Chase Manhattan Bank, as Trustee, and Norwest Bank Minnesota,
National Association, as Collateral Agent (filed herewith).....................................
</TABLE>
78
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10.27 Warehousing Series Supplement dated as of December 3, 1996 to Spread Account Agreement dated as
of March 25, 1993, as amended and restated as of December 3, 1996, among the Registrant, ORFC,
FSA and Norwest Bank Minnesota, National Association, as trustee and collateral agent
(incorporated by reference to Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996).
10.28 Amendment, dated as of December 16, 1997, among the Registrant, ARFC, FSA and Norwest Bank
Minnesota, National Association, to the Series 1997-C Supplement, Series 1997-B Supplement,
Series 1997-A Supplement, Series 1996-D, Supplement, series 1996-C Supplement, Series 1996-B
Supplement, Series 1996-A Supplement, Series 1995-E Supplement, Series 1995-D Supplement,
Series 1995-C Supplement, Series 1995-B Supplement, Series 1995-A Supplement, Series 1994-B
Supplement, Series 1994-A Supplement, Series 1993-C Supplement, and Series 1993-B Supplement to
the Spread Account Agreement (filed herewith)..................................................
10.29 Series 1997-A Supplement, dated March 20, 1997, to Spread Account Agreement, dated as of March
25, 1993, as amended and restated as of March 1, 1997, among the Registrant, Olympic
Receivables Finance Corp., Financial Security Assurance Inc. and Norwest Bank Minnesota,
National Association, as Trustee and Collateral Agent. (incorporated by reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997)
10.30 Series 1997-B Supplement, dated June 19, 1997, to Spread Account Agreement, dated as of March 25,
1993, as amended and restated as of June 1, 1997, among the Registrant, Arcadia Receivables
Finance Corp., Financial Security Assurance Inc., The Chase Manhattan Bank, as Trustee, and
Norwest Bank Minnesota, National Association, as Collateral Agent (incorporated by reference to
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997).
10.31 Series 1997-C Supplement, dated as of September 18, 1997, to Spread Account Agreement dated as of
March 25, 1993, as amended and restated as of June 1, 1997, among Arcadia Financial Ltd.,
Arcadia Receivables Finance Corp., Financial Security Assurance, Inc., The Chase Manhattan Bank
and Norwest Bank Minnesota, National Association (incorporated by reference to Exhibit 10.13 to
the Registrant's Current Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
10.32 Series 1997-D Supplement, dated as of December 16, 1997, to Spread Account Agreement dated as of
March 25, 1993, as amended and restated as of June 1, 1997, among Arcadia Financial Ltd.,
Arcadia Receivables Finance Corp., Financial Security Assurance, Inc., The Chase Manhattan Bank
and Norwest Bank Minnesota, National Association (filed herewith)..............................
10.33 Insurance and Indemnity Agreement, dated as of March 20, 1997, among the Registrant, Financial
Security Assurance Inc., Olympic Automobile Receivables Trust, 1997-A, Olympic First GP Inc.,
Olympic Second GP Inc. and Olympic Receivables Finance Corp. (incorporated by reference to
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997).
10.34 Insurance and Indemnity Agreement, dated as of June 19, 1997, among the Registrant, Financial
Security Assurance Inc., Arcadia Automobile Receivables Trust, 1997-B and Arcadia Receivables
Finance Corp. (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997).
</TABLE>
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10.35 Insurance and Indemnity Agreement, dated as of September, 18, 1997, among Financial Assurance
Inc., Arcadia Automobile Receivables Trust, 1997-C, Arcadia Receivables Finance Corp. and
Arcadia Financial Ltd. (incorporated by reference to Exhibit 10.14 to the Registrant's Current
Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
10.36 Insurance and Indemnity Agreement, dated as of December 16, 1997, among Financial Assurance Inc.,
Arcadia Automobile Receivables Trust, 1997-D, Arcadia Receivables Finance Corp. and Arcadia
Financial Ltd. (filed herewith)................................................................
10.37 Amendment, dated as of December 16, 1997, to the Series 1997-C Insurance and Indemnity Agreement,
the Series 1997-B Insurance and Indemnity Agreement, the Series 1997-A Insurance and Indemnity
Agreement, the Series 1996-D Insurance and Indemnity Agreement, the Series 1996-C Insurance and
Indemnity Agreement, Series 1996-B Insurance and Indemnity Agreement, the Series 1996-A
Insurance and Indemnity Agreement, the Series 1995-E Insurance and Indemnity Agreement, the
Series 1995-D Insurance and Indemnity Agreement, the Series 1995-C Insurance and Indemnity
Agreement, the Series 1995-B Insurance and Indemnity Agreement, the Series 1995-A Insurance and
Indemnity Agreement, the Series 1994-B Insurance and Indemnity Agreement, the Series 1994-A
Insurance and Indemnity Agreement, the Series 1993-D Insurance and Indemnity Agreement, the
Series 1993-C Insurance and Indemnity Agreement, the Series 1993-B Insurance and Indemnity
Agreement and the Series 1993-A Insurance and Indemnity Agreement (filed herewith).............
10.38 Receivables Purchase Agreement and Assignment, dated as of October 17, 1997, between Arcadia
Receivables Finance Corp. III ("ARFC III") and the Registrant (filed herewith)
10.39 Receivables Funding and Servicing Agreement, dated as of October 17, 1997, among ARFC III, the
Registrant, DLJ Mortgage Capital, Inc. ("DLJM"), as Lenders and DLJM, as agent (filed herewith)
10.40 Collateral Agent Agreement, dated October 17, 1997, among DLJM, as agent, Norwest Bank Minnesota,
National Association, as collateral agent, the Registrant and ARFC III (filed herewith)
10.41 Employment Agreement, dated as of January 6, 1997, between the Registrant and Richard A.
Greenawalt (incorporated by reference to Exhibit 10.59 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996).
10.42 Employment Agreement, dated April 1, 1991, between the Registrant and Scott H. Anderson and
Amendment, dated September 3, 1991 (incorporated by reference to Exhibit No. 10.29 to
Registrant's Registration Statement on Form S-18, File No. 33-43270C).
10.43 Extension and Amendment of Employment Agreement, dated July 1, 1993, between the Registrant and
Scott H. Anderson (incorporated by reference to Exhibit No. 10.107 to Registrant's Annual
Report on Form 10-K for the year ended June 30, 1992).
10.44 Extension and Amendment of Employment Agreement, dated July 1, 1994, by and between Scott H.
Anderson and the Registrant (incorporated by reference to Exhibit No. 10.36 to Registrant's
Registration Statement on Form S-4, File No. 33-81588).
</TABLE>
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10.45 Extension and Amendment of Employment Agreement, dated as of July 31, 1995, between the
Registrant and Scott H. Anderson (incorporated by reference to Exhibit 10.37 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995).
10.46 Amendment of Employment Agreement, dated as of December 20, 1995, by and between the Registrant
and Scott H. Anderson (incorporated by reference to Exhibit 10.71 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.47 Employment Retention Agreement, dated as of November 7, 1996, between the Registrant and Scott H.
Anderson (incorporated by reference to Exhibit 10.72 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).
10.48 Employment Agreement, dated February 1, 1994, between the Registrant and John A. Witham
(incorporated by reference to Exhibit No. 10.111 to the Registrant's Registration Statement on
Form S-1, File No. 33-81512).
10.49 Extension and Amendment of Employment Agreement, dated as of December 20, 1995, by and between
the Registrant and John A. Witham (incorporated by reference to Exhibit 10.39 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995).
10.50 Employment Retention Agreement, dated as of November 7, 1996, between the Registrant and John A.
Witham (incorporated by reference to Exhibit 10.75 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).
10.51 Employment Agreement, dated December 5, 1994, between the Registrant and A. Mark Berlin, Jr.
(incorporated by reference to Exhibit 10.35 to Registrant's Registration Statement on Form S-2,
File No. 33-90108).
10.52 Extension and Amendment of Employment Agreement, dated as of December 20, 1995, by and between
the Registrant and A. Mark Berlin, Jr. (incorporated by reference to Exhibit 10.41 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995).
10.53 Employment Retention Agreement, dated as of November 7, 1996, between the Registrant and A. Mark
Berlin, Jr. (incorporated by reference to Exhibit 10.78 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996).
10.54 Employment and Non-Compete Agreement, dated August 29, 1994, by and between the Registrant and
James D. Atkinson (incorporated by reference to Exhibit 10.43 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995).
10.55 Extension and Amendment of Employment Agreement, dated as of July 31, 1995, by and between the
Registrant and James D. Atkinson III (incorporated by reference to Exhibit 10.44 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995).
10.56 Amendment of Employment Agreement, dated as of December 20, 1995, by and between the Registrant
and James D. Atkinson III (incorporated by reference to Exhibit 10.81 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.57 Employment Retention Agreement, dated as of November 7, 1996, between the Registrant and James D.
Atkinson III (incorporated by reference to Exhibit 10.82 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
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<C> <S> <C>
10.58 Amendment of Employment Retention Agreement, dated as of December 31, 1996, by and between the
Registrant and James D. Atkinson III (incorporated by reference to Exhibit 10.83 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1996).
10.59 Employment and Non-Compete Agreement, dated September 21, 1994, by and between the Registrant and
Robert A. Barbee (incorporated by reference to Exhibit 10.49 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995).
10.60 Extension and Amendment of Employment Agreement, dated as of November 1, 1995, by and between the
Registrant and Robert A. Barbee (incorporated by reference to Exhibit 10.50 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.61 Amendment of Employment Agreement, dated as of December 20, 1995, by and between the Registrant
and Robert A. Barbee (incorporated by reference to Exhibit 10.86 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.62 Employment Retention Agreement, dated as of November 7, 1996, between the Registrant and Robert
A. Barbee (incorporated by reference to Exhibit 10.87 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).
10.63 Consulting Agreement, dated December 19, 1994, between the Registrant and Warren Kantor
(incorporated by reference to Exhibit 10.36 to Registrant's Registration Statement on Form S-2,
File No. 33-90108).
10.64 Consulting Agreement, dated as of January 1, 1996 between the Registrant and Warren Kantor
(incorporated by reference to Exhibit 10.89 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996).
10.65 Letter Agreement, dated August 26, 1996, between the Registrant and Warren Kantor (incorporated
by reference to Exhibit 10.90 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.66 Letter Agreement, dated December 18, 1996, between the Registrant and Warren Kantor (incorporated
by reference to Exhibit 10.91 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.67 Consulting Agreement, dated as of January 1, 1997, by and between the Registrant and Warren
Kantor (incorporated by reference to Exhibit 10.92 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).
10.68 Non-Statutory Stock Option Agreement, dated December 19, 1994, between the Registrant and Warren
Kantor (incorporated by reference to Exhibit 10.37 to Registrant's Registration Statement on
Form S-2, File No. 33-90108).
10.69 Non-Statutory Stock Option Agreement, dated January 1, 1996, by and between the Registrant and
Warren Kantor (incorporated by reference to Exhibit 10.60 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.70 Non-Statutory Stock Option Agreement, dated August 26, 1996, between the Registrant and Warren
Kantor (incorporated by reference to Exhibit 10.95 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).
10.71 Non-Statutory Stock Option Agreement, dated December 18, 1996, between the Registrant and Warren
Kantor (incorporated by reference to Exhibit 10.96 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
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<C> <S> <C>
10.72 Non-Statutory Stock Option Agreement, dated January 1, 1997, between the Registrant and Warren
Kantor (incorporated by reference to Exhibit 10.97 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).
10.73 Employment Agreement, dated as of May 1, 1997, between the Registrant and Duane E. White
(incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997).
10.74 Form of Indemnification Agreement by and between the Registrant and certain of its officers and
directors (incorporated by reference to Exhibit 10.15 to the Registrant's Current Report on
Form 8-K dated October 1, 1997, filed October 1, 1997).
10.75 Olympic Financial Ltd. 1990 Stock Option Plan, as amended to date (incorporated by reference to
Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997).
10.76 1992 Director Option Plan, as amended to date (incorporated by reference to Exhibit 10.13 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
10.77 Olympic Financial Ltd. Stock Purchase Plan (incorporated by reference to Exhibit No. 10.90 to
Registrant's Annual Report on Form 10-K for the year ended June 30, 1992).
10.78 1994-1997 Restricted Stock Election Plan (incorporated by reference to Exhibit 10.41 to
Registrant's Registration Statement on Form S-2, File No. 33-90108).
10.79 1998-2000 Restricted Stock Election Plan, as amended to date (incorporated by reference to
Exhibit 10.102 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1996).
10.80 Warrant to Purchase Common Stock, dated August 11, 1992, between the Registrant and Lincoln
National Life Insurance Company (incorporated by reference to Exhibit No. 10.85 to Registrant's
Annual Report on Form 10-K for the year ended June 30, 1992).
10.81 Warrant to Purchase Common Stock, dated August 11, 1992, between the Registrant and Security
Connecticut Life Insurance Company (incorporated by reference to Exhibit No. 10.86 to
Registrant's Annual Report on Form 10-K for the year ended June 30, 1992).
10.82 Warrant to Purchase Common Stock, dated June 24, 1992, between the Registrant and NAP & Company
(incorporated by reference to Exhibit No. 10.87 to Registrant's Annual Report on Form 10-K for
the year ended June 30, 1992).
10.83 Warrant to Purchase Common Stock, dated June 24, 1992, between the Registrant and Fuelship &
Company (incorporated by reference to Exhibit No. 10.88 to Registrant's Annual Report on Form
10-K for the year ended June 30, 1992).
10.84 Warrant to Purchase Common Stock, dated June 24, 1992, between the Registrant and BCI Growth L.P.
(incorporated by reference to Exhibit No. 10.89 to Registrant's Annual Report on Form 10-K for
the year ended June 30, 1992).
10.85 Warrant to Purchase Common Stock, dated December 17, 1993, between the Registrant and John G.
Kinnard and Company, Incorporated (incorporated by reference to Exhibit 10.47 to Registrant's
Registration Statement on Form S-2, File No. 33-90108).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
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<C> <S> <C>
10.86 Warrant to Purchase Common Stock, dated September 1, 1994, between the Registrant and Cede & Co.
(incorporated by reference to Exhibit 10.48 to Registrant's Registration Statement on Form S-2,
File No. 33-90108).
10.87 Warrant to Purchase Common Stock, dated September 1, 1994, between the Registrant and Booth & Co.
(incorporated by reference to Exhibit 10.49 to Registrant's Registration Statement on Form S-2,
File No. 33-90108).
10.88 Warrant to Purchase Common Stock, dated September 1, 1994, between the Registrant and Sun Life
Insurance Company of America (incorporated by reference to Exhibit 10.50 to Registrant's
Registration Statement on Form S-2, File No. 33-90108).
12.1 Computation of Ratio of Earnings to Fixed Charges (filed herewith)...............................
12.2 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends (filed
herewith)......................................................................................
21.1 Subsidiaries of the Registrant (filed herewith)..................................................
23.1 Consent of Ernst & Young LLP (filed herewith)....................................................
27.1 Financial Data Schedule (filed herewith).........................................................
99.1 Cautionary Statement (filed herewith)............................................................
</TABLE>
- ------------------------
(b)
On January 14, 1997, the Registrant filed a Current Report on Form 8-K,
dated January 6, 1997, reporting that Richard A. Greenawalt has accepted the
position of President and Chief Executive Officer and Warren Kantor was elected
as Chairman of the Board of Directors.
The Registrant filed a Current Report on Form 8-K, filed and dated March 7,
1997, reporting that the Registrant was served with a complaint in Texas state
court alleging that it originated loans above the maximum allowed rate by Texas
law.
On March 10, 1997, the Registrant filed a Current Report on Form 8-K, dated
March 7, 1997, reporting that the Registrant agreed to sell $300 million, 11.5%
Senior Notes due 2007 and 300,000 Warrants to purchase an aggregate of 2,052,000
shares of its Common Stock.
On March 11, 1997, the Registrant filed a Current Report on Form 8-K, dated
March 10, 1997, reporting the legal opinion of Dorsey & Whitney LLP in
connection with the Registrant's 11.5% Senior Notes.
On March 12, 1997, the Registrant filed a Current Report on Form 8-K, dated
March 7, 1997, reporting a Form T-1 Statement of Eligibility of Norwest Bank,
Minnesota National Association, as Trustee, relating to the Registrant's $300
million, 11.5% Senior Notes.
On March 18, 1997, the Registrant filed a Current Report on Form 8-K, dated
March 12, 1997, reporting the $300 million 11.5% Senior Notes Indenture.
On September 24, 1997, the Registrant filed a Current Report on Form 8-K,
dated June 5, 1997, reporting certain information with regard to the
Registrant's performance as servicer of Olympic Automobile Receivables Trust,
1996-C.
On October 1, 1997, the Registrant filed a Current Report on Form 8-K, dated
October 1, 1997, reporting the $75 million 11 1/2% Senior Notes Indenture.
84
<PAGE>
On October 6, 1997, the Registrant filed a Current Report on Form 8-K, dated
October 3, 1997, reporting that the Registrant agreed to sell $75 million of the
Registrant's 11.5% Senior Notes due 2007.
On October 7, 1997, the Registrant filed an amendment to the Current Report
on Form 8-K dated October 3, 1997, reporting the legal opinion of Dorsey &
Whitney LLP in connection with the Registrant's 11.5% Senior Notes due 2007.
On November 13, 1997, the Registrant filed a Current Report on Form 8-K,
dated October 8, 1997, reporting the Second Supplemental Indenture to the
Indenture dated as of March 12, 1997, relating to the Registrant's 11 1/2%
Senior Notes due 2007.
On November 24 1997, the Registrant filed a Current Report on Form 8-K,
dated November 5, 1997, reporting certain information with regard to the
Registrant's performance as servicer of Olympic Automobile Receivables Trust,
1997-A.
On November 24 1997, the Registrant filed a Current Report on Form 8-K,
dated November 5, 1997, reporting certain information with regard to the
Registrant's performance as servicer of Olympic Automobile Receivables Trust,
1997-B.
On November 24 1997, the Registrant filed a Current Report on Form 8-K,
dated November 5, 1997, reporting certain information with regard to the
Registrant's performance as servicer of Olympic Automobile Receivables Trust,
1997-C.
On January 20, 1998, the Registrant filed a Current Report on Form 8-K,
dated January 8, 1998, reporting Amendment No. 1 to Rights Agreement, dated
January 16, 1998, to Rights Agreement, dated as of November 1, 1996 between
Arcadia Financial Ltd. and Norwest Bank Minnesota, N.A.
85
<PAGE>
EXECUTION COPY
SECOND AMENDMENT
TO THE
REPURCHASE AGREEMENT
THIS SECOND AMENDMENT TO THE REPURCHASE AGREEMENT, dated as of November 14,
1997 (this "Amendment"), is by and between ARCADIA RECEIVABLES CONDUIT CORP., a
Delaware corporation (the "Buyer") and ARCADIA RECEIVABLES FINANCE CORP.
(formerly known as Olympic Receivables Finance Corp.), a Delaware corporation
(the "Seller").
WHEREAS, the parties hereto wish to amend the Repurchase Agreement,
dated as of December 3, 1996, and amended by the First Amendment dated as of
August 4, 1997 (as amended and in effect from time to time, the "Repurchase
Agreement"), by and between the Buyer and the Seller, as provided herein;
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein and in accordance with Section 15 of the Repurchase Agreement,
the parties hereto agree as follows:
SECTION 1. AMENDMENT OF SECTION 2.
a. Section 2 of the Repurchase Agreement shall be amended by adding in
alphabetical order the new definition of "Arcadia" as follows:
"ARCADIA" means Arcadia Financial Ltd., a Minnesota corporation.
b. Section 2 of the Repurchase Agreement shall be amended by deleting the
current definition of "Commitment Amount" and substituting in its place the
following:
"COMMITMENT AMOUNT" means $400,000,000.
c. Section 2 of the Repurchase Agreement shall be amended by deleting the
current definition of "Insurer Notice Date" and substituting in its place the
following:
"INSURER NOTICE DATE" means the earlier of (i) the date specified in the written
notice delivered by the Security Insurer pursuant to SECTION 3(g) hereof and
(ii) the occurrence of an Amortization Event.
d. Section 2 of the Repurchase Agreement shall be amended by replacing
clause (iii) of the definition of "Repurchase Date" with the following:
1
<PAGE>
(iii) any date determined with respect to such Purchased Receivable by
the application of the provisions of SECTION 8 OR 10 hereof, and
SECTION 2. NEW SECTION 3(g). A new Section 3(g) is added to the
Repurchase Agreement as follows:
(g) Notwithstanding anything in any Related Document to the contrary,
the Security Insurer shall have the right in its absolute discretion to deliver
a notice to the Seller, Insurer, the Buyer, the Agent, the Indenture Trustee and
the Collateral Agent specifying a date such that any Note Increase (as such term
is defined in the Indenture) effected on or after the date so specified will not
have the benefit of the Note Policy.
SECTION 3. NEW SECTION 24. A new section 24 is added to the
Repurchase Agreement as follows:
24. INTERPRETATION.
From and after the Effective Date, (a) all references to "Notes"
herein shall mean the Floating Rate Variable Funding Automobile
Receivables-Backed Note (the "Note"), as defined in the Servicing Agreement,
dated as of December 3, 1996, and amended as of August 4, 1997, and as further
amended as of the Effective Date (as amended and in effect from time to time,
the "Servicing Agreement"), among the Buyer, Seller, Arcadia, and Bank of
America National Trust and Savings Association, and all provisions herein
containing the term "Notes" or otherwise referring to the term "Notes" shall be
interpreted to mean such Note referred to above, (b) all references to Olympic
herein shall refer to Arcadia Financial Ltd. ("Arcadia") and (c) all provisions
of this Agreement shall be interpreted consistently with (a) and (b) above.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller
represents and warrants that as of the effective date of this Amendment no Event
of Default has occurred under the Repurchase Agreement and no Servicer
Termination Event has occurred under the Servicing Agreement and to the best of
the Seller's knowledge there is no set of circumstances existing that with the
passage of time, would constitute such an Event of Default or Servicer
Termination Event.
SECTION 5. EFFECTIVENESS. The amendments provided for by this
Amendment shall become effective as of the Effective Date (as that term is
defined in the Servicing Agreement), upon receipt by the Administrative Agent,
in form and substance satisfactory to the Administrative Agent, of (i) this
Amendment duly executed and delivered by each of the parties hereto and the
Agent and the Security Insurer and (ii) an opinion of counsel to the Seller,
dated the date hereof, addressed to the Agent, the Security Insurer and the
Noteholder, covering such matters as the Agent may reasonably request.
SECTION 6. REPURCHASE AGREEMENT IN FULL FORCE AND EFFECT AS AMENDED.
Except as specifically amended hereby, all of the terms and conditions of the
Repurchase Agreement shall remain in full force and effect and, except as
expressly provided herein, the
2
<PAGE>
effectiveness of this Amendment shall not operate as, or constitute a waiver or
modification of, any right, power or remedy of any party to the Repurchase
Agreement or the Agent or the Security Insurer. All references to the
Repurchase Agreement in any other document or instrument shall be deemed to mean
the Repurchase Agreement as amended by this Amendment. This Amendment shall not
constitute a novation of the Repurchase Agreement, but shall constitute an
amendment thereof.
SECTION 7. COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by separate parties hereto on separate counterparts,
each of which when executed shall be deemed an original, but all such
counterparts taken together shall constitute one and the same instrument.
SECTION 8. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS.
SECTION 9. DEFINED TERMS. Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to such terms in the
Repurchase Agreement.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to the Repurchase Agreement to be duly executed by their respective
officers as of the day and year first above written.
ARCADIA RECEIVABLES CONDUIT CORP.,
as Buyer
By:
--------------------------------
Name:
Title:
ARCADIA RECEIVABLES FINANCE CORP.,
as Seller
By:
--------------------------------
Name:
Title:
CONSENTED TO BY:
FINANCIAL SECURITY ASSURANCE INC.,
as Security Insurer
By:
----------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By:
----------------------------
Name:
Title:
4
<PAGE>
EXECUTION COPY
SECOND AMENDMENT
TO THE
SERVICING AGREEMENT
THIS SECOND AMENDMENT TO THE SERVICING AGREEMENT, dated as of November
14, 1997 (this "Amendment"), among ARCADIA RECEIVABLES CONDUIT CORP. (the
"Issuer"), ARCADIA RECEIVABLES FINANCE CORP. (formerly known as Olympic
Receivables Finance Corp.), as Seller (the "Seller"), ARCADIA FINANCIAL LTD.
(formerly known as Olympic Financial Ltd.), in its individual capacity and as
Servicer (in its individual capacity, "AFL", in its capacity as Servicer, the
"Servicer"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a
national banking association, in its capacity as Agent (in such capacity as
administrator for Receivables Capital Corporation and as agent for certain
liquidity purchasers, the "Agent").
WHEREAS, the parties hereto wish to amend the Servicing Agreement,
dated as of December 3, 1996, as amended by the First Amendment to the Servicing
Agreement, dated as of August 4, 1997 (as amended and in effect from time to
time, the "Servicing Agreement"), each among the Issuer, the Agent, the Seller,
AFL, the Servicer and the Backup Servicer as provided herein;
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein, the parties hereto agree as follows:
SECTION 1. AMENDMENT OF SECTION 1.1.
a. Section 1.1 of the Servicing Agreement shall be amended by deleting the
current definition of "Basic Servicing Fee Rate" and substituting in its place
the following:
BASIC SERVICING FEE RATE: 1.32% per annum, payable monthly at
one-twelfth of the annual rate.
b. Section 1.1 of the Servicing Agreement shall be amended by deleting
clause (i) of the definition of "Collateral Test" and substituting in its place
the following:
(i) (a) the amount on deposit in the Collection Account less the WAC
Deficiency Deposit, if any, plus (b) without duplication of amounts on deposit
in the Collection Account, the amount representing collections on the
Receivables deposited in the Lockbox Account on such Accounting Date or on the
Business Day immediately preceding such Accounting Date,
<PAGE>
c. Section 1.1 of the Servicing Agreement shall be amended by deleting the
current definition of "Notes" and substituting in its place the following:
NOTE: The Floating Rate Variable Funding Automobile
Receivables-Backed Note issued by the Issuer pursuant to the First Supplemental
Indenture to the Indenture, dated as of the Effective Date, between Arcadia
Receivables Conduit Corp. and Norwest Bank Minnesota, National Association.
d. Section 1.1 of the Servicing Agreement shall be amended by deleting in
its entirety the definition of "Other Fee Percent."
e. Section 1.1 of the Servicing Agreement shall be amended by deleting the
current definition of "Qualifying Receivable" and substituting in its place the
following:
QUALIFYING RECEIVABLE: With respect to any Monthly Period, a
Receivable as to which (i) no portion of a Scheduled Payment shall have become
more than 30 days delinquent, (ii) the Servicer in good faith has not determined
that the Obligor thereon is unlikely to continue making Scheduled Payments, and
(iii) all of the representations and warranties under the Purchase Agreement and
Repurchase Agreement are true and correct; PROVIDED, that the aggregate
Principal Balance of Classic Receivables that are Financed Repossessions in
excess of 5% of the aggregate outstanding Principal Balance of Qualifying
Receivables shall be excluded from the Principal Balance of Qualifying
Receivables for all purposes hereunder and the aggregate Principal Balance of
Classic Receivables (including Classic Receivables that are Financed
Repossessions) in excess of 65% of the aggregate outstanding Principal Balance
of Qualifying Receivables shall be excluded from the Principal Balance of
Qualifying Receivables for all purposes hereunder, including, in each case, the
denominator of the aforesaid calculations and the calculation of the Collateral
Test.
f. Section 1.1 of the Servicing Agreement shall be amended by deleting the
current definition of "Total Expense Percent" and substituting in it place the
following:
TOTAL EXPENSE PERCENT: 1.6%
g. Section 1.1 of the Servicing Agreement shall be amended by deleting the
current definition of "Two Year Treasury Yield" and substituting in its place
the following:
TWO YEAR TREASURY YIELD: As of any date of determination, the per
annum rate equal to the yield for two year United States Treasury notes that
appears as the "ask" price as reported by Bloomberg's Financial Reporting
Markets (or the Telerate Page, or such replacement system or page as is then
customarily used to quote yields on United States Treasury notes) at the close
of business on the date prior to such date of determination; PROVIDED, HOWEVER,
following the occurrence of an Amortization Event, the Two Year Treasury Yield
shall be the yield for two year United States Treasury notes appearing as the
"ask" price as reported by Bloomberg's Financial Reporting Markets (or the
Telerate Page, or such replacement system or page as is then customarily used to
quote yields on United States Treasury notes) at the close of business, New York
City time, on the date of the occurrence of such Amortization Event.
2
<PAGE>
h. Section 1.1 of the Servicing Agreement shall be amended by adding the
following definitions in alphabetical order:
AFL: Arcadia Financial Ltd., a Minnesota corporation.
EFFECTIVE DATE: The date all conditions precedent to the
effectiveness of the First Supplemental Indenture are satisfied or waived, and
the Note is issued thereunder.
FIRST SUPPLEMENTAL INDENTURE: The First Supplemental Indenture, dated
November 14, 1997, between the Issuer and the Indenture Trustee.
ORIGINAL NOTES: The notes issued under the Indenture from and after
the Closing Date up to but excluding the Effective Date, and remaining
outstanding as of the opening of business on the Effective Date.
SECTION 2. NEW SECTION 1.7. A new section 1.7 is added to the
Servicing Agreement as follows:
Section 1.7. INTERPRETATION. From and after the Effective Date
(a)(i) the defined term "Notes" when used in this Servicing Agreement shall
refer to the Floating Rate Variable Funding Automobile Receivables-Backed Note
issued under the First Supplemental Indenture, (hereinafter referred to as the
"Note"), (ii) the terms "Noteholder," "Noteholders," "Holder" or "Holders"
shall mean the holder or holders of such Note, (iii) the words "purchase,"
"funding," or "carrying" when used with respect to the Notes shall refer to such
Note, (b) all references to (i) Olympic Financial Ltd. or OFL and (ii) Olympic
Receivables Finance Corp. herein shall refer to Arcadia Financial Ltd.
("Arcadia") and Arcadia Receivables Finance Corp. ("ARFC"), respectively, and
(c) all provisions of this Servicing Agreement shall be interpreted consistently
with (a) and (b) above.
SECTION 3. AMENDMENT OF SECTION 2.1. The third sentence of Section
2.1 is deleted in its entirety and replaced as follows:
In performing such duties, so long as AFL is the Servicer, it shall
comply with the policies and procedures attached hereto as Exhibit A and will
not change the manner in which it services the Receivables if such change could
have a material adverse effect on the Receivables.
SECTION 4. AMENDMENT OF SECTION 2.18. Section 2.18 of the Servicing
Agreement is deleted in its entirety and replaced as follows:
Section 2.18. ACCOUNTANTS' REVIEW OF RECEIVABLE FILES. For every
group of approximately $60,000,000 (or such other amount as the Controlling
Party may determine in its sole and absolute discretion from time to time by
prior written notice to the Seller, the Servicer, the Issuer, the Trustee, the
Agent, the Collateral Agent and the Security Insurer) in aggregate Principal
Balance of Receivables transferred by the Seller to the Issuer pursuant to the
Repurchase Agreement, the Servicer (or AFL, if AFL is not the Servicer) at its
own expense shall cause Independent Accountants acceptable to the Security
Insurer to conduct a physical
3
<PAGE>
inventory and limited review of the related Receivable Files, commencing within
three Business Days immediately succeeding the day the last Receivable of such
group of Receivables is transferred to the Issuer pursuant to the Repurchase
Agreement. The Independent Accountants shall within such three Business Days
complete such physical inspection and limited review and execute and deliver to
the Secured Parties an Independent Accountant's Report with respect to such
review substantially in the form of Exhibit D hereto. If such review reveals,
in the Controlling Party's opinion, an unsatisfactory number of exceptions, the
Controlling Party, in its sole and absolute discretion, may require a full
review of every Receivable File by the Independent Accountants at the expense of
the Servicer (or AFL, if AFL is not the Servicer).
SECTION 5. REPLACEMENT OF EXHIBIT B TO THE SERVICING AGREEMENT.
Schedule B to the Servicing Agreement, titled "SERVICING POLICIES AND
PROCEDURES," is replaced by new Schedule B, of the same title, and attached to
this Amendment as Exhibit A.
SECTION 6. NEW EXHIBIT D. A new Exhibit D to the Servicing Agreement
is attached to this Amendment as Exhibit D.
SECTION 7. REPRESENTATIONS AND WARRANTIES. Each of the Issuer, the
Seller, AFL and the Servicer represents and warrants that as of the Effective
Date no Event of Default has occurred under the Repurchase Agreement and no
Servicer Termination Event has occurred under the Servicing Agreement, and to
the best of each of the Issuer, the Seller, AFL and the Servicer's knowledge
there is no set of circumstances existing that with the passage of time, would
constitute such an Event of Default or Servicer Termination Event.
SECTION 8. EFFECTIVENESS. The amendments provided for by this
Amendment shall become effective as of the Effective Date (as that term is
defined in the Servicing Agreement), upon receipt by the Agent, in form and
substance satisfactory to the Agent, of (i) this Amendment duly executed and
delivered by each of the parties hereto and the Backup Servicer, the Indenture
Trustee, the Collateral Agent, the Security Insurer and the sole Noteholder,
(ii) an opinion of counsel to Arcadia, dated the date hereof, addressed to the
Agent, the Security Insurer and the Noteholder, covering such matters as the
Agent may reasonably request and (iii) the amendment to the Repurchase Agreement
duly executed and delivered by each of the parties thereto.
SECTION 9. SERVICING AGREEMENT IN FULL FORCE AND EFFECT AS AMENDED.
Except as specifically amended hereby, all of the terms and conditions of the
Servicing Agreement shall remain in full force and effect and, except as
expressly provided herein, the effectiveness of this Amendment shall not operate
as, or constitute a waiver or modification of, any right, power or remedy of any
party to the Servicing Agreement. All references to the Servicing Agreement in
any other document or instrument shall be deemed to mean the Servicing Agreement
as amended by this Amendment. This Amendment shall not constitute a novation of
the Servicing Agreement, but shall constitute an amendment thereof.
SECTION 10. COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by separate parties hereto on separate counterparts,
each of which when
4
<PAGE>
executed shall be deemed an original, but all such counterparts taken together
shall constitute one and the same instrument.
SECTION 11. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS.
SECTION 12. DEFINED TERMS. Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to such terms in the Servicing
Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the Issuer, the Agent, the Seller, AFL and the
Servicer have caused this Second Amendment to Servicing Agreement to be duly
executed by their respective officers as of the day and year first above
written.
ARCADIA RECEIVABLES CONDUIT CORP.,
as Issuer
By
----------------------------
Name:
Title:
ARCADIA RECEIVABLES FINANCE CORP.,
as Seller
By
----------------------------
Name:
Title:
ARCADIA FINANCIAL LTD.,
in its individual capacity and as Servicer
By
----------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By
----------------------------
Name:
Title:
6
<PAGE>
Acknowledged and Accepted:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
not in its individual capacity but as
Indenture Trustee, Backup Servicer and
Collateral Agent,
By
----------------------------
Name:
Title:
FINANCIAL SECURITY ASSURANCE INC.,
as Security Insurer
By:
-----------------------------
Name:
Title:
RECEIVABLES CAPITAL CORPORATION,
as sole Noteholder
By:
-----------------------------
Name:
Title:
7
<PAGE>
EXECUTION COPY
================================================================================
FIRST SUPPLEMENTAL INDENTURE
Dated as of November 14, 1997
To
INDENTURE
Dated as of December 3, 1996
between
ARCADIA RECEIVABLES CONDUIT CORP.
Issuer
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
Trustee and Collateral Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
SUPPLEMENTAL INDENTURE
1.1 Amendment to Recitals of the Issuer . . . . . . . . . . . . . . . . . .1
1.2 Amendment to Section 101 of the Indenture.. . . . . . . . . . . . . . .2
1.3 Addition of new Section 116 to the Indenture. . . . . . . . . . . . . .3
1.4 Amendment to Section 301 of the Indenture . . . . . . . . . . . . . . .3
1.5 Amendment to Section 401 of the Indenture . . . . . . . . . . . . . . .4
1.6 Amendment to Section 402 of the Indenture . . . . . . . . . . . . . . .5
1.7 Amendment to Section 403(a) of the Indenture. . . . . . . . . . . . . .5
1.8 Amendment to Section 404 of the Indenture . . . . . . . . . . . . . . .6
1.9 Amendment to Section 405 of the Indenture . . . . . . . . . . . . . . .7
1.10 Amendment to Section 902 of the Indenture . . . . . . . . . . . . . . .7
1.11 Amendment to Section 903 of the Indenture . . . . . . . . . . . . . . .7
1.12 Amendment to Section 1003 of the Indenture. . . . . . . . . . . . . . .8
1.13 Amendment to Section 1101 of the Indenture. . . . . . . . . . . . . . .8
1.14 Amendment to Section 1102 of the Indenture. . . . . . . . . . . . . . .8
1.15 Amendment to Section 1103 of the Indenture. . . . . . . . . . . . . . .8
1.16 Amendment to Section 1104 of the Indenture. . . . . . . . . . . . . . .9
ARTICLE 2
MISCELLANEOUS
2.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . . .9
2.2 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.3 Indenture in Full Force and Effect as Amended.. . . . . . . . . . . . 10
2.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.7 Exchange of the Original Notes. . . . . . . . . . . . . . . . . . . . 10
-i-
<PAGE>
EXHIBIT A Form of Floating Rate Variable Funding Automobile
Receivables-Backed Note
-ii-
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of November 14, 1997 (the
"First Supplemental Indenture") to Indenture dated as of December 3, 1996 (the
"Indenture"), between ARCADIA RECEIVABLES CONDUIT CORP., a corporation duly
organized and existing under the laws of the State of Delaware (herein called
the "Issuer"), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national
banking association duly organized and existing under the laws of the United
States of America, in its capacities as Trustee (the "Trustee") and as
Collateral Agent (the "Collateral Agent") and not in its individual capacity.
RECITALS
WHEREAS, the Issuer and the Trustee have entered into the Indenture;
and
WHEREAS, the Issuer and the Trustee, pursuant to Section 902 of the
Indenture, desire to enter into this First Supplemental Indenture; and
WHEREAS, the Issuer has executed and delivered to the Trustee
pursuant to Section 901 of the Indenture, an Issuer Order, authorizing this
First Supplemental Indenture; and
WHEREAS, prior notice has been given to the Rating Agencies and
consent has been given by the Security Insurer and the Agent to the execution of
this First Supplemental Indenture as provided in Section 901; and
WHEREAS, it is the intent of the parties that this First
Supplemental Indenture be effective as of the date set forth above (the
"Effective Date"); and
WHEREAS, the parties hereto desire to replace, as of the Effective
Date, the Original Notes with the Note;
NOW THEREFORE, the parties to this First Supplemental Indenture
hereby agree as follows:
ARTICLE 1
SUPPLEMENTAL INDENTURE
1.1 AMENDMENT TO RECITALS OF THE ISSUER. The first two paragraphs of
the Recitals of the Issuer are deleted in their entirety and replaced as
follows:
1
<PAGE>
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Issuer's Floating Rate
Variable Funding Automobile Receivables-Backed Note (the "Note"):
The Issuer, as of the Effective Date, has duly authorized the
execution and delivery of the First Supplemental Indenture to provide for the
issuance of the Note as provided in this Indenture and the First Supplemental
Indenture.
1.2 AMENDMENT TO SECTION 101 OF THE INDENTURE.
a. The definition of "Commercial Paper Notes" is deleted in its
entirety and replaced as follows:
"Commercial Paper Notes" means the short-term promissory notes
issued or to be issued in the United States commercial paper market to fund the
purchase of the Note and any Note Increase Amounts, which unless otherwise
agreed to in writing by the Seller, the Agent and the Security Insurer, shall
mature within 120 days from the date of issuance of such notes.
b. A new definition of "Effective Date" is added in alphabetical
order as follows:
"Effective Date" shall mean the date all conditions precedent to the
effectiveness of the First Supplemental Indenture are satisfied or waived, and
the Note is issued thereunder.
c. A new definition of "First Supplemental Indenture" is added in
alphabetical order as follows:
"First Supplemental Indenture" shall mean the First Supplemental
Indenture, dated as of the Effective Date.
d. The definition of "Indenture" is deleted in its entirety and
replaced as follows:
"Indenture" means this instrument as originally executed or as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
e. The definition of "Indenture Supplement" is deleted in its
entirety and replaced as follows:
"Indenture Supplement" means any supplemental indenture executed
pursuant to Article Nine.
f. A new definition of "Note Increase" is added in alphabetical
order as follows:
"Note Increase" means the funding of an increase in the outstanding
principal amount of the Note.
2
<PAGE>
g. A new definition of "Note Increase Amount" is added in
alphabetical order as follows:
"Note Increase Amount" means the principal amount of any Note
Increase.
h. The definition of "Original Issue Date" is deleted in its
entirety and replaced as follows:
"Original Issue Date" means the earliest original issue date of any
of the Original Notes.
i. The definition of "Tranche" is deleted in its entirety and each
reference to the term "Tranche" that may remain in the Indenture after giving
effect to the amendments effected by the First Supplemental Indenture shall be
interpreted to refer to all or a portion of the outstanding principal balance of
the Note, as the context requires, as such amount may be increased or reduced
hereunder from time to time.
j. A new term "Original Notes" is added to Section 101(b) in
alphabetical order as follows:
Original Notes.................................... Section 1.1
1.3 ADDITION OF NEW SECTION 116 TO THE INDENTURE. New Section 116 is
added to the Indenture as follows:
SECTION 116. INTERPRETATION.
From and after the Effective Date (a) (i) the defined terms
"Note" and "Notes" when used in this Indenture shall refer to the Floating
Rate Variable Funding Automobile Receivables-Backed Note issued under the
First Supplemental Indenture, (ii) the defined terms "Noteholder,"
"Noteholders," "Holder" and "Holders" shall mean the holder or holders of
such Note, (iii) the words "purchase," "funding," or "carrying" when used
with respect to the Notes shall refer to such Note, or the funding of a
Note Increase Amount, as appropriate, (iv) the words "Tranche of Notes" or
"Notes of such Tranche" or other words of similar import, shall mean the
Note or any portion of the outstanding principal balance thereof, as the
context requires, (b) the defined terms "Olympic" and "OFL" shall refer to
Arcadia Financial Ltd. ("Arcadia" or "AFL") and (c) all provisions of this
Indenture shall be interpreted consistently with (a) and (b) above.
1.4 AMENDMENT TO SECTION 301 OF THE INDENTURE. Section 301 of the
Indenture is deleted in its entirety and replaced as follows:
3
<PAGE>
SECTION 301. FORMS GENERALLY.
The Note shall be in substantially the form set forth in
Exhibit A, or in such other form as shall be established by or pursuant to
a Board Resolution and in one or more Indenture Supplements, in each case
with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of
any securities exchange or as may, consistently herewith, be determined by
the officer executing such Note, as evidenced by its execution of the Note.
If the form of Note is established by action taken pursuant to a Board
Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Issuer and
delivered to the Trustee at or prior to the delivery of the Issuer Order
contemplated by Section 404 for the authentication and delivery of such
Note.
The Trustee's certificates of authentication shall be in
substantially the form set forth in this Article.
The Note shall be printed, lithographed or engraved on steel
engraved borders or may be produced in any other manner (provided that if
the Note is to be listed on any securities exchange, then in any such
manner as may be permitted by the rules of any such securities exchange,
all as determined by the officer executing such Note, as evidenced by its
execution of such Note).
1.5 AMENDMENT TO SECTION 401 OF THE INDENTURE. Section 401 of the
Indenture is deleted in its entirety and replaced as follows:
SECTION 401. AMOUNT LIMITED; NOTE INCREASES.
The aggregate principal amount of the Note which may be
Outstanding at any time under this Indenture is limited to the Maximum
Authorized Amount.
No Note Increase Amount shall be funded under this Indenture
unless (i) no Default or Event of Default shall have occurred and be
continuing, (ii) the Amortization Period shall not have begun, (iii) the
Insurer Notice Date shall not have occurred and (iv) after giving effect to
such funding, the Outstanding Amount of the Note will not be greater than
the aggregate principal amount of the Advances that are outstanding.
The Note shall be in substantially the form set forth in
Exhibit A hereto except as may otherwise be provided in or pursuant to the
Board Resolution referred to in Section 301 and set forth in any Indenture
Supplement hereto.
The aggregate outstanding principal amount of the Note may
be increased through the funding of Note Increases. Each Note Increase and
4
<PAGE>
corresponding Note Increase Amount shall be recorded on the grid attached
to the Note. The Note (i) can be funded by Note Increases in a minimum
amount of $5,000,000 and any higher amount, and (ii) is subject to
prepayment at the option of the Issuer as provided in Article XI herein.
Note Increases shall be funded in accordance with Section 3 of the Note
Purchase Agreement.
1.6 AMENDMENT TO SECTION 402 OF THE INDENTURE. Section 402 of the
Indenture is deleted in its entirety and replaced as follows:
SECTION 402. MATURITY, PRINCIPAL PAYMENTS AND DENOMINATIONS.
(a) The principal of the Note shall be payable in
installments equal to the sum of the Advance Principal Distributable Amount
deposited in the Note Distribution Account pursuant to Sections 3.6(a)(v)
and 3.6(b)(v) of the Servicing Agreement on each Payment Date with respect
to the Amortization Period and the amounts deposited in the Note
Distribution Account pursuant to Sections 3.6(a)(viii) and 3.6(b)(viii) of
the Servicing Agreement on each such Payment Date. Subject to Section 602
and notwithstanding the foregoing, the entire unpaid principal amount of
the Note shall be due and payable, if not previously paid, on the date on
which an Event of Default shall have occurred and be continuing so long as
an Insurer Default shall not have occurred and be continuing or, if an
Insurer Default shall have occurred and be continuing, on the date on which
an Event of Default shall have occurred and be continuing and the Trustee
or a Note Majority have declared the Note to be immediately due and payable
in the manner provided in Section 602(a). All such principal payments on
the Note shall be made pro rata to the Noteholders entitled thereto. The
Trustee shall notify the Person in whose name the Note is registered at the
close of business on the Record Date preceding the Payment Date on which
the Issuer expects that the final installment of principal of and interest
on the Note will be paid. Such notice shall be mailed no later than five
days prior to such final Payment Date and shall specify that such final
installment will be payable only upon presentation and surrender of the
Note and shall specify the place where the Note may be presented and
surrendered for payment of such installment. Notices in connection with
prepayments in whole of the Note shall be mailed, couriered or sent by
facsimile transmission to the Noteholders as provided in Section 1102.
(b) Promptly following the date on which all principal of
and interest on the Note has been paid in full and the Note has been
surrendered to the Trustee, the Trustee shall, if the Security Insurer has
paid any amount in respect of the Note under the Note Policy that has not
been reimbursed to it, deliver evidence of such surrendered Note to the
Security Insurer.
(c) The Note shall be issuable only in registered form with
a Maximum Authorized Amount specified from time to time in the Note
Purchase Agreement.
1.7 AMENDMENT TO SECTION 403(a) OF THE INDENTURE. Section 403(a) of the
Indenture is deleted in its entirety and replaced as follows:
5
<PAGE>
SECTION 403. INTEREST PAYMENTS.
(a) Subject to the further provisions of this Section 403,
interest on the principal amount from time to time outstanding on the Note
shall be payable on each Payment Date at the Note Interest Rate for the
period from its Original Issue Date, or such later date to which interest
has been paid or duly provided for, to such Payment Date. Interest on the
Note shall be computed on the basis of a 360-day year and actual days
elapsed. The first payment of interest on the Note Increase Amount with
respect to a Note Increase funded between the first day of a calendar month
and the Payment Date occurring in such calendar month will be made on the
Payment Date occurring in the next succeeding calendar month. In addition,
on each Payment Date with respect to any Interest Period or portion thereof
after the occurrence of an Amortization Event, the Default Amount
Distributable Amount shall be payable with respect to the Note to the
extent funds are available therefor pursuant to Section 3.6(b)(vii) or (ix)
of the Servicing Agreement.
1.8 AMENDMENT TO SECTION 404 OF THE INDENTURE. Section 404 of the
Indenture is deleted in its entirety and replaced as follows:
SECTION 404. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Note shall be executed on behalf of the Issuer by one of
its Authorized Officers. The signature of one of these officers on the
Note may be manual or facsimile.
The Note bearing the manual or facsimile signatures of an
individual who was at any time a proper officer of the Issuer shall bind
the Issuer, notwithstanding that such individual has ceased to hold such
office prior to the authentication and delivery of the Note or did not hold
such office at the date of the Note.
At any time and from time to time after the execution and
delivery of this Indenture and receipt of the Note Policy, and upon
satisfaction of all the conditions set forth in Section 401, the Issuer may
deliver the Note executed by the Issuer to the Trustee or Authenticating
Agent for authentication, together with an Issuer Order for the
authentication and delivery of the Note and an Officer's Certificate that
all conditions precedent for such issuance have been satisfied, and the
Trustee in accordance with the Issuer Order shall authenticate and make
available for delivery the Note.
The Note shall be dated the date of its authentication.
The Note shall not be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on
the Note a certificate of authentication substantially in the form provided
for herein executed by the
6
<PAGE>
Trustee or the Authenticating Agent by manual signature, and such
certificate upon the Note shall be conclusive evidence, and the only
evidence, that the Note has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture. Notwithstanding the
foregoing, if the Note shall have been authenticated and delivered
hereunder but never issued and sold by the Issuer, and the Issuer shall
deliver the Note to the Trustee or the Authenticating Agent for
cancellation as provided in Section 410 together with a written statement
(which need not comply with Section 102 and need not be accompanied by an
Opinion of Counsel) stating that the Note has never been issued and sold by
the Issuer, for all purposes of this Indenture the Note shall be deemed
never to have been authenticated and delivered hereunder and shall never be
entitled to the benefits of this Indenture.
1.9 AMENDMENT TO SECTION 405 OF THE INDENTURE. Section 405 of the
Indenture is deleted in its entirety and replaced as follows:
SECTION 405. TEMPORARY NOTES.
Pending the preparation of the definitive Note, the Issuer
may execute, and upon Issuer Order the Trustee or the Authenticating Agent
shall authenticate and deliver, a temporary Note which is printed,
lithographed, typewritten, reproduced or otherwise produced, substantially
of the tenor of the definitive Note in lieu of which it is issued and with
such appropriate insertions, omissions, substitutions and other variations
as the officer executing such Note may determine, as evidenced by its
execution of such Note.
If a temporary Note is issued, the Issuer will cause the
definitive Note to be prepared without unreasonable delay. After the
preparation of the definitive Note, the temporary Note shall be
exchangeable for the definitive Note upon surrender of the temporary Note
at the office or agency of the Issuer to be maintained as provided in
Section 1002. Upon surrender for cancellation of any temporary Note the
Issuer shall execute, and the Trustee or the Authenticating Agent shall
authenticate and make available for delivery, in exchange therefor a like
principal amount of a definitive Note of the same tenor. Until so
exchanged, the temporary Note shall in all respects be entitled to the same
benefits under this Indenture as a definitive Note.
1.10 AMENDMENT TO SECTION 902 OF THE INDENTURE. The last paragraph of
Section 902 of the Indenture is amended as follows:
The capitalized term "Supplemental Indenture" is replaced by the
defined term Indenture Supplement each of the four times it is used in
Section 902.
1.11 AMENDMENT TO SECTION 903 OF THE INDENTURE. The last sentence of
Section 903 of the Indenture is amended as follows:
7
<PAGE>
The capitalized term "Supplemental Indenture" is replaced by the
defined term Indenture Supplement in the last sentence of Section 903.
1.12 AMENDMENT TO SECTION 1003 OF THE INDENTURE. Subsection
1003(b)(i)(D) of the Indenture is amended as follows:
The capitalized term "Supplemental Indenture" is replaced by the
words "supplemental indenture" in Section 1003(b)(i)(D) of the Indenture.
1.13 AMENDMENT TO SECTION 1101 OF THE INDENTURE. Section 1101 of the
Indenture is deleted in its entirety replaced as follows:
SECTION 1101. PREPAYMENT.
The Note shall be prepayable in whole or in part at the
Prepayment Price on any Business Day in accordance (and simultaneously)
with the prepayment of any Advance pursuant to Section 3(e) of the
Repurchase Agreement and Section 3.10(b) of the Servicing Agreement in an
amount equal to the amount deposited with respect to principal in the Note
Distribution Account pursuant to Section 3.10(b) of the Servicing
Agreement.
1.14 AMENDMENT TO SECTION 1102 OF THE INDENTURE. Section 1102 of the
Indenture is deleted in its entirety and replaced as follows:
SECTION 1102. NOTICE OF PREPAYMENT IN WHOLE OF THE NOTE.
To the extent practicable, notice of the prepayment in whole
of the Note shall be given by the Issuer by facsimile transmission, courier
or first-class mail, postage prepaid, mailed, faxed or couriered not less
than 1 nor more than 5 days prior to the date on which such prepayment in
whole shall occur, to each Holder of the Note, at such Holder's address
appearing in the Note Register.
All notices of prepayment in whole shall state:
(1) the date on which such prepayment in whole shall occur,
(2) the Prepayment Price,
(3) the place or places where the Note is to be surrendered for
payment of the Prepayment Price (which shall be the office
or agency of the Issuer to be maintained as provided in
Section 1002).
Failure to give notice of prepayment in whole, or any defect
therein, to any Holder of the Note shall not impair or affect the validity
of such prepayment.
8
<PAGE>
1.15 AMENDMENT TO SECTION 1103 OF THE INDENTURE. Section 1103 of the
Indenture is deleted in its entirety and replaced as follows:
SECTION 1103. DEPOSIT OF PREPAYMENT PRICE.
On any date on which such prepayment in whole shall occur,
the Issuer shall deposit with the Trustee or with a Paying Agent an amount
of money sufficient to pay the Prepayment Price of the Note in whole on
that date.
1.16 AMENDMENT TO SECTION 1104 OF THE INDENTURE. Section 1104 of the
Indenture is deleted in its entirety and replaced as follows:
SECTION 1104. NOTE PREPAYABLE IN WHOLE ON ANY DATE.
Notice of prepayment in whole having been given as
aforesaid, the Note shall, on the date on which such prepayment in whole
shall occur, become due and payable at the Prepayment Price therein
specified, and from and after such date (unless the Issuer shall default in
the payment of the Prepayment Price and accrued interest) the Note shall
cease to bear interest. Upon surrender of the Note for prepayment in whole
in accordance with said notice, the Note shall be prepaid by the Issuer at
the Prepayment Price, together with accrued interest to the date on which
such prepayment in whole shall occur; PROVIDED, HOWEVER, that installments
of interest due and payable on or prior to the date on which such
prepayment in whole shall occur shall be payable to the Holders of the
Note, or one or more Predecessor Notes, registered as such at the close of
business on the relevant Record Dates according to their terms and the
provisions of Section 408.
If the Note after being called for prepayment in whole shall
not be so paid upon surrender thereof for prepayment in whole, the
principal shall, until paid, bear interest from the date on which such
prepayment in whole shall occur at the Note Interest Rate.
ARTICLE 2
MISCELLANEOUS
2.1 REPRESENTATIONS AND WARRANTIES. The Issuer represents and warrants
that as of the Effective Date no Event of Default has occurred hereunder and to
the best of the Issuer's knowledge, there is no set of circumstances existing
that with the passage of time, would constitute such an Event of Default.
9
<PAGE>
2.2 EFFECTIVENESS. The amendments provided for by this First
Supplemental Indenture shall become effective as of the Effective Date, upon the
satisfaction or waiver of the following conditions: (i) receipt by the Agent,
in form and substance satisfactory to the Agent, of this First Supplemental
Indenture duly executed and delivered by each of the parties hereto and the
Security Insurer and the Agent and (ii) prior notice to the Rating Agencies of
this First Supplemental Indenture and Rating Agency confirmation in accordance
with Section 906 of the Indenture.
2.3 INDENTURE IN FULL FORCE AND EFFECT AS AMENDED. Except as
specifically amended hereby, all of the terms and conditions of the Indenture
shall remain in full force and effect and, except as expressly provided herein,
the effectiveness of this First Supplemental Indenture shall not operate as, or
constitute a waiver or modification of, any right, power or remedy of any party
to the Indenture. All references to the Indenture in any other document or
instrument shall be deemed to mean the Indenture as amended by this First
Supplemental Indenture. This First Supplemental Indenture shall not constitute
a novation of the Indenture, but shall constitute an amendment thereof.
2.4 COUNTERPARTS. This First Supplemental Indenture may be executed in
any number of counterparts and by separate parties hereto on separate
counterparts, each of which when executed shall be deemed an original, but all
such counterparts taken together shall constitute one and the same instrument.
2.5 GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS.
2.6 DEFINED TERMS. Capitalized terms used herein and not otherwise
defined shall have the meaning assigned to such terms in the Indenture.
2.7 EXCHANGE OF THE ORIGINAL NOTES. Pursuant to Section 905 of the
Indenture, the Note in the form of Exhibit A hereto, and issued pursuant to this
First Supplemental Indenture, shall be prepared and executed by the Issuer and
authenticated and delivered by the Trustee in exchange for the Original Notes,
which shall be cancelled and destroyed by the Trustee in accordance with the
Trustee's standard procedures. Exhibit A hereto shall replace Exhibit A to the
Indenture from and after the Effective Date.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed as of the day and year first above
written.
ARCADIA RECEIVABLES CONDUIT CORP.
By
----------------------------
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
as Trustee
By
----------------------------
CONSENTED TO BY:
FINANCIAL SECURITY ASSURANCE INC.
By
----------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By
-----------------------------
RECEIVABLES CAPITAL CORPORATION
By
-----------------------------
<PAGE>
EXHIBIT A
[Form of Note]
REGISTERED
No. R-1
ARCADIA RECEIVABLES CONDUIT CORP.
FLOATING RATE VARIABLE FUNDING AUTOMOBILE
RECEIVABLES-BACKED NOTE
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND HAS NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR REGULATORY
AUTHORITY OF ANY STATE. THIS NOTE HAS BEEN OFFERED AND SOLD PRIVATELY. THE
HOLDER HEREOF ACKNOWLEDGES THAT THESE SECURITIES ARE "RESTRICTED SECURITIES"
THAT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND AGREES FOR THE
BENEFIT OF THE ISSUER AND ITS AFFILIATES THAT THESE SECURITIES MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) TO A PERMITTED
ASSIGNEE WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A OR (B) TO A PERMITTED ASSIGNEE PURSUANT TO
AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), OR (C) TO A PERMITTED ASSIGNEE PURSUANT TO ANY OTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS UNDER SECTION 5 OF THE SECURITIES ACT, AND IN EACH
CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER JURISDICTION.
THIS NOTE WILL BE PREPAYABLE IN WHOLE OR IN PART ON ANY BUSINESS DAY. THE
PRINCIPAL ON THIS NOTE IS PAYABLE IN INSTALLMENTS ON THE PAYMENT DATES AND IN
THE AMOUNTS DESCRIBED IN THE INDENTURE REFERRED TO HEREIN. IN ADDITION, THE
OUTSTANDING AMOUNT MAY BE INCREASED FROM TIME TO TIME AT THE REQUEST OF THE
ISSUER SUBJECT TO CERTAIN TERMS AND CONDITIONS AS PROVIDED IN THE INDENTURE.
ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THIS NOTE, THE OUTSTANDING
PRINCIPAL AMOUNT OF THIS NOTE MAY BE DIFFERENT FROM THE INITIAL PRINCIPAL AMOUNT
SHOWN BELOW. ANYONE ACQUIRING THIS NOTE MAY ASCERTAIN THE CURRENT OUTSTANDING
PRINCIPAL AMOUNT OF THIS NOTE BY INQUIRY OF THE TRUSTEE. ON THE DATE OF THE
INITIAL ISSUANCE OF THIS NOTE, THE TRUSTEE IS NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION.
Original Issue Date:
Initial Principal Amount: $
<PAGE>
Arcadia Receivables Conduit Corp. (the "Issuer"), a corporation duly
organized and existing under the laws of the State of Delaware, for value
received hereby promises to pay to ___________ the principal sum of ___________
Dollars (and adjusted as recorded on the grid attached to this Note up to the
Maximum Authorized Amount) payable in installments on the Payment Dates and in
the amounts described in the Indenture referred to herein and to pay interest
thereon on each Payment Date at the Note Interest Rate until the principal
hereof is paid or made available for payment. The Note Interest Rate will be a
per annum rate equal to (A) prior to the occurrence of an Amortization Event,
(i) the CP Rate plus 0.20%, to the extent the purchase or carrying of this Note
is funded by the Noteholders by issuing Commercial Paper Notes, or (ii) the
Offshore Rate plus the Applicable Margin, to the extent the purchase or carrying
of this Note is not so funded by the Noteholders and (B) after the occurrence of
an Amortization Event, the Reference Rate; PROVIDED, that from and after the
occurrence of an Amortization Event, the Note Interest Rate shall not exceed the
Maximum Interest Rate, and the Agent may, on any Business Day, by prior written
notice to the Issuer, the Trustee, the Seller, the Servicer and the Security
Insurer, convert the Note Interest Rate to a fixed interest rate not to exceed
the Maximum Interest Rate as of the close of business on the date such
Amortization Event occurs, such fixed interest rate not to exceed the Two Year
Treasury Yield (as of the close of business on the date such Amortization Event
occurs) plus 0.60% PLUS the Basis Fee Percent.
This Note will bear interest, payable in arrears, from the Original Issue
Date at the Note Interest Rate. Interest will accrue on this Note from the most
recent Payment Date to which interest has been paid in full or duly provided for
(or, if no interest has been paid, from the Original Issue Date), to but
excluding the next succeeding Payment Date. The first payment of interest on
the Outstanding Amount of this Note applicable to a Note Increase Amount funded
between the first day of a calendar month and a Payment Date will be made on the
Payment Date following the next succeeding calendar month. In addition, on each
Payment Date with respect to any Interest Period or portion thereof after the
occurrence of an Amortization Event, the Default Amount Distributable Amount, if
any, shall be payable with respect to this Note to the extent funds are
available therefor pursuant to Section 3.6(b)(vii) or (ix) of the Servicing
Agreement.
Payments on this Note will be paid to the Person in whose name this Note
(or one or more Predecessor Notes) is registered at the close of business on the
Record Date, by wire transfer in immediately available funds to the account and
number specified in the Note Register on such Record Date for such Person or, if
no such account or number is so specified, then by check mailed to the address
of such Person as such address shall appear in the Note Register.
The Record Date for each Payment Date for this Note will be the close of
business on the last Business Day immediately preceding such Payment Date.
This Note is entitled to the benefits of an Indenture dated as of December
3, 1996, and the First Supplemental Indenture, dated as of the Effective Date,
as amended and further supplemented, (as amended and further supplemented from
time to time, the "Indenture")
A-2
<PAGE>
between the Issuer and Norwest Bank Minnesota, National Association, as Trustee
(in such capacity, the "Trustee") and as Collateral Agent (in such capacity, the
"Collateral Agent").
This Note is entitled to the benefits of a financial guaranty insurance
policy (the "Note Policy") issued by Financial Security Assurance Inc. (the
"Security Insurer"), pursuant to which the Security Insurer has unconditionally
guaranteed payments of the Noteholders' Interest Distributable Amount on each
Payment Date and the Noteholders' Principal Distributable Amount on each Payment
Date.
NO HOLDER OF THIS NOTE SHALL TRANSFER THIS NOTE UNLESS SUCH TRANSFER IS
MADE IN ACCORDANCE WITH RULE 144A OF THE SECURITIES ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144A UNDER THE SECURITIES ACT (IF
AVAILABLE), OR PURSUANT TO ANY OTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS UNDER SECTION 5 OF THE SECURITIES ACT PROVIDED THE ISSUER IS
PROVIDED WITH AN OPINION OF COUNSEL THAT SUCH TRANSFER IS SO EXEMPT, AND IN EACH
CASE IN ACCORDANCE WITH THE REGISTRATION AND QUALIFICATION REQUIREMENTS (OR ANY
APPLICABLE EXEMPTION THEREFROM) UNDER APPLICABLE STATE SECURITIES LAWS.
This Note shall not be valid or entitled to any benefit under the Indenture
or be valid or obligatory for any purpose unless the certificate of
authentication appearing hereon has been executed by the Trustee or the
Authenticating Agent by manual signature. THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS NOTE SET FORTH
ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE
SAME EFFECT AS IF SET FORTH AT THIS PLACE.
A-3
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer.
ARCADIA RECEIVABLES CONDUIT CORP.
By
-----------------------------
Authorized Officer
Dated:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is the Note referred to in the within-mentioned Indenture.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Trustee
By
-------------------------
Authorized Signatory
A-4
<PAGE>
[FORM OF REVERSE SIDE OF NOTE]
ARCADIA RECEIVABLES CONDUIT CORP.
(Continued)
This Note is a duly authorized issue of the Issuer, designated as its
Floating Rate Variable Funding Automobile Receivables-Backed Note (herein called
the "Note") authorized to be issued under and pursuant to an Indenture by and
between the Issuer and Norwest Bank Minnesota, National Association, as Trustee
and as Collateral Agent, dated as of December 3, 1996, and the First
Supplemental Indenture, dated as of the Effective Date, as amended and further
supplemented (as amended and further supplemented from time to time, the
"Indenture") to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights and
obligations thereunder of the Issuer, the Trustee and the Holder of this Note.
This Note is subject to all terms of the Indenture. All terms used in this Note
that are defined in the Indenture, as supplemented or amended, shall have
meanings assigned to them in or pursuant to the Indenture, as so supplemented or
amended.
This Note is secured by the collateral pledged as security therefor as
provided in the Indenture.
Principal of this Note will be payable in installments on the Payment Dates
and in the amounts described in the Indenture. "Payment Date" means the
fifteenth day of each month, or if any such date is not a Business Day, the next
succeeding Business Day.
As described above, the entire unpaid principal amount of this Note shall
be due and payable on the Final Distribution Date. In addition, this Note is
prepayable in whole or in part on any Business Day as set forth in the
Indenture. Notwithstanding the foregoing, the entire unpaid principal amount of
this Note shall be due and payable on the date on which an Event of Default
shall have occurred and be continuing so long as an Insurer Default shall not
have occurred and be continuing or, if an Insurer Default shall have occurred
and be continuing, on the date on which an Event of Default shall have occurred
and be continuing and the Trustee or the Agent have declared this Note to be
immediately due and payable in the manner provided in Section 602 of the
Indenture. All principal payments on this Note shall be made pro rata to the
Noteholders entitled thereto.
The aggregate outstanding principal amount of this Note may be increased
through the funding of Note Increases. Each Note Increase and corresponding
Note Increase Amount shall be recorded on the grid attached to this Note. This
Note: (i) shall bear interest at the Note Interest Rate as provided in Section
403 of the Indenture, (ii) can be funded by Note Increases in a minimum amount
of $5,000,000 and any higher amount, and (iii) is subject to prepayment at the
option of the Issuer as provided in Article XI of the Indenture. The Issuer
shall provide the Agent with written notice of each funding date and of the Note
Increase Amount to be funded on such funding date no later than 12:00 noon (New
York City time) one Business Day prior to the proposed funding date; PROVIDED,
that if the Note Increase
A-5
<PAGE>
Amount on a funding date is less than or equal to $15,000,000, then such notice
may be made no later than 11:00 a.m., New York City time on such purchase date;
PROVIDED FURTHER, that if such notice is given on a funding date, the Purchaser
will not be obligated to fund the Note Increase Amount on such funding date
unless the Purchaser is able to issue and sell its Commercial Paper Notes in an
amount sufficient to fund such Note Increase Amount, and Arcadia and the Issuer
agree to hold harmless the purchaser for failing to effect a funding on such
funding date.
Payments of interest on this Note due and payable on each Payment Date,
together with an installment of principal, if any, to the extent not in full
payment of this Note, shall be paid to the Person in whose name this Note (or
one or more Predecessor Notes) is registered at the close of business on the
Record Date, by wire transfer in immediately available funds to the account and
number specified in the Note Register on such Record Date for such Person or, if
no such account or number is so specified, then by check mailed to such Person's
address as it appears in the Note Register on each such Record Date. Such
payments shall be sent without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note (or any
one or more Predecessor Notes) affected by any payments made on any Payment Date
shall be binding upon all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Indenture, for payment in full of the final installment of the
then remaining unpaid principal amount of this Note on a Payment Date, then the
Trustee will notify the Person who was the Registered Holder hereof as of the
Record Date preceding such Payment Date by notice mailed within five days of
such Payment Date and the amount then due and payable shall be payable only upon
presentation and surrender of this Note at the place specified by the Trustee in
such notice. Notices in connection with prepayments in whole shall be
couriered, mailed or sent by facsimile transmission as provided in Section 1102
of the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of this Note under the Indenture at any
time by this Issuer with the consent of the Security Insurer and of the Agent or
the Holders of this Note representing a majority of the Outstanding Amount of
this Note at the time Outstanding. The Indenture also contains provisions
permitting the Holders of this Note representing specified percentages of the
Outstanding Amount of this Note, on behalf of the Holders of this Note, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequence. Any such consent or
waiver by the Holder of this Note (or any one of more Predecessor Notes) shall
be conclusive and binding upon such Holders and upon all future Holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange hereof or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note. The Indenture also permits the Trustee to amend
or waive certain terms and conditions set forth in the Indenture without the
consent of Holders of the Note issued thereunder.
A-6
<PAGE>
Upon surrender for registration of transfer of this Note at the office or
agency of the Issuer to be maintained in The City of New York, the City of
Chicago, Illinois or the City of Minneapolis, Minnesota, the Issuer shall
execute, and the Trustee or the Authenticating Agent shall authenticate and make
available for delivery, in the name of the designated transferee or transferees,
a new Note of a like tenor and aggregate principal amount.
At the option of the Holder, this Note may be exchanged for a Note of a
like tenor and aggregate principal amount, upon surrender of the Note to be
exchanged at such office or agency. Whenever this Note is so surrendered for
exchange, the Issuer shall execute, and the Trustee or the Authenticating Agent
shall authenticate and make available for delivery, the Note which the Holder
making the exchange is entitled to receive.
This Note presented or surrendered for registration of transfer or for
exchange shall (if so required by the Issuer or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Issuer and the Note Registrar duly executed, by the Holder thereof or his
attorney duly authorized in writing with such signature guaranteed by a
commercial bank or trust company located, or having a correspondent located, in
the City of New York or the city in which the Corporate Trust Office is located,
or by a member firm of a national securities exchange, and such other documents
as the Trustee may require.
No service charge shall be made for any registration of transfer or
exchange of this Note, but the Issuer or the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of this Note, other
than exchanges pursuant to Section 404 or 905 not involving any transfer.
The term "Issuer" as used in this Note includes any successor to the Issuer
under the Indenture.
This Note is issuable only in registered form as provided in the Indenture,
subject to certain limitations therein set forth.
THIS NOTE AND THE INDENTURE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER AND THEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Related Documents, neither the Issuer nor any of its agents,
officers, directors, employees, stockholders, incorporators or successors or
assigns shall be personally liable for, nor shall recourse be had to any of them
for, the payment of principal of or interest on, or performance of, or omission
to perform, any of the covenants, obligations or indemnifications contained in
this Note or the Indenture. The Holder of this Note by the acceptance hereof
agrees that
A-7
<PAGE>
except as expressly provided in the Related Documents, in the case of an Event
of Default under the Indenture, the Holder shall have no claim against any of
the foregoing for any deficiency, loss or claim therefrom.
A-8
<PAGE>
NOTE AND PAYMENT OF PRINCIPAL
Outstanding Amount of Note Increase Notification
Date Amount of Note Principal Repaid Amount Made By
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A-9
<PAGE>
EXECUTION COPY
SECOND AMENDMENT
TO THE
INSURANCE AND INDEMNITY AGREEMENT
THIS SECOND AMENDMENT TO THE INSURANCE AND INDEMNITY AGREEMENT dated as of
November ___, 1997 (this "AMENDMENT"), among FINANCIAL SECURITY ASSURANCE INC.
("FSA"), ARCADIA RECEIVABLES CONDUIT CORP. (the "ISSUER"), ARCADIA RECEIVABLES
FINANCE CORP. (formerly known as Olympic Receivables Finance Corp.), as Seller
(the "SELLER" or "ARFC") and, ARCADIA FINANCIAL LTD. (formerly known as Olympic
Financial Ltd.), ("AFL"). From and hereafter the date hereof references in the
Insurance and Indemnity Agreement to (i) Olympic Financial Ltd. or AFL and (ii)
Olympic Receivables Finance Corp. shall be deemed to be references to AFL and
ARFC, respectively.
WHEREAS, the parties hereto wish to amend the Insurance and Indemnity
Agreement, dated as of December 3, 1996 and amended as of August 1, 1997 (as
amended and in effect from time to time, the "INSURANCE AND INDEMNITY
AGREEMENT"), among FSA, the Issuer, the Seller and the Servicer herein;
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein, the parties hereto agree as follows:
SECTION 1.
(a) AMENDMENT TO APPENDIX I. The following definition shall be deleted
in its entirety and replaced as follows:
"SECURITIES" means the Issuer's Floating Rate Variable Funding
Automobile Receivables-Backed Note issued under the Supplemental Indenture to
the Indenture, dated as of even date herewith, between the Issuer and the
Trustee, in an aggregate principal amount at any one time outstanding not
exceeding $400 million.
(b) Section 2.01(k) shall be amended to read in its entirety as follows:
(k) FINANCIAL STATEMENTS. The Financial Statements of AFL, copies of
which have been furnished to Financial Security, (i) are, as of the dates
and for the periods referred to therein, complete and correct in all
material respects, (ii) present fairly the financial condition and results
of operations of such Person as of the dates and for the periods indicated
and (iii) have been prepared in accordance with generally accepted
accounting principles consistently applied, except as noted therein
(subject as to interim statements to normal year-end adjustments). Since
the date of the most recent Financial
<PAGE>
Statements with respect to such Person, there has been no material adverse
change in such financial condition or results of operations of such
Person. Except as disclosed in the Financial Statements, AFL is not
subject to any contingent liabilities or commitments that, individually or
in the aggregate, have a material possibility of causing a Material
Adverse Change in respect of AFL.
(c) Subsections (b)(i) and (b)(ii) of Section 2.02 shall be amended to
read in their respective entireties as follows:
(b) FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION.
Each of AFL and ARFC shall keep or cause to be kept in reasonable detail
books and records of account of its assets and business. Each of AFL and
ARFC shall furnish or cause to be furnished to Financial Security:
(i) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in
any event within 90 days after the close of each fiscal year of AFL,
the audited balance sheets of AFL, as of the end of such fiscal year
and the audited statements of income, changes in shareholders' equity
and cash flows of AFL, for such fiscal year, all in reasonable detail
and stating in comparative form the respective figures for the
corresponding date and period in the preceding fiscal year, prepared
in accordance with generally accepted accounting principles,
consistently applied, and accompanied by the certificate of
independent accountants (which shall be a nationally recognized firm
or otherwise acceptable to Financial Security) for AFL, and by the
certificate specified in Section 2.02(c) hereof.
(ii) QUARTERLY FINANCIAL STATEMENTS. As soon as available, and
in any event within 45 days after the close of each of the first three
quarters of each fiscal year of AFL, the unaudited balance sheets of
AFL as of the end of such quarter and the unaudited statements of
income, changes in shareholders' equity and cash flows of AFL for the
portion of the fiscal year then ended, all in reasonable detail and
stating in comparative form the respective figures for the
corresponding date and period in the preceding fiscal year, prepared
in accordance with generally accepted accounting principles,
consistently applied (subject to normal year-end adjustments), and
accompanied by the certificate specified in Section 2.02(c) hereof if
such certificate is required to be provided pursuant to such Section.
(d) Section 2.02(c) shall be amended to read in its entirety as follows:
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<PAGE>
(c) COMPLIANCE CERTIFICATE. AFL shall deliver to Financial Security
concurrently with the delivery of the financial statements required
pursuant to Section 2.02(b)(i) hereof (and concurrently with the delivery
of the financial statements required pursuant to Section 2.02(b)(ii)
hereof, if a Special Event specified in clauses (a) or (d) of the
definition thereof or clause (b) or (c) of the definition thereof with
respect to AFL or ARFC has occurred), a certificate signed by its Chief
Financial Officer stating that:
(i) a review of such Person's performance under the Transaction
Documents during such period has been made under such officer's
supervision;
(ii) to the best of such officer's knowledge following reasonable
inquiry, no Special Event, Default or Event of Default has occurred
with respect to such Person, or if a Special Event, Default or Event
of Default has occurred with respect to such Person, specifying the
nature thereof and, if such Person has a right to cure any such
Default or Event of Default pursuant to Section 5.01, stating in
reasonable detail the steps, if any, being taken by such Person to
cure such Default or Event of Default or to otherwise comply with the
terms of the agreement to which such Default or Event of Default
relates; and
(iii) the attached financial reports submitted in accordance
with Section 2.02(b)(i) or (ii) hereof, as applicable, are complete
and correct in all material respects and present fairly the financial
condition and results of operations of AFL as of the dates and for the
periods indicated, in accordance with generally accepted accounting
principles consistently applied (subject as to interim statements to
normal year-end adjustments).
(e) Section 2.05 shall be amended to read in its entirety as follows:
Section 2.05 BOOKS AND RECORDS; OTHER INFORMATION. The Issuer shall keep
or cause to be kept in reasonable detail books and records of account of its
assets and business. The Issuer shall furnish or cause to be furnished to
Financial Security promptly upon receipt thereof, copies of all reports,
statements, certifications, schedules, or other similar items delivered to or by
the Issuer pursuant to the terms of the Transaction Documents and, promptly upon
request, such other data as Financial Security may reasonably request; PROVIDED,
HOWEVER, that the Issuer shall not be required to deliver any such items if
provision by some other party to Financial Security is required under the
Transaction Documents unless such other party wrongfully fails to deliver such
item. The Issuer shall, upon the request of Financial Security, permit
Financial Security or its authorized agents (A) to inspect its books and records
as they may relate to the Securities, the Receivables, the
-3-
<PAGE>
obligations of the Issuer under the Transaction Documents, the Transaction;
(B) to discuss the affairs, finances and accounts of the Issuer with its
officers upon Financial Security's reasonable request; and (C) upon the
occurrence of a Special Event, to discuss the affairs, finances and accounts
of the Issuer with its independent accountants, PROVIDED that an officer of
the Issuer shall have the right to be present during such discussions. Such
inspections and discussions shall be conducted during normal business hours
and shall not unreasonably disrupt the business of such Person. The books
and records of the Issuer will be maintained at the National Servicing
Center, 10033 West 70th Street, Eden Prairie, Minnesota, unless such Person
shall otherwise advise the parties hereto in writing.
SECTION 2. REPRESENTATIONS AND WARRANTIES. Each of FSA, the Issuer,
the Seller and the Servicer represents and warrants that as of the effective
date of this Amendment, no Event of Default has occurred under the Repurchase
Agreement, no Servicer Termination Event has occurred under the Servicing
Agreement, no Event of Default has occurred under the Insurance and Indemnity
Agreement and to the best of each of FSA, the Issuer, the Seller, and the
Service's knowledge there is no set of circumstances existing that with the
passage of time or the giving of notice, would constitute any such event.
SECTION 3. EFFECTIVENESS. The amendments provided for by this
Amendment shall become effective upon (i) the due execution and delivery of this
Amendment duly executed by each of the parties hereto, (ii) the effectiveness of
the Amendments dated the date hereof to the Servicing Agreement and the
Repurchase Agreement in form and substance satisfactory to FSA and (iii) an
opinion of counsel to Arcadia, dated the date hereof, addressed to the Agent and
the Security Insurer, covering such matters as the Agent and the Security
Insurer may reasonably request.
SECTION 4. INSURANCE AND INDEMNITY AGREEMENT IN FULL FORCE AND EFFECT
AS AMENDED. Except as specifically amended hereby, all of the terms and
conditions of the Insurance and Indemnity Agreement shall remain in full force
and effect and, except as expressly provided herein, the effectiveness of this
Amendment shall not operate as, or constitute a waiver or modification of, any
right, power or remedy of any party to the Insurance and Indemnity Agreement.
All references to the Insurance and Indemnity Agreement in any other document or
instrument shall be deemed to mean the Insurance and Indemnity Agreement as
amended by this Amendment. This Amendment shall not constitute a novation of
the Insurance and Indemnity Agreement, but shall constitute an amendment
thereof.
SECTION 5. COUNTERPARTS. This Amendment may be executed in any number
of counterparts and by separate parties hereto on separate counterparts, each of
which when executed shall be deemed an original, but all such counterparts taken
together shall constitute one and the same instrument.
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<PAGE>
SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. DEFINED TERMS. Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to such terms in the Insurance
and Indemnity Agreement.
IN WITNESS WHEREOF, FSA, the Issuer, the Seller and the Servicer have
caused this Amendment to the Insurance and Indemnity Agreement to be duly
executed by their respective officers as of the day and year first above
written.
FINANCIAL SECURITY ASSURANCE INC.
By:
----------------------------------------------
Name:
Title:
ARCADIA RECEIVABLES CONDUIT CORP.
By:
----------------------------------------------
Name:
Title:
ARCADIA RECEIVABLES FINANCE CORP.
By:
----------------------------------------------
Name:
Title:
ARCADIA FINANCIAL LTD., in its
individual capacity and as Servicer
By:
----------------------------------------------
Name:
Title:
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<PAGE>
EXECUTION COPY
SECOND AMENDMENT
TO THE
NOTE PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO THE NOTE PURCHASE AGREEMENT, dated as of
November 14, 1997 (this "Amendment"), among ARCADIA FINANCIAL, LTD. (formerly
known as Olympic Financial, Ltd.) ("Arcadia"), ARCADIA RECEIVABLES CONDUIT CORP.
(the "Issuer"), RECEIVABLES CAPITAL CORPORATION (the "Purchaser") and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Agent").
WHEREAS, the parties hereto wish to amend the Note Purchase Agreement,
dated as of December 3, 1996, and amended as of August 4, 1997 (as amended and
in effect from time to time, the "NOTE PURCHASE AGREEMENT"), among Arcadia, the
Issuer, the Purchaser and the Agent to provide for a Floating Rate Variable
Funding Automobile Receivables-Backed Note (the "NOTE") to replace the Notes
outstanding as of the date hereof (the "ORIGINAL NOTES"); and
WHEREAS, the parties hereto desire to increase the Maximum Authorized
Amount to U.S. $400,000,000, as provided herein;
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein, the parties hereto agree as follows:
SECTION 1. REPLACEMENT OF INTRODUCTORY PARAGRAPH. The first
paragraph of the Note Purchase Agreement shall be deleted in its entirety and
replaced as follows:
The undersigned, Arcadia Receivables Conduit Corp., a Delaware
corporation (the "ISSUER"), and Arcadia Financial Ltd., a Minnesota corporation
("ARCADIA"), hereby agree with you as follows:
SECTION 2. AMENDMENT OF SECTION 1. Section 1 of the Note Purchase
Agreement shall be deleted in its entirety and replaced as follows:
SECTION 1. THE NOTE. On the Effective Date, the Issuer proposes to
deliver to Receivables Capital Corporation (the "PURCHASER") the Note in
exchange for the Original Notes held by the Purchaser. Subject to the terms and
conditions hereof, the Purchaser agrees to fund increases in the outstanding
principal amount of the Note (each, a "NOTE INCREASE," and the principal amount
of any such Note Increase, the "NOTE INCREASE AMOUNT") from time to time
<PAGE>
during the Purchase Period, in a maximum authorized principal amount to be
outstanding at any time (the "MAXIMUM AUTHORIZED AMOUNT") of U.S. $400,000,000.
Each Note Increase and corresponding Note Increase Amount shall be recorded on
the grid attached to the Note. The Original Notes were issued prior to the
Effective Date, and the Note shall be issued by the Issuer on the Effective
Date, pursuant to the Indenture, dated as of December 3, 1996, as amended by the
First Supplemental Indenture, dated as of the Effective Date (as from time to
time amended, further supplemented or modified, the "INDENTURE"), between the
Issuer and Norwest Bank Minnesota, National Association, as trustee (in such
capacity, the "TRUSTEE") and as Collateral Agent (as defined in the Indenture).
The Note: (i) bears interest (subject to conversion to a fixed rate at the
option of the Agent upon the occurrence of an Amortization Event) at a
fluctuating rate per annum equal to the "APPLICABLE RATE" plus the "APPLICABLE
MARGIN," (ii) can be funded by Note Increases in a minimum amount of $5,000,000
and any higher amount on any Purchase Date (as defined below), and (iii) is
subject to prepayment at the option of the Issuer as provided in the Indenture.
The Note shall be issued in the form of a fully registered security in
certificated form (as contemplated by Article VIII of the New York Uniform
Commercial Code).
The Note is secured by a revolving pool of automobile receivables
originated by Arcadia and sold by Arcadia to its wholly-owned subsidiary,
Arcadia Receivables Finance Corp. ("ARFC"), and by ARFC to the Issuer, and by
collections received in respect thereof. Payment of principal and interest on
the entire Maximum Authorized Amount of the Note is insured by Financial
Security Assurance Inc. ("FSA") under a financial guaranty insurance policy (the
"POLICY") dated December 3, 1996, Endorsement No. 1 to the Policy, dated
December 3, 1996, Endorsement No. 2 to the Policy, dated August 4, 1997, and
Endorsement No. 3 to the Policy, dated November 14, 1997.
The Issuer, the Agent, Arcadia, ARFC and the Trustee have entered into
a Servicing Agreement, dated as of December 3, 1996 (as amended to date, and as
from time to time further amended, supplemented or modified, the "SERVICING
AGREEMENT"), to provide for the servicing of the receivables and certain other
matters.
SECTION 3. AMENDMENT OF SECTION 2. Section 2 of the Note Purchase
Agreement shall be deleted in its entirety and replaced as follows:
SECTION 2. FUNDING OF NOTE INCREASES. During the Purchase Period and
subject to the terms and conditions of, and in reliance upon the
representations, warranties and covenants set forth in, this Agreement, the
Purchaser agrees to fund from time to time on each date as specified in Section
3 hereof (each, a "PURCHASE DATE") the Note Increase on such Purchase Date in
the amount of the related Note Increase Amount up to an aggregate principal
amount at any time outstanding not to exceed the Maximum Authorized Amount, at a
purchase price equal to 100% of such Note Increase Amount (the "PURCHASE
PRICE").
SECTION 4. AMENDMENT OF SECTION 3. Section 3 of the Note Purchase
Agreement shall be deleted in its entirety and replaced as follows:
SECTION 3. DELIVERY AND PAYMENT. The Issuer will provide the Agent
with written notice of each Purchase Date and of the Note Increase Amount to be
funded on such
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Purchase Date no later than 12:00 noon (New York City time) one Business Day
prior to the proposed Purchase Date; PROVIDED, that if the Purchase Price for
the Note Increase Amount on a Purchase Date is less than or equal to
$15,000,000, then such notice may be made no later than 11:00 a.m., New York
City time on such Purchase Date; PROVIDED FURTHER, that if such notice is given
on a Purchase Date, the Purchaser will not be obligated to fund the Note
Increase Amount on such Purchase Date unless the Purchaser is able to issue and
sell its Commercial Paper Notes in an amount sufficient to fund such Note
Increase Amount, and Arcadia and the Issuer agree to hold harmless the Purchaser
for failing to effect a funding on such Purchase Date. Each Note Increase shall
be recorded on the grid attached to the Note by the Agent on each Purchase Date.
The notation of the Note Increase shall be made against payment by wire transfer
of immediately available funds to the account of Norwest Bank Minnesota,
National Association as Trustee for Arcadia Receivables Conduit Warehouse,
Account # 3651742, Harris Trust and Savings Bank, ABA # 071000288, in the amount
of the Purchase Price.
SECTION 5. AMENDMENT TO SECTION 6. Section 6 of the Note Purchase
Agreement shall be deleted in its entirety and replaced as follows:
SECTION 6. CONDITIONS OF PURCHASER'S OBLIGATIONS.
(a) EACH FUNDING OF A NOTE INCREASE. Your obligation to fund a Note
Increase on any Purchase Date shall be subject to the fact that (v) no
Amortization Event shall have occurred; (w) the Note Increase to be funded shall
be in conformity with the description thereof contained in Section 1 hereof; (x)
the Purchase Period shall not have expired; (y) the representations and
warranties that are made on the part of the Issuer and contained in this
Agreement shall be true and correct, on and as of such Purchase Date, as if made
on and as of such Purchase Date; and (z) the Issuer shall be in continuing
compliance, in all material respects, with all of its obligations hereunder and
under the Basic Agreements and that ARFC and Arcadia are in continuing
compliance in all material respects with their obligations under the Fee Letter.
Your obligation to fund a Note Increase shall also be subject to the accuracy in
all material respects, on and as of the date of such funding, of the
representations and warranties contained herein and of the statements made by
the Issuer in any certificates furnished pursuant to the provisions hereof.
Each funding of a Note Increase hereunder shall constitute a representation and
warranty by the Issuer that all of the above conditions are satisfied on and as
of the respective Purchase Date.
(b) EFFECTIVE DATE. Your obligation to fund Note Increases commencing
on the Effective Date shall be subject to the following additional conditions:
(i) The Agent shall have received and had an opportunity to review
the Basic Agreements (and the respective appendices and exhibits thereto)
and the form of Note, and each of such documents shall be in form and
substance satisfactory to you.
(ii) Timely payment, as and when due, of all principal of and interest
on the Note shall be fully and unconditionally insured under the Policy.
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<PAGE>
(iii) Each of the Basic Agreements, and any amendments thereto, shall
have been duly authorized, executed and delivered by each of the parties
thereto, shall be in full force and effect and shall constitute a legal,
valid and binding agreement of each of the parties thereto, enforceable
against each of them in accordance with its terms, subject, with respect to
enforceability, to bankruptcy, insolvency, reorganization or other similar
laws affecting the enforceability of creditors' rights generally and to
general principles of equity regardless of whether enforcement is sought in
a proceeding in equity or at law, and no event shall have occurred which
constitutes or, with the passage of time or with notice or both, would
constitute a default thereunder, and the Agent shall have received one
fully executed copy of each of the Basic Agreements.
(iv) The First Supplemental Indenture shall be in form and substance
satisfactory to you, and you shall have received a true and complete copy
thereof.
SECTION 6. AMENDMENT TO SECTION 8. Section 8 of the Note Purchase
Agreement is amended as follows:
a. The following definition shall be added in alphabetical order and
Section 8 realphabetized accordingly:
the term "Original Notes" means the notes issued under the Indenture
from and after the Closing Date up to but not including the Effective Date, and
remaining outstanding as of the opening of business on the Effective Date.
b. Letter (m) is added as follows:
(m) from and after the Effective Date (a)(i) the defined term "Notes"
when used in this Note Purchase Agreement shall refer to the Floating Rate
Variable Funding Automobile Receivables-Backed Note issued under the First
Supplemental Indenture, (ii) the terms "Noteholder," "Noteholders," "Holder" or
"Holders" shall mean the holder or holders of such Note, (iii) the words
"purchase," "funding," "carrying" or "pay for" when used with respect to the
Notes shall refer to such Note, or the funding of a Note Increase, as
appropriate, (b) references to (i) Olympic and (ii) ORFC herein shall refer to
Arcadia Financial Ltd. ("Arcadia") and Arcadia Receivables Finance Corp.
("ARFC"), respectively, and (c) all provisions of this Note Purchase Agreement
shall be interpreted consistently with (a) and (b) above.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF ARCADIA. Arcadia
represents and warrants that as of the Effective Date no Event of Default has
occurred under the Repurchase Agreement and no Servicer Termination Event has
occurred under the Servicing Agreement, and to the best of Arcadia's knowledge
there is no set of circumstances existing that with the passage of time, would
constitute such an Event of Default or Servicer Termination Event.
SECTION 8. EFFECTIVENESS. The amendments provided for by this
Amendment shall become effective on the Effective Date (as that term is defined
in the Servicing Agreement), upon the occurrence of the following: (i) receipt
by the Agent, in form and substance satisfactory to the Agent, of (a) this
Amendment duly executed and delivered by each
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of the parties hereto, (b) an opinion of counsel to Arcadia, dated the date
hereof, addressed to the Agent, the Security Insurer and the Noteholder,
covering such matters as the Agent may reasonably request, (c) amendments to the
Servicing Agreement, the Repurchase Agreement, and the Indenture, of even date
herewith and (d) an endorsement to the Note Policy covering the Floating Rate
Variable Funding Automobile Receivables-Backed Note up to the Maximum Authorized
Amount and (ii) delivery of the Original Notes to the Trustee, and appropriate
authorization by the Trustee of the Floating Rate Variable Funding Automobile
Receivables-Backed Note and the execution by and delivery of such Note to the
Issuer.
SECTION 9. NOTE PURCHASE AGREEMENT IN FULL FORCE AND EFFECT AS
AMENDED. Except as specifically amended hereby, all of the terms and conditions
of the Note Purchase Agreement shall remain in full force and effect and, except
as expressly provided herein, the effectiveness of this Amendment shall not
operate as, or constitute a waiver or modification of, any right, power remedy
of any party to the Note Purchase Agreement. All references to the Note
Purchase Agreement in any other document or instrument shall be deemed to mean
the Note Purchase Agreement as amended by this Amendment. This Amendment shall
not constitute a novation of the Note Purchase Agreement, but shall constitute
an amendment thereof.
SECTION 10. COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by separate parties hereto on separate counterparts,
each of which when executed shall be deemed an original, but all such
counterparts taken together shall constitute one and the same instrument.
SECTION 11. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS.
SECTION 12. DEFINED TERMS. Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to such terms in the Note
Purchase Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Purchaser, the Agent, Arcadia and the Issuer
have caused this Second Amendment to Note Purchase Agreement to be duly executed
by their respective officers thereunto duly authorized as of the date first
above written.
ARCADIA RECEIVABLES CONDUIT CORP.,
as Issuer
By:
-----------------------------
Name:
Title:
ARCADIA FINANCIAL LTD.
By:
-----------------------------
Name:
Title:
RECEIVABLES CAPITAL CORPORATION,
as Purchaser
By:
-----------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By:
-----------------------------
Name:
Title:
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<PAGE>
SPREAD ACCOUNT AGREEMENT
dated as of March 25, 1993,
as amended and restated
as of December 16, 1997
among
ARCADIA FINANCIAL LTD.,
ARCADIA RECEIVABLES FINANCE CORP.,
ARCADIA SECURITY ASSURANCE INC.
THE CHASE MANHATTAN BANK
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.02. Rules of Interpretation. . . . . . . . . . . . . . . . .14
ARTICLE II CREDIT ENHANCEMENT FEE; SERIES SUPPLEMENTS; THE COLLATERAL. . . .14
Section 2.01. Series 1993-A Credit Enhancement Fee.. . . . . . . . . .14
Section 2.02. Series Supplements.. . . . . . . . . . . . . . . . . . .15
Section 2.03. Grant of Security Interest by OFL and the Seller. . . .15
Section 2.04. Priority.. . . . . . . . . . . . . . . . . . . . . . . .16
Section 2.05. Seller and OFL Remain Liable.. . . . . . . . . . . . . .17
Section 2.06. Maintenance of Collateral. . . . . . . . . . . . . . . .17
Section 2.07. Termination and Release of Rights. . . . . . . . . . . .17
Section 2.08. Non-Recourse Obligations of Seller.. . . . . . . . . . .18
Section 2.09. Program Spread Account and Tag Accounts. (a) . . . . . .19
ARTICLE III SPREAD ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . .21
Section 3.01. Establishment of Spread Accounts; Initial Deposits into
Spread Accounts. . . . . . . . . . . . . . . . . . . . .21
Section 3.02. Investments. . . . . . . . . . . . . . . . . . . . . . .22
Section 3.03. Distributions: Priority of Payments. . . . . . . . . . .23
Section 3.04. General Provisions Regarding Spread Accounts.. . . . . .27
Section 3.05. Reports by the Collateral Agent. . . . . . . . . . . . .28
ARTICLE IV THE COLLATERAL AGENT. . . . . . . . . . . . . . . . . . . . . . .28
Section 4.01. Appointment and Powers.. . . . . . . . . . . . . . . . .28
Section 4.02. Performance of Duties. . . . . . . . . . . . . . . . . .29
Section 4.03. Limitation on Liability. . . . . . . . . . . . . . . . .29
Section 4.04. Reliance upon Documents. . . . . . . . . . . . . . . . .29
Section 4.05. Successor Collateral Agent.. . . . . . . . . . . . . . .29
Section 4.06. Indemnification. . . . . . . . . . . . . . . . . . . . .31
Section 4.07. Compensation and Reimbursement.. . . . . . . . . . . . .31
Section 4.08. Representations and Warranties of the Collateral Agent..32
Section 4.09. Waiver of Setoffs. . . . . . . . . . . . . . . . . . . .32
Section 4.10. Control by the Controlling Party.. . . . . . . . . . . .32
ARTICLE V COVENANTS OF THE SELLER. . . . . . . . . . . . . . . . . . . . . .33
Section 5.01. Preservation of Collateral.. . . . . . . . . . . . . . .33
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Section 5.02. Opinions as to Collateral. . . . . . . . . . . . . . . .33
Section 5.03. Notices. . . . . . . . . . . . . . . . . . . . . . . . .34
Section 5.04. Waiver of Stay or Extension Laws; Marshalling of Assets.34
Section 5.05. Noninterference, etc.. . . . . . . . . . . . . . . . . .34
Section 5.06. Seller Changes.. . . . . . . . . . . . . . . . . . . . .34
ARTICLE VI CONTROLLING PARTY; INTERCREDITOR PROVISIONS . . . . . . . . . . .35
Section 6.01. Appointment of Controlling Party.. . . . . . . . . . . .35
Section 6.02. Controlling Party's Authority. . . . . . . . . . . . . .35
Section 6.03. Rights of Secured Parties. . . . . . . . . . . . . . . .37
Section 6.04. Degree of Care.. . . . . . . . . . . . . . . . . . . . .37
ARTICLE VII REMEDIES UPON DEFAULT. . . . . . . . . . . . . . . . . . . . . .38
Section 7.01. Remedies upon a Default. . . . . . . . . . . . . . . . .38
Section 7.02. Waiver of Default. . . . . . . . . . . . . . . . . . . .38
Section 7.03. Restoration of Rights and Remedies.. . . . . . . . . . .38
Section 7.04. No Remedy Exclusive. . . . . . . . . . . . . . . . . . .39
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . .39
Section 8.01. Further Assurances.. . . . . . . . . . . . . . . . . . .39
Section 8.02. Waiver.. . . . . . . . . . . . . . . . . . . . . . . . .39
Section 8.03. Amendments; Waivers. . . . . . . . . . . . . . . . . . .39
Section 8.04. Severability.. . . . . . . . . . . . . . . . . . . . . .40
Section 8.05. Nonpetition Covenant.. . . . . . . . . . . . . . . . . .40
Section 8.06. Notices. . . . . . . . . . . . . . . . . . . . . . . . .40
Section 8.07. Term of this Agreement.. . . . . . . . . . . . . . . . .42
Section 8.08. Assignments: Third-Party Rights; Reinsurance. . . . . .42
Section 8.09. Consent of Controlling Party.. . . . . . . . . . . . . .43
Section 8.10. Trial by Jury Waived.. . . . . . . . . . . . . . . . . .43
Section 8.11. Governing Law. . . . . . . . . . . . . . . . . . . . . .43
Section 8.12. Consents to Jurisdiction.. . . . . . . . . . . . . . . .43
Section 8.13. Limitation of Liability. . . . . . . . . . . . . . . . .44
Section 8.14. Determination of Adverse Effect. . . . . . . . . . . . .44
Section 8.15. Counterparts.. . . . . . . . . . . . . . . . . . . . . .44
Section 8.16. Headings.. . . . . . . . . . . . . . . . . . . . . . . .44
ii
<PAGE>
SPREAD ACCOUNT AGREEMENT, dated as of March 25, 1993, as amended and restated as
of December 16, 1997 (the "Agreement"), by and among ARCADIA FINANCIAL LTD., a
Minnesota corporation ("Arcadia Financial"), ARCADIA RECEIVABLES FINANCE CORP.,
a Delaware corporation (the "Seller"), FINANCIAL SECURITY ASSURANCE INC., a New
York stock insurance company ("Financial Security"), NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, a national banking association in its capacities as
Trustee under each Pooling and Servicing Agreement and/or as Trustee under each
Indenture with respect to each Series specified in the related Series Supplement
(as defined below), THE CHASE MANHATTAN BANK, as Trustee under each Indenture
with respect to each Series specified in the related Series Supplement, each in
such respective capacities as agent for the Certificateholders and/or
Noteholders with respect to the related Series (the "Trustee") and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, as Collateral Agent (as defined below).
RECITALS
1. Olympic Automobile Receivables Trust, 1993-A (the "Series
1993-A Trust") was formed pursuant to a Pooling and Servicing Agreement,
dated as of March 1, 1993 (the "Series 1993-A Pooling and Servicing
Agreement"), among OFL, as Servicer, the Seller, the Trustee and the Backup
Servicer.
2. Pursuant to Pooling and Servicing Agreements or Sale and
Servicing Agreements, the Seller from time to time sells all of its right, title
and interest in and to Receivables and certain other Trust Property.
3. The Seller has requested that Financial Security issue Policies
to guarantee payment of the Guaranteed Distributions or Scheduled Payments (as
defined in the relevant Policy) on each Distribution Date in respect of
asset-backed securities backed by such Receivables and Other Trust Property.
4. In partial consideration of the issuance of the Policies, the
Seller has agreed that Financial Security shall have certain rights as
Controlling Party, to the extent set forth herein.
5. The Seller is a wholly-owned special purpose subsidiary of
OFL. Certain of the purchasers of Receivables and Other Trust Property have
agreed to pay a Credit Enhancement Fee to the Seller in consideration of the
obligations of the Seller and OFL pursuant hereto and in consideration of the
obligations of OFL pursuant to the Insurance Agreements (such obligations
forming part of the Insurer Secured Obligations referred to herein). The
Insurer Secured Obligations form part of the consideration to Financial Security
for its issuance of the Policies.
6. In order to secure the performance of the Secured Obligations,
to further effect and enforce the subordination provisions to which the Credit
Enhancement Fee is subject, and in consideration of the receipt of the Credit
Enhancement Fee, OFL and the Seller agreed to
<PAGE>
pledge the Collateral as Collateral to the Collateral Agent for the benefit of
Financial Security and for the benefit of the Trustees on behalf of the Trusts,
upon the terms and conditions set forth herein.
7. In connection with the issuance of Policies subsequent to the
Policy issued with respect to the Series 1993-A Trust, it is contemplated that
Financial Security will obtain certain Controlling Party rights with respect to
the related Series, and that, in connection with each such additional Series,
the parties hereto have entered into or will enter into a Series Supplement
hereto pursuant to which the Seller has pledged or will pledge additional
Collateral pursuant to the terms hereof and such Series Supplement.
8. The Seller has entered into a Repurchase Agreement dated as of
December 3, 1996 with Arcadia Receivables Conduit Corp., a Delaware corporation,
(the "Issuer") (the "Repurchase Agreement") pursuant to which the Seller has
sold or will sell all of its right, title and interest in certain Receivables,
and that the Issuer will issue one or more classes or tranches of Warehousing
Notes pursuant to an Indenture among the Issuer, the Indenture Trustee and the
Collateral Agent, and that Financial Security in its discretion may issue one or
more Policies with respect to certain scheduled payments on the corresponding
Notes.
9. The parties have previously executed, amended and restated this
Agreement, and now wish to further amend and restate this Agreement to
supplement certain provisions therein in order to reflect the intent of the
parties.
AGREEMENTS
In consideration of the premises, and for other good and valuable
consideration, the adequacy, receipt and sufficiency of which are hereby
acknowledged the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. All terms defined in the document
entitled "OFL Grantor Trusts Standard Terms and Conditions of Agreement
Effective March 1, 1993" (the "Standard Terms and Conditions") shall have the
same meaning with respect to each Series in this Agreement. If the related
Series was issued pursuant to a Pooling and Servicing Agreement, all terms
defined in Section 1.01 of such Pooling and Servicing Agreement shall have the
same meaning with respect to the related Series in this Agreement. If the
related Series was issued pursuant to a Trust Agreement, Sale and Servicing
Agreement and Indenture, all terms defined in the related Sale and Servicing
Agreement shall have the same meaning with respect to the related Series in this
Agreement. If the related Series was issued pursuant to an Indenture and the
related Receivables were sold to the Issuer pursuant to a Repurchase Agreement,
all terms defined in the related Servicing Agreement and Repurchase Agreement
shall have the same
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<PAGE>
meaning with respect to the related Series in this Agreement. If a term is
defined herein with respect to one or more Series, if applicable, such term
shall be defined with respect to any other Series in the Series Supplement
related thereto. The following terms shall have the following respective
meanings:
"AUTHORIZED OFFICER" means, (i) with respect to Financial Security,
the Chairman of the Board, the President, the Executive Vice President or any
Managing Director of Financial Security, (ii) with respect to the Trustee or the
Collateral Agent, any Vice President or Trust Officer thereof, (iii) with
respect to OFL, the President or any Vice President thereof, and (iv) with
respect to the Seller, the President or any Vice President thereof.
"AVERAGE DELINQUENCY RATIO" means, with respect to any Series (other
than the Warehousing Series) and any Determination Date, the arithmetic average
of the Delinquency Ratios for such Determination Date and the two immediately
preceding Determination Dates.
"CAPTURE EVENT" means the occurrence of an "Event of Default," as
defined in the Indenture, dated as of March 12, 1997, between OFL and Norwest
Bank Minnesota, National Association, as amended or supplemented, relating to
OFL's $300,000,000 11% Senior Notes due 2007, with respect to which a permanent
waiver has not been effected in accordance with the terms of such agreement.
"COLLATERAL" means the Series 1993-A Collateral, any property pledged
pursuant to Section 2.09(0, and, with respect to any Series, all collateral
delivered hereunder with respect to each of the Series, as specified in the
related Series Supplement.
"COLLATERAL AGENT" means, initially, Norwest Bank Minnesota, National
Association, in its capacity as collateral agent on behalf of the Secured
Parties, including its successors in interest, until a successor Person shall
have become the Collateral Agent pursuant to Section 4.05 hereof, and thereafter
"Collateral Agent" shall mean such successor Person.
"COLLECTION ACCOUNT SHORTFALL" means (A), with respect to any Series
created pursuant to a Pooling and Servicing Agreement, any Distribution Date,
and a time of determination, the excess, if any, of the amount required to be
distributed on such Distribution Date pursuant to subsections (i) through (vi)
of Section 4.6(a) of the Standard Terms and Conditions over the amount on
deposit in and available for distribution (or, for the purposes of Section
3.03(a), calculated on a pro forma basis to be on deposit in and available for
distribution) on such Distribution Date from the Collection Account related to
such Series, and (B) with respect to any Series created pursuant to a Trust
Agreement, Sale and Servicing Agreement and Indenture, or with respect to any
Series issued by the Issuer, the meaning assigned in the related Series
Supplement.
"CONTROLLING PARTY" means with respect to a Series, at any time, the
Person designated as the Controlling Party at such time pursuant to Section 6.01
hereof.
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"CRAM DOWN LOSS" means, if a court of appropriate jurisdiction in an
insolvency proceeding shall have issued an order reducing the Principal Balance
of a Receivable, the amount of such reduction. A "Cram Down Loss" shall be
deemed to have occurred on the date of issuance of such order.
"CUMULATIVE DEFAULT RATE" means, with respect to any Determination
Date and any Series (other than the Warehousing Series), the fraction, expressed
as a percentage, the numerator of which is equal to the sum of (a) the Principal
Balance of all Receivables which became Spread Account Liquidated Receivables
since the Cutoff Date as of the related Accounting Date plus (b) the Principal
Balance of all Receivables with respect to which all or any portion of a
Scheduled Payment has become 91 or more days delinquent as of the related
Accounting Date (not including those Receivables included in clause (a) above)
and the denominator of which is equal to the sum of (i) the original Aggregate
Principal Balance as of the Initial Cutoff Date plus (ii) the Prefunded Amount
as of the Series Closing Date.
"CUMULATIVE NET LOSS RATE" means, with respect to any Determination
Date and any Series (other than the Warehousing Series), the fraction, expressed
as a percentage, the numerator of which is equal to the sum of (a) Net Losses
for such Determination Date plus (b) 40% of the Principal Balance of all
Receivables with respect to which all or any portion of a Scheduled Payment has
become 91 or more days delinquent (not including Receivables included under the
definition of Net Losses in clause (a) above) as of the related Accounting Date
and the denominator of which is equal to the sum of (i) the original Aggregate
Principal Balance as of the Initial Cutoff Date plus (ii) the Prefunded Amount
as of the Series Closing Date.
"DEEMED CURED" means, with respect to Series 1994-B, Series 1994-A,
Series 1993-D, Series 1993-C, Series 1993-B or Series 1993-A and each other
Spread Account for which "Deemed Cured" is not defined in the related Series
Supplement, (a) with respect to a Trigger Event that has occurred pursuant to
clause (A)(i) or (ii) of the definition thereof, as of a Determination Date that
no such clause (A)(i) or clause (A)(ii) Trigger Event with respect to such
Series shall have occurred as of such Determination Date or as of any of the
five consecutively preceding Determination Dates, and (b) with respect to a
Trigger Event that has occurred pursuant to clause (A)(iii) or clause (A)(iv) of
the definition thereof, as of the next Determination Date which occurs in a
calendar month which is a multiple of three months succeeding the Closing Date,
that no such clause (A)(iii) or clause (A)(iv) Trigger Event with respect to
such Series shall have occurred as of such Determination Date.
"DEFAULT" means, with respect to any Series, at any time, (i) if
Financial Security is then the Controlling Party with respect to such Series,
any Insurance Agreement Event of Default with respect to such Series, and (ii)
if the Trustee is then the Controlling Party with respect to such Series, any
Servicer Termination Event with respect to such Series.
"DELINQUENCY RATIO" means, with respect to any Determination Date and
any Series (other than the Warehousing Series), the fraction, expressed as a
percentage, the numerator of which is equal to the sum of the Principal Balances
(as of the related Accounting Date) of all Receivables that were delinquent with
respect to all or any portion of a Scheduled Payment more
4
<PAGE>
than 30 days as of the related Accounting Date or that became a Purchased
Receivable as of the related Accounting Date and that were delinquent with
respect to all or any portion of a Scheduled Payment more than 30 days as of
such Accounting Date and the denominator of which is equal to the Aggregate
Principal Balance as of the related Accounting Date.
"DELIVERY" means, when used with respect to Spread Account Eligible
Investments, the actions to be taken with respect to the delivery thereof to the
Collateral Agent and the holding thereof by the Collateral Agent as follows:
(a)with respect to bankers' acceptances, commercial paper, negotiable
certificates of deposit and other obligations that constitute "instruments"
within the meaning of Section 9-105(1)(i) of the UCC (other than certificated
securities) and are susceptible of physical delivery, transfer thereof to the
Collateral Agent by physical delivery to the Collateral Agent, indorsed to, or
registered in the name of, the Collateral Agent or its nominee or indorsed in
blank and such additional or alternative procedures as may hereafter become
appropriate to effect the complete transfer of ownership of any such Eligible
Investment to the Collateral Agent free and clear of any adverse claims,
consistent with changes in applicable law or regulations or the interpretation
thereof;
(b) with respect to a "certificated security" (as defined in
Section 8-102(a)(4) of the UCC), transfer thereof:
1. by physical delivery of such certificated security to the
Collateral Agent, provided that if the certificated security is in registered
form, it shall be indorsed to, or registered in the name of, the Collateral
Agent or indorsed in blank;
2. by physical delivery of such certificated security in
registered form to a "securities intermediary" (as defined in Section
8-102(a)(14) of the UCC) acting on behalf of the Collateral Agent, if the
certificated security has been specially endorsed to the Collateral Agent by
an effective endorsement.
(c) with respect to any security issued by the U.S. Treasury, the
Federal Home Loan Mortgage Corporation or by the Federal National Mortgage
Association that is a book-entry security held through the Federal Reserve
System pursuant to Federal book-entry regulations, the following procedures, all
in accordance with applicable law, including applicable federal regulations and
Articles 8 and 9 of the UCC: book-entry registration of such property to an
appropriate book-entry account maintained with a Federal Reserve Bank by a
securities intermediary which is also a "depositary" pursuant to applicable
federal regulations and issuance by such securities intermediary of a deposit
advice or other written confirmation of such book-entry registration to the
Collateral Agent of the purchase by the securities intermediary on behalf of the
Collateral Agent of such book-entry security; the making by such securities
intermediary of entries in its books and records identifying such book-entry
security held through the Federal Reserve System pursuant to Federal book-entry
regulations as belonging to the Collateral Agent and indicating that such
securities intermediary holds such book-entry security solely as agent for the
Collateral Agent; and such additional or alternative procedures as may hereafter
become
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appropriate to effect complete transfer of ownership of any such Eligible
Investments to the Collateral Agent free of any adverse claims, consistent with
changes in applicable law or regulations or the interpretation thereof;
(d) with respect to an "uncertificated security" (as defined in
Section 8-102(a)(18) of the UCC) and that is not governed by clause (c) above,
transfer thereof:
1. (A) by registration to the Collateral Agent as the registered
owner thereof, on the books and records of the issuer thereof.
(B) another Person (not a securities intermediary) either
becomes the registered owner of the uncertificated security on behalf of
the Collateral Agent, or having become the registered owner acknowledges
that it holds for the Collateral Agent.
2. the issuer thereof has agreed that it will comply with
instructions originated by the Collateral Agent without further consent of
the registered owner thereof.
(e) with respect to a "security entitlement" (as defined in Section
8-102(a)(17) of the UCC) if a securities intermediary (A) indicates by
book-entry that a "financial asset" (as defined in Section 8-102(a)(9) of the
UCC) has been credited to the Collateral Agent's "securities account" (as
defined in Section 8-501(a) of the UCC), (B) receives a financial asset (as so
defined) from the Collateral Agent or acquires a financial asset for the
Collateral Agent, and in either case, accepts it for credit to the Collateral
Agent's securities account (as so defined), (C) becomes obligated under other
law, regulation or rule to credit a financial asset to the Collateral Agent's
securities account, or (D) has agreed that it will comply with "entitlement
orders" (as defined in Section 8-102(a)(8) of the UCC) originated by the
Collateral Agent without further consent by the "entitlement holder" (as defined
in Section 8-102(a)(7) of the UCC), of a confirmation of the purchase and the
making by such securities intermediary of entries on its books and records
identifying as belonging to the Collateral Agent of (I) a specific certificated
security in the securities intermediary's possession, (II) a quantity of
securities that constitute or are part of a fungible bulk of certificated
securities in the securities intermediary's possession, or (III) a quantity of
securities that constitute or are part of a fungible bulk of securities shown on
the account of the securities intermediary on the books of another securities
intermediary.
(f) in each case of delivery contemplated herein, the Collateral
Agent shall make appropriate notations on its records, and shall cause the same
to be made of the records of its nominees, indicating that securities are held
in trust pursuant to and as provided in this Agreement.
"ELIGIBLE ACCOUNT" means a segregated trust account that (i) is either
(x) maintained with a depository institution or trust company the long-term
unsecured debt obligations of which are rated "AA" or higher by Standard &
Poor's and "Aa2" or higher by Moody's, or (y) maintained with a depository
institution or trust company the commercial paper or other short-term unsecured
debt obligations of which are rated "A-1+" by Standard & Poor's
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and "P-1" by Moody's and (ii) in either case, such depository institution or
trust company shall have been specifically approved by the Controlling Party,
acting in its discretion, by written notice to the Collateral Agent.
"FINAL TERMINATION DATE" means, with respect to a Series, the date that is
the later of (i) the Insurer Termination Date with respect to such Series and
(ii) the Trustee Termination Date with respect to such Series.
"FINANCIAL SECURITY DEFAULT" means, with respect to any Series, any one of
the following events shall have occurred and be continuing:
(a) Financial Security shall have failed to make a payment required
under a related Policy;
(b) Financial Security shall have (i) filed a petition or commenced
any case or proceeding under any provision or chapter of the United States
Bankruptcy Code, the New York State Insurance Law or any other similar
federal or state law relating to insolvency, bankruptcy, rehabilitation,
liquidation or reorganization, (ii) made a general assignment for the
benefit of its creditors, or (iii) had an order for relief entered against
it under the United States Bankruptcy Code, the New York State Insurance
Law, or any other similar federal or state law relating to insolvency,
bankruptcy, rehabilitation, liquidation or reorganization which is final
and nonappealable; or
(c) a court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority shall have entered a
final and nonappealable order, judgment or decree (i) appointing a
custodian, trustee, agent or receiver for Financial Security or for all or
any material portion of its property or (ii) authorizing the taking of
possession by a custodian, trustee, agent or receiver of Financial Security
(or the taking of possession of all or any material portion of the property
of Financial Security).
"INITIAL PRINCIPAL AMOUNT" means $59,222,640.38 with respect to Series
1993-A.
"INITIAL SPREAD ACCOUNT DEPOSIT" means $2,368,906 for Series 1993-A.
"INITIAL SPREAD ACCOUNT MAXIMUM AMOUNT" means, with respect to Series
1993-A and any Distribution Date, an amount equal to the greater of (i) 7% of
the Certificate Balance as of such Distribution Date (after giving effect to the
distribution in respect of principal made on such Distribution Date) and (ii)
the Spread Account Minimum Amount as of such Distribution Date.
"INSURANCE AGREEMENT" means, with respect to any Series, the Insurance
and Indemnity Agreement among Financial Security, the Seller, OFL and such
other parties as may be named therein.
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"INSURER SECURED OBLIGATIONS" means, with respect to a Series, all amounts
and obligations which OFL, the Seller and such other parties as may be named
therein may at any time owe or be required to perform to or on behalf of
Financial Security (or any agents, accountants or attorneys for Financial
Security) under the Insurance Agreement related to such Series or under any
Transaction Document in respect of such Series, regardless of whether such
amounts are owed or performance is due now or in the future, whether liquidated
or unliquidated, contingent or non-contingent.
"INSURER TERMINATION DATE" means, with respect to any Series, the date
which is the latest of (i) the date of the expiration of all Policies issued in
respect of such Series, (ii) the date on which Financial Security shall have
received payment and performance in full of all Insurer Secured Obligations with
respect to such Series and (iii) the latest date on which any payment referred
to above could be avoided as a preference or otherwise under the United States
Bankruptcy Code or any other similar federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization, as
specified in an Opinion of Counsel delivered to the Collateral Agent and the
Trustee.
"ISSUER" means Arcadia Receivables Conduit Corp., a Delaware corporation.
"LIEN" means, as applied to the property or assets (or the income,
proceeds, products, rents or profits therefrom) of any Person, in each case
whether the same is consensual or nonconsensual or arises by contract, operation
of law, legal process or otherwise: (a) any mortgage, lien, pledge, attachment,
charge, lease, conditional sale or other title retention agreement, or other
security interest or encumbrance of any kind; or (b) any arrangement, express or
implied, under which such property or assets (and/or such income, proceeds,
products, rents or profits) are transferred, sequestered or otherwise identified
for the purpose of subjecting or making available the same for payment of debt
or performance of any other obligation in priority to the payment of the
general, unsecured creditors of such Person.
"NET LOSSES " means, with respect to any Determination Date and any Series
(other than the Warehousing Series), the positive difference of (A) the sum of
(i) the aggregate of the Principal Balances as of the related Accounting Date
(plus accrued and unpaid interest to the end of the related Monthly Period, at
the applicable APR) of all Receivables that became Spread Account Liquidated
Receivables since the Cutoff Date, plus (ii) the Purchase Amount of all
Receivables that became Purchased Receivables as of the related Accounting Date
and that were delinquent with respect to all or any portion of a Scheduled
Payment more than 30 days as of such Accounting Date, plus (iii) the aggregate
of all Cram Down Losses as of the related Accounting Date that occurred since
the Cutoff Date, over (B) the Liquidation Proceeds received by the Trust as of
the related Accounting Date since the Cutoff Date.
"NON-CONTROLLING PARTY" means, with respect to a Series, at any time, the
Secured Party that is not the Controlling Party at such time.
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"OBLIGOR" means, with respect to any Receivable, the purchaser or the
co-purchasers of the Financed Vehicle and any other Person or Persons who are
primarily or secondarily obligated to make payments under a Receivable.
"OFL" means Olympic Financial Ltd., a Minnesota corporation.
"OPINION OF COUNSEL" means a written opinion of counsel acceptable, as
to form, substance and issuing counsel, to the Controlling Party.
"PAYMENT PRIORITIES" means the priority of PRO RATA distributions
described in clause (iii) of priority THIRD of Section 3.03(a).
"POLICY" means the Series 1993-A Policy and any insurance policy
subsequently issued by Financial Security with respect to a Series.
"POOLING AND SERVICING AGREEMENT" means, with respect to Series
1993-A, the Series 1993-A Pooling and Servicing Agreement and, for each other
Series created pursuant to a Pooling and Servicing Agreement, the Pooling and
Servicing Agreement related to such Series.
"PROGRAM SPREAD ACCOUNT" has the meaning specified in Section 2.09(a)
hereof.
"SECURED OBLIGATIONS" means, with respect to each Series, the Insurer
Secured Obligations with respect to such Series and the Trustee Secured
Obligations with respect to such Series.
"SECURED PARTIES" means, with respect to a Series and the related
Collateral, each of the Trustee, in respect of the Trustee Secured Obligations
with respect to such Series, and Financial Security, in respect of the Insurer
Secured Obligations with respect to such Series.
"SECURITY INTERESTS" means, with respect to Series 1993-A
Certificates, the security interests and Liens in the Series 1993-A Collateral
granted pursuant to Section 2.03 hereof, and, with respect to any other Series,
the security interests and Liens in the related Collateral granted pursuant to
the related Series Supplement.
"SERIES 1993-A CERTIFICATES" means the Series of Certificates issued
on the date hereof pursuant to the Series 1993-A Pooling and Servicing
Agreement.
"SERIES 1993-A COLLATERAL" has the meaning specified in Section
2.03(a) hereof.
"SERIES 1993-A CREDIT ENHANCEMENT FEE" means the amount distributable
on each Distribution Date pursuant to Section 4.6(a)(vi) and (vii) of the
Standard Terms and Conditions as incorporated by reference in the Series 1993-A
Pooling and Servicing Agreement.
"SERIES 1993-A POOLING AND SERVICING AGREEMENT" means the Pooling and
Servicing Agreement, dated as of the date hereof, among OFL, in its individual
capacity and as
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Servicer, the Seller, the Trustee and the Backup Servicer, as such agreement may
be supplemented, amended or modified from time to time.
"SERIES 1993-A RECEIVABLE" means each Receivable referenced on the
Schedule of Receivables attached to the Series 1993-A Pooling and Servicing
Agreement.
"SERIES OF SECURITIES" or "SERIES" means the Series 1993-A
Certificates or, as the context may require, any other series of Certificates
and/or Notes issued as described in Section 2.02 hereof, or collectively, all
such series; PROVIDED, HOWEVER, Series, as used collectively shall not include
any Series of Warehousing Notes when such term is used in, or with respect to,
the definitions "Cumulative Default Rate," "Average Delinquency Ratio,"
"Cumulative Net Loss Rate," "Deemed Cured," "Delinquency Ratio," "Net Losses,"
"Spread Account Shortfall" and "Spread Account Default Level."
"SERIES SUPPLEMENT" means a supplement hereto executed by the parties
hereto in accordance with Section 2.02 hereof.
"SPREAD ACCOUNT" has the meaning specified in Section 3.01(a) hereof.
"SPREAD ACCOUNT ADDITIONAL DEPOSIT" with respect to any Series created
pursuant to a Trust Agreement, Sale and Servicing Agreement and Indenture, has
the meaning assigned in the related Series Supplement.
"SPREAD ACCOUNT LIQUIDATED RECEIVABLE" means, with respect to any
Monthly Period, a Receivable as to which (i) 91 days have elapsed since the
Servicer repossessed the related Financed Vehicle, (ii) the Servicer has
determined in good faith that all amounts it expects to recover have been
received, or (iii) all or any portion of a Scheduled Payment shall have become
more than 180 days past due.
"SPREAD ACCOUNT MAXIMUM AMOUNT" means, with respect to Series 1993-A
and any Distribution Date:
(i) if no Insurance Agreement Event of Default with respect
to such Series has occurred and is continuing as of the related
Determination Date, no Capture Event has occurred and is continuing as
of the related Determination Date, no Trigger Event has occurred as of
the related Determination Date, and any Trigger Event with respect to
such Series is Deemed Cured as of the related Determination Date, then
the Initial Spread Account Maximum Amount with respect to such Series
and such Distribution Date;
(ii) if (A) a Trigger Event with respect to Series 1993-A
has occurred as of the Determination Date or (B) a Trigger Event with
respect to Series 1993-A has occurred as of a prior Distribution Date
and is not Deemed Cured as of the related Determination Date, and no
Insurance Agreement Event of Default with respect to Series 1993-A has
occurred and is continuing and no Capture Event has occurred and is
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continuing, the Spread Account Maximum Amount shall be equal to the greater
of (i) 10% of the Series 1993-A Balance as of the close of business on such
Distribution Date and (ii) the Spread Account Minimum Amount as of the
close of business on such Distribution Date; or
(iii) if (A) an Insurance Agreement Event of Default with respect
to such Series has occurred and is continuing or (B) a Capture Event has
occurred and is continuing as of the related Determination Date, the Spread
Account Maximum Amount shall be equal to the greater of (i) 25% of the
Series 1993-A Balance as of the close of business on such Distribution Date
and (ii) the Spread Account Minimum Amount as of the close of business on
such Distribution Date.
"SPREAD ACCOUNT MINIMUM AMOUNT" means, with respect to Series 1993-A
and any Distribution Date, an amount equal to the greater of:
(i) $100,000, and
(ii) the lesser of:
(A) 1% of the Initial Principal Amount of such Series, but in
no event less than $500,000, and
(B) the Certificate Balance as of such Distribution Date
(after giving effect to the distribution in respect of
principal made on such Distribution Date).
"SPREAD ACCOUNT SHORTFALL" means, with respect to any Distribution
Date and any Series (other than the Warehousing Series) with respect to which an
Insurance Agreement Event of Default has occurred and is continuing, or a
Capture Event has occurred and is continuing, the excess, if any, of the Spread
Account Maximum Amount for such Series and such Distribution Date and the amount
on deposit in such Spread Account as of such Distribution Date after giving
effect o distributions made on such Distribution Date pursuant to priority
SECOND of Section 3.03(b).
"STOCK PLEDGE AGREEMENT" means the Third Amended and Restated Stock
Pledge Agreement, dated as of December 3, 1996, between OFL, Financial Security
and the Collateral Agent, as amended from time to time.
"TAG ACCOUNT" has the meaning specified in Section 2.09(c).
"TRANSACTION DOCUMENTS" means, with respect to a Series, this
Agreement, each of the Pooling and Servicing Agreement or Trust Agreement, Sale
and Servicing Agreement and Indenture, or Servicing Agreement, Repurchase
Agreement, Indenture and Security Agreement, as applicable, the Insurance
Agreement, the Custodian Agreement, the Purchase Agreement, any
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Subsequent Purchase Agreements and Subsequent Transfer Agreements, any
Underwriting Agreement, the Lockbox Agreement, and the Stock Pledge Agreement
related to such Series.
"TRIGGER EVENT" means, with respect to Series 1993-A and as of a
Determination Date, the occurrence of any of the events specified in clause (A)
together with the occurrence of the event specified in clause (B):
(A) (i) [reserved];
(ii) the Average Delinquency Ratio for such Determination Date
shall be equal to or greater than 5.00%;
(iii) the Cumulative Default Rate shall be equal to or greater than
(A) 3.15%, with respect to any Determination Date occurring
prior to or during the sixth calendar month succeeding the
Series 1993-A Closing Date, (B) 5.50%, with respect to any
Determination Date occurring after the sixth, and prior to or
during the 12th, calendar month succeeding the Series 1993-A
Closing Date, (C) 7.0%, with respect to any Determination Date
occurring after the 12th, and prior to or during the 18th,
calendar month succeeding the Series 1993-A Closing Date, (D)
7.5%, with respect to any Determination Date occurring after
the 18th, and prior to or during the 24th, calendar month
succeeding the Series 1993-A Closing Date, (E) 8.15%, with
respect to any Determination Date occurring after the 24th,
and prior to or during the 30th, calendar month succeeding the
Series 1993-A Closing Date, (F) 8.75%, with respect to any
Determination Date occurring after the 30th, and prior to or
during the 36th, calendar month succeeding the Series 1993-A
Closing Date, (G) 3 9.0%, with respect to any Determination
Date occurring after the 36th, and prior to or during the
42nd, calendar month succeeding the Series 1993-A Closing
Date, (H) 9.25%, with respect to any Determination Date
occurring after the 42nd, and prior to or during the 48th,
calendar month succeeding the Series 1993-A Closing Date, (I)
9.50%, with respect to any Determination Date occurring after
the 48th, and prior to or during the 54th, calendar month
succeeding the Series 1993-A Closing Date, (J) 9.75%, with
respect to any Determination Date occurring after the 54th,
and prior to or during the 60th calendar month succeeding the
Series 1993-A Closing Date, (K) 9.9%, with respect to any
Determination Date occurring after the 60th, and prior to or
during the 66th, calendar month succeeding the Series 1993-A
Closing Date, or (L) 10.0%, with respect to any Determination
Date occurring after the 66th, and prior to or during the
72nd, calendar month succeeding the Series 1993-A Closing
Date; or
(iv) the Cumulative Net Loss Rate shall be equal to or greater than
(A) 1.25%, with respect to any Determination Date occurring
prior to or during the sixth calendar month succeeding the
Series 1993-A Closing Date, (B)
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2.0%, with respect to any Determination Date occurring after
the sixth, and prior to or during the 12th, calendar month
succeeding the Series 1993-A Closing Date, (C) 2.75%, with
respect to any Determination Date occurring after the 12th,
and prior to or during the 18th, calendar month succeeding the
Series 1993-A Closing Date, (D) 3.0%, with respect to any
Determination Date occurring after the 18th, and prior to or
during the 24th, calendar month succeeding the Series 1993-A
Closing Date, (E) 3.25%, with respect to any Determination
Date occurring after the 24th, and prior to or during the
30th, calendar month succeeding the Series 1993-A Closing
Date, (F) 3.5%, with respect to any Determination Date
occurring after the 30th, and prior to or during the 36th,
calendar month succeeding the Series 1993-A Closing Date, (G)
3.6%, with respect to any Determination Date occurring after
the 36th, and prior to or during the 42nd, calendar month
succeeding the Series 1993-A Closing Date, (H) 3.7%, with
respect to any Determination Date occurring after the 42nd,
and prior to or during the 48th, calendar month succeeding the
Series 1993-A Closing Date, (I) 3.8%, with respect to any
Determination Date occurring after the 48th, and prior to or
during the 54th, calendar month succeeding the Series 1993-A
Closing Date, (J) 3.9%, with respect to any Determination Date
occurring after the 54th, and prior to or during the 60th,
calendar month succeeding the Series 1993-A Closing Date, (K)
3.95%, with respect to any Determination Date occurring after
the 60th, and prior to or during the 66th, calendar month
succeeding the Series 1993-A Closing Date, or (L) 4.0%, with
respect to any Determination Date occurring after the 66th,
and prior to or during the 72nd, calendar month succeeding the
Series 1993-A Closing Date.
(B) The amount specified with respect to such Series in the last
sentence of Section 2.09(f) hereof is positive on such
Determination Date, and such amount has not been deposited in
the related Tag Account on such Determination Date.
"TRUST" means a trust formed pursuant to a Pooling and Servicing
Agreement or a Trust Agreement, as the case may be.
"TRUST PROPERTY," with respect to any Series (other than the
Warehousing Series), has the meaning specified in the related Pooling and
Servicing Agreement or Trust Agreement, as the case may be, and with respect to
the Warehousing Series, means the Seller Conveyed Property (as defined in the
Repurchase Agreement).
"TRUSTEE" means (A) with respect to any Series created pursuant to a
Pooling and Servicing Agreement, the Trustee named in such Pooling and Servicing
Agreement, or (B) with respect to any Series issued pursuant to an Indenture,
the Trustee named in such Indenture in its capacity as agent for the Noteholders
and, if applicable, the Certificateholders.
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"TRUSTEE SECURED OBLIGATIONS" means, with respect to a Series, all
amounts and obligations which OFL or the Seller may at any time owe or be
required to perform to or on behalf of (i) the Trustee, the Trust or the
Certificateholders under the Pooling and Servicing Agreement with respect to
such Series, (ii) the Trustee, the Owner Trustee, the Trust, the
Certificateholders or the Noteholders under the Trust Agreement, the Sale and
Servicing Agreement or the Indenture with respect to such Series or (iii) the
Trustee and the Noteholders under the Indenture with respect to the Warehousing
Series.
"TRUSTEE TERMINATION DATE" means, with respect to any Series, the date
which is the later of (i) the date on which the Trustee shall have received, as
Trustee for the holders of the Certificates of such Series, or as Indenture
Trustee on behalf of (and as agent for) the Noteholders and/or
Certificateholders of such Series, payment and performance in full of all
Trustee Secured Obligations arising out of or relating to such Series or (ii)
except with respect to the Warehousing Series, the date on which all payments in
respect of the Certificates shall have been made and the related Trust shall
have been terminated pursuant to the terms of the related Pooling and Servicing
Agreement or Trust Agreement.
"UNDERWRITING AGREEMENT" means, with respect to any Series (other than
the Warehousing Series), the Underwriting Agreement among OFL, the Seller and
the Underwriters named therein.
"UNIFORM COMMERCIAL CODE" or "UCC" means the Uniform Commercial Code
in effect in the relevant jurisdiction, as the same may be amended from time to
time.
"WAREHOUSING SERIES" means all notes issued by the Issuer.
Section 1.02. RULES OF INTERPRETATION The terms "hereof," "herein"
or "hereunder, " unless otherwise modified by more specific reference, shall
refer to this Agreement in its entirety. Unless otherwise indicated in context,
the terms "Article," "Section," "Appendix," "Exhibit" or "Annex" shall refer to
an Article or Section of, or Appendix, Exhibit or Annex to, this Agreement. The
definition of a term shall include the singular, the plural, the past, the
present, the future, the active and the passive forms of such term. A term
defined herein and used herein preceded by a Series designation, shall mean such
term as it relates to the Series designated.
ARTICLE II
CREDIT ENHANCEMENT FEE; SERIES SUPPLEMENTS; THE COLLATERAL
Section 2.01. SERIES 1993-A CREDIT ENHANCEMENT FEE. The Series
1993-A Pooling and Servicing Agreement provides for the payment to the Seller of
a Series 1993-A Credit Enhancement Fee, to be paid to the Seller by distribution
of such amounts to the Collateral Agent for deposit and distribution pursuant to
this Agreement. The Seller and OFL hereby agree that payment of the Series
1993-A Credit Enhancement Fee in the manner and subject to the
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conditions set forth herein and in the Series 1993-A Pooling and Servicing
Agreement is adequate consideration and the exclusive consideration to be
received by the Seller or OFL for the obligations of the Seller pursuant hereto
and the obligations of OFL pursuant hereto (including, without limitation, the
transfer by the Seller to the Collateral Agent of the Initial Spread Account
Deposit) and pursuant to the Series 1993-A Insurance Agreement. The Seller and
OFL hereby agree with the Trustee and with Financial Security that payment of
the Series 1993-A Credit Enhancement Fee to the Seller is expressly conditioned
on subordination of the Series 1993-A Credit Enhancement Fee to payments on the
Certificates of any Series, payments on the Notes of any Series, payments of
amounts due to Financial Security and the other obligations of the Trusts, in
each case to the extent provided in Section 4.6 of the Standard Terms and
Conditions and Section 3.03 hereof; and the Security Interest of the Secured
Parties in the Series 1993-A Collateral is intended to effect and enforce such
subordination and to provide security for the Series 1993-A Secured Obligations
and the Secured Obligations with respect to each other Series.
Section 2.02. SERIES SUPPLEMENTS. The parties hereto intend to enter
into a Series Supplement hereto with respect to any Series other than the Series
1993-A Certificates. The parties will enter into a Series Supplement only if
the following conditions shall have been satisfied:
(i) The Seller shall have sold or will sell Receivables to a
Trust or to a corporation pursuant to (A) a Pooling and Servicing
Agreement under which the Trustee shall act as trustee, (B) a Sale and
Servicing Agreement in form and substance satisfactory to Financial
Security, with respect to which the Trustee shall act as Indenture
Trustee, and which Sale and Servicing Agreement may provide for the
sale of Subsequent Receivables to the related Trust or (C) a
Repurchase Agreement in form and substance satisfactory to Financial
Security, with respect to which the Trustee shall act as Indenture
Trustee with respect to the related Notes;
(ii) Financial Security shall have issued (A) one or more
Policies in respect of the Guaranteed Distributions on Certificates
issued pursuant to the related Pooling and Servicing Agreement or
Trust Agreement, and/or (B) one or more Note Policies in respect of
the Scheduled Payments on the Notes issued pursuant to the related
Indenture; and
(iii) Pursuant to the related Series Supplement any and all right,
title and interest of the Seller, OFL or any affiliate of either of
them in the Collateral specified herein shall be pledged to the
Secured Parties substantially on the terms set forth in Section 2.03
hereof.
Section 2.03. GRANT OF SECURITY INTEREST BY OFL AND THE SELLER. In
order to secure the performance of the Secured Obligations with respect to each
Series, the Seller (and OFL, to the extent it may have any rights therein)
hereby pledges, assigns, grants, transfers and conveys to the Collateral Agent,
on behalf of and for the benefit of the Secured Parties to secure
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the Secured Obligations with respect to each Series, a lien on and security
interest in (which lien and security interest is intended to be prior to all
other liens, security interest or other encumbrances), all of its right, title
and interest in and to the following (all being collectively referred to herein
as the "Series 1993-A Collateral"):
(i) the Series 1993-A Credit Enhancement Fee and all rights and
remedies that the Seller may have to enforce payment of the Series
1993-A Credit Enhancement Fee whether under the Series 1993-A Pooling
and Servicing Agreement or otherwise;
(ii) the Series 1993-A Spread Account established pursuant to
Section 3.01 hereof, and each other account owned by the Seller and
maintained by the Collateral Agent (including, without limitation, all
monies, checks, securities, investments and other documents from time
to time held in or evidencing any such accounts);
(iii) all of the Seller's right, title and interest in and to
investments made with proceeds of the property described in clauses
(i) and (ii) above, or made with amounts on deposit in the Series
1993-A Spread Account; and
(iv) all distributions, revenues, products, substitutions,
benefits, profits and proceeds, in whatever form, of any of the
foregoing.
(b) In order to effectuate the provisions and purposes of this Agreement,
including for the purpose of perfecting the security interests granted
hereunder, the Seller represents and warrants that it has, prior to the
execution of this Agreement, executed and filed an appropriate Uniform
Commercial Code financing statement in Minnesota sufficient to assure that
the Collateral Agent, as agent for the Secured Parties, has a first
priority perfected security interest in all Series 1993-A Collateral which
can be perfected by the filing of a financing statement.
Section 2.04. PRIORITY The Seller (and OFL, to the extent it may
have any rights in the Collateral) intends the security interests in favor of
the Secured Parties to be prior to all other Liens in respect of the Collateral,
and OFL and the Seller shall take all actions necessary to obtain and maintain,
in favor of the Collateral Agent, for the benefit of the Secured Parties, a
first lien on and a first priority, perfected security interest in the
Collateral. Subject to the provisions hereof specifying the rights and powers
of the Controlling Party from time to time to control certain specified matters
relating to the Collateral, each Secured Party shall have all of the rights,
remedies and recourse with respect to the Collateral afforded a secured party
under the Uniform Commercial Code of the State of New York and all other
applicable law in addition to, and not in limitation of, the other rights,
remedies and recourse granted to such Secured Parties by this Agreement or any
other law relating to the creation and perfection of liens on, and security
interests in, the Collateral.
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Section 2.05. SELLER AND OFL REMAIN LIABLE The Security Interests
are granted as security only and shall not (i) transfer or in any way affect or
modify, or relieve either the Seller or OFL from, any obligation to perform or
satisfy, any term, covenant, condition or agreement to be performed or satisfied
by the Seller or OFL under or in connection with this Agreement, the Insurance
Agreement or any other Transaction Document to which it is a party or (ii)
impose any obligation on any of the Secured Parties or the Collateral Agent to
perform or observe any such term, covenant, condition or agreement or impose any
liability on any of the Secured Parties or the Collateral Agent for any act or
omission on its part relative thereto or for any breach of any representation or
warranty on its part contained therein or made in connection therewith, except,
in each case, to the extent provided herein and in the other Transaction
Documents.
Section 2.06. MAINTENANCE OF COLLATERAL.
(a) Safekeeping. The Collateral Agent agrees to maintain the Collateral
received by it (or evidence thereof, in the case of book-entry securities in the
name of the Collateral Agent) and all records and documents relating thereto at
the office of the Collateral Agent specified in Section 8.06 hereof or such
other address within the State of Minnesota (unless all filings have been made
to continue the perfection of the security interest in the Collateral to the
extent such security interest can be perfected by filing a financing statement,
as evidenced by an Opinion of Counsel delivered to the Controlling Party), as
may be approved by the Controlling Party. The Collateral Agent shall keep all
Collateral and related documentation in its possession separate and apart from
all other property that it is holding in its possession and from its own general
assets and shall maintain accurate records pertaining to the Eligible
Investments and Spread Accounts included in the Collateral in such a manner as
shall enable the Collateral Agent and the Secured Parties to verify the accuracy
of such record-keeping. The Collateral Agent's books and records shall at all
times show that the Collateral is held by the Collateral Agent as agent of the
Secured Parties and is not the property of the Collateral Agent. The Collateral
Agent will promptly report to each Secured Party and the Seller any failure on
its part to hold the Collateral as provided in this Section 2.06(a) and will
promptly take appropriate action to remedy any such failure.
(b) ACCESS. The Collateral Agent shall permit each of the Secured
Parties, or their respective duly authorized representatives, attorneys,
auditors or designees, to inspect the Collateral in the possession of or
otherwise under the control of the Collateral Agent pursuant hereto at such
reasonable times during normal business hours as any such Secured Party may
reasonably request upon not less than one Business Day's prior written notice.
Section 2.07. TERMINATION AND RELEASE OF RIGHTS.
(a) On the Insurer Termination Date relating to a Series, the rights,
remedies, powers, duties, authority and obligations conferred upon Financial
Security pursuant to this Agreement in respect of the Collateral related to such
Series shall terminate and be of no further force and effect and all rights,
remedies, powers, duties, authority and obligations of Financial Security with
respect to such Collateral shall be automatically released; PROVIDED that any
indemnity
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provided to or by Financial Security herein shall survive such Insurer
Termination Date. If Financial Security is acting as Controlling Party with
respect to a Series on the related Insurer Termination Date, Financial Security
agrees, at the expense of the Seller, to execute and deliver such instruments as
the successor Controlling Party may reasonably request to effectuate such
release, and any such instruments so executed and delivered shall be fully
binding on Financial Security and any Person claiming by, through or under
Financial Security.
(b) On the Trustee Termination Date related to a Series, the rights,
remedies, powers, duties, authority and obligations, if any, conferred upon the
Trustee pursuant to this Agreement in respect of the Collateral related to such
Series shall terminate and be of no further force and effect and all such
rights, remedies, powers, duties, authority and obligations of the Trustee with
respect to such Collateral shall be automatically released; PROVIDED that any
indemnity provided to the Trustee herein shall survive such Trustee Termination
Date. If the Trustee is acting as Controlling Party with respect to a Series on
the related Trustee Termination Date, the Trustee agrees, at the expense of the
Seller, to execute and deliver such instruments as the Seller may reasonably
request to effectuate such release, and any such instruments so executed and
delivered shall be fully binding on the Trustee.
(c) On the Final Termination Date with respect to a Series, the rights,
remedies, powers, duties, authority and obligations conferred upon the
Collateral Agent and each Secured Party pursuant to this Agreement with respect
to such Series shall terminate and be of no further force and effect and all
rights, remedies, powers, duties, authority and obligations of the Collateral
Agent and each Secured Party with respect to the Collateral related to such
Series shall be automatically released. On the Final Termination Date with
respect to a Series, the Collateral Agent agrees, and each Secured Party agrees,
at the expense of the Seller, to execute such instruments of release, in
recordable form if necessary, in favor of the Seller as the Seller may
reasonably request, to deliver any Collateral in its possession to the Seller,
and to otherwise release the lien of this Agreement and release and deliver to
the Seller the Collateral related to such Series.
Section 2.08. NON-RECOURSE OBLIGATIONS OF SELLER. Notwithstanding
anything herein or in the other Transaction Documents to the contrary, the
parties hereto agree that the obligations of the Seller hereunder (without
limiting the obligation to apply distributions of the respective Credit
Enhancement Fees in accordance with Section 3.03(b)) shall be recourse only to
the extent of amounts released to the Seller pursuant to priority EIGHTH of
Section 3.03(b) and retained by the Seller in accordance with the next sentence.
The Seller agrees that it shall not declare or make payment of (i) any dividend
or other distribution on or in respect of any shares of its capital stock or
(ii) any payment on account of the purchase, redemption, retirement or
acquisition of (x) any shares of its capital stock or (y) any option, warrant or
other right to acquire shares of its capital stock, or (iii) any payment of any
loan made by OFL to the Seller, or of any deferred portion of the purchase
price payable by the Seller to OFL with respect to any Receivable unless (in
each case) at the time of such declaration or payment (and after giving effect
thereto) no amount payable by Seller under any Transaction Document is then due
and owing but unpaid. Nothing contained herein shall be deemed to limit the
rights of the
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Certificateholders (or Certificate Owners) or Noteholders (or Note Owners) under
any other Transaction Document.
Section 2.09. PROGRAM SPREAD ACCOUNT AND TAG ACCOUNTS. (a) On or
prior to the date of any transfer of cash by the Seller pursuant to Section
2.09(b)(i), the Collateral Agent at the direction of the Seller shall establish
at an institution at which one or more Spread Accounts established hereunder are
then maintained an Eligible Account, designated "Program Spread Account--Norwest
Bank Minnesota, National Association" (the "Program Spread Account"). The
Program Spread Account shall continuously be maintained at an institution at
which one or more Spread Accounts are established hereunder.
(b) The Collateral Agent shall hold, for the benefit of the Seller, the
following property in the Program Spread Account:
(i) all cash amounts from time to time on deposit in the Program
Spread Account which at the Seller's election it has delivered to the
Collateral Agent from (x) the proceeds of the sale of securities of a
Series or (y) amounts released to the Seller from the Lien of this
Agreement; and
(ii) investments made with the proceeds of the property described in
clause (i) above, or made with amounts on deposit in the Program Spread
Account.
Notwithstanding anything herein or in any Series Supplement to the
contrary, the property held by the Collateral Agent under this Section 2.09(b)
shall not constitute Collateral hereunder.
(c) With respect to each Series for which the Seller has made an election
pursuant to Section 2.09(f) in connection with such Series, on or prior to the
date of any transfer of cash from the Program Spread Account in connection with
such election, the Collateral Agent at the direction of the Seller shall
establish at the same institution at which the related Spread Account
established hereunder is then maintained an Eligible Account, designated "Tag
Account Series [series designation] - Norwest Bank Minnesota, National
Association, as Collateral Agent for Financial Security Assurance Inc. and
another Secured Party" (each such account, a "Tag Account"). Each Tag Account
shall continue to be maintained at the same institution as the related Spread
Account established hereunder.
(d) In order to secure the performance of the Secured Obligations with
respect to each Series, the Seller hereby pledges, assigns, grants, transfers
and conveys to the Collateral Agent, on behalf of and for the benefit of the
Secured Parties to secure the Secured Obligations with respect to each Series, a
lien on and a security interest on (which lien and security interest is intended
to be prior to all other liens, security interests and other encumbrances), all
of its right, title and interest in and to the following:
(i) each Tag Account established pursuant to Section 2.09(c)
hereof, (including, without limitation, all monies, checks, securities,
investments and other
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documents held in or evidencing any such accounts);
(ii) all of the Seller's right, title and interest in and to
investments made with proceeds of the property described in clause (i)
above; and
(iii) all distributions, revenues, products, substitutions, benefits,
profits and proceeds, in whatever form, of any of the foregoing.
In order to effectuate the provisions and purposes of this Agreement,
including for the purpose of perfecting the security interests granted
hereunder, the Seller represents and warrants that it shall, prior to the
deposit of amounts in any Tag Account, execute and file an appropriate Uniform
Commercial Code financing statement in Minnesota sufficient to assure that the
Collateral Agent, as agent for the Secured Parties, has a first priority
perfected security interest on the Collateral pledged or to be pledged pursuant
to Section 2.09(d) which can be perfected by the filing of a financing
statement.
(e) The Program Spread Account and each Tag Account shall be separate
from each respective Trust or Issuer and amounts on deposit therein will not
constitute a part of the Trust Property of any Trust or the assets of any
Issuer. Except as specifically provided herein, the Program Spread Account
and each Tag Account shall be maintained by the Collateral Agent at all times
separate and apart from any other account of the Seller, OFL, the Servicer,
the Trust or the Issuer. All income or loss on investments of funds in the
Program Spread Account and any Tag Account shall be reported by the Seller as
taxable income or loss of the Seller.
(f) Upon the occurrence of an event specified in clause (A) of the
definition of Trigger Event with respect to a Series and until such event is
Deemed Cured, at the election of the Seller amounts on deposit in the Program
Spread Account may be withdrawn on the related Determination Date by the
Collateral Agent from the Program Spread Account and irrevocably deposited into
one or more Tag Accounts for each Series with respect to which an event
specified in such clause (A) shall have occurred (and which event is not Deemed
Cured) and with respect to which the Seller has made such election. In the
event of such election, the Collateral Agent shall deposit from the Program
Spread Account into the related Tag Account, on such related Determination Date,
an amount equal to the excess, if any, of amounts on deposit in the Spread
Account (excluding any amount in any related Tag Account, and taking into
account any deposits thereto to be made pursuant to the first paragraph of
Section 3.03(b) and taking into account any withdrawals therefrom to be made
pursuant to priority FIRST of Section 3.03(b) on the related Distribution Date,
but not taking into account any other changes in the amount on deposit in such
account pursuant to Section 3.03(b)) over the amount specified in clause (i) of
the definition of Spread Account Maximum Amount with respect to such Series
(taking into account the decline in the related Series Balance to be effected on
the related Distribution Date).
(g) Amounts on deposit in the Program Spread Account shall be released
from such account at any time upon the request of the Seller. Funds in the
Program Spread Account shall not be commingled with funds in any Spread Account,
any Tag Account or with any other
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moneys. Amounts on deposit in a Spread Account shall be released from the Lien
of this Agreement and delivered to the Seller, or at the direction of the Seller
deposited into the Program Spread Account, upon deposit of a like amount
pursuant to Section 2.09(f) into the related Tag Account.
(h) Upon deposit pursuant to Section 2.09(f) of amounts into a Tag Account
for a Series such amounts shall be treated fungibly with all amounts on deposit
in the Spread Account with respect to the same Series, except that, amounts
deposited into a Spread Account pursuant to Section 3.03(b) shall be deemed to
be deposited into the Spread Account, and amounts withdrawn from a Spread
Account pursuant to Section 3.03(b) shall be withdrawn first from the related
Tag Account and second from the Spread Account. Except as otherwise explicitly
specified, all references herein to a Series Spread Account hereunder shall be
deemed to include reference to any Tag Account created with respect to such
Series, and all references herein to amounts on deposit in a Series Spread
Account shall be deemed to include reference amounts on deposit in the related
Tag Account, if any, created with respect to such Series.
ARTICLE III
SPREAD ACCOUNTS
Section 3.01. ESTABLISHMENT OF SPREAD ACCOUNTS; INITIAL DEPOSITS INTO
SPREAD ACCOUNTS.
(a) On or prior to the Closing Date relating to a Series, the Collateral
Agent shall establish with respect to such Series, at its office or at another
depository institution or trust company an Eligible Account, designated, "Spread
Account--Series [insert Series designation] --Norwest Bank Minnesota, National
Association, as Collateral Agent for Financial Security Assurance Inc. and
another Secured Party" (the "Spread Account"). The Spread Accounts established
under this Agreement may be maintained at one or more depository institutions
(which depository institutions may be changed from time to time in accordance
with this Agreement). If any Spread Account established with respect to a
Series ceases to be an Eligible Account, the Collateral Agent shall, within five
Business Days, establish a new Eligible Account for such Series.
(b) No withdrawals may be made of funds in any Spread Account except as
provided in Section 3.03 of this Agreement and in the Warehousing Series
Supplement. Except as specifically provided in this Agreement, funds in a
Spread Account established with respect to a Series shall not be commingled with
funds in a Spread Account established with respect to another Series or with any
other moneys. All moneys deposited from time to time in such Spread Account and
all investments made with such moneys shall be held by the Collateral Agent as
part of the Collateral with respect to such Series.
(c) On the Closing Date with respect to a Series (other than the
Warehousing Series),
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the Collateral Agent shall deposit the Initial Spread Account Deposit with
respect to such Series, if any, received from the Seller into the related Spread
Account. On each Subsequent Transfer Date (if any) with respect to a Series
(other than the Warehousing Series), the Collateral Agent shall deposit the
Spread Account Additional Deposit delivered by the related Trust on behalf of
the Seller into the related Spread Account.
(d) Each Spread Account shall be separate from each respective Trust and
amounts on deposit therein will not constitute a part of the Trust Property of
any Trust. Except as specifically provided herein, each Spread Account shall be
maintained by the Collateral Agent at all times separate and apart from any
other account of the Seller, OFL, the Servicer or the Trust or the Issuer, as
the case may be. All income or loss on investments of funds in any Spread
Account shall be reported by the Seller as taxable income or loss of the Seller.
Section 3.02. INVESTMENTS.
(a) Funds which may at any time be held in the Spread Account established
with respect to a Series or in the Program Spread Account shall be invested and
reinvested by the Collateral Agent, at the written direction (which may include,
subject to the provisions hereof, general standing instructions) of the Seller
(unless a Default shall have occurred and be continuing, in which case at the
written direction of the Controlling Party) or its designee received by the
Collateral Agent by 1:00 P.M. New York City time on the Business Day prior to
the date on which such investment shall be made, in one or more Eligible
Investments in the manner specified in Section 3.02(c). If no written direction
with respect to any portion of such Spread Account or the Program Spread Account
is received by the Collateral Agent, the Collateral Agent shall invest such
funds overnight in such Eligible Investments as the Collateral Agent may select,
provided that the Collateral Agent shall not be liable for any loss or absence
of income resulting from such investments.
(b) Each investment made pursuant to this Section 3.02 on any date shall
mature not later than the Business Day immediately preceding the Distribution
Date next succeeding the day such investment is made, except that any investment
made on the day preceding a Distribution Date shall mature on such Distribution
Date; PROVIDED that any investment of funds in any Account maintained with the
Collateral Agent in any investment as to which the Collateral Agent is the
obligor, if otherwise qualified as an Eligible Investment (including any
repurchase agreement on which the Collateral Agent in its commercial capacity is
liable as principal), may mature on the Distribution Date next succeeding the
date of such investment.
(c) Subject to the other provisions hereof, the Collateral Agent shall
have sole control over each such investment and the income thereon, and any
certificate or other instrument evidencing any such investment, if any, shall be
delivered directly to the Collateral Agent or its agent, together with each
document of transfer, if any, necessary to transfer title to such investment to
the Collateral Agent in a manner which complies with Section 2.06 and this
subsection.
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(d) If amounts on deposit in any Spread Account are at any time invested
in an Eligible Investment payable on demand, the Collateral Agent shall (i)
consistent with any notice required to be given thereunder, demand that payment
thereon be made on the last day such Eligible Investment is permitted to mature
under the provisions hereof and (ii) demand payment of all amounts due
thereunder promptly upon receipt of written notice from the Controlling Party to
the effect that such investment does not constitute an Eligible Investment.
(e) All moneys on deposit in a Spread Account together with any deposits
or securities in which such moneys may be invested or reinvested, and any gains
from such investments, shall constitute Collateral hereunder with respect to the
related Series, subject to the Security Interests of the Secured Parties.
(f) Subject to Section 4.03 hereof, the Collateral Agent shall not be
liable by reason of any insufficiency in any Spread Account resulting from any
loss on any Eligible Investment included therein except for losses attributable
to the Collateral Agent's failure to make payments on Eligible Investments as to
which the Collateral Agent, in its commercial capacity, is obligated.
(g) With respect to Spread Account Eligible Investments, the Collateral
Agent agrees that:
(1) any Spread Account Eligible Investment that is a bankers
acceptance or is commercial paper, negotiable certificates of deposit or
another obligation that constitutes "instruments" within the meaning of
Section 9-105(1)(i) of the UCC or that is a "certificated security" as
defined in Section 8-102 of the UCC shall be delivered to the Collateral
Agent in accordance with paragraph (a) or (b), as applicable, of the
definition of "Delivery" and shall be held, pending maturity or
disposition, solely by the Collateral Agent or its securities intermediary
as described in such paragraphs (a) and (b);
(2) any Spread Account Eligible Investment that is a book-entry
security held through the Federal Reserve System pursuant to Federal
book-entry regulations shall be delivered in accordance with paragraph (c),
as applicable, of the definition of "Delivery" and shall be maintained by
the Collateral Agent, pending maturity or disposition, through continued
book-entry registration of such Spread Account Eligible Investment as
described in such paragraph; and
(3) any Eligible Investment that is an uncertificated security as
defined in Section 8-102(1)(b) of the UCC and that is not governed by
clause (2) above shall be delivered to the Collateral Agent in accordance
with paragraph (d) of the definition of "Delivery" and shall be maintained
by the Collateral Agent, pending maturity or disposition, through continued
registration of the Collateral Agent's (or its nominee's) ownership of such
security.
Section 3.03. DISTRIBUTIONS: PRIORITY OF PAYMENTS.
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(a) On or before each Deficiency Claim Date, the Collateral Agent will
make the following calculations on the basis of information (including, without
limitation, the amount of any Collection Account Shortfall with respect to any
Series) received pursuant to (x) Section 3.9 of the Standard Terms and
Conditions, Section 5.03 of the Pooling and Servicing Agreements, or (y) Section
3.9 of the Sale and Servicing Agreements, or (z) Section 3.11 of the Servicing
Agreement, as applicable, with respect to each Series; provided, however, that
if the Collateral Agent receives notice from Financial Security of the
occurrence of an Insurance Agreement Event of Default with respect to any
Series, or of the occurrence of a Capture Event, such notice shall be
determinative for the purposes of determining the Spread Account Default Level
and Spread Account Maximum Amount for such Series:
FIRST, determine the amounts to be on deposit in the respective Spread
Accounts (taking into account amounts in respect of the respective Credit
Enhancement Fees to be deposited into the related Spread Accounts) on the
next succeeding Distribution Date which will be available to satisfy any
Collection Account Shortfall and any Warehousing Shortfall;
SECOND, determine (i) the amounts, if any, to be distributed from each
Spread Account related to each Series with respect to which there exists a
Collection Account Shortfall and (ii) whether, following distribution from
the related Spread Accounts to the respective Trustees for deposit into the
respective Collection Accounts with respect to which there exist Collection
Account Shortfalls, a Collection Account Shortfall will continue to exist
with respect to one or more Series;
THIRD, (i) if a Collection Account Shortfall will continue to exist
with respect to one or more Series following the distributions from the
related Spread Accounts contemplated by paragraph SECOND above, determine
the amount, if any, to be distributed to the Trustee with respect to each
Series from unrelated Spread Accounts in respect of such Collection Account
Shortfall(s). This determination shall be made as follows: (i) of the
aggregate of the amounts to be on deposit in the respective Spread Accounts
for such Distribution Date (as determined pursuant to paragraph FIRST
above, after making the withdrawals pursuant to paragraph SECOND above), up
to the aggregate of the Collection Account Shortfalls for such Distribution
Date, (ii) drawn from each Spread Account PRO RATA in accordance with
amounts on deposit therein, and (iii) distributed to the respective
Trustees in the following order of priority and PRO RATA within each
priority (1) in the same priority as amounts are to be distributed pursuant
to Section 4.6 of the Standard Terms and Conditions included in the
respective Pooling and Servicing Agreements and pursuant to Section 4.6 of
the respective Sale and Servicing Agreements, and pursuant to Section
3.6(a) or 3.6(b) of the Servicing Agreement, as applicable, so that any
shortfalls with respect to priority (i) of each such Section are to be
covered first, any shortfalls with respect to priority (ii) of each such
Section are to be covered second, and so forth, until priority (v) of such
Section, so that priority (v) of Section 4.6 of the Standard Terms and
Conditions and of the Sale and Servicing Agreement and priority (v) of
Section 3.6(a) or priority (v) of Section 3.6(b) of the Servicing Agreement
are to be covered fifth, (2) if
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Section 4.6 of one or more Sale and Servicing Agreements provides for
distribution in respect of interest or principal on Notes or Certificates
with priorities numerically greater than (v), in the same priority as
amounts are to be distributed pursuant to each such Section 4.6, so that
any shortfalls with respect to priority (vi) of each such Section 4.6 are
covered first, and so forth through all priorities relating to interest or
principal on Notes or Certificates and (3) amounts to be distributed to the
Security Insurer;
On such Deficiency Claim Date, the Collateral Agent shall deliver a
certificate to each Trustee in respect of which the Collateral Agent has
received notice pursuant to (i) Section 3.9 of the Standard Terms and Conditions
of a Collection Account Shortfall or (ii) Section 3.9 of the Sale and Servicing
Agreement of a Collection Account Shortfall or (iii) Section 3.11 of the
Servicing Agreement of a Collection Account Shortfall or Warehousing Shortfall
stating the amount (which, in the case of (i) and (ii) above, shall be the sum
of the amount, if any, to be withdrawn from the related Spread Account, as
calculated pursuant to paragraph SECOND of this Section 3.03(a), plus, the
amount, if any, to be withdrawn from unrelated Spread Accounts, as calculated
pursuant to paragraph THIRD of this Section 3.03(a), and which, in the case of a
Collection Account Shortfall or Warehousing Shortfall referred to in clause
(iii) shall be the respective amounts, if any, withdrawn from unrelated Spread
Accounts, as calculated pursuant to paragraph THIRD of this Section 3.03(a) or
calculated to be available pursuant to priority SEVENTH of Section 3.03(b)), if
any, to be distributed to such Trustee on the next Distribution Date in respect
of such Collection Account Shortfall or Warehousing Shortfall, as the case may
be.
(b) On each Distribution Date, following delivery by the Trustee of the
respective Credit Enhancement Fees for deposit into the respective Spread
Accounts pursuant to Section 4.6 of the Standard Terms and Conditions included
in the respective Pooling and Servicing Agreements or Section 4.6 of the
respective Sale and Servicing Agreements, or the amount deposited into the
Spread Account for the Warehousing Series pursuant to Section 3.6 or Section
3.10 of the Warehousing Series Servicing Agreement, as applicable, and upon
receipt of a Deficiency Notice with respect to one or more such Series, or with
respect to priorities FIFTH and SIXTH to the extent the amounts referred to
therein are due and owing, the Collateral Agent shall make the following
distributions in the following order of priority. References herein to a Spread
Account shall include references to the related Tag Account and such amounts
shall be treated fungibly, except that amounts deposited into a Spread Account
pursuant to Section 3.03(b) shall be deemed to be deposited into a Spread
Account, and amounts withdrawn from a Spread Account pursuant to Section 3.03(b)
shall be withdrawn first from the related Tag Account and second from the Spread
Account.
FIRST, if with respect to any Series there exists a Collection Account
Shortfall from the Spread Account related to such Series, to the Trustee for
deposit in the related Collection Account the amount of such Collection Account
Shortfall;
SECOND, if with respect to any Series there exists a Collection
Account Shortfall after deposit into the Collection Account of amounts
distributed pursuant to priority FIRST, from
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each Spread Account, PRO RATA in accordance with amounts on deposit therein (but
in no event shall a withdrawal from a Spread Account pursuant to this priority
SECOND cause the amount on deposit in such Spread Account to be below the Spread
Account Withdrawal Floor for such Spread Account if a Spread Account Withdrawal
Floor is specified in the Series Supplement establishing such Spread Account),
an amount up to the aggregate of the Collection Account Shortfalls for all
Series, to the respective Trustees in accordance with the Payment Priorities for
deposit in the respective Collection Accounts with respect to which there exist
Collection Account Shortfalls;
THIRD, if with respect to one or more Series (excluding the
Warehousing Series) there exists a Spread Account Shortfall, from amounts, if
any, on deposit in each Spread Account (excluding the Warehousing Series) in
excess of the related Spread Account Maximum Amount (after making any
withdrawals therefrom required by priority FIRST or SECOND of this Section
3.03(b)), an amount in the aggregate up to the aggregate of the Spread Account
Shortfalls for all Series for deposit into each Spread Account PRO RATA in
accordance with their respective Spread Account Shortfalls;
FOURTH, if with respect to one or more Series (excluding the
Warehousing Series), amounts have been withdrawn from the related Spread Account
pursuant to priority FIRST or SECOND of this Section 3.03(b) on such
Distribution Date and/or on prior Distribution Dates and such amounts have not
been redeposited in full into such Spread Account pursuant to this priority
FOURTH (such amounts in the aggregate for a Series "Unreimbursed Amounts"), from
amounts, if any, on deposit in each Spread Account in excess of the related
Spread Account Maximum Amount (after making any withdrawals therefrom required
by priority FIRST, SECOND or THIRD of this Section 3.03(b)), an amount up to the
aggregate of the Unreimbursed Amounts for all such Series for deposit into each
Spread Account with respect to which there exist Unreimbursed Amounts PRO RATA
in accordance with the excess of the Spread Account Maximum Amount of each such
Spread Account over the amount on deposit in such Spread Account;
FIFTH, if any amounts are owed to a successor Servicer pursuant to
Section 9.3(c) of the Standard Terms and Conditions included in a Pooling and
Servicing Agreement or Section 8.3(c) of a Sale and Servicing Agreement and such
amounts are not payable pursuant to Section 4.6(a)(i) of the Standard Terms and
Conditions included in such Pooling and Servicing Agreement or Section 4.6(i) of
such Sale and Servicing Agreement, as applicable, from amounts on deposit in the
related Spread Account, an amount up to the amount so owed, to such Servicer;
SIXTH, if any amounts are owed by OFL or the Seller to a Trustee,
Indenture Trustee, Owner Trustee, Lockbox Bank, Custodian, Backup Servicer,
Administrator, Collateral Agent, the Indenture Collateral Agent or other service
provider to either the Trust or the Issuer for expenses that have not been
reimbursed by OFL or the Seller, from amounts on deposit in the related Spread
Account, an amount up to the amount so owed, to such Person;
SEVENTH, if with respect to the Warehousing Series there exists a
Warehousing Shortfall, from the aggregate of all amounts on deposit in the
Warehousing Series Spread
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Account and from the aggregate of all amounts in unrelated Spread Accounts in
excess of the related Spread Account Maximum Amount (except that such limitation
shall not exist with respect to a Spread Account Maximum Amount which is
unlimited), an amount up to the amount of such Warehousing Shortfall (to the
extent not distributed on such Distribution Date pursuant to a prior priority of
this Section 3.03(b)), to the Trustee for the Warehousing Series for deposit in
the Warehousing Series Collection Account; and
EIGHTH, any funds in a Spread Account in excess of the applicable
Spread Account Maximum Amount, and any funds in a Spread Account with respect to
a Series for which the Final Termination Date shall have occurred, to the
Seller.
Section 3.04. GENERAL PROVISIONS REGARDING SPREAD ACCOUNTS.
(a) Promptly upon the establishment (initially or upon any relocation) of
a Spread Account hereunder, the Collateral Agent shall advise the Seller and
each Secured Party in writing of the name and address of the depository
institution or trust company where such Spread Account has been established (if
not Norwest Bank Minnesota, National Association or any successor Collateral
Agent in its commercial banking capacity), the name of the officer of the
depository institution who is responsible for overseeing such Spread Account,
the account number and the individuals whose names appear on the signature cards
for such Spread Account. The Seller shall cause each such depository
institution or trust company to execute a written agreement, in form and
substance satisfactory to the Controlling Party, waiving, and the Collateral
Agent by its execution of this Agreement hereby waives (except to the extent
expressly provided herein), in each case to the extent permitted under
applicable law, (i) any banker's or other statutory or similar Lien, and (ii)
any right of set-off or other similar right under applicable law with respect to
such Spread Account and any other Spread Account and agreeing, and the
Collateral Agent by its execution of this Agreement hereby agrees, to notify the
Seller, the Collateral Agent, and each Secured Party of any charge or claim
against or with respect to such Spread Account. The Collateral Agent shall give
the Seller and each Secured Party at least ten Business Days' prior written
notice of any change in the location of such Spread Account or in any related
account information. If the Collateral Agent changes the location of any Spread
Account, it shall change the location of the other Spread Accounts, so that all
Spread Accounts shall at all times be located at the same depository
institution. Anything herein to the contrary notwithstanding, unless otherwise
consented to by the Controlling Party in writing, the Collateral Agent shall
have no right to change the location of any Spread Account.
(b) Upon the written request of the Controlling Party or the Seller and at
the expense of the Seller, the Collateral Agent shall cause, at the expense of
the Seller, the depository institution at which any Spread Account is located to
forward to the requesting party copies of all monthly account statements for
such Spread Account.
(c) If at any time any Spread Account ceases to be an Eligible Account,
the Collateral Agent shall notify the Controlling Party of such fact and shall
establish within 5 Business Days of such determination, in accordance with
paragraph (a) of this Section, a successor Spread Account thereto, which shall
be an Eligible Account, at another depository institution acceptable
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to the Controlling Party and shall establish successor Spread Accounts with
respect to all other Spread Accounts, each of which shall be an Eligible Account
at the same depository institution.
(d) No passbook, certificate of deposit or other similar instrument
evidencing a Spread Account shall be issued, and all contracts, receipts and
other papers, if any, governing or evidencing a Spread Account shall be held by
the Collateral Agent.
Section 3.05. REPORTS BY THE COLLATERAL AGENT. The Collateral Agent
shall report to the Seller, Financial Security, the Trustee and the Servicer on
a monthly basis no later than each Distribution Date with respect to the amount
on deposit in each Spread Account and the identity of the investments included
therein as of the last day of the related Monthly Period, and shall provide
accountings of deposits into and withdrawals from the Spread Accounts, and of
the investments made therein, to the independent accountants upon their request
for purposes of their reports pursuant to Section 3.11 of the Pooling and
Servicing Agreements and Section 3.11 of the Sale and Servicing Agreements.
ARTICLE IV
THE COLLATERAL AGENT
Section 4.01. APPOINTMENT AND POWERS. Subject to the terms and
conditions hereof, each of the Secured Parties hereby appoints Norwest Bank
Minnesota, National Association as the Collateral Agent with respect to the
Series 1993-A Collateral and the related Collateral subsequently specified in a
Series Supplement, and Norwest Bank Minnesota, National Association hereby
accepts such appointment and agrees to act as Collateral Agent with respect to
the Series 1993-A Collateral, and upon execution of any Series Supplement, shall
be deemed to accept such appointment, and agree to act as Collateral Agent with
respect to such Collateral, in each case, for the Secured Parties, to maintain
custody and possession of such Collateral (except as otherwise provided
hereunder) and to perform the other duties of the Collateral Agent in accordance
with the provisions of this Agreement. Each Secured Party hereby authorizes the
Collateral Agent to take such action on its behalf, and to exercise such rights,
remedies, powers and privileges hereunder, as the Controlling Party may direct
and as are specifically authorized to be exercised by the Collateral Agent by
the terms hereof, together with such actions, rights, remedies, powers and
privileges as are reasonably incidental thereto. The Collateral Agent shall act
upon and in compliance with the written instructions of the Controlling Party
delivered pursuant to this Agreement promptly following receipt of such written
instructions; provided that the Collateral Agent shall not act in accordance
with any instructions (i) which are not authorized by, or in violation of the
provisions of, this Agreement, (ii) which are in violation of any applicable
law, rule or regulation or (iii) for which the Collateral Agent has not received
reasonable indemnity. Receipt of such instructions shall not be a condition to
the exercise by the Collateral Agent of its express duties hereunder, except
where this Agreement provides that the Collateral Agent is permitted to act only
following and in accordance with such instructions.
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Section 4.02. PERFORMANCE OF DUTIES. The Collateral Agent shall have
no duties or responsibilities except those expressly set forth in this Agreement
and the other Transaction Documents to which the Collateral Agent is a party or
as directed by the Controlling Party in accordance with this Agreement. The
Collateral Agent shall not be required to take any discretionary actions
hereunder except at the written direction and with the indemnification of the
Controlling Party.
Section 4.03. LIMITATION ON LIABILITY. Neither the Collateral Agent
nor any of its directors, officers or employees, shall be liable for any action
taken or omitted to be taken by it or them hereunder, or in connection herewith,
except that the Collateral Agent shall be liable for its negligence, bad faith
or willful misconduct; nor shall the Collateral Agent be responsible for the
validity, effectiveness, value, sufficiency or enforceability against the Seller
or OFL of this Agreement or any of the Collateral (or any part thereof).
Notwithstanding any term or provision of this Agreement, the Collateral Agent
shall incur no liability to the Seller, OFL or the Secured Parties for any
action taken or omitted by the Collateral Agent in connection with the
Collateral, except for the negligence or willful misconduct on the part of the
Collateral Agent, and, further, shall incur no liability to the Secured Parties
except for negligence or willful misconduct in carrying out its duties to the
Secured Parties. Subject to Section 4.04, the Collateral Agent shall be
protected and shall incur no liability to any such party in relying upon the
accuracy, acting in reliance upon the contents, and assuming the genuineness of
any notice, demand, certificate, signature, instrument or other document
reasonably believed by the Collateral Agent to be genuine and to have been duly
executed by the appropriate signatory, and (absent actual knowledge to the
contrary) the Collateral Agent shall not be required to make any independent
investigation with respect thereto. The Collateral Agent shall at all times be
free independently to establish to its reasonable satisfaction, but shall have
no duty to independently verify, the existence or nonexistence of facts that are
a condition to the exercise or enforcement of any right or remedy hereunder or
under any of the Transaction Documents. The Collateral Agent may consult with
counsel, and shall not be liable for any action taken or omitted to be taken by
it hereunder in good faith and in accordance with the written advice of such
counsel. The Collateral Agent shall not be under any obligation to exercise any
of the remedial rights or powers vested in it by this Agreement or to follow any
direction from the Controlling Party unless it shall have received reasonable
security or indemnity satisfactory to the Collateral Agent against the costs,
expenses and liabilities which might be incurred by it.
Section 4.04. RELIANCE UPON DOCUMENTS. In the absence of bad faith
or negligence on its part, the Collateral Agent shall be entitled to rely on any
communication, instrument, paper or other document reasonably believed by it to
be genuine and correct and to have been signed or sent by the proper Person or
Persons and shall have no liability in acting, or omitting to act, where such
action or omission to act is in reasonable reliance upon any statement or
opinion contained in any such document or instrument.
Section 4.05. SUCCESSOR COLLATERAL AGENT.
(a) MERGER. Any Person into which the Collateral Agent may be
converted or
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merged, or with which it may be consolidated, or to which it may sell or
transfer its trust business and assets as a whole or substantially as a whole,
or any Person resulting from any such conversion, merger, consolidation, sale or
transfer to which the Collateral Agent is a party, shall (provided it is
otherwise qualified to serve as the Collateral Agent hereunder) be and become a
successor Collateral Agent hereunder and be vested with all of the title to and
interest in the Collateral and all of the trusts, powers, discretions,
immunities, privileges and other matters as was its predecessor without the
execution or filing of any instrument or any further act, deed or conveyance on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding, except to the extent, if any, that any such action is necessary
to perfect, or continue the perfection of, the security interest of the Secured
Parties in the Collateral.
(b) RESIGNATION. The Collateral Agent and any successor Collateral Agent
may resign only (i) upon a determination that by reason of a change in legal
requirements the performance of its duties under this Agreement would cause it
to be in violation of such legal requirements in a manner which would result in
a material adverse effect on the Collateral Agent, and the Controlling Party
does not elect to waive the Collateral Agent's obligation to perform those
duties which render it legally unable to act or elect to delegate those duties
to another Person, or (ii) with the prior written consent of the Controlling
Party. The Collateral Agent shall give not less than 60 days' prior written
notice of any such permitted resignation by registered or certified mail to the
other Secured Party and the Seller; PROVIDED, that such resignation shall take
effect only upon the date which is the latest of (i) the effective date of the
appointment of a successor Collateral Agent and the acceptance in writing by
such successor Collateral Agent of such appointment and of its obligation to
perform its duties hereunder in accordance with the provisions hereof, (ii)
delivery of the Collateral to such successor to be held in accordance with the
procedures specified in Article II hereof, and (iii) receipt by the Controlling
Party of an Opinion of Counsel to the effect described in Section 5.02.
Notwithstanding the preceding sentence, if by the contemplated date of
resignation specified in the written notice of resignation delivered as
described above no successor Collateral Agent or temporary successor Collateral
Agent has been appointed Collateral Agent or becomes the Collateral Agent
pursuant to subsection (d) hereof, the resigning Collateral Agent may petition a
court of competent jurisdiction in New York, New York for the appointment of a
successor.
(c) REMOVAL. The Collateral Agent may be removed by the Controlling Party
at any time, with or without cause, by an instrument or concurrent instruments
in writing delivered to the Collateral Agent, the other Secured Party and the
Seller. A temporary successor may be removed at any time to allow a successor
Collateral Agent to be appointed pursuant to subsection (d) below. Any removal
pursuant to the provisions of this subsection (c) shall take effect only upon
the date which is the latest of (i) the effective date of the appointment of a
successor Collateral Agent and the acceptance in writing by such successor
Collateral Agent of such appointment and of its obligation to perform its duties
hereunder in accordance with the provisions hereof, (ii) delivery of the
Collateral to such successor to be held in accordance with the procedures
specified in Article II hereof and (iii) receipt by the Controlling Party of an
Opinion of Counsel to the effect described in Section 5.02.
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(d) ACCEPTANCE BY SUCCESSOR. The Controlling Party shall have the sole
right to appoint each successor Collateral Agent. Every temporary or permanent
successor Collateral Agent appointed hereunder shall execute, acknowledge and
deliver to its predecessor and to each Secured Party and the Seller an
instrument in writing accepting such appointment hereunder and the relevant
predecessor shall execute, acknowledge and deliver such other documents and
instruments as will effectuate the delivery of all Collateral to the successor
Collateral Agent to be held in accordance with the procedures specified in
Article II hereof, whereupon such successor, without any further act, deed or
conveyance, shall become fully vested with all the estates, properties, rights,
powers, duties and obligations of its predecessor. Such predecessor shall,
nevertheless, on the written request of either Secured Party or the Seller,
execute and deliver an instrument transferring to such successor all the
estates, properties, rights and powers of such predecessor hereunder. In the
event that any instrument in writing from the Seller or a Secured Party is
reasonably required by a successor Collateral Agent to more fully and certainly
vest in such successor the estates, properties, rights, powers, duties and
obligations vested or intended to be vested hereunder in the Collateral Agent,
any and all such written instruments shall, at the request of the temporary or
permanent successor Collateral Agent, be forthwith executed, acknowledged and
delivered by the Seller. The designation of any successor Collateral Agent and
the instrument or instruments removing any Collateral Agent and appointing a
successor hereunder, together with all other instruments provided for herein,
shall be maintained with the records relating to the Collateral and, to the
extent required by applicable law, filed or recorded by the successor Collateral
Agent in each place where such filing or recording is necessary to effect the
transfer of the Collateral to the successor Collateral Agent or to protect or
continue the perfection of the security interests granted hereunder.
(e) Any resignation or removal of a Collateral Agent and appointment of a
successor Collateral Agent shall be effected with respect to this Agreement and
all Series Supplements simultaneously, so that at no time is there more than one
Collateral Agent acting hereunder and under all Series Supplements.
Section 4.06. INDEMNIFICATION. The Seller and OFL shall indemnify
the Collateral Agent, its directors, officers, employees and agents for, and
hold the Collateral Agent, its directors, officers, employees and agents
harmless against, any loss, liability or expense (including the costs and
expenses of defending against any claim of liability) arising out of or in
connection with the Collateral Agent's acting as Collateral Agent hereunder,
except such loss, liability or expense as shall result from the negligence, bad
faith or willful misconduct of the Collateral Agent or its officers or agents.
The obligation of the Seller and OFL under this Section shall survive the
termination of this Agreement and the resignation or removal of the Collateral
Agent. The Collateral Agent covenants and agrees that the obligations of the
Seller hereunder and under Section 4.07 shall be limited to the extent provided
in Section 2.08, and further covenants not to take any action to enforce its
rights to indemnification hereunder with respect to the Seller and to payment
under Section 4.07 except in accordance with the provisions of Section 8.05, or
otherwise to assert any Lien or take any other action in respect of the
Collateral or the Trust Property of a Series until the applicable Final
Termination Date.
Section 4.07. COMPENSATION AND REIMBURSEMENT. The Seller agrees
for the
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benefit of the Secured Parties and as part of the Secured Obligations (a) to pay
to the Collateral Agent, from time to time, reasonable compensation for all
services rendered by it hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a collateral trustee); and
(b) to reimburse the Collateral Agent upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Collateral Agent in
accordance with any provision of, or carrying out its duties and obligations
under, this Agreement (including the reasonable compensation and fees and the
expenses and disbursements of its agents, any independent certified public
accountants and independent counsel), except any expense, disbursement or
advances as may be attributable to negligence, bad faith or willful misconduct
on the part of the Collateral Agent.
Section 4.08. REPRESENTATIONS AND WARRANTIES OF THE COLLATERAL AGENT.
The Collateral Agent represents and warrants to the Seller and to each Secured
Party as follows:
(a) DUE ORGANIZATION. The Collateral Agent is a national banking
association, duly organized, validly existing and in good standing under the
laws of the United States and is duly authorized and licensed under applicable
law to conduct its business as presently conducted.
(b) CORPORATE POWER. The Collateral Agent has all requisite right, power
and authority to execute and deliver this Agreement and to perform all of its
duties as Collateral Agent hereunder.
(c) DUE AUTHORIZATION. The execution and delivery by the Collateral Agent
of this Agreement and the other Transaction Documents to which it is a party,
and the performance by the Collateral Agent of its duties hereunder and
thereunder, have been duly authorized by all necessary corporate proceedings and
no further approvals or filings, including any governmental approvals, are
required for the valid execution and delivery by the Collateral Agent, or the
performance by the Collateral Agent, of this Agreement and such other
Transaction Documents.
(d) VALID AND BINDING AGREEMENT. The Collateral Agent has duly executed
and delivered this Agreement and each other Transaction Document to which it is
a party, and each of this Agreement and each such other Transaction Document
constitutes the legal, valid and binding obligation of the Collateral Agent,
enforceable against the Collateral Agent in accordance with its terms, except as
(i) such enforceability may be limited by bankruptcy, insolvency, reorganization
and similar laws relating to or affecting the enforcement of creditors' rights
generally and (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability.
Section 4.09. WAIVER OF SETOFFS. The Collateral Agent hereby
expressly waives any and all rights of setoff that the Collateral Agent may
otherwise at any time have under applicable law with respect to any Spread
Account and agrees that amounts in the Spread Accounts shall at all times be
held and applied solely in accordance with the provisions hereof.
Section 4.10. CONTROL BY THE CONTROLLING PARTY. The Collateral Agent
shall comply with notices and instructions given by the Seller only if
accompanied by the written
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consent of the Controlling Party, except that if any Default shall have occurred
and be continuing, the Collateral Agent shall act upon and comply with notices
and instructions given by the Controlling Party alone in the place and stead of
the Seller.
ARTICLE V
COVENANTS OF THE SELLER
Section 5.01. PRESERVATION OF COLLATERAL. Subject to the rights,
powers and authorities granted to the Collateral Agent and the Controlling Party
in this Agreement, the Seller shall take such action as is necessary and proper
with respect to the Collateral in order to preserve and maintain such Collateral
and to cause (subject to the rights of the Secured Parties) the Collateral Agent
to perform its obligations with respect to such Collateral as provided herein.
The Seller will do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged and delivered, such instruments of transfer or take such
other steps or actions as may be necessary, or required by the Controlling
Party, to perfect the Security Interests granted hereunder in the Collateral, to
ensure that such Security Interests rank prior to all other Liens and to
preserve the priority of such Security Interests and the validity and
enforceability thereof. Upon any delivery or substitution of Collateral, the
Seller shall be obligated to execute such documents and perform such actions as
are necessary to create in the Collateral Agent for the benefit of the Secured
Parties a valid first Lien on, and valid and perfected, first priority security
interest in, the Collateral so delivered and to deliver such Collateral to the
Collateral Agent, free and clear of any other Lien, together with satisfactory
assurances thereof, and to pay any reasonable costs incurred by any of the
Secured Parties or the Collateral Agent (including its agents) or otherwise in
connection with such delivery.
Section 5.02. OPINIONS AS TO COLLATERAL. Not more than 90 days nor
less than 30 days prior to (i) each anniversary of the date hereof during the
term of this Agreement and (ii) each date on which the Seller proposes to take
any action contemplated by Section 5.06, the Seller shall, at its own cost and
expense, furnish to each Secured Party and the Collateral Agent an Opinion of
Counsel with respect to each Series either (a) stating that, in the opinion of
such counsel, such action has been taken with respect to the execution and
filing of any financing statements and continuation statements and other actions
as are necessary to perfect, maintain and protect the lien and security interest
of the Collateral Agent (and the priority thereof), on behalf of the Secured
Parties, with respect to such Collateral against all creditors of and purchasers
from the Seller or OFL and reciting the details of such action, or (b) stating
that, in the opinion of such counsel, no such action is necessary to maintain
such perfected lien and security interest. Such Opinion of Counsel shall
further describe each execution and filing of any financing statements and
continuation statements and such other actions as will, in the opinion of such
counsel, be required to perfect, maintain and protect the lien and security
interest of the Collateral Agent, on behalf of the Secured Parties, with respect
to such Collateral against all creditors of and purchasers from the Seller or
OFL for a period, specified in such Opinion, continuing until a date not earlier
than eighteen months from the date of such Opinion.
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Section 5.03. NOTICES. In the event that OFL or the Seller acquires
knowledge of the occurrence and continuance of any Insurance Agreement Event of
Default or Servicer Termination Event or of any event of default or like event,
howsoever described or called, under any of the Transaction Documents, the
Seller shall immediately give notice thereof to the Collateral Agent and each
Secured Party.
Section 5.04. WAIVER OF STAY OR EXTENSION LAWS; MARSHALLING OF
ASSETS. The Seller covenants, to the fullest extent permitted by applicable
law, that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any appraisement,
valuation, stay, extension or redemption law wherever enacted, now or at any
time hereafter in force, in order to prevent or hinder the enforcement of this
Agreement or any absolute sale of the Collateral or any part thereof, or the
possession thereof by any purchaser at any sale under Article VII of this
Agreement; and the Seller, to the fullest extent permitted by applicable law,
for itself and all who may claim under it, hereby waives the benefit of all such
laws, and covenants that it will not hinder, delay or impede the execution of
any power herein granted to the Collateral Agent, but will suffer and permit the
execution of every such power as though no such law had been enacted. The
Seller, for itself and all who may claim under it, waives, to the fullest extent
permitted by applicable law, all right to have the Collateral marshalled upon
any foreclosure or other disposition thereof.
Section 5.05. NONINTERFERENCE, ETC. The Seller shall not (i) waive
or alter any of its rights under the Collateral (or any agreement or instrument
relating thereto) without the prior written consent of the Controlling Party; or
(ii) fail to pay any tax, assessment, charge or fee levied or assessed against
the Collateral, or to defend any action, if such failure to pay or defend may
adversely affect the priority or enforceability of the Seller's right, title or
interest in and to the Collateral or the Collateral agent's lien on, and
security interest in, the Collateral for the benefit of the Secured Parties; or
(iii) take any action, or fail to take any action, if such action or failure 'to
take action will interfere with the enforcement of any rights under the
Transaction Documents.
Section 5.06. SELLER CHANGES.
(a) CHANGE IN NAME, STRUCTURE, ETC. The Seller shall not change its name,
identity or corporate structure unless it shall have given each Secured Party
and the Collateral Agent at least 60 days' prior written notice thereof, shall
have effected any necessary or appropriate assignments or amendments thereto and
filings of financing statements or amendments thereto, and shall have delivered
to the Collateral Agent and each Secured Party an Opinion of Counsel of the type
described in Section S.02. The parties hereto acknowledge receipt of prior
written notice of the Seller's intent to change its name on or after January 1,
1997 to Arcadia Receivables Finance Corp.
(b) RELOCATION OF THE SELLER. Neither OFL nor the Seller shall change
its principal executive office unless it gives each Secured Party and the
Collateral Agent at least 90 days' prior written notice of any relocation of its
principal executive office. If the Seller relocates its principal executive
office or principal place of business from Minnesota, the Seller shall give
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prior notice thereof to the Controlling Party and the Collateral Agent and shall
effect whatever appropriate recordations and filings are necessary and shall
provide an Opinion of Counsel to the Controlling Party and the Collateral Agent,
to the effect that, upon the recording of any necessary assignments or
amendments to previously-recorded assignments and filing of any necessary
amendments to the previously filed financing or continuation statements or upon
the filing of one or more specified new financing statements, and the taking of
such other actions as may be specified in such opinion, the security interests
in the Collateral shall remain, after such relocation, valid and perfected.
ARTICLE VI
CONTROLLING PARTY; INTERCREDITOR PROVISIONS
Section 6.01. APPOINTMENT OF CONTROLLING PARTY. From and after the
Closing Date of a Series until the Insurer Termination Date related to such
Series, Financial Security shall be the Controlling Party with respect to such
Series and shall be entitled to exercise all the rights given the Controlling
Party hereunder with respect to such Series. From and after the Insurer
Termination Date related to such Series until the Trustee Termination Date
related to such Series, the Trustee shall be the Controlling Party with respect
to such Series. Notwithstanding the foregoing, in the event that a Financial
Security Default shall have occurred and be continuing, the Trustee shall be the
Controlling Party with respect to such Series until the applicable Trustee
Termination Date. If prior to an Insurer Termination Date the Trustee shall
have become the Controlling Party with respect to a Series as a result of the
occurrence of a Financial Security Default and either such Financial Security
Default is cured or for any other reason ceases to exist or the Trustee
Termination Date with respect to a Series occurs, then upon such cure or other
cessation or on such Trustee Termination Date, as the case may be, Financial
Security shall, upon notice thereof being duly given to the Collateral Agent,
again be the Controlling Party with respect to such Series.
Section 6.02. CONTROLLING PARTY'S AUTHORITY.
(a) Each of OFL and the Seller hereby irrevocably appoint the Controlling
Party, and any successor to the Controlling Party appointed pursuant to Section
6.01, its true and lawful attorney, with full power of substitution, in the name
of OFL, the Seller, the Secured Parties or otherwise, but (subject to Section
2.08) at the expense of the Seller, to the extent permitted by law to exercise,
at any time and from time to time while any Insurance Agreement Event of Default
has occurred and is continuing, any or all of the following powers with respect
to all or any of the Collateral related to the relevant Series: (i) to demand,
sue for, collect, receive and give acquittance for any and all monies due or to
become due upon or by virtue thereof, (ii) to settle, compromise, compound,
prosecute or defend any action or proceeding with respect thereto, (iii) to
sell, transfer, assign or otherwise deal with the same or the proceeds thereof
as fully and effectively as if the Collateral Agent were the absolute owner
thereof, and (iv) to extend the time of payment of any or all thereof and to
make any allowance or other adjustments with respect thereto; PROVIDED that the
foregoing powers and rights shall be exercised in accordance
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with the provisions of Article VII hereof.
(b) With respect to each Series of Certificates and the related
Collateral, each Secured Party hereby irrevocably and unconditionally
constitutes and appoints the Controlling Party with respect to such Series, and
any successor to such Controlling Party appointed pursuant to Section 6.01 from
time to time, as the true and lawful attorney-in-fact of such Secured Party for
so long as such Secured Party is the Non-Controlling Party, with full power of
substitution, to execute, acknowledge and deliver any notice, document,
certificate, paper, pleading or instrument and to do in the name of the
Controlling Party as well as in the name, place and stead of such Secured Party
such acts, things and deeds for and on behalf of and in the name of such Secured
Party under this Agreement with respect to such Series which such Secured Party
could or might do or which may be necessary, desirable or convenient in such
Controlling Party's sole discretion to effect the purposes contemplated
hereunder and, without limitation, exercise full right, power and authority to
take, or defer from taking, any and all acts with respect to the administration
of the Collateral related to such Series, and the enforcement of the rights of
the Secured Parties hereunder with respect to such Series, on behalf of and for
the benefit of such Controlling Party and such Non-Controlling Party, as their
interests may appear.
(c) So long as Financial Security shall be the Controlling Party with
respect to a Series (other than the Warehousing Series), the Trustee hereby
agrees, that if there exists an Insurance Agreement Event of Default with
respect to such Series:
(i) Financial Security shall have the exclusive right to direct the
Trustee as to any and all actions to be taken under the related Transaction
Documents, including, without limitation, all actions with respect to the
giving of directions to the Servicer and any subservicer with respect to
the servicing of the Receivables of such Series; enforcement of any rights
of the Trustee under such Transaction Documents; and the giving or
withholding of any other consents, requests, notices, directions,
approvals, extensions or waivers under or in respect of any such
Transaction Documents; and
(ii) Financial Security shall have the right to control the time,
method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the Trustee
under the related Pooling and Servicing Agreement or under any other
Transaction Document, including the remedies provided in Article VII;
PROVIDED, HOWEVER, that the Trustee may decline to follow any of the above
directions from Financial Security, if the Trustee, in accordance with an
opinion of counsel to the Trustee, that is independent of the Trustee,
determines that the action or proceeding so directed may not lawfully be taken
or if the Trustee in good faith determines that the action or proceeding so
directed would involve it in personal liability for which adequate indemnity is
not reasonably assured to it or, in the case of actions or directions not
specifically permitted to be taken by Financial Security so long as no Financial
Security Default has occurred and is continuing, would adversely affect the
interests of the Certificateholders in any material respect.
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(d) So long as Financial Security shall be the Controlling Party with
respect to a Series (other than the Warehousing Series), the Trustee shall not,
without the prior written consent of Financial Security:
(i) appoint new independent accountants with respect to the
Series;
(ii) consent to the amendment of or supplement to any of the
Transaction Documents related to the Series; or
(iii) waive a Servicer Termination Event under the related Pooling
and Servicing Agreement or Sale and Servicing Agreement, as applicable.
(e) So long as Financial Security shall be the Controlling Party with
respect to a Series:
(i) Financial Security shall have the rights provided in Section
5.3 of each Pooling and Servicing Agreement, Section 5.4 of each Sale and
Servicing Agreement and Section 5.19 of each Indenture in respect of the
direction of insolvency proceedings.
(ii) Financial Security shall have the right to direct the Trustee
as to any and all actions to be taken in the event of the occurrence of a
Servicer Termination Event under the related Pooling and Servicing
Agreement and shall have such other rights in respect of the appointment of
a successor servicer as are provided in such Pooling and Servicing
Agreement.
Section 6.03. RIGHTS OF SECURED PARTIES. With respect to each Series
of Certificates and the related Collateral, the Non-Controlling Party at any
time expressly agrees that it shall not assert any rights that it may otherwise
have, as a Secured Party with respect to the Collateral, to direct the
maintenance, sale or other disposition of the Collateral or any portion thereof,
notwithstanding the occurrence and continuance of any Default with respect to
such Series or any non-performance by OFL or the Seller of any obligation owed
to such Secured Party hereunder or under any other Transaction Document, and
each party hereto agrees that the Controlling Party shall be the only Person
entitled to assert and exercise such rights.
Section 6.04. DEGREE OF CARE.
(a) CONTROLLING PARTY. Notwithstanding any term or provision of this
Agreement, the Controlling Party shall incur no liability to OFL or the Seller
for any action taken or omitted by the Controlling Party in connection with the
Collateral, except for any gross negligence, bad faith or willful misconduct on
the part of the Controlling Party and, further, shall incur no liability to the
Non-Controlling Party except for a breach of the terms of this Agreement or for
gross negligence, bad faith or willful misconduct in carrying out its duties, if
any, to the Non-Controlling Party. The Controlling Party shall be protected and
shall incur no liability to any such party in relying upon the accuracy, acting
in reliance upon the contents and assuming
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the genuineness of any notice, demand, certificate, signature, instrument or
other document believed by the Controlling Party to be genuine and to have been
duly executed by the appropriate signatory, and (absent manifest error or actual
knowledge to the contrary) the Controlling Party shall not be required to make
any independent investigation with respect thereto. The Controlling Party
shall, at all times, be free independently to establish to its reasonable
satisfaction the existence or nonexistence, as the case may be, of any fact the
existence or nonexistence of which shall be a condition to the exercise or
enforcement of any right or remedy under this Agreement or any of the
Transaction Documents.
(b) THE NON-CONTROLLING PARTY. The Non-Controlling Party shall not be
liable to the Seller for any action or failure to act by the Controlling Party
or the Collateral Agent in exercising, or failing to exercise, any rights or
remedies hereunder.
ARTICLE VII
REMEDIES UPON DEFAULT
Section 7.01. REMEDIES UPON A DEFAULT. If a Default with respect to a
Series has occurred and is continuing, the Collateral Agent shall, at the
direction of the Controlling Party, take whatever action at law or in equity as
may appear necessary or desirable in the judgment of the Controlling Party to
collect and satisfy all Insurer Secured Obligations (including, but not limited
to, foreclosure upon the Collateral and all other rights available to secured
parties under applicable law) or to enforce performance and observance of any
obligation, agreement or covenant under any of the Transaction Documents related
to such Series. Notwithstanding the foregoing, the Collateral Agent shall not
be entitled to take any action and the Controlling Party shall not be entitled
to give any direction with respect to the Trust Property, except to the extent
provided in the Transaction Documents and Sections 6.02(a), (c), (d) and (e)
hereof.
Section 7.02. WAIVER OF DEFAULT. The Controlling Party shall have
the sole right, to be exercised in its complete discretion, to waive any Default
by a writing setting forth the terms, conditions and extent of such waiver
signed by the Controlling Party and delivered to the Collateral Agent, the other
Secured Party and the Seller. Any such waiver shall be binding upon the
Non-Controlling Party and the Collateral Agent. Unless such writing expressly
provides to the contrary, any waiver so granted shall extend only to the
specific event or occurrence which gave rise to the Default so waived and not to
any other similar event or occurrence which occurs subsequent to the date of
such waiver.
Section 7.03. RESTORATION OF RIGHTS AND REMEDIES. If the Collateral
Agent has instituted any proceeding to enforce any right or remedy under this
Agreement, and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to such Collateral Agent, then and in
every such case the Seller, the Collateral Agent and each of the Secured Parties
shall, subject to any determination in such proceeding, be restored severally
and respectively to their former positions hereunder, and thereafter all rights
and remedies of the Secured Parties shall continue as though no such proceeding
had been instituted.
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Section 7.04. NO REMEDY EXCLUSIVE. No right or remedy herein
conferred upon or reserved to the Collateral Agent, the Controlling Party or
either of the Secured Parties is intended to be exclusive of any other right or
remedy, and every right or remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law, in equity or otherwise (but, in each case,
shall be subject to the provisions of this Agreement limiting such remedies),
and each and every right, power and remedy whether specifically herein given or
otherwise existing may be exercised from time to time and as often and in such
order as may be deemed expedient by the Controlling Party, and the exercise of
or the beginning of the exercise of any right or power or remedy shall not be
construed to be a waiver of the right to exercise at the same time or thereafter
any other right, power or remedy.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. FURTHER ASSURANCES. Each party hereto shall take such
action and deliver such instruments to any other party hereto, in addition to
the actions and instruments specifically provided for herein, as may be
reasonably requested or required to effectuate the purpose or provisions of this
Agreement or to confirm or perfect any transaction described or contemplated
herein.
Section 8.02. WAIVER. Any waiver by any party of any provision of
this Agreement or any right, remedy or option hereunder shall only prevent and
estop such party from thereafter enforcing such provision, right, remedy or
option if such waiver is given in writing and only as to the specific instance
and for the specific purpose for which such waiver was given. The failure or
refusal of any party hereto to insist in any one or more instances, or in a
course of dealing, upon the strict performance of any of the terms or provisions
of this Agreement by any party hereto or the partial exercise of any right,
remedy or option hereunder shall not be construed as a waiver or relinquishment
of any such term or provision, but the same shall continue in full force and
effect.
Section 8.03. AMENDMENTS; WAIVERS. No amendment, modification,
waiver or supplement to this Agreement or any provision of this Agreement shall
in any event be effective unless the same shall have been made or consented to
in writing by each of the parties hereto and each Rating Agency shall have
confirmed in writing that such amendment will not cause a reduction or
withdrawal of a rating on any Series; PROVIDED, HOWEVER, that, for so long as
Financial Security shall be the Controlling Party with respect to a Series,
amendments, modifications, waivers or supplements hereto relating to such
Series, the related Collateral or Spread Account or any requirement hereunder to
deposit or retain any amounts in such Spread Account or to distribute any
amounts therein as provided in Section 3.03 shall be effective if made or
consented to in writing by Financial Security, the Seller, OFL and the
Collateral Agent (the consent of which shall not be withheld or delayed with
respect to any amendment that does
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<PAGE>
not adversely affect the Collateral Agent) but shall in no circumstances require
the consent of the Trustee or the Certificateholders related to such Series or
any other Series.
Section 8.04. SEVERABILITY. In the event that any provision of this
Agreement or the application thereof to any party hereto or to any circumstance
or in any jurisdiction governing this Agreement shall, to any extent, be invalid
or unenforceable under any applicable statute, regulation or rule of law, then
such provision shall be deemed inoperative to the extent that it is invalid or
unenforceable and the remainder of this Agreement, and the application of any
such invalid or unenforceable provision to the parties, jurisdictions or
circumstances other than to whom or to which it is held invalid or
unenforceable, shall not be affected thereby nor shall the same affect the
validity or enforceability of any other provision of this Agreement. The
parties hereto further agree that the holding by any court of competent
jurisdiction that any remedy pursued by the Collateral Agent, or any of the
Secured Parties, hereunder is unavailable or unenforceable shall not affect in
any way the ability of the Collateral Agent or any of the Secured Parties to
pursue any other remedy available to it or them (subject, however, to the
provisions of this Agreement limiting such remedies).
Section 8.05. NONPETITION COVENANT. Notwithstanding any prior
termination of this Agreement, each of the parties hereto agrees that it shall
not, prior to one year and one day after the Final Scheduled Distribution Date
with respect to each Series, acquiesce, petition or otherwise invoke or cause
the Seller or OFL to invoke the process of the United States of America, any
State or other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government for the purpose of commencing or sustaining a case by or against
the Seller, OFL or the Trust under a Federal or state bankruptcy, insolvency or
similar law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Seller, OFL or the Trust or all
or any part of its property or assets or ordering the winding up or liquidation
of the affairs of the Seller, OFL or the Trust. The parties agree that damages
will be an inadequate remedy for breach of this covenant and that this covenant
may be specifically enforced.
Section 8.06. NOTICES. All notices, demands, certificates, requests
and communications hereunder ("notices") shall be in writing and shall be
effective (a) upon receipt when sent through the U.S. mails, registered or
certified mail, return receipt requested, postage prepaid, with such receipt to
be effective the date of delivery indicated on the return receipt, or (b) one
Business Day after delivery to an overnight courier, or (c) on the date
personally delivered to an Authorized Officer of the party to which sent, or (d)
on the date transmitted by legible telecopier transmission with a confirmation
of receipt, in all cases addressed to the recipient as follows:
(i) If to OFL:
Olympic Financial Ltd.
7825 Washington Avenue South, Suite 410
Minneapolis, Minnesota 55439-2435
Attention: Treasurer
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Telecopier No.: (612) 942-6730
(ii) If to the Seller:
Olympic Receivables Finance Corp.
7825 Washington Avenue South, Suite 410
Minneapolis, Minnesota 55439-2435
Attention: Treasurer
Telecopier No.: (612) 942-6730
(iii) If to Financial Security:
Financial Security Assurance Inc.
350 Park Avenue - 13th Floor
New York, New York 10022
Attention: Surveillance Department
Telecopier No.: (212) 339-3518
(212) 339-3529
(in each case in which notice or other communication to
Financial Security refers to a Default or a claim on the
Policy or in which failure on the part of Financial Security
to respond shall be deemed to constitute consent or
acceptance, then with a copy to the attention of the Senior
Vice President Surveillance)
(iv) If to the Trustee:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001-2697
Attention: Global Trust Services Group
(with respect to those Series for which Chase serves
as Trustee)
or
Norwest Bank Minnesota, National Association
6th Street and Marquette Avenue
Minneapolis, Minnesota 55479-0070
Attention: Corporate Trust Services - Asset Backed
Administration
Telecopier No.: (612) 667-3539
(with respect to those Series for which Norwest
serves as Trustee)
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(v) If to the Collateral Agent:
Norwest Bank Minnesota, National Association
6th Street and Marquette Avenue
Minneapolis, Minnesota 55479-0070
Attention: Corporate Trust Services - Asset Backed
Administration
Telecopier No.: (612) 667-3539
(vi) If to Moody's:
Moody's Investor's Service, Inc.
99 Church Street
New York, New York 10007
Telecopier No.: (212) 553-0344
(vii) If to Standard & Poor's:
Standard & Poor's Ratings Group
26 Broadway
New York, New York 10004
Telecopier No.: (212) 208-1582
A copy of each notice given hereunder to any party hereto shall also be given to
(without duplication) Financial Security, the Seller, the Trustee and the
Collateral Agent. Each party hereto may, by notice given in accordance herewith
to each of the other parties hereto, designate any further or different address
to which subsequent notices shall be sent.
Section 8.07. TERM OF THIS AGREEMENT. This Agreement shall take
effect on the Closing Date of the Series 1993-A Certificates and shall continue
in effect until the last Final Termination Date to occur with respect to each
Series. On such Final Termination Date, this Agreement shall terminate, all
obligations of the parties hereunder shall cease and terminate and the
Collateral, if any, held hereunder and not to be used or applied in discharge of
any obligations of the Seller or OFL in respect of the Secured Obligations or
otherwise under this Agreement, shall be released to and in favor of the Seller;
PROVIDED that the provisions of Sections 4.06, 4.07 and 8.05 shall survive any
termination of this Agreement and the release of any Collateral upon such
termination.
Section 8.08. ASSIGNMENTS: THIRD-PARTY RIGHTS; REINSURANCE.
(a) This Agreement shall be a continuing obligation of the parties hereto
and shall (i) be binding upon the parties and their respective successors and
assigns, and (ii) inure to the benefit of and be enforceable by each Secured
Party and the Collateral Agent, and by their respective successors, transferees
and assigns. Neither the Seller nor OFL may assign this Agreement, or delegate
any of its duties hereunder, without the prior written consent of the
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Controlling Party.
(b) Financial Security shall have the right (unless a Financial Security
Default shall have occurred and be continuing) to give participations in its
rights under this Agreement and to enter into contracts of reinsurance with
respect to any Policy issued in connection with a Series of Certificates and
each such participant or reinsurer shall be entitled to the benefit of any
representation, warranty, covenant and obligation of each party (other than
Financial Security) hereunder as if such participant or reinsurer was a party
hereto and, subject only to such agreement regarding such reinsurance or
participation, shall have the right to enforce the obligations of each such
other party directly hereunder; PROVIDED, HOWEVER, that no such reinsurance or
participation agreement or arrangement shall relieve Financial Security of its
obligations hereunder, under the Transaction Documents to which it is a party or
under any such Policy. In addition, nothing contained herein shall restrict
Financial Security from assigning to any Person pursuant to any liquidity
facility or credit facility any rights of Financial Security under this
Agreement or with respect to any real or personal property or other interests
pledged to Financial Security, or in which Federal Security has a security
interest, in connection with the transactions contemplated hereby. The terms of
any such assignment or participation shall contain an express acknowledgment by
such Person of the condition of this Section and the limitations of the rights
of Financial Security hereunder.
Section 8.09. CONSENT OF CONTROLLING PARTY. In the event that the
Controlling Party's consent is required under the terms hereof or under the
terms of any Transaction Document, it is understood and agreed that, except as
otherwise provided expressly herein, the determination whether to grant or
withhold such consent shall be made solely by the Controlling Party in its sole
discretion.
Section 8.10. TRIAL BY JURY WAIVED. Each of the parties hereto
waives, to the fullest extent permitted by law, any right it may have to a trial
by jury in respect of any litigation arising directly or indirectly out of,
under or in connection with this Agreement, any of the other Transaction
Documents or any of the transactions contemplated hereunder or thereunder. Each
of the parties hereto (a) certifies that no representative, agent or attorney of
any other party has represented, expressly or otherwise, that such other party
would not, in the event of litigation, seek to enforce the foregoing waiver and
(b) acknowledges that it has been induced to enter into this Agreement and the
other Transaction Documents to which it is a party, by among other things, this
waiver.
Section 8.11. GOVERNING LAW. This Agreement shall be governed by and
construed, and the obligations, rights and remedies of the parties hereunder
shall be determined, in accordance with the laws of the State of New York.
Section 8.12. CONSENTS TO JURISDICTION. Each of the parties hereto
irrevocably submits to the jurisdiction of the United States District Court for
the Southern District of New York, any court in the state of New York located in
the city and county of New York, and any appellate court from any thereof, in
any action, suit or proceeding brought against it and related to or in
connection with this Agreement, the other Transaction Documents or the
transactions
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contemplated hereunder or thereunder or for recognition or enforcement of any
judgment and each of the parties hereto irrevocably and unconditionally agrees
that all claims in respect of any such suit or action or proceeding may be heard
or determined in such New York State court or, to the extent permitted by law,
in such federal court. Each of the parties hereto agrees that a final judgment
in any such action, suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other manner provided
by law. To the extent permitted by applicable law, each of the parties hereby
waives and agrees not to assert by way of motion, as a defense or otherwise in
any such suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of such courts, that the suit, action or proceeding is
brought in an inconvenient forum, that the venue of the suit, action or
proceeding is improper or that this Agreement or any of the other Transaction
Documents or the subject matter hereof or thereof may not be litigated in or by
such courts. Each of OFL and the Seller hereby irrevocably appoints and
designates CT Corporation System, whose address is 1633 Broadway, New York, New
York 10019, as its true and lawful attorney and duly authorized agent for
acceptance of service of legal process. Each of OFL and the Seller agrees that
service of such process upon such Person shall constitute personal service of
such process upon it. Nothing contained in this Agreement shall limit or affect
the rights of any party hereto to serve process in any other manner permitted by
law or to start legal proceedings relating to any of the Transaction Documents
against OFL or the Seller or their respective property in the courts of any
jurisdiction.
Section 8.13. LIMITATION OF LIABILITY. It is expressly understood
and agreed by the parties hereto that (a) Norwest Bank Minnesota, National
Association is executing this Agreement (i) not in its individual capacity but
in its capacity as trustee of the Trusts pursuant to the Transaction Documents
and (ii) as Collateral Agent hereunder (b) in no case whatsoever shall Norwest
Bank Minnesota, National Association in its capacity as trustee of Trusts be
personally liable on, or for any loss in respect of, any of the statements,
representations, warranties, covenants, agreements or obligations of the Trust
hereunder, all such liability, if any, being expressly waived by the parties
hereto.
Section 8.14. DETERMINATION OF ADVERSE EFFECT. Any determination of
an adverse effect on the interest of the Secured Parties or the
Certificateholders shall be made without consideration of the availability of
funds under the Policies.
Section 8.15. COUNTERPARTS. This Agreement may be executed in two or
more counterparts by the parties hereto, and each such counterpart shall be
considered an original and all such counterparts shall constitute one and the
same instrument.
Section 8.16. HEADINGS. The headings of sections and paragraphs and
the Table of Contents contained in this Agreement are provided for convenience
only. They form no part of this Agreement and shall not affect its construction
or interpretation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as
amended and restated, as of the date set forth on the first page hereof.
ARCADIA FINANCIAL LTD.
By /s/ John A. Witham
--------------------------------------
Name:
Title:
ARCADIA RECEIVABLES FINANCE CORP.
By /s/ John A. Witham
--------------------------------------
Name:
Title:
FINANCIAL SECURITY ASSURANCE INC.
By /s/ Illegible
--------------------------------------
Authorized Officer
THE CHASE MANHATTAN BANK, as Trustee
By /s/ Vada Haight
--------------------------------------
Name: Vada Haight
Title: Assistant Vice President
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee
By /s/ John C. Weidner
--------------------------------------
Name: John C. Weidner
Title: Corporate Trust Officer
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Collateral Agent
By /s/ John C. Weidner
--------------------------------------
Name: John C. Weidner
Title: Corporate Trust Officer
<PAGE>
EXECUTION COPY
AMENDMENT
dated as of December 16, 1997
among
ARCADIA FINANCIAL LTD.
ARCADIA RECEIVABLES FINANCE CORP.
FINANCIAL SECURITY ASSURANCE INC.
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Collateral Agent
Series 1997-C Supplement dated as of September 18, 1997
Series 1997-B Supplement dated as of June 19, 1997
Series 1997-A Supplement dated as of March 20, 1997
Series 1996-D Supplement dated as of December 12, 1996
Series 1996-C Supplement dated as of September 12, 1996
Series 1996-B Supplement dated as of June 14, 1996
Series 1996-A Supplement dated as of March 14, 1996
Series 1995-E Supplement dated as of December 6, 1995
Series 1995-D Supplement dated as of September 21, 1995
Series 1995-C Supplement dated as of June 15, 1995
Series 1995-B Supplement dated as of March 15, 1995
Series 1995-A Supplement dated as of February 9, 1995
Series 1994-B Supplement dated as of September 23, 1994
to
Spread Account Agreement
dated as of March 25, 1993
as amended and restated as of December 16, 1997
<PAGE>
Amendment dated as of December 16, 1997 among ARCADIA FINANCIAL LTD.
(formerly known as Olympic Financial Ltd.), a Minnesota corporation ("AFL"),
ARCADIA RECEIVABLES FINANCE CORP. (formerly known as Olympic Receivables Finance
Corp.), a Delaware corporation (the "Seller"), FINANCIAL SECURITY ASSURANCE
INC., a New York stock insurance company ("Financial Security") and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, as Collateral Agent to the:
(1) Series 1997-C Supplement dated as of September 18, 1997 (the "Series
1997-C Supplement");
(2) Series 1997-B Supplement dated as of June 19, 1997 (the "Series 1997-B
Supplement");
(3) Series 1997-A Supplement dated as of March 20, 1997 (the "Series
1997-A Supplement");
(4) Series 1996-D Supplement dated as of December 12, 1996 (the "Series
1997-D Supplement");
(5) Series 1996-C Supplement dated as of September 12, 1996 (the "Series
1997-C Supplement");
(6) Series 1996-B Supplement dated as of June 14, 1996 (the "Series 1996-B
Supplement");
(7) Series 1996-A Supplement dated as of March 14, 1996 (the "Series
1996-A Supplement");
(8) Series 1995-E Supplement dated as of December 6, 1995 (the "Series
1995-E Supplement");
(9) Series 1995-D Supplement dated as of September 21, 1995 (the "Series
1995-D Supplement");
(10) Series 1995-C Supplement dated as of June 15, 1995 (the "Series 1995-C
Supplement");
(11) Series 1995-B Supplement dated as of March 15, 1995 (the "Series
1995-B Supplement");
(12) Series 1995-A Supplement dated as of February 9, 1995 (the "Series
1995-A Supplement"); and
(13) Series 1994-B Supplement dated as of September 23, 1994 (the "Series
1994-B Supplement")
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<PAGE>
to the Spread Account Agreement, dated as of March 25, 1993, as amended and
restated as of December 16, 1997 among AFL, the Seller, Financial Security and
Norwest Bank Minnesota, National Association as Trustee and as Collateral Agent
(the "Spread Account Agreement").
WHEREAS, Section 8.03 of the Spread Account Agreement permits
amendment of the Spread Account Agreement upon the terms and conditions
specified therein;
WHEREAS, the parties to the Spread Account Agreement (the "Parties")
have heretofore executed the Series Supplements;
WHEREAS, the Parties wish to amend the Series Supplements.
NOW, THEREFORE, the Parties agree that the Series Supplements are
hereby amended effective as of the date hereof as follows:
Section 1. DEFINITIONS.
Each term used but not defined herein shall have the meaning assigned
to such term in the Spread Account Agreement or in the relevant Series
Supplement thereto, and when used herein with respect to a particular Series
shall have the meaning assigned to such term of such Series.
Section 2. AMENDMENT OF THE SERIES 1997-C SUPPLEMENT, THE SERIES
1997-B SUPPLEMENT AND THE SERIES 1997-A SUPPLEMENT.
(a) Paragraph (i) of the definition of "Trigger Event" in Section 1.1
of each of the Series 1997-C Supplement, the Series 1997-B Supplement and the
Series 1997-A Supplement is amended by deleting the percentage specified therein
and replacing such percentage in each instance with the percentage corresponding
to the applicable Series specified under Column I of Schedule III.
(b) Paragraphs (ii) and (iii) of the definition of "Trigger Event" in
Section 1.1 of each of the Series 1997-C Supplement, the Series 1997-B
Supplement and the Series 1997-A Supplement are amended to read in their
entirety as follows:
(ii) with respect to any Determination Date, the Cumulative
Default Rate shall be equal to or greater than the percentage set
forth under the applicable Column of Schedule I corresponding to
such Determination Date;
(iii) with respect to any Determination Date, the Cumulative
Net Loss Rate shall be equal to or greater than the percentage
set forth under the applicable Column of Schedule II
corresponding to such Determination Date;
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Section 3. AMENDMENT OF THE SERIES 1996-D SUPPLEMENT, THE SERIES
1996-C SUPPLEMENT, THE SERIES 1996-B SUPPLEMENT, THE SERIES 1996-A SUPPLEMENT,
THE SERIES 1995-E SUPPLEMENT, THE SERIES 1995-D SUPPLEMENT, THE SERIES 1995-C
SUPPLEMENT, THE SERIES 1995-B SUPPLEMENT, THE SERIES 1995-A SUPPLEMENT AND THE
SERIES 1994-B SUPPLEMENT.
(a) Paragraph (ii) of the definition of "Trigger Event" in Section
1.1 of each of the Series 1996-D Supplement, the Series 1996-C Supplement, the
Series 1996-B Supplement, the Series 1996-A Supplement, the Series 1995-E
Supplement, the Series 1995-D Supplement, the Series 1995-C Supplement, the
Series 1995-B Supplement, the Series 1995-A Supplement and the Series 1994-B
Supplement is amended by deleting the percentage specified therein and replacing
such percentage in each instance with the percentage corresponding to the
applicable Series specified under Column I of Schedule III.
(b) Paragraphs (iii) and (iv) of the definition of "Trigger Event" in
Section 1.1 of the Series 1996-D Supplement, the Series 1996-C Supplement, the
Series 1996-B Supplement, the Series 1996-A Supplement, the Series 1995-E
Supplement, the Series 1995-D Supplement, the Series 1995-C Supplement, the
Series 1995-B Supplement, the Series 1995-A Supplement and the Series 1994-B
Supplement are amended to read in their entirety as follows:
(iii) with respect to any Determination Date, the Cumulative
Default Rate shall be equal to or greater than the percentage set
forth under the applicable Column of Schedule I corresponding to
such Determination Date;
(iv) with respect to any Determination Date, the Cumulative Net
Loss Rate shall be equal to or greater than the percentage set
forth under the applicable Column of Schedule II corresponding to
such Determination Date;
Section 4. SCHEDULES.
For purposes of the above amendments, "Schedule I", "Schedule II" and
"Schedule III" are the schedules attached hereto as Schedule I, Schedule II and
Schedule III, respectively.
Section 5. COUNTERPARTS.
This Amendment to the Series Supplements may be executed in several
counterparts, each of which shall be deemed an original hereof and all of which,
when taken together, shall constitute one and the same Amendment to the Series
Supplements.
Section 6. RATIFICATION OF SPREAD ACCOUNT AGREEMENT.
Except as provided herein, all provisions, terms and conditions of the
Spread Account Agreement, including each Series Supplement, shall remain in full
force and effect.
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As amended hereby, the Spread Account Agreement, including each Series
Supplement, is ratified and confirmed in all respects.
Section 7. TERMINATION.
The parties agree that this Amendment shall be in effect only for so
long as Financial Security shall not have delivered a notice to AFL and the
Collateral Agent specifying that this Amendment shall cease to be in effect
after the date specified in the notice. Upon such termination, the default and
loss triggers in effect immediately before the effectiveness of this amendment
(the "Current Triggers") shall be in effect from and after the date of such
termination.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date set forth on the first page hereof.
ARCADIA FINANCIAL LTD.
By /s/ John A. Witham
--------------------------------------
John A. Witham
Executive Vice President
and Chief Financial Officer
ARCADIA RECEIVABLES FINANCE CORP.
By /s/ John A. Witham
--------------------------------------
John A. Witham
Executive Vice President
and Chief Financial Officer
FINANCIAL SECURITY ASSURANCE INC.
By /s/ illegible
--------------------------------------
Authorized Officer
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Collateral Agent
By /s/ John C. Weidner
--------------------------------------
John C. Weidner
Corporate Trust Officer
<PAGE>
SCHEDULE I
CUMULATIVE DEFAULT RATE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Column A B C D E F
- ----------------------------------------------------------------------
Month 1997-C 1997-B 1997-A 1996-D 1996-C 1996-B
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 to 3 2.08% 2.08% 2.04% 1.99% 1.95% 1.93%
3 to 6 4.15% 4.15% 4.08% 3.97% 3.90% 3.86%
6 to 9 6.01% 6.01% 5.91% 5.75% 5.65% 5.58%
9 to 12 7.68% 7.68% 7.55% 7.34% 7.21% 7.13%
- ----------------------------------------------------------------------
12 to 15 9.89% 9.89% 9.72% 9.46% 9.29% 9.18%
15 to 18 11.90% 11.90% 11.70% 11.38% 11.18% 11.05%
18 to 21 13.66% 13.66% 13.42% 13.06% 12.82% 12.68%
- ----------------------------------------------------------------------
21 to 24 15.18% 15.18% 14.92% 14.52% 14.26% 14.10%
24 to 27 15.98% 15.98% 15.70% 15.28% 15.00% 14.83%
27 to 30 16.62% 16.62% 16.33% 15.89% 15.61% 15.43%
30 to 33 17.18% 17.18% 16.89% 16.43% 16.13% 15.95%
- ----------------------------------------------------------------------
33 to 36 17.66% 17.66% 17.36% 16.89% 16.59% 16.40%
36 to 39 17.89% 17.89% 17.59% 17.11% 16.81% 16.61%
39 to 42 18.07% 18.07% 17.77% 17.28% 16.97% 16.78%
42 to 45 18.23% 18.23% 17.92% 17.43% 17.12% 16.92%
- ----------------------------------------------------------------------
45 to 48 18.36% 18.36% 18.04% 17.55% 17.24% 17.04%
48 to 51 18.46% 18.46% 18.14% 17.65% 17.34% 17.14%
51 to 54 18.54% 18.54% 18.23% 17.73% 17.41% 17.22%
54 to 57 18.61% 18.61% 18.29% 17.79% 17.48% 17.28%
57 to 60 18.66% 18.66% 18.34% 17.84% 17.52% 17.32%
- ----------------------------------------------------------------------
60 to 63 18.69% 18.69% 18.37% 17.87% 17.55% 17.35%
63 to 66 18.71% 18.71% 18.39% 17.89% 17.57% 17.37%
66 to 69 18.72% 18.72% 18.40% 17.90% 17.59% 17.39%
69 to 72 18.73% 18.73% 18.41% 17.91% 17.59% 17.39%
- ----------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
Column G H I J K L M
- --------------------------------------------------------------------------------
Month 1996-A 1995-E 1995-D 1995-C 1995-B 1995-A 1994-B
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0 to 3 1.80% 1.77% 1.70% 1.67% 1.68% 1.64% 1.31%
3 to 6 3.60% 3.53% 3.40% 3.33% 3.35% 3.28% 2.63%
6 to 9 5.21% 5.11% 4.92% 4.82% 4.85% 4.75% 3.80%
9 to 12 6.66% 6.53 % 6.28% 6.16% 6.19% 6.06% 4.86%
- --------------------------------------------------------------------------------
12 to 15 8.57% 8.41% 8.09% 7.93% 7.97% 7.81% 6.25%
15 to 18 10.31% 10.12% 9.73% 9.54% 9.59% 9.39% 7.52%
18 to 21 11.83% 11.61% 11.17% 10.95% 11.01% 10.78% 8.63%
- --------------------------------------------------------------------------------
21 to 24 13.15% 12.90% 12.42% 12.17% 12.24% 11.98% 9.60%
24 to 27 13.84% 13.58% 13.07% 12.81% 12.88% 12.61% 10.10%
27 to 30 14.40% 14.13% 13.59% 13.33% 13.40% 13.11% 10.51%
30 to 33 14.89% 14.60% 14.05% 13.78% 13.85% 13.56% 10.86%
- --------------------------------------------------------------------------------
33 to 36 15.31% 15.01% 14.45% 14.16% 14.24% 13.94% 11.17%
36 to 39 15.51% 15.21% 14.64% 14.35% 14.43% 14.12% 11.31%
39 to 42 15.66% 15.36% 14.78% 14.49% 14.57% 14.26% 11.43%
42 to 45 15.79% 15.49% 14.91% 14.62% 14.70% 14.38% 11.52%
- --------------------------------------------------------------------------------
45 to 48 15.91% 15.60% 15.01% 14.72% 14.80% 14.48% 11.60%
48 to 51 16.00% 15.69% 15.10% 14.80% 14.88% 14.57% 11.67%
51 to 54 16.07% 15.76% 15.17% 14.87% 14.95% 14.63% 11.72%
54 to 57 16.12% 15.82% 15.22% 14.92% 15.00% 14.68% 11.76%
57 to 60 16.17% 15.86% 15.26% 14.96% 15.04% 14.72% 11.79%
- --------------------------------------------------------------------------------
60 to 63 16.19% 15.89% 15.29% 14.99% 15.07% 14.75% 11.81%
63 to 66 16.21% 15.90% 15.30% 15.01% 15.09% 14.77% 11.83%
66 to 69 16.23% 15.92% 15.32% 15.02% 15.10% 14.78% 11.84%
69 to 72 16.23% 15.92% 15.32% 15.02% 15.10% 14.78% 11.84%
- --------------------------------------------------------------------------------
</TABLE>
I-1
<PAGE>
SCHEDULE II
CUMULATIVE NET LOSS RATE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Column A B C D E F
- ----------------------------------------------------------------------
Month 1997-C 1997-B 1997-A 1996-D 1996-C 1996-B
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 to 3 0.86% 0.86% 0.85% 0.83% 0.83% 0.82%
3 to 6 1.72% 1.72% 1.70% 1.65% 1.65% 1.65%
6 to 9 2.49% 2.49% 2.46% 2.39% 2.39% 2.39%
9 to 12 3.18% 3.18% 3.14% 3.05% 3.05% 3.05%
- ----------------------------------------------------------------------
12 to 15 4.09% 4.09% 4.04% 3.93% 3.93% 3.92%
15 to 18 4.92% 4.92% 4.86% 4.73% 4.73% 4.72%
18 to 21 5.65% 5.65% 5.58% 5.43% 5.43% 5.42%
21 to 24 6.28% 6.28% 6.20% 6.04% 6.04% 6.02%
- ----------------------------------------------------------------------
24 to 27 6.61% 6.61% 6.52% 6.35% 6.35% 6.34%
27 to 30 6.88% 6.88% 6.79% 6.61% 6.61% 6.59%
30 to 33 7.11% 7.11% 7.02% 6.83% 6.83% 6.81%
33 to 36 7.31% 7.31% 7.21% 7.03% 7.03% 7.01%
- ----------------------------------------------------------------------
36 to 39 7.40% 7.40% 7.31% 7.12% 7.12% 7.10%
39 to 42 7.48% 7.48% 7.38% 7.19% 7.19% 7.17%
42 to 45 7.54% 7.54% 7.44% 7.25% 7.25% 7.23%
45 to 48 7.59% 7.59% 7.50% 7.30% 7.30% 7.28%
- ----------------------------------------------------------------------
48 to 51 7.64% 7.64% 7.54% 7.34% 7.34% 7.32%
51 to 54 7.67% 7.67% 7.57% 7.38% 7.38% 7.36%
54 to 57 7.70% 7.70% 7.60% 7.40% 7.40% 7.38%
57 to 60 7.72% 7.72% 7.62% 7.42% 7.42% 7.40%
- ----------------------------------------------------------------------
60 to 63 7.73% 7.73% 7.63% 7.43% 7.43% 7.41%
63 to 66 7.74% 7.74% 7.64% 7.44% 7.44% 7.42%
66 to 69 7.75% 7.75% 7.65% 7.45% 7.45% 7.43%
69 to 72 7.75% 7.75% 7.65% 7.45% 7.45% 7.43%
- ----------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
Column G H I J K L M
- --------------------------------------------------------------------------------
Month 1996-A 1995-E 1995-D 1995-C 1995-B 1995-A 1994-B
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0 to 3 0.80% 0.78% 0.75% 0.73% 0.73% 0.73% 0.60%
3 to 6 1.60% 1.57% 1.50% 1.47% 1.47% 1.45% 1.19%
6 to 9 2.32% 2.27% 2.18% 2.13% 2.12% 2.10% 1.73%
9 to 12 2.96% 2.90% 2.78% 2.71% 2.71% 2.69% 2.21%
- --------------------------------------------------------------------------------
12 to 15 3.81% 3.73% 3.58% 3.50% 3.49% 3.46% 2.84%
15 to 18 4.58% 4.49% 4.31% 4.21% 4.20% 4.16% 3.42%
18 to 21 5.26% 5.15% 4.94% 4.83% 4.82% 4.78% 3.92%
21 to 24 5.84% 5.72% 5.50% 5.37% 5.36% 5.31% 4.36%
- --------------------------------------------------------------------------------
24 to 27 6.15% 6.02% 5.78% 5.65% 5.64% 5.59% 4.59%
27 to 30 6.40% 6.26% 6.02% 5.87% 5.86% 5.81% 4.77%
30 to 33 6.61% 6.48% 6.22% 6.07% 6.06% 6.01% 4.93%
33 to 36 6.80% 6.66% 6.39% 6.24% 6.23% 6.18% 5.07%
- --------------------------------------------------------------------------------
36 to 39 6.89% 6.75% 6.48% 6.32% 6.32% 6.26% 5.14%
39 to 42 6.96% 6.81% 6.54% 6.39% 6.38% 6.32% 5.19%
42 to 45 7.02% 6.87% 6.60% 6.44% 6.43% 6.37% 5.24%
45 to 48 7.07% 6.92% 6.64% 6.49% 6.48% 6.42% 5.27%
- --------------------------------------------------------------------------------
48 to 51 7.11% 6.96% 6.68% 6.52% 6.51% 6.46% 5.30%
51 to 54 7.14% 6.99% 6.71% 6.55% 6.54% 6.48% 5.33%
54 to 57 7.16% 7.01% 6.74% 6.58% 6.57% 6.51% 5.35%
57 to 60 7.18% 7.03% 6.75% 6.59% 6.58% 6.52% 5.36%
- --------------------------------------------------------------------------------
60 to 63 7.19% 7.04% 6.77% 6.61% 6.60% 6.54% 5.37%
63 to 66 7.20% 7.05% 6.77% 6.61% 6.60% 6.54% 5.37%
66 to 69 7.21% 7.06% 6.78% 6.62% 6.61% 6.55% 5.38%
69 to 72 7.21% 7.06% 6.78% 6.62% 6.61% 6.55% 5.38%
- --------------------------------------------------------------------------------
</TABLE>
II-1
<PAGE>
SCHEDULE III
AVERAGE DELINQUENCY RATES
SERIES DESIGNATION COLUMN I
------------------ --------
1997-C 7.64%
1997-B 7.44
1997-A 7.33
1996-D 7.17
1996-C 6.98
1996-B 6.89
1996-A 6.77
1995-E 6.69
1995-D 6.54
1995-C 6.48
1995-B 6.52
1995-A 6.40
1994-B 6.17
III-1
<PAGE>
EXECUTION COPY
SERIES 1997-D SUPPLEMENT
dated as of December 16, 1997
to
SPREAD ACCOUNT AGREEMENT
dated as of March 25, 1993,
as amended and restated
as of December 16, 1997
among
ARCADIA FINANCIAL LTD.
ARCADIA RECEIVABLES FINANCE CORP.
FINANCIAL SECURITY ASSURANCE INC.
THE CHASE MANHATTAN BANK
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
<PAGE>
TABLE OF CONTENTS
Page
Article I.
DEFINITIONS
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Rules of Interpretation. . . . . . . . . . . . . . . . . 5
Article II.
CREDIT ENHANCEMENT FEE; SERIES SUPPLEMENTS; THE COLLATERAL
Section 2.1 Series 1997-D Credit Enhancement Fee . . . . . . . . . . 5
Section 2.2 Series Supplements . . . . . . . . . . . . . . . . . . . 6
Section 2.3 Grant of Security Interest by Arcadia Financial and the
Seller.. . . . . . . . . . . . . . . . . . . . . . . . . 6
Article III.
SPREAD ACCOUNT
Section 3.1 Establishment of Series 1997-D Spread Account; Initial
Deposit into Series 1997-D Spread Account. . . . . . . . 7
Section 3.2 Spread Account Additional Deposits . . . . . . . . . . . 7
Article IV.
MISCELLANEOUS
Section 4.1 Further Assurances . . . . . . . . . . . . . . . . . . . 7
Section 4.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . 7
Section 4.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . 8
Schedule I
<PAGE>
SERIES 1997-D SUPPLEMENT
SERIES 1997-D SUPPLEMENT, dated as of December 16, 1997 (the "Series
1997-D Supplement"), by and among ARCADIA FINANCIAL LTD., a Minnesota
corporation ("Arcadia Financial"), ARCADIA RECEIVABLES FINANCE CORP., a
Delaware corporation (the "Seller"), FINANCIAL SECURITY ASSURANCE INC., a New
York stock insurance company ("Financial Security"), THE CHASE MANHATTAN BANK,
a national banking association, in its capacity as Indenture Trustee under the
Indenture and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Collateral
Agent hereunder.
RECITALS
1. The parties hereto have previously entered into a Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of December
16, 1997 (the "Spread Account Agreement"), and, as contemplated by
Section 2.02 of the Spread Account Agreement, this Series 1997-D Supplement
constitutes a Series Supplement to the Spread Account Agreement so that
hereafter this Series 1997-D Supplement shall form a part of the Spread
Account Agreement for all purposes thereof, and all references herein and
hereafter to the Spread Account Agreement shall mean the Spread Account
Agreement, as supplemented hereby.
2. Arcadia Automobile Receivables Trust, 1997-D (the "Series 1997-D
Trust") is being formed contemporaneously herewith pursuant to the
Series 1997-D Trust Agreement (as defined herein).
3. Pursuant to the Series 1997-D Sale and Servicing Agreement, the
Seller is selling to the Series 1997-D Trust all of its right, title and
interest in and to the Initial Receivables (as defined in the Series 1997-D
Sale and Servicing Agreement) and certain other Trust Property (as defined in
the Series 1997-D Trust Agreement).
4. Pursuant to the Series 1997-D Indenture, the Series 1997-D Trust is
issuing the Series 1997-D Notes (as defined herein).
5. The Seller has requested that Financial Security issue the Series
1997-D Note Policy to the Trustee to guarantee payment of the Scheduled
Payments (as deemed in such Policy) on each Payment Date in respect of the
Series 1997-D Notes.
6. In partial consideration of the issuance of the Series 1997-D Note
Policy, the Seller has agreed that Financial Security shall have certain
rights as Controlling Party, to the extent set forth in the Spread Account
Agreement and the Series 1997-D Indenture.
7. The Seller is a wholly owned special purpose subsidiary of Arcadia
Financial. The Series 1997-D Trust has agreed to pay the Series 1997-D Credit
Enhancement Fee to the Seller in
<PAGE>
consideration of the obligations of the Seller and Arcadia Financial pursuant
hereto and in consideration of the obligations of Arcadia Financial pursuant
to the Series 1997-D Insurance Agreement (such obligations forming part of the
Series 1997-D Insurer Secured Obligations as referred to herein). The Series
1997-D Insurer Secured Obligations form part of the consideration to Financial
Security for its issuance of the Series 1997-D Policy.
8. In order to secure the performance of the Series 1997-D Secured
Obligations, to further effect and enforce the subordination provisions to
which the Series 1997-D Credit Enhancement Fee is subject, and in
consideration of the receipt of the Series 1997-D Credit Enhancement Fee,
Arcadia Financial and the Seller have agreed to pledge the Series 1997-D
Collateral as Collateral to the Collateral Agent for the benefit of Financial
Security and for the benefit of the Trustee on behalf of the Trust, upon the
terms and conditions set forth herein.
AGREEMENTS
In consideration of the premises, and for other good and valuable
consideration, the adequacy, receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 DEFINITIONS. All terms defined in Section 1.1 of the
Series 1997-D Sale and Servicing Agreement shall have the same meaning with
respect to this Series 1997-D Supplement. The following terms shall have the
following meanings:
"COLLECTION ACCOUNT SHORTFALL" means, with respect to Series 1997-D and
any Distribution Date, the Deficiency Claim Amount, as defined in the Series
1997-D Sale and Servicing Agreement, with respect to such Distribution Date.
"DEEMED CURED" means with respect to Series 1997-D, (a) with respect to
an event that has occurred pursuant to clause (A)(i) of the definition of
Trigger Event, as of a Determination Date with respect to Series 1997-D, that
no event as specified in clause (A)(i) of the definition thereof with respect
to such Series shall have occurred as of such Determination Date or as of any
of the five consecutively preceding Determination Dates, and (b) with respect
to an event that has occurred pursuant to clause (A)(ii) or clause (A)(iii) of
the definition of Trigger Event, as of the next Determination Date which
occurs in a calendar month which is a multiple of three months succeeding the
Series 1997-D Closing Date, that no event specified in clause (A)(ii) or
clause (A)(iii) of the definition of Trigger Event with respect to such Series
shall have occurred as of such Determination Date.
"INITIAL PRINCIPAL AMOUNT" means $600,000,000 with respect to Series
1997-D.
2
<PAGE>
"INITIAL SPREAD ACCOUNT DEPOSIT" means $0 for Series 1997-D.
"INITIAL SPREAD ACCOUNT MAXIMUM AMOUNT" means, with respect to Series
1997-D and any Distribution Date, an amount equal to the greater of (i) 7% of
the Series 1997-D Balance as of the close of business on such Distribution
Date and (ii) the Spread Account Minimum Amount as of the close of business on
such Distribution Date.
"SERIES 1997-D BALANCE" means, with respect to Series 1997-D and any
Distribution Date, the aggregate principal amount of the Series 1997-D Notes
as of such Distribution Date (after giving effect to the distributions in
respect of principal on the Notes made on such Distribution Date).
"SERIES 1997-D COLLATERAL" has the meaning specified in Section 2.3(a)
hereof.
"SERIES 1997-D CREDIT ENHANCEMENT FEE" means the amount distributable on
each Distribution Date pursuant to Section 4.6(viii) and (ix) of the Series
1997-D Sale and Servicing Agreement.
"SERIES 1997-D INDENTURE" means the Indenture, dated as of December 1,
1997, among the Series 1997-D Trust, the Trustee and the Indenture Collateral
Agent.
"SERIES 1997-D NOTE POLICY" means the financial guaranty insurance policy
issued by Financial Security with respect to the Series 1997-D Notes.
"SERIES 1997-D NOTES" means the Class A-1, Class A-2, Class A-3 and Class
A-4 Notes issued pursuant to the Series 1997-D Indenture.
"SERIES 1997-D OWNER TRUSTEE" means Wilmington Trust Company, not in its
individual capacity but solely as Owner Trustee, or its successor in interest,
and any successor Owner Trustee appointed as provided in the Series 1997-D
Trust Agreement.
"SERIES 1997-D RECEIVABLE" means each Receivable referenced on the
Schedule of Receivables attached to the Series 1997-D Sale and Servicing
Agreement, as supplemented from time to time during the Funding Period by one
or more Subsequent Transfer Agreements.
"SERIES 1997-D RESERVE ACCOUNT" means the Reserve Account established
pursuant to Section 4.1(d) of the Series 1997-D Sale and Servicing Agreement.
"SERIES 1997-D SALE AND SERVICING AGREEMENT" means the Sale and Servicing
Agreement, dated as of December 1, 1997, among the Series 1997-D Trust,
Arcadia Financial, in its individual capacity and as Servicer, the Seller and
the Backup Servicer, as such agreement may be supplemented, amended or
modified from time to time.
"SERIES 1997-D SECURED OBLIGATIONS" means the Insurer Secured Obligations
and the Trustee Secured Obligations with respect to Series 1997-D.
3
<PAGE>
"SERIES 1997-D SPREAD ACCOUNT" means the Spread Account established
pursuant to Section 3.1(a) hereof.
"SERIES 1997-D SUPPLEMENT" means this Series 1997-D Supplement which
constitutes a Series Supplement to the Spread Account Agreement.
"SERIES 1997-D TRUST AGREEMENT" means the Trust Agreement, dated as of
December 1, 1997, among the Seller, Financial Security and the Series 1997-D
Owner Trustee.
"SPREAD ACCOUNT ADDITIONAL DEPOSIT" means, with respect to Series 1997-D
and any Subsequent Transfer Date, an amount equal to 0.00% of the aggregate
Principal Balance (as of the related Subsequent Cutoff Date) of the Subsequent
Receivables being transferred to the Series 1997-D Trust on such Subsequent
Transfer Date or such greater amount as required by the Rating Agencies to
confirm that the rating assigned to the Series 1997-D Notes will be in the
highest category by such Rating Agencies.
"SPREAD ACCOUNT MAXIMUM AMOUNT" means, with respect to Series 1997-D and
any Distribution Date:
(i) if no Insurance Agreement Event of Default with respect to
Series 1997-D has occurred and is continuing, no Capture Event has
occurred and is continuing, no Trigger Event has occurred on the related
Determination Date, and if any Trigger Event with respect to Series
1997-D has occurred as of a prior Determination Date, such Trigger Event
is Deemed Cured as of the related Determination Date, the Initial Spread
Account Maximum Amount with respect to Series 1997-D and such
Distribution Date;
(ii) if an event specified in clause (A) of the definition of
Trigger Event with respect to Series 1997-D has occurred as of the
Determination Date or has occurred as of a prior Distribution Date (and
whether or not a Trigger Event shall occur or shall have occurred in
connection with such event), and such event is not Deemed Cured as of the
related Determination Date and no Insurance Agreement Event of Default
with respect to Series 1997-D has occurred and is continuing and no
Capture Event has occurred and is continuing, the Spread Account Maximum
Amount shall be equal to the greater of (i) 10% of the Series 1997-D
Balance as of the close of business on such Distribution Date and
(ii) the Spread Account Minimum Amount as of the close of business on
such Distribution Date; or
(iii) if (A) an Insurance Agreement Event of Default with respect to
Series 1997-D has occurred and is continuing or (B) a Capture Event has
occurred and is continuing as of the related Determination Date, the
Spread Account Maximum Amount shall be equal to the greater of (i) 25% of
the Series 1997-D Balance as of the close of business on such
Distribution Date and (ii) the Spread Account Minimum Amount as of the
close of business on such Distribution Date.
"SPREAD ACCOUNT MINIMUM AMOUNT" means, with respect to Series 1997-D and
any Distribution Date, an amount equal to the greater of:
4
<PAGE>
(i) $100,000, and
(ii) the lesser of:
(A) 1.5% of the Initial Principal Amount of Series 1997-D, and
(B) the Series 1997-D Balance.
"TRIGGER EVENT" means, with respect to Series 1997-D and as of a
Determination Date, the occurrence of any of the events specified in clause
(A) together with the occurrence of the event specified in clause (B):
(A) (i) the Average Delinquency Ratio for such Determination Date shall
be 7.75% or greater;
(ii) with respect to any Determination Date, the Cumulative Default
Rate shall be equal to or greater than the percentage set forth
in Column A of Schedule I attached hereto corresponding to such
Determination Date;
(iii) with respect to any Determination Date, the Cumulative Net
Loss Rate shall be equal to or greater than the percentage set
forth in Column B of Schedule I attached hereto corresponding
to such Determination Date;
(B) The amount specified with respect to such Series in the last
sentence of Section 2.09(d) of the Spread Account Agreement is
positive on such Determination Date, and such amount has not been
deposited in the related Tag Account on such Determination Date.
Section 1.2 RULES OF INTERPRETATION. The terms "hereof,"
"herein," "hereto" or "hereunder," unless otherwise modified by more specific
reference, shall refer to this Series 1997-D Supplement. Unless otherwise
indicated in context, the terms "Article," "Section" or "Exhibit" shall refer
to an Article or Section of, or Exhibit to, this Series 1997-D Supplement. The
definition of a term shall include the singular, the plural, the past, the
present, the future, the active and the passive forms of such term. A term
defined herein and used herein preceded by a Series designation, shall mean
such term as it relates to the Series designated.
ARTICLE II.
CREDIT ENHANCEMENT FEE; SERIES SUPPLEMENTS; THE COLLATERAL
Section 2.1 SERIES 1997-D CREDIT ENHANCEMENT FEE. The Series
1997-D Sale and Servicing Agreement provides for the payment to the Seller of
the Series 1997-D Credit Enhancement Fee, to be paid to the Seller by
distribution of such amounts to the Collateral Agent for deposit and
distribution pursuant to this Agreement. The Seller and Arcadia Financial
hereby agree that payment of the Series 1997-D Credit Enhancement Fee in the
manner and subject to the conditions set forth herein and in the Series 1997-D
Sale and Servicing Agreement is
5
<PAGE>
adequate consideration and the exclusive consideration to be received by the
Seller or Arcadia Financial for the obligations of the Seller pursuant hereto
and the obligations of Arcadia Financial pursuant hereto (including, without
limitation, the transfer by the Seller to the Collateral Agent of the Initial
Spread Account Deposit with respect to Series 1997-D) and pursuant to the
Series 1997-D Insurance Agreement. The Seller and Arcadia Financial hereby
agree with the Trustee and with Financial Security that payment of the Series
1997-D Credit Enhancement Fee to the Seller is expressly conditioned on
subordination of the Series 1997-D Credit Enhancement Fee to payments on the
Notes (if any) and Certificates of any Series, payments of amounts due to
Financial Security and the other obligations of the Trusts, in each case to
the extent provided in Section 4.6 of the Standard Terms and Conditions or
Section 4.6 of the related Sale and Servicing Agreement, as applicable, and
Section 3.03 of the Spread Account Agreement, and the Security Interest of the
Secured Parties in the Series 1997-D Collateral is intended to effect and
enforce such subordination and to provide security for the Series 1997-D
Secured Obligations and subject to the terms hereof the Secured Obligations
with respect to other Series.
Section 2.2 SERIES SUPPLEMENTS. As provided in and subject to
the conditions specified in Section 2.02 of the Spread Account Agreement, the
parties hereto are entering into this Series 1997-D Supplement with respect to
the Series 1997-D Securities.
Section 2.3 GRANT OF SECURITY INTEREST BY ARCADIA FINANCIAL AND
THE SELLER.
(a) In order to secure the performance of the Secured Obligations
with respect to each Series, the Seller (and Arcadia Financial, to the extent
it may have any rights therein) hereby pledges, assigns, grants, transfers and
conveys to the Collateral Agent, on behalf of and for the benefit of the
Secured Parties to secure the Secured Obligations, a lien on and security
interest in (which lien and security interest is intended to be prior to all
other liens, security interests or other encumbrances), all of its right,
title and interest in and to the following (all being collectively referred to
herein as the "Series 1997-D Collateral"):
(i) the Series 1997-D Credit Enhancement Fee and all rights and
remedies that the Seller may have to enforce payment of the Series 1997-D
Credit Enhancement Fee whether under the Series 1997-D Sale and Servicing
Agreement or otherwise;
(ii) the Series 1997-D Spread Account established pursuant to
Section 3.1 of this Series 1997-D Supplement and Section 3.01 of the
Spread Account Agreement, and each other account owned by the Seller and
maintained by the Collateral Agent (including, without limitation, all
monies, checks, securities, investments and other documents from time to
time held in or evidencing any such accounts);
(iii) all of the Seller's right, title and interest in and to
investments made with proceeds of the property described in clauses
(i) and (ii) above, or made with amounts on deposit in the Series 1997-D
Spread Account; and
(iv) all distributions, revenues, products, substitutions, benefits,
profits and proceeds, in whatever form, of any of the foregoing.
6
<PAGE>
(b) In order to effectuate the provisions and purposes of this
Series 1997-D Supplement, including for the purpose of perfecting the security
interests granted hereunder, the Seller represents and warrants that it has,
prior to the execution of this Series 1997-D Supplement, executed and filed an
appropriate Uniform Commercial Code financing statement in Minnesota
sufficient to ensure that the Collateral Agent, as agent for the Secured
Parties, has a first priority perfected security interest in all Series 1997-D
Collateral which can be perfected by the filing of a financing statement.
ARTICLE III.
SPREAD ACCOUNT
Section 3.1 ESTABLISHMENT OF SERIES 1997-D SPREAD ACCOUNT;
INITIAL DEPOSIT INTO SERIES 1997-D SPREAD ACCOUNT.
(a) On or prior to the Closing Date, the Collateral Agent shall
establish with respect to Series 1997-D, at its office or at another
depository institution or trust company, an Eligible Account, designated
"Spread Account-Series 1997-D-Norwest Bank Minnesota, National Association, as
Collateral Agent for Financial Security Assurance Inc. and another Secured
Party" (the "Series 1997-D Spread Account").
(b) On the Closing Date relating to Series 1997-D, the Collateral
Agent shall deposit the Initial Spread Account Deposit with respect to Series
1997-D received from the Seller into the Series 1997-D Spread Account.
Section 3.2 SPREAD ACCOUNT ADDITIONAL DEPOSITS. On each
Subsequent Transfer Date, the Series 1997-D Trust will, pursuant to Section
2.4 of the Series 1997-D Sale and Servicing Agreement, deliver on behalf of
the Seller the Spread Account Additional Deposit for such Subsequent Transfer
Date to the Collateral Agent. The Collateral Agent shall deposit each such
Spread Account Additional Deposit received from the Series 1997-D Trust into
the Series 1997-D Spread Account.
ARTICLE IV.
MISCELLANEOUS
Section 4.1 FURTHER ASSURANCES. Each party hereto shall take
such action and deliver such instruments to any other party hereto, in
addition to the actions and instruments specifically provided for herein, as
may be reasonably requested or required to effectuate the purpose or
provisions of this Series 1997-D Supplement or to confirm or perfect any
transaction described or contemplated herein.
Section 4.2 GOVERNING LAW. This Series 1997-D Supplement shall
be governed by and construed, and the obligations, rights and remedies of the
parties hereunder shall be determined, in accordance with the laws of the
State of New York.
7
<PAGE>
Section 4.3 COUNTERPARTS. This Series 1997-D Supplement may be
executed in two or more counterparts by the parties hereto, and each such
counterpart shall be considered an original and all such counterparts shall
constitute one and the same instrument.
Section 4.4 HEADINGS. The headings of sections and paragraphs
and the Table of Contents contained in this Series 1997-D Supplement are
provided for convenience only. They form no part of this Series 1997-D
Supplement and shall not affect its construction or interpretation.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Series 1997-D
Supplement as of the date set forth on the first page hereof.
ARCADIA FINANCIAL LTD.
By /s/ John A. Witham
------------------------------------------
Name: John A. Witham
Title: Executive Vice President and Chief
Financial Officer
ARCADIA RECEIVABLES FINANCE CORP.
By /s/ John A. Witham
------------------------------------------
Name: John A. Witham
Title: Senior Vice President and Chief
Financial Officer
FINANCIAL SECURITY ASSURANCE INC.
By /s/ illegible
------------------------------------------
Authorized Officer
THE CHASE MANHATTAN BANK, as Trustee
By /s/ Vada Haight
------------------------------------------
Vada Haight
Assistant Vice President
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Collateral Agent
By /s/ John C. Weidner
------------------------------------------
Name: John C. Weidner
Title: Corporate Trust Officer
9
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Determination Date(*) Cumulative Default Rate Cumulative Net Loss Rate
(month) (Column A) (Column B)
<S> <C> <C>
0 to 3 2.11% 0.88%
3 to 6 4.21% 1.76%
6 to 9 6.10% 2.55%
9 to 12 7.79% 3.26%
12 to 15 10.03% 4.20%
15 to 18 12.07% 5.05%
18 to 21 13.85% 5.80%
21 to 24 15.40% 6.44%
24 to 27 16.21% 6.78%
27 to 30 16.86% 7.05%
30 to 33 17.43% 7.29%
33 to 36 17.92% 7.50%
36 to 39 18.15% 7.60%
39 to 42 18.34% 7.67%
42 to 45 18.49% 7.74%
45 to 48 18.62% 7.79%
48 to 51 18.73% 7.84%
51 to S4 18.81% 7.87%
54 to 57 18.88% 7.90%
57 to 60 18.93% 7.92%
60 to 63 18.96% 7.93%
63 to 66 18.98% 7.94%
66 to 69 18.99% 7.95%
69 and higher 19.00% 7.95%
</TABLE>
- --------------------------
(*) Such Determination Date occurring after the designated calendar months
succeeding the Series 1997-D Closing Date appearing first in the column below,
and prior to or during the designated calendar months succeeding the Series
1997-D Distribution Date appearing second in the column below.
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
INSURANCE AND INDEMNITY AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-D,
ARCADIA RECEIVABLES FINANCE CORP.
and
ARCADIA FINANCIAL LTD.
Dated as of December 16, 1997
- --------------------------------------------------------------------------------
Arcadia Automobile Receivables Trust, 1997-D
$63,600,000 5.8875% Class A-1 Automobile Receivables-Backed Notes
$196,000,000 6.125% Class A-2 Automobile Receivables-Backed Notes
$258,000,000 6.20% Class A-3 Automobile Receivables-Backed Notes
$82,400,000 6.35% Class A-4 Automobile Receivables-Backed Notes
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.01 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II. REPRESENTATIONS, WARRANTIES AND COVENANTS. . . . . . . . . . . . . 7
Section 2.01 Representations and Warranties of the Trust. . . . . . . . 7
Section 2.02 Affirmative Covenants of the Trust . . . . . . . . . . . .10
Section 2.03 Negative Covenants of the Trust. . . . . . . . . . . . . .15
Section 2.04 Representations and Warranties of Arcadia Financial and the
Seller . . . . . . . . . . . . . . . . . . . . . . . . . .17
Section 2.05 Affirmative Covenants of Arcadia Financial and the
Seller . . . . . . . . . . . . . . . . . . . . . . . . . .21
Section 2.06 Negative Covenants of Arcadia Financial and the Seller . .26
Section 2.07 Representations and Warranties of Arcadia Financial. . . .28
Section 2.08 Affirmative Covenants of Arcadia Financial . . . . . . . .30
Section 2.09 Negative Covenants of Arcadia Financial. . . . . . . . . .33
ARTICLE III. THE NOTE POLICY; REIMBURSEMENT; INDEMNIFICATION . . . . . . . . .35
Section 3.01 Conditions Precedent to Issuance of the Note Policy. . . .35
Section 3.02 Payment of Fees and Premium. . . . . . . . . . . . . . . .40
Section 3.03 Reimbursement and Additional Payment Obligation. . . . . .41
Section 3.04 Certain Obligations Not Recourse to Arcadia Financial;
Recourse to Trust Property.. . . . . . . . . . . . . . . .42
Section 3.05 Indemnification. . . . . . . . . . . . . . . . . . . . . .42
Section 3.06 Payment Procedure. . . . . . . . . . . . . . . . . . . . .44
Section 3.07 Subrogation. . . . . . . . . . . . . . . . . . . . . . . .44
ARTICLE IV. FURTHER AGREEMENTS; MISCELLANEOUS. . . . . . . . . . . . . . . . .45
Section 4.01 Effective Date: Term of Agreement. . . . . . . . . . . . .45
Section 4.02 Further Assurances and Corrective Instruments. . . . . . .45
Section 4.03 Obligations Absolute.. . . . . . . . . . . . . . . . . . .45
Section 4.04 Assignments; Reinsurance; Third-Party Rights.. . . . . . .46
Section 4.05 Liability of Financial Security. . . . . . . . . . . . . .47
ARTICLE V. EVENTS OF DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . .47
Section 5.01 Events of Default. . . . . . . . . . . . . . . . . . . . .47
Section 5.02 Remedies; Waivers. . . . . . . . . . . . . . . . . . . . .50
ARTICLE VI. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . .51
Section 6.01 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . .51
Section 6.02 Notices. . . . . . . . . . . . . . . . . . . . . . . . . .51
Section 6.03 Severability . . . . . . . . . . . . . . . . . . . . . . .52
Section 6.04 Governing Law. . . . . . . . . . . . . . . . . . . . . . .52
Section 6.05 Consent to Jurisdiction. . . . . . . . . . . . . . . . . .52
Section 6.06 Consent of Financial Security. . . . . . . . . . . . . . .53
Section 6.07 Counterparts . . . . . . . . . . . . . . . . . . . . . . .53
i
<PAGE>
Section 6.08 Headings . . . . . . . . . . . . . . . . . . . . . . . . .53
Section 6.09 Trial by Jury Waived . . . . . . . . . . . . . . . . . . .54
Section 6.10 Limited Liability. . . . . . . . . . . . . . . . . . . . .54
Section 6.11 Limited Liability of Wilmington Trust Company. . . . . . .54
Section 6.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . .54
Schedule 1
ii
<PAGE>
INSURANCE AND INDEMNITY AGREEMENT
INSURANCE AND INDEMNITY AGREEMENT dated as of December 16, 1997, among
FINANCIAL SECURITY ASSURANCE INC., a New York stock insurance company
("Financial Security"), ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-D, a Delaware
business trust (the "Trust"), ARCADIA RECEIVABLES FINANCE CORP., a Delaware
corporation (the "Seller"), and ARCADIA FINANCIAL LTD., a Minnesota corporation
(when referred to individually hereunder, "Arcadia Financial", when referred to
as servicer under the Sale and Servicing Agreement referred to below, the
"Servicer").
INTRODUCTORY STATEMENTS
1. The Seller is the owner of the Receivables. The Seller proposes
to sell to the Trust all of its right, title and interest in and to the
Receivables and certain other property pursuant to the Sale and Servicing
Agreement. The Trust will issue Notes pursuant to the Indenture.
2. Each Note will be secured by the Indenture Property. The Trust
has requested that Financial Security issue a financial guaranty insurance
policy guarantying respectively certain distributions of interest and principal
on the Notes on each Distribution Date (including any such distributions
subsequently avoided as a preference under applicable bankruptcy law) upon the
terms, and subject to the conditions, provided herein.
3. Arcadia Financial and the Seller have previously entered into and
may in the future enter into one or more pooling and servicing agreements or
sale and servicing agreements with a trust and Seller has previously entered
into a Repurchase Agreement dated as of December 3, 1996, as amended, among the
Seller and Arcadia Receivables Conduit Corp., in each case, pursuant to which
the Seller sold or will sell all of its right, title and interest in and to
receivables and the other trust property and in connection therewith Financial
Security has and may in the future issue additional policies with respect to
certain guaranteed distributions on the corresponding certificates, the
corresponding notes or both.
4. The parties hereto desire to specify the conditions precedent to
the issuance of the Note Policy by Financial Security, the payment of premium in
respect of the Note Policy, the indemnity and reimbursement to be provided to
Financial Security in respect of amounts paid by Financial Security under the
Note Policy or otherwise and certain other matters.
In consideration of the premises and of the agreements herein
contained, Financial Security, the Trust, Arcadia Financial, individually and as
Servicer, and the Seller hereby agree as follows:
<PAGE>
ARTICLE I.
DEFINITIONS
Section 1.01 DEFINITIONS. All words and phrases defined in the Trust
Agreement, the Sale and Servicing Agreement or in the Spread Account Agreement
shall have the same meanings in this Agreement. Unless otherwise specified, if
a word or phrase defined in the Trust Agreement, the Sale and Servicing
Agreement or in the Spread Account Agreement can be applied with respect to one
or more Series, such a word or phrase shall be used herein as applied to Series
1997-D. In addition, the following words and phrases shall have the following
respective meanings:
"ACCUMULATED FUNDING DEFICIENCY" shall have the meaning provided in
Section 412 of the Code and Section 302 of ERISA, whether or not waived.
"AGREEMENT" means this Insurance and Indemnity Agreement, as the same
may be amended, modified or supplemented from time to time.
"AUTHORIZED OFFICER" means, with respect to a corporation, the
president, the chief financial officer or any vice president.
"CODE" means the Internal Revenue Code of 1986, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"COMMISSION" means the Securities and Exchange Commission.
"COMMONLY CONTROLLED ENTITY" means with respect to the Trust, the
Seller or Arcadia Financial, as the case may be, each entity, whether or not
incorporated, which is affiliated with the Trust, the Seller or Arcadia
Financial, as the case may be, pursuant to Section 414(b), (c), (m) or (o) of
the Code.
"DEFAULT" means any event which results, or which with the giving of
notice or the lapse of time or both would result, in an Event of Default.
"ERISA" means the Employee Retirement Income Security Act of 1974,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"EVENT OF DEFAULT" means any event of default specified in Section
5.01 of this Agreement.
"EXPIRATION DATE" means, with respect to the Note Policy, the final
date of the Term of such Note Policy, as specified therein.
"FINANCIAL SECURITY" means Financial Security Assurance Inc., a New
York stock insurance company, its successors and assigns.
2
<PAGE>
"FINANCIAL STATEMENTS" means with respect to Arcadia Financial the
audited consolidated balance sheets as of December 31, 1996, December 31, 1995
and December 31, 1994 and the related audited consolidated statements of income,
retained earnings and cash flows for the 12-month periods then ended and the
notes thereto and the unaudited balance sheets as of March 31, 1997, March 31,
1996, June 30, 1997, June 30, 1996, September 30, 1997 and September 30, 1996
and the statements of income, retained earnings and cash flows for the fiscal
quarter then ended.
"FISCAL AGENT" means the Fiscal Agent, if any, designated pursuant to
the terms of the Note Policy.
"INDENTURE COLLATERAL AGENT" means initially, The Chase Manhattan
Bank, in its capacity as collateral agent on behalf of Financial Security and
the Indenture Trustee on behalf of the Noteholders pursuant to the Indenture,
its successor in interest and any successor Indenture Collateral Agent under the
Indenture.
"INDENTURE PROPERTY" means the property pledged to the Indenture
Collateral Agent on behalf of Financial Security and the Indenture Trustee on
behalf of the Noteholders pursuant to the Indenture.
"INSURANCE AGREEMENT INDENTURE CROSS DEFAULT" means an Event of
Default specified in clause (a), (f), (g), (h) or (i) of Section 5.01.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"IRS" means the Internal Revenue Service.
"LATE PAYMENT RATE" means the greater of (i) a per annum rate equal
to 3 percent in excess of Financial Security's cost of funds, determined on a
monthly basis, or (ii) a per annum rate equal to 3 percent in excess of the
arithmetic average of the prime or base lending rates publicly announced by The
Chase Manhattan Bank, N.A. (New York, New York) and Citibank, N.A. (New York,
New York), as in effect on the last day of the month for which interest is being
computed, but, in either case, in no event greater than the maximum rate
permitted by law.
"LIEN" means, as applied to the property or assets (or the income or
profits therefrom) of any Person, in each case whether the same is consensual or
nonconsensual or arises by contract, operation of law, legal process or
otherwise: (a) any mortgage, lien, pledge, attachment, charge, lease,
conditional sale or other title retention agreement, or other security interest
or encumbrance of any kind; or (b) any arrangement, express or implied, under
which such property or assets are transferred, sequestered or otherwise
identified for the purpose of subjecting or making available the same for the
payment of debt or performance of any other obligation in priority to the
payment of the general, unsecured creditors of such Person.
3
<PAGE>
"MATERIAL ADVERSE CHANGE" means, in respect of any Person, a material
adverse change in (i) the business, financial condition, results of operations,
or properties of such Person and its Subsidiaries taken as a whole, (ii) the
ability of such Person to perform its obligations under any of the Transaction
Documents to which it is a party or (iii) the ability of Financial Security or
the Trust to realize the benefits or security afforded under the Transaction
Documents.
"MULTIEMPLOYER PLAN" means a multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled Entity
makes contributions or has liability.
"NOTE POLICY" means the financial guaranty insurance policy, including
any endorsements thereto, issued by Financial Security with respect to the
Notes, substantially in the form attached as Exhibit A hereto.
"NOTICE OF CLAIM" means the Notice of Claim and Certificate in the
form attached as Exhibit A to Endorsement No. 1 to the Note Policy.
"OTHER TRUST PROPERTY" means the property conveyed by the Seller to
the Trust pursuant to the Sale and Servicing Agreement and any Subsequent
Transfer Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency, corporation or instrumentality of the United States to which the duties
and powers of the Pension Benefit Guaranty Corporation are transferred.
"PLAN" means any pension plan (other than a Multiemployer Plan)
covered by Title IV of ERISA, which is maintained by a Commonly Controlled
Entity or in respect of which a Commonly Controlled Entity has liability.
"PORTFOLIO PERFORMANCE EVENT OF DEFAULT" means an Event of Default
specified in clause (j), (k), or (1) of Section 5.01.
"PREMIUM" means the premium payable in accordance with Section 3.02 of
this Agreement.
"PREMIUM LETTER" means the side letter between Financial Security and
Arcadia Financial dated the date hereof in respect of the premium payable by
Arcadia Financial in consideration of the issuance of the Note Policy.
"PREMIUM SUPPLEMENT" means a non-refundable premium, in addition to
the premium payable in accordance with Section 3.02 of this Agreement, payable
by Arcadia Financial to Financial Security in monthly installments commencing on
the first Distribution Date following the Premium Supplement Commencement Date
and on each Distribution Date thereafter, payable in accordance with the terms
of the Premium Letter.
4
<PAGE>
"PREMIUM SUPPLEMENT COMMENCEMENT DATE" means the date of occurrence of
an Event of Default in respect of which the Premium Supplement shall have been
declared due and payable in accordance with Section 5.02 of this Agreement.
"PREVIOUS SERIES TRANSACTION DOCUMENTS" means the transaction
documents as defined in each of the insurance and indemnity agreements related
to Olympic Automobile Receivables Trust, 1993-A, Olympic Automobile Receivables
Trust, 1993-B, Olympic Automobile Receivables Trust, 1993-C, Olympic Automobile
Receivables Trust, 1993-D, Olympic Automobile Receivables Trust, 1994-A, Olympic
Automobile Receivables Trust, 1994-B, Olympic Automobile Receivables Trust,
1995-A, Olympic Automobile Receivables Trust, 1995-B, Olympic Automobile
Receivables Trust, 1995-C, Olympic Automobile Receivables Trust, 1995-D, Olympic
Automobile Receivables Trust, 1995-E, Olympic Automobile Receivables Trust,
1996-A, Olympic Automobile Receivables Trust, 1996-B, Olympic Automobile
Receivables Trust, 1996-C, Olympic Automobile Receivables Trust, 1996-D, Olympic
Automobile Receivables Trust, 1997-A, Arcadia Automobile Receivables Trust,
1997-B, Arcadia Automobile Receivables Trust 1997-C and the Warehousing Notes.
"PROSPECTUS" has the meaning set forth in Section 2.04(o) of this
Agreement.
"RELATED DOCUMENTS" means the Transaction Documents except for the
Sale and Servicing Agreement.
"REGISTRATION STATEMENT" has the meaning set forth in Section 2.04(o)
of this Agreement.
"REPORTABLE EVENT" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.
"RESTRICTIONS ON TRANSFERABILITY" means, as applied to the property or
assets (or the income or profits therefrom) of any Person, in each case whether
the same is consensual or nonconsensual or arises by contract, operation of law,
legal process or otherwise, any material condition to, or restriction on, the
ability of such Person or any transferee therefrom to sell, assign, transfer or
otherwise liquidate such property or assets in a commercially reasonable time
and manner or which would otherwise materially deprive such Person or any
transferee therefrom of the benefits of ownership of such property or assets.
"SALE AND SERVICING AGREEMENT" means the Sale and Servicing Agreement
dated as of December 1, 1997 among the Seller, Arcadia Financial, in its
individual capacity and as Servicer, the Back-up Servicer and the Trust pursuant
to which the Initial Receivables are to be sold, serviced and administered, as
the same may be amended from time to time.
"SECURITIES ACT" means the Securities Act of 1933, including, unless
the context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
5
<PAGE>
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"SENIOR NOTE INDENTURE" means the Indenture dated as of March 12, 1997
between Olympic Financial Ltd. ("OFL") and Norwest Bank Minnesota, National
Association, as amended or supplemented, relating to OFL's $300,000,000 111/2%
Senior Notes due 2007.
"SERIES 1997-D" means the Series of Notes issued on the date hereof
pursuant to the Indenture.
"SERIES OF NOTES" or "SERIES" means Series 1997-D or any, or as the
context may require, all, additional series of notes issued as described in
paragraph 3 of the Introductory Statements hereto.
"SERVICER TERMINATION SIDE LETTER" means the letter from Financial
Security to the Servicer dated as of December 16, 1997, with regard to the
renewal of the term of the Servicer.
"SPREAD ACCOUNT AGREEMENT" means the Spread Account Agreement, dated
as of March 25, 1993, as amended and restated as of December 16, 1997 and
supplemented in accordance with the terms thereof, among Arcadia Financial, the
Seller, Financial Security, the Indenture Trustee and the Collateral Agent.
"STOCK PLEDGE AGREEMENT" means the Third Amended and Restated Stock
Pledge Agreement, dated as of December 3, 1996, as amended and restated, among
Financial Security, Arcadia Financial, and the Collateral Agent, as the same may
be amended from time to time.
"SUBSIDIARY" means, with respect to any Person, any corporation of
which a majority of the outstanding shares of capital stock having ordinary
voting power for the election of directors is at the time owned by such Person
directly or through one or more Subsidiaries.
"TERM OF THE NOTE POLICY" means, with respect to the Note Policy, the
meaning provided therein.
"TERM OF THIS AGREEMENT" shall be determined as provided in Section
4.01 of this Agreement.
"TRANSACTION" means the transactions contemplated by the Transaction
Documents, including the transactions described in the Registration Statement.
"TRANSACTION DOCUMENTS" means this Agreement, the Sale and Servicing
Agreement, the Trust Agreement, the Certificate of Trust, the Indenture, the
Underwriting Agreement, the Purchase Agreement, the Premium Letter, the Stock
Pledge Agreement, the Lockbox Agreement, the Depository Agreements, the
Custodian Agreement, the Servicer Termination Side Letter, the Spread Account
Agreement and the Administration Agreement.
6
<PAGE>
"TRUST AGREEMENT" means the Trust Agreement, dated as of December 1,
1997, among the Seller, Financial Security and Wilmington Trust Company, as
Owner Trustee.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"UNDERFUNDED PLAN" means any Plan that has an Underfunding.
"UNDERFUNDING" means, with respect to any Plan, the excess, if any, of
(a) the present value of all benefits under the Plan (based on the assumptions
used to fund the Plan pursuant to Section 412 of the Code) as of the most recent
valuation date over (b) the fair market value of the assets of such Plan as of
such valuation date.
"UNDERWRITERS" means Donaldson, Lufkin & Jenrette Securities
Corporation, J.P. Morgan Securities Inc. and BancAmerica Robertson Stephens.
"UNDERWRITING AGREEMENT" means the Pricing Agreement, dated December
4, 1997, among Arcadia Financial and the Seller and the Underwriters.
"WAREHOUSING NOTES" means the Variable Funding Note issued pursuant to
the Warehousing Series Indenture dated as of December 3, 1996, as amended and
supplemented, between Arcadia Receivables Conduit Corp., as the issuer, and
Norwest Bank Minnesota, National Association, as trustee.
ARTICLE II.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.01 REPRESENTATIONS AND WARRANTIES OF THE TRUST. The Trust
represents, warrants and covenants, as of the date hereof and as of the Closing
Date, as follows:
(a) DUE ORGANIZATION AND QUALIFICATION. The Trust is duly formed and
validly existing as a Delaware statutory business trust and is in good standing
under the laws of the State of Delaware, with power and authority to own its
properties and to conduct its business. The Trust is duly qualified to do
business, is in good standing and has obtained all necessary licenses, permits,
charters, registrations and approvals (together, "approvals") necessary for the
conduct of its business as described in the Prospectus and the performance of
its obligations under the Transaction Documents, in each jurisdiction in which
the failure to be so qualified or to obtain such approvals would render the
Receivables in such jurisdiction or any Transaction Document unenforceable in
any respect or would otherwise have a material adverse effect upon the
Transaction.
(b) POWER AND AUTHORITY. The Trust has all necessary trust power and
authority to conduct its business as described in the Prospectus, to execute,
deliver and perform its obligations under this Agreement and each other
Transaction Document to which the Trust is a
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party and to carry out the terms of each such agreement, and has full power and
authority to issue the Notes and pledge and assign its assets pursuant to the
Indenture and has duly authorized the issuance of the Notes and the assignment
of its assets by all necessary trust proceedings.
(c) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement and each other Transaction Document to which the Trust is a party
has been duly authorized by all necessary action on the part of the Trust and
does not require any additional approvals or consents or other action by or any
notice to or filing with any Person by or on behalf of the Trust, including,
without limitation, any governmental entity.
(d) NONCONTRAVENTION. Neither the execution and delivery of this
Agreement and each other Transaction Document to which the Trust is a party, the
consummation of the Transaction nor the satisfaction of the terms and conditions
of this Agreement and each other Transaction Document to which the Trust is a
party,
(i) conflicts with or results in any breach or violation of any
provision of the Certificate of Trust or the Trust Agreement or any law,
rule, regulation, order, writ, judgment, injunction, decree, determination
or award currently in effect having applicability to the Trust or any of
its properties, including regulations issued by an administrative agency or
other governmental authority having supervisory powers over the Trust,
(ii) constitutes a default by the Trust under or a breach of any
provision of any loan agreement, mortgage, indenture or other agreement or
instrument to which the Trust is a party or by which it or any of its
properties is or may be bound or affected, or
(iii) results in or requires the creation of any Lien upon or in
respect of any of the Trust's assets except as otherwise expressly
contemplated by the Transaction Documents.
(e) PENDING LITIGATION OR OTHER PROCEEDING. There is no action,
proceeding or investigation pending, or, to the Trust's best knowledge,
threatened, before any court, regulatory body, administrative agency, arbitrator
or governmental agency or instrumentality having jurisdiction over the Trust or
its properties: (A) asserting the invalidity of this Agreement or any other
Transaction Document to which the Trust is a party, (B) seeking to prevent the
issuance of the Notes or the consummation of the Transaction, (C) seeking any
determination or ruling that might materially and adversely affect the validity
or enforceability of this Agreement or any other Transaction Document to which
the Trust is a party, (D) which might result in a Material Adverse Change with
respect to the Trust or (E) which might adversely affect the federal or state
tax attributes of the Notes or the Trust.
(f) VALID AND BINDING OBLIGATIONS. Each of the Transaction Documents
to which the Trust is a party, when executed and delivered by the Trust, and
assuming due authorization, execution and delivery by the other parties thereto,
will constitute the legal, valid and binding obligation of the Trust enforceable
in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other
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similar laws affecting creditors' rights generally and general equitable
principles. The Notes, when executed, authenticated and delivered in accordance
with the Indenture, will be entitled to the benefits of the Indenture and will
constitute legal, valid and binding obligations of the Trust, enforceable in
accordance with their terms.
(g) NO CONSENTS. No consent, license, approval or authorization
from, or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any consent,
approval, waiver or notification of any creditor, lessor or other
non-governmental person, is required in connection with the execution, delivery
and performance by the Trust of this Agreement or of any other Transaction
Document to which the Trust is a party, except (in each case) such as have been
obtained and are in full force and effect.
(h) COMPLIANCE WITH LAW, ETC. No practice, procedure or policy
employed or proposed to be employed by the Trust in the conduct of its business
violates any law, regulation, judgment, agreement, order or decree applicable to
the Trust which, if enforced, would result in a Material Adverse Change with
respect to the Trust.
(i) ERISA. The Trust does not maintain or contribute to, or have any
obligation to maintain or contribute to, any Plan. The Trust is not subject to
any of the provisions of ERISA.
(j) COLLATERAL. On the Closing Date, and on each Subsequent Transfer
Date, the Trust will have good and marketable title to each item of Other Trust
Property conveyed on such date and will own each such item free and clear of any
Lien (other than Liens contemplated under the Indenture) or any equity or
participation interest of any other Person.
(k) PERFECTION OF LIENS AND SECURITY INTEREST. On the Closing Date,
the Lien and security interest in favor of the Indenture Collateral Agent with
respect to Indenture Property will be perfected by the filing of financing
statements on Form UCC-1 in each jurisdiction where such recording or filing is
necessary for the perfection thereof, the delivery of the Receivable Files for
the Receivables to the Custodian, and the establishment of the Collection
Account, the Subcollection Account, the Lockbox Account, the Pre-Funding
Account, the Reserve Account and the Note Distribution Account in accordance
with the provisions of the Transaction Documents, and no other filings in any
jurisdiction or any other actions (except as expressly provided herein) are
necessary to perfect the Collateral Agent's Lien on and security interest in the
Collateral as against any third parties.
(l) SECURITY INTEREST IN FUNDS AND INVESTMENTS. Assuming the
retention of funds in the Accounts and the acquisition of Eligible Investments
in accordance with the Transaction Documents, such funds and Eligible
Investments will be subject to a valid and perfected, first priority security
interest in favor of the Collateral Agent on behalf of the Indenture Trustee (on
behalf of the Noteholders) and Financial Security.
(m) COMPLIANCE WITH INVESTMENT COMPANY ACT. The Trust is not
required to be registered as an "investment company" under the Investment
Company Act.
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(n) INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Trust set forth in each Transaction
Document are (in each case) true and correct as if set forth herein.
(o) SPECIAL PURPOSE ENTITY.
(i) The capital of the Trust is adequate for the business and
undertakings of the Trust.
(ii) Except as contemplated by the Transaction Documents, the Trust
is not engaged in any business transactions with Arcadia Financial, the
Seller or any Affiliate of either of them.
(iii) The Trust's funds and assets are not, and will not be,
commingled with the funds of any other Person, except as provided in the
Transaction Documents.
(p) SOLVENCY; FRAUDULENT CONVEYANCE. The Trust is solvent and will
not be rendered insolvent by the Transaction or by the performance of its
obligations under the Transaction Documents and, after giving effect to such
Transaction, the Trust will not be left with an unreasonably small amount of
capital with which to engage in its business. The Trust does not intend to
incur, or believes that it has incurred, debts beyond its ability to pay such
debts as they mature. The Trust does not contemplate the commencement of
insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar official
in respect of the Trust or any of its assets.
Section 2.02 AFFIRMATIVE COVENANTS OF THE TRUST. The Trust hereby
agrees that during the Term of the Agreement, unless Financial Security shall
otherwise expressly consent in writing:
(a) COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS. The Trust will
comply with all terms and conditions of this Agreement and each other
Transaction Document to which it is a party and with all material requirements
of any law, rule or regulation applicable to it. The Trust will not cause or
permit to become effective any amendment to or modification of any of the
Transaction Documents to which it is a party unless (i) (so long as no Insurer
Default shall have occurred and be continuing) Financial Security shall have
previously approved in writing the form of such amendment or modification or
(ii) if an Insurer Default shall have occurred and be continuing, such
amendment would not adversely affect the interests of Financial Security. The
Trust shall not take any action or fail to take any action that would interfere
with the enforcement of any rights under this Agreement or the other Transaction
Documents.
(b) FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; Other Information.
The Trust shall keep or cause to be kept in reasonable detail books and records
of account of the Trust's assets and business, which shall be furnished to
Financial Security upon request. The Trust shall furnish to Financial Security,
simultaneously with the delivery of such documents to the Indenture Trustee or
the Noteholders, as the case may be, copies of all reports, certificates,
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statements, financial statements or notices furnished to the Indenture Trustee
or the Noteholders, as the case may be, pursuant to the Transaction Documents.
(i) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in any
event within 90 days after the close of each fiscal year of the Trust, the
audited balance sheets of the Trust as of the end of such fiscal year and
the audited statements of income, changes in equityowners' equity and cash
flows of the Trust for such fiscal year, all in reasonable detail and
stating in comparative form the respective figures for the corresponding
date and period in the preceding fiscal year, prepared in accordance with
generally accepted accounting principles, consistently applied, and
accompanied by the certificate of the Trust's independent accountants (who
shall be acceptable to Financial Security) and by the certificate specified
in Section 2.02(c) hereof.
(ii) QUARTERLY FINANCIAL STATEMENTS. As soon as available, and in
any event within 45 days after the close of each of the first three
quarters of each fiscal year of the Trust, the unaudited balance sheets of
the Trust as of the end of such quarter and the unaudited statements of
income, changes in equityowners' equity and cash flows of the Trust for the
portion of the fiscal year then ended, all in reasonable detail and stating
in comparative form the respective figures for the corresponding date and
period in the preceding fiscal year, prepared in accordance with generally
accepted accounting principles consistently applied (subject to normal
year-end adjustments), and accompanied by the certificate specified in
Section 2.02(c) hereof.
(iii) ACCOUNTANTS' REPORTS. Promptly upon receipt thereof, copies
of any reports or comment letters submitted to the Trust by its independent
accountants in connection with any examination of the financial statements
of the Trust.
(iv) CERTAIN INFORMATION. Not less than ten days prior to the date
of filing with the IRS of any tax return or amendment thereto, copies of
the proposed form of such return or amendment and, promptly after the
filing or sending thereof, (i) copies of each tax return and amendment
thereto that the Trust files with the IRS and (ii) copies of all financial
statements, reports, and registration statements which the Trust files
with, or delivers to, any federal government agency, authority or body
which supervises the issuance of securities by the Trust.
(v) OTHER INFORMATION. Promptly upon the request of Financial
Security, copies of all schedules, financial statements or other similar
reports delivered to or by the Trust pursuant to the terms of this
Agreement and the other Transaction Documents and such other data as
Financial Security may reasonably request.
(c) COMPLIANCE CERTIFICATE. The Trust shall deliver to Financial
Security and, upon request, any Noteholder, concurrently with the delivery of
the financial statements required pursuant to Section 2.02(b)(i) and (ii)
hereof, a certificate signed by an Authorized Officer of the Administrator
stating that:
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(i) a review of the Trust's performance under the Transaction
Documents during such period has been made under such officer's
supervision;
(ii) to the best of such individual's knowledge following
reasonable inquiry, no Default or Event of Default has occurred and is
continuing or, if a Default or Event of Default has occurred and is
continuing, specifying the nature thereof and, if the Trust has a right to
cure pursuant to Section 5.01, stating in reasonable detail the steps, if
any, being taken by the Trust to cure such Default or Event of Default or
to otherwise comply with the terms of the agreement or agreements to which
such Default or Event of Default relates; and
(iii) The financial reports submitted in accordance with Section
2.02(b)(i) or (ii) hereof, as applicable, are complete and correct in all
material respects and present fairly the financial condition and results of
operations of the Trust as of the dates and for the periods indicated, in
accordance with generally accepted accounting principles consistently
applied (subject as to interim statements to normal year-end adjustments).
(d) ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS.
The Trust shall, upon the request of Financial Security, permit Financial
Security or its authorized agents (i) to inspect the books and records of the
Trust as they may relate to the Notes, the Receivables and the Other Trust
Property, the obligations of the Trust under the Transaction Documents, the
Trust's business and the Transaction and (ii) to discuss the affairs, finances
and accounts of the Trust with any of its personnel and representatives,
including its Independent Accountants. Such inspections and discussions shall
be conducted during normal business hours and shall not unreasonably disrupt the
business of the Trust. The books and records of the Trust will be maintained at
the address of the Trust designated herein for receipt of notices, unless the
Trust shall otherwise advise the parties hereto in writing.
(e) NOTICE OF MATERIAL EVENTS. The Trust shall promptly inform
Financial Security in writing of the occurrence of any of the following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation against the
Trust involving potential damages or penalties in an uninsured amount in
excess of $100,000 in any one instance or $500,000 in the aggregate;
(ii) any change in the location of Trust's principal office or any
change in the location of the Trust's books and records;
(iii) the occurrence of any Default or Event of Default;
(iv) the commencement or threat of any rule making or disciplinary
proceedings or any proceedings instituted by or against the Trust in any
federal, state or local court or before any governmental body or agency, or
before any arbitration board, or the promulgation of any proceeding or any
proposed or final rule which, if adversely determined, would result in a
Material Adverse Change with respect to the Trust;
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(v) the commencement of any proceedings by or against the Trust
under any applicable bankruptcy, reorganization, liquidation,
rehabilitation, insolvency or other similar law now or hereafter in effect
or of any proceeding in which a receiver, liquidator, conservator, trustee
or similar official shall have been, or may be, appointed or requested for
the Trust or any of its assets;
(vi) the receipt of notice that (A) the Trust is being placed under
regulatory supervision, (B) any license, permit, charter, registration or
approval necessary for the conduct of the Trust's business is to be, or may
be, suspended or revoked, or (C) the Trust is to cease and desist any
practice, procedure or policy employed by the Trust in the conduct of its
business, and such cessation may result in a Material Adverse Change with
respect to the Trust; or
(vii) any other event, circumstance or condition that has resulted,
or has a material possibility of resulting, in a Material Adverse Change in
respect of the Trust.
(f) FURTHER ASSURANCES. The Trust will file all necessary
financing statements, assignments or other instruments, and any amendments or
continuation statements relating thereto, necessary to be kept and filed in such
manner and in such places as may be required by law to preserve and protect
fully the Lien and security interest in, and all rights of the Indenture
Collateral Agent with respect to the Indenture Property, under the Indenture.
In addition, the Trust shall, upon the request of Financial Security (so long as
no Insurer Default has occurred and is continuing), from time to time, execute,
acknowledge and deliver and, if necessary, file such further instruments and
take such further action as may be reasonably necessary to effectuate the
intention, performance and provisions of the Transaction Documents to which the
Trust is a party or to protect the interest of the Indenture Collateral Agent in
the Indenture Property under the Indenture. The Trust agrees to cooperate with
the Rating Agencies in connection with any review of the Transaction which may
be undertaken by the Rating Agencies after the date hereof.
(g) MAINTENANCE OF LICENSES. The Trust shall maintain all
licenses, permits, charters and registrations which are material to the
performance by the Trust of its obligations under this Agreement and each other
Transaction Document to which the Trust is a party or by which the Trust is
bound.
(h) RETIREMENT OF NOTES. The Trust shall, upon retirement of the
Notes furnish to Financial Security a notice of such retirement, and, upon such
retirement and the expiration of the term of the Note Policy, surrender the Note
Policy to Financial Security for cancellation.
(i) DISCLOSURE DOCUMENT. Each Prospectus delivered with respect
to the Notes shall clearly disclose that the Note Policy is not covered by the
property/casualty insurance security fund specified in Article 76 of the New
York Insurance Law. In addition, each Prospectus delivered with respect to the
Notes which include financial statements of Financial Security prepared in
accordance with generally accepted accounting principles (other than a
Prospectus that only incorporates such financial statements by reference) shall
include the following statement immediately preceding such financial statements:
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The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial
condition and results of operations of an insurance company, for
determining its solvency under the New York Insurance Law, and for
determining whether its financial condition warrants the payment of a
dividend to its stockholders. No consideration is given by the New
York State Insurance Department to financial statements prepared in
accordance with generally accepted accounting principles in making
such determinations.
(j) SPECIAL PURPOSE ENTITY.
(i) The Trust shall conduct its business solely in its own name
through its duly authorized officers or agents so as not to mislead others
as to the identity of the entity with which those others are concerned, and
particularly will use its best efforts to avoid the appearance of
conducting business on behalf of Arcadia Financial, the Seller, or any
other Affiliates thereof or that the assets of the Trust are available to
pay the creditors of Arcadia Financial, the Seller, or any other Affiliates
thereof. Without limiting the generality of the foregoing, all oral and
written communications, including, without limitation, letters, invoices,
purchase orders, contracts, statements and loan applications, will be made
solely in the name of the Trust.
(ii) The Trust shall maintain trust records and books of account
separate from those of Arcadia Financial, the Seller and Affiliates of any
of them.
(iii) The Trust shall obtain proper authorization from its equity
owners of all trust action requiring such authorization, and copies of each
such authorization and the minutes or other written summary of each such
meeting shall be delivered to Financial Security within two weeks of such
authorization or meeting as the case may be.
(iv) Although the organizational expenses of the Trust have been
paid by Arcadia Financial, operating expenses and liabilities of the Trust
shall be paid from its own funds.
(v) The annual financial statements of the Trust shall disclose
the effects of the Trust's transactions in accordance with generally
accepted accounting principles and shall disclose that the assets of the
Trust are not available to pay creditors of Arcadia Financial, the Seller
or any Affiliate of any of them.
(vi) The resolutions, agreements and other instruments of the Trust
underlying the transactions described in this Agreement and in the other
Transaction Documents shall be continuously maintained by the Trust as
official records of the Trust separately identified and held apart from the
records of Arcadia Financial, the Seller and each Affiliate of any of them.
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(vii) The Trust shall maintain an arm's-length relationship with
Arcadia Financial, the Seller and each Affiliate of any of them and will
not hold itself out as being liable for the debts of any such Person.
(viii) The Trust shall keep its assets and its liabilities wholly
separate from those of all other entities, including, but not limited to,
Arcadia Financial, the Seller and each Affiliate of any of them except, in
each case, as contemplated by the Transaction Documents.
(k) CLOSING DOCUMENTS. The Trust shall provide or cause to be
provided to Financial Security an executed original copy of each document
executed in connection with the Transaction within 10 days after the Closing
Date, except that the Seller shall cause a copy of the Trust Agreement, the Sale
and Servicing Agreement, the Series 1997-D Supplement, the Indenture, the
Administration Agreement and each Transaction Document to which Financial
Security is a party to be provided to Financial Security on the Closing Date.
(l) TAX MATTERS. The Trust will take all actions necessary to
ensure that, for federal and state income tax purposes, the Trust is not taxable
as an association (or publicly traded partnership) or taxable as a corporation.
(m) SECURITIES LAWS. The Trust shall comply in all material
respects with all applicable provisions of state and federal securities laws,
including blue sky laws and the Securities Act, the Exchange Act and the
Investment Company Act and all rules and regulations promulgated thereunder for
which non-compliance would result in a Material Adverse Change with respect to
the Trust.
(n) INCORPORATION OF COVENANTS. The Trust agrees to comply with
each of the covenants of the Trust set forth in the Transaction Documents and
hereby incorporates such covenants by reference as if each were set forth
herein.
Section 2.03 NEGATIVE COVENANTS OF THE TRUST. The Trust hereby
agrees that during the Term of this Agreement, unless Financial Security shall
otherwise give its prior express written consent:
(a) WAIVER; AMENDMENTS; ETC. The Trust shall not waive, modify,
amend, supplement or consent to any waiver, modification, amendment of or
supplement to, any of the provisions of the Certificate of Trust, the Trust
Agreement or any of the other Transaction Documents unless, if no Insurer
Default shall have occurred and be continuing, Financial Security shall have
consented thereto in writing.
(b) CREATION OF INDEBTEDNESS; GUARANTEES. The Trust shall not
create, incur, assume or suffer to exist any indebtedness or assume, guarantee,
endorse or otherwise be or become directly or contingently liable for the
obligations of any Person by, among other things, agreeing to purchase any
obligation of another Person, agreeing to advance funds to such Person or
causing or assisting such Person to maintain any amount of capital, except as
contemplated by the Transaction Documents.
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(c) SUBSIDIARIES. The Trust shall not form, or cause to be
formed, any Subsidiaries.
(d) NO LIENS. The Trust shall not, except as contemplated by the
Transaction Documents create, incur, assume or suffer to exist any Lien of any
nature upon or with respect to any of its properties or assets, now owned or
hereafter acquired, or sign or file under the Uniform Commercial Code of any
jurisdiction any financing statement that names the Trust as debtor, or sign any
security agreement authorizing any secured party thereunder to file such a
financing statement.
(e) IMPAIRMENT OF RIGHTS. The Trust shall not take any action, or
fail to take any action, if such action or failure to take action may interfere
with the enforcement of any rights under the Transaction Documents that are
material to the rights, benefits or obligations of the Indenture Trustee, the
Noteholders or Financial Security.
(f) NO MERGERS. The Trust shall not consolidate with or merge
into any Person or transfer all or any material amount of its assets to any
Person (except as contemplated by the Transaction Documents) or liquidate or
dissolve.
(g) ERISA. The Trust shall not contribute or incur any obligation
to contribute to, or incur any liability in respect of, any Plan or
Multiemployer Plan.
(h) OTHER ACTIVITIES. The Trust shall not:
(i) sell, pledge, transfer, exchange or otherwise dispose of any
of its assets except as permitted under the Transaction Documents; or
(ii) engage in any business or activity except as contemplated by the
Transaction Documents and as permitted by its Certificate of Trust.
(i) INSOLVENCY. The Trust shall not commence any case, proceeding or
other action (A) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, consolidation or other relief with respect to it or (B) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its assets or make a general assignment
for the benefit of its creditors. The Trust shall not take any action in
furtherance of, or indicating the consent to, approval of, or acquiescence in
any of the acts set forth above. The Trust shall not admit in writing its
inability to pay its debts.
(j) SUCCESSOR PARTIES. The Trust will not remove or replace, or
cause to be removed or replaced, the Servicer, the Indenture Trustee, the Owner
Trustee or the Administrator.
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Section 2.04 REPRESENTATIONS AND WARRANTIES OF ARCADIA FINANCIAL AND
THE SELLER. Each of Arcadia Financial and the Seller represent and warrant as
of the date hereof and as of the Closing Date, as follows:
(a) DUE ORGANIZATION AND QUALIFICATION. The Seller is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Delaware, with power and authority to own its properties
and to conduct its business. The Seller is duly qualified to do business, is in
good standing and has obtained all necessary licenses, permits, charters,
registrations and approvals (together, "approvals") necessary for the conduct of
its business as currently conducted and as described in the Prospectus and the
performance of its obligations under the Transaction Documents, in each
jurisdiction in which the failure to be so qualified or to obtain such approvals
would render the Receivables in such jurisdiction or any Transaction Document
unenforceable in any respect or would otherwise have a material adverse effect
upon the Transaction.
(b) POWER AND AUTHORITY. The Seller has all necessary corporate
power and authority to conduct its business as currently conducted and as
described in the Prospectus, to execute, deliver and perform its obligations
under this Agreement and each other Transaction Document to which the Seller is
a party and to carry out the terms of each such agreement, and has full power
and authority to sell and assign the Receivables and the Other Trust Property to
the Trust and has duly authorized such sale and assignment to the Trust by all
necessary corporate action.
(c) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement and each other Transaction Document to which the Seller is a
party has been duly authorized by all necessary corporate action on the part of
the Seller and does not require any additional approvals or consents or other
action by or any notice to or filing with any Person by or on behalf of the
Seller, including, without limitation, any governmental entity or the Seller's
stockholder.
(d) NONCONTRAVENTION. None of the execution and delivery of this
Agreement and each other Transaction Document to which the Seller is a party,
the consummation of the Transaction or the satisfaction of the terms and
conditions of this Agreement and each other Transaction Document to which the
Seller is a party,
(i) conflicts with or results in any breach or violation of any
provision of the charter or bylaws of the Seller or any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or
award currently in effect having applicability to the Seller or any of its
properties, including regulations issued by an administrative agency or
other governmental authority having supervisory powers over the Seller,
(ii) constitutes a default by the Seller under or a breach of any
provision of any loan agreement, mortgage, indenture or other agreement or
instrument to which the Seller is a party or by which it or any of its
properties is or may be bound or affected, or
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(iii) results in or requires the creation of any Lien upon or in
respect of any of the Seller's assets except as otherwise expressly
contemplated by the Transaction Documents.
(e) PENDING LITIGATION OR OTHER PROCEEDING. There is no action,
proceeding or investigation pending, or, to the Seller's or Arcadia Financial's
best knowledge, threatened, before any court, regulatory body, administrative
agency, arbitrator or governmental agency or instrumentality having jurisdiction
over the Seller or its properties: (A) asserting the invalidity of this
Agreement or any other Transaction Document to which the Seller is a party,
(B) seeking to prevent the issuance of the Notes or the consummation of the
Transaction, (C) seeking any determination or ruling that might materially and
adversely affect the validity or enforceability of this Agreement or any other
Transaction Document to which the Seller is a party, (D) which might result in a
Material Adverse Change with respect to the Seller or (E) which might adversely
affect the federal or state tax attributes of the Notes or the Trust.
(f) VALID AND BINDING OBLIGATIONS. Each of the Transaction Documents
to which the Seller is a party, when executed and delivered by the Seller, and
assuming due authorization, execution and delivery by the other parties thereto,
will constitute the legal, valid and binding obligation of the Seller
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and general equitable principles.
The Notes, when executed, authenticated and delivered in accordance with the
Indenture, will be entitled to the benefits of the Indenture and will constitute
legal, valid and binding obligations of the Trust, enforceable in accordance
with their terms.
(g) NO CONSENTS. No consent, license, approval or authorization
from, or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any consent,
approval, waiver or notification of any creditor, lessor or other
non-governmental person, is required in connection with the execution, delivery
and performance by the Seller of this Agreement or of any other Transaction
Document to which the Seller is a party, except (in each case) such as have been
obtained and are in full force and effect.
(h) COMPLIANCE WITH LAW, ETC. No practice, procedure or policy
employed or proposed to be employed by the Seller in the conduct of its business
violates any law, regulation, judgment, agreement, order or decree applicable to
the Seller which, if enforced, would result in a Material Adverse Change with
respect to the Seller.
(i) GOOD TITLE; VALID TRANSFER; ABSENCE OF LIENS; SECURITY INTEREST.
Immediately prior to the sale of the Initial Receivables and related Other Trust
Property to the Trust pursuant to the Sale and Servicing Agreement, the Seller
was the owner of, and had good and marketable title to, such property free and
clear of all Liens and Restrictions on Transferability, and had full right,
corporate power and lawful authority to assign, transfer and pledge the Initial
Receivables and the related Other Trust Property. The Sale and Servicing
Agreement constitutes a valid sale, transfer and assignment of the Other Trust
Property to the
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Trust enforceable against creditors of and purchasers of the Seller. In the
event that, in contravention of the intention of the parties, the transfer of
the Other Trust Property by the Seller to the Trust is characterized as other
than a sale, such transfer shall be characterized as a secured financing, and
the Trust shall have a valid and perfected first priority security interest in
the Other Trust Property free and clear of all Liens and Restrictions on
Transferability.
(j) ACCURACY OF INFORMATION. Neither the Transaction Documents nor
any documents, agreements, instruments, schedules, certificates, statements,
cash flow schedules, number runs or other writings or data (collectively, the
"Documents") furnished to Financial Security by the Seller or Arcadia Financial
with respect to either of them, their Subsidiaries, the Receivables or the
Transaction contain any statement of a material fact which was untrue or
misleading in any material respect when made (except insofar as any Document was
corrected or superseded by a subsequent Document and Financial Security has not
detrimentally relied on the original Document). There is no fact known to the
Seller or Arcadia Financial which has a material possibility of causing a
Material Adverse Change with respect to the Seller or Arcadia Financial, or
which has a material possibility of impairing the value or marketability of the
Receivables, taken as a whole, or decreasing the probability that amounts due in
respect of the Receivables will be collected as due. Since the furnishing of
the Transaction Documents, there has been no change or any development or event
involving a prospective change known to the Seller or Arcadia Financial which
would render any representation or warranty or other statement made by either of
them in any of the Transaction Documents untrue or misleading in a material
respect.
(k) COMPLIANCE WITH INVESTMENT COMPANY ACT. The Seller is not
required to be registered as an "investment company" under the Investment
Company Act.
(l) INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Seller set forth in the Transaction
Documents are (in each case) true and correct as if set forth herein.
(m) SPECIAL PURPOSE ENTITY.
(i) The capital of the Seller is adequate for the business and
undertakings of the Seller.
(ii) Other than with respect to the ownership by Arcadia Financial
of the stock of the Seller and as provided in the Previous Series
Transaction Documents, the Purchase Agreement, the Sale and Servicing
Agreement, and the Spread Account Agreement, the Seller is not engaged in
any business transactions with Arcadia Financial or any Affiliate of
Arcadia Financial.
(iii) At least one director of the Seller shall be a person who is
not, and will not be, a director, officer, employee or holder of any equity
securities of Arcadia Financial or any of its Affiliates or Subsidiaries.
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(iv) The Seller's funds and assets are not, and will not be,
commingled with the funds of any other Person, except as provided in the
Transaction Documents.
(v) The by-laws of the Seller require it to maintain (A) correct
and complete minute books and records of account, and (B) minutes of the
meetings and other proceedings of its shareholders and board of directors.
(n) SOLVENCY; FRAUDULENT CONVEYANCE. The Seller is solvent and
will not be rendered insolvent by the Transaction and, after giving effect to
such Transaction, the Seller will not be left with an unreasonably small amount
of capital with which to engage in its business. The Seller does not intend to
incur, or believe that it has incurred, debts beyond its ability to pay such
debts as they mature. The Seller does not contemplate the commencement of
insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar official
in respect of the Seller or any of its assets. The amount of consideration
being received by the Seller upon the sale of the Initial Receivables and
related Other Trust Property and contemplated to be received upon the Sale of
the Subsequent Receivables and related Other Trust Property constitutes
reasonably equivalent value and fair consideration for interest in such
Receivables and such Other Trust Property. The Seller is not transferring the
Other Trust Property to the Trust, as provided in the Transaction Documents,
with any intent to hinder, delay or defraud any of the Seller's creditors.
(o) REGISTRATION STATEMENT; PROSPECTUS. The Seller has filed with
the Securities and Exchange Commission (the "Commission") a registration
statement on Form S-3 (No. 333-18021), including a preliminary prospectus and
prospectus supplement for the registration of the Notes under the Securities
Act, has filed such amendments thereto, and such amended preliminary
prospectuses and prospectus supplements as may have been required to the date
hereof, and will file such additional amendments thereto and such amended
prospectuses and prospectus supplements as may hereafter be required. Such
registration statement (as amended, if applicable) and the prospectus, together
with the prospectus supplement relating to the Notes, constituting a part
thereof (including in each case all documents, if any, incorporated by reference
therein and the information, if any, deemed to be part thereof pursuant to the
rules and regulations of the Commission under the Securities Act (the "Rules and
Regulations"), as from time to time amended or supplemented pursuant to the
Securities Act or otherwise) are hereinafter referred to as the "Registration
Statement" and the "Prospectus," respectively, except that if any revised
prospectus or prospectus supplement shall be provided by the Seller for use in
connection with the offering of the Notes which differs from the Prospectus
filed with the Commission pursuant to Rule 424 of the Rules and Regulations
(whether or not such revised prospectus is required to be filed by the Seller
pursuant to Rule 424 of the Rules and Regulations), the term "Prospectus" shall
refer to such revised prospectus and prospectus supplement from and after the
time it is first provided to the Underwriters for such use. The Registration
Statement at the time they became effective complied, and at each time that the
Prospectus is provided to the Underwriters for use in connection with the
offering or sale of any Note will comply, in all material respects with the
requirements of the Securities Act and the Rules and Regulations. The
Registration Statement and the Prospectus at the time the Registration Statement
became effective did not and on the date hereof does not, contain an
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untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading and
the Prospectus at the time it was first provided to the Underwriters for use in
connection with the offering of the Notes did not, and on the date hereof does
not, contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein in light of the circumstances
under which they were made not misleading, except that the representations and
warranties in this subparagraph shall not apply to statements in or omissions
from the Registration Statement or the Prospectus or any preliminary prospectus
made in reliance upon information furnished to the Seller in writing by
Financial Security expressly for use therein or the financial statements
(including the related notes thereto) of Financial Security.
(p) ERISA. The Seller is in compliance with ERISA and has not
incurred and does not reasonably expect to incur any liabilities to the PBGC
under ERISA in connection with any Plan or Multiemployer Plan or to contribute
now or in the future in respect of any Plan or Multiemployer Plan.
(q) PLEDGE OF SHARES. The shares of stock of the Seller which have
been pledged pursuant to the Stock Pledge Agreement constitute all of the issued
and outstanding shares of the Seller.
(r) PERFECTION OF LIENS AND SECURITY INTEREST. On the Closing
Date, the Lien and security interest in favor of the Indenture Collateral Agent
with respect to Indenture Property will be perfected by the filing of financing
statements on Form UCC-1 in each jurisdiction where such recording or filing is
necessary for the perfection thereof, the delivery of the Receivable Files for
the Receivables to the Custodian, and the establishment of the Collection
Account, the Subcollection Account, the Lockbox Account, the Pre-Funding
Account, the Reserve Account and the Note Distribution Account in accordance
with the provisions of the Transaction Documents, and no other filings in any
jurisdiction or any other actions (except as expressly provided herein) are
necessary to perfect the Collateral Agent's Lien on and security interest in the
Collateral as against any third parties.
(s) SECURITY INTEREST IN FUNDS AND INVESTMENTS. Assuming the
retention of funds in the Accounts and the acquisition of Eligible Investments
in accordance with the Transaction Documents, such funds and Eligible
Investments will be subject to a valid and perfected, first priority security
interest in favor of the Collateral Agent on behalf of the Indenture Trustee (on
behalf of the Noteholders) and Financial Security.
Section 2.05 AFFIRMATIVE COVENANTS OF ARCADIA FINANCIAL AND THE
SELLER. Each of Arcadia Financial and the Seller hereby agree that during the
Term of the Agreement, unless Financial Security shall otherwise expressly
consent in writing:
(a) COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS. The Seller
will comply with all terms and conditions of this Agreement and each other
Transaction Document to which it is a party and with all material requirements
of any law, rule or regulation applicable to it. The Seller will not cause or
permit to become effective any amendment to or modification of any of the
Transaction Documents to which it is a party unless (i) (so long as no Insurer
Default shall
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have occurred and be continuing) Financial Security shall have previously
approved in writing the form of such amendment or modification or (ii) if an
Insurer Default shall have occurred and be continuing, such amendment would not
adversely affect the interests of Financial Security. The Seller shall not take
any action or fail to take any action that would interfere with the enforcement
of any rights under this Agreement or the other Transaction Documents.
(b) CORPORATE EXISTENCE. The Seller shall maintain its corporate
existence and shall at all times continue to be duly organized under the laws of
Delaware and duly qualified and duly authorized (as described in Sections
2.04(a), (b) and (c) hereof) and shall conduct its business in accordance with
the terms of its corporate charter and bylaws.
(c) FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION.
The Seller shall keep or cause to be kept in reasonable detail books and records
of account of the Seller's assets and business, and shall clearly reflect
therein the transfer of the Receivables and the Other Trust Property to the
Trust and the sale of the Receivables as a sale to the Trust of the Seller's
interest in the Receivables and the Other Trust Property. The Seller shall
furnish to Financial Security, simultaneously with the delivery of such
documents to the Trustee or the Noteholders, as the case may be, copies of all
reports, certificates, statements, financial statements or notices furnished to
the Trustee or the Noteholders, as the case may be, pursuant to the Transaction
Documents. The Seller shall furnish to Financial Security as soon as available,
and in any event within 90 days after the close of each fiscal year of the
Seller, the unaudited balance sheet of the Seller as of the end of such fiscal
year and the unaudited statements of income, changes in shareholders' equity and
cash flows of the Seller for such fiscal year, all in reasonable detail and
stating in comparative form the respective figures for the preceding fiscal
year, prepared in accordance with generally accepted accounting principles,
consistently applied.
(d) COMPLIANCE CERTIFICATE. The Seller shall deliver to Financial
Security, within 90 days after the close of each fiscal year of the Seller, a
certificate signed by an Authorized Officer of the Seller stating that:
(i) a review of the Seller's performance under the Transaction
Documents during such period has been made under such officer's
supervision; and
(ii) to the best of such individual's knowledge following
reasonable inquiry, no Default or Event of Default has occurred, or if a
Default or Event of Default has occurred, specifying the nature thereof
and, if the Seller has or had a right to cure pursuant to Section 5.01,
stating in reasonable detail the steps, if any, taken or being taken by the
Seller to cure such Default or Event of Default or to otherwise comply with
the terms of the Transaction Document to which such Default or Event of
Default relates.
(iii) the financial reports submitted in accordance with Section
2.05(c) hereof, are complete and correct in all material respects and
present fairly the financial condition and results of operations of the
Seller as of the dates and for the periods indicated, in accordance with
generally accepted accounting principles consistently applied.
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(e) ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS.
The Seller shall, upon the request of Financial Security, permit Financial
Security or its authorized agents (i) to inspect the books and records of the
Seller as they may relate to the Notes, the Receivables and the Other Trust
Property, the obligations of the Seller under the Transaction Documents, the
Seller's business and the Transaction and (ii) to discuss the affairs, finances
and accounts of the Seller with any of its officers, directors and
representatives, including its Independent Accountants. Such inspections and
discussions shall be conducted during normal business hours and shall not
unreasonably disrupt the business of the Seller. The books and records of the
Seller will be maintained at the address of the Seller designated herein for
receipt of notices, unless the Seller shall otherwise advise the parties hereto
in writing.
(f) NOTICE OF MATERIAL EVENTS. The Seller shall promptly inform
Financial Security in writing of the occurrence of any of the following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation against the
Seller involving potential damages or penalties in an uninsured amount in
excess of $5,000 in any one instance or $25,000 in the aggregate;
(ii) any change in the location of Seller's principal office or any
change in the location of the Seller's books and records;
(iii) the occurrence of any Default or Event of Default;
(iv) the commencement or threat of any rule making or disciplinary
proceedings or any proceedings instituted by or against the Seller in any
federal, state or local court or before any governmental body or agency, or
before any arbitration board, or the promulgation of any proceeding or any
proposed or final rule which, if adversely determined, would result in a
Material Adverse Change with respect to the Seller or the Trust;
(v) the commencement of any proceedings by or against the Seller
under any applicable bankruptcy, reorganization, liquidation,
rehabilitation, insolvency or other similar law now or hereafter in effect
or of any proceeding in which a receiver, liquidator, conservator, trustee
or similar official shall have been, or may be, appointed or requested for
the Seller or any of its assets;
(vi) the receipt of notice that (A) the Seller is being placed
under regulatory supervision, (B) any license, permit, charter,
registration or approval necessary for the conduct of the Seller's business
is to be, or may be, suspended or revoked, or (C) the Seller is to cease
and desist any practice, procedure or policy, employed by the Seller in the
conduct of its business, and such cessation may result in a Material
Adverse Change with respect to the Seller or the Trust; or
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(vii) any other event, circumstance or condition that has resulted,
or has a material possibility of resulting, in a Material Adverse Change in
respect of the Seller, or the Trust.
(g) FURTHER ASSURANCES. The Seller will file all necessary
financing statements, assignments or other instruments, and any amendments or
continuation statements relating thereto, necessary to be kept and filed in such
manner and in such places as may be required by law to preserve and protect
fully the Lien and security interest in, and all rights of the Trust with
respect to Other Trust Property, under the Sale and Servicing Agreement. In
addition, the Seller shall, upon the request of Financial Security (so long as
no Insurer Default has occurred and is continuing), from time to time, execute,
acknowledge and deliver and, if necessary, file such further instruments and
take such further action as may be reasonably necessary to effectuate the
intention, performance and provisions of the Transaction Documents to which the
Seller is a party or to protect the interest of the Trust in the Receivables
under the Sale and Servicing Agreement. The Seller agrees to cooperate with the
Rating Agencies in connection with any review of the Transaction which may be
undertaken by the Rating Agencies after the date hereof.
(h) MAINTENANCE OF LICENSES. The Seller shall maintain all
licenses, permits, charters and registrations which are material to the
performance by the Seller of its obligations under this Agreement and each other
Transaction Document to which the Seller is a party or by which the Seller is
bound.
(i) DISCLOSURE DOCUMENT. Each Prospectus delivered with respect
to the Notes shall clearly disclose that the Note Policy is not covered by the
property/casualty insurance security fund specified in Article 76 of the New
York Insurance Law. In addition, each Prospectus delivered with respect to the
Notes which includes financial statements of Financial Security prepared in
accordance with generally accepted accounting principles (other than a
Prospectus that only incorporates such financial statements by reference) shall
include the following statement immediately preceding such financial statements:
The New York State Insurance Department recognizes only
statutory accounting practices for determining and reporting
the financial condition and results of operations of an
insurance company, for determining its solvency under the
New York Insurance Law, and for determining whether its
financial condition warrants the payment of a dividend to
its stockholders. No consideration is given by the New York
State Insurance Department to financial statements prepared
in accordance with generally accepted accounting principles
in making such determinations.
(j) SPECIAL PURPOSE ENTITY.
(i) The Seller shall conduct its business solely in its own name
through its duly authorized officers or agents so as not to mislead others
as to the identity of the entity with which those others are concerned, and
particularly will use its best efforts to
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avoid the appearance of conducting business on behalf of Arcadia Financial
or any other Affiliate thereof or that the assets of the Seller are
available to pay the creditors of Arcadia Financial or any Affiliate
thereof. Without limiting the generality of the foregoing, all oral and
written communications, including, without limitation, letters, invoices,
purchase orders, contracts, statements and loan applications, will be made
solely in the name of the Seller.
(ii) The Seller shall maintain corporate records and books of
account separate from those of Arcadia Financial and the other Affiliates
thereof.
(iii) The Seller shall obtain proper authorization from its board of
directors of all corporate action requiring such authorization, meetings of
the board of directors of the Seller shall be held not less frequently than
three times per annum and copies of the minutes of each such board meeting
shall be delivered to Financial Security within two weeks of such meeting.
(iv) The Seller shall obtain proper authorization from its
shareholders of all corporate action requiring shareholder approval,
meetings of the shareholders of the Seller shall be held not less
frequently than one time per annum and copies of each such authorization
and the minutes of each such shareholder meeting shall be delivered to
Financial Security within two weeks of such authorization or meeting, as
the case may be.
(v) Although the organizational expenses of the Seller have been
paid by Arcadia Financial, operating expenses and liabilities of the Seller
shall be paid from its own funds.
(vi) The annual financial statements of the Seller shall disclose
the effects of the Seller's transactions in accordance with generally
accepted accounting principles and shall disclose that the assets of the
Seller are not available to pay creditors of Arcadia Financial or any other
Affiliate thereof.
(vii) The resolutions, agreements and other instruments of the
Seller underlying the transactions described in this Agreement and in the
other Transaction Documents shall be continuously maintained by the Seller
as official records of the Seller separately identified and held apart from
the records of Arcadia Financial and each other Affiliate thereof.
(viii) The Seller shall maintain an arm's-length relationship with
Arcadia Financial and the other Affiliates thereof and will not hold itself
out as being liable for the debts of Arcadia Financial or any Affiliate
thereof.
(ix) The Seller shall keep its assets and its liabilities wholly
separate from those of all other entities, including, but not limited to
Arcadia Financial and the other Affiliates thereof except, in each case, as
contemplated by the Transaction Documents.
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(k) CLOSING DOCUMENTS. The Seller shall provide or cause to be
provided to Financial Security an executed original copy of each document
executed in connection with the Transaction within 10 days after the Closing
Date, except that the Seller shall cause a copy of the Trust Agreement, the Sale
and Servicing Agreement, the Series 1997-D Supplement, the Indenture, the
Administration Agreement and each Transaction Document to which Financial
Security is a party to be provided to Financial Security on the Closing Date.
(l) SUBSEQUENT RECEIVABLES; GOOD TITLE; VALID TRANSFER; ABSENCE OF
LIENS; SECURITY INTEREST. Immediately prior to the sale to the Trust pursuant
to a Subsequent Transfer Agreement, the Seller will be the owner of, and shall
have good and marketable title to, the Subsequent Receivables transferred
thereby and the related Other Trust Property free and clear of all Liens and
Restrictions on Transferability, and shall have full right, corporate power and
lawful authority to assign, transfer and pledge such property.
(m) INCORPORATION OF COVENANTS. The Seller agrees to comply with
each of the Seller's covenants set forth in the Transaction Documents and hereby
incorporates such covenants by reference as if each were set forth herein.
Section 2.06 NEGATIVE COVENANTS OF ARCADIA FINANCIAL AND THE SELLER.
Each of Arcadia Financial and the Seller hereby agrees that during the Term of
this Agreement, unless Financial Security shall otherwise give its prior express
written consent:
(a) WAIVER; AMENDMENTS, ETC. The Seller shall not waive, modify,
amend, supplement or consent to any waiver, modification, amendment of or
supplement to, any of the provisions of any of the Transaction Documents or
Previous Series Transaction Documents or of its certificate of incorporation or
by-laws (i) unless, if no Insurer Default shall have occurred and be
continuing, Financial Security shall have consented thereto in writing or (ii)
if an Insurer Default shall have occurred and be continuing, which would
adversely affect the interests of Financial Security.
(b) CREATION OF INDEBTEDNESS; GUARANTEES. The Seller shall not
create, incur, assume or suffer to exist any indebtedness or assume, guarantee,
endorse or otherwise be or become directly or contingently liable for the
obligations of any Person by, among other things, agreeing to purchase any
obligation of another Person, agreeing to advance funds to such Person or
causing or assisting such Person to maintain any amount of capital, except as
contemplated by the Transaction Documents or as contemplated by the documents
relating to a Series of Notes.
(c) SUBSIDIARIES. The Seller shall not form, or cause to be
formed, any Subsidiaries.
(d) NO LIENS. The Seller shall not, except as contemplated by the
Transaction Documents or as contemplated by the documents relating to a Series
of Notes, create, incur, assume or suffer to exist any Lien of any nature upon
or with respect to any of its properties or assets, now owned or hereafter
acquired, or sign or file under the Uniform Commercial Code of any jurisdiction
any financing statement that names the Seller as debtor, or sign any security
agreement authorizing any secured party thereunder to file such a financing
statement.
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(e) ISSUANCE OF STOCK. The Seller shall not issue any shares of
capital stock or rights, warrants or options in respect of its capital stock or
securities convertible into or exchangeable for its capital stock, other than
the shares of common stock which have been pledged to Financial Security under
the Seller Stock Pledge Agreement.
(f) IMPAIRMENT OF RIGHTS. The Seller shall not take any action,
or fail to take any action, if such action or failure to take action may
interfere with the enforcement of any rights under the Transaction Documents
that are material to the rights, benefits or obligations of the Trust, the
Indenture Trustee, the Noteholders or Financial Security.
(g) NO MERGERS. The Seller shall not consolidate with or merge
into any Person or transfer all or any material amount of its assets to any
Person (except as contemplated by the Transaction Documents or the documents
relating to a Series of Notes).
(h) ERISA. The Seller shall not contribute or incur any
obligation to contribute to, or incur any liability in respect of, any Plan or
Multiemployer Plan.
(i) OTHER ACTIVITIES. The Seller shall not:
(i) sell, pledge, transfer, exchange or otherwise dispose of any
of its assets except as permitted under the Transaction Documents or the
documents relating to a Series of Notes; or
(ii) engage in any business or activity except as contemplated by the
Transaction Documents or as contemplated by the documents relating to a
Series of Notes and as permitted by its certificate of incorporation.
(j) INSOLVENCY. The Seller shall not commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, consolidation or other relief with respect
to it or the Trust or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for the Trust or for all or any substantial
part of its assets or the Collateral related to any or all Series, or make a
general assignment for the benefit of its creditors. The Seller shall not take
any action in furtherance of, or indicating the consent to, approval of, or
acquiescence in any of the acts set forth above. The Seller shall not admit in
writing its inability to pay its debts.
(k) DIVIDENDS. The Seller shall not declare or make payment of
(i) any dividend or other distribution on any shares of its capital stock, or
(ii) any payment on account of the purchase, redemption, retirement or
acquisition of any option, warrant or other right to acquire shares of its
capital stock, unless (in each case) at the time of such declaration or payment
(and after giving effect thereto) no amount payable by the Seller under any
Transaction Document with respect to any Series is then due and owing but
unpaid.
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Section 2.07 REPRESENTATIONS AND WARRANTIES OF ARCADIA FINANCIAL.
Arcadia Financial represents and warrants, as of the date hereof and as of the
Closing Date, as follows:
(a) DUE ORGANIZATION AND QUALIFICATION. Arcadia Financial and
each of its Subsidiaries is a corporation, duly organized, validly existing and
in good standing under the laws of the State of its respective incorporation
with power and authority to own its properties and conduct its business.
Arcadia Financial and each of its Subsidiaries is duly qualified to do business
and is in good standing in each jurisdiction in which the failure to be so
qualified would render any of the Receivables unenforceable in any respect or
would otherwise have a material adverse effect upon the Transaction. Arcadia
Financial and each of its Subsidiaries has obtained all licenses, permits,
charters, registrations and approvals necessary for the conduct of its business
as currently conducted and as described in the Prospectus and for the
performance of its obligations under the Transaction Documents.
(b) POWER AND AUTHORITY. Arcadia Financial has all necessary
corporate power and authority to conduct its business as currently conducted and
as described in the Prospectus, to execute, deliver and perform its obligations
under this Agreement and each other Transaction Document to which it is a party
and to carry out the terms of each such agreement.
(c) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement and each other Transaction Document to which Arcadia Financial is
a party has been duly authorized by all necessary corporate action and does not
require any additional approvals or consents or other action by or any notice to
or filing with any Person, including, without limitation, any governmental
entity or Arcadia Financial's stockholders.
(d) NONCONTRAVENTION. Neither the execution and delivery of this
Agreement and each other Transaction Document to which Arcadia Financial is a
party, the consummation of the Transaction, nor the satisfaction of the terms
and conditions of this Agreement and each other Transaction Document to which
Arcadia Financial is a party,
(i) conflicts with or results in any breach or violation of any
provision of the corporate charter or bylaws of Arcadia Financial or any
law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award currently in effect having applicability to Arcadia
Financial or any of its properties, including regulations issued by an
administrative agency or other governmental authority having supervisory
powers over Arcadia Financial,
(ii) constitutes a default by Arcadia Financial under or a breach of
any provision of any loan agreement, mortgage, indenture or other agreement
or instrument to which Arcadia Financial or any of its Subsidiaries is a
party or by which it or any of its or their properties is or may be bound
or affected, or
(iii) results in or requires the creation of any Lien upon or in
respect of any of Arcadia Financial's assets, except as otherwise expressly
contemplated by the Transaction Documents.
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(e) PENDING LITIGATION OR OTHER PROCEEDING. There is no action,
proceeding or investigation pending, or, to Arcadia Financial's best knowledge,
threatened, before any court, regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over Arcadia Financial or its
properties: (A) asserting the invalidity of this Agreement or any other
Transaction Document to which Arcadia Financial is a party, (B) seeking to
prevent the issuance of the Notes, or the consummation of the Transaction,
(C) seeking any determination or ruling that might materially and adversely
affect the validity or enforceability of, this Agreement or any other
Transaction Document to which Arcadia Financial is a party, (D) which might
result in a Material Adverse Change with respect to Arcadia Financial or
(E) which might adversely affect the federal or state tax attributes of the
Notes or the Trust.
(f) VALID AND BINDING OBLIGATIONS. The Purchase Agreement
constitutes a valid sale, transfer, and assignment of the Receivables and Other
Trust Property to the Seller, enforceable against creditors of and purchasers
from Arcadia Financial. Each of the other Transaction Documents to which
Arcadia Financial is a party when executed and delivered by Arcadia Financial,
and assuming the due authorization, execution and delivery by the other parties
thereto, will constitute the legal, valid and binding obligation of Arcadia
Financial enforceable in accordance with its respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
general equitable principles.
(g) NO CONSENTS. No consent, license, approval or authorization
from, or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any consent,
approval, waiver or notification of any creditor, lessor or other
non-governmental person, is required in connection with the execution, delivery
and performance by Arcadia Financial of this Agreement or of any other
Transaction Document to which Arcadia Financial is a party, except (in each
case) such as have been obtained and are in full force and effect.
(h) FINANCIAL STATEMENTS. The Financial Statements of Arcadia
Financial, copies of which have been furnished to Financial Security, (i) are,
as of the dates and for the periods referred to therein, complete and correct in
all material respects, (ii) present fairly the financial condition and results
of operations of Arcadia Financial as of the dates and for the periods indicated
and (iii) have been prepared in accordance with generally accepted accounting
principles consistently applied, except as noted therein (subject as to interim
statements to normal year-end adjustments and the absence of notes). Since the
date of the most recent Financial Statements, there has been no material adverse
change in such financial condition or results of operations. Except as
disclosed in the Financial Statements, Arcadia Financial is not subject to any
contingent liabilities or commitments that, individually or in the aggregate,
have a reasonable likelihood of causing a Material Adverse Change in respect of
Arcadia Financial.
(i) COMPLIANCE WITH LAW, ETC. No practice, procedure or policy
employee or proposed to be employed by Arcadia Financial in the conduct of its
business violates any law, regulation, judgment, agreement, order or decree
applicable to Arcadia Financial which, if enforced, would result in a Material
Adverse Change with respect to Arcadia Financial.
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(j) TAXES. Arcadia Financial has, and each of its Subsidiaries
have, filed all federal and state tax returns and paid all taxes to the extent
that such taxes have become due. Any taxes, fees and other governmental charges
payable by Arcadia Financial in connection with the Transaction, the execution
and delivery of the Transaction Documents and the issuance of the Notes have
been paid or shall have been paid at or prior to the Closing Date.
(k) ERISA. Arcadia Financial is in compliance with ERISA and has
not incurred and does not reasonably expect to incur any liabilities to the PBGC
under ERISA in connection with any Plan or Multiemployer Plan or to contribute
now or in the future in respect of any Plan or Multiemployer Plan except in
accordance with the provisions of Section 2.9(e) hereof.
(l) INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES.
Arcadia Financial represents and warrants to Financial Security that the
representations and warranties of Arcadia Financial set forth in the Transaction
Documents are (in each case) true and correct as if set forth herein.
Section 2.08 AFFIRMATIVE COVENANTS OF ARCADIA FINANCIAL. Arcadia
Financial hereby agrees that during the Term of the Agreement, unless Financial
Security shall otherwise expressly consent in writing:
(a) COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS. Arcadia
Financial will comply with all terms and conditions of this Agreement and each
other Transaction Document to which it is a party and all material requirements
of any law, rule or regulation applicable to it. Arcadia Financial will not
cause or permit to become effective any amendment to or modification of any
Transaction Document to which it is a party (i) unless, so long as no Insurer
Default shall have occurred and be continuing, Financial Security shall have
previously approved in writing the form of such amendment or modification or
(ii) if an Insurer Default shall have occurred and be continuing, such
amendment would not adversely affect the interests of Financial Security.
Arcadia Financial shall not take any action or fail to take any action that
would interfere with the enforcement of any rights under this Agreement or the
other Transaction Documents.
(b) CORPORATE EXISTENCE. Arcadia Financial shall maintain its
corporate existence and shall at all times continue to be duly organized under
the laws of Minnesota and duly qualified and duly authorized (as described in
Sections 2.07(a), (b) and (c) hereof) and shall conduct its business in
accordance with the terms of its corporate charter and bylaws.
(c) FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION.
Arcadia Financial shall keep or cause to be kept in reasonable detail books and
records of account of Arcadia Financial's assets and business. Arcadia
Financial, so long as it shall be the Servicer, shall furnish to Financial
Security, simultaneously with the delivery of such documents to the Owner
Trustee, Indenture Trustee or the Noteholders, as the case may be, copies of all
reports, certificates, statements or notices furnished to the Owner Trustee,
Indenture Trustee or the Noteholders, as the case may be, pursuant to the
Transaction Documents. Arcadia Financial shall also furnish or cause to be
furnished to Financial Security:
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(i) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in any
event within 90 days after the close of each fiscal year of Arcadia
Financial, the audited balance sheets of Arcadia Financial and its
subsidiaries as of the end of such fiscal year and the audited consolidated
statements of income, changes in shareholders' equity and cash flows of
Arcadia Financial for such fiscal year, all in reasonable detail and
stating in comparative form the respective figures for the corresponding
date and period in the preceding fiscal year, prepared in accordance with
generally accepted accounting principles, consistently applied, and
accompanied by the certificate of Arcadia Financial's independent
accountants (which, so long as no Insurer Default shall have occurred and
be continuing, shall be acceptable to Financial Security) and by the
certificate specified in Section 2.08(d) hereof.
(ii) QUARTERLY FINANCIAL STATEMENTS. As soon as available, and in
any event within 45 days after the close of each of the first three
quarters of each fiscal year of Arcadia Financial, the unaudited
consolidated balance sheets of Arcadia Financial as of the end of such
quarter and the unaudited consolidated statements of income, changes in
shareholders' equity and cash flows of Arcadia Financial for the portion of
the fiscal year then ended, all in reasonable detail and stating in
comparative form the respective figures for the corresponding date and
period in the preceding fiscal year, prepared in accordance with generally
accepted accounting principles consistently applied (subject to normal
year-end adjustments), and accompanied by the certificate specified in
Section 2.08(d) hereof.
(iii) ACCOUNTANTS' REPORTS. Promptly upon receipt thereof, copies
of any reports submitted to Arcadia Financial by its independent
accountants in connection with any examination of the financial statements
of Arcadia Financial.
(iv) CERTAIN INFORMATION. Promptly after the filing or sending
thereof, copies of all proxy statements, financial statements, reports and
registration statements which Arcadia Financial files, or delivers to, the
IRS, the Commission, or any other federal government agency, authority or
body which supervises the issuance of securities by Arcadia Financial or
any national securities exchange.
(d) COMPLIANCE CERTIFICATE. Arcadia Financial shall deliver to
Financial Security within 90 days after the close of each fiscal year of Arcadia
Financial, a certificate signed by an Authorized Officer of Arcadia Financial
stating that:
(i) a review of Arcadia Financial's performance under the
Transaction Documents during such period has been made under such officer's
supervision;
(ii) to the best of such individual's knowledge following
reasonable inquiry, no Default or Event of Default has occurred, or if a
Default or Event of Default has occurred, specifying the nature thereof
and, if Arcadia Financial has or had a right to cure pursuant to Section
5.01 hereof, stating in reasonable detail the steps, if any, taken or being
taken by Arcadia Financial to cure such Default or Event of Default or to
otherwise comply
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with the terms of the Transaction Document to which such Default or Event
of Default relates; and
(iii) the financial statements submitted in accordance with Section
2.08(c) hereof, as applicable, are complete and correct in all material
respects and present fairly the financial condition and results of
operations of Arcadia Financial as of the dates and for the periods
indicated, in accordance with generally accepted accounting principles
consistently applied (subject as to interim statements to normal year-end
adjustments and the absence of notes).
(e) ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS.
Arcadia Financial shall, upon the request of Financial Security, permit
Financial Security or its authorized agents (i) to inspect the books and
records of Arcadia Financial as they may relate to the Notes, the Receivables,
the obligations of Arcadia Financial as Servicer under the Transaction
Documents, its business and the Transaction and (ii) to discuss the affairs,
finances and accounts of Arcadia Financial with any of its officers, directors
and representatives, including its Independent Accountants. Such inspections and
discussions shall be conducted during normal business hours and shall not
unreasonably disrupt the business of Arcadia Financial. The books and records
of Arcadia Financial will be maintained at the address of Arcadia Financial
designated herein for receipt of notices, unless Arcadia Financial shall
otherwise advise the parties hereto in writing.
(f) NOTICE OF MATERIAL EVENTS. Arcadia Financial shall promptly
inform Financial Security in writing of the occurrence of any of the following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation against
Arcadia Financial involving potential damages or penalties in an uninsured
amount in excess of $10,000 in any one instance or $25,000 in the
aggregate;
(ii) any change in the location of Arcadia Financial's principal
office or any change in the location of the Arcadia Financial's books and
records;
(iii) the occurrence of any Default or Event of Default;
(iv) the commencement or threat of any rule making or disciplinary
proceedings or any proceedings instituted by or against Arcadia Financial
in any federal, state or local court or before any governmental body or
agency, or before any arbitration board, or the promulgation of any
proceeding or any proposed or final rule which, if adversely determined,
would result in a Material Adverse Change with respect to Arcadia
Financial;
(v) the commencement of any proceedings by or against Arcadia
Financial under any applicable bankruptcy, reorganization, liquidation,
rehabilitation, insolvency or other similar law now or hereafter in effect
or of any proceeding in which a receiver,
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liquidator, conservator, trustee or similar official shall have been, or
may be, appointed or requested for Arcadia Financial or any of its assets;
(vi) the receipt of notice that (A) Arcadia Financial is being
placed under regulatory supervision, (B) any license, permit, charter,
registration or approval necessary for the conduct of Arcadia Financial's
business is to be, or may be, suspended or revoked, or (C) Arcadia
Financial is to cease and desist any practice, procedure or policy employed
by Arcadia Financial in the conduct of its business, and such cessation may
result in a Material Adverse Change with respect to Arcadia Financial; or
(vii) any other event, circumstance or condition that has resulted,
or has a material possibility of resulting, in a Material Adverse Change in
respect of Arcadia Financial.
(g) MAINTENANCE OF LICENSES. Arcadia Financial shall maintain all
licenses, permits, charters and registrations which are material to the
performance by Arcadia Financial of its obligations under this Agreement and
each other Transaction Document to which Arcadia Financial is a party or by
which Arcadia Financial is bound.
(h) ERISA. Arcadia Financial shall give Financial Security prompt
notice of each of the following events (but in no event more than 30 days after
the occurrence of the event): (i) an Accumulated Funding Deficiency, (ii) the
failure to make a required contribution to a Plan or Multiemployer Plan, (iii)
a Reportable Event, (iv) any action by a Commonly Controlled Entity to
terminate any Plan or withdraw from any Multiemployer Plan, (v) any action by
the PBGC to terminate or appoint a trustee to administer a Plan, (vi) the
reorganization or insolvency of any Multiemployer Plan and (vii) an aggregate
Underfunding for all Underfunded Plans in excess of $100,000. In addition,
Arcadia Financial shall promptly (but in no case more than 30 days following
issuance or receipt by the Commonly Controlled Entity) provide to Financial
Security a copy of all correspondence between a Commonly Controlled Entity and
the PBGC, IRS, Department of Labor or the administrators of a Multiemployer Plan
relating to any of the events described in the preceding sentence or the
underfunded status, termination or possible termination of a Plan or a
Multiemployer Plan.
(i) THIRD-PARTY BENEFICIARY. Arcadia Financial agrees that
Financial Security shall have all rights of a third-party beneficiary in respect
of the Sale and Servicing Agreement, it being understood that the remedies of
Financial Security with respect to the representations and warranties set forth
in Section 2.4(b) thereof and the covenants set forth in Section 3.6(a) thereof
shall be limited to the remedies set forth in the Sale and Servicing Agreement.
(j) INCORPORATION OF COVENANTS. Arcadia Financial agrees to
comply with each of Arcadia Financial's covenants set forth in the Transaction
Documents and hereby incorporates such covenants by reference as if each were
set forth herein.
Section 2.09 NEGATIVE COVENANTS OF ARCADIA FINANCIAL. Arcadia
Financial hereby agrees that during the Term of this Agreement, unless Financial
Security shall otherwise give its express written consent:
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(a) RESTRICTIONS ON LIENS. Arcadia Financial shall not create,
incur or suffer to exist, or agree to create, incur or suffer to exist, or
consent to cause or permit in the future (upon the happening of a contingency or
otherwise) the creation, incurrence or existence of any Lien or Restriction on
Transferability on the Receivables and the Other Trust Property except for the
Liens in favor of the Seller, the Trust and the Indenture Collateral Agent for
the benefit of the Indenture Trustee and Financial Security contemplated by the
Transaction Documents and the Restrictions on Transferability imposed by the
Purchase Agreement and the Sale and Servicing Agreement.
(b) IMPAIRMENT OF RIGHTS. Arcadia Financial shall not take any
action, or fail to take any action, if such action or failure to take action may
interfere with the enforcement of any rights under the Transaction Documents
that are material to the rights, benefits or obligations of the Seller, the
Trust, the Indenture Trustee, the Noteholders or Financial Security.
(c) LIMITATION ON MERGERS. Arcadia Financial shall not
consolidate with or merge with or into any Person or transfer all or any
material part of its assets to any Person (except as contemplated by the
Transaction Documents) or liquidate or dissolve, provided that Arcadia Financial
may consolidate with, merge with or into, or transfer all or a material part of
its assets to, another corporation if (i) the acquiror of its assets, or the
corporation surviving such merger or consolidation, shall be organized and
existing under the laws of any state and shall be qualified to transact business
in each jurisdiction in which failure to qualify would render any Transaction
Document unenforceable or would result in a Material Adverse Change in respect
of Arcadia Financial or the Trust Property; (ii) after giving effect to such
consolidation, merger or transfer of assets, no Default or Event of Default
shall have occurred or be continuing; (iii) such acquiring or surviving entity
can lawfully perform the obligations of Arcadia Financial under the Transaction
Documents and shall expressly assume in writing all of the obligations of
Arcadia Financial, including, without limitation, its obligations under the
Transaction Documents; and (iv) such acquiring or surviving entity and the
consolidated group of which it is a part shall each have a net worth immediately
subsequent to such consolidation, merger or transfer of assets at least equal to
the net worth of Arcadia Financial immediately prior to such consolidation,
merger or transfer of assets; and Arcadia Financial shall give Financial
Security written notice of any such consolidation, merger or transfer of assets
on the earlier of: (A) the date upon which any publicly available filing or
release is made with respect to such action or (B) 10 Business Days prior to the
date of consummation of such action. Arcadia Financial shall furnish to
Financial Security all information requested by it that is reasonably necessary
to determine compliance with this paragraph.
(d) WAIVER; AMENDMENTS, ETC. Arcadia Financial shall not waive,
modify, amend, supplement or consent to any waiver, modification, amendment of
or supplement to, any of the provisions of any of the Transaction Documents
without the prior written consent of Financial Security (i) unless, so long as
no Insurer Default shall have occurred and be continuing, Financial Security
shall have consented thereto in writing or (ii) if an Insurer Default shall
have occurred and be continuing, which would adversely affect the interests of
Financial Security.
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(e) ERISA. Arcadia Financial shall not contribute or incur any
obligation to contribute to, or incur any liability in respect of, any Plan or
Multiemployer Plan, except that Arcadia Financial may make such a contribution
or incur such a liability provided that neither Arcadia Financial nor any
Commonly Controlled Entity will:
(i) terminate any Plan so as to incur any material liability to
the PBGC;
(ii) knowingly participate in any "prohibited transaction" (as
defined in ERISA) involving any Plan or Multiemployer Plan or any trust
created thereunder which would subject any of them to a material tax or
penalty on prohibited transactions imposed under Section 4975 of the Code
or ERISA;
(iii) fail to pay to any Plan or Multiemployer Plan any contribution
which it is obligated to pay under the terms of such Plan or Multiemployer
Plan, if such failure would cause such Plan to have any material
Accumulated Funding Deficiency, whether or not waived; or
(iv) allow or suffer to exist any occurrence of a Reportable Event,
or any other event or condition, which presents a material risk of
termination by the PBGC of any Plan or Multiemployer Plan, to the extent
that the occurrence or nonoccurrence of such Reportable Event or other
event or condition is within the control of it or any Commonly Controlled
Entity.
(f) INSOLVENCY. Arcadia Financial shall not commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, consolidation or other relief
with respect to the Seller or (B) seeking appointment of a receiver, trustee,
custodian or other similar official for the Seller. Arcadia Financial shall not
take any action in furtherance of, or indicating the consent to, approval of, or
acquiescence in any of the acts set forth above.
ARTICLE III.
THE NOTE POLICY; REIMBURSEMENT; INDEMNIFICATION
Section 3.01 CONDITIONS PRECEDENT TO ISSUANCE OF THE NOTE POLICY.
Financial Security agrees to issue the Note Policy subject to satisfaction of
the conditions set forth below.
(a) The obligation of Financial Security to issue the Note Policy
is subject to the following having occurred or being true (as the case may be):
(i) Financial Security shall have received evidence satisfactory to it that the
Seller shall have assigned, conveyed and transferred, or caused to be assigned,
conveyed and transferred, the Initial Receivables to the Trust, (ii) the Seller
shall have created a valid security interest in, and Lien on, the Receivables in
favor of the Trust, (iii) the Trust shall have created a valid security
interest in, and Lien on, the Indenture Property in favor of the Indenture
Collateral Agent on behalf of the Indenture Trustee (on behalf
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of the Noteholders) and Financial Security, (iv) the initial Premium shall have
been paid in accordance with Section 3.02 hereof, (v) the representations and
warranties of the Trust, the Seller and of Arcadia Financial and the Servicer
set forth or incorporated by reference in this Agreement shall be true and
correct on and as of the Closing Date, and (vi) each Transaction Document shall
be in full force and effect and no Default thereunder shall have occurred and be
continuing.
(b) The obligation of Financial Security to issue the Note Policy
is further subject to the condition precedent that Financial Security shall have
received on the Closing Date, or, in its sole and absolute discretion, received
the opportunity to review prior to and on the Closing Date, the following, each
dated the Closing Date and in full force and effect on such date, except as
otherwise provided herein, in form and substance satisfactory to Financial
Security and its counsel:
(i) a certificate of an Authorized Officer of each of the Seller and
Arcadia Financial stating that nothing has come to the attention of such
entity to indicate that the Registration Statement or the Prospectus, on
the date the Registration Statement became effective, contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus on any date on which it was forwarded to
the Underwriter for use in connection with the offering of the Notes
contained, or on the Closing Date contains, any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements made therein, in light of the circumstances under which they
were made, not misleading;
(ii) copies, certified to be true copies by an Authorized Officer of
the Owner Trustee, of (i) the resolutions of the board of directors of the
Owner Trustee authorizing the execution, delivery and performance by the
Owner Trustee of this Agreement and each other Transaction Document to
which the Owner Trustee is a party and all transactions and documents
contemplated hereby and thereby, and of all other documents evidencing any
other necessary action of the Owner Trustee (which certification shall
state that such resolutions have not been modified, are in full force and
effect and constitute the only resolutions adopted by the Owner Trustee's
board of directors or any committee thereof with respect thereto and (ii)
the Certificate of Trust, certified by the Secretary of State or other
appropriate official of the State of Delaware;
(iii) copies, certified to be true copies by an Authorized Officer of
the Seller, of (i) the resolutions of the board of directors of the Seller
authorizing the execution, delivery and performance of this Agreement and
each other Transaction Document to which the Seller is a party and all
transactions and documents contemplated hereby and thereby, and of all
other documents evidencing any other necessary action of the Seller (which
certification shall state that such resolutions have not been modified, are
in full force and effect and constitute the only resolutions adopted by the
Seller's board of directors or any committee thereof with respect thereto),
(ii) the corporate charter of the Seller and (iii) the by-laws, as
amended, of the Seller;
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(iv) copies, certified to be true copies by an Authorized Officer
of Arcadia Financial, of (i) the resolutions of the board of directors of
Arcadia Financial authorizing the execution, delivery and performance of
this Agreement and each other Transaction Document to which Arcadia
Financial is a party and all other transactions and documents contemplated
hereby and thereby, and of all documents evidencing any other necessary
action of Arcadia Financial (which certification shall state that such
resolutions have not been modified, are in full force and effect and
constitute the only resolutions adopted by Arcadia Financial's board of
directors or any committee thereof with respect thereto), (ii) the
corporate charter of Arcadia Financial and (iii) the by-laws, as amended,
of Arcadia Financial;
(v) a certificate of an Authorized Officer of the Owner Trustee
stating that (i) all consents, licenses and approvals necessary for the
Owner Trustee to execute, deliver and perform this Agreement, the other
Transaction Documents to which the Owner Trustee is a party and all other
documents and instruments on the part of the Owner Trustee to be delivered
pursuant hereto or thereto have been obtained, and (ii) all such consents,
licenses and approvals are in full force and effect, the Owner Trustee has
not received any notice of any proceeding for the revocation of any such
license, charter, permit or approval, and, to the Owner Trustee's
knowledge, there is no threatened action or proceeding or any basis
therefor;
(vi) a certificate of an Authorized Officer of the Seller stating
that (i) all consents, licenses and approvals necessary for the Seller to
execute, deliver and perform this Agreement, the other Transaction
Documents to which the Seller is a party and all other documents and
instruments on the part of the Seller to be delivered pursuant hereto or
thereto have been obtained, and (ii) all such consents, licenses and
approvals are in full force and effect, the Seller has not received any
notice of any proceeding for the revocation of any such license, charter,
permit or approval, and, to the Seller's knowledge, there is no threatened
action or proceeding or any basis therefor;
(vii) a certificate of an Authorized Officer of Arcadia Financial
stating that (i) all consents, licenses and approvals necessary for
Arcadia Financial to execute, deliver and perform this Agreement, the other
Transaction Documents to which Arcadia Financial is a party and all other
documents and instruments on the part of Arcadia Financial to be delivered
pursuant hereto or thereto have been obtained, and (ii) all such consents,
licenses and approvals are in full force and effect, Arcadia Financial has
not received any notice of any proceeding for the revocation of any such
license, charter, permit or approval, and, to Arcadia Financial's
knowledge, there is no threatened action or proceeding or any basis
therefor;
(viii) a certificate of an Authorized Officer of the Owner Trustee
certifying (i) the names and true signatures of the officers of the Owner
Trustee executing and delivering this Agreement, the other Transaction
Documents to which the Owner Trustee is a party and the other documents to
be executed and delivered by the Owner Trustee hereunder and thereunder,
(ii) that approval by the Owner Trustee's equity holders of the
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execution and delivery of this Agreement, the other Transaction Documents
and all other such documents to be executed and delivered, by the Owner
Trustee hereunder, has been obtained or is not required, and (iii) that no
action for the dissolution of the Owner Trustee has been adopted or
contemplated and that no such proceedings have been commenced or are
contemplated;
(ix) a certificate of an Authorized Officer of the Seller
certifying (i) the names and true signatures of the officers of the Seller
executing and delivering this Agreement, the other Transaction Documents to
which the Seller is a party and the other documents to be executed and
delivered by the Seller hereunder and thereunder, (ii) that approval by
the Seller's stockholder of the execution and delivery of this Agreement,
the other Transaction Documents and all other such documents to be executed
and delivered, by the Seller hereunder, has been obtained or is not
required, and (iii) that no resolution for the dissolution of the Seller
has been adopted or contemplated and that no such proceedings have been
commenced or are contemplated;
(x) a certificate of an Authorized Officer of Arcadia Financial
certifying (i) the names and true signatures of the officers of Arcadia
Financial executing and delivering this Agreement, the other Transaction
Documents to which Arcadia Financial is a party and the other documents to
be executed and delivered by Arcadia Financial hereunder and thereunder,
(ii) that approval by Arcadia Financial's stockholders of the execution
and delivery of this Agreement, the other Transaction Documents and all
other such documents to be executed and delivered, by Arcadia Financial
hereunder, has been obtained or is not required, and (iii) that no
resolution for the dissolution of Arcadia Financial has been adopted or
contemplated and that no such proceedings have been commenced or are
contemplated;
(xi) a certificate of an Authorized Officer of the Trust to the
effect that (x) the representations and warranties of the Trust set forth
or incorporated by reference in this Agreement are true and correct on and
as of the Closing Date and (y) confirming that the conditions precedent set
forth herein with respect to the Trust are satisfied;
(xii) a certificate of an Authorized Officer of the Seller to the
effect that (x) the representations and warranties of the Seller set forth
or incorporated by reference in this Agreement are true and correct on and
as of the Closing Date and (y) confirming that the conditions precedent set
forth herein with respect to the Seller are satisfied;
(xiii) a certificate of an Authorized Officer of Arcadia Financial to
the effect that (x) the representations and warranties of Arcadia Financial
set forth or incorporated by reference in this Agreement are true and
correct on and as of the Closing Date, and (y) confirming that the
conditions precedent set forth herein with respect to Arcadia Financial are
satisfied;
(xiv) favorable opinions of counsel and special Texas counsel to the
Seller and Arcadia Financial in form and substance satisfactory to
Financial Security and its counsel;
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(xv) a favorable opinion of counsel to each of the Trust, the Owner
Trustee, the Indenture Trustee and the Collateral Agent and the Indenture
Collateral Agent, in form and substance satisfactory to Financial Security
and its counsel;
(xvi) evidence that amounts due and payable Financial Security under
Section 3.02 of this Agreement have been paid or that acceptable provisions
therefor have been made;
(xvii) a fully executed copy of each of the Transaction Documents;
(xviii) evidence that all actions necessary or, in the opinion of
Financial Security, desirable to perfect and protect the interests
transferred by the Sale and Servicing Agreement, the liens and security
interests created with respect to the Spread Account, the Liens and
security interest created in favor of the Indenture Collateral Agent with
respect to the Indenture Property pursuant to the Indenture, including,
without limitation, the filing of any financing statements required by
Financial Security or its counsel, have been taken;
(xix) a certificate or opinion of Independent Accountants addressed
to Financial Security in form and substance satisfactory to Financial
Security;
(xx) evidence that the Seller shall have deposited, or caused to
have been deposited, the deposits required under the Sale and Servicing
Agreement and the Spread Account Agreement, and any other deposits required
to be made on the Closing Date under the Transaction Documents to which the
Seller is a party; and
(xxi) such other documents, instruments, approvals (and, if
requested by Financial Security, certified duplicates of executed copies
thereof) or opinions as Financial Security may reasonably request.
(c) ISSUANCE OF RATINGS. Financial Security shall have received
confirmation that the risk secured by the Note Policy constitutes an investment
grade risk by Standard and Poor's Corporation ("S&P") and an insurable risk by
Moody's Investors Service, Inc. ("Moody's") and that the Class A-1 Notes, when
issued, will be rated "A-1+" by S&P and "P-1" by Moody's, and that the Class A-2
Notes, the Class A-3 Notes and the Class A-4 Notes, when issued, will be rated
"AAA" by S&P and "Aaa" by Moody's.
(d) DELIVERY OF DOCUMENTS. Financial Security shall have received
evidence satisfactory to it that delivery has been made to the Trust or to a
Custodian of the Receivable Files required to be so delivered pursuant to
Section 2.2 of the Sale and Servicing Agreement.
(e) NO DEFAULT. No Default or Event of Default shall have
occurred and be continuing.
(f) NO LITIGATION, ETC. No suit, action or other proceeding,
investigation, or injunction or final judgment relating thereto, shall be
pending or threatened before any court or
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governmental agency in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with any of the Transaction Documents or
the consummation of the Transaction.
(g) LEGALITY. No statute, rule, regulation or order shall have
been enacted, entered or deemed applicable by any government or governmental or
administrative agency or court which would make the transactions contemplated by
any of the Transaction Documents illegal or otherwise prevent the consummation
thereof.
(h) SATISFACTION OF CONDITIONS OF UNDERWRITING AGREEMENT. All
conditions in the Underwriting Agreement to the Underwriter's obligation to
purchase the Notes (other than the issuance of the Note Policy) shall have been
concurrently satisfied.
Section 3.02 PAYMENT OF FEES AND PREMIUM.
(a) LEGAL FEES. On the Closing Date, Arcadia Financial shall pay
or cause to be paid legal fees and disbursements incurred by Financial Security
in connection with the issuance of the Note Policy up to an amount not to exceed
$20,000.00, plus disbursements.
(b) RATING AGENCY FEES. The initial fees of S&P and Moody's with
respect to the Notes and the Transaction shall be paid by Arcadia Financial in
full on the Closing Date. All periodic and subsequent fees of S&P or Moody's
with respect to, and directly allocable to, the Notes shall be for the account
of, shall be billed to, and shall be paid by Arcadia Financial. The fees for
any other rating agency shall be paid by the party requesting such other
agency's rating, unless such other agency is a substitute for S&P or Moody's in
the event that S&P or Moody's is no longer rating the Notes, in which case the
cost for such agency shall be paid by Arcadia Financial.
(c) AUDITORS' FEES. In the event that Financial Security's
auditors are required to provide information or any consent in connection with
the Registration Statement fees therefor shall be paid by Arcadia Financial.
Any additional fees incurred by Financial Security after the Closing Date in
respect of any additional consents shall be paid by Arcadia Financial on demand.
(d) PREMIUM. In consideration of the issuance by Financial
Security of the Note Policy, Arcadia Financial shall pay Financial Security the
Premium and Premium Supplement, if any, as and when due in accordance with the
terms of the Premium Letter. The Premium and Premium Supplement, if any, paid
hereunder or under the Sale and Servicing Agreement shall be nonrefundable
without regard to whether Financial Security makes any payment under the Note
Policy or any other circumstances relating to the Notes or provision being made
for payment of the Notes prior to maturity. Although the Premium is fully
earned by Financial Security as of the Closing Date, the Premium shall be
payable in periodic installments as provided in the Premium Letter. Anything
herein or in any of the Transaction Documents notwithstanding, upon the
occurrence of an Event of Default, the entire outstanding balance of further
installments of the Premium and Premium Supplement shall be immediately due and
payable. All payments of Premium and Premium Supplement, if any, shall be made
by wire transfer to an account
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designated from time to time by Financial Security by written notice to the
Seller and Arcadia Financial.
Section 3.03 REIMBURSEMENT AND ADDITIONAL PAYMENT OBLIGATION. Each
of Arcadia Financial and the Trust agrees to pay to Financial Security as
follows:
(a) a sum equal to the total of all amounts paid by Financial
Security under the Note Policy;
(b) any and all charges, fees, costs and expenses which Financial
Security may reasonably pay or incur, including, but not limited to, attorneys'
and accountants' fees and expenses, in connection with (i) any accounts
established to facilitate payments under the Note Policy to the extent Financial
Security has not been immediately reimbursed on the date that any amount is paid
by Financial Security under the Note Policy, (ii) the administration,
enforcement, defense or preservation of any rights in respect of any of the
Transaction Documents, including defending, monitoring or participating in any
litigation, proceeding (including any insolvency or bankruptcy proceeding in
respect of any Transaction participant or any Affiliate thereof), restructuring
or engaging in any protective measures or monitoring activities relating to any
of the Transaction Documents, any party to any of the Transaction Documents or
the Transaction, (iii) the foreclosure against, sale or other disposition of
any collateral securing any obligations under any of the Transaction Documents
or otherwise in the discretion of Financial Security, or pursuit of any other
remedies under any of the Transaction Documents, to the extent such costs and
expenses are not recovered from such foreclosure, sale or other disposition,
(iv) any amendment, waiver or other action with respect to, or related to, any
Transaction Document whether or not executed or completed, (v) preparation of
bound volumes of the Transaction Documents, (vi) any review or investigation
made by Financial Security in those circumstances where its approval or consent
is sought under any of the Transaction Documents, (vii) any federal, state or
local tax (other than taxes payable in respect of the gross income of Financial
Security) or other governmental charge imposed in connection with the issuance
of the Note Policy, and (viii) Financial Security reserves the right to charge
a reasonable fee as a condition to executing any amendment, waiver or consent
proposed in respect of any of the Transaction Documents (for the purpose of this
paragraph (b), costs and expenses shall include a reasonable allocation of
compensation and overhead attributable to time of employees of Financial
Security spent in connection with the actions described in the foregoing clauses
(ii) and (iii));
(c) interest on any and all amounts described in this Section 3.03
from the date payable to or paid by Financial Security until payment thereof in
full, and interest on any and all amounts described in Section 3.02, in each
case payable to Financial Security at the Late Payment Rate per annum; and
(d) any payments made by Financial Security on behalf of, or
advanced to, the Seller, Arcadia Financial, the Indenture Trustee, the Owner
Trustee or the Trust including, without limitation, any amounts payable by
Arcadia Financial in its capacity as Servicer or by the Trust, in respect of the
Notes and any other amounts owed pursuant to any Transaction Documents; and any
payments made by Financial Security as, or in lieu of, any servicing,
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administration, management, trustee, custodial, collateral agency or
administrative fees payable, in the sole discretion of Financial Security to
third parties in connection with the Transaction.
All such amounts are to be immediately due and payable without demand.
Financial Security shall notify Arcadia Financial of amounts due hereunder.
Section 3.04 CERTAIN OBLIGATIONS NOT RECOURSE TO ARCADIA FINANCIAL;
RECOURSE TO TRUST PROPERTY.
(a) Notwithstanding any provision of Section 3.03 to the contrary,
the payment obligations provided in Section 3.03(a), b(iii) and (d) (to the
extent of advances to the Trust or to the Indenture Trustee in respect of
payments on the Notes), in each case, to the extent that such payment
obligations do not arise from any failure or default in the performance by
Arcadia Financial or the Seller of any of its obligations under the Transaction
Documents, and any interest on the foregoing in accordance with Section 3.03(c),
shall not be recourse to Arcadia Financial, but shall be payable in the manner
and in accordance with priorities provided in the Sale and Servicing Agreement.
(b) Financial Security covenants and agrees that it shall not be
entitled to any payment from the Trust Property with respect to amounts owed
under this Agreement other than as set forth in Section 4.6 and Section 9.1 of
the Sale and Servicing Agreement and Section 5.06 of the Indenture.
Section 3.05 INDEMNIFICATION.
(a) INDEMNIFICATION BY ARCADIA FINANCIAL. In addition to any
and all rights of reimbursement, indemnification, subrogation and any other
rights pursuant hereto or under law or in equity, Arcadia Financial agrees to
pay, and to protect, indemnify and save harmless, Financial Security and its
officers, directors, shareholders, employees, agents and each Person, if any,
who controls Financial Security within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
claims, losses, liabilities (including penalties), actions, suits, judgments,
demands, damages, costs or expenses (including, without limitation, fees and
expenses of attorneys, consultants and auditors and reasonable costs of
investigations) of any nature arising out of or relating to the Transaction by
reason of:
(i) any statement, omission or action (other than of or by
Financial Security) in connection with the offering, issuance, sale or
delivery of the Notes;
(ii) the negligence, bad faith, willful misconduct, misfeasance
malfeasance or theft committed by any director, officer, employee or agent
of the Trust the Seller or Arcadia Financial in connection with the
Transaction;
(iii) the violation by the Trust, the Seller or Arcadia Financial of
an, federal, state or foreign law, rule or regulation, or any judgment,
order or decree applicable to it;
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(iv) the breach by the Trust, the Seller or Arcadia Financial of
any representation, warranty or covenant under any of the Transaction
Documents or the occurrence, in respect of the Trust, the Seller or Arcadia
Financial, under any of the Transaction Documents of any event of default
or any event which, with the giving of notice or the lapse of time or both,
would constitute any event of default; or
(v) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or the Prospectus or in any
amendment or supplement thereto or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such claims
arise out of or are based upon any untrue statement or omission
(A) included in the Registration Statement or the Prospectus and furnished
by Financial Security in writing expressly for use therein (all such
information so furnished being referred to herein as "Financial Security
Information"), it being understood that the Financial Security Information
is limited to the information included under the caption "Financial
Security Assurance Inc.," and the financial statements of Financial
Security included in the Registration Statements or the Prospectus or
(B) included in the information set forth under the caption "Underwriting"
in the Prospectus.
(b) CONDUCT OF ACTIONS OR PROCEEDINGS. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against Financial Security, any officer, director, shareholder,
employee or agent of Financial Security or any Person controlling Financial
Security (individually, an "Indemnified Party" and, collectively, the
"Indemnified Parties") in respect of which indemnity may be sought from
Arcadia Financial hereunder, Financial Security shall promptly notify Arcadia
Financial in writing, and Arcadia Financial shall assume the defense thereof,
including the employment of counsel satisfactory to Financial Security and
the payment of all expenses. The Indemnified Party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof at the expense of the Indemnified Party; PROVIDED, HOWEVER, that the
fees and expenses of such separate counsel shall be at the expense of Arcadia
Financial if (i) Arcadia Financial has agreed to pay such fees and expenses,
(ii) Arcadia Financial shall have failed to assume the defense of such
action or proceeding and employ counsel satisfactory to Financial Security in
any such action or proceeding or (iii) the named parties to any such action
or proceeding (including any impleaded parties) include both the Indemnified
Party and the Trust, the Seller or Arcadia Financial, and the Indemnified
Party shall have been advised by counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the Trust, the Seller or Arcadia Financial (in which case, if
the Indemnified Party notifies Arcadia Financial in writing that it elects to
employ separate counsel at the expense of Arcadia Financial, Arcadia
Financial shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, it being understood, however,
that Arcadia Financial shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses
of more than one separate form of attorneys at any time for the Indemnified
Parties, which firm shall be designated in writing by Financial Security).
Arcadia Financial shall not be liable for any settlement of any such action
or
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proceeding effected without its written consent to the extent that any such
settlement shall be prejudicial to it, but, if settled with its written
consent, or if there be a final judgment for the plaintiff in any such action
or proceeding with respect to which Arcadia Financial shall have received
notice in accordance with this subsection (c) Arcadia Financial agrees to
indemnify and hold the Indemnified Parties harmless from and against any loss
or liability by reason of such settlement or judgment.
(c) CONTRIBUTION. To provide for just and equitable contribution
if the indemnification provided by Arcadia Financial is determined to be
unavailable for any Indemnified Party (other than due to application of this
Section), Arcadia Financial shall contribute to the losses incurred by the
Indemnified Party on the basis of the relative fault of Arcadia Financial, on
the one hand, and the Indemnified Party, on the other hand.
Section 3.06 PAYMENT PROCEDURE. In the event of the incurrence by
Financial Security of any cost or expense or any payment by Financial Security
for which it is entitled to be reimbursed or indemnified as provided above
Arcadia Financial agrees to accept the voucher or other evidence of payment as
prima facie evidence of the propriety thereof and the liability therefor to
Financial Security. All payments to be made to Financial Security under this
Agreement shall be made to Financial Security in lawful currency of the United
States of America in immediately available funds to the account number provided
in the Premium Letter before 1:00 p.m. (New York, New York time) on the date
when due or as Financial Security shall otherwise direct by written notice to
Arcadia Financial. In the event that the date of any payment to Financial
Security or the expiration of any time period hereunder occurs on a day which is
not a Business Day, then such payment or expiration of time period shall be made
or occur on the next succeeding Business Day with the same force and effect as
if such payment was made or time period expired on the scheduled date of payment
or expiration date. Payments to be made to Financial Security under this
Agreement shall bear interest at the Late Payment Rate from the date when due to
the date paid.
Section 3.07 SUBROGATION. Subject only to the priority of payment
provisions of the Sale and Servicing Agreement, each of the Trust, the Indenture
Trustee, the Seller and Arcadia Financial acknowledges that, to the extent of
any payment made by Financial Security pursuant to the Note Policy, Financial
Security is to be fully subrogated to the extent of such payment and any
additional interest due on any late payment, to the rights of the Noteholders to
any moneys paid or payable in respect of the Notes under the Transaction
Documents or otherwise. Each of the Trust, the Indenture Trustee, the Seller
and Arcadia Financial agrees to such subrogation and, further, agrees to execute
such instruments and to take such actions as, in the sole judgment of Financial
Security, are necessary to evidence such subrogation and to perfect the rights
of Financial Security to receive any such moneys paid or payable in respect of
the Notes under the Transaction Documents or otherwise.
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ARTICLE IV.
FURTHER AGREEMENTS; MISCELLANEOUS
Section 4.01 EFFECTIVE DATE: TERM OF AGREEMENT. This Agreement
shall take effect on the Closing Date and shall remain in effect until the later
of (a) such time as Financial Security is no longer subject to a claim under the
Note Policy and the Note Policy shall have been surrendered to Financial
Security for cancellation and (b) all amounts payable to Financial Security and
the Noteholders under the Transaction Documents and under the Notes have been
paid in full; PROVIDED, HOWEVER, that the provisions of Sections 3.02, 3.03,
3.04, 3.05, 3.06 and 4.03 hereof shall survive any termination of this
Agreement.
Section 4.02 FURTHER ASSURANCES AND CORRECTIVE INSTRUMENTS. To the
extent permitted by law, each of the Trust, the Seller and Arcadia Financial
agree that it will, from time to time, execute, acknowledge and deliver, or
cause to be executed, acknowledged and delivered, such supplements hereto and
such further instruments as Financial Security may request and as may be
required in Financial Security's judgment to effectuate the intention of or
facilitate the performance of this Agreement.
Section 4.03 OBLIGATIONS ABSOLUTE.
(a) The obligations of the Trust, the Seller and Arcadia Financial
hereunder shall be absolute and unconditional, and shall be paid or performed
strictly in accordance with this Agreement under all circumstances irrespective
of:
(i) any lack of validity or enforceability of, or any amendment or
other modifications of, or waiver with respect to any of the Transaction
Documents, the Notes or the Note Policy; PROVIDED, that Financial Security
shall not have consented to any such amendment, modification or waiver;
(ii) any exchange or release of any other obligations hereunder;
(iii) the existence of any claim, setoff, defense, reduction,
abatement or other right which the Trust, the Seller or Arcadia Financial
may have at any time against Financial Security or any other Person;
(iv) any document presented in connection with the Note Policy
proving to be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect;
(v) any payment by Financial Security under the Note Policy
against presentation of a certificate or other document which does not
strictly comply with terms of the Note Policy;
(vi) any failure of the Seller or the Trust to receive the proceeds
from the Sale of the Notes;
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(vii) any breach by the Trust, the Seller or Arcadia Financial of
any representation, warranty or covenant contained in any of the
Transaction Documents; or
(viii) any other circumstances, other than payment in full, which
might otherwise constitute a defense available to, or discharge of, the
Trust, the Seller or Arcadia Financial in respect of any Transaction
Document.
(b) The Trust, the Seller and Arcadia Financial and any and all
others who are now or may become liable for all or part of the obligations of
any of them under this Agreement agree to be bound by this Agreement and (i) to
the extent permitted by law, waive and renounce any and all redemption and
exemption rights and the benefit of all valuation and appraisement privileges
against the indebtedness and obligations evidenced by any Transaction Document
or by any extension or renewal thereof; (ii) waive presentment and demand for
payment, notices of nonpayment and of dishonor, protest of dishonor and notice
of protest; (iii) waive all notices in connection with the delivery and
acceptance hereof and all other notices in connection with the performance,
default or enforcement of any payment hereunder except as required by the
Transaction Documents other than this Agreement; (iv) waive all rights of
abatement, diminution, postponement or deduction, or to any defense other than
payment, or to any right of setoff or recoupment arising out of any breach under
any of the Transaction Documents, by any party thereto or any beneficiary
thereof, or out of any obligation at any time owing to the Trust, the Seller or
Arcadia Financial; (v) agree that its liabilities hereunder shall, except as
otherwise expressly provided in this Section 4.03, be unconditional and without
regard to any setoff, counterclaim or the liability of any other Person for the
payment hereof; (vi) agree that any consent, waiver or forbearance hereunder
with respect to an event shall operate only for such event and not for any
subsequent event; (vii) consent to any and all extensions of time that may be
granted by Financial Security with respect to any payment hereunder or other
provisions hereof and to the release of any security at any time given for any
payment hereunder, or any part thereof, with or without substitution, and to the
release of any Person or entity liable for any such payment; and (viii) consent
to the addition of any and all other makers, endorsers, guarantors and other
obligors for any payment hereunder, and to the acceptance of any and all other
security for any payment hereunder, and agree that the addition of any such
obligors or security shall not affect the liability of the parties hereto for
any payment hereunder.
(c) Nothing herein shall be construed as prohibiting the Trust,
Seller or Arcadia Financial from pursuing any rights or remedies it may have
against any other Person in a separate legal proceeding.
Section 4.04 ASSIGNMENTS; REINSURANCE; THIRD-PARTY RIGHTS.
(a) This Agreement shall be a continuing obligation of the parties
hereto and shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Neither the Trust, the
Seller nor Arcadia Financial may assign its rights under this Agreement, or
delegate any of its duties hereunder, without the prior written consent of
Financial Security. Any assignment made in violation of this Agreement shall be
null and void.
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(b) Financial Security shall have the right to give participations
in its rights under this Agreement and to enter into contracts of reinsurance
with respect to the Note Policy upon such terms and conditions as Financial
Security may in its discretion determine; PROVIDED, HOWEVER, that no such
participation or reinsurance agreement or arrangement shall relieve Financial
Security of any of its obligations hereunder or under the Note Policy.
(c) In addition, Financial Security shall be entitled to assign or
pledge to any bank or other lender providing liquidity or credit with respect to
the Transaction or the obligations of Financial Security in connection therewith
any rights of Financial Security under the Transaction Documents or with respect
to any real or personal property or other interests pledged to Financial
Security, or in which Financial Security has a security interest, in connection
with the Transaction.
(d) Except as provided herein with respect to participants and
reinsurers, nothing in this Agreement shall confer any right, remedy or claim,
express or implied, upon any Person, including, particularly, any Noteholder
(except to the extent provided herein and without limitation of their rights to
receive payments with respect to the Trust Property, including without
limitation payments under the Note Policy), other than Financial Security,
against the Trust, the Seller, Arcadia Financial or the Servicer, and all the
terms, covenants, conditions, promises and agreements contained herein shall be
for the sole and exclusive benefit of the parties hereto and their successors
and permitted assigns. Neither the Trustee, the Owner Trustee nor any Noteholder
shall have any right to payment from any premiums paid or payable hereunder or
from any other amounts paid by the Seller or Arcadia Financial pursuant to
Section 3.02, 3.03 or 3.04 hereof (without limitation to the rights of the
Noteholders to receive payments with respect to the Trust Property, as provided
in the Indenture and the Trust Agreement).
Section 4.05 LIABILITY OF FINANCIAL SECURITY. Neither Financial
Security nor any of its officers, directors or employees shall be liable or
responsible for: (a) the use which may be made of the Note Policy by the Owner
Trustee or the Indenture Trustee or for any acts or omissions of the Owner
Trustee or the Indenture Trustee in connection therewith; or (b) the validity,
sufficiency, accuracy or genuineness of documents delivered to Financial
Security (or its Fiscal Agent) in connection with any claim under the Note
Policy, or of any signatures thereon, even if such documents or signatures
should in fact prove to be in any or all respects invalid, insufficient,
fraudulent or forged (unless Financial Security shall have actual knowledge
thereof). In furtherance and not in limitation of the foregoing, Financial
Security (or its Fiscal Agent) may accept documents that appear on their face to
be in order, without responsibility for further investigation.
ARTICLE V.
EVENTS OF DEFAULT; REMEDIES
Section 5.01 EVENTS OF DEFAULT. The occurrence of any of the
following events shall constitute an Event of Default hereunder:
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(a) any demand for payment shall be made under the Note Policy;
(b) any representation or warranty made by the Trust, the Seller,
Arcadia Financial or the Servicer under any of the Related Documents, or in any
certificate or report furnished under any of the Related Documents, shall prove
to be untrue or incorrect in any material respect;
(c) (i) the Trust, the Seller, Arcadia Financial or the Servicer
shall fail to pay, when due, any amount payable by the Seller, Arcadia Financial
or the Servicer under any of the Related Documents (other than payments of
principal and interest on the Notes); (ii) the Trust, the Seller, Arcadia
Financial or the Servicer shall have asserted that any of the Transaction
Documents to which it is a party is not valid and binding on the parties
thereto; or (iii) any court, governmental authority or agency having
jurisdiction over any of the parties to any of the Transaction Documents or
property thereof shall find or rule that any material provision of any of the
Transaction Documents is not valid and binding on the parties thereto;
(d) the Trust, the Seller, Arcadia Financial or the Servicer shall
fail to perform or observe any other covenant or agreement contained in any of
the Related Documents (except for the obligations described under clause (b) or
(c) above) and such failure shall continue for a period of 30 days after written
notice given to the Trust, the Seller, Arcadia Financial or the Servicer (as
applicable); PROVIDED that, if such failure shall be of a nature that it cannot
be cured within 30 days, such failure shall not constitute an Event of Default
hereunder if within such 30 day period such party shall have given notice to
Financial Security of corrective action it proposes to take, which corrective
action is agreed in writing by Financial Security to be satisfactory and such
party shall thereafter pursue such corrective action diligently until such
default is cured;
(e) there shall have occurred an "Event of Default" as specified in
Section 6.01(i) or 6.01(ii) of the Senior Note Indenture or the unpaid
principal amount of, premium, if any, and accrued and unpaid interest on the
Securities (as defined in the Senior Note Indenture) shall have, upon the
declaration of the holders of the Securities, as specified in Section 6.02 of
the Senior Note Indenture, become immediately due and payable;
(f) the Trust shall adopt a voluntary plan of liquidation or shall
fail to pay its debts generally as they come due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment for the
benefit of creditors, or shall institute any proceeding seeking to adjudicate
the Trust insolvent or seeking a liquidation, or shall take advantage of any
insolvency act, or shall commence a case or other proceeding naming the Trust as
debtor under the United States Bankruptcy Code or similar law, domestic or
foreign, or a case or other proceeding shall be commenced against the Trust
under the United States Bankruptcy Code or similar law, domestic or foreign, or
any proceeding shall be instituted against the Trust seeking liquidation of its
assets and the Trust shall fail to take appropriate action resulting in the
withdrawal or dismissal of such proceeding within 30 days or there shall be
appointed or the Trust consent to, or acquiesce in, the appointment of a
receiver, liquidator, conservator, trustee or similar official in respect of the
Trust or the whole or any substantial part of its properties or
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assets, or the Trust shall take any corporate action in furtherance of any of
the foregoing or the Trust terminates pursuant to Section 9.1 of the Trust
Agreement;
(g) the Trust becomes taxable as an association (or publicly traded
partnership) taxable as a corporation for federal or state income tax purposes;
(h) on any Distribution Date, the sum of Available Funds with respect
to such Distribution Date and the amounts available in the Series 1997-D Spread
Account (prior to any deposits into such Spread Account from Spread Accounts
related to any other Series) and the amount that may be withdrawn from the
Reserve Account pursuant to Section 5.1 of the Sale and Servicing Agreement is
less than the sum of the amounts payable on such Distribution Date pursuant to
clauses (i) through (viii) of Section 4.6 of the Sale and Servicing Agreement;
(i) any default in the observance or performance of any covenant or
agreement of the Trust made in the Indenture (other than a default in the
payment of the interest or principal on any Note when due) or any representation
or warranty of the Trust made in the Indenture or in any certificate or other
writing delivered pursuant thereto or in connection therewith proving to have
been incorrect in any material respect as of the time when the same shall have
been made, and such default shall continue or not be cured, or the circumstance
or condition in respect of which such misrepresentation or warranty was
incorrect shall not have been eliminated or otherwise cured, for a period of 30
days after there shall have been given, by registered or certified mail, to the
Trust and the Indenture Trustee by Financial Security, a written notice
specifying such default or incorrect representation or warranty and requiring it
to be remedied;
(j) the Average Delinquency Ratio with respect to any Determination
Date shall have been equal to or greater than 8.40%;
(k) with respect to any Determination Date, the Cumulative Default
Rate shall be equal to or greater than the percentage set forth in Column A of
Schedule I attached hereto corresponding to such Determination Date;
(l) with respect to any Determination Date, the Cumulative Net Loss
Rate shall be equal to or greater than the percentage set forth in Column B of
Schedule I attached hereto corresponding to such Determination Date;
(m) the occurrence of an Event of Servicing Termination under the
Sale and Servicing Agreement; or
(n) the occurrence of an "Event of Default" under and as defined in
any Insurance and Indemnity Agreement among Financial Security, Arcadia
Financial, the Seller and any other parties thereto, which "Event of Default" is
not defined as a "Portfolio Performance Event of Default" in such Insurance and
Indemnity Agreement.
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Section 5.02 REMEDIES; WAIVERS.
(a) Upon the occurrence of an Event of Default, Financial Security
may exercise any one or more of the rights and remedies set forth below:
(i) declare the Premium Supplement to be immediately due and
payable, and the same shall thereupon be immediately due and payable,
whether or not Financial Security shall have declared an "Event of Default"
or shall have exercised, or be entitled to exercise, any other rights or
remedies hereunder;
(ii) exercise any rights and remedies available under the
Transaction Documents in its own capacity or in its capacity as the Person
entitled to exercise the rights of Controlling Party under the Transaction
Documents; or
(iii) take whatever action at law or in equity as may appear
necessary or desirable in its judgment to enforce performance of any
obligation of the Trust, the Seller or Arcadia Financial under the
Transaction Documents; PROVIDED, HOWEVER, that Financial Security shall not
be entitled hereunder to file any petition with respect to the Trust or the
Trust Property under any bankruptcy or insolvency law.
(b) Unless otherwise expressly provided, no remedy herein conferred
upon or reserved is intended to be exclusive of any other available remedy, but
each remedy shall be cumulative and shall be in addition to other remedies given
under the Transaction Documents or existing at law or in equity. No delay or
failure to exercise any right or power accruing under any Transaction Document
upon the occurrence of any Event of Default or otherwise shall impair any such
right or power or shall be construed to be a waiver thereof, but any such right
and power may be exercised from time to time and as often as may be deemed
expedient. In order to entitle Financial Security to exercise any remedy
reserved to Financial Security in this Article, it shall not be necessary to
give any notice.
(c) If any proceeding has been commenced to enforce any right or
remedy under this Agreement, and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to Financial
Security, then and in every such case the parties hereto shall, subject to any
determination in such proceeding, be restored to their respective former
positions hereunder, and, thereafter, all rights and remedies of Financial
Security shall continue as though no such proceeding had been instituted.
(d) Financial Security shall have the right, to be exercised in its
complete discretion, to waive any covenant, Default or Event of Default by a
writing setting forth the terms, conditions and extent of such waiver signed by
Financial Security and delivered to the Seller and Arcadia Financial. Any such
waiver may only be effected in writing duly executed by Financial Security, and
no other course of conduct shall constitute a waiver of any provision hereof.
Unless such writing expressly provides to the contrary, any waiver so granted
shall extend only to the specific event or occurrence so waived and not to any
other similar event or occurrence which occurs subsequent to the date of such
waiver.
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ARTICLE VI.
MISCELLANEOUS
Section 6.01 AMENDMENTS, ETC.. This Agreement may be amended,
modified or terminated only by written instrument or written instruments signed
by the parties hereto. No act or course of dealing shall be deemed to
constitute an amendment, modification or termination hereof.
Section 6.02 NOTICES. All demands, notices and other communications
to be given hereunder shall be in writing (except as otherwise specifically
provided herein) and shall be mailed by registered mail or overnight carrier,
personally delivered or telecopied (with confirmation by registered mail) to the
recipient as follows:
(a) To Financial Security:
Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Attention: Surveillance Department
Confirmation: (212) 826-0100
Telecopy Nos.: (212) 339-3518
(212) 339-3529
(in each case in which notice or other communication to
Financial Security refers to an Event of Default, a claim on
the Note Policy or with respect to which failure on the part of
Financial Security to respond shall be deemed to constitute
consent or acceptance, then a copy of such notice or other
communication should also be sent to the attention of each of
the General Counsel and the Head--Financial Guaranty Group and
shall be marked to indicate "URGENT MATERIAL ENCLOSED").
(b) To the Seller:
Arcadia Receivables Finance Corp.
7825 Washington Avenue South, Suite 410
Minneapolis, Minnesota 55439-2435
Telephone: (612) 942-9888
Telecopier: (612) 942-6730
51
<PAGE>
(c) To Arcadia Financial:
Arcadia Financial Ltd.
7825 Washington Avenue South
Minneapolis, Minnesota 55439-2435
Telephone: (612) 942-9880
Telecopier: (612) 942-6730
(d) To the Trust:
Arcadia Automobile Receivables Trust, 1997-D
c/o Wilmington Trust Company,
as Owner Trustee
Rodney Square North, 1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telephone: (302) 651-1000
Telecopier: (302) 651-8882
with a copy to:
Wilmington Trust Company, as Owner Trustee
Rodney Square North, 1100 North Market Street
Wilmington, Delaware 19890
A party may specify an additional or different address or addresses by
writing mailed or delivered to the other party as aforesaid. All such notices
and other communications shall be effective upon receipt.
Section 6.03 SEVERABILITY. In the event that any provision of this
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, the parties hereto agree that such holding shall not invalidate or
render unenforceable any other provision hereof. The parties hereto further
agree that the holding by any court of competent jurisdiction that any remedy
pursued by any party hereto is unavailable or unenforceable shall not affect in
any way the ability of such party to pursue any other remedy available to it.
Section 6.04 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 6.05 CONSENT TO JURISDICTION.
(a) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES
THERETO HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE
OF NEW YORK LOCATED IN THE CITY AND
52
<PAGE>
COUNTY OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION,
SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR IN CONNECTION WITH ANY OF THE
TRANSACTION DOCUMENTS OR THE TRANSACTION OR FOR RECOGNITION OR ENFORCEMENT OF
ANY JUDGMENT, AND THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
OR DETERMINED IN SUCH NEW YORK STATE COURT OR IN SUCH FEDERAL COURT. THE PARTIES
HERETO AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL
BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT
OR IN ANY OTHER MANNER PROVIDED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, THE PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT BY WAY OF MOTION,
AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT
IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE
SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THE RELATED DOCUMENTS OR THE
SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS.
(b) To the extent permitted by applicable law, the parties hereto
shall not seek and hereby waive the right to any review of the judgment of any
such court by any court of any other nation or jurisdiction which may be called
upon to grant an enforcement of such judgment.
(c) Arcadia Financial and the Seller hereby irrevocably appoints
and designates CT Corporation System, whose address is 1633 Broadway, New York,
New York 10019, as its true and lawful attorney and duly authorized agent for
acceptance of service of legal process. The Seller and Arcadia Financial agrees
that service of such process upon such Person shall constitute personal service
of such process upon it.
(d) Nothing contained in the Agreement shall limit or affect
Financial Security's right to serve process in any other manner permitted by law
or to start legal proceedings relating to any of the Transaction Documents
against the Seller or Arcadia Financial or its property in the courts of any
jurisdiction.
Section 6.06 CONSENT OF FINANCIAL SECURITY. In the event that
Financial Security's consent is required under any of the Transaction Documents,
the determination whether to grant or withhold such consent shall be made by
Financial Security in its sole discretion without any implied duty towards any
other Person, except as otherwise expressly provided therein.
Section 6.07 COUNTERPARTS. This Agreement may be executed in
counterparts by the parties hereto, and all such counterparts shall constitute
one and the same instrument.
Section 6.08 HEADINGS. The headings of articles and sections and
the table of contents contained in this Agreement are provided for convenience
only. They form no part of
53
<PAGE>
this Agreement and shall not affect its construction or interpretation. Unless
otherwise indicated, all references to articles and sections in this Agreement
refer to the corresponding articles and sections of this Agreement.
Section 6.09 TRIAL BY JURY WAIVED. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION
WITH ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTION. EACH PARTY HERETO
(A) CERTIFIES THAI NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY
BY, AMONG OTHER THINGS, THIS WAIVER.
Section 6.10 LIMITED LIABILITY. No recourse under any Transaction
Document shall be had against, and no personal liability shall attach to, any
officer, employee, director, affiliate or shareholder of any party hereto, as
such, by the enforcement of any assessment or by any legal or equitable
proceeding, by virtue of any statute or otherwise in respect of any of the
Transaction Documents, the Notes or the Note Policy, it being expressly agreed
and understood that each Transaction Document is solely a corporate obligation
of each party hereto, and that any and all personal liability, either at common
law or in equity, or by statute or constitution, of every such officer,
employee, director, affiliate or shareholder for breaches by any party hereto of
any obligations under any Transaction Document is hereby expressly waived as a
condition of and in consideration for the execution and delivery of this
Agreement.
Section 6.11 LIMITED LIABILITY OF WILMINGTON TRUST COMPANY. It is
expressly understood and agreed by the parties hereto that (a) this Agreement is
executed and delivered by Wilmington Trust Company, not individually or
personally but solely as Owner Trustee on behalf of the Trust, (b) each of the
representations, undertakings and agreements herein made on the part of the
Trust is made and intended not as personal representations, undertakings and
agreements by Wilmington Trust Company, but are made and intended for the
purpose of binding only the Trust Estate, (c) nothing herein contained shall be
construed as creating any liability on Wilmington Trust Company, individually or
personally, to perform any covenant of the Trust either expressed or implied
contained herein, all such liability, if any, being expressly waived by the
parties hereto and by any person claiming by, through or under such parties and
(d) under no circumstances shall Wilmington Trust Company be personally liable
for the payment of any indebtedness or expenses of the Trust or be liable for
the breach or failure of any obligation, representation, warranty or covenant
made or undertaken by the Trust under this Agreement.
Section 6.12 ENTIRE AGREEMENT. This Agreement and the Note Policy
set forth the entire agreement between the parties with respect to the subject
matter thereof, and this
54
<PAGE>
Agreement supersedes and replaces any agreement or understanding that may have
existed between the parties prior to the date hereof in respect of such subject
matter.
55
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Insurance and Indemnity Agreement, all as of the day and year
first above written.
FINANCIAL SECURITY ASSURANCE INC.
By: /s/ [Illegible]
------------------------------------
Authorized Officer
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-D
By: Wilmington Trust Company, as Owner
Trustee under the Trust Agreement
By: /s/ [Illegible]
------------------------------------
ARCADIA FINANCIAL LTD.
By: /s/ John A. Witham
------------------------------------
John A. Witham
Executive Vice President and
Chief Financial Officer
ARCADIA RECEIVABLES FINANCE CORP.
By: /s/ John A. Witham
------------------------------------
John A. Witham
Senior Vice President and
Chief Financial Officer
56
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Determination Date (*) Cumulative Default Rate Cumulative Net
(month) (Column ) Loss Rate (Column B)
<S> <C> <C>
0 to 3 2.66% 1.11%
3 to 6 5.32% 2.22%
6 to 9 7.71% 3.21%
9 to 12 9.84% 4.10%
12 to 15 12.68% 5.28%
15 to 18 15.25% 6.35%
18 to 21 17.50% 7.29%
21 to 24 19.45% 8.11%
24 to 27 20.47% 8.53%
27 to 30 21.29% 8.87%
30 to 33 22.01% 9.17%
33 to 36 22.63% 9.43%
36 to 39 22.93% 9.55%
39 to 42 23.16% 9.65%
42 to 45 23.36% 9.73%
45 to 48 23.52% 9.80%
48 to 51 23.65% 9.86%
51 to 54 23.76% 9.90%
54 to 57 23.84% 9.94%
57 to 60 23.91% 9.96%
60 to 63 23.95% 9.98%
63 to 66 23.98% 9.99%
66 to 69 23.99% 10.00%
69 and higher 24.00% 10.00%
</TABLE>
- ------------------
* Such Determination Date occurring after the designated calendar months
succeeding the Series 1997-D Closing Date appearing first in the column below,
and prior to or during the designated calendar months succeeding the Series
1997-D Distribution Date appearing second in the column below.
<PAGE>
EXECUTION COPY
AMENDMENT
dated as of December 16, 1997
to
Insurance and Indemnity Agreement dated as of September 18, 1997
Insurance and Indemnity Agreement dated as of June 19, 1997
Insurance and Indemnity Agreement dated as of March 20, 1997
Insurance and Indemnity Agreement dated as of December 12, 1996
Insurance and Indemnity Agreement dated as of September 12, 1996
Insurance and Indemnity Agreement dated as of June 14, 1996
Insurance and Indemnity Agreement dated as of March 14, 1996
Insurance and Indemnity Agreement dated as of December 6, 1995
Insurance and Indemnity Agreement dated as of September 21, 1995
Insurance and Indemnity Agreement dated as of June 15, 1995
Insurance and Indemnity Agreement dated as of March 15, 1995
Insurance and Indemnity Agreement dated as of February 9, 1995
Insurance and Indemnity Agreement dated as of September 23, 1994
<PAGE>
Amendment
to
Insurance and Indemnity Agreements
Amendment dated as of December 16, 1997 ("Amendment to Insurance
and Indemnity Agreements") to:
(i) Insurance and Indemnity Agreement dated as of September 18, 1997
(the "Series 1997-C Insurance and Indemnity Agreement");
(ii) Insurance and Indemnity Agreement dated as of June 19, 1997 (the
"Series 1997-B Insurance and Indemnity Agreement");
(iii) Insurance and Indemnity Agreement dated as of March 20, 1997 (the
"Series 1997-A Insurance and Indemnity Agreement");
(iv) Insurance and Indemnity Agreement dated as of December 12, 1996
(the "Series 1996-D Insurance and Indemnity Agreement");
(v) Insurance and Indemnity Agreement dated as of September 12, 1996
(the "Series 1996-C Insurance and Indemnity Agreement");
(vi) Insurance and Indemnity Agreement dated as of June 14, 1996, (the
"Series 1996- B Insurance and Indemnity Agreement");
(vii) Insurance and Indemnity Agreement dated as of March 14, 1996, as
amended by that certain Amendment dated as of May 31, 1996 (the
"May Amendment") to certain of the Insurance and Indemnity
Agreements (as hereinafter defined) (as amended, the "Series
1996-A Insurance and Indemnity Agreement");
(viii) Insurance and Indemnity Agreement dated as of December 6, 1995, as
amended by the May 1996 Amendment (as amended, the "Series 1995-E
Insurance and Indemnity Agreement");
(ix) Insurance and Indemnity Agreement dated as of September 21, 1995,
as amended by that certain Amendment dated as of December 6, 1995
(the "December 1995 Amendment") to certain of the Insurance and
Indemnity Agreements, as further amended by the May 1996 Amendment
(as amended, the "Series 1995-D Insurance and Indemnity
Agreement");
(x) Insurance and Indemnity Agreement dated as of June 15, 1995, as
amended by the December 1995 Amendment, as further amended by the
May 1996 Amendment (as amended, the "Series 1995-C Insurance and
Indemnity Agreement");
<PAGE>
(xi) Insurance and Indemnity Agreement dated as of March 15, 1995, as
amended by that certain Amendment dated as of June 15, 1995 (the
"June 1995 Amendment") to certain of the Insurance and Indemnity
Agreements, as further amended by the December 1995 Amendment and
the May 1996 Amendment (as amended, the "Series 1995-B Insurance
and Indemnity Agreement");
(xii) Insurance and Indemnity Agreement dated as of February 9, 1995, as
amended by the June 1995 Amendment, as further amended by the
December 1995 Amendment and May 1996 Amendment (as amended, the
"Series 1995-A Insurance and Indemnity Agreement"); and
(xiii) Insurance and Indemnity Agreement dated as of September 23, 1994,
as amended by the June 1995 Amendment, as further amended by the
December 1995 Amendment (as amended, the "Series 1994-B Insurance
and Indemnity Agreement")
among Financial Security Assurance Inc. ("Financial Security"), Arcadia
Automobile Receivables Trust, 1997-C, Olympic Automobile Receivables Trust,
1997-B, Olympic Automobile Receivables Trust, 1997-A, Olympic Automobile
Receivables Trust, 1996-D, Olympic Automobile Receivables Trust, 1996-C, Olympic
Automobile Receivables Trust, 1996-B, Olympic Automobile Receivables Trust,
1996-A, Olympic Automobile Receivables Trust, 1995-E, Olympic Automobile
Receivables Trust, 1995-D, Olympic Automobile Receivables Trust, 1995-C, Olympic
Automobile Receivables Trust, 1995-B, Olympic Automobile Receivables Trust,
1995-A, Olympic Automobile Receivables Trust, 1994-B, Arcadia First GP Inc.
(formerly known as Olympic First GP Inc.), Arcadia Second GP Inc. (formerly
known as Olympic Second GP Inc.), Arcadia Receivables Finance Corp. (formerly
known as Olympic Receivables Finance Corp.), and Arcadia Financial Ltd. ("AFL",
formerly known as Olympic Financial Ltd.), in each case with respect to each
Insurance and Indemnity Agreement with respect to which such person is a party.
WHEREAS, the respective parties to each Insurance and Indemnity
Agreement (the "Respective Parties") have heretofore executed such Insurance and
Indemnity Agreement;
WHEREAS, the Respective Parties to each Insurance and Indemnity
Agreement wish to amend such Agreement.
NOW, THEREFORE, the Respective Parties to each Insurance and
Indemnity Agreement agree that such Agreement is hereby amended as follows:
-2-
<PAGE>
Section 1. AMENDMENT TO THE SERIES 1997-C INSURANCE AND INDEMNITY
AGREEMENT THE SERIES 1997-B INSURANCE AND INDEMNITY AGREEMENT AND THE SERIES
1997-A INSURANCE AND INDEMNITY AGREEMENT.
(a) Paragraph (j) of Section 5.01 of each of the Series 1997-C
Insurance and Indemnity Agreement, the Series 1997-B Insurance and Indemnity
Agreement and the Series 1997-A Insurance and Indemnity Agreement is hereby
amended by deleting the percentage specified therein and replacing such
percentage in each instance with the percentage corresponding to the applicable
Series specified under Column I of Schedule III.
(b) Paragraph (k) of Section 5.01 of each of the Series 1997-C
Insurance and Indemnity Agreement, the Series 1997-B Insurance and Indemnity
Agreement and the Series 1997-A Insurance and Indemnity Agreement is hereby
amended to read in its entirety as follows:
(k) with respect to any Determination Date, the Cumulative
Default Rate shall be equal to or greater than the percentage set forth
under the applicable Column of Schedule I corresponding to such
Determination Date;
(c) Paragraph (l) of Section 5.01 of each of the Series 1997-C
Insurance and Indemnity Agreement, the Series 1997-B Insurance and Indemnity
Agreement and the Series 1997-A Insurance and Indemnity Agreement is hereby
amended to read in its entirety as follows:
(l) with respect to any Determination Date, the Cumulative Net
Loss Rate shall be equal to or greater than the percentage set forth under
the applicable Column of Schedule II corresponding to such Determination
Date;
Section 2. AMENDMENT TO THE SERIES 1996-D INSURANCE AND INDEMNITY
AGREEMENT, THE SERIES 1996-C INSURANCE AND INDEMNITY AGREEMENT, THE SERIES
1996-B INSURANCE AND INDEMNITY AGREEMENT, THE SERIES 1996-A INSURANCE AND
INDEMNITY AGREEMENT, THE SERIES 1995-E INSURANCE AND INDEMNITY AGREEMENT, THE
SERIES 1995-D INSURANCE AND INDEMNITY AGREEMENT, THE SERIES 1995-C INSURANCE AND
INDEMNITY AGREEMENT AND THE SERIES 1995-A INSURANCE AND INDEMNITY AGREEMENT.
(a) Paragraph (k) of Section 5.01 of each of the Series 1996-D
Insurance and Indemnity Agreement, the Series 1996-C Insurance and Indemnity
Agreement, the Series 1996-B Insurance and Indemnity Agreement, the Series
1996-A Insurance and Indemnity Agreement, the Series 1995-E Insurance and
Indemnity Agreement, the Series 1995-D Insurance and Indemnity Agreement, the
Series 1995-C Insurance and Indemnity Agreement and the Series 1995-A Insurance
and Indemnity Agreement is hereby amended by deleting the percentage specified
-3-
<PAGE>
therein and replacing such percentage in each instance with the percentage
corresponding to the applicable Series specified under Column I of Schedule III.
(b) Paragraph (1) of Section 5.01 of each of the Series 1996-D
Insurance and Indemnity Agreement, the Series 1996-C Insurance and Indemnity
Agreement, the Series 1996-B Insurance and Indemnity Agreement, the Series
1996-A Insurance and Indemnity Agreement, the Series 1995-E Insurance and
Indemnity Agreement, the Series 1995-D Insurance and Indemnity Agreement, the
Series 1995-C Insurance and Indemnity Agreement and the Series 1995-A Insurance
and Indemnity Agreement is hereby amended to read in its entirety as follows:
(l) with respect to any Determination Date, the Cumulative
Default Rate shall be equal to or greater than the percentage set forth
under the applicable Column of Schedule I corresponding to such
Determination Date;
(c) Paragraph (m) of Section 5.01 of the Series 1996-D Insurance
and Indemnity Agreement, the Series 1996-C Insurance and Indemnity Agreement,
the Series 1996-B Insurance and Indemnity Agreement, the Series 1996-A Insurance
and Indemnity Agreement, the Series 1995-E Insurance and Indemnity Agreement,
the Series 1995-D Insurance and Indemnity Agreement, the Series 1995-C Insurance
and Indemnity Agreement and the Series 1995-A Insurance and Indemnity Agreement
is hereby amended to read in its entirety as follows:
(m) with respect to any Determination Date, the Cumulative Net
Loss Rate shall be equal to or greater than the percentage set forth under
the applicable Column of Schedule II corresponding to such Determination
Date;
Section 3. AMENDMENT TO THE SERIES 1995-B INSURANCE AND INDEMNITY
AGREEMENT.
(a) Paragraph (m) of Section 5.01 of the Series 1995-B Insurance
and Indemnity Agreement is hereby amended by deleting the percentage specified
therein and replacing such percentage with the percentage corresponding to
Series 1995-B specified under Column I of Schedule III.
(b) Paragraph (n) of Section 5.01 of the Series 1995-B Insurance
and Indemnity Agreement is hereby amended to read in its entirety as follows:
(n) with respect to any Determination Date, the Cumulative
Default Rate shall be equal to or greater than the percentage set forth
under the applicable Column of Schedule I corresponding to such
Determination Date;
(c) Paragraph (o) of Section 5.01 of the Series 1995-B Insurance
and Indemnity Agreement is hereby amended to read in its entirety as follows:
-4-
<PAGE>
(m) with respect to any Determination Date, the Cumulative Net
Loss Rate shall be equal to or greater than the percentage set forth under
the applicable Column of Schedule II corresponding to such Determination
Date;
Section 4. AMENDMENT TO THE SERIES 1994-B INSURANCE AND INDEMNITY
AGREEMENT.
(a) Paragraph (1) of Section 5.01 of the Series 1994-B Insurance
and Indemnity Agreement is hereby amended by deleting the percentage specified
therein and replacing such percentage with the percentage corresponding to
Series 1994-B specified under Column I of Schedule III.
(b) Paragraph (m) of Section 5.01 of the Series 1994-B Insurance
and Indemnity Agreement is hereby amended to read in its entirety as follows:
(m) with respect to any Determination Date, the Cumulative
Default Rate shall be equal to or greater than the percentage set forth
under the applicable Column of Schedule I corresponding to such
Determination Date;
(c) Paragraph (n) of Section 5.01 of the Series 1994-B Insurance
and Indemnity Agreement is hereby amended to read in its entirety as follows:
(n) with respect to any Determination Date, the Cumulative Net
Loss Rate shall be equal to or greater than the percentage set forth under
the applicable Column of Schedule II corresponding to such Determination
Date;
Section 5. SCHEDULES.
For purposes of the above amendments, "Schedule I", "Schedule II"
and "Schedule III" are the schedules attached hereto as Schedule I, Schedule II
and Schedule III, respectively.
Section 6. TERMINATION.
The parties agree that this Amendment shall be in effect only for
so long as Financial Security shall not have delivered a notice to AFL and the
Collateral Agent specifying that this Amendment shall cease to be in effect from
and after the date specified in the notice. Upon such termination, the default
and loss triggers in effect immediately before the effectiveness of this
amendment (the "Current Triggers") shall be in effect from and after the date of
such termination.
-5-
<PAGE>
Section 7. COUNTERPARTS.
This Amendment to the Insurance and Indemnity Agreements may be
executed in several counterparts, each of which shall be deemed an original
hereof and all of which, when taken together, shall constitute one and the same
Amendment to the Insurance and Indemnity Agreements.
Section 8. RATIFICATION OF INSURANCE AND INDEMNITY AGREEMENTS.
Except as provided herein, all provisions, terms and conditions of
the Insurance and Indemnity Agreements shall remain in full force and effect.
As amended hereby, the Insurance and Indemnity Agreements are ratified and
confirmed in all respects.
Section 9. AUTHORIZATION.
By its execution hereof, Financial Security Assurance Inc. hereby
instructs the Owner Trustee of each of Arcadia Automobile Receivables Trust,
1997-C, Olympic Automobile Receivables Trust, 1997-B, Olympic Automobile
Receivables Trust, 1997-A, Olympic Automobile Receivables Trust, 1996-D, Olympic
Automobile Receivables Trust, 1996-C, Olympic Automobile Receivables Trust,
1996-B, Olympic Automobile Receivables Trust, 1996-A, Olympic Automobile
Receivables Trust, 1995-E, Olympic Automobile Receivables Trust, 1995-D, Olympic
Automobile Receivables Trust, 1995-C, Olympic Automobile Receivables Trust,
1995-B, Olympic Automobile Receivables Trust, 1995-A and Olympic Automobile
Receivables Trust, 1994-B, each in accordance with the respective Trust
Agreements, to execute this Amendment.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment to the respective Insurance and Indemnity Agreements specified below
as of the date set forth on the first page hereof.
With respect to each Insurance and Indemnity Agreement:
FINANCIAL SECURITY ASSURANCE INC.
By:
----------------------------------------------
Authorized Officer
ARCADIA RECEIVABLES FINANCE CORP.
By:
----------------------------------------------
John A. Witham
Executive Vice President
and Chief Financial Officer
ARCADIA FINANCIAL LTD.
By:
----------------------------------------------
John A. Witham
Executive Vice President
and Chief Financial Officer
-7-
<PAGE>
With respect to the:
Series 1997-A Insurance and Indemnity Agreement, Series
1996-D Insurance and Indemnity Agreement, Series 1996-C
Insurance and Indemnity Agreement, Series 1996-B
Insurance and Indemnity Agreement, Series 1996-A
Insurance and Indemnity Agreement, Series 1995-E
Insurance and Indemnity Agreement, Series 1995-D
Insurance and Indemnity Agreement, Series 1995-C
Insurance and Indemnity Agreement, Series 1995-B
Insurance and Indemnity Agreement, Series 1995-A
Insurance and Indemnity Agreement, Series 1994-B
Insurance and Indemnity Agreement:
ARCADIA FIRST GP INC.
By:
-----------------------------------------------
John A. Witham
Vice President and Chief Financial Officer
ARCADIA SECOND GP INC.
By:
-----------------------------------------------
John A. Witham
Vice President and Chief Financial Officer
With respect to Series 1997-C Insurance and Indemnity
Agreement only:
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-C
By: Wilmington Trust Company,
not in its individual capacity, but solely
in its capacity as Owner Trustee
By:
------------------------------------------
Name:
Title:
-8-
<PAGE>
With respect to Series 1997-B Insurance and Indemnity
Agreement only:
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1997-B
By: Mellon Bank (DE), National Association, not in its
individual capacity, but solely in its capacity as
Owner Trustee
By:
------------------------------------------
With respect to Series 1997-A Insurance and Indemnity
Agreement only:
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1997-A
By: Mellon Bank (DE), National Association, not in its
individual capacity, but solely in its capacity as
Owner Trustee
By:
------------------------------------------
With respect to Series 1996-D Insurance and Indemnity
Agreement only:
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1996-D
By: Mellon Bank (DE), National Association, not in its
individual capacity, but solely in its capacity as
Owner Trustee
By:
-------------------------------------------
-9-
<PAGE>
With respect to Series 1996-C Insurance and Indemnity
Agreement only:
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1996-C
By: Mellon Bank (DE), National Association, not in its
individual capacity, but solely in its capacity as
Owner Trustee
By:
-------------------------------------------
With respect to Series 1996-B Insurance and Indemnity
Agreement only:
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1996-B
By: Mellon Bank (DE), National Association, not in its
individual capacity, but solely in its capacity as
Owner Trustee
By:
-------------------------------------------
With respect to Series 1996-A Insurance and Indemnity
Agreement only:
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1996-A
By: Mellon Bank (DE), National Association, not in its
individual capacity, but solely in its capacity as
Owner Trustee
By:
-------------------------------------------
-10-
<PAGE>
With respect to Series 1995-E Insurance and Indemnity
Agreement only:
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1995-E
By: Wilmington Trust Company, not in its individual
capacity, but solely in its capacity as Owner
Trustee
By:
-------------------------------------------
Name:
Title:
With respect to Series 1995-D Insurance and Indemnity
Agreement only:
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1995-D
By: Wilmington Trust Company, not in its individual
capacity, but solely in its capacity as Owner
Trustee
By:
-------------------------------------------
Name:
Title:
With respect to Series 1995-C Insurance and Indemnity
Agreement only:
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1995-C
By: Wilmington Trust Company, not in its individual
capacity, but solely in its capacity as Owner
Trustee
By:
-------------------------------------------
Name:
Title:
-11-
<PAGE>
With respect to Series 1995-B Insurance and Indemnity
Agreement only:
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1995-B
By: Wilmington Trust Company, not in its individual
capacity, but solely in its capacity as Owner
Trustee
By:
-------------------------------------------
Name:
Title:
With respect to Series 1995-A Insurance and Indemnity
Agreement only:
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1995-A
By: Wilmington Trust Company, not in its individual
capacity, but solely in its capacity as Owner
Trustee
By:
-------------------------------------------
Name:
Title:
With respect to Series 1994-B Insurance and Indemnity
Agreement only:
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1994-B
By: Wilmington Trust Company, not in its individual
capacity, but solely in its capacity as Owner
Trustee
By:
-------------------------------------------
Name:
Title:
-12-
<PAGE>
SCHEDULE I
CUMULATIVE DEFAULT RATES
<TABLE>
<CAPTION>
Series Series Series Series Series Series Series Series Series Series Series Series Series
Month 1997-C 1997-B 1997-A 1996- D 1996-C 1996-B 1996-A 1995-E 1995-D 1995-C 1995-B 1995-A 1994-B
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 to 3 2.60 % 2.60 % 2.56 % 2.49 % 2.44 % 2.41 % 2.25 % 2.21 % 2.13 % 2.08 % 2.10 % 2.05 % 1.97 %
3 to 6 5.19 % 5.19 % 5.10 % 4.97 % 4.88 % 4.82 % 4.50 % 4.41 % 4.25 % 4.16 % 4.18 % 4.10 % 3.94 %
6 to 9 7.52 % 7.52 % 7.39 % 7.19 % 7.06 % 6.98 % 6.51 % 6.39 % 6.15 % 6.03 % 6.06 % 5.93 % 5.70 %
9 to 12 9.60 % 9.60 % 9.44 % 9.18 % 9.02 % 8.91 % 8.32 % 8.16 % 7.85 % 7.70 % 7.74 % 7.57 % 7.28 %
12 to 15 12.36 % 12.36 % 12.16 % 11.82 % 11.61 % 11.48 % 10.71 % 10.51 % 10.11 % 9.91 % 9.97 % 9.75 % 9.38 %
15 to 18 14.88 % 14.88 % 14.63 % 14.23 % 13.97 % 13.81 % 12.89 % 12.64 % 12.17 % 11.93 % 11.99 % 11.74 % 11.28 %
18 to 21 17.07 % 17.07 % 16.78 % 16.32 % 16.03 % 15.85 % 14.79 % 14.51 % 13.96 % 13.69 % 13.76 % 13.47 % 12.95 %
21 to 24 18.97 % 18.97 % 18.66 % 18.15 % 17.82 % 17.62 % 16.44 % 16.13 % 15.52 % 15.21 % 15.29 % 14.97 % 14.40 %
24 to 27 19.97 % 19.97 % 19.63 % 19.10 % 18.76 % 18.54 % 17.30 % 16.97 % 16.33 % 16.01 % 16.09 % 15.75 % 15.15 %
27 to 30 20.77 % 20.77 % 20.43 % 19.87 % 19.51 % 19.29 % 17.99 % 17.66 % 16.99 % 16.65 % 16.74 % 16.39 % 15.76 %
30 to 33 21.47 % 21.47 % 21.11 % 20.54 % 20.17 % 19.94 % 18.60 % 18.25 % 17.56 % 17.22 % 17.31 % 16.94 % 16.29 %
33 to 36 22.08 % 22.08 % 21.71 % 21.12 % 20.74 % 20.50 % 19.13 % 18.77 % 18.06 % 17.70 % 17.80 % 17.42 % 16.75 %
36 to 39 22.37 % 22.37 % 21.99 % 21.39 % 21.01 % 20.77 % 19.38 % 19.01 % 18.30 % 17.93 % 18.03 % 17.65 % 16.97 %
39 to 42 22.59 % 22.59 % 22.21 % 21.61 % 21.22 % 20.98 % 19.57 % 19.20 % 18.48 % 18.11 % 18.21 % 17.82 % 17.14 %
42 to 45 22.78 % 22.78 % 22.40 % 21.79 % 21.40 % 21.16 % 19.74 % 19.37 % 18.64 % 18.27 % 18.36 % 17.97 % 17.28 %
45 to 48 22.94 % 22.94 % 22.56 % 21.94 % 21.55 % 21.31 % 19.87 % 19.50 % 18.77 % 18.39 % 18.49 % 18.10 % 17.40 %
48 to 51 23.07 % 23.07 % 22.69 % 22.07 % 21.67 % 21.43 % 19.99 % 19.61 % 18.87 % 18.50 % 18.60 % 18.20 % 17.50 %
51 to 54 23.18 % 23.18 % 22.79 % 22.17 % 21.77 % 21.52 % 20.08 % 19.70 % 18.96 % 18.58 % 18.68 % 18.29 % 17.58 %
54 to 57 23.26 % 23.26 % 22.87 % 22.24 % 21.85 % 21.60 % 20.15 % 19.77 % 19.03 % 18.65 % 18.75 % 18.35 % 17.64 %
57 to 60 23.32 % 23.32 % 22.93 % 22.30 % 21.90 % 21.65 % 20.20 % 19.82 % 19.07 % 18.70 % 18.80 % 18.40 % 17.69 %
60 to 63 23.36 % 23.36 % 22.97 % 22.34 % 21.94 % 21.69 % 20.24 % 19.86 % 19.11 % 18.73 % 18.83 % 18.43 % 17.72 %
63 to 66 23.39 % 23.39 % 23.00 % 22.37 % 21.97 % 21.72 % 20.26 % 19.88 % 19.13 % 18.75 % 18.85 % 18.45 % 17.74 %
66 to 69 23.40 % 23.40 % 23.01 % 22.38 % 21.98 % 21.73 % 20.27 % 19.89 % 19.14 % 18.76 % 18.86 % 18.46 % 17.75 %
69 to 72 23.41 % 23.41 % 23.02 % 22.39 % 21.99 % 21.74 % 20.28 % 19.90 % 19.15 % 18.77 % 18.87 % 18.47 % 17.76 %
</TABLE>
I-1
<PAGE>
SCHEDULE II
Cumulative Net Loss Rates
<TABLE>
<CAPTION>
Series Series Series Series Series Series Series Series Series Series Series Series Series
Month 1997-C 1997-B 1997-A 1996-D 1996-C 1996-B 1996-A 1995-E 1995-D 1995-C 1995-B 1995-A 1994-B
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 to 3 1.08% 1.08% 1.06% 1.03% 1.03% 1.03% 1.00% 0.98% 0.94% 0.92% 0.92% 0.91% 0.90%
3 to 6 2.15% 2.15% 2.12% 2.06% 2.07% 2.06% 2.00% 1.96% 1.88% 1.83% 1.83% 1.82% 1.79%
6 to 9 3.11% 3.11% 3.07% 2.99% 2.99% 2.98% 2.89% 2.84% 2.72% 2.66% 2.65% 2.63% 2.59%
9 to 12 3.97% 3.97% 3.92% 3.82% 3.82% 3.81% 3.69% 3.62% 3.48% 3.39% 3.39% 3.36% 3.31%
12 to 15 5.12% 5.12% 5.05% 4.92% 4.92% 4.91% 4.76% 4.66% 4.48% 4.37% 4.36% 4.33% 4.26%
15 to 18 6.16% 6.16% 6.07% 5.92% 5.92% 5.90% 5.73% 5.61% 5.39% 5.25% 5.25% 5.20% 5.13%
18 to 21 7.06% 7.06% 6.97% 6.79% 6.80% 6.77% 6.57% 6.44% 6.18% 6.03% 6.02% 5.97% 5.88%
21 to 24 7.85% 7.85% 7.75% 7.55% 7.55% 7.53% 7.30% 7.16% 6.87% 6.70% 6.70% 6.64% 6.54%
24 to 27 8.26% 8.26% 8.15% 7.94% 7.95% 7.92% 7.68% 7.53% 7.23% 7.05% 7.05% 6.99% 6.88%
27 to 30 8.60% 8.60% 8.48% 8.26% 8.27% 8.24% 7.99% 7.83% 7.52% 7.34% 7.33% 7.27% 7.16%
30 to 33 8.89% 8.89% 8.77% 8.54% 8.55% 8.52% 8.26% 8.10% 7.78% 7.59% 7.58% 7.51% 7.40%
33 to 36 9.14% 9.14% 9.02% 8.78% 8.79% 8.76% 8.50% 8.33% 8.00% 7.80% 7.79% 7.72% 7.61%
36 to 39 9.26% 9.26% 9.13% 8.89% 8.90% 8.88% 8.61% 8.44% 8.10% 7.90% 7.89% 7.82% 7.71%
39 to 42 9.35% 9.35% 9.23% 8.98% 8.99% 8.97% 8.69% 8.52% 8.18% 7.98% 7.97% 7.90% 7.79%
42 to 45 9.43% 9.43% 9.30% 9.06% 9.07% 9.04% 8.77% 8.59% 8.25% 8.05% 8.04% 7.97% 7.85%
45 to 48 9.50% 9.50% 9.37% 9.12% 9.13% 9.10% 8.83% 8.65% 8.31% 8.10% 8.09% 8.03% 7.91%
48 to 51 9.55% 9.55% 9.42% 9.18% 9.19% 9.16% 8.88% 8.70% 8.36% 8.15% 8.14% 8.07% 7.95%
51 to 54 9.59% 9.59% 9.46% 9.22% 9.23% 9.20% 8.92% 8.74% 8.40% 8.19% 8.18% 8.11% 7.99%
54 to 57 9.63% 9.63% 9.50% 9.25% 9.26% 9.23% 8.95% 8.77% 8.42% 8.22% 8.21% 8.14% 8.02%
57 to 60 9.65% 9.65% 9.52% 9.27% 9.28% 9.25% 8.97% 8.80% 8.45% 8.24% 8.23% 8.16% 8.04%
60 to 63 9.67% 9.67% 9.54% 9.29% 9.30% 9.27% 8.99% 8.81% 8.46% 8.25% 8.24% 8.17% 8.05%
63 to 66 9.68% 9.68% 9.55% 9.30% 9.31% 9.28% 9.00% 8.82% 8.47% 8.26% 8.25% 8.18% 8.06%
66 to 69 9.69% 9.69% 9.56% 9.31% 9.32% 9.29% 9.01% 8.83% 8.48% 8.27% 8.26% 8.19% 8.07%
69 to 72 9.69% 9.69% 9.56% 9.31% 9.32% 9.29% 9.01% 8.83% 8.48% 8.27% 8.26% 8.19% 8.07%
</TABLE>
II-1
<PAGE>
SCHEDULE III
AVERAGE DELINQUENCY RATES
<TABLE>
<CAPTION>
SERIES DESIGNATION COLUMN I
------------------ --------
<S> <C>
1997-C 8.26%
1997-B 8.00
1997-A 7.85
1996-D 7.65
1996-C 7.41
1996-B 7.29
1996-A 7.02
1995-E 6.92
1995-D 6.72
1995-C 6.63
1995-B 6.69
1995-A 6.53
1994-B 6.23
</TABLE>
III-1
<PAGE>
RECEIVABLES PURCHASE AGREEMENT
AND ASSIGNMENT
between
ARCADIA RECEIVABLES FINANCE CORP. III
Purchaser
and
ARCADIA FINANCIAL LTD.
Seller
dated as of
October 17, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 General. . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Specific Terms . . . . . . . . . . . . . . . . . . 1
SECTION 1.3 Usage of Terms . . . . . . . . . . . . . . . . . . 3
SECTION 1.4 Certain References . . . . . . . . . . . . . . . . 3
SECTION 1.5 No Recourse. . . . . . . . . . . . . . . . . . . . 3
SECTION 1.6 Effectiveness. . . . . . . . . . . . . . . . . . . 3
ARTICLE II CONVEYANCE OF THE RECEIVABLES AND THE OTHER CONVEYED
PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.1 Purchase Price . . . . . . . . . . . . . . . . . . 4
SECTION 2.2 Conveyance of Receivables. . . . . . . . . . . . . 4
SECTION 2.3 Delivery of Receivables File . . . . . . . . . . . 5
ARTICLE III REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . 5
SECTION 3.1 Representations and Warranties of Arcadia. . . . . 5
SECTION 3.2 Representations and Warranties of ARFC III . . . . 7
ARTICLE IV COVENANTS OF ARCADIA. . . . . . . . . . . . . . . . . . 9
SECTION 4.1 Protection of Title of ARFC III. . . . . . . . . . 9
SECTION 4.2 Other Liens or Interests . . . . . . . . . . . . . 10
SECTION 4.3 Costs and Expenses; Fees . . . . . . . . . . . . . 11
SECTION 4.4 Indemnification. . . . . . . . . . . . . . . . . . 11
ARTICLE V REPURCHASES . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.1 Repurchase of Receivables Upon Breach of Warranty
or Covenant. . . . . . . . . . . . . . . . . . . . 13
SECTION 5.2 Reassignment of Purchased Receivables. . . . . . . 13
SECTION 5.3 Waivers. . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 14
SECTION 6.1 Liability of Arcadia . . . . . . . . . . . . . . . 14
SECTION 6.2 Merger or Consolidation of Arcadia or ARFC III . . 14
SECTION 6.3 Limitation on Liability of Arcadia and Others. . . 15
SECTION 6.4 Amendment. . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.5 Notices. . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.6 Merger and Integration . . . . . . . . . . . . . . 15
SECTION 6.7 Severability of Provisions . . . . . . . . . . . . 15
SECTION 6.8 Intention of the Parties . . . . . . . . . . . . . 16
SECTION 6.9 Governing Law. . . . . . . . . . . . . . . . . . . 16
SECTION 6.10 Counterparts . . . . . . . . . . . . . . . . . . . 16
SECTION 6.11 Pledge of the Receivables and the Other Conveyed
Property to the Collateral Agent on behalf of the
Investors. . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
RECEIVABLES PURCHASE AGREEMENT
AND ASSIGNMENT
THIS RECEIVABLES PURCHASE AGREEMENT AND ASSIGNMENT, dated as of October 17,
1997, executed between ARCADIA RECEIVABLES FINANCE CORP. III, a Delaware
corporation, as purchaser ("ARFC III"), and ARCADIA FINANCIAL LTD., a
Minnesota corporation, as seller ("Arcadia").
W I T N E S S E T H:
WHEREAS, ARFC III has agreed from time to time to purchase from Arcadia and
Arcadia, pursuant to this Agreement, has agreed from time to time to sell and
assign to ARFC III the Receivables and Other Conveyed Property;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, and for other good and valuable
consideration, the receipt of which is acknowledged, ARFC III and Arcadia,
intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 GENERAL. The specific terms defined in this Article include the
plural as well as the singular. The words "herein," "hereof" and "hereunder"
and other words of similar import refer to this Agreement as a whole and not
to any particular Article, Section or other subdivision, and Article,
Section, Schedule and Exhibit references, unless otherwise specified, refer
to Articles and Sections of and Schedules and Exhibits to this Agreement.
Capitalized terms used herein without definition shall have the respective
meanings assigned to such terms in the Receivables Funding and Servicing
Agreement (defined below).
SECTION 1.2 SPECIFIC TERMS. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
"AGREEMENT" means this Receivables Purchase Agreement and Assignment and all
amendments hereof and supplements hereto.
"ARFC III" means Arcadia Receivables Finance Corp. III, a Delaware
corporation.
"ASSIGNMENT AGREEMENT" means, with respect to any Receivables and related
Other Conveyed Property, the assignment agreement between Arcadia and ARFC
III pursuant to which Arcadia sells and assigns such Receivables and related
Other Conveyed Property to ARFC III, the form of which is attached hereto as
Exhibit A.
"EFFECTIVENESS DATE" has the meaning specified in SECTION 1.6 hereof.
1
<PAGE>
"OTHER CONVEYED PROPERTY" means, with respect to any Receivable, all
monies at any time paid or payable on such Receivable or in respect thereof
after the applicable Transfer Date (including amounts due on or before the
applicable Transfer Date but received by ARFC III or Arcadia after such
Transfer Date), an assignment of security interests of Arcadia in the related
Financed Vehicle, the Insurance Policies and any proceeds from any Insurance
Policies relating to such Receivable, the Obligors or the Financed Vehicle,
including rebates of premiums, rights under any Collateral Insurance and any
Force Placed Insurance relating to such Receivable, rights of Arcadia against
Dealers with respect to such Receivable under the Dealer Agreements and the
Dealer Assignments, all items contained in the related Receivable File, any
and all other documents or electronic records that Arcadia keeps on file in
accordance with its customary procedures relating to such Receivable, the
Obligors or the Financed Vehicles, property (including the right to receive
Recoveries) that secures such Receivable and that has been acquired by or on
behalf of Arcadia pursuant to liquidation of such Receivable, and all
proceeds of the foregoing.
"PURCHASE AMOUNT" has the meaning specified in SECTION 5.1 hereof.
"PURCHASE PRICE" has the meaning specified in Section 2.1 hereof.
"RECEIVABLE" means a retail installment contract or promissory note and
related security agreement for a new or used automobile or light truck (and
all accessories thereto) that is originated or purchased by Arcadia, and all
rights and obligations thereunder.
"RECEIVABLES FUNDING AND SERVICING AGREEMENT" means the Receivables
Funding and Servicing Agreement, dated as of October 17, 1997, executed and
delivered by ARFC III, as Borrower, Arcadia, in its individual capacity, as
Servicer and as Custodian, DLJ Mortgage Capital, Inc., individually and as
Agent, the financial institutions set forth on the signature pages thereto
and Norwest Bank Minnesota, National Association, as Backup Servicer and
Collateral Agent.
"REPURCHASE EVENT" means the occurrence of a breach of any of Arcadia's
representations and warranties contained in SECTION 3.1(A) hereof or any
other event which requires the repurchase of a Receivable by Arcadia under
the Receivables Funding and Servicing Agreement.
"SCHEDULE OF RECEIVABLES" means the schedule of all Receivables sold and
transferred pursuant to each Assignment Agreement which is attached hereto as
Schedule A, as such Schedule shall be supplemented from time to time (i) by
each Schedule of Receivables with respect to each Assignment Agreement, which
Schedules of Receivables shall be deemed incorporated and made a part of
Schedule A hereto and (ii) to reflect the repurchase from ARFC III of (a)
Warranty Receivables and (b) other Receivables purchased from ARFC III by
Arcadia. With respect to an Assignment Agreement, "Schedule of Receivables"
shall mean the Schedule attached to such Assignment Agreement as Exhibit A
thereto.
"SCHEDULE OF REPRESENTATIONS" means the Schedule of Representations and
Warranties attached hereto as Schedule B.
"TRANSACTION DOCUMENTS" means the Note, the Collateral Agent Agreement,
the Receivables Funding and Servicing Agreement and the Lockbox Agreement.
The Transaction Documents to be executed by any party are referred to herein
as "SUCH PARTY'S TRANSACTION DOCUMENTS," "ITS TRANSACTION DOCUMENTS" or by a
similar expression.
2
<PAGE>
"TRANSFER DATE" means any date on which Receivables and related Other
Conveyed Property are sold and assigned to ARFC III pursuant to SECTION 2.2.
SECTION 1.3 USAGE OF TERMS. With respect to all terms used in this
Agreement, the singular includes the plural and the plural the singular;
words importing any gender include the other gender references to "writing"
include printing, typing, lithography, and other means of reproducing words
in a visible form; references to agreements and other contractual instruments
include all subsequent amendments thereto or changes therein entered into in
accordance with their respective terms and not prohibited by this Agreement
or the Receivables Funding and Servicing Agreement; references to Persons
include their permitted successors and assigns; and the terms "include" or
"including" mean "include without limitation" or "including without
limitation."
SECTION 1.4 CERTAIN REFERENCES. All references to the Principal Balance of
a Receivable as of a Transfer Date shall refer to the close of business on
such day, and as of the first day of a Settlement Period shall refer to the
opening of business on such day. All references to the last day of a
Settlement Period shall refer to the close of business on such day.
SECTION 1.5 NO RECOURSE. Without limiting the obligations of Arcadia
hereunder, no recourse may be taken, directly or indirectly, under this
Agreement or any certificate or other writing delivered in connection
herewith or therewith, against any stockholder, officer or director, as such,
of Arcadia, or of any predecessor or successor of Arcadia.
SECTION 1.6 EFFECTIVENESS. The "Effectiveness Date" of this Agreement shall
occur on the date on which the conditions set forth in this Agreement shall
have been satisfied or waived by both parties to this Agreement.
ARTICLE II
CONVEYANCE OF THE RECEIVABLES
AND THE OTHER CONVEYED PROPERTY
SECTION 2.1 PURCHASE PRICE. In consideration of the conveyance of the
Receivables and the related Other Conveyed Property to ARFC III on each
Transfer Date, ARFC III shall pay or cause to be paid to Arcadia an amount
(the "PURCHASE PRICE") equal to the product of (x) the outstanding Principal
Balance (as defined in the Receivables Funding and Servicing Agreement) of
each Receivable and (y) 100%. Such amount shall be paid to Arcadia, by wire
transfer of immediately available funds (a) on the date of such conveyance,
in an amount equal to (i) with respect to Premier Receivables, 95%, (ii) with
respect to Classic Receivables (other than Financial Repo Receivables) 93%,
and (iii) with respect to Financial Repo Receivables, 85% and (b) upon the
subsequent transfer by ARFC III of such Receivables for securitization or
upon a Take-Out Securitization, in an amount equal to the remaining balance
of the Purchase Price.
SECTION 2.2 CONVEYANCE OF RECEIVABLES.
3
<PAGE>
() Subject to the conditions set forth in paragraph (b) below, Arcadia,
pursuant to the mutually agreed upon terms contained herein and pursuant to
one or more Assignment Agreements, shall sell, transfer, assign and otherwise
convey to ARFC III without recourse (but without limitation of its
obligations in this Agreement or the Receivables Funding and Servicing
Agreement), all of the right, title and interest of Arcadia, whether then
existing or thereafter acquired, in and to the Receivables listed on the
Schedule of Receivables and the related Other Conveyed Property. It is the
intention of ARFC III and Arcadia that the transfers and assignments
contemplated by this Agreement and each Assignment Agreement shall constitute
a sale of the Receivables and the Other Conveyed Property from Arcadia to
ARFC III, conveying good title thereto free and clear of any Liens, and the
Receivables and Other Conveyed Property shall not be a part of Arcadia's
estate in the event of the filing of a bankruptcy petition by or against
Arcadia under any bankruptcy or similar law.
() Arcadia shall transfer to ARFC III the Receivables and the related
Other Conveyed Property as described in paragraph (a) above only upon the
satisfaction of each of the following conditions on or prior to the related
Transfer Date:
() Arcadia shall have delivered to ARFC III a duly executed Assignment
Agreement (including an acceptance by ARFC III), which shall include a
Schedule of Receivables listing the Receivables being transferred on such
Transfer Date, including the loan numbers thereof;
() as of such Transfer Date, Arcadia shall not have been insolvent nor
shall Arcadia have been rendered insolvent by such sale and assignment nor
shall Arcadia be aware of any pending insolvency;
() Arcadia shall have taken any action necessary or advisable to
maintain the first priority perfected ownership interest of ARFC III in the
Receivables and Other Conveyed Property;
() no selection procedures adverse to the interests of ARFC III shall
have been used by Arcadia or ARFC III in selecting the Receivables;
() Arcadia shall have provided to ARFC III any information reasonably
requested by ARFC III with respect to the Receivables;
() each of the representations and warranties made by Arcadia pursuant
to SECTION 3.1 shall be true and correct as of the related Transfer Date, and
Arcadia shall have performed all obligations to be performed by it hereunder
on or prior to such Transfer Date;
() Arcadia shall, at its own expense, on or prior to the Transfer Date,
indicate in its computer files that the Receivables identified in the
Assignment Agreement have been sold to ARFC III pursuant to this Agreement
and the related Assignment Agreement;
() if Arcadia is not acting as a Custodian under the Receivables
Funding and Servicing Agreement, Arcadia shall have delivered the Receivable
Files with respect to such Receivables to the Custodian.
4
<PAGE>
() Arcadia shall have delivered to the Agent an Officer's Certificate
confirming the satisfaction of each condition precedent specified in this
paragraph (b).
SECTION 2.3 DELIVERY OF RECEIVABLES FILE. In the event that at any time
Arcadia is not acting as Custodian under the Receivables Financing and
Servicing Agreement, Arcadia shall deliver or cause to be delivered to ARFC
III within three Business Days after each Transfer Date a notice indicating
transfer of the related Receivable Files to the Custodian.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF ARCADIA. Arcadia hereby
makes the following representations and warranties, on which ARFC III relies
in purchasing the Receivables and the Other Conveyed Property. Such
representations are made as of the Effectiveness Date and each Transfer Date,
and shall survive the sale, transfer and assignment of the Receivables and
the Other Conveyed Property hereunder and under the Assignment Agreements and
the pledge thereof by ARFC III to the Collateral Agent on behalf of the
Investors under the Receivables Funding and Servicing Agreement. Arcadia and
ARFC III agree that ARFC III will pledge to the Collateral Agent for the
benefit of the Investors all of ARFC III's rights under this Agreement and
that the Collateral Agent on behalf of the Investors will, to the extent
provided in the Transaction Documents, thereafter be entitled to enforce this
Agreement against Arcadia.
() SCHEDULE OF REPRESENTATIONS. The representations and warranties set
forth on the Schedule of Representations are true and correct.
() ORGANIZATION AND GOOD STANDING. Arcadia has been duly organized and
is validly existing as a corporation in good standing under the laws of the
State of Minnesota, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such business
is currently conducted, and had at all relevant times, and now has, power,
authority and legal right to acquire, own and sell the Receivables and the
Other Conveyed Property transferred to ARFC III.
() DUE QUALIFICATION. Arcadia is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary licenses
and approvals, in all jurisdictions in which the ownership or lease of its
property or the conduct of its business requires such qualification.
() POWER AND AUTHORITY. Arcadia has the power and authority to execute
and deliver this Agreement, each Assignment Agreement and its Transaction
Documents and to carry out its terms and their terms, respectively; Arcadia
has full power and authority to sell and assign the Receivables and the Other
Conveyed Property to be sold and assigned to and deposited with ARFC III
under each Assignment Agreement and has duly authorized such sale and
assignment to ARFC III by all necessary corporate action; and the execution,
delivery and performance of this Agreement, each Assignment Agreement and
Arcadia's Transaction Documents have been duly authorized by Arcadia by all
necessary corporate action.
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() VALID SALE; BINDING OBLIGATIONS. This Agreement, each Assignment
Agreement and Arcadia's Transaction Documents have been duly executed and
delivered, shall effect a valid sale, transfer and assignment of the
Receivables and the Other Conveyed Property, enforceable against Arcadia and
creditors of and purchasers from Arcadia; and this Agreement, each Assignment
Agreement and Arcadia's Transaction Documents constitute legal, valid and
binding obligations of Arcadia enforceable in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by equitable limitations on the availability
of specific remedies, regardless of whether such enforceability is considered
in a proceeding in equity or at law.
() NO VIOLATION. The consummation of the transactions contemplated by
this Agreement, each Assignment Agreement and the Transaction Documents and
the fulfillment of the terms of this Agreement, each Assignment Agreement and
the Transaction Documents shall not conflict with, result in any breach of
any of the terms and provisions of or constitute (with or without notice,
lapse of time or both) a default under, the articles of incorporation or
bylaws of Arcadia, or any indenture, agreement, mortgage, deed of trust or
other instrument to which Arcadia is a party or by which it is bound, or
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement, mortgage, deed of
trust or other instrument, other than this Agreement, each Assignment
Agreement and the Receivables Funding and Servicing Agreement, or violate any
law, order, rule or regulation applicable to Arcadia of any court or of any
federal or state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over Arcadia or any of its properties.
() NO PROCEEDINGS. There are no proceedings or investigations pending
or, to, Arcadia's knowledge, threatened against Arcadia, before any court,
regulatory body, administrative agency or other tribunal or governmental
instrumentality having jurisdiction over Arcadia or its properties (i)
asserting the invalidity of this Agreement, any Assignment Agreement or any
of the Transaction Documents, (ii) seeking any determination or ruling that
might materially and adversely affect the performance by Arcadia of its
obligations under, or the validity or enforceability of, this Agreement, any
Assignment Agreement or any of the Transaction Documents or (iii) seeking to
affect adversely the federal income tax or other federal, state or local tax
attributes of, or seeking to impose any excise, franchise, transfer or
similar tax upon, the transfer and acquisition of the Receivables and the
Other Conveyed Property hereunder, under any Assignment Agreement or under
the Receivables Funding and Servicing Agreement.
() NO TERMINATION EVENTS. No default hereunder or Servicer Termination
Event shall have occurred and be continuing.
() CHIEF EXECUTIVE OFFICE. The chief executive office of Arcadia is
located at 7825 Washington Avenue South, Suite 500, Minneapolis, MN
55439-2435.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF ARFC III. ARFC III hereby
makes the following representations and warranties, on which Arcadia relies
in selling, assigning, transferring and conveying the Receivables and the
Other Conveyed Property to ARFC III under this Agreement and each Assignment
Agreement. Such representations are made as of the Effectiveness Date and
each Transfer Date, and shall survive the sale, transfer and assignment of
the Receivables and the Other Conveyed Property
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hereunder and under each Assignment Agreement and the pledge thereof by ARFC
III to the Collateral Agent for the benefit of the Investors under the
Receivables Funding and Servicing Agreement.
() ORGANIZATION AND GOOD STANDING. ARFC III has been duly organized and
is validly existing and in good standing as a corporation under the laws of
the State of Delaware, with the power and authority to own its properties and
to conduct its business as such properties are currently owned and such
business is currently conducted, and had at all relevant times, and has, full
power, authority and legal right to acquire and own the Receivables and the
Other Conveyed Property and to pledge the Receivables and the Other Conveyed
Property to the Collateral Agent for the benefit of the Investors pursuant to
the Receivables Funding and Servicing Agreement.
() DUE QUALIFICATION. ARFC III is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary licenses
and approvals in all jurisdictions where the failure to do so would
materially and adversely affect (i) ARFC III's ability to acquire the
Receivables or the Other Conveyed Property, (ii) the validity or
enforceability of the Receivables and the Other Conveyed Property or (iii)
ARFC III's ability to perform its obligations hereunder, under any Assignment
Agreement and under its Transaction Documents.
() POWER AND AUTHORITY. ARFC III has the power, authority and legal
right to execute and deliver this Agreement, each Assignment Agreement and
its Transaction Documents and to carry out the terms hereof and thereof and
to acquire the Receivables and the Other Conveyed Property hereunder and
under each Assignment Agreement; and the execution, delivery and performance
of this Agreement, each Assignment Agreement and its Transaction Documents
and all of the documents required pursuant hereto or thereto have been duly
authorized by ARFC III by all necessary action.
() NO CONSENT REQUIRED. ARFC III is not required to obtain the consent
of any other Person, or any consent, license, approval or authorization or
registration or declaration with, any governmental authority, bureau or
agency in connection with the execution, delivery or performance of this
Agreement, each Assignment Agreement and the Transaction Documents, except
for such as have been obtained, effected or made.
() BINDING OBLIGATION. This Agreement, each Assignment Agreement and
each of its Transaction Documents constitutes a legal, valid and binding
obligation of ARFC III, enforceable against ARFC III in accordance with its
terms, subject, as to enforceability, to applicable bankruptcy, insolvency,
reorganization, conservatorship, receivership, liquidation and other similar
laws and to general equitable principles.
() NO VIOLATION. The execution, delivery and performance by ARFC III of
this Agreement and each Assignment Agreement, the consummation of the
transactions contemplated by this Agreement, each Assignment Agreement and
the Transaction Documents and the fulfillment of the terms of this Agreement,
each Assignment Agreement and the Transaction Documents do not and will not
conflict with, result in any breach of any of the terms and provisions of or
constitute (with or without notice or lapse of time) a default under the
certificate of incorporation or bylaws of ARFC III, or conflict with or
breach any of the terms or provisions of, or constitute (with or without
notice or lapse of time) a default under, any indenture, agreement, mortgage,
deed of trust or other instrument to which ARFC III is a party or by which
ARFC III is bound or to which any of its properties are subject, or result in
the creation or imposition of any Lien upon any of its
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properties pursuant to the terms of any such indenture, agreement, mortgage,
deed of trust or other instrument (other than the Receivables Funding and
Servicing Agreement), or violate any law, order, rule or regulation,
applicable to ARFC III or its properties, of any federal or state regulatory
body or any court, administrative agency, or other governmental
instrumentality having jurisdiction over ARFC III or any of its properties.
() NO PROCEEDINGS. There are no proceedings or investigations pending,
or, to the knowledge of ARFC III, threatened against ARFC III, before any
court, regulatory body, administrative agency, or other tribunal or
governmental instrumentality having jurisdiction over ARFC III or its
properties: (i) asserting the invalidity of this Agreement, any Assignment
Agreement or any of the Transaction Documents, (ii) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement, any
Assignment Agreement or any of the Transaction Documents, (iii) seeking any
determination or ruling that might materially and adversely affect the
performance by ARFC III of its obligations under, or the validity or
enforceability of, this Agreement, any Assignment Agreement or any of the
Transaction Documents or (iv) that may adversely affect the federal or state
income tax attributes of, or seeking to impose any excise, franchise,
transfer or similar tax upon, the transfer and acquisition of the Receivables
and the Other Conveyed Property hereunder or under any Assignment Agreement
or the pledge of the Receivables and the Other Conveyed Property to the
Collateral Agent on behalf of the Investors pursuant to the Receivables
Funding and Servicing Agreement. In the event of any breach of a
representation and warranty made by ARFC III hereunder, Arcadia and ARFC III
agree that damages will not be an adequate remedy for such breach and that
this covenant may be specifically enforced by ARFC III or by the Collateral
Agent on behalf of the Investors.
ARTICLE IV
COVENANTS OF ARCADIA
SECTION 4.1 PROTECTION OF TITLE OF ARFC III.
() At or prior to the Closing Date, Arcadia shall have filed or caused
to be filed a UCC-1 financing statement, executed by Arcadia as seller or
debtor, naming ARFC III as purchaser or secured party and describing the
Receivables and the Other Conveyed Property, with respect to this Agreement
and each Assignment Agreement, being sold by it to ARFC III as collateral,
with the office of the Secretary of State of the State of Minnesota and in
such other locations as ARFC III shall have required. From time to time
thereafter, Arcadia shall execute and file such financing statements and
cause to be executed and filed such continuation statements, all in such
manner and in such places as may be required by law fully to preserve,
maintain and protect the interest of ARFC III under this Agreement and each
Assignment Agreement and of the Collateral Agent under the Receivables
Funding and Servicing Agreement in the Receivables and the Other Conveyed
Property and in the proceeds thereof. Arcadia shall deliver (or cause to be
delivered) to ARFC III, the Agent and the Collateral Agent file-stamped
copies of, or filing receipts for, any document filed as provided above, as
soon as available following such filing. In the event that Arcadia fails to
perform its obligations under this subsection, ARFC III may do so at the
expense of Arcadia.
() Arcadia shall not change its name, identity, or corporate structure
in any manner that would, could or might make any financing statement or
continuation statement filed by Arcadia (or by ARFC III, the Agent or the
Collateral Agent on behalf of Arcadia) in accordance with
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paragraph (a) above seriously misleading within the meaning of Section
9-402(7) of the UCC, unless it shall have given ARFC III, the Agent and the
Collateral Agent at least 60 days' prior written notice thereof, and shall
promptly file appropriate amendments to all previously filed financing
statements and continuation statements.
() Arcadia shall give ARFC III, the Agent and the Collateral Agent at
least 60 days' prior written notice of any relocation of its principal
executive office if, as a result of such relocation, the applicable
provisions of the UCC would require the filing of any amendment of any
previously filed financing or continuation statement or of any new financing
statement. Arcadia shall at all times maintain each office from which it
services Receivables and its principal executive office within the United
States of America.
() Arcadia shall maintain its computer systems so that, from and after
the time of sale under this Agreement and under any Assignment Agreement of
the Receivables to ARFC III, and the pledge of the Receivables by ARFC III to
the Collateral Agent for the benefit of the Investors, Arcadia's master
computer records (including archives) that shall refer to a Receivable
indicate clearly that such Receivable has been sold to ARFC III and has been
pledged by ARFC III to the Collateral Agent on behalf of the Investors.
Indication of the Collateral Agent's security interest in the Receivable
shall be deleted from or modified on Arcadia's computer systems when, and
only when, the Receivable shall become a Pledged Receivable, shall have been
paid in full or shall otherwise have been released from such security
interest pursuant to the Transaction Documents. Arcadia shall indicate in
its consolidated financial statements that Receivables have been sold to ARFC
III and are not available to the creditors of Arcadia.
() If at any time Arcadia shall propose to sell, grant a security
interest in, or otherwise transfer any interest in motor vehicle receivables
to any prospective purchaser, lender or other transferee, Arcadia shall give
to such prospective purchaser, lender, or other transferee computer tapes,
records, or print-outs (including any restored from archives) that, if they
shall refer in any manner whatsoever to any Receivable, shall indicate
clearly that such Receivable has been sold to ARFC III and is subject to a
security interest in favor of the Collateral Agent for the benefit of the
Investors.
SECTION 4.2 OTHER LIENS OR INTERESTS. Except for the conveyances under
any Assignment Agreement, Arcadia will not sell, pledge, assign or transfer
to any other Person, or grant, create, incur, assume or suffer to exist any
Lien on the Receivables or the Other Conveyed Property, or any interest
therein, and Arcadia shall defend the right, title and interest of ARFC III
and the Collateral Agent on behalf of the Investors in and to the Receivables
and the Other Conveyed Property against all claims of third parties claiming
through or under Arcadia.
SECTION 4.3 COSTS AND EXPENSES; FEES.
() Arcadia shall pay all reasonable costs and disbursements in
connection with the performance of its obligations hereunder and under each
Assignment Agreement and its Transaction Documents.
() In consideration of ARFC III's purchase of Receivables (and the
related Other Conveyed Property) from time to time hereunder, Arcadia hereby
agrees to pay to ARFC III the
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amount of any fees payable by ARFC III pursuant to the Fee Letter in respect
of the unused portion of the Facility.
SECTION 4.4 INDEMNIFICATION.
() Arcadia shall defend, indemnify and hold harmless ARFC III, each
Investor, the Agent, the Collateral Agent and the Backup Servicer from and
against any and all costs, expenses, losses, damages, claims, and
liabilities, arising out of or resulting from any breach of any of Arcadia's
representations and warranties contained herein.
() Arcadia shall defend, indemnify and hold harmless ARFC III, each
Investor, the Agent, the Collateral Agent and the Backup Servicer from and
against any and all costs, expenses, losses, damages, claims, and
liabilities, arising out of or resulting from the use, ownership or operation
by Arcadia or any affiliate thereof of a Financed Vehicle.
() Arcadia shall defend, indemnify and hold harmless ARFC III, each
Investor, the Agent, the Collateral Agent and the Backup Servicer against any
and all costs, expenses, losses, damages, claims and liabilities arising out
of or resulting from any action taken, or failed to be taken, by it in
respect of any portion of the Receivables and the Other Conveyed Property
transferred hereunder other than in accordance with this Agreement or the
Receivables Funding and Servicing Agreement.
() Arcadia agrees to pay, and shall defend, indemnify and hold harmless
ARFC III, each Investor, the Agent, the Collateral Agent and the Backup
Servicer from and against any taxes that may at any time be asserted against
ARFC III, each Investor, the Agent, the Collateral Agent or the Backup
Servicer with respect to the transactions contemplated in this Agreement or
in any Assignment Agreement, including, without limitation, any sales, gross
receipts, general corporation, tangible or intangible personal property,
privilege, or license taxes (but not including any taxes asserted with
respect to, and as of the date of, any sale, transfer and assignment of the
Receivables and the Other Conveyed Property to ARFC III, or asserted with
respect to ownership of the Receivables and Other Conveyed Property which
shall be indemnified by Arcadia pursuant to clause (e) below, or federal,
state or other income taxes, arising out of distributions on the Note or
transfer taxes arising in connection with the transfer of the Note) and costs
and expenses in defending against the same, arising by reason of the acts to
be performed by Arcadia under this Agreement or under any Assignment
Agreement or imposed against such Persons.
() Arcadia agrees to pay, and to indemnify, defend and hold harmless
ARFC III, each Investor, the Agent, the Collateral Agent and the Backup
Servicer from, any taxes which may at any time be asserted against such
Persons with respect to, and as of the date of, the conveyance or ownership
of any Receivables or the Other Conveyed Property hereunder or under each
Assignment Agreement and the pledge of such Receivables and Other Conveyed
Property under the Receivables Funding and Servicing Agreement, including,
without limitation, any sales, gross receipts, personal property, tangible or
intangible personal property, privilege or license taxes (but not including
any federal or other income taxes, including franchise taxes, arising out of
the transactions contemplated hereby or transfer taxes arising in connection
with the transfer of Note) and costs and expenses in defending against the
same, arising by reason of the acts to be performed by Arcadia under this
Agreement or under any Assignment Agreement or imposed against such Persons.
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() Arcadia shall defend, indemnify, and hold harmless ARFC III, each
Investor, the Agent, the Collateral Agent and the Backup Servicer from and
against any and all costs, expenses, losses, claims, damages, and liabilities
to the extent that such cost, expense, loss, claim, damage, or liability
arose out of, or was imposed upon ARFC III, any Investor, the Agent, the
Collateral Agent or the Backup Servicer through the negligence, willful
misfeasance, or bad faith of Arcadia in the performance of its duties under
this Agreement or under any Assignment Agreement or by reason of reckless
disregard of Arcadia's obligations and duties under this Agreement or under
any Assignment Agreement.
() Arcadia shall indemnify, defend and hold harmless ARFC III, each
Investor, the Agent, the Collateral Agent and the Backup Servicer from and
against any loss, liability or expense imposed upon, or incurred by, ARFC
III, each Investor, the Agent, the Collateral Agent or the Backup Servicer as
a result of the failure of any Receivable, or the sale of the related
Financed Vehicle, to comply with all requirements of applicable law.
() Arcadia shall defend, indemnify, and hold harmless ARFC III and its
assignees from and against all costs, expenses, losses, claims, damages, and
liabilities arising out of or incurred in connection with the acceptance or
performance of Arcadia's duties as Servicer under the Receivables Funding and
Servicing Agreement, except to the extent that such cost, expense, loss,
claim, damage, or liability shall be due to the willful misfeasance, bad
faith, or negligence (except for errors in judgment) of ARFC III.
Indemnification under this SECTION 4.4 shall include reasonable fees and
expenses of counsel and expenses of litigation. The indemnity obligations
hereunder shall be in addition to any obligation that Arcadia may otherwise
have.
ARTICLE V
REPURCHASES
SECTION 5.1 REPURCHASE OF RECEIVABLES UPON BREACH OF WARRANTY OR
COVENANT. Upon the occurrence of a Repurchase Event, Arcadia shall, unless
such breach shall have been cured in all material respects, repurchase such
Receivable from ARFC III by the last day of the first full calendar month
following discovery or notice to Arcadia of such breach, and Arcadia shall
pay the sum of the outstanding principal amount of such Receivable plus
accrued interest thereon in each case as of the date of repurchase (the
"PURCHASE AMOUNT"). It is understood and agreed that, except as set forth in
SECTION 6.1, the obligation of Arcadia to repurchase any Receivable as to
which a breach has occurred and is continuing shall, if such obligation is
fulfilled, constitute the sole remedy against Arcadia for such breach
available to ARFC III, the Investors the Agent, the Collateral Agent and the
Backup Servicer. The provisions of this SECTION 5.1 are intended to grant the
Collateral Agent, for the benefit of the Investors, a direct right against
Arcadia to demand performance hereunder, and in connection therewith, Arcadia
waives any requirement of prior demand against ARFC III with respect to such
repurchase obligation. Any such purchase shall take place in the manner
specified in Section 8.7 of the Receivables Funding and Servicing Agreement.
Notwithstanding any other provision of this Agreement or the Receivables
Funding and Servicing Agreement to the contrary, the obligation of Arcadia
under this Section shall not terminate upon a termination of Arcadia as
Servicer under the Receivables Funding and Servicing Agreement and shall be
performed in accordance with the terms hereof notwithstanding the failure of
the Servicer or ARFC
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III to perform any of their respective obligations with respect to such
Receivable under the Receivables Funding and Servicing Agreement.
In addition to the foregoing and notwithstanding whether the related
Receivable shall have been purchased by Arcadia, Arcadia shall indemnify the
Collateral Agent on behalf of the Investors against all costs, expenses,
losses, damages, claims and liabilities, including reasonable fees and
expenses of counsel, which may be asserted against or incurred by any of them
as a result of third party claims arising out of the events or facts giving
rise to such Repurchase Events.
SECTION 5.2 REASSIGNMENT OF PURCHASED RECEIVABLES. Upon deposit in the
Collection Account of the Purchase Amount of any Receivable repurchased by
Arcadia under SECTION 5.1, ARFC III and the Collateral Agent on behalf of the
Investors shall take such steps as may be reasonably requested by Arcadia in
order to assign to Arcadia all of ARFC III's right, title and interest in and
to such Receivable and all security and documents and all Other Conveyed
Property conveyed to ARFC III directly relating thereto, and to release the
Collateral Agent's security interest therein, without recourse,
representation or warranty, except as to the absence of liens, charges or
encumbrances created by or arising as a result of actions of ARFC III. Such
assignment shall be a sale and assignment outright, and not for security.
If, following the reassignment of a Purchased Receivable, in any enforcement
suit or legal proceeding, it is held that Arcadia may not enforce any such
Receivable on the ground that it shall not be a real party in interest or a
holder entitled to enforce the Receivable, ARFC III shall, at the expense of
Arcadia, take such steps as Arcadia deems reasonably necessary to enforce the
Receivable, including bringing suit in ARFC III's name.
SECTION 5.3 WAIVERS. No failure or delay on the part of ARFC III, or the
Collateral Agent on behalf of the Investors as assignee of ARFC III, in
exercising any power, right or remedy under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or remedy preclude any other or future exercise thereof or the exercise
of any other power, right or remedy.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 LIABILITY OF ARCADIA. Arcadia shall be liable in accordance
herewith only to the extent of the obligations in this Agreement or in any
Assignment Agreement specifically undertaken by Arcadia and the
representations and warranties of Arcadia.
SECTION 6.2 MERGER OR CONSOLIDATION OF ARCADIA OR ARFC III. Any
corporation or other entity (i) into which Arcadia or ARFC III may be merged
or consolidated, (ii) resulting from any merger or consolidation to which
Arcadia or ARFC III is a party or (iii) succeeding to the business of Arcadia
or ARFC III, in the case of ARFC III, which corporation has a certificate of
incorporation containing provisions relating to limitations on business and
other matters substantively identical to those contained in ARFC III's
certificate of incorporation, provided that in any of the foregoing cases
such corporation shall execute an agreement of assumption to perform every
obligation of Arcadia or ARFC III, as the case may be, under this Agreement
and each Assignment Agreement and,
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whether or not such assumption agreement is executed, shall be the successor
to Arcadia or ARFC III, as the case may be, hereunder and under each such
Assignment Agreement (without relieving Arcadia or ARFC III of its
responsibilities hereunder, if it survives such merger or consolidation)
without the execution or filing of any document or any further act by any of
the parties to this Agreement or each Assignment Agreement. Notwithstanding
the foregoing, ARFC III shall not merge or consolidate with any other Person
or permit any other Person to become the successor to ARFC III's business
without the prior written consent of the Agent. Arcadia or ARFC III shall
promptly inform the other party, the Agent, the Collateral Agent and the
Backup Servicer of any such merger, consolidation or purchase and assumption.
Notwithstanding the foregoing, as a condition to the consummation of the
transactions referred to in clauses (i), (ii) and (iii) above, (x)
immediately after giving effect to such transaction, no representation or
warranty made pursuant to SECTIONS 3.1 and 3.2 of this Agreement, or similar
representation or warranty made in any Assignment Agreement, shall have been
breached (for purposes hereof, such representations and warranties shall
speak as of the date of the consummation of such transaction), (y) Arcadia or
ARFC III, as applicable, shall have delivered prompt written notice of such
consolidation, merger or purchase and assumption to the Agent, the Collateral
Agent and the Backup Servicer prior to the consummation of such transaction
and shall have delivered to the Agent an Officer's Certificate and an Opinion
of Counsel each stating that such consolidation, merger or succession and
such agreement of assumption comply with this SECTION 6.2 and that all
conditions precedent, if any, provided for in this Agreement, or in each
Assignment Agreement, relating to such transaction have been complied with,
and (z) Arcadia or ARFC III, as applicable, shall have delivered to the Agent
an Opinion of Counsel, stating that, in the opinion of such counsel, either
(A) all financing statements and continuation statements and amendments
thereto have been executed and filed that are necessary to preserve and
protect the interest of the Collateral Agent for the benefit of the Investors
in the Receivables and Other Conveyed Property and reciting the details of
the filings or (B) no such action shall be necessary to preserve and protect
such interest.
SECTION 6.3 LIMITATION ON LIABILITY OF ARCADIA AND OTHERS. Arcadia and
any director, officer, employee or agent may rely in good faith on the advice
of counsel or on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising under this Agreement.
Arcadia shall not be under any obligation to appear in, prosecute or defend
any legal action that is not incidental to its obligations under this
Agreement, any Assignment Agreement or its Transaction Documents and that in
its opinion may involve it in any expense or liability.
SECTION 6.4 AMENDMENT.
This Agreement and any Assignment Agreement may be amended by Arcadia and
ARFC III, with the consent of the Agent.
SECTION 6.5 NOTICES. All demands, notices and communications to Arcadia
or ARFC III hereunder shall be in writing, personally delivered, or sent by
telecopier (subsequently confirmed in writing), reputable overnight courier
or mailed by certified mail, return receipt requested, and shall be deemed to
have been given upon receipt (a) in the case of Arcadia, to Arcadia Financial
Ltd., 7825 Washington Avenue South, Minneapolis, Minnesota 55439-2435,
Attention: John A. Witham, or such other address as shall be designated by
Arcadia in a written notice delivered to Arcadia and to the Agent, as
applicable, or (b) in case of ARFC III, to Arcadia Receivables Finance Corp.
II, 7825 Washington Avenue South, Suite 410, Minneapolis, Minnesota
55439-2435, Attention: John A. Witham.
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SECTION 6.6 MERGER AND INTEGRATION. Except as specifically stated
otherwise herein, this Agreement, each Assignment Agreement and the
Transaction Documents set forth the entire understanding of the parties
relating to the subject matter hereof, and all prior understandings, written
or oral, are superseded by this Agreement, each Assignment Agreement and the
Transaction Documents. Neither this Agreement nor any Assignment Agreement
may be modified, amended, waived or supplemented except as provided herein.
SECTION 6.7 SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, provisions or terms of this Agreement or any Assignment Agreement
shall be for any reason whatsoever held invalid, then such covenants,
provisions or terms shall be deemed severable from the remaining covenants,
provisions or terms of this Agreement or any Assignment Agreement and shall
in no way affect the validity or enforceability of the other provisions of
this Agreement or any Assignment Agreement.
SECTION 6.8 INTENTION OF THE PARTIES. The execution and delivery of this
Agreement shall constitute an acknowledgment by Arcadia and ARFC III that
they intend that the assignments and transfers herein contemplated pursuant
to each Assignment Agreement constitute a sale and assignment outright, and
not for security, of the Receivables and the Other Conveyed Property,
conveying good title thereto free and clear of any Liens, from Arcadia to
ARFC III, and that the Receivables and the Other Conveyed Property shall not
be a part of Arcadia's estate in the event of the bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding, or other proceeding under
any federal or state bankruptcy or similar law, or the occurrence of another
similar event, of, or with respect to, Arcadia. In the event that such
conveyance is determined to be made as security for a loan made by ARFC III
to Arcadia, the parties intend that Arcadia shall have granted (and Arcadia
does hereby grant) to ARFC III a security interest in all of Arcadia's right,
title and interest in and to the Receivables and the Other Conveyed Property
conveyed pursuant to each Assignment Agreement and that this Agreement shall
constitute a security agreement under applicable law.
SECTION 6.9 GOVERNING LAW. THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER
AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
ANY OTHERWISE APPLICABLE CONFLICT OF LAW PRINCIPLES (OTHER THAN SECTION
5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
SECTION 6.10 COUNTERPARTS. For the purpose of facilitating the execution
of this Agreement and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts
shall be deemed to be an original, and all of which counterparts shall
constitute but one and the same instrument.
SECTION 6.11 PLEDGE OF THE RECEIVABLES AND THE OTHER CONVEYED PROPERTY TO
THE COLLATERAL AGENT ON BEHALF OF THE INVESTORS. Arcadia acknowledges that
ARFC III intends, pursuant to the Receivables Funding and Servicing
Agreement, to pledge and assign the Receivables and the Other Conveyed
Property together with its rights under this Agreement to the Collateral
Agent for the benefit of the Investors on the date hereof. Arcadia
acknowledges and consents to such pledge and assignment and waives any
further notice thereof and covenants and
14
<PAGE>
agrees that the representations and warranties of Arcadia contained in this
Agreement and the rights of ARFC III hereunder are intended to benefit the
Collateral Agent for the benefit of the Investors. In furtherance of the
foregoing, Arcadia covenants and agrees to perform its duties and obligations
hereunder, in accordance with the terms hereof for the benefit of the
Collateral Agent for the benefit of the Investors and that, notwithstanding
anything to the contrary in this Agreement, Arcadia shall be directly liable
to the Collateral Agent for the benefit of the Investors (notwithstanding any
failure by the Servicer, the Backup Servicer or ARFC III to perform its
duties and obligations hereunder or under the Receivables Funding and
Servicing Agreement) and that the Collateral Agent for the benefit of the
Investors may enforce the duties and obligations of Arcadia under this
Agreement against Arcadia.
[Signature Pages to Follow]
15
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Receivables
Purchase Agreement and Assignment to be duly executed by their respective
officers as of the day and year first above written.
ARCADIA RECEIVABLES FINANCE CORP. III,
AS PURCHASER
By:
Name:
Title:
ARCADIA FINANCIAL LTD., AS SELLER
By:
Name:
Title:
[Signature page to Receivables Purchase Agreement]
<PAGE>
EXHIBIT A
FORM OF ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT, dated as of ___________ __, executed
between ARCADIA RECEIVABLES FINANCE CORP. III, a Delaware corporation, as
purchaser ("ARFC III"), and ARCADIA FINANCIAL LTD., a Minnesota corporation,
as seller ("Arcadia").
W I T N E S S E T H:
WHEREAS, ARFC III and Arcadia are parties to the Receivables
Purchase Agreement and Assignment dated as of October 17, 1997 (hereinafter
as such agreement may have been, or may from time to time be, amended,
supplemented or otherwise modified, the "PURCHASE AGREEMENT"); and
WHEREAS, pursuant to the Purchase Agreement, Arcadia wishes to
convey Receivables and Other Conveyed Property (as each such term is defined
in the Purchase Agreement) to ARFC III hereunder;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, ARFC III and
Arcadia, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. All terms defined in the Purchase Agreement
(whether directly or by reference to other documents) and used herein shall
have such defined meanings when used herein, unless otherwise defined herein.
"Transfer Date" shall mean, with respect to the Receivables and the
related Other Conveyed Property being conveyed hereby, ____________________
__, ____.
2. SCHEDULE OF RECEIVABLES. The Schedule of Receivables attached
hereto as Exhibit A is a supplement to the Schedule of Receivables attached
as Schedule A to the Purchase Agreement. The Receivables listed in the
Schedule of Receivables constitute the Receivables to be conveyed pursuant to
this Agreement on the Transfer Date.
3. CONVEYANCE OF RECEIVABLES. Subject to the conditions specified
in Section 2.2(b) of the Purchase Agreement and subject to the mutually
agreed upon terms contained in the Purchase Agreement, Arcadia hereby sells,
transfers, assigns and otherwise conveys to ARFC III without recourse (but
without limitation of its obligations in the Purchase Agreement or the
Receivables Funding and Servicing Agreement), all of the right, title and
interest of Arcadia, whether now existing or hereafter acquired, in and to
all accounts, contract rights, general intangibles, chattel paper,
instruments, documents, money, deposit accounts, certificates of deposit,
goods, letters of credit, advices of credit and uncertified securities
consisting of, arising from or relating to the Receivables listed on Schedule
A hereto and the related Other Conveyed Property.
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<PAGE>
4. INCORPORATION OF PURCHASE AGREEMENT. This Assignment Agreement
is made pursuant to and in reliance upon the representations, warranties and
agreements on the part of Arcadia and ARFC III contained in the Purchase
Agreement and shall be governed in all respects by the Purchase Agreement.
5. RATIFICATION OF PURCHASE AGREEMENT. As supplemented by this
Agreement, the Purchase Agreement is in all respects ratified and confirmed
and the Purchase Agreement as so supplemented by this Agreement shall be
read, taken and construed as one and the same instrument.
6. COUNTERPARTS. This Assignment Agreement may be executed in two
or more counterparts, each of which shall be an original, but all of which
together shall constitute one and the same instrument.
7. GOVERNING LAW. THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER
AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
ANY OTHERWISE APPLICABLE CONFLICT OF LAW PRINCIPLES (OTHER THAN SECTION
5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
IN WITNESS WHEREOF, the undersigned have caused this Assignment
Agreement to be duly executed and delivered by their respective duly
authorized officers on the day and year first above written.
ARCADIA RECEIVABLES FINANCE CORP. III,
AS PURCHASER
By:______________________________
Name:
Title:
ARCADIA FINANCIAL LTD.,
AS SELLER
By:______________________________
Name:
Title:
A-26
<PAGE>
SCHEDULE A
SCHEDULE OF RECEIVABLES
[Deemed Incorporated from each Assignment Agreement]
<PAGE>
SCHEDULE B
REPRESENTATIONS AND WARRANTIES OF ARCADIA
As of the date which any Receivable is sold to ARFC III, Arcadia
represents and warrants the following as to each such Receivable:
(a) the Receivable (i) was originated by a Dealer for the
retail sale of a Financed Vehicle in the ordinary course of such
Dealer's business and such Dealer had all necessary licenses and
permits to originate Receivables in the state where such Dealer was
located, was fully and properly executed by the parties thereto, was
purchased by Arcadia from such Dealer under an existing Dealer
Agreement with Arcadia and was validly assigned by such Dealer to
Arcadia, (ii) contains customary and enforceable provisions such as
to render the rights and remedies of the holder thereof adequate for
realization against the collateral security, and (iii) is interest
bearing, fully amortizing and provides for level monthly payments
(PROVIDED that the payment in the first monthly period and the final
monthly period of the life of the Receivable may be minimally
different from the level monthly payment) which, if made when due,
shall fully amortize the related Amount Financed over the original
term;
(b) the Receivable is a United States dollar obligation of an
Obligor domiciled in the United States and was sold by the Dealer to
Arcadia without any fraud or material misrepresentation on the part
of such Dealer;
(c) with respect to the Receivable, all requirements of
applicable federal, state and local laws, and regulations thereunder
(including, without limitation, usury laws, the Federal
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Federal Trade Commission Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations
"B" and "Z", the Soldiers' and Sailors' Act, the Minnesota Motor
Vehicle Retail Installment Sales Act and state adaptations of the
National Consumer Act and of the Uniform Consumer Credit Code and
other consumer credit laws and equal credit opportunity and
disclosure laws), in respect of such Receivable, the sale of the
Financed Vehicle related thereto and the sale of credit life and
credit accident and health insurance and any extended service
contracts, if any, in connection with such Receivable, have been
complied with in all material respects;
(d) the Receivable was originated in the United States of
America and, at the time of origination, materially conformed to all
requirements of the Dealer Underwriting Guidelines applicable to
such Receivable;
(e) the Receivable represents the genuine, legal, valid and
binding payment obligation of the Obligor thereon, enforceable by
the holder thereof in accordance with its terms, except (i) as
enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the enforcement of
B-30
<PAGE>
creditors' rights generally and by equitable limitations on the
availability of specific remedies, regardless of whether such
enforceability is considered in a proceeding in equity or at law and
(ii) as such Receivable may be modified by the application of the
Soldiers' and Sailors' Act; and all parties to such Receivable had
full legal capacity to execute and deliver such Receivable and all
other documents related thereto and to grant the security interest
purported to be granted thereby;
(f) the Receivable is not an obligation due from the United
States of America or any State or from any agency, department,
subdivision or instrumentality thereof;
(g) with respect to the Receivable, the information pertaining
to such Receivable set forth in the applicable Schedule of
Receivables has been produced from the Electronic Ledger and is true
and correct in all material respects;
(h) with respect to the Receivable, Arcadia will have caused
the portions of the Electronic Ledger to be clearly and
unambiguously marked to show that such Receivable is owned by ARFC
III and is subject to the Lien of the Collateral Agent;
(i) the Monthly Tape with respect to such Receivable made
available by the Servicer to the Agent was complete and accurate in
all respects as of the date delivered and includes a description of
such Receivable;
(j) the Receivable constitutes chattel paper within the
meaning of the UCC;
(k) the Receivable is evidenced by only one original executed
copy;
(l) a Receivable File with respect to the Receivable is in
the possession of the Custodian at its office specified in the
Receivables Funding and Servicing Agreement and such Receivable File
contains (i) the fully executed original of such Receivable, (ii) a
certificate of insurance, an application form for insurance signed
by the related Obligor, or a signed representation letter from the
Obligor named in such Receivable pursuant to which such Obligor has
agreed to obtain physical damage insurance for the related Financed
Vehicle, or copies thereof, or a documented verbal confirmation by
an insurance agent for such Obligor of a policy number for an
insurance policy for the Financed Vehicle, (iii) the original Lien
Certificate or application therefor or a letter from the applicable
Dealer agreeing unconditionally to repurchase the related Receivable
if the certificate of title is not received by the Servicer within
180 days (provided that the Lien Certificate is delivered to the
Custodian within 180 days), and (iv) a credit application signed by
the Obligor, or a copy thereof; each of such documents which is
required to be signed by the Obligor has been signed by the Obligor
in the appropriate spaces; and all blanks on any form have been
properly filled in and each form has otherwise been correctly
prepared;
B-31
<PAGE>
(m) the Receivable has not been satisfied, subordinated or
rescinded, and the Financed Vehicle securing such Receivable has not
been released from the lien of such Receivable in whole or in part;
no provisions of such Receivable have been waived, altered or
modified in any respect since its origination, except by instruments
or documents identified in the Receivable File; and no Receivable
has been modified as a result of application of the Soldiers' and
Sailors' Act;
(n) the Receivable was not originated in, or is subject to the
laws of, any jurisdiction the laws of which would make unlawful,
void or voidable the sale, transfer and assignment of such
Receivable under this Agreement; with respect to such sale, transfer
and assignment of such Receivable under this Agreement and any
Assignment Agreement or the pledge of such Receivable under the
Receivables Funding and Servicing Agreement, either (i) no consent
of any Person is required or (ii) all required consents have been
obtained;
(o) the Receivable has not been sold, transferred, assigned or
pledged by Arcadia to any Person other than ARFC III or by ARFC III
to any Person other than the Collateral Agent. Arcadia was the sole
owner of and had good and indefeasible title thereto, free and clear
of any Lien immediately prior to the conveyance of such Receivable
pursuant to this Agreement. ARFC III was the sole owner thereof and
had good and indefeasible title thereto, free of any Lien
immediately prior to the pledge of such Receivable to the Collateral
Agent;
(p) the Receivable has created, or will create when all
required procedures are completed by the Servicer, a valid, binding
and enforceable first priority perfected security interest in the
related Financed Vehicle in favor of Arcadia as secured party, and
such security interest is, or will be upon the completion of all
required procedures by the Servicer, prior to all other liens upon
and security interests in such Financed Vehicle that now exist or
may hereafter arise or be created (except, as to priority, for any
tax liens, mechanic's liens or that may arise after such Receivables
is conveyed to ARFC III);
(q) all filings (including, without limitation, UCC filings)
required to be made by any Person and actions required to be taken
or performed by any Person in any jurisdiction to give the
Collateral Agent, for the benefit of the Investors, a first priority
perfected lien on such Receivable and the proceeds thereof and the
other Collateral related thereto have been made, taken or performed;
(r) neither Arcadia nor ARFC III has done anything to convey
any right to any Person that would result in such Person having a
right to payments due under such Receivable or otherwise to impair
the rights of the Collateral Agent in such Receivable or the
proceeds thereof;
(s) the Receivable is not assumable by another Person in a
manner which would release the Obligor thereof from such Obligor's
obligations to ARFC III with respect to such Receivable;
B-32
<PAGE>
(t) the Receivable is not subject to any right of rescission,
setoff, counterclaim or defense and no such right has been asserted
or threatened with respect to such Receivable;
(u) there has been no default, breach, violation or event
permitting acceleration under the terms of such Receivable (other
than payment delinquencies of not more than 30 days) and no
condition exists or event has occurred and is continuing that with
notice, the lapse of time or both would constitute a default,
breach, violation or event permitting acceleration under the terms
of such Receivable, and there has been no waiver of any of the
foregoing except as otherwise permitted herein;
(v) the related Financed Vehicle has not been repossessed from
the related Obligor;
(w) on the date such Receivable was conveyed to ARFC III, the
related Financed Vehicle was covered by a comprehensive and
collision insurance policy (i) in an amount at least equal to the
lesser of (A) its maximum insurable value and (B) the Amount
Financed, (ii) naming Arcadia as loss payee and (iii) insuring
against loss and damage due to fire, theft, transportation,
collision and other risks generally covered by comprehensive and
collision coverage and with respect to which the Obligor is required
to maintain physical loss and damage insurance, naming Arcadia and
its successors and assigns as additional insured parties, and such
Receivable permits the holder thereof to obtain physical loss and
damage insurance at the expense of the Obligor if the Obligor fails
to do so unless otherwise prohibited by the law of the state in
which the contract was entered into; and the related Financed
Vehicle is not nor has previously been insured under a policy of
Forced Placed Insurance;
(x) the following is true with respect to such Receivable:
() the Lien Certificate for the related Financed
Vehicle shows, or, if a new or replacement Lien Certificate is
being applied for with respect to such Financed Vehicle, the
Lien Certificate will be received within 180 days of the date
such Receivable was conveyed to ARFC III and will show, Arcadia
named as the original secured party under such Receivable and,
accordingly, Arcadia will be the holder of a first priority
security interest in such Financed Vehicle;
() if the Lien Certificate has not yet been returned
from the Registrar of Titles, Arcadia has received written
evidence from the related Dealer or the Obligor that such Lien
Certificate showing Arcadia as first lienholder has been
applied for;
() if the Receivable was originated in a state in
which a filing or recording is required of the secured party to
perfect a security interest in motor vehicles, such filings or
recordings have been duly made to show Arcadia named as the
original secured party under the related Receivable;
B-33
<PAGE>
() Arcadia's security interest has been validly
assigned by Arcadia to ARFC III pursuant to this Agreement and
pledged by ARFC III to the Collateral Agent pursuant to the
Receivables Funding and Servicing Agreement;
() immediately after the pledge thereof to the
Collateral Agent, such Receivable will be secured by an
enforceable and perfected first priority security interest in
the related Financed Vehicle in favor of ARFC III, as assignee
from Arcadia, which security interest is prior to all other
liens upon any security interests in such Financed Vehicle
which now exist or may hereafter arise or be created (except,
as to priority, for any lien for taxes, labor or materials
affecting a Finance Vehicle); and
() as of the date such Receivable was conveyed to
ARFC III, there are no Liens or claims for taxes, work, labor
or materials affecting the related Financed Vehicle which are
or may be Liens prior or equal to the lien of the related
Receivable;
(y) no selection procedures adverse to the Investors have been
utilized in selecting the Receivable from all other similar
Receivables originated by Arcadia;
(z) that, as of the last day of the immediately preceding
Settlement Period, if applicable, the Receivable is not a Delinquent
Receivable and none of the Servicer, ARFC III, any Dealer or anyone
acting on behalf of any of them has made any advance of funds in
order to cause such Receivable not to be a Delinquent Receivable;
(aa) such Receivable, when included in the Pledged Receivables,
would not cause the Aggregate Outstanding Principal Balance of
Pledged Receivables which are Financed Repo Receivables to exceed 5%
of the Aggregate Outstanding Principal Balance of the Pledged
Receivables;
(bb) the Receivable has, on the related Advance Date, a
remaining principal balance equal to or greater than $500.00;
(cc) (i) the Receivable does not have an initial payment date
more than three months subsequent to the related date of conveyance
to ARFC III; (ii) the Receivable does not have a final scheduled
payment date on or before the related Advance Date; (iii) after
giving effect to the pledge of the Receivable to the Collateral
Agent on such date, the Aggregate Principal Balances of Pledged
Receivables with original maturities ranging from 73 to 84 months
shall not exceed 7.5% of the Aggregate Outstanding Principal Balance
of the Pledged Receivables on such date; and (iv) the Receivable, as
of such date, (A) had an original maturity of at least three months
but not more than 84 months, (B) had an original amount financed of
at least $1,000 and not more than $77,000, (C) had an APR of at
least 7.75% and not more than 27%, and (D) such Receivable, when
included in the Pledged Receivables would not cause the weighted
average APR of the Pledged Receivables to be reduced below 12%; and
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<PAGE>
(dd) the related Obligor with respect to the Receivable, as of
the related Advance Date, is required to make all Scheduled Payments
to the Lockbox Bank.
B-35
<PAGE>
RECEIVABLES FUNDING AND SERVICING AGREEMENT
dated as of October 17, 1997
among
ARCADIA RECEIVABLES FINANCE CORP. III,
Borrower,
ARCADIA FINANCIAL LTD.,
as Servicer and Custodian,
DLJ MORTGAGE CAPITAL, INC. and its permitted assigns,
as Lenders,
DLJ MORTGAGE CAPITAL, INC.,
as Agent,
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Backup Servicer and Collateral Agent
<PAGE>
RECEIVABLES FUNDING AND SERVICING AGREEMENT
THIS RECEIVABLES FUNDING AND SERVICING AGREEMENT is made and entered into
as of October 17, 1997, among ARCADIA RECEIVABLES FINANCE CORP. III, a
Delaware corporation having its principal office at 7825 Washington Avenue
South, Suite 975, Minneapolis, MN 55439-2444 (the "BORROWER"), ARCADIA
FINANCIAL LTD., a Minnesota corporation having its principal office at 7825
Washington Avenue South, Suite 500, Minneapolis, MN 55439-2444 (in its
individual capacity, "ARCADIA"), as servicer (in such capacity the
"SERVICER") and as custodian (in such capacity, the "CUSTODIAN"), DLJ
MORTGAGE CAPITAL, INC. and its permitted assigns, as lenders (each, a
"LENDER" and together, the "LENDERS"), DLJ MORTGAGE CAPITAL, INC. ("DLJ") a
Delaware corporation, as Agent (the "AGENT"), and NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, a national banking association ("NORWEST"), as backup
servicer (in such capacity the "BACKUP SERVICER") and as collateral agent (in
such capacity, the "COLLATERAL AGENT").
BACKGROUND
1. The Borrower desires that the Lenders extend financing to the
Borrower on the terms and conditions set forth herein.
2. The Lenders (as defined herein) are willing to provide such
financing on the terms and conditions set forth in this Agreement.
3. The Borrower is a wholly owned subsidiary of Arcadia, and to enable
the Borrower to obtain the financing provided for herein, and for the
consideration set forth herein, Arcadia is willing to act as Custodian and
Servicer hereunder.
4. The Lenders and the Borrower have requested Norwest, and Norwest has
agreed to act as Backup Servicer and Collateral Agent hereunder on the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINED TERMS. As used in this Agreement, the following terms
have the following meanings:
"ACCOUNTANTS' REPORT" has the meaning set forth in SECTION 8.11(a).
"ADVANCE" means any amount disbursed by any Lender to the Borrower under
this Agreement.
"ADVANCE DATE" means the date any Advance is made under SECTION 2.3.
"ADVANCE RATE" means:
(a) with respect to Premier Receivables, 95%;
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<PAGE>
(b) with respect to Classic Receivables (other than Financed Repo
Receivables), 93%; and
(c) with respect to Financed Repo Receivables, 85%.
"ADVANCE REQUEST" has the meaning set forth in SECTION 2.2.
"ADVERSE CLAIM" means any claim of ownership or any lien, security
interest, title retention, trust or other charge or encumbrance, or other
type of preferential arrangement having the effect or purpose of creating a
lien or security interest, other than the security interest created under
this Agreement.
"AFFECTED PERSON" has the meaning set forth in SECTION 6.1(a).
"AFFILIATE" of any Person means any other Person that directly or
indirectly controls, is controlled by or is under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any employee benefit plan). A Person shall be deemed to be
"controlled by" any other Person if such other Person controls such Person
within the meaning of Section 15 of the Securities Act of 1933, as amended,
or Section 20 of the Securities Exchange Act of 1934, as amended.
The word "AFFILIATED" has a correlative meaning.
"AGENT", prior to the Remarketing Date, has the meaning set forth in the
PREAMBLE, and on and after the Remarketing Date, means the Custodian.
"AGENT'S ACCOUNT" has the meaning set forth in SECTION 5.1.
"AGGREGATE OUTSTANDING PRINCIPAL BALANCE" means, with respect to any
group of Receivables as of any date, the sum of the outstanding Principal
Balances of all such Receivables as at the close of business on such date.
"AGREEMENT" shall mean this Receivables Funding and Servicing Agreement,
as it may be amended, supplemented or otherwise modified from time to time.
"AMOUNT FINANCED" means, with respect to a Receivable, the aggregate
amount of credit extended under such Receivable toward the purchase price of
the related Financed Vehicle and related costs, including amounts advanced in
respect of accessories, insurance premiums, service and warranty contracts,
other items customarily financed as part of retail automobile installment
sale contracts or promissory notes, and related costs.
"ANNUAL PERCENTAGE RATE" or "APR" means, with respect to a Receivable,
the rate per annum of finance charges stated in such Receivable as the
"annual percentage rate" (within the meaning of the Federal Truth-in-Lending
Act). If, after the Closing Date, the rate per annum with respect to a
Receivable as of the Closing Date is reduced as a result of (a) an insolvency
proceeding involving the relevant Obligor or (b) pursuant to the Soldiers'
and Sailors' Act, the "Annual Percentage Rate" or "APR" shall refer to such
reduced rate.
"APPLICABLE MARGIN" means .60% per annum; PROVIDED, HOWEVER, that in the
event any Investor which is a Structured Lender funds or maintains any
Advance or portion thereof through a
4
<PAGE>
Support Bank of such Structured Lender, the Applicable Margin for such
Advance or portion thereof shall be 1.0% per annum.
"APPLICABLE PERIOD" means, with respect to an Advance and (a) an Interest
Period of 21 days or more, 30 days; (b) an Interest Period of 14 or more but
less than 21 days, 21 days; (c) an Interest Period of 7 or more but less than
14 days, 14 days and (d) an Interest Period of less than 7 days, 7 days;
PROVIDED that the Applicable Period with respect to an Interest Period of
less than 30 days will be 30 days if such Advance is not repaid in full on
the last day of such Interest Period.
"APPLICABLE TELERATE PAGE" MEANS, WITH RESPECT TO LIBOR FOR ANY INTEREST
PERIOD OF 30 DAYS, TELERATE PAGE 3750, AND FOR LIBOR FOR ANY INTEREST PERIOD
OF LESS THAN 30 DAYS, THE HIGHEST RATE APPEARING ON TELERATE PAGE 4833.
"ARCADIA" has the meaning set forth in the PREAMBLE.
"ASSIGNMENT AND ACCEPTANCE" means an Assignment and Acceptance Agreement
in the form of Exhibit F hereto or such other assignment agreement as may be
agreed to between such assignee and the Agent.
"AVERAGE EXCESS SPREAD PERCENTAGE" means, with respect to any
Determination Date following a Settlement Period during which Advances were
outstanding, the average of the Spread Percentages for such Determination
Date and the two most recent Determination Dates following a Settlement
Period during which Advances were outstanding (or such lesser number of such
Settlement Periods as shall have occurred after the Closing Date).
"AVERAGE SERVICING PORTFOLIO" means as of any date, the average of the
Servicing Portfolio for the seven preceding Settlement Periods.
"BACKUP SERVICER" means Norwest Bank Minnesota, National Association,
together with its permitted successors and assigns, in its capacity as such
hereunder.
"BANKRUPTCY CODE" means the United States Bankruptcy Code, 11 U.S.C.
Section 101, ET SEQ., as amended.
"BORROWER" has the meaning set forth in the PREAMBLE.
"BORROWER ACCOUNT COLLATERAL" has the meaning set forth in SECTION 9.1(c).
"BORROWER ASSIGNED AGREEMENTS" has the meaning set forth in SECTION
9.1(b).
"BORROWING BASE" shall mean (a) as of any Determination Date, the product
of (i) the Weighted Average Advance Rate and (ii) (x) an amount equal to
Aggregate Outstanding Principal Balance of the Pledged Receivables that are
Eligible Receivables PLUS (y) an amount equal to the Aggregate Outstanding
Principal Balance of the Pledged Receivables that are not Eligible
Receivables to the extent such ineligibility results solely from such Pledged
Receivables being Delinquent Receivables (excluding any Delinquent
Receivables which are Defaulted Receivables); PROVIDED, HOWEVER, that such
amount shall not exceed .75% of the Aggregate Outstanding Principal Balance
of the Pledged Receivables, included pursuant to clauses (x) and (y) above,
as calculated as of the last day of the Settlement Period preceding such
Determination Date and (b) as of any other date of determination, the product
of (i) the Weighted Average Advance Rate and (ii) (x) an amount equal to the
Aggregate Outstanding Principal Balance of the Pledged Receivables that are
Eligible Receivables PLUS (y) an amount equal to the Aggregate Outstanding
Principal
5
<PAGE>
Balance of the Pledged Receivables that are not Eligible Receivables to the
extent such ineligibility results solely from such Pledged Receivables being
Delinquent Receivables (excluding any Pledged Receivables with respect to
which an amount greater than $10 is 60 or more days past due); PROVIDED,
HOWEVER, that such amount shall not exceed .75% of the Aggregate Outstanding
Principal Balance of the Pledged Receivables, included pursuant to clauses
(x) and (y) above, as calculated on such date.
"BORROWING BASE DEFICIENCY" has the meaning set forth in SECTION 15.1(e).
"BORROWER COLLATERAL" has the meaning set forth in SECTION 9.1.
"BUSINESS DAY" shall mean any day on which commercial banks in New York,
New York, Minneapolis, Minnesota or Chicago, Illinois are not authorized or
required to be closed.
"CHANGE OF CONTROL" means the occurrence of any of the following with
respect to Arcadia:
(a)(i) a majority of the directors of Arcadia shall be Persons
other than Persons (x) for whose election proxies shall have been solicited
by the board of directors of Arcadia or (y) who are then serving as directors
appointed by the board of directors to fill vacancies on the board of
directors caused by death or resignation (but not by removal) or to fill
newly-created directorships or (ii) any person or group of persons (within
the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as
amended) shall have acquired beneficial ownership (within the meaning of Rule
13d-3 promulgated by the Securities and Exchange Commission under said Act)
of 50% or more in voting power of the outstanding voting stock of Arcadia; or
(b) Arcadia shall fail to own, directly or indirectly, 100% of
the outstanding capital stock of the Borrower.
"CLASSIC RECEIVABLE" means a Receivable originated under Arcadia's
"Classic Program."
"CLOSING DATE" means October 17, 1997.
"COLLATERAL" means the Pledged Receivables and the Other Conveyed
Property.
"COLLATERAL AGENT AGREEMENT" means the Collateral Agent Agreement dated
as of the Closing Date among the Collateral Agent, the Agent, the Borrower
and the Servicer, including all amendments, modifications and supplements
thereto.
"COLLATERAL INSURANCE" means a vendor's single interest or other
collateral protection insurance policy with respect to Financed Vehicles,
which policy by its terms insures against physical damage in the event any
Obligor fails to maintain physical damage insurance with respect to the
related Financed Vehicle.
"COLLATERAL RECEIPT AND CONFIRMATION" means a Custodial Receipt and
Confirmation substantially in the form of EXHIBIT D.
"COLLECTION ACCOUNT" means the account designated as the Collection
Account in, and which is established and maintained pursuant to, SECTION
8.15(a).
"COLLECTION RECORDS" means all manually prepared or computer generated
records relating to collection efforts or payment histories with respect to
the Pledged Receivables.
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"CONTINGENT LIABILITY" means any agreement, undertaking or arrangement by
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss) the indebtedness,
obligation or any other liability of any other Person (other than by
endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other
Person. The amount of any Person's obligation under any Contingent Liability
shall (subject to any limitation set forth therein) be deemed to be the
outstanding principal amount (or maximum outstanding principal amount, if
larger) of the debt, obligation or other liability guaranteed thereby.
"CRAM DOWN LOSS" means, with respect to a Receivable, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an
order reducing the amount owed on such Receivable or otherwise modifying or
restructuring the scheduled payments to be made on such Receivable, an amount
equal to the excess of the principal balance of such Receivable immediately
prior to such order, minus the principal balance of such Receivable as so
reduced. A "Cram Down Loss" shall be deemed to have occurred on the date of
issuance of such order.
"CUSTODIAN" means Arcadia and any successors and assigns in its capacity
as custodian hereunder.
"DEALER" means a seller of new or used automobiles or light trucks that
originated one or more of the Pledged Receivables and sold the respective
Receivable, directly or indirectly, to Arcadia.
"DEALER AGREEMENT" means an agreement by and among Arcadia and a Dealer
relating to the sale of Receivables to Arcadia and all documents and
instruments relating thereto.
"DEALER ASSIGNMENT" means, with respect to a Receivable, the executed
assignment executed by a Dealer conveying such Receivable to Arcadia.
"DEALER UNDERWRITING GUIDELINES" means, collectively, the underwriting
guidelines used by Arcadia in the purchase of Receivables as amended from
time to time.
"DEFAULT RATE" means a rate PER ANNUM equal to LIBOR PLUS 2% per annum.
"DEFAULTED RECEIVABLE" means, with respect to any date of determination,
a Pledged Receivable with respect to which: (i) an amount greater than $10.00
is 60 days or more past due, (ii) the Servicer has repossessed the related
Financed Vehicle (and any applicable redemption period has expired), (iii)
such Pledged Receivable is in default and the Servicer has determined in good
faith that payments thereunder are not likely to be resumed or (iv) the
Obligor has been identified on the records of the Servicer as being the
subject of a current bankruptcy proceeding.
"DELINQUENCY RATIO" means, as of any Determination Date, with respect to
the Servicing Portfolio, the ratio (expressed as a percentage) computed by
dividing:
(a) the Aggregate Outstanding Principal Balance of the
Receivables which were Delinquent Receivables on the last
day of the immediately preceding Settlement Period
BY
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(b) the sum of the Aggregate Outstanding Principal Balance of
the Receivables on the last day of such immediately
preceding Settlement Period.
"DELINQUENT RECEIVABLE" means a Receivable with respect to which an
amount greater than $10.00 is more than 30 days past due thereunder.
"DETERMINATION DATE" means, with respect to a Distribution Date, the
tenth day of the calendar month in which such Distribution Date occurs, or if
such tenth day is not a Business Day, the next succeeding Business Day.
"DISTRIBUTABLE EXCESS SPREAD AMOUNT" means, with respect to any
Determination Date prior to the Facility Termination Date following a
Settlement Period during which any Advances were outstanding, the sum of the
amounts to be distributed on the following Distribution Date pursuant to
subsections 3(a)(i), 3(a)(ii) and 3(a)(v) of the Collateral Agent Agreement
(other than any such amounts which relate to the maintenance of an Investor's
commitment to make Advances hereunder rather than to maintaining or funding
its interest in outstanding Advances).
"DISTRIBUTION DATE" means the 15th day of each calendar month, or if such
15th day is not a Business Day, the next succeeding Business Day, commencing
the 15th day of the month following the month in which the initial Advance is
made hereunder.
"DOLLAR(S)" and the sign "$" mean lawful money of the United States of
America.
"ELECTRONIC LEDGER" means the electronic master record of the Receivables
of Arcadia.
"ELIGIBLE ACCOUNT" means (a) a segregated trust account or (b) a
segregated direct deposit account, in each case maintained with a depository
institution or trust company organized under the laws of the United States of
America, or any of the States thereof, or the District of Columbia, having a
certificate of deposit, short term deposit or commercial paper rating of at
least A-1+ by Standard & Poor's and P-1 by Moody's. In either case, such
depository institution or trust company shall either (x) be Norwest or (y)
have been approved by the Agent, acting in its discretion, by written notice
to the Collateral Agent.
"ELIGIBLE ASSIGNEE" has the meaning set forth in SECTION 17.1.
"ELIGIBLE RECEIVABLE" means a Receivable:
() that (i) was originated by a Dealer for the retail sale of a
Financed Vehicle in the ordinary course of such Dealer's business and such
Dealer had all necessary licenses and permits to originate Receivables in the
state where such Dealer was located, was fully and properly executed by the
parties thereto, was purchased by Arcadia from such Dealer under an existing
Dealer Agreement with Arcadia and was validly assigned by such Dealer to
Arcadia, (ii) contains customary and enforceable provisions such as to render
the rights and remedies of the holder thereof adequate for realization
against the collateral security, and (iii) is interest bearing, fully
amortizing and provides for level monthly payments (PROVIDED that the payment
in the first monthly period and the final monthly period of the life of the
Receivable may be minimally different from the level monthly payment) which,
if made when due, shall fully amortize the related Amount Financed over the
original term;
() which is a United States dollar obligation of an Obligor domiciled
in the United States and was sold by the Dealer to Arcadia without any fraud
or material misrepresentation on the part of such Dealer;
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() with respect to which all requirements of applicable federal, state
and local laws, and regulations thereunder (including, without limitation,
usury laws, the Federal Truth-in-Lending Act, the Equal Credit Opportunity
Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair
Debt Collection Practices Act, the Federal Trade Commission Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations "B" and
"Z", the Soldiers' and Sailors' Act, the Minnesota Motor Vehicle Retail
Installment Sales Act and state adaptations of the National Consumer Act and
of the Uniform Consumer Credit Code and other consumer credit laws and equal
credit opportunity and disclosure laws), in respect of such Receivable, the
sale of the Financed Vehicle related thereto and the sale of credit life and
credit accident and health insurance and any extended service contracts, if
any, in connection with such Receivable, have been complied with in all
material respects;
() that was originated in the United States of America and, at the time
of origination, materially conformed to all requirements of the Dealer
Underwriting Guidelines applicable to such Receivable;
() which represents the genuine, legal, valid and binding payment
obligation of the Obligor thereon, enforceable by the holder thereof in
accordance with its terms, except (i) as enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting the
enforcement of creditors' rights generally and by equitable limitations on
the availability of specific remedies, regardless of whether such
enforceability is considered in a proceeding in equity or at law and (ii) as
such Receivable may be modified by the application of the Soldiers' and
Sailors' Act; and all parties to such Receivable had full legal capacity to
execute and deliver such Receivable and all other documents related thereto
and to grant the security interest purported to be granted thereby;
() which is not due from the United States of America or any State or
from any agency, department, subdivision or instrumentality thereof;
() with respect to which the information pertaining to such Receivable
set forth in the applicable Schedule of Receivables has been produced from
the Electronic Ledger and is true and correct in all material respects;
() with respect to which Arcadia will have caused the portions of the
Electronic Ledger to be clearly and unambiguously marked to show that such
Receivable is owned by the Borrower and is subject to the Lien of the
Collateral Agent;
() with respect to which the Monthly Tape made available by the
Servicer to the Agent was complete and accurate in all respects as of the
date delivered and includes a description of such Receivable;
() which constitutes chattel paper within the meaning of the UCC;
() of which there is only one original executed copy;
() with respect to which a Receivable File is in the possession of the
Custodian at its office specified herein and such Receivable File contains
(i) the fully executed original of such Receivable, (ii) a certificate of
insurance, an application form for insurance signed by the related Obligor,
or a signed representation letter from the Obligor named in such Receivable
pursuant to which such Obligor has agreed to obtain physical damage insurance
for the related Financed Vehicle, or copies thereof, or a documented verbal
confirmation by an insurance agent for such
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Obligor of a policy number for an insurance policy for the Financed Vehicle,
(iii) the original Lien Certificate or application therefor or a letter from
the applicable Dealer agreeing unconditionally to repurchase the related
Receivable if the certificate of title is not received by the Servicer within
180 days (provided that the Lien Certificate is delivered to the Custodian
within 180 days), and (iv) a credit application signed by the Obligor, or a
copy thereof; each of such documents which is required to be signed by the
Obligor has been signed by the Obligor in the appropriate spaces; and all
blanks on any form have been properly filled in and each form has otherwise
been correctly prepared;
() which has not been satisfied, subordinated or rescinded, and the
Financed Vehicle securing such Receivable has not been released from the lien
of such Receivable in whole or in part; no provisions of such Receivable have
been waived, altered or modified in any respect since its origination, except
by instruments or documents identified in the Receivable File; and no
Receivable has been modified as a result of application of the Soldiers' and
Sailors' Act;
() which was not originated in, or is subject to the laws of, any
jurisdiction the laws of which would make unlawful, void or voidable the
sale, transfer and assignment of such Receivable under this Agreement; with
respect to such sale, transfer and assignment of such Receivable under the
Purchase Agreement, any Assignment Agreement or the pledge of such Receivable
under this Agreement either (i) no consent of any Person is required or (ii)
all required consents have been obtained;
() which has not been sold, transferred, assigned or pledged by Arcadia
to any Person other than the Borrower or by the Borrower to any Person other
than the Collateral Agent. Arcadia was the sole owner of and had good and
indefeasible title thereto, free and clear of any Lien immediately prior to
the conveyance of such Receivable pursuant to the Purchase Agreement. The
Borrower was the sole owner thereof and had good and indefeasible title
thereto, free of any Lien immediately prior to the pledge of such Receivable
to the Collateral Agent;
() which has created, or will create when all required procedures are
completed by the Servicer, a valid, binding and enforceable first priority
perfected security interest in the related Financed Vehicle in favor of
Arcadia as secured party, and such security interest is, or will be upon the
completion of all required procedures by the Servicer, prior to all other
liens upon and security interests in such Financed Vehicle that now exist or
may hereafter arise or be created (except, as to priority, for any tax liens,
mechanic's liens or that may arise after the date an Advance is made with
respect to such Pledged Receivable);
() as to which all filings (including, without limitation, UCC filings)
required to be made by any Person and actions required to be taken or
performed by any Person in any jurisdiction to give the Collateral Agent, for
the benefit of the Investors, a first priority perfected lien on such
Receivable and the proceeds thereof and the other Collateral related thereto
have been made, taken or performed;
() as to which neither Arcadia nor the Borrower has done anything to
convey any right to any Person that would result in such Person having a
right to payments due under such Receivable or otherwise to impair the rights
of the Collateral Agent in such Receivable or the proceeds thereof;
() which is not assumable by another Person in a manner which would
release the Obligor thereof from such Obligor's obligations to the Borrower
with respect to such Receivable;
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() which is not subject to any right of rescission, setoff,
counterclaim or defense and no such right has been asserted or threatened
with respect to such Receivable;
() as to which there has been no default, breach, violation or event
permitting acceleration under the terms of such Receivable (other than
payment delinquencies of not more than 30 days) and no condition exists or
event has occurred and is continuing that with notice, the lapse of time or
both would constitute a default, breach, violation or event permitting
acceleration under the terms of such Receivable, and there has been no waiver
of any of the foregoing except as otherwise permitted herein;
() as to which the related Financed Vehicle has not been repossessed
from the related Obligor;
() at the date an Advance is made with respect to such Pledged
Receivable, the related Financed Vehicle was covered by a comprehensive and
collision insurance policy (i) in an amount at least equal to the lesser of
(A) its maximum insurable value and (B) the Amount Financed, (ii) naming
Arcadia as loss payee and (iii) insuring against loss and damage due to fire,
theft, transportation, collision and other risks generally covered by
comprehensive and collision coverage and with respect to which the Obligor is
required to maintain physical loss and damage insurance, naming Arcadia and
its successors and assigns as additional insured parties, and such Receivable
permits the holder thereof to obtain physical loss and damage insurance at
the expense of the Obligor if the Obligor fails to do so unless otherwise
prohibited by the law of the state in which the contract was entered into;
and the related Financed Vehicle is not nor has previously been insured under
a policy of Forced Placed Insurance;
() with respect to which the following is true:
() the Lien Certificate for the related Financed Vehicle shows,
or, if a new or replacement Lien Certificate is being applied for with
respect to such Financed Vehicle, the Lien Certificate will be received
within 180 days of the related Advance Date and will show, Arcadia named
as the original secured party under such Receivable and, accordingly,
Arcadia will be the holder of a first priority security interest in such
Financed Vehicle;
() if the Lien Certificate has not yet been returned from the
Registrar of Titles, Arcadia has received written evidence from the
related Dealer or the Obligor that such Lien Certificate showing Arcadia
as first lienholder has been applied for;
() if the Receivable was originated in a state in which a filing
or recording is required of the secured party to perfect a security
interest in motor vehicles, such filings or recordings have been duly
made to show Arcadia named as the original secured party under the
related Receivable;
() Arcadia's security interest has been validly assigned by
Arcadia to the Borrower and pledged by the Borrower to the Collateral
Agent pursuant to this Agreement;
() immediately after the pledge thereof to the Collateral Agent,
such Receivable will be secured by an enforceable and perfected first
priority security interest in the related Financed Vehicle in favor of
the Borrower, as assignee from Arcadia, which security interest is prior
to all other liens upon any security interests in such Financed Vehicle
which now exist or may hereafter arise or be created (except, as to
priority, for any lien for taxes, labor or materials affecting a Finance
Vehicle); and
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() as of the date of any Advance made with respect thereto, there
are no Liens or claims for taxes, work, labor or materials affecting the
related Financed Vehicle which are or may be Liens prior or equal to the
lien of the related Receivable;
() as to which no selection procedures adverse to the Investors have
been utilized in selecting such Receivable from all other similar Receivables
originated by Arcadia;
() that, as of the last day of the immediately preceding Settlement
Period, is not a Delinquent Receivable and none of the Servicer, the
Borrower, any Dealer or anyone acting on behalf of any of them has made any
advance of funds in order to cause such Receivable not to be a Delinquent
Receivable;
() which, when included in the Pledged Receivables, would not cause the
Aggregate Outstanding Principal Balance of Pledged Receivables which are
Financed Repo Receivables to exceed 5% of the Aggregate Outstanding Principal
Balance of the Pledged Receivables;
() which has, on the related Advance Date, a remaining principal
balance equal to or greater than $500.00;
() (i) which does not have an initial payment date more than three
months subsequent to the related Advance Date; (ii) which does not have a
final scheduled payment date on or before the related Advance Date; (iii)
after giving effect to the pledge of Receivables on such Advance Date, the
Aggregate Principal Balances of Pledged Receivables with original maturities
ranging from 73 to 84 months shall not exceed 7.5% of the Aggregate
Outstanding Principal Balance of the Pledged Receivables on such Advance
Date; and (iv) as of related Advance Date, (A) had an original maturity of at
least three months but not more than 84 months, (B) had an original amount
financed of at least $1,000 and not more than $77,000, (C) had an APR of at
least 7.75% and not more than 27%, and (D) which, when included in the
Pledged Receivables would not cause the weighted average APR of the Pledged
Receivables to be reduced below 12%; and
() the Obligor with respect to such Receivable, as of the related
Advance Date, is required to make all Scheduled Payments to the Lockbox Bank.
For purposes of this definition, the eligibility of Receivables will be
determined from time to time, such that a Receivable that was an Eligible
Receivable at one time but that subsequently fails to meet all applicable
eligibility requirements will no longer be an Eligible Receivable (unless and
until it again meets all applicable eligibility requirements).
"ELIGIBLE SERVICER" means Arcadia, the Backup Servicer or another Person
which at the time of its appointment as Servicer (a) is servicing a portfolio
of motor vehicle retail installment sales contracts and/or motor vehicle
installment loans, (b) is legally qualified and has the capacity to service
the Pledged Receivables, (c) has demonstrated the ability professionally and
competently to service a portfolio of motor vehicle retail installment sales
contracts and/or motor vehicle installment loans similar to the Pledged
Receivables with reasonable skill and care, and (d) is qualified and entitled
to use, pursuant to a license or other written agreement, and agrees to
maintain the confidentiality of, the software which the Servicer uses in
connection with performing its duties and responsibilities under this
Agreement or otherwise has available software which is adequate to perform
its duties and responsibilities under this Agreement.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974,
as amended from time to time.
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"EUROCURRENCY LIABILITIES" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"EURODOLLAR RATE RESERVE PERCENTAGE" of any Lender for any Advance means
the reserve percentage applicable two Business Days before the first day of
the Interest Period for such Advance under regulations issued from time to
time by the Board of Governors of the Federal Reserve System (or any
successor) (or if more than one such percentage shall be applicable, the
daily average of such percentages for those days in such Interest Period
during which any such percentage shall be so applicable) for determining the
maximum reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for such Lender with
respect to liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities that
includes deposits by reference to which the yield rate on Eurocurrency
Liabilities is determined) having a term equal to such Interest Period.
"EVENT OF BANKRUPTCY" shall be deemed to have occurred with respect to a
Person if either:
(a) a case or other proceeding shall be commenced, without the
application or consent of such Person, in any court, seeking the liquidation,
reorganization, debt arrangement, dissolution, winding up, or composition or
readjustment of debts of such Person, the appointment of a trustee, receiver,
custodian, liquidator, assignee, sequestrator or the like for such Person or
all or substantially all of its assets, or any similar action with respect to
such Person under any law relating to bankruptcy, insolvency, reorganization,
winding up or composition or adjustment of debts, and such case or proceeding
shall continue undismissed, or unstayed and in effect, for a period of 60
consecutive days; or an order for relief in respect of such Person shall be
entered in an involuntary case under the federal bankruptcy laws or other
similar laws now or hereafter in effect; or
(b) such Person shall commence a voluntary case or other proceeding
under any applicable bankruptcy, insolvency, reorganization, debt
arrangement, dissolution or other similar law now or hereafter in effect, or
shall consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) for such Person or for all or substantially all of its property, or
shall make any general assignment for the benefit of creditors, or shall fail
to, or admit in writing its inability to, pay its debts generally as they
become due, or, if a corporation or similar entity, its board of directors
shall vote to implement any of the foregoing.
"FACILITY" has the meaning set forth in SECTION 2.1.
"FACILITY LIMIT" means $300,000,000, as such amount may be reduced
pursuant to SECTION 2.5. References to the unused portion of the Facility
Limit shall mean, at any time, the Facility Limit, as then reduced pursuant
to SECTION 2.5, MINUS the sum of the then outstanding principal amount of
Advances under this Agreement.
"FACILITY TERMINATION DATE" means, the earliest to occur of (a) the
Stated Maturity Date, (b) the date of any termination of the Facility, in
whole, by the Borrower pursuant to SECTION 2.5, and (c) the effective date on
which the Facility is terminated pursuant to SECTION 15.2.
"FACILITY TERMINATION EVENT" means, prior to the Remarketing Date, any of
the events described in SECTION 15.1, and from and after the Remarketing
Date, any of the events described in SECTION 15.1(a), (b), (c) or (d).
"FEE LETTER" has the meaning set forth in SECTION 3.3.
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"FEES" means all fees and other amounts payable by the Borrower to the
Agent pursuant to the Fee Letter.
"FINANCED REPO RECEIVABLE" means Classic Receivables which are secured by
Financed Vehicles that were previously repossessed by Arcadia pursuant to a
Receivable serviced by the Servicer.
"FINANCED VEHICLE" means any automobile, light duty truck, van, minivan
or sport utility vehicle, together with all accessories, additions and parts
constituting a part thereof and all accessions thereto securing a Receivable.
"FORCE-PLACED INSURANCE" has the meaning set forth in SECTION 8.4(B).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment
of the accounting profession, which are applicable to the circumstances as of
any date of determination.
"INDEBTEDNESS" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments;
(b) all obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and banker's
acceptances issued for the account of such Person;
(c) all obligations of such Person as lessee under leases that have been
or should be, in accordance with GAAP, recorded as capitalized lease
liabilities;
(d) all other items that, in accordance with GAAP, would be included as
liabilities on the liability side of the balance sheet of such Person as of
the date at which Indebtedness is to be determined;
(e) whether or not so included as liabilities in accordance with GAAP,
all obligations of such Person to pay the deferred purchase price of property
or services, and indebtedness (excluding prepaid interest thereon) secured by
a lien on property owned or being purchased by such Person (including
indebtedness arising under conditional sales or other title retention
agreements), whether or not such indebtedness shall have been assumed by such
Person or is limited in recourse; and
(f) all Contingent Liabilities of such Person in respect of any of the
foregoing.
"INDEMNIFIED AMOUNTS" has the meaning set forth in SECTION 18.1.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION 18.1.
"INDEPENDENT ACCOUNTANTS" has the meaning set forth in SECTION 8.11.
"INDEPENDENT DIRECTOR" has the meaning set forth in SECTION 11.6(a).
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"INSURANCE ADD-ON AMOUNT" means the premium charged to the Obligor if the
Servicer obtains Force-Placed Insurance pursuant to SECTION 8.4.
"INSURANCE POLICIES" means, with respect to a Receivable, any insurance
policy (including the insurance policies described in clause (w) of the
definition of "ELIGIBLE RECEIVABLE") benefiting the holder of the Receivable
providing loss or physical damage, credit life, credit disability, theft,
mechanical breakdown or similar coverage with respect to the Financed Vehicle
or the Obligor.
"INTEREST PERIOD" means, with respect to an Advance, the period
commencing on the day following the last day of the preceding Interest Period
(or the day commencing on the Advance Date, in the case of the first Interest
Period) and ending on the 30th day following such day; PROVIDED, HOWEVER,
that if any Interest Period begins during the 30-day period preceding the
date for which the Borrower has notified the Agent that a Take-Out
Securitization is scheduled to occur, such Interest Period for such Advance
shall be the period commencing on the date of the related Advance or the day
following the last day of the preceding Interest Period for the related
Advance and ending on the scheduled date of the scheduled Take-Out
Securitization; PROVIDED, HOWEVER, that if the Take-Out Securitization does
not take place on the scheduled date therefor, a new Interest Period shall
commence on such date and end on the earlier of (x) the new scheduled date
for such Take-Out Securitization as notified to the Agent in writing by the
Borrower and (y) the date which is 29 days from such date.
"INTEREST RATE" means, with respect to an Interest Period a per annum
rate equal to LIBOR for such Interest Period plus the Applicable Margin.
"INVESTOR" means (a) all Lenders, (b) all other owners by assignment or
participation of an Advance and, to the extent of the undivided interests so
purchased, shall include any participants, and (c) all holders of any Note.
"LENDERS" means DLJ and any Eligible Assignee to which a Lender assigns
all or any part of its obligation hereunder to make Advances pursuant to an
Assignment and Acceptance Agreement.
"LIBOR" means, with respect to any Interest Period, the rate for deposits
in U.S. dollars which appears on the Applicable Telerate Page (as defined
herein) as of 11:00 a.m., London time, on the London Business Day preceding
the date on which such Interest Period commences for the relevant Applicable
Period; PROVIDED, that in no event shall LIBOR for any Interest Period
exceed the rate shown for 30-day deposits for U.S. dollars shown on Telerate
Page 3750 on the London Business Day preceding the first day of such Interest
Period. If such rate does not appear on the Applicable Telerate Page, or, if
such rate is not available from such source, an equivalent rate determined by
the Agent at such time based on such other published service of general
application as shall be selected by the Agent for such purpose. If no such
rate is available from such other published service, the rate for that day
will be determined on the basis of the rates at which deposits in United
States dollars are offered by the Reference Banks at approximately 11:00
a.m., London time, on that day to prime banks in the London interbank market
for a period equal to the relevant Applicable Period (commencing on the first
day of such Applicable Period). The Agent will request the principal London
office of each of the Reference Banks to provide a quotation of its rate. If
at least two such quotations are provided, the rate for the day will be the
arithmetic mean of the quotations. If fewer than two quotations are provided
as requested, the rate for that day will be the arithmetic mean of the rates
quoted by major banks in New York City, selected by the Agent, at
approximately 11:00 a.m., New York City time, on that day for loans in United
States dollars to leading international banks for a period equal to the
relevant Applicable Period (commencing on the first day of such Applicable
Period).
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"LIEN" means any security interest, lien, charge, pledge, preference,
equity or encumbrance of any kind, including tax liens, mechanics' liens and
any liens that attach by operation of law.
"LIEN CERTIFICATE" means, with respect to a Financed Vehicle, an original
certificate of title, certificate of lien or other notification issued by the
Registrar of Titles of the applicable state to a secured party which
indicates that the lien of the secured party on the Financed Vehicle is
recorded on the original certificate of title. In any jurisdiction in which
the original certificate of title is required to be given to the Obligor, the
term "Lien Certificate" shall mean only a certificate or notification issued
to a secured party.
"LIQUIDATED RECEIVABLE" means a Receivable as to which (a) 91 days have
elapsed since the date the Servicer repossessed the related Financed Vehicle
following the expiration of any applicable acceleration and redemption
periods, (b) the Servicer has determined in good faith that all amounts it
expects to recover have been received, or (c) all or any portion of a
Scheduled Payment shall have become more than 180 days delinquent.
"LOCKBOX ACCOUNT" means the segregated account maintained on behalf of
Borrower and the Agent, for the benefit of the Investors, by the Lockbox Bank
in accordance with SECTION 8.2(e).
"LOCKBOX AGREEMENT" means the Agency Agreement, dated as of November 13,
1992 by and among Harris Trust and Savings Bank, Arcadia, Shawmut Bank, N.A.,
as Trustee, Saturn Financial Services, Inc. and the Program Parties (as
defined therein), taken together with the Retail Lockbox Agreement, dated as
of November 13, 1992, among such parties, and the Counterpart to Agency
Agreement and Retail Lockbox Agreement, dated as of the Closing Date, among
Harris Trust and Savings Bank, Arcadia, and the Collateral Agent, as such
agreements may be amended from time to time, unless the Collateral Agent
hereunder shall cease to be a Program Party thereunder, or such agreement
shall be terminated in accordance with its terms, in which event "Lockbox
Agreement" shall mean such other agreement, in form and substance acceptable
to the Agent, among the Servicer, the Collateral Agent and the Lockbox Bank.
"LOCKBOX BANK" means Harris Trust and Savings Bank or any depository
institution named by the Servicer and acceptable to the Agent.
"LONDON BUSINESS DAY" means any day on which dealings are carried on in
the London interbank Eurodollar market.
"MAJORITY INVESTORS" means, as of any date of determination, Investors
holding beneficial interest in not less than 51% of the outstanding principal
balance of the Advances.
"MONTHLY RECORDS" means all records and data maintained by the Servicer
with respect to the Pledged Receivables, including the following with respect
to each Pledged Receivable: the account number; the originating Dealer;
Obligor name; Obligor address; Obligor home phone number; Obligor business
phone number; original Principal Balance; original term; Annual Percentage
Rate; current Principal Balance; origination date; first payment date; next
payment due date; date of most recent payment; new/used classification;
collateral description; days currently delinquent; number of contract
extensions (months) to date; amount of Scheduled Payment; and, once
available, current remaining term and current Insurance Policy expiration
date and past due late charges, if any.
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"MONTHLY TAPE" means the computer tape or listing generated on behalf of
the Borrower which contains the information set forth in the definition of
"Monthly Records" in a format acceptable to the Backup Servicer.
"MOODY'S" means Moody's Investors Service, Inc.
"NET PLEDGED RECEIVABLE LOSS RATIO" means, as of any Determination Date,
a fraction, expressed as a percentage, the numerator of which equals the Net
Pledged Receivable Losses for the preceding Settlement Period and the
denominator of which equals the average Aggregate Outstanding Principal
Balance of the Pledged Receivables during such Settlement Period.
"NET PLEDGED RECEIVABLE LOSSES" means with respect to any Settlement
Period, the aggregate amount of gross charge-offs of Pledged Receivables
during such Settlement Period net of all Recoveries with respect to any such
Receivables (including post-disposition amounts received on previously
charged-off Receivables), calculated in a manner consistent with the
calculations of net losses in Arcadia's Annual Report on Form 10-K for the
year ended December 31, 1996.
"NET WORTH" means, with respect to Arcadia, the net worth of Arcadia
calculated in accordance with GAAP.
"NORWEST" has the meaning set forth in the PREAMBLE.
"NOTE" means (a) prior to the Remarketing Date, the promissory grid note,
in the form of EXHIBIT B, made payable to the order of the Agent, on behalf
of the Investors and (b) after the Remarketing Date, any promissory grid
notes in the form of Exhibit B made payable to any Investor.
"NOTE REGISTER" has the meaning set forth in SECTION 17.5(a).
"NOTE REGISTRAR" has the meaning set forth in SECTION 17.5(a).
"OBLIGATIONS" means all obligations (monetary or otherwise) of the
Borrower to the Investors or the Agent arising under or in connection with
this Agreement, the Note and each other Transaction Document.
"OBLIGOR" means a Person obligated to make payments with respect to a
Receivable.
"OFFICER'S CERTIFICATE" means a certificate signed by the president, the
chief financial officer, the treasurer, the assistant treasurer or any vice
president of any Person.
"OPINION OF COUNSEL" means a written opinion of counsel reasonably
acceptable to the Agent which, unless otherwise provided herein, may be an
employee of the Person delivering such opinion.
"OTHER CONVEYED PROPERTY" means, with respect to any Pledged Receivable,
all monies at any time paid or payable on such Receivable or in respect
thereof after the applicable Advance Date (including amounts due on or before
the applicable Advance Date but received by the Borrower or Arcadia after
such Advance Date), an assignment of security interests in the related
Financed Vehicle, the Insurance Policies and any proceeds from any Insurance
Policies relating to such Receivable, the Obligors or the Financed Vehicle,
including rebates of premiums, rights under any Collateral Insurance relating
to such Receivable, rights of Arcadia against Dealers with respect to such
Receivable under the Dealer Agreements and the Dealer Assignments, all items
contained in
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the related Receivable File, any and all other documents or electronic
records that Arcadia keeps on file in accordance with its customary
procedures relating to such Receivable, the Obligors or the Financed
Vehicles, property (including the right to receive Recoveries) that secures
such Receivable and that has been acquired by or on behalf of Arcadia
pursuant to liquidation of such Receivable, and all proceeds of the foregoing.
"PERMITTED INVESTMENT" means any one or more of the following types of
investments:
(a) (i) direct interest-bearing obligations of, and
interest-bearing obligations guaranteed as to timely payment of principal
and interest by, the United States or any agency or instrumentality of
the United States, the obligations of which are backed by the full faith
and credit of the United States; and (ii) direct interest-bearing
obligations of, and interest-bearing obligations guaranteed as to timely
payment of principal and interest by, the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation, but only if,
at the time of investment, such obligations are assigned the highest
credit rating by each Rating Agency;
(b) demand or time deposits in, certificates of deposit of, or
bankers' acceptances issued by any depository institution or trust
company organized under the laws of the United States or any State
thereof and subject to supervision and examination by federal and/or
state banking authorities (including, if applicable, the Collateral Agent
or any agent thereof acting in its commercial capacity); provided that
the short-term unsecured debt obligations of such depository institution
or trust company at the time of such investment, or contractual
commitment providing for such investment, are assigned the highest credit
rating by each Rating Agency;
(c) repurchase obligations pursuant to a written agreement (i)
with respect to any obligation described in clause (a) above, where the
Collateral Agent has taken actual or constructive delivery of such
obligation, and (ii) entered into with the corporate trust department of
a depository institution or trust company organized under the laws of the
United States or any State thereof, the deposits of which are insured by
the Federal Deposit Insurance Corporation and the short-term unsecured
debt obligations of which are rated "A-1+" by Standard & Poor's and "P-1"
by Moody's (including, if applicable, the Collateral Agent or any agent
thereof acting in its commercial capacity);
(d) securities bearing interest or sold at a discount issued by
any corporation incorporated under the laws of the United States or any
State whose long-term unsecured debt obligations are assigned the highest
credit rating by each Rating Agency at the time of such investment or
contractual commitment providing for such investment; PROVIDED, HOWEVER,
that securities issued by any particular corporation will not be
Permitted Investments to the extent that an investment therein will cause
the then outstanding principal amount of securities issued by such
corporation and held in the Collection Account and the Reserve Account to
exceed 10% of the value of Permitted Investments held in such accounts
(with Permitted Investments held in such accounts valued at par);
(e) commercial paper that (i) is payable in United States dollars
and (ii) is rated in the highest credit rating category by each Rating
Agency;
(f) units of money market funds rated in the highest credit rating
category by each Rating Agency; or
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(g) any other demand or time deposit, obligation, security or
investment (including, without limitation, a hedging arrangement) as may
be acceptable to the Agent, as evidenced by a writing to that effect, as
may from time to time be confirmed in writing to the Collateral Agent by
the Agent;
Permitted Investments may be purchased by or through the Collateral Agent or
any of its Affiliates. All Permitted Investments shall be held in the name
of the Collateral Agent.
"PERSON" means an individual, partnership, corporation (including a
business trust), limited liability company or partnership, joint stock
company, trust, unincorporated association, joint venture, government or any
agency or political subdivision thereof or any other entity.
"PLEDGED RECEIVABLE" means any Receivable listed on Schedule A to any
Advance Request delivered pursuant to SECTION 2.2 other than such Receivables
which have been paid in full or released from the lien of the Collateral
Agent hereunder.
"PORTFOLIO NET LOSS RATIO" means, as of any Determination Date, a
fraction, expressed as a percentage, the numerator of which equals the
product of 2.0 times the Portfolio Net Losses for the six (6) preceding
Settlement Periods and the denominator of which equals the Average Servicing
Portfolio as of such Determination Date.
"PORTFOLIO NET LOSSES" means with respect to any Settlement Period, the
aggregate amount of gross charge-offs of Receivables serviced by Arcadia or
any of its Affiliates during such Settlement Period net of all Recoveries
with respect to any such Receivables (including post-disposition amounts
received on previously charged-off Receivables), calculated in a manner
consistent with the calculations of net losses in Arcadia's Annual Report on
Form 10-K for the year ended December 31, 1996.
"PREMIER RECEIVABLE" means a Receivable originated under Arcadia's
"Premier Program."
"PRINCIPAL BALANCE" means, with respect to any Receivable, as of any
date, the Amount Financed for such Receivable MINUS (a) that portion of all
amounts collected with respect to such Receivable on or prior to such date
and allocable to principal in accordance with the terms of such Receivable,
and (b) any Cram Down Loss in respect of such Receivable.
"PRINCIPAL COLLECTIONS" means, with respect to a Distribution Date, the
sum of (a) amounts deposited in the Collection Account during the preceding
Settlement Period attributable to principal payments on the Pledged
Receivables pursuant to the terms thereof, (b) the portion of any Recoveries
or Purchase Amounts received during such Settlement Period allocable to
principal on the related Receivables and (c) proceeds of any Insurance
Policies deposited in the Collection Account during the preceding Settlement
Period, in each case to the extent such amounts are applied to the reduction
of the Principal Balance of the related Receivable on or prior to the last
day of such Settlement Period.
"PURCHASE AMOUNT" means, with respect to a Receivable purchased by the
Servicer pursuant to SECTION 8.7, the Principal Balance of such Receivable
and all accrued and unpaid interest thereon as of the date of such purchase.
"PURCHASE AGREEMENT" means the Receivables Purchase Agreement and
Assignment, dated as of the Closing Date, by and between the Borrower and
Arcadia.
"PURCHASE DATE" has the meaning set forth in the Purchase Agreement.
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"RATING AGENCIES" means Standard & Poor's and Moody's.
"RECEIVABLE" means a retail installment contract or promissory note and
related security agreement originated or purchased by Arcadia, and all rights
and obligations thereunder.
"RECEIVABLE FILE" means, with respect to a Receivable:
(a) the fully executed original of such Receivable (together with any
agreements modifying such Receivable, including, without limitation, any
extension agreements);
(b) documents evidencing or related to any Insurance Policy or copies
thereof;
(c) the original credit application, or a copy thereof, of each Obligor,
fully executed by each such Obligor on Arcadia's customary form, or on a form
approved by Arcadia, for such application; and
(d) the original Lien Certificate, or, if not yet received, a copy of
the application therefor, showing Arcadia as secured party or a letter from
the applicable Dealer agreeing unconditionally to purchase the related
Receivable if the Lien Certificate is not received within 180 days and such
documents, if any, that Arcadia keeps on file in accordance with its
customary procedures indicating that the Financed Vehicle is owned by the
Obligor and subject to the interest of Arcadia as first lienholder or secured
party.
"RECOVERIES" means, with respect to any Liquidated Receivable, monies
collected in respect thereof, from whatever source, during any Settlement
Period, net of the sum of any amounts expended by the Servicer for the
account of the Obligor and any amounts required by law to be remitted to the
Obligor.
"REFERENCE BANKS" means The Chase Manhattan Bank, Citibank, N.A. and
Morgan Guaranty Trust Company of New York.
"REGISTRAR OF TITLES" means, with respect to any state, the governmental
agency or body responsible for the registration of, and the issuance of
certificates of title relating to, motor vehicles and liens thereon.
"REMARKETING DATE" means the date after the Facility Termination Date on
which any Note is transferred to any Person other than the Agent.
"REQUEST FOR RELEASE AND RECEIPT OF DOCUMENTS" means a request for
release substantially in the form of EXHIBIT E to this Agreement.
"RESERVE ACCOUNT" means the account designated as the Reserve Account in,
and which is established and maintained pursuant to, SECTION 8.15(b).
"RESPONSIBLE OFFICER" means, with respect to any Person that is not an
individual, the President, the Chief Financial Officer, any Vice-President or
Assistant Vice-President, the Treasurer, the Assistant Treasurer, the
Assistant Controller, the Warehouse Manager, Corporate Trust Officer or the
Controller of such Person, or any other officer or employee having similar
functions.
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"SCHEDULE OF RECEIVABLES" means the Schedule of Receivables in the form
attached hereto as Schedule A as supplemented from time to time in connection
with the sale of Receivables by Arcadia to the Borrower and the pledge of
such Receivables by the Borrower to the Collateral Agent.
"SCHEDULED PAYMENT" means, with respect to any Settlement Period for any
Receivable, the amount set forth in such Receivable as required to be paid by
the Obligor in such Settlement Period. If after the Closing Date, the
Obligor's obligation under a Receivable with respect to a Settlement Period
has been modified so as to differ from the amount specified in such
Receivable, as a result of (i) the order of a court in an insolvency
proceeding involving the Obligor, (ii) pursuant to the Soldiers' and Sailors'
Act or (iii) modifications or extensions of the Receivable permitted by
SECTION 8.2, the Scheduled Payment with respect to such Settlement Period
shall refer to the Obligor's payment obligations with respect to such
Settlement Period as so modified.
"SERVICER" means Arcadia or, as applicable, any successor servicer
appointed pursuant to SECTION 13.3.
"SERVICER TERMINATION EVENT" has the meaning set forth in SECTION 13.1.
"SERVICER'S CERTIFICATE" means, with respect to each Determination Date,
a certificate, completed by and executed on behalf of the Servicer, in
accordance with SECTION 8.9, substantially in the form attached hereto as
EXHIBIT C.
"SERVICING FEE" means, as of any Distribution Date, an amount equal to
the product of (i) 1/12 of the Servicing Fee Rate for the preceding
Determination Date and (ii) the average Aggregate Outstanding Principal
Balance of Pledged Receivables for each day during the preceding Settlement
Period immediately preceding such Distribution Date.
"SERVICING FEE RATE" means 1.25%.
"SERVICING PORTFOLIO" means as of any date, the Aggregate Outstanding
Principal Balance of all Receivables (whether or not thereafter sold or
disposed of) which are serviced by the Servicer or any of its Affiliates at
such time, calculated in a manner consistent with the calculation of the
components of Average Servicing Portfolio in the Servicer's most recent
Annual Report on Form 10-K to the extent such calculation is consistent with
the calculation of the components of Average Servicing Portfolio in Arcadia's
most recent Annual Report on Form 10-K.
"SERVICING PROCEDURES MANUAL" means the collections procedures manual
used by Arcadia in the servicing of Receivables, as amended from time to time.
"SETTLEMENT DATE" means, the date on which the Borrower shall prepay an
Advance pursuant to SECTION 4.1 hereof (other than a Distribution Date).
"SETTLEMENT PERIOD" means any calendar month and, with respect to a
Determination Date or a Distribution Date, the calendar month preceding the
month in which such Determination Date or Distribution Date occurs (such
calendar month being referred to as the "related" Settlement Period with
respect to such Determination Date or Distribution Date) or, in the case of
the initial Distribution Date and Determination Date, the period commencing
at the opening of business on the Closing Date and ending at the end of the
calendar month following the calendar month in which the Closing Date occurs.
Any amount stated "as of the last day of a Settlement Period" shall give
effect to all collections received on such day.
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"SOLDIERS' AND SAILORS' ACT" means the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended.
"SPREAD PERCENTAGE" means with respect to any Determination Date and any
Settlement Period immediately preceding such date during which Advances were
outstanding, (a) the weighted average Annual Percentage Rate of the Pledged
Receivables as of the last day of such Settlement Period MINUS (b) the
product, expressed as a percentage, of (i) the sum of (A) a fraction, the
numerator of which is the Distributable Excess Spread Amount for such
Determination Date and the denominator of which is the weighted average
Aggregate Outstanding Principal Balance of the Pledged Receivables during
such Settlement Period and (B) 1.00% and (ii) a fraction, the numerator of
which is the number of days in such preceding Settlement Period and the
denominator of which is the number of days in the year.
"STANDARD & POOR'S" means Standard & Poor's Ratings Group, a division of
The McGraw-Hill Companies, Inc.
"STATED MATURITY DATE" means (a) October 20, 1999, renewable annually at
the option of the Agent subject to earlier termination upon the Facility
Termination Date or (b) such other date as determined by the Agent on the
Remarketing Date.
"STRUCTURED LENDER" means any Investor whose principal business consists
of issuing commercial paper notes, medium term notes or other debt securities
to fund its acquisition and maintenance of receivables, accounts,
instruments, chatter paper, general intangibles and other similar assets or
interests therein and which is required by any nationally recognized rating
agency which is rating such securities to obtain from its principal debtors
an agreement such as that set forth in SECTION 19.12 of this Agreement in
order to maintain such rating.
"SUBSIDIARY" means, with respect to any Person, a corporation of which
such Person and/or its other Subsidiaries own, directly or indirectly, such
number of outstanding shares as have more than 50% of the ordinary voting
power for the election of directors.
"SUPPORT AGREEMENT" means any written liquidity agreement or credit
support agreement relating to any Structured Lender's Advances or commitment
to make Advances hereunder.
"SUPPORT BANK" means any bank or other financial institution extending or
having a commitment to extend funds to or for the account of any Structured
Lender (including by agreement to purchase an assignment of, or participation
in, any Advance) under a Support Agreement.
"TAKE-OUT SECURITIZATION" means (a) a financing transaction of any sort
undertaken by Arcadia or any Affiliate of Arcadia secured, directly or
indirectly, by any Receivable that was immediately prior to such transaction,
a Pledged Receivable or (b) any other asset securitization, secured loans or
similar transactions involving any Pledged Receivables or any beneficial
interest therein.
"TELERATE PAGE 3750" means the display page currently so designated on
the Dow Jones Telerate Service (or such other page as may replace that page
on that service for the purpose of displaying comparable rates or prices).
"TELERATE PAGE 4833" means the display page currently so designated on
the Dow Jones Telerate Service (or such other page as may replace that page
on that service for the purpose of displaying comparable rates or prices).
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"TRANSACTION DOCUMENTS" means this Agreement, the Note, the Fee Letter,
the Collateral Agent Agreement, the Purchase Agreement, the Lockbox Agreement
and the other documents to be executed and delivered in connection with this
Agreement.
"TRANSFER REQUEST" has the meaning set forth in SECTION 9.5(a).
"UCC" means the Uniform Commercial Code as from time to time in effect in
the applicable jurisdiction or jurisdictions.
"UNMATURED FACILITY TERMINATION EVENT" means any event that, if it
continues uncured, will, with lapse of time or notice or lapse of time and
notice, constitute a Facility Termination Event.
"WARRANTY RECEIVABLE" means, with respect to any Settlement Period, a
Receivable that the Servicer has become obligated to repurchase pursuant to
SECTION 8.7.
"WEIGHTED AVERAGE ADVANCE RATE" means, with respect to the calculation of
the Borrowing Base on any date of determination, the average of the Advance
Rates applicable to the Pledged Receivables which are Eligible Receivables as
of the last day of the preceding Settlement Period, if such date of
determination is a Determination Date, and on such day, in any other case,
and in each case weighted based on the Aggregate Outstanding Principal
Balances of such Receivables which are Classic Receivables which are not
Financed Repo Receivables, Premier Receivables and Financed Repo Receivables.
"YIELD" means, with respect to any Advance for any period, the sum of the
daily interest accrued on such Advance for such period, equal to the product
of (a) the outstanding principal amount of such Advance on each day during
such period, (b) the Interest Rate for such Advance for the related Interest
Period and (c) the actual number of days in such period divided by 360,
PROVIDED, THAT, after the date any principal amount of any Advance is due and
payable (whether on the Stated Maturity Date, upon acceleration or otherwise)
or after any other monetary Obligation of the Borrower arising under this
Agreement shall become due and payable, the Borrower shall pay (to the extent
permitted by law, if in respect of any unpaid amounts representing Yield)
Yield (after as well as before judgment) on such amounts at a rate PER ANNUM
equal to the Default Rate; and PROVIDED, FURTHER, THAT, on any day on or
after the Remarketing Date, the "Yield" for any period shall be equal to the
sum of the daily interest for each day during such period at a rate equal to
the product of (x) a per annum rate determined by the Agent as the weighted
average of the actual rates applicable to all Investors= investments in the
Notes (which shall be notified to the Borrower by the Agent) and in each case
shall be the lowest fixed rate at which the Lenders could collectively sell
their interests in the Note for a purchase price equal to the outstanding
principal balance of such interests, as set forth in a notice from the Agent
to the Borrower, (y) the outstanding principal amount of all Advances on such
day, and (z) 1/360.
SECTION 1.2 OTHER DEFINITIONAL PROVISIONS.
() Unless otherwise specified therein, all terms defined in this
Agreement have the meanings as so defined herein when used in the Note or any
other Transaction Document, certificate, report or other document made or
delivered pursuant hereto.
() Each term defined in the singular form in SECTION 1.1 or
elsewhere in this Agreement shall mean the plural thereof when the plural
form of such term is used in this Agreement, the Note or any other
Transaction Document, certificate, report or other document
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made or delivered pursuant hereto, and each term defined in the plural form
in SECTION 1.1 shall mean the singular thereof when the singular form of such
term is used herein or therein.
() The words "hereof," "herein," "hereunder" and similar terms
when used in this Agreement shall refer to this agreement as a whole and not
to any particular provision of this Agreement, and article, section,
subsection, schedule and exhibit references herein are references to
articles, sections, subsections, schedules and exhibits to this Agreement
unless otherwise specified.
ARTICLE II
THE FACILITY, ADVANCE PROCEDURES AND NOTE
SECTION 2.1 FACILITY. On the terms and subject to the conditions set
forth in this Agreement, the Lenders shall make Advances to the Borrower on a
revolving basis from time to time before the Facility Termination Date, in
such amounts as may be from time to time requested by the Borrower pursuant
to SECTION 2.2 (the "FACILITY"); PROVIDED, HOWEVER, that the aggregate
principal amount of all Advances from time to time outstanding hereunder
shall not exceed the Facility Limit. Within the limits of the Facility, the
Borrower may borrow, prepay and reborrow under this SECTION 2.1. Under no
circumstances shall any Lender make any such Advance if after giving effect
thereto the aggregate outstanding principal balance of all Advances would
exceed the Facility Limit.
SECTION 2.2 ADVANCE PROCEDURES. The Borrower may request an Advance
hereunder by giving notice to the Agent and the Custodian of a proposed
Advance not later than 2:00 P.M., New York time, one Business Day prior to
the proposed date of such Advance. Each such notice (herein called an
"ADVANCE REQUEST") shall be in the form of EXHIBIT A and shall include the
date and amount of such proposed Advance and the supplement to the Schedule
of Receivables setting forth the information required therein with respect to
the Receivables to be acquired by the Borrower with the proceeds of the
proposed Advance. Any Advance Request given by the Borrower pursuant to this
SECTION 2.2 shall be irrevocable and binding on the Borrower.
SECTION 2.3 FUNDING. Subject to the satisfaction of the conditions
precedent set forth in ARTICLE VII with respect to such Advance and the
limitations set forth in SECTION 2.1, the Lenders shall make the proceeds of
such requested Advance available to the Agent, and the Agent shall make such
Advance available to the Borrower, as follows: first, an amount equal to 1%
of the amount of such Advance shall be deposited by the Lenders in the
Reserve Account; and second, the balance of the proposed Advance shall be
made available to the Borrower at ABA#091000022, Account No. 173103117615 at
First Bank National Association in same day funds no later than 3:00 p.m.,
New York City time, on the proposed date of the Advance. The amount of each
Advance shall be equal to the sum of, for each Receivable listed in the
Schedule of Receivables attached to the related Advance Request, the product
of (x) the Principal Balance of such Receivable and (y) the Advance Rate for
such Receivable. Each Advance shall be on a Business Day and shall be in an
amount of at least $2,000,000 (or integral multiple of $1 in excess thereof).
SECTION 2.4 REPRESENTATION AND WARRANTY. Each request for an Advance
pursuant to SECTION 2.2 shall automatically constitute a representation and
warranty by the Borrower to the Agent and the Lenders that, on the requested
date of such Advance, (a) the representations and warranties contained in
ARTICLE X will be true and correct as of
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such requested date as though made on such date, and (b) no Facility
Termination Event or Unmatured Facility Termination Event has occurred and is
continuing or will result from the making of such Advance, and (c) after
giving effect to such requested Advance, the aggregate principal balance of
the outstanding Advances hereunder will not exceed the sum of (i) the
Borrowing Base and (ii) the amounts on deposit in the Collection Account and
the Lockbox Account to the extent such amounts have been applied to the
reduction of the Principal Balance of Pledged Receivables which are Pledged
Receivables which are included in the Borrowing Base.
SECTION 2.5 VOLUNTARY TERMINATION OF FACILITY; REDUCTION OF FACILITY
LIMIT. The Borrower may, in its sole discretion for any reason upon at least
five Business Days' notice to the Agent, terminate the Facility in whole or
reduce in part the unused portion of the Facility Limit; PROVIDED, HOWEVER,
that (a) each such partial reduction will be in a minimum amount of
$5,000,000 or a higher integral multiple of $1,000,000, (b) in the event of a
partial reduction and after giving effect to any such partial reduction and
any prior partial reduction, the remaining Facility Limit will not be less
than $50,000,000, and (c) in connection therewith the Borrower complies with
SECTION 4.1(b).
SECTION 2.6 NOTE. All Advances shall be evidenced by a Note, with
appropriate insertions, payable to the order of the Agent, on behalf of the
Investors. The Borrower hereby irrevocably authorizes the Agent to make (or
cause to be made) appropriate notations on the grid attached to the Note (or
on any continuation of such grid, or at the Agent's option, in its records),
which notations, if made, shall evidence, INTER ALIA, the date of, the
outstanding principal of, and the yield rate applicable to the Advances
evidenced thereby. Such notations shall be rebuttably presumptive evidence of
the principal amount of the Advances outstanding absent manifest error;
PROVIDED, HOWEVER, that the failure to make any such notations shall not
limit or otherwise affect any Obligations of the Borrower.
ARTICLE III
YIELD, FEES, ETC.
SECTION 3.1 YIELD. The Borrower hereby promises to pay Yield on the
unpaid principal amount of each Advance (or each portion thereof) for the
period commencing on the date of such Advance until such Advance is paid in
full. No provision of this Agreement or the Note shall require the payment
or permit the collection of Yield in excess of the maximum permitted by
applicable law.
SECTION 3.2 YIELD PAYMENT DATES. Yield accrued on each Advance shall be
payable, without duplication:
() on the date of any payment or prepayment, in whole or in part, of
principal outstanding on such Advance; and
() on each Distribution Date in accordance with the Collateral Agent
Agreement;
provided that, prior to the Remarketing Date, Yield relating to any such
Advance may be payable, at the option of the Agent or the Borrower, on the
related Settlement Date.
SECTION 3.3 FEES. The Borrower agrees to pay to the Agent, for its own
account and the account of the Investors, as they may separately agree,
certain fees in the amounts and on the dates set forth in the letter
agreement among the Agent, the Borrower, Arcadia and the
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Collateral Agent as of the date hereof (as the same may be amended,
supplemented or otherwise modified, the "FEE LETTER").
SECTION 3.4 COMPUTATION OF YIELD AND FEES. All Yield and Fees shall be
computed on the basis of the actual number of days (including the first day
but excluding the last day) occurring during the period for which such Yield
or fee is payable over a year comprised of 360 days.
ARTICLE IV
REPAYMENTS AND PREPAYMENTS
SECTION 4.1 REPAYMENTS AND PREPAYMENTS. The Borrower:
() may, from time to time on any Business Day, make a prepayment, in
whole or in part, of the outstanding principal amount of any Advance;
PROVIDED, HOWEVER, that
() all such voluntary prepayments shall require at least one but no
more than five Business Days' prior written notice to the Agent;
and
() all such voluntary partial prepayments shall be in a minimum
amount of $1,000,000 and an integral multiple of $500,000, or
pay such Advance in full;
() shall, on each date when any reduction in the Facility Limit shall
become effective pursuant to SECTION 2.5, make a prepayment of the Advances
in an amount equal to the excess, if any, of the aggregate outstanding
principal amount of the Advances over the Facility Limit as so reduced;
() shall, immediately upon any acceleration of the Stated Maturity Date
of any Advances pursuant to SECTION 15.2, repay all Advances, unless,
pursuant to SECTION 15.2(a), only a portion of all Advances is so
accelerated, in which event the Borrower shall repay the accelerated portion
of the Advances;
() shall, if a Borrowing Base Deficiency shall exist on any
Determination Date (after giving effect to all distributions to be made on
the following Distribution Date pursuant to the Collateral Agent Agreement),
repay the outstanding principal amount of Advances in an amount equal to such
Borrowing Base Deficiency; and
() shall, on the date the Borrower receives any proceeds from the sale
of any Pledged Receivables included in any Take-Out Securitization, make a
prepayment of the Advances in an amount substantially equal to such proceeds
or, if less, the total outstanding amount of Advances.
Each such prepayment shall be subject to the payment of any amounts
required by SECTION 6.3 resulting from a prepayment of an Advance prior to
the date of such prepayment.
ARTICLE V
PAYMENTS
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SECTION 5.1 MAKING OF PAYMENTS. Subject to, and in accordance with, the
provisions of the Collateral Agent Agreement, all payments of principal of,
or Yield on, the Advances and of all Fees and other amounts shall be made by
the Borrower or the Collateral Agent on the Borrower's behalf from the
Collateral no later than 1:00 p.m., New York time, on the day when due in
lawful money of the United States of America in same day funds to the Agent,
at its special account (account number _________) maintained at the office of
the Agent at 277 Park Avenue, New York, New York or such other account as the
Agent shall designate in writing to the Borrower and the Collateral Agent
(the "AGENT'S ACCOUNT"). Funds received by the Agent after 1:00 p.m., New
York time, on the date when due, will be deemed to have been received by the
Agent on its next following Business Day.
SECTION 5.2 APPLICATION OF CERTAIN PAYMENTS. Each payment of principal of
the Advances shall be applied to such Advances as the Borrower shall direct
or, in the absence of such notice or during the existence of a Facility
Termination Event or after the Facility Termination Date, as the Agent shall
determine, prior to the Remarketing Date, in its discretion, and after the
Remarketing Date, as directed by the holders of the Note.
SECTION 5.3 DUE DATE EXTENSION. If any payment of principal or Yield with
respect to any Advance falls due on a day which is not a Business Day, then
such due date shall be extended to the next following Business Day, and
additional Yield shall accrue and be payable for the period of such extension
at the rate applicable to such Advance.
ARTICLE VI
INCREASED COSTS, ETC.
SECTION 6.1 INCREASED COSTS.
() If due to the introduction of or any change in or in the
interpretation of any law or regulation occurring or issued after the date
hereof, the Agent, any Lender, any Structured Lender to which a Lender
assigns an interest in Advances, any entity which enters into a commitment to
make Advances or purchase interests therein from any Structured Lender, or
any of their respective Affiliates (each an "AFFECTED PERSON") determines
that compliance with any law or regulation or any guideline or request from
any central bank or other governmental authority (whether or not having the
force of law) affects or would affect the amount of capital required or
expected to be maintained by such Affected Person and such Affected Person
determines that the amount of such capital is increased by or based upon the
existence of any commitment to make Advances related to this Agreement or to
the funding thereof and other commitments of the same type, then, upon demand
by such Affected Person (with a copy to the Agent) (which demand shall be
accompanied by a statement setting forth the basis for the calculations of
the amount being claimed), the Borrower shall immediately pay to the Agent,
for the account of such Affected Person (as a third-party beneficiary), from
time to time as specified by such Affected Person, additional amounts
sufficient to compensate such Affected Person in the light of such
circumstances, to the extent that such Affected Person reasonably determines
such increase in capital to be allocable to the existence of any of such
commitments PROVIDED, that the Seller shall not be obligated to pay any such
additional amounts that are attributable to the period ending 60 days prior
to the Borrower's receipt of such demand, except to the extent such
additional amounts accrue during such period because of the retroactive
effect of the applicable regulatory change, in which case the foregoing
limitation shall not apply. Such written statement shall, in the absence of
manifest error, be rebuttably presumptive evidence of the subject matter
thereof. Any Affected Person claiming any additional amounts payable
pursuant to this SECTION 6.1(a) agrees to use reasonable efforts (consistent
with legal and regulatory restrictions) to designate a different office or
branch of such Affected Person if the making of such a designation would
avoid the need
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for, or reduce the amount of, any such additional amounts and would not, in
the reasonable judgment of such Affected Person, be otherwise disadvantageous
to such Affected Person.
() If, due to either (i) the introduction of or any change (other than
any change by way of imposition or increase of reserve requirements referred
to in SECTION 6.2) in or in the interpretation of any law or regulation or
(ii) compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) issued after
the date hereof, there shall be any increase in the cost to an Affected
Person of agreeing to make Advances hereunder, then, upon demand by such
Affected Person (with a copy to the Agent) (which demand shall be accompanied
by a statement setting forth the basis for the amount being claimed), the
Borrower shall immediately pay to the Agent, for the account of such Affected
Person (as a third-party beneficiary), from time to time as specified by such
Affected Person, additional amounts sufficient to compensate such Affected
Person for such increased costs PROVIDED, that the Seller shall not be
obligated to pay any such additional amounts that are attributable to the
period ending 60 days prior to the Borrower's receipt of such demand, except
to the extent such additional amounts accrue during such period because of
the retroactive effect of the applicable regulatory change, in which case the
foregoing limitation shall not apply. Such written statement shall, in the
absence of manifest error, be rebuttably presumptive evidence of the subject
matter thereof. Any Affected Person claiming any additional amounts payable
pursuant to this SECTION 6.1(b) agrees to use reasonable efforts (consistent
with legal and regulatory restrictions) to designate a different office or
branch of such Affected Person if the making of such a designation would
avoid the need for, or reduce the amount of, any such additional amounts and
would not, in the reasonable judgment of such Affected Person, be otherwise
disadvantageous to such Affected Person.
SECTION 6.2 ADDITIONAL YIELD ON ADVANCES. The Borrower shall pay to any
Affected Person, so long as such Affected Person shall be required under
regulations of the Board of Governors of the Federal Reserve System to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities, additional Yield on the unpaid Advances
of such Affected Person, at a rate per annum equal at all times to the
remainder obtained by subtracting (i) LIBOR for the related Interest Period
from (ii) the rate obtained by dividing such LIBOR by that percentage equal
to 100% MINUS the Eurodollar Rate Reserve Percentage of such Affected Person,
payable on each date on which Yield is payable on such Advances. Such
additional Yield shall be determined by such Affected Person and notice
thereof (accompanied by a statement setting forth the basis for the amount
being claimed) given to the Borrower through the Agent within 30 days after
any Yield payment is made with respect to which such additional Yield is
requested. Such written statement shall, in the absence of manifest error,
be rebuttably presumptive evidence of the subject matter thereof. Any
Affected Person claiming any additional amounts payable pursuant to this
SECTION 6.2 agrees to use reasonable efforts (consistent with legal and
regulatory restrictions) to designate a different office or branch of such
Affected Person if the making of such a designation would avoid the need for,
or reduce the amount of, any such additional amounts and would not, in the
reasonable judgment of such Affected Person, be otherwise disadvantageous to
such Affected Person.
SECTION 6.3 FUNDING LOSSES. The Borrower hereby agrees that upon demand
by any Affected Person (which demand shall be accompanied by a statement
setting forth the basis for the calculations of the amount being claimed) the
Borrower will indemnify such Affected Person against any net loss or expense
which such Affected Person may sustain or incur (including, without
limitation, any net loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Affected Person to
fund or maintain any Advance to the Borrower), as reasonably determined by
such Affected Person, as a result of any
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prepayment (including any mandatory prepayment) of any Advance. Such written
statement shall, in the absence of manifest error, be rebuttably presumptive
evidence of the subject matter thereof.
SECTION 6.4 REPLACEMENT OF AFFECTED PERSON. Upon the receipt by the
Borrower of a claim for reimbursement or compensation under SECTIONS 6.1, 6.2
or 6.3 hereof by an Affected Person, if payment thereof shall not be waived
by such Affected Person, the Borrower may (i) request such Affected Person or
the Lender that has assigned an interest in its Advances to such Affected
Person to obtain a replacement bank, financial institution or Structured
Lender, as applicable, satisfactory to the Borrower (in the case of a
replacement Lender), to acquire and assume all or a ratable part of such
Affected Person's commitment to make Advances, Advances, or interests therein
(a "REPLACEMENT PERSON"), (ii) request one or more of the other Lenders or
Investors to acquire and assume all or a part of such Affected Person's
commitment to make Advances, Advances or interests therein, or (iii)
designate a Replacement Person. Any such designation of a Replacement Person
pursuant to clause (i) or clause (iii) above shall be subject to the prior
written consent of the Agent (which consent shall not be unreasonably
withheld). Upon notice from the Borrower, such Affected Person shall, or the
Lender that has assigned an interest in its Advances to such Affected Person
shall cause such Affected Person to, assign its commitment to make Advances,
Advances or interests therein and its other rights and obligations (if any)
hereunder, or a ratable share thereof, to the Replacement Person or
Replacement Persons designated by the Borrower for a purchase price equal to
the sum of the principal amount of the Advances or interests therein so
assigned, all accrued and unpaid Yield thereon and any other amounts
(including fees) to which such Affected Person is entitled hereunder;
provided, that the Borrower shall provide such Affected Person with an
officer's certificate stating that such Replacement Person has advised the
Borrower that it is not subject to, or has agreed not to seek, such increased
amount.
ARTICLE VII
CONDITIONS TO ADVANCES
The making of any Advance hereunder is subject to the following
conditions precedent:
SECTION 7.1 INITIAL ADVANCE. The making of the initial Advance is, in
addition to the conditions precedent specified in SECTION 7.2, subject to the
condition precedent that the Agent shall have received all of the following,
each duly executed and dated the date of such Advance (or such earlier date
as shall be satisfactory to the Agent), in form and substance satisfactory to
the Agent:
(1) RESOLUTIONS. (i) Certified copies of resolutions of the Board
of Directors of each of the Borrower and Arcadia, authorizing or ratifying
the execution, delivery and performance, respectively, of this Agreement and
the other Transaction Documents to which it is a party and (ii) a certified
copy of the Certificate of Incorporation of each of the Borrower and Arcadia.
(2) INCUMBENCY AND SIGNATURES. A certificate of the Secretary or an
Assistant Secretary of each of the Borrower and Arcadia certifying the names
of its officer or officers authorized to sign this Agreement and the other
Transaction Documents to which it is a party.
(3) TRANSACTION DOCUMENTS. Executed counterparts of each
Transaction Document, duly executed by each of the parties thereto, and all
conditions to the effectiveness thereof set forth therein shall have been
satisfied in all respects.
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(4) OPINIONS OF COUNSEL. Counsel to Arcadia will provide true sale,
non-consolidation, perfection, priority and general corporate opinions
regarding the Borrower, Arcadia and the transactions contemplated by the
Transaction Documents, in form and substance satisfactory to the Agent.
(5) FINANCING STATEMENTS. Acknowledgment copies of proper financing
statements filed under the UCC of all jurisdictions that the Agent may deem
necessary or desirable in order to perfect the ownership and security
interests contemplated by this Agreement; and
(6) OTHER. Such other documents or opinions as the Agent may
reasonably request.
SECTION 7.2 ALL ADVANCES. The making of the initial Advance and each
subsequent Advance are subject to the following further conditions precedent
that:
(1) NO FACILITY TERMINATION EVENT, ETC. (i) No Facility Termination
Event, Unmatured Facility Termination Event or Servicer Termination Event has
occurred and is continuing or will result from the making of such Advance,
and (ii) the representations and warranties of the Borrower contained in
ARTICLE X are true and correct as of the date of such requested Advance, with
the same effect as though made on the date of such Advance, and (iii) after
giving effect to such Advance, the aggregate outstanding principal balance of
the Advances hereunder will not exceed the sum of (x) the Borrowing Base and
(y) the amounts on deposit in the Collection Account and the Lockbox Account
to the extent such amounts have been applied to the reduction of the
Principal Balance of Pledged Receivables which are Pledged Receivables which
are included in the Borrowing Base
(2) ELIGIBLE RECEIVABLES. All of the Receivables to be purchased
with such Advance are Eligible Receivables.
(3) ADVANCE REQUEST, ETC. The Agent shall have received the Advance
Request for such Advance in accordance with SECTION 2.2, together with all
items required to be delivered in connection therewith.
(4) FACILITY TERMINATION DATE. The Facility Termination Date shall
not have occurred.
(5) COLLATERAL RECEIPT. The Agent shall have received a Collateral
Receipt and Confirmation in respect of each Receivable identified on the
Schedule of Receivables attached to the related Advance Request.
ARTICLE VIII
ADMINISTRATION AND SERVICING OF RECEIVABLES
SECTION 8.1 DUTIES OF THE SERVICER. The Servicer is hereby authorized to
act for the Borrower and in such capacity shall manage, service, administer
and make collections on the Pledged Receivables, and perform the other
actions required by the Servicer under this Agreement for the benefit of the
Borrower and the Investors. The Servicer agrees that its servicing of the
Pledged Receivables shall be carried out in accordance with customary and
usual procedures of institutions which service motor vehicle retail
installment sales contracts and, to the extent more exacting, the degree of
skill and attention that the Servicer exercises from time to
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time with respect to all comparable motor vehicle receivables that it
services for itself or others in accordance with the Servicing Procedures
Manual as in effect from time to time for servicing all its other comparable
motor vehicle receivables. The Servicer's duties shall include, without
limitation, collection and posting of all payments, responding to inquiries
of Obligors on the Pledged Receivables, investigating delinquencies, sending
payment statements or payment books to Obligors, reporting any required tax
information to Obligors, policing the collateral, complying with the terms of
the Lockbox Agreement, accounting for collections and furnishing monthly and
annual statements to the Agent with respect to distributions, monitoring the
status of Insurance Policies with respect to the Financed Vehicles and
performing the other duties specified herein. The Servicer shall also
administer and enforce all rights and responsibilities of the holder of the
Pledged Receivables provided for in the Dealer Agreements (and shall maintain
possession of the Dealer Agreements, to the extent it is necessary to do so),
the Dealer Assignments and the Insurance Policies, to the extent that such
Dealer Agreements, Dealer Assignments and Insurance Policies relate to the
Pledged Receivables, the related Financed Vehicles or the related Obligors.
To the extent consistent with the standards, policies and procedures
otherwise required hereby, the Servicer shall follow its customary standards,
policies, and procedures with respect to the Pledged Receivables and shall
have full power and authority, acting alone, to do any and all things in
connection with such managing, servicing, administration and collection that
it may deem necessary or desirable. Without limiting the generality of the
foregoing, the Servicer is hereby authorized and empowered by the Borrower to
execute and deliver, on behalf of the Borrower, the Investors, the Collateral
Agent or any of them, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge, and all other
comparable instruments, with respect to the Pledged Receivables and with
respect to the related Financed Vehicles. The Servicer is authorized to
release Liens on Financed Vehicles in order to collect insurance proceeds
with respect thereto and to liquidate such Financed Vehicles in accordance
with its customary standards, policies and procedures; PROVIDED, HOWEVER,
that notwithstanding the foregoing, the Servicer shall not, except pursuant
to an order from a court of competent jurisdiction, release an Obligor from
payment of any unpaid amount under any Pledged Receivable or waive the right
to collect the unpaid balance of any Pledged Receivable from the Obligor,
except that the Servicer may forego collection efforts if the amount subject
to collection is DE MINIMIS and if it would forego collection in accordance
with its customary procedures. The Servicer is hereby authorized to
commence, in its own name or in the name of the Borrower or the Collateral
Agent on behalf of the Investors (PROVIDED that if the Servicer is acting in
the name of the Borrower or the Collateral Agent on behalf of the Investor,
the Servicer shall have obtained the Borrower's, the Collateral Agent's and
the Agent's consent, as the case may be, which consent shall not be
unreasonably withheld), a legal proceeding to enforce a Pledged Receivable
pursuant to SECTION 8.3 or to commence or participate in any other legal
proceeding (including, without limitation, a bankruptcy proceeding) relating
to or involving a Pledged Receivable, an Obligor or a Financed Vehicle. If
the Servicer commences or participates in such a legal proceeding in its own
name, the Borrower and the Collateral Agent, on behalf of the Investors, as
the case may be, shall thereupon be deemed to have automatically assigned
such Pledged Receivable to the Servicer solely for purposes of commencing or
participating in any such proceeding as a party or claimant, and the Servicer
is authorized and empowered by the Borrower and the Collateral Agent on
behalf of the Investors, to execute and deliver in the Servicer's name any
notices, demands, claims, complaints, responses, affidavits or other
documents or instruments in connection with any such proceeding. The
Borrower and the Collateral Agent shall furnish the Servicer with any powers
of attorney and other documents which the Servicer may reasonably request in
writing and which the Servicer deems necessary or appropriate and take any
other steps which the Servicer may deem reasonably necessary or appropriate
to enable the Servicer to carry out its servicing and administrative duties
under this Agreement.
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SECTION 8.2 COLLECTION OF RECEIVABLE PAYMENTS; MODIFICATION AND AMENDMENT
OF RECEIVABLES; LOCKBOX AGREEMENTS. () Consistent with the standards,
policies and procedures required by this Agreement, the Servicer shall make
reasonable efforts to collect all payments called for under the terms and
provisions of the Pledged Receivables as and when the same shall become due,
and shall follow such collection procedures as it follows with respect to all
comparable automobile receivables that it services for itself or others and
otherwise act with respect to the Pledged Receivables, the Dealer Agreements,
the Dealer Assignments and the Insurance Policies in such manner as will, in
the reasonable judgment of the Servicer, maximize the amount to be received
by the Borrower and the Investors with respect thereto. The Servicer is
authorized in its discretion to waive any prepayment charge, late payment
charge or any other similar fees that may be collected in the ordinary course
of servicing any Pledged Receivable.
( The Servicer may at any time agree, in accordance with its normal
underwriting criteria, to a modification, amendment or extension of a Pledged
Receivable in order to (i) change the Obligor's regular due date to another
date within the Settlement Period in which such due date occurs, (ii)
re-amortize the scheduled payments on the Pledged Receivable following a
partial prepayment of principal or (iii) grant extensions on a Receivable,
provided that the Servicer shall not be permitted to extend the monthly
payments on a Receivable more than two times in any twelve-month period, and
provided further that the aggregate period of all extensions on a Receivable
shall not exceed six months.
( The Servicer may grant payment extensions or deferrals on, or other
modifications or amendments to, a Pledged Receivable (including those
modifications permitted by SECTION 8.2(b)) in accordance with its customary
procedures if the Servicer believes in good faith that such extension,
modification or amendment is necessary to avoid a default on such Pledged
Receivable, will maximize the amount to be received by the Borrower and the
Investors with respect to such Pledged Receivable, and is otherwise in the
best interests of the Borrower and the Investors; PROVIDED, HOWEVER, that:
( any such extension shall not extend beyond 84 months after
the Facility Termination Date; and
( the Servicer shall not amend or modify a Pledged Receivable
(except as provided in SECTION 8.2(b) and this SECTION 8.2(c)) without the
written consent of the Agent;
PROVIDED, THAT any such amendment, modification or extension shall be
delivered by the Servicer to the Custodian promptly after execution thereof.
( The Servicer shall use its best efforts to cause Obligors to make
all payments on the Pledged Receivables, whether by check or by direct debit
of the Obligor's bank account, directly to one or more Lockbox Banks, acting
as agent for the Collateral Agent pursuant to the Lockbox Agreement. Amounts
received by the Lockbox Bank in respect of the Pledged Receivables may
initially be deposited into a demand deposit account maintained by the
Lockbox Bank as agent for the Collateral Agent and for other owners of
automobile receivables serviced by the Servicer. The Servicer shall use its
best efforts to cause any Lockbox Bank to deposit all payments on the
Receivables in the Lockbox Account no later than the Business Day after
receipt, and to cause all amounts credited to the Lockbox Account on account
of such payments to be transferred to the Collection Account no later than
the second Business Day after receipt of such payments. The Lockbox Account
shall be a demand deposit account held by the Lockbox Bank, or an Eligible
Account satisfying clause (i) of the definition thereof.
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Prior to each Advance Date, the Servicer shall have notified each Obligor
that makes its payments on the Pledged Receivables by check to make such
payments thereafter directly to the Lockbox Bank (except in the case of
Obligors that have already been making such payments to the Lockbox Bank),
and shall have provided each such Obligor with a supply of mailing address
labels in order to enable such Obligors to make such payments directly to the
Lockbox Bank for deposit into the Lockbox Account, and the Servicer will
continue, not less often than every three months, to so notify those Obligors
who have failed to make payments to the Lockbox Bank. If and to the extent
requested by the Agent, the Servicer shall request each Obligor that makes
payment on the Pledged Receivables by direct debit of such Obligor's bank
account, to execute a new authorization for automatic payment which in the
judgment of the Agent is sufficient to authorize direct debit by the Lockbox
Bank on behalf of the Borrower. If at any time the Lockbox Bank is unable to
directly debit an Obligor's bank account that makes payment on the Pledged
Receivables by direct debit and if such inability is not cured within 15 days
or cannot be cured by execution by the Obligor of a new authorization for
automatic payment, the Servicer shall notify such Obligor that it cannot make
payment by direct debit and must thereafter make payment by check.
Notwithstanding the Lockbox Agreement, or any of the provisions of this
Agreement relating to the Lockbox Agreement, the Servicer shall remain
obligated and liable to the Borrower and the Investors for servicing and
administering the Pledged Receivables in accordance with the provisions of
this Agreement without diminution of such obligation or liability by virtue
thereof.
In the event the Servicer shall for any reason no longer be acting as
such, the Backup Servicer or successor Servicer shall thereupon assume all of
the rights and, from the date of assumption, all of the obligations of the
outgoing Servicer under the Lockbox Agreement, if applicable. The Backup
Servicer or any other successor Servicer shall not be liable for any acts,
omissions or obligations of the Servicer prior to such succession. In such
event, the successor Servicer shall be deemed to have assumed all of the
outgoing Servicer's interest therein and to have replaced the outgoing
Servicer as a party to the Lockbox Agreement to the same extent as if such
Lockbox Agreement had been assigned to the successor Servicer, except that
the outgoing Servicer shall not thereby be relieved of any liability, or
obligations on the part of the outgoing Servicer to the Lockbox Bank under
the Lockbox Agreement. The outgoing Servicer shall, upon request of the
Agent but at the expense of the outgoing Servicer, deliver to the successor
Servicer all documents and records relating to each such Agreement and an
accounting of amounts collected and held by the Lockbox Bank and otherwise
use its best efforts to effect the orderly and efficient transfer of any
Lockbox Agreement to the successor Servicer. In the event that the Agent
elects to change the identity of the Lockbox Bank, the Servicer, at its
expense, shall cause the Lockbox Bank to deliver, at the direction of the
Agent, or a successor Lockbox Bank, all documents and records relating to the
Pledged Receivables and all amounts held (or thereafter received) by the
Lockbox Bank (together with an accounting of such amounts) and shall
otherwise use its best efforts to effect the orderly and efficient transfer
of the lockbox arrangements and the Servicer shall notify the Obligors to
make payments to the Lockbox Account established by the successor.
( The Servicer shall remit all payments by or on behalf of the
Obligors received directly by the Servicer to the Collection Account or the
Lockbox Bank for deposit into the Collection Account, without deposit into
any intervening account as soon as practicable, but in no event later than
the Business Day after receipt thereof.
SECTION 8.3 REALIZATION UPON RECEIVABLES. () Consistent with the
standards, policies and procedures required by this Agreement, the Servicer
shall use its best efforts to repossess (or otherwise comparably convert the
ownership of) and liquidate any Financed Vehicle securing a Pledged
Receivable with respect to which the Servicer
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has determined that payments thereunder are not likely to be resumed, as soon
as is practicable after default on such Pledged Receivable but in no event
later than the date on which all or any portion of a Scheduled Payment has
become 150 or more days delinquent. The Servicer is authorized to follow
such customary practices and procedures as it shall deem necessary or
advisable, consistent with the standard of care required by SECTION 8.1,
which practices and procedures may include reasonable efforts to realize upon
any recourse to Dealers, selling the related Financed Vehicle at public or
private sale, the submission of claims under an Insurance Policy and other
actions by the Servicer in order to realize upon such Pledged Receivable.
The foregoing is subject to the provision that, in any case in which the
Financed Vehicle shall have suffered damage, the Servicer shall not expend
funds in connection with any repair or towards the repossession of such
Financed Vehicle unless it shall determine in its discretion that such repair
and/or repossession shall increase the proceeds of liquidation of the related
Pledged Receivable by an amount greater than the amount of such expenses.
All Recoveries shall be remitted directly by the Servicer to the Lockbox Bank
without deposit into any intervening account as soon as practicable, but in
no event later than two Business Days after receipt thereof. The Servicer
shall be entitled to recover all reasonable expenses incurred by it in the
course of repossessing and liquidating a Financed Vehicle, but only out of
the cash proceeds of such Financed Vehicle, any deficiency obtained from the
Obligor or any amounts received from the related Dealer, which amounts may be
retained by the Servicer (and shall not be required to be deposited in the
Collection Account) to the extent of such expenses. The Servicer shall pay
on behalf of the Borrower any personal property taxes assessed on repossessed
Financed Vehicles and the Servicer shall be entitled to reimbursement of any
such tax.
( If the Servicer elects to commence a legal proceeding to enforce a
Dealer Agreement or Dealer Assignment, the act of commencement shall be
deemed to be an automatic assignment from the Borrower and the Collateral
Agent to the Servicer of the rights under such Dealer Agreement and Dealer
Assignment for purposes of collection only. If, however, in any enforcement
suit or legal proceeding, it is held that the Servicer may not enforce a
Dealer Agreement or Dealer Assignment on the grounds that it is not a real
party in interest or a Person entitled to enforce the Dealer Agreement or
Dealer Assignment, the Borrower, at the Servicer's expense, shall take such
steps as the Servicer deems necessary to enforce the Dealer Agreement or
Dealer Assignment, including bringing suit in its name. All amounts
recovered shall be remitted directly by the Servicer to the Collection
Account or to the Lockbox Bank for deposit into the Collection Account
without deposit into any intervening account as soon as practicable, but in
no event more than two Business Days after receipt thereof.
SECTION 8.4 INSURANCE. () The Servicer shall require that each Financed
Vehicle be insured by the Insurance Policies referred to in clause (w) of the
definition of "Eligible Receivables" and shall monitor the status of the
Insurance Policies thereafter, in accordance with its customary servicing
procedures. If the Servicer shall determine that an Obligor has failed to
obtain or maintain a physical loss and damage Insurance Policy covering the
related Financed Vehicle which satisfies the conditions set forth in clause
(w) of the definition of "Eligible Receivables" (including, without
limitation, during the repossession of such Financed Vehicle), the Servicer
shall enforce the rights of the holder of the Pledged Receivable under the
Pledged Receivable to require the Obligor to obtain such physical loss and
damage insurance.
( The Servicer may, if an Obligor fails to obtain or maintain a
physical loss and damage Insurance Policy, obtain insurance with respect to
the related Financed Vehicle and advance on behalf of such Obligor, as
required under the terms of the insurance policy, the premiums for such
insurance (such insurance being referred to herein as "FORCE-PLACED
INSURANCE"). All policies of Force-Placed Insurance shall be endorsed with
clauses providing for loss payable to the Collateral Agent. Any cost
incurred by the Servicer in maintaining such
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Force-Placed Insurance shall only be recoverable out of premiums paid by the
Obligors or Recoveries with respect to the Pledged Receivable, as provided in
paragraph (c) of this Section 8.4.
( In connection with any Force-Placed Insurance obtained hereunder,
the Servicer may, in the manner and to the extent permitted by applicable
law, require the Obligors to repay the entire premium to the Servicer. In no
event shall the Servicer include the amount of the premium in the Amount
Financed under the Receivable. For all purposes of this Agreement, the
Insurance Add-On Amount with respect to any Receivable having Force-Placed
Insurance will be treated as a separate obligation of the Obligor and will
not be added to the Principal Balance of such Receivable, and amounts
allocable thereto will not be available in respect of the Obligations. The
Servicer shall retain and separately administer the right to receive payments
from Obligors with respect to Insurance Add-On Amounts or rebates of
Force-Placed Insurance premiums. If an Obligor makes a payment with respect
to a Receivable having Force-Placed Insurance, but the Servicer is unable to
determine whether the payment is allocable to the Receivable or to the
Insurance Add-On Amount, the payment shall be applied first to any unpaid
Scheduled Payments and then to the Insurance Add-On Amount. Recoveries on
any Receivable will be used first to pay the Principal Balance and accrued
interest on such Receivable and then to pay the related Insurance Add-On
Amount. If an Obligor under a Receivable with respect to which the Servicer
has placed Force-Placed Insurance fails to make scheduled payments of such
Insurance Add-On Amount as due, and the Servicer has determined that eventual
payment of the Insurance Add-On Amount is unlikely, the Servicer may, but
shall not be required to, purchase such Receivable from the Borrower for the
Purchase Amount on any subsequent Distribution Date. Any such Receivable,
and any Receivable with respect to which the Servicer has placed Force-Placed
Insurance which has been paid in full (excluding any Insurance Add-On
Amounts) will be assigned to the Servicer.
( The Servicer may sue to enforce or collect upon the Insurance
Policies, in its own name, if possible, or as agent of the Borrower. If the
Servicer elects to commence a legal proceeding to enforce an Insurance
Policy, the act of commencement shall be deemed to be an automatic assignment
of the rights of the Borrower under such Insurance Policy to the Servicer for
purposes of collection only. If, however, in any enforcement suit or legal
proceeding it is held that the Servicer may not enforce an Insurance Policy
on the grounds that it is not a real party in interest or a holder entitled
to enforce the Insurance Policy, the Collateral Agent, on behalf of the
Borrower, at the Servicer's expense, or the Borrower, at the Borrower's
expense, shall take such steps as the Servicer deems reasonably necessary to
enforce such Insurance Policy, including bringing suit in its name or the
name of the Collateral Agent for the benefit of the Collateral Agent. The
Servicer shall deposit the proceeds of any Insurance Policies in the
Collection Account as soon as practicable (but in no event more than two
Business Days) after receipt thereof.
( The Servicer shall maintain a vendor's single interest or other
collateral protection insurance policy with respect to all Financed Vehicles,
which policy shall by its terms insure against physical damage in the event
any Obligor fails to maintain physical loss and damage insurance with respect
to the related Financed Vehicle. Costs incurred by the Servicer in
maintaining such insurance shall be paid by the Servicer. The Servicer will
cause itself to be named as named insured and the Collateral Agent to be
named a loss payee under all such policies. The Servicer may, with the
consent of the Agent, elect not to maintain such insurance policy but in such
event will be obligated to indemnify the Investors against any losses arising
from an Obligor's failure to maintain physical loss and damage insurance with
respect to the related Financed Vehicle.
SECTION 8.5 MAINTENANCE OF SECURITY INTERESTS IN FINANCED VEHICLES.
Consistent with its obligations under this Agreement,
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the Servicer shall take such steps as are necessary to maintain perfection of
the security interest created by each Pledged Receivable in the related
Financed Vehicle on behalf of the Borrower and the Collateral Agent, for the
benefit of the Investors, including but not limited to obtaining the
execution by the Obligors and the recording, registering, filing,
re-recording, re-filing, and re-registering of all security agreements,
financing statements and continuation statements as are necessary to maintain
the security interest granted by the Obligors under the respective Pledged
Receivables. The Borrower, the Collateral Agent and the Investors each
hereby authorize the Servicer, and the Servicer agrees, to take any and all
steps necessary to re-perfect such security interest on behalf of the
Borrower and the Collateral Agent, for the benefit of the Investors as
necessary because of the relocation of a Financed Vehicle or for any other
reason. In the event that the assignment of a Pledged Receivable to the
Borrower and the pledge thereof to the Collateral Agent for the benefit of
the Investors, and the filing of Uniform Commercial Code financing statements
all as provided herein, is insufficient, without a notation on the related
Financed Vehicle's certificate of title, or without fulfilling any additional
administrative requirements under the laws of the state in which the Financed
Vehicle is located, to perfect a security interest in the related Financed
Vehicle in favor of the Borrower, and the pledge thereof to the Collateral
Agent, for the benefit of the Investors, the parties hereto agree that
Arcadia's designation as the secured party on the certificate of title is,
with respect to each secured party, as applicable, in its capacity as agent
of the Borrower and the Collateral Agent.
SECTION 8.6 COVENANTS, REPRESENTATIONS AND WARRANTIES OF SERVICER. The
Servicer hereby makes the following representations, warranties and covenants
to the other parties hereto on which the Lenders shall rely in making the
Advances:
( The Servicer covenants to the Borrower, the Agent and the Investors
as follows:
( LIENS IN FORCE. The Financed Vehicle securing each Pledged
Receivable shall not be released in whole or in part from the security
interest granted by such Receivable, except upon payment in full of such
Pledged Receivable or as otherwise contemplated herein;
( NO IMPAIRMENT. The Servicer shall do nothing to impair the
rights of the Borrower or the Collateral Agent in the Pledged Receivables,
the Dealer Agreements, the Dealer Assignments or the Insurance Policies;
( NO AMENDMENTS. The Servicer shall not extend or otherwise amend
the terms of any Pledged Receivable, except in accordance with SECTION 8.2;
( SERVICING OF RECEIVABLES. The Servicer shall service the
Pledged Receivables as required by the terms of this Agreement and in
material compliance with the current Servicing Procedures Manual for
servicing all its other comparable motor vehicle receivables and the Servicer
shall not change the manner in which it services the Receivables in any way
that can have a material adverse effect on the Pledged Receivables;
( COMPLIANCE WITH LAWS. The Servicer shall comply in all material
respects with the laws of each state in which a Pledged Receivable is
located, including, without limitation, all federal and state laws regarding
the collection and enforcement of consumer debt;
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( NOTICE OF RELOCATION. The Servicer shall give the Agent at
least 60 days prior written notice of any relocation of its principal
executive office if, as a result of such relocation, the applicable
provisions of the UCC would require the filing of any amendment of any
previously filed financing or continuation statement or of any new financing
statement. The Servicer shall at all times maintain each office from which
it services the Collateral and its principal executive office within the
United States of America;
( MAINTENANCE OF COMPUTER SYSTEMS, ETC. The Servicer shall
maintain its computer systems so that, from and after the time of the first
Advance under this Agreement, the Servicer's master computer records
(including archives) that shall refer to the Collateral indicate clearly that
such Collateral is subject to a first priority security interest in favor of
the Collateral Agent, for the benefit of the Investors. Indication of the
Collateral Agent's security interest shall be deleted from or modified on the
Servicer's computer systems when, and only when, the Collateral in question
shall have been paid in full or sold by the Borrower in accordance herewith;
and
( OTHER SALES, GRANTS OR TRANSFERS. If at any time the Servicer
shall propose to sell, grant a security interest in, or otherwise transfer
any interest in motor vehicle receivables to any prospective purchaser,
lender or other transferee, the Servicer shall give to such prospective
purchaser, lender, or other transferee computer tapes, records, or print-outs
(including any restored from archives) that, if they shall refer in any
manner whatsoever to any Collateral, shall indicate clearly that such
Collateral is subject to a first priority security interest in favor of the
Collateral Agent.
( The Servicer represents and warrants to the Borrower, the Agent and
the Investors, as of the Closing Date as to itself that:
( ORGANIZATION AND GOOD STANDING. The Servicer has been duly
organized and is validly existing and in good standing under the laws of the
State of Minnesota, with power, authority and legal right to own its
properties and to conduct its business as such properties are currently owned
and such business is currently conducted, and had at all relevant times, and
now has, power, authority and legal right to enter into and perform its
obligations under this Agreement;
( DUE QUALIFICATION. The Servicer is duly qualified to do
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals, in all jurisdictions where the failure to
do so would have a material adverse effect on its ability to perform its
obligations hereunder or under any other Transaction Document;
( POWER AND AUTHORITY. The Servicer has the power and authority
to execute and deliver this Agreement and the Transaction Documents to which
it is a party and to carry out its terms and their terms, respectively, and
the execution, delivery and performance of this
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Agreement and the Transaction Documents to which it is a party have been duly
authorized by the Servicer by all necessary corporate action;
( BINDING OBLIGATION. This Agreement and the Transaction
Documents to which it is a party shall constitute legal, valid and binding
obligations of the Servicer enforceable in accordance with their respective
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity.
( NO VIOLATION. The consummation of the transactions contemplated
by this Agreement and the Transaction Documents, and the fulfillment of the
terms of this Agreement and the Transaction Documents shall not conflict
with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under, the
certificate of incorporation or bylaws of the Servicer, or any indenture,
agreement, mortgage, deed of trust or other instrument to which the Servicer
is a party or by which it is bound or any of its properties are subject, or
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement, mortgage, deed of
trust or other instrument, other than this Agreement, or violate any law,
order, rule or regulation applicable to the Servicer of any court or of any
federal or state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Servicer or any of its
properties, or in any way materially adversely affect the interest of the
Borrower or the Investors in any Pledged Receivable, or affect the Servicer's
ability to perform its obligations under this Agreement;
( NO PROCEEDINGS. There are no proceedings or investigations
pending or, to the Servicer's knowledge, threatened against the Servicer,
before any court, regulatory body, administrative agency or other tribunal or
governmental instrumentality having jurisdiction over the Servicer or its
properties (A) asserting the invalidity of this Agreement or any of the
Transaction Documents, (B) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or any of the Transaction
Documents, (C) seeking any determination or ruling that might materially and
adversely affect the performance by the Servicer of its obligations under, or
the validity or enforceability of, this Agreement or any of the Transaction
Documents, or (D) that could have a material adverse effect on the Pledged
Receivables;
( APPROVALS. All approvals, authorizations, consents, orders or
other actions of any person, corporation or other organization, or of any
court, governmental agency or body or official, required in connection with
the execution and delivery by the Servicer of this Agreement and the
consummation of the transactions contemplated hereby have been or will be
taken or obtained on or prior to the Closing Date;
( NO CONSENTS. The Servicer is not required to obtain the consent
of any other party or any consent, license, approval or authorization, or
registration or declaration with, any governmental authority, bureau or
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agency in connection with the execution, delivery, performance, validity or
enforceability of this Agreement; and
( CHIEF EXECUTIVE OFFICE. The chief executive office of Arcadia
is located at 7825 Washington Avenue South, Suite 500, Minneapolis, MN
55439-2444.
SECTION 8.7 PURCHASE OF RECEIVABLES UPON BREACH OF COVENANT OR
REPRESENTATION AND WARRANTY. The Borrower or the Servicer, as the case may
be, shall inform the other parties to this Agreement promptly, in writing,
upon the discovery of any breach of the Servicer's representations and
warranties and covenants pursuant to SECTION 8.5 or 8.6(A); PROVIDED,
HOWEVER, that the failure to give any such notice shall not derogate from any
obligation of the Servicer hereunder to repurchase any Pledged Receivable;
PROVIDED, FURTHER that, the Backup Servicer shall have no duty to inquire
into or to investigate the breach of any such representations and warranties
and covenants. Unless the breach shall have been cured by the last day of
the first full calendar month following the discovery by or notice to the
Servicer of the breach, the Servicer shall have an obligation, and the
Borrower and the Agent shall (PROVIDED that it either has made such discovery
or has received such notice thereof) enforce such obligation of the Servicer,
to repurchase any Pledged Receivable materially and adversely affected by the
breach. The Borrower shall notify the Agent promptly, in writing, of any
failure by the Servicer to so repurchase any Pledged Receivable. In
consideration of the purchase of the Pledged Receivable, the Servicer shall
remit the Purchase Amount to the Collection Account on the date of such
repurchase.
SECTION 8.8 TOTAL SERVICING FEE; PAYMENT OF CERTAIN EXPENSES BY SERVICER.
( Subject to, and in accordance with, the provisions of the Collateral Agent
Agreement, on each Distribution Date, the Servicer shall be entitled to
receive out of the Collection Account the Servicing Fee for the related
Settlement Period.
( The Servicer shall be required to pay all expenses incurred by it in
connection with its activities under this Agreement (including taxes imposed
on the Servicer). The Servicer shall be liable for the fees and expenses of
the Backup Servicer, the Collateral Agent, the Lockbox Bank (and any fees
under the Lockbox Agreement) and the Independent Accountants.
SECTION 8.9 SERVICER'S CERTIFICATE. () No later than 10:00 a.m. New York
City time on each Determination Date, the Servicer shall deliver to the
Backup Servicer, the Collateral Agent, the Borrower and the Agent a
Servicer's Certificate executed by a Responsible Officer of the Servicer in
the form attached hereto as EXHIBIT C. Pledged Receivables purchased by the
Servicer or Arcadia and each Pledged Receivable which became a Liquidated
Receivable or which was paid in full during the related Settlement Period
shall be identified by account number (as set forth in the Schedule of
Receivables).
( In addition to the information required by SECTION 8.9(a), the
Servicer shall include in the copy of the Servicer's Certificate (i) whether
any Facility Termination Event or Unmatured Facility Termination Event has
occurred as of such Determination Date, and (ii) whether any Facility
Termination Event or Unmatured Facility Termination Event that may have
occurred as of a prior Determination Date is deemed cured as of such
Determination Date.
SECTION 8.10 ANNUAL STATEMENT AS TO COMPLIANCE; NOTICE OF SERVICER
TERMINATION EVENT. () The Servicer shall deliver to the Backup Servicer, the
Borrower and the Agent, on or before April 30 (or 120 days after the end of
the Servicer's fiscal year, if other than December 31) of each year,
beginning on the first April 30 (or other applicable date) next following the
date that is six months after the
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Closing Date, an Officer's Certificate, dated as of December 31 of such year,
stating that (i) a review of the activities of the Servicer during the
preceding 12-month period (or such other period as shall have elapsed from
the Closing Date to the date of the first such certificate) and of its
performance under this Agreement has been made under such officer's
supervision, and (ii) to such officer's knowledge, based on such review, the
Servicer has fulfilled all its obligations under this Agreement throughout
such period, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officer and the nature
and status thereof.
( The Borrower or the Servicer shall deliver to the Backup Servicer,
the Borrower and the Agent, promptly after having obtained knowledge thereof,
but in no event later than two Business Days thereafter, written notice in an
Officer's Certificate of any event which with the giving of notice or lapse
of time, or both, would become a Servicer Termination Event under SECTION
13.1.
SECTION 8.11 ANNUAL INDEPENDENT ACCOUNTANTS' REPORT. The Servicer shall
cause a firm of nationally recognized independent certified public
accountants (the "INDEPENDENT ACCOUNTANTS"), who may also render other
services to the Servicer or to Arcadia, to deliver to the Servicer, on or
before April 30 (or 120 days after the end of the Servicer's fiscal year, if
other than December 31) of each year, beginning on April 30, 1998, with
respect to the twelve months ended the immediately preceding December 31 (or
other applicable date) (or such other period as shall have elapsed from the
Closing Date to the date of such certificate), a statement (the "ACCOUNTANTS'
REPORT") addressed to the Servicer, to the effect that such firm has audited
the books and records of the Servicer and issued its report thereon and that:
(1) such audit was made in accordance with generally accepted auditing
standards, and accordingly included such tests of the accounting records and
such other auditing procedures as such firm considered necessary in the
circumstances; (2) the firm is independent of Arcadia and the Servicer within
the meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants; and (3) certain agreed upon procedures were
performed relating to three randomly selected Servicer's Certificates (which
procedures shall be submitted for approval to the Agent who so requests,
which approval shall not be unreasonably withheld). The Servicer shall
deliver a copy of the Accountants' Report, within 15 days of receipt, to the
Agent and the Backup Servicer. Such Accountant's Report shall state that it
is intended solely for the use of the Servicer and should not be used by
those who have not agreed to the procedures and taken responsibility for the
sufficiency of the procedures for their purposes.
SECTION 8.12 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
RECEIVABLES. The Servicer shall provide to representatives of the Backup
Servicer, the Collateral Agent, the Borrower and the Agent reasonable access
to the documentation, computer systems, records and other information
regarding the Pledged Receivables including, without limitation, copies of
the Dealer Underwriting Guidelines and the Servicing Procedures Manual.
Nothing in this SECTION 8.12 shall derogate from the obligation of the
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Obligors, and the failure of the Servicer to provide access as
provided in this SECTION 8.12 as a result of such obligation shall not
constitute a breach of this SECTION 8.12.
SECTION 8.13 MONTHLY TAPE. On or before the third Business Day, but in no
event later than the fifth calendar day, of each month, the Servicer will
deliver to the Backup Servicer the Monthly Tape containing the information
with respect to the Pledged Receivables as of the last day of the immediately
preceding calendar month necessary for preparation of the Servicer's
Certificate relating to the immediately succeeding Determination Date and
necessary to determine the application of collections as provided in the
Collateral Agent Agreement.
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In addition, the Servicer shall, if so requested by the Agent, deliver to
the Backup Servicer its Collection Records and its Monthly Records as soon as
practicable and in any event within ten Business Days of the occurrence of a
Servicer Termination Event or the occurrence of any event which, if uncured,
with lapse of time or notice or lapse of time and notice, would constitute a
Servicer Termination Event and a computer tape containing as of the close of
business on the date of demand all of the data maintained by the Servicer in
computer format in connection with servicing the Pledged Receivables.
Other than the duties specifically set forth in this Agreement, the
Backup Servicer shall have no obligations hereunder, including, without
limitation, to supervise, verify, monitor or administer the performance of
the Servicer. The Backup Servicer shall have no liability for any actions
taken or omitted by the Servicer. The duties and obligations of the Backup
Servicer shall be determined solely by the express provisions of this
Agreement and no implied covenants or obligations shall be read into this
Agreement against the Backup Servicer.
SECTION 8.14 INSURANCE. The Servicer shall maintain customary amounts of
insurance coverage, including, without limitation, commercial crime coverage,
employee dishonesty coverage, commercial auto coverage, valuable papers and
records coverage, coverage for fire, theft, workers compensation, public
liability, property damage and errors and omissions coverage. The Servicer
shall be entitled to self-insure with respect to such insurance so long as
the long-term unsecured debt obligations of the Servicer are rated in the
second highest long-term debt category by each of the Rating Agencies.
SECTION 8.15 ACCOUNTS. () The Servicer shall establish the Collection
Account in the name of the Collateral Agent for the benefit of the Investors.
The Collection Account shall be an Eligible Account and initially shall be a
segregated trust account established and maintained with the Collateral Agent.
() The Servicer shall establish the Reserve Account in the name of the
Collateral Agent for the benefit of the Investors. The Reserve Account shall
be an Eligible Account and initially shall be a segregated trust account
established and maintained with the Collateral Agent.
SECTION 8.16 SERVICER REIMBURSEMENT FROM COLLECTIONS. The Servicer will be
entitled to be reimbursed from amounts on deposit in the Collection Account
with respect to a Settlement Period for amounts previously deposited in the
Collection Account but later determined by the Servicer to have resulted from
mistaken deposits or postings or checks returned for insufficient funds. The
amount to be reimbursed hereunder shall be paid to the Servicer on the
related Distribution Date upon certification by the Servicer of such amounts
and the provision of such information to the Collateral Agent and the Agent
as may be necessary in the opinion of the Agent to verify the accuracy of
such certification. In the event that the Agent has not received evidence
satisfactory to it of the Servicer's entitlement to reimbursement pursuant to
this SECTION 8.16, the Agent shall give the Collateral Agent written notice
to such effect, following receipt of which the Collateral Agent shall not
make a distribution to the Servicer in respect of such amount, or if the
Servicer prior thereto has been reimbursed, the Collateral Agent shall
withhold such amounts from amounts otherwise distributable to the Servicer on
the next succeeding Distribution Date.
SECTION 8.17 APPLICATION OF COLLECTIONS. For the purposes of this
Agreement, all collections in respect of a Receivable shall be applied by the
Servicer in accordance with the terms of such Receivable.
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ARTICLE IX
GRANT OF SECURITY INTERESTS
SECTION 9.1 BORROWER'S GRANT OF SECURITY INTEREST. As security for the
prompt payment or performance in full when due, whether at stated maturity,
by acceleration or otherwise, of all Obligations, the Borrower hereby assigns
and pledges to the Collateral Agent, for the benefit of the Investors, and
grants to the Collateral Agent, for the benefit of the Investors, a security
interest in and lien upon all of the Borrower's right, title and interest
(but none of the obligations) in and to the following, in each case whether
now or hereafter existing or in which Borrower now has or hereafter acquires
an interest and wherever the same may be located (collectively, the "BORROWER
COLLATERAL"):
() all Collateral;
() the Purchase Agreement, each Dealer Agreement, the Lockbox Agreement
and all other Transaction Documents now or hereafter in effect relating to
the purchase, servicing or processing of Pledged Receivables (collectively,
the "BORROWER ASSIGNED AGREEMENTS"), including (i) all rights of the Borrower
to receive moneys due and to become due under or pursuant to the Borrower
Assigned Agreements, (ii) all rights of the Borrower to receive proceeds of
any insurance, indemnity, warranty or guaranty with respect to the Borrower
Assigned Agreements, (iii) the Borrower's right of foreclosure as lienholder
of the vehicles underlying the Pledged Receivables, (iv) claims of the
Borrower for damages arising out of or for breach of or default under the
Borrower Assigned Agreements, and (v) the right of the Borrower to amend,
waive or terminate the Borrower Assigned Agreements, to perform under the
Borrower Assigned Agreements and to compel performance and otherwise exercise
all remedies and rights under the Borrower Assigned Agreements; PROVIDED,
that to the extent any of the Borrower Assigned Agreements applies to the
Pledged Receivables as well as other receivables originated and/or serviced
by Arcadia, the security interest granted under this SECTION 9.1 shall attach
only to the extent such Borrower Assigned Agreements relate to the Pledged
Receivables;
() all of the following (the "BORROWER ACCOUNT COLLATERAL"):
() the Lockbox Account and all funds held in the Lockbox Account
and all certificates and instruments, if any, from time to time
representing or evidencing the Lockbox Account or such funds,
() the Collection Account, all funds held in the Collection
Account, and all certificates and instruments, if any, from time
to time representing or evidencing the Collection Account or
such funds,
() all investments from time to time of amounts in the Collection
Account, and all certificates and instruments, if any, from time
to time representing or evidencing such investments,
() the Reserve Account, all funds held in the Reserve Account, and
all certificates and instruments, if any, from time to time
representing or evidencing the Reserve Account or such funds,
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() all investments from time to time of amounts in the Reserve
Account, and all certificates and instruments, if any, from time
to time representing or evidencing such investments,
() all notes, certificates of deposit and other instruments from
time to time delivered to or otherwise possessed by the
Collateral Agent in substitution for or in addition to any of
the then existing Borrower Account Collateral, and
() all interest, dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed
in respect of or in exchange for any and all of the then
existing Borrower Account Collateral;
() all additional property that may from time to time hereafter be
granted and pledged by the Borrower or by anyone on its behalf under this
Agreement, including the deposit with the Collateral Agent or the Agent of
additional moneys by the Borrower; and
() all proceeds, accessions, substitutions, rents and profits of any
and all of the foregoing Borrower Collateral (including proceeds that
constitute property of the types described in SECTIONS 9.1(a) through (d)
above) and, to the extent not otherwise included, all payments under
insurance (whether or not the Collateral Agent is the loss payee thereof) or
any indemnity, warranty or guaranty payable by reason of loss or damage to or
otherwise with respect to any of the foregoing Borrower Collateral.
SECTION 9.2 DELIVERY OF COLLATERAL. All documents in the Receivables File
shall be delivered to and held by or on behalf of the Custodian pursuant to
SECTION 14.4, and shall be in suitable form for transfer by delivery, all in
form and substance satisfactory to the Custodian.
SECTION 9.3 BORROWER REMAINS LIABLE. Notwithstanding anything in this
Agreement, (a) except to the extent of the Servicer's duties hereunder, the
Borrower shall remain liable under the Pledged Receivables, Borrower Assigned
Agreements and other agreements included in the Borrower Collateral to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by the Agent or the
Collateral Agent of any of its rights under this Agreement shall not release
the Borrower from any of its duties or obligations under the Pledged
Receivables, Borrower Assigned Agreements or other agreements included in the
Collateral, or the Servicer from any of its duties hereunder, (c) the Agent,
the Investors and the Collateral Agent shall not have any obligation or
liability under the Pledged Receivables, Borrower Assigned Agreements or
other agreements included in the Collateral by reason of this Agreement, and
(d) neither the Agent, the Collateral Agent nor the Investors shall be
obligated to perform any of the obligations or duties of the Borrower or the
Servicer under the Pledged Receivables, Borrower Assigned Agreements or other
agreements included in the Collateral or of the Servicer hereunder, or to
take any action to collect or enforce any claim for payment assigned under
this Agreement.
SECTION 9.4 COVENANTS OF THE BORROWER AND SERVICER REGARDING THE COLLATERAL.
(1) OFFICES AND RECORDS. The Borrower shall keep its chief place of
business and chief executive offices and the office where it keeps its
records at the location specified in SECTION 10.9 or, upon 60 days prior
written notice to the Agent and the Collateral Agent, at such
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other location in a jurisdiction where all action required by SECTION 9.4(e)
shall have been taken with respect to the Collateral. The Borrower and the
Servicer will permit representatives of the Agent, the Backup Servicer and
the Collateral Agent (and following the occurrence of a Facility Termination
Event, the Investors) at any time and from time to time during normal
business hours, and at such times outside of normal business hours as the
Agent, the Backup Servicer, the Collateral Agent and the Investors shall
reasonably request, (i) to inspect and make copies of and abstracts from such
records, and (ii) to visit the properties of the Borrower or the Servicer
utilized in connection with the collection, processing or servicing of the
Pledged Receivables for the purpose of examining such records, and to discuss
matters relating to the Receivables or the Borrower's or Servicer's
performance under this Agreement with any officer or employee of the Borrower
or Servicer having knowledge of such matters. In connection therewith, the
Agent, the Backup Servicer or the Collateral Agent may institute procedures
to permit it to confirm the Obligor balances in respect of any Pledged
Receivables. Each of the Borrower and the Servicer agrees to render to the
Agent, the Backup Servicer and the Collateral Agent such clerical and other
assistance as may be reasonably requested with regard to the foregoing.
Without duplication of any obligations of the Servicer set forth in clause
(b) below, if a Facility Termination Event shall have occurred and be
continuing, promptly upon request therefor, the Borrower or the Servicer
shall deliver to the Collateral Agent and the Backup Servicer records
reflecting activity through the close of business on the immediately
preceding Business Day.
(2) MAINTAIN RECORDS OF PLEDGED RECEIVABLES. The Servicer shall
maintain accounts and records as to each Receivable accurately and in
sufficient detail to permit (i) the reader thereof to know at any time the
status of such Receivable, including payments and recoveries made and
payments owing (and the nature of each) and (ii) reconciliation between
payments or recoveries on (or with respect to) each Receivable and the
amounts from time to time deposited in the Collection Account in respect of
such Receivable. The Servicer shall maintain its computer systems so that,
from and after the time of sale under the Purchase Agreement and pledge
hereunder, the Servicer's master computer records (including any backup
archives) that refer to any Pledged Receivable indicate clearly the
assignment and security interest granted by this Article IX. Indication of
the Collateral Agent's interest in a Pledged Receivable shall be deleted from
or modified on the Servicer's computer systems when, and only when, such
Receivable has been paid in full or repurchased by Arcadia or the Servicer.
Upon the occurrence and during the continuation of a Facility Termination
Event, the Borrower and Servicer shall (i) deliver and turn over to the
Backup Servicer or to its representatives, or at the option of the Backup
Servicer, shall provide the Backup Servicer or its representatives with
access to, after the occurrence of a Facility Termination Event, at any time,
and during all other times, during ordinary business hours, on demand of the
Backup Servicer, all of the Borrower's and Servicer's facilities, personnel,
books and records pertaining to the Collateral, including all records, and
(ii) allow the Backup Servicer to occupy the premises of the Borrower and the
Servicer where such books and records are maintained, and utilize such
premises, the equipment thereon and any personnel of the Borrower or the
Servicer that the Backup Servicer may wish to employ to administer, service
and collect the Pledged Receivables. The Backup Servicer will reimburse
Arcadia for the cost of the ue of the portion of such premises, equipment and
personnel used by the Backup Servicer.
(3) PERFORMANCE OF BORROWER ASSIGNED AGREEMENTS. The Borrower shall
(i) perform and observe all the terms and provisions of the Borrower Assigned
Agreements to be performed or observed by it, maintain the Borrower Assigned
Agreements in full force and effect, enforce the Borrower Assigned Agreements
in accordance with their terms and take all such action to such end as may be
from time to time requested by the Agent, and (ii) upon request of the Agent,
make to any other party to the Borrower Assigned Agreements such demands and
requests for information and reports or for action as the Borrower is
entitled to make under the Borrower Assigned Agreements.
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(4) NOTICE OF ADVERSE CLAIM. Each of the Borrower and the Servicer
shall advise the Agent and the Collateral Agent promptly, in reasonable
detail, (i) of any Adverse Claim known to it made or asserted against any of
the Borrower Collateral, and (ii) of the occurrence of any event which would
have a material adverse effect on the aggregate value of the Borrower
Collateral or on the assignments and security interests granted by the
Borrower in this Agreement.
(5) FURTHER ASSURANCES; FINANCING STATEMENTS. () Each of the Borrower
and the Servicer severally agrees that at any time and from time to time, at
its expense, it shall promptly execute and deliver all further instruments
and documents, and take all reasonable further action, that may be necessary
or desirable or that the Collateral Agent or the Agent may reasonably request
to perfect and protect the assignments and security interests granted or
purported to be granted by this ARTICLE IX or to enable the Agent or the
Collateral Agent to exercise and enforce its rights and remedies under this
Agreement or the Collateral Agent Agreement with respect to any Collateral.
Without limiting the generality of the foregoing, the Borrower shall execute
and file such financing or continuation statements, or amendments thereto,
and such other instruments or notices as may be necessary or desirable or
that the Collateral Agent or the Agent may reasonably request to protect and
preserve the assignments and security interests granted by this Agreement.
() The Borrower, the Agent and each Investor hereby severally
authorize the Collateral Agent to execute for filing one or more
financing or continuation statements, and amendments thereto,
relating to all or any part of the Collateral without the
signature of the Borrower or the Investors where permitted by
law. A carbon, photographic or other reproduction of this
Agreement or any financing statement covering the Collateral or
any part thereof shall be sufficient as a financing statement
where permitted by law. The Agent will promptly send to the
Borrower any financing or continuation statements thereto which
it files without the signature of the Borrower and will promptly
send to each Investor and the Borrower any financing or
continuation statements thereto which it files without the
signature of the Investors except, in the case of filings of
copies of this Agreement as financing statements, the Agent will
promptly send the Borrower and each Investor, as the case may
be, the filing or recordation information with respect thereto.
() Each of the Borrower and the Servicer shall furnish to the
Collateral Agent from time to time such statements and schedules
further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Collateral
Agent or the Agent may reasonably request, all in reasonable
detail.
SECTION 9.5 RELEASE OF BORROWER COLLATERAL.
(1) GENERALLY. For purposes of selling and transferring Receivables
to third parties in connection with securitizations (including any Take-Out
Securitization), to the extent that (immediately after giving effect to any
requested release) there exists no Borrowing Base Deficiency and there is no
Facility Termination Event or, in connection with the purchase by the
Servicer of a Receivable pursuant to SECTION 8.7 or by Arcadia under the
Purchase Agreement, the Borrower may obtain releases of the Collateral
Agent's (for the benefit of the Investors) security interest in all or any
part of the Borrower Collateral. Each request (a "TRANSFER REQUEST") for a
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partial release of Collateral, except in connection with the repurchase by
the Servicer of a Receivable pursuant to SECTION 8.7 or by Arcadia under the
Purchase Agreement, shall be addressed to the Agent (with a copy thereof sent
by the Borrower or the Servicer to the Collateral Agent), demonstrating
compliance with the immediately preceding sentence and acknowledging that the
receipt of proceeds from such sale or transfer shall be deposited into the
Collection Account.
(2) CONTINUATION OF LIEN. Unless released in writing by the
Collateral Agent, as herein provided, the security interest in favor of the
Collateral Agent, for the benefit of the Investors, in all Borrower
Collateral shall continue in effect until such time as the Collateral Agent
shall have received payment in full of the proceeds from the sale or transfer
of such Borrower Collateral to third parties in accordance with this SECTION
9.5.
(3) APPLICATION OF PROCEEDS; NO DUTY. Neither of the Agent, nor the
Collateral Agent, nor any Investor shall be under any duty at any time to
credit Borrower for any amount due from any third party in respect of any
purchase of any Borrower Collateral contemplated above, until the Collateral
Agent has actually received such amount in immediately available funds for
deposit to the Collection Account. Neither the Collateral Agent nor any
Investor, nor the Agent shall be under any duty at any time to collect any
amounts or otherwise enforce any obligations due from any third party in
respect of any such purchase of Receivables covered by the release of such
portion of Borrower Collateral or in respect of a securitization thereof with
a third party.
(4) REPRESENTATION IN CONNECTION WITH RELEASES, SALES AND TRANSFERS.
The Borrower represents and warrants that each request for any release or
transfer in connection with other securitizations pursuant to SECTION 9.5(a)
shall automatically constitute a representation and warranty to the
Investors, the Agent and the Collateral Agent to the effect that immediately
before and after giving effect to such release or Transfer Request, there is
no Facility Termination Event.
(5) RELEASE OF SECURITY INTEREST. Upon receipt of a Transfer Request
or, in connection with the purchase by the Servicer of a Receivable pursuant
to SECTION 8.7 or by Arcadia under the Purchase Agreement, upon the
Servicer's written request, and, in each case upon receipt in the Collection
Account of proceeds from the sale or transfer, the Collateral Agent shall
promptly release, at the Borrower's expense, such part of Borrower Collateral
as is required in connection with the Transfer Request or such Servicer's
request; PROVIDED that the trustee or such similar entity in connection with
the third party securitization (including any Take-Out Securitization) or the
Servicer, as the case may be, acknowledges and agrees (i) that all proceeds
thereof that it receives are held in trust for the Investors and (ii) at such
time that the Agent shall instruct such trustee to transfer such proceeds,
the trustee shall transfer such funds pursuant to such instructions.
ARTICLE X
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
In order to induce the other parties hereto to enter into this Agreement
and, in the case of the Lenders, to make Advances hereunder, the Borrower
hereby represents and warrants to the Agent and the Investors as to itself,
as of the Closing Date and the date of each Advance, as follows:
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SECTION 10.1 ORGANIZATION AND GOOD STANDING. The Borrower has been duly
organized and is validly existing as a corporation in good standing under the
laws of the State of Delaware, with power and authority to own its properties
and to conduct its business as such properties are currently owned and such
business is currently conducted. The Borrower had at all relevant times and
now has, power, authority and legal right to acquire and own the Pledged
Receivables and the Other Conveyed Property, to grant to the Collateral Agent
a security interest in the Pledged Receivables and the Other Conveyed
Property and to enter into and perform its obligations under this Agreement.
SECTION 10.2 DUE QUALIFICATION. The Borrower is duly qualified to do
business as a foreign entity in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the ownership or lease
of its property or the conduct of its business requires such qualification.
SECTION 10.3 POWER AND AUTHORITY. The Borrower has the power and authority
to execute and deliver this Agreement and the other Transaction Documents to
which it is a party and to carry out its terms and their terms; the Borrower
has full power and authority to grant to the Collateral Agent, for the
benefit of the Investors, a perfected first priority security interest in the
Pledged Receivables and the Other Conveyed Property and has duly authorized
such grant by all necessary corporate action and the execution, delivery and
performance of this Agreement and the other Transaction Documents to which it
is a party have been duly authorized by the Borrower by all necessary
corporate action.
SECTION 10.4 SECURITY INTEREST; BINDING OBLIGATIONS. This Agreement and the
Transaction Documents to which it is a party have been duly executed and
delivered and shall create a valid first priority security interest (except,
as to priority, for any tax liens that may arise after the Closing Date) in
the Pledged Receivables and the Other Conveyed Property in favor of the
Collateral Agent, enforceable against the Borrower and creditors of and
purchasers from the Borrower, and this Agreement and the other Transaction
Documents to which it is a party shall constitute legal, valid and binding
obligations of the Borrower enforceable in accordance with their respective
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by equitable limitations on the availability of specific
remedies, regardless of whether such enforceability is considered in a
proceeding in equity or at law.
SECTION 10.5 NO VIOLATION. The consummation of the transactions
contemplated by this Agreement and the other Transaction Documents to which
it is a party, and the fulfillment of the terms of this Agreement and the
other Transaction Documents to which it is a party, shall not conflict with,
result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time) a default under, the articles of
incorporation of the Borrower or any indenture, agreement, mortgage, deed of
trust or other instrument to which the Borrower is a party or by which it is
bound or any of its properties are subject, or result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms of
any such indenture, agreement, mortgage, deed of trust or other instrument,
other than this Agreement, or violate any law, order, rule or regulation
applicable to the Borrower of any court or of any federal or state regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over the Borrower or any of their properties, or in any way
adversely affect the Borrower's ability to perform its obligations under this
Agreement or the other Transaction Documents to which it is a party.
SECTION 10.6 NO PROCEEDINGS. There are no proceedings or investigations
pending or, to the Borrower's knowledge, threatened against the Borrower,
before any court, regulatory body, administrative agency or other tribunal or
governmental instrumentality
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having jurisdiction over the Borrower or its properties (a) asserting the
invalidity of this Agreement or any of the other Transaction Documents, (b)
seeking to prevent the consummation of any of the transactions contemplated
by this Agreement or any of the other Transaction Documents, (c) seeking any
determination or ruling that might materially and adversely affect the
performance by the Borrower of its obligations under, or the validity or
enforceability of, this Agreement or any of the other Transaction Documents
or (d) that could have a material adverse effect on the Pledged Receivables.
SECTION 10.7 NO CONSENTS. The Borrower is not required to obtain the
consent of any other party or any consent, license, approval or
authorization, or registration or declaration with, any governmental
authority, bureau or agency in connection with the execution, delivery,
performance, validity or enforceability of this Agreement or the other
Transaction Documents to which it is a party.
SECTION 10.8 APPROVALS. All approvals, authorizations, orders or other
actions of any person, corporation or other organization, or of any court,
governmental agency or body or official, required in connection with the
execution and delivery by the Borrower of this Agreement and the other
Transaction Documents and the consummation of the transactions contemplated
hereby have been or will be taken or obtained on or prior to the Closing Date.
SECTION 10.9 CHIEF EXECUTIVE OFFICE. The chief executive office of the
Borrower is located at 7825 Washington Avenue South, Suite 975, Minneapolis,
MN 55439-2444.
SECTION 10.10 SOLVENCY. The Borrower is solvent and will not become
insolvent after giving effect to the transactions contemplated by this
Agreement and the Transaction Documents. The Borrower has no Indebtedness to
any Person other than pursuant to this Agreement and the other Transaction
Documents. The Borrower, after giving effect to the transactions
contemplated by this Agreement and the other Transaction Documents, will have
an adequate amount of capital to conduct its business in the foreseeable
future.
SECTION 10.11 TAX TREATMENT. For federal income tax purposes, each Pledged
Receivable and the related Other Conveyed Property will be treated as owned
by Arcadia and its consolidated subsidiaries, including the Borrower. For
accounting purposes, the Borrower will treat the purchase or absolute
assignment of each Pledged Receivable and Other Conveyed Property pursuant to
the Purchase Agreement as a purchase or absolute assignment of Arcadia's full
right, title and ownership interest in such Pledged Receivable and Other
Conveyed Property (and those Pledged Receivables and Other Conveyed Property
contributed to the Borrower by Arcadia pursuant to the Purchase Agreement
shall be accounted for as an increase in the stated capital of the Borrower)
and the Borrower has not in any other manner accounted for or treated the
transfer to it of Pledged Receivables and Other Conveyed Property.
SECTION 10.12 COMPLIANCE WITH LAWS. The Borrower has complied and will
comply in all material respects with all applicable laws, rules, regulations,
judgments, agreements, decrees and orders with respect to its business and
properties and all Collateral.
SECTION 10.13 TAXES. The Borrower has filed on a timely basis all tax
returns (including, without limitation, foreign, federal, state, local and
otherwise) required to be filed, is not liable for taxes payable by any other
Person and has paid or made adequate provisions for the payment of all taxes,
assessments and other governmental charges due from the Borrower. No tax
lien or similar adverse claim has been filed, and no claim is being asserted,
with respect to any
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such tax, assessment or other governmental charge. Any taxes, fees and other
governmental charges payable by the Borrower in connection with the execution
and delivery of this Agreement and the other Transaction Documents and the
transactions contemplated hereby or thereby including the transfer of each
Pledged Receivable and Other Conveyed Property to the Borrower have been paid
or shall have been paid if and when due at or prior to the Closing Date and
the relevant Purchase Date, as the case may be.
SECTION 10.14 NO LIENS, ETC. The Collateral and each part thereof is owned
by the Borrower free and clear of any Adverse Claim or restrictions on
transferability and the Borrower has the full right, corporate power and
lawful authority to assign, transfer and pledge the same and interests
therein, and upon the making of each Advance, the Collateral Agent, for the
benefit of the Investors, will have acquired a perfected, first priority and
valid security interest (except, as to priority, for any tax lien that may
arise after the Closing Date) in such Collateral, free and clear of any
Adverse Claim or restrictions on transferability. No effective financing
statement or other instrument similar in effect covering all or any part of
the Collateral is on file in any recording office, except such as may have
been filed in favor of the Collateral Agent as "Secured Party" pursuant to
ARTICLE IX of this Agreement or, with respect to the Pledged Receivables
purchased by the Borrower from Arcadia, in favor of the Borrower pursuant to
the Purchase Agreement.
SECTION 10.15 PURCHASE AND SALE. Each Pledged Receivable and the related
Other Conveyed Property was purchased by the Borrower on the relevant
Purchase Date pursuant to the Purchase Agreement.
SECTION 10.16 SECURITIES ACT OF 1933; INVESTMENT COMPANY ACT OF 1940. Each
purchase of Pledged Receivables and Other Conveyed Property under the
Purchase Agreement will constitute a purchase or other acquisition of notes,
drafts, acceptances, open accounts receivable or other obligations
representing part or all of the sales price of merchandise, insurance or
services within the meaning of Section 3(c)(5) of the Investment Company Act
of 1940, as amended.
SECTION 10.17 INFORMATION TRUE AND CORRECT. All information heretofore or
hereafter furnished by or on behalf of the Borrower, the Servicer or Arcadia
in connection with this Agreement or any transaction contemplated hereby is
and will be true and complete in all material respects and does not and will
not omit to state a material fact necessary to make the statements contained
therein not misleading.
SECTION 10.18 ERISA COMPLIANCE. The Borrower is in compliance with ERISA and
has not incurred and does not expect to incur any liabilities (except for
premium payments arising in the ordinary course of business) to the Pension
Benefit Guaranty Corporation (or any successor thereto) under ERISA.
SECTION 10.19 INVESTMENT COMPANY STATUS. The Borrower is not an "investment
company" or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended.
SECTION 10.20 NO SHARED OBLIGATIONS. There is not now, nor will there be at
any time in the future, any agreement or understanding between Arcadia and
the Borrower (other than as expressly set forth herein) providing for the
allocation or sharing of obligations to make payments or otherwise in respect
of any taxes, fees, assessments or other governmental charges.
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SECTION 10.21 ELIGIBLE RECEIVABLES. Except as provided in the definition of
"Borrowing Base" in Article I hereof, all Receivables included in the
Borrowing Base are Eligible Receivables.
ARTICLE XI
COVENANTS OF THE BORROWER
From the date hereof until the first day, following the Facility
Termination Date, on which all Obligations shall have been finally and fully
paid and performed, the Borrower hereby covenants and agrees with the
Investors and the Agent as follows:
SECTION 11.1 PROTECTION OF SECURITY INTEREST OF THE INVESTORS. () The
Borrower shall not change its name, identity, or corporate structure in any
manner that would, could or might make any financing statement or
continuation statement filed by the Borrower (or by the Agent, or the
Collateral Agent on behalf of the Borrower) in accordance with paragraph (a)
above seriously misleading within the meaning of Section 9-402(7) of the UCC,
unless the Borrower shall have given the Agent and the Collateral Agent at
least 60 days prior written notice thereof, and shall promptly file
appropriate amendments to all previously filed financing statements and
continuation statements.
() The Borrower shall at all times maintain its principal executive
office within the United States of America.
() If at any time the Borrower shall propose to sell, grant a security
interest in, or otherwise transfer any interest in motor vehicle receivables
to any prospective purchaser, lender or other transferee, the Borrower shall
give to such prospective purchaser, lender, or other transferee computer
tapes, records, or print-outs (including any restored from archives) that, if
they shall refer in any manner whatsoever to any Collateral shall indicate
clearly that such Collateral is subject to a first priority security interest
in favor of the Collateral Agent for the benefit of the Investors.
SECTION 11.2 OTHER LIENS OR INTERESTS. Except for the security interest
granted hereunder, the Borrower will not sell, pledge, assign or transfer to
any other Person, or grant, create, incur, assume or suffer to exist any Lien
on the Collateral or any interest therein, and the Borrower shall defend the
right, title, and interest of the Collateral Agent (for the benefit of the
Investors), in and to the Collateral against all claims of third parties
claiming through or under the Borrower.
SECTION 11.3 COSTS AND EXPENSES. The Borrower shall pay all of its
reasonable costs and disbursements in connection with the performance of its
obligations hereunder and under the Transaction Documents.
SECTION 11.4 REPORTING REQUIREMENTS. The Borrower shall furnish, or cause
to be furnished, to the Agent and the Collateral Agent:
() on each Determination Date, a Servicer's Certificate;
() as soon as available and in any event within 90 days (or next
succeeding Business Day if the last day of such period is not a Business Day)
after the end of each fiscal year, a copy of the audited consolidated
financial statements for such year for Arcadia and its consolidated
Subsidiaries, certified, without qualification by independent public
accountants acceptable to the
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Agent and each other report or statement sent to shareholders or publicly
filed by Arcadia or the Borrower;
() as soon as available and in any event within 45 days (or next
succeeding Business Day if the last day of such period is not a Business Day)
after the end of each of the first three quarters of each fiscal year of
Arcadia, a consolidated balance sheet of Arcadia and its consolidated
Subsidiaries as of the end of such quarter and including the prior comparable
period, and consolidated statements of income and retained earnings, of
Arcadia and its consolidated Subsidiaries for such quarter and for the period
commencing at the end of the previous fiscal year and ending with the end of
such quarter, certified by the chief financial officer or chief accounting
officer of Arcadia identifying such documents as being the documents
described in this paragraph (c) and stating that the information set forth
therein fairly presents the financial condition of Arcadia and its
consolidated Subsidiaries as of and for the periods then ended, subject to
year-end adjustments consisting only of normal, recurring accruals and
confirming that Arcadia is in compliance with all financial covenants in this
Agreement;
() as soon as possible and in any event within five days after the
occurrence of a Facility Termination Event or an Unmatured Facility
Termination Event or any other event which would have a material adverse
effect on the Collateral or the collectibility thereof, the statement of the
chief executive officer of the Borrower setting forth complete details of any
such Facility Termination Event or Unmatured Facility Termination Event and
the action which the Borrower has taken, is taking and proposes to take with
respect thereto;
() promptly, from time to time, such other information, documents,
records or reports respecting the Pledged Receivables, the Other Conveyed
Property related thereto or the Financed Vehicles related thereto or the
condition or operations, financial or otherwise, of the Borrower, or Arcadia
or any of its Subsidiaries, as may, from time to time, be reasonably
requested.
SECTION 11.5 TAKE-OUT SECURITIZATION. The Borrower shall effect or cause
an Affiliate to effect a Take-Out Securitization which will result in the
prepayment of not less than 75% of the principal amount of all outstanding
Advances no more than six months after the Closing Date and thereafter no
more than six months after the immediately preceding Take-Out Securitization.
SECTION 11.6 CORPORATE SEPARATENESS.
() The Borrower shall at all times maintain at least one independent
director (an "INDEPENDENT DIRECTOR") who (i) is in fact independent, (ii)
does not have any direct financial interest or any material indirect
financial interest in the Borrower, or in any Affiliate of the Borrower,
(iii) is not, and has not been, connected with the Borrower or any Affiliate
of the Borrower as an officer, employee, promoter, underwriter, trustee,
partner or person performing similar functions and is not a member of the
immediate family of any such officer or employee and (iv) is not, and has not
been, a director (other than as an independent director for an Affiliate
which is a limited special purpose corporation) or stockholder of any
Affiliate of the Borrower and is not a member of the immediate family of any
such director or stockholder.
() The Borrower shall not direct or participate in the management of
any other Person's operations, and no other Person shall be permitted to
direct or participate in the management of the Borrower.
() The Borrower shall maintain a principal executive and administrative
office through which its business is conducted separately from those of any
other Person, and, to the extent that the Borrower and any other Persons have
offices in contiguous space, there shall be
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fair and appropriate allocation of overhead costs among them, and each such
entity shall bear its fair share of such expenses.
() The Borrower shall engage only in those transactions described
in Article III of its Certificate of Incorporation and matters necessarily
incident thereto.
() The Borrower shall have stationery and other business forms and
a mailing address separate from that of any other Person.
() The Borrower shall ensure that, to the extent that it jointly
contracts with any of its stockholders or Affiliates to do business with
vendors or service providers or to share overhead expenses, the costs
incurred in so doing shall be allocated fairly among such entities and that
each such entity shall bear its fair share of such costs and shall ensure
that, to the extent that the Borrower contracts or does business with vendors
or service providers where the goods and services provided are partially for
the benefit of any other Person, the costs incurred in so doing shall be
fairly allocated to or among such entities for whose benefit the goods and
services are provided and that each such entity shall bear its fair share of
such costs.
() The Borrower shall at all times be adequately capitalized in
light of its contemplated business.
() The Borrower shall at all times provide for its own operating
expenses and liabilities from its own funds, shall not allow its funds to be
diverted to any other Person or for other than the corporate use of the
Borrower, and shall not, except as may be expressly permitted by agreements
of the Borrower, allow its funds to be commingled with those of any Affiliate
of the Borrower; PROVIDED, that nothing in this subsection shall be construed
to prohibit the payment of dividends by the Borrower to its Affiliates to the
extent that such payment does not cause a Facility Termination Event or
Unmatured Facility Termination Event to occur.
() The Borrower shall maintain its assets and transactions
separately from those of any other Person, reflect such assets and
transactions in financial statements separate and distinct from those of any
other Person and evidence such assets and transactions by appropriate entries
in books and records separate and distinct from those of any other Person.
() The Borrower shall ensure that all material transactions
between the Borrower and any of its Affiliates shall be only on an
arm's-length basis and shall receive the approval of its board of directors,
including at least one Independent Director.
() The Borrower shall hold itself out to the public under its own
name as a legal entity separate and distinct from any other Person, shall act
solely in its own corporate name and through its own authorized officers and
agents, and no Affiliate of the Borrower shall be appointed to act as agent
by the Borrower, except as may be expressly permitted by any agreements of
the Borrower.
() The Borrower shall not hold itself out as having agreed to pay,
or as being liable, primarily or secondarily, for any obligations of any
other Person, except as may be expressly permitted in any agreements of the
Borrower.
() The Borrower shall not maintain any joint account with any other
Person or become liable as a guarantor or otherwise with respect to any debt
or contractual obligation of any other Person.
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() The Borrower shall not make any payment or distribution of
assets with respect to any obligation of any other Person or grant any lien,
security interest or encumbrance on any of its assets to secure any
obligation of any other Person.
() The Borrower shall not make loans, advances or otherwise extend
credit to any other Person, except on an arm's-length basis, and shall not
permit any Affiliate of the Borrower to advance funds to the Borrower or
otherwise supply funds to, or guaranty debts of, the Borrower except as
provided in the Purchase Agreement.
() The Borrower shall hold regular duly noticed meetings of its
board of directors, no less than once annually, and make and retain minutes
of such meetings.
() The Borrower shall ensure that decisions with respect to its
business and daily operations shall be independently made by the Borrower
(although the officer making any particular decision may also be an officer
or director of any Affiliate of the Borrower).
() The Borrower shall have bills of sale (or other similar
instruments of assignment) and, if appropriate, UCC-1 financing statements,
with respect to all assets purchased from any other Person.
() The Borrower shall file its own tax returns or, if it is a
member of a consolidated group, will join in the consolidated return of such
group as a separate member thereof and shall ensure that any financial
reports required of the Borrower shall comply with generally accepted
accounting principles and shall be issued separately from, but may be
consolidated with, any reports prepared for any of its Affiliates.
() The Borrower shall maintain its assets in such a manner that it
will not be costly or difficult to segregate, ascertain or identify its
individual assets from those of any other Person.
() The Borrower shall comply with all provisions of its
Certificate of Incorporation and By-Laws and shall observe all necessary,
appropriate and customary corporate formalities.
SECTION 11.7 INSPECTIONS. Until the latest of the Facility Termination Date
or the date on which no principal of or Yield on any Advance shall be
outstanding or the date all other amounts owed hereunder to the Investors or
the Agent are paid in full, each of the Borrower and Arcadia will, from time
to time during regular business hours as requested by the Agent, permit the
Agent and the Collateral Agent (and following the occurrence of a Facility
Termination Event, the Investors) or their agents or representatives, (i) to
examine and make copies of and abstracts from all books, records and
documents (including, without limitation, computer tapes and disks) in the
possession or under the control of the Borrower or Arcadia, as the case may
be, relating to Pledged Receivables and the Other Conveyed Property, (ii) to
visit the offices and properties of the Borrower or Arcadia, as the case may
be, for the purpose of examining such materials described in clause (i)
above, and to discuss matters relating to Pledged Receivables and the Other
Conveyed Property or the Borrower's or Arcadia's performance under the
Transaction Documents or under the Receivables with any of the officers or
employees of the Borrower or Arcadia, as the case may be, having knowledge of
such matters, and (iii) solely in the case of the Collateral Agent, and upon
the request of the Collateral Agent, conduct an audit of the Receivables, the
related Other Conveyed Property and the related books and records and
collection systems of the Servicer; PROVIDED that, unless a Facility
Termination Event or Unmatured Facility Termination Event has occurred, no
such audit shall require the Servicer to re-underwrite the
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Pledged Receivables or shall occur any more frequently than monthly.
Nothing in this SECTION 11.7(a) shall derogate from the obligation of the
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Obligors, and the failure of the Servicer to provide access as
provided in this SECTION 11.7(a) as a result of such obligation shall not
constitute a breach of this SECTION 11.7(a).
Not less than five Business Days following the first Advance
hereunder, not less than five Business Days following the first Advance made
after a Take-Out Securitization has occurred, and once during each calender
month following any such Advance during which Advances are outstanding, the
Collateral Agent shall conduct a physical inventory (which may be electronic
if so approved by the Agent) of the Receivables Files relating to the Pledged
Receivables, in order to determine that the Custodian is in possession of a
Receivable File for each Receivable listed in Schedule A to each Advance
Request, and to perform a limited review of at least fifty (50) of the
Receivable Files relating to the Pledged Receivables to determine that each
Receivable File so reviewed includes (i) a fully executed original retail
installment sales contract or promissory note and related security agreement,
(ii) a certificate of insurance, application form for insurance signed by the
Obligor or a signed representation letter from the Obligor named in the
Receivable File pursuant to which the Obligor has agreed to obtain physical
damage insurance of the related Financed Vehicle, or a documented verbal
confirmation of the insurance policy for the Financed Vehicle, (iii) an
original Lien Certificate or application therefor and (iv) a credit
application or a copy thereof. As evidence of the performance of each such
review on each review date, the Collateral Agent or such other person shall
execute and deliver to the Agent, an acknowledgment in the form of Exhibit G
hereto. If such review reveals, in the Agent's opinion, an unsatisfactory
number of missing items the Agent in its sole discretion may require a full
review of every Receivable File by the Collateral Agent or such other party
acceptable to the Agent. The party performing such full review shall be
entitled to reimbursement from the Borrower for any fee, costs or expenses
incurred in connection therewith.
In addition, at any time following the occurrence of a Facility
Termination Event, the Borrower and Arcadia will permit the Agent, the
Collateral Agent and the Investors or their agents or representatives to
conduct periodic audits of the Receivables, the related Other Conveyed
Property and the related books and records and collection systems of the
Borrower or Arcadia, as the case may be.
ARTICLE XII
THE SERVICER
SECTION 12.1 LIABILITY OF SERVICER; INDEMNITIES.
() The Servicer shall be liable hereunder only to the extent of the
obligations in this Agreement specifically undertaken by the Servicer and the
representations made by the Servicer;
() The Servicer shall defend, indemnify and hold harmless the
Investors, the Agent, the Backup Servicer, the Collateral Agent, their
respective officers, directors, agents and employees from and against any and
all costs, expenses, losses, damages, claims, liabilities, penalties, fines,
forfeitures and judgments, including reasonable fees and expenses of counsel
and expenses of litigation arising out of or resulting from the use,
ownership or operation by the Servicer or any Affiliate thereof of any
Financed Vehicle related to a Pledged Receivable;
() The Servicer shall indemnify, defend and hold harmless the
Investors, the Agent, the Backup Servicer, the Collateral Agent and their
respective officers, directors, agents and
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employees, from and against any and all costs, expenses, losses, claims,
penalties, fines, forfeitures, judgments, damages and liabilities to the
extent that such cost, expense, loss, claim, penalty, fine, forfeiture,
judgment, damage or liability arose out of, or was imposed upon the
Investors, the Agent, the Backup Servicer or the Collateral Agent by reason
of the breach of this Agreement by the Servicer, the negligence (other than
errors in judgment), misfeasance, or bad faith of the Servicer in the
performance of its duties under this Agreement or by reason of reckless
disregard of its obligations and duties under this Agreement.
() Arcadia, in its individual capacity, hereby acknowledges that the
indemnification provisions in the Purchase Agreement benefitting the Agent,
the Investors, the Backup Servicer or the Collateral Agent are enforceable by
each hereunder.
() The Servicer shall indemnify, defend and hold harmless the
Investors, the Agent, the Backup Servicer and the Collateral Agent, their
respective officers, directors, agents and employees and any holders of the
Note from and against any taxes that may at any time be asserted against the
Investors, the Agent, the Backup Servicer and the Collateral Agent and any
holders of the Note with respect to transactions contemplated in this
Agreement, including, without limitation, any sales, gross receipts, general
corporation, tangible personal property, privilege or license taxes (but not
including any income taxes or taxes asserted with respect to, and as of the
date of, the sale of the Receivables and Other Conveyed Property to the
Borrower or the issuance and original sale of the Notes and costs and
expenses in defending against the same).
() Indemnification under this SECTION 12.1 shall survive the
termination of this Agreement and shall include reasonable fees and expenses
of counsel and expenses of litigation. If the Servicer has made any
indemnity payments pursuant to this SECTION 12.1 and the recipient thereafter
collects any of such amounts from others, the recipient shall promptly repay
such amounts collected to the Servicer, without interest.
() Notwithstanding the indemnity provisions contained in SECTIONS
12.1(b) through (f), the Servicer shall not be required to indemnify the
Investors, the Agent, the Backup Servicer or their respective officers,
directors, agents or employees, against any costs, expenses, losses, damages,
claims or liabilities to the extent the same shall have (i) been caused by
the misfeasance, bad faith or gross negligence of such party, or (ii)
suffered by reason of uncollectible or uncollected Receivables not caused by
the Servicer's negligence (other than errors in judgment), misfeasance or bad
faith in performing its obligations hereunder.
SECTION 12.2 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS
OF, THE SERVICER OR BACKUP SERVICER.
() The Servicer shall not merge or consolidate with any other Person,
convey, transfer or lease substantially all its assets as an entirety to
another Person, or permit any other Person to become the successor to the
Servicer's business unless, after the merger, consolidation, conveyance,
transfer, lease or succession, the successor or surviving entity shall be an
Eligible Servicer, shall be acceptable to the Agent and shall be capable of
fulfilling the duties of the Servicer contained in this Agreement. Any
Person (i) into which the Servicer may be merged or consolidated, (ii)
resulting from any merger or consolidation to which the Servicer shall be a
party, (iii) which acquires by conveyance, transfer, or lease substantially
all of the assets of the Servicer, or (iv) succeeding to the business of the
Servicer, in any of the foregoing cases shall execute an agreement of
assumption to perform every obligation of the Servicer under this Agreement
and, whether or not such assumption agreement is executed, shall be the
successor to the Servicer under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties to
this Agreement, anything in this Agreement to the contrary notwithstanding;
PROVIDED, HOWEVER, that nothing contained herein shall be deemed to release
the
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Servicer from any obligation hereunder. The Servicer shall provide notice of
any merger, consolidation or succession pursuant to this SECTION 12.2(a) to
the Agent, the Backup Servicer and the Collateral Agent. Notwithstanding the
foregoing, as a condition to the consummation of the transactions referred to
in CLAUSES (i), (ii), (iii) and (iv) above, (x) immediately after giving
effect to such transaction, no representation or warranty made pursuant to
SECTION 8.6 shall have been breached in any material respect (for purposes
hereof, such representations and warranties shall speak as of the date of the
consummation of such transaction) (y) the Servicer shall have delivered to
the Agent an Officer's Certificate and an Opinion of Counsel each stating
that such consolidation, merger or succession and such agreement of
assumption comply with this SECTION 12.2(a), and (z) the Servicer shall have
delivered to the Agent an Opinion of Counsel, stating, in the opinion of such
counsel, either (A) all financing statements and continuation statements and
amendments thereto have been executed and filed that are necessary to
preserve and protect the security interest of the Collateral Agent (for the
benefit of the Investors) in the Collateral and reciting the details of the
filings or (B) no such action shall be necessary to preserve and protect such
interest.
() Any Person (i) into which the Backup Servicer may be merged or
consolidated, (ii) resulting from any merger or consolidation to which the
Backup Servicer shall be a party, (iii) which acquires by conveyance,
transfer or lease substantially all of the assets of the Backup Servicer, or
(iv) succeeding to the business of the Backup Servicer, in any of the
foregoing cases shall execute an agreement of assumption to perform every
obligation of the Backup Servicer under this Agreement and, whether or not
such assumption agreement is executed, shall be the successor to the Backup
Servicer under this Agreement without the execution or filing of any paper or
any further act on the part of any of the parties to this Agreement, anything
in this Agreement to the contrary notwithstanding; PROVIDED, HOWEVER, that
nothing contained herein shall be deemed to release the Backup Servicer from
any obligation under this Agreement.
SECTION 12.3 LIMITATION ON LIABILITY OF SERVICER, BACKUP SERVICER AND
OTHERS.
() Neither the Servicer, the Backup Servicer nor any of the directors or
officers or employees or agents of the Servicer or Backup Servicer shall be
under any liability to the Borrower, the Investors or the Agent, except as
provided in this Agreement, for any action taken or for refraining from the
taking of any action pursuant to this Agreement; PROVIDED, HOWEVER, that this
provision shall not protect the Servicer, the Backup Servicer or any such
person against any liability that would otherwise be imposed by reason of a
breach of this Agreement or willful misfeasance, bad faith or negligence
(excluding errors in judgment) in the performance of duties. The Servicer,
the Backup Servicer and any director, officer, employee or agent of the
Servicer or Backup Servicer may rely in good faith on the written advice of
counsel or on any document of any kind PRIMA FACIE properly executed and
submitted by any Person respecting any matters arising under this Agreement.
The Backup Servicer shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if the
repayment of such funds or adequate written indemnity against such risk or
liability is not reasonably assured to it in writing prior to the expenditure
or risk of such funds or incurrence of financial liability.
() Unless acting as Servicer hereunder, the Backup Servicer shall not
be liable for any obligation of the Servicer contained in this Agreement, and
the Agent, the Borrower and the Investors shall look only to the Servicer to
perform such obligations.
() The parties hereto and each Investor, by its acceptance of an
assignment of any interest in any Note or Advances, or of any portion of any
Lender's commitment to make Advances hereunder, expressly acknowledge and
consent to Norwest acting in the possible dual
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capacity of Backup Servicer or successor Servicer and in the capacity as
Collateral Agent. Norwest may, in such dual capacity, discharge its separate
functions fully, without hindrance or regard to conflict of interest
principles, duty of loyalty principles or other breach of fiduciary duties to
the extent that any such conflict or breach arises from the performance by
Norwest of express duties set forth in this Agreement in any of such
capacities, all of which defenses, claims or assertions are hereby expressly
waived by the other parties hereto except in the case of gross negligence and
willful misconduct by Norwest.
() The Backup Servicer shall have no responsibility and shall not be in
default hereunder nor incur any liability for any failure, error, malfunction
or any delay in carrying out any of its duties under this Agreement if any
such failure or delay results from the Backup Servicer acting in accordance
with information prepared or supplied by a Person other than the Backup
Servicer or the failure of any such Person to prepare or provide such
information. The Backup Servicer shall have no responsibility, shall not be
in default and shall incur no liability (i) for any act or failure to act by
any third party, including the Servicer or the Agent or for any inaccuracy or
omission in a notice or communication received by the Backup Servicer from
any third party or (ii) that is due to or results from the invalidity,
unenforceability of any Receivable under applicable law or the breach or the
inaccuracy of any representation or warranty made with respect to any
Receivable.
SECTION 12.4 DELEGATION OF DUTIES. So long as Arcadia is the Servicer,
the Servicer may delegate duties under this Agreement to an Affiliate of
Arcadia with the prior written consent of the Agent and the Backup Servicer.
The Servicer also may at any time perform the specific duties of (i)
repossession of Financed Vehicles, (ii) tracking Financed Vehicles' insurance
and (iii) pursuing the collection of deficiency balances on Delinquent
Receivables through sub-contractors who are in the business of servicing
automotive receivables, in each case without the consent of the Agent and the
Backup Servicer. The Servicer may also perform other specific duties through
such sub-contractors in accordance with its customary servicing policies and
procedures without the prior consent of the Agent; PROVIDED, HOWEVER, that no
such delegation or subcontracting of duties by the Servicer shall relieve the
Servicer of its responsibility with respect to such duties. Neither Arcadia
nor any other party acting as Servicer hereunder shall appoint any
subservicer hereunder without the prior written consent of the Agent and the
Backup Servicer. If the Backup Servicer assumes the role of successor
Servicer, such successor Servicer may delegate its duties under this
Agreement to any Person or appoint a subservicer with the prior consent of
the Agent.
SECTION 12.5 SERVICER AND BACKUP SERVICER NOT TO RESIGN. Subject to the
provisions of SECTION 12.2, neither the Servicer nor the Backup Servicer
shall resign from the obligations and duties imposed on it by this Agreement
as Servicer or Backup Servicer except upon a determination that by reason of
a change in legal requirements the performance of its duties under this
Agreement would cause it to be in violation of such legal requirements in a
manner which would result in a material adverse effect on the Servicer or the
Backup Servicer, as the case may be, and the Agent does not elect to waive
the obligations of the Servicer or the Backup Servicer, as the case may be,
to perform the duties which render it legally unable to act or to delegate
those duties to another Person. Any such determination permitting the
resignation of the Servicer or Backup Servicer shall be evidenced by an
Opinion of Counsel to such effect delivered and acceptable to the Agent. No
resignation of the Servicer shall become effective until the Backup Servicer
or an entity acceptable to the Agent shall have assumed the responsibilities
and obligations of the Servicer. No resignation of the Backup Servicer shall
become effective until an entity acceptable to the Agent shall have assumed
the responsibilities and obligations of the Backup Servicer; PROVIDED,
HOWEVER, that in the event a successor Backup Servicer is not appointed
within 60 days after the Backup Servicer has given notice of its
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resignation as permitted by this SECTION 12.5, the Backup Servicer may
petition a court for its removal. Notwithstanding the foregoing, the Backup
Servicer may resign for any reason, provided an entity acceptable to the
Agent shall have assumed the responsibilities and obligations of the Backup
Servicer prior to the effectiveness of any such resignation.
ARTICLE XIII
SERVICER TERMINATION EVENTS
SECTION 13.1 SERVICER TERMINATION EVENT. For purposes of this Agreement,
each of the following shall constitute a "SERVICER TERMINATION EVENT":
() Any failure by the Servicer or, so long as Arcadia or an Affiliate
of the Borrower is the Servicer, the Borrower to deliver to the Collateral
Agent or deposit to the Collection Account any proceeds or payment required
to be so delivered or deposited under the terms of this Agreement (or, if
Arcadia or an Affiliate of the Borrower is the Servicer, under the Purchase
Agreement) that continues unremedied for a period of three Business Days (or,
with respect to any Purchase Amounts, one Business Day) after written notice
is received by the Servicer from the Agent or after discovery of such failure
by a Responsible Officer of the Servicer;
() Failure by the Servicer to deliver the Servicer's Certificate
required by SECTION 8.9 by 10:00 a.m. New York City time three Business Days
before the related Distribution Date;
() Failure on the part of the Servicer to observe in all material
aspects its covenants and agreements set forth in SECTION 12.2(a);
() Failure on the part of the Servicer or, so long as Arcadia or an
Affiliate of the Borrower is the Servicer, the Borrower, duly to observe or
perform in any respect any other covenants or agreements of the Servicer or,
so long as Arcadia is the Servicer, the Borrower, as the case may be, set
forth in this Agreement (or, as to Arcadia, if Arcadia is the Servicer, the
Purchase Agreement) which failure continues unremedied for a period of 30
days after the earlier of knowledge thereof by a Responsible Officer of the
Servicer and the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Servicer by the Agent;
() The occurrence of an Event of Bankruptcy with respect to the
Servicer (or the Borrower);
() Any representation, warranty or statement of the Servicer (or, if
Arcadia or an Affiliate of the Borrower is the Servicer, the Borrower) made
in this Agreement or any certificate, report or other writing delivered
pursuant hereto shall prove to be incorrect in any material respect as of the
time when the same shall have been made (excluding, however, any
representation or warranty set forth in the definition of "ELIGIBLE
RECEIVABLE"), and, within 30 days after the earlier of knowledge thereof by a
Responsible Officer of the Servicer and the date written notice thereof shall
have been given to the Servicer (or, if Arcadia or an Affiliate of the
Borrower is the Servicer, the Borrower) by the Agent the circumstances or
condition in respect of which such representation, warranty or statement was
incorrect shall not have been eliminated or otherwise cured;
() The Net Worth of the Servicer is less than $325,000,000; or
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() An acceleration shall have occurred with respect to any Indebtedness
of the Servicer (other than any Indebtedness incurred pursuant to this
Agreement) having an outstanding principal amount of $10,000,000 or more or,
if Arcadia is the Servicer, Arcadia shall fail to comply with Section 5.12 of
the Indenture, dated as of March 12, 1997, between Arcadia and Norwest, as
Indenture Trustee, as supplemented by the First Supplemental Indenture, dated
as of March 12, 1997, related to Arcadia's 112% Senior Notes due 2007, as in
effect on the Closing Date or as amended thereafter with the consent of the
Agent.
SECTION 13.2 CONSEQUENCES OF A SERVICER TERMINATION EVENT. If a Servicer
Termination Event shall occur and be continuing, the Agent, by written notice
given to the Servicer, may terminate all of the rights and obligations of the
Servicer under this Agreement by declaring a Servicer Termination Event. On
or after the receipt by the Servicer of such written notice, all authority,
power, obligations and responsibilities of the Servicer under this Agreement
automatically shall pass to, be vested in and become obligations and
responsibilities of the Backup Servicer; PROVIDED, HOWEVER, that the Backup
Servicer shall have no liability with respect to any obligation which was
required to be performed by the prior Servicer prior to the date that the
Backup Servicer becomes the Servicer or any claim of a third party based on
any alleged action or inaction of the prior Servicer. The Backup Servicer is
authorized and empowered by this Agreement to execute and deliver, on behalf
of the prior Servicer, as attorney-in-fact or otherwise, any and all
documents and other instruments and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of the Pledged
Receivables and related documents to show the Collateral Agent (for the
benefit of the Investors) as lienholder or secured party, or otherwise. The
prior Servicer agrees to cooperate with the Backup Servicer in effecting the
termination of the responsibilities and rights of the prior Servicer under
this Agreement, including, without limitation and at the prior Servicer's
expense, the transfer to the Backup Servicer for administration by it of all
cash amounts that shall at the time be held by the prior Servicer for
deposit, or have been deposited by the prior Servicer, in the Collection
Account or thereafter received with respect to the Pledged Receivables and
the delivery to the Backup Servicer of all Receivable Files, Servicer Files,
Monthly Records and Collection Records and a computer tape in readable form
containing all information necessary to enable the Backup Servicer or a
successor Servicer to service the Pledged Receivables. In addition, upon the
occurrence of a Servicer Termination Event, the Servicer shall, if so
requested by the Agent, deliver to the Backup Servicer its Monthly Records
within 15 days after demand therefor and a computer tape or diskette (or any
other means of electronic transmission acceptable to the Backup Servicer)
containing as of the close of business on the date of demand all of the data
maintained b the Servicer in computer format in connection with servicing the
Pledged Receivables. If requested by the Agent, the Backup Servicer or
successor Servicer shall terminate each Lockbox Agreement and direct the
Obligors to make all payments under the Pledged Receivables directly to the
successor Servicer (in which event the successor Servicer shall process such
payments in accordance with SECTION 8.2(e)), or to a lockbox established by
the successor Servicer at the direction of the Agent at the prior Servicer's
expense. The terminated Servicer shall grant the Collateral Agent, the
Backup Servicer and the Agent reasonable access to the terminated Servicer's
premises at the terminated Servicer's expense.
SECTION 13.3 APPOINTMENT OF SUCCESSOR SERVICER.
() On and after (i) the time the Servicer receives a notice of
termination pursuant to SECTION 13.2 or (ii) upon the resignation of the
Servicer pursuant to SECTION 12.5, the Backup Servicer shall be the successor
in all respects to the Servicer in its capacity as servicer under this
Agreement and the transactions set forth or provided for in this Agreement
and shall be subject to all the responsibilities, restrictions, duties,
liabilities and termination provisions relating thereto placed on the
Servicer by the terms and provisions of this Agreement; PROVIDED, HOWEVER,
that the
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Backup Servicer shall not be liable for any acts, omissions or obligations of
the Servicer prior to such succession or for any breach by the Servicer of
any of its representations and warranties contained in this Agreement or in
any related document. The Servicer and such successor shall take such
action, consistent with this Agreement, as shall be necessary to effectuate
any such succession. If a successor Servicer is acting as Servicer
hereunder, it shall be subject to termination under SECTION 13.2 upon the
occurrence of any Servicer Termination Event applicable to it as Servicer.
() The Agent may exercise at any time its right to appoint as Backup
Servicer or as successor to the Servicer a person other than the Person
serving as Backup Servicer at the time and shall have no liability to the
Investors, the Borrower, Arcadia, the Person then serving as Backup Servicer
or any other Person if it does so. Notwithstanding the above, if the Backup
Servicer shall be legally unable or unwilling to act as Servicer the Backup
Servicer may petition a court of competent jurisdiction to appoint any
Eligible Servicer as the successor to the Servicer. Pending such
appointment, the Backup Servicer shall act as successor Servicer unless it is
legally unable to do so, in which event the outgoing Servicer shall continue
to act as Servicer until a successor has been appointed and accepted such
appointment. Subject to SECTION 12.5, no provision of this Agreement shall
be construed as relieving the Backup Servicer of its obligation to succeed as
successor Servicer upon the termination of the Servicer pursuant to SECTION
13.2 or the resignation of the Servicer pursuant to SECTION 12.5. If, upon
the termination of the Servicer pursuant to SECTION 13.2 or the resignation
of the Servicer pursuant to SECTION 12.5, the Agent appoints a successor
Servicer other than the Backup Servicer, the Backup Servicer shall not be
relieved of its duties as Backup Servicer hereunder.
() Any successor Servicer shall be entitled to the greater of such
compensation (whether payable out of the Collection Account or otherwise) as
the Servicer would have been entitled to under this Agreement if the Servicer
had not resigned or been terminated hereunder and the current market rate for
servicing a pool of automobile installment loans and contracts comparable to
the Receivables. If any successor Servicer is appointed for any reason, the
Agent and such successor Servicer may agree on additional compensation to be
paid to such successor Servicer. In addition, any successor Servicer shall
be entitled to reasonable transition expenses incurred in acting as successor
Servicer not to exceed $50,000.
ARTICLE XIV
THE CUSTODIAN
SECTION 14.1 DELIVERY OF THE CUSTODIAL RECEIPT AND CONFIRMATION.
() The Agent hereby appoints Arcadia to act as Custodian of the
Receivables Files, and Arcadia hereby accepts such appointment. At least one
day prior to each Advance Date, the Custodian shall deliver or cause to be
delivered to the Agent a Custodial Receipt and Confirmation in the form of
EXHIBIT E hereto. From time to time, the Custodian shall attach for
inclusion in the appropriate Receivables File, any additional original
documents evidencing any assumption or modification of a Receivable approved
by the Servicer in accordance with the terms hereof.
SECTION 14.2 OBLIGATIONS OF THE CUSTODIAN.
() The Custodian shall segregate and maintain continuous custody of the
Receivables Files in secure facilities in accordance with customary standards
for such custody. The Receivables Files shall be maintained in fireproof
facilities. For so long as the Servicer is the Custodian, the Custodian
shall maintain the Receivables Files at its office set forth in Section 10.9.
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() With respect to the documents constituting each Receivables File,
the Custodian shall (i) act exclusively as the custodian for and the bailee
(solely for purposes of UCC Section 9-305) of the Collateral Agent, for the
benefit of the Investors, (ii) hold all documents constituting each
Receivables File received by it for the exclusive use and benefit of the
Borrower and the Investors, and (iii) make disposition thereof only in
accordance with the terms of this Agreement or with written instructions
furnished by the Agent.
() In the event that (i) Arcadia, the Agent, the Backup Servicer, the
Collateral Agent, the Borrower or the Custodian shall be served by a third
party with any type of levy, attachment, writ or court order with respect to
any Receivables File or a document included within a Receivables File or (ii)
a third party shall institute any court proceeding by which any Receivables
File or a document included within a Receivables File shall be required to be
delivered otherwise than in accordance with the provisions of this Agreement,
the party receiving such service shall promptly deliver or cause to be
delivered to the other parties to this Agreement copies of all court papers,
orders, documents and other materials concerning such proceedings. The
Custodian shall continue to hold and maintain all Receivables Files that are
the subject of such proceedings pending a final order of a court of competent
jurisdiction permitting or directing disposition thereof. Upon final
determination of such court, the Custodian shall dispose of such Receivables
File or a document included within such Receivables File as directed by such
determination or, if no such determination is made, in accordance with the
provisions of this Agreement.
SECTION 14.3 RELEASE OF RECEIVABLES FILES. In the event that the Servicer
is not then acting as Custodian, from time to time and as appropriate for the
repossession or servicing of any of the Contracts, the Custodian is hereby
authorized, upon receipt of a Request for Release and Receipt of Documents,
to release to the Servicer or the Borrower within, on a best efforts basis,
one (1) Business Day, but in no case more than two (2) Business Days, the
related Receivables File or the documents from a Receivables File set forth
in such Request for Release and Receipt of Documents. If the Custodian
receives such request after 12:00 noon (Minneapolis time), such request shall
be deemed to have been received on the next Business Day. All documents so
released to the Servicer or the Borrower shall be held by the Servicer or the
Borrower in trust for the benefit of the Investors. The Servicer or the
Borrower shall return to the Custodian each and every document previously
requested from the Receivables File when the Servicer's or the Borrower's
need therefor in connection with such repossession or servicing no longer
exists, unless the Receivable shall be liquidated, in which case, upon
receipt of a certification to this effect from the Servicer or the Borrower
to the Custodian in a Request for Release and Receipt of Documents, such
Receivables File shall be retained by the Servicer or the Borrower.
SECTION 14.4 RELEASE UPON REPURCHASE OR PAYMENT IN FULL. In the event
that the Servicer is not then acting as Custodian, upon the transfer of any
Receivable by way of repurchase pursuant to the Purchase Agreement or the
payment in full of any Receivable or the sale of any Receivable pursuant to a
Take Out Securitization, each of which shall be evidenced by the delivery to
the Custodian of the Borrower's Request for Release and Receipt of Documents,
the Custodian shall release the related Receivables File to the Borrower or
Arcadia in accordance with the time parameters set forth in SECTION 14.3.
SECTION 14.5 FEES AND EXPENSES OF THE CUSTODIAN. It is understood that any
Custodian (other than the Servicer) shall be entitled to charge fees and
receive reimbursement for expenses (such fees and reimbursement are referred
to hereinafter as the "CUSTODIAN FEE"), including fees and expenses of its
agents and counsel and expenses incurred in connection with the transfer of
Receivables Files pursuant to SECTION 14.2,
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and such Custodian Fee shall be the sole obligation of the Borrower. Such
agreed upon Custodian's Fee shall be set forth in a separate fee letter
between the Custodian and the Borrower.
SECTION 14.6 EXAMINATION OF RECEIVABLES FILES.
Upon reasonable prior written notice to the Custodian, any Lender, the
Agent, the Collateral Agent or the Borrower or any of their representatives
and agents will be permitted during normal business hours to examine the
Receivables Files, documents, records and other papers in the possession, or
under the control, of the Custodian relating to any or all of the Pledged
Receivables. Any expenses incurred by the Custodian in connection with such
examination shall be borne by the party making the request (or, if a Facility
Termination Event has occurred, the Borrower).
SECTION 14.7 INSURANCE OF THE CUSTODIAN.
The Custodian shall, at its own expense, maintain at all times during the
term of this Agreement and keep in full force and effect theft of documents
insurance. All such insurance shall be in amounts, with standard coverage
and subject to deductibles, as are customary for similar insurance typically
maintained by Persons that act as custodian in similar transactions.
SECTION 14.8 PERIODIC STATEMENTS.
Within 30 days after the written request of the Agent, the Servicer or
the Borrower, the Custodian shall provide to the requesting party at such
party's expense (or, if a Facility Termination Event has occurred, the
expense of the Borrower) a list of all the Receivables for which the
Custodian holds a Receivables File pursuant to this Agreement. Such list may
be in the form of a copy of all Schedules of Receivables with manual
deletions to specifically denote any Receivables paid off, liquidated,
released or repurchased since the date of this Agreement.
SECTION 14.9 RESIGNATION BY AND REMOVAL OF THE CUSTODIAN; SUCCESSOR
CUSTODIAN.
() The Custodian may at any time resign and terminate its obligations
under this Agreement upon at least 60 days prior written notice to the Agent.
Promptly after receipt of notice of the Custodian's resignation, the Agent
shall appoint, by written instrument, a successor custodian. If a successor
custodian is not appointed in accordance with the foregoing procedures, the
Custodian may petition a court of competent jurisdiction to appoint a
successor custodian. One (1) original counterpart of such instrument of
appointment shall be delivered to each of the Agent, the Custodian and the
successor custodian.
() If (i) the Custodian has failed to perform any of its duties
hereunder in any material respect or (ii) if the Servicer is the Custodian,
if a Servicer Termination Event has occurred, the Agent, upon at least 60
days written notice to the Custodian, may remove and discharge the Custodian
(or any successor custodian thereafter appointed) from the performance of its
obligations under this Agreement. A copy of such notice shall be delivered
to each other party hereto. Promptly after the giving of notice of removal
of the Custodian, the Agent shall appoint, by written instrument, a successor
custodian. One (1) original counterpart of such instrument of appointment
shall be delivered to each of the Agent, the Custodian and the successor
custodian.
() In the event of any such resignation or removal, the Custodian shall
promptly transfer to the successor custodian, as directed in writing by the
Agent, all the Receivables Files being administered under this Agreement.
ARTICLE 15
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FACILITY TERMINATION EVENTS; THEIR EFFECT
SECTION 15.1 FACILITY TERMINATION EVENTS.
Each of the following shall constitute a Facility Termination Event under
this Agreement:
() Default in the payment when due of any principal of any Advance, or
default in the payment of any other amount payable by the Borrower hereunder,
including, without limitation, any Yield on any Advance or any Fees, which
default shall continue for three Business Days;
() The Borrower shall fail to perform or observe any other term,
covenant or agreement contained in this Agreement, or any other Transaction
Document on its part to be performed or observed and, except in the case of
the covenant and agreement contained in SECTION 11.6, as to which no grace
period shall apply, any such failure shall remain unremedied for 30 days
after knowledge thereof or after written notice thereof shall have been given
by the Agent to the Borrower;
() Any representation or warranty of the Borrower made or deemed to
have been made hereunder or in any other Transaction Document or any other
writing or certificate furnished by or on behalf of the Borrower to the Agent
for purposes of or in connection with this Agreement or any other Transaction
Document (including any certificates delivered pursuant to SECTION 7.1(c) and
any Servicer's Certificate) shall prove to have been false or incorrect in
any material respect when made or deemed to have been made; provided that no
breach shall be deemed to occur hereunder in respect of any representation or
warranty relating to any Eligible Receivable if as a result thereof a
Facility Termination Event under SECTION 15.1(a) shall not occur;
() An Event of Bankruptcy shall have occurred and remained continuing
with respect to the Borrower;
() As of any Determination Date, the aggregate principal amount of all
Advances outstanding as of the last day of the preceding Settlement Period
hereunder exceeds the Borrowing Base (after giving effect to all
distributions in respect of principal to be made on the following
Distribution Date from the Collection Account and transfers from the Lockbox
Account from amounts deposited therein during the preceding Settlement Period
pursuant to the Collateral Agent Agreement) and such condition continues
unremedied for one Business Day (such excess referred to as the "BORROWING
BASE DEFICIENCY");
() The Internal Revenue Service shall file notice of a lien pursuant to
Section 6323 of the Internal Revenue Code with regard to any of the assets of
the Borrower and such lien shall not have been released within 30 days, or
the Pension Benefit Guaranty Corporation shall file notice of a lien pursuant
to Section 4068 of ERISA with regard to any of the assets of the Borrower and
such lien shall not have been released within 30 days;
() (i) Any Transaction Document or any lien or security interest
granted thereunder by the Borrower, shall (except in accordance with its
terms), in whole or in part, terminate, cease to be effective or cease to be
the legally valid, binding and enforceable obligation of the Borrower; or
(ii) the Borrower or any other party shall, directly or indirectly, contest
in any manner such effectiveness, validity, binding nature or enforceability;
or (iii) any security interest securing any Obligation shall, in whole or in
part, cease to be a perfected first priority security interest (except, as to
priority, for any tax liens or mechanic's liens that may arise with respect
to any Financed Vehicle after the Closing Date) against the Borrower;
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() A Servicer Termination Event shall have occurred;
() A Change of Control occurs;
() An acceleration shall have occurred with respect to any Indebtedness
of the Borrower (other than any Indebtedness incurred pursuant to this
Agreement) having an outstanding principal amount of $10,000,000 or more;
() A final, non-appealable judgment shall be entered against the
Borrower, the Servicer or Arcadia by a court of competent jurisdiction
assessing monetary damages in excess of $10,000,000, shall not have been
discharged or stayed within 60 days;
() On any Determination Date, the Delinquency Ratio averaged for such
Determination Date and the five immediately preceding Determination Dates
exceeds 4% if such Determination Date relates to the first six Settlement
Periods following the Closing Date, or 4.5% for any Determination Date
thereafter;
() On any Determination Date, the Portfolio Net Loss Ratio exceeds
3.75% if such Determination Date relates to the first six Settlement Periods
following the Closing Date, or 4.25% for any Determination Date thereafter;
() On any Determination Date on which Advances are outstanding, the Net
Pledged Receivable Loss Ratio for the Pledged Receivables averaged for such
Determination Date and the two immediately preceding Determination Dates
relating to Settlement Periods during which Advances were outstanding exceeds
1%; or
() The Average Excess Spread Percentage for any Determination Date is
less than 3.75%.
SECTION 15.2 EFFECT OF FACILITY TERMINATION EVENT; REMEDIES.
() (1) OPTIONAL TERMINATION. Upon the occurrence of a Facility
Termination Event (other than a Facility Termination Event described in
SECTION 15.1(d)) the Agent may declare all or any portion of the outstanding
principal amount of the Advances and other Obligations to be immediately due
and payable and/or the Facility (if not theretofore terminated) to be
terminated, whereupon the full unpaid amount of such Advances and other
Obligations which shall be so declared due and payable shall be and become
immediately due and payable, without further notice, demand or presentment,
and/or, as the case may be, the Facility shall terminate.
() (2) AUTOMATIC TERMINATION. Upon the occurrence of a Facility
Termination Event described in SECTION 15.1(d) the Facility Termination Date
shall be deemed to have occurred automatically, and all outstanding Advances
under this Agreement and all other Obligations under this Agreement shall
become immediately and automatically due and payable, all without
presentment, demand, protest, or notice of any kind.
() (3) REMEDIES. If the Agent has declared a Facility Termination
Event to have occurred, the Agent may, or may direct the Collateral Agent to,
exercise the remedies set forth in the Collateral Agent Agreement.
ARTICLE XVI
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THE AGENT
SECTION 16.1 AUTHORIZATION AND ACTION.
The Lenders and each Investor, by its acceptance of an assignment of any
interest in any Note or Advance, or in a Lender's obligation to make Advances
hereunder, appoints DLJ as its agent for purposes of the Transaction
Documents, and authorizes the Agent and the Collateral Agent, in such
capacity, to take such action on their behalf under each Transaction Document
and to exercise such powers, hereunder and thereunder as are delegated to the
Agent, by the terms hereof and thereof, together with such powers as are
reasonably incidental thereto.
SECTION 16.2 EXCULPATION.
Neither the Agent (acting in such capacity under the Transaction
Documents) nor any of its directors, officers, agents or employees shall be
liable to any Investor for any action taken or omitted to be taken by it or
them under or in connection with the Transaction Documents, except for its or
their own gross negligence or willful misconduct. Without limiting the
generality of the foregoing, the Agent: (a) may consult with legal counsel
(including counsel for the Borrower and the Servicer), independent certified
public accountants and other experts selected by it and shall not be liable
for any action taken or omitted to be taken in good faith by it in accordance
with the advice of such counsel, accountants or experts; (b) makes no
warranty or representation to any Investor, and shall not be responsible to
any Investor, for any statements, warranties or representations made by the
Borrower, in or in connection with any Transaction Document; (c) shall not
have any duty to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions of any Transaction Document on
the part of the Borrower or Servicer or to inspect the property (including
the books and records) of the Borrower or Servicer; (d) shall not be
responsible to any Investor for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, the
Note, any other Transaction Document or any other instrument or document
provided for herein or delivered or to be delivered hereunder or in
connection herewith; and (e) shall incur no liability under or in respect of
any Transaction Document by acting upon any notice (including notice by
telephone), consent, certificate or other instrument or writing (which may be
by telex or facsimile transmission) believed by it to be genuine and signed
or sent by the proper party or parties.
SECTION 16.3 AGENT AND AFFILIATES.
The Agent, including, but not limited to, DLJ, and any of its Affiliates
may generally engage in any kind of business with the Borrower, the Servicer,
the Backup Servicer, the Collateral Agent, any Obligor, any of their
respective Affiliates and any Person who may do business with or own
securities of the Borrower, the Servicer, the Backup Servicer, the Collateral
Agent, any Obligor or any of their respective Affiliates, all as if the Agent
were not the Agent hereunder and without any duty to account therefor to any
Investor.
SECTION 16.4 REPLACEMENT AGENT.
Upon the occurrence of the Facility Termination Date and the sale of the
Note to a Person other than DLJ or any Lender, the Collateral Agent shall
automatically become the Agent hereunder.
ARTICLE XVII
ASSIGNMENTS
SECTION 17.1 RESTRICTIONS ON ASSIGNMENTS.
The Borrower may not assign its rights hereunder or any interest herein
without the prior written consent of the Agent. No Investor may assign its
rights under this Agreement, the Note, or with
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respect to any Advance (or any portion thereof) to any Person without the
prior written consent of the Borrower or the Agent (as to the Borrower only,
such consent not to be unreasonably withheld); PROVIDED, HOWEVER, that any
Lender may assign, or grant a security interest in, all or any portion of its
interest in advances and the Note to (i) DLJ or any of its Affiliates or (ii)
any Person managed by DLJ or any of its Affiliates, (iii) any Structured
Lender or any Person providing liquidity with respect to a Structured Lender;
PROVIDED, HOWEVER, that in the case of this subsection (iii) a Lender may
only assign its rights thereunder with respect to outstanding Advances, but
not its obligations hereunder to make additional Advances (each, an "ELIGIBLE
ASSIGNEE"), in each case under clauses (i), (ii) and (iii) above, without the
prior written consent of the Borrower or the Agent; PROVIDED, FURTHER,
HOWEVER, that after the occurrence of the Facility Termination Date, any
Lender may, subject to the provisions of SECTION 17.5, assign all or a
portion of its interest in the Note to a Person other than those identified
in clauses (i), (ii) and (iii) above without the prior written consent of the
Borrower. Any assignment by a Lender of its rights and obligations hereunder
shall be evidenced by an Assignment and Acceptance Agreement in the form of
Exhibit F hereto or such other agreement as agreed to from time to time
between the Agent, such Lender and the Eligible Assignee.
Within five Business Days after notice to the Borrower of any proposed
assignment by an Investor for which the Borrower's consent is required, the
Borrower agrees to advise the Agent of its consent or non-consent thereto.
If the Borrower does not consent to such assignment by the end of such five
Business Day period, such Investor may immediately assign its interest (or a
portion thereof) in the Advances and/or the Note that was subject to such
proposal to an Eligible Assignee. Subject to SECTION 17.2, all of the
aforementioned assignments shall be upon such terms and conditions as such
Investor and the assignee may mutually agree.
SECTION 17.2 DOCUMENTATION.
Each Investor shall deliver to each assignee an assignment, in such form
as such Investor and the related assignee may agree, duly executed by such
Investor assigning any such Advance to the assignee, such Investor shall
promptly execute and deliver all further instruments and documents, and take
all further action, that the assignee may reasonably request, in order to
perfect, protect or more fully evidence the assignee's right, title and
interest in and to such Advance, and to enable the assignee to exercise or
enforce any rights hereunder or under the Note evidencing such Advance.
SECTION 17.3 RIGHTS OF ASSIGNEE.
Upon the foreclosure of any assignment of any Advances made for security
purposes, or upon any other assignment of any Advance from any Investor
pursuant to this ARTICLE XVII, the respective assignee receiving such
assignment shall have all of the rights of an Investor hereunder with respect
to such Advances and all references to the Investors in SECTION 6.1 shall be
deemed to apply to such assignee.
SECTION 17.4 NOTICE OF ASSIGNMENT.
Each Investor shall provide notice to the Agent and the Borrower of any
assignment hereunder by such Investor to any assignee. Each Investor
authorizes the Agent to, and the Agent agrees that it shall, prior to the
Remarketing Date, endorse the Note, and following the Remarketing Date, to
reflect any assignments made pursuant to this ARTICLE XVII or otherwise in
the Note Register.
SECTION 17.5 REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE.
() From and after the Remarketing Date, the Collateral Agent shall keep
a register (the "NOTE REGISTER") in which, subject to such reasonable
regulations as it may prescribe, the Collateral Agent shall provide for the
registration of the Notes and of transfers of the Notes. The Collateral
Agent is hereby appointed "NOTE REGISTRAR" for the purpose of registering the
Notes and transfers of the Notes as herein provided.
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() Each person who has or who acquired a Note shall be deemed by the
acceptance of acquisition of such Note to have agreed to be bound by the
provisions of this SECTION 17.5. No Note may be transferred, and the
Collateral Agent shall not register the transfer of the Note, unless the
proposed transferee shall have delivered to the Collateral Agent (i) either
(x) evidence satisfactory to it that the transfer of such Note is exempt from
registration or qualification under the Securities Act of 1933, as amended,
and all applicable state securities laws and that the transfer does not
constitute a "prohibited transaction" under ERISA or (y) an express agreement
by the proposed transferee to be bound by and to abide by the provisions of
this SECTION 17.5, the restrictions noted on the face of such Note and (ii) a
properly executed Form W-9 and, in the case of a transferee who is a foreign
person (within the meaning of Section 7701(a)(5) of the Code), a properly
executed Form 4224 or Form 1001 showing a zero rate of withholding.
() At the option of the holder thereof, any Note may be exchanged for
one or more new Notes of any authorized denominations and of a like class and
aggregate principal amount at an office or agency of the Borrower. Whenever
any Notes are so surrendered for exchange, the Borrower shall execute and
deliver the new Notes which the holder making the exchange is entitled to
receive.
() Upon surrender for registration of transfer of any Note at an office
or agency of the Borrower, the Borrower shall execute and deliver, in the
name of the designated transferee or transferees, one or more new Notes of
any authorized denominations and of a like class and aggregate principal
amount.
() All Notes issued upon any registration of transfer or exchange of
any Note in accordance with the provisions of this Agreement shall be the
valid obligations of the Borrower, evidencing the same debt, and entitled to
the same benefits under this Agreement, as the Note(s) surrendered upon such
registration of transfer or exchange.
() Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Borrower or the Collateral Agent)
be fully endorsed, or be accompanied by a written instrument of transfer in
form satisfactory to the Note Registrar, duly executed by the holder thereof
or his attorney duly authorized in writing. Each such Note shall be
accompanied by a statement providing the name of the transferee and
indicating whether the transferee is subject to income tax backup withholding
requirements and whether the transferee is the sole beneficial owner of such
Notes.
() No service charge shall be made for any registration of transfer or
exchange of Notes, but the Borrower or the Collateral Agent may require
payment from the transferee holder of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Notes.
() The holders of the Notes shall be bound by the terms and conditions
of this Agreement.
SECTION 17.6 MUTILATED, DESTROYED, LOST AND STOLEN NOTES.
() If any Note is mutilated and surrendered to the Borrower or, from and
after the Remarketing Date, the Collateral Agent, the Borrower shall execute
and deliver in exchange therefor a new Note of like class and tenor and
principal amount and bearing a number not contemporaneously outstanding.
() If there shall be delivered to the Borrower and, from and after the
Remarketing Date, the Collateral Agent prior to the payment of the Notes (i)
evidence to their satisfaction of the
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destruction, loss or theft of any Note and (ii) such security or indemnity as
may be required by them to save each of them and any agent of either of them
harmless, then, in the absence of notice to the Borrower that such Note has
been acquired by a BONA FIDE purchaser, the Borrower shall execute and
deliver, in lieu of any such destroyed, lost or stolen Note, a new Note of
like tenor and principal amount.
() Upon the issuance of any new Note under this SECTION 17.6, the
Borrower or the Collateral Agent may require the payment from the transferor
holder of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the fees
and expenses of the Collateral Agent) connected therewith.
() Every new Note issued pursuant to this SECTION 17.6 and in accordance
with the provisions of this Agreement, in lieu of any destroyed, lost or stolen
Note shall constitute an original additional contractual obligation of the
Borrower, whether or not the destroyed, lost or stolen Note shall be at any time
enforceable by anyone, and shall be entitled to all the benefits of this
Agreement equally and proportionately with any and all other Notes duly issued
hereunder.
() The provisions of this SECTION 17.6 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 17.7 PERSONS DEEMED OWNERS.
The Borrower, the Servicer, the Collateral Agent and any agent of the
Borrower, the Servicer or the Collateral Agent may treat the holder of any
Note as the owner of such Note for all purposes whatsoever, whether or not
such Note may be overdue, and none of the Borrower, the Servicer, the
Collateral Agent and any agent of the Borrower, the Servicer or the
Collateral Agent shall be affected by notice to the contrary; provided that
payment on the Stated Maturity Date shall be made to the holder as of the
preceding Record Date.
SECTION 17.8 CANCELLATION.
All Notes surrendered for payment or registration of transfer or exchange
shall be delivered to the Borrower or, from and after the Remarketing Date,
the Collateral Agent and shall be promptly canceled by it and may be
destroyed (in the case of the Collateral Agent, pursuant to the Collateral
Agent's securities retention policies). From and after the Remarketing Date,
the Borrower shall promptly deliver to the Collateral Agent for cancellation
any Notes previously authenticated and delivered hereunder which the Borrower
may have acquired in any manner whatsoever, and all Notes so delivered shall
be promptly canceled by the Collateral Agent. No Notes shall be issued in
lieu of or in exchange for any Notes canceled as provided in this Section
17.8, except as expressly permitted by this Agreement.
SECTION 17.9 HOLDER OF NOTE PRIOR TO FACILITY TERMINATION DATE.
Notwithstanding anything in this Agreement to the contrary, the Agent
shall at all times remain the sole holder of the Note until the Facility
Termination Date, except as may otherwise be agreed by the Borrower in
writing. Assignments by a Lender of interests in the Advances, the Note, and
its commitment to make Advances hereunder to other Lenders shall be evidenced
by separate Assignments and Acceptances.
ARTICLE XVIII
INDEMNIFICATION
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SECTION 18.1 GENERAL INDEMNITY OF THE BORROWER.
Without limiting any other rights which any such Person may have
hereunder or under applicable law, the Borrower hereby agrees to indemnify
the Agent, the Investors, the Custodian, the Backup Servicer, the Collateral
Agent and each of their Affiliates, and each of their respective successors,
transferees, participants and assigns and all officers, directors,
shareholders, controlling persons, employees and agents of any of the
foregoing (each of the foregoing Persons being individually called an
"INDEMNIFIED PARTY"), forthwith on demand, from and against any and all
damages, losses, claims, liabilities and related costs and expenses,
including reasonable attorneys' fees and disbursements (all of the foregoing
being collectively called "INDEMNIFIED AMOUNTS") awarded against or incurred
by any of them arising out of or relating to any Transaction Document or the
transactions contemplated thereby or the use of proceeds therefrom by the
Borrower, including (without limitation) in respect of the funding of any
Advance or in respect of any Pledged Receivable, EXCLUDING, HOWEVER, (a)
Indemnified Amounts to the extent determined by a court of competent
jurisdiction to have resulted from gross negligence or willful misconduct on
the part of any Indemnified Party or its agent or subcontractor, (b) (except
as otherwise provided herein) Indemnified Amounts related to the non-payment
of any Pledged Receivable, (c) any loss in value of any Financed Vehicle or
Permitted Investment due to changes in market conditions or for other reasons
beyond the control of the Borrower or (d) any tax upon or measured by net
income on any Indemnified Party. Without limiting the foregoing, but subject
to the exclusions (a) through (d) above, the Borrower agrees to indemnify
each Indemnified Party for Indemnified Amounts arising out of or relating to:
() the breach of any representation or warranty made by the
Borrower (or any of its officers) under or in connection
with this Agreement or the other Transaction Documents,
any Servicer's Certificate or any other information,
report or certificate delivered by the Borrower or
Servicer pursuant hereto or thereto, which shall have
been false or incorrect in any material respect when made
or deemed made;
() the failure by the Borrower to comply in any material way
with any applicable law, rule or regulation with respect
to any Pledged Receivable or any Financed Vehicle, or the
nonconformity of any Pledged Receivable with any such
applicable law, rule or regulation;
() the failure to vest and maintain vested in the Collateral
Agent for the benefit of the Investors, a first-priority
security interest in all the Collateral, free and clear
of any Lien, other than a Lien arising solely as a result
of an act of any Investor, or any assignee of any
Investor;
() any dispute, claim, offset or defense (other than
discharge in bankruptcy) of an Obligor to the payment of
any Pledged Receivable (including, without limitation, a
defense based on such Pledged Receivable not being a
legal, valid and binding obligation of such Obligor
enforceable against it in accordance with its terms);
() any failure of Arcadia or an Affiliate of Arcadia, as
Servicer, to perform its duties or obligations in
accordance with the provisions of ARTICLE VIII or any
provision contained in any Transaction Document;
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() any claim involving products liability that arises out of
or relates to merchandise or services that are the
subject of any Pledged Receivable or strict liability
claim in connection with any Financed Vehicle related to
a Pledged Receivable;
() any tax or governmental fee or charge (but not including
taxes upon or measured by net income), all interest and
penalties thereon or with respect thereto, and all
out-of-pocket costs and expenses, including the
reasonable fees and expenses of counsel in defending
against the same, which may arise by reason of the
making, maintenance or funding, directly or indirectly,
of any Advance, or any other interest in the Collateral;
or
() the commingling of the proceeds of Collateral at any time
with other funds.
SECTION 18.2 CONTRIBUTION.
() If for any reason (other than the exclusions (a) through (d) set forth
in the first paragraph of SECTION 18.1) the indemnification provided above in
SECTION 18.1 is unavailable to an Indemnified Party or is insufficient to
hold an Indemnified Party harmless, then the Borrower shall contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect
not only the relative benefits received by such Indemnified Party, on the one
hand, and the Borrower, on the other hand, but also the relative fault of
such Indemnified Party, on the one hand, and the Borrower, on the other hand,
as well as any other relevant equitable considerations.
ARTICLE XIX
MISCELLANEOUS
SECTION 19.1 NO WAIVER; REMEDIES.
No failure on the part of any Investor, the Agent, any Indemnified Party
or any Affected Person to exercise, and no delay in exercising, any right,
power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise by any of them of any right, power or remedy
hereunder preclude any other or further exercise thereof, or the exercise of
any other right, power or remedy. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law. Without
limiting the foregoing, each Eligible Assignee is hereby authorized by the
Borrower at any time and from time to time, to the fullest extent permitted
by law, to set off and apply any and all deposits (general or special, time
or demand, provisional or final) at any time held and other indebtedness at
any time owing by it to or for the credit or the account of the Borrower, now
or hereafter existing under this Agreement, to the Agent, any Affected
Person, any Indemnified Party or any Investor or their respective successors
and assigns.
SECTION 19.2 AMENDMENTS, WAIVERS.
No amendment, modification or waiver of, or consent with respect to, any
provision of this Agreement and any Schedules hereto, or the Note shall in
any event be effective unless the same shall be in writing and signed and
delivered by (i) the Borrower and the Agent (with respect to an amendment),
(ii) the Agent (with respect to a waiver or consent by it) or the Borrower
(with respect to a waiver or consent by it), (iii) the Agent (with respect to
a waiver of any Facility Termination Event), any such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given or (iv) the Collateral Agent or the Backup Servicer (if such
amendment,
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modification, waiver or consent would have an adverse effect on the
Collateral Agent or the Backup Servicer, as applicable).
SECTION 19.3 NOTICES, ETC.
All notices and other communications provided for hereunder shall, unless
otherwise stated herein, be in writing (including facsimile communication)
and shall be personally delivered or sent by certified mail, postage prepaid,
or by facsimile, to the intended party at the address or facsimile number of
such party set forth under its name on the signature pages hereof or at such
other address or facsimile number as shall be designated by such party in a
written notice to the other parties hereto. All such notices and
communications shall be effective, (a) if personally delivered, when
received, (b) if sent by certified mail, three Business Days after having
been deposited in the mail, postage prepaid, (c) if sent by overnight
courier, one Business Day after having been given to such courier, and (d) if
transmitted by facsimile, when sent, receipt confirmed by telephone or
electronic means, except that notices and communications pursuant to SECTION
2.2 shall not be effective until received.
SECTION 19.4 COSTS, EXPENSES AND TAXES.
In addition to the rights of indemnification granted under SECTION 18.1,
the Borrower agrees to pay on demand all reasonable costs and expenses of DLJ
in connection with the preparation (subject to the Fee Letter), execution,
delivery and administration of this Agreement and the other documents and
agreements to be delivered hereunder, and any amendments, waivers or consents
executed in connection with this Agreement and the other Transaction
Documents, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for DLJ, with respect thereto and with
respect to advising the Agent and the Collateral Agent, as to their rights
and remedies under this Agreement and the other Transaction Documents, and
all costs and expenses, if any (including reasonable counsel fees and
expenses), of the Agent, DLJ, the Investors and their respective Affiliates,
in connection with the enforcement of this Agreement and the other documents
and agreements to be delivered hereunder.
SECTION 19.5 BINDING EFFECT; SURVIVAL.
This Agreement shall be binding upon the Borrower, the Servicer, the
Custodian, DLJ, the Agent, the Backup Servicer, the Collateral Agent, and
their respective permitted successors and assigns, and shall inure to the
benefit of the Borrower, the Servicer, the Custodian, DLJ, the Agent, the
Backup Servicer, the Collateral Agent, the Investors, and their respective
permitted successors and assigns. The provisions of ARTICLE VI, ARTICLE XII
and ARTICLE XVIII shall also inure to the benefit of the Affected Persons and
the Indemnified Parties, respectively, and their respective successors and
assigns. Nothing in this Section 19.5 shall be deemed to authorize any
assignment not permitted by ARTICLE XVII. This Agreement shall create and
constitute the continuing obligations of the parties hereto in accordance
with its terms, and shall remain in full force and effect until such time,
after the Facility Termination Date, when all Obligations have been finally
and fully paid and performed. The rights and remedies with respect to any
breach of any representation and warranty made by the Borrower pursuant to
ARTICLE IX and the indemnification and payment provisions of ARTICLE VI,
ARTICLE XII and ARTICLE XVIII shall be continuing and shall survive any
termination of this Agreement and any termination of Arcadia's rights to act
as Servicer hereunder or under any other Transaction Document.
SECTION 19.6 CAPTIONS AND CROSS REFERENCES.
The various captions (including, without limitation, the table of
contents) in this Agreement are provided solely for convenience of reference
and shall not affect the meaning or interpretation of any provision of this
Agreement. Unless otherwise indicated, references in this Agreement to any
Section, Schedule or Exhibit are to such Section of or Schedule or Exhibit to
this Agreement, as the case may be, and references in any Section,
subsection, or clause to any subsection, clause or subclause are to such
subsection, clause or subclause of such Section, subsection or clause.
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SECTION 19.7 SEVERABILITY.
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction.
SECTION 19.8 GOVERNING LAW.
THIS AGREEMENT AND THE NOTE SHALL BE A CONTRACT MADE UNDER AND GOVERNED
BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY OTHERWISE
APPLICABLE CONFLICT OF LAW PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401 OF
THE NEW YORK GENERAL OBLIGATIONS LAW).
SECTION 19.9 COUNTERPARTS.
This Agreement may be executed by the parties hereto in several
counterparts, each of which shall be deemed to be an original but all of
which shall constitute together but one and the same agreement.
SECTION 19.10 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO AND EACH INVESTOR, BY ITS ACCEPTANCE OF ANY
INTEREST IN ANY NOTE, ANY ADVANCE OR ANY LENDER'S COMMITMENT TO MAKE ADVANCES
HEREUNDER, HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER
TRANSACTION DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE BORROWER, THE AGENT, THE
INVESTORS, DLJ, THE SERVICER, THE CUSTODIAN, THE BACKUP SERVICER, THE
COLLATERAL AGENT OR ANY OTHER AFFECTED PERSON. THE BORROWER ACKNOWLEDGES AND
AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS
PROVISION (AND EACH OTHER PROVISION OF EACH OTHER TRANSACTION DOCUMENT TO
WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
AGENT AND THE INVESTORS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER
TRANSACTION DOCUMENT.
SECTION 19.11 THIRD PARTY BENEFICIARY.
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. Except
as expressly stated otherwise in the Agreement any right of the Agent to
direct, appoint, consent to, approve of, or take any action under this
Agreement or the Collateral Agent Agreement shall be exercised by the Agent
in its sole and absolute discretion.
SECTION 19.12 NO PROCEEDINGS.
() Each of DLJ, the Servicer, the Custodian, the Backup Servicer, each
Investor (by its acceptance of any interest in any Note, any Advance or any
Lender's commitment to make Advances hereunder), the Agent and the Collateral
Agent hereby agrees that it will not institute against the Borrower, or join
any other Person in instituting against the Borrower, any insolvency
proceeding (namely, any proceeding of the type referred to in the definition
of Event of Bankruptcy) so long as any Advances or other amounts due from the
Borrower hereunder shall be outstanding or there shall not have elapsed one
year PLUS one day since the last day on which any such Advances or other
amounts shall be outstanding. The
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foregoing shall not limit such Person's right to file any claim in or
otherwise take any action with respect to any insolvency proceeding that was
instituted by any Person other than such Person.
() Each of the Borrower, the Servicer, the Custodian, the Backup
Servicer, each Investor (by its acceptance of any interest in any Note, any
Advance or any Lender's commitment to make Advances hereunder), the Agent and
the Collateral Agent hereby agrees that it will not institute against any
Structured Lender, or join any other Person in instituting against any
Structured Lender, any insolvency proceeding (namely, any proceeding of the
type referred to in the definition of Event of Bankruptcy) so long as any
commercial paper notes, medium term notes or other debt securities of such
Structured Lender shall be outstanding or there shall not have elapsed one
year PLUS one day since the last day on which any such commercial paper
notes, medium term notes or other debt securities of such Structured Lender
shall be outstanding. The foregoing shall not limit such Person's right to
file any claim in or otherwise take any action with respect to any insolvency
proceeding that was instituted by any Person other than such Person.
SECTION 19.13 ENTIRE AGREEMENT.
THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS EXECUTED AND DELIVERED
HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND THERETO
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
ARTICLE XX
THE COLLATERAL AGENT AS AGENT
The provisions of this ARTICLE 20 shall apply only to the extent that the
Collateral Agent becomes the Agent following the Remarketing Date.
SECTION 20.1 DUTIES OF THE AGENT.
() Subject to paragraph (c) of this SECTION 20.1, the Agent undertakes to
perform as Agent such duties and only such duties as are specifically set
forth in this Agreement.
() The Agent, upon receipt of any resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Agent that are specifically required to be furnished pursuant to any
provisions of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement.
() No provision of this Agreement shall be construed to relieve the
Agent from liability for its own grossly negligent action, its own grossly
negligent failure to act (other than errors in judgment) or its own bad faith
or willful misfeasance; PROVIDED HOWEVER, that:
() the duties and obligations of the Agent shall be determined
solely by the express provisions of this Agreement, the Agent
shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Agreement, no
implied covenants or obligations shall be read into this
Agreement against the Agent and, in the absence of bad faith on
the part of the Agent, the Agent may conclusively rely as to the
truth of the statements and the correctness of
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the opinions expressed therein, upon any certificates or opinions
furnished to the Agent and conforming to the requirements of this
Agreement;
() the Agent shall not be liable for an error of judgment made in
good faith by a Responsible Officer of the Agent, unless it shall
be proven that the Agent was negligent in performing its duties
in accordance with the terms of this Agreement;
() the Agent shall not be liable for any action taken, suffered or
omitted to be taken by it in good faith and reasonably believed
by it to be authorized or within the discretion or rights or
powers conferred upon it by this Agreement; and
() the Agent shall not be liable for any action it takes or omits to
take in good faith at the direction of the holders of the Notes;
provided that the Agent shall not be authorized hereunder to
comply with any direction which is not authorized by the terms of
this Agreement.
() Notwithstanding any other provision of this Agreement, the Agent
shall not be required to expend or risk its own funds or otherwise incur
financial liability in the performance of any of its duties as Agent under
this Agreement, or in the exercise of any of its rights or powers, if there
is reasonable ground for believing that the repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it, and none of the provisions contained in this Agreement shall in any
event require the Agent to perform, or be responsible for the manner of
performance of, any of the obligations of the Servicer under this Agreement
except during such time, if any, as the Backup Servicer (if the Agent and the
Backup Servicer are the same entity) shall be the successor to, and be vested
with the rights, duties, powers and privileges of, the Servicer in accordance
with the terms of this Agreement.
() The Agent shall not be charged with knowledge of any failure by the
Servicer to comply with the obligations of the Servicer referred to in this
Agreement, unless a Responsible Officer obtains actual knowledge of such
failure (it being understood that knowledge of the Servicer is not
attributable to the Agent) or the Agent receives written notice of such
failure from the Servicer or any holders of the Notes.
() Except for actions expressly authorized by this Agreement, the Agent
shall take no action reasonably likely to impair the security interests
created or existing under any Pledged Receivable or Finance Vehicle or to
impair the value of any Pledged Receivable or Financed Vehicle.
SECTION 20.2 CERTAIN MATTERS AFFECTING THE AGENT.
Except as otherwise provided in SECTION 20.1(c):
() The Agent may rely and shall be protected in acting or refraining
from acting upon any resolution, officer's certificate, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond or other paper or document
believed by it to be genuine and to have been signed or presented by the
proper party or parties;
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() The Agent may consult with counsel, and any Opinion of Counsel shall
be full and complete authorization and protection in respect of any action
taken or suffered or omitted by the Agent under this Agreement in good faith
and in accordance with such Opinion of Counsel;
() Notwithstanding anything to the contrary, the Agent shall be under no
obligation to exercise any of the rights or powers vested in it by this
Agreement, or to institute, conduct or defend any litigation under this
Agreement or in relation to this Agreement, at the request, order or
direction of any of the holders of the Notes pursuant to the provisions of
this Agreement unless such holders shall have furnished to the Agent security
or indemnity satisfactory to the Agent against the costs, expenses and
liabilities that may be incurred therein or thereby; PROVIDED, HOWEVER, that
the Agent shall, upon the occurrence of a Servicer Termination Event (that
has not been cured), exercise the rights and powers vested in it by this
Agreement with reasonable care and skill;
() The Agent shall not be bound to make any investigation into the facts
of matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or other
paper or documents, unless requested in writing to do so by Investors holding
beneficial interests in not less than 25% of the outstanding principal
balance of the Advances; PROVIDED, HOWEVER, that if the payment within a
reasonable time to the Agent of the costs, expenses or liabilities likely to
be incurred by it in the making of such investigation is, in the opinion of
the Agent, not reasonably assured to the Agent by the security afforded to it
by the terms of this Agreement, the Agent may require indemnity satisfactory
to it against such cost, expense or liability as a condition to so
proceeding; the reasonable expense of every such examination shall be paid by
the Person making such request or, if paid by the Agent, shall be reimbursed
by the Person making such request upon demand;
() The Agent may execute any of the trusts or powers under this
Agreement or perform any duties under this Agreement either directly or by or
through agents or attorneys or custodians. The Agent shall not be
responsible for any misconduct or negligence on the part of any agent or
attorney appointed with due care by the Agent. The Agent shall not be
responsible for any misconduct or negligence attributable to the acts or
omissions of the Servicer;
() The Agent may rely, as to factual matters relating to the Servicer,
on an Officer's Certificate of the Servicer; and
() The Agent shall not be required to take any action or refrain from
taking any action under this Agreement, or any Transaction Document referred
to herein, nor shall any provision of this Agreement or any such Transaction
Document be deemed to impose a duty on the agent to take action, if the Agent
shall have been advised by counsel that such action is contrary to the terms
of this Agreement or any Transaction Document or is contrary to law.
SECTION 20.3 AGENT NOT LIABLE FOR NOTES OR RECEIVABLES.
The Agent makes no representations as to the validity or sufficiency of
this Agreement or of the Notes or of any Receivable or Transaction Document,
except to the extent otherwise expressly provided herein. The Agent shall at
no time (except during such time, if any, as it is acting a successor
Servicer) have any responsibility or liability for or with respect to the
legality, validity or enforceability of any security interest in any Financed
Vehicle or any Receivable, or the perfection and priority of such a security
interest or the maintenance of any such perfection and priority, or for or
with respect to the sufficiency of the Collateral or its ability to generate
the payments to be distributed to holders of the Notes under this Agreement,
including, without limitation, the existence, condition, location and
ownership of any Financed Vehicle; the performance or enforcement of any
Receivable; the compliance by the Borrower, the Servicer or
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the Custodian with any covenant or the breach by the Borrower or the
Servicer, of any warranty or representation made under this Agreement or in
any related document and the accuracy of any such warranty or representation
prior to the Agent's receipt of notice or other discovery of any
noncompliance therewith or any breach thereof, any investment of monies by or
at the direction of the Servicer or any loss resulting therefrom (it being
understood, however, that the Agent shall remain otherwise responsible for
any Collateral that it may hold directly); the acts or omissions of the
Servicer, the Custodian (if other than the Agent), the Borrower or any
Obligor, any action of the Servicer taken in the name of the Agent; or any
action by the Agent taken at the instruction of the Servicer, the Borrower,
or the holders of the Note holding the requisite percentage of the Note;
PROVIDED, HOWEVER, that the foregoing shall not relieve the Agent of its
obligations to perform its duties under this Agreement, whether as Agent or
as Back-up Servicer. The Agent shall not be accountable for the use or
application by the Borrower of the Note or of the proceeds of such Note, or
for the use or application of any funds paid to the Servicer in respect of
the Pledged Receivables prior to the time such funds are deposited in the
Collection Account.
SECTION 20.4 AGENT MAY OWN NOTES.
The Agent in its individual or any other capacity may become the owner or
pledgee of Notes with the same rights as it would have if it were not the
Agent and may deal with the Servicer in banking transactions with the same
rights as it would have if it were not the Agent.
SECTION 20.5 AGENT'S INDEMNIFICATION.
The Borrower and the Servicer shall indemnify, defend, and hold harmless
the Agent, the Collateral Agent and the Backup Servicer from and against all
costs, expenses, losses, claims, damages and liabilities arising out of or
incurred in connection with the acceptance of the performance of the trusts
and duties contained in this Agreement, except to the extent that such cost,
expense, loss, claim, damage or liability is due to the bad faith or
negligence (except for errors in judgment) of the Agent, the Collateral Agent
or the Backup Servicer, respectively. In addition, the Borrower in SECTION
18.1 has agreed to indemnify the Agent, the Collateral Agent and the Backup
Servicer with respect to certain matters. The provisions of this SECTION
20.5, (i) shall not terminate or be deemed released upon the resignation or
termination of Arcadia as the Servicer, (ii) shall survive any termination of
this Agreement and (iii) shall continue for the benefit of any agent which
has resigned or been removed.
SECTION 20.6 ELIGIBILITY REQUIREMENTS FOR AGENT.
The Agent under this Agreement shall at all times be an entity duly
organized and validly existing under the laws of its jurisdiction of
organization authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by federal or state authority. If such entity
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for
the purpose of this SECTION 20.6, the combined capital and surplus of such
entity shall be deemed to be its combined capital and surplus as set forth in
its most recent report of condition so published. In case at any time the
agent shall cease to be eligible in accordance with the provisions of this
SECTION 20.6, the Agent shall resign immediately in the manner and with the
effect specified in SECTION 20.6.
SECTION 20.7 RESIGNATION OR REMOVAL OF AGENT.
() Subject to the provisions of subsection (c) of this SECTION 20.7, the
Agent may at any time resign from the trusts created by this Agreement by
giving 30 days' written notice thereof to the Servicer, the Investors and the
Borrower. Upon receiving such notice of resignation, the Majority Investors
shall promptly appoint a successor Agent by written instrument, in duplicate,
one copy of which instrument shall be delivered to the resigning Agent and
one copy to the successor Agent. If no successor Agent shall have been so
appointed and have accepted appointment within thirty (30)
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days after the giving of such notice of resignation, the resigning Agent may
petition any court of competent jurisdiction for the appointment of a
successor Agent.
() If at any time the Agent shall cease to be eligible in accordance
with the provisions of SECTION 20.6 and shall fail to resign after written
request therefor by the Majority Investors, or if at any time the Agent shall
be legally unable to act, or shall be adjudged a bankrupt or insolvent or a
receiver of the Agent or of its property shall be appointed or any public
officer shall take charge or control of the Agent or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then
the Majority Investors shall remove the Agent. If the Majority Investors, as
the case may be, removed the Agent under the authority of the immediately
preceding sentence, the Majority Investors, as the case may be, shall
promptly appoint a successor Agent by written instrument, in duplicate, one
copy of which instrument shall be delivered to the Agent so removed and one
copy to the successor Agent. The Majority Investors, as the case may be,
shall also pay all fees due and owing to the outgoing Agent.
() Any resignation or removal of the Agent and appointment of a
successor Agent pursuant to any of the provisions of this SECTION 20.7 shall
not become effective until acceptance of appointment by the successor agent
as provided in SECTION 20.8.
SECTION 20.8 SUCCESSOR AGENT.
Any successor Agent appointed as provided in SECTION 20.7 shall execute,
acknowledge and deliver to the Servicer and the Investors, and to its
predecessor Agent an instrument accepting such appointment under this
Agreement, and thereupon the resignation or removal of the predecessor Agent
shall become effective and such successor agent, without any further act,
deed or conveyance (except as provided below), shall become fully vested with
all the rights, power, duties and obligations of its predecessor under this
Agreement, with like effect as if originally named as Agent; but, on request
of the Majority Investors, or the successor Agent, such predecessor Agent
shall, upon payment of its charges then unpaid, execute and deliver an
instrument transferring to such successor Agent all of the rights, powers and
trusts of the Agent so ceasing to act, and shall duly assign, transfer and
deliver to such successor agent all property and money held by such agent so
ceasing to act hereunder. Upon request of any such successor Agent, the
Borrower shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Agent all such rights, powers and
trusts. The predecessor Agent shall deliver to the successor Agent all
documents and statements held by it under this Agreement or any Transaction
Document; and the predecessor Agent and the other parties to the Transaction
Documents shall amend any Transaction Document to make the successor Agent
the successor to the predecessor Agent thereunder; and the Investors and the
predecessor Agent shall execute and deliver such instruments and do such
other things as may reasonably be required for fully and certainly vesting
and confirming in the successor Agent all such rights, powers, duties and
obligations. No successor Agent shall accept appointment as provided in this
SECTION 20.8 unless at the time of such acceptance such successor Agent shall
be eligible under the provisions of SECTION 20.6. Upon acceptance of
appointment by a successor Agent as provided in this SECTION 20.8, the
Borrower shall mail notice by first-class mail of the successor of such Agent
and the address of the successor Agent's corporate trust office under this
Agreement to all holders of Notes at their addresses as shown in the Note
Register. If the Borrower fails to mail such notice within ten (10) days
after acceptance of appointment by the successor Agent, the successor Agent
shall cause such notice to be mailed at the expense of the Agent.
SECTION 20.9 MERGER OR CONSOLIDATION OF AGENT.
Any corporation into which the Agent may be merged or with which it may
be consolidated, or any corporation resulting from any merger or
consolidation to which the Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Agent, shall be the
successor of the Agent under this Agreement, provided such corporation shall
be eligible under the provisions of
77
<PAGE>
SECTION 20.6, without the execution or filing of any instrument or any
further act on the part of any of the parties to this Agreement, anything in
this Agreement to the contrary notwithstanding. The Agent or its successor
hereunder shall provide the Servicer with prompt notice of any such
transaction.
SECTION 20.10 APPOINTMENT OF CO-AGENT OR SEPARATE AGENT.
() Notwithstanding any other provisions of this Agreement, at any time,
for the purpose of meeting any legal requirements of any jurisdiction in
which any part of the Collateral or any Financed Vehicle may at the time be
located, the Agent, with the consent of the Servicer, such consent not to be
unreasonably withheld, shall have the power and may execute and deliver all
instruments to appoint one or more Persons approved by the Agent to act as
co-agent or co-agents, jointly with the Agent, or separate agent or separate
agents, of all or any part of the Collateral, and to vest in such Person or
Persons, in such capacity and for the benefit of the Investors, such title to
the Collateral, or any part thereof, and, subject to the other provisions of
this SECTION 20.10, such powers, duties, obligations, rights and trusts as
the Servicer and the Agent may consider necessary or desirable. If the
Servicer shall not have consented to such appointment within fifteen (15)
days after the receipt by it of a request to do so, or if a Servicer
Termination Event shall have occurred and be continuing, the consent of the
Servicer shall not be required. No co-agent or separate agent under this
Agreement shall be required to meet the terms of eligibility as a successor
agent under SECTION 20.6 and no notice to holders of Notes of the appointment
of any co-agent or separate agent shall be required under SECTION 20.8.
Every separate agent and co-agent shall, to the extent permitted by law, be
appointed and act subject to the following provisions and conditions:
() All rights, powers, duties and obligations conferred or imposed
upon the Agent shall be conferred or imposed upon and exercised
or performed by the Agent and such separate agent or co-agent
jointly (it being understood that such separate agent or co-agent
is not authorized to act separately without the Agent joining in
such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be
performed by the Agent, the Agent shall be incompetent or
unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of
title to the Collateral or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such
separate agent or co-agent, but solely at the direction of the
Agent;
() No agent under this Agreement shall be personally liable by
reason of any act or omission of any other agent under this
Agreement; and
() The Servicer and the Agent acting jointly may at any time accept
the resignation of or remove any separate agent or co-agent.
() Any notice, request or other writing given to the Agent shall be
deemed to have been given to each of the then separate agents and co-agents,
as effectively as if given to each of them. Every instrument appointing any
separate agent or co-agent shall refer to this Agreement and the conditions
of this ARTICLE XX. Each separate agent and co-agent, upon its acceptance of
the trusts conferred, shall be vested with the estates of property specified
in its instrument of appointment, either jointly with the Agent or
separately, as may be provided therein, subject to all the provisions of this
Agreement, specifically including every provision of this Agreement relating
78
<PAGE>
to the conduct of, affecting the liability of, or affording protection to,
the Agent. Every such instrument shall be filed with the Agent and a copy
thereof given to the servicer.
() Any separate agent or co-agent may, at any time constitute the
Agent, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate agent or
co-agent shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Agent, to the extent permitted by law, without the
appointment of a new or successor agent.
SECTION 20.11 AGENT MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.
All rights of action and claims under this Agreement or the Notes may be
prosecuted and enforced by the Agent without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Agent shall be brought in its own name as
agent. Any recovery of judgment shall, after provision for the payment of
the reasonable compensation, expenses, disbursements and advances of the
Agent, its agents and counsel, be for the ratable benefit of the Investors in
respect of which such judgment has been obtained.
SECTION 20.12 SUIT FOR ENFORCEMENT.
If a Servicer Termination Event shall occur and be continuing, the Agent,
in its discretion may (but shall have no duty or obligation so to proceed),
subject to the provisions of SECTION 20.1, proceed to protect and enforce its
rights and the rights of the Investors under this Agreement by a suit, action
or proceeding in equity or at law or otherwise, whether for the specific
performance of any covenant or agreement contained in this Agreement or in
aid of the execution of any power granted in this agreement or for the
enforcement of any other legal, equitable or other remedy as the Agent, being
advised by counsel, shall deem most effectual to protect and enforce any of
the rights of the Agent or the Investors.
[signature pages to follow]
79
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the day and year
first above written.
ARCADIA RECEIVABLES FINANCE CORP. III
By:
-------------------------------
Name:
Title:
7825 Washington Avenue South
Minneapolis, MN 55439-2444
Attention: Treasurer
Facsimile No.: (612) 942-6620
ARCADIA FINANCIAL LTD.
By:
-------------------------------
Name:
Title:
7825 Washington Avenue South
Minneapolis, MN 55439-2444
Attention: Treasurer
Facsimile No.: (612) 942-6620
DLJ MORTGAGE CAPITAL, INC. as Agent
and as a Lender
By:
-------------------------------
Name:
Title:
277 Park Avenue
New York, New York 10172
Attention:
Facsimile No.: (212) 892-5434
[Signature Page to Receivables Funding and Servicing Agreement]
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Backup
Servicer and Collateral Agent
By:
-------------------------------
Name:
Title:
<PAGE>
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0070
Attention: Corporate Trust Services -
Asset Backed Administration
Facsimile No.: (612) 667-3539
[Signature Page to Receivables Funding and Servicing Agreement]
<PAGE>
EXHIBIT A
DLJ Mortgage Capital, Inc.
277 Park Avenue
New York, NY 10172
Attention:
Fax #: (212) 892-5434
Phone #: (212) 325-9070/9086
Norwest Bank Minnesota, National Association
Norwest Center
Sixth Street & Marquette Avenue
Minneapolis, MN 55479-0070
Attention: Corporate Trust Services -
Asset Backed Administration
Fax #: (612) 667-3539
Phone #: (612) 667-1117
RE: Advance Request: $_________
[_________]
Gentlemen and Ladies:
This Advance Request confirms our request for an Advance against the
Pledged Receivables listed in SCHEDULE A hereto, pursuant to the Receivables
Funding and Servicing Agreement dated as of October 17, 1997 (as amended from
time to time, the "Agreement"), as follows:
Advance Date: ____________, 199___
Pledged Receivables: See SCHEDULE A hereto
Advance Amount:
1) Product of 0.95 and the Aggregate Outstanding Principal Balance of
Pledged Receivables that are Premier Receivables:
a. Aggregate Outstanding Principal Balance: $_____
b. Advance Rate: 0.95
c. Advance Amount Against Premier Receivables (a x b): $_____
2) Product of 0.93 and the Aggregate Principal Balance of Pledged
Receivables that are Classic Receivables that are not Financed
Repossessions:
a. Aggregate Outstanding Principal Balance: $_____
b. Advance Rate: 0.93
A-84
<PAGE>
c. Advance Amount Against Classic Receivables
that are not Financed Repossessions (a x b): $_____
3) Product of 0.85 and the Aggregate Principal Balance of Pledged
Receivables that are Classic Receivables that are Financed
Repossessions:
a. Aggregate Outstanding Principal Balance: $_____
b. Advance Rate: 0.85
c. Advance Amount Against Classic Receivables
that are Financed Repossessions (a x b): $_____
4) Gross Advance Amount (sum of 1c plus 2c plus 3c): $_____
5) Reserve Account Deposit (1% of 4): $_____
6) Net Advance Amount to Borrower (4 - 5): $_____
The Borrower hereby acknowledges that, pursuant to SECTION 2.4 of the
Receivables Funding and Servicing Agreement, the delivery of this Advance
Request and the acceptance by the Borrower of the proceeds of the Advance
requested hereby constitutes a representation and warranty by the Borrower
that, on the date of such Advance, and before and after giving effect thereto
and to the application of the proceeds therefrom in accordance with the
Transaction Documents, all applicable statements set forth in SECTION 2.4 are
true and correct in all material respects.
The Borrower agrees that if prior to the time of the Advance requested
hereby any matter certified to herein by it will not be true and correct at
such time as if then made, it will immediately so notify the Agent. Except
to the extent, if any, that prior to the time of the Advance requested hereby
the Agent shall receive written notice to the contrary from the Borrower,
each matter certified to herein shall be deemed once again to be certified as
true and correct at the date of such Advance as if then made.
The Borrower has caused this Advance Request to be executed and
delivered, and the certification and warranties contained herein to be made,
by its duly authorized officer this ___ day of ___________ __, 19__.
ARCADIA RECEIVABLES FINANCE CORP. III
By:
---------------------------------------
Name:
Title:
ARCADIA FINANCIAL LTD.,
as Servicer
By:
---------------------------------------
A-85
<PAGE>
Responsible Officer
A-86
<PAGE>
WIRE INSTRUCTIONS:
Norwest Bank
ABA #091 0000 19
Acct # 10-38-377
Corporate Trust FFC
(A) Liquidity Acct # 133-302-02 XXXXXXX
(B) TO BE INCLUDED AT A LATER DATE
A-87
<PAGE>
EXHIBIT B
NOTE
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT
BE DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OF BY THE
OWNER HEREOF UNLESS SUCH TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE
ACT AND SUCH STATE LAWS, AND WILL NOT BE A "PROHIBITED TRANSACTION" UNDER THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"). BY
ACCEPTANCE OF THIS NOTE, THE HOLDER AGREES TO BE BOUND BY ALL THE TERMS OF
THE RECEIVABLES FUNDING AND SERVICING AGREEMENT REFERRED TO HEREIN.
$______________ _________ __, 1997
FOR VALUE RECEIVED, the undersigned, ARCADIA RECEIVABLES FINANCE CORP.
III, a Delaware corporation (the "BORROWER"), promises to pay to the order of
DLJ Mortgage Capital, Inc., as Agent for the Investors, on the Stated
Maturity Date the principal sum of _________________________ _______
($___________) or, if less, the aggregate unpaid principal amount of all
Advances shown on the schedule attached hereto (and any continuation thereof)
and/or in the records of Agent made pursuant to that certain Receivables
Funding and Servicing Agreement, dated as of October 17, 1997 (together with
all amendments and other modifications, if any, from time to time thereafter
made thereto, the "RECEIVABLES FUNDING AND SERVICING AGREEMENT"), among the
Borrower, Arcadia Financial Ltd., Norwest Bank Minnesota, National
Association and DLJ Mortgage Capital, Inc., as Agent. Unless otherwise
defined, capitalized terms used herein have the meanings provided in the
Receivables Funding and Servicing Agreement.
The Borrower also promises to pay Yield on the unpaid principal amount
hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at
the rates per annum and on the dates specified in the Receivables Funding and
Servicing Agreement.
Payments of both principal and Yield are to be made in lawful money of
the United States of America in same day or immediately available funds to
the account designated by the Agent pursuant to the Receivables Funding and
Servicing Agreement.
This Note is the Note referred to in, and evidences Advances made under,
the Receivables Funding and Servicing Agreement, and the holder hereof is
entitled to the benefits of the Receivables Funding and Servicing Agreement,
to which reference is made for a description of the security for this Note
and for a statement of the terms and conditions on which the Borrower is
permitted and required to make prepayments and repayments of principal of the
indebtedness evidenced by this Note and on which such indebtedness may be
declared to be immediately due and payable.
B-89
<PAGE>
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
As provided in the Receivables Funding and Servicing Agreement and
subject to certain limitations therein set forth, the transfer of this Note
is registrable in the Note Register, upon surrender of this Note for
registration of transfer at the office or agency of the Collateral Agent in
Minneapolis, Minnesota, and at any other office or agency maintained by the
Borrower for that purpose, duly endorsed by, or accompanied by a written
instrument of transfer in the form satisfactory to the Note Registrar duly
executed by, the holder hereof or his attorney duly authorized in writing,
and thereupon one or more new Notes, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee
or transferees.
The Notes are issuable only in registered form without coupons in minimum
denominations of $100,000. As provided in the Agreement and subject to
certain limitations therein set forth, Notes are exchangeable for a like
aggregate principal amount of Notes of a different authorized denomination,
as requested by the holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Borrower or the Collateral Agent may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
The Borrower, the Collateral Agent and any agent of the Borrower or the
Collateral Agent may treat the Person in whose name this Note is registered
as the owner hereof for all purposes, whether or not this Note may be
overdue, and neither the Borrower, the Collateral Agent nor any such agent
shall be affected by notice to the contrary.
The holder hereof hereby agrees, and any assignee or participant of such
holder, by accepting such assignment or participation, shall be deemed to
have agreed, that it will not institute against the Borrower, or join any
other Person in instituting against the Borrower, any insolvency proceeding
(namely, any proceeding of the type referred to in the definition of Event of
Bankruptcy) so long as any Advances or other amounts due from the Borrower
hereunder shall be outstanding or there shall not have elapsed one year PLUS
one day since the last day on which any such Advances or other amounts shall
be outstanding. The foregoing shall not limit such Person's right to file
any claim in or otherwise take any action with respect to any insolvency
proceeding that was instituted by any Person other than such Person.
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY OTHERWISE
APPLICABLE CONFLICTS OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW
YORK GENERAL OBLIGATION LAW).
ARCADIA RECEIVABLES FINANCE CORP. III
By:_____________________________
Name:
Title:
Personally appeared before me ________________________ [name of notary],
in _____________________[county], ____________________ [state], the
above-named
B-90
<PAGE>
_______________________ [name of person executing], known or proved to me to
be the same person who executed the foregoing instrument and to be the
_______________________ [title] of Arcadia Receivables Finance Corp. III and
acknowledged to me that he executed the same as his free act and deed and the
free act and deed of [ ].
Subscribed and sworn before me this ____ day of _________, 1997.
NOTARY PUBLIC
COUNTY OF __________________
STATE OF ___________________
My commission expires the ____ day of
____________, 199_.
Schedule attached to Note Dated _________ __, 1997 of [ ]
payable to the order of DLJ Mortgage Capital, Inc., as Agent
Date of Amount of Amount of
Advance Advance Repayment
B-91
<PAGE>
B-92
<PAGE>
FORM OF ASSIGNMENT FORM
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Note to:
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint, agent to transfer this Note on the books of the
Borrower. The agent may substitute another to act for him.
Dated: Signed:
(sign exactly as the name appears on
the other side of this Note)
Signature Guarantee
Important Notice: When you sign your name to this Assignment Form without
filling in the name of your "Assignee" or "Attorney", this Note becomes fully
negotiable, similar to a check endorsed in blank. Therefore, to safeguard a
signed Note, it is recommended that you fill in the name of the new owner in
the "Assignee" blank. Alternatively, instead of using this Assignment Form,
you may sign a separate "power of attorney" form and then mail the unsigned
Note and the signed "power of attorney" in separate envelopes. For added
protection, use certified or registered mail for a Note.
B-93
<PAGE>
EXHIBIT C
FORM OF SERVICER'S CERTIFICATE
C-95
<PAGE>
EXHIBIT D
No.___
COLLATERAL RECEIPT AND CONFIRMATION
DLJ Mortgage Capital, Inc.
277 Park Avenue
New York, New York 10172
Attn: ___________________
Re: Receivables Funding and Servicing Agreement (the "Receivables
Funding Agreement") dated October 17, 1997, among DLJ Mortgage
Capital, Inc. Arcadia Financial Ltd., Arcadia Receivables Finance Corp. III
and Norwest Bank Minnesota, National Association, as Collateral Agent
---------------------------------------------------------------------------
Aggregate Outstanding Principal Balance
of the Receivables on the
Schedule of Receivables dated
__________ __, 199_: $_____________________
Gentlemen:
In accordance with the provisions of Section 14.1 of the Receivables
Financing Agreement, the undersigned, as Custodian, hereby certifies that, as
to each Receivable listed in the Schedule of Receivables dated ____________ __,
199_, it has in its possession the complete Receivable Files for the
Receivables identified on such Schedule of Receivables.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Receivables Financing Agreement.
ARCADIA FINANCIAL LTD.,
as Custodian
By:
Print Name:
Title:
D-97
<PAGE>
EXHIBIT E
REQUEST FOR RELEASE AND RECEIPT OF DOCUMENTS
To: [CUSTODIAN]
Re: The Receivables Funding and Servicing Agreement (the "Receivables
Funding Agreement") dated October 17, 1997, among DLJ Mortgage Capital,
Inc., Arcadia Financial Ltd., Arcadia Receivables Finance Corp. III,
and Norwest Bank Minnesota, National Association, as Backup Servicer and
Collateral Agent
------------------------------------------------------------------------
Gentlemen:
In connection with the administration of the Receivables held by you as the
Custodian for the Agent, we request the release, and acknowledge receipt, of the
(Receivables File/specify documents) for the Receivable described below, for the
reason indicated.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Collateral Agent Agreement.
Obligor's Name, Address & Zip Code:
Receivable Number:
Reason for Requesting Documents (check one or more)
_____ 1. Receivable Paid in Full
_____ 2. Receivable Repurchased
_____ 3. Receivable Liquidated
_____ 4. Receivable in Repossession
_____ 5. Other (explain)
If item 1, 2 or 3 above is checked, and if all or part of the Receivables
File was previously released to us, please release to us our previous
receipt on file with you, as well as any additional documents in your
possession relating to the above specified Contract.
The undersigned hereby certifies that if a release has been requested due
to payment in full of a Receivable or repurchase upon breach of a
representation or warranty, all amounts received in connection therewith
which are required to be deposited in the Collection Account pursuant to
Section 8.3 of the Receivables Funding and Servicing Agreement have been
so deposited.
E-99
<PAGE>
If item 4 or 5 above is checked, upon our return of the above document(s)
to you as the Collateral Agent, please acknowledge your receipt by
signing in the space indicated below, and returning this form.
ARCADIA FINANCIAL LTD.
By:________________________________
Print Name: _______________________
Title: ____________________________
Date: _____________________________
DOCUMENTS RETURNED TO THE CUSTODIAN:
[CUSTODIAN]
By:______________________________
Print Name: _____________________
Title: __________________________
Date: __________________________
E-100
<PAGE>
EXHIBIT F
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Receivables Funding and Servicing Agreement,
dated as of October 17, 1997, by and among Arcadia Receivables Finance Corp.
III, as Borrower, Arcadia Financial Ltd., as Servicer and Custodian, DLJ
Mortgage Capital, Inc., individually and as Agent, the financial institutions
from time to time party thereto, and their permitted assigns, as Lenders, and
Norwest Bank Minnesota, National Association, as Collateral Agent and Backup
Servicer (the "FUNDING AGREEMENT"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in
the Funding Agreement.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse,
from the Assignor, effective as of the Effective Date, the interests set
forth below (the "ASSIGNED INTERESTS") in the Assignor's rights and
obligations under the Funding Agreement, together with unpaid Yield accrued
on the assigned Advances to the Effective Date and the amount, if any, of the
fees accrued to the Effective Date for the account of the Assignor; all Liens
securing all or any amount s due under the Funding Agreement being hereby
expressly reserved and shall continue to secure the respective interests of
the Assignor and Assignee. From and after the Effective Date, (i) the
Assignee shall be a party to and be bound by the provisions of the Funding
Agreement and, to the extent of the intere sts assigned by this Assignment
and Acceptance, have the rights [and obligations] of a Lender thereunder and
(ii) the Assignor shall, to the extent of the interests assigned by this
Assignment and Acceptance, relinquish its rights [and be released from its
obligations] under the Funding Agreement.
2. This Assignment and Acceptance may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument
3. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
4. Assignment Information:
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignor's Address for Notices:
Attention:
Telephone:
Telecopier:
Assignee's Address for Notices:
Attention:
Telephone:
F-102
<PAGE>
Telecopier:
Effective Date of Assignment:
Principal Amount of Advances of Assignor
(After giving affect to the Assignment):
Principal Amount of Advances of Assignee
(After giving affect to the Assignment):
Fees Assigned (if any):
5. Payment Instructions:
Assignor:
Attention:
Reference:
Assignee:
Attention:
Reference:
F-103
<PAGE>
The terms set forth above are hereby
agreed to, New York, New York,
this ___ day of _____, 1997:
[________________________________].,
as Assignor
By:____________________________
Name:
Title:
[________________________________],
as Assignee
By:____________________________
Name:
Title:
Accepted:
DLJ MORTGAGE CAPITAL, INC.
By:____________________________
Name:
Title:
ARCADIA RECEIVABLES FINANCE
CORP. III
By:____________________________
Name:
Title:
F-104
<PAGE>
EXHIBIT G
FORM OF ACKNOWLEDGMENT
Norwest Bank Minnesota, National Association, acting as Collateral Agent
pursuant to that certain Collateral Agent Agreement, dated as of October 17,
1997, among Arcadia Financial Ltd. ("AFL"), Norwest Bank Minnesota, National
Association, DLJ Mortgage Capital, Inc., as Agent and Arcadia Receivables
Finance Corp. III ("ARFC III"), hereby acknowledges that (i) it has conducted
a limited review of at least fifty of the Receivables Files transferred to
ARFC III pursuant to the Receivables Purchase Agreement and Assignment, dated
as of October 17, 1997, between AFL and ARFC III (the "Purchase Agreement")
and hereby confirms that each Receivables File so reviewed, with the
exceptions noted on Exhibit A hereto, included (a) a fully executed original
retail installment sales contract or promissory note and related security
agreement, (b) a certificate of insurance or application form for insurance
signed by the Obligor or a signed representation letter from the Obligor
named in the Receivable pursuant to which the Obligor has agreed to obtain
physical damage insurance for the related Financed Vehicle, or microfiche
copies thereof, (c) the original Lien Certificate or, as indicated on Exhibit
A hereto, an application therefor and (d) an original credit application,
signed by the Obligor, or a microfiche copy thereof, signed by the Obligor
and (ii) it has performed a physical inventory of the Receivables Files and
confirms that AFL is in possession of a Receivable File for each Receivable
listed on the Schedule of Receivables attached to the Purchase Agreement.
Norwest Bank Minnesota, National Association, has not otherwise reviewed the
Receivables or the related Receivables Files for compliance with the terms of
the Purchase Agreement.
IN WITNESS WHEREOF, Norwest Bank Minnesota, National Association,
has caused this acknowledgment to be executed by its duly authorized officer
as of this _____ day of _________, 199 .
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Collateral Agent
By____________________________
Name:
Title:
G-106
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Other Definitional Provisions. . . . . . . . . . . . . . . 25
ARTICLE II THE FACILITY, ADVANCE PROCEDURES AND NOTE. . . . . . . . . 26
SECTION 2.1 Facility . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.2 Advance Procedures . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.3 Funding. . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.4 Representation and Warranty. . . . . . . . . . . . . . . . 27
SECTION 2.5 Voluntary Termination of Facility; Reduction of Facility
Limit. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.6 Note . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE III YIELD, FEES, ETC.. . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.1 Yield. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.2 Yield Payment Dates. . . . . . . . . . . . . . . . . . . . 28
SECTION 3.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 3.4 Computation of Yield and Fees. . . . . . . . . . . . . . . 28
ARTICLE IV REPAYMENTS AND PREPAYMENTS . . . . . . . . . . . . . . . . 28
SECTION 4.1 Repayments and Prepayments . . . . . . . . . . . . . . . . 28
ARTICLE V PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 5.1 Making of Payments . . . . . . . . . . . . . . . . . . . . 29
SECTION 5.2 Application of Certain Payments. . . . . . . . . . . . . . 29
SECTION 5.3 Due Date Extension . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VI INCREASED COSTS, ETC.. . . . . . . . . . . . . . . . . . . 30
SECTION 6.1 Increased Costs. . . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.2 Additional Yield on Advances . . . . . . . . . . . . . . . 31
SECTION 6.3 Funding Losses . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VII CONDITIONS TO ADVANCES . . . . . . . . . . . . . . . . . . 32
SECTION 7.1 Initial Advance. . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.2 All Advances . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VIII ADMINISTRATION AND SERVICING OF RECEIVABLES. . . . . . . . 33
SECTION 8.1 Duties of the Servicer . . . . . . . . . . . . . . . . . . 33
SECTION 8.2 Collection of Receivable Payments; Modification and
Amendment of Receivables; Lockbox Agreements . . . . . . . 34
SECTION 8.3 Realization Upon Receivables . . . . . . . . . . . . . . . 37
SECTION 8.4 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.5 Maintenance of Security Interests in Financed Vehicles . . 39
SECTION 8.6 Covenants, Representations and Warranties of Servicer. . . 40
SECTION 8.7 Purchase of Receivables Upon Breach of Covenant or
Representation and Warranty. . . . . . . . . . . . . . . . 43
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SECTION 8.8 Total Servicing Fee; Payment of Certain Expenses by
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 8.9 Servicer's Certificate . . . . . . . . . . . . . . . . . . 44
SECTION 8.10 Annual Statement as to Compliance; Notice of Servicer
Termination Event. . . . . . . . . . . . . . . . . . . . . 44
SECTION 8.11 Annual Independent Accountants' Report . . . . . . . . . . 44
SECTION 8.12 Access to Certain Documentation and Information Regarding
Receivables. . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.13 Monthly Tape . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.14 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.15 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.16 Servicer Reimbursement from Collections. . . . . . . . . . 46
SECTION 8.17 Application of Collections . . . . . . . . . . . . . . . . 46
ARTICLE IX GRANT OF SECURITY INTERESTS. . . . . . . . . . . . . . . . 46
SECTION 9.1 Borrower's Grant of Security Interest. . . . . . . . . . . 46
SECTION 9.2 Delivery of Collateral . . . . . . . . . . . . . . . . . . 48
SECTION 9.3 Borrower Remains Liable. . . . . . . . . . . . . . . . . . 48
SECTION 9.4 Covenants of the Borrower and Servicer Regarding the
Collateral . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 9.5 Release of Borrower Collateral . . . . . . . . . . . . . . 51
ARTICLE X REPRESENTATIONS AND WARRANTIES OF THE BORROWER . . . . . . 52
SECTION 10.1 Organization and Good Standing . . . . . . . . . . . . . . 52
SECTION 10.2 Due Qualification. . . . . . . . . . . . . . . . . . . . . 52
SECTION 10.3 Power and Authority. . . . . . . . . . . . . . . . . . . . 53
SECTION 10.4 Security Interest; Binding Obligations . . . . . . . . . . 53
SECTION 10.5 No Violation . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.6 No Proceedings . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.7 No Consents. . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 10.8 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 10.9 Chief Executive Office . . . . . . . . . . . . . . . . . . 54
SECTION 10.10 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 10.11 Tax Treatment. . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 10.12 Compliance With Laws . . . . . . . . . . . . . . . . . . . 54
SECTION 10.13 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.14 No Liens, Etc. . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.15 Purchase and Sale. . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.16 Securities Act of 1933; Investment Company Act of 1940 . . 55
SECTION 10.17 Information True and Correct . . . . . . . . . . . . . . . 55
SECTION 10.18 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.19 Investment Company Status. . . . . . . . . . . . . . . . . 56
SECTION 10.20 No Shared Obligations. . . . . . . . . . . . . . . . . . . 56
SECTION 10.21 Eligible Receivables . . . . . . . . . . . . . . . . . . . 56
ARTICLE XI COVENANTS OF THE BORROWER. . . . . . . . . . . . . . . . . 56
SECTION 11.1 Protection of Security Interest of the Investors . . . . . 56
SECTION 11.2 Other Liens or Interests . . . . . . . . . . . . . . . . . 57
SECTION 11.3 Costs and Expenses . . . . . . . . . . . . . . . . . . . . 57
SECTION 11.4 Reporting Requirements . . . . . . . . . . . . . . . . . . 57
SECTION 11.5 Take-Out Securitization. . . . . . . . . . . . . . . . . . 58
SECTION 11.6 Corporate Separateness . . . . . . . . . . . . . . . . . . 58
SECTION 11.7 Inspections. . . . . . . . . . . . . . . . . . . . . . . . 60
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ARTICLE XII THE SERVICER . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 12.1 Liability of Servicer; Indemnities . . . . . . . . . . . . 62
SECTION 12.2 Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer or Backup Servicer. . . . . . 63
SECTION 12.3 Limitation on Liability of Servicer, Backup Servicer and
Others . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 12.4 Delegation of Duties . . . . . . . . . . . . . . . . . . . 65
SECTION 12.5 Servicer and Backup Servicer Not to Resign . . . . . . . . 65
ARTICLE XIII SERVICER TERMINATION EVENTS. . . . . . . . . . . . . . . . 66
SECTION 13.1 Servicer Termination Event . . . . . . . . . . . . . . . . 66
SECTION 13.2 Consequences of a Servicer Termination Event . . . . . . . 67
SECTION 13.3 Appointment of Successor Servicer. . . . . . . . . . . . . 68
ARTICLE XIV THE CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 14.1 Delivery of the Custodial Receipt and Confirmation . . . . 69
SECTION 14.2 Obligations of the Custodian . . . . . . . . . . . . . . . 69
SECTION 14.3 Release of Receivables Files . . . . . . . . . . . . . . . 69
SECTION 14.4 Release Upon Repurchase or Payment in Full . . . . . . . . 70
SECTION 14.5 Fees and Expenses of the Custodian . . . . . . . . . . . . 70
SECTION 14.6 Examination of Receivables Files . . . . . . . . . . . . . 70
SECTION 14.7 Insurance of the Custodian . . . . . . . . . . . . . . . . 70
SECTION 14.8 Periodic Statements. . . . . . . . . . . . . . . . . . . . 71
SECTION 14.9 Resignation by and Removal of the Custodian; Successor
Custodian. . . . . . . . . . . . . . . . . . . . . . . . . 71
ARTICLE XV FACILITY TERMINATION EVENTS; THEIR EFFECT. . . . . . . . . 71
SECTION 15.1 Facility Termination Events. . . . . . . . . . . . . . . . 71
SECTION 15.2 Effect of Facility Termination Event; Remedies . . . . . . 73
ARTICLE XVI THE AGENT. . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 16.1 Authorization and Action . . . . . . . . . . . . . . . . . 74
SECTION 16.2 Exculpation. . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 16.3 Agent and Affiliates . . . . . . . . . . . . . . . . . . . 74
SECTION 16.4 Replacement Agent. . . . . . . . . . . . . . . . . . . . . 75
ARTICLE XVII ASSIGNMENTS. . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 17.1 Restrictions on Assignments. . . . . . . . . . . . . . . . 75
SECTION 17.2 Documentation. . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 17.3 Rights of Assignee . . . . . . . . . . . . . . . . . . . . 76
SECTION 17.4 Notice of Assignment . . . . . . . . . . . . . . . . . . . 76
SECTION 17.5 Registration; Registration of Transfer and Exchange. . . . 76
SECTION 17.6 Mutilated, Destroyed, Lost and Stolen Notes. . . . . . . . 77
SECTION 17.7 Persons Deemed Owners. . . . . . . . . . . . . . . . . . . 78
SECTION 17.8 Cancellation . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 17.9 Holder of Note Prior to Facility Termination Date. . . . . 78
ARTICLE XVIII INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 78
SECTION 18.1 General Indemnity of the Borrower. . . . . . . . . . . . . 78
SECTION 18.2 Contribution . . . . . . . . . . . . . . . . . . . . . . . 80
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ARTICLE XIX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 19.1 No Waiver; Remedies. . . . . . . . . . . . . . . . . . . . 80
SECTION 19.2 Amendments, Waivers. . . . . . . . . . . . . . . . . . . . 81
SECTION 19.3 Notices, Etc.. . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 19.4 Costs, Expenses and Taxes. . . . . . . . . . . . . . . . . 81
SECTION 19.5 Binding Effect; Survival . . . . . . . . . . . . . . . . . 81
SECTION 19.6 Captions and Cross References. . . . . . . . . . . . . . . 82
SECTION 19.7 Severability . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 19.8 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 19.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 19.10 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . 82
SECTION 19.11 Third Party Beneficiary. . . . . . . . . . . . . . . . . . 83
SECTION 19.12 No Proceedings . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 19.13 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . 83
ARTICLE XX THE COLLATERAL AGENT AS AGENT. . . . . . . . . . . . . . . 84
SECTION 20.1 Duties of the Agent. . . . . . . . . . . . . . . . . . . . 84
SECTION 20.2 Certain Matters Affecting the Agent. . . . . . . . . . . . 85
SECTION 20.3 Agent Not Liable for Notes or Receivables. . . . . . . . . 86
SECTION 20.4 Agent May Own Notes. . . . . . . . . . . . . . . . . . . . 87
SECTION 20.5 Agent's Indemnification . . . . . . . . . . . . . . . . . 87
SECTION 20.6 Eligibility Requirements for Agent . . . . . . . . . . . . 87
SECTION 20.7 Resignation or Removal of Agent. . . . . . . . . . . . . . 88
SECTION 20.8 Successor Agent. . . . . . . . . . . . . . . . . . . . . . 88
SECTION 20.9 Merger or Consolidation of Agent . . . . . . . . . . . . . 89
SECTION 20.10 Appointment of Co-Agent or Separate Agent. . . . . . . . . 89
SECTION 20.11 Agent May Enforce Claims Without Possession of Notes . . . 90
SECTION 20.12 Suit for Enforcement . . . . . . . . . . . . . . . . . . . 91
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PAGE
EXHIBITS
EXHIBIT A Form of Advance Request (Section 2.2)
EXHIBIT B Form of Note (Section 2.8)
EXHIBIT C Form of Servicer's Certificate (Section 8.9)
EXHIBIT D Form of Collateral Receipt and Certification
EXHIBIT E Request for Release and Receipt of Document
EXHIBIT F Form of Assignment and Acceptance
EXHIBIT G Form of Acknowledgment
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COLLATERAL AGENT AGREEMENT
COLLATERAL AGENT AGREEMENT dated October 17, 1997 among DLJ MORTGAGE
CAPITAL, INC., as agent for the Investors (as hereinafter defined) (in such
capacity, the "AGENT"), NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a
national banking association (the "COLLATERAL AGENT"), ARCADIA RECEIVABLES
FINANCE CORP. III, a Delaware corporation (the "BORROWER"), and ARCADIA
FINANCIAL LTD., a Minnesota corporation ("ARCADIA"), as servicer and as
originator.
WHEREAS, Arcadia is the owner of certain Receivables (as hereinafter
defined);
WHEREAS, Borrower desires to purchase certain of such Receivables;
WHEREAS, DLJ Mortgage Capital, Inc. (in its individual capacity, "DLJ")
has agreed, and other "Lenders" (as hereinafter defined) may from time to
time hereafter agree, to finance the purchase of such Receivables pursuant to
the Receivables Funding and Servicing Agreement (as hereinafter defined);
WHEREAS, Arcadia will service the Receivables transferred to Borrower
pursuant to the Receivables Funding and Servicing Agreement (as hereinafter
defined).
NOW, THEREFORE, Arcadia, the Borrower, the Collateral Agent and the
Agent, intending to be legally bound, hereby agree as follows:
Section 1. DEFINITIONS. For all purposes of this Agreement, the following
terms shall have the meanings set forth below, unless the context clearly
indicates otherwise. Capitalized terms used herein but not otherwise defined
shall have the meanings set forth in the Receivables Funding and Servicing
Agreement.
"AGENT" has the meaning specified in the PREAMBLE.
"AGREEMENT" means this Collateral Agent Agreement, as it may be amended,
supplemented or otherwise modified from time to time.
"AMOUNT AVAILABLE" means, with respect to any Distribution Date, the sum
of (a) the amount on deposit in the Collection Account as of the end of the
preceding Settlement Period plus (b) the amount transferred from the Reserve
Account on such Distribution Date pursuant to SECTION 4(a) or 4(b), if any,
and (c) any investment income earned on amounts on deposit in the Collection
Account and the Reserve Account since the prior Distribution Date (or the
Closing Date in the case of the first Distribution Date).
"ARCADIA" has the meaning specified in the PREAMBLE.
"AUTHORIZED REPRESENTATIVE" is defined in SECTION 11.
"BACKUP SERVICER FEE" means, with respect to any Distribution Date, the
fee set forth in a separate agreement of even date herewith between the
Borrower and the Backup Servicer.
"BORROWER" has the meaning specified in the PREAMBLE.
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"COLLATERAL AGENT" means Norwest Bank Minnesota, National Association,
not in its individual capacity, but solely as Collateral Agent under this
Agreement, and any successors thereto.
"COLLATERAL AGENT FEE" is defined in SECTION 5.
"EXCESS SERVICING FEE" means the amount of any servicing compensation
payable to any successor Servicer in excess of the Servicing Fee pursuant to
Section 13.3 of the Receivables Funding and Servicing Agreement.
"INCREASED COSTS" means collectively, any increased cost, loss or
liability owing to the Agent and/or any other Person under Article VI of the
Receivables Funding and Servicing Agreement.
"INDEMNITY AMOUNTS" means collectively, all indemnity obligations owing
to the Agent, any Investor and/or any entity which enters into a commitment
to make Advances or purchase interests therein under Article XVIII of the
Receivables Funding and Servicing Agreement.
"RECEIVABLES FUNDING AND SERVICING AGREEMENT" means the Receivables
Funding and Servicing Agreement, dated as of October 17, 1997, by and among
the Borrower, Arcadia, as Servicer and Custodian, DLJ, the Agent, and Norwest
Bank Minnesota, National Association, as Backup Servicer and Collateral Agent.
"RESERVE ACCOUNT REQUIRED AMOUNT" means, with respect to a Distribution
Date, the product of (a) the principal amount of the Advances outstanding on
such date (after giving effect to any payments of principal made on such date
in respect of such Advances) and (b) 2%.
SECTION 2. APPOINTMENT OF COLLATERAL AGENT. Subject to the terms and
conditions hereof, the Agent, on behalf of the Investors, hereby appoints,
Norwest Bank Minnesota, National Association, as Collateral Agent hereunder,
and Norwest Bank Minnesota, National Association hereby accepts such
appointment.
Section 3. DISTRIBUTIONS. () On each Distribution Date prior to the
Facility Termination Date, the Collateral Agent shall distribute, in
accordance with the applicable Servicer's Certificate, the Amount Available
in the following order of priority:
() FIRST, to the extent not previously paid by or on behalf of
the Borrower (A) to the Servicer, from the Amount Available, the
Servicing Fee for the related Settlement Period; (B) to the Collateral
Agent, the Collateral Agent Fee and other expenses due to the Collateral
Agent under the Transaction Documents; (C) to the Backup Servicer, the
Backup Servicer Fee and other expenses due to the Backup Servicer
pursuant to the Receivables Funding and Servicing Agreement and (D) to
the Agent, on behalf of itself and the Investors, the Fees payable on
such Distribution Date pursuant to the Fee Letter (and any Fees due and
not paid on a prior Distribution Date);
() SECOND, to the Agent, on behalf of the Investors, in an amount
equal to Yield on the Advances accrued during the preceding Settlement
Period (and any Yield with respect to any prior Settlement Period to the
extent not paid on a prior Distribution Date);
() THIRD, to the Agent, on behalf of the Investors, the principal
amount of Advances which are to be paid or prepaid to the extent then due
and owing including,
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without limitation, any amount of such principal
required to prevent the existence of a Borrowing Base Deficiency;
() FOURTH, to the Reserve Account, until the amount on deposit
therein is equal to the Reserve Account Required Amount;
() FIFTH, to the Agent, for the benefit of the Investors, any
Increased Costs then due and owing, and to each Indemnified Party, any
Indemnification Amounts then due and owing to each such Indemnified
Party; and
() SIXTH, to the Borrower, the remaining portion of the Amount
Available.
() On each Distribution Date on or after the Facility Termination Date,
the Collateral Agent shall distribute, in accordance with the applicable
Servicer's Certificate, the Amount Available in the following order of priority:
() FIRST, to the extent not previously paid by or on behalf of
the Borrower (A) to the Servicer, from the Amount Available, the
Servicing Fee for the related Collection Period; (B) to the Collateral
Agent the Collateral Agent Fee and other expenses due to the Collateral
Agent under the Transaction Documents; (C) to the Backup Servicer, the
Backup Servicer Fee and other expenses due to the Backup Servicer
pursuant to the Receivables Funding and Servicing Agreement; and (D) to
the Agent, on behalf of itself, the Investors and certain other Persons
named in the Fee Letter, any Fees payable on such Distribution Date
pursuant to the Fee Letter (and any Fees due and not paid on a prior
Distribution Date);
() SECOND, to the Agent on behalf of the Investors, an amount
equal to Yield on the Advances accrued during the preceding Settlement
Period (and any Yield with respect to any prior Settlement Period to the
extent not paid on a prior Distribution Date);
() THIRD, to the Agent, on behalf of the Investors, the principal
amount of all outstanding Advances;
() FOURTH, to the Agent, for the benefit of the Investors, any
Increased Costs then due and owing, and to each Indemnified Party, any
Indemnification Amounts then due and owing to each such Indemnified Party;
() FIFTH, to the Servicer, the Excess Servicing Fee, if any; and
() SIXTH, to the Borrower, the remaining portion of the Amount
Available.
() On each Settlement Date, the Collateral Agent shall, at the
direction of the Agent, withdraw from the Collection Account and distribute the
following amounts in the following order of priority:
() FIRST, to the Agent, on behalf of the Investors, Yield in
respect of any Advances being paid or prepaid on such date;
() SECOND, to the Agent, on behalf of the Investors, an amount
equal to the Advances being paid or prepaid on such date; and
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() THIRD, to the Borrower, the remaining amount, if any, of the
sum of the proceeds of any sale on such date of Pledged Receivables and
all amounts deposited into the Collection Account from the Reserve
Account pursuant to SECTION 4(b).
Section 4. THE RESERVE ACCOUNT AND THE COLLECTION ACCOUNT.() On each
Distribution Date, the Collateral Agent shall withdraw and deposit in the
Collection Account from the Reserve Account, in the following order of
priority based solely on information contained in the Servicer's Certificate
for the preceding Determination Date, amounts needed (after application of
the Amount Available to be made on such Distribution Date) to pay the amounts
described in clauses (i), (ii) and (iii) of paragraph (a) of SECTION 3. On
the first Distribution Date following the Facility Termination Date, the
Collateral Agent shall withdraw all amounts on deposit in the Reserve Account
and deposit such amounts in the Collection Account and at such time the
Reserve Account shall be closed.
() On each Settlement Date, the Collateral Agent shall, at the
direction of the Agent, withdraw from the Reserve Account the amount on
deposit in the Reserve Account in excess of the Reserve Account Required
Amount (after giving effect to all distributions to be made on such
Settlement Date pursuant to SECTION 3(a), (b) or (c), as applicable, and any
withdrawals to be made from the Reserve Account pursuant to paragraph (a) of
this SECTION 4) and deposit such amount into the Collection Account.
() All or a portion of the amounts on deposit in the Collection Account
and the Reserve Account shall be invested and reinvested by the Collateral
Agent at the direction of the Servicer in one or more Permitted Investments.
No such investment shall mature later than the next Distribution Date. All
income or other gains from investment of moneys on deposit in the applicable
account shall be deposited by the Collateral Agent in the applicable account
immediately upon receipt, and any loss resulting from such investment shall
be deducted from the amount on deposit in the applicable account. If any
amounts are needed for disbursement from the Collection Account or the
Reserve Account and sufficient uninvested funds are not available therein to
make such disbursement, the Collateral Agent shall cause to be sold or
otherwise converted to cash a sufficient amount of the investments in such
account to make such disbursement upon the direction of the Agent.
() If at any time the Collection Account or the Reserve Account ceases
to be an Eligible Account, the Agent shall transfer such account to another
institution such that such account shall meet the requirements of an Eligible
Account.
Section 5. FEES AND EXPENSES OF THE COLLATERAL AGENT. It is understood
that the Collateral Agent shall be entitled to charge fees and receive
reimbursement for expenses (such fees and reimbursement are referred to
hereinafter as the "COLLATERAL AGENT FEE") and such Collateral Agent Fee
shall be solely an obligation of the Borrower and not of any other Person.
Such agreed upon Collateral Agent Fee shall be set forth in a separate fee
letter submitted by the Collateral Agent to the Borrower.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE COLLATERAL AGENT. The
Collateral Agent represents and warrants as of the date hereof that:
() It is a national banking association duly organized, validly
existing and in good standing under the laws of the United States of America;
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() It has full power, authority and legal right to execute, deliver and
perform this Agreement and the Receivables Funding and Servicing Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Agreement and the Receivables Funding and Servicing
Agreement;
() The execution, delivery and performance by it of this Agreement and
the Receivables Funding and Servicing Agreement do not violate (i) any
provision of any law or regulation governing the banking and trust powers of
it or any order, writ, judgment, or decree of any court, arbitrator, or
governmental authority applicable to it or any of its assets or (ii) any
provision of its corporate charter or by-laws;
() The execution, delivery and performance by it of this Agreement and
the Receivables Funding and Servicing Agreement do not require the
authorization, consent or approval of, the giving of notice to, the filing or
registration with, or the taking of any other action in respect of, any
governmental authority or agency regulating its banking and corporate trust
activities; and
() This Agreement and the Receivables Funding and Servicing Agreement
have been duly executed and delivered by it and constitute the legal, valid
and binding agreements of it, enforceable in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity.
Section 7. RESIGNATION BY AND REMOVAL OF THE COLLATERAL AGENT; SUCCESSOR
COLLATERAL AGENT. () The Collateral Agent may at any time resign and
terminate its obligations under this Agreement upon at least 60 days prior
written notice to the Agent. Promptly after receipt of notice of the
Collateral Agent's resignation, the Agent shall appoint, by written
instrument, a successor collateral agent. If a successor collateral agent is
not appointed in accordance with the foregoing procedures, the Collateral
Agent may petition a court of competent jurisdiction to appoint a successor
collateral agent. One (1) original counterpart of such instrument of
appointment shall be delivered to each of the Agent, the Collateral Agent and
the successor collateral agent.
() The Agent, with cause, upon at least 60 days written notice to the
Collateral Agent, may remove and discharge the Collateral Agent (or any
successor collateral agent thereafter appointed) from the performance of its
obligations under this Agreement. A copy of such notice shall be delivered
to each other party hereto. Promptly after the giving of notice of removal
of the Collateral Agent, the Agent shall appoint, by written instrument, a
successor collateral agent. One (1) original counterpart of such instrument
of appointment shall be delivered to each of the Agent, the Collateral Agent
and the successor collateral agent.
() In the event of any such resignation or removal, the Collateral
Agent shall promptly transfer to the successor collateral agent, as directed
in writing by the Agent, all accounts, funds and investments being
administered under this Agreement.
Section 8. INDEMNITY. The Borrower and Arcadia agree, jointly and
severally, to indemnify and hold harmless the Collateral Agent and its
directors, officers, agents and employees against any and all claims,
damages, losses, liabilities or expenses (including, but not limited to,
reasonable attorneys' fees, court costs and costs of investigation) of any
kind or nature whatsoever arising out of or in connection with this Agreement
and the Transaction Documents that may be imposed upon, incurred by or
asserted against the Collateral Agent; PROVIDED, HOWEVER, that this SECTION 8
shall not relieve the Collateral Agent from liability for its willful
misfeasance,
5
<PAGE>
bad faith or gross negligence. The provisions of this SECTION 8 shall
survive the resignation or removal of the Collateral Agent or any successor
collateral agent and the termination of this Agreement.
Section 9. LIMITATIONS OF LIABILITY. () The Collateral Agent shall not be
liable to the Borrower, the Servicer, the Agent, any Investor or any other
Person with respect to any action taken or not taken by it in good faith in
the performance of its obligations under this Agreement. The obligations of
the Collateral Agent shall be determined solely by the express provisions of
this Agreement. No representation, warranty, covenant, agreement, obligation
or duty of the Collateral Agent shall be implied with respect to this
Agreement or the Collateral Agent's services hereunder.
() The Collateral Agent may rely, and shall be protected in acting or
refraining to act, upon and need not verify the accuracy of (i) any oral
instructions from any persons the Collateral Agent believes to be authorized
to give such instructions, who shall only be, with respect to the Servicer,
the Borrower and the Agent, persons the Collateral Agent believes in good
faith to be Authorized Representatives and (ii) any written instruction,
notice, order, request, direction, certificate, opinion or other instrument
or document believed by the Collateral Agent to be genuine and to have been
signed and presented by the proper party or parties, which, with respect to
the Borrower, the Servicer and the Agent, shall mean signature and
presentation by Authorized Representatives whether such presentation is by
personal delivery, express delivery or facsimile.
() The Collateral Agent may consult with counsel nationally recognized
in the area of commercial transactions with regard to legal questions arising
out of or in connection with this Agreement, and the advice or opinion of
such counsel shall be full and complete authorization and protection in
respect of any action taken, omitted or suffered by the Collateral Agent in
reasonable reliance, in good faith, and in accordance therewith; PROVIDED,
HOWEVER, that if the Agent gives instructions to the Collateral Agent or
provides an opinion of counsel selected by them, which in either case
conflicts with any such advice or opinion of counsel, then the Collateral
Agent shall follow such instructions of the Agent (unless such instructions
violate the express terms of this Agreement or violate applicable law) or
such opinion of counsel selected by the Agent, and shall be fully protected
in acting or refraining to act thereon.
() No provision of this Agreement shall require the Collateral Agent to
expend or risk its own funds or otherwise incur financial liability in the
performance of its duties under this Agreement if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity is
not reasonably assured to it.
Section 10. TERM OF AGREEMENT. This Agreement shall be terminated upon
the final payment of all obligations of the Borrower under the Transaction
Documents and the termination of any commitment of the Lenders under the
Transaction Documents.
Section 11. AUTHORIZED REPRESENTATIVES. The names of the officers of the
Servicer, the Borrower and the Agent who are authorized to give and receive
notices, requests and instructions and to deliver certificates and documents
in connection with this Agreement on behalf of the Servicer, the Borrower and
the Agent ("AUTHORIZED REPRESENTATIVES") are set forth in EXHIBIT A hereto,
along with the specimen signature of each such officer. From time to time,
the Servicer, the Borrower and the Agent may, by delivering to the Collateral
Agent a revised exhibit, change the information previously given, but the
Collateral Agent shall be entitled to rely conclusively on the most recent
exhibit until receipt of a superseding exhibit.
6
<PAGE>
Section 12. NOTICES. All demands, notices and communications relating to
this Agreement shall be in writing and shall be deemed to have been duly
given when received by the other party or parties at the address shown below,
whether by personal delivery, express delivery or facsimile, or such other
address as may hereafter be furnished to the other party or parties by like
notice. Any such demand, notice or communication hereunder shall be deemed
to have been received on the date delivered to or received at the premises of
the addressee.
If to the Borrower:
Arcadia Receivables Finance Corp. III
c/o Arcadia Financial Ltd.
7825 Washington Avenue South, Suite 975
Minneapolis, MN 55439-2444
Attn: Treasurer
Telephone: (612) 944-4587
Telecopy: (612) 942-6620
If to the Servicer:
Arcadia Financial Ltd.
7825 Washington Avenue South, Suite 500
Minneapolis, MN 55439-2444
Attn: Treasurer
Telephone: (612) 944-4587
Telecopy: (612) 942-6620
If to the Collateral Agent:
Norwest Bank Minnesota, National Association,
as Collateral Agent
Sixth Street and Marquette Avenue
Minneapolis, MN 55479-0070
Attn: Corporate Trust Services - Asset-Backed Administration
Telephone: (612) 667-1117
Telecopy: (612) 667-3539
If to the Agent:
DLJ Mortgage Capital, Inc.
277 Park Avenue
New York, New York 10172
Attn:
Telephone: (212) 892-____
Telecopy: (212) 892-5434
SECTION . GOVERNING LAW; VENUE; CONSENT TO JURISDICTIONSECTION 13.
GOVERNING LAW; VENUE; CONSENT TO JURISDICTION. (A) THIS AGREEMENT SHALL BE
A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE
7
<PAGE>
CONFLICT OF LAW PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW).
(B) VENUE FOR ANY ACTION BROUGHT UNDER THIS AGREEMENT MAY BE IN THE
FEDERAL DISTRICT COURT SITTING IN NEW YORK, NEW YORK. EACH PARTY TO THIS
AGREEMENT HEREBY CONSENTS TO THE JURISDICTION OF SUCH COURT.
Section 14. ASSIGNMENT. Except as expressly permitted herein, no party to
this Agreement may assign its rights or delegate its obligations under this
Agreement without the express written consent of the other parties.
Section 15. COUNTERPARTS. For the purpose of facilitating the execution
of this Agreement and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed
to be an original, and together shall constitute and be one and the same
instrument.
Section 16. HEADINGS. The section headings are not part of this Agreement
and shall not be used in its interpretation.
Section 17. THIRD PARTY BENEFICIARIES. It is hereby agreed by the parties
hereto that, each Lender and any Investor are, and are intended to be, third
party beneficiaries under this Agreement.
SECTION 18. CERTAIN REMEDIES. () The Collateral Agent may, in its
discretion but with the consent of the Agent, and shall, at the direction of
the Agent, proceed to protect and enforce its rights and the rights of the
Investors by such appropriate proceedings as the Collateral Agent or the
Agent shall deem most effective to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in any
Transaction Document or in aid of the exercise of any power granted herein,
or to enforce any other proper remedy or legal or equitable right vested in
the Collateral Agent by any Transaction Document or by law.
() In case there shall be pending, relative to the Borrower or any
other obligor upon the Note or any Person having or claiming an ownership
interest in the Collateral proceedings under the Bankruptcy Code or any other
applicable federal or state bankruptcy, insolvency or other similar law, or
in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Borrower or its property or such other obligor or
Person, or in case of any other comparable judicial proceedings relative to
the Borrower or other obligor upon the Notes, or to the creditors of property
of the Borrower or such other obligor, the Collateral Agent, irrespective of
whether the principal of any Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Collateral Agent shall have made any demand pursuant to the provisions of
this Section, shall be entitled and empowered, by intervention in such
proceedings or otherwise:
() to file and prove a claim or claims for the whole amount of
principal and Yield owing and unpaid in respect of the Notes and to file
such other papers or documents as may be necessary or advisable in order
to have the claims of the Collateral Agent (including any claim for
reasonable compensation to the Collateral Agent and each predecessor
Collateral Agent, and their respective agents, attorneys and counsel, and
for reimbursement of all expenses and liabilities incurred, and all
advances, if any, made, by the Collateral
8
<PAGE>
Agent and each predecessor Collateral Agent, except as a result of
negligence, bad faith or wilful misconduct) and of the Investors allowed
in such proceedings;
() unless prohibited by applicable law and regulations, to vote on
behalf of the holders of the Note in any election of a trustee, a standby
trustee or person performing similar functions in any such proceedings;
() to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute all amounts received
with respect to the claims of the Investors and of the Collateral Agent
on their behalf; and
() to file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the
Collateral Agent or the Investors allowed in any judicial proceedings
relative to the Collateral Agent, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such proceeding is hereby authorized by each of such Investors to make
payments to the Collateral Agent, and, in the event that the Collateral Agent
shall consent to the making of payments directly to such Investors, to pay to
the Collateral Agent such amounts as shall be sufficient to cover reasonable
compensation to the Collateral Agent, each predecessor Collateral Agent and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Collateral Agent and each
predecessor Collateral Agent except as a result of negligence, bad faith or
wilful misconduct.
() Nothing herein contained shall be deemed to authorize the Collateral
Agent to authorize or consent to or vote for or accept or adopt on behalf of
any Investor any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any holder thereof or to
authorize the Collateral Agent to vote in respect of the claim of any
Investor in any such proceeding except, as aforesaid, to vote for the
election of a trustee in bankruptcy or similar person.
() All rights of action and of asserting claims under the Transaction
Documents, may be enforced by the Collateral Agent without the possession of
any of the Note or the production thereof in any trial or other proceedings
relative thereto, and any such action or proceedings instituted by the
Collateral Agent shall be brought in its own name as Collateral Agent, and
any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Collateral Agent, each predecessor
Collateral Agent and their respective agents and attorneys, shall be for the
ratable benefit of the holders of the Note.
() In any proceedings brought by the Collateral Agent to enforce the
Liens under the Transaction Documents(and also any proceedings involving the
interpretation of any provision of any Transaction Document), the Collateral
Agent shall be held to represent all the Investors, and it shall not be
necessary to make any Investor a party to any such proceedings.
SECTION 19. REMEDIES. The Agent may, or the Collateral Agent shall, at
the direction of the Agent, also do one or more of the following (subject to
SECTIONS 9 AND 18):
() institute Proceedings in its own name and on behalf of the
Investors as Collateral Agent for the collection of all amounts then
payable on the Note or under the Receivables Funding and Servicing
Agreement with respect thereto, whether by declaration or otherwise,
enforce any judgment obtained, and collect from the Borrower and any
other obligor upon such Note moneys adjudged due;
9
<PAGE>
() institute Proceedings from time to time for the complete or
partial foreclosure upon the Collateral;
() exercise any remedies of a secured party under the UCC and take
any other appropriate action to protect and enforce the right and
remedies of the Collateral Agent, the Agent and the holders of the Note;
and
() sell the Collateral or any portion thereof or rights or
interest therein, at one or more public or private sales called and
conducted in any manner permitted by law; provided, however, that after
the Remarketing Date, the Agent may not, and may not direct the
Collateral Agent to, sell or otherwise liquidate the Collateral following
a Facility Termination Event unless
() all holders of the Note consent thereto,
() the proceeds of such sale or liquidation
distributable to the Investors are sufficient to
discharge in full all amounts then due and unpaid upon
such Note for principal and interest, or
() the Agent determines that the Collateral will
not continue to provide sufficient funds for the payment
of principal of and Yield on the Note as they would have
become due if the Note had not been declared due and
payable, and the Agent obtains the consent of holders of
66-2/3% of the outstanding amount of the Note.
In determining such sufficiency or insufficiency with respect to clause
(y) and (z), the Collateral Agent may, but need not, obtain and rely upon an
opinion of an independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Collateral for such purpose.
Section 20. OPTIONAL PRESERVATION OF THE RECEIVABLES. If the Notes have
been declared to be due and payable following a Facility Termination Event,
and such declaration and its consequences have not been rescinded and
annulled, the Agent may, but need not, elect to direct the Collateral Agent
to maintain possession of the Collateral pursuant to the terms of a separate
agreement which is mutually acceptable to the Agent and the Collateral Agent.
It is the desire of the parties hereto and the Investors that there be at
all times sufficient funds for the payment of principal of and Yield on the
Note, and the Agent shall take such desire into account when determining
whether or not to direct the Collateral Agent to maintain possession of the
Collateral. In determining whether to direct the Collateral Agent to
maintain possession of the Collateral, the Agent may, but need not, obtain
and rely upon an opinion of an independent investment banking or accounting
firm of national reputation as to the feasibility of such proposed action and
as to the sufficiency of the Collateral for such purpose.
[Signature Pages to Follow]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to hereunto set their hand as of the day and year first above
written.
DLJ MORTGAGE CAPITAL, INC., as Agent
By:_______________________
Name:
Title:
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Collateral Agent
By:
Name:
Title:
ARCADIA RECEIVABLES FINANCE
CORP. III
By:
Name:
Title:
ARCADIA FINANCIAL LTD.
By:
Name:
Title:
[Signature Page to Collateral Agent Agreement]
<PAGE>
EXHIBIT A
AUTHORIZED REPRESENTATIVES
ARCADIA FINANCIAL LTD.
NAME SPECIMEN SIGNATURE
_______________________ _____________________________
_______________________ _____________________________
ARCADIA RECEIVABLES FINANCE CORP. III
NAME SPECIMEN SIGNATURE
_____________________ _____________________________
_____________________ _____________________________
DLJ MORTGAGE CAPITAL, INC.
NAME SPECIMEN SIGNATURE
_____________________ _____________________________
_____________________ _____________________________
A-14
<PAGE>
COLLATERAL AGENT AGREEMENT
among
DLJ MORTGAGE CAPITAL, INC.,
as Agent,
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Collateral Agent,
ARCADIA FINANCIAL LTD.
and
ARCADIA RECEIVABLES FINANCE CORP. III
Dated October 17, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
Section 1. Definitions. . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Appointment of Collateral Agent. . . . . . . . . . . . . 2
Section 3. Distributions. . . . . . . . . . . . . . . . . . . . . . 2
Section 4. The Reserve Account and the Collection Account . . . . . 4
Section 5. Fees And Expenses Of The Collateral Agent. . . . . . . . 5
Section 6. Representations And Warranties Of The Collateral Agent . 5
Section 7. Resignation By And Removal Of The Collateral Agent;
Successor Collateral Agent . . . . . . . . . . . . . . . 5
Section 8. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . 6
Section 9. Limitations Of Liability . . . . . . . . . . . . . . . . 6
Section 10. Term Of Agreement. . . . . . . . . . . . . . . . . . . . 7
Section 11. Authorized Representatives . . . . . . . . . . . . . . . 7
Section 12. Notices. . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 13. Governing Law; Venue; Consent to Jurisdiction. . . . . . 8
Section 14. Assignment . . . . . . . . . . . . . . . . . . . . . . . 9
Section 15. Counterparts . . . . . . . . . . . . . . . . . . . . . . 9
Section 16. Headings . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 17. Third Party Beneficiaries. . . . . . . . . . . . . . . . 9
Section 18. Certain Remedies . . . . . . . . . . . . . . . . . . . . 9
Section 19. Remedies . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 20. Optional Preservation of the Receivables . . . . . . . . 12
18
<PAGE>
ARCADIA FINANCIAL LTD.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993
------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
COMPUTATION OF INCOME:
Income (loss) before income taxes and extraordinary item . . . . $(67,820) $ 96,004 $48,835 $ 6,030 $1,395
Capitalized interest . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- --
------------ ------------ ----------- ------------ -----------
Income before income taxes and capitalized interest. . . . . . . (67,820) 96,004 48,835 6,030 1,395
Fixed charges. . . . . . . . . . . . . . . . . . . . . . . . . . 43,535 26,366 17,784 5,700 1,927
------------ ------------ ----------- ------------ -----------
Total income (loss) for computation. . . . . . . . . . . . . . . $(24,285) $122,370 $66,619 $11,730 $3,322
------------ ------------ ----------- ------------ -----------
------------ ------------ ----------- ------------ -----------
COMPUTATION OF FIXED CHARGES:
Portion of rentals deemed representative of interest (a) . . . . $ 2,319 $ 1,173 $ 614 $ 284 $ 129
INTEREST:
Interest on long-term debt . . . . . . . . . . . . . . . . . . . 33,281 21,153 15,529 4,885 1,648
Interest other than funding of purchase of auto loans. . . . . . 2,968 2,836 945 116 63
Amortization of debt placement . . . . . . . . . . . . . . . . . 4,967 1,204 696 415 87
Capitalized interest . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- --
------------ ------------ ----------- ------------ -----------
Total fixed charges. . . . . . . . . . . . . . . . . . . . . . . $ 43,535 $ 26,366 $17,784 $ 5,700 $1,927
------------ ------------ ----------- ------------ -----------
------------ ------------ ----------- ------------ -----------
Ratio of earnings to fixed charges . . . . . . . . . . . . . . . -- 4.64x 3.75x 2.06x 1.72x
Deficiency in earnings to fixed charges. . . . . . . . . . . . . 67,820 -- -- -- --
ADDITIONAL INFORMATION:
Net rental expense . . . . . . . . . . . . . . . . . . . . . . . $ 6,957 $ 3,520 $ 1,842 $ 861 $ 391
------------ ------------ ----------- ------------ -----------
------------ ------------ ----------- ------------ -----------
</TABLE>
- -----------------
(a) Portion of rental deemed representative of interest equals one third of
rental expense.
<PAGE>
ARCADIA FINANCIAL LTD.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993
------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
COMPUTATION OF INCOME:
Income (loss) before income taxes and extraordinary item . . . . $(67,820) $ 96,004 $ 48,835 $ 6,030 $ 1,395
Capitalized interest . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- --
------------ ------------ ----------- ------------ -----------
Income before income taxes and capitalized interest. . . . . . . (67,820) 96,004 48,835 6,030 1,395
Fixed charges. . . . . . . . . . . . . . . . . . . . . . . . . . 43,535 26,366 17,784 5,700 1,927
------------ ------------ ----------- ------------ -----------
Total income (loss) for computation. . . . . . . . . . . . . . . $(24,285) $122,370 $ 66,619 $11,730 $3,322
------------ ------------ ----------- ------------ -----------
------------ ------------ ----------- ------------ -----------
COMPUTATION OF FIXED CHARGES:
Portion of rentals deemed representative of interest (a) . . . . $ 2,319 $ 1,173 $ 614 $ 284 $ 129
INTEREST:
Interest on long-term debt . . . . . . . . . . . . . . . . . . . 33,281 21,153 15,529 4,885 1,648
Interest other than funding of purchase of auto loans. . . . . . 2,968 2,836 945 116 63
Amortization of debt placement . . . . . . . . . . . . . . . . . 4,967 1,204 696 415 87
Capitalized interest . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- --
------------ ------------ ----------- ------------ -----------
Total fixed charges. . . . . . . . . . . . . . . . . . . . . . . $ 43,535 $ 26,366 $ 17,784 $ 5,700 $ 1,927
------------ ------------ ----------- ------------ -----------
------------ ------------ ----------- ------------ -----------
Preferred Stock dividends on a pre-tax basis . . . . . . . . . . -- 1,829 3,688 3,286 192
------------ ------------ ----------- ------------ -----------
Total combined fixed charges and preferred stock dividends . . . $ 43,535 $ 28,195 $21,472 $ 8,986 $2,119
------------ ------------ ----------- ------------ -----------
------------ ------------ ----------- ------------ -----------
Ratio of earnings to combined fixed charges and preferred
stock dividends. . . . . . . . . . . . . . . . . . . . . . . . -- 4.34x 3.10x 1.31x 1.57x
Deficiency in earnings to combined fixed charges and
preferred stock dividends. . . . . . . . . . . . . . . . . . . 67,820 -- -- -- --
ADDITIONAL INFORMATION:
Net rental expense . . . . . . . . . . . . . . . . . . . . . . . $ 6,957 $ 3,520 $ 1,842 $ 861 $ 391
------------ ------------ ----------- ------------ -----------
------------ ------------ ----------- ------------ -----------
</TABLE>
- -----------
(a) Portion of rental deemed representative of interest equals one third of
rental expense.
<PAGE>
ARCADIA FINANCIAL LTD.
SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OF NUMBER OF PERCENT OF
INCORPORATION SHARES OWNERSHIP
--------------- ----------- -------------
<S> <C> <C>
Arcadia Receivables Financing Corporation MN 1,000 100%
Arcadia Receivables Capital Corp. DE 100 100%
Arcadia 1992-B Receivables Capital Corp. DE 100 100%
Arcadia Receivables Marketing Corp. MN 1,000 100%
Arcadia Receivables Finance Corp. DE 100 100%
Arcadia First GP Inc. DE 100 100%
Arcadia Second GP Inc. DE 100 100%
Arcadia Receivables Finance Corp. II DE 100 100%
Arcadia Receivables Conduit Corp. DE 100 100%
Arcadia Receivables Finance Corp. III MN 100 100%
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-45056.
/s/ Arthur Andersen LLP
Minneapolis, Minnesota,
March 10, 1998
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of Arcadia Financial Ltd. and related Prospectuses of our report
dated January 23, 1998, with respect to the consolidated financial statements
of Arcadia Financial Ltd., as amended, included in the Annual Report (Form
10-K) for the year ended December 31, 1997.
<TABLE>
<CAPTION>
Registration
Form Statement No. Purpose
- ---- ------------- -------
<S> <C> <C>
S-3 33-94018 Warrants to Purchase Common Stock
S-3 33-98080 Warrants to Purchase Common Stock
S-3 33-81512 Subordinated Extendible and Fixed-Term Notes
S-3 333-18027 Universal Shelf
S-8 33-53670 Olympic Financial Ltd. 1990 Stock Option Plan, the
Olympic Financial Ltd. 1992 Director Stock Option
Plan, and the Employee Stock Purchase Plan
S-8 33-86484 Olympic Financial Ltd. 1994-1997 Restricted Stock
Election Plan
S-8 333-03801 Olympic Financial Ltd. 1998-2000 Restricted Stock
Election Plan
S-8 333-05387 Olympic Financial Ltd. Employee Stock Purchase Plan
S-8 333-08599 Olympic Financial Ltd. 401(k) Profit Sharing Plan
S-8 333-09229 Non-Statutory Stock Option Agreements between
Olympic Financial Ltd. and Warren Kantor
S-8 333-28909 Letter Agreement dated August 26, 1996, as amended,
between Arcadia Financial Ltd. (formerly Olympic
Financial Ltd.) and Warren Kantor
S-8 333-28911 Non-Statutory Stock Option Agreements between
Arcadia Financial Ltd. (formerly Olympic Financial
Ltd.) and each of Richard A. Greenawalt and
Warren Kantor
</TABLE>
Minneapolis, Minnesota
March 10, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 38 AND 39 OF THE COMPANY'S FORM 10K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 17,274
<SECURITIES> 0
<RECEIVABLES> 778,622
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,483
<PP&E> 26,750
<DEPRECIATION> 9,379
<TOTAL-ASSETS> 845,750
<CURRENT-LIABILITIES> 0
<BONDS> 421,781
0
0
<COMMON> 388
<OTHER-SE> 347,554
<TOTAL-LIABILITY-AND-EQUITY> 845,750
<SALES> 0
<TOTAL-REVENUES> 135,413
<CGS> 0
<TOTAL-COSTS> 162,017
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,216
<INCOME-PRETAX> (67,820)
<INCOME-TAX> (25,841)
<INCOME-CONTINUING> (41,979)
<DISCONTINUED> 0
<EXTRAORDINARY> (15,828)
<CHANGES> 0
<NET-INCOME> (57,807)
<EPS-PRIMARY> (1.49)
<EPS-DILUTED> (1.49)
</TABLE>
<PAGE>
CAUTIONARY STATEMENT
ARCADIA FINANCIAL LTD. (THE "COMPANY"), OR PERSONS ACTING ON BEHALF OF THE
COMPANY, OR OUTSIDE REVIEWERS RETAINED BY THE COMPANY MAKING STATEMENTS ON
BEHALF OF THE COMPANY, OR UNDERWRITERS OF THE COMPANY'S SECURITIES, FROM TIME TO
TIME, MAY MAKE, IN WRITING OR ORALLY, "FORWARD-LOOKING STATEMENTS" AS DEFINED
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "ACT"). THIS
CAUTIONARY STATEMENT, WHEN USED IN CONJUNCTION WITH AN IDENTIFIED
FORWARD-LOOKING STATEMENT, IS FOR THE PURPOSE OF QUALIFYING FOR THE "SAFE
HARBOR" PROVISIONS OF THE ACT AND IS INTENDED TO BE A READILY AVAILABLE WRITTEN
DOCUMENT THAT CONTAINS FACTORS WHICH COULD CAUSE RESULTS TO DIFFER MATERIALLY
FROM SUCH FORWARD-LOOKING STATEMENTS. THESE FACTORS ARE IN ADDITION TO ANY OTHER
CAUTIONARY STATEMENTS, WRITTEN OR ORAL, WHICH MAY BE MADE OR REFERRED TO IN
CONNECTION WITH ANY SUCH FORWARD-LOOKING STATEMENT.
THE FOLLOWING MATTERS, AMONG OTHERS, MAY HAVE A MATERIAL ADVERSE EFFECT ON
THE BUSINESS, FINANCIAL CONDITION, LIQUIDITY, RESULTS OF OPERATIONS OR
PROSPECTS, FINANCIAL OR OTHERWISE, OF THE COMPANY. REFERENCE TO THIS CAUTIONARY
STATEMENT IN THE CONTEXT OF A FORWARD-LOOKING STATEMENT OR STATEMENTS SHALL BE
DEEMED TO BE A STATEMENT THAT ANY ONE OR MORE OF THE FOLLOWING FACTORS MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENT
OR STATEMENTS.
LIQUIDITY AND ACCESS TO CAPITAL RESOURCES
NEGATIVE OPERATING CASH FLOWS. The Company's business requires substantial
cash to support the payment of dealer participations, the funding of spread
accounts in connection with securitizations, the purchase of loans pending
securitization, the financing of repossessed inventory and other cash
requirements, in addition to debt service and dividends. These cash requirements
increase as the volume of the Company's loan purchases increases. To the extent
that increases in the volume of loan purchases and securitizations provide
income, a substantial portion of such income is received by the Company in cash
over the life of the loans. The Company has operated historically on a negative
operating cash flow basis and expects to continue to do so for so long as the
Company's volume of loan purchases continues to grow. As a result of the
Company's historical growth rate, the Company has used increasingly larger
amounts of cash than it has generated from its operating activities. The Company
has funded these negative operating cash flows principally through borrowings
from financial institutions, sales of equity securities and sales of senior and
subordinated notes. The Company's ability to execute its growth strategy depends
upon its continued ability to obtain substantial additional long-term debt and
equity capital through access to the capital markets or otherwise. There can be
no assurance that the Company will have access to the capital markets when
needed or will be able to obtain financing upon terms reasonably satisfactory to
the Company. Factors which could affect the Company's access to the capital
markets, or the costs of such capital, include changes in interest rates,
general economic conditions, the perception in the capital markets of the
Company's business, results of operations, leverage, financial condition and
business prospects, and the performance of the Company's securitization trusts.
In addition, covenants with respect to the Company's debt securities and credit
facilities may significantly restrict the Company's ability to incur additional
indebtedness and to issue new classes of preferred stock.
POTENTIAL INABILITY TO REFINANCE EXISTING INDEBTEDNESS. The Company's
ability to repay its outstanding indebtedness at maturity may depend on its
ability to refinance such indebtedness, which could be adversely affected if the
Company does not have access to the capital markets for the sale of additional
debt or equity through public offerings or private placements on terms
reasonably satisfactory to the Company. See "Negative Operating Cash Flows"
above.
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DEPENDENCE ON WAREHOUSE FINANCING. The Company depends on warehouse
facilities with financial institutions or institutional lenders to finance its
purchase of loans on a short-term basis pending securitization. At August 31,
1997, the Company had $647.7 million of warehouse facilities through
institutionally managed asset-backed commercial paper conduits, of which $287.8
million was available. These facilities expire in December 1997 and July 1998,
subject to renewal or extension at the lenders' option. Implementation of the
Company's growth strategy requires continued availability of warehouse
facilities and may require increases in the capacity of warehouse facilities.
There can be no assurance that such financing will be available on terms
reasonably satisfactory to the Company. The inability of the Company to arrange
additional warehouse facilities or to extend or replace existing facilities when
they expire would have a material adverse effect on the Company's business,
financial condition and results of operations and on the Company's outstanding
securities.
DEPENDENCE ON SECURITIZATION. The Company has relied upon its ability to
aggregate and sell loans as asset-backed securities in the secondary market to
generate cash proceeds for repayment of warehouse facilities and to purchase new
loans from dealers. Since inception, the Company has securitized approximately
$8.7 billion of automobile loans. At December 31, 1997, approximately $4.9
billion of these loans were outstanding. Accordingly, adverse changes in the
Company's asset-backed securities program or in the asset-backed securities
market for automobile receivables generally could materially adversely affect
the Company's ability to purchase and resell loans on a timely basis and upon
terms reasonably satisfactory to the Company. The Company endeavors to effect
public securitizations of its loans on at least a quarterly basis. However,
market and other considerations, including the conformity of loans to insurance
company and rating agency requirements, could affect the timing of such
transactions. Any delay in the sale of loans beyond a quarter-end would
eliminate the related gain on sale in the given quarter and adversely affect the
Company's reported earnings for such quarter. All of the Company's
securitizations since March 1993 and one of the Company's warehouse facilities
have utilized credit enhancement in the form of financial guaranty insurance
policies issued by FSA to achieve "AAA/Aaa" ratings with respect to the
asset-backed securities. The Company believes that financial guaranty insurance
policies reduce the costs of the securitizations and such warehouse facility
relative to alternative forms of credit enhancements available to the Company.
The Company has committed to use FSA for future credit enhancement on insured
securitizations through 1998 in consideration for certain limitations on FSA
insurance premiums. FSA is not required to insure Company-sponsored
securitizations and there can be no assurance that it will continue to do so or
that future Company-sponsored securitizations will be similarly rated.
LOAN PERFORMANCE RISKS
POTENTIAL NEGATIVE EFFECTS ON FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
LIQUIDITY. The Company's business, financial condition, results of operations
and liquidity depend, to a material extent, on the performance of loans
purchased and sold by the Company. When such loans are sold in securitizations,
the Company recognizes gain on sale. Finance income receivable, the Company's
principal asset, has been calculated using assumptions concerning future
default, prepayment and net loss rates on securitized loans that are consistent
with the Company's historical experience and market conditions and present value
discount rates that the Company believes would be requested by an unrelated
purchaser of an identical stream of estimated cash flows. Management believes
that the Company's estimates of excess cash flow were reasonable at the time
each gain on sale of loans was recorded. However, the actual rates of default
and/or prepayment and/or net loss on such loans may exceed those estimated for
purposes of calculating the Company's finance income receivable and consequently
may adversely affect anticipated future excess cash flow. The Company
periodically reviews its default, prepayment and net loss assumptions in
relation to current performance of the loans and market conditions, and, if
necessary, writes down the balance of finance income receivable. The Company
made a significant adjustment to its finance income receivable at March 31, 1997
after completing such a review, primarily relating to the recovery rates on
repossessed vehicles and the Company's disposition strategy. The Company's
business, financial condition, results of operations and liquidity could be
materially adversely affected by such adjustments in the future. No
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assurance can be given that loan losses and prepayments will not exceed the
Company's estimates or that finance income receivable could be sold at its
stated value on the balance sheet, if at all.
POSSIBLE RESTRICTIONS ON CASH FLOW FROM SECURITIZATIONS. The Company's
future liquidity and financial condition, and its ability to finance the growth
of its business and to repay or refinance its indebtedness, will depend to a
material extent on distributions of excess cash flow from securitization trusts.
The Company's agreements with FSA provide that the Company must maintain in a
spread account for each insured securitization trust specified levels of excess
cash during the life of the trust. These spread accounts are initially funded
out of initial deposits or cash flows from the related trust. Thereafter, during
each month, excess cash flow due to Arcadia Receivables Finance Corp. (formerly
Olympic Receivables Finance Corp.) ("ARFC"), from all insured securitization
trusts is first used to replenish any spread account deficiencies and is then
distributed to the Company. The timing and amount of distributions of excess
cash from securitization trusts varies based on a number of factors, including
but not limited to loan delinquencies, defaults and net losses, the rate of
turnover of repossession inventory and recovery rates, the ages of loans in the
portfolio, prepayment experience and required spread account levels. A
deterioration of the Company's loan delinquencies, cumulative defaults or net
losses, or a build-up in repossession inventory, or the continuing increase in
the proportion of repossession inventory sold in the wholesale auction markets,
or the increase in loans entering the seasoning period, could reduce excess cash
available to the Company. At December 31, 1997, the Company had an aggregate of
$250.3 million of restricted cash in spread accounts. There can be no assurance
that in the future the Company will not experience an interruption of excess
cash flow from ARFC, which could adversely affect the Company's ability to pay
its obligations, including the Notes.
Each insured securitization trust has certain portfolio performance tests
relating to levels of delinquency, defaults and net losses on the loans in such
trust based in part on the relative percentage of Premier and Classic loans.
Portfolio performance tests require that the loan portfolio of each insured
securitization trust (i) have an average delinquency ratio not equal to or in
excess of a specified percentage, (ii) have a cumulative default rate not equal
to or in excess of specified percentages which vary based on the aging of the
loan portfolio, and (iii) have a cumulative net loss rate not equal to or in
excess of specified percentages which vary based on the aging of the loan
portfolio. If any of these tests are exceeded (a "violation"), the amount
required to be retained in the spread account related to such securitization
trust will be increased to an amount generally equal to the greater of 10% of
the outstanding balance of loans or 1% of the original balance of loans held by
the securitization trust. As a consequence, a violation generally will decrease
excess cash flow available from such securitization trust until loan portfolio
performance has returned to the required limits for a specified period,
generally three to five months, unless waived by FSA. FSA and the Company have
an arrangement under which, if any insured securitization trust exceeds the
specified portfolio performance tests, ARFC may, in lieu of retaining the excess
cash from that securitization trust in the related spread account, pledge an
equivalent amount of cash, which has the effect of preventing the violation of
the portfolio performance test. Although certain trusts, primarily those that
contained loans originated in 1995, exceeded portfolio performance tests in the
first eight months of 1997 and are still in excess of such tests, this
arrangement with FSA has prevented a violation, although it has reduced the
amount of cash that would otherwise have been available to the Company if the
Company had sought and received a waiver of such violation from FSA. A
deterioration of the Company's delinquencies, cumulative defaults or net losses
would result in one or more additional existing securitization trusts exceeding
one or more of these tests in the absence of changes to the trigger levels.
There can be no assurance that, in such event, waivers will be available from
FSA permitting payments to ARFC.
Upon the occurrence of certain events with respect to any series of
asset-backed securities insured by FSA, including the failure to meet loan
portfolio performance tests of the nature described above but at significantly
higher levels, or upon a breach of the collateral coverage requirements of the
FSA-insured warehouse facility (an "Insurance Agreement Event of Default"), the
Company will be in default under its insurance agreement with FSA. Upon an
Insurance Agreement Event of Default, unless waived by FSA,
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FSA may suspend distributions of cash flow from the related securitization trust
and all other FSA-insured trusts (including the FSA-insured warehouse facility)
until the asset-backed securities have been redeemed, capture excess cash flow
from performing trusts, increase its premiums and replace the Company as
servicer with respect to all FSA-insured trusts. There can be no assurance that
a further deterioration of the Company's loan delinquencies, gross charge-offs
and net losses would not result in an Insurance Agreement Event of Default,
which could adversely affect the Company's ability to satisfy its obligations,
including the Notes. Certain of the Company's securitization trusts exceeded
such insurance agreement thresholds prior to 1996 and the Company obtained
waivers from FSA to permit distributions of cash to ARFC. There can be no
assurance that in the future, if such thresholds are exceeded, waivers will be
available.
In addition, the spread account for each securitization is
cross-collateralized to the spread accounts established in connection with the
Company's other securitization trusts (including the FSA-insured warehouse
facility) such that excess cash flow from a performing securitization trust may
be used to support negative cash flow from, or to replenish a deficient spread
account in connection with, a nonperforming securitization trust, thereby
further restricting excess cash flow available to ARFC. If excess cash flow from
all insured securitization trusts is not sufficient to replenish all such spread
accounts, no cash flow would be available to the Company from ARFC for that
month. In January 1996, approximately $0.5 million of the Company's $63.6
million of restricted cash in spread accounts at December 31, 1995 under insured
securitization trusts was utilized for payments on related asset-backed
securities due to insufficient current cash flow in four such securitization
trusts. Excess cash flows from the other securitization trusts were not
sufficient to replenish such withdrawals and, consequently, the Company did not
receive excess cash flow from Olympic Receivables Finance Corp. (the predecessor
of ARFC) during that month. In February 1996, current excess cash flows again
began releasing to the Company. There can be no assurance that in the future the
Company will not experience an interruption of excess cash flow from ARFC such
as occurred in January 1996, which could adversely affect the Company's ability
to pay its obligations, including the Notes. FSA also has a collateral security
interest in the stock of ARFC. If FSA were to foreclose on such security
interest following an event of default under an insurance agreement with respect
to a securitization trust (including the FSA-insured warehouse facility), FSA
could preclude payment of dividends by ARFC to the Company, thereby eliminating
the Company's right to receive distributions of excess cash flow from all the
FSA-insured securitization trusts. The Company's right to service the loans sold
in securitizations insured by FSA is also generally subject to the discretion of
FSA. Accordingly, there can be no assurance that the Company will continue as
servicer for such loans and receive related servicing fees.
Any increase in limitations on cash flow available to the Company from ARFC
(including any increase in the amount of cash pledged under the arrangement with
FSA), inability to obtain any necessary waivers from FSA or termination of
servicing arrangements could materially adversely affect the Company's cash flow
and liquidity, and, ultimately, its business, financial condition and results of
operations and its outstanding securities.
IMPACT OF PORTFOLIO GROWTH AND PRODUCT MIX. The Company has experienced
rapid growth in its loan servicing portfolio, although the rate of such growth
slowed in 1997. Historically, the statistical incidence of delinquencies and
defaults in connection with automobile loans tends to vary over the age of the
loan. For example, statistically, loans that are between six and fourteen months
old have had a higher likelihood of being delinquent or defaulting than loans
with similar credit characteristics that are three months old. Accordingly, to
the extent that portfolio growth results in a servicing portfolio containing
disproportionately more loans originated within the prior six months, the
current and historical delinquency and default rates of loans in the servicing
portfolio may understate future delinquency and default rates. Also, there can
be no assurance that the Company's transition from centralized to regional
servicing and collection will not adversely affect the rate of loan
delinquencies and defaults.
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In addition, to the extent the Company offers new loan products which
involve different underwriting policies, the delinquency and default rates of
the Company's servicing portfolio may change. The Company has instituted a
tiered pricing system and has periodically increased the authorized amount of
loans purchased under its Classic program involving borrowers who do not meet
all of the underwriting standards in the Company's Premier program and are
charged rates of interest higher than those under the Company's Premier program.
The Company increased its purchase of loans under the Classic program from 17%
of the principal amount of loans purchased in 1995 to 36% in 1996 and to 55% in
1997. As a result of the increases in Classic loans as a proportion of the
Company's portfolio, there has been an increase in the rates of, and reserves
for, delinquencies, repossessions and losses historically reported by the
Company. The expansion of the Classic loan program and seasoning of the
Company's existing servicing portfolio will likely continue to cause the
Company's loan performance statistics to show higher delinquencies, gross
charge-offs and net losses when compared with historical performance even if
such loan performance statistics are consistent with the Company's reserves for
loan losses.
To estimate future delinquency, repossession and loss experience on its
loans, the Company uses a combination of factors, including actual loan
performance experience for that loan program, and industry experience on loans
with similar credit characteristics. However, there can be no assurance that its
loans will perform under varying economic conditions in the manner estimated by
the Company. Any increase in delinquency, repossession and loss rates related to
its loans above the rates estimated by the Company could have a material adverse
effect on the Company's business, financial condition and results of operations,
as well as its liquidity. In addition, certain of the Company's loan products
which produce higher delinquency, repossession and loss rates than initially
expected may continue to have an impact on the Company's overall loan
performance, even after being discontinued or modified, until the initially
generated loans mature beyond the six- to fourteen-month period. In 1996, the
Company discontinued a Classic loan product directed at first-time credits and
modified a Classic program for financing the sale of its repossessed inventory
in retail markets, each of which had experienced higher than expected
delinquency, repossession and loss rates.
EXTENSIONS AND AMENDMENTS. Like others in the industry, the Company gives
certain obligors extensions or amendments to loan terms in certain
circumstances, including when the Company believes such obligors will thereby be
more likely to repay their loans, and losses on such loans can be reduced. Loans
that have been extended or amended generally present substantially higher
default risks than loans that have neither of these characteristics. Primarily
as a result of the expansion of the Classic program (which involves higher
credit risks than the Premier program), the portion of the Company's servicing
portfolio which exhibits one or both of these characteristics has increased.
Extensions and amendments (in the aggregate) averaged approximately 2.7% of the
servicing portfolio per month in 1996 and 1.9% per month in 1995, and with
seasonal peaks occurring during the Christmas holiday season. Extensions and
amendments (in the aggregate) averaged approximately 3.4% per month for the
first eight months of 1997, compared to 2.7% per month for the first eight
months of 1996, and in the months of July and August 1997 were 3.0% and 2.7%,
respectively, compared to 2.9% and 2.8% in the months of July and August 1996,
respectively. The Company believes that one reason for the 1997 increase in
extensions and amendments as a percentage of the servicing portfolio is the
slower rate of growth in the size of the Company's portfolio, which results in a
higher percentage of loans of the age that are more likely to be extended or
amended. Any continued slowing of growth could contribute to a further increase
in such statistics. The Company considers these characteristics when
establishing its loss reserves. In certain circumstances, loans that have been
extended or amended have the effect of removing the related loan from delinquent
status.
POTENTIAL NEGATIVE IMPACT OF COVENANTS UNDER FINANCE AGREEMENTS. Increases
in loan delinquency and loss rates with respect to any securitization trust may
result in the trust's portfolio exceeding the various pool performance levels
established by FSA, thereby restricting or cutting off cash distributions to
ARFC from the securitization spread accounts. See "Cash Flow from
Securitizations" above. In addition, such
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increases may cause the Company to exceed certain pool performance tests
established in other agreements governing its indebtedness. If at the end of any
month the Portfolio Loss Ratio (as defined) exceeds 3.5% (which is calculated
excluding the effect of the Company's March 1997 special charge), the Company's
Delinquency Rates (as defined) exceed 3.5%, the Warehousing Loss Ratio (as
defined) exceeds 1.0%, or the Average Net Excess Spread (as defined) is not less
than 4.0%, an event of default will occur under one of the Company's outstanding
warehouse facilities. The delinquency level is calculated as a percentage of
outstanding principal balance of all automobile loans owned or securitized by
the Company as to which a payment is more than thirty days past due. Upon the
occurrence of an event of default under such warehouse facility, the lending
banks under such facility would have no further obligation to extend additional
credit. Furthermore, any such event of default or acceleration may trigger
cross-defaults under other outstanding indebtedness of the Company and may
result in the acceleration of amounts due thereunder. The increase in Classic
loans, among other things, has increased the risk that the Company may trigger
its Portfolio Loss Ratio covenants in the future.
RESALE AND FINANCING OF REPOSSESSIONS In addition to wholesale distribution
channels, the Company has regularly disposed of repossessed vehicles through
retail markets, primarily retail used car consignment lots. During 1997,
approximately 46% of repossessed vehicles sold were liquidated through retail
markets, compared with 70% in 1996 and 40% in 1995. This strategy delays the
Company's excess cash flow during the period repossessions are held in inventory
pending resale, which is typically a longer period of time than for wholesale
auctions. In addition, the Company's repossession inventory has increased as a
percentage of its servicing portfolio due to the increase in the rate of loan
defaults and the Company's transition from using a few large retail consignment
lots for repossession sales to using multiple retail consignment lots. At
December 31, 1997, the Company had $55.3 million of repossessed inventory,
compared with $49.0 million at June 30, 1997, $64.9 million at December 31,
1996, and $17.7 million at December 31, 1995.
As of March 31, 1997, the Company took an after-tax charge of $60.8 million
due primarily to a reduction in the estimated recovery rates on then current
repossessed inventory and anticipated future inventory arising from then
existing securitization transactions to 60% of principal balance outstanding (as
discussed in the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997). The Company selected this 60% recovery rate
on the basis of the recovery rate the Company believes it could achieve if all
of its repossession inventory, including those higher value vehicles that are
ultimately sold through retail channels, were sold through wholesale channels.
In addition, the Company changed its accounting policy with respect to the
estimated recovery rate realized upon disposition of repossessed inventory to
estimate recovery rates based on such wholesale values and to record any
recoveries in excess of such levels at the time such excess recoveries are
realized. Since the Company changed its strategy at the end of the first quarter
of 1997, the Company's overall recovery rate (for both wholesale and retail
sales) has averaged approximately 62.5%. There can be no assurance that a change
in the proportions of vehicles sold through retail and wholesale channels or any
further softening of used car markets will not require additional adjustments to
repossession inventory or estimated recovery rates used to calculate finance
income receivable, which could be required if the Company's recovery rate were
to decline further. Futhermore, with the significant increase in the number of
repossessions, the Company has increased purchases of loans that finance resales
of repossessions to new buyers. Delinquency, gross charge-off and net loss rates
associated with loans on repossessed automobiles have historically been
substantially in excess of the same statistics associated with the Company's
remaining servicing portfolio. There can be no assurance that management's
recent efforts to improve the Company's retail repossession finance program will
be successful. If and to the extent the Company further modifies its current
disposition strategy with respect to use of the wholesale auction markets, this
modification could decrease recovery rates and increase net losses.
POTENTIAL NEGATIVE IMPACT OF INCREASE IN PERSONAL BANKRUPTCIES. Recent
media reports have suggested an increase in the number of personal bankruptcy
filings and the Company has in recent months
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experienced a slight increase in the proportion of its servicing portfolio
representing loans to borrowers who have filed for bankruptcy protection. A
continuation or increase in such trend could contribute to greater default and
net loss rates than the Company has historically experienced.
ECONOMIC CONDITIONS
MARKET CONDITIONS. Periods of economic slowdown or recession, whether
general, regional or industry-related, may increase the risk of default on
automobile loans and may have an adverse effect on the Company's business,
financial condition and results of operations. Such periods also may be
accompanied by decreased consumer demand for automobiles, resulting in reduced
demand for automobile loans and declining values of automobiles securing
outstanding loans, thereby weakening collateral coverage and increasing the
possibility of losses in the event of default. In addition, recent reports of
increases in consumer bankruptcy filings and default rates on consumer credit
during a period of economic growth indicate that the impact of consumer behavior
on default rates is not limited to periods of economic slowdown or recession.
The increased proportion of loans under the Company's Classic program has
increased the Company's sensitivity to changes in economic conditions.
Significant increases in the inventory of used automobiles during recessionary
economies may depress the prices at which repossessed automobiles may be sold or
delay the timing of such sales. A continuation of the recent softening of the
used car market as the result of factors including the recent start-up of
superstore competition or forecasted levels of used lease vehicles that will be
available in the market could have a similar effect on prices for and timing of
sales of repossession inventory. There can be no assurance that the used
automobile markets will be adequate for the sale of the Company's repossessed
automobiles and any material deterioration of such markets could increase the
Company's loan losses or reduce recoveries from the sale of repossession
inventory. In addition, the Company has channeled a significant portion of its
repossession inventory through retail resale markets instead of wholesale
markets, including the financing of such retail sales through its Classic
program, which had the effect of reducing the Company's loan losses while
increasing repossession inventory and delaying cash flow recovered from
inventory turnover. There can be no assurance that the Company will continue to
use such retail resale channels, that it will be able to realize such benefits
to loan losses in the future or that its inventories will not reach levels at
which they cannot readily be liquidated through such channels. Any such event
might have an adverse effect on loan loss levels.
INTEREST RATES. The Company's profitability may be directly affected by the
level of and fluctuations in interest rates, which affect the Company's gross
interest rate spread. The Company monitors the interest rate environment and
employs prefunding or other hedging strategies designed to mitigate the impact
of changes in interest rates on its gross interest rate spread. However, there
can be no assurance that the profitability of the Company would not be adversely
affected during any period of changes in interest rates.
LABOR MARKET CONDITIONS. The Company's ability to manage portfolio
delinquency, default and loss rates is dependent on its ability to attract and
retain qualified servicing and collection personnel. In recent months, low
unemployment rates driven by economic growth and the continued expansion of the
consumer credit markets have contributed to an increase in employee turnover
rate, especially among the Company's collection personnel. Continued high
turnover relative to historical levels, or an inability to attract and retain
replacement personnel, could have an adverse effect on the Company's portfolio
delinquency, default and net loss rates and, ultimately, its financial
condition, results of operations and liquidity.
LITIGATION
On March 4, 1997 a shareholder commenced an action against the Company and
certain named directors and officers of the Company entitled Taran v. Olympic
Financial Ltd. et al. in the United States District Court for the District of
Minnesota. Four similar lawsuits, three of them in the United States District
Court for the District of Minnesota (Frank Dibella, on behalf of himself and all
others similarly
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situated vs. Olympic Financial Ltd. et al., Michael Diemer vs. Olympic Financial
Ltd. et al. and Howard Pisnoy vs. Olympic Financial Ltd. et al.) and one in the
United States District Court for the Eastern District of New York (North River
Trading, LLC, and Allan Farkas, and All Others Similarly Situated vs. Olympic
Financial Ltd. et al.) were filed after that time. These suits have been
consolidated in one suit, In re Olympic Financial Ltd. Securities Litigation, in
the United States District Court for the District of Minnesota. Plaintiffs in
the consolidated action allege that during the period from July 20, 1995 through
March 3, 1997 the defendants, in violation of federal securities laws, engaged
in a scheme that had the effect of artificially inflating, maintaining and
otherwise manipulating the value of the Company's Common Stock by, among other
things, making baseless, false and misleading statements about the current state
and future prospects of the Company, particularly with respect to the Classic
program and the refinancing of repossessed automobiles. Plaintiffs allege that
this scheme included making false and misleading statements and/or concealing
material adverse facts. The consolidated action is in the preliminary stages and
the parties have not begun discovery. The Company has reviewed the complaint in
the consolidated action and believes that the consolidated action is without
merit and intends to defend it vigorously. There can, however, be no assurance
that the Company will prevail in such defense or that any order, judgment,
settlement or decree arising out of this litigation will not have a material
adverse effect on the Company's financial condition, results of operations or
liquidity.
MANAGEMENT OF GROWTH
The growth of the Company's servicing portfolio has resulted in increased
demands on the Company's personnel and systems. The Company's ability to
support, manage and control continued growth is dependent upon, among other
things, its ability to hire, train, supervise and manage its larger workforce.
Furthermore, the Company's ability to manage portfolio delinquency and loss
rates is dependent upon the maintenance of efficient collection and repossession
procedures and adequate staffing therefor. There can be no assurance that the
Company will have trained personnel and systems adequate to support such growth.
In 1996 the Company opened four regional collection centers and has taken a
number of initiatives to improve its servicing and collection performance. There
can be no assurance that these efforts will be successful.
COMPETITION
The business of financing automobiles is highly competitive. Existing and
potential competitors include well-established financial institutions, such as
banks, other automobile finance companies, small loan companies, thrifts,
leasing companies and captive finance companies owned by automobile
manufacturers, such as General Motors Acceptance Corporation, Chrysler Credit
Corp. and Ford Motor Credit Company. Many of these competitors have greater
financial, technical and marketing resources than the Company and from time to
time offer special buyer incentives in the form of below-market interest rates
on certain classes of vehicles. Many of such competitors also have longstanding
relationships with automobile dealers and some of such major competitors provide
other forms of financing to automobile dealers, including dealer floor plan
financing and leasing, which is not provided by the Company. There can be no
assurance that the Company will be able to compete successfully with such
competitors.
REGULATION
The Company's business is subject to numerous federal and state consumer
protection laws and regulations, which, among other things: (i) require the
Company to obtain and maintain certain licenses and qualifications; (ii) limit
the interest rates, fees and other charges the Company is allowed to charge;
(iii) limit or prescribe certain other terms of the Company's automobile loan
contracts; (iv) require specific disclosures; and (v) define the Company's
rights to repossess and sell collateral. The Company believes it is in
substantial compliance with all such laws and regulations, and that such laws
and regulations have had no material effect on the Company's ability to operate
its business. Changes in existing laws or regulations,
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or in the interpretation thereof, or the promulgation of any additional laws or
regulations, could have a material adverse effect on the Company's business,
financial condition and results of operations and upon its outstanding
securities.
SHARES ELIGIBLE FOR FUTURE SALES
Additional shares of Common Stock may be issued upon the exercise of
outstanding stock options and the exercise of outstanding warrants. Certain
holders thereof have registration rights with respect to such shares. The
Company has registered pursuant to such rights the sale from time to time of up
to 5,923,364 shares of Common Stock when, as and if issued upon the exercise of
outstanding warrants. Such issuances, or the resale of the Common Stock so
acquired, could have an adverse effect on the market price of the Company's
Common Stock.
UNDESIGNATED SHARES; ANTI-TAKEOVER CONSIDERATIONS
The authorized and unissued stock of the Company, other than shares reserved
for issuance pursuant to options and warrants, consists of undesignated shares.
The Board of Directors, without any action by the Company's shareholders, is
authorized to designate and issue the undesignated shares in such classes or
series as it deems appropriate and to establish the rights, preferences and
privileges of such shares, including dividend, liquidation and voting rights.
The Company has adopted a shareholder rights plan to deter a hostile takeover.
Further, certain provisions of the Minnesota Business Corporation Act may
operate to discourage a negotiated acquisition or unsolicited takeover of the
Company. Each or any of the foregoing could have the effect of entrenching the
Company's directors, impeding or deterring an unsolicited tender offer or
takeover proposal regarding the Company and thereby depriving the then current
shareholders of the ability to sell their shares at a premium over the market
price, or otherwise adversely affecting the voting power, dividend, liquidation
and other rights of holders of Common Stock.
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