<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
<TABLE>
<S> <C>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-20526
</TABLE>
------------------------
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
------------------------
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 / / No /X/
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
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 26, 1999 was approximately $127.8 million.
The number of shares of the registrant's Common Stock outstanding as of
February 26, 1999 was 39,204,110.
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.
<TABLE>
<CAPTION>
DOCUMENT INCORPORATED PART OF FORM 10-K
- ----------------------------------------------------------------- --------------------------
<S> <C>
Proxy Statement for 1999 Annual Meeting of Shareholders Items 10, 11, 12 and 13
to be held May 27, 1999 Of Part III
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FORM 10-K INDEX
<TABLE>
<S> <C> <C>
PART I
Item 1. Business...................................................................... 3
Item 2. Properties.................................................................... 16
Item 3. Legal Proceedings............................................................. 16
Item 4. Submission of Matters to a Vote of Security Holders........................... 17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......... 18
Item 6. Selected Financial Data....................................................... 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 21
Item 7a. Quantitative and Qualitative Disclosures about Market Risk.................... 38
Item 8. Financial Statements and Supplementary Data................................... 39
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. 65
PART III
Item 10. Directors and Executive Officers of the Registrant............................ 65
Item 11. Executive Compensation........................................................ 65
Item 12. Security Ownership of Certain Beneficial Owners and Management................ 65
Item 13. Certain Relationships and Related Transactions................................ 65
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. 66
</TABLE>
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 currently anticipated or projected.
Such factors include, among other things, the following: increased delinquency
and loan loss rates; 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.
2
<PAGE>
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 ("hubs")
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 underwriting procedures
that 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 13.42% and 86.58%, respectively, of
the Company's loan purchases in 1998. The Company seeks to maximize gross
interest rate spreads relative to expected net losses by maintaining a
risk-based pricing strategy based on the borrower's credit characteristics as
measured by the Company's underwriting and credit scoring criteria and the loan
terms which the borrower wishes to obtain. The Company's lending programs are
designed to serve consumers who have limited access to traditional automobile
financing. The Company's typical borrowers have experienced prior credit
difficulties or have limited credit histories. Because the Company serves
consumers who are unable to meet the credit standards imposed by most
traditional automobile financing sources, the Company generally charges interest
at rates higher than those charged by such sources. The Company also expects to
sustain a higher level of credit losses than traditional automobile financing
sources because the Company provides financing in a relatively high risk market.
Historically, the Company has primarily marketed its loan products within two
programs called Premier and Classic. In connection with enhancements to the
Company's risk-based pricing strategy during 1998, management determined it
appropriate to eliminate the Premier and Classic designations and instead
segregate loans into a multi-tiered risk-based pricing matrix based on each
loan's expected credit performance. Management believes that this additional
segmentation provides a higher level of precision in estimating future default
and product profitability. Management's analysis of loan loss reserves is based,
in part, on the expected credit performance of each risk tier and the proportion
of loans in each tier to the total portfolio. The Company considers
substantially all of the loans it purchases to be in the "prime" or "non-prime"
loan categories, and does not consider the loans it purchases to be in the
"sub-prime" loan category.
The Company primarily uses warehouse facilities to fund its initial
purchases of loans. The Company subsequently 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 securitization and
subsequent servicing. After such application by the trustee, amounts remaining
are generally distributed as dividends from a special purpose subsidiary to the
Company, subject to the Company's 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-
3
<PAGE>
backed securities insured by FSA have been rated AAA by Standard & Poor's and
Aaa by Moody's Investors Service, Inc.
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.
AUTOMOBILE DEALER RELATIONSHIPS
MARKETING. 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 service dealers within the immediate market area of each
regional buying center and surrounding market areas typically within a 200 mile
radius of the center.
Prior to entering into a purchasing relationship with a dealer, the Company
evaluates the dealer's operating history, financial condition and reputation in
the market place. Analytic tools are then utilized to actively monitor
application flows and portfolio performance by the dealer in order to 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. 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 through 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 a 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 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. 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 generally 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 subsequently signed by the dealer.
DEALER PARTICIPATIONS. In connection with the purchase of a loan the
Company generally 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 dealer participation is generally
determined 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. Dealer
participations are typically limited by maximum spread thresholds imposed by the
Company and for certain loan types only a flat fee is paid to the dealer. Such
flat fees are generally less than the amount if computed based on the rate
differential. Although the Company offers a variety of dealer participations
methods,
4
<PAGE>
dealers have predominately elected the "shared participation" method. Under the
"shared participation" method, the dealer generally forgoes 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 generally during the first 90 to 180 days.
UNDERWRITING
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 as well as other personal information. Upon receipt of the completed
loan application, the Company's administrative personnel enter pertinent
information into the Company's application processing system and a minimum of
one credit bureau report is ordered. The credit bureau also provides the Company
with a credit score for each application, which is then utilized to determine in
which risk tier the loan should be placed. In connection with the Company's
efforts to enhance its loan pricing process and risk management capabilities,
management has engaged a nationally recognized credit score consulting company
to assist in the development and implementation of a new proprietary credit
scoring system which the Company expects to begin using during 1999. During the
development of the new scoring system, management has elected to outsource
credit scoring to alleviate the need for system maintenance and allow its
information systems personnel more time to assist in the score card development.
Prior to 1998, the Company utilized its own internally-developed credit scoring
system.
The credit scoring process assesses the quality of credit applicant profiles
resulting in a statistical assessment of performance characteristics. Factors
considered in the scoring process include the applicant's residential and
employment stability, financial history, current financial capacity and
historical record of meeting financial obligations, as well as terms of the loan
being requested and other credit bureau information. Credit scoring is utilized
by the Company to differentiate credit applicants by credit risk in terms of
expected default rates, thereby enabling the Company to decide if the risk is
acceptable and to determine the appropriate loan pricing and structure to
compensate for the risk. Credit scoring further improves credit decision
efficiencies since applications with high credit scores can generally be
processed rapidly and credit decisions quickly communicated back to the dealer,
while applications with credit scores below Company-established standards can be
rejected without further processing and review by Company personnel. This
prioritization of applications allows for a more effective allocation of
resources to applications which require more in-depth investigation.
The Company's underwriting and collateral guidelines as well as its credit
scoring parameters provide the basis for lending decisions. However, qualitative
judgement by the Company's personnel with respect to an applicant's credit
quality is a significant factor in the final credit decision. Approval of loans
outside of the Company's credit scoring standards or with terms inconsistent
with the risk-based pricing guidelines are generally subject to additional
management review before approval. The Company conducts internal compliance
reviews on a monthly basis and also reviews the quality of the loans it
purchases on a monthly basis with an eye to validating its credit strategies by
comparing actual versus forecasted performance by risk tier.
Upon completion of the underwriting process, 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 within acceptable risk parameters
established by the Company. 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.
5
<PAGE>
RESALE AND FINANCING OF REPOSSESSIONS
As of December 31, 1998, the Company had fully discontinued the liquidation
of repossessed vehicles through retail markets and had begun disposing of
repossessions exclusively through wholesale distribution channels, as announced
during July 1998 (see "Management's Discussion and Analysis--Changes in
Accounting Estimates and Non-recurring Charges"). As a result, the percentage of
repossessed vehicles sold through retail markets declined to 19% during 1998
compared to 46% and 70% during 1997 and 1996, respectively.
In connection with the discontinued retail disposition strategy, the Company
had previously provided financing opportunities through each retail consignment
lot to purchasers of repossessed vehicles. The Company applied the same
underwriting methodology and procedures to the financing of repossessed
automobiles as it applied to the purchase of other loan products, but it allowed
credit specialists and managers greater latitude in the financed repossession
product to approve exceptions to underwriting criteria (with appropriate
management authorization) as compared to other products. The outstanding
principal amount of retail repossession sales financed by the Company was $172.9
million (3.93% of the total servicing portfolio) at December 31, 1998 compared
with $169.7 million (2.56% of the total servicing portfolio) at December 31,
1997 and $96.9 million (3.42% of the total servicing portfolio) at December 31,
1996. 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 during 1997 and 1998.
Although the performance of these loans will continue to impact the Company's
overall credit statistics in the near future, their impact is expected to
decline during 1999 and 2000 due to the discontinuation of the retail
remarketing strategy in 1998 and the resulting run-off of the financed
repossession portfolio.
MARKETS AND EXPANSION
The following table illustrates the loan purchasing volume and percentage of
total loan purchases by regional buying centers during the three years ended
December 31, 1998:
<TABLE>
<CAPTION>
(Dollars in thousands) OPENING
REGIONAL BUYING CENTER DATE 1998 1997 1996
- ------------------------- ----------- ------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Minnesota................ 6/90 $ 139,605 6.38% $ 163,418 5.71% $ 160,376 5.83%
Colorado................. 4/92 162,773 7.42 157,525 5.50 161,880 5.89
North Texas.............. 11/92 169,431 7.72 279,580 9.77 299,673 10.90
Washington............... 3/93 128,522 5.86 166,186 5.80 198,580 7.22
Arizona.................. 7/93 102,314 4.66 184,777 6.45 204,717 7.44
Florida.................. 8/93 164,210 7.49 189,988 6.64 144,042 5.24
Georgia.................. 11/93 108,817 4.96 176,922 6.18 189,346 6.88
South Texas.............. 2/94 149,812 6.83 169,495 5.92 278,457 10.12
Northern California...... 6/94 93,502 4.26 147,905 5.17 192,794 7.01
Missouri................. 6/94 97,164 4.43 151,553 5.29 173,381 6.30
Massachusetts............ 8/94 119,410 5.44 131,007 4.58 131,794 4.79
Tennessee................ 10/94 156,122 7.12 191,202 6.68 141,491 5.15
Ohio..................... 3/95 62,585 2.85 102,905 3.59 57,267 2.08
North Carolina........... 5/95 188,878 8.61 241,468 8.43 202,255 7.35
Southern California...... 12/95 85,252 3.89 107,332 3.75 57,858 2.10
New York................. 3/96 51,532 2.35 78,210 2.73 44,516 1.62
West Texas............... 7/96 142,170 6.48 177,780 6.22 112,126 4.08
Maryland................. 3/97 71,281 3.25 45,568 1.59 -- --
------------ ----------- ------------ ----------- ------------ -----------
Totals............... $ 2,193,380 100.00% $ 2,862,821 100.00% $ 2,750,553 100.00%
------------ ----------- ------------ ----------- ------------ -----------
------------ ----------- ------------ ----------- ------------ -----------
</TABLE>
6
<PAGE>
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/or "spoke" operations. 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, 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
periodically 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,
1998, the Company had an aggregate borrowing capacity of approximately $700.0
million under three primary warehouse facilities, all of which was available at
period end.
Under a $400.0 million warehouse facility with Receivables Capital
Corporation ("RCC"), a commercial paper conduit sponsored by Bank of America,
and Delaware Funding Corporation ("DFC"), a commercial paper conduit sponsored
by J.P. Morgan & Co. (the "BofA/JPM Facility"), the Company, through its
wholly-owned special purpose subsidiary, Arcadia Receivables Finance Corp.
("ARFC"), sells loans to another wholly-owned special purpose subsidiary,
Arcadia Receivables Conduit Corp. ("ARCC"). 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/JPM 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 asset-backed notes (the
"ARCC Notes") to RCC and DFC. FSA provides credit enhancement with respect to
the BofA/JPM Facility in the form of a financial guaranty insurance policy
guaranteeing certain payments on the ARCC Notes. The BofA/JPM Facility will
continue until the earlier of July 21, 1999 or the occurrence of certain events,
subject to early termination as described below. The purchase price payable to
ARFC by ARCC is 100% of the principal balance of each loan. A portion of such
purchase price equal to the advance rate under the BofA/JPM Facility (96%) is
payable on the sale date; the balance is payable when the loans are sold in the
public asset-backed securities market. At the time the Company accesses the
public asset-backed securities market, ARFC repurchases the loans from ARCC, and
ARCC repays the ARCC Notes, using proceeds from the securitization. In addition
to the loans, the collection account is pledged to secure payment of the ARCC
Notes. 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/JPM Facility, all amounts deposited into the spread account in excess of 1%
of the outstanding balance of loans in the BofA/JPM Facility are released to
ARFC. In the event that ARFC or ARCC, respectively, defaults under any payment
obligation under the BofA/JPM Facility, ARFC and ARCC are prohibited from paying
dividends or making other distributions to the Company.
The purchase of the ARCC Notes by RCC and DFC and concurrent issuance of
commercial paper is supported by liquidity facilities provided by financial
institutions (the "BofA/JPM liquidity banks"). These liquidity facilities are a
revolving obligation that must be renewed annually. Failure by the BofA/JPM
liquidity banks to renew these liquidity facilities would lead to an early
termination of the BofA/JPM
7
<PAGE>
Facility. The BofA/JPM Facility also includes eligibility criteria for loans
warehoused, normal and customary representations, warranties and covenants
designed to protect RCC, DFC, FSA and the liquidity banks from various risks
relating to the pool of loans supporting the BofA/JPM Facility.
The Company pays usage and non-usage fees to FSA, Bank of America and Morgan
Guaranty Trust Company of New York, in connection with the BofA/JPM Facility.
The ARCC Notes bear an interest rate equal to the rate at which funds are
obtained by RCC and DFC from time to time in the commercial paper market plus a
margin. In the event the ARCC Notes are funded by the liquidity banks, the rate
of interest will be the reserve-adjusted interbank offered rate in effect from
time to time plus a margin.
Under a $150.0 million warehouse facility with Alpine Securitization Corp.
("ASC"), a commercial paper conduit sponsored by Credit Suisse First Boston, New
York Branch (the "CSFB Facility"), Arcadia Receivables Finance Corp. IV ("ARFC
IV"), a wholly owned subsidiary of the Company, borrows funds from ASC or
certain liquidity banks (the "CSFB liquidity banks"), and pledges the loans
purchased from the Company to ASC or the CSFB liquidity banks. The CSFB Facility
will continue until the earlier of September 23, 1999 or the occurrence of
certain early termination events. The purchase price payable to the Company by
ARFC IV is 100% of the principal balance of each loan. A portion of such
purchase price equal to the advance rate under the CSFB Facility (92%) is
payable on the sale date; the balance is payable when the loans are sold in the
public asset-backed securities market. At the time the Company accesses the
public asset-backed securities market, the Company ARFC purchases the loans from
ARFC IV, and ARFC IV repays the note which evidences ARFC IV's obligations under
the CSFB Facility (the "CSFB Facility Note") and pays the balance of the
purchase price for the loans, using proceeds from the securitization. All
collections under the pledged loans are collected through a collection account
and disbursed to pay the costs of the CSFB Facility (including the Company's
servicing fee), and to fund a reserve account. In addition to the loans, the
collection account and the reserve account are pledged to secure payment of the
CSFB Facility Note. Any excess in the reserve account over a performance-based
percentage (a minimum of 4%) of the outstanding balance of loans in the CSFB
Facility is released to ARFC IV. In the event that ARFC IV defaults under any
payment obligation under the CSFB Facility, ARFC IV is prohibited from paying
dividends or making other distributions to the Company.
The CSFB Facility also includes eligibility criteria for loans warehoused,
normal and customary representations, warranties and covenants designed to
protect ASC and the CSFB liquidity banks from various risks relating to the pool
of loans supporting the CSFB Facility.
The Company pays usage and non-usage fees to CSFB in connection with the
CSFB Facility. The CSFB Facility Note bears an interest rate equal to the rate
at which funds are obtained by ASC from time to time in the commercial paper
market. In the event the CSFB Facility Note is funded by the CSFB liquidity
banks, the rate of interest will be the reserve-adjusted interbank offered rate
in effect from time to time plus a margin.
Under a $150.0 million warehouse facility with Park Avenue Receivables
Finance Corp. V ("PARCO"), a commercial paper conduit sponsored by The Chase
Manhattan Bank (the "Chase Facility"), the Company, through its wholly-owned
subsidiary Arcadia Receivables Finance Corp. V ("ARFC V"), sells loans purchased
from the Company to PARCO or certain liquidity banks (the "Chase liquidity
banks"). The Chase Facility will continue until the earlier of October 15, 1999
or the occurrence of certain early termination events. The purchase price
payable to the Company by ARFC V is 100% of the principal balance of each loan.
A portion of such purchase price equal to the advance rate under the Chase
Facility, net of a 1% reserve requirement, (90%) is payable on the sale; the
balance is payable when the loans are sold in the public asset-backed securities
market. At the time the Company accesses the public asset-backed securities
market, ARFC purchases the loans from ARFC V, and ARFC V repurchases the loans
from PARCO or the Chase liquidity banks and pays the balance of the purchase
price for the loans, using proceeds from the securitization and the reserve
account. All collections under the loans sold into the Chase Facility or
collected through a collection account and disbursed to pay the costs of the
8
<PAGE>
Chase Facility (including the Company's servicing fee), and to fund the reserve
account. In addition to the loans, the collection account and the reserve
account are pledged to secure ARFC V's obligations under the Chase Facility. Any
excess in the reserve account over 6% of the outstanding balance of loans in the
Chase Facility is released to ARFC V. In the event that ARFC V defaults under
any payment obligation under the Chase Facility, ARFC V is prohibited from
paying dividends or making other distributions to the Company.
The Chase Facility also includes eligibility criteria for loans warehoused,
normal and customary representations, warranties and covenants designed to
protect PARCO and the Chase liquidity banks from various risks relating to the
pool of loans supporting the Chase Facility.
The Company pays usage and non-usage fees to Chase in connection with the
Chase Facility. The obligations of ARFC V under the Chase Facility bear an
interest rate equal to the rate at which funds are obtained by PARCO from time
to time in the commercial paper market. In the event the Chase Facility Note is
funded by the Chase liquidity banks, the rate of interest will be the
reserve-adjusted interbank offered rate in effect from time to time 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, reinsurance arrangements 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
9
<PAGE>
entitled to receive excess cash monthly from securitization trusts to the extent
that, after payments to 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 into 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.
10
<PAGE>
SERVICING
Under the terms of its securitizations and warehouse facilities, the Company
acts as servicer with respect to securitized loans and loans held under certain
warehouse facilities. The Company receives a contractual servicing fee for such
services ranging from 1.0 percent to 1.25 percent per annum of the outstanding
principal balance of the loans. 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. 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 delegation of such duties does not
relieve the Company of its responsibility to the trusts with respect to those
duties. The Company's right to service the loans sold in securitizations insured
by FSA is generally subject to the discretion of FSA.
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) 1998 1997 1996
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Arizona..................... $ 218,236 4.28% $ 242,479 4.89% $ 201,965 5.33%
California.................. 334,740 6.57 331,495 6.69 226,381 5.97
Colorado.................... 182,213 3.58 175,782 3.55 156,637 4.13
Connecticut................. 80,645 1.58 69,001 1.39 50,090 1.32
Florida..................... 355,301 6.97 308,510 6.22 213,209 5.62
Georgia..................... 323,697 6.35 326,556 6.59 269,600 7.11
Illinois.................... 41,492 0.81 53,671 1.08 45,209 1.19
Kentucky.................... 72,188 1.42 70,199 1.42 38,585 1.02
Massachusetts............... 109,995 2.15 115,988 2.34 103,221 2.72
Minnesota................... 109,354 2.15 116,048 2.34 107,971 2.85
Missouri.................... 196,996 3.87 210,134 4.24 186,624 4.92
Nevada...................... 121,437 2.38 122,131 2.46 102,734 2.71
New Mexico.................. 70,713 1.39 75,333 1.52 65,641 1.73
New York.................... 110,784 2.17 99,755 2.01 44,806 1.18
North Carolina.............. 199,039 3.91 172,221 3.47 101,957 2.69
Oklahoma.................... 220,489 4.33 228,576 4.61 173,531 4.58
Oregon...................... 146,732 2.88 135,454 2.73 106,208 2.80
South Carolina.............. 207,704 4.08 181,268 3.66 118,738 3.13
Tennessee................... 299,252 5.87 254,189 5.13 160,930 4.24
Texas....................... 981,216 19.25 960,842 19.40 826,749 21.80
Washington.................. 148,392 2.91 168,240 3.39 163,707 4.32
Wisconsin................... 58,566 1.15 69,013 1.39 57,035 1.50
All Other States............ 507,041 9.95 469,205 9.48 270,329 7.14
--------- ---------- --------- ---------- --------- ----------
Total................... $5,096,222 100.00% $4,956,090 100.00% $3,791,857 100.00%
--------- ---------- --------- ---------- --------- ----------
--------- ---------- --------- ---------- --------- ----------
</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. In response
to the rapid growth of its servicing portfolio and increase in the proportion of
loans with higher risk characteristics included in the portfolio, the Company
substantially increased its servicing and collection staff throughout 1996 and
1997 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, 1998, the Company
employed over 844 service representatives and collection employees who are
responsible for various aspects of the collection and
11
<PAGE>
repossession procedures, compared with 800 and 510 at December 31, 1997 and
1996, respectively. The Company substantially expanded the capacity of its
automated telephone dialing systems (the "autodialer") in connection with its
1996 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 and 1998, 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 periodically evaluates its
benefits and compensation structures in an effort to remain competitive and
reduce attrition.
The Company generally utilizes the autodialer in its initial contact with
delinquent obligors. Based on parameters established by the Company for each of
its risk tiers, the autodialer will phone the obligor within five to ten days
after the scheduled 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 scheduled 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 scheduled due
date. The first such correspondence is generally sent approximately 13 days
after a scheduled due date.
If the collection effort during the first 20 days after a scheduled 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
operations policies restrict the number of contract extensions that the Company
may grant. When an extension is granted, the maturity date of the loan does not
change and the interest for the delinquent period is added to the loan balance.
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
relevant securitization trusts and agreements with FSA.
The Company follows prescribed legal procedures for repossessions, which
include peaceful repossession, one or more consumer notifications, a prescribed
waiting period prior to disposition of the repossessed vehicle and return of
personal items to the obligor. In some states, the Company must provide the
obligor with reinstatement or redemption rights. Legal requirements,
particularly in the event of bankruptcy, may restrict the Company's ability to
dispose of the repossessed vehicle. The Company uses independent contractors to
perform repossessions. Upon repossession and after any prescribed waiting
period, the repossessed vehicle is sold through wholesale auctions. As noted
above, the Company discontinued its utilization of retail disposition channels
during 1998 (see "Management's Discussion and Analysis--Changes in Accounting
Estimates and Non-recurring Charges"). Proceeds from the sale of the repossessed
vehicle and other recoveries are usually not sufficient to cover the outstanding
balance of the contract, and the resulting deficiency is charged-off. The
Company may pursue collection of deficiencies when it deems such action to be
appropriate.
12
<PAGE>
RISK MANAGEMENT
The Company has developed procedures to evaluate the operations of regional
buying centers on a centralized basis. The Company's risk management department
is responsible for monitoring the loan purchase process and supporting the
supervisory role of senior operations management. This department uses databases
to track key variables, such as loan applicant data, credit bureau and credit
score information, loan structures and terms and payment histories. The risk
management department also regularly reviews the performance of the Company's
credit scoring system and is involved with third-party vendors in the
development and enhancement of credit and behavioral scorecards for the Company.
The risk management department regularly prepares credit indicator packages
reviewing portfolio performance at various levels of detail including total
company, regional buying center, risk tier and dealer. Various daily reports and
analytical data are also generated by the Company's management information
systems. This information is used to monitor credit quality as well as to refine
the structure and mix of new loan purchases. Portfolio returns are reviewed on a
consolidated basis, as well as at the buying center, dealer and account levels.
Statistically-based behavioral assessment models are used to project the
relative probability that an individual account will default and to validate the
credit scoring system after the receivable has aged for a sufficient period of
time (generally six to nine months). Default probabilities are calculated for
each account independent of the credit score. Projected default rates from the
behavioral assessment models and credit scoring systems are compared and
analyzed to monitor the effectiveness of the Company's credit strategies.
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's lending programs are typically designed to
serve consumers which have limited access to traditional financing sources such
as captive finance companies, banks and savings and loans due to past credit
difficulties or limited credit history. The Company also predominately finances
used vehicles. As such the Company generally does not directly compete with such
traditional sources. The Company believes it competes with other consumer
lending sources primarily 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, 1998 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.
13
<PAGE>
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 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, 1998, the Company had 1,446 employees. None of the Company's
employees is covered by a collective bargaining agreement.
14
<PAGE>
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 55 Director and Chief Executive Officer
Robert A. Marshall 58 Director, President and Chief Operating Officer
Scott H. Anderson 41 Director and Vice Chairman, Credit and
Collections
Cortes E. DeRussy 59 Executive Vice President, Loan Origination
Duane E. White 43 Executive Vice President, Corporate Services
John A. Witham 47 Executive Vice President, Chief Financial Officer
Brian S. Anderson 44 Senior Vice President, Corporate Controller
James D. Atkinson III 50 Senior Vice President, Corporate Counsel and
Secretary
</TABLE>
RICHARD A. GREENAWALT was appointed a Director and Chief Executive Officer
of the Company on January 27, 1997 and commenced employment on January 29, 1997.
From January 1997 until January 1999, Mr. Greenawalt also served as the
President of the Company. 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 with Citicorp, including Chairman and Chief Executive
Officer of Citicorp Person-to-Person and President and Chief Executive Officer
of Citicorp Retail Services.
ROBERT A. MARSHALL was appointed President and Chief Operating Officer of
the Company on January 27, 1999 and commenced employment on February 1, 1999.
Mr. Marshall has been a member of the Company's Board of Directors since
February 1997. He retired in 1997 as President of the Credit Card Division at
Advanta Corporation where he was employed for over eight years. Before joining
Advanta, Mr. Marshall served as Chief Operating Officer of a subsidiary of
Scudder, Stevens & Clark, an investment management firm based in New York. Mr.
Marshall also spent 14 years at Citicorp. His last assignment was Senior Vice
President of Citicorp Retail Services, Inc. Prior to his being employed at
Citicorp, Mr. Marshall was a Vice President for Bankers Trust and also spent 5
years with Avon Products. Mr. Marshall currently serves as director of Union
Corporation, a financial service corporation.
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 19
years.
CORTES E. DERUSSY was appointed Executive Vice President, Loan Originations,
in August 1998, with management responsibility for the Sales and Marketing and
Application Processing functions. From April 1997 to July 1998, Mr. DeRussy
served as Senior Vice President at Banc One Credit Company, and from September
1996 to March 1997, he was self-employed. From 1985 to August 1996, Mr. DeRussy
served as Executive Vice President at ICON Capital Corp.
DUANE E. WHITE was appointed Executive Vice President, Corporate Services,
in May 1997, with management responsibility for the Information Services, Human
Resources, Legal, Internal Compliance, Risk Management, Quality Assurance 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
15
<PAGE>
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.
BRIAN S. ANDERSON was appointed Senior Vice President in December 1995 and
has served as Corporate Controller of the Company since September 1990. Mr.
Anderson had previously served as Vice President since November 1992. From March
1988 to September 1990 he was Assistant Controller for Walden Leasing, a vehicle
leasing company. Brian S. Anderson is not related to Scott H. Anderson.
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.
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 51,000 square
feet of leased space pursuant to a lease expiring in 2002. Additionally, the
Company leases a 20,000 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 3,000 square feet to
14,000 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 17,000 square
feet and have lease terms ranging from 5 to 10 years. See Note 9 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
16
<PAGE>
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 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., involved a complaint by approximately 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 alleged that
Arcadia was either directly or vicariously liable for damages incurred as a
result of the consignment dealer's alleged wrongful actions. The Company
resolved the claims by such borrowers through the mediation process in June
1998. In the interim, an additional three plaintiffs entered in the case. The
Company is seeking to resolve these plaintiff's claims 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, 1998.
17
<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, 1998.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
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
1998
First quarter........................................................... 7.81 5.81
Second quarter.......................................................... 10.50 6.19
Third quarter........................................................... 8.25 3.31
Fourth quarter.......................................................... 5.44 3.00
</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, the Company was unable to pay cash dividends on its Common Stock as
of December 31, 1998. 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. In November
1998, the Company again 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 from 18% or more up to 20% or
more. All shares of Common Stock issued after November 22, 1996 have been, and
will be issued together with one Right per share.
At February 26, 1999, the Company had 1,233 shareholders of record.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information, for each of the five years in
the period ended December 31, 1998, is derived from the consolidated financial
statements of the Company. As more fully described in Note 2 to the Consolidated
Financial Statements, the selected financial data for the four years ended
December 31, 1994 through December 31, 1997 have been restated to reflect
changes to the Company's accounting policies related to the computation of gain
on sale of loans and measurement of the fair value of financed income
receivable. 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,
---------------------------------------------------------------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
(Dollars in thousands except per share amounts) 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATION DATA (1):
Net interest margin................................ $ 81,867 $ 80,369 $ 59,628 $ 29,577 $ 9,905
Gain on sale of loans (2).......................... (18,499) (14,895) 95,420 52,347 11,803
Servicing fee income............................... 83,015 68,096 43,639 19,356 5,381
----------- ----------- ----------- ----------- -----------
Total revenues................................. 146,383 133,570 198,687 101,280 27,089
Operating expenses................................. 187,187 162,017 92,298 42,727 17,342
Long term debt and other interest expense.......... 51,672 41,216 25,193 17,170 5,416
----------- ----------- ----------- ----------- -----------
Total expenses................................. 238,859 203,233 117,491 59,897 22,758
----------- ----------- ----------- ----------- -----------
Operating income (loss) before income taxes and
Extraordinary item............................... (92,476) (69,663) 81,196 41,383 4,331
Income tax provision (benefit)..................... (9,235) (26,473) 30,209 16,537 1,325
----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary items........... (83,241) (43,190) 50,987 24,846 3,006
Extraordinary items, net of tax (3)................ -- (15,828) -- (3,856) --
----------- ----------- ----------- ----------- -----------
Net income (loss).................................. $ (83,241) $ (59,018) $ 50,987 $ 20,990 $ 3,006
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
BASIC EARNINGS PER SHARE:
Income (loss) per share before extraordinary
items............................................ $ (2.13) $ (1.12) $ 1.61 $ 1.28 $ 0.07
Extraordinary items per share...................... -- (0.41) -- (0.22) --
----------- ----------- ----------- ----------- -----------
Net income (loss) per share........................ $ (2.13) $ (1.53) $ 1.61 $ 1.06 $ 0.07
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
DILUTED EARNINGS PER SHARE:
Income (loss) per share before extraordinary
items............................................ $ (2.13) $ (1.12) $ 1.40 $ 0.79 $ 0.07
Extraordinary items per share...................... -- (0.41) -- (0.15) --
----------- ----------- ----------- ----------- -----------
Net income (loss) per share........................ $ (2.13) $ (1.53) $ 1.40 $ 0.64 $ 0.07
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic.............................................. 39,071,412 38,700,346 30,897,426 17,718,603 9,842,173
Diluted............................................ 39,071,412 38,700,346 36,449,995 26,435,765 16,683,380
FINANCIAL RATIOS AND OTHER DATA (4):
Ratio of earnings to fixed charges................. -- -- 3.81x 2.76x 1.12x
Deficiency in earnings to fixed charges............ $ 92,476 $ 69,633 -- -- --
SELECTED CASH FLOW DATA:
Total cash provided by (used in) operating
activities....................................... $ 30,300 $ (130,165) $ (253,127) $ (135,659) $ (78,774)
Total cash used in investing activities............ (5,458) (7,310) (6,600) (2,588) (917)
Total cash provided by (used in) financing
activities....................................... (31,289) 138,692 274,444 122,970 93,572
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash.................... $ (6,447) $ 1,217 $ 14,717 $ (15,277) $ 13,881
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
(Dollars in thousands except per share amounts) 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents.......................... $ 10,827 $ 17,274 $ 16,507 $ 1,340 $ 16,617
Finance income receivable.......................... 587,946 602,454 481,934 240,430 78,249
Total long-term debt............................... 421,939 421,780 206,418 161,929 46,804
Total preferred shareholders' equity............... -- -- -- 25,379 27,279
Total common shareholders' equity.................. 268,809 335,454 378,114 149,784 32,404
OPERATING DATA:
Automobile loan purchases.......................... $ 2,193,380 $ 2,862,821 $ 2,750,553 $ 2,052,413 $ 743,256
Automobile loan securitizations.................... 2,198,326 2,864,120 2,787,412 1,933,525 712,211
Operating expenses as a percentage of average
servicing portfolio.............................. 3.69% 3.63% 3.06% 2.78% 3.28%
SERVICING DATA:
Servicing portfolio (at period end)................ $ 5,096,222 $ 4,956,090 $ 3,791,857 $ 2,267,107 $ 837,095
Average servicing portfolio during the period...... 5,071,996 4,458,977 3,015,411 1,534,720 528,577
Delinquencies of more than 30 days as a percentage
of servicing portfolio (at period end)........... 4.78% 3.63% 2.64% 1.33% 0.82%
Net losses as a percentage of average servicing
portfolio during the period (5).................. 4.62% 3.48% 0.99% 0.67% 0.66%
</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 two years ended December 31,
1998 and 1997, are non-recurring pre-tax charges to gain on sale of loans of
$114.5 million and $98.0 million, respectively. See "Management's Discussion
and Analysis--Results of Operations--CHANGES IN ACCOUNTING ESTIMATES AND
NON-RECURRING 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) 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.
(5) Changes to the Company's estimated recovery rate for repossessed inventory
during 1998 and 1997 resulted in a write-down of existing inventory and an
increase in net losses during the years ended December 31, 1998 and 1997.
See "Management's Discussion and Analysis--Results of Operations--CHANGES IN
ACCOUNTING ESTIMATES AND NON-RECURRING CHARGES."
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
As more fully described in Note 2 to the Consolidated Financial Statements,
this report contains financial information which has been restated.
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 risk-based pricing strategy, allowing it
to price loans according to the borrower's credit characteristics and the loan
terms which are available to the borrower. For example, a credit applicant with
a low credit score and high loan-to-value ratio would generally indicate a
higher probability of default and an increase in the severity of the potential
net loss. Accordingly, the Company's loan pricing matrix would indicate that a
higher APR should be attached to the contract to compensate for the higher
credit risk relative to a credit applicant with a better credit profile and
lower loan-to-value ratio. The weighted average APR of loan purchases during
1998 was 17.04% compared to 15.95% and 14.38% in 1997 and 1996, respectively,
reflecting the Company's continued refinements to its risk-based pricing
strategy as well as changes in the purchase mix of loans to include a greater
proportion of loans with higher risk characteristics. During 1998, the Company
increased its reserves for potential loan losses to $415.4 million, or 8.15% of
its servicing portfolio at December 31, 1998 compared to $235.6 million, or
4.75% of its servicing portfolio at December 31, 1997.
The Company aggregates the automobile loans it purchases and sells them to
specially created trusts, which in turn sell asset-backed securities to
investors. By securitizing these loans, the Company is able to fix the
difference ("gross interest rate spread") between the APR on the automobile
loans purchased and the interest rate on the asset-backed securities sold
("securitization rate"). When the Company securitizes 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 from the sale to the trust 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 includes 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
between the fair value of such loans and the fair value of the estimated future
cash flows expected to be received by the Company. The Company's estimate of the
fair value of the 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. 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. The amount of finance
income receivable is offset by distributions to the Company of excess cash flows
from spread accounts as they occur.
21
<PAGE>
Subsequent to securitization, the Company continues to service the loans
sold, for which it recognizes servicing fee income as earned over the life of
the securitization. Future servicing fee income is not included in finance
income receivable.
When determining the fair value of finance income receivable, 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
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 (see "CHANGES IN ACCOUNTING ESTIMATES AND NON-RECURRING
CHARGES"). Temporary changes in the fair value of finance income receivable,
such as fluctuations in market interest rates used in determining appropriate
discount rates, are recorded as a separate component of shareholder's equity and
recognized as other comprehensive income. Because the Company is in a net
operating loss carryforward position for income tax purposes, comprehensive
income items are not disclosed net of tax at, and for the year ended, December
31, 1998.
RESULTS OF OPERATIONS
CHANGES IN ACCOUNTING ESTIMATES AND NON-RECURRING CHARGES. Included in the
Company's 1998 and 1997 financial results are two non-cash charges totaling
$125.0 million and $98.0 million, respectively.
The second quarter 1998 non-cash charge includes a pre-tax $114.5 million
charge to gain on sale of loans associated with a change in accounting estimates
to reflect (i) a higher estimate of the frequency of defaulted receivables, (ii)
a reduction in estimated loan loss recovery rates, (iii) a reduction in
estimated voluntary loan prepayments, and (iv) additions to general reserves
related to changes in the expected future performance of the existing portfolio
of receivables. An additional $10.5 million pre-tax charge relates to the
elimination of the Company's retail remarketing program and other organizational
changes designed to improve future operating efficiencies.
Historically, management's estimate of the frequency of loan defaults was
based on actual credit performance incurred to date segregated by each
securitization transaction and loan product (i.e. Premier and Classic) as well
as comparisons to externally-generated industry information when available. In
response to a perception of increased risk within the consumer finance industry
and the Company's dependence on internal historical experience as an indicator
of future credit performance, management commenced a project in 1997 to identify
what it hoped would be a more predictive alternative to estimating future
performance of its servicing portfolio to not only improve the Company's
assessment of its finance income receivable carrying amount but also to enhance
the Company's pricing of its loan products. This project focused on identifying
correlations between the credit performance of the loans in the Company's
servicing portfolio and the credit characteristics of each contract at the time
of origination, including externally-developed credit score, loan-to-value
ratio, debt-to-income ratio and payment-to-income ratio. The Company's decision
to obtain and utilize a credit score from a nationally recognized independent
credit scoring company rather than utilizing its own internally-developed credit
score was based on its desire to reduce the subjectivity of the analysis. As a
result of this project, management determined in 1998 that the combination of an
externally-developed credit score and loan-to-value ratio was most predictive of
future loan performance. Using the information derived from this process,
management was able to segregate the loans in its servicing portfolio into
multiple distinct tiers of credit performance that management believes provide a
higher level of precision in estimating future default experience than its
previous methodology. As a result, management determined in June 1998 that it
was necessary to revise its estimate with respect to the frequency of future
loan defaults and reduce the carrying value of its finance income receivable by
approximately $67 million.
22
<PAGE>
In addition to the frequency of loan defaults, the valuation of the
Company's finance income receivable is based in part on an estimate of the
recovery rate expected upon the disposition of repossessed vehicles. Although
the Company was reserved for and realized recovery rates slightly above 50% on
the sale of repossessed vehicles during the first six months of 1998, management
concluded in June that market pressure on used car prices would force recovery
rates downward and therefore, determined that it was appropriate to lower the
estimated recovery rate to 45%. This decrease to the Company's estimated
recovery rate, taking into consideration the increase in the estimated frequency
of defaults discussed above, led to a further reduction in the carrying value of
finance income receivable at June 30, 1998, of approximately $51 million.
A third component in the valuation of finance income receivable is an
estimate of the amount and timing of voluntary prepayments of loans.
Historically, management had estimated the percentage of receivables it expected
to prepay on a monthly basis and had assumed that such monthly prepayment speed
would remain constant throughout the life of the securitization trust. A
detailed analysis of the Company's actual prepayment data indicated, however,
that for an extended period of time prepayment speeds had performed slower than
expected and progressively declined as a securitization trust aged. As a result,
management determined in June 1998 that it was appropriate to reduce its
prepayment speed assumption, which resulted in an increase to its finance income
receivable carrying value at June 30, 1998, of approximately $49 million.
Finally, to provide for current uncertainties related to the consumer
finance industry and the remaining subjectivity of the estimates used in valuing
the finance income receivable, management concluded that it was appropriate to
increase its finance income receivable reserves at June 30, 1998, by an
additional $45.5 million.
Also during the second quarter of 1998, management decided to discontinue
the Company's retail remarketing operations and finalized plans aimed at
reducing infrastructure costs and improving operating efficiencies. After a
detailed review during 1997 and first half of 1998, the Company determined that
its retail remarketing operation, which was responsible for the liquidation of
repossessed vehicles through retail consignment lots, did not provide an
adequate risk-adjusted return commensurate with the management attention
necessary to operate such strategy. Therefore management decided to cease such
operations. Also during this time period, the Company conducted an exhaustive
study of substantially all Company functions and developed a plan which included
further consolidation of the Company's servicing and collection operations into
its four regional collection centers and streamlining of other operating
procedures. As a result, the Company recognized a $10.5 million pre-tax charge
against other operating expenses during the second quarter of 1998. This charge
related to the establishment of reserves approximating (i) $2.1 million for
severance and benefit costs associated with the expected reduction or
consolidation of approximately 330 positions primarily in the collection,
remarketing and application processing functions, (ii) $2.5 million to eliminate
excess facilities, and (iii) $5.9 million for litigation settlement costs
related to previous activity with, and the termination of, various retail
consignment lot agreements. Through December 31, 1998, the Company has realized
cash charges against these reserves of approximately $0.9 million for severance
and benefit costs, $5.0 million in litigation settlement charges, $0.4 million
to eliminate and reconfigure excess facilities and a non-cash charge of $0.6
million related to a write-down of leasehold improvements associated with
exiting various facilities. Management believes that the remaining $3.6 million
reserve at December 31, 1998 is adequate and will be utilized during the first
half of 1999.
The first quarter 1997 non-cash pre-tax charge of approximately $98.0
million was due primarily to a change in accounting estimate related to the
assumed recovery rates on repossessed vehicles and modifications to the
Company's retail disposition strategy.
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
23
<PAGE>
associated with those 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, which
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 address the number of additional repossessions expected each month. This
decline was also partially the result of lower pricing of repossessed vehicles
sold during the first quarter of 1997 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 concluded at that time 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 those 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 expected to be
required 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. Thereafter, based on his recommendation,
the Company adopted modifications to its retail disposition strategy that were
intended to reduce liquidity requirements of the strategy and establish more
efficient operating procedures. In addition, in early 1997 the Company
anticipated 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
available in the market. Further, the Company considered the risk of potentially
higher interest rates, which have a direct impact on pricing of vehicles. As a
result of these factors, the Company concluded that future recovery rates (after
giving effect to related costs) would be lower than those reflected in the
Company's prior accounting estimates and the Company recorded a pre-tax charge
of approximately $73.1 million in March 1997 to reflect an adjustment of
inventory and estimated reduction to future cash flows due to lower expected
recovery rates on future repossessed inventory.
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 to require the Company to record all current and expected
repossessed vehicles at recovery rates that reflect expected values to be
achieved through wholesale auctions. As a consequence of this policy change, the
Company's results of operations depend, in part, on sales prices for used
vehicles in wholesale auctions. The Company believes this accounting policy
provides a financial presentation that is more comparable to that of other
consumer finance companies. For these reasons, the Company believes the change
in accounting policy adopted in April 1997 reflected a preferable application of
generally accepted accounting principles. Because the change in policy was
inseparable from the estimation process referred to above, it was appropriate to
reflect the effect of the change in accounting policy of approximately $24.9
million pre-tax as a reduction to earnings.
24
<PAGE>
NET INTEREST MARGIN. The components of net interest margin for each of the
three years in the period ended December 31, 1998 were:
<TABLE>
<CAPTION>
(RESTATED) (RESTATED)
(Dollars in thousands) 1998 1997 1996
--------- ----------- -----------
<S> <C> <C> <C>
Interest income on loans, net............................... $ 24,756 $ 33,383 $ 29,614
Interest income on short-term investments and other cash
accounts.................................................. 10,703 11,047 6,353
Recognition of present value discount....................... 49,672 38,907 24,435
Provision for credit losses on loans held for sale.......... (3,264) (2,968) (774)
--------- ----------- -----------
Net interest margin....................................... $ 81,867 $ 80,369 $ 59,628
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
Net interest margin remained relatively flat during 1998 compared to 1997.
Interest earned on loans held for sale, net of interest on short-term funding,
declined during the current year compared to 1997 due to a reduction in loan
purchasing volume and resulting 28% decrease in the average balance of loans
held for sale. The effect of the lower average balance of loans held for sale
was partially offset by an increase in the weighted average net interest rate
spread earned on loans held for sale to 11.14% during 1998 compared to 10.24% in
1997, primarily due to higher average APR's on loans purchased. The decline in
interest earned on loans held for sale was offset by an increase in the
accretion of present value discount on estimated cash flows associated with
securitized loans.
The rise in net interest margin during 1997 compared to 1996 is primarily
due to a 12% growth in the average balances of loans held for sale pending
securitization resulting from an increase in loan purchasing volume and wider
net interest rate spreads earned on loans held for sale. The weighted average
net interest rate spread earned during 1997 rose to 10.24% compared with 8.67%
during 1996 principally due to higher average APR's paid by obligors primarily
resulting from the expansion of the Company's purchasing volume of loans with
higher risk characteristics. Interest income on short-term investments also
increased between 1996 and 1997 primarily due to growth in the aggregate balance
of securitization related cash accounts associated with the continued expansion
of the securitization program. In addition, income from the recognition of
present value discount grew due to the increased volume of securitizations.
The Company's loan purchasing and securitization volume for each of the
three years ended December 31, 1998 is set forth in the table below.
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Total automobile loan purchases..................... $ 2,193,380 $ 2,862,821 $ 2,750,553
Automobile loans securitized........................ $ 2,198,326 $ 2,864,120 $ 2,787,412
</TABLE>
GAIN ON SALE OF LOANS. During 1998 and 1997, the Company recognized
non-recurring pre-tax charges to gain on sale of loans of $114.5 million and
$98.0 million, respectively, resulting in losses on the sale of loans of $18.5
million and $14.9 million, respectively, compared with a net gain on the sale of
loans of $95.4 million during 1996. See "CHANGES IN ACCOUNTING ESTIMATES AND
NON-RECURRING CHARGES" for
25
<PAGE>
additional discussion. The following table summarizes the significant factors
and assumptions utilized in determining gain on sale of loans during each of the
three years ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average APR of loans securitized............................ 16.98% 16.00% 14.56%
Weighted average securitization rate................................. 5.83 6.42 6.31
--------- --------- ---------
Gross interest rate spread (1)..................................... 11.15% 9.58% 8.25%
--------- --------- ---------
--------- --------- ---------
Weighted average cumulative net losses (2)........................... 7.84% 5.68% 1.96%
Weighted average present value discount rate on future excess cash
flows.............................................................. 9.73% 9.42% 8.33%
</TABLE>
- ------------------------
(1) Before gains/losses on hedge transactions.
(2) Assumptions are based on original computation prior to adjustments to record
permanent impairment of finance income receivable. See "CHANGES IN
ACCOUNTING ESTIMATES AND NON-RECURRING CHARGES."
The rise in gross interest rate spread during 1998 and 1997 is primarily due
to the Company's continued refinements to its risk-based pricing strategy. Gross
interest rate spreads further benefited during 1998 from a reduction in the
securitization rate reflecting a general decline in U.S. Treasury rates compared
to 1997 and 1996. During the last half of 1998, however, uncertainties in the
bond market caused investors in asset-backed securities to demand higher rates
of return. As a result, the spread over the two-year U.S. Treasury at which the
Company sold its loans increased by approximately 50 basis points compared to
its securitization transactions in 1997 and 1996, partially off-setting the
positive impact on the Company's gross interest rate spread of the favorable
movement in the U.S. Treasury market.
Gain on sale of loans has been adjusted for $21.6 million, $8.7 million and
$0.3 million of net realized losses on hedging transactions during 1998, 1997
and 1996, respectively. The increase in realized hedging losses during 1998 is
primarily due to significant downward movement of treasury rates during the last
half of 1998 (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, 1998 were:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Contractual servicing fee income............................. $ 57,657 $ 46,022 $ 28,284
Other servicing income units................................. 25,358 22,074 15,355
--------- --------- ---------
Servicing Fee Income....................................... $ 83,015 $ 68,096 $ 43,639
--------- --------- ---------
--------- --------- ---------
</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, growth in the
Company's servicing portfolio (see "Delinquency, Loan Loss and Repossession
Experience") and increased interest earned on collection accounts attributable
to the growth in the average servicing portfolio outstanding and related obligor
repayments.
26
<PAGE>
The following table reflects the growth in the Company's servicing portfolio
from 1996 to 1998:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------
(Dollars in thousands, except as noted) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Principal balance of automobile loans held for sale......... $ 18,412 $ 47,815 $ 35,365
Principal balance of loans serviced under securitizations... 5,077,810 4,908,275 3,756,492
---------- ---------- ----------
Servicing portfolio....................................... $5,096,222 $4,956,090 $3,791,857
---------- ---------- ----------
---------- ---------- ----------
Average outstanding principal balance (actual dollars)...... $ 11,309 $ 12,046 $ 12,537
Number of loans serviced.................................... 450,635 411,429 302,450
</TABLE>
The Company's servicing portfolio increased 3% from 1997 to 1998 and 31%
between 1996 and 1997. These increases reflect loan purchases and subsequent
securitizations of $2.2 billion and $2.9 billion during 1998 and 1997,
respectively, partially offset by defaults and scheduled repayments. The decline
in average outstanding principal balance of loans during 1998 and 1997 reflects
an increase in the proportion of used to new cars financed by the Company and a
reduction in average loan-to-value ratio on loan purchases resulting from the
Company's more selective buying practices.
OPERATING EXPENSES. Included in the 1998 operating expenses is a $10.5
million pre-tax charge related to the elimination of the Company's retail
remarketing program and other organization changes designed to improve operating
efficiency (see "CHANGES IN ACCOUNTING ESTIMATES AND NON-RECURRING CHARGES" for
additional discussion). Excluding this charge, operating expenses as a
percentage of average servicing portfolio declined to 3.48% during 1998 from
3.63% during 1997. This decrease reflects efficiencies achieved from the various
reorganization initiatives and certain economies of scale realized from growth
in the Company's servicing porfolio. The increase in the annual operating
expense ratio to 3.63% in 1997 from 3.06% in 1996 was due to a rise in salaries
and benefits reflecting a growth in the number of employees to accommodate the
rise in loan purchasing volume during this period and the subsequent servicing
of such loans. Additionally, the Company experienced an increase in servicing
and collection expenses principally due to the increased proportion of loans in
its servicing portfolio with higher risk characteristics as well as higher
operating lease expenses attributable to a shift from the utilization of capital
leases to operating leases.
LONG TERM DEBT AND OTHER INTEREST EXPENSE. Long-term debt and other
interest expense rose 25%, from $41.2 million to $51.7 million, during 1998 and
64%, from $25.2 million to $41.2 million, during 1997. These increases were
primarily due to the issuance of $300.0 million and $75.0 million of 11.5%
Senior Notes due 2007 (the "SENIOR NOTES") in March and October 1997,
respectively, partially offset by the concurrent extinguishment of $145.0
million of 13% Senior Term Notes in March 1997.
INCOME TAX EXPENSE. The Company recognized a tax benefit during 1998
representing the utilization of net operating loss carryforwards resulting from
the non-recurring charge during the second quarter (see "CHANGES IN ACCOUNTING
ESTIMATES AND NON-RECURRING CHARGES" for additional discussion). 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 $227.7
million of tax net operating loss carryforwards, available to offset against
income taxes in 1999 and future years, subject to applicable limitations. The
$36.2 million income tax benefit during 1997 (including the tax effect of an
extraordinary item) primarily reflected the Company's estimated reduction to its
deferred tax liability as of December 31, 1997 resulting primarily from a
special charge recognized during the first quarter of 1997.
EXTRAORDINARY ITEMS. In March 1997, the Company issued $300.0 million of
its 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 unamortized debt issuance costs have been
treated as an extraordinary item, net of tax.
27
<PAGE>
PREFERRED DIVIDENDS. The Company paid dividends on its 8% cumulative
convertible exchangeable preferred stock outstanding of $1.2 million during
1996. As of December 31, 1996, all such preferred shares had been redeemed or
converted.
FINANCIAL CONDITION
DUE FROM SECURITIZATION TRUST. At December 31, 1998 and December 31, 1997,
the Company had delivered $62.1 million and $107.2 million, respectively, of
loans into securitization trusts for which the Company received cash from the
trusts concurrent with the legal closing of the relevant transactions in January
1999 and January 1998, respectively. The Company completed two securitizations
during the fourth quarter of 1998 compared to a single transaction in the same
period of 1997, resulting in the smaller delivery outstanding at December 31,
1998.
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 decreased to $17.9 million at December 31, 1998 from $49.1 million at
December 31, 1997, primarily due to the timing in delivery of loans associated
with the Company's securitizations and lower purchasing volume.
FINANCE INCOME RECEIVABLE. Finance income receivable decreased to $587.9
million at December 31, 1998 from $602.5 million at December 31, 1997. The
decrease was primarily due to a $114.5 million non-recurring pre-tax charge
recorded in June 1998 (see "CHANGES IN ACCOUNTING ESTIMATES AND NON-RECURRING
CHARGES" for additional discussion) and the early release of $60.0 million from
certain of the Company's securitization trust accounts pursuant to an
arrangement with its provider of asset-backed securities insurance, partially
off-set by amounts capitalized upon completion of securitization transactions
during 1998 related to the present value of estimated cash flows.
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. There
were no deferred income taxes at December 31, 1998 compared with a net deferred
tax liability of $11.5 million at December 31, 1997. This decrease reflects the
recognition of a portion of the tax benefit resulting from the 1998 second
quarter loss from operations. In accordance with SFAS No. 109, "Accounting for
Income Taxes," the Company established a valuation allowance during 1998 to
offset the deferred tax asset associated with the Company's remaining net
operating loss carryforwards as of December 31, 1998.
OTHER LIABILITIES. Accounts payable and accrued liabilities increased to
$36.9 million at December 31, 1998 compared to $26.3 million at December 31,
1997. This 40% increase was primarily related to reserves established for
securitization expenses, employee benefits, and the non-recurring charge
recognized in June 1998 (see "CHANGES IN ACCOUNTING ESTIMATES AND NON-RECURRING
CHARGES" for additional discussion).
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 based applications to
recognize the date change from December 31, 1999 to January 1, 2000, potentially
causing miscalculations, system failures and other operational problems.
One of the Company's most critical operating systems is its loan accounting
system. In July 1997, an internal implementation team along with outside
consultants was assigned to evaluate, select, and implement a new installment
loan accounting system and various sub-systems (the "ILA system") in connection
with an initiative to replace and enhance the Company's key operating systems.
One of the requirements for consideration was that the new ILA system be Year
2000 compliant. In late 1997, a contract was signed with a nationally recognized
vendor to provide the Company with such a system. The contract warrants, among
other things, that the core software system being purchased is fully Year 2000
28
<PAGE>
compliant and that the software will be installed and in a testing phase with
the Company's current system in the first quarter of 1999. To date, the Company
believes that the terms of the contract have been met.
In addition, in early 1998 the Company formed a dedicated project team to
conduct an extensive analysis of the impact that the Year 2000 issue would have
on its automated information systems (exclusive of the ILA system), business
support systems and facility operating systems. The project team has been
responsible for the prioritization of Year 2000 tasks, development of
implementation plans, and the establishment of timetables for completion and
testing of all necessary modifications. As a result, the Company has initiated
the replacement, modification or reprogramming of Year 2000 non-compliant
hardware and software and since 1997 has required that all new hardware and
software be certified as Year 2000 compliant prior to purchase. To assist in
this process, the Company has engaged an independent company to aid in the
remediation of non-compliant programs. The modification and reprogramming of
these programs has been completed and the implementation phase is underway, with
completion expected during the first quarter of 1999. All Year 2000 testing will
be completed in an isolated systems environment dedicated for Year 2000 issues.
As a contingency to the possibility of an unplanned delay in the implementation
of the new ILA system discussed above, the Company's current loan accounting
system has been included in the programs provided to the independent company for
remediation. This will provide a Year 2000 compliant installment loan accounting
system even if the implementation of the new ILA system should be delayed beyond
the end of 1999.
The Company currently expects to have all business critical hardware and
software Year 2000 compliant by the end of the first quarter of 1999 and to
complete a Year 2000 certification process by mid 1999. The Company estimates
that the cost of its Year 2000 project will aggregate approximately $1.5
million, of which approximately $0.5 million has been expended through December
31, 1998. These costs do not include amounts related to the implementation of
the ILA system or other hardware and software purchases which the Company had
planned to acquire and which are not directly related to, or the purchase of
which has not been accelerated because of, the Year 2000 issue. Consistent with
the Company's capitalization policy, the cost of such non-Year 2000 hardware and
software purchases will be capitalized and amortized over their expected useful
lives.
Ultimately, the potential impact of the Year 2000 issue will depend not only
on the success of the corrective measures that the Company undertakes, but also
on the way in which the Year 2000 issue is addressed by its business partners,
service providers, utility providers, governmental agencies and other entities
with which the Company does business. The Company has developed and is
implementing a plan to contact parties which provide services critical to the
successful operation of its business to heighten their awareness of the Year
2000 issue, to learn how they are addressing it and to evaluate any likely
impact on the Company. For example, the Company began a Year 2000 survey of its
credit bureaus, investment bankers and warehouse providers during the fourth
quarter of 1998 and expects to complete such survey during the first half of
1999. The Year 2000 efforts of third parties are not within the Company's
control, however, and their failure to remediate Year 2000 issues successfully
could result in business disruption, increased operating costs and increased
credit risk for the Company. At the current time, it is not possible to
determine whether any such events are likely to occur, or to quantify any
potential negative impact they may have on the Company's future results of
operations and financial condition.
The Company believes that it has an effective plan in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Company has not yet
completed all necessary processes of its Year 2000 plan. The Company plans to
continuously monitor the status of completion of its Year 2000 plan and, based
on such information, will develop contingency plans as necessary.
In the event that the Company does not complete any additional phases of its
plan, the Company may be unable to perform its key operating activities, such as
the purchase of loans and the invoicing, collecting and application of obligor
repayments. The Company could be subject to litigation for computer systems
failure, such as improper application of repayments and resulting incorrect
credit reporting to credit
29
<PAGE>
bureaus. In addition, disruptions in the economy generally resulting from Year
2000 issues could also materially adversely affect the Company. The amount of
potential liability and lost revenue cannot reasonably be estimated at this
time.
The foregoing discussion regarding Year 2000, including the discussion of
the timing and effectiveness of implementation and cost of the Company's Year
2000 project, contains forward-looking statements, which are based on
management's best estimates derived using various assumptions. These forward-
looking statements involve inherent risks and uncertainties, and actual results
could differ materially from those contemplated by such statements. Factors that
might cause material difference include, but are not limited to, the continued
availability of key Year 2000 personnel, the Company's ability to locate and
correct all relevant computer codes, the performance of contractors and
companies retained to provide new software and to remediate existing hardware
and software, and the Company's ability to respond to unforeseen Year 2000
complications. Such material differences could result in, among other things,
business disruption, operational problems, financial loss, legal liability and
similar risks.
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
expected on loans securitized and includes such allowance as a component of the
fair value of finance income receivable. 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 and credit loss experience of
the Company's servicing portfolio for the three years in the period ended
December 31, 1998. 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,
-------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- -------------------------
NUMBER OF NUMBER OF NUMBER OF
DELINQUENCY EXPERIENCE (1): LOANS BALANCES LOANS BALANCES LOANS BALANCES
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Servicing portfolio at end of period........ 450,635 $ 5,096,222 411,429 $ 4,956,090 302,450 $ 3,791,857
Delinquencies:
31-60 days................................ 12,176 $ 135,633 8,297 $ 100,161 3,884 $ 47,225
61-90 days................................ 4,161 47,599 3,635 45,485 1,255 15,877
91 days or more........................... 5,165 60,591 3,019 34,047 2,911 37,019
----------- ------------ ----------- ------------ ----------- ------------
Total loans delinquent
31 or more days........................... 21,502 $ 243,823 14,951 $ 179,693 8,050 $ 100,121
----------- ------------ ----------- ------------ ----------- ------------
----------- ------------ ----------- ------------ ----------- ------------
Delinquencies as a percentage of number of
loans and amount outstanding at end of
period (2)................................ 4.77% 4.78% 3.63% 3.63% 2.66% 2.64%
Amount in repossession...................... 5,686 $ 32,676 6,083 $ 55,300 4,651 $ 64,929
</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.
30
<PAGE>
(2) Amounts shown do not include loans which are less than 31 days delinquent.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
CREDIT LOSS/REPOSSESSION EXPERIENCE (1): 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(Dollars in thousands)
Average servicing portfolio outstanding during the
period................................................. $5,071,996 $4,458,977 $3,015,411
Average number of loans outstanding during the period.... 435,712 362,626 242,419
Number of charge-offs.................................... 33,441 24,616 14,403
Gross charge-offs (2).................................... $ 255,853 $ 165,233 $ 35,642
Recoveries (3)........................................... 21,614 9,855 5,653
--------- --------- ---------
Net losses............................................... $ 234,239 $ 155,378 $ 29,989
--------- --------- ---------
--------- --------- ---------
Gross charge-offs as a percentage of average servicing
portfolio.............................................. 5.04% 3.71% 1.18%
Net losses as a percentage of average servicing
portfolio.............................................. 4.62% 3.48% 0.99%
</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.
As illustrated in the tables above, the Company has experienced an increase
in delinquency, gross charge-off and net loss rates during each of the three
years in the period ended December 31, 1998. Management believes that these
increases are primarily due to changes in the Company's portfolio mix such that
it included a larger proportion of loans with higher credit risk
characteristics, as well as 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). To compensate for the expected increases in
credit delinquency and loss experience resulting from the rise in proportion of
loans with higher credit risk characteristics, the Company implemented a
risk-based pricing strategy during 1997 to improve the rate of return on loan
originations, increased its allowance for credit losses to 8.15% at December 31,
1998 from 4.75% and 2.51% at December 31, 1997 and 1996, respectively, tightened
its credit and underwriting standards, and has expanded its use of computerized
credit scoring and behavioral analytics to better service its portfolio and
identify improvements when necessary. As a result of these analytic
enhancements, management has decided to de-emphasize the purchase of loans which
score within certain risk tiers as the rate of return historically realized on
these loans has not been commensurate with the related risk. Loans included in
these de-emphasize tiers represented approximately 16% of the Company's
servicing portfolio at December 31, 1998 and accounted for approximately 26% of
the delinquent loans outstanding at such date and 34% of net losses incurred
during 1998.
Net losses were also affected during 1997 and 1998 by changes in the
Company's repossession disposition strategy. Beginning in March 1997, management
modified its strategy to increase the utilization of wholesale disposition
channels and made further modifications in June 1998 to discontinue its retail
remarketing operations in its entirety (see "CHANGES IN ACCOUNTING ESTIMATES AND
NON-RECURRING CHARGE").As a result, the percentage of repossessed vehicles
liquidated through wholesale liquidation channels increased from 30% in 1996 to
54% in 1997 and 81% in 1998. Although recovery rates on the sale of vehicles
through wholesale channels is generally lower than those realized through retail
distribution channels, management believes that its decision to discontinue its
retail remarketing operations enables it to better manage its level of
repossessed inventory and improve the timing of excess cash flows released to
the Company from securitization trusts as a result of an increase in the speed
at which repossessed vehicles
31
<PAGE>
can be liquidated. At December 31, 1998, the average days that vehicles were
held in inventory had fallen to approximately 46 days compared to 105 days at
December 31, 1997 and 119 days at December 31, 1996. The change in the number
and net realizable value of repossessed vehicles at December 31, 1998, reflects
the reduction in the average number of days in inventory and the lower
anticipated recovery rates resulting from the change in the Company's
liquidation strategy.
Annualized gross charge-offs and net losses during 1998 and 1997 include
non-recurring charges of 0.42% and 0.57%, respectively, due to the impact of
write-downs of repossessed inventory due to revisions to the Company's inventory
valuation policy (see "CHANGES IN ACCOUNTING ESTIMATES AND NON-RECURRING
CHARGES").
LIQUIDITY
The Company's business requires substantial cash to support its operating
activities. The principal cash requirements include (i) the purchase and
financing of automobile loans pending securitization, (ii) the cost of payment
of dealer participations, (iii) deposits of 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) the cost of 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, excess cash flow received from securitization trusts and 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
PURCHASE AND FINANCING OF AUTOMOBILE LOANS. Automobile loan purchases
represent the Company's most significant cash flow requirement. The Company
purchased $2.2 billion of loans in 1998, compared with $2.9 billion of loans in
1997, and $2.8 billion in 1996. The Company funds the purchase price of loans
primarily through the use of warehouse facilities. However, because the
warehouse facilities limit the advance rate to less than 100% of the loan
balances being purchased, the Company is required to fund the remainder of all
purchases prior to securitization with other available cash resources. Amounts
borrowed under warehouse facilities are repaid upon securitization of the loans.
DEALER PARTICIPATIONS. Consistent with industry practice, the Company pays
dealer participations for selling loans to the Company. These participations
typically require the Company to advance an up-front amount to dealers. When
loans are securitized, the related dealer participation is expensed and
subsequently recovered over the estimated life of the related loan through the
return to the Company of excess cash flow from the securitization trust.
Aggregate participations paid by the Company to dealers in 1998 were $62.9
million or approximately 2.87% of the principal balance of loans purchased,
compared with $89.7 million, or 3.13%, in 1997 and $94.9 million, or 3.45%, in
1996. The decrease in dealer participations paid as a percentage of the
principal balance of loans purchased reflects the growth in volume of loans with
higher risk characteristics, which generally require lower dealer
participations.
SPREAD ACCOUNT AND SECURITIZATION EXPENSES. The Company is required to fund
spread accounts related to each securitization transaction and certain of its
warehouse facilities. The Company funds these spread accounts by foregoing
receipt of excess cash flow from the related trust until the spread account
exceeds predetermined levels (generally within 14 months of the formation of the
securitization trust). In
32
<PAGE>
certain securitizations, the Company also has been required to provide initial
cash deposits into such accounts. The amount of time required to 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 $227.7 million of restricted cash in
spread accounts at December 31, 1998, compared with $250.3 million at December
31, 1997. The change in restricted cash in spread accounts reflects the
Company's continued securitization of loan purchases and the related
accumulation of excess cash flows to levels defined within each securitization
agreement, offset by the release of excess cash flows and the early release of
$60.0 million from certain spread accounts under an agreement between the
Company and its provider of asset-backed securities insurance. During 1997, the
Company entered into agreements with its provider of asset-backed securities
insurance which allowed the Company to provide letter of credits in lieu of
initial deposits. In addition to the restricted cash noted above, the spread
accounts were supported by $18.5 million and $11.6 million of letters of credit
at December 31, 1998 and 1997, respectively.
The Company also incurs certain expenses in connection with securitizations
including underwriting fees, credit enhancement fees, trustee fees and other
costs, which approximate 0.5% of the principal amount of the asset-backed
securities sold in the securitizations.
INTEREST ADVANCES TO SECURITIZATION TRUSTS. 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.
REPOSSESSION INVENTORY. At December 31, 1998, repossessed inventory managed
or owned by the Company and held for resale was $32.7 million, compared with
$55.3 million at December 31, 1997. The rate of repossessed inventory turnover
impacts cash available for deposit to spread accounts from securitization trusts
and, consequently, the excess cash potentially available for distribution to the
Company. At December 31, 1998, repossessed inventory was 0.6% of the total
servicing portfolio compared with 1.1% at December 31, 1997. In June 1998, the
Company decided to discontinue liquidating its repossession inventory through
retail disposition channels and began disposing of its repossessed vehicles
exclusively through wholesale auctions (see "CHANGES IN ACCOUNTING ESTIMATES AND
NON-RECURRING CHARGES"). However, improvement in excess cash flows due to an
increase in the inventory turnover rate may be partially reduced by lower
recoveries realized through the exclusive use of wholesale auctions and
generally lower wholesale used car prices.
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. The Company
also incurs interest expense related to both short-term and long-term debt
obligations.
PRINCIPAL OPERATING SOURCES OF CASH
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 1998, the Company received $205.8 million of excess cash flow
(which amount includes $60.0 million released sooner than would otherwise have
been the case pursuant to an arrangement with the Company's provider of
asset-backed
33
<PAGE>
securities insurance--see "CAPITAL RESOURCES--OTHER CAPITAL RESOURCES"),
compared with $89.0 million in 1997 and $43.4 million in 1996. The rate of
increase in excess cash flow during 1998 exceeded the rate of increase in loans
securitized principally because spread accounts related to 1997 securitizations
reached required reserve levels and began releasing cash.
SERVICING FEES. The Company 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 also receives collection fees, such as late payments
fees and insufficient fund charges, and interest on collection accounts earned
by the Company as servicer of the loans. The Company received cash for such
services in the amount of $81.5 million, $65.9 million and $42.3 million during
1998, 1997 and 1996, respectively. Servicing fee income 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 to trusts that issue asset-backed securities. Additional
financing is required to fund the Company's operations.
WAREHOUSE FACILITIES. Automobile loans held for sale are funded on a
short-term basis primarily through warehouse facilities. At December 31, 1998,
the Company had three warehouse facilities in place with various financial
institutions and institutional lenders with an aggregate capacity of $700.0
million, all of which was available. The Company's current warehouse facilities
have expiration dates between July 1999 and October 1999, subject to renewal or
extension at the lenders' option. 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 outstanding under
warehouse facilities.
SECURITIZATION PROGRAM. An important capital resource for the Company has
been its ability to realize the value of its automobile loans in the secondary
markets through securitizations. The following table
34
<PAGE>
summarizes the Company's securitizations during the three years ended December
31, 1998, all of which were publicly issued and rated AAA by Standard & Poor's
and Aaa by Moody's Investor Services, Inc.
<TABLE>
<CAPTION>
REMAINING
REMAINING BALANCE AS A WEIGHTED
(Dollars in thousands) BALANCE AS PERCENTAGE OF CURRENT AVERAGE GROSS
ORIGINAL OF DECEMBER ORIGINAL WEIGHTED SECURITIZATION INTEREST
DATE BALANCE 31, 1998 BALANCE AVERAGE APR RATE RATE SPREAD
- ------------------- ------------ ------------ ------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
March 96 $ 600,000 $ 161,116 26.85% 13.42% 5.81% 7.61%
June 96 650,000 217,884 33.52 14.18 6.62 7.56
September 96 725,000 286,829 39.56 14.61 6.75 7.86
December 96 730,000 328,895 45.05 15.01 6.08 8.93
March 97 775,000 397,813 51.33 15.41 6.54 8.87
June 97 775,000 445,804 57.52 15.79 6.50 9.29
September 97 775,000 507,400 65.47 16.31 6.36 9.95
December 97 600,000 430,128 71.69 16.68 6.23 10.45
March 98 525,000 417,962 79.61 17.15 5.93 11.22
June 98 550,000 480,400 87.35 17.15 5.97 11.18
September 98 600,000 563,417 93.90 16.87 5.63 11.24
November 98 200,000 193,024 96.51 16.85 5.71 11.14
December 98 (1) 225,000 161,954 99.57 17.14 5.69 11.45
------------ ------------
$ 7,730,000 $4,592,626
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) At December 31, 1998, $162.9 million of automobile loans had been delivered
to the trust and $62.1 million cash remained in the pre-funded portion of
the trust. In January 1999, 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, 1998, the Company had securitized approximately $10.9 billion of
automobile loans since its inception in 1990. The securitization trusts had
remaining balances of approximately $5.0 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 Financial Security Assurance, Inc. ("FSA"), which insure
payment of principal and interest due on the related asset-backed securities and
warehouse borrowings. 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 the Company's wholly-owned subsidiary
Arcadia Receivables Finance Corp. ("ARFC") from all insured securitization
trusts is first used to replenish spread accounts to predetermined levels and is
then distributed 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. If excess cash flow
from all insured securitization trusts is not sufficient to replenish all spread
accounts and to cover negative cash flows from non-performing securitization
trusts, no cash flow is 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
35
<PAGE>
therefore result in timing differences as to when excess cash flows are released
to the Company. 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. The structure of each securitized
sale of loans will depend on market conditions, costs of securitization and the
availability and cost of credit enhancement options to the Company.
HEDGING AND PRE-FUNDING STRATEGY. Because interest rates on asset-backed
securities for automobile loans generally tend to rise or fall when other
short-term interest rates fluctuate, a material increase in interest rates prior
to securitization could adversely affect the profitability of a securitization
to the Company in the absence of a hedging strategy. Therefore, the Company
employs various hedging strategies, such as the use of pre-funding accounts and
derivative financial instruments, to manage its gross interest rate spread on
securitization transactions. 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 manage its gross interest rate spread within a
desired range.
By utilizing pre-funding accounts in connection with securitization
transactions, the Company mitigates its exposure to interest rate risk by
securitizing its loans then held for sale along with expected 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.
The Company's securitization rate is related to rates on U.S. Treasury Notes
with maturities similar to the average maturities of the assets being sold. To
lock in the rate for a specific anticipated securitization transaction and
protect against changes in the Treasury rate, the Company may utilize forward
U.S. Treasury rate lock agreements that most closely parallel the average life
of its loans held for sale. Such hedging strategy creates certain risks that
arise from the cash versus non-cash relationship of the hedging instrument and
the related securitization. This relationship arises because the gain or loss
realized on forward U.S. Treasury rate lock agreements is settled with current
cash payments and is subsequently recovered over time through a higher or lower
gross interest rate spread at the time of securitization. Hedging transactions
during 1998, 1997 and 1996 have required an initial net use of cash of $21.6
million, $8.7 million and $0.3 million, respectively. These amounts are treated
as net realized losses and charged against gain on sale of the related loans.
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 corresponding increase or decrease in the value of any
outstanding hedged positions on a daily basis. The amount and timing of
36
<PAGE>
hedging transactions are determined by members of the Company's senior
management after consideration of, among other things, the current interest rate
environment, loan production levels and open positions of current hedging
instruments.
OTHER CAPITAL RESOURCES
Historically, the Company has utilized various debt and equity financings to
offset negative operating cash flows and support its operations.
During 1998, the Company and its provider of asset-backed securities
insurance entered into two separate agreements whereby the Company was allowed
to receive an aggregate of $60.0 million of cash from certain spread accounts
sooner than it would have absent such agreement. These agreements may be
extended on an annual basis upon mutual agreement by and between the Company and
its provider of asset-backed securities insurance. The Company pays a monthly
fee to its provider of asset-backed securities insurance to maintain the
arrangements. The $60.0 million will be replenished in the relevant spread
accounts by means of a $3.0 million reduction in the level of monthly cash
releases from the spread accounts beginning in May 1999, unless the terms of the
arrangement are extended.
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 the 13% Senior Term
Notes (approximately $20.3 million) and the charge-off of remaining capitalized
financing costs related to the 13% Senior Term Notes (approximately $3.2
million) were recognized and accounted for as an extraordinary item.
In October 1997, the Company sold to the public an additional $75.0 million
aggregate principal amount of Senior Notes having substantially the same terms
as those issued in March 1997 (but no associated warrants) and received net
proceeds of approximately $71.2 million. The net proceeds from this issuance of
Senior Notes were used to support the purchase of automobile loans, for working
capital and for other general corporate purposes.
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. In April 1996, the Company
completed a public offering of 8,050,000 shares of Common Stock and received net
proceeds of approximately $146.0 million. Proceeds from the 1996 offerings were
made available as working capital for loan purchases and general operations.
The Company has a program to sell up to $100.0 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
37
<PAGE>
maturities of 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 ten 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. Proceeds from the issuance of Junior
Subordinated Notes, net of redemptions, were $1.1 million in 1998, $(2.9)
million in 1997, and $10.7 million in 1996. There were $21.9 million and $20.8
million of Junior Subordinated Notes outstanding at December 31, 1998, and 1997,
respectively. The weighted average maturity and interest rate on the Junior
Subordinated Notes were 15.3 months and 9.69%, respectively, at December 31,
1998 and 14.9 months and 9.37%, respectively, at December 31, 1997.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Because the Company's funding strategy is dependent upon the issuance of
interest-bearing securities and the incurrence of debt, fluctuations in interest
rates impact the Company's profitability. Therefore, the Company employs various
hedging strategies to minimize the risk of interest rate fluctuations. See
"Management's Discussion and Analysis--Capital Resources--Hedging and
Pre-funding Strategy" and Note 13 to the Company's Consolidated Financial
Statements for additional information regarding such market risks.
38
<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, 1998 and 1997 (as restated) and the related
consolidated statements of operations and comprehensive income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998 (as restated with respect to 1997 and 1996). 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, 1998 and 1997 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in 1998 the
Company retroactively changed its method of accounting for gain on sale of loans
and the related finance income receivable.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
January 25, 1999
39
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
(RESTATED)
(Dollars in thousands, except share and per share amounts) 1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................... $ 10,827 $ 17,274
Due from securitization trust........................................... 62,081 107,207
Auto loans held for sale................................................ 17,899 49,133
Finance income receivable............................................... 587,946 602,454
Furniture, fixtures and equipment....................................... 17,511 17,371
Other assets............................................................ 31,419 32,483
--------- ---------
Total assets........................................................ $ 727,683 $ 825,922
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Amounts due under warehouse facilities.................................. $ -- $ 30,880
Senior notes............................................................ 366,657 365,640
Subordinated notes...................................................... 51,898 50,772
Capital lease obligations............................................... 3,384 5,368
Deferred income taxes................................................... -- 11,506
Accounts payable and accrued liabilities................................ 36,935 26,302
--------- ---------
Total liabilities................................................... 458,874 490,468
Commitments and contingencies (Note 9)
Shareholders' equity:
Capital stock, $.01 par value, 100,000,000 shares authorized:
Common stock, 39,156,888 and 38,813,735 shares respectively, issued
and outstanding..................................................... 392 388
Additional paid-in capital.............................................. 324,565 322,819
Accumulated other comprehensive income.................................. 18,550 3,704
Retained earnings (deficit)............................................. (74,698) 8,543
--------- ---------
Total shareholders' equity.......................................... 268,809 335,454
--------- ---------
Total liabilities and shareholders' equity.......................... $ 727,683 $ 825,922
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
40
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
(RESTATED) (RESTATED)
(Dollars in thousands, except per share amounts) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Net interest margin................................... $ 81,867 $ 80,369 $ 59,628
Gain (loss) on sale of loans.......................... (18,499) (14,895) 95,420
Servicing fee income.................................. 83,015 68,096 43,639
---------- ---------- ----------
Total revenues.................................... 146,383 133,570 198,687
EXPENSES:
Salaries and benefits................................. 64,949 61,756 40,751
General and administrative and other operating
expenses............................................ 122,238 100,261 51,547
---------- ---------- ----------
Total operating expenses.......................... 187,187 162,017 92,298
Long-term debt and other interest expense............. 51,672 41,216 25,193
---------- ---------- ----------
Total expenses.................................... 238,859 203,233 117,491
---------- ---------- ----------
Operating income (loss) before income taxes and
extraordinary items................................. (92,476) (69,663) 81,196
Income tax provision (benefit)........................ (9,235) (26,473) 30,209
---------- ---------- ----------
Income (loss) before extraordinary items.............. (83,241) (43,190) 50,987
Extraordinary items, net of tax....................... -- (15,828) --
---------- ---------- ----------
NET INCOME (LOSS)..................................... (83,241) (59,018) 50,987
Other comprehensive income:
Net unrealized gain on finance income receivable.... 14,846 5,975 --
Income tax provision related to other comprehensive
income............................................ -- (2,271) --
---------- ---------- ----------
14,846 3,704 --
---------- ---------- ----------
COMPREHENSIVE INCOME (LOSS)........................... $ (68,395) $ (55,314) $ 50,987
---------- ---------- ----------
---------- ---------- ----------
BASIC EARNINGS PER SHARE:
Income (loss) per share before extraordinary items.... $ (2.13) $ (1.12) $ 1.61
Extraordinary items per share......................... -- (0.41) --
---------- ---------- ----------
Net income (loss) per share....................... $ (2.13) $ (1.53) $ 1.61
---------- ---------- ----------
---------- ---------- ----------
DILUTED EARNINGS PER SHARE:
Income (loss) per share before extraordinary items.... $ (2.13) $ (1.12) $ 1.40
Extraordinary items per share......................... -- (0.41) --
---------- ---------- ----------
Net income (loss) per share....................... $ (2.13) $ (1.53) $ 1.40
---------- ---------- ----------
---------- ---------- ----------
Weighted average shares outstanding:
Basic............................................... 39,071,412 38,700,346 30,897,426
Diluted............................................. 39,071,412 38,700,346 36,449,995
</TABLE>
See notes to consolidated financial statements.
41
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
NUMBER OF NUMBER OF ADDITIONAL OTHER
(Dollars in thousands, except PREFERRED COMMON PREFERRED COMMON PAID IN COMPREHENSIVE RETAINED
share amounts) SHARES SHARES PAR VALUE PAR VALUE CAPITAL INCOME EARNINGS
----------- ----------- ------------- ------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995,
AS PREVIOUSLY REPORTED..... 1,071,036 22,495,360 $ 11 $ 224 $ 157,200 $ -- $ 23,378
Prior period adjustment (see
Note 2).................... -- -- -- -- -- -- (5,652)
----------- ----------- --- ----- ----------- ------- -----------
BALANCE AT DECEMBER 31, 1995,
AS RESTATED................ 1,071,036 22,495,360 11 224 157,200 -- 17,726
Issuance of Common Stock:
Public offering............ -- 8,050,000 -- 81 145,925 -- --
Benefit plans.............. -- 373,762 -- 4 1,161 -- --
Amortization of deferred
compensation............... -- -- -- -- 1,038 -- --
Exercise of options and
warrants................... -- 1,101,269 -- 11 4,902 -- --
Preferred Stock redemption
and conversion to Common
Stock...................... (1,071,036) 4,992,214 (11) 50 (45) -- --
Payment of dividends on
Preferred Stock............ -- -- -- -- -- -- (1,152)
Net income, as restated...... -- -- -- -- -- -- 50,987
----------- ----------- --- ----- ----------- ------- -----------
BALANCE AT DECEMBER 31, 1996,
AS RESTATED................ -- 37,012,605 -- 370 310,181 -- 67,561
Issuance of warrants......... -- -- -- -- 8,590 -- --
Issuance of Common Stock:
Benefit plans.............. -- 292,485 -- 3 565 -- --
Amortization of deferred
compensation............... -- -- -- -- 991 -- --
Exercise of options and
warrants................... -- 1,508,645 -- 15 2,492 -- --
Unrealized gain on finance
income receivable.......... -- -- -- -- -- 3,704 --
Net loss, as restated........ -- -- -- -- -- -- (59,018)
----------- ----------- --- ----- ----------- ------- -----------
BALANCE AT DECEMBER 31, 1997,
AS RESTATED................ -- 38,813,735 -- 388 322,819 3,704 8,543
Issuance of Common Stock:
Benefit plans.............. -- 193,830 -- 2 495 -- --
Amortization of deferred
compensation............... -- -- -- -- 712 -- --
Exercise of options and
warrants................... -- 149,323 -- 2 539 -- --
Unrealized gain on finance
income receivable.......... -- -- -- -- -- 14,846 --
Net loss..................... -- -- -- -- -- -- (83,241)
----------- ----------- --- ----- ----------- ------- -----------
BALANCE AT DECEMBER 31,
1998....................... -- 39,156,888 $ -- $ 392 $ 324,565 $ 18,550 $ (74,698)
----------- ----------- --- ----- ----------- ------- -----------
----------- ----------- --- ----- ----------- ------- -----------
<CAPTION>
(Dollars in thousands, except
share amounts) TOTAL
---------
<S> <C>
BALANCE AT DECEMBER 31, 1995,
AS PREVIOUSLY REPORTED..... $ 180,813
Prior period adjustment (see
Note 2).................... (5,652)
---------
BALANCE AT DECEMBER 31, 1995,
AS RESTATED................ 175,161
Issuance of Common Stock:
Public offering............ 146,006
Benefit plans.............. 1,165
Amortization of deferred
compensation............... 1,038
Exercise of options and
warrants................... 4,913
Preferred Stock redemption
and conversion to Common
Stock...................... (6)
Payment of dividends on
Preferred Stock............ (1,152)
Net income, as restated...... 50,987
---------
BALANCE AT DECEMBER 31, 1996,
AS RESTATED................ 378,112
Issuance of warrants......... 8,590
Issuance of Common Stock:
Benefit plans.............. 568
Amortization of deferred
compensation............... 991
Exercise of options and
warrants................... 2,507
Unrealized gain on finance
income receivable.......... 3,704
Net loss, as restated........ (59,018)
---------
BALANCE AT DECEMBER 31, 1997,
AS RESTATED................ 335,454
Issuance of Common Stock:
Benefit plans.............. 497
Amortization of deferred
compensation............... 712
Exercise of options and
warrants................... 541
Unrealized gain on finance
income receivable.......... 14,846
Net loss..................... (83,241)
---------
BALANCE AT DECEMBER 31,
1998....................... $ 268,809
---------
---------
</TABLE>
See notes to consolidated financial statements.
42
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
(RESTATED) (RESTATED)
(Dollars in thousands) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ (83,241) $ (59,018) $ 50,987
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization........................ 8,274 7,003 4,286
Loss on sale of furniture, fixtures and equipment.... -- 17 119
(Increase) decrease in assets:
Automobile loans held for sale:
Purchases of automobile loans...................... (2,220,507) (2,913,097) (2,750,553)
Sales of automobile loans.......................... 2,198,326 2,864,120 2,787,412
Repayments of automobile loans..................... 53,415 36,129 45,412
Finance income receivable............................ 29,354 (116,817) (241,504)
Due from securitization trusts....................... 45,126 69,869 (177,076)
Prepaid expenses and other assets.................... 426 2,420 (5,787)
Increase (decrease) in liabilities:
Deferred income taxes.............................. (11,506) (33,902) 30,209
Accounts payable and accrued liabilities........... 10,633 13,111 3,368
---------- ---------- ----------
Total cash provided by (used in) operating
activities..................................... 30,300 (130,165) (253,127)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of furniture, fixtures and
equipment............................................ 1,131 98 26
Purchase of furniture, fixtures and equipment.......... (7,580) (8,873) (5,108)
Purchase of subordinated certificates.................. -- -- (2,596)
Collections on subordinated certificates............... 991 1,465 1,078
---------- ---------- ----------
Total cash used in investing activities.......... (5,458) (7,310) (6,600)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Common Stock............. 1,038 3,075 152,079
Payment of dividends on Preferred Stock................ -- -- (1,152)
Proceeds from borrowings under warehouse facilities.... 2,429,517 3,157,863 2,159,523
Repayment of borrowings under warehouse facilities..... (2,460,397) (3,238,123) (2,074,913)
Unsecured subordinated notes, net...................... 1,126 (2,917) 40,684
Proceeds from issuance of long-term debt............... -- 373,500 --
Repayments of long-term debt........................... -- (145,000) --
Deferred debt issuance cost, net....................... -- (7,080) (13)
Reduction of capital lease obligations................. (2,573) (2,626) (1,764)
---------- ---------- ----------
Total cash provided by (used in) financing
activities..................................... (31,289) 138,692 274,444
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents... (6,447) 1,217 14,717
Cash and cash equivalents at beginning of period....... 17,274 16,057 1,340
---------- ---------- ----------
Cash and cash equivalents at end of period............. $ 10,827 $ 17,274 $ 16,057
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosures of cash flow information:
Non cash activities:
Additions to capital leases........................ $ 589 $ 265 $ 5,569
Cash paid for:
Interest........................................... 57,673 41,248 33,448
Taxes.............................................. -- -- --
</TABLE>
See notes to consolidated financial statements.
43
<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, 1998,
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, 1997 and 1996
balances to conform to current period presentation.
USE OF ESTIMATES.
In conformity with generally accepted accounting principles, management
utilizes assumptions and estimates that affect the reported value of finance
income receivable and the gain on sale of automobile receivables. Such
assumptions include, but are not limited to, estimates of loan prepayments,
defaults, recovery rates and present value discount. The Company uses a
combination of its own historical experience, industry statistics and
expectation of future performance to determine such estimates. The Company's
estimation process is evaluated on a regular basis and modified when deemed
necessary. Modifications to the estimation process may result in changes in
estimates utilized to determine the carrying value of finance income receivable.
Actual results may differ from the Company's estimates due to numerous factors
both within and beyond the control of Company management. Changes in these
factors could require the Company to revise its assumptions concerning the
amount of voluntary prepayments, the frequency and/or severity of defaults and
the recovery rates associated with the disposition of repossessed vehicles. The
range of assumptions, as well as actual performance, are reflective of the risk
characteristics of the loans within specific securitization pools.
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 ten
days after delivery. All terms of the transfer of assets to the trust are fixed
and determinable at the time of delivery.
44
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
AUTOMOBILE LOANS HELD FOR SALE.
Loans are carried at the lower of their principal amount outstanding
(amortized cost), including related unearned dealer participations, or fair
value. Fair 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.
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 typically paid to the dealer at or near the original purchase date of
the loan. Dealer participations are expensed when the related loan is
securitized and subsequently is recovered over time as a portion of excess cash
flows released from securitization trusts. In the event of a default or
prepayment within a time period specified in the dealer agreement, a portion of
the dealer participation is generally recoverable from the dealer.
FINANCE INCOME RECEIVABLE.
The Company adopted Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinquishments
of Liabilities" ("SFAS 125") on January 1, 1997. 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 was effective for transactions occurring after
December 31, 1996, and has been be applied prospectively.
Finance income receivable represents the fair value of 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 between the fair
values of such loans and the fair value of the estimated future cash flows to be
received by the Company. Estimated future cash flows represent the difference
between the weighted average APR 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 discount
rate utilized in its fair value computation is based on current market
conditions and prepayment assumptions are based on historical experience.
45
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1998.
Because the cash flows representing finance income receivable can be
contractually prepaid or otherwise settled in such a way that the holder would
not recover substantially all of its recorded investment, this asset is
accounted for in a manner similar to an available for sale security as
prescribed by Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," and is carried at fair
value. Any unrealized gain or loss is reported, net of applicable income taxes,
as accumulated other comprehensive income in shareholders' equity until
realized. The fair value of finance income receivable is estimated by
calculating the present value of excess cash flows based on when they are
expected to be released to the Company using a discount rate commensurate with
the risks. Such fair value calculations include estimates of cumulative credit
losses and prepayment rates for the remaining term of the loans sold since these
factors impact the amount and timing of future excess cash flows. 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 charge of $98.0
million to gain on sale in March 1997. In June 1998, as a result of changes in
estimated future cash flows arising from higher default experience, lower
prepayments and the elimination of its retail disposition strategy, the Company
recorded a charge to gain on sale of loans of $114.5 million. There were no
material adjustments to finance income receivable during 1996.
A financial guaranty insurance company (the "Insurer") has provided a
financial guaranty insurance policy for the benefit of the investors in each
securitization. In connection with the issuance of the policies, the Company is
required to establish a separate cash account with a trustee for the benefit of
the Insurer for each securitization. Monthly cash collections from the pools of
receivables in excess of required principal and interest payments on the
asset-backed securities and servicing fees and other expenses are added to the
restricted cash accounts. When the credit enhancement levels reach specified
percentages of the pools of receivables, excess cash flows are distributed to
the Company through a wholly-owned subsidiary Arcadia Receivables Finance Corp.
("ARFC"). In the event that monthly cash collections from any pool of
receivables are insufficient to make required principal and interest payments to
the investors and pay servicing fees and other expenses, any shortfall would be
drawn from the restricted cash accounts. There is no recourse to the Company
beyond the balance in the restricted spread accounts or the trusts' future cash
flows.
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.
INTEREST ADVANCES TO SECURITIZATION TRUSTS.
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 obligors on
the loans.
46
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 contractual 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.
The Company uses the liability method of accounting for income taxes. Under
the liability method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. This method also requires the recognition of future
tax benefits such as net operating loss carryforwards, to the extent that
realization of such benefits is more likely than not. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that included the
enactment date.
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.
DERIVATIVE FINANCIAL INSTRUMENTS.
The Company periodically enters into hedging transactions to manage its
gross interest rate spread on securitization transactions. The Company sells
forward U.S. Treasury rate locks that most closely parallel the average life of
the loans expected to be sold. Gains or losses on these arrangements are
deferred and recognized as a component of gain on sale at the time the loans are
transferred to the securitization trust.
COMPREHENSIVE INCOME.
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), effective January 1, 1998. SFAS
130 establishes standards for reporting comprehensive income and its components
in a full set of financial statements. The new standard requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income, including an amount representing total comprehensive
income, be reported in a financial statement that is displayed with the same
prominence as other financial statements. Pursuant to SFAS 130, the Company has
reported comprehensive income in the accompanying consolidated financial
statements. Prior year financial statements have been reclassified to conform to
the requirements of SFAS 130.
47
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING DEVELOPMENTS
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. In June 1997, the FASB
issued Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
establishes standards for the way companies report information about operating
segments in annual financial statements and requires that enterprises report
selected information about operating segments in interim financial reports. The
new pronouncement, also establishes standards for related disclosures about
products and services, geographic areas and major customers. The statement is
effective for financial statements for periods beginning after December 15,
1997. The Company's auto finance business is currently the only segment
reportable under SFAS 131.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June 1998, the FASB
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The new standard requires that all derivatives be recognized
as either assets or liabilities in the consolidated balance sheets and that
those instruments be measured at fair value. If certain conditions are met, a
derivative may be specifically designated as a hedging instrument. The
accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation. The statement is effective for financial statements for fiscal
years beginning after June 15, 1999. While the new standard will apply to the
Company's derivative financial instruments, the Company does not believe that
adoption of SFAS 133 will have a material effect on the Company's consolidated
financial position or results of operations.
2. ACCOUNTING CHANGE
Pursuant to the FASB's Special Report, "A Guide to Implementation of
Statement 125 on Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, Second Edition," dated December 1998, and public
comments from the Securities and Exchange Commission released on December 8,
1998, during the fourth quarter of 1998 the Company changed its accounting
policy with respect to the valuation and accounting for its finance income
receivable to the "cash-out" method. As previously discussed in Note 1, finance
income receivable represents the Company's retained interest in estimated future
cash flows from securitization transactions. Under the "cash-in" method
previously used by the Company, (i) the assumed discount period for measuring
the present value of future cash flows ended when these cash flows were
deposited into the securitization trust accounts and (ii) any initial deposits
to spread accounts were recorded at face value. Under the "cash-out" method, the
assumed discount period for measuring the present value of future cash flows
from the trusts ends when cash, including return of the initial deposits, is
distributed to the Company on an unrestricted basis. Prior period financial
statements have been restated to reflect this change on a retroactive basis. The
effects of the restatement on the consolidated balance sheet at December 31,
1997 and the consolidated statements of
48
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING CHANGE (CONTINUED)
operations and comprehensive income and shareholders' equity for the years ended
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
ORIGINALLY AS ORIGINALLY AS
(In millions, except per share data) REPORTED RESTATED REPORTED RESTATED
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance Sheet:
Finance income receivable........................... $ 622,282 602,454
Deferred income taxes............................... 18,846 11,506
Shareholders' equity................................ 347,942 335,454
Statement of Operations:
Revenues............................................ $ 135,413 133,570 $ 213,495 198,687
Income tax expense (benefit)........................ (25,841) (26,473) 35,688 30,209
Net Income (loss)................................... (57,807) (59,018) 60,316 50,987
Basic earnings per share............................ $ (1.49) (1.53) $ 1.91 1.61
Diluted Earnings per share.......................... (1.49) (1.53) 1.65 1.40
</TABLE>
Additionally, the Statement of Shareholders' Equity reflects a decrease in
consolidated retained earnings of $5.7 million as of December 31, 1995. Restated
Unaudited Selected Quarterly Data for the year ended December 31, 1997 and the
nine months ended September 30, 1998 are presented in Note 16.
3. AUTOMOBILE LOANS HELD FOR SALE
The weighted average interest rate on automobile loans held for sale was
14.65% and 15.68% at December 31, 1998 and 1997, respectively. Accrued interest
receivable on automobile loans held for sale aggregated $0.4 million and $0.7
million as of December 31, 1998 and 1997, respectively.
4. FINANCE INCOME RECEIVABLE
The following table sets forth the components of finance income receivable
as of December 31:
<TABLE>
<CAPTION>
(RESTATED)
(Dollars in thousands) 1998 1997
------------ ------------
<S> <C> <C>
Estimated cash flows on loans sold, net of estimated prepayments (1).................. $ 1,195,466 $ 1,009,800
Deferred servicing income............................................................. (101,996) (88,282)
Reserve for loan losses............................................................... (415,401) (235,599)
------------ ------------
Undiscounted cash flows on loans sold, net of estimated prepayments................... 678,069 685,919
Discount to present value............................................................. (90,123) (83,465)
------------ ------------
$ 587,946 $ 602,454
------------ ------------
------------ ------------
Reserve for loan losses as a percentage of servicing portfolio........................ 8.15% 4.75%
</TABLE>
- ------------------------
(1) Includes restricted cash deposits in securitization spread accounts of
$227.7 million and $250.3 million at December 31, 1998 and 1997,
respectively.
49
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. FINANCE INCOME RECEIVABLE (CONTINUED)
The following represents the roll-forward of the finance income receivable
balance for the two years ended December 31, 1998:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
BALANCE AT DECEMBER 31, 1996, AS RESTATED............................................................. $ 481,934
Present value of estimated future cash flows from current period securitizations...................... 252,293
Interest earned on spread accounts.................................................................... 10,295
Recognition of present value effect of discounted cash flows, as restated............................. 38,907
Unrealized gain on retained assets.................................................................... 5,975
Less:
Excess cash flows released to the Company........................................................... (88,950)
Change in estimate of future recovery rates......................................................... (98,000)
----------
BALANCE AT DECEMBER 31, 1997, AS RESTATED............................................................. 602,454
Present value of estimated future cash flows from current period securitizations...................... 227,198
Interest earned on spread accounts.................................................................... 14,035
Recognition of present value effect of discounted cash flows.......................................... 49,672
Unrealized gain on retained assets.................................................................... 14,846
Less:
Spread account recourse reduction amount (1)........................................................ (60,000)
Excess cash flows released to the Company (2)....................................................... (145,759)
Change in estimates of charge-offs, recovery rates and prepayments.................................. (114,500)
----------
BALANCE AT DECEMBER 31, 1998.......................................................................... $ 587,946
----------
----------
</TABLE>
- ------------------------
(1) During 1998, the Company and its provider of asset-backed securities
insurance entered into two separate arrangements whereby the Company was
allowed to receive an aggregate $60 million of cash from certain spread
accounts sooner than it would have absent such arrangement. The
arrangements, entered into in May and October, respectively, may be extended
on an annual basis upon mutual arrangement by and between the Company and
its provider of asset-backed securities insurance. The Company pays a
monthly fee to its provider of asset-backed securities insurance to maintain
the arrangement. The $60 million will be replenished in the relevant spread
accounts by means of a $3 million reduction in the level of monthly cash
releases from the spread accounts beginning in May 1999, unless the terms of
the arrangements are extended.
(2) Includes $0.6 million that has been restricted pursuant to an arrangement
between the Company and its provider of asset-backed securities insurance.
Such arrangement provides that, if any insured securitization trust exceeds
the specified portfolio performance test as defined within the trust
agreement, the Company may, in lieu of retaining excess cash from that
securitization trust in the related spread accounts, pledge an equivalent
amount of cash, which has the effect of preventing the violation of the
portfolio performance test. Such pledged amounts are included in cash and
cash equivalents. Restrictions on the pledged amounts may be lifted if the
portfolio performance tests are met and maintained for the related
securitization trusts as defined in the arrangement, the violations are
waived, or the loans within the securitization trust are repurchased by the
Company.
50
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment, as of December 31, consists of the
following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
--------- ---------
<S> <C> <C>
OWNED
Furniture, fixtures and leasehold improvements.......................... $ 10,351 $ 9,524
Automobiles............................................................. 194 368
Computer equipment...................................................... 3,894 1,853
Software................................................................ 9,278 4,528
--------- ---------
Total............................................................... 23,717 16,273
CAPITALIZED LEASES
Furniture and fixtures.................................................. 4,376 4,851
Computer equipment...................................................... 4,918 5,296
Software................................................................ 386 330
--------- ---------
Total............................................................... 9,680 10,477
--------- ---------
Total furniture, fixtures and equipment................................. 33,397 26,750
Less:
Accumulated depreciation and amortization............................. (15,886) (9,379)
--------- ---------
Furniture, fixtures and equipment, net.................................. $ 17,511 $ 17,371
--------- ---------
--------- ---------
</TABLE>
Depreciation expense including amortization of assets under capital lease
obligations for the years ended December 31, 1998, 1997 and 1996 was $6.9
million, $5.3 million and $3.2 million, respectively.
6. OTHER ASSETS
Other assets, as of December 31, consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
--------- ---------
<S> <C> <C>
Interest advances to securitization trusts.............................. $ 5,967 $ 6,072
Deferred debt issuance costs............................................ 10,110 11,518
Investment in subordinated certificates................................. 1,873 2,864
Servicing fee receivable................................................ 4,841 4,389
Prepaid expenses........................................................ 1,717 1,078
Repossessed assets...................................................... 148 1,181
Other assets............................................................ 6,763 5,381
--------- ---------
$ 31,419 $ 32,483
--------- ---------
--------- ---------
</TABLE>
7. AMOUNTS DUE UNDER WAREHOUSE FACILITIES
At December 31, 1998, the Company had three warehouse facilities with an
aggregate capacity of $700.0 million in place with various financial
institutions and institutional lenders of which $700.0 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 5.90% and 5.80% for the years ended December 31, 1998
and 1997, respectively.
51
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. 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 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
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 an additional $75.0 million
aggregate principal amount of Senior Notes having substantially the same terms
as those issued in March 1997 (but no additional warrants) and received net
proceeds of approximately $71.2 million.
SUBORDINATED NOTES
Subordinated notes outstanding as of December 31, are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
--------- ---------
<S> <C> <C>
Senior subordinated notes, Series 1996-A................................ $ 30,000 $ 30,000
Junior subordinated notes............................................... 21,898 20,772
--------- ---------
$ 51,898 $ 50,772
--------- ---------
--------- ---------
</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 could 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. In August 1998, the Company
increased its shelf registration to $100.0 million. The Junior Subordinated
Notes are issued in minimum denominations of $1,000 and include extendible notes
52
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
having maturities ranging from 90 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, 1998, the weighted average maturity and interest rate of the Junior
Subordinated Notes were 15.3 months and 9.69%, respectively.
Maturities of long-term debt outstanding at December 31, 1998 were:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
YEAR ENDING
1999............................................................................ $ 9,115
2000............................................................................ 1,906
2001............................................................................ 35,089
2002............................................................................ 697
2003............................................................................ 907
2004 and thereafter............................................................. 370,841
----------
Total......................................................................... $ 418,555
----------
----------
</TABLE>
9. 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 $13.4 million, $13.5 million and $4.7 million for the years ended
December 31, 1998, 1997, and 1996, respectively.
Future minimum lease payments required under capital and noncancelable
operating leases with terms of one year or more, at December 31, 1998 were:
<TABLE>
<CAPTION>
CAPITAL OPERATING
(Dollars in thousands) LEASES LEASES
--------- -----------
<S> <C> <C>
YEAR ENDING
1999................................................................... $ 1,578 $ 12,581
2000................................................................... 1,329 8,494
2001................................................................... 876 6,639
2002................................................................... 83 3,159
2003................................................................... 11 1,401
2004 and thereafter.................................................... -- 781
--------- -----------
Total................................................................ 3,877 $ 33,055
-----------
-----------
Less amounts representing interest....................................... (493)
---------
Present value of net minimum lease payments.............................. $ 3,384
---------
---------
</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
53
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
10. SHAREHOLDERS' EQUITY
The Company's authorized capital stock is 100,000,000 shares. The Company
had reserved but unissued shares of authorized Common Stock at December 31,
1998, as follows:
<TABLE>
<S> <C>
Warrants......................................................... 2,103,214
Employee stock purchase plan..................................... 639,283
Stock options.................................................... 6,989,102
---------
9,731,599
---------
---------
</TABLE>
COMMON STOCK
In March 1997, in connection with the issuance of $300.0 million of 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-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, 1997 and 1998, 754,520 shares, 1,421,539 shares and 786 shares of Common
Stock, respectively, had been issued in connection with the exercise of warrants
for aggregate proceeds of $3.1 million, $5.9 million and $8,649, respectively.
As of December 31, 1998, the Company had remaining warrants outstanding for the
purchase of 2,103,214 shares of Common Stock at exercise prices ranging from
$4.75 to $11.00 per share.
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 to
increase 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. The Shareholders Rights Plan was further amended
in November 1998 to increase the percentage of the Company's outstanding Common
Stock which a person or group must beneficially own to be deemed an Acquiring
Person from 18% or more up to 20% or more. Under the amended Shareholder Rights
Plan, if any person becomes an Acquiring Person, then each Right not
54
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY (CONTINUED)
owned by a 20% 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.
11. EMPLOYEE BENEFITS AND STOCK INCENTIVE PLANS
RESTRICTED STOCK ELECTION PLANS
In July 1994 and December 1995, the Board of Directors of the Company
adopted two separate Restricted Stock Election Plans (the "1994 Stock Election
Plan" and the "1995 Stock Election Plan," respectively). The purpose of the
Restricted Stock Election Plans 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 Restricted Stock Election Plans allow
certain employees of the Company to receive all or a portion of certain bonuses
they are entitled to receive from the Company through the year 2000 in the form
of shares of the Company's Common Stock. The Restricted Stock Election Plans
authorize 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. In January 1998, the Company's
Compensation Committee approved the forfeiture, cancellation and reissuance of
all then outstanding restricted shares under the 1995 Stock Election Plan as
well as the concurrent grant of 153,923 additional restricted shares to certain
plan participants. At such time the Compensation Committee also amended the 1994
Stock Election Plan to permit the accelerated vesting during the years 1998,
1999 and 2000 of restricted shares granted under such plan. In November, 1998,
the Compensation Committee approved the forfeiture, cancellation and reissuance
of all then outstanding restricted shares under the 1994 Stock Election Plan and
the 1995 Stock Election Plan as well as the restructuring of grants to
participants in those plans. The Board of Directors of the Company approved
amendments to the 1994 Stock Election Plan and the 1995 Stock Election Plan to
permit the actions taken by the Compensation Committee in January and November
of 1998.
A total of 800,000 shares of Common Stock are set aside for awards under the
1994 Stock Election Plan, of which, 508,623 shares have been granted and are
outstanding under the plan, with 61,434 shares remaining subject to restriction
at December 31, 1998. A total of 600,000 shares are set aside for awards under
the 1995 Stock Election Plan, all of which, have been granted and remain
outstanding. At December 31, 1998, the Company had committed to the granting of
2,732 additional shares under the 1995 Stock Election Plan, subject to
shareholders' approval. At December 31, 1998, all shares under the 1995 Stock
Election Plan remain subject to restrictions.
In accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), the Company recorded deferred compensation as a reduction
to shareholders' equity for the portion of the
55
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EMPLOYEE BENEFITS AND STOCK INCENTIVE PLANS (CONTINUED)
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 1995 Stock Election
Plans, the Company recognized $0.7 million, $1.0 million and $1.0 million of
compensation expense for the years ended December 31, 1998, 1997 and 1996,
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, or on each exercise date. The Plan was amended in May
1998 to increase the number of shares of Common Stock available for issuance to
1,000,000 shares. As of December 31, 1998, an aggregate 360,717 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.
DIRECTOR OPTION PLAN
The 1992 Director Stock Option Plan (the "DSOP") provides for the automatic
grant of options to purchase the Company's Common Stock to outside directors.
Pursuant to amendments to the DSOP adopted January 28, 1998, on that date (i)
each outside director received an option to purchase 25,000 shares; and (ii) the
options granted to such outside directors in 1997 for 15,000 shares were
cancelled on a prorata basis to reflect the change in the annual grant dates
from the anniversary of the outside director's receipt of his or her initial
grant to January 28(th) of each year. Pursuant to the DSOP as amended January
1998, each outside director will receive an option to purchase 25,000 shares on
January 28(th) of each year he or she serves as an outside director up to a
maximum of 250,000 shares to be issued to an outside director upon exercise of
options granted under the DSOP. In January 1999, the DSOP was amended to provide
that commencing in 1999 and continuing each year thereafter, the Compensation
Committee of the Board of Directors will determine the number of option shares
to be granted to each outside director for such year. During 1997, each outside
director received options to purchase 25,000 shares in two separate grants
(10,000 on January 2, 1997 and 15,000 on the anniversary date of the first grant
under the plan to the director). 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, 1998, there were 330,125 options issued to outside directors
under the DSOP that remained outstanding at exercise prices ranging from $5.13
to $21.50. At December 31, 1998, 1997 and 1996 there were 229,225 options,
160,000 options and 175,000 options, respectively, exercisable under the DSOP.
STOCK OPTION PLANS
The Company has a Stock Option Plan (as amended, 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
56
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EMPLOYEE BENEFITS AND STOCK INCENTIVE PLANS (CONTINUED)
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. On January 28, 1998, the
Compensation Committee approved the cancellation and reissuance of options for
858,594 shares at an exercise price of $7.20 per share with a prorata three year
vesting schedule. None of the canceled and reissued options were granted to the
Company's Chief Executive Officer, Vice Chairman, or Executive Vice Presidents.
The 1990 Plan is noncompensatory and results in no expense to the Company. At
December 31, 1998, 1997 and 1996, there were 1,016,578 options, 1,138,724
options and 702,450 options, respectively, exercisable under the 1990 Plan.
A summary of stock option activity under the 1990 Plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------------------
PRICE PER
RESERVED SHARES NUMBER SHARE
--------------- ----------- --------------
<S> <C> <C> <C>
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
Authorized......................................................... 3,000,000 -- --
Granted............................................................ -- 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
Granted............................................................ -- 1,959,094 5.50-9.31
Exercised.......................................................... -- (133,537) 0.48-5.75
Canceled........................................................... -- (1,057,260) 6.00-20.75
--------------- ----------- --------------
BALANCE, DECEMBER 31, 1998......................................... 5,000,000 2,842,128 $3.00-$16.19
--------------- ----------- --------------
--------------- ----------- --------------
</TABLE>
In addition to stock option activity under the 1990 Plan, in 1998, 1997 and
1996, the Company granted to a director options to purchase a total of 100,000
shares, 70,160 shares and 325,000 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. Including agreements entered into prior to
1996 for 140,000 stock options, in aggregate, there were 635,160 options,
535,160 options, and 240,000 options, exercisable under such Non-statutory Stock
Option Agreements at December 31, 1998, 1997 and 1996, respectively.
57
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EMPLOYEE BENEFITS AND STOCK INCENTIVE PLANS (CONTINUED)
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 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
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 1998, 1997, and 1996, respectively: weighted-average risk-free
interest rate of 4.6%, 5.6%, and 6.7%, volatility factor of the expected market
price of the Company's Common Stock of 89%, 71% 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>
(RESTATED) (RESTATED)
(Dollars in thousands, expect per share data) 1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Pro forma net income (loss)................................ $ (91,897) $ (67,503) $ 46,047
Pro forma earnings (loss) per share:
Basic.................................................... $ (2.35) $ (1.74) $ 1.49
Diluted.................................................. $ (2.35) $ (1.74) $ 1.29
</TABLE>
The weighted average fair value of options granted during 1998, 1997 and
1996 was $7.98, $8.75 and $13.53, 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 may pay the annual 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
policies had cash surrender values of $442,000 and $759,000 at December 31, 1998
and 1997, 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.
58
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES
The components of income tax expense (benefit) for the three years ended
December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
(RESTATED) (RESTATED)
(Dollars in thousands) 1998 1997 1996
--------- ---------- -----------
<S> <C> <C> <C>
Provision for deferred taxes:
Federal................................................... $ (5,914) $ (22,502) $ 25,678
State..................................................... (3,321) (3,971) 4,531
--------- ---------- -----------
Provision for income taxes.............................. (9,235) (26,473) 30,209
Tax effect of extraordinary items......................... -- (9,700) --
--------- ---------- -----------
Applicable income tax expense (benefit), after
extraordinary items................................... $ (9,235) $ (36,173) $ 30,209
--------- ---------- -----------
--------- ---------- -----------
</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, 1998 is as follows:
<TABLE>
<CAPTION>
(RESTATED) (RESTATED)
(Dollars in thousands) 1998 1997 1996
----------- ------------ ----------
<S> <C> <C> <C>
Federal tax at statutory rate............................... $ (32,367) $ (24,382) $28,419
State income tax, net of federal benefit.................... (3,115) (2,281) 3,418
Change in valuation allowance............................... 26,124 -- --
Other....................................................... 123 190 (1,628)
----------- ------------ ----------
Provision for income taxes................................ (9,235) (26,473) 30,209
Tax effect of extraordinary items........................... -- (9,700) --
----------- ------------ ----------
Applicable income taxes, after extraordinary items........ $ (9,235) $ (36,173) $30,209
----------- ------------ ----------
----------- ------------ ----------
Effective income tax rate................................. (10.0)% (38.0)% 37.2%
</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
59
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. 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>
(RESTATED)
(Dollars in thousands) 1998 1997
--------- ----------
<S> <C> <C>
Deferred Tax Assets:
Securitization expenses................................................................... $ 8,070 $ 7,168
Other..................................................................................... 5,188 2,347
Net operating loss carryforwards (expiring 2008-2018)..................................... 86,517 61,793
--------- ----------
Gross deferred tax assets............................................................... 99,775 71,308
Less valuation allowance.................................................................. (26,124) --
Net deferred tax asset.................................................................. 73,651 71,308
Deferred Tax Liabilities:
Gain on securitizations................................................................... (72,137) (78,379)
Unrealized gain on finance income receivable.............................................. -- (2,271)
Other..................................................................................... (1,514) (2,164)
--------- ----------
Gross deferred tax liabilities.......................................................... (73,651) (82,814)
--------- ----------
Net deferred tax liability.............................................................. $ -- $ (11,506)
--------- ----------
--------- ----------
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $227.7 million which are available
to offset future federal taxable income and expire no earlier than 2008. Due to
the uncertainty of the realization of the net operating loss carryforward, the
Company established a valuation allowance against the carryforward benefit in
the amount of $26.1 million. 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.
13. DERIVATIVE ACTIVITIES AND OFF-BALANCE SHEET RISK
During the three years ended December 31, 1998, 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 and forward
U.S. Treasury rate locks that most closely parallel the average life of its
anticipated securitization transactions. 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, 1998 and 1997, the Company had entered into the following
agreements to sell forward two year U.S. Treasuries:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
---------- ----------
<S> <C> <C>
Notional amount outstanding........................................... $ -- $ 800,000
Unrealized gains (losses) on outstanding hedging transactions......... $ -- $ (6,071)
</TABLE>
Net realized hedging gains (losses) during the three year period ended
December 31 1998 were:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Realized gains (losses)........................................ $ (21,559) $ (8,709) $ (349)
</TABLE>
60
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. 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.
The estimated carrying values, fair values and various methods and
assumptions used in valuing the Company's financial instruments as of December
31, 1998 and 1997 are set forth below:
<TABLE>
<CAPTION>
(RESTATED)
1998 1997
---------------------- ----------------------
CARRYING CARRYING
(Dollars in thousands) VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents.................. $ 10,827 $ 10,827 $ 17,274 $ 17,274
Due from securitization trust.............. 62,081 62,081 107,207 107,207
Auto loans held for sale................... 17,899 17,899 49,133 49,133
Finance income receivable.................. 587,946 587,946 602,454 602,454
Financial liabilities:
Amounts due under warehouse facilities..... -- -- 30,880 30,880
Senior notes............................... 366,657 273,750 365,640 372,113
Senior subordinated notes.................. 30,000 22,500 30,000 28,800
Junior subordinated notes.................. 21,898 21,898 20,772 20,772
</TABLE>
CASH AND CASH EQUIVALENTS, DUE FROM SECURITIZATION TRUST, AMOUNTS DUE UNDER
WAREHOUSE FACILITIES AND JUNIOR SUBORDINATED NOTES. Due to the nature of these
accounts, carrying value approximates fair value.
FINANCE INCOME RECEIVABLE. The fair value is determined in accordance with
SFAS 125.
SENIOR NOTES AND SENIOR SUBORDINATED NOTES. The fair value is determined
using available market quotes.
61
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
(RESTATED) (RESTATED)
(Dollars in thousands, except per share amounts) 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Numerator:
Net income (loss) before extraordinary items...................... $ (83,241) $ (43,190) $ 50,987
Preferred dividends............................................... -- -- (1,153)
------------- ------------- -------------
Numerator for basic earnings per share--income (loss) before
extraordinary items available to common stockholders............ (83,241) (43,190) 49,834
Effect of dilutive securities:
Preferred Stock Dividends....................................... -- -- 1,153
------------- ------------- -------------
Numerator for diluted earnings per share--income (loss) before
extraordinary items available to common shareholders after
assumed conversions............................................. $ (83,241) $ (43,190) $ 50,987
------------- ------------- -------------
------------- ------------- -------------
Denominator:
Denominator for basic earnings per share--weighted average
shares.......................................................... 39,071,412 38,700,346 30,897,426
Effect of dilutive securities:
Options and Warrants (1)........................................ -- -- 2,484,195
Convertible Exchangeable Preferred Stock........................ -- -- 3,068,374
------------- ------------- -------------
Dilutive potential common shares.................................. -- -- 5,552,569
------------- ------------- -------------
Denominator for diluted earnings per share--adjusted weighted
average shares and assumed conversions........................ 39,071,412 38,700,346 36,449,995
------------- ------------- -------------
------------- ------------- -------------
Basic earnings (loss) per share before extraordinary items........ $ (2.13) $ (1.12) $ 1.61
------------- ------------- -------------
------------- ------------- -------------
Diluted earnings (loss) per share before
Extraordinary items............................................. $ (2.13) $ (1.12) $ 1.40
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
- ------------------------
(1) At December 31, 1998 and 1997, there were options and warrants outstanding
to purchase an aggregate 7.1 million and 6.2 million common shares,
respectively. All of these potential common shares have been excluded from
the computation of diluted earnings per share because their inclusion would
have been anti-dilutive.
16. UNAUDITED SELECTED QUARTERLY DATA
FOURTH QUARTER RESULTS OF OPERATIONS
The Company purchased $466.5 million of automobile loans in the fourth
quarter of 1998 compared to $582.1 million for the same period in 1997, and
securitized $483.6 million in 1998 compared to $587.8 million in 1997. Net
income in the fourth quarter of 1998 was $5.0 million compared to $4.7 million
in 1997. During the fourth quarter of 1998, the Company changed its accounting
policy with respect to the valuation and accounting for its finance income
receivable to the "cash-out" method and, accordingly, has restated the following
quarterly financial statements (see Note 2 for additional discussion).
62
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. UNAUDITED SELECTED QUARTERLY DATA (CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
(RESTATED) (RESTATED) (RESTATED) (RESTATED) (RESTATED)
(Dollars in thousands except per share DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30,
amounts) 1998 1998 1998 1998 1997 1997
------------ ------------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Net interest margin........................... $ 18,274 $ 22,675 $ 20,971 $ 19,947 $ 20,311 $ 21,179
Gain on sale of auto loans.................... 21,132 20,667 (87,298) 27,000 21,310 23,954
Service fee income............................ 21,929 21,236 20,184 19,666 20,335 17,748
------------ ------------- --------- --------- ------------ -------------
Total revenues.............................. 61,335 64,578 (46,143) 66,613 61,956 62,881
EXPENSES:
Salaries and benefits......................... 16,171 15,658 15,773 17,347 15,933 16,230
General and administrative and other operating
expenses.................................... 27,138 27,695 38,918 28,487 25,815 24,471
Long-term debt and other interest expense..... 13,053 12,926 12,908 12,785 12,574 10,400
------------ ------------- --------- --------- ------------ -------------
Total expenses.............................. 56,362 56,279 67,599 58,619 54,322 51,101
------------ ------------- --------- --------- ------------ -------------
Operating income (loss) before income tax and
extraordinary item.......................... 4,973 8,299 (113,742) 7,994 7,634 11,780
Income tax provision (benefit)................ -- -- (12,273) 3,038 2,901 4,476
------------ ------------- --------- --------- ------------ -------------
Income (loss) before extraordinary item....... 4,973 8,299 (101,469) 4,956 4,733 7,304
Extraordinary item, net of tax................ -- -- -- -- -- --
------------ ------------- --------- --------- ------------ -------------
Net income (loss)........................... $ 4,973 $ 8,299 $(101,469) $ 4,956 $ 4,733 $ 7,304
------------ ------------- --------- --------- ------------ -------------
------------ ------------- --------- --------- ------------ -------------
BASIC EARNINGS PER SHARE:
Income (loss) per share before extraordinary
item........................................ $ 0.13 $ 0.21 $ (2.60) $ 0.13 $ 0.12 $ 0.19
Extraordinary item per share.................. -- -- -- -- -- --
------------ ------------- --------- --------- ------------ -------------
Net income (loss) per share................. $ 0.13 $ 0.21 $ (2.60) $ 0.13 $ 0.12 $ 0.19
------------ ------------- --------- --------- ------------ -------------
------------ ------------- --------- --------- ------------ -------------
DILUTED EARNINGS PER SHARE:
Income (loss) per share before extraordinary
item........................................ $ 0.13 $ 0.21 $ (2.60) $ 0.13 $ 0.12 $ 0.19
Extraordinary item per share.................. -- -- -- -- -- --
------------ ------------- --------- --------- ------------ -------------
Net income (loss) per share................. $ 0.13 $ 0.21 $ (2.60) $ 0.13 $ 0.12 $ 0.19
------------ ------------- --------- --------- ------------ -------------
------------ ------------- --------- --------- ------------ -------------
Weighted average shares outstanding:
Basic....................................... 39,156,888 39,142,050 38,966,697 38,988,885 38,806,897 38,740,078
Diluted..................................... 39,183,495 39,279,813 38,966,697 39,360,968 39,242,445 39,231,962
<CAPTION>
(RESTATED) (RESTATED)
(Dollars in thousands except per share JUNE 30, MARCH 31,
amounts) 1997 1997
--------- ---------
<S> <C> <C>
REVENUES:
Net interest margin........................... $ 20,821 $ 18,058
Gain on sale of auto loans.................... 21,672 (81,831)
Service fee income............................ 16,061 13,952
--------- ---------
Total revenues.............................. 58,554 (49,821)
EXPENSES:
Salaries and benefits......................... 15,115 14,478
General and administrative and other operating
expenses.................................... 23,810 26,165
Long-term debt and other interest expense..... 10,651 7,591
--------- ---------
Total expenses.............................. 49,576 48,234
--------- ---------
Operating income (loss) before income tax and
extraordinary item.......................... 8,978 (98,055)
Income tax provision (benefit)................ 3,412 (37,262)
--------- ---------
Income (loss) before extraordinary item....... 5,566 (60,793)
Extraordinary item, net of tax................ -- (15,828)
--------- ---------
Net income (loss)........................... $ 5,566 $ (76,621)
--------- ---------
--------- ---------
BASIC EARNINGS PER SHARE:
Income (loss) per share before extraordinary
item........................................ $ 0.14 $ (1.59)
Extraordinary item per share.................. -- (0.41)
--------- ---------
Net income (loss) per share................. $ 0.14 $ (2.00)
--------- ---------
--------- ---------
DILUTED EARNINGS PER SHARE:
Income (loss) per share before extraordinary
item........................................ $ 0.14 $ (1.59)
Extraordinary item per share.................. -- (0.41)
--------- ---------
Net income (loss) per share................. $ 0.14 $ (2.00)
--------- ---------
--------- ---------
Weighted average shares outstanding:
Basic....................................... 38,702,011 38,358,743
Diluted..................................... 39,182,748 38,358,743
</TABLE>
63
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. UNAUDITED SELECTED QUARTERLY DATA (CONTINUED)
<TABLE>
<CAPTION>
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
(Dollars in thousands) 1998 1998 1998 1998 1997
------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents...................... $ 10,827 $ 6,328 $ 8,160 $ 6,387 $ 17,274
Due from securitization trust.................. 62,081 98,384 133,551 122,223 107,207
Auto loans held for sale....................... 17,899 20,045 15,480 20,582 49,133
Finance income receivable...................... 587,946 592,951 554,629 655,338 602,454
Other assets................................... 48,930 47,468 46,981 48,514 49,854
------------- ------------- ----------- ----------- -------------
Total assets................................. $ 727,683 $ 765,176 $ 758,801 $ 853,044 $ 825,922
------------- ------------- ----------- ----------- -------------
------------- ------------- ----------- ----------- -------------
LIABILITIES & EQUITY
Amounts due under warehouse facilities......... $ -- $ 57,843 $ 53,962 $ 53,919 $ 30,880
Senior notes................................... 366,657 366,403 366,149 365,894 365,640
Subordinated notes............................. 51,898 48,902 49,681 49,845 50,772
Capital lease obligations...................... 3,384 3,735 4,366 4,982 5,368
Deferred income taxes.......................... -- -- -- 15,313 11,506
Accounts payable and accrued liabilities....... 36,935 25,718 39,368 20,437 26,302
Shareholders' equity........................... 268,809 262,575 245,275 342,654 335,454
------------- ------------- ----------- ----------- -------------
Total liabilities and equity................. $ 727,683 $ 765,176 $ 758,801 $ 853,044 $ 825,922
------------- ------------- ----------- ----------- -------------
------------- ------------- ----------- ----------- -------------
<CAPTION>
(RESTATED) (RESTATED) (RESTATED)
SEPTEMBER 30, JUNE 30, MARCH 31,
(Dollars in thousands) 1997 1997 1997
------------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents...................... $ 17,720 $ 28,135 $ 23,596
Due from securitization trust.................. 149,430 168,211 157,694
Auto loans held for sale....................... 55,630 47,472 40,037
Finance income receivable...................... 560,647 505,763 439,998
Other assets................................... 46,167 48,569 50,723
------------- ----------- -----------
Total assets................................. $ 829,594 $ 798,150 $ 712,048
------------- ----------- -----------
------------- ----------- -----------
LIABILITIES & EQUITY
Amounts due under warehouse facilities......... $ 126,263 $ 97,722 $ 30,927
Senior notes................................... 291,886 291,671 291,457
Subordinated notes............................. 51,294 51,742 52,804
Capital lease obligations...................... 5,942 6,583 7,218
Deferred income taxes.......................... 7,977 2,526 (1,776)
Accounts payable and accrued liabilities....... 16,495 27,986 18,940
Shareholders' equity........................... 329,737 319,920 312,478
------------- ----------- -----------
Total liabilities and equity................. $ 829,594 $ 798,150 $ 712,048
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
64
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 3, 1999, the Company filed a Current Report on Form 8-K, reporting
that on March 1, 1999, the company dismissed Ernst & Young LLP ("Ernst & Young")
as the Company's independent auditors effective immediately following the filing
of the Company's Quarterly Report on Form 10-Q for the quarter ending March 31,
1999. The decision to dismiss Ernst & Young was approved by the Audit Committee
of the Board of Directors of the Company.
Ernst & Young's reports on the Company's consolidated balance sheets as of
December 31, 1998 and 1997 and related consolidated statements of operations and
comprehensive income, shareholders' equity and cash flows for each of the three
years ended December 31, 1998 did not contain any adverse opinion or a
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope, or accounting principles. During these fiscal years and all
subsequent periods preceding the decision to dismiss Ernst & Young, there have
been no disagreements between the Company and Ernst & Young on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Ernst & Young, would have caused Ernst & Young to make a reference to the
subject matter of the disagreements in connection with any of its reports.
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 27, 1999 (the "1999 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 13 and to the
information set forth under the caption "Election of Directors--Section 16(a)
Beneficial Ownership Reporting Compliance" in the 1999 Proxy Statement.
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 1999 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 1999 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 1999 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
65
<PAGE>
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations and Comprehensive Income for the
years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
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.
(3) Exhibits
<TABLE>
<C> <S>
3.1 Restated Articles of Incorporation of the Registrant, as amended (filed
herewith).
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, 1998).
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 Amendment No. 2 to Rights Agreement, dated October 5, 1998, to Right
Agreement, dated as of November 1, 1996 between the Registrant and Norwest
Bank Minnesota, National Association, as Rights Agent (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K
dated September 30, 1998 and filed October 8, 1998).
4.4 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).
4.5 Instrument of Resignation, Appointment and Acceptance, dated as of August
13, 1998, among the Registrant, Norwest Bank Minnesota, National
Association, as Resigning Trustee, and Marine Midland Bank, as Successor
Trust, relating to the Registrant's Unsecured Extendible Notes and Fixed
Term Notes (incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-3, File No. 333-60531).
</TABLE>
66
<PAGE>
<TABLE>
<C> <S>
4.6 First Supplemental Indenture dated as of August 13, 1998, to Indenture dated
as of July 1, 1994 as amended and restated by that First Amendment and
Restatement dated as of April 28, 1995 and as further amended by that
Instrument of Resignation, Appointment and Acceptance dated as of August
13, 1998, between the Registrant and Marine Midland Bank, as Trustee
relating to the Registrant's Unsecured Extendible Notes and Fixed Term
Notes (incorporated by reference to Exhibit 4.3 to the Registrant's
Registration Statement on Form S-3, File No. 333-60531).
4.7 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).
4.8 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).
4.9 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).
4.10 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).
4.11 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).
4.12 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).
4.13 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).
4.14 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).
4.15 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 and filed October 15, 1997).
</TABLE>
67
<PAGE>
<TABLE>
<C> <S>
10.1 Amendment No. 4 dated as of May 30, 1997 to Sale and Servicing Agreement
dated as of December 28, 1995 among Olympic Automobile Receivables
Warehouse Trust ("OARWT") as Issuer, Olympic Receivables Finance Corp. II
("ORFC II") as Seller, the Registrant in its individual capacity and as
Servicer and Norwest Bank Minnesota National Association as Back-up
Servicer (incorporated by reference to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
10.2 Second Amendment and Consent dated as of May 30, 1997 relating to Note
Purchase Agreement and among OARWT as Seller, the Registrant as Servicer
and in its individual capacity, Delaware Funding Corporation ("DFC") as
Purchaser, and Morgan Guaranty Trust Company of New York, as
Administrative Agent for the benefit of the DFC owners (incorporated by
reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997).
10.3 Acknowledgment of Reduction of Purchase Commitment and Consent dated June
30, 1997 relating to Note Purchase Agreement and among OARWT as Seller,
the Registrant, as Servicer and in its individual capacity, DFC as
Purchaser, and Morgan Guaranty Trust Company of New York, as
Administrative Agent for the benefit of the DFC owners (incorporated by
reference to Exhibit 10.7 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997).
10.4 Third Amendment and Consent dated as of May 30, 1997 relating to Certificate
Purchase Agreement among OARWT as Seller, the Registrant as Servicer and
in its capacity, the parties signatory thereto as Purchasers, and Morgan
Guaranty Trust Company of New York, as Agent for the Purchasers
(incorporated by reference to Exhibit 10.8 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997).
10.5 Acknowledgment of Reduction of Purchase Commitments dated June 30, 1997
relating to Certificate Purchase Agreement among OARWT as Seller, the
Registrant as Servicer and in its individual capacity, the parties
signatory hereto as Purchasers, and Morgan Guaranty Trust Company of New
York, as Agent for the Purchasers (incorporated by reference to Exhibit
10.9 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).
10.6 Fourth Amendment and Consent dated as of May 30, 1997 relating to the Asset
Purchase Agreement, dated as of December 28, 1995 among Morgan Guaranty
Trust Company of New York, as Administrative Agent, and the APA Purchasers
who have executed a signature page to the Agreement or executed an
Assignment of Purchase Commitment (incorporated by reference to Exhibit
10.10 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).
10.7 Fifth Amendment and Consent dated as of June 30, 1997 relating to the Asset
Purchase Agreement, dated as of December 28, 1995 among Morgan Guaranty
Trust Company of New York, as Administrative Agent, and the APA Purchasers
who have executed a signature page to the Agreement or executed an
Assignment of Purchase Commitment (incorporated by reference to Exhibit
10.11 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).
10.8 Amended and Restated Trust Agreement, dated as of July 31, 1997, between
Arcadia Receivables Finance Corp. II ("ARFC 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).
</TABLE>
68
<PAGE>
<TABLE>
<C> <S>
10.9 Amended and Restated Indenture, dated as of July 31, 1997, between OARWT 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).
10.10 Amended and Restated Receivables Purchase Agreement and Assignment, dated as
of July 31, 1997, between ARFC II and the Registrant (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).
10.11 Amended and Restated Sale and Servicing Agreement, dated as of July 31,
1997, among OARWT, the Registrant 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).
10.12 Amended and Restated Note Purchase Agreement, dated as of July 31, 1997,
among OARWT, the Registrant, DFC 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).
10.13 Amended and Restated Certificate Purchase Agreement, dated as of July 31,
1997, among OARWT, the Registrant, 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).
10.14 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).
10.15 Amended and Restated Custodian Agreement, dated as of July 31, 1997, among
the Registrant, Norwest Bank Minnesota, National Association, and OARWT
(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).
10.16 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. ("FSA"), Arcadia Receivables Finance Corp. ("ARFC"), the
Registrant, 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).
10.17 First Amendment, dated as of August 4, 1997, to Repurchase Agreement, dated
as of December 3, 1996, by and between Arcadia Receivables Conduit Corp.
("ARCC") and ARFC (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).
10.18 First Amendment, dated as of August 4, 1997 to Servicing Agreement, dated as
of December 3, 1996, among ARCC, the Registrant, 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).
</TABLE>
69
<PAGE>
<TABLE>
<C> <S>
10.19 First Amendment, dated as of August 9, 1997 to Note Purchase Agreement,
dated as of December 3, 1996, among the Registrant, ARCC, Receivable
Capital Corporation ("RCC") 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).
10.20 Receivables Purchasing Agreement and Assignment, dated as of October 17,
1997, between Arcadia Receivables Finance Corp. III ("ARFC III") and the
Registrant (incorporated by reference to Exhibit 10.38 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.21 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 (incorporated by reference to Exhibit 10.39 to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1997).
10.22 Collateral Agent Agreement, dated October 17, 1997, among DLJM, as agent,
Norwest Bank Minnesota, National Association, as collateral agent, the
Registrant and ARFC III (incorporated by reference to Exhibit 10.40 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997).
10.23 Second Amendment, dated as of November 14, 1997, to the Receivables Purchase
Agreement and Assignment, dated as of December 3, 1996, between Olympic
Receivables Finance Corp. ("ORFC") and the Registrant (incorporated by
reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.24 Second Amendment, dated as of November 14, 1997 to Servicing Agreement,
dated as of December 3, 1996, among ARCC, the Registrant, in its
individual capacity and as Servicer, and Bank of America National Trust
and Savings Association (incorporated by reference to Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997).
10.25 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
(incorporated by reference to Exhibit 10.19 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.26 Second Amendment, dated as of November 14, 1997 to the Insurance and
Indemnity Agreement, dated as of December 3, 1996, among FSA, ARCC, ARFC
and the Registrant, as Servicer (incorporated by reference to Exhibit
10.22 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.27 Second Amendment, dated as of November 14, 1997, to Note Purchase Agreement,
dated as of December 3, 1996, among the Registrant, ARCC, RCC and Bank of
America National Trust and Savings Association (incorporated by reference
to Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.28 Amendment Agreement No. 1 dated as of June 9, 1998 to the Receivables
Funding and Servicing Agreement dated as of October 17, 1997 among Arcadia
Receivables Financial Corp. III ("ARFC III"), the Registrant, DLJM and
Norwest Bank Minnesota, National Association (incorporated by reference to
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
</TABLE>
70
<PAGE>
<TABLE>
<C> <S>
10.29 Amendment Agreement No. 2 dated as of July 17, 1998 to the Receivables
Funding and Servicing Agreement dated as of October 17, 1997 among ARFC
III, the Registrant, DLJM and Norwest Bank Minnesota, National Association
(incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).
10.30 Trust Agreement dated as of July 21, 1998 between ARFC and Wilmington Trust
Company (incorporated by reference to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).
10.31 Amended and Restated Receivables Purchase Agreement and Assignment dated as
of July 21, 1998 between ARFC and the Registrant (incorporated by
reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998).
10.32 Amended and Restated Sale and Servicing Agreement dated as of July 21, 1998
by and among Arcadia Automobile Receivables Warehouse Trust ("AARWT"),
ARCC, ARFC, the Registrant, Bank of America National Trust and Savings
Association, Morgan Guaranty Trust Company of New York and Norwest Bank
Minnesota, National Association (incorporated by reference to Exhibit 10.7
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998).
10.33 Amended and Restated Security Agreement dated as of July 21, 1998 by and
among the Registrant, ARFC, ARCC, AARWT, FSA, Bank of America National
Trust and Savings Association and Norwest Bank Minnesota, National
Association (incorporated by reference to Exhibit 10.8 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).
10.34 US $400,000,000 Floating Rate Variable Funding, FSA Insured Automobile
Receivables-Backed Amended and Restated Note Purchase Agreement dated as
of July 21, 1998 by and among AARWT, the Registrant, RCC, Bank of America
National Trust and Savings Association, DFC, and Morgan Guaranty Trust
Company of New York (incorporated by reference to Exhibit 10.9 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
10.35 Insurance and Indemnity Agreement dated as of December 3, 1996 amended and
restated as of July 21, 1998 by and among FSA, the Registrant, ARFC and
AARWT (incorporated by reference to Exhibit 10.10 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).
10.36 Receivables Financing Agreement dated as of September 24, 1998 among Arcadia
Receivables Finance Corp. IV ("ARFC IV"), as Borrower, the Registrant, as
Servicer and Custodian, the Lenders Parties thereto, Credit Suisse First
Boston, New York Branch, as Agent, and Norwest Bank Minnesota, National
Association, as Backup Servicer and Collateral Agent (incorporated by
reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998).
10.37 Receivables Purchase Agreement and Assignment dated as of September 24, 1998
between ARFC IV, as Purchaser, and the Registrant, as Seller (incorporated
by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998).
</TABLE>
71
<PAGE>
<TABLE>
<C> <S>
10.38 Receivables Transfer Agreement dated as of October 16, 1998, by and among
Arcadia Receivables Finance Corp V ("ARFC V"), as Seller, the Registrant,
as Servicer, Park Avenue Receivables Corporation, as Purchaser, and The
Chase Manhattan Bank, as Funding Agent (incorporated by reference to
Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).
10.39 Receivables Purchase Agreement dated as of October 16, 1998, by and between
ARFC V, as Buyer, and the Registrant (incorporated by reference to Exhibit
10.6 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998).
10.40 Insurance and Indemnity Agreement, dated as of September 23, 1994, among
FSA, Olympic Automobile Receivables Trust, 1994-B, Olympic First GP Inc.,
Olympic Second GP Inc., ORFC and the Registrant (incorporated by reference
to Exhibit 10.26 to Registrant's Registration Statement on Form S-2, File
No. 33-90108).
10.41 Insurance and Indemnity Agreement, dated as of February 9, 1995, among FSA,
ORFC and the Registrant with respect to Olympic Automobile Receivables
Trust 1995-A (incorporated by reference to Exhibit 10.27 to Registrant's
Registration Statement on Form S-2, File No. 33-90108).
10.42 Insurance and Indemnity Agreement, dated as of March 15, 1995, among FSA,
Olympic Automobile Receivables Trust, 1995-B, Olympic First GP Inc.,
Olympic Second GP Inc., ORFC and the Registrant (incorporated by reference
to Exhibit 10.24 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.43 Insurance and Indemnity Agreement, dated as of June 15, 1995, among FSA,
Olympic Automobile Receivables Trust, 1995-C, Olympic First GP Inc.,
Olympic Second GP Inc., ORFC and the Registrant (incorporated by reference
to Exhibit 10.25 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.44 Amendment No. 1, dated as of June 15, 1995, to Series 1995-B Insurance and
Indemnity Agreement, Series 1995-A Insurance and Indemnity Agreement,
Series 1994-B Insurance and Indemnity Agreement, Series 1994-A Insurance
and Indemnity Agreement, Series 1993-D Insurance and Indemnity Agreement,
Series 1993-C Insurance and Indemnity Agreement, Series 1993-B Insurance
and Indemnity Agreement and Series 1993-A Insurance and Indemnity
Agreement (incorporated by reference to Exhibit 10.26 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.45 Insurance and Indemnity Agreement, dated as of September 21, 1995, among
FSA, Olympic Automobile Receivables Trust, 1995-D, Olympic First GP Inc.,
Olympic Second GP Inc., ORFC and the Registrant (incorporated by reference
to Exhibit 10.27 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.46 Insurance and Indemnity Agreement, dated as of December 6, 1995, among FSA,
Olympic Automobile Receivables Trust, 1995-E, Olympic First GP Inc.,
Olympic Second GP Inc., ORFC and the Registrant (incorporated by reference
to Exhibit 10.28 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
</TABLE>
72
<PAGE>
<TABLE>
<C> <S>
10.47 Amendment No. 2, dated as of December 6, 1995, to 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,
Series 1994-A Insurance and Indemnity Agreement, Series 1993-D Insurance
and Indemnity Agreement, Series 1993-C Insurance and Indemnity Agreement,
Series 1993-B Insurance and Indemnity Agreement and Series 1993-A
Insurance and Indemnity Agreement (incorporated by reference to Exhibit
10.29 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.48 Insurance and Indemnity Agreement, dated as of March 14, 1996, among FSA,
Olympic Automobile Receivables Trust, 1996-A, Olympic First GP Inc.,
Olympic Second GP Inc., ORFC and the Registrant (incorporated by reference
to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996).
10.49 Amendment, dated as of May 31, 1996, to 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
and Series 1995-A Insurance and Indemnity Agreement (incorporated by
reference to Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996).
10.50 Insurance and Indemnity Agreement, dated as of June 14, 1996, among FSA,
Olympic Automobile Receivables Trust, 1996-B, Olympic First GP Inc.,
Olympic Second GP Inc., ORFC and the Registrant (incorporated by reference
to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996).
10.51 Insurance and Indemnity Agreement, dated as of September 12, 1996, among
FSA, Olympic Automobile Receivables Trust, 1996-C, Olympic First GP Inc.,
Olympic Second GP Inc., ORFC and the Registrant (incorporated by reference
to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996).
10.52 Amendment, dated as of September 12, 1996, to 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,
Series 1994-A Insurance and Indemnity Agreement, Series 1993-D Insurance
and Indemnity Agreement, Series 1993-C Insurance and Indemnity Agreement,
Series 1993-B Insurance and Indemnity Agreement and Series 1993-A
Insurance and Indemnity Agreement (incorporated by reference to Exhibit
10.4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).
10.53 Insurance and Indemnity Agreement, dated as of December 12, 1996, among FSA,
Olympic Automobile Receivables Trust, 1996-D, Olympic First GP Inc.,
Olympic Second GP Inc., ORFC and the Registrant (incorporated by reference
to Exhibit 10.58 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.54 Insurance and Indemnity Agreement, dated as of March 20, 1997, among the
Registrant, FSA, Olympic Automobile Receivables Trust, 1997-A, Olympic
First GP Inc., Olympic Second GP Inc., and ORFC (incorporated by reference
to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997).
</TABLE>
73
<PAGE>
<TABLE>
<C> <S>
10.55 Insurance and Indemnity Agreement, dated as of June 19, 1997, among the
Registrant, FSA, Arcadia Automobile Receivables Trust, 1997-B and ARFC
(incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997).
10.56 Insurance and Indemnity Agreement, dated as of September 18, 1997, among
Financial Assurance Inc., Arcadia Automobile Receivables Trust, 1997-C,
ARFC and the Registrant (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).
10.57 Insurance and Indemnity Agreement, dated as of December 16, 1997, among
Financial Assurance Inc., Arcadia Automobile Receivables Trust, 1997-D,
ARFC and the Registrant (incorporated by reference to Exhibit 10.36 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997).
10.58 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
(incorporated by reference to Exhibit 10.37 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.59 Insurance and Indemnity Agreement, dated as of March 25, 1998, among FSA,
Arcadia Receivables Trust 1998-A, ARFC and the Registrant (incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998).
10.60 Insurance and Indemnity Agreement, dated as of June 23, 1998, among FSA,
Arcadia Automobile Receivables Trust 1998-B, ARFC and the Registrant
(incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).
10.61 Insurance and Indemnity Agreement, dated as of September 22, 1998, among
FSA, Arcadia Automobile Receivables Trust 1998-C, ARFC and the Registrant
(incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998).
10.62 Insurance and Indemnity Agreement, dated as of November 19, 1998, among FSA,
Arcadia Automobile Receivables Trust 1998-D, ARFC and the Registrant
(filed herewith).
10.63 Insurance and Indemnity Agreement, dated as of December 22, 1998, among FSA,
Arcadia Automobile Receivables Trust 1998-E, ARFC and the Registrant
(filed herewith).
</TABLE>
74
<PAGE>
<TABLE>
<C> <S>
10.64 Spread Account Agreement, dated as of March 25, 1993, as amended and
restated as of August 26, 1994, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, as Trustee and Collateral
Agent (incorporated by reference to Exhibit 10.126 to Registrant's
Registration Statement on Form S-4, File No. 33-81588).
10.65 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
August 26, 1994, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.18 to Registrant's Registration
Statement on Form S-2, File No. 33-90108).
10.66 Series 1995-A Supplement, dated as of February 9, 1995, to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of
August 26, 1994, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.19 to Registrant's Registration
Statement on Form S-2, File No. 33-90108).
10.67 Series 1995-B Supplement, dated as of March 15, 1995, to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of
August 26, 1994, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.57 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995).
10.68 Spread Account Agreement, dated as of March 25, 1993, as amended and
restated as of June 15, 1995, among the Registrant, ORFC, FSA and Norwest
Bank Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.56 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995).
10.69 Series 1995-C Supplement, dated as of June 15, 1995, to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of June
15, 1995, among the Registrant, ORFC, FSA and Norwest Bank Minnesota,
National Association, as Trustee and Collateral Agent (incorporated by
reference to Exhibit 10.58 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995).
10.70 Amendment, dated as of June 15, 1995, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, to Series 1995-B Supplement,
Series 1995-A Supplement, Series 1994-B Supplement, Series 1994-A
Supplement, Series 1993-D Supplement, Series 1993-C Supplement and Series
1993-B Supplement (incorporated by reference to Exhibit 10.60 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995).
10.71 Spread Account Agreement, dated as of March 25, 1993, as amended and
restated as of September 21, 1995, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, as Trustee and Collateral
Agent (filed herewith).
10.72 Series 1995-D Supplement, dated as of September 21, 1995, to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of
September 21, 1995, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent (filed
herewith).
10.73 Amendment, dated as of September 21, 1995, among the Registrant, ORFC, FSA
and Norwest Bank Minnesota, National Association, to Series 1995-C
Supplement, Series 1995-B Supplement, Series 1995-A Supplement, Series
1994-B Supplement, Series 1994-A Supplement, Series 1993-D Supplement,
Series 1993-C Supplement and Series 1993-B Supplement (filed herewith).
</TABLE>
75
<PAGE>
<TABLE>
<C> <S>
10.74 Spread Account Agreement, dated as of March 25, 1993, as amended and
restated as of December 6, 1995, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, as Trustee and Collateral
Agent (incorporated by reference to Exhibit 10.13 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995).
10.75 Amendment, dated as of December 6, 1995, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, to 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-D Supplement, Series 1993-C Supplement and Series 1993-B Supplement
(incorporated by reference to Exhibit 10.14 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995).
10.76 Series 1995-E Supplement, dated as of December 6, 1995 to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of
December 6, 1995, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.15 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995).
10.77 Series 1996-A Supplement, dated as of March 14, 1996, to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of
December 6, 1995, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996).
10.78 Amendment, dated as of May 31, 1996, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, to Series 1996-A Supplement,
Series 1995-E Supplement, Series 1995-D Supplement, Series 1995-C
Supplement, Series 1995-B Supplement and Series 1995-A Supplement to
Spread Account Agreement, dated as of March 25, 1993, as amended and
restated as of September 12, 1996, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, as Trustee and Collateral
Agent (incorporated by reference to Exhibit 10.3 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996).
10.79 Series 1996-B Supplement, dated as of June 14, 1996, to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of
December 6, 1995, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996).
10.80 Spread Account Agreement, dated as of March 25, 1993, as amended and
restated as of September 12, 1996, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, as Trustee and Collateral
Agent (incorporated by reference to Exhibit 10.5 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996).
10.81 Series 1996-C Series Supplement, dated as of September 12, 1996, to Spread
Account Agreement, dated as of March 25, 1993, as amended and restated as
of September 12, 1996, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996).
</TABLE>
76
<PAGE>
<TABLE>
<C> <S>
10.82 Amendment, dated as of September 12, 1996, among the Registrant, ORFC, FSA
and Norwest Bank Minnesota, National Association, to 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
Spread Account Agreement, dated as of March 25, 1993, as amended and
restated as of September 12, 1996, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, as Trustee and Collateral
Agent (incorporated by reference to Exhibit 10.3 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996).
10.83 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 10.37 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.84 Series 1996-D Supplement, dated as of December 12, 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 10.41 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996).
10.85 Amendment, dated as of January 14, 1997, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, to Series 1994-B Supplement,
Series 1994-A Supplement, Series 1993-D Supplement and Series 1993-C
Supplement and the Series 1993-B Supplement (incorporated by reference to
Exhibit 10.42 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.86 Spread Account Agreement, dated as of March 25, 1993, as amended and
restated as of March 1, 1997 among the Company, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997).
10.87 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, ORFC, FSA 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).
10.88 Spread Account Agreement, dated as of March 25, 1993, as amended and
restated as of June 1, 1997 among the Company, ARFC, FSA, The Chase
Manhattan Bank, as Trustee, and Norwest Bank Minnesota, National
Association, as Collateral Agent (incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).
10.89 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, ARFC, FSA, 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).
</TABLE>
77
<PAGE>
<TABLE>
<C> <S>
10.90 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 the Registrant, ARFC, FSA, 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).
10.91 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 the Registrant, ARFC, FSA, The Chase Manhattan Bank and
Norwest Bank Minnesota, National Association (incorporated by reference to
Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.92 Spread Account Agreement dated as of March 25, 1993, as amended and restated
as of December 16, 1997, among the Registrant, ARFC, FSA, The Chase
Manhattan Bank, as Trustee and Norwest Bank Minnesota, National
Association, as Collateral Agent (incorporated by reference to Exhibit
10.26 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.93 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 (incorporated by reference to Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997).
10.94 Series 1998-A Supplement, dated as of March 25, 1998, to Spread Account
Agreement dated as of March 25, 1993, as amended and restated as of
December 16, 1997, among the Registrant, ARFC, FSA and Norwest Bank
Minnesota, N.A. (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998).
10.95 Spread Account Agreement, dated as of March 25, 1993, as amended and
restated as of June 23, 1998 by and among the Registrant, ARFC, FSA and
Norwest Bank Minnesota, National Association (filed herewith).
10.96 Series 1998-B Supplement, dated as of June 23, 1998, to Spread Account
Agreement dated as of March 25, 1993, as amended and restated as of June
23, 1998, among the Registrant, ARFC, FSA and Norwest Bank Minnesota, N.A.
(incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).
10.97 Spread Account Agreement, dated as of March 25, 1993, as amended and
restated as of July 21, 1998 by and among the Registrant, ARFC, FSA and
Norwest Bank Minnesota, National Association (incorporated by reference to
Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
10.98 Warehouse Series Supplement dated as of December 3, 1996 as amended and
restated as of July 21, 1998 to Spread Account Agreement dated as of March
25, 1993, as amended and restated as of July 21, 1998 by and among the
Registrant, ARFC, FSA and Norwest Bank Minnesota, National Association
(incorporated by reference to Exhibit 10.11 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).
</TABLE>
78
<PAGE>
<TABLE>
<C> <S>
10.99 Series 1998-C Supplement, dated as of September 22, 1998, to Spread Account
Agreement dated as of March 25, 1993, as amended and restated as of July
21, 1998 among the Registrant, ARFC, FSA and Norwest Bank Minnesota,
National Association (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1998).
10.100 Spread Account Agreement dated as of March 25, 1993, as amended and restated
as of November 19, 1998, by and among the Registrant, ARFC, FSA and
Norwest Bank Minnesota, National Association (filed herewith).
10.101 Series 1998-D Supplement, dated as of November 19, 1998, to Spread Account
Agreement dated as of March 25, 1993, as amended and restated as of
November 19, 1998, by and among the Registrant, ARFC, FSA and Norwest Bank
Minnesota, National Association (filed herewith).
10.102 Series 1998-E Supplement, dated as of December 22, 1998, to Spread Account
Agreement dated as of March 25, 1993, as amended and restated as of
November 19, 1998, by and among the Registrant, ARFC, FSA and Norwest Bank
Minnesota, National Association (filed herewith).
10.103 Agreement, dated May 12, 1998, between the Registrant and FSA relating to
Spread Account Recourse Reduction Amounts for Olympic Automobile
Receivables Trust, 1996-D; Olympic Automobile Receivables Trust, 1997-A;
and Arcadia Automobile Receivables Trust, 1997-B (filed herewith).
10.104 Agreement, dated October 15, 1998, between the Registrant and FSA relating
to Spread Account Recourse Reduction Amounts for Arcadia Automobile
Receivables Trust, 1997-C; Arcadia Automobile Receivables Trust, 1997-D;
and Arcadia Automobile Receivables Trust, 1998-A (filed herewith).
10.105 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).
10.106 Consulting Agreement, dated as of January 28, 1998, by and between the
Registrant and Warren Kantor (filed herewith).
10.107 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).
10.108 Employment Retention Agreement, dated as of January 27, 1998, between the
Registrant and Richard A. Greenawalt (filed herewith).
10.109 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).
10.110 Employment Retention Agreement, dated as of January 27, 1998, between the
Registrant and Scott H. Anderson (filed herewith).
10.111 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).
10.112 Employment Retention Agreement, dated as of January 27, 1998, between the
Registrant and John A. Witham (filed herewith).
</TABLE>
79
<PAGE>
<TABLE>
<C> <S>
10.113 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).
10.114 Employment Retention Agreement, dated as of January 31, 1998, between the
Registrant and Duane E. White (filed herewith).
10.115 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).
10.116 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).
10.117 Employment Retention Agreement, dated as of January 27, 1998, between the
Registrant and James D. Atkinson III (filed herewith).
10.118 Employment Retention Agreement, dated as of July 27, 1998, between the
Registrant and Cortes DeRussy (filed herewith).
10.119 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).
10.120 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).
10.121 1992 Director Stock Option Plan, as amended through June 30, 1997
(incorporated by reference to Exhibit 10.13 to the Registrant's Quarterly
Report on form 10-Q for the quarter ended June 30, 1997).
10.122 Amendments to the 1992 Director Stock Option Plan effective as of January
29, 1998 (incorporated by reference to Exhibit 10.9 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
10.123 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).
10.124 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).
10.125 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).
10.126 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).
10.127 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>
80
<PAGE>
<TABLE>
<C> <S>
10.128 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).
10.129 Non-Statutory Stock Option Agreement, dated January 28, 1998, between the
Registrant and Warren Kantor (incorporated by reference to Exhibit 4.1 to
the Registrant's Registration Statement on Form S-8, file no. 333-63023).
10.130 Arcadia Financial Ltd. Employee Stock Purchase Plan, as amended to date
(filed herewith).
10.131 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).
10.132 Amendments to 1994-1997 Restricted Stock Election Plan effective January 29,
1998 (incorporated by reference to Exhibit 10.7 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
10.133 1998-2000 Restricted Stock Election Plan, as amended through December 31,
1996 (incorporated by reference to Exhibit 10.102 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.134 Amendments to the 1998-2000 Restricted Stock Election Plan effective as of
January 29, 1998 (incorporated by reference to Exhibit 10.8 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1998).
10.135 Amendments to 1998-2000 Restricted Stock Election Plan effective November
24, 1998 (filed herewith).
10.136 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).
10.137 Employment Retention Agreement, dated as of November 6, 1996, between the
Registrant and Brian S. Anderson (filed herewith).
10.138 Employment Retention Agreement, dated as of January 27, 1998, between the
Registrant and Brian S. Anderson (filed herewith).
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 (incorporated by reference to Exhibits 27.1; 27.2;
27.3 and 27.4 to the Registrant's Current Report on Form 8-K dated March
5, 1999 and filed March 8, 1999).
99.1 Cautionary Statement (filed herewith).
</TABLE>
- ------------------------
(a)On November 8, 1998, the Registrant filed a Current Report on Form 8-K, dated
September 30, 1998, reporting Amendment No. 2 to the Arcadia Financial Ltd.
Shareholder Rights Plan to increase the percentage ownership threshold
contained in the definition of "Acquiring Person" from 18% or more up to 20%
or more.
81
<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.
<TABLE>
<S> <C> <C>
ARCADIA FINANCIAL LTD.
Date: March 24, 1999 By: /s/ RICHARD A. GREENAWALT
-----------------------------------------
Richard A. Greenawalt
CHIEF EXECUTIVE OFFICER
</TABLE>
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 Chief Executive Officer
- ------------------------------ and Director (Principal March 24, 1999
Richard A. Greenawalt Executive Officer)
/s/ ROBERT A. MARSHALL
- ------------------------------ President, Chief Operating March 24, 1999
Robert A. Marshall Officer and Director
Executive Vice President
/s/ JOHN A. WITHAM and Chief Financial
- ------------------------------ Officer (Principal March 24, 1999
John A. Witham Financial Officer)
Senior Vice President,
/s/ BRIAN S. ANDERSON Corporate Controller and
- ------------------------------ Assistant Secretary March 24, 1999
Brian S. Anderson (Principal Accounting
Officer)
/s/ WARREN KANTOR
- ------------------------------ Chairman of the Board and March 24, 1999
Warren Kantor Director
/s/ SCOTT H. ANDERSON
- ------------------------------ Director March 24, 1999
Scott H. Anderson
/s/ ROBERT J. CRESCI
- ------------------------------ Director March 24, 1999
Robert J. Cresci
/s/ JAMES L. DAVIS
- ------------------------------ Director March 24, 1999
James L. Davis
</TABLE>
82
<PAGE>
INDEX TO EXHIBITS
(3) Exhibits
<TABLE>
<C> <S> <C>
3.1 Restated Articles of Incorporation of the Registrant, as amended (filed
herewith)...................................................................
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, 1998).
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 Amendment No. 2 to Rights Agreement, dated October 5, 1998, to Right
Agreement, dated as of November 1, 1996 between the Registrant and Norwest
Bank Minnesota, National Association, as Rights Agent (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K
dated September 30, 1998 and filed October 8, 1998).
4.4 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).
4.5 Instrument of Resignation, Appointment and Acceptance, dated as of August 13,
1998, among the Registrant, Norwest Bank Minnesota, National Association, as
Resigning Trustee, and Marine Midland Bank, as Successor Trust, relating to
the Registrant's Unsecured Extendible Notes and Fixed Term Notes
(incorporated by reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-3, File No. 333-60531).
4.6 First Supplemental Indenture dated as of August 13, 1998, to Indenture dated
as of July 1, 1994 as amended and restated by that First Amendment and
Restatement dated as of April 28, 1995 and as further amended by that
Instrument of Resignation, Appointment and Acceptance dated as of August 13,
1998, between the Registrant and Marine Midland Bank, as Trustee relating to
the Registrant's Unsecured Extendible Notes and Fixed Term Notes
(incorporated by reference to Exhibit 4.3 to the Registrant's Registration
Statement on Form S-3, File No. 333-60531).
4.7 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).
4.8 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).
</TABLE>
83
<PAGE>
<TABLE>
<C> <S> <C>
4.9 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).
4.10 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).
4.11 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).
4.12 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).
4.13 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).
4.14 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).
4.15 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 and filed October 15, 1997).
10.1 Amendment No. 4 dated as of May 30, 1997 to Sale and Servicing Agreement dated
as of December 28, 1995 among Olympic Automobile Receivables Warehouse Trust
("OARWT") as Issuer, Olympic Receivables Finance Corp. II ("ORFC II") as
Seller, the Registrant in its individual capacity and as Servicer and
Norwest Bank Minnesota National Association as Back-up Servicer
(incorporated by reference to Exhibit 10.5 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997).
10.2 Second Amendment and Consent dated as of May 30, 1997 relating to Note
Purchase Agreement and among OARWT as Seller, the Registrant as Servicer and
in its individual capacity, Delaware Funding Corporation ("DFC") as
Purchaser, and Morgan Guaranty Trust Company of New York, as Administrative
Agent for the benefit of the DFC owners (incorporated by reference to
Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997).
10.3 Acknowledgment of Reduction of Purchase Commitment and Consent dated June 30,
1997 relating to Note Purchase Agreement and among OARWT as Seller, the
Registrant, as Servicer and in its individual capacity, DFC as Purchaser,
and Morgan Guaranty Trust Company of New York, as Administrative Agent for
the benefit of the DFC owners (incorporated by reference to Exhibit 10.7 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997).
10.4 Third Amendment and Consent dated as of May 30, 1997 relating to Certificate
Purchase Agreement among OARWT as Seller, the Registrant as Servicer and in
its capacity, the parties signatory thereto as Purchasers, and Morgan
Guaranty Trust Company of New York, as Agent for the Purchasers
(incorporated by reference to Exhibit 10.8 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997).
</TABLE>
84
<PAGE>
<TABLE>
<C> <S> <C>
10.5 Acknowledgment of Reduction of Purchase Commitments dated June 30, 1997
relating to Certificate Purchase Agreement among OARWT as Seller, the
Registrant as Servicer and in its individual capacity, the parties signatory
hereto as Purchasers, and Morgan Guaranty Trust Company of New York, as
Agent for the Purchasers (incorporated by reference to Exhibit 10.9 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997).
10.6 Fourth Amendment and Consent dated as of May 30, 1997 relating to the Asset
Purchase Agreement, dated as of December 28, 1995 among Morgan Guaranty
Trust Company of New York, as Administrative Agent, and the APA Purchasers
who have executed a signature page to the Agreement or executed an
Assignment of Purchase Commitment (incorporated by reference to Exhibit
10.10 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).
10.7 Fifth Amendment and Consent dated as of June 30, 1997 relating to the Asset
Purchase Agreement, dated as of December 28, 1995 among Morgan Guaranty
Trust Company of New York, as Administrative Agent, and the APA Purchasers
who have executed a signature page to the Agreement or executed an
Assignment of Purchase Commitment (incorporated by reference to Exhibit
10.11 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).
10.8 Amended and Restated Trust Agreement, dated as of July 31, 1997, between
Arcadia Receivables Finance Corp. II ("ARFC 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).
10.9 Amended and Restated Indenture, dated as of July 31, 1997, between OARWT 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).
10.10 Amended and Restated Receivables Purchase Agreement and Assignment, dated as
of July 31, 1997, between ARFC II and the Registrant (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).
10.11 Amended and Restated Sale and Servicing Agreement, dated as of July 31, 1997,
among OARWT, the Registrant 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).
10.12 Amended and Restated Note Purchase Agreement, dated as of July 31, 1997, among
OARWT, the Registrant, DFC 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).
10.13 Amended and Restated Certificate Purchase Agreement, dated as of July 31,
1997, among OARWT, the Registrant, 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).
10.14 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).
10.15 Amended and Restated Custodian Agreement, dated as of July 31, 1997, among the
Registrant, Norwest Bank Minnesota, National Association, and OARWT
(incorporated
</TABLE>
85
<PAGE>
<TABLE>
<C> <S> <C>
by reference to Exhibit 10.9 to the Registrant's Current Report on Form 8-K
dated October 1, 1997, filed October 1, 1997).
10.16 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. ("FSA"), Arcadia Receivables Finance Corp. ("ARFC"), the Registrant, 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).
10.17 First Amendment, dated as of August 4, 1997, to Repurchase Agreement, dated as
of December 3, 1996, by and between Arcadia Receivables Conduit Corp.
("ARCC") and ARFC (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).
10.18 First Amendment, dated as of August 4, 1997 to Servicing Agreement, dated as
of December 3, 1996, among ARCC, the Registrant, 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).
10.19 First Amendment, dated as of August 9, 1997 to Note Purchase Agreement, dated
as of December 3, 1996, among the Registrant, ARCC, Receivable Capital
Corporation ("RCC") 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).
10.20 Receivables Purchasing Agreement and Assignment, dated as of October 17, 1997,
between Arcadia Receivables Finance Corp. III ("ARFC III") and the
Registrant (incorporated by reference to Exhibit 10.38 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.21 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 (incorporated by reference to Exhibit 10.39 to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1997).
10.22 Collateral Agent Agreement, dated October 17, 1997, among DLJM, as agent,
Norwest Bank Minnesota, National Association, as collateral agent, the
Registrant and ARFC III (incorporated by reference to Exhibit 10.40 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997).
10.23 Second Amendment, dated as of November 14, 1997, to the Receivables Purchase
Agreement and Assignment, dated as of December 3, 1996, between Olympic
Receivables Finance Corp. ("ORFC") and the Registrant (incorporated by
reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.24 Second Amendment, dated as of November 14, 1997 to Servicing Agreement, dated
as of December 3, 1996, among ARCC, the Registrant, in its individual
capacity and as Servicer, and Bank of America National Trust and Savings
Association (incorporated by reference to Exhibit 10.14 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.25 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,
</TABLE>
86
<PAGE>
<TABLE>
<C> <S> <C>
as trustee and collateral agent (incorporated by reference to Exhibit 10.19
to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1997).
10.26 Second Amendment, dated as of November 14, 1997 to the Insurance and Indemnity
Agreement, dated as of December 3, 1996, among FSA, ARCC, ARFC and the
Registrant, as Servicer (incorporated by reference to Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997).
10.27 Second Amendment, dated as of November 14, 1997, to Note Purchase Agreement,
dated as of December 3, 1996, among the Registrant, ARCC, RCC and Bank of
America National Trust and Savings Association (incorporated by reference to
Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.28 Amendment Agreement No. 1 dated as of June 9, 1998 to the Receivables Funding
and Servicing Agreement dated as of October 17, 1997 among Arcadia
Receivables Financial Corp. III ("ARFC III"), the Registrant, DLJM and
Norwest Bank Minnesota, National Association (incorporated by reference to
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
10.29 Amendment Agreement No. 2 dated as of July 17, 1998 to the Receivables Funding
and Servicing Agreement dated as of October 17, 1997 among ARFC III, the
Registrant, DLJM and Norwest Bank Minnesota, National Association
(incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).
10.30 Trust Agreement dated as of July 21, 1998 between ARFC and Wilmington Trust
Company (incorporated by reference to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).
10.31 Amended and Restated Receivables Purchase Agreement and Assignment dated as of
July 21, 1998 between ARFC and the Registrant (incorporated by reference to
Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
10.32 Amended and Restated Sale and Servicing Agreement dated as of July 21, 1998 by
and among Arcadia Automobile Receivables Warehouse Trust ("AARWT"), ARCC,
ARFC, the Registrant, Bank of America National Trust and Savings
Association, Morgan Guaranty Trust Company of New York and Norwest Bank
Minnesota, National Association (incorporated by reference to Exhibit 10.7
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
10.33 Amended and Restated Security Agreement dated as of July 21, 1998 by and among
the Registrant, ARFC, ARCC, AARWT, FSA, Bank of America National Trust and
Savings Association and Norwest Bank Minnesota, National Association
(incorporated by reference to Exhibit 10.8 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).
10.34 US $400,000,000 Floating Rate Variable Funding, FSA Insured Automobile
Receivables-Backed Amended and Restated Note Purchase Agreement dated as of
July 21, 1998 by and among AARWT, the Registrant, RCC, Bank of America
National Trust and Savings Association, DFC, and Morgan Guaranty Trust
Company of New York (incorporated by reference to Exhibit 10.9 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
10.35 Insurance and Indemnity Agreement dated as of December 3, 1996 amended and
restated as of July 21, 1998 by and among FSA, the Registrant, ARFC and
AARWT
</TABLE>
87
<PAGE>
<TABLE>
<C> <S> <C>
(incorporated by reference to Exhibit 10.10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).
10.36 Receivables Financing Agreement dated as of September 24, 1998 among Arcadia
Receivables Finance Corp. IV ("ARFC IV"), as Borrower, the Registrant, as
Servicer and Custodian, the Lenders Parties thereto, Credit Suisse First
Boston, New York Branch, as Agent, and Norwest Bank Minnesota, National
Association, as Backup Servicer and Collateral Agent (incorporated by
reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
10.37 Receivables Purchase Agreement and Assignment dated as of September 24, 1998
between ARFC IV, as Purchaser, and the Registrant, as Seller (incorporated
by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998).
10.38 Receivables Transfer Agreement dated as of October 16, 1998, by and among
Arcadia Receivables Finance Corp V ("ARFC V"), as Seller, the Registrant, as
Servicer, Park Avenue Receivables Corporation, as Purchaser, and The Chase
Manhattan Bank, as Funding Agent (incorporated by reference to Exhibit 10.5
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998).
10.39 Receivables Purchase Agreement dated as of October 16, 1998, by and between
ARFC V, as Buyer, and the Registrant (incorporated by reference to Exhibit
10.6 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998).
10.40 Insurance and Indemnity Agreement, dated as of September 23, 1994, among FSA,
Olympic Automobile Receivables Trust, 1994-B, Olympic First GP Inc., Olympic
Second GP Inc., ORFC and the Registrant (incorporated by reference to
Exhibit 10.26 to Registrant's Registration Statement on Form S-2, File No.
33-90108).
10.41 Insurance and Indemnity Agreement, dated as of February 9, 1995, among FSA,
ORFC and the Registrant with respect to Olympic Automobile Receivables Trust
1995-A (incorporated by reference to Exhibit 10.27 to Registrant's
Registration Statement on Form S-2, File No. 33-90108).
10.42 Insurance and Indemnity Agreement, dated as of March 15, 1995, among FSA,
Olympic Automobile Receivables Trust, 1995-B, Olympic First GP Inc., Olympic
Second GP Inc., ORFC and the Registrant (incorporated by reference to
Exhibit 10.24 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.43 Insurance and Indemnity Agreement, dated as of June 15, 1995, among FSA,
Olympic Automobile Receivables Trust, 1995-C, Olympic First GP Inc., Olympic
Second GP Inc., ORFC and the Registrant (incorporated by reference to
Exhibit 10.25 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.44 Amendment No. 1, dated as of June 15, 1995, to Series 1995-B Insurance and
Indemnity Agreement, Series 1995-A Insurance and Indemnity Agreement, Series
1994-B Insurance and Indemnity Agreement, Series 1994-A Insurance and
Indemnity Agreement, Series 1993-D Insurance and Indemnity Agreement, Series
1993-C Insurance and Indemnity Agreement, Series 1993-B Insurance and
Indemnity Agreement and Series 1993-A Insurance and Indemnity Agreement
(incorporated by reference to Exhibit 10.26 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.45 Insurance and Indemnity Agreement, dated as of September 21, 1995, among FSA,
Olympic Automobile Receivables Trust, 1995-D, Olympic First GP Inc., Olympic
Second
</TABLE>
88
<PAGE>
<TABLE>
<C> <S> <C>
GP Inc., ORFC and the Registrant (incorporated by reference to Exhibit 10.27
to Registrant's Annual Report on Form 10-K for the year ended December 31,
1995).
10.46 Insurance and Indemnity Agreement, dated as of December 6, 1995, among FSA,
Olympic Automobile Receivables Trust, 1995-E, Olympic First GP Inc., Olympic
Second GP Inc., ORFC and the Registrant (incorporated by reference to
Exhibit 10.28 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.47 Amendment No. 2, dated as of December 6, 1995, to 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, Series
1994-A Insurance and Indemnity Agreement, Series 1993-D Insurance and
Indemnity Agreement, Series 1993-C Insurance and Indemnity Agreement, Series
1993-B Insurance and Indemnity Agreement and Series 1993-A Insurance and
Indemnity Agreement (incorporated by reference to Exhibit 10.29 to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995).
10.48 Insurance and Indemnity Agreement, dated as of March 14, 1996, among FSA,
Olympic Automobile Receivables Trust, 1996-A, Olympic First GP Inc., Olympic
Second GP Inc., ORFC and the Registrant (incorporated by reference to
Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996).
10.49 Amendment, dated as of May 31, 1996, to 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 and Series 1995-A
Insurance and Indemnity Agreement (incorporated by reference to Exhibit 10.4
to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996).
10.50 Insurance and Indemnity Agreement, dated as of June 14, 1996, among FSA,
Olympic Automobile Receivables Trust, 1996-B, Olympic First GP Inc., Olympic
Second GP Inc., ORFC and the Registrant (incorporated by reference to
Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
10.51 Insurance and Indemnity Agreement, dated as of September 12, 1996, among FSA,
Olympic Automobile Receivables Trust, 1996-C, Olympic First GP Inc., Olympic
Second GP Inc., ORFC and the Registrant (incorporated by reference to
Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996).
10.52 Amendment, dated as of September 12, 1996, to 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, Series
1994-A Insurance and Indemnity Agreement, Series 1993-D Insurance and
Indemnity Agreement, Series 1993-C Insurance and Indemnity Agreement, Series
1993-B Insurance and Indemnity Agreement and Series 1993-A Insurance and
Indemnity Agreement (incorporated by reference to Exhibit 10.4 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996).
10.53 Insurance and Indemnity Agreement, dated as of December 12, 1996, among FSA,
Olympic Automobile Receivables Trust, 1996-D, Olympic First GP Inc., Olympic
Second GP Inc., ORFC and the Registrant (incorporated by reference to
Exhibit 10.58 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
</TABLE>
89
<PAGE>
<TABLE>
<C> <S> <C>
10.54 Insurance and Indemnity Agreement, dated as of March 20, 1997, among the
Registrant, FSA, Olympic Automobile Receivables Trust, 1997-A, Olympic First
GP Inc., Olympic Second GP Inc., and ORFC (incorporated by reference to
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997).
10.55 Insurance and Indemnity Agreement, dated as of June 19, 1997, among the
Registrant, FSA, Arcadia Automobile Receivables Trust, 1997-B and ARFC
(incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997).
10.56 Insurance and Indemnity Agreement, dated as of September 18, 1997, among
Financial Assurance Inc., Arcadia Automobile Receivables Trust, 1997-C, ARFC
and the Registrant (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).
10.57 Insurance and Indemnity Agreement, dated as of December 16, 1997, among
Financial Assurance Inc., Arcadia Automobile Receivables Trust, 1997-D, ARFC
and the Registrant (incorporated by reference to Exhibit 10.36 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997).
10.58 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 (incorporated by reference to Exhibit
10.37 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.59 Insurance and Indemnity Agreement, dated as of March 25, 1998, among FSA,
Arcadia Receivables Trust 1998-A, ARFC and the Registrant (incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998).
10.60 Insurance and Indemnity Agreement, dated as of June 23, 1998, among FSA,
Arcadia Automobile Receivables Trust 1998-B, ARFC and the Registrant
(incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).
10.61 Insurance and Indemnity Agreement, dated as of September 22, 1998, among FSA,
Arcadia Automobile Receivables Trust 1998-C, ARFC and the Registrant
(incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998).
10.62 Insurance and Indemnity Agreement, dated as of November 19, 1998, among FSA,
Arcadia Automobile Receivables Trust 1998-D, ARFC and the Registrant (filed
herewith)...................................................................
10.63 Insurance and Indemnity Agreement, dated as of December 22, 1998, among FSA,
Arcadia Automobile Receivables Trust 1998-E, ARFC and the Registrant (filed
herewith)...................................................................
</TABLE>
90
<PAGE>
<TABLE>
<C> <S> <C>
10.64 Spread Account Agreement, dated as of March 25, 1993, as amended and restated
as of August 26, 1994, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.126 to Registrant's Registration
Statement on Form S-4, File No. 33-81588).
10.65 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 August
26, 1994, among the Registrant, ORFC, FSA and Norwest Bank Minnesota,
National Association, as Trustee and Collateral Agent (incorporated by
reference to Exhibit 10.18 to Registrant's Registration Statement on Form
S-2, File No. 33-90108).
10.66 Series 1995-A Supplement, dated as of February 9, 1995, to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of August
26, 1994, among the Registrant, ORFC, FSA and Norwest Bank Minnesota,
National Association, as Trustee and Collateral Agent (incorporated by
reference to Exhibit 10.19 to Registrant's Registration Statement on Form
S-2, File No. 33-90108).
10.67 Series 1995-B Supplement, dated as of March 15, 1995, to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of August
26, 1994, among the Registrant, ORFC, FSA and Norwest Bank Minnesota,
National Association, as Trustee and Collateral Agent (incorporated by
reference to Exhibit 10.57 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995).
10.68 Spread Account Agreement, dated as of March 25, 1993, as amended and restated
as of June 15, 1995, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.56 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995).
10.69 Series 1995-C Supplement, dated as of June 15, 1995, to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of June
15, 1995, among the Registrant, ORFC, FSA and Norwest Bank Minnesota,
National Association, as Trustee and Collateral Agent (incorporated by
reference to Exhibit 10.58 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995).
10.70 Amendment, dated as of June 15, 1995, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, to Series 1995-B Supplement,
Series 1995-A Supplement, Series 1994-B Supplement, Series 1994-A
Supplement, Series 1993-D Supplement, Series 1993-C Supplement and Series
1993-B Supplement (incorporated by reference to Exhibit 10.60 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995).
10.71 Spread Account Agreement, dated as of March 25, 1993, as amended and restated
as of September 21, 1995, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent (filed
herewith)...................................................................
10.72 Series 1995-D Supplement, dated as of September 21, 1995, to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of
September 21, 1995, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent (filed
herewith)...................................................................
10.73 Amendment, dated as of September 21, 1995, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, to Series 1995-C Supplement,
Series 1995-B Supplement, Series 1995-A Supplement, Series 1994-B
Supplement, Series 1994-A Supplement, Series 1993-D Supplement, Series
1993-C Supplement and Series 1993-B Supplement (filed herewith).............
</TABLE>
91
<PAGE>
<TABLE>
<C> <S> <C>
10.74 Spread Account Agreement, dated as of March 25, 1993, as amended and restated
as of December 6, 1995, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.13 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.75 Amendment, dated as of December 6, 1995, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, to 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-D Supplement, Series 1993-C Supplement and Series 1993-B Supplement
(incorporated by reference to Exhibit 10.14 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.76 Series 1995-E Supplement, dated as of December 6, 1995 to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of
December 6, 1995, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.15 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.77 Series 1996-A Supplement, dated as of March 14, 1996, to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of
December 6, 1995, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996).
10.78 Amendment, dated as of May 31, 1996, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, to Series 1996-A Supplement,
Series 1995-E Supplement, Series 1995-D Supplement, Series 1995-C
Supplement, Series 1995-B Supplement and Series 1995-A Supplement to Spread
Account Agreement, dated as of March 25, 1993, as amended and restated as of
September 12, 1996, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.3 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996).
10.79 Series 1996-B Supplement, dated as of June 14, 1996, to Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of
December 6, 1995, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996).
10.80 Spread Account Agreement, dated as of March 25, 1993, as amended and restated
as of September 12, 1996, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.5 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996).
10.81 Series 1996-C Series Supplement, dated as of September 12, 1996, to Spread
Account Agreement, dated as of March 25, 1993, as amended and restated as of
September 12, 1996, among the Registrant, ORFC, FSA and Norwest Bank
Minnesota, National Association, as Trustee and Collateral Agent
(incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996).
10.82 Amendment, dated as of September 12, 1996, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, to Series 1996-B Supplement,
Series
</TABLE>
92
<PAGE>
<TABLE>
<C> <S> <C>
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 Spread Account Agreement,
dated as of March 25, 1993, as amended and restated as of September 12,
1996, among the Registrant, ORFC, FSA and Norwest Bank Minnesota, National
Association, as Trustee and Collateral Agent (incorporated by reference to
Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996).
10.83 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 10.37 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996).
10.84 Series 1996-D Supplement, dated as of December 12, 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 10.41 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996).
10.85 Amendment, dated as of January 14, 1997, among the Registrant, ORFC, FSA and
Norwest Bank Minnesota, National Association, to Series 1994-B Supplement,
Series 1994-A Supplement, Series 1993-D Supplement and Series 1993-C
Supplement and the Series 1993-B Supplement (incorporated by reference to
Exhibit 10.42 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.86 Spread Account Agreement, dated as of March 25, 1993, as amended and restated
as of March 1, 1997 among the Company, ORFC, FSA and Norwest Bank Minnesota,
National Association, as Trustee and Collateral Agent (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997).
10.87 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, ORFC, FSA 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).
10.88 Spread Account Agreement, dated as of March 25, 1993, as amended and restated
as of June 1, 1997 among the Company, ARFC, FSA, The Chase Manhattan Bank,
as Trustee, and Norwest Bank Minnesota, National Association, as Collateral
Agent (incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
10.89 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, ARFC, FSA, 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).
10.90 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 the Registrant, ARFC, FSA, 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).
</TABLE>
93
<PAGE>
<TABLE>
<C> <S> <C>
10.91 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 the Registrant, ARFC, FSA, The Chase Manhattan Bank and Norwest
Bank Minnesota, National Association (incorporated by reference to Exhibit
10.32 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.92 Spread Account Agreement dated as of March 25, 1993, as amended and restated
as of December 16, 1997, among the Registrant, ARFC, FSA, The Chase
Manhattan Bank, as Trustee and Norwest Bank Minnesota, National Association,
as Collateral Agent (incorporated by reference to Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997).
10.93 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 (incorporated by reference to Exhibit 10.28 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.94 Series 1998-A Supplement, dated as of March 25, 1998, to Spread Account
Agreement dated as of March 25, 1993, as amended and restated as of December
16, 1997, among the Registrant, ARFC, FSA and Norwest Bank Minnesota, N.A.
(incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998).
10.95 Spread Account Agreement, dated as of March 25, 1993, as amended and restated
as of June 23, 1998 by and among the Registrant, ARFC, FSA and Norwest Bank
Minnesota, National Association (filed herewith)............................
10.96 Series 1998-B Supplement, dated as of June 23, 1998, to Spread Account
Agreement dated as of March 25, 1993, as amended and restated as of June 23,
1998, among the Registrant, ARFC, FSA and Norwest Bank Minnesota, N.A.
(incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).
10.97 Spread Account Agreement, dated as of March 25, 1993, as amended and restated
as of July 21, 1998 by and among the Registrant, ARFC, FSA and Norwest Bank
Minnesota, National Association (incorporated by reference to Exhibit 10.12
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
10.98 Warehouse Series Supplement dated as of December 3, 1996 as amended and
restated as of July 21, 1998 to Spread Account Agreement dated as of March
25, 1993, as amended and restated as of July 21, 1998 by and among the
Registrant, ARFC, FSA and Norwest Bank Minnesota, National Association
(incorporated by reference to Exhibit 10.11 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).
10.99 Series 1998-C Supplement, dated as of September 22, 1998, to Spread Account
Agreement dated as of March 25, 1993, as amended and restated as of July 21,
1998 among the Registrant, ARFC, FSA and Norwest Bank Minnesota, National
Association (incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
</TABLE>
94
<PAGE>
<TABLE>
<C> <S> <C>
10.100 Spread Account Agreement dated as of March 25, 1993, as amended and restated
as of November 19, 1998, by and among the Registrant, ARFC, FSA and Norwest
Bank Minnesota, National Association (filed herewith).......................
10.101 Series 1998-D Supplement, dated as of November 19, 1998, to Spread Account
Agreement dated as of March 25, 1993, as amended and restated as of November
19, 1998, by and among the Registrant, ARFC, FSA and Norwest Bank Minnesota,
National Association (filed herewith).......................................
10.102 Series 1998-E Supplement, dated as of December 22, 1998, to Spread Account
Agreement dated as of March 25, 1993, as amended and restated as of November
19, 1998, by and among the Registrant, ARFC, FSA and Norwest Bank Minnesota,
National Association (filed herewith).......................................
10.103 Agreement, dated May 12, 1998, between the Registrant and FSA relating to
Spread Account Recourse Reduction Amounts for Olympic Automobile Receivables
Trust, 1996-D; Olympic Automobile Receivables Trust, 1997-A; and Arcadia
Automobile Receivables Trust; 1997-B (filed herewith).......................
10.104 Agreement, dated October 15, 1998, between the Registrant and FSA relating to
Spread Account Recourse Reduction Amounts for Arcadia Automobile Receivables
Trust, 1997-C; Arcadia Automobile Receivables Trust, 1997-D; and Arcadia
Automobile Receivables Trust, 1998-A (filed herewith).......................
10.105 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).
10.106 Consulting Agreement, dated as of January 28, 1998, by and between the
Registrant and Warren Kantor (filed herewith)...............................
10.107 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).
10.108 Employment Retention Agreement, dated as of January 27, 1998, between the
Registrant and Richard A. Greenawalt (filed herewith).......................
10.109 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).
10.110 Employment Retention Agreement, dated as of January 27, 1998, between the
Registrant and Scott H. Anderson (filed herewith)...........................
10.111 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).
10.112 Employment Retention Agreement, dated as of January 27, 1998, between the
Registrant and John A. Witham (filed herewith)..............................
10.113 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).
10.114 Employment Retention Agreement, dated as of January 31, 1998, between the
Registrant and Duane E. White (filed herewith)..............................
</TABLE>
95
<PAGE>
<TABLE>
<C> <S> <C>
10.115 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).
10.116 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).
10.117 Employment Retention Agreement, dated as of January 27, 1998, between the
Registrant and James D. Atkinson III (filed herewith).......................
10.118 Employment Retention Agreement, dated as of July 27, 1998, between the
Registrant and Cortes DeRussy (filed herewith)..............................
10.119 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).
10.120 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).
10.121 1992 Director Stock Option Plan, as amended through June 30, 1997
(incorporated by reference to Exhibit 10.13 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997).
10.122 Amendments to the 1992 Director Stock Option Plan effective as of January 29,
1998 (incorporated by reference to Exhibit 10.9 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
10.123 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).
10.124 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).
10.125 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).
10.126 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).
10.127 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).
10.128 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).
10.129 Non-Statutory Stock Option Agreement, dated January 28, 1998, between the
Registrant and Warren Kantor (incorporated by reference to Exhibit 4.1 to
the Registrant's Registration Statement on Form S-8, file No. 333-63023).
10.130 Arcadia Financial Ltd. Employee Stock Purchase Plan, as amended to date (filed
herewith)...................................................................
</TABLE>
96
<PAGE>
<TABLE>
<C> <S> <C>
10.131 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).
10.132 Amendments to 1994-1997 Restricted Stock Election Plan effective January 29,
1998 (incorporated by reference to Exhibit 10.7 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
10.133 1998-2000 Restricted Stock Election Plan, as amended through December 31, 1996
(incorporated by reference to Exhibit 10.102 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.134 Amendments to the 1998-2000 Restricted Stock Election Plan effective as of
January 29, 1998 (incorporated by reference to Exhibit 10.8 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1998).
10.135 Amendments to 1998-2000 Restricted Stock Election Plan effective November 24,
1998 (filed herewith).......................................................
10.136 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).
10.137 Employment Retention Agreement, dated as of November 6, 1996, between the
Registrant and Brian S. Anderson (filed herewith)...........................
10.138 Employment Retention Agreement, dated January 27, 1998 between the Registrant
and Brian S. Anderson (filed herewith)......................................
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 (incorporated by reference to Exhibits 27.1; 27.2;
27.3 and 27.4 to the Registrant's Current Report on Form 8-K dated March 5,
1999 and filed March 8, 1999).
99.1 Cautionary Statement (filed herewith).........................................
</TABLE>
- ------------------------
(a)On November 8, 1998, the Registrant filed a Current Report on Form 8-K, dated
September 30, 1998, reporting Amendment No. 2 to the Arcadia Financial Ltd.
Shareholder Rights Plan to increase the percentage ownership threshold
contained in the definition of "Acquiring Person" from 18% or more up to 20%
or more.
97
<PAGE>
SECOND RESTATED ARTICLES OF INCORPORATION
OF
ARCADIA FINANCIAL LTD.
ARTICLE 1
NAME: The name of this Corporation shall be ARCADIA FINANCIAL LTD.
ARTICLE 2
REGISTERED OFFICE: The address of the Corporation's registered office in
the State of Minnesota is 7825 Washington Avenue South, Minneapolis, Minnesota
55439-2435.
ARTICLE 3
AUTHORIZED SHARES: The authorized capital stock of the Corporation shall
consist of (i) 55,000,000 shares of Common Stock, par value $.01 per share; (ii)
90,000 shares that have been designated by the Board of Directors as Class A
Preferred Stock, par value $.01 per share, which shares are subject to the terms
of a Certificate of Designation, Preferences and Rights, a copy of which is
attached as Appendix 1 hereto; and (iii) 44,010,000 undesignated shares of a par
value of $.01 per share which may be issued in more than one class or series
when authorized by Board of Directors of the Corporation.
3.1 The Board of Directors may, from time to time, establish by resolution
in the manner prescribed by law, different classes or series of shares and may
fix the relative rights and preferences of said shares in any class or series.
3.2 The Board of Directors shall have the authority to issue shares of a
class or series, shares of which may then be outstanding, to holders of shares
of another class or series to effectuate share dividends, splits, or conversion
of its outstanding shares.
ARTICLE 4
CERTAIN SHAREHOLDER RIGHTS: Shareholders shall have no preemptive rights
to purchase, subscribe for or otherwise acquire any new or additional securities
of the Corporation. No shareholder shall be entitled to any cumulative voting
rights.
<PAGE>
ARTICLE 5
WRITTEN ACTION BY BOARD: An action required or permitted to be taken by
the Board of Directors of this Corporation may be taken by written action signed
by the number of directors that would be required to take the same action at a
meeting of the Board at which all directors are present except as to those
matters which require shareholder approval, in which case the written action
must be signed by all members of the Board of Directors.
ARTICLE 6
NONLIABILITY OF DIRECTORS FOR CERTAIN ACTIONS: To the full extent
permitted by the Minnesota Business Corporation Act, Minnesota Statutes, Chapter
302A, as it exists on the date hereof or may hereafter be amended, a director of
this Corporation shall not be liable to the Corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director. No amendment to or
repeal of this Article shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
INSURANCE AND INDEMNITY AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1998-D,
ARCADIA RECEIVABLES FINANCE CORP.
and
ARCADIA FINANCIAL LTD.
Dated as of November 19, 1998
- -------------------------------------------------------------------------------
Arcadia Automobile Receivables Trust, 1998-D
$ 13,000,000 -- 5.482% Class A-1 Automobile Receivables-Backed Notes
$ 32,000,000 -- 5.564% Class A-2 Automobile Receivables-Backed Notes
$ 55,000,000 -- 5.800% Class A-3 Automobile Receivables-Backed Notes
$ 100,000,000 -- 5.650% Class A-4 Automobile Receivables-Backed Notes
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
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. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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
<PAGE>
Section 6.05 Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 6.06 Consent of Financial Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.07 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
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
</TABLE>
ii
<PAGE>
INSURANCE AND INDEMNITY AGREEMENT
INSURANCE AND INDEMNITY AGREEMENT dated as of November 19, 1998,
among FINANCIAL SECURITY ASSURANCE INC., a New York stock insurance company
("Financial Security"), ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1998-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 an Amended and Restated Sale and Servicing Agreement, dated as
of July 21, 1998, among the Seller, Arcadia Automobile Receivables Warehouse
Trust, Arcadia Financial, Bank of America National Trust and Savings
Association, Morgan Guaranty Trust Company of New York, Norwest Bank
Minnesota, National Association 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.
<PAGE>
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:
ARTICLE I.
DEFINITIONS
Section 1.1 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 1998-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.
2
<PAGE>
"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.
"FINANCIAL STATEMENTS" means with respect to Arcadia Financial the
audited consolidated balance sheets as of December 31, 1997, December 31,
1996, and December 31, 1995 and the related audited consolidated statements
of income, retained earnings and cash flows for the 12-month periods then
ended and the notes thereto.
"FISCAL AGENT" means the Fiscal Agent, if any, designated pursuant
to the terms of the Note Policy.
"INDENTURE COLLATERAL AGENT" means initially, Norwest Bank
Minnesota, National Association, 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
3
<PAGE>
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.
"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, Arcadia Automobile Receivables Trust, 1997-D,
Arcadia Automobile Receivables Trust, 1998-A, Arcadia Automobile Receivables
Trust, 1998-B, Arcadia Automobile Receivables Trust, 1998-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 November 1, 1998 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 Arcadia Financial (f/k/a Olympic Financial Ltd.) and Norwest
Bank Minnesota, National Association, as amended or supplemented (including
that First Supplemental Indenture dated as of March 12, 1997 and that Second
Supplemental Indenture dated as of October 8, 1997 (each, a "Supplemental
Indenture")), relating to $375,000,000 principal amount of Arcadia
Financial's currently outstanding 11 1/2% Senior Notes due 2007.
"SERIES 1998-D" means the Series of Notes issued on the date hereof
pursuant to the Indenture.
"SERIES OF NOTES" or "SERIES" means Series 1998-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 November 19, 1998, 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 November 19, 1998
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
6
<PAGE>
Lockbox Agreement, the Depository Agreements, the Custodian Agreement, the
Servicer Termination Side Letter, the Spread Account Agreement and the
Administration Agreement.
"TRUST AGREEMENT" means the Trust Agreement, dated as of November
1, 1998, 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 Credit Suisse First Boston Corporation and
Chase Securities Inc.
"UNDERWRITING AGREEMENT" means the Pricing Agreement, dated
November 12, 1998, among Arcadia Financial and the Seller and the
Underwriters.
"WAREHOUSING NOTES" means the Floating Rate Variable Funding Notes
issued pursuant to the Amended and Restated Indenture dated as of July 21,
1998, between Arcadia Automobile Receivables Warehouse Trust, as 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.
7
<PAGE>
(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 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
8
<PAGE>
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 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.
9
<PAGE>
(m) COMPLIANCE WITH INVESTMENT COMPANY ACT. The Trust is not
required to be registered as an "investment company" under the Investment
Company Act.
(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
10
<PAGE>
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, 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
11
<PAGE>
pursuant to Section 2.02(b)(i) and (ii) hereof, a certificate signed by an
Authorized Officer of the Administrator stating that:
(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
12
<PAGE>
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;
(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
13
<PAGE>
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:
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.
14
<PAGE>
(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.
(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 1998-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.
15
<PAGE>
(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.
(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.
16
<PAGE>
(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.
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,
17
<PAGE>
(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
(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
18
<PAGE>
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 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.
19
<PAGE>
(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.
(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. 333-48141), 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
20
<PAGE>
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 untrue staement 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
21
<PAGE>
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 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
22
<PAGE>
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.
(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
23
<PAGE>
the conduct of its business, and such cessation may result in a Material
Adverse Change with respect to the Seller or 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 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.
24
<PAGE>
(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 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.
25
<PAGE>
(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.
(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 1998-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,
26
<PAGE>
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.
(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 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
27
<PAGE>
(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.
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
28
<PAGE>
(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.
(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.
29
<PAGE>
(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.
(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,
30
<PAGE>
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:
(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;
31
<PAGE>
(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 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;
32
<PAGE>
(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, 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.
33
<PAGE>
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:
(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
34
<PAGE>
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.
(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
35
<PAGE>
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 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
36
<PAGE>
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;
(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
37
<PAGE>
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 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;
38
<PAGE>
(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;
(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.
39
<PAGE>
(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 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 Underwriters' 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
40
<PAGE>
payable. All payments of Premium and Premium Supplement, if any, shall be
made by wire transfer to an account 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,
41
<PAGE>
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;
42
<PAGE>
(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 proceeding effected without its written consent to the extent that any
such settlement shall be
43
<PAGE>
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.
44
<PAGE>
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;
45
<PAGE>
(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.
46
<PAGE>
(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:
47
<PAGE>
(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 701(i) or 701(ii) of the Senior Note Indenture or any Supplemental
Indenture thereto 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 702 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
48
<PAGE>
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 1998-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 8.83%;
(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.
49
<PAGE>
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.
50
<PAGE>
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, 1998-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/ DAN FARRELL
--------------------------------------
Authorized Officer
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1998-D
By: Wilmington Trust Company, as Owner
Trustee under the Trust Agreement
By: /S/ DONALD G. MACKELCAN
--------------------------------------
Donald G. MacKelcan
Assistant Vice President
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
<PAGE>
SCHEDULE I
<TABLE>
<S> <C> <C>
Determination Date* Cumulative Default Rate Cumulative Net Loss Rate
(month) (Column A) (Column B)
0 to 3 2.66% 1.33%
3 to 6 5.32% 2.66%
6 to 9 7.71% 3.85%
9 to 12 9.84% 4.92%
12 to 15 12.68% 6.34%
15 to 18 15.25% 7.63%
18 to 21 17.50% 8.75%
21 to 24 19.45% 9.73%
24 to 27 20.47% 10.24%
27 to 30 21.29% 10.65%
30 to 33 22.01% 11.01%
33 to 36 22.63% 11.32%
36 to 39 22.93% 11.47%
39 to 42 23.16% 11.58%
42 to 45 23.36% 11.68%
45 to 48 23.52% 11.76%
48 to 51 23.65% 11.83%
51 to S4 23.76% 11.88%
54 to 57 23.84% 11.92%
57 to 60 23.91% 11.95%
60 to 63 23.95% 11.97%
63 to 66 23.98% 11.99%
66 to 69 23.99% 12.00%
69 and higher 24.00% 12.00%
</TABLE>
- --------------------------
* Such Determination Date occurring after the designated calendar months
succeeding the Series 1998-D Closing Date appearing first in the column below,
and prior to or during the designated calendar months succeeding the Series
1998-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, 1998-E,
ARCADIA RECEIVABLES FINANCE CORP.
and
ARCADIA FINANCIAL LTD.
Dated as of December 22, 1998
- -------------------------------------------------------------------------------
Arcadia Automobile Receivables Trust, 1998-E
$ 64,000,000 -- 5.429% Class A-1 Automobile Receivables-Backed Notes
$ 100,000,000 -- 5.600% Class A-2 Automobile Receivables-Backed Notes
$ 61,000,000 -- 5.750% Class A-3 Automobile Receivables-Backed Notes
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
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. . . . . . . . . . . . . . . . . . . . . . . . .34
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
<PAGE>
Section 6.05 Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Section 6.06 Consent of Financial Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Section 6.07 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
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
</TABLE>
Schedule 1
ii
<PAGE>
INSURANCE AND INDEMNITY AGREEMENT
INSURANCE AND INDEMNITY AGREEMENT dated as of December 22, 1998, among
FINANCIAL SECURITY ASSURANCE INC., a New York stock insurance company
("Financial Security"), ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1998-E, 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 an Amended and Restated Sale and Servicing Agreement, dated as of July 21,
1998, among the Seller, Arcadia Automobile Receivables Warehouse Trust, Arcadia
Financial, Bank of America National Trust and Savings Association, Morgan
Guaranty Trust Company of New York, Norwest Bank Minnesota, National Association
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.
<PAGE>
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:
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 1998-E. 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.
2
<PAGE>
"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.
"FINANCIAL STATEMENTS" means with respect to Arcadia Financial the
audited consolidated balance sheets as of December 31, 1997, December 31, 1996,
and December 31, 1995 and the related audited consolidated statements of income,
retained earnings and cash flows for the 12-month periods then ended and the
notes thereto.
"FISCAL AGENT" means the Fiscal Agent, if any, designated pursuant to
the terms of the Note Policy.
"INDENTURE COLLATERAL AGENT" means initially, Norwest Bank Minnesota,
National Association, 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
3
<PAGE>
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.
"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, Arcadia Automobile
Receivables Trust, 1997-D, Arcadia Automobile Receivables Trust, 1998-A, Arcadia
Automobile Receivables Trust, 1998-B, Arcadia Automobile Receivables Trust,
1998-C, Arcadia Automobile Receivables Trust, 1998-D 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, 1998 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 Arcadia Financial (f/k/a Olympic Financial Ltd.) and Norwest Bank
Minnesota, National Association, as amended or supplemented (including that
First Supplemental Indenture dated as of March 12, 1997 and that Second
Supplemental Indenture dated as of October 8, 1997 (each, a "Supplemental
Indenture")), relating to $375,000,000 principal amount of Arcadia Financial's
currently outstanding 111/2% Senior Notes due 2007.
"SERIES 1998-E" means the Series of Notes issued on the date hereof
pursuant to the Indenture.
"SERIES OF NOTES" or "SERIES" means Series 1998-E 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 22, 1998, 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 November 19, 1998 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
6
<PAGE>
Lockbox Agreement, the Depository Agreements, the Custodian Agreement, the
Servicer Termination Side Letter, the Spread Account Agreement and the
Administration Agreement.
"TRUST AGREEMENT" means the Trust Agreement, dated as of December 1,
1998, 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 Credit Suisse First Boston Corporation, Chase
Securities Inc. and NationsBanc Montgomery Securities LLC.
"UNDERWRITING AGREEMENT" means the Pricing Agreement, dated December
11, 1998, among Arcadia Financial and the Seller and the Underwriters.
"WAREHOUSING NOTES" means the Floating Rate Variable Funding Notes
issued pursuant to the Amended and Restated Indenture dated as of July 21, 1998,
between Arcadia Automobile Receivables Warehouse Trust, as 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.
7
<PAGE>
(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 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
8
<PAGE>
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 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.
9
<PAGE>
(m) COMPLIANCE WITH INVESTMENT COMPANY ACT. The Trust is not
required to be registered as an "investment company" under the Investment
Company Act.
(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
10
<PAGE>
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, 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
11
<PAGE>
pursuant to Section 2.02(b)(i) and (ii) hereof, a certificate signed by an
Authorized Officer of the Administrator stating that:
(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
12
<PAGE>
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;
(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
13
<PAGE>
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:
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.
14
<PAGE>
(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.
(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 1998-E 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.
15
<PAGE>
(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.
(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.
16
<PAGE>
(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.
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,
17
<PAGE>
(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
(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
18
<PAGE>
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 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.
19
<PAGE>
(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.
(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. 333-48141), 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
20
<PAGE>
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 untrue staement 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
21
<PAGE>
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 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
22
<PAGE>
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.
(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
23
<PAGE>
the conduct of its business, and such cessation may result in a Material
Adverse Change with respect to the Seller or 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 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.
24
<PAGE>
(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 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.
25
<PAGE>
(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.
(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 1998-E 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,
26
<PAGE>
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.
(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 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
27
<PAGE>
(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.
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 shareholders.
(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
28
<PAGE>
(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.
(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.
29
<PAGE>
(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.
(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,
30
<PAGE>
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:
(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;
31
<PAGE>
(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 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;
32
<PAGE>
(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, 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.
33
<PAGE>
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:
(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
34
<PAGE>
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.
(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
35
<PAGE>
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 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
36
<PAGE>
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;
(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
37
<PAGE>
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 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 shareholders 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;
38
<PAGE>
(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;
(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 & Poor's Ratings Services, a division of
the McGraw-Hill Companies, Inc. ("S&P"), and an insurable risk by Moody's
Investors Service, Inc. ("Moody's") and that the Class A-1 Notes, Class A-2
Notes and Class A-3 Notes, when issued, will each 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.
39
<PAGE>
(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 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 Underwriters' 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
40
<PAGE>
payable. All payments of Premium and Premium Supplement, if any, shall be
made by wire transfer to an account 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,
41
<PAGE>
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 any federal, state or foreign law, rule or regulation, or any
judgment, order or decree applicable to it;
42
<PAGE>
(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 Statement 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 proceeding effected without its written consent to the extent that any
such settlement shall be
43
<PAGE>
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.
44
<PAGE>
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;
45
<PAGE>
(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.
46
<PAGE>
(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:
47
<PAGE>
(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 701(i) or 701(ii) of the Senior Note Indenture or any
Supplemental Indenture thereto 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 702 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
48
<PAGE>
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
1998-E 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 9.00 %;
(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.
49
<PAGE>
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.
50
<PAGE>
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, 1998-E
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 THAT 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/ RAYMOND GALKOWSKI
-----------------------------------
Authorized Officer
ARCADIA AUTOMOBILE RECEIVABLES
TRUST, 1998-E
By: Wilmington Trust Company, as Owner
Trustee under the Trust Agreement
By: /s/ EMMETT R. HARMON
-----------------------------------
Name: Emmett R. Harmon
Title: Vice President
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
<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 2.66% 1.33%
3 to 6 5.32% 2.66%
6 to 9 7.71% 3.85%
9 to 12 9.84% 4.92%
12 to 15 12.68% 6.34%
15 to 18 15.25% 7.63%
18 to 21 17.50% 8.75%
21 to 24 19.45% 9.73%
24 to 27 20.47% 10.24%
27 to 30 21.29% 10.65%
30 to 33 22.01% 11.01%
33 to 36 22.63% 11.32%
36 to 39 22.93% 11.47%
39 to 42 23.16% 11.58%
42 to 45 23.36% 11.68%
45 to 48 23.52% 11.76%
48 to 51 23.65% 11.83%
51 to S4 23.76% 11.88%
54 to 57 23.84% 11.92%
57 to 60 23.91% 11.95%
60 to 63 23.95% 11.97%
63 to 66 23.98% 11.99%
66 to 69 23.99% 12.00%
69 and higher 24.00% 12.00%
</TABLE>
- -----------------------
* Such Determination Date occurring after the designated calendar months
succeeding the Series 1998-E Closing Date appearing first in the column
below, and prior to or during the designated calendar months succeeding the
Series 1998-E Distribution Date appearing second in the column below.
<PAGE>
SPREAD ACCOUNT AGREEMENT,
dated as of March 25, 1993,
as amended and restated
as of September 21, 1995
among
OLYMPIC FINANCIAL LTD.,
OLYMPIC RECEIVABLES FINANCE CORP.,
FINANCIAL SECURITY ASSURANCE INC.
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee and as Collateral Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
DEFINITIONS
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . .2
Section 1.02. Rules of Interpretation . . . . . . . . . . . . . . . 11
ARTICLE 11
CREDIT ENHANCEMENT FEE; SERIES SUPPLEMENTS; THE COLLATERAL
Section 2.01. Series 1993-A Credit Enhancement Fee . . . . . . . . . 11
Section 2.02. Series Supplements . . . . . . . . . . . . . . . . . . 12
Section 2.03. Grant of Security Interest by OFL and the Seller . . . 12
Section 2.04. Priority . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.05. Seller and OFL Remain Liable . . . . . . . . . . . . . 13
Section 2.06. Maintenance of Collateral. . . . . . . . . . . . . . . 14
Section 2.07. Termination and Release of Rights . . . . . . . . . . 14
Section 2.08. Non-Recourse Obligations of Seller . . . . . . . . . . 15
ARTICLE III
SPREAD ACCOUNTS
Section 3.01. Establishment of Spread Accounts; Initial Deposits into
Spread . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.02. Investments. . . . . . . . . . . . . . . . . . . . . . 16
Section 3.03. Distributions: Priority of Payments. . . . . . . . . . 18
Section 3.04. General Provisions Regarding Spread Accounts . . . . . 21
Section 3.05. Reports by the Collateral Agent. . . . . . . . . . . . 22
ARTICLE IV
THE COLLATERAL AGENT
Section 4.01. Appointment and Powers . . . . . . . . . . . . . . . . 22
Section 4.02. Performance of Duties. . . . . . . . . . . . . . . . . 23
Section 4.03. Limitation on Liability. . . . . . . . . . . . . . . . 23
Section 4.04. Reliance upon Documents. . . . . . . . . . . . . . . . 23
Section 4.05. Successor Collateral Agent . . . . . . . . . . . . . . 24
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 4.06. Indemnification . . . . . . . . . . . . . . . . . . . 25
Section 4.07. Compensation and Reimbursement . . . . . . . . . . . . 26
Section 4.08. Representations and Warranties of the Collateral Agent 26
Section 4.09. Waiver of Setoffs. . . . . . . . . . . . . . . . . . . 26
Section 4.10. Control by the Controlling Party . . . . . . . . . . . 27
ARTICLE V
COVENANTS OF THE SELLER
Section 5.01. Preservation of Collateral . . . . . . . . . . . . . . 27
Section 5.02. Opinions as to Collateral. . . . . . . . . . . . . . . 27
Section 5.03. Notices. . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.04. Waiver of Stay or Extension Laws; Marshalling
of Assets. . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.05. Noninterference, etc.. . . . . . . . . . . . . . . . . 28
Section 5.06. Seller Changes . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VI
CONTROLLING PARTY; INTERCREDITOR PROVISIONS
Section 6.01. Appointment of Controlling Party . . . . . . . . . . . 29
Section 6.02. Controlling Party's Authority. . . . . . . . . . . . . 29
Section 6.03. Rights of Secured Parties. . . . . . . . . . . . . . . 31
Section 6.04. Degree of Care . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VII
REMEDIES UPON DEFAULT
Section 7.01. Remedies upon a Default. . . . . . . . . . . . . . . . 32
Section 7.02. Waiver of Default. . . . . . . . . . . . . .. .. . . . 32
Section 7.03. Restoration of Rights and Remedies . . . . . . . . . . 32
Section 7.04. No Remedy Exclusive. . . . . . . . . . . . . . . . . . 33
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Further Assurances . . . . . . . . . . . . . . . . . . 33
Section 8.02. Waiver . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.03. Amendments; Waivers. . . . . . . . . . . . . . . . . . 33
Section 8.04. Severability . . . . . . . . . . . . . . . . . . . . . 34
Section 8.05. Nonpetition Covenant . . . . . . . . . . . . . . . . . 34
Section 8.06. Notices. . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.07. Term of this Agreement . . . . . . . . . . . . . . . . 36
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
Section 8.08. Assignments: Third Party Rights; Reinsurance.. . . . 36
Section 8.09. Consent of Controlling Patty . . . . . . . . . . . . . 37
Section 8.10. Trial by Jury Waived . . . . . . . . . . . . . . . . . 37
Section 8.11. Governing law. . . . . . . . . . . . . . . . . . . . . 37
Section 8.12. Consents to Jurisdiction . . . . . . . . . . . . . . . 37
Section 8.13. Limitation of Liability. . . . . . . . . . . . . . . . 38
Section 8.14. Determination of Adverse Effect. . . . . . . . . . . . 38
Section 8.15. Counterparts . . . . . . . . . . . . . . . . . . . . . 38
Section 8.16. Headings . . . . . . . . . . . . . . . . . . . . . . . 38
EXHIBIT A Form of Pooling and Servicing Agreement
</TABLE>
iii
<PAGE>
SPREAD ACCOUNT AGREEMENT, dated as of March 25, 1993, as amended
and restated as of September 21, 1995 (the "Agreement"), by and among OLYMPIC
FINANCIAL LTD., a Minnesota corporation ("OFL"), 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, a national banking association in its
capacities as Trustee under each Pooling and Servicing Agreement referred to
below and as Trustee under each Indenture referred to below, in such capacity
as agent for the Noteholders and Certificateholders with respect to the
related Series (in each such capacities the "Trustee") and 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 the Series 1993-A Pooling and Servicing Agreement, the
Seller sold to the Series 1993-A Trust all of its right, title and interest
in and to the Receivables and certain other Trust Property in exchange for
the Series 1993-A Certificates.
3. The Seller has requested that Financial Security issue the Series
1993-A Policy to the Trustee to guarantee payment of the Guaranteed
Distributions (as defined in such Policy) on each Distribution Date in
respect of the Series 1993-A Certificates.
4. In partial consideration of the issuance of the Series 1993-A
Policy, the Seller has agreed that Financial Security shall have certain
rights as Controlling Party, to the extent set forth herein with respect to
the Series 1993-A Trust.
5. The Seller is a wholly owned special purpose subsidiary of OFL. The
Series 1993-A Trust has agreed to pay a certain Credit Enhancement Fee to the
Seller in consideration of the obligations of the Seller and OFL pursuant
hereto in respect of the Series 1993-A Certificates and in consideration of
the obligations of OFL pursuant to the Series 1993-A Insurance Agreement
(such obligations forming part of the Series 1993-A Insurer Secured
Obligations referred to herein). The Series 1993-A Insurer Secured
Obligations form part of the consideration to Financial Security for its
issuance of the Series 1993-A Policy.
6. In order to secure the performance of the Series 1993-A 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 pledge
the Series 1993-A 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.
<PAGE>
7. It is contemplated (A) that the Seller and OFL may enter into one
or more additional Pooling and Servicing Agreements with the Trustee and the
Backup Servicer pursuant to which the Seller will sell all of its right,
title and interest in pools of Receivables, and that Financial Security in
its discretion may issue one or more Policies with respect to certain
guaranteed distributions on the corresponding Series of Certificates and (B)
that the Seller and OFL may enter into one or more Sale and Servicing
Agreements with the related Trust and the Backup Servicer pursuant to which
the Seller will sell all of its right, title and interest in pools of
Receivables (each, a "Sale and Servicing Agreement"), that the Trust will
issue one or more classes of Certificates pursuant to a Trust Agreement among
the Seller, Financial Security, an Owner Trustee and certain other parties
specified therein (each, a "Trust Agreement"), and will issue one or more
classes of Notes pursuant to an Indenture among the related Trust, the
Indenture Trustee and the Collateral Agent, and that Financial Security in
its discretion may issue one or more Policies with respect to certain
guaranteed distributions on the corresponding Series of Certificates and may
issue one or more Policies with respect to certain scheduled payments on the
corresponding Series of Notes. In connection with any such issuance of
additional Policies, 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 will
enter into a Series Supplement hereto pursuant to which the Seller will
pledge additional Collateral pursuant to the terms hereof.
8. The Seller has entered into a Repurchase Agreement dated as of
August 1, 1994 with Telluride Funding Corp. (the "Issuer") (the "Repurchase
Agreement") pursuant to which the Seller has sold or will sell all of its right,
title and interest in Receivables, and that the Issuer will issue one or more
classes or tranches of 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
2
<PAGE>
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
meaning with respect to the related Series in this Agreement. If a term is
defined herein with respect to Series 1993-A, 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 DEFAULT RATE" means, with respect to any Series and any
Determination Date, the arithmetic average of the Default Rates for such
Determination Date and the two immediately preceding Determination Dates.
"AVERAGE DELINQUENCY RATIO" means, with respect to any Series and
any Determination Date, the arithmetic average of the Delinquency Ratios for
such Determination Date and the two immediately preceding Determination Dates.
"AVERAGE NET LOSS Rate" means, with respect to any Series and any
Determination Date, the arithmetic average of the Net Loss Rates 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 April 28, 1995, between OFL and Norwest
Bank Minnesota, National Association, as amended or supplemented, relating to
OFL's $145,000,000 13 % Senior Notes due 2000, 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 and, with respect
to any other 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.
3
<PAGE>
"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.
"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.
"DEEMED CURED" means, as of a Determination Date, with respect to a
Trigger Event that has occurred with respect to a Series, that no 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.
"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.
"DEFAULT Rate" means, with respect to any Determination Date and
any Series, the product, expressed as a percentage, of twelve multiplied by a
fraction, the numerator of which is equal to the sum of the Principal
Balances (as of the related Accounting Date) of all Receivables that became
Defaulted Receivables during the related Monthly Period or 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, and the denominator of which is
equal to the average of the Aggregate Principal Balance as of the related
Accounting Date and the Aggregate Principal Balance as of the second
preceding Accounting Date.
"DEFAULTED RECEIVABLE" means any Receivable with respect to which
(i) all or any portion of a Scheduled Payment has become 91 or more days
delinquent, (ii) the Servicer has repossessed the Financed Vehicle (and any
applicable redemption period has expired), or (iii) the Servicer has
determined in good faith that payments under the Receivable are not likely to
be resumed.
4
<PAGE>
"DELINQUENCY RATIO" means, with respect to any Determination Date
and any 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 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.
"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 and "P-l" 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.
5
<PAGE>
"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, pursuant to which Financial
Security issued (A) a Policy to the Trustee or (B) one or more Note Policies
to the Trustee and/or one or more Certificate Policies to the Owner Trustee.
"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 Telluride Funding Corp.
"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 LOSS RATE" means, with respect to any Determination Date and
any Series, the product, expressed as a percentage, of twelve multiplied by a
fraction, the numerator of which is equal to the excess of (A) the sum of (i)
the aggregate of the Principal Balances as of
6
<PAGE>
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 Liquidated Receivables during the related Monthly Period, plus (ii)
the Principal Balance 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 that occurred during
such Monthly Period, over (B) the Liquidation Proceeds received by the Trust
during such Monthly Period and the denominator of which is equal to the
average of the Aggregate Principal Balance as of the related Accounting Date
and the Aggregate Principal Balance as of the second preceding Accounting
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.
"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.
"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.
7
<PAGE>
"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 Servicer, the Servicer, 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 "Average Default Rate," "Average Delinquency
Ratio," "Average Net Loss Rate," "Deemed Cured," "Delinquency Ratio," "Net
Loss Rate," "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 DEFAULT LEVEL" means, with respect to any
Distribution Date and Series 1993-A, if an Insurance Agreement Event of
Default with respect to Series 1993-A has occurred and is continuing, or a
Capture Event has occurred and is continuing, an amount equal to the greater
of:
(A) the amount of funds in the related Spread Account (after giving
effect to distributions from such Spread Account made on such
Distribution Date pursuant to priority SECOND of Section
3.03(b)), or
(B) the product of
(1) the greatest of:
8
<PAGE>
(a) two times the Delinquency Ratio as of the related
Determination Date, or
(b) two times the Default Rate as of the related
Determination Date, or
(c) two times the Average Default Rate as of the related
Determination Date, or
(d) five times the Net Loss Rate as of the related
Determination Date, or
(e) five times the Average Net Loss Rate as of the related
Determination Date,
and
(2) the Certificate Balance with respect to Series 1993-A as of
the related Distribution Date (after giving effect to the
distributions in respect of principal made on such
Distribution Date).
"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; or
(ii) if (A) an Insurance Agreement Event of Default with respect to
such Series has occurred and is continuing, or (B) a Trigger Event with
respect to such Series has occurred as of the related Determination Date,
or (C) a Trigger Event with respect to such Series has occurred as of a
prior Determination Date and is not Deemed Cured as of the related
Determination Date, or (D) a Capture Event has occurred and is continuing
as of the related Determination Date, the Spread Account Maximum Amount
shall not be limited.
"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:
9
<PAGE>
(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 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 Default Level for
such Series and such Distribution Date and the amount on deposit in such
Spread Account as of such Distribution Date after giving effect to
distributions made on such Distribution Date pursuant to priority SECOND of
Section 3.03(b).
"STOCK PLEDGE AGREEMENT " means the Second Amended and Restated
Stock Pledge Agreement, dated as of August 26, 1994, between OFL, Financial
Security and the Collateral Agent.
"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
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 following event:
(i) the Delinquency Ratio for such Determination Date shall be
equal to or greater than 5%;
(ii) the Average Delinquency Ratio for such Determination Date
shall be equal to or greater than 3%;
(iii) the Average Default Rate shall be equal to or greater than
(A) 4.5 %, with respect to any Determination Date occurring
on or prior to the nine month anniversary of the Closing
Date, (B) 5.75 %, with respect to any Determination Date
occurring after the nine month anniversary, and on or prior
to the 18 month anniversary, of the Closing Date, or (C)
4.5%, with respect to each Determination Date thereafter; or
(iv) the Average Net Loss shall be equal to or greater than (A)
2%, with respect to any Determination Date occurring on or
prior to the nine month anniversary of the Closing Date, (B)
2.5%, with respect to any Determination Date occurring
after the nine month anniversary, and on
10
<PAGE>
or prior to the 18 month anniversary, of the Closing Date,
or (C) 2% with respect to each Determination Date thereafter.
"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 has the meaning
specified in the related Pooling and Servicing Agreement or Trust Agreement,
as the case may be.
"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.
"TRUSTEE SECURED OBLIGATION " 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, or (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.
"TRUSTEE TERMINATION DATE" means, with respect to any Series, the
date which is the latest 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 and
(ii) 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, 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," "hereof" 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.
11
<PAGE>
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 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 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
12
<PAGE>
(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 SECURI1Y INTEREST BY OFL AND THE SELLER.
(a) 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 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
13
<PAGE>
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.
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 recordkeeping. 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.
14
<PAGE>
(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 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, unless (in each
case) at the time of such declaration or payment (and after giving effect
15
<PAGE>
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 Certificateholders (or Certificate Owners) or Noteholders
(or Note Owners) under any other Transaction Document.
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").
All Spread Accounts established under this Agreement from time to time shall
be maintained at the same depository institution (which depository
institution 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. 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, 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, 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 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, 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.
16
<PAGE>
Section 3.02. INVESTMENTS.
(a) Funds which may at any time be held in the Spread Account
established with respect to a Series 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 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) Any investment of funds in any Spread Account shall be made in
Eligible Investments held by a financial institution with respect to which
(a) such institution has noted the Collateral Agent's interest therein by
book entry or otherwise and (b) a confirmation of the Collateral Agent's
interest has been sent to the Collateral Agent by such institution, provided
that such Eligible Investments are (i) specific certificated securities (as
such term is used in Minn. Stat. Section 336.8-313(d)(i)), and (ii) either
(A) in the possession of such institution or (B) in the possession of a
clearing corporation (as such term is used in Minn. Stat. Section
336.8313(g)) in New York or Minnesota, registered in the name of such
clearing corporation, not endorsed for collection or surrender or any other
purpose not involving transfer, not containing any evidence of a right or
interest inconsistent with the Collateral Agent's security interest therein,
and held by such clearing corporation in an account of such institution.
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.
(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
17
<PAGE>
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.
Section 3.03. DISTRIBUTIONS: PRIORITY OF PAYMENTS.
(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 4.1
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 (excluding the Warehousing 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
(including the Warehousing Series Spread Account) in respect of such
Collection Account Shortfall(s) and (ii) if a Warehousing Shortfall will
exist with respect
18
<PAGE>
to the Warehousing Series, determine the amount, if any, to be distributed
to the Trustee with respect to such Series from unrelated Spread Accounts
in respect of such Warehousing Shortfall. 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 (excluding any Collection Account Shortfall with respect to the
Warehousing Series) and any Warehousing Shortfall 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)(II) 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)(B) of
Section 3.6(a) or priority (v) of Section 3.6(b)(II) of the Servicing
Agreement are to be covered fifth, (2) if 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
4.1 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 Warehousing Shortfall or Collection
Account 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
19
<PAGE>
Servicing Agreements or Section 4.6 of the respective Sale and Servicing
Agreements, or Section 3.6 of the respective 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:
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;
SECOND, if with respect to any Series (excluding the Warehousing
Series) there exists a Collection Account Shortfall after deposit into the
Collection Account of amounts distributed pursuant to priority FIRST, or if
with respect to the Warehousing Series there exists a Warehousing Shortfall
from each Spread Account (including the Warehousing Series 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 (excluding the Warehousing Series) and any
Warehousing Shortfall, 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 or a Warehousing
Shortfall;
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 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 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;
20
<PAGE>
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 or
Section 6.2 of a 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 or Section 3.6 of a 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
Collection Account Shortfall, from the aggregate of all amounts on deposit in
each Spread Account in excess of the related Spread Account Maximum Amount,
an amount up to the amount of such Collection Account 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
21
<PAGE>
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 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
22
<PAGE>
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.
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
23
<PAGE>
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 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.
24
<PAGE>
(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.
(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
potect 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,
25
<PAGE>
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 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
26
<PAGE>
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 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,
27
<PAGE>
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.
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
28
<PAGE>
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 5.02.
(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 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.
ARTTCLE 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
29
<PAGE>
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 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, 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
30
<PAGE>
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.
(d) So long as Financial Security shall be the Controlling Party
with respect to a 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
31
<PAGE>
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 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 Pooling and
Servicing Agreement or other 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
32
<PAGE>
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.
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 stop 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,
33
<PAGE>
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 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:
34
<PAGE>
(i) If to OFL:
Olympic Financial Ltd.
7825 Washington Avenue South, Suite 410
Minneapolis, Minnesota 55439-2435
Attention: Chief Financial Officer
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: President
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:
Norwest Bank Minnesota, National Association
Norwest Center
6th Street and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department
Telecopier No.: (612) 667-9825
35
<PAGE>
(v) If to the Collateral Agent:
Norwest Bank Minnesota, National Association Norwest Center
6th Street and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department
Telecopier No.: (612) 667-9825
(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
36
<PAGE>
this Agreement, or delegate any of its duties hereunder, without the prior
written consent of the 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
37
<PAGE>
transactions 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
Norwest Bank Minnesota, N.A., 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 LIABILI1Y. It is expressly understood
and agreed by the parties hereto that (a) Norwest Bank Minnesota, National
Association is executing this Agreement not in its individual capacity but
solely in its capacity as trustee of the Trusts pursuant to the Pooling and
Servicing Agreements and (b) in no case whatsoever shall Norwest Bank
Minnesota, National Association 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.
38
<PAGE>
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.
OLYMPIC FINANCIAL LTD.
By /s/ John A. Witham
----------------------------
Title: Senior Vice President and
Chief Financial Officer
OLYMPIC RECEIVABLES FINANCE CORP.
By /s/ John A. Witham
------------------------------
Title: Senior Vice President and
Chief Financial Officer
FINANCIAL SECURITY ASSURANCE INC.
By /s/ Thomas J. MCormick
------------------------------
Authorized Officer
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee
By /s/ William C. Schmoker
------------------------------
Title: Corporate Trust Officer
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Collateral
Agent
By /s/ William C. Schmoker
------------------------------
Title: Corporate Trust Officer
<PAGE>
SERIES 1995-D SUPPLEMENT
dated as of September 21, 1995
to
SPREAD ACCOUNT AGREEMENT
dated as of March 25, 1993,
as amended and restated
as of September 21, 1995
among
OLYMPIC FINANCIAL LTD.
OLYMPIC RECEIVABLES FINANCE CORP.
FINANCIAL SECURITY ASSURANCE INC.
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee and as Collateral Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.2 Rules of Interpretation . . . . . . . . . . . . . . . . . .6
ARTICLE II CREDIT ENHANCENIENT FEE; SERIES SUPPLEMENTS;
THE COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 2.1 Series 1995-D Credit Enhancement Fee. . . . . . . . . . . .6
Section 2.2 Series Supplements. . . . . . . . . . . . . . . . . . . . .7
Section 2.3 Grant of Security Interest by OFL and the Seller. . . . . .7
ARTICLE III SPREAD ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 3.1 Establishment of Series 1995-D Spread Account; Initial
Deposit into Series 1995-D Spread Account. . . . . . . . .8
Section 3.2 Spread Account Additional Deposits. . . . . . . . . . . . .8
ARTICLE IV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . .8
Section 4.1 Further Assurances. . . . . . . . . . . . . . . . . . . . .8
Section 4.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . .8
Section 4.3 Counterparts. . . . . . . . . . . . . . . . . . . . . . . .8
Section 4.4 Headings. . . . . . . . . . . . . . . . . . . . . . . . . .9
</TABLE>
<PAGE>
SERIES 1995-D SUPPLEMENT
SERIES 1995-D SUPPLEMENT, dated as of September 21, 1995 (the "Series
1995-D Supplement"), by and among OLYMPIC FINANCIAL LTD., a Minnesota
corporation ("OFL"), 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, a national banking association, in its capacities as
Trustee under each Pooling and Servicing Agreement and as Indenture Trustee
under each Indenture referred to in the Spread Account Agreement (as defined
below), in such capacity as agent for the Noteholders and Certificateholders
with respect to the related Series (in each of such capacities, the
"Trustee") and 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
September 21, 1995 (the "Spread Account Agreement"), and, as contemplated by
Section 2.02 of the Spread Account Agreement, this Series 1995-D Supplement
constitutes a Series Supplement to the Spread Account Agreement so that
hereafter this Series 1995-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. Olympic Automobile Receivables Trust, 1995-D (the "Series 1995-D
Trust") is being formed contemporaneously herewith pursuant to the Series
1995-D Trust Agreement (as defined herein).
3. Pursuant to the Series 1995-D Sale and Servicing Agreement, the
Seller is selling to the Series 1995-D Trust all of its right, title and
interest in and to the Initial Receivables (as defined in the Series 1995-D
Sale and Servicing Agreement) and certain other Trust Property (as defined in
the Series 1995-D Trust Agreement).
4. Pursuant to the Series 1995-D Trust Agreement, the Series 1995-D
Trust is issuing the Series 1995-D Certificates (as defined herein). Pursuant
to the Series 1995-D Indenture, the Series 1995-D Trust is issuing the Series
1995-D Notes (as defined herein).
5. The Seller has requested that Financial Security issue the Series
1995-D Note Policy to the Trustee to guarantee payment of the Scheduled
Payments (as defined in such Policy) on each Payment Date in respect of the
Series 1995-D Notes, and has requested that Financial Security issue the
Series 1995-D Certificate Policy to Wilmington Trust Company, as Owner
Trustee under the Series 1995-D Trust Agreement, to guarantee payment of the
Guaranteed Distributions (as defined in such Policy) on each Distribution
Date in respect of the Series 1995-D Certificates.
6. In partial consideration of the issuance of the Series 1995-D Note
Policy and the Series 1995-D Certificate Policy, the Seller has agreed that
Financial Security shall have certain
<PAGE>
rights as Controlling Party, to the extent set forth in the Spread Account
Agreement and the Series 1995-D Indenture.
7. The Seller is a wholly owned special purpose subsidiary of OFL. The
Series 1995-D Trust has agreed to pay the Series 1995-D 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 Series 1995-D Insurance Agreement (such obligations forming part of the
Series 1995-D Insurer Secured Obligations as referred to herein). The Series
1995-D Insurer Secured Obligations form part of the consideration to
Financial Security for its issuance of the Series 1995-D Policies.
8. In order to secure the performance of the Series 1995-D Secured
Obligations, to further effect and enforce the subordination provisions to
which the Series 1995-D Credit Enhancement Fee is subject, and in
consideration of the receipt of the Series 1995-D Credit Enhancement Fee, OFL
and the Seller have agreed to pledge the Series 1995-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
1995-D Sale and Servicing Agreement shall have the same meaning with respect
to this Series 1995-D Supplement. The following terms shall have the
following meanings:
"COLLECTION ACCOUNT SHORTFALL" means, with respect to Series 1995-D and
any Distribution Date, the Deficiency Claim Amount, as defined in the Series
1995-D Sale and Servicing Agreement, with respect to such Distribution Date.
"INITIAL PRINCIPAL AMOUNT" means $525,000,000 with respect to Series
1995-D.
"INITIAL SPREAD ACCOUNT DEPOSIT" means $0.00 for Series 1995-D.
"INITIAL SPREAD ACCOUNT MAXIMUM AMOUNT " means, with respect to Series
1995-D and any Distribution Date, an amount equal to the greater of (i) 6% of
the Series 1995-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.
2
<PAGE>
"SERIES 1995-D BALANCE" means, with respect to Series 1995-D and any
Distribution Date, the sum of the aggregate principal amount of the Series
1995-D Notes and the Class B Certificate Balance with respect to Series
1995-D Certificates as of such Distribution Date (after giving effect to the
distributions in respect of principal on the Notes and on the Class B
Certificates made on such Distribution Date).
"SERIES 1995-D CERTIFICATE POLICY" means the financial guaranty
insurance policy issued by Financial Security with respect to the Series
1995-D Certificates.
"SERIES 1995-D CERTIFICATES" means the Certificates issued on the date
hereof pursuant to the Series 1995-D Trust Agreement.
"SERIES 1995-D COLLATERAL" has the meaning specified in Section 2.3(a)
hereof.
"SERIES 1995-D CREDIT ENHANCEMENT FEE" means the amount distributable on
each Distribution Date pursuant to Section 4.6(viii) and (ix) of the Series
1995-D Sale and Servicing Agreement.
"SERIES 1995-D INDENTURE" means the Indenture, dated as of September 1,
1995, among the Series 1995-D Trust, the Trustee and the Indenture Collateral
Agent.
"SERIES 1995-D NOTE POLICY" means the financial guaranty insurance
policy issued by Financial Security with respect to the Series 1995-D Notes.
"SERIES 1995-D NOTES" means the Class A-1, Class A-2, Class A-3, Class
A-4, Class A5, and Class A-6 Notes issued pursuant to the Series 1995-D
Indenture.
"SERIES 1995-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
1995-D Trust Agreement.
"SERIES 1995-D RECEIVABLE" means each Receivable referenced on the
Schedule of Receivables attached to the Series 1995-D Sale and Servicing
Agreement, as supplemented from time to time during the Funding Period by one
or more Subsequent Transfer Agreements.
"SERIES 1995-D RESERVE ACCOUNT" means the Reserve Account established
pursuant to Section 4. 1 (d) of the Series 1995-D Sale and Servicing
Agreement.
"SERIES 1995-D SALE AND SERVICING AGREEMENT" means the Sale and
Servicing Agreement, dated as of September 1, 1995, and attached hereto as
Exhibit A, among the Series 1995-D Trust, OFL, 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 1995-D SECURITIES" means the Series 1995-D Notes and the Series
1995-D Certificates, collectively.
3
<PAGE>
"SERIES 1995-D SPREAD ACCOUNT" means the Spread Account established
pursuant to Section 3.1 (a) hereof.
"SERIES 1995-D SUPPLEMENT" means this Series 1995-D Supplement which
constitutes a Series Supplement to the Spread Account Agreement.
"SERIES 1995-D TRUST AGREEMENT" means the Trust Agreement, dated as of
September 1, 1995, among the Seller, Olympic First GP Inc., Olympic Second GP
Inc., Financial Security and the Series 1995-D Owner Trustee.
"SPREAD ACCOUNT ADDITIONAL DEPOSIT" means, with respect to Series 1995-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 1995-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 1995-D Notes and
the Series 1995-D Certificates will be in the highest category by such Rating
Agencies.
"SPREAD ACCOUNT DEFAULT LEVEL" means, with respect to Series 1995-D and
any Distribution Date, if an Insurance Agreement Event of Default with
respect to Series 1995-D has occurred and is continuing or a Capture Event
has occurred and is continuing, an amount equal to the greater of:
(A) the amount of funds in the Series 1995-D Spread Account (after
giving effect to distributions from the Series 1995-D Spread
Account made on such Distribution Date pursuant to priority
SECOND of Section 3.03(b) of the Spread Account Agreement), or
(B) the product of
(1) the greatest of
(a) two times the Delinquency Ratio as of the related
Determination Date; or
(b) two times the Default Rate as of the related
Determination Date;or
(c) two times the Average Default Rate as of the related
Determination Date; or
(d) five times the Net Loss Rate as of the related
Determination Date; or
(e) five times the Average Net Loss Rate as of the
related Determination Date;
4
<PAGE>
and
(2) the Series 1995-D Balance as of such Distribution Date.
"SPREAD ACCOUNT MAXIMUM AMOUNT" means, with respect to Series 1995-D and
any Distribution Date:
(i) if no Insurance Agreement Event of Default with respect to
Series 1995-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 1995-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 1995-D and such Distribution Date; or
(ii) if (A) an Insurance Agreement Event of Default with respect
to Series 1995-D has occurred and is continuing or (B) a Trigger Event with
respect to Series 1995-D has occurred as of the related Determination Date,
or (C) a Trigger Event with respect to Series 1995-D has occurred as of a
prior Determination Date and is not Deemed Cured as of the related
Determination Date, or (D) a Capture Event has occurred and is continuing
as of the related Determination Date, the Spread Account Maximum Amount
shall not be limited.
"SPREAD ACCOUNT MINIMUM AMOUNT" means, with respect to Series 1995-D 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 Series 1995-D, and
(B) Series 1995-D Balance.
"SPREAD ACCOUNT WITHDRAWAL FLOOR" means, with respect to Series 1995-D
and any Determination Date, the Spread Account Minimum Amount as of such
Determination Date.
"TRIGGER EVENT" means, with respect to Series 1995-D and as of a
Determination Date, the occurrence of any of the following events:
(i) the Delinquency Ratio for such Determination Date shall be
equal to or greater than 5%;
(ii) the Average Delinquency Ratio for such Determination Date
shall be equal to or greater than 3%;
5
<PAGE>
(iii) the Average Default Rate shall be equal to or greater than
(A) 4.5%, with respect to any Determination Date occurring
on or prior to the nine month anniversary of the Closing
Date, (B) 5.75%, with respect to any Determination Date
occurring after the nine month anniversary, and on or prior
to the 18 month anniversary, of the Closing Date, or (C)
4.5%, with respect to each Determination Date thereafter; or
(iv) the Average Net Loss shall be equal to or greater than (A)
2%, with respect to any Determination Date occurring on or
prior to the nine month anniversary of the Closing Date, (B)
2.5%, with respect to any Determination Date occurring
after the nine month anniversary, and on or prior to the 18
month anniversary, of the Closing Date, or (C) 2%, with
respect to each Determination Date thereafter.
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 1995-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 1995-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 1995-D CREDIT ENHANCEMENT FEE. The Series 1995-D
Sale and Servicing Agreement provides for the payment to the Seller of the
Series 1995-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 OFL hereby agree that
payment of the Series 1995-D Credit Enhancement Fee in the manner and subject
to the conditions set forth herein and in the Series 1995-D Sale 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 with respect to Series 1995-D) and pursuant to
the Series 1995-D Insurance Agreement. The Seller and OFL hereby agree with
the Trustee and with Financial Security that payment of the Series 1995-D
Credit Enhancement Fee to the Seller is expressly conditioned on
subordination of the Series 1995-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 1995-D Collateral is intended to effect and
enforce such subordination and
6
<PAGE>
to provide security for the Series 1995-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 1995-D Supplement with respect
to the Series 1995-D Securities.
Section 2.3 GRANT OF SECURITY INTEREST BY OFL AND THE SELLER.
(a) 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 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 1995-D Collateral"):
(i) the Series 1995-D Credit Enhancement Fee and all rights and
remedies that the Seller may have to enforce payment of the Series 1995-D
Credit Enhancement Fee whether under the Series 1995-D Sale and Servicing
Agreement or otherwise;
(ii) the Series 1995-D Spread Account established pursuant to Section
3.1 of this Series 1995-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 1995-D 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 Series
1995-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 1995-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
1995-D Collateral which can be perfected by the filing of a financing
statement.
7
<PAGE>
ARTICLE III
SPREAD ACCOUNT
Section 3. 1 ESTABLISHMENT OF SERIES 1995-D SPREAD ACCOUNT; INITIAL
DEPOSIT INTO SERIES 1995-D SPREAD ACCOUNT.
(a) On or prior to the Closing Date relating to the Series 1995-D
Certificates, the Collateral Agent shall establish with respect to Series
1995-D, at its office or at another depository institution or trust company,
an Eligible Account, designated "Spread Account--Series 1995-D--Norwest Bank
Minnesota, National Association, as Collateral Agent for Financial Security
Assurance Inc. and another Secured Party" (the "Series 1995-D Spread
Account").
(b) On the Closing Date relating to the Series 1995-D, the Collateral
Agent shall deposit the Initial Spread Account Deposit with respect to Series
1995-D received from the Seller into the Series 1995-D Spread Account.
Section 3.2 SPREAD ACCOUNT ADDITIONAL DEPOSITS. On each Subsequent
Transfer Date, the Series 1995-D Trust will, pursuant to Section 2.4 of the
Series 1995-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 1995-D Trust into the
Series 1995-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 1995-D Supplement or to confirm or perfect any transaction
described or contemplated herein.
Section 4.2 GOVERNING LAW. This Series 1995-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.
Section 4.3 COUNTERPARTS. This Series 1995-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.
8
<PAGE>
Section 4.4 HEADINGS. The headings of sections and paragraphs and the
Table of Contents contained in this Series 1995-D Supplement are provided for
convenience only. They form no part of this Series 1995-D Supplement and shall
not affect its construction or interpretation.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Series 1995-D
Supplement as of the date set forth on the first page hereof.
OLYMPIC FINANCIAL LTD.
By /s/ John A. Witham
-----------------------------------
Name: John A. Witham
Title: Senior Vice President and
Chief Financial officer
OLYMPIC 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/ Thomas J. MCormick
-----------------------------------
Name: Thomas J. MCormick
Title: Authorized Officer
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By /s/ William C. Schmoker
-----------------------------------
Name: William C. Schmoker
Title: Corporate Trust Officer
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Collateral Agent
By /s/ William C. Schmoker
-----------------------------------
Name: William C. Schmoker
Title: Corporate Trust Officer
<PAGE>
AMENDMENT
dated as of September 21, 1995
among
OLYMPIC FINANCIAL LTD.
OLYMPIC RECEIVABLES FINANCE CORP.
FINANCIAL SECURITY ASSURANCE INC.
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Collateral Agent
to
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
Series 1994-A Supplement dated as of April 5, 1994
Series 1993-D Supplement dated as of December 2, 1994
Series 1993-C Supplement dated as of August 17, 1993
Series 1993-B Supplement dated as of June 11, 1993,
as amended and restated as of December 2, 1994
to
Spread Account Agreement
dated as of March 24,1993
as amended and restated as of September 21, 1995
<PAGE>
Amendment, dated as of September 21, 1995, among OLYMPIC FINANCIAL LTD.,
a Minnesota corporation ("OFL"), 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 Series 1995-C
Supplement dated as of June 15, 1995 (the "Series 1995-C Supplement"), Series
1995-B Supplement dated as of March 15, 1995 (the "Series 1995-B Supplement"),
Series 1995-A Supplement dated as of February 9, 1995 (the "Series 1995-A
Supplement"), Series 1994-B Supplement dated as of September 23, 1994 (the
"Series 1994-B Supplement"), Series 1994-A Supplement dated as of April 5,
1994 (the "Series 1994-A Supplement"), Series 1993-D Supplement dated as of
December 2, 1994 (the "Series 1993-D Supplement"), Series 1993-C Supplement
dated as of August 17, 1993 (the "Series 1993-C Supplement") and the Series
1993-B Supplement dated as of June 11, 1993, as amended and restated as of
December 2, 1994 (the "Series 1993-B Supplement") (collectively, the "Series
Supplements") to the Spread Account Agreement, dated as of March 25, 1993, as
amended and restated as of September 21, 1995, among OFL, 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, 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 CERTAIN TERMS OF THE SERIES SUPPLEMENTS.
(a) The definition of "Trigger Event" in the Series 1995-C Series
Supplement is amended to read in its entirety as follows:
"TRIGGER EVENT" means, with respect to Series 1995-C and as of a
Determination Date the occurrence of any of the following events:
<PAGE>
i) the Delinquency Ratio for such Determination Date shall be equal to or
greater than 5%;
ii) the Average Delinquency Ratio for such Determination Date shall be
equal to or greater than 3%;
iii) the Average Default Rate shall be equal to or greater than (A) 4.5%,
with respect to any Determination Date occurring on or prior to the
nine month anniversary of the Series 1995-C Closing Date, (B) 5.75%,
with respect to any Determination Date occurring after the nine month
anniversary, and on or prior to the 18 month anniversary, of the
Series 1995-C Closing Date, or (C) 4.5%, with respect to each
Determination Date thereafter; or
iv) the Average Net Loss shall be equal to or greater than (A) 2%, with
respect to any Determination Date occurring on or prior to the nine
month anniversary of the Series 1995-C Closing Date, (B) 2.5%, with
respect to any Determination Date occurring after the nine month
anniversary, and on or prior to the 18 month anniversary, of the
Series 1995-C Closing Date, or (C) 2%, with respect to each
Determination date thereafter.
(b) The definition of "Trigger Event" in the Series 1995-B Series
Supplement is amended to read in its entirety as follows:
"TRIGGER EVENT" means, with respect to Series 1995-B and as of a
Determination Date the occurrence of any of the following events:
i) the Delinquency Ratio for such Determination Date shall be equal to or
greater than 5%;
ii) the Average Delinquency Ratio for such Determination Date shall be
equal to or greater than 3%;
iii) the Average Default Rate shall be equal to or greater than (A) 4.5%,
with respect to any Determination Date occurring on or prior to the
nine month anniversary of the Series 1995-B Closing Date, (B) 5.75%,
with respect to any Determination Date occurring after the nine month
anniversary, and on or prior to the 18 month anniversary, of the
Series 1995-B Closing Date, or (C) 4.5%, with respect to each
Determination Date thereafter; or
2
<PAGE>
iv) the Average Net Loss shall be equal to or greater than (A) 2%, with
respect to any Determination Date occurring on or prior to the nine
month anniversary of the Series 1995-B Closing Date, (B) 2.5%, with
respect to any Determination Date occurring after the nine month
anniversary, and on or prior to the 18 month anniversary, of the
Series 1995-B Closing Date, or (C) 2%, with respect to each
Determination date thereafter.
(c) The definition of "Trigger Event" in the Series 1995-A Series
Supplement is amended to read in its entirety as follows:
"TRIGGER EVENT" means, with respect to Series 1995-A and as of a
Determination Date the occurrence of any of the following events:
i) the Delinquency Ratio for such Determination Date shall be equal to or
greater than 5%;
ii) the Average Delinquency Ratio for such Determination Date shall be
equal to or greater than 3%;
iii) the Average Default Rate shall be equal to or greater than (A) 4.5%,
with respect to any Determination Date occurring on or prior to the
nine month anniversary of the Series 1995-A Closing Date, (B) 5.75%,
with respect to any Determination Date occurring after the nine month
anniversary, and on or prior to the 18 month anniversary, of the
Series 1995-A Closing Date, or (C) 4.5%, with respect to each
Determination Date thereafter; or
iv) the Average Net Loss shall be equal to or greater than (A) 2%, with
respect to any Determination Date occurring on or prior to the nine
month anniversary of the Series 1995-A Closing Date, (B) 2.5%, with
respect to any Determination Date occurring after the nine month
anniversary, and on or prior to the 18 month anniversary, of the
Series 1995-A Closing Date, or (C) 2%, with respect to each
Determination date thereafter.
(d) The definition of "Trigger Event" in the Series 1994-B Series
Supplement is amended to read in its entirety as follows:
"TRIGGER EVENT" means, with respect to Series 1994-B and as of a
Determination Date the occurrence of any of the following events:
i) the Delinquency Ratio for such Determination Date shall be equal to or
greater than 5%;
3
<PAGE>
ii) the Average Delinquency Ratio for such Determination Date shall be
equal to or greater than 3%;
iii) the Average Default Rate shall be equal to or greater than (A) 4.5%,
with respect to any Determination Date occurring on or prior to the
nine month anniversary of the Series 1994-B Closing Date, (B) 5.75%,
with respect to any Determination Date occurring after the nine month
anniversary, and on or prior to the 18 month anniversary, of the
Series 1994-B Closing Date, or (C) 4.5%, with respect to each
Determination Date thereafter; or
iv) the Average Net Loss shall be equal to or greater than (A) 2%, with
respect to any Determination Date occurring on or prior to the nine
month anniversary of the Series 1994-B Closing Date, (B) 2.5%, with
respect to any Determination Date occurring after the nine month
anniversary, and on or prior to the 18 month anniversary, of the
Series 1994-B Closing Date, or (C) 2%, with respect to each
Determination date thereafter.
(e) The definition of "Trigger Event" in the Series 1994-A Series
Supplement is amended to read in its entirety as follows:
"TRIGGER EVENT" means, with respect to Series 1994-A and as of a
Determination Date the occurrence of any of the following events:
i) the Delinquency Ratio for such Determination Date shall be equal to or
greater than 5%;
ii) the Average Delinquency Ratio for such Determination Date shall be
equal to or greater than 3%;
iii) the Average Default Rate shall be equal to or greater than (A) 4.5%,
with respect to any Determination Date occurring on or prior to the
nine month anniversary of the Series 1994-A Closing Date, (B) 5.75%,
with respect to any Determination Date occurring after the nine month
anniversary, and on or prior to the 18 month anniversary, of the
Series 1994-A Closing Date, or (C) 4.5%, with respect to each
Determination Date thereafter; or
iv) the Average Net Loss shall be equal to or greater than (A) 2%, with
respect to any Determination Date occurring on or prior to the nine
month anniversary of the Series 1994-A Closing Date, (B) 2.5%, with
respect to any Determination Date occurring after the nine month
4
<PAGE>
anniversary, and on or prior to the 18 month anniversary, of the
Series 1994-A Closing Date, or (C) 2%, with respect to each
Determination date thereafter.
(f) The definition of "Trigger Event" in the Series 1993-D Series
Supplement is amended to read in its entirety as follows:
"TRIGGER EVENT" means, with respect to Series 1993-D and as of a
Determination Date the occurrence of any of the following events:
i) the Delinquency Ratio for such Determination Date shall be equal to or
greater than 5%;
ii) the Average Delinquency Ratio for such Determination Date shall be
equal to or greater than 3%;
iii) the Average Default Rate shall be equal to or greater than (A) 4.5%,
with respect to any Determination Date occurring on or prior to the
nine month anniversary of the Series 1993-D Closing Date, (B) 5.75%,
with respect to any Determination Date occurring after the nine month
anniversary, and on or prior to the 18 month anniversary, of the
Series 1993-D Closing Date, or (C) 4.5%, with respect to each
Determination Date thereafter; or
iv) the Average Net Loss shall be equal to or greater than (A) 2%, with
respect to any Determination Date occurring on or prior to the nine
month anniversary of the Series 1993-D Closing Date, (B) 2.5%, with
respect to any Determination Date occurring after the nine month
anniversary, and on or prior to the 18 month anniversary, of the
Series 1993-D Closing Date, or (C) 2%, with respect to each
Determination date thereafter.
(g) The definition of "Trigger Event" in the Series 1993-C Series
Supplement is amended to read in its entirety as follows:
"TRIGGER EVENT" means, with respect to Series 1993-C and as of a
Determination Date the occurrence of any of the following events:
i) the Delinquency Ratio for such Determination Date shall be equal to or
greater than 5%;
ii) the Average Delinquency Ratio for such Determination Date shall be
equal to or greater than 3%;
5
<PAGE>
iii) the Average Default Rate shall be equal to or greater than (A)
4.5%, with respect to any Determination Date occurring on or prior
to the nine month anniversary of the Series 1993-C Closing Date,
(B) 5.75%, with respect to any Determination Date occurring after
the nine month anniversary, and on or prior to the 18 month
anniversary, of the Series 1993-C Closing Date, or (C) 4.5%, with
respect to each Determination Date thereafter; or
iv) the Average Net Loss shall be equal to or greater than (A) 2%, with
respect to any Determination Date occurring on or prior to the nine
month anniversary of the Series 1993-C Closing Date, (B) 2.5%, with
respect to any Determination Date occurring after the nine month
anniversary, and on or prior to the 18 month anniversary, of the
Series 1993-C Closing Date, or (C) 2%, with respect to each
Determination date thereafter.
(h) The definition of "Trigger Event" in the Series 1993-B Series
Supplement is amended to read in its entirety as follows:
"TRIGGER EVENT" means, with respect to Series 1993-B and as of a
Determination Date the occurrence of any of the following events:
i) the Delinquency Ratio for such Determination Date shall be equal to or
greater than 5%;
ii) the Average Delinquency Ratio for such Determination Date shall be
equal to or greater than 3%;
iii) the Average Default Rate shall be equal to or greater than (A) 4.5%,
with respect to any Determination Date occurring on or prior to the
nine month anniversary of the Series 1993-B Closing Date, (B) 5.75%,
with respect to any Determination Date occurring after the nine month
anniversary, and on or prior to the 18 month anniversary, of the
Series 1993-B Closing Date, or (C) 4.5%, with respect to each
Determination Date thereafter; or
iv) the Average Net Loss shall be equal to or greater than (A) 2%, with
respect to any Determination Date occurring on or prior to the nine
month anniversary of the Series 1993-B Closing Date, (B) 2.5%, with
respect to any Determination Date occurring after the nine month
anniversary, and on or prior to the 18 month anniversary, of the
Series 1993-B Closing Date, or (C) 2%, with respect to each
Determination date thereafter.
6
<PAGE>
Section 3. 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 4. 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. As amended hereby, the Spread Account Agreement, including
each Series Supplement, is ratified and confirmed in all respects.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Series Supplements as of the date set forth on the first page hereof.
OLYMPIC FINANCIAL LTD.
By /s/ John A. Witham
-------------------------------
Name: John A. Witham
Title: Senior Vice President and
Chief Financial Officer
OLYMPIC 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/ Thomas J. MCormick
-------------------------------
Name: Thomas J. MCormick
Title: Authorized Officer
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Collateral Agent
By /s/ Robert N. Guimont
-------------------------------
Name: Robert N. Guimont
Title: Assistant Vice President
8
<PAGE>
It is hereby acknowledged that the Parties are effecting this Amendment and
hereby confirmed that the respective ratings of rated securities with respect
to Series 1995-C, Series 1995-B, Series 1995-A, Series 1994-B, Series 1994-A,
Series 1993-D, Series 1993-C and Series 1993-B will not be reduced or
withdrawn as a result of the effectiveness of this Amendment and the ratings
of rated securities with respect to Series 1993-A will not be reduced or
withdrawn as a result of the effectiveness of the Amended and Restated Spread
Account Agreement dated as of even date hereof.
STANDARD AND POOR'S RATINGS GROUP
By: /s/ Mark Golombeck
--------------------------------
Name: Mark Golombeck
Title: Rating Analyst
<PAGE>
SPREAD ACCOUNT AGREEMENT
dated as of March 25, 1993,
as amended and restated
as of June 23, 1998
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
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.02. Rules of Interpretation. . . . . . . . . . . . . . . . . . . . 15
ARTICLE II CREDIT ENHANCEMENT FEE; SERIES SUPPLEMENTS; THE COLLATERAL. . . . . . . 15
Section 2.01. Series 1993-A Credit Enhancement Fee.. . . . . . . . . . . . . 15
Section 2.02. Series Supplements.. . . . . . . . . . . . . . . . . . . . . . 15
Section 2.03. Grant of Security Interest by OFL and the Seller . . . . . . . 16
Section 2.04. Priority.. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.05. Seller and OFL Remain Liable.. . . . . . . . . . . . . . . . . 17
Section 2.06. Maintenance of Collateral. . . . . . . . . . . . . . . . . . . 17
Section 2.07. Termination and Release of Rights. . . . . . . . . . . . . . . 18
Section 2.08. Non-Recourse Obligations of Seller.. . . . . . . . . . . . . . 19
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. . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.02. Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.03. Distributions: Priority of Payments. . . . . . . . . . . . . . 24
Section 3.04. General Provisions Regarding Spread Accounts.. . . . . . . . . 28
Section 3.05. Reports by the Collateral Agent. . . . . . . . . . . . . . . . 29
ARTICLE IV THE COLLATERAL AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.01. Appointment and Powers.. . . . . . . . . . . . . . . . . . . . 30
Section 4.02. Performance of Duties. . . . . . . . . . . . . . . . . . . . . 30
Section 4.03. Limitation on Liability. . . . . . . . . . . . . . . . . . . . 30
Section 4.04. Reliance upon Documents. . . . . . . . . . . . . . . . . . . . 31
Section 4.05. Successor Collateral Agent.. . . . . . . . . . . . . . . . . . 31
Section 4.06. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 33
Section 4.07. Compensation and Reimbursement.. . . . . . . . . . . . . . . . 33
Section 4.08. Representations and Warranties of the Collateral Agent.. . . . 34
Section 4.09. Waiver of Setoffs. . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.10. Control by the Controlling Party.. . . . . . . . . . . . . . . 34
ARTICLE V COVENANTS OF THE SELLER. . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.01. Preservation of Collateral.. . . . . . . . . . . . . . . . . . 35
Section 5.02. Opinions as to Collateral. . . . . . . . . . . . . . . . . . . 35
<PAGE>
Section 5.03. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.04. Waiver of Stay or Extension Laws; Marshalling of Assets. . . . 36
Section 5.05. Noninterference, etc.. . . . . . . . . . . . . . . . . . . . . 36
Section 5.06. Seller Changes.. . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VI CONTROLLING PARTY; INTERCREDITOR PROVISIONS . . . . . . . . . . . . . . 37
Section 6.01. Appointment of Controlling Party.. . . . . . . . . . . . . . . 37
Section 6.02. Controlling Party's Authority. . . . . . . . . . . . . . . . . 37
Section 6.03. Rights of Secured Parties. . . . . . . . . . . . . . . . . . . 39
Section 6.04. Degree of Care.. . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VII REMEDIES UPON DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.01. Remedies upon a Default. . . . . . . . . . . . . . . . . . . . 40
Section 7.02. Waiver of Default. . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.03. Restoration of Rights and Remedies.. . . . . . . . . . . . . . 40
Section 7.04. No Remedy Exclusive. . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.01. Further Assurances.. . . . . . . . . . . . . . . . . . . . . . 41
Section 8.02. Waiver.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.03. Amendments; Waivers. . . . . . . . . . . . . . . . . . . . . . 41
Section 8.04. Severability.. . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.05. Nonpetition Covenant.. . . . . . . . . . . . . . . . . . . . . 42
Section 8.06. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.07. Term of this Agreement.. . . . . . . . . . . . . . . . . . . . 44
Section 8.08. Assignments: Third-Party Rights; Reinsurance. . . . . . . . . 44
Section 8.09. Consent of Controlling Party.. . . . . . . . . . . . . . . . . 45
Section 8.10. Trial by Jury Waived.. . . . . . . . . . . . . . . . . . . . . 45
Section 8.11. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.12. Consents to Jurisdiction.. . . . . . . . . . . . . . . . . . . 45
Section 8.13. Limitation of Liability. . . . . . . . . . . . . . . . . . . . 46
Section 8.14. Determination of Adverse Effect. . . . . . . . . . . . . . . . 46
Section 8.15. Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.16. Headings.. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
ii
<PAGE>
SPREAD ACCOUNT AGREEMENT, dated as of March 25, 1993, as amended and restated as
of June 23, 1998 (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 ("Norwest"), 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 those Series specified in the
related Series Supplement (as defined below), THE CHASE MANHATTAN BANK
("Chase"), as Trustee under each Indenture with respect to those 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 (Norwest or Chase, as Trustee as indicated in the related Sales
and Servicing Agreement or the related Series Supplement, as the case may be,
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,
<PAGE>
and in consideration of the receipt of the Credit Enhancement Fee, OFL and the
Seller agreed to 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
2
<PAGE>
defined in the related Servicing Agreement and Repurchase Agreement shall
have the same 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 Arcadia Financial
(f/k/a Olympic Financial Ltd.) and Norwest Bank Minnesota, National Association,
as amended or supplemented (including that First Supplemental Indenture dated as
of March 12, 1997 and that Second Supplemental Indenture dated as of October 8,
1997), relating to $375,000,000 principal amount of Arcadia Financial's
currently outstanding 11 1/2% 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(d), 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.
3
<PAGE>
"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.
"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) with respect to Series
1994-A, Series 1994-B, Series 1994-C, Series 1994-D, Series 1995-A, Series
1995-B, Series 1995-C, Series 1995-D, Series 1996-A, Series 1996-B, Series
1996-C, Series 1996-D, Series 1997-A, Series 1997-B, Series 1997-C, Series
1997-D and Series 1998-A, 40%, and with respect to any other Series (other than
the Warehousing Series), 50%, 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 the occurrence of the events specified in
clause (A)(i) or (ii) of the definition of Trigger Event, as of a Determination
Date that no such event specified in clause (A)(i) or clause (A)(ii) with
respect to such Series shall have occurred as of such Determination Date or as
of any of the two consecutively preceding Determination Dates, and (b) with
respect to the occurrence of the events specified in 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 event specified in clause (A)(iii) or clause (A)(iv)
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
4
<PAGE>
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 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
5
<PAGE>
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 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
6
<PAGE>
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 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
7
<PAGE>
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.
"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
8
<PAGE>
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.
"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 Arcadia Financial Ltd., a Minnesota corporation
(formerly known as Olympic Financial Ltd.).
"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.
9
<PAGE>
"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 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
10
<PAGE>
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 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 RECOURSE MAXIMUM ADJUSTMENT AMOUNT" means, with
respect to a Distribution Date and any Spread Account in which amounts on
deposit include a Spread Account Recourse Reduction Amount, the maximum amount
by which such Spread Account Recourse Reduction Amount is permitted to decrease,
as reported to the Collateral Agent in the Servicer's Certificate delivered with
respect to the related Determination Date, so long as Financial Security does
not deliver a written objection to such amount prior to such Distribution Date.
"SPREAD ACCOUNT RECOURSE REDUCTION AMOUNT" means, with respect to
a Spread Account and Distribution Date, the specified amount deemed to be on
deposit in such Spread Account which is not cash, which amount is specified in
the Servicer's Certificate delivered with
11
<PAGE>
respect to the related Determination Date, so long as Financial Security does
not deliver a written objection to such amount prior to such Distribution Date,
and which amount shall be treated fungibly with all other amounts on deposit in
such Spread Account, EXCEPT that such amount shall not be treated as a deposit
in the related Tag Account, and EXCEPT FURTHER, as provided in Section 3.03(b)
and 3.04(e).
"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 to 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 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
12
<PAGE>
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) 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)
13
<PAGE>
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.
"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.
14
<PAGE>
"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 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
15
<PAGE>
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 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
16
<PAGE>
(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.
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
17
<PAGE>
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 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
18
<PAGE>
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 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.
19
<PAGE>
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, 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 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
20
<PAGE>
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 from the calculation of the amount on deposit in such Spread
Account 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 moneys. Amounts on deposit in a Spread
Account and released from the Lien of this Agreement pursuant to Section 3.03(b)
shall, at the direction of the Seller, be deposited into either the Program
Spread Account or 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 to amounts on deposit in the
related Tag Account, if any, created with respect to such Series.
ARTICLE III
SPREAD ACCOUNTS
21
<PAGE>
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), 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
22
<PAGE>
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.
(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:
23
<PAGE>
(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.
(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
24
<PAGE>
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
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
25
<PAGE>
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 (subject, in the case of withdrawals from a Spread Account
containing Spread Account Recourse Reduction Amounts, to Section 3.04(e)(i));
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 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 cash 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, (subject, in the case of withdrawals from a Spread Account
containing Spread Account Recourse Reduction Amounts, to Section 3.04(e));
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) and only from cash amounts and not from amounts representing a Spread
Account Recourse Reduction Amount), 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;
26
<PAGE>
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) and only from cash
amounts and not from amounts representing a Spread Account Recourse Reduction
Amount), 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 (but only from cash amounts and not from amounts
representing a Spread Account Recourse Reduction Amount), 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 (but only from cash amounts and not from amounts representing a Spread
Account Recourse Reduction Amount), 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 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) and only from cash amounts
and not from amounts representing a Spread Account Recourse Reduction Amount),
to the Trustee for the Warehousing Series for deposit in the Warehousing Series
Collection Account; and
EIGHTH, to the extent there are 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, such amount shall be
27
<PAGE>
distributed in the following order of priority: FIRST, for deposit into each
Spread Account containing Spread Account Recourse Reduction Amounts, an amount
up to the related Spread Account Recourse Maximum Adjustment Amount, if any, PRO
RATA on the basis of the respective Spread Account Recourse Reduction Amounts,
and SECOND, any remaining funds 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 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.
28
<PAGE>
(e) A Spread Account Recourse Reduction Amount with respect to a
Spread Account shall be treated fungibly with all other amounts on deposit in
such Spread Account, EXCEPT THAT:
(i) if with respect to any Series, there exists a Collection Account
Shortfall and cash amounts available pursuant to priority FIRST of
Section 3.03(b) are not sufficient to satisfy such Collection Account
Shortfall, the Collateral Agent shall next withdraw cash amounts
available pursuant to priority SECOND of Section 3.03(b) up to the
amount of any remaining Collection Account Shortfall; if such amounts
are not sufficient to satisfy such Collection Account Shortfall,
Spread Account Recourse Reduction Amounts, if any, shall be deemed to
be made available pursuant to priority FIRST of Section 3.03(b) up to
the amount of any remaining Collection Account Shortfalls, and if such
amounts are not sufficient to satisfy such Collection Account
Shortfall, all other Spread Account Recourse Reduction Amounts, if
any, shall be deemed to be made available pursuant to priority SECOND
of Section 3.03(b);
(ii) if amounts are to be made available from two or more Spread Accounts
pursuant to priority SECOND of Section 3.03(b), such amounts shall,
FIRST, be withdrawn PRO RATA from cash amounts on deposit therein and,
if such amounts are exhausted, SECOND, shall be deemed to be made
available PRO RATA from Spread Account Recourse Reduction Amounts, if
any (after taking into account amounts deemed to be made available
from Spread Account Recourse Reduction Amounts pursuant to clause (i)
above);
(iii) if amounts are to be made available from a Spread Account pursuant to
priority FIRST or SECOND of Section 3.03(b) and any portion or all of
such amounts represent Spread Account Recourse Reduction Amounts, the
Collateral Agent shall notify the Trustee with respect to the Series
receiving the benefit of such Spread Account Recourse Reduction
Amounts of the amount so to be made available which is represented by
Spread Account Recourse Reduction Amounts;
(iv) if amounts are to be made available from a Spread Account pursuant to
priority THIRD, FOURTH, FIFTH, SIXTH, SEVENTH or EIGHTH of Section
3.03(b), such amounts shall be withdrawn pro rata from cash amounts on
deposit therein and not from Spread Account Recourse Reduction
Amounts;
(v) any Spread Account Withdrawal Floor requirement for any Series must be
satisfied with cash amounts in the related Spread Account and not with
amounts representing a Spread Account Recourse Reduction Amount; and
(vi) all references to investments in Eligible Investments in this
Agreement shall apply only to cash amounts in the respective Spread
Accounts and not to amounts representing a Spread Account Recourse
Reduction Amount.
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
29
<PAGE>
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.
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
30
<PAGE>
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 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
31
<PAGE>
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.
(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,
32
<PAGE>
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 protct 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 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
33
<PAGE>
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 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.
34
<PAGE>
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.
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.
35
<PAGE>
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
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
36
<PAGE>
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 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
37
<PAGE>
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.
(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;
38
<PAGE>
(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 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
39
<PAGE>
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.
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
40
<PAGE>
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 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,
41
<PAGE>
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:
Arcadia Financial Ltd.
7825 Washington Avenue South, Suite 410
Minneapolis, Minnesota 55439-2435
Attention: Treasurer
Telecopier No.: (612) 942-6730
(ii) If to the Seller:
Arcadia Receivables Finance Corp.
7825 Washington Avenue South, Suite 410
42
<PAGE>
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)
(v) If to the Collateral Agent:
Norwest Bank Minnesota, National Association
6th Street and Marquette Avenue
Minneapolis, Minnesota 55479-0070
43
<PAGE>
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
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
44
<PAGE>
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 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
45
<PAGE>
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 othr 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.
46
<PAGE>
EXECUTION COPY
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:
------------------------------------------
Name: John A. Witham
Title: Executive Vice President and Chief
Financial Officer
ARCADIA RECEIVABLES FINANCE CORP.
By:
------------------------------------------
Name: John A. Witham
Title: Senior Vice President and Chief
Financial Officer
FINANCIAL SECURITY ASSURANCE INC.
By:
------------------------------------------
Authorized Officer
THE CHASE MANHATTAN BANK, as Trustee
By:
------------------------------------------
Name:
Title:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as
Trustee
By:
------------------------------------------
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as
Collateral Agent
By:
------------------------------------------
<PAGE>
EXECUTION COPY
SPREAD ACCOUNT AGREEMENT
dated as of March 25, 1993,
as amended and restated
as of November 19, 1998
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
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C> <C>
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.02. Rules of Interpretation . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE II
CREDIT ENHANCEMENT FEE; SERIES SUPPLEMENTS; THE COLLATERAL
Section 2.01. Series 1993-A Credit Enhancement Fee. . . . . . . . . . . . . . . . 16
Section 2.02. Series Supplements. . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.03. Grant of Security Interest by Arcadia Financial and the
Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.04. Priority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.05. Seller and Arcadia Financial Remain Liable. . . . . . . . . . . . . 18
Section 2.06. Maintenance of Collateral.. . . . . . . . . . . . . . . . . . . . . 18
Section 2.07. Termination and Release of Rights.. . . . . . . . . . . . . . . . . 19
Section 2.08. Non-Recourse Obligations of Seller. . . . . . . . . . . . . . . . . 19
Section 2.09. Program Spread Account and Tag Accounts . . . . . . . . . . . . . . 20
ARTICLE III
SPREAD ACCOUNTS
Section 3.01. Establishment of Spread Accounts; Initial Deposits into
Spread Accounts.. . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.02. Investments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.03. Distributions: Priority of Payments.. . . . . . . . . . . . . . . . 25
Section 3.04. General Provisions Regarding Spread Accounts. . . . . . . . . . . . 29
Section 3.05. Reports by the Collateral Agent . . . . . . . . . . . . . . . . . . 31
ARTICLE IV
THE COLLATERAL AGENT
Section 4.01. Appointment and Powers. . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.02. Performance of Duties . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.03. Limitation on Liability . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.04. Reliance upon Documents . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.05. Successor Collateral Agent. . . . . . . . . . . . . . . . . . . . . 33
Section 4.06. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.07. Compensation and Reimbursement. . . . . . . . . . . . . . . . . . . 35
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Section 4.08. Representations and Warranties of the Collateral Agent. . . . . . . 35
Section 4.09. Waiver of Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.10. Control by the Controlling Party. . . . . . . . . . . . . . . . . . 36
ARTICLE V
COVENANTS OF THE SELLER
Section 5.01. Preservation of Collateral. . . . . . . . . . . . . . . . . . . . . 36
Section 5.02. Opinions as to Collateral . . . . . . . . . . . . . . . . . . . . . 36
Section 5.03. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.04. Waiver of Stay or Extension Laws; Marshalling of Assets . . . . . . 37
Section 5.05. Noninterference, etc. . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.06. Seller Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VI
CONTROLLING PARTY; INTERCREDITOR PROVISIONS
Section 6.01. Appointment of Controlling Party. . . . . . . . . . . . . . . . . . 38
Section 6.02. Controlling Party's Authority.. . . . . . . . . . . . . . . . . . . 39
Section 6.03. Rights of Secured Parties . . . . . . . . . . . . . . . . . . . . . 40
Section 6.04. Degree of Care. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE VII
REMEDIES UPON DEFAULT
Section 7.01. Remedies upon a Default . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.02. Waiver of Default . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.03. Restoration of Rights and Remedies. . . . . . . . . . . . . . . . . 42
Section 7.04. No Remedy Exclusive . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.02. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 8.03. Amendments; Waivers . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 8.04. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 8.05. Nonpetition Covenant. . . . . . . . . . . . . . . . . . . . . . . . 43
Section 8.06. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.07. Term of this Agreement. . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.08. Assignments: Third-Party Rights; Reinsurance.. . . . . . . . . . . 46
Section 8.09. Consent of Controlling Party. . . . . . . . . . . . . . . . . . . . 46
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
Section 8.10. Trial by Jury Waived. . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.12. Consents to Jurisdiction. . . . . . . . . . . . . . . . . . . . . . 47
Section 8.13. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.14. Determination of Adverse Effect . . . . . . . . . . . . . . . . . . 48
Section 8.15. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.16. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
iii
<PAGE>
SPREAD ACCOUNT AGREEMENT, dated as of March 25, 1993, as amended and restated
as of July 21, 1998 (the "Agreement"), by and among ARCADIA FINANCIAL LTD.
(f/k/a Olympic 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
("Norwest"), 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 those Series specified in the related Series
Supplement (as defined below), THE CHASE MANHATTAN BANK ("Chase"), as Trustee
under each Indenture with respect to those 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
(Norwest or Chase, as Trustee as indicated in the related Sales and Servicing
Agreement or the related Series Supplement, as the case may be, 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 Arcadia Financial, 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 Arcadia Financial. 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 Arcadia Financial pursuant
hereto and in consideration of the obligations of Arcadia Financial 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.
<PAGE>
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, Arcadia Financial and the Seller
agreed to 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 Amended and Restated Sale
and Servicing Agreement dated as of July 21, 1998 with Arcadia Automobile
Receivables Warehouse Trust., a Delaware business trust (the "Issuer"),
Arcadia Receivables Conduit Corp. (the "Original Issuer"), Arcadia Financial,
Bank of America National Trust and Savings Association, as Administrative
Agent and RCC Agent, Morgan Guaranty Trust Company of New York, as DFC Agent
and Norwest Bank Minnesota, National Association, as Backup Servicer,
Collateral Agent and Indenture Trustee (the "Warehousing Series Sale and
Servicing 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 Amended and Restated Indenture among the Original Issuer, 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,
2
<PAGE>
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 Warehousing Series
Sale and Servicing Agreement, all terms defined in the Warehousing Series
Sale and Servicing Agreement shall have the same 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 Arcadia Financial, 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 Arcadia
Financial and Norwest Bank Minnesota, National Association, as amended or
supplemented (including that First Supplemental Indenture dated as of March
12, 1997 and that Second Supplemental Indenture dated as of October 8, 1997),
relating to $375,000,000 principal amount of Arcadia Financial's currently
outstanding 11 1/2% 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(d), 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.
3
<PAGE>
"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.
"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) with respect to
Series 1994-A, Series 1994-B, Series 1994-C, Series 1994-D, Series 1995-A,
Series 1995-B, Series 1995-C, Series 1995-D, Series 1996-A, Series 1996-B,
Series 1996-C, Series 1996-D, Series 1997-A, Series 1997-B, Series 1997-C,
Series 1997-D and Series 1998-A, 40%, and with respect to any other Series
(other than the Warehousing Series), 50%, 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
4
<PAGE>
Account for which "Deemed Cured" is not defined in the related Series
Supplement, (a) with respect to the occurrence of the events specified in
clause (A)(i) or (ii) of the definition of Trigger Event, as of a
Determination Date that no such event specified in clause (A)(i) or clause
(A)(ii) with respect to such Series shall have occurred as of such
Determination Date or as of any of the two consecutively preceding
Determination Dates, and (b) with respect to the occurrence of the events
specified in 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 event
specified in clause (A)(iii) or clause (A)(iv) 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 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
5
<PAGE>
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 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
6
<PAGE>
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 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
7
<PAGE>
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,
Arcadia Financial and such other parties as may be named therein.
"INSURER SECURED OBLIGATIONS" means, with respect to a Series,
all amounts and obligations which Arcadia Financial, 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 Automobile Receivables Warehouse Trust.,
a Delaware business trust.
8
<PAGE>
"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.
"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.
"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.
9
<PAGE>
"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 Arcadia
Financial, in its individual capacity and as 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.
10
<PAGE>
"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 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
11
<PAGE>
(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 RECOURSE MAXIMUM ADJUSTMENT AMOUNT" means, with
respect to a Distribution Date and any Spread Account in which amounts on
deposit include a Spread Account Recourse Reduction Amount, the maximum
amount by which such Spread Account Recourse Reduction Amount is permitted to
decrease, as reported to the Collateral Agent in the Servicer's Certificate
delivered with respect to the related Determination Date, so long as
Financial Security does not deliver a written objection to such amount prior
to such Distribution Date.
"SPREAD ACCOUNT RECOURSE REDUCTION AMOUNT" means, with respect
to a Spread Account and Distribution Date, the specified amount deemed to be
on deposit in such Spread Account which is not cash, which amount is
specified in the Servicer's Certificate delivered with respect to the related
Determination Date, so long as Financial Security does not deliver a written
objection to such amount prior to such Distribution Date, and which amount
shall be treated fungibly with all other amounts on deposit in such Spread
Account, EXCEPT that such amount shall not be treated as a deposit in the
related Tag Account, and EXCEPT FURTHER, as provided in Section 3.03(b) and
3.04(e).
"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 to 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 Arcadia
Financial, 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 Warehousing Series Sale and
Servicing Agreement, Indenture and Security Agreement, as applicable, the
Insurance Agreement, the Custodian Agreement, the Purchase Agreement, any
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):
12
<PAGE>
(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
13
<PAGE>
succeeding the Series 1993-A Closing Date,
(B) 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
14
<PAGE>
the Seller Conveyed Property (as defined in the Warehousing Series Sale and
Servicing 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.
"TRUSTEE SECURED OBLIGATIONS" means, with respect to a Series,
all amounts and obligations which Arcadia Financial 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 Arcadia
Financial, 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.
15
<PAGE>
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 Arcadia Financial
hereby agree that payment of the Series 1993-A Credit Enhancement Fee in the
manner and subject to the 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 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) and
pursuant to the Series 1993-A Insurance Agreement. The Seller and Arcadia
Financial 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 Warehousing
Series Sale and Servicing 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
16
<PAGE>
(iii) Pursuant to the related Series Supplement any and all
right, title and interest of the Seller, Arcadia Financial 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 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 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 Arcadia Financial, 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 Arcadia Financial 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
17
<PAGE>
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.
Section 2.05. SELLER AND ARCADIA FINANCIAL 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 Arcadia
Financial from, any obligation to perform or satisfy, any term, covenant,
condition or agreement to be performed or satisfied by the Seller or Arcadia
Financial 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
18
<PAGE>
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 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
19
<PAGE>
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 Arcadia
Financial to the Seller, or of any deferred portion of the purchase price
payable by the Seller to Arcadia Financial 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 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
20
<PAGE>
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, 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 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, Arcadia
Financial, 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
21
<PAGE>
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 from the calculation of the amount
on deposit in such Spread Account 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 moneys. Amounts on deposit
in a Spread Account and released from the Lien of this Agreement pursuant to
Section 3.03(b) shall, at the direction of the Seller, be deposited into
either the Program Spread Account or 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 to 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
22
<PAGE>
"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), 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, Arcadia Financial,
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.
23
<PAGE>
(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.
(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
24
<PAGE>
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.
(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;
25
<PAGE>
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
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
26
<PAGE>
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 4.6 or Section 4.10 of the Warehousing Series Sale and 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 (subject, in the case of withdrawals from a
Spread Account containing Spread Account Recourse Reduction Amounts, to
Section 3.04(e)(i));
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 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
cash 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
PROVIDED, that such limitation shall not apply with respect to any Spread
Account related to a Series for which the Final Termination Date shall have
occurred), 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, (subject, in the case of
withdrawals from a Spread Account containing Spread Account Recourse
Reduction Amounts, to Section 3.04(e));
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) and only from cash amounts and not from
27
<PAGE>
amounts representing a Spread Account Recourse Reduction Amount), 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, 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) and only from cash amounts and
not from amounts representing a Spread Account Recourse Reduction Amount), 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 (but only
from cash amounts and not from amounts representing a Spread Account Recourse
Reduction Amount), an amount up to the amount so owed, to such Servicer;
SIXTH, if any amounts are owed by Arcadia Financial 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 Arcadia Financial or the
Seller, from amounts on deposit in the related Spread Account (but only from
cash amounts and not from amounts representing a Spread Account Recourse
Reduction Amount), 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 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) and
only from cash amounts and not from amounts representing a Spread Account
Recourse Reduction Amount), to the Trustee for the Warehousing Series for
deposit in the Warehousing Series Collection Account; and
28
<PAGE>
EIGHTH, to the extent there are 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, such amount shall be distributed in the following order
of priority: FIRST, for deposit into each Spread Account containing Spread
Account Recourse Reduction Amounts, an amount up to the related Spread
Account Recourse Maximum Adjustment Amount, if any, PRO RATA on the basis of
the respective Spread Account Recourse Reduction Amounts, and SECOND, any
remaining funds 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 to the Controlling Party and shall establish
29
<PAGE>
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.
(e) A Spread Account Recourse Reduction Amount with respect
to a Spread Account shall be treated fungibly with all other amounts on
deposit in such Spread Account, EXCEPT THAT:
(i) if with respect to any Series, there exists a Collection
Account Shortfall and cash amounts available pursuant to priority FIRST
of Section 3.03(b) are not sufficient to satisfy such Collection Account
Shortfall, the Collateral Agent shall next withdraw cash amounts
available pursuant to priority SECOND of Section 3.03(b) up to the amount
of any remaining Collection Account Shortfall; if such amounts are not
sufficient to satisfy such Collection Account Shortfall, Spread Account
Recourse Reduction Amounts, if any, shall be deemed to be made available
pursuant to priority FIRST of Section 3.03(b) up to the amount of any
remaining Collection Account Shortfalls, and if such amounts are not
sufficient to satisfy such Collection Account Shortfall, all other Spread
Account Recourse Reduction Amounts, if any, shall be deemed to be made
available pursuant to priority SECOND of Section 3.03(b);
(ii) if amounts are to be made available from two or more Spread
Accounts pursuant to priority SECOND of Section 3.03(b), such amounts
shall, FIRST, be withdrawn PRO RATA from cash amounts on deposit therein
and, if such amounts are exhausted, SECOND, shall be deemed to be made
available PRO RATA from Spread Account Recourse Reduction Amounts, if any
(after taking into account amounts deemed to be made available from
Spread Account Recourse Reduction Amounts pursuant to clause (i) above);
(iii) if amounts are to be made available from a Spread Account
pursuant to priority FIRST or SECOND of Section 3.03(b) and any portion
or all of such amounts represent Spread Account Recourse Reduction
Amounts, the Collateral Agent shall notify the Trustee with respect to
the Series receiving the benefit of such Spread Account Recourse
Reduction Amounts of the amount so to be made available which is
represented by Spread Account Recourse Reduction Amounts;
(iv) if amounts are to be made available from a Spread Account
pursuant to priority THIRD, FOURTH, FIFTH, SIXTH, SEVENTH or EIGHTH of
Section 3.03(b), such amounts shall be withdrawn pro rata from cash
amounts on deposit therein and not from Spread Account Recourse Reduction
Amounts;
(v) any Spread Account Withdrawal Floor requirement for any
Series
30
<PAGE>
must be satisfied with cash amounts in the related Spread Account
and not with amounts representing a Spread Account Recourse Reduction
Amount; and
(vi) all references to investments in Eligible Investments in
this Agreement shall apply only to cash amounts in the respective Spread
Accounts and not to amounts representing a Spread Account Recourse
Reduction Amount.
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.
31
<PAGE>
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 Arcadia Financial 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, Arcadia Financial 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 accordane 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.
32
<PAGE>
Section 4.05. SUCCESSOR COLLATERAL AGENT.
(a) MERGER. Any Person into which the Collateral Agent may be
converted or 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
33
<PAGE>
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.
(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
protct 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 Arcadia Financial
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 Arcadia Financial 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
34
<PAGE>
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 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
35
<PAGE>
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 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
36
<PAGE>
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
Arcadia Financial 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 Arcadia Financial for a period, specified in such Opinion,
continuing until a date not earlier than eighteen months from the date of
such Opinion.
Section 5.03. NOTICES. In the event that Arcadia Financial 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.
37
<PAGE>
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 5.02.
(b) RELOCATION OF THE SELLER. Neither Arcadia Financial 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 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.
38
<PAGE>
Section 6.02. CONTROLLING PARTY'S AUTHORITY.
(a) Each of Arcadia Financial 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 Arcadia Financial,
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 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
39
<PAGE>
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.
(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
40
<PAGE>
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 Arcadia Financial 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 Arcadia Financial 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 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
41
<PAGE>
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.
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
42
<PAGE>
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, Arcadia Financial and the Collateral Agent (the consent of which
shall not be withheld or delayed with respect to any amendment that does 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 Arcadia Financial to
43
<PAGE>
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, Arcadia Financial 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, Arcadia Financial 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, Arcadia Financial 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 Arcadia Financial:
Arcadia Financial Ltd.
7825 Washington Avenue South
Minneapolis, Minnesota 55439-2435
Attention: Treasurer
Telecopier No.: (612) 942-6730
(ii) If to the Seller:
Arcadia 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
44
<PAGE>
(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)
(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
45
<PAGE>
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 Arcadia Financial 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 Arcadia
Financial may assign this Agreement, or delegate any of its duties hereunder,
without the prior written consent of the 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
46
<PAGE>
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 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 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. Each of Arcadia Financial
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 Arcadia Financial or the
Seller or their respective property in the courts of any jurisdiction.
47
<PAGE>
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.
48
<PAGE>
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. ARCADIA RECEIVABLES FINANCE CORP.
By: /S/ JOHN A. WITHAM By: /S/ JOHN A. WITHAM
---------------------------- ------------------------------
Name: John A. Witham Name: John A. Witham
Title: Executive Vice Title: Senior Vice President
President and Chief and Chief Financial
Financial Officer Officer
FINANCIAL SECURITY ASSURANCE INC. NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By: /S/ DAN FARRELL By: /S/ JOHN C. WEIDNER
---------------------------- ------------------------------
Authorized Officer
NORWEST BANK MINNESOTA, NATIONAL THE CHASE MANHATTAN BANK, as Trustee
ASSOCIATION, as Collateral Agent
By: /S/ JOHN C. WEIDNER By: /S/ VADA HAIGHT
---------------------------- ------------------------------
Name: Vada Haight
Title: Vice President
<PAGE>
EXECUTION COPY
SERIES 1998-D SUPPLEMENT
dated as of November 19, 1998
to
SPREAD ACCOUNT AGREEMENT
dated as of March 25, 1993,
as amended and restated
as of November 19, 1998
among
ARCADIA FINANCIAL LTD.
ARCADIA RECEIVABLES FINANCE CORP.
FINANCIAL SECURITY ASSURANCE INC.
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
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 1998-D Credit Enhancement Fee . . . . . . . . . . 6
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 1998-D Spread Account; Initial
Deposit into Series 1998-D Spread Account. . . . . . . . 7
Section 3.2 Spread Account Additional Deposits . . . . . . . . . . . 8
Article IV.
MISCELLANEOUS
Section 4.1 Further Assurances . . . . . . . . . . . . . . . . . . . 8
Section 4.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . 8
Section 4.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . 8
Schedule I
</TABLE>
<PAGE>
SERIES 1998-D SUPPLEMENT
SERIES 1998-D SUPPLEMENT, dated as of November 19, 1998 (the "Series
1998-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"), NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, a national banking association, in its capacity as
Indenture Trustee under the Indenture and 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 November
19, 1998 (the "Spread Account Agreement"), and, as contemplated by Section
2.02 of the Spread Account Agreement, this Series 1998-D Supplement
constitutes a Series Supplement to the Spread Account Agreement so that
hereafter this Series 1998-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, 1998-D (the "Series 1998-D
Trust") is being formed contemporaneously herewith pursuant to the Series
1998-D Trust Agreement (as defined herein).
3. Pursuant to the Series 1998-D Sale and Servicing Agreement, the
Seller is selling to the Series 1998-D Trust all of its right, title and
interest in and to the Initial Receivables (as defined in the Series 1998-D
Sale and Servicing Agreement) and certain other Trust Property (as defined in
the Series 1998-D Trust Agreement).
4. Pursuant to the Series 1998-D Indenture, the Series 1998-D Trust is
issuing the Series 1998-D Notes (as defined herein).
5. The Seller has requested that Financial Security issue the Series
1998-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 1998-D Notes.
6. In partial consideration of the issuance of the Series 1998-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 1998-D Indenture.
7. The Seller is a wholly-owned special purpose subsidiary of Arcadia
Financial. The Series 1998-D Trust has agreed to pay the Series 1998-D Credit
<PAGE>
Enhancement Fee to the Seller in 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 1998-D Insurance
Agreement (such obligations forming part of the Series 1998-D Insurer Secured
Obligations as referred to herein). The Series 1998-D Insurer Secured
Obligations form part of the consideration to Financial Security for its
issuance of the Series 1998-D Note Policy.
8. In order to secure the performance of the Series 1998-D Secured
Obligations, to further effect and enforce the subordination provisions to
which the Series 1998-D Credit Enhancement Fee is subject, and in
consideration of the receipt of the Series 1998-D Credit Enhancement Fee,
Arcadia Financial and the Seller have agreed to pledge the Series 1998-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 1998-D Sale and Servicing Agreement shall have the same meaning with
respect to this Series 1998-D Supplement. The following terms shall have the
following meanings:
"COLLECTION ACCOUNT SHORTFALL" means, with respect to Series 1998-D
and any Distribution Date, the Deficiency Claim Amount, as defined in the
Series 1998-D Sale and Servicing Agreement, with respect to such Distribution
Date.
"DEEMED CURED" means with respect to Series 1998-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 1998-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 two 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 1998-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.
2
<PAGE>
"INITIAL PRINCIPAL AMOUNT" means $200,000,000 with respect to Series
1998-D.
"INITIAL SPREAD ACCOUNT DEPOSIT" means $0 for Series 1998-D.
"INITIAL SPREAD ACCOUNT MAXIMUM AMOUNT" means, with respect to
Series 1998-D and any Distribution Date, an amount equal to the greater of
(i) 9% of the Series 1998-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 1998-D BALANCE" means, with respect to Series 1998-D and any
Distribution Date, the aggregate principal amount of the Series 1998-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 1998-D COLLATERAL" has the meaning specified in Section
2.3(a) hereof.
"SERIES 1998-D CREDIT ENHANCEMENT FEE" means the amount
distributable on each Distribution Date pursuant to Section 4.6(vi) and (vii)
of the Series 1998-D Sale and Servicing Agreement.
"SERIES 1998-D INDENTURE" means the Indenture, dated as of November
1, 1998, among the Series 1998-D Trust, the Trustee and the Indenture
Collateral Agent.
"SERIES 1998-D NOTE POLICY" means the financial guaranty insurance
policy issued by Financial Security with respect to the Series 1998-D Notes.
"SERIES 1998-D NOTES" means the Class A-1, Class A-2, Class A-3 and
Class A-4 Notes issued pursuant to the Series 1998-D Indenture.
"SERIES 1998-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
1998-D Trust Agreement.
"SERIES 1998-D RECEIVABLE" means each Receivable referenced on the
Schedule of Receivables attached to the Series 1998-D Sale and Servicing
Agreement, as supplemented from time to time during the Funding Period by one
or more Subsequent Transfer Agreements.
"SERIES 1998-D RESERVE ACCOUNT" means the Reserve Account
established pursuant to Section 4.1(d) of the Series 1998-D Sale and
Servicing Agreement.
"SERIES 1998-D SALE AND SERVICING AGREEMENT" means the Sale and
Servicing Agreement, dated as of November 1, 1998, among the Series 1998-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.
3
<PAGE>
"SERIES 1998-D SECURED OBLIGATIONS" means the Insurer Secured
Obligations and the Trustee Secured Obligations with respect to Series
1998-D.
"SERIES 1998-D SPREAD ACCOUNT" means the Spread Account established
pursuant to Section 3.1(a) hereof.
"SERIES 1998-D SUPPLEMENT" means this Series 1998-D Supplement which
constitutes a Series Supplement to the Spread Account Agreement.
"SERIES 1998-D TRUST AGREEMENT" means the Trust Agreement, dated as
of November 1, 1998, among the Seller, Financial Security and the Series
1998-D Owner Trustee.
"SPREAD ACCOUNT ADDITIONAL DEPOSIT" means, with respect to Series
1998-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 1998-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 1998-D Notes will
be in the highest category by such Rating Agencies.
"SPREAD ACCOUNT MAXIMUM AMOUNT" means, with respect to Series 1998-D
and any Distribution Date:
(i) if no Insurance Agreement Event of Default with respect to
Series 1998-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 1998-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 1998-D and
such Distribution Date;
(ii) if an event specified in clause (A) of the definition of
Trigger Event with respect to Series 1998-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 1998-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) 12% of the Series
1998-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 1998-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
4
<PAGE>
Maximum Amount shall be equal to the greater of (i) 25% of the Series
1998-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 1998-D
and any Distribution Date, an amount equal to the greater of:
(i) $100,000, and
(ii) the lesser of:
(A) 2.0% of the Initial Principal Amount of Series
1998-D, and
(B) the Series 1998-D Balance.
"TRIGGER EVENT" means, with respect to Series 1998-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 8.2% 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(f) 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 1998-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 1998-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.
5
<PAGE>
ARTICLE II.
CREDIT ENHANCEMENT FEE; SERIES SUPPLEMENTS; THE COLLATERAL
Section 2.1 SERIES 1998-D CREDIT ENHANCEMENT FEE. The Series
1998-D Sale and Servicing Agreement provides for the payment to the Seller of
the Series 1998-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 1998-D Credit Enhancement Fee in the
manner and subject to the conditions set forth herein and in the Series
1998-D Sale and Servicing Agreement is 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 1998-D) and pursuant to the Series 1998-D Insurance
Agreement. The Seller and Arcadia Financial hereby agree with the Trustee and
with Financial Security that payment of the Series 1998-D Credit Enhancement
Fee to the Seller is expressly conditioned on subordination of the Series
1998-D Credit Enhancement Fee to payments on the Notes and Certificates (if
any) 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 1998-D Collateral is intended to effect and enforce such
subordination and to provide security for the Series 1998-D Secured
Obligations and subject to the terms hereof the Secured Obligations with
respect to other Series.
Section 1.2 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 1998-D Supplement with respect
to the Series 1998-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 1998-D
Collateral"):
(i) the Series 1998-D Credit Enhancement Fee and all rights and
remedies that the Seller may have to enforce payment of the Series
1998-D Credit
6
<PAGE>
Enhancement Fee whether under the Series 1998-D Sale and Servicing
Agreement or otherwise;
(ii) the Series 1998-D Spread Account established pursuant to
Section 3.1 of this Series 1998-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
1998-D 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 Series 1998-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 1998-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
1998-D Collateral which can be perfected by the filing of a financing
statement.
ARTICLE III.
SPREAD ACCOUNT
Section 3.1 ESTABLISHMENT OF SERIES 1998-D SPREAD ACCOUNT; INITIAL
DEPOSIT INTO SERIES 1998-D SPREAD ACCOUNT.
(a) On or prior to the Closing Date, the Collateral Agent shall
establish with respect to Series 1998-D, at its office or at another
depository institution or trust company, an Eligible Account, designated
"Spread Account - Series 1998-D - Norwest Bank Minnesota, National
Association, as Collateral Agent for Financial Security Assurance Inc. and
another Secured Party" (the "Series 1998-D Spread Account").
(b) On the Closing Date relating to Series 1998-D, the Collateral
Agent shall deposit the Initial Spread Account Deposit with respect to Series
1998-D received from the Seller into the Series 1998-D Spread Account.
Notwithstanding anything to the contrary contained in the Spread Account
Agreement, commencing on the December 15, 1998 Distribution Date, amounts
which would otherwise be released to the Seller pursuant to Section 3.03(b),
priority EIGHTH, clause SECOND of the Spread Account Agreement shall instead
be deposited into the Series 1998-D Spread Account until cash amounts on
deposit therein shall equal $1,500,000.00.
7
<PAGE>
Section 3.2 SPREAD ACCOUNT ADDITIONAL DEPOSITS. On each
Subsequent Transfer Date, the Series 1998-D Trust will, pursuant to Section
2.4 of the Series 1998-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 1998-D Trust into
the Series 1998-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 1998-D Supplement or to confirm or perfect any
transaction described or contemplated herein.
Section 4.2 GOVERNING LAW. This Series 1998-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.
Section 4.3 COUNTERPARTS. This Series 1998-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 1998-D Supplement are
provided for convenience only. They form no part of this Series 1998-D
Supplement and shall not affect its construction or interpretation.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Series
1998-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/ DAN FARRELL
--------------------------------------------
Authorized Officer
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
By: /S/ JOHN C. WEIDNER
--------------------------------------------
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Collateral Agent
By: /S/ JOHN C. WEIDNER
--------------------------------------------
<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% 1.05%
3 to 6 4.21% 2.11%
6 to 9 6.10% 3.05%
9 to 12 7.79% 3.90%
12 to 15 10.03% 5.02%
15 to 18 12.07% 6.04%
18 to 21 13.85% 6.93%
21 to 24 15.40% 7.70%
24 to 27 16.21% 8.10%
27 to 30 16.86% 8.43%
30 to 33 17.43% 8.71%
33 to 36 17.92% 8.96%
36 to 39 18.15% 9.08%
39 to 42 18.34% 9.17%
42 to 45 18.49% 9.25%
45 to 48 18.62% 9.31%
48 to 51 18.73% 9.36%
51 to 54 18.81% 9.41%
54 to 57 18.88% 9.44%
57 to 60 18.93% 9.46%
60 to 63 18.96% 9.48%
63 to 66 18.98% 9.49%
66 to 69 18.99% 9.50%
69 and higher 19.00% 9.50%
</TABLE>
- ----------------------
* Such Determination Date occurring after the designated calendar months
succeeding the Series 1998-D Closing Date appearing first in the column below,
and prior to or during the designated calendar months succeeding the Series
1998-D Distribution Date appearing second in the column below.
<PAGE>
EXECUTION COPY
SERIES 1998-E SUPPLEMENT
dated as of December 22, 1998
to
SPREAD ACCOUNT AGREEMENT
dated as of March 25, 1993,
as amended and restated
as of November 19, 1998
among
ARCADIA FINANCIAL LTD.
ARCADIA RECEIVABLES FINANCE CORP.
FINANCIAL SECURITY ASSURANCE INC.
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
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 1998-E Credit Enhancement Fee . . . . . . . . . . 6
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 1998-E Spread Account; Initial
Deposit into Series 1998-E Spread Account. . . . . . . . 7
Section 3.2 Spread Account Additional Deposits . . . . . . . . . . . 8
Article IV.
MISCELLANEOUS
Section 4.1 Further Assurances . . . . . . . . . . . . . . . . . . . 8
Section 4.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . 8
Section 4.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . 8
Schedule I
</TABLE>
<PAGE>
SERIES 1998-E SUPPLEMENT
SERIES 1998-E SUPPLEMENT, dated as of December 22, 1998 (the "Series
1998-E 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"), NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, a national banking association, in its capacity as
Indenture Trustee under the Indenture and 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 November
19, 1998 (the "Spread Account Agreement"), and, as contemplated by Section
2.02 of the Spread Account Agreement, this Series 1998-E Supplement
constitutes a Series Supplement to the Spread Account Agreement so that
hereafter this Series 1998-E 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, 1998-E (the "Series 1998-E
Trust") is being formed contemporaneously herewith pursuant to the Series
1998-E Trust Agreement (as defined herein).
3. Pursuant to the Series 1998-E Sale and Servicing Agreement, the
Seller is selling to the Series 1998-E Trust all of its right, title and
interest in and to the Initial Receivables (as defined in the Series 1998-E
Sale and Servicing Agreement) and certain other Trust Property (as defined in
the Series 1998-E Trust Agreement).
4. Pursuant to the Series 1998-E Indenture, the Series 1998-E Trust is
issuing the Series 1998-E Notes (as defined herein).
5. The Seller has requested that Financial Security issue the Series
1998-E 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 1998-E Notes.
6. In partial consideration of the issuance of the Series 1998-E 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 1998-E Indenture.
7. The Seller is a wholly-owned special purpose subsidiary of Arcadia
Financial. The Series 1998-E Trust has agreed to pay the Series 1998-E
Credit
<PAGE>
Enhancement Fee to the Seller in 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 1998-E Insurance
Agreement (such obligations forming part of the Series 1998-E Insurer Secured
Obligations as referred to herein). The Series 1998-E Insurer Secured
Obligations form part of the consideration to Financial Security for its
issuance of the Series 1998-E Note Policy.
8. In order to secure the performance of the Series 1998-E Secured
Obligations, to further effect and enforce the subordination provisions to
which the Series 1998-E Credit Enhancement Fee is subject, and in
consideration of the receipt of the Series 1998-E Credit Enhancement Fee,
Arcadia Financial and the Seller have agreed to pledge the Series 1998-E
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 1998-E Sale and Servicing Agreement shall have the same meaning
with respect to this Series 1998-E Supplement. The following terms shall have
the following meanings:
"COLLECTION ACCOUNT SHORTFALL" means, with respect to Series 1998-E and
any Distribution Date, the Deficiency Claim Amount, as defined in the Series
1998-E Sale and Servicing Agreement, with respect to such Distribution Date.
"DEEMED CURED" means with respect to Series 1998-E, (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 1998-E, 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 two 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 1998-E 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.
2
<PAGE>
"INITIAL PRINCIPAL AMOUNT" means $225,000,000 with respect to Series
1998-E.
"INITIAL SPREAD ACCOUNT DEPOSIT" means $0 for Series 1998-E.
"INITIAL SPREAD ACCOUNT MAXIMUM AMOUNT" means, with respect to Series
1998-E and any Distribution Date, an amount equal to the greater of (i) 9% of
the Series 1998-E 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 1998-E BALANCE" means, with respect to Series 1998-E and any
Distribution Date, the aggregate principal amount of the Series 1998-E 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 1998-E COLLATERAL" has the meaning specified in Section 2.3(a)
hereof.
"SERIES 1998-E CREDIT ENHANCEMENT FEE" means the amount distributable on
each Distribution Date pursuant to Section 4.6(vi) and (vii) of the Series
1998-E Sale and Servicing Agreement.
"SERIES 1998-E INDENTURE" means the Indenture, dated as of December 1,
1998, among the Series 1998-E Trust, the Trustee and the Indenture Collateral
Agent.
"SERIES 1998-E NOTE POLICY" means the financial guaranty insurance
policy issued by Financial Security with respect to the Series 1998-E Notes.
"SERIES 1998-E NOTES" means the Class A-1, Class A-2 and Class A-3 Notes
issued pursuant to the Series 1998-E Indenture.
"SERIES 1998-E 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
1998-E Trust Agreement.
"SERIES 1998-E RECEIVABLE" means each Receivable referenced on the
Schedule of Receivables attached to the Series 1998-E Sale and Servicing
Agreement, as supplemented from time to time during the Funding Period by one
or more Subsequent Transfer Agreements.
"SERIES 1998-E RESERVE ACCOUNT" means the Reserve Account established
pursuant to Section 4.1(d) of the Series 1998-E Sale and Servicing Agreement.
"SERIES 1998-E SALE AND SERVICING AGREEMENT" means the Sale and
Servicing Agreement, dated as of December 1, 1998, among the Series 1998-E
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.
3
<PAGE>
"SERIES 1998-E SECURED OBLIGATIONS" means the Insurer Secured
Obligations and the Trustee Secured Obligations with respect to Series 1998-E.
"SERIES 1998-E SPREAD ACCOUNT" means the Spread Account established
pursuant to Section 3.1(a) hereof.
"SERIES 1998-E SUPPLEMENT" means this Series 1998-E Supplement which
constitutes a Series Supplement to the Spread Account Agreement.
"SERIES 1998-E TRUST AGREEMENT" means the Trust Agreement, dated as of
December 1, 1998, among the Seller, Financial Security and the Series 1998-E
Owner Trustee.
"SPREAD ACCOUNT ADDITIONAL DEPOSIT" means, with respect to Series 1998-E
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 1998-E 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 1998-E Notes will
be in the highest category by such Rating Agencies.
"SPREAD ACCOUNT MAXIMUM AMOUNT" means, with respect to Series 1998-E and
any Distribution Date:
(i) if no Insurance Agreement Event of Default with respect to
Series 1998-E 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 1998-E
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 1998-E and such Distribution Date;
(ii) if an event specified in clause (A) of the definition of
Trigger Event with respect to Series 1998-E 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 1998-E 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) 12% of the Series 1998-E 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 1998-E has occurred and is continuing or (B) a Capture Event has
occurred and is continuing as of the related Determination Date, the Spread
Account
4
<PAGE>
Maximum Amount shall be equal to the greater of (i) 25% of the Series
1998-E 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 1998-E and
any Distribution Date, an amount equal to the greater of:
(i) $100,000, and
(ii) the lesser of:
(A) 2.0% of the Initial Principal Amount of Series 1998-E,
and
(B) the Series 1998-E Balance.
"TRIGGER EVENT" means, with respect to Series 1998-E 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 8.25% 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(f) 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 1998-E 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 1998-E 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.
5
<PAGE>
ARTICLE II.
CREDIT ENHANCEMENT FEE; SERIES SUPPLEMENTS; THE COLLATERAL
Section 2.1 SERIES 1998-E CREDIT ENHANCEMENT FEE. The Series
1998-E Sale and Servicing Agreement provides for the payment to the Seller of
the Series 1998-E 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 1998-E Credit Enhancement Fee in the
manner and subject to the conditions set forth herein and in the Series
1998-E Sale and Servicing Agreement is 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 1998-E) and pursuant to the Series 1998-E Insurance
Agreement. The Seller and Arcadia Financial hereby agree with the Trustee and
with Financial Security that payment of the Series 1998-E Credit Enhancement
Fee to the Seller is expressly conditioned on subordination of the Series
1998-E Credit Enhancement Fee to payments on the Notes and Certificates (if
any) 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 1998-E Collateral is intended to effect and enforce such
subordination and to provide security for the Series 1998-E 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 1998-E Supplement with respect
to the Series 1998-E 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 1998-E Collateral"):
(i) the Series 1998-E Credit Enhancement Fee and all rights and
remedies that the Seller may have to enforce payment of the Series 1998-E
Credit
6
<PAGE>
Enhancement Fee whether under the Series 1998-E Sale and Servicing
Agreement or otherwise;
(ii) the Series 1998-E Spread Account established pursuant to
Section 3.1 of this Series 1998-E 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 1998-E 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
Series 1998-E 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 1998-E 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
1998-E Collateral which can be perfected by the filing of a financing
statement.
ARTICLE III.
SPREAD ACCOUNT
Section 3.1 ESTABLISHMENT OF SERIES 1998-E SPREAD ACCOUNT;
INITIAL DEPOSIT INTO SERIES 1998-E SPREAD ACCOUNT.
(a) On or prior to the Closing Date, the Collateral Agent
shall establish with respect to Series 1998-E, at its office or at another
depository institution or trust company, an Eligible Account, designated
"Spread Account -Series 1998-E - Norwest Bank Minnesota, National
Association, as Collateral Agent for Financial Security Assurance Inc. and
another Secured Party" (the "Series 1998-E Spread Account").
(b) On the Closing Date relating to Series 1998-E, the
Collateral Agent shall deposit the Initial Spread Account Deposit with
respect to Series 1998-E received from the Seller into the Series 1998-E
Spread Account. Notwithstanding anything to the contrary contained in the
Spread Account Agreement, commencing on the January 15, 1998 Distribution
Date, amounts which would otherwise be released to the Seller pursuant to
Section 3.03(b), priority EIGHTH, clause SECOND of the Spread Account
Agreement shall instead be deposited into the Series 1998-E Spread Account
until cash amounts on deposit therein shall equal $1,687,500.00.
7
<PAGE>
Section 3.2 SPREAD ACCOUNT ADDITIONAL DEPOSITS. On each
Subsequent Transfer Date, the Series 1998-E Trust will, pursuant to Section
2.4 of the Series 1998-E 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 1998-E Trust into
the Series 1998-E 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 1998-E Supplement or to confirm or perfect any
transaction described or contemplated herein.
Section 4.2 GOVERNING LAW. This Series 1998-E 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.
Section 4.3 COUNTERPARTS. This Series 1998-E 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 1998-E Supplement are
provided for convenience only. They form no part of this Series 1998-E
Supplement and shall not affect its construction or interpretation.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Series 1998-E
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/ RAYMOND GALKOWSKI
----------------------------------------
Authorized Officer
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>
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% 1.05%
3 to 6 4.21% 2.11%
6 to 9 6.10% 3.05%
9 to 12 7.79% 3.90%
12 to 15 10.03% 5.02%
15 to 18 12.07% 6.04%
18 to 21 13.85% 6.93%
21 to 24 15.40% 7.70%
24 to 27 16.21% 8.10%
27 to 30 16.86% 8.43%
30 to 33 17.43% 8.71%
33 to 36 17.92% 8.96%
36 to 39 18.15% 9.08%
39 to 42 18.34% 9.17%
42 to 45 18.49% 9.25%
45 to 48 18.62% 9.31%
48 to 51 18.73% 9.36%
51 to 54 18.81% 9.41%
54 to 57 18.88% 9.44%
57 to 60 18.93% 9.46%
60 to 63 18.96% 9.48%
63 to 66 18.98% 9.49%
66 to 69 18.99% 9.50%
69 and higher 19.00% 9.50%
</TABLE>
- --------
* Such Determination Date occurring after the designated calendar months
succeeding the Series 1998-E Closing Date appearing first in the column below,
and prior to or during the designated calendar months succeeding the Series
1998-E Distribution Date appearing second in the column below.
<PAGE>
EXHIBIT 10.103
FINANCIAL SECURITY ASSURANCE INC.
350 Park Avenue
New York, New York 10022
May 12, 1998
Arcadia Financial Ltd.
7825 Washington Avenue South
Minneapolis, Minnesota 55439-2444
Re: OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1996-D; OLYMPIC AUTOMOBILE
RECEIVABLES TRUST, 1997-A; ARCADIA AUTOMOBILE RECEIVABLES TRUST,
1997-B
Ladies and Gentlemen:
Reference is hereby made to the premium letters, dated December 12, 1996
(as amended to date, the "1996-D Premium Letter"), March 20, 1997 (as amended
to date, the "1997-A Premium Letter") and June 19, 1997 (as amended to date,
the "1997-B Premium Letter," and collectively, the "Premium Letters"),
respectively, each from Financial Security Assurance Inc. ("Financial
Security") and agreed to accepted by Arcadia Financial Ltd. ("AFL" formerly
known as Olympic Financial Ltd.), relating to the Olympic Automobile
Receivables Trust, 1996-D (the "1996-D Trust"), the olympic Automobile
Receivables Trust, 1997-A (the "1997-A Trust") and the Arcadia Automobile
Receivables Trust, 1997-B (the "1997-B Trust"), respectively.
Reference is also made to (1) the Insurance and Indemnity Agreement,
dated as of December 12, 1996, among Financial Security, the 1996-D Trust,
Olympic First GP Inc., Olympic Second GP Inc., Arcadia Receivables Finance
Corp. (the "Company," formerly known as Olympic Receivables Finance Corp.)
and AFL, (2) the Insurance and Indemnity Agreement, dated as of March 20,
1997, among Financial Security, the 1997-A Trust, Olympic First GP Inc.,
Olympic Second GP Inc., the Company and AFL and (3) the Insurance and
Indemnity Agreement, dated as of June 19, 1997, among Financial Security, the
1977-B Trust, the Company and AFL (collectively, the "Insurance Agreements").
This letter will confirm the agreement of AFL and Financial Security
that the Premium Letters shall be amended as described below. Capitalized
terms used herein and not defined shall have the meanings ascribed to them in
the related Insurance and Indemnity Agreement.
<PAGE>
Page 2
AMENDMENT TO 1996-D PREMIUM LETTER
The 1996-D Premium Letter is hereby amended to add the following
paragraph immediately following the third paragraph:
"The "1996-D Spread Account Recourse Reduction Amount" as of any
Distribution Date means $8,000,000 minus the aggregate of all Spread Account
Recourse Adjustment Amounts related thereto."
AMENDMENT TO 1997-A PREMIUM LETTER
The 1997-A Premium Letter is hereby amended to add the following
paragraph immediately following the third paragraph:
"The "1997-A Spread Account Recourse Reduction Amount" as of any
Distribution Date means $9,000,000 minus the aggregate of all Spread Account
Recourse Adjustment Amounts related thereto."
AMENDMENT TO 1997-B PREMIUM LETTER
The 1997-B Premium Letter is hereby amended to add the following
paragraph immediately following the third paragraph:
"The "1997-B Spread Account Recourse Reduction Amount" as of any
Distribution Date means $8,000,000 minus the aggregate of all Spread Account
Recourse Adjustment Amounts related thereto."
AMENDMENT TO THE PREMIUM LETTERS
Each of the Premium Letters is further amended by adding the following
definitions after each of the above replacement paragraphs:
The related "Spread Account Recourse Adjustment Amount," shall be $0
(zero) until the earlier of the following occurrences: (a) one year from the
effective date of this amendment or (b) the sum of (i) 3.5% of the Series
1996-D Balance, (ii) 3.25% of the Series 1997-A Balance and (iii) 3.5% of the
Series 1997-B Balance, in each case as of the most recent Distribution Date,
is equal to or less than $25,000,000. Thereafter, the related Spread Account
Recourse Adjustment Amount with respect to a Series on each Distribution
Date, so long as no Insurance Agreement Event of Default or Capture Event
exists, shall be the lesser of (x) the related Spread Account Recourse
Maximum Adjustment Amount and (y) the amount deposited into the related
Spread Account on such Distribution Date pursuant to Section 3.03(b),
priority EIGHTH clause FIRST of the Spread Account Agreement.
<PAGE>
Page 3
The related "Spread Account Recourse Maximum Adjustment Amount," with
respect to any Distribution Date after the earlier of the occurrences
described in clauses (a) and (b) in the definition of Spread Account Recourse
Adjustment Amount, shall mean the sum of (i) $1,000,000 and (ii) the amount
by which the Spread Account Recourse Maximum Adjustment Amount for the
immediately preceding Distribution Date exceeded the related Spread Account
Recourse Adjustment Amount for such preceding Distribution Date; PROVIDED,
HOWEVER, that in no case shall the Spread Account Recourse Maximum Adjustment
Amount exceed the current Spread Account Recourse Reduction Amount as of such
Distribution Date (prior to giving effect to deposits into the related Spread
Account pursuant to Section 3.03(b) priority EIGHTH, clause FIRST on such
Distribution Date.
Except as provided herein, all provisions, terms and conditions of the
Premium Letters shall remain in full force and effect. As amended hereby,
each of the Premium Letters are ratified and confirmed in all respects. Each
of Financial Security and AFL agree that this amendment to the Premium
Letters shall be in effect only for so long as Financial Security shall not
have delivered a notice to AFL specifying that this amendment shall cease to
be in effect from and after the date specified in the notice. Upon such
termination, all the terms of the Premium Letters in effect immediately
before the effectiveness of this amendment shall be in effect from and after
such date.
Very truly yours,
FINANCIAL SECURITY ASSURANCE INC.
By: /s/ [ILLEGIBLE]
-----------------------------
Authorized Officer
Agreed to and accepted by:
ARCADIA FINANCIAL LTD.
By: /s/ John A. Witham
-------------------------------------
Name: John A. Witham
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
[LETTERHEAD] Exhibit 10.104
October 15, 1998
Arcadia Financial Ltd.
7825 Washington Avenue South
Minneapolis, Minnesota 55439-2444
Re: ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-C; ARCADIA AUTOMOBILE
RECEIVABLES TRUST, 1997-D; ARCADIA AUTOMOBILE RECEIVABLES TRUST,
1998-A
Ladies and Gentlemen:
Reference is hereby made to the premium letters, dated September 18,
1997, (as amended to date the "1997-C Premium Letter"), December 16, 1997 (as
amended to date the "1997-D Premium Letter") and March 25, 1998 (as amended to
date the "1998-A Premium Letter," and collectively, the "Premium Letters"),
respectively, each from Financial Security Assurance Inc. ("Financial
Security") and agreed to accepted by Arcadia Financial Ltd. ("AFL"), relating
to the Arcadia Automobile Receivables Trust, 1997-C (the "1997-C Trust"), the
Arcadia Automobile Receivables Trust, 1997-D (the "1997-D Trust") and the
Arcadia Automobile Receivables Trust, 1998-A (the "1998-A Trust"),
respectively.
Reference is also made to (1) the Insurance and Indemnity Agreement,
dated as of September 18, 1997, among Financial Security, the 1997-C Trust,
Arcadia Receivables Finance Corp. (the "Company") and AFL, (2) the Insurance
and Indemnity Agreement, dated as of December 16, 1997, among Financial
Security, the 1997-D Trust, the Company and AFL and (3) the Insurance and
Indemnity Agreement, dated as of March 25, 1998, among Financial Security,
the 1998-A Trust, the Company and AFL (collectively, the "Insurance
Agreements").
This letter will confirm the agreement of AFL and Financial Security
that the Premium Letters shall be amended as described below. Capitalized
terms used herein and not defined shall have the meanings ascribed to them in
the related Insurance and Indemnity Agreement.
AMENDMENT TO 1997-C PREMIUM LETTER
The 1997-C Premium Letter is hereby amended to add the following
paragraph immediately following the third paragraph:
<PAGE>
Page 2
"The "1997-C Spread Account Recourse Reduction Amount" as of any
Distribution Date means $10,000,000 minus the aggregate of all Spread Account
Recourse Adjustment Amounts related thereto."
AMENDMENT TO 1997-D PREMIUM LETTER
The 1997-D Premium Letter is hereby amended to add the following
paragraph immediately following the third paragraph:
"The "1997-D Spread Account Recourse Reduction Amount" as of any
Distribution Date means $12,500,000 minus the aggregate of all Spread Account
Recourse Adjustment Amounts related thereto."
AMENDMENT TO 1998-A PREMIUM LETTER
The 1998-A Premium Letter is hereby amended to add the following
paragraph immediately following the third paragraph:
"The "1998-A Spread Account Recourse Reduction Amount" as of any
Distribution Date means $12,500,000 minus the aggregate of all Spread Account
Recourse Adjustment Amounts related thereto."
AMENDMENT TO THE PREMIUM LETTERS
Each of the Premium Letters is further amended by adding the following
definitions after each of the above replacement paragraphs:
The related "Spread Account Recourse Adjustment Amount," shall be $0 (zero)
until the earlier of the following occurrences: (a) one year from the
effective date of this amendment or (b) (i) with respect to Series 1997-C,
3.25% of the related Note Balance is equal to or less than $10,000,000, (ii)
with respect to Series 1997-D, 4.30% of the related Note Balance is equal to
or less than $12,500,000 and (iii) with respect to Series 1998-A, 4.30% of
the related Note Balance is equal to or less than $12,500,000, in each case
as of the most recent Distribution Date. On each Distribution Date after the
relevant date with respect to such Series, the related Spread Account
Recourse Adjustment Amount, so long as no Insurance Agreement Event of
Default or Capture Event exists, shall be the lesser of (x) the related
Spread Account Recourse Maximum Adjustment Amount and (y) the sum of (i) the
excess, if any, of the amounts on deposit in the related Spread Account
(prior to giving effect to deposits into the related Spread Account pursuant
to Section 3.03(b) priority EIGHTH, clause FIRST on such Distribution Date)
over the related Spread Account Maximum Amount for such Distribution Date,
plus (ii) the aggregate of the amount deposited into the related Spread
Account on such Distribution Date pursuant to Section 3.03(b), priority
EIGHTH, clause FIRST of the Spread Account Agreement.
The related "Spread Account Recourse Maximum Adjustment Amount," with
respect to any Distribution Date after the earlier of the occurrences
described in clauses (a) and (b) in the definition of Spread Account Recourse
Adjustment Amount, shall mean the sum of (i) (x) with respect to the
Distribution Date in November 1999 and Series 1997-D and Series 1998-A,
$500,000, and (y) in all other cases, $1,000,000 and (ii) the amount by which
the Spread Account Recourse Maximum Adjustment Amount for the immediately
preceding Distribution Date exceeded the related Spread Account Recourse
Adjustment Amount for such preceding Distribution Date; PROVIDED, HOWEVER,
that in no case shall the Spread Account Recourse Maximum Adjustment Amount
exceed the current Spread Account Recourse Reduction Amount as of such
<PAGE>
Page 3
Distribution Date (prior to giving effect to deposits into the related Spread
Account pursuant to Section 3.03(b) priority EIGHTH, clause FIRST on such
Distribution Date).
Except as provided herein, all provisions, terms and conditions of the
Premium Letters shall remain in full force and effect. As amended hereby,
each of the Premium Letters are ratified and confirmed in all respects. Each
of Financial Security and AFL agree that this amendment to the Premium
Letters shall be in effect only for so long as Financial Security shall not
have delivered a notice to AFL specifying that this amendment shall cease to
be in effect from and after the date specified in the notice. Upon such
termination, all the terms of the Premium Letters in effect immediately
before the effectiveness of this amendment shall be in effect from and after
such date.
Very truly yours,
FINANCIAL SECURITY ASSURANCE INC.
By: /s/ [ILLEGIBLE]
------------------------------
Authorized Officer
Agreed to and accepted by:
ARCADIA FINANCIAL LTD.
By: /s/ John A. Witham
-----------------------------------
Name: John A. Witham
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT, herein referred to as "Agreement" made and
entered into as of the 28th day of January, 1998, by and between Arcadia
Financial Ltd., a Minnesota corporation (the "Company") and Warren Kantor
("Consultant").
WHEREAS, the Company engages in the sales finance business, and
WHEREAS, the Consultant has numerous years of experience in the financial
services accounting and finance profession, and
WHEREAS, the Company desires to engage Consultant to perform certain
consulting services for the Company, and
WHEREAS, Consultant is seeking such engagement, and
WHEREAS, the parties desire to set forth the terms and conditions of
consulting services to be provided by Consultant to the Company.
NOW, THEREFORE, in consideration of the promises and the mutual benefits
which will accrue to the parties to this Agreement, it is mutually understood
and agreed as follows:
1. DESCRIPTION OF SERVICES. Consultant shall furnish and perform the
consulting services pertinent to the operations of the Company which are
specifically set forth in Exhibit A attached hereto and made a part hereof (the
"Consulting Services"). The Consulting Services shall be provided as needed by
the Company; provided, however, that Consulting Services are not to exceed one
hundred fifty (150) hours. Consultant and the Company may from time to time
agree that additional hours are desired, for which additional Consulting
Services Consultant shall be paid at an hourly rate to be agreed upon by
Consultant and the Company. The terms of this Agreement shall apply to any such
additional hours per year. Such services shall be performed to be best of the
Consultant's ability and in a competent, efficient and satisfactory manner. The
Company acknowledges that Consultant is engaged in various other substantial
business activities, that the Company's request for Consulting Services
hereunder from Consultant shall not unreasonably interfere with Consultant's
other business activities and that Consultant shall be entitled to engage in
other business for other persons or entities during the term hereof subject to
the provisions of paragraph 6 hereof.
2. PAYMENT FOR SERVICES. In consideration of the Consulting Services
to be provided by Consultant to the Company and of other obligations of
Consultant contained herein, the Company shall, concurrent with the execution
hereof, execute and deliver to Consultant a non-statutory stock option in the
form and substance of Exhibit B attached hereto (the "Option Agreement").
Pursuant to the Option Agreement, the Company shall grant to Consultant the
option to purchase up to 100,000 shares of the $.01 par value
<PAGE>
common stock of the Company ("Common Stock") at an option price equal to
$6.00 per share (the fair market value of the Common Stock on the date of
this Agreement), subject to the terms and conditions of the Option Agreement.
Such grant shall also be subject to the approval of the shareholders of the
Company at its next annual meeting.
3. REIMBURSEMENT OF EXPENSES. Consultant shall be reimbursed for any
and all travel or other expenses borne or expended by Consultant in connection
with the Consulting Services. Any reasonable expenses incurred by Consultant in
performing his duties hereunder shall be reimbursed by the Company when he
furnishes appropriate documentation.
4. TERM OF ENGAGEMENT. Subject to the terms and conditions hereof, the
term of Consultant's engagement hereunder (the "Consulting Term") shall commence
as of January 1, 1998, and shall continue until December 31, 1998, unless
earlier terminated pursuant to paragraph 5.1.
5. TERMINATION.
5.1 TERMINATION. Consultant's engagement hereunder shall terminate upon
the happening of any of the following events:
a. by the mutual written agreement of the Company and Consultant;
b. upon the death of Consultant;
c. upon 14 days' prior written notice from the Company to Consultant
with Cause (as defined below); or
d. upon 14 days' prior written notice from Consultant to the Company,
if the Company shall fail to make any payment to Consultant required
to be made pursuant hereto within 15 days after such payment was
due.
As used in this Agreement, the term "Cause" shall mean (i) any fraud,
misappropriation or embezzlement by Consultant in connection with the business
of the Company; (ii) any failure by Consultant to perform the Consulting
Services assigned hereunder, provided that Consultant shall first have received
a written notice from the Company which sets forth in reasonable detail the
manner in which Consultant has failed to perform his duties, in which case
Consultant shall have a period of thirty (30) days to cure the same, unless the
same cannot be reasonably cured within said thirty (30) day period, in which
event Consultant shall have up to an additional ninety (90) days to cure the
same; (iii) any material breach by Consultant of this Agreement, provided that
Consultant shall first have received written notice from the Company which sets
forth in reasonable detail the breach by Consultant and Consultant shall have
a period of thirty (30) days after receipt of such notice to cure such
breach, unless the same cannot be reasonably cured within said thirty (30)
day period, in which event Consultant shall have up to an additional ninety
(90) days to cure the same; (iv) willful destruction of the
2
<PAGE>
property or records of the Company; (v) dishonesty or deliberate
falsification of the Company records; or (vi) harassment (including sexual
harassment) of a Company employee. The sole remedy of the Company in the
event of a breach of this Agreement shall be to terminate this Agreement.
6. PROPRIETARY INFORMATION.
6.1 PROPRIETARY INFORMATION. Except by the prior written permission
from the Company, Consultant shall never disclose or use any proprietary
information ("Proprietary Information") of the Company of which Consultant
becomes or has become informed during his past or future engagement with the
Company or any of its subsidiaries, whether or not developed by Consultant,
except as required by his duties to the Company or any of its subsidiaries.
Proprietary Information shall mean information concerning the Company, its
business or its customers that derives independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can derive economic value
from its disclosure or use. Proprietary Information includes, but is not
limited to, the following types of information and other information of a
similar nature (whether or not reduced to writing), all of which Consultant
agrees constitutes the valuable trade secrets of the Company; research,
development, know-how, plans and processes, marketing plans and techniques,
existing and contemplated products and services, customer and prospect names and
related information, prices, sales, credit scoring, personnel, computer programs
and related documentation, technical and strategic plans, and finances.
Proprietary Information also includes any information of the foregoing nature
that the Company treats as proprietary or designates as Proprietary Information,
whether or not owned or developed by the Company. Information does not lose its
Proprietary Information status merely because it was known by a limited number
of other persons or entities or because it did not entirely originate with the
Company. Such nondisclosure and non-use shall mean, without limiting the
generality of the foregoing, during the Consulting Term and at all times
thereafter, the Consultant agrees to receive, maintain, and use Proprietary
Information in the strictest confidence and, except with the consent of the
Company will not directly or indirectly reveal, report, publish, disclose, or
transfer any Proprietary Information to any person, firm, corporation, or other
entity or utilize any Proprietary Information for the Consultant's own benefit
or intended benefit or for the benefit or intended benefit of any other person,
firm, corporation or other entity.
6.2 DELIVERY OF PROPRIETARY INFORMATION. Upon the request of the
Company or the termination of his engagement, Consultant agrees to deliver to
the Company all materials that include Proprietary Information, including
without limitation customer lists, instruction sheets, manuals, computer
programs (including source codes), letters, financial records, notes, notebooks,
reports and copies thereof, and all other materials which are under his control
and which relate to the business of the Company or its subsidiaries. Consultant
agrees and understands that the Proprietary Information and all information
contained therein shall be at all times the property of the Company. Further,
upon termination of his engagement, Consultant agrees to make available to any
person
3
<PAGE>
designated by the Company all information concerning pending or preceding
transactions or programs which may affect the operation of the Company or any
of its subsidiaries about which Consultant has knowledge. The obligations of
Consultant contained in this paragraph are in addition to the obligation of
Consultant to return to the Company, upon the request of the Company or the
termination of his engagement, all property of the Company then in his
possession.
6.3 SEVERABILITY. The covenants of Consultant set forth in this
paragraph 6 are separate and independent covenants for which valuable
consideration has been or will be paid or given, receipt of which is
acknowledged by Consultant, and have also been made by Consultant to induce
the Company to enter into this Agreement. Each of the aforesaid covenants
may be availed of or relied upon by the Company in any court of competent
jurisdiction.
6.4 SPECIFIC ENFORCEMENT. Consultant understands and agrees that a
breach by him of any provisions of this Agreement will cause the Company
irreparable injury and damage which cannot by compensable by receipt of money
damages. Consultant, therefore, expressly agrees that the Company shall be
entitled, in addition to any other remedies legally available, to injunctive
and/or other equitable relief to prevent a breach of this Agreement or any part
thereof.
7. OWNERSHIP OF PROPRIETARY INFORMATION. All Proprietary Information
prepared, created or assembled by Consultant or caused by Consultant to be
prepared, created or assembled in connection with this Agreement, as well as any
copyright, patent and trademark rights related thereto, shall be work made for
hire and shall at all times remain the sole and exclusive property of the
Company.
8. RELATIONSHIP OF PARTIES. Consultant is engaged by the Company only
for the purpose and to the extent set forth in this Agreement, and Consultant's
relationship to the Company shall, during the period covered by this Agreement,
be that of an independent contractor. Consultant shall not be considered an
employee of the Company and shall not be entitled to participate in any plans,
arrangements or distributions by the Company pertaining to or in connection with
any insurance, pension, stock, bonus, profit sharing or similar employee
benefits given employees of the Company. Consultant shall be under the control
of the Company as to the result of Consultant's work only and not as to the
means by which such result is accomplished. Consultant shall not represent that
Consultant has any power to bind the Company or to assume or to create any
obligation or responsibility, express or implied, on behalf of the Company or in
its name. The Company shall not be liable for any losses, injuries, damages, or
claims of any nature whatsoever arising out of Consultant's activities or
representations under or in connection with this Agreement.
9. TAXES. Consultant acknowledges and agrees that it shall be the
obligation of Consultant to report as income, all compensation received by
Consultant hereunder and agrees to reimburse, indemnify and to hold and save the
Company harmless to the
4
<PAGE>
extent of any obligations imposed by law on the Company to pay
withholding taxes, social security, unemployment or disability liability
insurance or similar items in connection with any compensation paid to
Consultant.
10. MISCELLANEOUS.
10.1 VALIDITY. Whenever possible, each provision of this Agreement shall
be interpreted so that it is valid under applicable law. In case any one or
more of the provisions of this Agreement is to any extent found to be invalid,
illegal or unenforceable in any respect under applicable law, that provision
shall still be effective to the extent it remains valid and the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby. If, moreover, any one or more
of the restrictions contained in this Agreement is for any reason held
excessively broad, it shall be construed or rewritten (blue-lined) so as to be
enforceable to the extent of the greatest protection to the Company compatible
with applicable law.
10.2 APPLICABLE LAW. This Agreement is entered into in the State of
Minnesota and shall be construed, interpreted and enforced according to the
statutes, rules of law and court decisions of said state.
10.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Option
Agreement constitute the entire agreement of the Company and Consultant with
respect to Consultant's engagement by the Company and supersedes any other
understandings or agreements, whether written or oral. This Agreement may be
amended or superseded only by an agreement in writing by the Company and
Consultant.
10.4 NOTICES. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be sufficiently
given if and when mailed by registered or certified mail, return receipt
requested, to the Company and its executive offices and to Consultant at his
address set forth below or in either case such other address specified by a
party hereto in a written notice hereunder, or when personally delivered.
10.5 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns. This Agreement shall
also be binding upon the inure to the benefit of Consultant and his heirs and
representatives. This Agreement may not be assigned by either party without the
prior written consent of the other party.
10.6 RESERVATION OF RIGHTS. Nothing contained herein shall limit any
other rights the Company has at law in connection with Consultant's obligations
to the Company, all of which are preserved.
10.7 SURVIVAL. Notwithstanding any termination of Consultant's
engagement hereunder or any termination of this Agreement, the provisions of
paragraph 6 hereof
5
<PAGE>
shall survive termination of this Agreement and termination of Consultant's
engagement hereunder.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
Arcadia Financial Ltd.
/s/ Warren Kantor By: /s/ Richard A. Greenawalt
- ------------------------ ------------------------------
Warren Kantor Richard A. Greenawalt
720 Springmill Road Its Chief Executive Officer
Villanova, PA 19185 7825 Washington Avenue South
Minneapolis, MN 55439-2435
6
<PAGE>
CONSULTING AGREEMENT
EXHIBIT A
CONSULTANT'S SERVICES. Consultant shall endeavor to promote the interests of
the Company and shall provide to the Company advice as to its manner of doing
business in such of the following areas as are requested by the Company:
long range planning,
tax strategies development, treasury function review,
internal audit function review,
asset liability strategy development,
asset backed securitization development,
asset backed securitization planning,
corporate development (merger, acquisition)
investor relations,
due diligence (re: acquisitions),
financing strategies,
SEC relations,
capital raising strategies,
reserving architecture,
asset quality review, and
note program strategy.
Consultant shall provide advice and services as to such other related areas of
the business of the Company as may be reasonably requested from time to time by
the Chief Executive Officer of the Company. The Company desires to retain the
services of Consultant, even though Consultant may become disabled or
incapacitated. Accordingly, notwithstanding anything to the contrary contained
herein, it is expressly understood that the inability of Consultant from time to
time to render services to the Company by reason of absences, or temporary, or
permanent illness, disability, or incapacity, or for any other reasonable cause
beyond the control of Consultant, shall not constitute a failure by him to
perform his obligations hereunder and shall not be deemed a breach or default by
him hereunder.
<PAGE>
EMPLOYMENT RETENTION AGREEMENT
THIS AGREEMENT between Arcadia Financial Ltd. (the "Company")
and Richard A. Greenawalt (the "Executive") is dated as of this 27 day of
January, 1998.
W I T N E S S E T H :
WHEREAS, the Company and the Executive have agreed to enter
into an agreement providing the Company and the Executive with certain rights
to assure the Company of continuity of management;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is hereby agreed by and between the Company
and the Executive as follows:
1. EFFECTIVE DATE; TERM. This Agreement shall govern the
terms and conditions of Executive's employment commencing as of the date
hereof (the "Effective Date").
2. PRIOR EMPLOYMENT AGREEMENT. As of the Effective Date,
this Agreement shall supersede the Executive's Employment Agreement with the
Company dated January 6, 1997, as amended.
3. RETENTION PERIOD. The Company agrees to continue the
Executive in its employ, and the Executive agrees to remain in the employ of
the Company, for the period (the "Retention Period") commencing on the
Effective Date and ending on the date of any termination of the Executive's
employment in accordance with Section 6 of this Agreement.
POSITION AND DUTIES. (a) CHANGE IN POSITION. During the
Retention Period, the Executive's position (including titles), authority and
responsibilities as an officer of the Company shall be at least commensurate
with the highest of those held or exercised by him at any time during the
90-day period immediately preceding the Effective Date.
(b) BUSINESS TIME. During the Retention Period, the
Executive shall devote his full business time during normal business hours to
the business and affairs of the Company and use his best efforts to perform
faithfully and efficiently the responsibilities assigned to him hereunder, to
the extent necessary to discharge such responsibilities, except for
(i) reasonable time spent in serving on corporate, civic or
charitable boards or committees of the nature similar to those on which
the Executive served prior to the Effective Date, in each case only if
and to the extent not substantially interfering with the performance of
such responsibilities, and
(ii) periods of vacation and sick leave to which he is
entitled.
It is expressly understood and agreed that the Executive's continuing to
serve on any boards and committees on which he is serving or with which he is
otherwise associated immediately preceding the Effective Date shall not be
deemed to interfere with the performance of the
1
<PAGE>
Executive's services to the Company. The Executive shall be entitled to
serve on additional outside boards and committees with the prior written
consent by the Board of Directors of the Company.
(c) PLACE OF PERFORMANCE. During the Retention Period,
the Executive's principal places of performance will be at the Company's
offices in Minneapolis, Minnesota and at a location to be determined in or
near Philadelphia, Pennsylvania, with the Executive dividing his time between
the two locations on such basis as shall be mutually agreeable to the
Executive and the Company, except for reasonably required travel on behalf of
the Company.
5. COMPENSATION AND BENEFITS. (a) BASE SALARY. During the
Retention Period, the Executive shall receive a base salary ("Base Salary")
at a monthly rate at least equal to the monthly salary paid to the Executive
by the Company and any of its affiliated companies immediately prior to the
Effective Date. The Base Salary shall be reviewed at least once each year
after the Effective Date, and may be increased (but not decreased) at any
time and from time to time by action of the Board or any committee thereof or
any individual having authority to take such action in accordance with the
Company's regular practices. Neither payment of the Base Salary nor payment
of any increased Base Salary after the Effective Date shall serve to limit or
reduce any other obligation of the Company hereunder. For purposes of the
remaining provisions of this Agreement, the term "Base Salary" shall mean
Base Salary as defined in this Section 5(a) or, if increased after the
Effective Date, the Base Salary as so increased.
(b) ANNUAL BONUS. In addition to the Base Salary, the
Executive shall be eligible for each fiscal year of the Company ending during
the Retention Period an annual bonus, with the target amount at least equal
to $300,000 and vesting and payment thereof to be based on reasonable and
customary criteria consistent with the Company's practices for the Chief
Executive Officer of the Company (the "Annual Bonus"); provided however, for
the years 1998 through 2000 the Executive's Annual Bonus shall be applied
toward participation in the Company's 1998-2000 Restricted Stock Election
Plan on a basis commensurate with an executive having a base salary of
$500,000 (or, if greater, the Executive's annual Base Salary). If a fiscal
year of the Company begins, but does not end, during the Retention Period,
the Executive shall receive an amount with respect to such fiscal year at
least equal to the amount of the Annual Bonus multiplied by a fraction, the
numerator of which is the number of days in such fiscal year occurring during
the Retention Period and the denominator of which is 365. In the event the
Executive has elected to receive his or her Annual Bonus for such year in the
form of restricted shares of the Common Stock of the Company, upon
termination of the Executive's employment for any reason the Executive shall
be deemed to have revoked such election as to any then unvested shares of
such restricted stock and the Executive's pro-rated Annual Bonus for such
year shall be determined based upon the amount of the cash Annual Bonus the
Executive would have received absent such election. Each amount payable in
respect of the Executive's Annual Bonus shall be paid not later than 90 days
after the fiscal year next following the fiscal year for which the Annual
Bonus (or pro-rated portion) is earned or awarded. Neither the Annual Bonus
nor any bonus amount paid in excess thereof after the Effective Date shall
serve to limit or reduce any other obligation of the Company hereunder.
(c) FRINGE BENEFITS. During the Retention Period, the
Company shall provide the following fringe benefits to Executive:
2
<PAGE>
(i) HEALTH, DISABILITY AND LIFE INSURANCE. Subject to
satisfaction of the eligibility requirements of such plans and the rules
and regulations applicable thereto, Executive and his family members
shall be entitled to be covered by the Company's group health and dental
insurance plans presently in effect or hereafter adopted by the Company
and applicable to employees of the Company generally and Executive shall
be entitled to be covered by the Company's group disability and life
insurance plans presently in effect or hereafter adopted by the Company
and applicable to the employees of the Company in general. The Company
shall pay the premiums associated with such coverage. In the event
Executive makes a claim against any disability policy provided to
Executive by the Company pursuant to this Section 5(c)(i) and such
policy calls for a waiting period which is applicable to Executive's
claim, the Company shall pay to Executive during such waiting period his
monthly base salary due during such period and shall provide the other
benefits due him under this Section 5(c)(i).
(ii) VACATION. Executive shall be entitled to four weeks of
vacation without loss of compensation or other benefits pursuant to such
general policies and procedures of the Company as are from time to time
adopted by the Company.
(iii) EXPENSE REIMBURSEMENT. Executive shall be reimbursed by
the Company for all reasonable expenses incurred by him in connection
with the conduct of the Company's business for which he furnishes
appropriate documentation.
(iv) AUTOMOBILE. The Company shall at the Company's option
either (A) provide to Executive use of an automobile to be used by
Executive in conducting the Company's business; or (B) pay to Executive
a monthly auto expense in the amount of not less than Four Hundred
Dollars ($400) per month. In addition, in the event the Company
provides to Executive an automobile the Company shall reimburse
Executive (1) an amount equal to the reasonable cost of insuring and
maintaining the automobile used by Executive for the Company's business,
and (2) the cost of maintenance and the cost of gasoline and oil used in
the automobile and in the event of a loss under the policies insuring
said automobile, the amount of any deductible thereunder applicable to
such loss. Such insurance and the coverage and deductibles thereof
shall cover both the business and personal use of such automobile by
Employee, his family and invitees and shall include such other terms and
conditions as are reasonably acceptable to Executive. Any such
reimbursements shall be made upon the Company's receipt of invoices
evidencing incurrence of such expenses. Executive shall also be paid a
monthly amount equal to the reasonable value of personal use of such
automobile, determined in accordance with applicable federal income tax
regulations.
(v) CLUB DUES. The Company shall reimburse Executive the
reasonable cost of the monthly or annual dues, as the case may be, paid
by Executive to maintain his status as a member of the Flagship Athletic
Club or of any other athletic club having equal or lesser membership
costs in lieu of such club. The Company shall also provide to Executive
and his family a membership at Olympic Hills Golf Club and shall
reimburse the Executive for the reasonable cost of the monthly or annual
dues, as the case may be, paid by Executive to maintain such membership.
If either such membership is a corporate membership, upon termination of
Executive's employment other than for Cause or Death, such membership
shall be converted to an individual membership. The
3
<PAGE>
Company shall reimburse Executive for any fees charged in connection
with such conversion.
(vi) OFFICE AND SUPPORT STAFF. In the event a Change of
Control occurs during the Retention Period, the Executive shall
thereafter be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other
assistance, substantially equal to the most favorable of the foregoing
provided to the Executive at any time during the 90-day period
immediately preceding the date of the Change of Control.
6. TERMINATION. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon his death. The Company may
terminate Executive's employment during the Retention Period, after having
established the Executive's Disability, by giving the Executive written
notice of its intention to terminate his employment, and his employment with
the Company shall terminate effective on the 90th day after receipt of such
notice if, within 90 days after such receipt, the Executive shall fail to
return to full-time performance of his duties. For purposes of this
Agreement, "Disability" means disability which, after the expiration of more
than 26 weeks after its commencement, is determined to be total and permanent
by a physician selected by the Company or its insurers and acceptable to the
Executive or his legal representatives (such agreement to acceptability not
to be withheld unreasonably).
(b) VOLUNTARY TERMINATION. Notwithstanding anything in
this Agreement to the contrary, the Executive may, upon not less than 15
days' advance written notice to the Company, voluntarily terminate employment
during the Retention Period for any reason, provided that any termination by
the Executive pursuant to Section 6(d) of this Agreement on account of Good
Reason (as defined therein) shall not be treated as a voluntary termination
under this Section 6(b).
(c) CAUSE. The Company may terminate the Executive's
employment during the Retention Period for Cause. As used in this Agreement,
the term "Cause" shall mean (i) any fraud, misappropriation or embezzlement
by the Executive in connection with the business of the Company or any of its
subsidiaries, (ii) any conviction of a felony or a gross misdemeanor by the
Executive that has or can reasonably be expected to have a detrimental effect
on the Company or any of its subsidiaries, (iii) any gross neglect by the
Executive of the duties assigned to him or her hereunder which continues for
a period of 90 days after written notice to the Executive of such neglect,
or, (iv) any material breach by Executive of any provisions of Section 12 of
this Agreement. It is understood and agreed that the Company may not
terminate Executive's employment for Cause in the event Executive is unable
to perform his or her duties due to partial or permanent or temporary or
total disability from injury or sickness.
(d) GOOD REASON. The Executive may terminate his
employment during the Retention Period for Good Reason. For purposes of this
Agreement, "Good Reason" means
(i) without the Executive's prior written consent,
the Company or any of its officers takes or fails to take any action
which changes the Executive's position (including titles), authority or
responsibilities which is inconsistent with Section 4 of this Agreement;
4
<PAGE>
(ii) any failure by the Company to comply with any of
the provisions of Section 5 of this Agreement, other than an
insubstantial or inadvertent failure remedied by the Company promptly
after receipt of notice thereof from the Executive;
(iii) the Company's requiring the Executive to be
employed at any location more than 35 miles further from his principal
residence than the places of performance described in Subsection 4(f) of
this Agreement; or
(iv) any failure by the Company to obtain the
assumption of and agreement to perform this Agreement by a successor as
contemplated by Section 13(b) of this Agreement.
(e) WITHOUT CAUSE. The Company may terminate the
Executive's employment during the Retention Period without Cause. The
Company shall give Executive at least 15 days' advance written notice of any
termination of Executive's employment which is not for Cause and not on
account of Executive's Disability.
(f) NOTICE OF TERMINATION. Any termination of
Executive's employment by the Company for Cause or by the Executive for Good
Reason during the Retention Period shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 14(c)
of this Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice given, in the case of a termination by the Company for
Cause, within 10 business days of the Company's having actual knowledge of
all of the events giving rise to such termination, and in the case of a
termination by Executive for Good Reason, within 180 days of the Executive's
having actual knowledge of the events giving rise to such termination, and
which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated, and (iii) if the termination date is other
than the date of receipt of such notice, specifies such termination date
(which date shall be not more than 15 days after the giving of such notice).
The failure by the Executive to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of Good Reason shall not
waive any right of the Executive hereunder or preclude the Executive from
asserting such fact or circumstance in enforcing his rights hereunder.
(g) DATE OF TERMINATION. For purposes of this
Agreement, the term "Date of Termination" means (i) in the case of a
termination for which a Notice of Termination is required, the date of
receipt of such Notice of Termination or, if later, the date specified
therein and (ii) in all other cases, the actual date on which the Executive's
employment terminates during the Retention Period.
7. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a)
DEATH. If the Executive's employment is terminated during the Retention
Period by reason of the Executive's death, this Agreement shall terminate
without further obligations to the Executive's legal representatives under
this Agreement other than those obligations accrued hereunder at the date of
his death, including, for this purpose (i) the Executive's full Base Salary
through the Date of Termination, (ii) the product of the target Annual Bonus
for the year in which the death occurred and a fraction, the numerator of
which is the number of days in the current fiscal year of the Company through
the Date of Termination, and the denominator of which is 365 (the
5
<PAGE>
"Pro-rated Bonus Obligation"). For the purposes of computing the Pro-rated
Bonus Obligation, the Executive shall be deemed to have revoked his election,
if any, to receive such bonus in the form of restricted stock of the Company
and to have earned the maximum cash Annual Bonus which he was eligible to
earn for the year in which the termination occurred, (iii) any compensation
previously deferred by the Executive (together with any accrued earnings
thereon) and not yet paid by the Company, (iv) any other amounts or benefits
then owing to the Executive under any of the Company's incentive compensation
plans, stock option plans, restricted stock plans or other similar plans as
determined pursuant to the terms of such plans and this Agreement and (v) any
amounts or benefits owing to the Executive under any of the Company's
employee benefit plans or policies (such amounts specified in clauses (i),
(ii), (iii), (iv) and (v) are hereinafter referred to as "Accrued
Obligations"). Unless otherwise directed by the Executive prior to his
death, all Accrued Obligations shall be paid to the Executive's estate.
(b) DISABILITY. If the Executive's employment is
terminated by reason of the Executive's Disability, the Executive shall
receive all Accrued Obligations and, in addition, from the Date of
Termination until the date when the Retention Period would otherwise have
terminated, shall continue to participate in or be covered under the benefit
plans and programs referred to in Section 5(c)(i) of this Agreement or, at
the Company's option, to receive equivalent benefits by alternate means at
least equal to those provided in accordance with Section 5(c)(i) of this
Agreement. Anything in this Agreement to the contrary notwithstanding, the
Executive shall be entitled to receive disability and other benefits at least
equal to the most favorable level of benefits available to disabled employees
and/or their families in accordance with the plans, programs and policies
maintained by the Company or its affiliates relating to disability at any
time during the 90-day period immediately preceding the Effective Date.
(c) CAUSE AND VOLUNTARY TERMINATION. If, during the
Retention Period, the Executive's employment shall be terminated for Cause or
voluntarily terminated by the Executive (other than on account of Good
Reason), the Executive shall receive all Accrued Obligations other than the
Pro-rated Bonus Obligation.
(d) TERMINATION BY COMPANY OTHER THAN FOR CAUSE OR
DISABILITY AND TERMINATION BY EXECUTIVE FOR GOOD REASON. LUMP SUM PAYMENT.
If, during the Retention Period, the Company terminates the Executive's
employment other than for Cause or Disability, or the Executive terminates
his employment for Good Reason, the Executive shall receive all Accrued
Obligations. In addition, the Company shall pay to the Executive in a lump
sum, a cash amount equal to two (2) times the sum of the following amounts:
(1) the Executive's annual Base Salary at the rate
specified in Section 5(a) of this Agreement;
(2) an amount equal to the target cash Annual Bonus
determined without proration payable to the Executive in respect
to the calendar year in which the termination event occurred;
(3) an amount equal to the average annual amount
paid and/or reimbursed to the Executive pursuant to Section
5(c)(iv) and (v) hereof during the two calendar years preceding
the Date of Termination; and
6
<PAGE>
(4) the present value, calculated using the annual
federal short-term rate as determined under Section 1274(d) of
the Code, of (without duplication) the annual cost to the
Company (based on the premium rates or other costs to it) of
obtaining coverage equivalent to the coverage under the plans
and programs described in Section 5(c)(i) of this Agreement;
provided, however, that with respect to the life and medical
insurance coverage referred to in Section 5(c)(i) of this
Agreement, at the Executive's election made prior to the Date of
Termination, the Company shall use its best efforts to secure
conversion coverage and shall pay the cost of such coverage in
lieu of paying the lump sum amount attributable to such life or
medical insurance coverage.
In consideration of the Company's payment of the amounts payable to the
Executive pursuant to this Subsection 7(d) and the Executive's acceptance
thereof, the Executive and the Company shall enter into a mutual release in a
form acceptable to the Company releasing each other and their respective
agents from all claims arising from or in any way related to the Executive's
employment by the Company and the termination of such employment
relationship. The Executive shall not receive any of the amounts payable
pursuant to this Subsection 7(d) until after the Executive has executed and
delivered the release to the Company and all rescission periods under
applicable state and federal laws have expired without rescission of the
release by the Executive. The Company shall make such payment within fifteen
(15) days after the longest applicable rescission period has elapsed without
rescission.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in
any benefit, bonus, incentive or other plan or program provided by the
Company or any of its affiliated companies and for which the Executive may
qualify, nor shall anything herein limit or otherwise prejudice such rights
as the Executive may have with respect to awards granted to him prior to or
during the Retention Period under any stock option, restricted stock or other
plans or agreements with the Company or any of its affiliated companies
except as to restrictions on the Executive's rights to any restricted stock
received by the Executive in lieu of a cash Annual Bonus as set forth in
Sections 5(b), 7(a) and 7(d) of this Agreement. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan or program of the Company or any of its affiliated companies shall be
payable in accordance with such plan or program.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment,
distribution, acceleration of vesting or other benefit which the Executive
receives or becomes entitled to receive, whether alone or in combination, and
whether pursuant to the terms of this Agreement or any other agreement, plan
or arrangement with the Company or any of its affiliates or any of their
respective successors or assigns, but determined without regard to any
additional payments required under this Section 9 (collectively, the
"Payments"), would be subject to the excise tax imposed by Section 4999 of
the Code (or any successor provision), or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the
7
<PAGE>
Executive of (i) all taxes with respect to the Gross-Up Payment (including
any interest or penalties imposed with respect to such taxes) including,
without limitation, any income taxes (and any interest and penalties imposed
with respect thereto), and (ii) the Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed on the Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by KPMG Peat Marwick or such other nationally recognized
accounting firm then auditing the accounts of the Company (the "Accounting
Firm") which shall provide detailed supporting calculations both to the
Company and the Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is unwilling
or unable to perform its obligations pursuant to this Section 9, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the potential uncertainty
in the application of Section 4999 of the Code (or any successor provision)
at the time of the initial determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.
(c) The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such notification shall
be given as soon as practicable but no later than 20 business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which he gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing
from time to time, including, without limitation,
accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
8
<PAGE>
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limiting the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the Company directs
the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free
basis, and shall indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and further provided that
any extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested amount
is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of Section
9(c)) promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 9(c), a determination is made that the Executive shall
not be entitled to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
10. FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive or others whether by
reason of the subsequent employment of the Executive or otherwise. In no
event shall the
9
<PAGE>
Executive be obligated to seek other employment by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement, and no amount payable under this Agreement shall be reduced on
account of any compensation received by the Executive from other employment.
In the event that the Executive shall in good faith give a Notice of
Termination for Good Reason and it shall thereafter be determined by mutual
consent of the Executive and the Company or by a tribunal having jurisdiction
over the matter that Good Reason did not exist, the employment of the
Executive shall, unless the Company and the Executive shall otherwise
mutually agree, be deemed to have terminated, at the date of giving such
purported Notice of Termination, by mutual consent of the Company and the
Executive and, except as provided in the last preceding sentence, the
Executive shall be entitled to receive only those payments and benefits which
he would have been entitled to receive at such date otherwise than under this
Agreement.
11. DISPUTES; LEGAL FEES AND EXPENSES. (a) Any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively and finally by expedited arbitration, conducted before a
single arbitrator in Minneapolis, Minnesota, in accordance with the rules
governing employment disputes then in effect of the American Arbitration
Association. The arbitrator shall be approved by both the Company and the
Executive. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
(b) In the event that any claim by the Executive under
this Agreement is disputed, the Company shall pay all reasonable legal fees
and expenses incurred by the Executive in pursuing such claim, provided that
the Executive is successful as to at least part of the disputed claim by
reason of arbitration, settlement or otherwise.
12. CONFIDENTIAL INFORMATION; NONCOMPETITION. (a) The
Executive shall hold in a fiduciary capacity for the benefit of the Company
all secret or confidential information, knowledge or data relating to the
Company or any of its affiliated companies, and their respective businesses,
(i) obtained by the Executive during his employment by the Company or any of
its affiliated companies and (ii) not otherwise public knowledge (other than
by reason of an unauthorized act by the Executive). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company, unless compelled pursuant to an order
of a court or other body having jurisdiction over such matter, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those designated by it.
(b) It is mutually acknowledged that by virtue of Employee's
former positions with the Company and its subsidiaries, he has become
possessed of certain valuable and confidential information concerning the
customers, business methods, procedures and techniques of the Company and its
subsidiaries. It is further understood that Employee has developed contacts
among the customers of the Company and its subsidiaries, and it is mutually
understood and agreed that the customers of the Company and its subsidiaries
and the business methods and procedures and techniques developed by the
Company and its subsidiaries are valuable assets and properties of the
Company and its subsidiaries. Without limitation, it is also specifically
acknowledged that great trust on the part of the Company and its subsidiaries
has resided in Employee, since Employee's former duties have included
involvement in the management, promotion and development of the Company's
business. Accordingly, the parties deem it
10
<PAGE>
necessary to enter into the protective covenants set forth below, the terms
and conditions of which have been negotiated by and between the parties
hereto:
(i) Employee agrees that during the Retention Period and
until the first anniversary of the Date of Termination, he will not, directly
or indirectly, on his own behalf or on the behalf of any third party, perform
management, accounting, financial, marketing, sales, administrative or
executive duties, in any business conducted within the Territories (as
defined below) whose primary business consists of originating or purchasing
automobile or truck loans or leases from automobile or truck dealers,
packaging such loans or leases, reselling such loans or leases or servicing
such loans or leases (the "Restricted Activities") or for any subdivision or
department of any business whose primary business does not consist of
Restricted Activities, but where the primary business of such subdivision or
department consists of Restricted Activities. As used in this Addendum, the
term "Territories" means any state in which any loans or leases originated or
acquired by the Company originated (determined by the location of the dealers
from whom the loans or leases were purchased or, in the case of loans or
leases, originated by the Company where the borrower or lessee resides).
(ii) Employee agrees that during the Retention Period and
until the first anniversary of the Date of Termination, he will not, directly
or indirectly, solicit, divert, take away or attempt to solicit, divert, or
take away from the Company, or any subsidiary, any of the dealers and other
sources from which the Company or any subsidiary acquires loans or leases or
from whom the loan or lease packages are received by the Company or any
subsidiary.
(iii) Employee agrees that during the Retention Period and
until the first anniversary of the Date of Termination, he will not, directly
or indirectly, on his own behalf or in the service or on behalf of others,
solicit, divert or hire away, or in any manner attempt to solicit, divert or
hire away any person employed by the Company or any subsidiary, whether or
not such employee is a full-time employee or a temporary employee of the
Company or any subsidiary, and whether or not such employment was pursuant to
a written or oral contract of employment and whether or not such employment
was for a determined period or was at will.
(c) Employee acknowledges that the provisions of this
Section 12 constitute a material inducement to the Company to enter into the
Agreement. Employee further acknowledges that the Company's remedy at law
for a breach by him of the provisions of this Section 12 will be inadequate.
Accordingly, in the event of a breach or threatened breach by Employee of any
provision of this Section 12, the Company will be entitled to injunctive
relief in addition to any other remedy it may have. If any of the provisions
of, or covenants contained in, this Section 12 are hereafter construed to be
invalid or unenforceable in any jurisdiction, the same will not affect the
remainder of the provisions or the enforceability thereof in any other
jurisdiction, which will be given full effect, without regard to the
invalidity or unenforceability in such other jurisdiction. If any of the
provisions of, or covenants contained in, this Section 12 are held to be
unenforceable in any jurisdiction because of the duration or geographical
scope thereof, the parties agree that the court making such determination
will have the power to reduce the duration or geographical scope of such
provision or covenant and, in its reduced form, such provision or covenant
will be enforceable; provided, however, that the determination of such court
will not affect the enforceability of this Section 12 in any other
jurisdiction.
11
<PAGE>
(d) In no event shall an asserted violation of the
provisions of this Section 12 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement or under
any other agreement, plan or arrangement.
13. SUCCESSORS. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors. The Company shall require any
successor to all or substantially all of the business and/or assets of the
Company, whether direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent as the Company would be
required to perform if no such succession had taken place.
14. MISCELLANEOUS. (a) APPLICABLE LAW. This Agreement
shall be governed by and construed in accordance with the laws of the State
of Minnesota, applied without reference to principles of conflict of laws.
(b) AMENDMENTS. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto
or their respective successors and legal representatives.
(c) NOTICES. All notices and other communications
hereunder shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive: Richard A. Greenawalt
8800 Montgomery Avenue
Wyndmoor, PA 19038
If to the Company: Arcadia Financial Ltd.
7825 Washington Avenue South
Minneapolis, MN 55439
Attention: Secretary
(with a copy to the attention of
the General Counsel)
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be
effective when actually received by the addressee.
(d) TAX WITHHOLDING. The Company may withhold from any
amounts payable under this Agreement such Federal, State or local taxes as
shall be required to be withheld pursuant to any applicable law or regulation.
12
<PAGE>
(e) SEVERABILITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(f) CAPTIONS. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect.
15. ADDITIONAL CONSIDERATION. As additional consideration
for Executive's agreement to the terms and conditions hereof, the Company
shall within sixty (60) days of the date hereof (i) grant to Executive a
non-statutory stock option to purchase shares of the Company's Common Stock
at an exercise price equal to the fair market value of the stock on the grant
date; (ii) reissue certain stock options held by Executive on the date hereof
at exercise prices equal to the fair market value of the stock on the
reissuance date plus a premium to be determined by the Board (subject to new
vesting periods), and/or (iii) make an additional grant of Restricted Stock
pursuant to the Company's 1998-2000 Restricted Stock Election Plan, as
amended.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and the Company has caused this Agreement to be executed in its name on its
behalf, all as of the day and year first above written.
ARCADIA FINANCIAL LTD.
By: /s/ Scott Anderson
--------------------------------
Name: Vice Chairman
------------------------------
Title: Scott Anderson
-----------------------------
/s/ Richard Greenawalt
-----------------------------------
Richard A. Greenawalt
13
<PAGE>
EMPLOYMENT RETENTION AGREEMENT
THIS AGREEMENT between Arcadia Financial Ltd. (the "Company") and
Scott H. Anderson (the "Executive") is dated as of this 27 day of January,
1998.
W I T N E S S E T H :
WHEREAS, the Company and the Executive have agreed to enter into an
agreement providing the Company and the Executive with certain rights to
assure the Company of continuity of management;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Executive as follows:
1. EFFECTIVE DATE; TERM. This Agreement shall govern the terms and
conditions of Executive's employment commencing as of the date hereof (the
"Effective Date").
2. PRIOR EMPLOYMENT AGREEMENT. As of the Effective Date, this
Agreement shall supersede the Executive's Employment Agreement with the
Company dated November 7, 1996, as amended.
3. RETENTION PERIOD. The Company agrees to continue the Executive
in its employ, and the Executive agrees to remain in the employ of the
Company, for the period (the "Retention Period") commencing on the Effective
Date and ending on the date of any termination of the Executive's employment
in accordance with Section 6 of this Agreement.
4. POSITION AND DUTIES. (a) CHANGE IN POSITION PRIOR TO CHANGE OF
CONTROL. During the Retention Period, prior to a Change of Control (as
hereinafter defined), the Executive's position (including titles), authority
and responsibilities as an officer of the Company shall be at least
commensurate with the highest of those held or exercised by him at any time
during the 90-day period immediately preceding the Effective Date; provided,
however, that the Chief Executive Officer of the Company may, in his sole
discretion, make changes to the Executive's position (including titles),
authority and responsibilities if he determines in good faith that such
changes are appropriate in light of the Company's business plan including,
without limitation, financial, strategic and operating objectives, and,
provided further, that in the event the Chief Executive Officer elects to
make a reduction in the Executive's position, authority or responsibilities
pursuant hereto, such changes shall not otherwise impact or in any way reduce
the Executive's compensation and benefits under Section 5 or the Company's
obligations under this Agreement including, without limitation, its
obligations under Section 7(d) hereof.
(b) CONSENT / WAIVER. Executive consents to any changes in
Executive's position, authority or responsibilities made by the Company prior
to the date hereof and waives Executive's rights, if any, to (i) terminate
this Agreement for Good Reason (as defined herein) pursuant to Section 6(d)
hereof as a result of, or based upon any such changes in Executive's
position, authority or responsibilities and (ii) to receive sums pursuant to
Section 7(d) hereof as a result of, or based upon any such changes in
Executive's position, authority or responsibilities.
1
<PAGE>
(c) CHANGE IN POSITION AFTER CHANGE OF CONTROL. In the event a
Change of Control (as hereinafter defined) occurs during the Retention
Period, thereafter the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with the highest of those
held or exercised by him at any time during the 90-day period immediately
preceding the date of the Change of Control.
(d) CHANGE OF CONTROL. As used herein the term "Change of
Control" shall mean the closing of any transaction or series of transactions
by which the Company shall merge with (whether or not the Company is the
surviving entity) or consolidate into any other person or lease or sell
substantially all of its and its subsidiaries' assets (other than asset sales
in connection with automobile loan securitization transactions) substantially
as an entirety to any other person or by which any person, entity or group
(within the meaning of Rule 13d-5 under the Securities Exchange Act of 1934)
acquires, directly or indirectly, 51% or more of the Company's outstanding
common stock (calculated on a fully diluted basis).
(e) BUSINESS TIME. During the Retention Period, the Executive
shall devote his full business time during normal business hours to the
business and affairs of the Company and use his best efforts to perform
faithfully and efficiently the responsibilities assigned to him hereunder, to
the extent necessary to discharge such responsibilities, except for
(i) reasonable time spent in serving on corporate, civic or
charitable boards or committees of the nature similar to those on which
the Executive served prior to the Effective Date, in each case only if
and to the extent not substantially interfering with the performance of
such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled.
It is expressly understood and agreed that the Executive's continuing to
serve on any boards and committees on which he is serving or with which he is
otherwise associated immediately preceding the Effective Date shall not be
deemed to interfere with the performance of the Executive's services to the
Company. The Executive shall be entitled to serve on additional outside
boards and committees with the prior written consent by the Chief Executive
Officer of the Company.
5. COMPENSATION AND BENEFITS. (a) BASE SALARY. During the
Retention Period, the Executive shall receive a base salary ("Base Salary")
at a monthly rate at least equal to the monthly salary paid to the Executive
by the Company and any of its affiliated companies immediately prior to the
Effective Date. The Base Salary shall be reviewed at least once each year
after the Effective Date, and may be increased (but not decreased) at any
time and from time to time by action of the Board or any committee thereof or
any individual having authority to take such action in accordance with the
Company's regular practices. Neither payment of the Base Salary nor payment
of any increased Base Salary after the Effective Date shall serve to limit or
reduce any other obligation of the Company hereunder. For purposes of the
remaining provisions of this Agreement, the term "Base Salary" shall mean
Base Salary as defined in this Section 5(a) or, if increased after the
Effective Date, the Base Salary as so increased.
2
<PAGE>
(b) ANNUAL BONUS. In addition to the Base Salary, the Executive
shall be eligible for each fiscal year of the Company ending during the
Retention Period an annual bonus, with the target amount, vesting and payment
thereof to be based on reasonable and customary criteria consistent with the
Company's practices for all executives holding the same office as the highest
office held by the Executive during the Retention Period (the "Annual
Bonus"). If a fiscal year of the Company begins, but does not end, during the
Retention Period, the Executive shall receive an amount with respect to such
fiscal year at least equal to the amount of the Annual Bonus multiplied by a
fraction, the numerator of which is the number of days in such fiscal year
occurring during the Retention Period and the denominator of which is 365.
In the event the Executive has elected to receive his or her Annual Bonus for
such year in the form of restricted shares of the Common Stock of the
Company, upon termination of the Executive's employment for any reason the
Executive shall be deemed to have revoked such election as to any then
unvested shares of such restricted stock and the Executive's pro-rated Annual
Bonus for such year shall be determined based upon the amount of the cash
Annual Bonus the Executive would have received absent such election. Each
amount payable in respect of the Executive's Annual Bonus shall be paid not
later than 90 days after the fiscal year next following the fiscal year for
which the Annual Bonus (or pro-rated portion) is earned or awarded. Neither
the Annual Bonus nor any bonus amount paid in excess thereof after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(c) FRINGE BENEFITS. Subject to the Company's rights under
subsection (vii) of this Section 5(c), during the Retention Period, the
Company shall provide the following fringe benefits to Executive:
(i) HEALTH, DISABILITY AND LIFE INSURANCE. Subject to
satisfaction of the eligibility requirements of such plans and the rules
and regulations applicable thereto, Executive and his family members
shall be entitled to be covered by the Company's group health and dental
insurance plans presently in effect or hereafter adopted by the Company
and applicable to employees of the Company generally and Executive shall
be entitled to be covered by the Company's group disability and life
insurance plans presently in effect or hereafter adopted by the Company
and applicable to the employees of the Company in general. The Company
shall pay the premiums associated with such coverage. In the event
Executive makes a claim against any disability policy provided to
Executive by the Company pursuant to this Section 5(c)(i) and such
policy calls for a waiting period which is applicable to Executive's
claim, the Company shall pay to Executive during such waiting period his
monthly base salary due during such period and shall provide the other
benefits due him under this Section 5(c)(i).
(ii) VACATION. Executive shall be entitled to four weeks of
vacation without loss of compensation or other benefits pursuant to such
general policies and procedures of the Company as are from time to time
adopted by the Company.
(iii) EXPENSE REIMBURSEMENT. Executive shall be reimbursed by
the Company for all reasonable expenses incurred by him in connection
with the conduct of the Company's business for which he furnishes
appropriate documentation.
(iv) AUTOMOBILE. The Company shall at the Company's option
either (A) provide to Executive use of an automobile to be used by
Executive in conducting the
3
<PAGE>
Company's business; or (B) pay to Executive a monthly auto expense in
the amount of not less than Four Hundred Dollars ($400) per month. In
addition, in the event the Company provides to Executive an automobile
the Company shall reimburse Executive (1) an amount equal to the
reasonable cost of insuring and maintaining the automobile used by
Executive for the Company's business, and (2) the cost of maintenance
and the cost of gasoline and oil used in the automobile and in the
event of a loss under the policies insuring said automobile, the
amount of any deductible thereunder applicable to such loss. Such
insurance and the coverage and deductibles thereof shall cover both
the business and personal use of such automobile by Employee, his
family and invitees and shall include such other terms and conditions
as are reasonably acceptable to Executive. Any such reimbursements
shall be made upon the Company's receipt of invoices evidencing
incurrence of such expenses. Executive shall also be paid a monthly
amount equal to the reasonable value of personal use of such
automobile, determined in accordance with applicable federal income
tax regulations.
(v) CLUB DUES. The Company shall reimburse Executive the
reasonable cost of the monthly or annual dues, as the case may be, paid
by Executive to maintain his status as a member of the Flagship Athletic
Club or of any other athletic club having equal or lesser membership
costs in lieu of such club. The Company shall also provide to Executive
and his family a membership at Bearpath Golf Club and shall reimburse
the Executive for the reasonable cost of the monthly or annual dues, as
the case may be, paid by Executive to maintain such membership. If
either such membership is a corporate membership, upon termination of
Executive's employment other than for Cause or Death, such membership
shall be converted to an individual membership. The Company shall
reimburse Executive for any fees charged in connection with such
conversion.
(vi) OFFICE AND SUPPORT STAFF. In the event a Change of
Control occurs during the Retention Period, the Executive shall
thereafter be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other
assistance, substantially equal to the most favorable of the foregoing
provided to the Executive at any time during the 90-day period
immediately preceding the date of the Change of Control.
(vii) REDUCTION IN BENEFITS. At any time, and from time to
time, prior to a Change of Control, the Company shall be entitled to
reduce the benefits provided to the Executive under this Subsection (c)
provided that any such reduction must be made concurrently with an equal
reduction to the fringe benefits granted to all executives holding the
same office as the highest office held by the Executive during the
Retention Period.
6. TERMINATION. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon his death. The Company may
terminate Executive's employment during the Retention Period, after having
established the Executive's Disability, by giving the Executive written
notice of its intention to terminate his employment, and his employment with
the Company shall terminate effective on the 90th day after receipt of such
notice if, within 90 days after such receipt, the Executive shall fail to
return to full-time performance of his duties. For purposes of this
Agreement, "Disability" means disability which, after the expiration of more
4
<PAGE>
than 26 weeks after its commencement, is determined to be total and permanent
by a physician selected by the Company or its insurers and acceptable to the
Executive or his legal representatives (such agreement to acceptability not
to be withheld unreasonably).
(b) VOLUNTARY TERMINATION. Notwithstanding anything in this
Agreement to the contrary, the Executive may, upon not less than 15 days'
advance written notice to the Company, voluntarily terminate employment
during the Retention Period for any reason, provided that any termination by
the Executive pursuant to Section 6(d) of this Agreement on account of Good
Reason (as defined therein) shall not be treated as a voluntary termination
under this Section 6(b).
(c) CAUSE. The Company may terminate the Executive's employment
during the Retention Period for Cause. As used in this Agreement, the term
"Cause" shall mean (i) any fraud, misappropriation or embezzlement by the
Executive in connection with the business of the Company or any of its
subsidiaries, (ii) any conviction of a felony or a gross misdemeanor by the
Executive that has or can reasonably be expected to have a detrimental effect
on the Company or any of its subsidiaries, (iii) any gross neglect by the
Executive of the duties assigned to him or her hereunder which continues for
a period of 90 days after written notice to the Executive of such neglect,
or, (iv) any material breach by Executive of any provisions of Section 12 of
this Agreement. It is understood and agreed that the Company may not
terminate Executive's employment for Cause in the event Executive is unable
to perform his or her duties due to partial or permanent or temporary or
total disability from injury or sickness.
(d) GOOD REASON. The Executive may terminate his employment
during the Retention Period for Good Reason. For purposes of this Agreement,
"Good Reason" means
(i) without the Executive's prior written consent, the
Company or any of its officers takes or fails to take any action which
changes the Executive's position (including titles), authority or
responsibilities which is inconsistent with Section 4 of this Agreement
or reduces the Executive's ability to carry out his duties and
responsibilities under Section 4 of this Agreement provided that any
change which is permissible under Section 4(a) of this Agreement shall
not constitute "Good Reason".
(ii) any failure by the Company to comply with any of the
provisions of Section 5 of this Agreement, other than an insubstantial
or inadvertent failure remedied by the Company promptly after receipt of
notice thereof from the Executive, provided however, a reduction in the
fringe benefits granted to the Executive pursuant to Section 5(c)(vii)
hereof which is consistent with reductions thereto made to the fringe
benefits granted to all executives holding the same office as the
highest office held by the Executive during the Retention Period shall
not constitute "Good Reason";
(iii) the Company's requiring the Executive to be employed at
any location more than 35 miles further from his principal residence
than the location at which the Executive was employed immediately
preceding the Effective Date; or
(iv) any failure by the Company to obtain the assumption of
and agreement to perform this Agreement by a successor as contemplated
by Section 13(b) of this Agreement.
5
<PAGE>
(e) WITHOUT CAUSE. The Company may terminate the Executive's
employment during the Retention Period without Cause. The Company shall give
Executive at least 15 days' advance written notice of any termination of
Executive's employment which is not for Cause and not on account of
Executive's Disability.
(f) NOTICE OF TERMINATION. Any termination of Executive's
employment by the Company for Cause or by the Executive for Good Reason
during the Retention Period shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 14(c) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice given, in the case of a termination by the Company for Cause,
within 10 business days of the Company's having actual knowledge of all of
the events giving rise to such termination, and in the case of a termination
by Executive for Good Reason, within 180 days of the Executive's having
actual knowledge of the events giving rise to such termination, and which (i)
indicates the specific termination provision in this Agreement relied upon,
(ii) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated, and (iii) if the termination date is other than the
date of receipt of such notice, specifies such termination date (which date
shall be not more than 15 days after the giving of such notice). The failure
by the Executive to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason shall not waive
any right of the Executive hereunder or preclude the Executive from asserting
such fact or circumstance in enforcing his rights hereunder.
(g) DATE OF TERMINATION. For purposes of this Agreement, the
term "Date of Termination" means (i) in the case of a termination for which a
Notice of Termination is required, the date of receipt of such Notice of
Termination or, if later, the date specified therein and (ii) in all other
cases, the actual date on which the Executive's employment terminates during
the Retention Period.
7. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH. If the
Executive's employment is terminated during the Retention Period by reason of
the Executive's death, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this Agreement
other than those obligations accrued hereunder at the date of his death,
including, for this purpose (i) the Executive's full Base Salary through the
Date of Termination, (ii) the product of the target Annual Bonus for the year
in which the death occurred and a fraction, the numerator of which is the
number of days in the current fiscal year of the Company through the Date of
Termination, and the denominator of which is 365 (the "Pro-rated Bonus
Obligation"). For the purposes of computing the Pro-rated Bonus Obligation,
the Executive shall be deemed to have revoked his election, if any, to
receive such bonus in the form of restricted stock of the Company and to have
earned the maximum cash Annual Bonus which he was eligible to earn for the
year in which the termination occurred, (iii) any compensation previously
deferred by the Executive (together with any accrued earnings thereon) and
not yet paid by the Company, (iv) any other amounts or benefits then owing to
the Executive under any of the Company's incentive compensation plans, stock
option plans, restricted stock plans or other similar plans as determined
pursuant to the terms of such plans and this Agreement and (v) any amounts or
benefits owing to the Executive under any of the Company's employee benefit
plans or policies (such amounts specified in clauses (i), (ii), (iii),
6
<PAGE>
(iv) and (v) are hereinafter referred to as "Accrued Obligations"). Unless
otherwise directed by the Executive prior to his death, all Accrued
Obligations shall be paid to the Executive's estate.
(b) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability, the Executive shall receive all Accrued
Obligations and, in addition, from the Date of Termination until the date
when the Retention Period would otherwise have terminated, shall continue to
participate in or be covered under the benefit plans and programs referred to
in Section 5(c)(i) of this Agreement or, at the Company's option, to receive
equivalent benefits by alternate means at least equal to those provided in
accordance with Section 5(c)(i) of this Agreement. Anything in this
Agreement to the contrary notwithstanding, the Executive shall be entitled
to receive disability and other benefits at least equal to the most favorable
level of benefits available to disabled employees and/or their families in
accordance with the plans, programs and policies maintained by the Company or
its affiliates relating to disability at any time during the 90-day period
immediately preceding the Effective Date.
(c) CAUSE AND VOLUNTARY TERMINATION. If, during the Retention
Period, the Executive's employment shall be terminated for Cause or
voluntarily terminated by the Executive (other than on account of Good
Reason), the Executive shall receive all Accrued Obligations other than the
Pro-rated Bonus Obligation.
(d) TERMINATION BY COMPANY OTHER THAN FOR CAUSE OR DISABILITY AND
TERMINATION BY EXECUTIVE FOR GOOD REASON. LUMP SUM PAYMENT. . If, during
the Retention Period, the Company terminates the Executive's employment other
than for Cause or Disability, or the Executive terminates his employment for
Good Reason, the Executive shall receive all Accrued Obligations. In
addition, the Company shall pay to the Executive in a lump sum, a cash amount
equal to two (2) times the sum of the following amounts:
(1) the Executive's annual Base Salary at the rate specified
in Section 5(a) of this Agreement;
(2) an amount equal to the target cash Annual Bonus
determined without proration payable to the Executive in respect to the
calendar year in which the termination event occurred;
(3) an amount equal to the average annual amount paid and/or
reimbursed to the Executive pursuant to Section 5(c)(iv) and (v) hereof
during the two calendar years preceding the Date of Termination; and
(4) the present value, calculated using the annual federal
short-term rate as determined under Section 1274(d) of the Code, of
(without duplication) the annual cost to the Company (based on the
premium rates or other costs to it) of obtaining coverage equivalent to
the coverage under the plans and programs described in Section 5(c)(i)
of this Agreement;
provided, however, that with respect to the life and medical insurance
coverage referred to in Section 5(c)(i) of this Agreement, at the
Executive's election made prior to the Date of Termination, the Company
shall use its best efforts to secure
7
<PAGE>
conversion coverage and shall pay the cost of such coverage in lieu of
paying the lump sum amount attributable to such life or medical
insurance coverage.
In consideration of the Company's payment of the amounts payable to the
Executive pursuant to this Subsection 7(d) and the Executive's acceptance
thereof, the Executive and the Company shall enter into a mutual release in a
form acceptable to the Company releasing each other and their respective
agents from all claims arising from or in any way related to the Executive's
employment by the Company and the termination of such employment
relationship. The Executive shall not receive any of the amounts payable
pursuant to this Subsection 7(d) until after the Executive has executed and
delivered the release to the Company and all rescission periods under
applicable state and federal laws have expired without rescission of the
release by the Executive. The Company shall make such payment within fifteen
(15) days after the longest applicable rescission period has elapsed without
rescission.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise prejudice such rights as the
Executive may have with respect to awards granted to him prior to or during
the Retention Period under any stock option, restricted stock or other plans
or agreements with the Company or any of its affiliated companies except as
to restrictions on the Executive's rights to any restricted stock received by
the Executive in lieu of a cash Annual Bonus as set forth in Sections 5(b),
7(a) and 7(d) of this Agreement. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or program of
the Company or any of its affiliated companies shall be payable in accordance
with such plan or program.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment, distribution,
acceleration of vesting or other benefit which the Executive receives or
becomes entitled to receive, whether alone or in combination, and whether
pursuant to the terms of this Agreement or any other agreement, plan or
arrangement with the Company or any of its affiliates or any of their
respective successors or assigns, but determined without regard to any
additional payments required under this Section 9 (collectively, the
"Payments"), would be subject to the excise tax imposed by Section 4999 of
the Code (or any successor provision), or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of (i) all taxes with respect to the Gross-Up
Payment (including any interest or penalties imposed with respect to such
taxes) including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto), and (ii) the Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such
8
<PAGE>
determination, shall be made by KPMG Peat Marwick or such other nationally
recognized accounting firm then auditing the accounts of the Company (the
"Accounting Firm") which shall provide detailed supporting calculations both
to the Company and the Executive within 15 business days of the receipt of
notice from the Executive that there has been a Payment, or such earlier time
as is requested by the Company. In the event that the Accounting Firm is
unwilling or unable to perform its obligations pursuant to this Section 9,
the Executive shall appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm shall then
be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up
Payment, determined pursuant to this Section 9, shall be paid by the Company
to the Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the potential uncertainty
in the application of Section 4999 of the Code (or any successor provision)
at the time of the initial determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 20 business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which he gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall
9
<PAGE>
indemnify and hold the Executive harmless, on an after-tax basis, for any
Excise Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs and
expenses. Without limiting the foregoing provisions of this Section 9(c),
the Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs the Executive
to pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis, and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall
be entitled to settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right
which the Company may have against the Executive or others whether by reason
of the subsequent employment of the Executive or otherwise. In no event
shall the Executive be obligated to seek other employment by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement, and no amount payable under this Agreement
shall be reduced on account of any compensation received by the Executive
from other employment. In the event that the Executive shall in good faith
give a Notice of Termination for Good Reason and it shall thereafter be
determined by mutual consent of the Executive and the Company or by a
tribunal having jurisdiction over the matter that Good Reason did not exist,
the employment of the Executive shall, unless the Company and the Executive
shall otherwise mutually agree, be deemed to have terminated, at the date of
giving such purported Notice of Termination, by mutual consent of the Company
and the Executive
10
<PAGE>
and, except as provided in the last preceding sentence, the Executive shall
be entitled to receive only those payments and benefits which he would have
been entitled to receive at such date otherwise than under this Agreement.
11. DISPUTES; LEGAL FEES AND EXPENSES. (a) Any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively and finally by expedited arbitration, conducted before a
single arbitrator in Minneapolis, Minnesota, in accordance with the rules
governing employment disputes then in effect of the American Arbitration
Association. The arbitrator shall be approved by both the Company and the
Executive. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
(b) In the event that any claim by the Executive under this
Agreement is disputed, the Company shall pay all reasonable legal fees and
expenses incurred by the Executive in pursuing such claim, provided that the
Executive is successful as to at least part of the disputed claim by reason
of arbitration, settlement or otherwise.
12. CONFIDENTIAL INFORMATION; NONCOMPETITION. (a) The Executive
shall hold in a fiduciary capacity for the benefit of the Company all secret
or confidential information, knowledge or data relating to the Company or any
of its affiliated companies, and their respective businesses, (i) obtained by
the Executive during his employment by the Company or any of its affiliated
companies and (ii) not otherwise public knowledge (other than by reason of an
unauthorized act by the Executive). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior
written consent of the Company, unless compelled pursuant to an order of a
court or other body having jurisdiction over such matter, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those designated by it.
(b) It is mutually acknowledged that by virtue of Employee's former
positions with the Company and its subsidiaries, he has become possessed of
certain valuable and confidential information concerning the customers,
business methods, procedures and techniques of the Company and its
subsidiaries. It is further understood that Employee has developed contacts
among the customers of the Company and its subsidiaries, and it is mutually
understood and agreed that the customers of the Company and its subsidiaries
and the business methods and procedures and techniques developed by the
Company and its subsidiaries are valuable assets and properties of the
Company and its subsidiaries. Without limitation, it is also specifically
acknowledged that great trust on the part of the Company and its subsidiaries
has resided in Employee, since Employee's former duties have included
involvement in the management, promotion and development of the Company's
business. Accordingly, the parties deem it necessary to enter into the
protective covenants set forth below, the terms and conditions of which have
been negotiated by and between the parties hereto:
(i) Employee agrees that during the Retention Period and until the
first anniversary of the Date of Termination, he will not, directly or
indirectly, on his own behalf or on the behalf of any third party, perform
management, accounting, financial, marketing, sales, administrative or
executive duties, in any business conducted within the Territories (as
defined below) whose primary business consists of originating or purchasing
automobile or truck loans or leases from automobile or truck dealers,
packaging such loans or leases, reselling such loans or leases or servicing
such loans or leases (the "Restricted Activities") or for any subdivision or
department of
11
<PAGE>
any business whose primary business does not consist of Restricted
Activities, but where the primary business of such subdivision or department
consists of Restricted Activities. As used in this Addendum, the term
"Territories" means any state in which any loans or leases originated or
acquired by the Company originated (determined by the location of the dealers
from whom the loans or leases were purchased or, in the case of loans or
leases, originated by the Company where the borrower or lessee resides).
(ii) Employee agrees that during the Retention Period and until the
first anniversary of the Date of Termination, he will not, directly or
indirectly, solicit, divert, take away or attempt to solicit, divert, or take
away from the Company, or any subsidiary, any of the dealers and other
sources from which the Company or any subsidiary acquires loans or leases or
from whom the loan or lease packages are received by the Company or any
subsidiary.
(iii) Employee agrees that during the Retention Period and until the
first anniversary of the Date of Termination, he will not, directly or
indirectly, on his own behalf or in the service or on behalf of others,
solicit, divert or hire away, or in any manner attempt to solicit, divert or
hire away any person employed by the Company or any subsidiary, whether or
not such employee is a full-time employee or a temporary employee of the
Company or any subsidiary, and whether or not such employment was pursuant to
a written or oral contract of employment and whether or not such employment
was for a determined period or was at will.
(c) Employee acknowledges that the provisions of this Section 12
constitute a material inducement to the Company to enter into the Agreement.
Employee further acknowledges that the Company's remedy at law for a breach
by him of the provisions of this Section 12 will be inadequate. Accordingly,
in the event of a breach or threatened breach by Employee of any provision of
this Section 12, the Company will be entitled to injunctive relief in
addition to any other remedy it may have. If any of the provisions of, or
covenants contained in, this Section 12 are hereafter construed to be invalid
or unenforceable in any jurisdiction, the same will not affect the remainder
of the provisions or the enforceability thereof in any other jurisdiction,
which will be given full effect, without regard to the invalidity or
unenforceability in such other jurisdiction. If any of the provisions of, or
covenants contained in, this Section 12 are held to be unenforceable in any
jurisdiction because of the duration or geographical scope thereof, the
parties agree that the court making such determination will have the power to
reduce the duration or geographical scope of such provision or covenant and,
in its reduced form, such provision or covenant will be enforceable;
provided, however, that the determination of such court will not affect the
enforceability of this Section 12 in any other jurisdiction.
(d) In no event shall an asserted violation of the provisions of
this Section 12 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement or under any other
agreement, plan or arrangement.
13. SUCCESSORS. (a) This Agreement is personal to the Executive
and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors. The Company shall require any successor
to all or substantially all
12
<PAGE>
of the business and/or assets of the Company, whether direct or indirect, by
purchase, merger, consolidation, acquisition of stock, or otherwise, by an
agreement in form and substance satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent as the Company would be required to perform if no such succession had
taken place.
14. MISCELLANEOUS. (a) APPLICABLE LAW. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Minnesota, applied without reference to principles of conflict of laws.
(b) AMENDMENTS. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(c) NOTICES. All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: Scott H. Anderson
15363 Masons Pointe Road
Eden Prairie, MN 55347
If to the Company: Arcadia Financial Ltd.
7825 Washington Avenue South
Minneapolis, MN 55439
Attention: Secretary
(with a copy to the attention of
the General Counsel)
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be
effective when actually received by the addressee.
(d) TAX WITHHOLDING. The Company may withhold from any amounts
payable under this Agreement such Federal, State or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(f) CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
15. ADDITIONAL CONSIDERATION. As additional consideration for
Executive's agreement to the terms and conditions hereof, the Company shall
within sixty (60) days of the date hereof (i) grant to Executive a
non-statutory stock option to purchase shares of the
13
<PAGE>
Company's Common Stock at an exercise price equal to the fair market value of
the stock on the grant date; (ii) reissue certain stock options held by
Executive on the date hereof at exercise prices equal to the fair market
value of the stock on the reissuance date plus a premium to be determined by
the Board (subject to new vesting periods), and/or (iii) make an additional
grant of Restricted Stock pursuant to the Company's 1998-2000 Restricted
Stock Election Plan, as amended.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused this Agreement to be executed in its name on its behalf,
all as of the day and year first above written.
ARCADIA FINANCIAL LTD.
By: /s/ [illegible]
--------------------------------
Name:
------------------------------
Title:
-----------------------------
/s/ Scott H. Anderson
-----------------------------------
Scott H. Anderson
14
<PAGE>
CONSENT AND WAIVER
A. I Scott H. Anderson acknowledge that:
1. Pursuant to Section 5(b) of the Employment Retention Agreement
dated January 27, 1998 (the "Employment Agreement") between
Arcadia Financial Ltd. ("Arcadia") and me, each fiscal year I am
eligible to receive an annual bonus; and
2. The target amount for such annual bonus for 1997 was set at
fifty percent (50%) (the "Target Bonus Percentage") of my annual
base salary; and
3. I have previously elected to receive one hundred percent (100%)
(the "Elected Percentage") of any such annual bonus in the form
of shares of restricted stock granted to me under the Arcadia
1994-1997 Restricted Stock Election Plan and the Arcadia 1998-
2000 Restricted Stock Election Plan (together the "Plans"); and
4. Pursuant to a Memorandum dated December 14, 1998 Arcadia has
offered to allow me to reduce my Elected Percentage to eighty
percent (80%); and
5. Such offer by Arcadia was conditioned upon my agreement to
reduce my Target Bonus Percentage from fifty percent (50%) to
forty percent (40%); and
6. By Election form dated December 17, 1998, I agreed to accept
Arcadia's offer to reduce my Elected Percentage and consented to
the reduction of my Target Bonus Percentage for 1998 and
thereafter to forty percent (40%).
B. I Scott H. Anderson hereby confirm that I have consented to the
reduction of my Target Bonus Percentage (and thus my target annual
bonus) for 1998 and thereafter from fifty percent (50%) to forty percent
(40%) and agree that such reduction does not constitute "Good Reason" as
such term is defined in Section 6(d) of the Employment Agreement nor
does it entitle me to terminate the Employment Agreement pursuant to
said Section 6(d) or to any other provision of the Employment Agreement.
Dated: December 17, 1998 /s/ Scott H. Anderson
-----------------------------------
Scott H. Anderson
<PAGE>
EMPLOYMENT RETENTION AGREEMENT
THIS AGREEMENT between Arcadia Financial Ltd. (the "Company") and
John A. Witham (the "Executive") is dated as of this 27 day of January,
1998.
W I T N E S S E T H :
WHEREAS, the Company and the Executive have agreed to enter into an
agreement providing the Company and the Executive with certain rights to
assure the Company of continuity of management;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is hereby agreed by and between the Company
and the Executive as follows:
1. EFFECTIVE DATE; TERM. This Agreement shall govern the terms
and conditions of Executive's employment commencing as of the date hereof
(the "Effective Date").
2. PRIOR EMPLOYMENT AGREEMENT. As of the Effective Date, this
Agreement shall supersede the Executive's Employment Agreement with the
Company dated November 7, 1996, as amended.
3. RETENTION PERIOD. The Company agrees to continue the
Executive in its employ, and the Executive agrees to remain in the employ of
the Company, for the period (the "Retention Period") commencing on the
Effective Date and ending on the date of any termination of the Executive's
employment in accordance with Section 6 of this Agreement.
4. POSITION AND DUTIES. (a) CHANGE IN POSITION PRIOR TO
CHANGE OF CONTROL. During the Retention Period, prior to a Change of Control
(as hereinafter defined), the Executive's position (including titles),
authority and responsibilities as an officer of the Company shall be at least
commensurate with the highest of those held or exercised by him at any time
during the 90-day period immediately preceding the Effective Date; provided,
however, that the Chief Executive Officer of the Company may, in his sole
discretion, make changes to the Executive's position (including titles),
authority and responsibilities if he determines in good faith that such
changes are appropriate in light of the Company's business plan including,
without limitation, financial, strategic and operating objectives, and,
provided further, that in the event the Chief Executive Officer elects to
make a reduction in the Executive's position, authority or responsibilities
pursuant hereto, such changes shall not otherwise impact or in any way reduce
the Executive's compensation and benefits under Section 5 or the Company's
obligations under this Agreement including, without limitation, its
obligations under Section 7(d) hereof.
(b) CONSENT / WAIVER. Executive consents to any changes in
Executive's position, authority or responsibilities made by the Company prior
to the date hereof and waives Executive's rights, if any, to (i) terminate
this Agreement for Good Reason (as defined herein) pursuant to Section 6(d)
hereof as a result of, or based upon any such changes in Executive's
position, authority or responsibilities and (ii) to receive sums pursuant to
Section 7(d) hereof as a result of, or based upon any such changes in
Executive's position, authority or responsibilities.
1
<PAGE>
(c) CHANGE IN POSITION AFTER CHANGE OF CONTROL. In the event a
Change of Control (as hereinafter defined) occurs during the Retention
Period, thereafter the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with the highest of those
held or exercised by him at any time during the 90-day period immediately
preceding the date of the Change of Control.
(d) CHANGE OF CONTROL. As used herein the term "Change of
Control" shall mean the closing of any transaction or series of transactions
by which the Company shall merge with (whether or not the Company is the
surviving entity) or consolidate into any other person or lease or sell
substantially all of its and its subsidiaries' assets (other than asset sales
in connection with automobile loan securitization transactions) substantially
as an entirety to any other person or by which any person, entity or group
(within the meaning of Rule 13d-5 under the Securities Exchange Act of 1934)
acquires, directly or indirectly, 51% or more of the Company's outstanding
common stock (calculated on a fully diluted basis).
(e) BUSINESS TIME. During the Retention Period, the Executive
shall devote his full business time during normal business hours to the
business and affairs of the Company and use his best efforts to perform
faithfully and efficiently the responsibilities assigned to him hereunder, to
the extent necessary to discharge such responsibilities, except for
(i) reasonable time spent in serving on corporate, civic or
charitable boards or committees of the nature similar to those on
which the Executive served prior to the Effective Date, in each case
only if and to the extent not substantially interfering with the
performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled.
It is expressly understood and agreed that the Executive's continuing to
serve on any boards and committees on which he is serving or with which he is
otherwise associated immediately preceding the Effective Date shall not be
deemed to interfere with the performance of the Executive's services to the
Company. The Executive shall be entitled to serve on additional outside
boards and committees with the prior written consent by the Chief Executive
Officer of the Company.
5. COMPENSATION AND BENEFITS. (a) BASE SALARY. During the
Retention Period, the Executive shall receive a base salary ("Base Salary")
at a monthly rate at least equal to the monthly salary paid to the Executive
by the Company and any of its affiliated companies immediately prior to the
Effective Date. The Base Salary shall be reviewed at least once each year
after the Effective Date, and may be increased (but not decreased) at any
time and from time to time by action of the Board or any committee thereof or
any individual having authority to take such action in accordance with the
Company's regular practices. Neither payment of the Base Salary nor payment
of any increased Base Salary after the Effective Date shall serve to limit or
reduce any other obligation of the Company hereunder. For purposes of the
remaining provisions of this Agreement, the term "Base Salary" shall mean
Base Salary as defined in this Section 5(a) or, if increased after the
Effective Date, the Base Salary as so increased.
2
<PAGE>
(b) ANNUAL BONUS. In addition to the Base Salary, the Executive
shall be eligible for each fiscal year of the Company ending during the
Retention Period an annual bonus, with the target amount, vesting and payment
thereof to be based on reasonable and customary criteria consistent with the
Company's practices for all executives holding the same office as the highest
office held by the Executive during the Retention Period (the "Annual
Bonus"). If a fiscal year of the Company begins, but does not end, during the
Retention Period, the Executive shall receive an amount with respect to such
fiscal year at least equal to the amount of the Annual Bonus multiplied by a
fraction, the numerator of which is the number of days in such fiscal year
occurring during the Retention Period and the denominator of which is 365.
In the event the Executive has elected to receive his or her Annual Bonus for
such year in the form of restricted shares of the Common Stock of the
Company, upon termination of the Executive's employment for any reason the
Executive shall be deemed to have revoked such election as to any then
unvested shares of such restricted stock and the Executive's pro-rated Annual
Bonus for such year shall be determined based upon the amount of the cash
Annual Bonus the Executive would have received absent such election. Each
amount payable in respect of the Executive's Annual Bonus shall be paid not
later than 90 days after the fiscal year next following the fiscal year for
which the Annual Bonus (or pro-rated portion) is earned or awarded. Neither
the Annual Bonus nor any bonus amount paid in excess thereof after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(c) FRINGE BENEFITS. Subject to the Company's rights under
subsection (vii) of this Section 5(c), during the Retention Period, the
Company shall provide the following fringe benefits to Executive:
(i) HEALTH, DISABILITY AND LIFE INSURANCE. Subject to
satisfaction of the eligibility requirements of such plans and the
rules and regulations applicable thereto, Executive and his family
members shall be entitled to be covered by the Company's group health
and dental insurance plans presently in effect or hereafter adopted by
the Company and applicable to employees of the Company generally and
Executive shall be entitled to be covered by the Company's group
disability and life insurance plans presently in effect or hereafter
adopted by the Company and applicable to the employees of the Company
in general. The Company shall pay the premiums associated with such
coverage. In the event Executive makes a claim against any disability
policy provided to Executive by the Company pursuant to this Section
5(c)(i) and such policy calls for a waiting period which is applicable
to Executive's claim, the Company shall pay to Executive during such
waiting period his monthly base salary due during such period and
shall provide the other benefits due him under this Section 5(c)(i).
(ii) VACATION. Executive shall be entitled to four weeks of
vacation without loss of compensation or other benefits pursuant to
such general policies and procedures of the Company as are from time
to time adopted by the Company.
(iii) EXPENSE REIMBURSEMENT. Executive shall be reimbursed
by the Company for all reasonable expenses incurred by him in
connection with the conduct of the Company's business for which he
furnishes appropriate documentation.
(iv) AUTOMOBILE. The Company shall at the Company's option
either (A) provide to Executive use of an automobile to be used by
Executive in conducting the
3
<PAGE>
Company's business; or (B) pay to Executive a monthly auto expense in
the amount of not less than Four Hundred Dollars ($400) per month.
In addition, in the event the Company provides to Executive an
automobile the Company shall reimburse Executive (1) an amount equal
to the reasonable cost of insuring and maintaining the automobile
used by Executive for the Company's business, and (2) the cost of
maintenance and the cost of gasoline and oil used in the automobile
and in the event of a loss under the policies insuring said
automobile, the amount of any deductible thereunder applicable to
such loss. Such insurance and the coverage and deductibles thereof
shall cover both the business and personal use of such automobile by
Employee, his family and invitees and shall include such other terms
and conditions as are reasonably acceptable to Executive. Any such
reimbursements shall be made upon the Company's receipt of invoices
evidencing incurrence of such expenses. Executive shall also be paid
a monthly amount equal to the reasonable value of personal use of
such automobile, determined in accordance with applicable federal
income tax regulations.
(v) CLUB DUES. The Company shall reimburse Executive the
reasonable cost of the monthly or annual dues, as the case may be,
paid by Executive to maintain his status as a member of the Flagship
Athletic Club or of any other athletic club having equal or lesser
membership costs in lieu of such club. The Company shall also provide
to Executive and his family a membership at Olympic Hills Golf Club
and shall reimburse the Executive for the reasonable cost of the
monthly or annual dues, as the case may be, paid by Executive to
maintain such membership. If either such membership is a corporate
membership, upon termination of Executive's employment other than for
Cause or Death, such membership shall be converted to an individual
membership. The Company shall reimburse Executive for any fees
charged in connection with such conversion.
(vi) OFFICE AND SUPPORT STAFF. In the event a Change of
Control occurs during the Retention Period, the Executive shall
thereafter be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other
assistance, substantially equal to the most favorable of the foregoing
provided to the Executive at any time during the 90-day period
immediately preceding the date of the Change of Control.
(vii) REDUCTION IN BENEFITS. At any time, and from time to
time, prior to a Change of Control, the Company shall be entitled to
reduce the benefits provided to the Executive under this Subsection
(c) provided that any such reduction must be made concurrently with an
equal reduction to the fringe benefits granted to all executives
holding the same office as the highest office held by the Executive
during the Retention Period.
6. TERMINATION. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon his death. The Company may
terminate Executive's employment during the Retention Period, after having
established the Executive's Disability, by giving the Executive written
notice of its intention to terminate his employment, and his employment with
the Company shall terminate effective on the 90th day after receipt of such
notice if, within 90 days after such receipt, the Executive shall fail to
return to full-time performance of his duties. For purposes of this
Agreement, "Disability" means disability which, after the expiration of more
4
<PAGE>
than 26 weeks after its commencement, is determined to be total and permanent
by a physician selected by the Company or its insurers and acceptable to the
Executive or his legal representatives (such agreement to acceptability not
to be withheld unreasonably).
(b) VOLUNTARY TERMINATION. Notwithstanding anything in this
Agreement to the contrary, the Executive may, upon not less than 15 days'
advance written notice to the Company, voluntarily terminate employment
during the Retention Period for any reason, provided that any termination by
the Executive pursuant to Section 6(d) of this Agreement on account of Good
Reason (as defined therein) shall not be treated as a voluntary termination
under this Section 6(b).
(c) CAUSE. The Company may terminate the Executive's employment
during the Retention Period for Cause. As used in this Agreement, the term
"Cause" shall mean (i) any fraud, misappropriation or embezzlement by the
Executive in connection with the business of the Company or any of its
subsidiaries, (ii) any conviction of a felony or a gross misdemeanor by the
Executive that has or can reasonably be expected to have a detrimental effect
on the Company or any of its subsidiaries, (iii) any gross neglect by the
Executive of the duties assigned to him or her hereunder which continues for
a period of 90 days after written notice to the Executive of such neglect,
or, (iv) any material breach by Executive of any provisions of Section 12 of
this Agreement. It is understood and agreed that the Company may not
terminate Executive's employment for Cause in the event Executive is unable
to perform his or her duties due to partial or permanent or temporary or
total disability from injury or sickness.
(d) GOOD REASON. The Executive may terminate his employment
during the Retention Period for Good Reason. For purposes of this Agreement,
"Good Reason" means
(i) without the Executive's prior written consent, the
Company or any of its officers takes or fails to take any action which
changes the Executive's position (including titles), authority or
responsibilities which is inconsistent with Section 4 of this
Agreement or reduces the Executive's ability to carry out his duties
and responsibilities under Section 4 of this Agreement provided that
any change which is permissible under Section 4(a) of this Agreement
shall not constitute "Good Reason".
(ii) any failure by the Company to comply with any of the
provisions of Section 5 of this Agreement, other than an insubstantial
or inadvertent failure remedied by the Company promptly after receipt
of notice thereof from the Executive, provided however, a reduction in
the fringe benefits granted to the Executive pursuant to Section
5(c)(vii) hereof which is consistent with reductions thereto made to
the fringe benefits granted to all executives holding the same office
as the highest office held by the Executive during the Retention
Period shall not constitute "Good Reason";
(iii) the Company's requiring the Executive to be employed at
any location more than 35 miles further from his principal residence
than the location at which the Executive was employed immediately
preceding the Effective Date; or
(iv) any failure by the Company to obtain the assumption of
and agreement to perform this Agreement by a successor as contemplated
by Section 13(b) of this Agreement.
5
<PAGE>
(e) WITHOUT CAUSE. The Company may terminate the Executive's
employment during the Retention Period without Cause. The Company shall give
Executive at least 15 days' advance written notice of any termination of
Executive's employment which is not for Cause and not on account of
Executive's Disability.
(f) NOTICE OF TERMINATION. Any termination of Executive's
employment by the Company for Cause or by the Executive for Good Reason
during the Retention Period shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 14(c) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice given, in the case of a termination by the Company for Cause,
within 10 business days of the Company's having actual knowledge of all of
the events giving rise to such termination, and in the case of a termination
by Executive for Good Reason, within 180 days of the Executive's having
actual knowledge of the events giving rise to such termination, and which (i)
indicates the specific termination provision in this Agreement relied upon,
(ii) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated, and (iii) if the termination date is other than the
date of receipt of such notice, specifies such termination date (which date
shall be not more than 15 days after the giving of such notice). The failure
by the Executive to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason shall not waive
any right of the Executive hereunder or preclude the Executive from asserting
such fact or circumstance in enforcing his rights hereunder.
(g) DATE OF TERMINATION. For purposes of this Agreement, the term
"Date of Termination" means (i) in the case of a termination for which a
Notice of Termination is required, the date of receipt of such Notice of
Termination or, if later, the date specified therein and (ii) in all other
cases, the actual date on which the Executive's employment terminates during
the Retention Period.
7. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH.
If the Executive's employment is terminated during the Retention Period by
reason of the Executive's death, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement other than those obligations accrued hereunder at the date of his
death, including, for this purpose (i) the Executive's full Base Salary
through the Date of Termination, (ii) the product of the target Annual Bonus
for the year in which the death occurred and a fraction, the numerator of
which is the number of days in the current fiscal year of the Company through
the Date of Termination, and the denominator of which is 365 (the "Pro-rated
Bonus Obligation"). For the purposes of computing the Pro-rated Bonus
Obligation, the Executive shall be deemed to have revoked his election, if
any, to receive such bonus in the form of restricted stock of the Company and
to have earned the maximum cash Annual Bonus which he was eligible to earn
for the year in which the termination occurred, (iii) any compensation
previously deferred by the Executive (together with any accrued earnings
thereon) and not yet paid by the Company, (iv) any other amounts or benefits
then owing to the Executive under any of the Company's incentive compensation
plans, stock option plans, restricted stock plans or other similar plans as
determined pursuant to the terms of such plans and this Agreement and (v) any
amounts or benefits owing to the Executive under any of the Company's
employee benefit plans or policies (such amounts specified in clauses (i),
(ii), (iii),
6
<PAGE>
(iv) and (v) are hereinafter referred to as "Accrued Obligations"). Unless
otherwise directed by the Executive prior to his death, all Accrued
Obligations shall be paid to the Executive's estate.
(b) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability, the Executive shall receive all Accrued
Obligations and, in addition, from the Date of Termination until the date
when the Retention Period would otherwise have terminated, shall continue to
participate in or be covered under the benefit plans and programs referred to
in Section 5(c)(i) of this Agreement or, at the Company's option, to receive
equivalent benefits by alternate means at least equal to those provided in
accordance with Section 5(c)(i) of this Agreement. Anything in this
Agreement to the contrary notwithstanding, the Executive shall be entitled
to receive disability and other benefits at least equal to the most favorable
level of benefits available to disabled employees and/or their families in
accordance with the plans, programs and policies maintained by the Company or
its affiliates relating to disability at any time during the 90-day period
immediately preceding the Effective Date.
(c) CAUSE AND VOLUNTARY TERMINATION. If, during the Retention
Period, the Executive's employment shall be terminated for Cause or
voluntarily terminated by the Executive (other than on account of Good
Reason), the Executive shall receive all Accrued Obligations other than the
Pro-rated Bonus Obligation.
(d) TERMINATION BY COMPANY OTHER THAN FOR CAUSE OR DISABILITY AND
TERMINATION BY EXECUTIVE FOR GOOD REASON. LUMP SUM PAYMENT. . If, during
the Retention Period, the Company terminates the Executive's employment other
than for Cause or Disability, or the Executive terminates his employment for
Good Reason, the Executive shall receive all Accrued Obligations. In
addition, the Company shall pay to the Executive in a lump sum, a cash amount
equal to two (2) times the sum of the following amounts:
(1) the Executive's annual Base Salary at the rate specified in
Section 5(a) of this Agreement;
(2) an amount equal to the target cash Annual Bonus determined
without proration payable to the Executive in respect to the calendar
year in which the termination event occurred;
(3) an amount equal to the average annual amount paid and/or
reimbursed to the Executive pursuant to Section 5(c)(iv) and (v)
hereof during the two calendar years preceding the Date of
Termination; and
(4) the present value, calculated using the annual federal
short-term rate as determined under Section 1274(d) of the Code, of
(without duplication) the annual cost to the Company (based on the
premium rates or other costs to it) of obtaining coverage equivalent
to the coverage under the plans and programs described in Section
5(c)(i) of this Agreement;
provided, however, that with respect to the life and medical
insurance coverage referred to in Section 5(c)(i) of this Agreement,
at the Executive's election made prior to the Date of Termination,
the Company shall use its best efforts to secure
7
<PAGE>
conversion coverage and shall pay the cost of such coverage in lieu
of paying the lump sum amount attributable to such life or medical
insurance coverage.
In consideration of the Company's payment of the amounts payable to the
Executive pursuant to this Subsection 7(d) and the Executive's acceptance
thereof, the Executive and the Company shall enter into a mutual release in a
form acceptable to the Company releasing each other and their respective
agents from all claims arising from or in any way related to the Executive's
employment by the Company and the termination of such employment
relationship. The Executive shall not receive any of the amounts payable
pursuant to this Subsection 7(d) until after the Executive has executed and
delivered the release to the Company and all rescission periods under
applicable state and federal laws have expired without rescission of the
release by the Executive. The Company shall make such payment within fifteen
(15) days after the longest applicable rescission period has elapsed without
rescission.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise prejudice such rights as the
Executive may have with respect to awards granted to him prior to or during
the Retention Period under any stock option, restricted stock or other plans
or agreements with the Company or any of its affiliated companies except as
to restrictions on the Executive's rights to any restricted stock received by
the Executive in lieu of a cash Annual Bonus as set forth in Sections 5(b),
7(a) and 7(d) of this Agreement. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or program of
the Company or any of its affiliated companies shall be payable in accordance
with such plan or program.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment, distribution, acceleration
of vesting or other benefit which the Executive receives or becomes entitled
to receive, whether alone or in combination, and whether pursuant to the
terms of this Agreement or any other agreement, plan or arrangement with the
Company or any of its affiliates or any of their respective successors or
assigns, but determined without regard to any additional payments required
under this Section 9 (collectively, the "Payments"), would be subject to the
excise tax imposed by Section 4999 of the Code (or any successor provision),
or any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of
(i) all taxes with respect to the Gross-Up Payment (including any interest or
penalties imposed with respect to such taxes) including, without limitation,
any income taxes (and any interest and penalties imposed with respect
thereto), and (ii) the Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed on the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such
8
<PAGE>
determination, shall be made by KPMG Peat Marwick or such other nationally
recognized accounting firm then auditing the accounts of the Company (the
"Accounting Firm") which shall provide detailed supporting calculations both
to the Company and the Executive within 15 business days of the receipt of
notice from the Executive that there has been a Payment, or such earlier time
as is requested by the Company. In the event that the Accounting Firm is
unwilling or unable to perform its obligations pursuant to this Section 9,
the Executive shall appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm shall then
be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up
Payment, determined pursuant to this Section 9, shall be paid by the Company
to the Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the potential uncertainty
in the application of Section 4999 of the Code (or any successor provision)
at the time of the initial determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 20 business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which he gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall
9
<PAGE>
indemnify and hold the Executive harmless, on an after-tax basis, for any
Excise Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs and
expenses. Without limiting the foregoing provisions of this Section 9(c),
the Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs the Executive
to pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis, and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall
be entitled to settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive or others whether by
reason of the subsequent employment of the Executive or otherwise. In no
event shall the Executive be obligated to seek other employment by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement, and no amount payable under this Agreement
shall be reduced on account of any compensation received by the Executive
from other employment. In the event that the Executive shall in good faith
give a Notice of Termination for Good Reason and it shall thereafter be
determined by mutual consent of the Executive and the Company or by a
tribunal having jurisdiction over the matter that Good Reason did not exist,
the employment of the Executive shall, unless the Company and the Executive
shall otherwise mutually agree, be deemed to have terminated, at the date of
giving such purported Notice of Termination, by mutual consent of the Company
and the Executive
10
<PAGE>
and, except as provided in the last preceding sentence, the Executive shall
be entitled to receive only those payments and benefits which he would have
been entitled to receive at such date otherwise than under this Agreement.
11. DISPUTES; LEGAL FEES AND EXPENSES. (a) Any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively and finally by expedited arbitration, conducted before a
single arbitrator in Minneapolis, Minnesota, in accordance with the rules
governing employment disputes then in effect of the American Arbitration
Association. The arbitrator shall be approved by both the Company and the
Executive. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
(b) In the event that any claim by the Executive under this
Agreement is disputed, the Company shall pay all reasonable legal fees and
expenses incurred by the Executive in pursuing such claim, provided that the
Executive is successful as to at least part of the disputed claim by reason
of arbitration, settlement or otherwise.
12. CONFIDENTIAL INFORMATION; NONCOMPETITION. (a) The Executive
shall hold in a fiduciary capacity for the benefit of the Company all secret
or confidential information, knowledge or data relating to the Company or any
of its affiliated companies, and their respective businesses, (i) obtained by
the Executive during his employment by the Company or any of its affiliated
companies and (ii) not otherwise public knowledge (other than by reason of an
unauthorized act by the Executive). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior
written consent of the Company, unless compelled pursuant to an order of a
court or other body having jurisdiction over such matter, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those designated by it.
(b) It is mutually acknowledged that by virtue of Employee's
former positions with the Company and its subsidiaries, he has become
possessed of certain valuable and confidential information concerning the
customers, business methods, procedures and techniques of the Company and its
subsidiaries. It is further understood that Employee has developed contacts
among the customers of the Company and its subsidiaries, and it is mutually
understood and agreed that the customers of the Company and its subsidiaries
and the business methods and procedures and techniques developed by the
Company and its subsidiaries are valuable assets and properties of the
Company and its subsidiaries. Without limitation, it is also specifically
acknowledged that great trust on the part of the Company and its subsidiaries
has resided in Employee, since Employee's former duties have included
involvement in the management, promotion and development of the Company's
business. Accordingly, the parties deem it necessary to enter into the
protective covenants set forth below, the terms and conditions of which have
been negotiated by and between the parties hereto:
(i) Employee agrees that during the Retention Period and until the
first anniversary of the Date of Termination, he will not, directly or
indirectly, on his own behalf or on the behalf of any third party, perform
management, accounting, financial, marketing, sales, administrative or
executive duties, in any business conducted within the Territories (as
defined below) whose primary business consists of originating or purchasing
automobile or truck loans or leases from automobile or truck dealers,
packaging such loans or leases, reselling such loans or leases or servicing
such loans or leases (the "Restricted Activities") or for any subdivision or
department of
11
<PAGE>
any business whose primary business does not consist of Restricted
Activities, but where the primary business of such subdivision or department
consists of Restricted Activities. As used in this Addendum, the term
"Territories" means any state in which any loans or leases originated or
acquired by the Company originated (determined by the location of the dealers
from whom the loans or leases were purchased or, in the case of loans or
leases, originated by the Company where the borrower or lessee resides).
(ii) Employee agrees that during the Retention Period and until
the first anniversary of the Date of Termination, he will not, directly or
indirectly, solicit, divert, take away or attempt to solicit, divert, or take
away from the Company, or any subsidiary, any of the dealers and other
sources from which the Company or any subsidiary acquires loans or leases or
from whom the loan or lease packages are received by the Company or any
subsidiary.
(iii) Employee agrees that during the Retention Period and until
the first anniversary of the Date of Termination, he will not, directly or
indirectly, on his own behalf or in the service or on behalf of others,
solicit, divert or hire away, or in any manner attempt to solicit, divert or
hire away any person employed by the Company or any subsidiary, whether or
not such employee is a full-time employee or a temporary employee of the
Company or any subsidiary, and whether or not such employment was pursuant to
a written or oral contract of employment and whether or not such employment
was for a determined period or was at will.
(c) Employee acknowledges that the provisions of this Section 12
constitute a material inducement to the Company to enter into the Agreement.
Employee further acknowledges that the Company's remedy at law for a breach
by him of the provisions of this Section 12 will be inadequate. Accordingly,
in the event of a breach or threatened breach by Employee of any provision of
this Section 12, the Company will be entitled to injunctive relief in
addition to any other remedy it may have. If any of the provisions of, or
covenants contained in, this Section 12 are hereafter construed to be invalid
or unenforceable in any jurisdiction, the same will not affect the remainder
of the provisions or the enforceability thereof in any other jurisdiction,
which will be given full effect, without regard to the invalidity or
unenforceability in such other jurisdiction. If any of the provisions of, or
covenants contained in, this Section 12 are held to be unenforceable in any
jurisdiction because of the duration or geographical scope thereof, the
parties agree that the court making such determination will have the power to
reduce the duration or geographical scope of such provision or covenant and,
in its reduced form, such provision or covenant will be enforceable;
provided, however, that the determination of such court will not affect the
enforceability of this Section 12 in any other jurisdiction.
(d) In no event shall an asserted violation of the provisions of
this Section 12 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement or under any other
agreement, plan or arrangement.
13. SUCCESSORS. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors. The Company shall require any successor
to all or substantially all
12
<PAGE>
of the business and/or assets of the Company, whether direct or indirect, by
purchase, merger, consolidation, acquisition of stock, or otherwise, by an
agreement in form and substance satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent as the Company would be required to perform if no such succession had
taken place.
14. MISCELLANEOUS. (a) APPLICABLE LAW. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Minnesota, applied without reference to principles of conflict of laws.
(b) AMENDMENTS. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(c) NOTICES. All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: John A. Witham
10456 Purdey Road
Eden Prairie, MN 55347
If to the Company: Arcadia Financial Ltd.
7825 Washington Avenue South
Minneapolis, MN 55439
Attention: Secretary
(with a copy to the attention of
the General Counsel)
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be
effective when actually received by the addressee.
(d) TAX WITHHOLDING. The Company may withhold from any amounts
payable under this Agreement such Federal, State or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(f) CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
15. ADDITIONAL CONSIDERATION. As additional consideration for
Executive's agreement to the terms and conditions hereof, the Company shall
within sixty (60) days of the date hereof (i) grant to Executive a
non-statutory stock option to purchase shares of the
13
<PAGE>
Company's Common Stock at an exercise price equal to the fair market value of
the stock on the grant date; (ii) reissue certain stock options held by
Executive on the date hereof at exercise prices equal to the fair market
value of the stock on the reissuance date plus a premium to be determined by
the Board (subject to new vesting periods), and/or (iii) make an additional
grant of Restricted Stock pursuant to the Company's 1998-2000 Restricted
Stock Election Plan, as amended.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and the Company has caused this Agreement to be executed in its name on its
behalf, all as of the day and year first above written.
ARCADIA FINANCIAL LTD.
By: /s/ [illegible]
--------------------------------
Name:
------------------------------
Title:
-----------------------------
/s/ John Witham
-----------------------------------
John A. Witham
14
<PAGE>
EMPLOYMENT RETENTION AGREEMENT
THIS AGREEMENT between Arcadia Financial Ltd. (the "Company") and
Duane White (the "Executive") is dated as of this 31 day of January, 1998.
W I T N E S S E T H :
WHEREAS, the Company and the Executive have agreed to enter into an
agreement providing the Company and the Executive with certain rights to
assure the Company of continuity of management;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is hereby agreed by and between the Company
and the Executive as follows:
1. EFFECTIVE DATE; TERM. This Agreement shall govern the terms
and conditions of Executive's employment commencing as of the date hereof
(the "Effective Date").
2. PRIOR EMPLOYMENT AGREEMENT. As of the Effective Date, this
Agreement shall supersede the Executive's Employment Agreement with the
Company dated May 1, 1997, as amended.
3. RETENTION PERIOD. The Company agrees to continue the
Executive in its employ, and the Executive agrees to remain in the employ of
the Company, for the period (the "Retention Period") commencing on the
Effective Date and ending on the date of any termination of the Executive's
employment in accordance with Section 6 of this Agreement.
4. POSITION AND DUTIES. (a) CHANGE IN POSITION PRIOR TO
CHANGE OF CONTROL. During the Retention Period, prior to a Change of Control
(as hereinafter defined), the Executive's position (including titles),
authority and responsibilities as an officer of the Company shall be at least
commensurate with the highest of those held or exercised by him at any time
during the 90-day period immediately preceding the Effective Date; provided,
however, that the Chief Executive Officer of the Company may, in his sole
discretion, make changes to the Executive's position (including titles),
authority and responsibilities if he determines in good faith that such
changes are appropriate in light of the Company's business plan including,
without limitation, financial, strategic and operating objectives, and,
provided further, that in the event the Chief Executive Officer elects to
make a reduction in the Executive's position, authority or responsibilities
pursuant hereto, such changes shall not otherwise impact or in any way reduce
the Executive's compensation and benefits under Section 5 or the Company's
obligations under this Agreement including, without limitation, its
obligations under Section 7(d) hereof.
(b) CONSENT / WAIVER. Executive consents to any changes in
Executive's position, authority or responsibilities made by the Company prior
to the date hereof and waives Executive's rights, if any, to (i) terminate
this Agreement for Good Reason (as defined herein) pursuant to Section 6(d)
hereof as a result of, or based upon any such changes in Executive's
position, authority or responsibilities and (ii) to receive sums pursuant to
Section 7(d) hereof as a result of, or based upon any such changes in
Executive's position, authority or responsibilities.
1
<PAGE>
(c) CHANGE IN POSITION AFTER CHANGE OF CONTROL. In the event a
Change of Control (as hereinafter defined) occurs during the Retention
Period, thereafter the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with the highest of those
held or exercised by him at any time during the 90-day period immediately
preceding the date of the Change of Control.
(d) CHANGE OF CONTROL. As used herein the term "Change of
Control" shall mean the closing of any transaction or series of transactions
by which the Company shall merge with (whether or not the Company is the
surviving entity) or consolidate into any other person or lease or sell
substantially all of its and its subsidiaries' assets (other than asset sales
in connection with automobile loan securitization transactions) substantially
as an entirety to any other person or by which any person, entity or group
(within the meaning of Rule 13d-5 under the Securities Exchange Act of 1934)
acquires, directly or indirectly, 51% or more of the Company's outstanding
common stock (calculated on a fully diluted basis).
(e) BUSINESS TIME. During the Retention Period, the Executive
shall devote his full business time during normal business hours to the
business and affairs of the Company and use his best efforts to perform
faithfully and efficiently the responsibilities assigned to him hereunder, to
the extent necessary to discharge such responsibilities, except for
(i) reasonable time spent in serving on corporate, civic or
charitable boards or committees of the nature similar to those on
which the Executive served prior to the Effective Date, in each case
only if and to the extent not substantially interfering with the
performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled.
It is expressly understood and agreed that the Executive's continuing to
serve on any boards and committees on which he is serving or with which he is
otherwise associated immediately preceding the Effective Date shall not be
deemed to interfere with the performance of the Executive's services to the
Company. The Executive shall be entitled to serve on additional outside
boards and committees with the prior written consent by the Chief Executive
Officer of the Company.
5. COMPENSATION AND BENEFITS. (a) BASE SALARY. During the
Retention Period, the Executive shall receive a base salary ("Base Salary")
at a monthly rate at least equal to the monthly salary paid to the Executive
by the Company and any of its affiliated companies immediately prior to the
Effective Date. The Base Salary shall be reviewed at least once each year
after the Effective Date, and may be increased (but not decreased) at any
time and from time to time by action of the Board or any committee thereof or
any individual having authority to take such action in accordance with the
Company's regular practices. Neither payment of the Base Salary nor payment
of any increased Base Salary after the Effective Date shall serve to limit or
reduce any other obligation of the Company hereunder. For purposes of the
remaining provisions of this Agreement, the term "Base Salary" shall mean
Base Salary as defined in this Section 5(a) or, if increased after the
Effective Date, the Base Salary as so increased.
2
<PAGE>
(b) ANNUAL BONUS. In addition to the Base Salary, the Executive
shall be eligible for each fiscal year of the Company ending during the
Retention Period an annual bonus, with the target amount, vesting and payment
thereof to be based on reasonable and customary criteria consistent with the
Company's practices for all executives holding the same office as the highest
office held by the Executive during the Retention Period (the "Annual
Bonus"). If a fiscal year of the Company begins, but does not end, during the
Retention Period, the Executive shall receive an amount with respect to such
fiscal year at least equal to the amount of the Annual Bonus multiplied by a
fraction, the numerator of which is the number of days in such fiscal year
occurring during the Retention Period and the denominator of which is 365.
In the event the Executive has elected to receive his or her Annual Bonus for
such year in the form of restricted shares of the Common Stock of the
Company, upon termination of the Executive's employment for any reason the
Executive shall be deemed to have revoked such election as to any then
unvested shares of such restricted stock and the Executive's pro-rated Annual
Bonus for such year shall be determined based upon the amount of the cash
Annual Bonus the Executive would have received absent such election. Each
amount payable in respect of the Executive's Annual Bonus shall be paid not
later than 90 days after the fiscal year next following the fiscal year for
which the Annual Bonus (or pro-rated portion) is earned or awarded. Neither
the Annual Bonus nor any bonus amount paid in excess thereof after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(c) FRINGE BENEFITS. Subject to the Company's rights under
subsection (vii) of this Section 5(c), during the Retention Period, the
Company shall provide the following fringe benefits to Executive:
(i) HEALTH, DISABILITY AND LIFE INSURANCE. Subject to
satisfaction of the eligibility requirements of such plans and the
rules and regulations applicable thereto, Executive and his family
members shall be entitled to be covered by the Company's group health
and dental insurance plans presently in effect or hereafter adopted by
the Company and applicable to employees of the Company generally and
Executive shall be entitled to be covered by the Company's group
disability and life insurance plans presently in effect or hereafter
adopted by the Company and applicable to the employees of the Company
in general. The Company shall pay the premiums associated with such
coverage. In the event Executive makes a claim against any disability
policy provided to Executive by the Company pursuant to this Section
5(c)(i) and such policy calls for a waiting period which is applicable
to Executive's claim, the Company shall pay to Executive during such
waiting period his monthly base salary due during such period and
shall provide the other benefits due him under this Section 5(c)(i).
(ii) VACATION. Executive shall be entitled to four weeks of
vacation without loss of compensation or other benefits pursuant to
such general policies and procedures of the Company as are from time
to time adopted by the Company.
(iii) EXPENSE REIMBURSEMENT. Executive shall be reimbursed
by the Company for all reasonable expenses incurred by him in
connection with the conduct of the Company's business for which he
furnishes appropriate documentation.
(iv) AUTOMOBILE. The Company shall at the Company's option
either (A) provide to Executive use of an automobile to be used by
Executive in conducting the
3
<PAGE>
Company's business; or (B) pay to Executive a monthly auto expense
in the amount of not less than Four Hundred Dollars ($400) per
month. In addition, in the event the Company provides to Executive
an automobile the Company shall reimburse Executive (1) an amount
equal to the reasonable cost of insuring and maintaining the
automobile used by Executive for the Company's business, and (2)
the cost of maintenance and the cost of gasoline and oil used in
the automobile and in the event of a loss under the policies
insuring said automobile, the amount of any deductible thereunder
applicable to such loss. Such insurance and the coverage and
deductibles thereof shall cover both the business and personal use
of such automobile by Employee, his family and invitees and shall
include such other terms and conditions as are reasonably
acceptable to Executive. Any such reimbursements shall be made
upon the Company's receipt of invoices evidencing incurrence of
such expenses. Executive shall also be paid a monthly amount equal
to the reasonable value of personal use of such automobile,
determined in accordance with applicable federal income tax
regulations.
(v) CLUB DUES. The Company shall reimburse Executive the
reasonable cost of the monthly or annual dues, as the case may be,
paid by Executive to maintain his status as a member of the
Minneapolis Athletic Club or of any other athletic club having equal
or lesser membership costs in lieu of such club. The Company shall
also provide to Executive and his family a membership at Golden Valley
Country Club and shall reimburse the Executive for the reasonable cost
of the monthly or annual dues, as the case may be, paid by Executive
to maintain such membership. If either such membership is a corporate
membership, upon termination of Executive's employment other than for
Cause or Death, such membership shall be converted to an individual
membership. The Company shall reimburse Executive for any fees
charged in connection with such conversion.
(vi) OFFICE AND SUPPORT STAFF. In the event a Change of
Control occurs during the Retention Period, the Executive shall
thereafter be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other
assistance, substantially equal to the most favorable of the foregoing
provided to the Executive at any time during the 90-day period
immediately preceding the date of the Change of Control.
(vii) REDUCTION IN BENEFITS. At any time, and from time to
time, prior to a Change of Control, the Company shall be entitled to
reduce the benefits provided to the Executive under this Subsection
(c) provided that any such reduction must be made concurrently with an
equal reduction to the fringe benefits granted to all executives
holding the same office as the highest office held by the Executive
during the Retention Period.
6. TERMINATION. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon his death. The Company may
terminate Executive's employment during the Retention Period, after having
established the Executive's Disability, by giving the Executive written
notice of its intention to terminate his employment, and his employment with
the Company shall terminate effective on the 90th day after receipt of such
notice if, within 90 days after such receipt, the Executive shall fail to
return to full-time performance of his duties. For purposes of this
Agreement, "Disability" means disability which, after the expiration of more
4
<PAGE>
than 26 weeks after its commencement, is determined to be total and permanent
by a physician selected by the Company or its insurers and acceptable to the
Executive or his legal representatives (such agreement to acceptability not
to be withheld unreasonably).
(b) VOLUNTARY TERMINATION. Notwithstanding anything in this
Agreement to the contrary, the Executive may, upon not less than 15 days'
advance written notice to the Company, voluntarily terminate employment
during the Retention Period for any reason, provided that any termination by
the Executive pursuant to Section 6(d) of this Agreement on account of Good
Reason (as defined therein) shall not be treated as a voluntary termination
under this Section 6(b).
(c) CAUSE. The Company may terminate the Executive's employment
during the Retention Period for Cause. As used in this Agreement, the term
"Cause" shall mean (i) any fraud, misappropriation or embezzlement by the
Executive in connection with the business of the Company or any of its
subsidiaries, (ii) any conviction of a felony or a gross misdemeanor by the
Executive that has or can reasonably be expected to have a detrimental effect
on the Company or any of its subsidiaries, (iii) any gross neglect by the
Executive of the duties assigned to him or her hereunder which continues for
a period of 90 days after written notice to the Executive of such neglect,
or, (iv) any material breach by Executive of any provisions of Section 12 of
this Agreement. It is understood and agreed that the Company may not
terminate Executive's employment for Cause in the event Executive is unable
to perform his or her duties due to partial or permanent or temporary or
total disability from injury or sickness.
(d) GOOD REASON. The Executive may terminate his employment
during the Retention Period for Good Reason. For purposes of this Agreement,
"Good Reason" means
(i) without the Executive's prior written consent, the
Company or any of its officers takes or fails to take any action which
changes the Executive's position (including titles), authority or
responsibilities which is inconsistent with Section 4 of this
Agreement or reduces the Executive's ability to carry out his duties
and responsibilities under Section 4 of this Agreement provided that
any change which is permissible under Section 4(a) of this Agreement
shall not constitute "Good Reason".
(ii) any failure by the Company to comply with any of the
provisions of Section 5 of this Agreement, other than an insubstantial
or inadvertent failure remedied by the Company promptly after receipt
of notice thereof from the Executive, provided however, a reduction in
the fringe benefits granted to the Executive pursuant to Section
5(c)(vii) hereof which is consistent with reductions thereto made to
the fringe benefits granted to all executives holding the same office
as the highest office held by the Executive during the Retention
Period shall not constitute "Good Reason";
(iii) the Company's requiring the Executive to be employed at
any location more than 35 miles further from his principal residence
than the location at which the Executive was employed immediately
preceding the Effective Date; or
(iv) any failure by the Company to obtain the assumption of
and agreement to perform this Agreement by a successor as contemplated
by Section 13(b) of this Agreement; or
5
<PAGE>
(v) during the period from May 1, 1998 to July 31, 1998,
a determination by the Executive in his sole discretion that his
scope of responsibilities is not acceptable to him.
(e) WITHOUT CAUSE. The Company may terminate the Executive's
employment during the Retention Period without Cause. The Company shall give
Executive at least 15 days' advance written notice of any termination of
Executive's employment which is not for Cause and not on account of
Executive's Disability.
(f) NOTICE OF TERMINATION. Any termination of Executive's
employment by the Company for Cause or by the Executive for Good Reason
during the Retention Period shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 14(c) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice given, in the case of a termination by the Company for Cause,
within 10 business days of the Company's having actual knowledge of all of
the events giving rise to such termination, and in the case of a termination
by Executive for Good Reason, within 180 days of the Executive's having
actual knowledge of the events giving rise to such termination (except as to
Good Reason based upon Subsection 6(d)(v), in which case such notice must be
given prior to August 1, 1998), and which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated,
and (iii) if the termination date is other than the date of receipt of such
notice, specifies such termination date (which date shall be not more than 15
days after the giving of such notice). The failure by the Executive to set
forth in the Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason shall not waive any right of the Executive
hereunder or preclude the Executive from asserting such fact or circumstance
in enforcing his rights hereunder.
(g) DATE OF TERMINATION. For purposes of this Agreement, the term
"Date of Termination" means (I) in the case of a termination for which a
Notice of Termination is required, the date of receipt of such Notice of
Termination or, if later, the date specified therein and (ii) in all other
cases, the actual date on which the Executive's employment terminates during
the Retention Period.
7. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH.
If the Executive's employment is terminated during the Retention Period by
reason of the Executive's death, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement other than those obligations accrued hereunder at the date of his
death, including, for this purpose (i) the Executive's full Base Salary
through the Date of Termination, (ii) the product of the target Annual Bonus
for the year in which the death occurred and a fraction, the numerator of
which is the number of days in the current fiscal year of the Company through
the Date of Termination, and the denominator of which is 365 (the "Pro-rated
Bonus Obligation"). For the purposes of computing the Pro-rated Bonus
Obligation, the Executive shall be deemed to have revoked his election, if
any, to receive such bonus in the form of restricted stock of the Company and
to have earned the maximum cash Annual Bonus which he was eligible to earn
for the year in which the termination occurred, (iii) any compensation
previously deferred by the Executive (together with any accrued earnings
thereon) and not yet paid by the Company, (iv) any other amounts or benefits
then owing to the
6
<PAGE>
Executive under any of the Company's incentive compensation plans, stock
option plans, restricted stock plans or other similar plans as determined
pursuant to the terms of such plans and this Agreement and (v) any amounts or
benefits owing to the Executive under any of the Company's employee benefit
plans or policies (such amounts specified in clauses (i), (ii), (iii), (iv)
and (v) are hereinafter referred to as "Accrued Obligations"). Unless
otherwise directed by the Executive prior to his death, all Accrued
Obligations shall be paid to the Executive's estate.
(b) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability, the Executive shall receive all Accrued
Obligations and, in addition, from the Date of Termination until the date
when the Retention Period would otherwise have terminated, shall continue to
participate in or be covered under the benefit plans and programs referred to
in Section 5(c)(i) of this Agreement or, at the Company's option, to receive
equivalent benefits by alternate means at least equal to those provided in
accordance with Section 5(c)(i) of this Agreement. Anything in this
Agreement to the contrary notwithstanding, the Executive shall be entitled
to receive disability and other benefits at least equal to the most favorable
level of benefits available to disabled employees and/or their families in
accordance with the plans, programs and policies maintained by the Company or
its affiliates relating to disability at any time during the 90-day period
immediately preceding the Effective Date.
(c) CAUSE AND VOLUNTARY TERMINATION. If, during the Retention
Period, the Executive's employment shall be terminated for Cause or
voluntarily terminated by the Executive (other than on account of Good
Reason), the Executive shall receive all Accrued Obligations other than the
Pro-rated Bonus Obligation.
(d) TERMINATION BY COMPANY OTHER THAN FOR CAUSE OR DISABILITY AND
TERMINATION BY EXECUTIVE FOR GOOD REASON. LUMP SUM PAYMENT. . If, during
the Retention Period, the Company terminates the Executive's employment other
than for Cause or Disability, or the Executive terminates his employment for
Good Reason (other than Good Reason pursuant to Subsection 6(d)(v)), the
Executive shall receive all Accrued Obligations. In addition, the Company
shall pay to the Executive in a lump sum, a cash amount equal to two (2)
times the sum of the following amounts:
(1) the Executive's annual Base Salary at the rate specified in
Section 5(a) of this Agreement;
(2) an amount equal to the target cash Annual Bonus determined
without proration payable to the Executive in respect to the calendar
year in which the termination event occurred;
(3) an amount equal to the average annual amount paid and/or
reimbursed to the Executive pursuant to Section 5(c)(iv) and (v)
hereof during the two calendar years preceding the Date of
Termination; and
(4) the present value, calculated using the annual federal
short-term rate as determined under Section 1274(d) of the Code, of
(without duplication) the annual cost to the Company (based on the
premium rates or other costs to it) of obtaining coverage equivalent
to the coverage under the plans and programs described in Section
5(c)(i) of this Agreement;
7
<PAGE>
provided, however, that with respect to the life and medical
insurance coverage referred to in Section 5(c)(i) of this
Agreement, at the Executive's election made prior to the Date of
Termination, the Company shall use its best efforts to secure
conversion coverage and shall pay the cost of such coverage in lieu
of paying the lump sum amount attributable to such life or medical
insurance coverage.
If such termination occurs due to the Executive's termination hereof for Good
Reason pursuant to Subsection 6(d)(v) hereof, the Executive shall receive all
Accrued Obligations, and in addition, the Company shall pay to the Executive
in a lump sum, within 15 days after the Date of Termination, a cash amount
equal to the sum of items (1) and (4) set forth in this subsection 7(d).
In consideration of the Company's payment of the amounts payable to the
Executive pursuant to this Subsection 7(d) and the Executive's acceptance
thereof, the Executive and the Company shall enter into a mutual release in a
form acceptable to the Company releasing each other and their respective
agents from all claims arising from or in any way related to the Executive's
employment by the Company and the termination of such employment
relationship. The Executive shall not receive any of the amounts payable
pursuant to this Subsection 7(d) until after the Executive has executed and
delivered the release to the Company and all rescission periods under
applicable state and federal laws have expired without rescission of the
release by the Executive. The Company shall make such payment within fifteen
(15) days after the longest applicable rescission period has elapsed without
rescission.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise prejudice such rights as the
Executive may have with respect to awards granted to him prior to or during
the Retention Period under any stock option, restricted stock or other plans
or agreements with the Company or any of its affiliated companies except as
to restrictions on the Executive's rights to any restricted stock received by
the Executive in lieu of a cash Annual Bonus as set forth in Sections 5(b),
7(a) and 7(d) of this Agreement. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or program of
the Company or any of its affiliated companies shall be payable in accordance
with such plan or program.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment, distribution, acceleration
of vesting or other benefit which the Executive receives or becomes entitled
to receive, whether alone or in combination, and whether pursuant to the
terms of this Agreement or any other agreement, plan or arrangement with the
Company or any of its affiliates or any of their respective successors or
assigns, but determined without regard to any additional payments required
under this Section 9 (collectively, the "Payments"), would be subject to the
excise tax imposed by Section 4999 of the Code (or any successor provision),
or any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the
8
<PAGE>
Executive of (i) all taxes with respect to the Gross-Up Payment (including
any interest or penalties imposed with respect to such taxes) including,
without limitation, any income taxes (and any interest and penalties imposed
with respect thereto), and (ii) the Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed on the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by KPMG Peat Marwick or such other nationally recognized accounting firm then
auditing the accounts of the Company (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is unwilling or unable to
perform its obligations pursuant to this Section 9, the Executive shall
appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the potential uncertainty
in the application of Section 4999 of the Code (or any successor provision)
at the time of the initial determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 20 business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which he gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by the Company,
9
<PAGE>
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limiting the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the Company directs
the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free
basis, and shall indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and further provided that
any extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested amount
is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others whether by reason of the
subsequent employment of the Executive or otherwise. In no event shall the
10
<PAGE>
Executive be obligated to seek other employment by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement, and no amount payable under this Agreement shall be reduced on
account of any compensation received by the Executive from other employment.
In the event that the Executive shall in good faith give a Notice of
Termination for Good Reason and it shall thereafter be determined by mutual
consent of the Executive and the Company or by a tribunal having jurisdiction
over the matter that Good Reason did not exist, the employment of the
Executive shall, unless the Company and the Executive shall otherwise
mutually agree, be deemed to have terminated, at the date of giving such
purported Notice of Termination, by mutual consent of the Company and the
Executive and, except as provided in the last preceding sentence, the
Executive shall be entitled to receive only those payments and benefits which
he would have been entitled to receive at such date otherwise than under this
Agreement.
11. DISPUTES; LEGAL FEES AND EXPENSES. (a) Any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively and finally by expedited arbitration, conducted before a
single arbitrator in Minneapolis, Minnesota, in accordance with the rules
governing employment disputes then in effect of the American Arbitration
Association. The arbitrator shall be approved by both the Company and the
Executive. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
(b) In the event that any claim by the Executive under this
Agreement is disputed, the Company shall pay all reasonable legal fees and
expenses incurred by the Executive in pursuing such claim, provided that the
Executive is successful as to at least part of the disputed claim by reason
of arbitration, settlement or otherwise.
12. CONFIDENTIAL INFORMATION; NONCOMPETITION. (a) The Executive
shall hold in a fiduciary capacity for the benefit of the Company all secret
or confidential information, knowledge or data relating to the Company or any
of its affiliated companies, and their respective businesses, (i) obtained by
the Executive during his employment by the Company or any of its affiliated
companies and (ii) not otherwise public knowledge (other than by reason of an
unauthorized act by the Executive). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior
written consent of the Company, unless compelled pursuant to an order of a
court or other body having jurisdiction over such matter, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those designated by it.
(b) It is mutually acknowledged that by virtue of Employee's
former positions with the Company and its subsidiaries, he has become
possessed of certain valuable and confidential information concerning the
customers, business methods, procedures and techniques of the Company and its
subsidiaries. It is further understood that Employee has developed contacts
among the customers of the Company and its subsidiaries, and it is mutually
understood and agreed that the customers of the Company and its subsidiaries
and the business methods and procedures and techniques developed by the
Company and its subsidiaries are valuable assets and properties of the
Company and its subsidiaries. Without limitation, it is also specifically
acknowledged that great trust on the part of the Company and its subsidiaries
has resided in Employee, since Employee's former duties have included
involvement in the management, promotion and development of the Company's
business. Accordingly, the parties deem it
11
<PAGE>
necessary to enter into the protective covenants set forth below, the terms
and conditions of which have been negotiated by and between the parties
hereto:
(i) Employee agrees that during the Retention Period and until the
first anniversary of the Date of Termination, he will not, directly or
indirectly, on his own behalf or on the behalf of any third party, perform
management, accounting, financial, marketing, sales, administrative or
executive duties, in any business conducted within the Territories (as
defined below) whose primary business consists of originating or purchasing
automobile or truck loans or leases from automobile or truck dealers,
packaging such loans or leases, reselling such loans or leases or servicing
such loans or leases (the "Restricted Activities") or for any subdivision or
department of any business whose primary business does not consist of
Restricted Activities, but where the primary business of such subdivision or
department consists of Restricted Activities. As used in this Addendum, the
term "Territories" means any state in which any loans or leases originated or
acquired by the Company originated (determined by the location of the dealers
from whom the loans or leases were purchased or, in the case of loans or
leases, originated by the Company where the borrower or lessee resides).
(ii) Employee agrees that during the Retention Period and until
the first anniversary of the Date of Termination, he will not, directly or
indirectly, solicit, divert, take away or attempt to solicit, divert, or take
away from the Company, or any subsidiary, any of the dealers and other
sources from which the Company or any subsidiary acquires loans or leases or
from whom the loan or lease packages are received by the Company or any
subsidiary.
(iii) Employee agrees that during the Retention Period and until
the first anniversary of the Date of Termination, he will not, directly or
indirectly, on his own behalf or in the service or on behalf of others,
solicit, divert or hire away, or in any manner attempt to solicit, divert or
hire away any person employed by the Company or any subsidiary, whether or
not such employee is a full-time employee or a temporary employee of the
Company or any subsidiary, and whether or not such employment was pursuant to
a written or oral contract of employment and whether or not such employment
was for a determined period or was at will.
(c) Employee acknowledges that the provisions of this Section 12
constitute a material inducement to the Company to enter into the Agreement.
Employee further acknowledges that the Company's remedy at law for a breach
by him of the provisions of this Section 12 will be inadequate. Accordingly,
in the event of a breach or threatened breach by Employee of any provision of
this Section 12, the Company will be entitled to injunctive relief in
addition to any other remedy it may have. If any of the provisions of, or
covenants contained in, this Section 12 are hereafter construed to be invalid
or unenforceable in any jurisdiction, the same will not affect the remainder
of the provisions or the enforceability thereof in any other jurisdiction,
which will be given full effect, without regard to the invalidity or
unenforceability in such other jurisdiction. If any of the provisions of, or
covenants contained in, this Section 12 are held to be unenforceable in any
jurisdiction because of the duration or geographical scope thereof, the
parties agree that the court making such determination will have the power to
reduce the duration or geographical scope of such provision or covenant and,
in its reduced form, such provision or covenant will be enforceable;
provided, however, that the determination of such court will not affect the
enforceability of this Section 12 in any other jurisdiction.
12
<PAGE>
(d) In no event shall an asserted violation of the provisions of
this Section 12 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement or under any other
agreement, plan or arrangement.
13. SUCCESSORS. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors. The Company shall require any successor
to all or substantially all of the business and/or assets of the Company,
whether direct or indirect, by purchase, merger, consolidation, acquisition
of stock, or otherwise, by an agreement in form and substance satisfactory to
the Executive, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent as the Company would be required to
perform if no such succession had taken place.
14. MISCELLANEOUS. (a) APPLICABLE LAW. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Minnesota, applied without reference to principles of conflict of laws.
(b) AMENDMENTS. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(c) NOTICES. All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
<TABLE>
<S> <C>
If to the Executive: Duane White
707 Kenwood Parkway
Minneapolis, MN 55403
If to the Company: Arcadia Financial Ltd.
7825 Washington Avenue South
Minneapolis, MN 55439
Attention: Secretary
(with a copy to the attention of
the General Counsel)
</TABLE>
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be
effective when actually received by the addressee.
(d) TAX WITHHOLDING. The Company may withhold from any amounts
payable under this Agreement such Federal, State or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
13
<PAGE>
(e) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(f) CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
15. ADDITIONAL CONSIDERATION. As additional consideration for
Executive's agreement to the terms and conditions hereof, the Company shall
within sixty (60) days of the date hereof (i) grant to Executive a
non-statutory stock option to purchase shares of the Company's Common Stock
at an exercise price equal to the fair market value of the stock on the grant
date; (ii) reissue certain stock options held by Executive on the date hereof
at exercise prices equal to the fair market value of the stock on the
reissuance date plus a premium to be determined by the Board (subject to new
vesting periods), and/or (iii) make an additional grant of Restricted Stock
pursuant to the Company's 1998-2000 Restricted Stock Election Plan, as
amended.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused this Agreement to be executed in its name on its behalf,
all as of the day and year first above written.
ARCADIA FINANCIAL LTD.
By: /s/ [ILLEGIBLE]
-------------------------------
Name:
------------------------------
Title:
------------------------------
/s/ Duane White
-----------------------------------
Duane White
14
<PAGE>
EMPLOYMENT RETENTION AGREEMENT
THIS AGREEMENT between Arcadia Financial Ltd. (the "Company") and
James D. Atkinson III (the "Executive") is dated as of this 27 day of
January, 1998.
W I T N E S S E T H :
WHEREAS, the Company and the Executive have agreed to enter into an
agreement providing the Company and the Executive with certain rights to
assure the Company of continuity of management;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is hereby agreed by and between the Company
and the Executive as follows:
1. EFFECTIVE DATE; TERM. This Agreement shall govern the terms
and conditions of Executive's employment commencing as of the date hereof
(the "Effective Date").
2. PRIOR EMPLOYMENT AGREEMENT. As of the Effective Date, this
Agreement shall supersede the Executive's Employment Agreement with the
Company November 7, 1996, as amended.
3. RETENTION PERIOD. The Company agrees to continue the
Executive in its employ, and the Executive agrees to remain in the employ of
the Company, for the period (the "Retention Period") commencing on the
Effective Date and ending on the date of any termination of the Executive's
employment in accordance with Section 6 of this Agreement.
4. POSITION AND DUTIES. (a) CHANGE IN POSITION PRIOR TO
CHANGE OF CONTROL. During the Retention Period, prior to a Change of Control
(as hereinafter defined), the Executive's position (including titles),
authority and responsibilities as an officer of the Company shall be at least
commensurate with the highest of those held or exercised by him at any time
during the 90-day period immediately preceding the Effective Date; provided,
however, that the Chief Executive Officer of the Company may, in his sole
discretion, make changes to the Executive's position (including titles),
authority and responsibilities if he determines in good faith that such
changes are appropriate in light of the Company's business plan including,
without limitation, financial, strategic and operating objectives, and,
provided further, that in the event the Chief Executive Officer elects to
make a reduction in the Executive's position, authority or responsibilities
pursuant hereto, such changes shall not otherwise impact or in any way reduce
the Executive's compensation and benefits under Section 5 or the Company's
obligations under this Agreement including, without limitation, its
obligations under Section 7(d) hereof.
(b) CONSENT / WAIVER. Executive consents to any changes in
Executive's position, authority or responsibilities made by the Company prior
to the date hereof and waives Executive's rights, if any, to (i) terminate
this Agreement for Good Reason (as defined herein) pursuant to Section 6(d)
hereof as a result of, or based upon any such changes in Executive's
position, authority or responsibilities and (ii) to receive sums pursuant to
Section 7(d) hereof as a result of, or based upon any such changes in
Executive's position, authority or responsibilities.
1
<PAGE>
(c) CHANGE IN POSITION AFTER CHANGE OF CONTROL. In the event a
Change of Control (as hereinafter defined) occurs during the Retention
Period, thereafter the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with the highest of those
held or exercised by him at any time during the 90-day period immediately
preceding the date of the Change of Control.
(d) CHANGE OF CONTROL. As used herein the term "Change of
Control" shall mean the closing of any transaction or series of transactions
by which the Company shall merge with (whether or not the Company is the
surviving entity) or consolidate into any other person or lease or sell
substantially all of its and its subsidiaries' assets (other than asset sales
in connection with automobile loan securitization transactions) substantially
as an entirety to any other person or by which any person, entity or group
(within the meaning of Rule 13d-5 under the Securities Exchange Act of 1934)
acquires, directly or indirectly, 51% or more of the Company's outstanding
common stock (calculated on a fully diluted basis).
(e) BUSINESS TIME. During the Retention Period, the Executive
shall devote his full business time during normal business hours to the
business and affairs of the Company and use his best efforts to perform
faithfully and efficiently the responsibilities assigned to him hereunder, to
the extent necessary to discharge such responsibilities, except for
(i) reasonable time spent in serving on corporate, civic or
charitable boards or committees of the nature similar to those on
which the Executive served prior to the Effective Date, in each case
only if and to the extent not substantially interfering with the
performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled.
It is expressly understood and agreed that the Executive's continuing to
serve on any boards and committees on which he is serving or with which he is
otherwise associated immediately preceding the Effective Date shall not be
deemed to interfere with the performance of the Executive's services to the
Company. The Executive shall be entitled to serve on additional outside
boards and committees with the prior written consent by the Chief Executive
Officer of the Company.
5. COMPENSATION AND BENEFITS. (a) BASE SALARY. During the
Retention Period, the Executive shall receive a base salary ("Base Salary")
at a monthly rate at least equal to the monthly salary paid to the Executive
by the Company and any of its affiliated companies immediately prior to the
Effective Date. The Base Salary shall be reviewed at least once each year
after the Effective Date, and may be increased (but not decreased) at any
time and from time to time by action of the Board or any committee thereof or
any individual having authority to take such action in accordance with the
Company's regular practices. Neither payment of the Base Salary nor payment
of any increased Base Salary after the Effective Date shall serve to limit or
reduce any other obligation of the Company hereunder. For purposes of the
remaining provisions of this Agreement, the term "Base Salary" shall mean
Base Salary as defined in this Section 5(a) or, if increased after the
Effective Date, the Base Salary as so increased.
2
<PAGE>
(b) ANNUAL BONUS. In addition to the Base Salary, the Executive
shall be eligible for each fiscal year of the Company ending during the
Retention Period an annual bonus, with the target amount, vesting and payment
thereof to be based on reasonable and customary criteria consistent with the
Company's practices for all executives holding the same office as the highest
office held by the Executive during the Retention Period (the "Annual
Bonus"). If a fiscal year of the Company begins, but does not end, during the
Retention Period, the Executive shall receive an amount with respect to such
fiscal year at least equal to the amount of the Annual Bonus multiplied by a
fraction, the numerator of which is the number of days in such fiscal year
occurring during the Retention Period and the denominator of which is 365.
In the event the Executive has elected to receive his or her Annual Bonus for
such year in the form of restricted shares of the Common Stock of the
Company, upon termination of the Executive's employment for any reason the
Executive shall be deemed to have revoked such election as to any then
unvested shares of such restricted stock and the Executive's pro-rated Annual
Bonus for such year shall be determined based upon the amount of the cash
Annual Bonus the Executive would have received absent such election. Each
amount payable in respect of the Executive's Annual Bonus shall be paid not
later than 90 days after the fiscal year next following the fiscal year for
which the Annual Bonus (or pro-rated portion) is earned or awarded. Neither
the Annual Bonus nor any bonus amount paid in excess thereof after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(c) FRINGE BENEFITS. Subject to the Company's rights under
subsection (vii) of this Section 5(c), during the Retention Period, the
Company shall provide the following fringe benefits to Executive:
(i) HEALTH, DISABILITY AND LIFE INSURANCE. Subject to
satisfaction of the eligibility requirements of such plans and the
rules and regulations applicable thereto, Executive and his family
members shall be entitled to be covered by the Company's group health
and dental insurance plans presently in effect or hereafter adopted by
the Company and applicable to employees of the Company generally and
Executive shall be entitled to be covered by the Company's group
disability and life insurance plans presently in effect or hereafter
adopted by the Company and applicable to the employees of the Company
in general. The Company shall pay the premiums associated with such
coverage. In the event Executive makes a claim against any disability
policy provided to Executive by the Company pursuant to this Section
5(c)(i) and such policy calls for a waiting period which is applicable
to Executive's claim, the Company shall pay to Executive during such
waiting period his monthly base salary due during such period and
shall provide the other benefits due him under this Section 5(c)(i).
(ii) VACATION. Executive shall be entitled to four weeks of
vacation without loss of compensation or other benefits pursuant to
such general policies and procedures of the Company as are from time
to time adopted by the Company.
(iii) EXPENSE REIMBURSEMENT. Executive shall be reimbursed by
the Company for all reasonable expenses incurred by him in connection
with the conduct of the Company's business for which he furnishes
appropriate documentation.
(iv) AUTOMOBILE. The Company shall at the Company's option
either (A) provide to Executive use of an automobile to be used by
Executive in conducting the
3
<PAGE>
Company's business; or (B) pay to Executive a monthly auto expense
in the amount of not less than Four Hundred Dollars ($400) per
month. In addition, in the event the Company provides to Executive
an automobile the Company shall reimburse Executive (1) an amount
equal to the reasonable cost of insuring and maintaining the
automobile used by Executive for the Company's business, and (2)
the cost of maintenance and the cost of gasoline and oil used in
the automobile and in the event of a loss under the policies
insuring said automobile, the amount of any deductible thereunder
applicable to such loss. Such insurance and the coverage and
deductibles thereof shall cover both the business and personal use
of such automobile by Employee, his family and invitees and shall
include such other terms and conditions as are reasonably
acceptable to Executive. Any such reimbursements shall be made
upon the Company's receipt of invoices evidencing incurrence of
such expenses. Executive shall also be paid a monthly amount equal
to the reasonable value of personal use of such automobile,
determined in accordance with applicable federal income tax
regulations.
(v) CLUB DUES. The Company shall reimburse Executive the
reasonable cost of the monthly or annual dues, as the case may be,
paid by Executive to maintain his status as a member of the Flagship
Athletic Club or of any other athletic club having equal or lesser
membership costs in lieu of such club. The Company shall also provide
to Executive and his family a membership at Olympic Hills Golf Club
and shall reimburse the Executive for the reasonable cost of the
monthly or annual dues, as the case may be, paid by Executive to
maintain such membership. If either such membership is a corporate
membership, upon termination of Executive's employment other than for
Cause or Death, such membership shall be converted to an individual
membership. The Company shall reimburse Executive for any fees
charged in connection with such conversion.
(vi) OFFICE AND SUPPORT STAFF. In the event a Change of
Control occurs during the Retention Period, the Executive shall
thereafter be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other
assistance, substantially equal to the most favorable of the foregoing
provided to the Executive at any time during the 90-day period
immediately preceding the date of the Change of Control.
(vii) REDUCTION IN BENEFITS. At any time, and from time to
time, prior to a Change of Control, the Company shall be entitled to
reduce the benefits provided to the Executive under this Subsection
(c) provided that any such reduction must be made concurrently with an
equal reduction to the fringe benefits granted to all executives
holding the same office as the highest office held by the Executive
during the Retention Period.
6. TERMINATION. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon his death. The Company may
terminate Executive's employment during the Retention Period, after having
established the Executive's Disability, by giving the Executive written
notice of its intention to terminate his employment, and his employment with
the Company shall terminate effective on the 90th day after receipt of such
notice if, within 90 days after such receipt, the Executive shall fail to
return to full-time performance of his duties. For purposes of this
Agreement, "Disability" means disability which, after the expiration of more
4
<PAGE>
than 26 weeks after its commencement, is determined to be total and permanent
by a physician selected by the Company or its insurers and acceptable to the
Executive or his legal representatives (such agreement to acceptability not
to be withheld unreasonably).
(b) VOLUNTARY TERMINATION. Notwithstanding anything in this
Agreement to the contrary, the Executive may, upon not less than 15 days'
advance written notice to the Company, voluntarily terminate employment
during the Retention Period for any reason, provided that any termination by
the Executive pursuant to Section 6(d) of this Agreement on account of Good
Reason (as defined therein) shall not be treated as a voluntary termination
under this Section 6(b).
(c) CAUSE. The Company may terminate the Executive's employment
during the Retention Period for Cause. As used in this Agreement, the term
"Cause" shall mean (i) any fraud, misappropriation or embezzlement by the
Executive in connection with the business of the Company or any of its
subsidiaries, (ii) any conviction of a felony or a gross misdemeanor by the
Executive that has or can reasonably be expected to have a detrimental effect
on the Company or any of its subsidiaries, (iii) any gross neglect by the
Executive of the duties assigned to him or her hereunder which continues for
a period of 90 days after written notice to the Executive of such neglect,
or, (iv) any material breach by Executive of any provisions of Section 12 of
this Agreement. It is understood and agreed that the Company may not
terminate Executive's employment for Cause in the event Executive is unable
to perform his or her duties due to partial or permanent or temporary or
total disability from injury or sickness.
(d) GOOD REASON. The Executive may terminate his employment
during the Retention Period for Good Reason. For purposes of this Agreement,
"Good Reason" means
(i) without the Executive's prior written consent, the
Company or any of its officers takes or fails to take any action which
changes the Executive's position (including titles), authority or
responsibilities which is inconsistent with Section 4 of this
Agreement or reduces the Executive's ability to carry out his duties
and responsibilities under Section 4 of this Agreement provided that
any change which is permissible under Section 4(a) of this Agreement
shall not constitute "Good Reason".
(ii) any failure by the Company to comply with any of the
provisions of Section 5 of this Agreement, other than an insubstantial
or inadvertent failure remedied by the Company promptly after receipt
of notice thereof from the Executive, provided however, a reduction in
the fringe benefits granted to the Executive pursuant to Section
5(c)(vii) hereof which is consistent with reductions thereto made to
the fringe benefits granted to all executives holding the same office
as the highest office held by the Executive during the Retention
Period shall not constitute "Good Reason";
(iii) the Company's requiring the Executive to be employed at
any location more than 35 miles further from his principal residence
than the location at which the Executive was employed immediately
preceding the Effective Date; or
(iv) any failure by the Company to obtain the assumption of
and agreement to perform this Agreement by a successor as contemplated
by Section 13(b) of this Agreement.
5
<PAGE>
(e) WITHOUT CAUSE. The Company may terminate the Executive's
employment during the Retention Period without Cause. The Company shall give
Executive at least 15 days' advance written notice of any termination of
Executive's employment which is not for Cause and not on account of
Executive's Disability.
(f) NOTICE OF TERMINATION. Any termination of Executive's
employment by the Company for Cause or by the Executive for Good Reason
during the Retention Period shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 14(c) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice given, in the case of a termination by the Company for Cause,
within 10 business days of the Company's having actual knowledge of all of
the events giving rise to such termination, and in the case of a termination
by Executive for Good Reason, within 180 days of the Executive's having
actual knowledge of the events giving rise to such termination, and which (i)
indicates the specific termination provision in this Agreement relied upon,
(ii) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated, and (iii) if the termination date is other than the
date of receipt of such notice, specifies such termination date (which date
shall be not more than 15 days after the giving of such notice). The failure
by the Executive to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason shall not waive
any right of the Executive hereunder or preclude the Executive from asserting
such fact or circumstance in enforcing his rights hereunder.
(g) DATE OF TERMINATION. For purposes of this Agreement, the term
"Date of Termination" means (i) in the case of a termination for which a
Notice of Termination is required, the date of receipt of such Notice of
Termination or, if later, the date specified therein and (ii) in all other
cases, the actual date on which the Executive's employment terminates during
the Retention Period.
7. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH.
If the Executive's employment is terminated during the Retention Period by
reason of the Executive's death, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement other than those obligations accrued hereunder at the date of his
death, including, for this purpose (i) the Executive's full Base Salary
through the Date of Termination, (ii) the product of the target Annual Bonus
for the year in which the death occurred and a fraction, the numerator of
which is the number of days in the current fiscal year of the Company through
the Date of Termination, and the denominator of which is 365 (the "Pro-rated
Bonus Obligation"). For the purposes of computing the Pro-rated Bonus
Obligation, the Executive shall be deemed to have revoked his election, if
any, to receive such bonus in the form of restricted stock of the Company and
to have earned the maximum cash Annual Bonus which he was eligible to earn
for the year in which the termination occurred, (iii) any compensation
previously deferred by the Executive (together with any accrued earnings
thereon) and not yet paid by the Company, (iv) any other amounts or benefits
then owing to the Executive under any of the Company's incentive compensation
plans, stock option plans, restricted stock plans or other similar plans as
determined pursuant to the terms of such plans and this Agreement and (v) any
amounts or benefits owing to the Executive under any of the Company's
employee benefit plans or policies (such amounts specified in clauses (i),
(ii), (iii),
6
<PAGE>
(iv) and (v) are hereinafter referred to as "Accrued Obligations"). Unless
otherwise directed by the Executive prior to his death, all Accrued
Obligations shall be paid to the Executive's estate.
(b) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability, the Executive shall receive all Accrued
Obligations and, in addition, from the Date of Termination until the date
when the Retention Period would otherwise have terminated, shall continue to
participate in or be covered under the benefit plans and programs referred to
in Section 5(c)(i) of this Agreement or, at the Company's option, to receive
equivalent benefits by alternate means at least equal to those provided in
accordance with Section 5(c)(i) of this Agreement. Anything in this
Agreement to the contrary notwithstanding, the Executive shall be entitled
to receive disability and other benefits at least equal to the most favorable
level of benefits available to disabled employees and/or their families in
accordance with the plans, programs and policies maintained by the Company or
its affiliates relating to disability at any time during the 90-day period
immediately preceding the Effective Date.
(c) CAUSE AND VOLUNTARY TERMINATION. If, during the Retention
Period, the Executive's employment shall be terminated for Cause or
voluntarily terminated by the Executive (other than on account of Good
Reason), the Executive shall receive all Accrued Obligations other than the
Pro-rated Bonus Obligation.
(d) TERMINATION BY COMPANY OTHER THAN FOR CAUSE OR DISABILITY AND
TERMINATION BY EXECUTIVE FOR GOOD REASON. LUMP SUM PAYMENT. . If, during
the Retention Period, the Company terminates the Executive's employment other
than for Cause or Disability, or the Executive terminates his employment for
Good Reason, the Executive shall receive all Accrued Obligations. In
addition, the Company shall pay to the Executive in a lump sum, a cash amount
equal to two (2) times the sum of the following amounts:
(1) the Executive's annual Base Salary at the rate specified in
Section 5(a) of this Agreement;
(2) an amount equal to the target cash Annual Bonus determined
without proration payable to the Executive in respect to the calendar
year in which the termination event occurred;
(3) an amount equal to the average annual amount paid and/or
reimbursed to the Executive pursuant to Section 5(c)(iv) and (v)
hereof during the two calendar years preceding the Date of
Termination; and
(4) the present value, calculated using the annual federal
short-term rate as determined under Section 1274(d) of the Code, of
(without duplication) the annual cost to the Company (based on the
premium rates or other costs to it) of obtaining coverage equivalent
to the coverage under the plans and programs described in Section
5(c)(i) of this Agreement;
provided, however, that with respect to the life and medical
insurance coverage referred to in Section 5(c)(i) of this
Agreement, at the Executive's election made prior to the Date of
Termination, the Company shall use its best efforts to secure
7
<PAGE>
conversion coverage and shall pay the cost of such coverage in lieu
of paying the lump sum amount attributable to such life or medical
insurance coverage.
In consideration of the Company's payment of the amounts payable to the
Executive pursuant to this Subsection 7(d) and the Executive's acceptance
thereof, the Executive and the Company shall enter into a mutual release in a
form acceptable to the Company releasing each other and their respective
agents from all claims arising from or in any way related to the Executive's
employment by the Company and the termination of such employment
relationship. The Executive shall not receive any of the amounts payable
pursuant to this Subsection 7(d) until after the Executive has executed and
delivered the release to the Company and all rescission periods under
applicable state and federal laws have expired without rescission of the
release by the Executive. The Company shall make such payment within fifteen
(15) days after the longest applicable rescission period has elapsed without
rescission.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise prejudice such rights as the
Executive may have with respect to awards granted to him prior to or during
the Retention Period under any stock option, restricted stock or other plans
or agreements with the Company or any of its affiliated companies except as
to restrictions on the Executive's rights to any restricted stock received by
the Executive in lieu of a cash Annual Bonus as set forth in Sections 5(b),
7(a) and 7(d) of this Agreement. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or program of
the Company or any of its affiliated companies shall be payable in accordance
with such plan or program.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment, distribution, acceleration
of vesting or other benefit which the Executive receives or becomes entitled
to receive, whether alone or in combination, and whether pursuant to the
terms of this Agreement or any other agreement, plan or arrangement with the
Company or any of its affiliates or any of their respective successors or
assigns, but determined without regard to any additional payments required
under this Section 9 (collectively, the "Payments"), would be subject to the
excise tax imposed by Section 4999 of the Code (or any successor provision),
or any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of
(i) all taxes with respect to the Gross-Up Payment (including any interest or
penalties imposed with respect to such taxes) including, without limitation,
any income taxes (and any interest and penalties imposed with respect
thereto), and (ii) the Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed on the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such
8
<PAGE>
determination, shall be made by KPMG Peat Marwick or such other nationally
recognized accounting firm then auditing the accounts of the Company (the
"Accounting Firm") which shall provide detailed supporting calculations both
to the Company and the Executive within 15 business days of the receipt of
notice from the Executive that there has been a Payment, or such earlier time
as is requested by the Company. In the event that the Accounting Firm is
unwilling or unable to perform its obligations pursuant to this Section 9,
the Executive shall appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm shall then
be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up
Payment, determined pursuant to this Section 9, shall be paid by the Company
to the Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the potential uncertainty
in the application of Section 4999 of the Code (or any successor provision)
at the time of the initial determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 20 business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which he gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing
from time to time, including, without limitation,
accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall
9
<PAGE>
indemnify and hold the Executive harmless, on an after-tax basis, for any
Excise Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs and
expenses. Without limiting the foregoing provisions of this Section 9(c),
the Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs the Executive
to pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis, and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall
be entitled to settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive or others whether by
reason of the subsequent employment of the Executive or otherwise. In no
event shall the Executive be obligated to seek other employment by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement, and no amount payable under this Agreement
shall be reduced on account of any compensation received by the Executive
from other employment. In the event that the Executive shall in good faith
give a Notice of Termination for Good Reason and it shall thereafter be
determined by mutual consent of the Executive and the Company or by a
tribunal having jurisdiction over the matter that Good Reason did not exist,
the employment of the Executive shall, unless the Company and the Executive
shall otherwise mutually agree, be deemed to have terminated, at the date of
giving such purported Notice of Termination, by mutual consent of the Company
and the Executive
10
<PAGE>
and, except as provided in the last preceding sentence, the Executive shall
be entitled to receive only those payments and benefits which he would have
been entitled to receive at such date otherwise than under this Agreement.
11. DISPUTES; LEGAL FEES AND EXPENSES. (a) Any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively and finally by expedited arbitration, conducted before a
single arbitrator in Minneapolis, Minnesota, in accordance with the rules
governing employment disputes then in effect of the American Arbitration
Association. The arbitrator shall be approved by both the Company and the
Executive. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
(b) In the event that any claim by the Executive under this
Agreement is disputed, the Company shall pay all reasonable legal fees and
expenses incurred by the Executive in pursuing such claim, provided that the
Executive is successful as to at least part of the disputed claim by reason
of arbitration, settlement or otherwise.
12. CONFIDENTIAL INFORMATION; NONCOMPETITION. (a) The Executive
shall hold in a fiduciary capacity for the benefit of the Company all secret
or confidential information, knowledge or data relating to the Company or any
of its affiliated companies, and their respective businesses, (i) obtained by
the Executive during his employment by the Company or any of its affiliated
companies and (ii) not otherwise public knowledge (other than by reason of an
unauthorized act by the Executive). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior
written consent of the Company, unless compelled pursuant to an order of a
court or other body having jurisdiction over such matter, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those designated by it.
(b) It is mutually acknowledged that by virtue of Employee's
former positions with the Company and its subsidiaries, he has become
possessed of certain valuable and confidential information concerning the
customers, business methods, procedures and techniques of the Company and its
subsidiaries. It is further understood that Employee has developed contacts
among the customers of the Company and its subsidiaries, and it is mutually
understood and agreed that the customers of the Company and its subsidiaries
and the business methods and procedures and techniques developed by the
Company and its subsidiaries are valuable assets and properties of the
Company and its subsidiaries. Without limitation, it is also specifically
acknowledged that great trust on the part of the Company and its subsidiaries
has resided in Employee, since Employee's former duties have included
involvement in the management, promotion and development of the Company's
business. Accordingly, the parties deem it necessary to enter into the
protective covenants set forth below, the terms and conditions of which have
been negotiated by and between the parties hereto:
(i) Employee agrees that during the Retention Period and until the
first anniversary of the Date of Termination, he will not, directly or
indirectly, on his own behalf or on the behalf of any third party, perform
management, accounting, financial, marketing, sales, administrative or executive
duties, in any business conducted within the Territories (as defined below)
whose primary business consists of originating or purchasing automobile or truck
loans or leases from automobile or truck dealers, packaging such loans or
leases, reselling such loans or leases or servicing such loans or leases (the
"Restricted Activities") or for any subdivision or department of
11
<PAGE>
any business whose primary business does not consist of Restricted
Activities, but where the primary business of such subdivision or department
consists of Restricted Activities. As used in this Addendum, the term
"Territories" means any state in which any loans or leases originated or
acquired by the Company originated (determined by the location of the dealers
from whom the loans or leases were purchased or, in the case of loans or
leases, originated by the Company where the borrower or lessee resides).
(ii) Employee agrees that during the Retention Period and until
the first anniversary of the Date of Termination, he will not, directly or
indirectly, solicit, divert, take away or attempt to solicit, divert, or take
away from the Company, or any subsidiary, any of the dealers and other
sources from which the Company or any subsidiary acquires loans or leases or
from whom the loan or lease packages are received by the Company or any
subsidiary.
(iii) Employee agrees that during the Retention Period and until
the first anniversary of the Date of Termination, he will not, directly or
indirectly, on his own behalf or in the service or on behalf of others,
solicit, divert or hire away, or in any manner attempt to solicit, divert or
hire away any person employed by the Company or any subsidiary, whether or
not such employee is a full-time employee or a temporary employee of the
Company or any subsidiary, and whether or not such employment was pursuant to
a written or oral contract of employment and whether or not such employment
was for a determined period or was at will.
(c) Employee acknowledges that the provisions of this Section 12
constitute a material inducement to the Company to enter into the Agreement.
Employee further acknowledges that the Company's remedy at law for a breach
by him of the provisions of this Section 12 will be inadequate. Accordingly,
in the event of a breach or threatened breach by Employee of any provision of
this Section 12, the Company will be entitled to injunctive relief in
addition to any other remedy it may have. If any of the provisions of, or
covenants contained in, this Section 12 are hereafter construed to be invalid
or unenforceable in any jurisdiction, the same will not affect the remainder
of the provisions or the enforceability thereof in any other jurisdiction,
which will be given full effect, without regard to the invalidity or
unenforceability in such other jurisdiction. If any of the provisions of, or
covenants contained in, this Section 12 are held to be unenforceable in any
jurisdiction because of the duration or geographical scope thereof, the
parties agree that the court making such determination will have the power to
reduce the duration or geographical scope of such provision or covenant and,
in its reduced form, such provision or covenant will be enforceable;
provided, however, that the determination of such court will not affect the
enforceability of this Section 12 in any other jurisdiction.
(d) In no event shall an asserted violation of the provisions of
this Section 12 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement or under any other
agreement, plan or arrangement.
13. SUCCESSORS. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors. The Company shall require any successor
to all or substantially all
12
<PAGE>
of the business and/or assets of the Company, whether direct or indirect, by
purchase, merger, consolidation, acquisition of stock, or otherwise, by an
agreement in form and substance satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent as the Company would be required to perform if no such succession had
taken place.
14. MISCELLANEOUS. (a) APPLICABLE LAW. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Minnesota, applied without reference to principles of conflict of laws.
(b) AMENDMENTS. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(c) NOTICES. All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: James D. Atkinson III
6969 Edgebrook Place
Eden Prairie, MN 55346
If to the Company: Arcadia Financial Ltd.
7825 Washington Avenue South
Minneapolis, MN 55439
Attention: Secretary
(with a copy to the attention of
the General Counsel)
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be
effective when actually received by the addressee.
(d) TAX WITHHOLDING. The Company may withhold from any amounts
payable under this Agreement such Federal, State or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(f) CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
15. ADDITIONAL CONSIDERATION. As additional consideration for
Executive's agreement to the terms and conditions hereof, the Company shall
within sixty (60) days of the date hereof (i) grant to Executive a non-statutory
stock option to purchase shares of the
13
<PAGE>
Company's Common Stock at an exercise price equal to the fair market value of
the stock on the grant date; (ii) reissue certain stock options held by
Executive on the date hereof at exercise prices equal to the fair market
value of the stock on the reissuance date plus a premium to be determined by
the Board (subject to new vesting periods), and/or (iii) make an additional
grant of Restricted Stock pursuant to the Company's 1998-2000 Restricted
Stock Election Plan, as amended.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and the Company has caused this Agreement to be executed in its name on its
behalf, all as of the day and year first above written.
ARCADIA FINANCIAL LTD.
By: /s/ [ILLEGIBLE]
-----------------------------
Name:
----------------------------
Title:
---------------------------
/s/ James D. Atkinson III
---------------------------------
James D. Atkinson III
14
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT between Arcadia Financial Ltd. (the "Company") and
Cortes E. DeRussy (the "Executive") is dated as of this 27th day of July,
1998.
W I T N E S S E T H :
WHEREAS, the Company and the Executive have agreed to enter into an
agreement providing the Company and the Executive with certain rights to
assure the Company of continuity of management;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is hereby agreed by and between the Company
and the Executive as follows:
1. EFFECTIVE DATE; TERM. This Agreement shall govern the terms
and conditions of Executive's employment commencing as of August 17, 1998
(the "Effective Date").
2. PRIOR EMPLOYMENT AGREEMENT. Intentionally omitted.
3. RETENTION PERIOD. The Company agrees to continue the
Executive in its employ, and the Executive agrees to remain in the employ of
the Company, for the period (the "Retention Period") commencing on the
Effective Date and ending on the date of any termination of the Executive's
employment in accordance with Section 6 of this Agreement.
4. POSITION AND DUTIES. (a) CHANGE IN POSITION PRIOR TO
CHANGE OF CONTROL. During the Retention Period, prior to a Change of Control
(as hereinafter defined), the Executive's position (including titles),
authority and responsibilities as an officer of the Company shall be at least
commensurate with the highest of those held or exercised by him at any time
during the 90-day period immediately following the Effective Date; provided,
however, that the Chief Executive Officer of the Company may, in his sole
discretion, make changes to the Executive's position (including titles),
authority and responsibilities if he determines in good faith that such
changes are appropriate in light of the Company's business plan including,
without limitation, financial, strategic and operating objectives, and,
provided further, that in the event the Chief Executive Officer elects to
make a reduction in the Executive's position, authority or responsibilities
pursuant hereto, such changes shall not otherwise impact or in any way reduce
the Executive's compensation and benefits under Section 5 or the Company's
obligations under this Agreement including, without limitation, its
obligations under Section 7(d) hereof.
(b) CHANGE IN POSITION AFTER CHANGE OF CONTROL. In the event a
Change of Control (as hereinafter defined) occurs during the Retention
Period, thereafter the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with the highest of those
held or exercised by him at any time during the 10-day period immediately
preceding the date of the Change of Control.
1
<PAGE>
(c) CHANGE OF CONTROL. As used herein the term "Change of
Control" shall mean the closing of any transaction or series of transactions
by which the Company shall merge with (whether or not the Company is the
surviving entity) or consolidate into any other person or lease or sell
substantially all of its and its subsidiaries' assets (other than asset sales
in connection with automobile loan securitization transactions) substantially
as an entirety to any other person or by which any person, entity or group
(within the meaning of Rule 13d-5 under the Securities Exchange Act of 1934)
acquires, directly or indirectly, 51% or more of the Company's outstanding
common stock (calculated on a fully diluted basis).
(d) BUSINESS TIME. During the Retention Period, the Executive
shall devote his full business time during normal business hours to the
business and affairs of the Company and use his best efforts to perform
faithfully and efficiently the responsibilities assigned to him hereunder, to
the extent necessary to discharge such responsibilities, except for
(i) reasonable time spent in serving on corporate, civic or
charitable boards or committees of the nature similar to those on
which the Executive served prior to the Effective Date, in each case
only if and to the extent not substantially interfering with the
performance of such responsibilities,
(ii) reasonable time spent in managing the Executive's
investment portfolio, but only if and to the extent not substantially
interfering with the performance of such responsibilities, and
(iii) periods of vacation and sick leave to which he is
entitled.
It is expressly understood and agreed that the Executive's continuing to
serve on any boards and committees on which he is serving or with which he is
otherwise associated immediately preceding the Effective Date shall not be
deemed to interfere with the performance of the Executive's services to the
Company. The Executive shall be entitled to serve on additional outside
boards and committees with the prior written consent by the Chief Executive
Officer of the Company.
5. COMPENSATION AND BENEFITS. (a) BASE SALARY. During the
first year of the Retention Period, the Executive shall receive a base salary
("Base Salary") at a monthly rate of Twenty Thousand Eight Hundred
Thirty-three and 34/100 Dollars ($20,833.34). The Base Salary shall be
reviewed at least once each year after the Effective Date, and may be
increased (but not decreased) at any time and from time to time by action of
the Board or any committee thereof or any individual having authority to take
such action in accordance with the Company's regular practices. Neither
payment of the Base Salary nor payment of any increased Base Salary after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder. For purposes of the remaining provisions of this
Agreement, the term "Base Salary" shall mean Base Salary as defined in this
Section 5(a) or, if increased after the Effective Date, the Base Salary as so
increased.
2
<PAGE>
(b) SIGNING BONUS AND ANNUAL BONUS. The Company shall pay to the
Executive within thirty (30) days of the Effective Date the sum of Seventy
Thousand Dollars ($70,000) (the "Signing Bonus"). In addition to the Base
Salary and the Signing Bonus, the Executive shall be eligible for each fiscal
year of the Company during the Retention Period an annual bonus, with the
target amount, vesting and payment thereof to be based on reasonable and
customary criteria consistent with the Company's practices for all executives
holding the same office as the highest office held by the Executive during
the Retention Period (the "Annual Bonus"). If the Executive is employed for
less than a full fiscal year in either the first or final fiscal year of the
Retention Period, the Executive shall be eligible to receive an amount with
respect to such fiscal year at least equal to the amount of the Annual Bonus
multiplied by a fraction, the numerator of which is the number of days in
such fiscal year occurring during the Retention Period and the denominator of
which is 365. The Company agrees that in the event the Executive is employed
by the Company through the last day of fiscal 1998, the Executive's Annual
Bonus for 1998 shall be at least equal to the accelerated vesting of not less
than fifty percent (50%) of the restricted shares granted to the Executive
under the Company's 1998-2000 Restricted Stock Election Plan and which are
allocable to 1998. In the event the Executive has elected to receive his or
her Annual Bonus for such year in the form of restricted shares of the Common
Stock of the Company, upon termination of the Executive's employment for any
reason the Executive shall be deemed to have revoked such election as to any
then unvested shares of such restricted stock and the Executive's pro-rated
Annual Bonus for such year shall be determined based upon the amount of the
cash Annual Bonus the Executive would have received absent such election.
Each amount payable in respect of the Executive's Annual Bonus shall be paid
not later than 90 days after the fiscal year next following the fiscal year
for which the Annual Bonus (or pro-rated portion) is earned or awarded.
Neither the Annual Bonus nor any bonus amount paid in excess thereof after
the Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(c) FRINGE BENEFITS. Subject to the Company's rights under
subsection (vi) of this Section 5(c), during the Retention Period, the
Company shall provide the following fringe benefits to Executive:
(i) HEALTH, DISABILITY AND LIFE INSURANCE. Subject to
satisfaction of the eligibility requirements of such plans and the
rules and regulations applicable thereto, Executive and his family
members shall be entitled to be covered by the Company's group health
and dental insurance plans presently in effect or hereafter adopted by
the Company and applicable to employees of the Company generally and
Executive shall be entitled to be covered by the Company's group
disability and life insurance plans presently in effect or hereafter
adopted by the Company and applicable to the employees of the Company
in general. The Company shall pay the premiums associated with such
coverage. In the event Executive makes a claim against any disability
policy provided to Executive by the Company pursuant to this Section
5(c)(i) and such policy calls for a waiting period which is applicable
to Executive's claim, the Company shall pay to Executive during such
waiting period his monthly base salary due during such period and
shall provide the other benefits due him under this Section 5(c)(i).
3
<PAGE>
(ii) VACATION. Executive shall be entitled to three weeks
of vacation during the first year of the Retention Period and four
weeks of vacation each year of the Retention Period thereafter,
without loss of compensation or other benefits pursuant to such
general policies and procedures of the Company as are from time to
time adopted by the Company.
(iii) EXPENSE REIMBURSEMENT. Executive shall be reimbursed
by the Company for all reasonable expenses incurred by him in
connection with the conduct of the Company's business for which he
furnishes appropriate documentation.
(iv) AUTOMOBILE. The Company shall pay to Executive a
monthly auto expense in the amount of not less than Four Hundred
Dollars ($400) per month.
(v) COMMUTING EXPENSES. The Company will reimburse the
Executive for the costs of the Executive and/or his spouse commuting
to and from Minneapolis, Minnesota from Executive's residence in
Bronxville, New York up to a maximum of three round trips per calendar
month. Such reimbursement shall be subject to Executive complying
with Arcadia's travel policies as in existence from time to time and
providing reasonable evidence of Executive's incurrence of such
expenses.
(vi) REDUCTION IN BENEFITS. At any time, and from time to
time, prior to a Change of Control, the Company shall be entitled to
reduce the benefits provided to the Executive under this Subsection
(c) provided that any such reduction must be made concurrently with an
equal reduction to the fringe benefits granted to all executives
holding the same office as the highest office held by the Executive
during the Retention Period.
6. TERMINATION. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon his death. The Company may
terminate Executive's employment during the Retention Period, after having
established the Executive's Disability, by giving the Executive written
notice of its intention to terminate his employment, and his employment with
the Company shall terminate effective on the 90th day after receipt of such
notice if, within 90 days after such receipt, the Executive shall fail to
return to full-time performance of his duties. For purposes of this
Agreement, "Disability" means disability which, after the expiration of more
than 26 weeks after its commencement, is determined to be total and permanent
by a physician selected by the Company or its insurers and acceptable to the
Executive or his legal representatives (such agreement to acceptability not
to be withheld unreasonably).
(b) VOLUNTARY TERMINATION. Notwithstanding anything in this
Agreement to the contrary, the Executive may, upon not less than 15 days
advance written notice to the Company, voluntarily terminate employment
during the Retention Period for any reason, provided that any termination by
the Executive pursuant to Section 6(d) of this Agreement on account of Good
Reason (as defined therein) shall not be treated as a voluntary termination
under this Section 6(b).
4
<PAGE>
(c) CAUSE. The Company may terminate the Executive's employment
during the Retention Period for Cause. As used in this Agreement, the term
"Cause" shall mean (i) any fraud, misappropriation or embezzlement by the
Executive in connection with the business of the Company or any of its
subsidiaries, (ii) any conviction of a felony or a gross misdemeanor by the
Executive that has or can reasonably be expected to have a detrimental effect
on the Company or any of its subsidiaries, (iii) any gross neglect by the
Executive of the duties assigned to him or her hereunder which continues for
a period of 90 days after written notice to the Executive of such neglect,
or, (iv) any material breach by Executive of any provisions of Section 12 of
this Agreement. It is understood and agreed that the Company may not
terminate Executive's employment for Cause in the event Executive is unable
to perform his or her duties due to partial or permanent or temporary or
total disability from injury or sickness.
(d) GOOD REASON. The Executive may terminate his employment
during the Retention Period for Good Reason. For purposes of this Agreement,
"Good Reason" means
(i) without the Executive's prior written consent, the
Company or any of its officers takes or fails to take any action which
changes the Executive's position (including titles), authority or
responsibilities which is inconsistent with Section 4 of this
Agreement or reduces the Executive's ability to carry out his duties
and responsibilities under Section 4 of this Agreement provided that
any change which is permissible under Section 4(a) of this Agreement
shall not constitute "Good Reason".
(ii) any failure by the Company to comply with any of the
provisions of Section 5 of this Agreement, other than an insubstantial
or inadvertent failure remedied by the Company promptly after receipt
of notice thereof from the Executive, provided however, a reduction in
the fringe benefits granted to the Executive pursuant to Section
5(c)(v) hereof which is consistent with reductions thereto made to the
fringe benefits granted to all executives holding the same office as
the highest office held by the Executive during the Retention Period
shall not constitute "Good Reason";
(iii) the Company's requiring the Executive to be employed at
any location more than 35 miles from Minneapolis, Minnesota; or
(iv) any failure by the Company to obtain the assumption of
and agreement to perform this Agreement by a successor as contemplated
by Section 13(b) of this Agreement.
(e) WITHOUT CAUSE. The Company may terminate the Executive's
employment during the Retention Period without Cause. The Company shall give
Executive at least 15 days' advance written notice of any termination of
Executive's employment which is not for Cause and not on account of
Executive's Disability.
(f) NOTICE OF TERMINATION. Any termination of Executive's
employment by the Company for Cause or by the Executive for Good Reason
during the Retention Period shall be communicated by Notice of Termination to
the other party hereto given in accordance with
5
<PAGE>
Section 14(c) of this Agreement. For purposes of this Agreement, a "Notice
of Termination" means a written notice given, in the case of a termination by
the Company for Cause, within 10 business days of the Company's having actual
knowledge of all of the events giving rise to such termination, and in the
case of a termination by Executive for Good Reason, within 180 days of the
Executive's having actual knowledge of the events giving rise to such
termination, and which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and (iii) if the
termination date is other than the date of receipt of such notice, specifies
such termination date (which date shall be not more than 15 days after the
giving of such notice). The failure by the Executive to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing
of Good Reason shall not waive any right of the Executive hereunder or
preclude the Executive from asserting such fact or circumstance in enforcing
his rights hereunder.
(g) DATE OF TERMINATION. For purposes of this Agreement, the term
"Date of Termination" means (i) in the case of a termination for which a
Notice of Termination is required, the date of receipt of such Notice of
Termination or, if later, the date specified therein and (ii) in all other
cases, the actual date on which the Executive's employment terminates during
the Retention Period.
7. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH.
If the Executive's employment is terminated during the Retention Period by
reason of the Executive's death, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement other than those obligations accrued hereunder at the date of his
death, including, for this purpose (i) the Executive's full Base Salary
through the Date of Termination, (ii) the product of the target Annual Bonus
for the year in which the death occurred and a fraction, the numerator of
which is the number of days in the current fiscal year of the Company through
the Date of Termination, and the denominator of which is 365 (the "Pro-rated
Bonus Obligation"). For the purposes of computing the Pro-rated Bonus
Obligation, the Executive shall be deemed to have revoked his election, if
any, to receive such bonus in the form of restricted stock of the Company and
to have earned the maximum cash Annual Bonus which he was eligible to earn
for the year in which the termination occurred, (iii) any compensation
previously deferred by the Executive (together with any accrued earnings
thereon) and not yet paid by the Company, (iv) any other amounts or benefits
then owing to the Executive under any of the Company's incentive compensation
plans, stock option plans, restricted stock plans or other similar plans as
determined pursuant to the terms of such plans and this Agreement and (v) any
amounts or benefits owing to the Executive under any of the Company's
employee benefit plans or policies (such amounts specified in clauses (i),
(ii), (iii), (iv) and (v) are hereinafter referred to as "Accrued
Obligations"). Unless otherwise directed by the Executive prior to his
death, all Accrued Obligations shall be paid to the Executive's estate.
(b) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability, the Executive shall receive all Accrued
Obligations and, in addition, from the Date of Termination until the date
when the Retention Period would otherwise have terminated, shall continue to
participate in or be covered under the benefit plans and programs referred to
in Section 5(c)(i) of this Agreement or, at the Company's option, to receive
equivalent
6
<PAGE>
benefits by alternate means at least equal to those provided in accordance
with Section 5(c)(i) of this Agreement. Anything in this Agreement to the
contrary notwithstanding, the Executive shall be entitled to receive
disability and other benefits at least equal to the most favorable level of
benefits available to disabled employees and/or their families in accordance
with the plans, programs and policies maintained by the Company or its
affiliates relating to disability at any time during the 90-day period
immediately preceding the Effective Date.
(c) CAUSE AND VOLUNTARY TERMINATION. If, during the Retention
Period, the Executive's employment shall be terminated for Cause or
voluntarily terminated by the Executive (other than on account of Good
Reason), the Executive shall receive all Accrued Obligations other than the
Pro-rated Bonus Obligation.
(d) TERMINATION BY COMPANY OTHER THAN FOR CAUSE OR DISABILITY AND
TERMINATION BY EXECUTIVE FOR GOOD REASON. LUMP SUM PAYMENT. . If, during
the Retention Period, the Company terminates the Executive's employment other
than for Cause or Disability, or the Executive terminates his employment for
Good Reason, the Executive shall receive all Accrued Obligations. In
addition, the Company shall pay to the Executive in a lump sum, a cash amount
equal to two (2) times the sum of the following amounts:
(1) the Executive's annual Base Salary at the rate
specified in Section 5(a) of this Agreement;
(2) an amount equal to the target cash Annual Bonus
determined without proration payable to the Executive in respect to
the calendar year in which the termination event occurred;
(3) an amount equal to the average annual amount paid
and/or reimbursed to the Executive pursuant to Section 5(c)(iv) hereof
during the two calendar years preceding the Date of Termination; and
(4) the present value, calculated using the annual federal
short-term rate as determined under Section 1274(d) of the Code, of
(without duplication) the annual cost to the Company (based on the
premium rates or other costs to it) of obtaining coverage equivalent
to the coverage under the plans and programs described in Section
5(c)(i) of this Agreement;
provided, however, that with respect to the life and medical insurance
coverage referred to in Section 5(c)(i) of this Agreement, at the
Executive's election made prior to the Date of Termination, the
Company shall use its best efforts to secure conversion coverage and
shall pay the cost of such coverage in lieu of paying the lump sum
amount attributable to such life or medical insurance coverage.
In consideration of the Company's payment of the amounts payable to the
Executive pursuant to this Subsection 7(d) and the Executive's acceptance
thereof, the Executive and the Company shall enter into a mutual release in a
form acceptable to the Executive and the Company releasing each other and
their respective agents from all claims arising from or in any way related to
the
7
<PAGE>
Executive's employment by the Company and the termination of such employment
relationship. The Executive shall not receive any of the amounts payable
pursuant to this Subsection 7(d) until after the Executive has executed and
delivered the release to the Company and all rescission periods under
applicable state and federal laws have expired without rescission of the
release by the Executive. The Company shall make such payment within fifteen
(15) days after the longest applicable rescission period has elapsed without
rescission.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise prejudice such rights as the
Executive may have with respect to awards granted to him prior to or during
the Retention Period under any stock option, restricted stock or other plans
or agreements with the Company or any of its affiliated companies except as
to restrictions on the Executive's rights to any restricted stock received by
the Executive in lieu of a cash Annual Bonus as set forth in Sections 5(b),
7(a) and 7(d) of this Agreement. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or program of
the Company or any of its affiliated companies shall be payable in accordance
with such plan or program.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment, distribution, acceleration
of vesting or other benefit which the Executive receives or becomes entitled
to receive, whether alone or in combination, and whether pursuant to the
terms of this Agreement or any other agreement, plan or arrangement with the
Company or any of its affiliates or any of their respective successors or
assigns, but determined without regard to any additional payments required
under this Section 9 (collectively, the "Payments"), would be subject to the
excise tax imposed by Section 4999 of the Code (or any successor provision),
or any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of
(i) all taxes with respect to the Gross-Up Payment (including any interest or
penalties imposed with respect to such taxes) including, without limitation,
any income taxes (and any interest and penalties imposed with respect
thereto), and (ii) the Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed on the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by KPMG Peat Marwick or such other nationally recognized accounting firm then
auditing the accounts of the Company (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is unwilling
8
<PAGE>
or unable to perform its obligations pursuant to this Section 9, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the potential uncertainty
in the application of Section 4999 of the Code (or any successor provision)
at the time of the initial determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 20 business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which he gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limiting the foregoing provisions
of
9
<PAGE>
this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the Company directs
the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free
basis, and shall indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and further provided that
any extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested amount
is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive or others whether by
reason of the subsequent employment of the Executive or otherwise. In no
event shall the Executive be obligated to seek other employment by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement, and no amount payable under this Agreement
shall be reduced on account of any compensation received by the Executive
from other employment. In the event that the Executive shall in good faith
give a Notice of Termination for Good Reason and it shall thereafter be
determined by mutual consent of the Executive and the Company or by a
tribunal having jurisdiction over the matter that Good Reason did not exist,
the employment of the Executive shall, unless the Company and the Executive
shall otherwise mutually agree, be deemed to have terminated, at the date of
giving such purported Notice of Termination, by mutual consent of the Company
and the Executive and, except as provided in the last preceding sentence, the
Executive shall be entitled to receive
10
<PAGE>
only those payments and benefits which he would have been entitled to receive
at such date otherwise than under this Agreement.
11. DISPUTES; LEGAL FEES AND EXPENSES. (a) Any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively and finally by expedited arbitration, conducted before a
single arbitrator in Minneapolis, Minnesota, in accordance with the rules
governing employment disputes then in effect of the American Arbitration
Association. The arbitrator shall be approved by both the Company and the
Executive. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
(b) In the event that any claim by the Executive under this
Agreement is disputed, the Company shall pay all reasonable legal fees and
expenses incurred by the Executive in pursuing such claim, provided that the
Executive is successful as to at least part of the disputed claim by reason
of arbitration, settlement or otherwise.
12. CONFIDENTIAL INFORMATION; NONCOMPETITION. (a) The Executive
shall hold in a fiduciary capacity for the benefit of the Company all secret
or confidential information, knowledge or data relating to the Company or any
of its affiliated companies, and their respective businesses, (i) obtained by
the Executive during his employment by the Company or any of its affiliated
companies and (ii) not otherwise public knowledge (other than by reason of an
unauthorized act by the Executive). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior
written consent of the Company, unless compelled pursuant to an order of a
court or other body having jurisdiction over such matter, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those designated by it.
(b) It is mutually acknowledged that by virtue of Executive's
positions with the Company and its subsidiaries, he will become possessed of
certain valuable and confidential information concerning the customers,
business methods, procedures and techniques of the Company and its
subsidiaries. It is further understood that Executive will develop contacts
among the customers of the Company and its subsidiaries, and it is mutually
understood and agreed that the customers of the Company and its subsidiaries
and the business methods and procedures and techniques developed by the
Company and its subsidiaries are valuable assets and properties of the
Company and its subsidiaries. Without limitation, it is also specifically
acknowledged that great trust on the part of the Company and its subsidiaries
will reside in Executive, since Executive's duties will include involvement
in the management, promotion and development of the Company's business.
Accordingly, the parties deem it necessary to enter into the protective
covenants set forth below, the terms and conditions of which have been
negotiated by and between the parties hereto:
(i) Executive agrees that during the Retention Period and until
the last day of the Non-compete Period (as hereinafter defined), he will not,
directly or indirectly, on his own behalf or on the behalf of any third
party, perform management, accounting, financial, marketing, sales,
administrative or executive duties, in any business conducted within the
Territories (as defined below) whose primary business consists of originating
or purchasing automobile or truck loans or leases from automobile or truck
dealers, packaging such loans or leases, reselling such
11
<PAGE>
loans or leases or servicing such loans or leases (the "Restricted
Activities") or for any subdivision or department of any business whose
primary business does not consist of Restricted Activities, but where the
primary business of such subdivision or department consists of Restricted
Activities. As used in this Addendum, the term "Territories" means any state
in which any loans or leases originated or acquired by the Company are
originated (determined by the location of the dealers from whom the loans or
leases were purchased or, in the case of loans or leases, originated by the
Company where the borrower or lessee resides). As used herein the term
"Non-compete Period" shall mean as follows: (i) in the event the Executive's
employment hereunder is terminated pursuant to Section 6(b) or 6(c), the
period commencing on the Termination Date and continuing until the first
anniversary of the Termination Date; and (ii) in the event of the Executive's
employment hereunder is terminated pursuant to Section 6(a), 6(d) or 6(e),
the period commencing on the Termination Date and continuing until the same
day of the sixth consecutive month thereafter.
(ii) Executive agrees that during the Retention Period and
until the first anniversary of the Date of Termination, he will not, directly
or indirectly, solicit, divert, take away or attempt to solicit, divert, or
take away from the Company, or any subsidiary, any of the dealers and other
sources from which the Company or any subsidiary acquires loans or leases or
from whom the loan or lease packages are received by the Company or any
subsidiary.
(iii) Executive agrees that during the Retention Period and
until the first anniversary of the Date of Termination, he will not, directly
or indirectly, on his own behalf or in the service or on behalf of others,
solicit, divert or hire away, or in any manner attempt to solicit, divert or
hire away any person employed by the Company or any subsidiary, whether or
not such employee is a full-time employee or a temporary employee of the
Company or any subsidiary, and whether or not such employment was pursuant to
a written or oral contract of employment and whether or not such employment
was for a determined period or was at will.
(c) Executive acknowledges that the provisions of this Section 12
constitute a material inducement to the Company to enter into the Agreement.
Executive further acknowledges that the Company's remedy at law for a breach
by him of the provisions of this Section 12 will be inadequate. Accordingly,
in the event of a breach or threatened breach by Executive of any provision
of this Section 12, the Company will be entitled to injunctive relief in
addition to any other remedy it may have. If any of the provisions of, or
covenants contained in, this Section 12 are hereafter construed to be invalid
or unenforceable in any jurisdiction, the same will not affect the remainder
of the provisions or the enforceability thereof in any other jurisdiction,
which will be given full effect, without regard to the invalidity or
unenforceability in such other jurisdiction. If any of the provisions of, or
covenants contained in, this Section 12 are held to be unenforceable in any
jurisdiction because of the duration or geographical scope thereof, the
parties agree that the court making such determination will have the power to
reduce the duration or geographical scope of such provision or covenant and,
in its reduced form, such provision or covenant will be enforceable;
provided, however, that the determination of such court will not affect the
enforceability of this Section 12 in any other jurisdiction.
12
<PAGE>
(d) In no event shall an asserted violation of the provisions of
this Section 12 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement or under any other
agreement, plan or arrangement.
13. SUCCESSORS. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors. The Company shall require any successor
to all or substantially all of the business and/or assets of the Company,
whether direct or indirect, by purchase, merger, consolidation, acquisition
of stock, or otherwise, by an agreement in form and substance satisfactory to
the Executive, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent as the Company would be required to
perform if no such succession had taken place.
14. MISCELLANEOUS. (a) APPLICABLE LAW. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Minnesota, applied without reference to principles of conflict of laws.
(b) AMENDMENTS. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(c) NOTICES. All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: Cortes E. DeRussy
50 Hampshire Road
Bronxville, NY 10708
If to the Company: Arcadia Financial Ltd.
7825 Washington Avenue South
Minneapolis, MN 55439
Attention: Secretary
(with a copy to the attention of
the General Counsel)
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be
effective when actually received by the addressee.
13
<PAGE>
(d) TAX WITHHOLDING. The Company may withhold from any amounts
payable under this Agreement such Federal, State or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(f) CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
15. ADDITIONAL CONSIDERATION. As additional consideration for
Executive's agreement to the terms and conditions hereof, the Company shall
within sixty (60) days of the date hereof (i) grant to Executive a stock
option to purchase one hundred thousand (100,000) shares of the Company's
Common Stock at an exercise price equal to the fair market value of the stock
on the grant date; and/or (ii) make a grant of Restricted Stock to Executive
pursuant to the Company's 1998-2000 Restricted Stock Election Plan, as
amended.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused this Agreement to be executed in its name on its behalf,
all as of the day and year first above written.
ARCADIA FINANCIAL LTD.
By: /s/ Duane White
-------------------------------
Name: DUANE WHITE
-----------------------------
Title: EVP
----------------------------
/s/ Cortes E. DeRussy
----------------------------------
Cortes E. DeRussy
14
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
FOR ARCADIA FINANCIAL LTD.
(As Amended May 28, 1998)
ARTICLE I. INTRODUCTION
Section 1.01 PURPOSE. The purpose of the EMPLOYEE STOCK
PURCHASE PLAN FOR ARCADIA FINANCIAL LTD. (As Amended June 30, 1997) (the
"Plan") is to provide employees of ARCADIA FINANCIAL LTD., a Minnesota
corporation (the "Company"), and certain related corporations with an
opportunity to share in the ownership of the Company by providing them with a
convenient means for regular and systematic purchases of the Company's Common
Stock, par value $.01 per share, and, thus, to develop a stronger incentive
to work for the continued success of the Company.
Section 1.02 RULES OF INTERPRETATION. It is intended that
the Plan be an "employee stock purchase plan" as defined in Section 423(b) of
the Internal Revenue Code of 1986, as amended (the "Code"), and Treasury
Regulations promulgated thereunder. Accordingly, the Plan shall be
interpreted and administered in a manner consistent therewith if so approved.
All Participants in the Plan will have the same rights and privileges
consistent with the provisions of the Plan.
Section 1.03 DEFINITIONS. For purposes of the Plan, the
following terms will have the meanings set forth below:
(a) "ACCELERATION DATE" means the earlier of the date of
stockholder approval or approval by the Company's Board of
Directors of (i) any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or
pursuant to which shares of Company Common Stock would be converted
into cash, securities or other property, other than a merger of the
Company in which stockholders of the Company immediately prior to
the merger have the same proportionate ownership of stock in the
surviving corporation immediately after the merger; (ii) any sale,
exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of
the Company; or (iii) any plan of liquidation or dissolution of the
Company.
(b) "AFFILIATE" means any subsidiary corporation of the
Company, as defined in Section 424(f) of the Code, whether now or
hereafter acquired or established.
(c) "COMMITTEE" means the committee described in Section 10.01.
(d) "COMPANY" means ARCADIA FINANCIAL LTD., a Minnesota
corporation, formerly known as Olympic Financial Ltd, and its
successors by merger or consolidation as contemplated by Article XI
herein.
<PAGE>
(e) "CURRENT COMPENSATION" means all regular straight time
gross earnings, wages and salaries paid by the Company to a
Participant in accordance with the terms of his or her employment,
but excluding bonus payments, overtime, shift premiums and all
other forms of special or incentive compensation such as
commissions, bonuses and incentive pay.
(f) "EMPLOYEE" means an employee of the Company or a
Participating Affiliate as of the first day of a Purchase Period,
including an officer or director who is also an employee, but
excluding any employee whose customary employment is less than 20
hours per week or for less than 5 months in any calendar year.
(g) "FAIR MARKET VALUE" as of a given date means such value
of the Common Stock as reasonably determined by the Committee, but
shall not be less than (i) the closing price of the Common Stock as
reported for composite transactions if the Common Stock is then
traded on a national securities exchange, (ii) the last sale price
if the Common Stock is then quoted on the NASDAQ National Market
System, or (iii) the average of the closing representative bid and
asked prices of the Common Stock as reported on NASDAQ on the date
as of which the fair market value is being determined. If on the
date of grant of any option hereunder the Common Stock is not
traded on an established securities market, the Committee shall
make a good faith attempt to satisfy the requirements of this
Section 1.03(g) and in connection therewith shall take such action
as it deems necessary or advisable. If on a given date the Common
Stock is not traded on an established securities market, the
Committee shall make a good faith attempt to satisfy the
requirements of this Section 1.03(g) and in connection therewith
shall take such action as it deems necessary or advisable.
(h) "PARTICIPANT" means an Employee who is eligible to
participate in the Plan under Section 2.01 and who has elected to
participate in the Plan.
(i) "PARTICIPATING AFFILIATE" means an Affiliate which has
been designated by the Committee in advance of the Purchase Period
in question as a corporation whose eligible Employees may
participate in the Plan.
(j) "PLAN" means the EMPLOYEE STOCK PURCHASE PLAN FOR ARCADIA
FINANCIAL LTD. (As Amended May 28, 1998), the provisions of which
are set forth herein. The Plan represents an amendment and
restatement of the Plan as in effect immediately prior to May 28,
1998 in accordance with Section 9.03 thereof and was approved by
the shareholders on May 28, 1998 at the Company's annual meeting.
(k) "PURCHASE PERIOD" means the approximate 6 month period
beginning on the first business day in January and July in each
calendar year and ending on the last business day in June and
December of each such year; provided, however, that the then
current Purchase Period will end upon the occurrence of an
Acceleration Date.
<PAGE>
(l) "COMMON STOCK" means the Company's Common Stock, $.01 par
value, as such stock may be adjusted for changes in the stock or
the Company as contemplated by Article XI herein.
(m) "STOCK PURCHASE ACCOUNT" means the account maintained on
the books and records of the Company recording the amount received
from each Participant through payroll deductions made under the
Plan and from the Company through matching contributions, if any
are authorized and made.
ARTICLE II. ELIGIBILITY AND PARTICIPATION
Section 2.01 ELIGIBLE EMPLOYEES. All Employees shall be
eligible to participate in the Plan beginning on the first day of the first
Purchase Period to commence after such person becomes an Employee within the
meaning of the Plan. Subject to the provisions of Article VI, each such
Employee will continue to be eligible to participate in the Plan so long as
he or she remains such an Employee.
Section 2.02 ELECTION TO PARTICIPATE. An eligible Employee
may elect to participate in the Plan for a given Purchase Period by filing
with the Company, in advance of that Purchase Period, including any election
to participate as to a previous Purchase Period, which has not revoked, and
in accordance with such terms and conditions as the Committee in its sole
discretion may impose, a form provided by the Company for such purpose (which
authorizes regular payroll deductions from Current Compensation beginning
with the first payday in that Purchase Period and continuing until the
Employee withdraws from the Plan or ceases to be eligible to participate in
the Plan).
Section 2.03 LIMITS ON STOCK PURCHASE. No employee shall be
granted any right to purchase Common Stock hereunder if such employee,
immediately after such a right to purchase is granted, would own, directly or
indirectly, within the meaning of Section 423(b)(3) and Section 424(d) of the
Code, Common Stock possessing 5% or more of the total combined voting power
or value of all the classes of the capital stock of the Company or of all
Affiliates.
Section 2.04 VOLUNTARY PARTICIPATION. Participation in the
Plan on the part of a Participant is voluntary and such participation is not
a condition of employment nor does participation in the Plan entitle a
Participant to be retained as an employee.
ARTICLE III. PAYROLL DEDUCTIONS, COMPANY
CONTRIBUTIONS AND STOCK PURCHASE ACCOUNT
Section 3.01 DEDUCTION FROM PAY. The form described in
Section 2.02 will permit a Participant to elect payroll deductions of at
least $10.00 per pay period in any multiple of 1% but not more than 10% of
such Participant's Current Compensation for each pay period, subject to such
other limitations as the Committee in its sole discretion may impose. With
respect to any Purchase Period, a Participant may cease making payroll
deductions at any time or decrease (but not increase) such deductions for
such Purchase Period, subject to such limitations
<PAGE>
as the Committee in its sole discretion may impose. In the event that during
a Purchase Period the entire credit balance in a Participant's Stock Purchase
Account exceeds the product of (a) 85% of the Fair Market Value of the Common
Stock on the first business day of that Purchase Period, and (b) 7500, then
payroll deductions for such Participant shall automatically cease, and shall
resume on the first pay period of the next Purchase Period.
Section 3.02 CREDIT TO ACCOUNT. Payroll deductions will be
credited to the Participant's Stock Purchase Account on each payday, and
Company contributions, if any are authorized and made, will be credited to
the Participant's Stock Purchase Account on the last business day of the
Purchase Period at the time of and in connection with the purchase of shares
of Common Stock in accordance with Articles IV and V hereof.
Section 3.03 INTEREST. No interest will be paid upon payroll
deductions, Company contributions, if any are authorized and made, or on any
amount credited to, or on deposit in, a Participant's Stock Purchase Account.
Section 3.04 NATURE OF ACCOUNT. The Stock Purchase Account
is established solely for accounting purposes, and all amounts credited to
the Stock Purchase Account will remain part of the general assets of the
Company or the Participating Affiliate (as the case may be).
Section 3.05 NO ADDITIONAL CONTRIBUTIONS. A Participant may
not make any payment into the Stock Purchase Account other than the payroll
deductions made pursuant to the Plan.
ARTICLE IV. RIGHT TO PURCHASE SHARES
Section 4.01 NUMBER OF SHARES. Each Participant will have
the right to purchase on the last business day of the Purchase Period all,
but not less than all, of the largest number of whole shares of Common Stock
that can be purchased at the price specified in Section 4.02 with the entire
credit balance in the Participant's Stock Purchase Account, subject to the
limitations that (a) no more than 7500 shares of Common Stock may be
purchased under the Plan by any one Participant for a given Purchase Period
and (b) in accordance with Section 423(b)(8) of the Code, no more than
$25,000 in Fair Market Value (determined at the beginning of each Purchase
Period) of Common Stock and other stock may be purchased under the Plan and
all other employee stock purchase plans (if any) of the Company and the
Affiliates by any one Participant for any calendar year. If the purchases for
all Participants would otherwise cause the aggregate number of shares of
Common Stock to be sold under the Plan to exceed the number specified in
Section 10.03, each Participant shall be allocated a pro rata portion of the
Common Stock to be sold.
Section 4.02 PURCHASE PRICE. The purchase price for any
Purchase Period shall be the lesser of (a) 85% of the Fair Market Value of
the Common Stock on the first business day of that Purchase Period or (b) 85%
of the Fair Market Value of the Common Stock on the last business day of that
Purchase Period, in each case rounded up to the next higher full cent.
<PAGE>
ARTICLE V. EXERCISE OF RIGHT
Section 5.01 PURCHASE OF STOCK. On the last business day of
a Purchase Period, the entire credit balance in each Participant's Stock
Purchase Account will be used to purchase the largest number of whole shares
of Common Stock purchasable with such amount (subject to the limitations of
Section 4.01), unless the Participant has filed with the Company, in advance
of that date and subject to such terms and conditions as the Committee in its
sole discretion may impose, a form provided by the Company which requests the
distribution of the entire credit balance in cash.
Section 5.02 CASH DISTRIBUTIONS. Any amount remaining in a
Participant's Stock Purchase Account after the last business day of a
Purchase Period will be paid to the Participant in cash within 45 days after
the end of that Purchase Period.
Section 5.03 NOTICE OF ACCELERATION DATE. The Company shall
use its best efforts to notify each Participant in writing at least ten days
prior to any Acceleration Date that the then current Purchase Period will end
on such Acceleration Date.
ARTICLE VI. WITHDRAWAL FROM PLAN; SALE OF STOCK
Section 6.01 VOLUNTARY WITHDRAWAL. A Participant may, in
accordance with such terms and conditions as the Committee in its sole
discretion may impose, withdraw from the Plan and cease making payroll
deductions by filing with the Company a form provided for this purpose. In
such event, the entire credit balance in the Participant's Stock Purchase
Account will be paid to the Participant in cash within 30 days. A
Participant who withdraws from the Plan will not be eligible to reenter the
Plan until the beginning of the next Purchase Period following the date of
such withdrawal.
Section 6.02 DEATH. Subject to such terms and conditions as
the Committee in its sole discretion may impose, upon the death of a
Participant, no further amounts shall be credited to the Participant's Stock
Purchase Account. Thereafter, on the last business day of the Purchase Period
during which such Participant's death occurred and in accordance with Section
5.01, the entire credit balance in such Participant's Stock Purchase Account
will be used to purchase Common Stock, unless such Participant's estate has
filed with the Company, in advance of that day and subject to such terms and
conditions as the Committee in its sole discretion may impose, a form
provided by the Company which elects to have the entire credit balance in
such Participant's Stock Account distributed in cash within 30 days after the
end of that Purchase Period or at such earlier time as the Committee in its
sole discretion may decide. Each Participant, however, may designate one or
more beneficiaries who, upon death, are to receive the Common Stock or the
amount that otherwise would have been distributed or paid to the
Participant's estate and may change or revoke any such designation from time
to time. No such designation, change or revocation will be effective unless
made by the Participant in writing and filed with the Company during the
Participant's lifetime. Unless the Participant has otherwise specified the
beneficiary designation, the beneficiary or beneficiaries so designated will
become
<PAGE>
fixed as of the date of the death of the Participant so that, if a
beneficiary survives the Participant but dies before the receipt of the
payment due such beneficiary, the payment will be made to such beneficiary's
estate.
Section 6.03 TERMINATION OF EMPLOYMENT. Subject to such
terms and conditions as the Committee in its sole discretion may impose, upon
a Participant's normal or early retirement with the consent of the Company
under any pension or retirement plan of the Company or Participating
Affiliate, no further amounts shall be credited to the Participant's Stock
Purchase Account. Thereafter, on the last business day of the Purchase Period
during which such Participant's approved retirement occurred and in
accordance with Section 5.01, the entire credit balance in such Participant's
Stock Purchase Account will be used to purchase Common Stock, unless such
Participant has filed with the Company, in advance of that day and subject to
such terms and conditions as the Committee in its sole discretion may impose,
a form provided by the Company which elects to receive the entire credit
balance in such Participant's Stock Purchase Account in cash within 30 days
after the end of that Purchase Period, provided that such Participant shall
have no right to purchase Common Stock in the event that the last day of such
a Purchase Period occurs more than three months following the termination of
such Participant's employment with the Company by reason of such an approved
retirement. In the event of any other termination of employment (other than
death) with the Company or a Participating Affiliate, participation in the
Plan will cease on the date the Participant ceases to be an Employee for any
reason. In such event, the entire credit balance in such Participant's Stock
Purchase Account will be paid to the Participant in cash within 30 days. For
purposes of this Section 6.03, a transfer of employment to any Affiliate, or
a leave of absence which has been approved by the Committee, will not be
deemed a termination of employment as an Employee.
ARTICLE VII. NONTRANSFERABILITY
Section 7.01 NONTRANSFERABLE RIGHT TO PURCHASE. The right to
purchase Common Stock hereunder may not be assigned, transferred, pledged or
hypothecated (whether by operation of law or otherwise), except as provided
in Section 6.02, and will not be subject to execution, attachment or similar
process. Any attempted assignment, transfer, pledge, hypothecation or other
disposition or levy of attachment or similar process upon the right to
purchase will be null and void and without effect.
Section 7.02 NONTRANSFERABLE ACCOUNT. Except as provided in
Section 6.02, the amounts credited to a Stock Purchase Account may not be
assigned, transferred, pledged or hypothecated in any way, and any attempted
assignment, transfer, pledge, hypothecation or other disposition of such
amounts will be null and void and without effect.
ARTICLE VIII. STOCK CERTIFICATES
Section 8.01 DELIVERY. As soon as administratively feasible
after the last day of each Purchase Period and subject to such terms and
conditions as the Committee in its sole discretion may impose, including the
use a of book entry or other system to reflect ownership of Common Stock, the
Company will cause to be delivered to or for the benefit of the Participant a
<PAGE>
certificate representing the Common Stock purchased on the last business day
of such Purchase Period.
Section 8.02 SECURITIES LAWS. The Company shall not be
required to issue or deliver any certificate representing Common Stock prior
to registration under the Securities Act of 1933, as amended, or registration
or qualification under any state law if such registration is required. The
Company shall use its best efforts to accomplish such registration (if and to
the extent required) not later than a reasonable time following the Purchase
Period, and delivery of certificates may be deferred until such registration
is accomplished.
Section 8.03 COMPLETION OF PURCHASE. A Participant shall
have no interest in the Common Stock purchased until a certificate
representing the same is issued to or for the benefit of the Participant.
Section 8.04 FORM OF OWNERSHIP. The certificates
representing Common Stock issued under the Plan will be registered in the
name of the Participant or jointly in the name of the Participant and another
person, as the Participant may direct on a form provided by the Company.
ARTICLE IX. EFFECTIVE DATE, AMENDMENT AND
TERMINATION OF PLAN
Section 9.01 PLAN APPROVAL. The Plan was originally approved
by the Board of Directors on September 8, 1992 and by the shareholders of the
Company on March 1, 1993.
Section 9.02 PLAN COMMENCEMENT. The initial Purchase Period
under the Plan as amended May 28, 1998 will commence on the first business
day in July 1998. Thereafter, each succeeding Purchase Period will commence
and terminate in accordance with Section 1.03(k).
Section 9.03 POWERS OF BOARD. The Board of Directors may
amend or discontinue the Plan at any time. No amendment or discontinuation
of the Plan, however, shall without shareholder approval be made that: (i)
increases the number of shares that may be issued under the Plan; (ii)
permits payroll deductions at a rate in excess of 10% of an Employee's
Current Compensation; (iii) changes the designation of employee's (or class
of employees) eligible for participation in the Plan; or (iv) materially
increases the benefits which may accrue to Employee's participating in the
Plan; (v) causes Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Act") to become unavailable with respect to the Plan, (vi)
requires shareholder approval under any rules or regulations of the New York
Stock Exchange or any securities exchange that are applicable to the Company,
or (vii) permits the issuance of Common Stock before payment therefor in
full.
Section 9.04 AUTOMATIC TERMINATION. The Plan shall
automatically terminate when all of the shares of Common Stock provided for
in Section 10.03 have been sold.
<PAGE>
ARTICLE X. ADMINISTRATION
Section 10.01 THE COMMITTEE. The Plan shall be administered
by a committee (the "Committee") of two or more directors of the Company,
none of whom shall be officers or employees of the Company. The members of
the Committee shall be appointed by and serve at the pleasure of the Board of
Directors.
Section 10.02 POWERS OF COMMITTEE. Subject to the provisions
of the Plan, the Committee shall have full authority to administer the Plan,
including authority to interpret and construe any provision of the Plan, to
establish deadlines by which the various administrative forms must be
received in order to be effective, and to adopt such other rules and
regulations for administering the Plan as it may deem appropriate. The
Committee shall have full and complete authority to determine whether all or
any part of the Common Stock acquired pursuant to the Plan shall be subject
to restrictions on the transferability thereof or any other restrictions
affecting in any manner a Participant's rights with respect thereto but any
such restrictions shall be contained in the form by which a Participant
elects to participate in the Plan pursuant to Section 2.02. Decisions of the
Committee will be final and binding on all parties who have an interest in
the Plan.
Section 10.03 STOCK TO BE SOLD. The Common Stock to be
issued and sold under the Plan may be treasury shares or authorized but
unissued shares, or the Company may purchase Common Stock in the market for
sale under the Plan. Except as provided in Section 11.01, the aggregate
number of shares of Common Stock to be sold under the Plan will not exceed
1,000,000 shares, including any shares issued under the Plan prior to May 28,
1998.
Section 10.04 NOTICES. Notices to the Committee should be
addressed as follows:
ARCADIA FINANCIAL LTD.
c/o HUMAN RESOURCES
7825 WASHINGTON AVE. SOUTH
MINNEAPOLIS, MN 55439
ARTICLE XI. ADJUSTMENT FOR CHANGES
IN STOCK OR COMPANY
Section 11.01 STOCK DIVIDEND OR RECLASSIFICATION. If the
outstanding shares of Common Stock are increased, decreased, changed into or
exchanged for a different number or kind of securities of the Company, or
shares of a different par value or without par value, through reorganization,
recapitalization, reclassification, stock dividend, stock split, amendment to
the Company's Articles of Incorporation, reverse stock split or otherwise, an
appropriate adjustment shall be made in the maximum numbers and kind of
securities to be purchased under the Plan with a corresponding adjustment in
the purchase price to be paid therefor.
Section 11.02 MERGER OR CONSOLIDATION. If the Company is
merged into or consolidated with one or more corporations during the term of
the Plan, appropriate adjustments
<PAGE>
will be made to give effect thereto on an equitable basis in terms of
issuance of shares of the corporation surviving the merger or of the
consolidated corporation, as the case may be.
ARTICLE XII. APPLICABLE LAW
Rights to purchase Common Stock granted under the Plan shall
be construed and shall take effect in accordance with the laws of the State
of Minnesota.
<PAGE>
ARCADIA FINANCIAL LTD.
1998-2000 RESTRICTED STOCK ELECTION PLAN
AMENDED NOVEMBER 24, 1998
ARTICLE I.
PURPOSE
The purpose of this Plan is to reward executive performance and to build
each executive participant's equity interest in the stock of ARCADIA
FINANCIAL LTD., a Minnesota corporation (the "Company"), by providing
long-term incentives and rewards to officers and other key management
associates of the Company and its subsidiaries who contribute to its
continuing success by their management, innovation, ability, industry,
loyalty and exceptional service. This Plan provides such management
associates with an opportunity to acquire Common Stock of the Company, par
value $0.01 per share (the "Common Stock").
ARTICLE II.
DEFINITIONS
2.1 "Active Participant" means a Participant who is employed by the
Company and actively at work.
2.2 "Company" means Arcadia Financial Ltd. and its subsidiaries.
2.3 "Board of Directors" means the Board of Directors of Arcadia
Financial Ltd.
2.4 "Committee" means the Compensation Committee of the Board of
Directors of the Company.
2.5 "Disability" means the inability of a Participant to perform the
regular duties of his or her normal occupation due to accident or illness
as determined by the Company's long-term disability carrier.
2.6 "Disability Retirement Date" means the date on which a Participant
permanently ceases being an Active Participant by reason of Disability.
2.7 "Eligible Associate" means an officer or other management associate
of the Company determined by the Committee to be eligible to participate in
the Plan pursuant to criteria adopted from time to time by the Committee.
2.8 "Effective Date of Award" means (i) December 20, 1995, as to an
Eligible Associate who received a Restricted Stock Award on such date; (ii)
as to an Eligible Associate who is employed by the Company after December
20, 1995 ("New Associate"), the first day of the New Associate's employment
by the
1
<PAGE>
Company or such later date as determined by the Committee, and (iii)
as to an associate who is not an Eligible Associate on December 20, 1995,
the date of the event or circumstance giving rise to the associate's
eligibility as determined by the Committee. Provided, however, in the
event the New Associate's first day of employment, or the date of the event
or circumstance giving rise to the associate's eligibility occurs during
the last calendar quarter of 1997, 1998 or 1999, notwithstanding the
foregoing, the Effective Date shall be as of January 1, of the next
consecutive year after such quarter. Notwithstanding the foregoing, solely
for purposes of an election under Section 83(b) of the Internal Revenue
Code, the Effective Date of Award shall be the date of grant of a
Restricted Share Award.
2.9 "Normal Retirement Date" means the date of voluntary termination of
employment on or after an associate reaches age fifty-five.
2.10 "Participant" means an Eligible Associate who elects to participate
in the Plan.
2.11 "Plan" means the Arcadia Financial Ltd. 1998-2000 Restricted Stock
Election Plan.
2.12 "Plan Year" means the annual period on which the records of the
Plan are kept, that being the fiscal year of the Company. The Plan Years
for the Plan shall be the calendar years 1998, 1999 and 2000.
2.13 "Restricted Stock Award" means an award of the Company's Common
Stock with restrictions as to disposition by the recipient and subject to a
risk of forfeiture until certain conditions described in the Plan have been
met.
2.14 "Restriction Period" means the period from the date of grant of the
Restricted Stock Award until the later of (i) the date five years after the
Effective Date of the Award or (ii) December 31, 2002.
2.15 "Retired Participant" means a participant who has retired under the
provisions of an applicable Company-sponsored retirement plan at Normal or
Disability Retirement Date. Retired Participant will not, however, include
any Participant who was terminated for cause (as determined by the Board of
Directors or by one or more Section 16 officers) or whose employment
terminated prior to death or Normal or Disability Retirement.
ARTICLE III.
ELIGIBILITY
The Committee will select the officers and other key executive and
management associates to be eligible to participate in the Plan and to
receive Restricted Stock Awards. The Committee shall make this determination
for associates of the Company as of
2
<PAGE>
December 20, 1995 on such date. The Committee may select new and additional
associates for participation subsequent to December 20, 1995.
ARTICLE IV.
RESTRICTED STOCK AWARDS
4.1 TARGET BONUS. The Committee may select Participants who shall be
eligible to receive incentive bonuses for the Plan Years 1998, 1999 and 2000
in amounts determined by the Committee. The amount of any such bonus which
may be earned by a Participant shall be determined as a percentage of the
Participant's base salary as of the Effective Date or such later date
determined by the Committee. Such Participant's aggregate bonuses for the
three Plan Years or a portion thereof ("Target Bonus") shall be calculated by
(i) multiplying the Participant's base salary as of the Effective Date or
such later date determined by the Committee times his or her bonus percentage
as determined by the Committee; (ii) dividing that product by three hundred
sixty-five (365), and (iii) multiplying that quotient times the number of
days from and including the Effective Date of the Award through and including
December 31, 2000. Each Plan Year the Committee may establish an annual
performance target for each Participant which target must be achieved by the
Participant as a condition to earning all or any portion of his or her bonus
for the relevant Plan Year.
4.2 ELECTION. Each eligible associate shall be permitted to make an
election that a portion of such associate's bonuses for fiscal years
1998-2000 shall be received in the form of Common Stock. To participate in
the Plan, the associate shall execute and submit to the Committee or its
representative an election form no later than thirty (30) days following the
date the associate was first informed of his or her eligibility to
participate. Subject to such terms and conditions as determined appropriate
from time to time by the Committee or the Chief Executive Officer of the
Company as its designee each eligible associate who has elected to
participate in the Plan may change the percentage of any then unearned
bonuses for the year 1998-2000 which will be received in the form of Common
Stock or may withdraw from participation in the Plan as to any such unearned
bonuses.
4.3 ELECTION BY SECTION 16 OFFICERS. Deleted.
4.4 NUMBER OF RESTRICTED SHARES. Subject to the provisions of this
Plan, the Committee may grant a Restricted Stock Award to each Participant
who has elected to participate in the Plan ("Award Recipient"). The initial
Restricted Stock Award shall be equal to the number of shares of the
Company's Common Stock (rounded down to the nearest whole number) calculated
by (i) multiplying the Target Bonus times the Elected Percentage and (ii)
dividing the product thereof by the market price of the Common Stock as of
the Effective Date. The Committee may make replacement and supplemental
grants to Participants in such numbers and based upon such criteria and
prices as determined by the Committee in its sole discretion.
3
<PAGE>
4.5 STOCK CERTIFICATES. Restricted shares awarded pursuant to the
Plan may be evidenced by the Stock certificates described in Section 7.3 and
such other written documents (the "Restricted Stock Award Documents") in such
form as the Committee shall approve from time to time. The Company may at
its option issue uncertificated shares until such time as Participants'
shares become vested. When vested, stock certificates shall be issued in the
name of the Participant. Restricted Stock Award Documents shall comply with
and be subject to the terms and conditions of this Plan and such other terms
and conditions which the Committee shall require from time to time which are
not inconsistent with the terms of this Plan. The Committee shall have the
right to amend the Restricted Stock Award Documents issued to an Award
Recipient subject to his or her consent.
4.6 FUTURE AWARDS. At its discretion the Committee may in the future
determine to make Restricted Stock Awards which are in accordance with the
terms of this Plan.
ARTICLE V.
VESTING
5.1 AUTOMATIC LAPSE OF RESTRICTIONS. An Active Participant shall
become fully vested in his/her Restricted Stock Awards upon the lapse of the
applicable Restriction Period.
5.2 ACCELERATED VESTING. As soon as reasonably practical after the
end of 1998, 1999, 2000, 2001 and 2002, the Committee shall determine the
extent to which each Active, Retired or deceased Participant has earned his
or her annual target bonus for the relevant fiscal year. As of the date the
Committee makes such determination, vesting of a portion of the Participant's
Restricted Stock Awards shall be accelerated. For each such Plan Year, an
Active Participant shall vest in the number of shares determined by
multiplying the Participant's total Restricted Stock Award shares allocated
for that year times the percentage of the annual target bonus achieved by the
Participant. In the event the percentage determined pursuant to the prior
sentence exceeds 100%, the Active Participant shall be entitled to
accelerated vesting of an additional number of the unvested Restricted Stock
Award shares allocated as to prior or subsequent fiscal years.
5.3 CONDITIONS RESULTING IN FORFEITURES. In the event that an Active
Participant's employment is terminated and such termination is not by reason
of death, Normal or Disability Retirement or Change of Control, all unvested
Restricted Stock Awards will be forfeited.
5.4 PRO RATA ACCELERATION OF VESTING OF RESTRICTED SHARES IN THE
EVENT OF THE AWARD RECIPIENT'S RETIREMENT, DEATH OR DISABILITY. In the event
of the death or Normal or Disability Retirement of the Award Recipient, at
the end of the fiscal year of the Company in which such event occurred, in
the event the Participant's target performance goals have been achieved, the
Board of Directors or its delegee shall make a
4
<PAGE>
recommendation to the Committee that such Participant is entitled to a
performance bonus. On the basis of that recommendation, the Committee shall
take the following actions:
(a) determine that the Participant vested in a portion of his/her
Restricted Stock Award, and
(b) calculate the number of accelerated vested shares in the portion of
the Restricted Stock Award earned. The vested portion shall be
that proportion of the total shares which could have become vested
for that fiscal year which is equal to the Participant's employment
period during that fiscal year as a proportion of the entire fiscal
year.
5.5 ACCELERATION OF VESTING OF RESTRICTED SHARES IN THE EVENT OF
CHANGE OF CONTROL. In the event of, or upon the date set by the Committee to
be an accelerated vesting date in anticipation of, the occurrence of a
transaction or series of related transactions in which (A) the Company is
dissolved or liquidated or sells substantially all of its operating assets,
(B) the Company is party to a merger or consolidation in which the Company is
not the surviving or acquiring entity, or (C) the Company becomes an 80% or
more owned subsidiary of another company (any of such transactions being
hereinafter referred to as a "Change of Control"), the Committee shall direct
that vesting with respect to all Restricted Shares be accelerated and that
such Restricted Shares become fully vested.
ARTICLE VI.
COMMITTEE
6.1 COMPOSITION OF THE COMMITTEE. The Committee shall consist of not
less than two members of the Board. Any grant of Awards to officers who are
subject to Section 16 of the Exchange Act shall be made only by a Committee
of two or more outside directors each of whom is a "disinterested person" as
defined in Rule 16(b)-3(c)(2) of the Exchange Act.
6.2 RULES AND REGULATIONS. The Committee shall adopt such
administrative rules and regulations under this Plan as it may deem
appropriate for the operation of the Plan. The Committee shall also have the
power to alter, amend or revoke any rules or regulations it has adopted.
6.3 AUTHORITY. The Committee shall have full authority to interpret
the Plan and, subject to the provisions herein, to determine when, to whom
and the size of the Restricted Stock Awards to be granted to any Participant,
taking into account the elections made by Participants.
6.4 ACTIONS OF THE COMMITTEE. The Committee shall hold its
meetings at such times and places as it may determine. A majority of the
members shall constitute a
5
<PAGE>
quorum. All decisions of the Committee taken in meeting shall be made on the
action of a majority of the members of the Committee. Decisions of the
Committee may be taken by written action without meeting only upon unanimous
vote in favor thereof.
6.5 EXPENSES. All expenses incurred by the Committee in the
administration of this Plan shall be paid by the Company.
ARTICLE VII.
PLAN ADMINISTRATION
7.1 EFFECTIVE DATE. The effective date of this Plan shall be
December 20, 1995, provided that the shareholders of the Company have
approved or will approve the Plan within twelve months of that date.
7.2 SHARES AVAILABLE FOR AWARD. Common Stock to be used for
Restricted Stock Awards under the Plan shall be made available at the
discretion of the Board of Directors either from authorized but unissued
common shares or from previously issued common shares reacquired by the
Company, including shares purchased on the open market. The total number of
common shares which may be used in payment of awards under the Plan shall not
exceed in the aggregate 600,000 shares, provided, however, that such number
of shares shall be proportionately adjusted for any increase or decrease in
the number of outstanding shares resulting from a stock split or other
subdivision or consolidation of shares or for other capital adjustments or
payment of stock dividends or distributions or other increases or decreases
in the outstanding shares effected without receipt of consideration by the
Company. Common shares awarded under the Plan which are subsequently
forfeited shall revert to the Plan and shall be available for subsequent
award to Participants.
7.3 STOCK CERTIFICATES. If issued, the stock certificate(s)
evidencing a Restricted Stock Award shall be registered in the name of the
Award Recipient and shall bear a legend referring to the terms, conditions
and restrictions applicable to such shares. The Committee shall direct the
Company to either retain physical possession or custody of or place into
escrow the certificate(s) evidencing the Restricted Shares until such time as
such shares are vested. Uncertificated shares shall be maintained by the
Committee or at its direction.
7.4 DIVIDEND AND VOTING RIGHTS. Subject to Section 7.5 hereof,
during the period from the date a Restricted Stock Award is granted to the
date Restricted Shares are vested, the Award Recipient will be entitled to
all rights of a stockholder of the Company, including the right to vote the
shares and receive dividends declared on such shares, as paid.
7.5 TRANSFER OF RESTRICTED SHARES. No Restricted Shares awarded
under this Plan may be transferred, pledged, or encumbered until such time as
any such shares become vested.
6
<PAGE>
7.6 WITHHOLDING OF TAXES. Whenever Restricted Shares vest or, if
sooner, whenever an Award Recipient must include the Restricted Shares in
income for federal income tax purposes, the Company shall have the right to
(a) require the recipient to remit or otherwise make available to the Company
an amount sufficient to satisfy all federal, state and/or local withholding
tax requirements prior to the delivery or transfer of any certificate or
certificates for such Restricted Shares, or (b) take whatever action it deems
necessary to protect its interests with respect to tax liabilities,
including, without limitation, redeeming a portion of any Restricted Shares
otherwise deliverable pursuant to this Plan with a then fair market value
equal to such tax liabilities. The Company's obligation to make any delivery
or transfer of vested Restricted Shares shall be conditioned on the Award
Recipient's compliance with any withholding requirement to the Company's
satisfaction.
ARTICLE VIII.
AMENDMENT AND TERMINATION
8.1 AMENDMENT OF THE PLAN. The Board of Directors of the Company may
amend this Plan from time to time in such manner as they may deem advisable;
provided, however, that only the Committee can make grants and awards. Any
amendment that will result in a grant or an award shall be made only by
disinterested members of the Board of Directors. No amendment to this Plan
shall adversely affect any outstanding Restricted Stock Award without the
consent of the Award Recipient.
8.2 EXPIRATION, SUSPENSION OR TERMINATION OF PLAN. No Restricted
Stock Awards shall be granted after December 31, 2000. However, the Board of
Directors may suspend or terminate this Plan at any time.
ARTICLE IX.
MISCELLANEOUS
9.1 NO CONTINUED EMPLOYMENT. The award of a Restricted Stock Award
pursuant to this Plan shall not be construed to imply or to constitute
evidence of any agreement, express or implied, on the part of the Company or
any subsidiary thereof to retain the Award Recipient in the employ of the
Company or any subsidiary thereof, and each such Award Recipient shall remain
subject to discharge to the same extent as if this Plan had not been adopted.
9.2 CHOICE OF LAW. This Plan shall be operated in accordance with
the laws of the State of Minnesota, to the extent not preempted by federal
law.
7
<PAGE>
EMPLOYMENT RETENTION AGREEMENT
THIS AGREEMENT between Olympic Financial Ltd. (the "Company") and
Brian S. Anderson (the "Executive") is dated as of this 7 day of November,
1996.
W I T N E S S E T H :
WHEREAS, the Company and the Executive have agreed to enter into an
agreement providing the Company and the Executive with certain rights to
assure the Company of continuity of management;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is hereby agreed by and between the Company
and the Executive as follows:
1. EFFECTIVE DATE; TERM. This Agreement shall govern the terms
and conditions of Executive's employment commencing as of the date hereof
(the "Effective Date").
2. PRIOR EMPLOYMENT AGREEMENT. As of the Effective Date, this
Agreement shall supersede the Executive's Employment Agreement with the
Company dated August 1, 1991, as amended.
3. RETENTION PERIOD. The Company agrees to continue the
Executive in its employ, and the Executive agrees to remain in the employ of
the Company, for the period (the "Retention Period") commencing on the
Effective Date and ending on the date of any termination of the Executive's
employment in accordance with Section 6 of this Agreement.
4. POSITION AND DUTIES. (a) NO REDUCTION IN POSITION. During
the Retention Period, the Executive's position (including titles), authority
and responsibilities shall be at least commensurate with the highest of those
held or exercised by him at any time during the 90-day period immediately
preceding the Effective Date.
(b) BUSINESS TIME. During the Retention Period, the Executive
shall devote his full business time during normal business hours to the
business and affairs of the Company and use his best efforts to perform
faithfully and efficiently the responsibilities assigned to him hereunder, to
the extent necessary to discharge such responsibilities, except for
(i) reasonable time spent in serving on corporate, civic or
charitable boards or committees of the nature similar to those on
which the Executive served prior to the Change of Control, or
otherwise approved by the Board, in each case only if and to the
extent not substantially interfering with the performance of such
responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled.
<PAGE>
It is expressly understood and agreed that the Executive's continuing to
serve on any boards and committees on which he is serving or with which he is
otherwise associated immediately preceding the Effective Date shall not be
deemed to interfere with the performance of the Executive's services to the
Company.
5. COMPENSATION AND BENEFITS. (a) BASE SALARY. During the
Retention Period, the Executive shall receive a base salary ("Base Salary")
at a monthly rate at least equal to the monthly salary paid to the Executive
by the Company and any of its affiliated companies immediately prior to the
Effective Date. The Base Salary shall be reviewed at least once each year
after the Effective Date, and may be increased (but not decreased) at any
time and from time to time by action of the Board or any committee thereof or
any individual having authority to take such action in accordance with the
Company's regular practices. Neither payment of the Base Salary nor payment
of any increased Base Salary after the Effective Date shall serve to limit or
reduce any other obligation of the Company hereunder. For purposes of the
remaining provisions of this Agreement, the term "Base Salary" shall mean
Base Salary as defined in this Section 5(a) or, if increased after the
Effective Date, the Base Salary as so increased.
(b) ANNUAL BONUS. In addition to the Base Salary, the Executive
shall be awarded for each fiscal year of the Company ending during the
Retention Period an annual bonus, to be based on reasonable and customary
criteria consistent with the Company's past practices (the "Annual Bonus"),
with a target amount at least equal to 35% of his Base Salary (I.E., that
percentage of the Executive's Base Salary designated by the Company's
Compensation Committee for purposes of Section 4.1 of the Company's 1998-2000
Restricted Stock Election Plan). If a fiscal year of the Company begins, but
does not end, during the Retention Period, the Executive shall receive an
amount with respect to such fiscal year at least equal to the amount of the
Annual Bonus multiplied by a fraction, the numerator of which is the number
of days in such fiscal year occurring during the Retention Period and the
denominator of which is 365. Each amount payable in respect of the
Executive's Annual Bonus shall be paid not later than 90 days after the
fiscal year next following the fiscal year for which the Annual Bonus (or
pro-rated portion) is earned or awarded. Neither the Annual Bonus nor any
bonus amount paid in excess thereof after the Effective Date shall serve to
limit or reduce any other obligation of the Company hereunder.
(c) FRINGE BENEFITS. During the Retention Period, the Company
shall provide the following fringe benefits to Executive:
(i) HEALTH, DISABILITY AND LIFE INSURANCE. Subject to
satisfaction of the eligibility requirements of such plans and the
rules and regulations applicable thereto, Executive and his family
members shall be entitled to be covered by the Company's group health
and dental insurance plans presently in effect or hereafter adopted by
the Company and applicable to employees of the Company generally and
Executive shall be entitled to be covered by the Company's group
disability and life insurance plans presently in effect or hereafter
adopted by the Company and applicable to the employees of the Company
in general. The Company shall pay the premiums associated with such
2
<PAGE>
coverage. In the event Executive makes a claim against any disability
policy provided to Executive by the Company pursuant to this Section
5(c)(i) and such policy calls for a waiting period which is applicable
to Executive's claim, the Company shall pay to Executive during such
waiting period his monthly base salary due during such period and
shall provide the other benefits due him under this Section 5(c)(i).
(ii) VACATION. Executive shall be entitled to four weeks of
vacation without loss of compensation or other benefits pursuant to
such general policies and procedures of the Company as are from time
to time adopted by the Company.
(iii) EXPENSE REIMBURSEMENT. Executive shall be reimbursed
by the Company for all reasonable expenses incurred by him in
connection with the conduct of the Company's business for which he
furnishes appropriate documentation.
(iv) AUTOMOBILE. In the event the Company shall institute a
Company car policy, Executive shall receive the benefits thereunder in
keeping with his position with the Company. During any period that
the Company has not instituted a Company car policy, the Company shall
provide to Executive use of an automobile reasonably acceptable to
Executive to be used by Executive in conducting the Company's
business. In addition, the Company shall during such period reimburse
Executive (1) an amount equal to the reasonable cost of insuring and
maintaining the automobile used by Executive for the Company's
business, and (2) the cost of maintenance and the cost of gasoline and
oil used in the automobile and in the event of a loss under the
policies insuring said automobile, the amount of any deductible
thereunder applicable to such loss. Such insurance and the coverage
and deductibles thereof shall cover both the business and personal use
of such automobile by Employee, his family and invitees and shall
include such other terms and conditions as are reasonably acceptable
to Executive. Any such reimbursements shall be made upon the
Company's receipt of invoices evidencing incurrence of such expenses.
Executive shall also be paid a monthly amount equal to the reasonable
value of personal use of such automobile, determined in accordance
with applicable federal income tax regulations.
(v) CLUB DUES. The Company shall reimburse Executive the
reasonable cost of the monthly or annual dues, as the case may be,
paid by Executive to maintain his status as a member of the Flagship
Athletic Club or of any other athletic club having equal or lesser
membership costs in lieu of such club. The Company shall also provide
to Executive and his family a membership at Minnesota Valley Golf Club
and shall reimburse the Executive for the reasonable cost of the
monthly or annual dues, as the case may be, paid by Executive to
maintain such membership. If either such membership is a corporate
membership and is subsequently converted to an individual membership,
the Company shall reimburse Executive for any fees charged in
connection with such conversion.
(vi) OFFICE AND SUPPORT STAFF. During the Retention Period,
the Executive shall be entitled to an office or offices of a size and
with furnishings and other
3
<PAGE>
appointments, and to secretarial and other assistance, at least equal
to the most favorable of the foregoing provided to the Executive at
any time during the 90-day period immediately preceding the Effective
Date.
6. TERMINATION. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon his death. The Company may
terminate Executive's employment during the Retention Period, after having
established the Executive's Disability, by giving the Executive written
notice of its intention to terminate his employment, and his employment with
the Company shall terminate effective on the 90th day after receipt of such
notice if, within 90 days after such receipt, the Executive shall fail to
return to full-time performance of his duties. For purposes of this
Agreement, "Disability" means disability which, after the expiration of more
than 26 weeks after its commencement, is determined to be total and permanent
by a physician selected by the Company or its insurers and acceptable to the
Executive or his legal representatives (such agreement to acceptability not
to be withheld unreasonably).
(b) VOLUNTARY TERMINATION. Notwithstanding anything in this
Agreement to the contrary, the Executive may, upon not less than 15 days'
advance written notice to the Company, voluntarily terminate employment
during the Retention Period for any reason, provided that any termination by
the Executive pursuant to Section 6(d) of this Agreement on account of Good
Reason (as defined therein) shall not be treated as a voluntary termination
under this Section 6(b).
(c) CAUSE. The Company may terminate the Executive's employment
during the Retention Period for Cause. For purposes of this Agreement,
"Cause" means (i) gross misconduct on the Executive's part which is
demonstrably willful and deliberate and which results in material damage to
the Company's business or reputation or (ii) repeated material violations by
the Executive of his obligations under Section 4 of this Agreement which
violations are demonstrably willful and deliberate.
(d) GOOD REASON. The Executive may terminate his employment
during the Retention Period for Good Reason. For purposes of this Agreement,
"Good Reason" means
(i) a good faith determination by the Executive that,
without his prior written consent, the Company or any of its officers
has taken or failed to take any action (including, without limitation,
(A) exclusion of the Executive from consideration of material matters
within his area of responsibility, other than an insubstantial or
inadvertent exclusion remedied by the Company promptly after receipt
of notice thereof from the Executive, (B) statements or actions which
undermine the Executive's authority with respect to persons under his
supervision or reduce his standing with his peers, other than an
insubstantial or inadvertent statement or action which is remedied by
the Company promptly after receipt of the notice thereof from the
Executive, (C) a pattern of discrimination against or harassment of
the Executive or persons under his supervision and (D) the subjection
of the Executive to procedures not generally applicable to other
similarly situated executives) which changes the Executive's position
(including titles),
4
<PAGE>
authority or responsibilities under Section 4 of this Agreement or
reduces the Executive's ability to carry out his duties and
responsibilities under Section 4 of this Agreement;
(ii) any failure by the Company to comply with any of the
provisions of Section 5 of this Agreement, other than an insubstantial
or inadvertent failure remedied by the Company promptly after receipt
of notice thereof from the Executive;
(iii) the Company's requiring the Executive to be employed at
any location more than 35 miles further from his principal residence
than the location at which the Executive was employed immediately
preceding the Effective Date; or
(iv) any failure by the Company to obtain the assumption of
and agreement to perform this Agreement by a successor as contemplated
by Section 13(b) of this Agreement.
(e) WITHOUT CAUSE. The Company shall give Executive at least 15
days' advance written notice of any termination of Executive's employment
which is not for Cause and not on account of Executive's Disability.
(f) NOTICE OF TERMINATION. Any termination of Executive's
employment by the Company for Cause or by the Executive for Good Reason
during the Retention Period shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 14(c) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice given, in the case of a termination by the Company for Cause,
within 10 business days of the Company's having actual knowledge of all of
the events giving rise to such termination, and in the case of a termination
by Executive for Good Reason, within 180 days of the Executive's having
actual knowledge of the events giving rise to such termination, and which (i)
indicates the specific termination provision in this Agreement relied upon,
(ii) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated, and (iii) if the termination date is other than the
date of receipt of such notice, specifies such termination date (which date
shall be not more than 15 days after the giving of such notice). The failure
by the Executive to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason shall not waive
any right of the Executive hereunder or preclude the Executive from asserting
such fact or circumstance in enforcing his rights hereunder.
(g) DATE OF TERMINATION. For purposes of this Agreement, the term
"Date of Termination" means (i) in the case of a termination for which a
Notice of Termination is required, the date of receipt of such Notice of
Termination or, if later, the date specified therein and (ii) in all other
cases, the actual date on which the Executive's employment terminates during
the Retention Period.
7. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH.
If the Executive's employment is terminated during the Retention Period by
reason of the Executive's death, this Agreement shall terminate without
further obligations to the Executive's legal
5
<PAGE>
representatives under this Agreement other than those obligations accrued
hereunder at the date of his death, including, for this purpose (i) the
Executive's full Base Salary through the Date of Termination, (ii) the
product of the Annual Bonus and a fraction, the numerator of which is the
number of days in the current fiscal year of the Company through the Date of
Termination, and the denominator of which is 365 (the "Pro-rated Bonus
Obligation"), (iii) any compensation previously deferred by the Executive
(together with any accrued earnings thereon) and not yet paid by the Company,
(iv) any other amounts or benefits owing to the Executive under any of the
Company's incentive compensation plans, stock option plans, restricted stock
plans or other similar plans and (v) any amounts or benefits owing to the
Executive under any of the Company's employee benefit plans or policies (such
amounts specified in clauses (i), (ii), (iii), (iv) and (v) are hereinafter
referred to as "Accrued Obligations"). Unless otherwise directed by the
Executive prior to his death, all Accrued Obligations shall be paid to the
Executive's estate.
(b) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability, the Executive shall receive all Accrued
Obligations and, in addition, from the Date of Termination until the second
anniversary of such date, shall continue to participate in or be covered
under the benefit plans and programs referred to in Section 5(c)(i) of this
Agreement or, at the Company's option, to receive equivalent benefits by
alternate means at least equal to those provided in accordance with Section
5(c)(i) of this Agreement. Anything in this Agreement to the contrary
notwithstanding, the Executive shall be entitled to receive disability and
other benefits at least equal to the most favorable level of benefits
available to disabled employees and/or their families in accordance with the
plans, programs and policies maintained by the Company or its affiliates
relating to disability at any time during the 90-day period immediately
preceding the Effective Date.
(c) CAUSE AND VOLUNTARY TERMINATION. If, during the Retention
Period, the Executive's employment shall be terminated for Cause or
voluntarily terminated by the Executive (other than on account of Good
Reason), the Executive shall receive all Accrued Obligations other than the
Pro-rated Bonus Obligation.
(d) TERMINATION BY COMPANY OTHER THAN FOR CAUSE OR DISABILITY AND
TERMINATION BY EXECUTIVE FOR GOOD REASON. LUMP SUM PAYMENT. If, during the
Retention Period, the Company terminates the Executive's employment other
than for Cause or Disability, or the Executive terminates his employment for
Good Reason, the Executive shall receive all Accrued Obligations. In
addition, the Company shall pay to the Executive in a lump sum, within 15
days after the Date of Termination, a cash amount equal to two (2) times the
sum of the following amounts:
(1) the Executive's annual Base Salary at the rate specified in
Section 5(a) of this Agreement;
(2) the Annual Bonus;
6
<PAGE>
(3) an amount equal to the average annual amount paid and/or
reimbursed to the Executive pursuant to Section 5(c)(iv) and (v)
hereof during the two calendar years preceding the Date of
Termination; and
(4) the present value, calculated using the annual federal
short-term rate as determined under Section 1274(d) of the Code, of
(without duplication) the annual cost to the Company (based on the
premium rates or other costs to it) of obtaining coverage equivalent
to the coverage under the plans and programs described in Section
5(c)(i) of this Agreement;
provided, however, that with respect to the life and medical insurance
coverage referred to in Section 5(c)(i) of this Agreement, at the
Executive's election made prior to the Date of Termination, the Company
shall use its best efforts to secure conversion coverage and shall pay
the cost of such coverage in lieu of paying the lump sum amount
attributable to such life or medical insurance coverage.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise prejudice such rights as the
Executive may have with respect to awards granted to him prior to or during
the Retention Period under any stock option, restricted stock or other plans
or agreements with the Company or any of its affiliated companies. Amounts
which are vested benefits or which the Executive is otherwise entitled to
receive under any plan or program of the Company or any of its affiliated
companies shall be payable in accordance with such plan or program.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment, distribution, acceleration
of vesting or other benefit which the Executive receives or becomes entitled
to receive, whether alone or in combination, and whether pursuant to the
terms of this Agreement or any other agreement, plan or arrangement with the
Company or any of its affiliates or any of their respective successors or
assigns, but determined without regard to any additional payments required
under this Section 9 (collectively, the "Payments"), would be subject to the
excise tax imposed by Section 4999 of the Code (or any successor provision),
or any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of
(i) all taxes with respect to the Gross-Up Payment (including any interest or
penalties imposed with respect to such taxes) including, without limitation,
any income taxes (and any interest and penalties imposed with respect
thereto), and (ii) the Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed on the Payments.
7
<PAGE>
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by KPMG Peat Marwick or such other nationally recognized accounting firm then
auditing the accounts of the Company (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is unwilling or unable to
perform its obligations pursuant to this Section 9, the Executive shall
appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the potential uncertainty
in the application of Section 4999 of the Code (or any successor provision)
at the time of the initial determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 20 business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which he gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
8
<PAGE>
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limiting the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the Company directs
the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free
basis, and shall indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and further provided that
any extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested amount
is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive or others whether by
reason of the subsequent employment of the Executive or otherwise. In no
event shall the Executive be
9
<PAGE>
obligated to seek other employment by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement, and
no amount payable under this Agreement shall be reduced on account of any
compensation received by the Executive from other employment. In the event
that the Executive shall in good faith give a Notice of Termination for Good
Reason and it shall thereafter be determined by mutual consent of the
Executive and the Company or by a tribunal having jurisdiction over the
matter that Good Reason did not exist, the employment of the Executive shall,
unless the Company and the Executive shall otherwise mutually agree, be
deemed to have terminated, at the date of giving such purported Notice of
Termination, by mutual consent of the Company and the Executive and, except
as provided in the last preceding sentence, the Executive shall be entitled
to receive only those payments and benefits which he would have been entitled
to receive at such date otherwise than under this Agreement.
11. DISPUTES; LEGAL FEES AND EXPENSES. (a) Any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively and finally by expedited arbitration, conducted before a
single arbitrator in Minneapolis, Minnesota, in accordance with the rules
governing employment disputes then in effect of the American Arbitration
Association. The arbitrator shall be approved by both the Company and the
Executive. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
(b) In the event that any claim by the Executive under this
Agreement is disputed, the Company shall pay all reasonable legal fees and
expenses incurred by the Executive in pursuing such claim, provided that the
Executive is successful as to at least part of the disputed claim by reason
of arbitration, settlement or otherwise.
12. CONFIDENTIAL INFORMATION; NONCOMPETITION. (a) The Executive
shall hold in a fiduciary capacity for the benefit of the Company all secret
or confidential information, knowledge or data relating to the Company or any
of its affiliated companies, and their respective businesses, (i) obtained by
the Executive during his employment by the Company or any of its affiliated
companies and (ii) not otherwise public knowledge (other than by reason of an
unauthorized act by the Executive). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior
written consent of the Company, unless compelled pursuant to an order of a
court or other body having jurisdiction over such matter, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those designated by it.
(b) It is mutually acknowledged that by virtue of Employee's
former positions with the Company and its subsidiaries, he has become
possessed of certain valuable and confidential information concerning the
customers, business methods, procedures and techniques of the Company and its
subsidiaries. It is further understood that Employee has developed contacts
among the customers of the Company and its subsidiaries, and it is mutually
understood and agreed that the customers of the Company and its subsidiaries
and the business methods and procedures and techniques developed by the
Company and its subsidiaries are valuable assets and properties of the
Company and its subsidiaries. Without limitation, it is also specifically
acknowledged that great trust on the part of the Company and its subsidiaries
has resided in
10
<PAGE>
Employee, since Employee's former duties have included involvement in the
management, promotion and development of the Company's business.
Accordingly, the parties deem it necessary to enter into the protective
covenants set forth below, the terms and conditions of which have been
negotiated by and between the parties hereto:
(i) Employee agrees that during the Retention Period and until the
first anniversary of the Date of Termination, he will not, directly or
indirectly, on his own behalf or on the behalf of any third party, perform
management, accounting, financial, marketing, sales, administrative or
executive duties, in any business conducted within the Territories (as
defined below) which engages in originating or purchasing automobile or truck
loans or leases from automobile or truck dealers, packaging such loans or
leases, reselling such loans or leases or servicing such loans or leases (the
"Restricted Activities"). As used in this Addendum, the term "Territories"
means any state in which any loans or leases originated or acquired by the
Company originated (determined by the location of the dealers from whom the
loans or leases were purchased or, in the case of loans or leases originated
by the Company, where the borrower or lessee resides).
(ii) Employee agrees that during the Retention Period and until
the first anniversary of the Date of Termination, he will not, directly or
indirectly, solicit, divert, take away or attempt to solicit, divert, or take
away from the Company, or any subsidiary, any of the dealers and other
sources from which the Company or any subsidiary acquires loans or leases or
from whom the loan or lease packages are received by the Company or any
subsidiary.
(iii) Employee agrees that during the Retention Period and until
the first anniversary of the Date of Termination, he will not, directly or
indirectly, on his own behalf or in the service or on behalf of others,
solicit, divert or hire away, or in any manner attempt to solicit, divert or
hire away any person employed by the Company or any subsidiary, whether or
not such employee is a full-time employee or a temporary employee of the
Company or any subsidiary, and whether or not such employment was pursuant to
a written or oral contract of employment and whether or not such employment
was for a determined period or was at will.
(c) Employee acknowledges that the provisions of this Section 12
constitute a material inducement to the Company to enter into the Agreement.
Employee further acknowledges that the Company's remedy at law for a breach
by him of the provisions of this Section 12 will be inadequate. Accordingly,
in the event of a breach or threatened breach by Employee of any provision of
this Section 12, the Company will be entitled to injunctive relief in
addition to any other remedy it may have. If any of the provisions of, or
covenants contained in, this Section 12 are hereafter construed to be invalid
or unenforceable in any jurisdiction, the same will not affect the remainder
of the provisions or the enforceability thereof in any other jurisdiction,
which will be given full effect, without regard to the invalidity or
unenforceability in such other jurisdiction. If any of the provisions of, or
covenants contained in, this Section 12 are held to be unenforceable in any
jurisdiction because of the duration or geographical scope thereof, the
parties agree that the court making such determination will have the power to
reduce the duration or geographical scope of such provision or covenant and,
in its reduced form, such
11
<PAGE>
provision or covenant will be enforceable; provided, however, that the
determination of such court will not affect the enforceability of this
Section 12 in any other jurisdiction.
(d) In no event shall an asserted violation of the provisions of
this Section 12 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement or under any other
agreement, plan or arrangement.
13. SUCCESSORS. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors. The Company shall require any successor
to all or substantially all of the business and/or assets of the Company,
whether direct or indirect, by purchase, merger, consolidation, acquisition
of stock, or otherwise, by an agreement in form and substance satisfactory to
the Executive, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent as the Company would be required to
perform if no such succession had taken place.
14. MISCELLANEOUS. (a) APPLICABLE LAW. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Minnesota, applied without reference to principles of conflict of laws.
(b) AMENDMENTS. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(c) NOTICES. All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: Brian S. Anderson
10146 Bluff Road
Eden Prairie, MN 55347
If to the Company: Olympic Financial Ltd.
7825 Washington Avenue South
Minneapolis, MN 55439
Attention: Secretary
(with a copy to the attention of
the General Counsel)
12
<PAGE>
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be
effective when actually received by the addressee.
(d) TAX WITHHOLDING. The Company may withhold from any amounts
payable under this Agreement such Federal, State or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(f) CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
(g) POOLING TRANSACTIONS. The parties acknowledge that certain of
the provisions of this Agreement may grant to the Executive benefits in
excess of those granted to the Executive pursuant to the prior employment
agreement (the "Prior Agreement") superseded hereby pursuant to Section 2
hereof. The parties agree that (i) in the event the grant of any such
additional benefit would, in the opinion of Ernst & Young LLP or such other
nationally recognized accounting firm selected by the Company, prevent the
Company from receiving a pooling of interests treatment under Accounting
Principles Board Opinion No. 16, and (ii) in the further event that such a
pooling transaction shall be consummated by the Company and an acquiring
entity; then in such events, the Executive agrees that the grant of any such
additional benefits hereunder shall be amended as of the day prior to the
closing of such pooling transaction to the extent necessary to enable the
Company to gain pooling treatment under Accounting Principles Board Opinion
No. 16 for such transaction; provided such amendment shall not reduce any
such benefit such that it is less than that which was granted to the
Executive under the Prior Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused this Agreement to be executed in its name on its behalf,
all as of the day and year first above written.
OLYMPIC FINANCIAL LTD.
By: /s/ [ILLEGIBLE]
------------------------------
Name:
----------------------------
Title: Chairman of the Board
----------------------------
/s/ Brian S. Anderson
---------------------------------
Brian S. Anderson
13
<PAGE>
EMPLOYMENT RETENTION AGREEMENT
THIS AGREEMENT between Arcadia Financial Ltd. (the "Company") and
Brian S. Anderson (the "Executive") is dated as of this 27 day of January,
1998.
W I T N E S S E T H :
WHEREAS, the Company and the Executive have agreed to enter into an
agreement providing the Company and the Executive with certain rights to
assure the Company of continuity of management;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is hereby agreed by and between the Company
and the Executive as follows:
1. EFFECTIVE DATE; TERM. This Agreement shall govern the terms
and conditions of Executive's employment commencing as of the date hereof
(the "Effective Date").
2. PRIOR EMPLOYMENT AGREEMENT. As of the Effective Date, this
Agreement shall supersede the Executive's Employment Agreement with the
Company November 7, 1996, as amended.
3. RETENTION PERIOD. The Company agrees to continue the
Executive in its employ, and the Executive agrees to remain in the employ of
the Company, for the period (the "Retention Period") commencing on the
Effective Date and ending on the date of any termination of the Executive's
employment in accordance with Section 6 of this Agreement.
4. POSITION AND DUTIES. (a) CHANGE IN POSITION PRIOR TO
CHANGE OF CONTROL. During the Retention Period, prior to a Change of Control
(as hereinafter defined), the Executive's position (including titles),
authority and responsibilities as an officer of the Company shall be at least
commensurate with the highest of those held or exercised by him at any time
during the 90-day period immediately preceding the Effective Date; provided,
however, that the Chief Executive Officer of the Company may, in his sole
discretion, make changes to the Executive's position (including titles),
authority and responsibilities if he determines in good faith that such
changes are appropriate in light of the Company's business plan including,
without limitation, financial, strategic and operating objectives, and,
provided further, that in the event the Chief Executive Officer elects to
make a reduction in the Executive's position, authority or responsibilities
pursuant hereto, such changes shall not otherwise impact or in any way reduce
the Executive's compensation and benefits under Section 5 or the Company's
obligations under this Agreement including, without limitation, its
obligations under Section 7(d) hereof.
(b) CONSENT / WAIVER. Executive consents to any changes in
Executive's position, authority or responsibilities made by the Company prior
to the date hereof and waives Executive's rights, if any, to (i) terminate
this Agreement for Good Reason (as defined herein) pursuant to Section 6(d)
hereof as a result of, or based upon any such changes in Executive's
position, authority or responsibilities and (ii) to receive sums pursuant to
Section 7(d) hereof as a result of, or based upon any such changes in
Executive's position, authority or responsibilities.
1
<PAGE>
(c) CHANGE IN POSITION AFTER CHANGE OF CONTROL. In the event a
Change of Control (as hereinafter defined) occurs during the Retention
Period, thereafter the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with the highest of those
held or exercised by him at any time during the 90-day period immediately
preceding the date of the Change of Control.
(d) CHANGE OF CONTROL. As used herein the term "Change of
Control" shall mean the closing of any transaction or series of transactions
by which the Company shall merge with (whether or not the Company is the
surviving entity) or consolidate into any other person or lease or sell
substantially all of its and its subsidiaries' assets (other than asset sales
in connection with automobile loan securitization transactions) substantially
as an entirety to any other person or by which any person, entity or group
(within the meaning of Rule 13d-5 under the Securities Exchange Act of 1934)
acquires, directly or indirectly, 51% or more of the Company's outstanding
common stock (calculated on a fully diluted basis).
(e) BUSINESS TIME. During the Retention Period, the Executive
shall devote his full business time during normal business hours to the
business and affairs of the Company and use his best efforts to perform
faithfully and efficiently the responsibilities assigned to him hereunder, to
the extent necessary to discharge such responsibilities, except for
(i) reasonable time spent in serving on corporate, civic or
charitable boards or committees of the nature similar to those on
which the Executive served prior to the Effective Date, in each case
only if and to the extent not substantially interfering with the
performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled.
It is expressly understood and agreed that the Executive's continuing to
serve on any boards and committees on which he is serving or with which he is
otherwise associated immediately preceding the Effective Date shall not be
deemed to interfere with the performance of the Executive's services to the
Company. The Executive shall be entitled to serve on additional outside
boards and committees with the prior written consent by the Chief Executive
Officer of the Company.
5. COMPENSATION AND BENEFITS. (a) BASE SALARY. During the
Retention Period, the Executive shall receive a base salary ("Base Salary")
at a monthly rate at least equal to the monthly salary paid to the Executive
by the Company and any of its affiliated companies immediately prior to the
Effective Date. The Base Salary shall be reviewed at least once each year
after the Effective Date, and may be increased (but not decreased) at any
time and from time to time by action of the Board or any committee thereof or
any individual having authority to take such action in accordance with the
Company's regular practices. Neither payment of the Base Salary nor payment
of any increased Base Salary after the Effective Date shall serve to limit or
reduce any other obligation of the Company hereunder. For purposes of the
remaining provisions of this Agreement, the term "Base Salary" shall mean
Base Salary as defined in this Section 5(a) or, if increased after the
Effective Date, the Base Salary as so increased.
2
<PAGE>
(b) ANNUAL BONUS. In addition to the Base Salary, the Executive
shall be eligible for each fiscal year of the Company ending during the
Retention Period an annual bonus, with the target amount, vesting and payment
thereof to be based on reasonable and customary criteria consistent with the
Company's practices for all executives holding the same office as the highest
office held by the Executive during the Retention Period (the "Annual
Bonus"). If a fiscal year of the Company begins, but does not end, during the
Retention Period, the Executive shall receive an amount with respect to such
fiscal year at least equal to the amount of the Annual Bonus multiplied by a
fraction, the numerator of which is the number of days in such fiscal year
occurring during the Retention Period and the denominator of which is 365.
In the event the Executive has elected to receive his or her Annual Bonus for
such year in the form of restricted shares of the Common Stock of the
Company, upon termination of the Executive's employment for any reason the
Executive shall be deemed to have revoked such election as to any then
unvested shares of such restricted stock and the Executive's pro-rated Annual
Bonus for such year shall be determined based upon the amount of the cash
Annual Bonus the Executive would have received absent such election. Each
amount payable in respect of the Executive's Annual Bonus shall be paid not
later than 90 days after the fiscal year next following the fiscal year for
which the Annual Bonus (or pro-rated portion) is earned or awarded. Neither
the Annual Bonus nor any bonus amount paid in excess thereof after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(c) FRINGE BENEFITS. Subject to the Company's rights under
subsection (vii) of this Section 5(c), during the Retention Period, the
Company shall provide the following fringe benefits to Executive:
(i) HEALTH, DISABILITY AND LIFE INSURANCE. Subject to
satisfaction of the eligibility requirements of such plans and the
rules and regulations applicable thereto, Executive and his family
members shall be entitled to be covered by the Company's group health
and dental insurance plans presently in effect or hereafter adopted by
the Company and applicable to employees of the Company generally and
Executive shall be entitled to be covered by the Company's group
disability and life insurance plans presently in effect or hereafter
adopted by the Company and applicable to the employees of the Company
in general. The Company shall pay the premiums associated with such
coverage. In the event Executive makes a claim against any disability
policy provided to Executive by the Company pursuant to this Section
5(c)(i) and such policy calls for a waiting period which is applicable
to Executive's claim, the Company shall pay to Executive during such
waiting period his monthly base salary due during such period and
shall provide the other benefits due him under this Section 5(c)(i).
(ii) VACATION. Executive shall be entitled to four weeks of
vacation without loss of compensation or other benefits pursuant to
such general policies and procedures of the Company as are from time
to time adopted by the Company.
(iii) EXPENSE REIMBURSEMENT. Executive shall be reimbursed
by the Company for all reasonable expenses incurred by him in
connection with the conduct of the Company's business for which he
furnishes appropriate documentation.
(iv) AUTOMOBILE. The Company shall at the Company's option
either (A) provide to Executive use of an automobile to be used by
Executive in conducting the
3
<PAGE>
Company's business; or (B) pay to Executive a monthly auto expense
in the amount of not less than Four Hundred Dollars ($400) per
month. In addition, in the event the Company provides to Executive
an automobile the Company shall reimburse Executive (1) an amount
equal to the reasonable cost of insuring and maintaining the
automobile used by Executive for the Company's business, and (2)
the cost of maintenance and the cost of gasoline and oil used in
the automobile and in the event of a loss under the policies
insuring said automobile, the amount of any deductible thereunder
applicable to such loss. Such insurance and the coverage and
deductibles thereof shall cover both the business and personal use
of such automobile by Employee, his family and invitees and shall
include such other terms and conditions as are reasonably
acceptable to Executive. Any such reimbursements shall be made
upon the Company's receipt of invoices evidencing incurrence of
such expenses. Executive shall also be paid a monthly amount equal
to the reasonable value of personal use of such automobile,
determined in accordance with applicable federal income tax
regulations.
(v) CLUB DUES. The Company shall reimburse Executive the
reasonable cost of the monthly or annual dues, as the case may be,
paid by Executive to maintain his status as a member of the Flagship
Athletic Club or of any other athletic club having equal or lesser
membership costs in lieu of such club. The Company shall also provide
to Executive and his family a membership at Minnesota Valley Golf Club
and shall reimburse the Executive for the reasonable cost of the
monthly or annual dues, as the case may be, paid by Executive to
maintain such membership. If either such membership is a corporate
membership, upon termination of Executive's employment other than for
Cause or Death, such membership shall be converted to an individual
membership. The Company shall reimburse Executive for any fees
charged in connection with such conversion.
(vi) OFFICE AND SUPPORT STAFF. In the event a Change of
Control occurs during the Retention Period, the Executive shall
thereafter be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other
assistance, substantially equal to the most favorable of the foregoing
provided to the Executive at any time during the 90-day period
immediately preceding the date of the Change of Control.
(vii) REDUCTION IN BENEFITS. At any time, and from time to
time, prior to a Change of Control, the Company shall be entitled to
reduce the benefits provided to the Executive under this Subsection
(c) provided that any such reduction must be made concurrently with an
equal reduction to the fringe benefits granted to all executives
holding the same office as the highest office held by the Executive
during the Retention Period.
6. TERMINATION. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon his death. The Company may
terminate Executive's employment during the Retention Period, after having
established the Executive's Disability, by giving the Executive written
notice of its intention to terminate his employment, and his employment with
the Company shall terminate effective on the 90th day after receipt of such
notice if, within 90 days after such receipt, the Executive shall fail to
return to full-time performance of his duties. For purposes of this
Agreement, "Disability" means disability which, after the expiration of more
4
<PAGE>
than 26 weeks after its commencement, is determined to be total and permanent
by a physician selected by the Company or its insurers and acceptable to the
Executive or his legal representatives (such agreement to acceptability not
to be withheld unreasonably).
(b) VOLUNTARY TERMINATION. Notwithstanding anything in this
Agreement to the contrary, the Executive may, upon not less than 15 days'
advance written notice to the Company, voluntarily terminate employment
during the Retention Period for any reason, provided that any termination by
the Executive pursuant to Section 6(d) of this Agreement on account of Good
Reason (as defined therein) shall not be treated as a voluntary termination
under this Section 6(b).
(c) CAUSE. The Company may terminate the Executive's employment
during the Retention Period for Cause. As used in this Agreement, the term
"Cause" shall mean (i) any fraud, misappropriation or embezzlement by the
Executive in connection with the business of the Company or any of its
subsidiaries, (ii) any conviction of a felony or a gross misdemeanor by the
Executive that has or can reasonably be expected to have a detrimental effect
on the Company or any of its subsidiaries, (iii) any gross neglect by the
Executive of the duties assigned to him or her hereunder which continues for
a period of 90 days after written notice to the Executive of such neglect,
or, (iv) any material breach by Executive of any provisions of Section 12 of
this Agreement. It is understood and agreed that the Company may not
terminate Executive's employment for Cause in the event Executive is unable
to perform his or her duties due to partial or permanent or temporary or
total disability from injury or sickness.
(d) GOOD REASON. The Executive may terminate his employment
during the Retention Period for Good Reason. For purposes of this Agreement,
"Good Reason" means
(i) without the Executive's prior written consent, the
Company or any of its officers takes or fails to take any action which
changes the Executive's position (including titles), authority or
responsibilities which is inconsistent with Section 4 of this
Agreement or reduces the Executive's ability to carry out his duties
and responsibilities under Section 4 of this Agreement provided that
any change which is permissible under Section 4(a) of this Agreement
shall not constitute "Good Reason".
(ii) any failure by the Company to comply with any of the
provisions of Section 5 of this Agreement, other than an insubstantial
or inadvertent failure remedied by the Company promptly after receipt
of notice thereof from the Executive, provided however, a reduction in
the fringe benefits granted to the Executive pursuant to Section
5(c)(vii) hereof which is consistent with reductions thereto made to
the fringe benefits granted to all executives holding the same office
as the highest office held by the Executive during the Retention
Period shall not constitute "Good Reason";
(iii) the Company's requiring the Executive to be employed at
any location more than 35 miles further from his principal residence
than the location at which the Executive was employed immediately
preceding the Effective Date; or
(iv) any failure by the Company to obtain the assumption of
and agreement to perform this Agreement by a successor as contemplated
by Section 13(b) of this Agreement.
5
<PAGE>
(e) WITHOUT CAUSE. The Company may terminate the Executive's
employment during the Retention Period without Cause. The Company shall give
Executive at least 15 days' advance written notice of any termination of
Executive's employment which is not for Cause and not on account of
Executive's Disability.
(f) NOTICE OF TERMINATION. Any termination of Executive's
employment by the Company for Cause or by the Executive for Good Reason
during the Retention Period shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 14(c) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice given, in the case of a termination by the Company for Cause,
within 10 business days of the Company's having actual knowledge of all of
the events giving rise to such termination, and in the case of a termination
by Executive for Good Reason, within 180 days of the Executive's having
actual knowledge of the events giving rise to such termination, and which (i)
indicates the specific termination provision in this Agreement relied upon,
(ii) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated, and (iii) if the termination date is other than the
date of receipt of such notice, specifies such termination date (which date
shall be not more than 15 days after the giving of such notice). The failure
by the Executive to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason shall not waive
any right of the Executive hereunder or preclude the Executive from asserting
such fact or circumstance in enforcing his rights hereunder.
(g) DATE OF TERMINATION. For purposes of this Agreement, the term
"Date of Termination" means (i) in the case of a termination for which a
Notice of Termination is required, the date of receipt of such Notice of
Termination or, if later, the date specified therein and (ii) in all other
cases, the actual date on which the Executive's employment terminates during
the Retention Period.
7. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH.
If the Executive's employment is terminated during the Retention Period by
reason of the Executive's death, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement other than those obligations accrued hereunder at the date of his
death, including, for this purpose (i) the Executive's full Base Salary
through the Date of Termination, (ii) the product of the target Annual Bonus
for the year in which the death occurred and a fraction, the numerator of
which is the number of days in the current fiscal year of the Company through
the Date of Termination, and the denominator of which is 365 (the "Pro-rated
Bonus Obligation"). For the purposes of computing the Pro-rated Bonus
Obligation, the Executive shall be deemed to have revoked his election, if
any, to receive such bonus in the form of restricted stock of the Company and
to have earned the maximum cash Annual Bonus which he was eligible to earn
for the year in which the termination occurred, (iii) any compensation
previously deferred by the Executive (together with any accrued earnings
thereon) and not yet paid by the Company, (iv) any other amounts or benefits
then owing to the Executive under any of the Company's incentive compensation
plans, stock option plans, restricted stock plans or other similar plans as
determined pursuant to the terms of such plans and this Agreement and (v) any
amounts or benefits owing to the Executive under any of the Company's
employee benefit plans or policies (such amounts specified in clauses (i),
(ii), (iii),
6
<PAGE>
(iv) and (v) are hereinafter referred to as "Accrued Obligations"). Unless
otherwise directed by the Executive prior to his death, all Accrued
Obligations shall be paid to the Executive's estate.
(b) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability, the Executive shall receive all Accrued
Obligations and, in addition, from the Date of Termination until the date
when the Retention Period would otherwise have terminated, shall continue to
participate in or be covered under the benefit plans and programs referred to
in Section 5(c)(i) of this Agreement or, at the Company's option, to receive
equivalent benefits by alternate means at least equal to those provided in
accordance with Section 5(c)(i) of this Agreement. Anything in this
Agreement to the contrary notwithstanding, the Executive shall be entitled
to receive disability and other benefits at least equal to the most favorable
level of benefits available to disabled employees and/or their families in
accordance with the plans, programs and policies maintained by the Company or
its affiliates relating to disability at any time during the 90-day period
immediately preceding the Effective Date.
(c) CAUSE AND VOLUNTARY TERMINATION. If, during the Retention
Period, the Executive's employment shall be terminated for Cause or
voluntarily terminated by the Executive (other than on account of Good
Reason), the Executive shall receive all Accrued Obligations other than the
Pro-rated Bonus Obligation.
(d) TERMINATION BY COMPANY OTHER THAN FOR CAUSE OR DISABILITY AND
TERMINATION BY EXECUTIVE FOR GOOD REASON. LUMP SUM PAYMENT. . If, during
the Retention Period, the Company terminates the Executive's employment other
than for Cause or Disability, or the Executive terminates his employment for
Good Reason, the Executive shall receive all Accrued Obligations. In
addition, the Company shall pay to the Executive in a lump sum, a cash amount
equal to two (2) times the sum of the following amounts:
(1) the Executive's annual Base Salary at the rate specified in
Section 5(a) of this Agreement;
(2) an amount equal to the target cash Annual Bonus determined
without proration payable to the Executive in respect to the calendar
year in which the termination event occurred;
(3) an amount equal to the average annual amount paid and/or
reimbursed to the Executive pursuant to Section 5(c)(iv) and (v)
hereof during the two calendar years preceding the Date of
Termination; and
(4) the present value, calculated using the annual federal
short-term rate as determined under Section 1274(d) of the Code, of
(without duplication) the annual cost to the Company (based on the
premium rates or other costs to it) of obtaining coverage equivalent
to the coverage under the plans and programs described in Section
5(c)(i) of this Agreement;
provided, however, that with respect to the life and medical
insurance coverage referred to in Section 5(c)(i) of this
Agreement, at the Executive's election made prior to the Date of
Termination, the Company shall use its best efforts to secure
7
<PAGE>
conversion coverage and shall pay the cost of such coverage in lieu
of paying the lump sum amount attributable to such life or medical
insurance coverage.
In consideration of the Company's payment of the amounts payable to the
Executive pursuant to this Subsection 7(d) and the Executive's acceptance
thereof, the Executive and the Company shall enter into a mutual release in a
form acceptable to the Company releasing each other and their respective
agents from all claims arising from or in any way related to the Executive's
employment by the Company and the termination of such employment
relationship. The Executive shall not receive any of the amounts payable
pursuant to this Subsection 7(d) until after the Executive has executed and
delivered the release to the Company and all rescission periods under
applicable state and federal laws have expired without rescission of the
release by the Executive. The Company shall make such payment within fifteen
(15) days after the longest applicable rescission period has elapsed without
rescission.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise prejudice such rights as the
Executive may have with respect to awards granted to him prior to or during
the Retention Period under any stock option, restricted stock or other plans
or agreements with the Company or any of its affiliated companies except as
to restrictions on the Executive's rights to any restricted stock received by
the Executive in lieu of a cash Annual Bonus as set forth in Sections 5(b),
7(a) and 7(d) of this Agreement. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or program of
the Company or any of its affiliated companies shall be payable in accordance
with such plan or program.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment, distribution, acceleration
of vesting or other benefit which the Executive receives or becomes entitled
to receive, whether alone or in combination, and whether pursuant to the
terms of this Agreement or any other agreement, plan or arrangement with the
Company or any of its affiliates or any of their respective successors or
assigns, but determined without regard to any additional payments required
under this Section 9 (collectively, the "Payments"), would be subject to the
excise tax imposed by Section 4999 of the Code (or any successor provision),
or any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of
(i) all taxes with respect to the Gross-Up Payment (including any interest or
penalties imposed with respect to such taxes) including, without limitation,
any income taxes (and any interest and penalties imposed with respect
thereto), and (ii) the Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed on the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such
8
<PAGE>
determination, shall be made by KPMG Peat Marwick or such other nationally
recognized accounting firm then auditing the accounts of the Company (the
"Accounting Firm") which shall provide detailed supporting calculations both
to the Company and the Executive within 15 business days of the receipt of
notice from the Executive that there has been a Payment, or such earlier time
as is requested by the Company. In the event that the Accounting Firm is
unwilling or unable to perform its obligations pursuant to this Section 9,
the Executive shall appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm shall then
be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up
Payment, determined pursuant to this Section 9, shall be paid by the Company
to the Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the potential uncertainty
in the application of Section 4999 of the Code (or any successor provision)
at the time of the initial determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 20 business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which he gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing
from time to time, including, without limitation,
accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall
9
<PAGE>
indemnify and hold the Executive harmless, on an after-tax basis, for any
Excise Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs and
expenses. Without limiting the foregoing provisions of this Section 9(c),
the Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs the Executive
to pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis, and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall
be entitled to settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive or others whether by
reason of the subsequent employment of the Executive or otherwise. In no
event shall the Executive be obligated to seek other employment by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement, and no amount payable under this Agreement
shall be reduced on account of any compensation received by the Executive
from other employment. In the event that the Executive shall in good faith
give a Notice of Termination for Good Reason and it shall thereafter be
determined by mutual consent of the Executive and the Company or by a
tribunal having jurisdiction over the matter that Good Reason did not exist,
the employment of the Executive shall, unless the Company and the Executive
shall otherwise mutually agree, be deemed to have terminated, at the date of
giving such purported Notice of Termination, by mutual consent of the Company
and the Executive
10
<PAGE>
and, except as provided in the last preceding sentence, the Executive shall
be entitled to receive only those payments and benefits which he would have
been entitled to receive at such date otherwise than under this Agreement.
11. DISPUTES; LEGAL FEES AND EXPENSES. (a) Any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively and finally by expedited arbitration, conducted before a
single arbitrator in Minneapolis, Minnesota, in accordance with the rules
governing employment disputes then in effect of the American Arbitration
Association. The arbitrator shall be approved by both the Company and the
Executive. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
(b) In the event that any claim by the Executive under this
Agreement is disputed, the Company shall pay all reasonable legal fees and
expenses incurred by the Executive in pursuing such claim, provided that the
Executive is successful as to at least part of the disputed claim by reason
of arbitration, settlement or otherwise.
12. CONFIDENTIAL INFORMATION; NONCOMPETITION. (a) The Executive
shall hold in a fiduciary capacity for the benefit of the Company all secret
or confidential information, knowledge or data relating to the Company or any
of its affiliated companies, and their respective businesses, (i) obtained by
the Executive during his employment by the Company or any of its affiliated
companies and (ii) not otherwise public knowledge (other than by reason of an
unauthorized act by the Executive). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior
written consent of the Company, unless compelled pursuant to an order of a
court or other body having jurisdiction over such matter, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those designated by it.
(b) It is mutually acknowledged that by virtue of Employee's
former positions with the Company and its subsidiaries, he has become
possessed of certain valuable and confidential information concerning the
customers, business methods, procedures and techniques of the Company and its
subsidiaries. It is further understood that Employee has developed contacts
among the customers of the Company and its subsidiaries, and it is mutually
understood and agreed that the customers of the Company and its subsidiaries
and the business methods and procedures and techniques developed by the
Company and its subsidiaries are valuable assets and properties of the
Company and its subsidiaries. Without limitation, it is also specifically
acknowledged that great trust on the part of the Company and its subsidiaries
has resided in Employee, since Employee's former duties have included
involvement in the management, promotion and development of the Company's
business. Accordingly, the parties deem it necessary to enter into the
protective covenants set forth below, the terms and conditions of which have
been negotiated by and between the parties hereto:
(i) Employee agrees that during the Retention Period and until the
first anniversary of the Date of Termination, he will not, directly or
indirectly, on his own behalf or on the behalf of any third party, perform
management, accounting, financial, marketing, sales, administrative or
executive duties, in any business conducted within the Territories (as
defined below) whose primary business consists of originating or purchasing
automobile or truck loans or leases from automobile or truck dealers,
packaging such loans or leases, reselling such loans or leases or servicing
such loans or leases (the "Restricted Activities") or for any subdivision or
department of
11
<PAGE>
any business whose primary business does not consist of Restricted
Activities, but where the primary business of such subdivision or department
consists of Restricted Activities. As used in this Addendum, the term
"Territories" means any state in which any loans or leases originated or
acquired by the Company originated (determined by the location of the dealers
from whom the loans or leases were purchased or, in the case of loans or
leases, originated by the Company where the borrower or lessee resides).
(ii) Employee agrees that during the Retention Period and until
the first anniversary of the Date of Termination, he will not, directly or
indirectly, solicit, divert, take away or attempt to solicit, divert, or take
away from the Company, or any subsidiary, any of the dealers and other
sources from which the Company or any subsidiary acquires loans or leases or
from whom the loan or lease packages are received by the Company or any
subsidiary.
(iii) Employee agrees that during the Retention Period and until
the first anniversary of the Date of Termination, he will not, directly or
indirectly, on his own behalf or in the service or on behalf of others,
solicit, divert or hire away, or in any manner attempt to solicit, divert or
hire away any person employed by the Company or any subsidiary, whether or
not such employee is a full-time employee or a temporary employee of the
Company or any subsidiary, and whether or not such employment was pursuant to
a written or oral contract of employment and whether or not such employment
was for a determined period or was at will.
(c) Employee acknowledges that the provisions of this Section 12
constitute a material inducement to the Company to enter into the Agreement.
Employee further acknowledges that the Company's remedy at law for a breach
by him of the provisions of this Section 12 will be inadequate. Accordingly,
in the event of a breach or threatened breach by Employee of any provision of
this Section 12, the Company will be entitled to injunctive relief in
addition to any other remedy it may have. If any of the provisions of, or
covenants contained in, this Section 12 are hereafter construed to be invalid
or unenforceable in any jurisdiction, the same will not affect the remainder
of the provisions or the enforceability thereof in any other jurisdiction,
which will be given full effect, without regard to the invalidity or
unenforceability in such other jurisdiction. If any of the provisions of, or
covenants contained in, this Section 12 are held to be unenforceable in any
jurisdiction because of the duration or geographical scope thereof, the
parties agree that the court making such determination will have the power to
reduce the duration or geographical scope of such provision or covenant and,
in its reduced form, such provision or covenant will be enforceable;
provided, however, that the determination of such court will not affect the
enforceability of this Section 12 in any other jurisdiction.
(d) In no event shall an asserted violation of the provisions of
this Section 12 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement or under any other
agreement, plan or arrangement.
13. SUCCESSORS. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors. The Company shall require any successor
to all or substantially all
12
<PAGE>
of the business and/or assets of the Company, whether direct or indirect, by
purchase, merger, consolidation, acquisition of stock, or otherwise, by an
agreement in form and substance satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent as the Company would be required to perform if no such succession had
taken place.
14. MISCELLANEOUS. (a) APPLICABLE LAW. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Minnesota, applied without reference to principles of conflict of laws.
(b) AMENDMENTS. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(c) NOTICES. All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: Brian S. Anderson
10146 Bluff Road
Eden Prairie, MN 55347
If to the Company: Arcadia Financial Ltd.
7825 Washington Avenue South
Minneapolis, MN 55439
Attention: Secretary
(with a copy to the attention of
the General Counsel)
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be
effective when actually received by the addressee.
(d) TAX WITHHOLDING. The Company may withhold from any amounts
payable under this Agreement such Federal, State or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(f) CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
15. ADDITIONAL CONSIDERATION. As additional consideration for
Executive's agreement to the terms and conditions hereof, the Company shall
within sixty (60) days of the date hereof (i) grant to Executive a
non-statutory stock option to purchase shares of the
13
<PAGE>
Company's Common Stock at an exercise price equal to the fair market value of
the stock on the grant date; (ii) reissue certain stock options held by
Executive on the date hereof at exercise prices equal to the fair market
value of the stock on the reissuance date plus a premium to be determined by
the Board (subject to new vesting periods), and/or (iii) make an additional
grant of Restricted Stock pursuant to the Company's 1998-2000 Restricted
Stock Election Plan, as amended.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused this Agreement to be executed in its name on its behalf,
all as of the day and year first above written.
ARCADIA FINANCIAL LTD.
By: /s/ [ILLEGIBLE]
-------------------------------
Name:
-----------------------------
Title:
----------------------------
/s/ Brian S. Anderson
----------------------------------
Brian S. Anderson
14
<PAGE>
EXHIBIT 12.1
ARCADIA FINANCIAL LTD.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
COMPUTATION OF INCOME:
Income (loss) before income taxes and extraordinary item .... $(92,476) $(69,663) $ 81,196 $ 41,383 $ 4,331
Capitalized interest ........................................ -- -- -- -- --
-------- -------- -------- -------- -------
Income before income taxes and capitalized interest ......... (92,476) (69,663) 81,196 41,383 4,331
Fixed charges ............................................... 53,898 43,535 26,366 17,784 5,700
-------- -------- -------- -------- -------
Total income (loss) for computation ......................... $(38,578) $(26,128) $107,562 $ 59,167 $10,031
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
COMPUTATION OF FIXED CHARGES:
Portion of rentals deemed representative of interest (a) .... $ 2,226 $ 2,319 $ 1,173 $ 614 $ 284
INTEREST:
Interest on long-term debt .................................. 46,163 33,281 21,153 15,529 4,885
Interest other than funding of purchase of auto loans ....... 3,083 2,968 2,836 945 116
Amortization of debt placement .............................. 2,426 4,967 1,204 696 415
Capitalized interest ........................................ -- -- -- -- --
-------- -------- -------- -------- -------
Total fixed charges ......................................... $ 53,898 $ 43,535 $ 26,366 $ 17,784 $ 5,700
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Ratio of earnings to fixed charges .......................... -- -- 4.08x 3.33x 1.76x
Deficiency in earnings to fixed charges ..................... 92,476 69,633 -- -- --
ADDITIONAL INFORMATION:
Net rental expense .......................................... $ 6,678 $ 6,957 $ 3,520 $ 1,842 $ 861
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
</TABLE>
- -----------
(a) Portion of rental deemed representative of interest equals one third of
rental expense.
<PAGE>
EXHIBIT 12.2
ARCADIA FINANCIAL LTD.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
COMPUTATION OF INCOME:
Income (loss) before income taxes and extraordinary item .... $(92,476) $(69,663) $ 81,196 $ 41,383 $ 4,331
Capitalized interest ........................................ -- -- -- -- --
-------- -------- -------- -------- -------
Income before income taxes and capitalized interest ......... (92,476) (69,633) 81,196 41,383 4,331
Fixed charges ............................................... 53,898 43,535 26,366 17,784 5,700
-------- -------- -------- -------- -------
Total income (loss) for computation ......................... $(38,578) $(26,128) $107,562 $ 59,167 $ 10,031
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
COMPUTATION OF FIXED CHARGES:
Portion of rentals deemed representative of interest (a) .... $ 2,226 $ 2,319 $ 1,173 $ 614 $ 284
INTEREST:
Interest on long-term debt .................................. 46,163 33,281 21,153 15,529 4,885
Interest other than funding of purchase of auto loans ....... 3,083 2,968 2,836 945 116
Amortization of debt placement .............................. 2,426 4,967 1,204 696 415
Capitalized interest ........................................ -- -- -- -- --
-------- -------- -------- -------- -------
Total fixed charges ......................................... 53,898 43,535 26,366 17,784 5,700
Preferred Stock dividends on a pre-tax basis ................ -- -- 1,829 3,688 3,286
-------- -------- -------- -------- -------
Total combined fixed charges and preferred stock
dividends ................................................. $ 53,898 $ 43,535 $ 28,195 $ 21,472 $ 8,986
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Ratio of earnings to combined fixed charges and
preferred stock dividends ................................. -- -- 3.81x 2.76x 1.12x
Deficiency in earnings to combined fixed charges and
preferred stock dividends ................................. 92,476 69,633 -- -- --
ADDITIONAL INFORMATION:
Net rental expense .......................................... $ 6,678 $ 6,957 $ 3,520 $ 1,842 $ 861
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
</TABLE>
- ----------
(a) Portion of rental deemed representative of interest equals one third of
rental expense.
<PAGE>
Exhibit 21.1
ARCADIA FINANCIAL LTD.
SUBSIDIARIES
<TABLE>
<CAPTION>
State of Number of Percent of Date of
Incorporation Shares Ownership Incorporation
<S> <C> <C> <C> <C>
Arcadia Receivables Financing Corporation MN 1,000 100% 2/25/92
Arcadia Receivables Capital Corp. DE 100 100% 6/25/92
Arcadia 1992-B Receivables Capital Corp. DE 100 100% 9/17/92
Arcadia Receivables Marketing Corporation MN 1,000 100% 10/16/92
Arcadia Receivables Finance Corp. DE 100 100% 2/3/93
Arcadia First GP Inc. DE 100 100% 8/11/93
Arcadia Second GP Inc. DE 100 100% 8/11/93
Arcadia Receivables Finance Corp. II DE 100 100% 12/22/95
Arcadia Receivables Finance Corp. III DE 100 100% 10/15/97
Arcadia Receivables Conduit Corp. DE 100 100% 11/27/96
Arcadia Receivables Finance Corp. IV DE 100 100% 9/16/98
Arcadia Receivables Finance Corp. V DE 100 100% 10/7/98
</TABLE>
<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 25, 1999, with respect to the consolidated financial statements
of Arcadia Financial Ltd. included in the Company's Annual Report on Form
10-K filed March 24, 1999.
<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-3 333-60531 Subordinated Extendible and Fixed-Term Notes
S-3 333-18027 Universal Shelf
S-8 33-56782 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 33-08599 Olympic Financial Ltd. 401(k) Profit Sharing Plan
S-8 33-94228 Olympic Financial Ltd. 1990 Stock Option Plan, Olympic
Financial Ltd. 1992 Director Stock Option Plan, and
Olympic Financial Ltd. 1994-1997 Restricted Stock
Election 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
S-8 333-63023 Non-Statutory Stock Option Agreement between Arcadia
Financial Ltd. and Warren Kantor
S-8 333-63025 Employee Stock Purchase Plan
S-8 333-63027 1990 Stock Option Plan
</TABLE>
Minneapolis, Minnesota
March 22, 1999
<PAGE>
CAUTIONARY STATEMENT
ARCADIA FINANCIAL LTD. ("ARCADIA"), OR PERSONS ACTING ON BEHALF OF ARCADIA,
OR OUTSIDE REVIEWERS RETAINED BY ARCADIA MAKING STATEMENTS ON BEHALF OF
ARCADIA, OR UNDERWRITERS OF ARCADIA'S SECURITIES, MAY FROM TIME TO TIME MAKE
WRITTEN OR ORAL STATEMENTS THAT QUALIFY AS "FORWARD-LOOKING STATEMENTS" AS
THAT TERM IS 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. AS SUCH, IT IS INTENDED TO BE A
READILY AVAILABLE WRITTEN DOCUMENT THAT CONTAINS FACTORS THAT COULD CAUSE
RESULTS TO DIFFER MATERIALLY FROM THE 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 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 ARCADIA. 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 THE FORWARD-LOOKING
STATEMENT OR STATEMENTS.
RISKS RELATED TO ARCADIA'S LIQUIDITY AND ACCESS TO CAPITAL RESOURCES
ARCADIA MAY NEED ADDITIONAL CAPITAL TO FUND CONTINUED NEGATIVE CASH
FLOWS, BUT MAY NOT BE ABLE TO RAISE CAPITAL ON ACCEPTABLE TERMS OR AT ALL.
To date, Arcadia has operated on a negative operating cash flow basis, and it
expects to continue to do so in the near future. Arcadia's business requires
substantial cash to make payments in connection with the purchase and
securitization of loans, for operating expenses and to service its debt.
Arcadia may require additional capital in the future to satisfy its operating
and debt service requirements, to fund growth or to repay its outstanding
indebtedness at maturity. There can be no assurance, however, that Arcadia
will be able to access the capital markets in the future on terms acceptable
to Arcadia, if at all. Factors which could affect Arcadia's ability to
access the capital markets or the costs of any capital raised include:
- changes in interest rates
- general economic conditions
- the perception in the capital markets of Arcadia
- the performance of Arcadia's securitization trusts
In addition, the agreements governing Arcadia's existing debt securities and
credit facilities significantly restrict Arcadia's ability to incur
additional indebtedness and to issue new classes of
<PAGE>
preferred stock. Any agreements governing future debt securities or credit
facilities may contain similar restrictions.
ADVERSE CHANGES IN ARCADIA'S ASSET-BACKED SECURITIES PROGRAM OR IN THE
ASSET-BACKED SECURITIES MARKET FOR AUTOMOBILE RECEIVABLES IN GENERAL COULD
MATERIALLY ADVERSELY AFFECT ARCADIA. Arcadia's business depends on our
ability to aggregate and sell automobile loans in the form of publicly
offered asset-backed securities. These sales generate cash proceeds that
allow us to repay amounts outstanding under our "warehouse" credit facilities
and to purchase additional loans. In addition, the sale of loans to a
securitization trust in preparation for "securitization," which generally
occurs once per quarter, gives rise to the gain on sale that forms a
significant part of Arcadia's reported earnings for each quarter. Any delay
in the sale of loans beyond a quarter-end would thus adversely affect
Arcadia's reported earnings for that quarter. Accordingly, adverse changes in
Arcadia's asset-backed securities program--such as market perception of
Arcadia or the conformity to insurance company and rating agency requirements
of the loans Arcadia intends to sell--or in the general market for automobile
loan asset-backed securities could materially adversely affect Arcadia's
ability to purchase and resell loans on a timely basis and on terms
reasonably satisfactory to Arcadia.
FUTURE UNAVAILABILITY OF FINANCIAL GUARANTY INSURANCE POLICIES COULD
REDUCE ARCADIA'S ABILITY TO SELL THE ASSET-BACKED SECURITIES IT SPONSORS OR
REDUCE THE PRICE AT WHICH THEY WERE SOLD. All of the securitizations
sponsored by Arcadia since March 1993 and one of Arcadia's current
"warehouse" credit facilities have utilized credit enhancement in the form of
financial guaranty insurance policies issued by Financial Security Assurance
Inc. These financial guaranty insurance policies have resulted in those
asset-backed securities being rated "AAA/Aaa." This rating has made those
securities easier to sell and has enhanced the price at which they have been
sold. Arcadia believes that the use of this form of credit enhancement is
cheaper than alternative forms available to Arcadia. However, Financial
Security Assurance Inc. is not required to insure Company-sponsored
securitizations and there can be no assurance that it will continue to do so.
Likewise, there can be no assurance that future Company-sponsored
securitizations will receive similar ratings.
EARLY TERMINATION OF ARCADIA'S "WAREHOUSE" CREDIT FACILITIES, OR
ARCADIA'S INABILITY TO ARRANGE ADDITIONAL WAREHOUSE FACILITIES OR TO EXTEND
OR REPLACE EXISTING FACILITIES WHEN THEY EXPIRE, WOULD HAVE A MATERIAL
ADVERSE EFFECT ON ARCADIA. Arcadia depends on warehouse facilities with
financial institutions or institutional lenders to finance its purchase of
loans on a short-term basis pending securitization. At December 31, 1998,
Arcadia had three primary warehouse facilities with an aggregate borrowing
capacity of approximately $700.00 million. These facilities expire between
July 1999 and October 1999, subject to earlier termination on the occurrence
of certain events and to renewal or extension at the lenders' option. There
can be no assurance that these or similar facilities will continue to be
available on terms reasonably satisfactory to Arcadia. Early termination of
these warehouse facilities, or Arcadia's inability to arrange additional
warehouse facilities or to extend or replace existing facilities when they
-2-
<PAGE>
expire, would significantly reduce or end Arcadia's ability to purchase and
securitize automobile loans.
RISKS RELATED TO THE PERFORMANCE OF LOANS IN SECURITIZATION TRUSTS
IF FUTURE LOAN PERFORMANCE DIFFERED FROM ARCADIA'S CURRENT ESTIMATES OF
LOAN PERFORMANCE ARCADIA MIGHT HAVE TO REDUCE THE VALUATION OF ITS MAIN
ASSET, FINANCE INCOME RECEIVABLE. When Arcadia sells loans in connection
with the creation of a securitization trust and the issuance of asset-backed
securities by that trust, we recognize a "gain on sale" and establish an
asset that is called "finance income receivable." Finance income receivable
is Arcadia's principle asset. It represents Arcadia's retained interest in
the loans sold. Finance income receivable is calculated using assumptions and
estimates concerning future default, prepayment and net loss rates on the
securitized loans that management believes are reasonable at the time.
Arcadia bases these assumptions on Arcadia's historical experience,
externally-generated industry information, market conditions and expectations
of future performance and present value discount rates that Arcadia believes
would be requested by an unrelated purchaser of a similar asset. However,
the actual rates of defaults, prepayments and net losses may exceed the
estimates used in valuing the finance income receivable. Arcadia
periodically reviews its default, prepayment and net loss assumptions in
relation to the current performance of the loans and market conditions and,
if necessary, adjusts the balance of finance income receivable. Arcadia has
made two significant reductions to the value of finance income receivable,
one at June 30, 1998 ($114.5 million) and one at March 31, 1997 ($98.0
million). Any future reductions to finance income receivable would adversely
affect anticipated future excess cash flow and might materially affect
Arcadia's business, financial condition, results of operations and liquidity.
In addition, no assurance can be given that finance income receivable could
be sold at its stated value on the balance sheet, if at all.
ANY DECREASE IN OR INTERRUPTION OF EXCESS CASH FLOW FROM SECURITIZATION
TRUSTS COULD MATERIALLY ADVERSELY AFFECT ARCADIA. Arcadia's future liquidity
and financial condition, and its ability to finance the growth of its
business and to repay or refinance its outstanding indebtedness, will depend
to a material extent on distributions of excess cash flow from securitization
trusts. The agreements related to the financial guaranty insurance policies
on asset-backed securities issued by Arcadia-sponsored securitization trusts
require Arcadia to maintain specified amounts of cash in a "spread account"
for each insured securitization trust. These spread accounts are initially
funded by means of cash deposits and/or cash flows from the related trust.
Each month after the spread account has been funded, any cash received by the
related securitization trust that is in excess of the amount needed to make
payments on the asset-back securities is first used to bring the spread
account for that trust up to required levels. In addition, under the
agreements with Arcadia's provider of financial guaranty insurance, each of
these spread accounts is "cross-collateralized" with the other insured
securitization trusts. As a result, cash received by one securitization
trust that is in excess of the amount needed to make payments specifically
related to that trust may be used to support negative cash flow from, or to
replenish the spread account related to, another securitization trust. Only
after these uses is any of that
-3-
<PAGE>
cash distributed as "excess cash flow" to Arcadia Receivables Finance
Corporation, a subsidiary of Arcadia known as ARFC, and then on to Arcadia.
Thus, if the cash flow from all insured securitization trusts is not
sufficient to replenish all spread accounts, no excess cash flow would be
available to Arcadia for that month. The timing and amount of excess cash
flow varies based on a number of factors, including but not limited to:
- rates of loan delinquencies, defaults and net losses
- the rate of turnover of repossessed vehicles and the recovery rates
on those vehicles
- the ages of the loans in the portfolio
- the levels of voluntary prepayments
- required spread account levels
Any of the following could reduce or eliminate excess cash flows to Arcadia:
- an increase in loan delinquencies, cumulative defaults or net losses
- a build-up in repossession inventory
- significantly lower automobile prices in the wholesale auction
markets
- an increase in the proportion of loans in their first and second
years.
Arcadia has in the past experienced interruptions in excess cash flows and
there can be no assurance that this will not occur again in the future.
LOAN PORTFOLIO PERFORMANCE THAT EXCEEDS SET "PORTFOLIO PERFORMANCE
TESTS" COULD RESULT IN A DECREASE IN OR INTERRUPTION OF EXCESS CASH FLOW
AVAILABLE TO ARCADIA. Each insured securitization trust has certain
"portfolio performance tests" that relate to levels of delinquency, defaults
and net losses on the loans in the trust. Portfolio performance tests
require that the loan portfolio of each insured securitization trust:
- have an average delinquency ratio not equal to or in excess of a
specified percentage
- have a cumulative default rate not equal to or in excess of specified
percentages, which vary based on the aging of the loan portfolio
- 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 the loans in any trust perform worse than is required by any of these
tests, the amount of cash that has to be retained in the related spread
account or accounts increases significantly until the loan portfolio has
performed at the required levels for a specified period, generally three to
five months. Any violation will decrease available excess cash flow for that
time period. Arcadia's provider of financial guaranty insurance can waive a
violation of these portfolio performance tests. Arcadia has an arrangement
with its provider of financial guaranty insurance under which, if loan
portfolio performance is in excess of the portfolio performance test levels,
Arcadia's subsidiary ARFC may make a pledge of cash that has the effect of
preventing the violation of the portfolio performance test. Some trusts have
exceeded these portfolio performance tests in the past, and some trusts were
still in excess of these tests at February 28, 1999, but this arrangement has
prevented a violation. It has also, however, reduced the amount of cash that
would have been available to Arcadia for use if Arcadia had sought and
received a waiver of the violation. An increase in loan delinquencies,
cumulative defaults or net losses could result in one or more
-4-
<PAGE>
additional existing securitization trusts exceeding one or more of the
portfolio performance tests unless the portfolio performance test levels are
changed. If this were to occur, there can be no assurance that waivers will
be available from Arcadia's provider of financial guaranty insurance to
permit excess cash flow to Arcadia.
THE OCCURRENCE OF AN "INSURANCE AGREEMENT EVENT OF DEFAULT" COULD HAVE A
MATERIAL ADVERSE EFFECT ON ARCADIA. Arcadia's agreement with its provider of
financial guaranty insurance specifies that it will be an "insurance agreement
event of default" if certain events occur with respect to any series of insured
asset-backed securities. These events include loan portfolio performance tests
similar to those described above but at significantly higher levels. Following
an insurance agreement event of default, Arcadia's provider of financial
guaranty insurance may:
- suspend distributions of cash flow from the related securitization
trust and all other insured trusts (including one of the Company's
"warehouse" credit facilities) until the defaulted asset-backed
securities have been redeemed
- capture excess cash flow from performing trusts
- increase its premiums
- replace Arcadia as servicer with respect to all insured trusts
Arcadia's provider of financial guaranty insurance may waive an insurance
agreement event of default. Some of the insured trusts have exceeded these
thresholds in the past and one insured trust was still in excess of the
thresholds at February 28, 1999, but to date Arcadia has obtained waivers to
permit distributions of excess cash flow. A Further increase in loan
delinquencies, gross charge-offs and net losses might result in one or more
additional securitization trusts exceeding one or more of these thresholds
unless the performance levels are changed. If this occurs, there can be no
assurance that waivers will be available to Arcadia. Any action that Arcadia's
provider of financial guaranty insurance might take in the absence of such a
waiver could have a material adverse effect on Arcadia's business, financial
condition, results of operations and liquidity, including its ability to pay its
obligations. Among other possible actions, Arcadia's provider of financial
guaranty insurance could foreclose on its collateral security interest in the
stock of Arcadia's subsidiary ARFC, which would prevent that subsidiary from
providing cash to Arcadia.
CURRENT AND HISTORICAL DELINQUENCY AND DEFAULT RATES OF LOANS IN
ARCADIA'S SERVICING PORTFOLIO MAY UNDERSTATE FUTURE DELINQUENCY AND DEFAULT
RATES. The incidence of delinquencies and defaults on automobile loans tends
to vary with the age of the loan. For example, loans that are between six
and 14 months old have a higher likelihood of being delinquent or defaulting
than loans with similar credit characteristics that are three months old.
Accordingly, to the extent that Arcadia's historical portfolio growth has
resulted in a servicing portfolio that contains 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. In addition, to the extent
Arcadia offers new loan products which involve different underwriting
policies, the delinquency and default rates of Arcadia's servicing portfolio
may change. Over time, Arcadia has consistently increased its
-5-
<PAGE>
purchases of higher risk loans. As a result of the increases in the
proportion of higher risk loans in Arcadia's serviced loan portfolio, there
has been an increase in the rates of, and reserves for, delinquencies,
repossessions and losses historically reported by Arcadia. The continuation
of purchases of higher risk loans and the seasoning of Arcadia's existing
servicing portfolio will likely continue to cause Arcadia's loan performance
statistics to show higher delinquencies, gross charge-offs and net losses
when compared with historical performance, even if these loan performance
statistics are consistent with Arcadia's reserves for loan losses.
AN INCREASE IN LOAN DELINQUENCY, REPOSSESSION AND LOSS RATES ABOVE THE
ESTIMATED RATES COULD HAVE A MATERIAL ADVERSE EFFECT ON ARCADIA. Arcadia
uses a combination of factors to estimate future delinquency, repossession
and loss experience on loans, including Arcadia's actual loan performance
experience and industry experience on loans with similar credit
characteristics. There can be no assurance that loans that Arcadia
securitizes will perform under varying economic conditions in the manner
Arcadia currently estimates. An increase in loan delinquency, repossession
and loss rates above the estimated rates could have a material adverse effect
on Arcadia, including the need to make future downward adjustments to finance
income receivable similar to that made at June 30, 1998 following Arcadia's
implementation of refinements to its method for estimating future
delinquency, repossession and loss experience.
INCREASES IN LOAN DELINQUENCY, DEFAULT AND LOSS RATES MAY VIOLATE TESTS
IN THE AGREEMENTS THAT GOVERN ARCADIA'S "WAREHOUSE" CREDIT FACILITIES. The
agreements that govern Arcadia's "warehouse" credit facilities contain tests
that set limits on:
- loan delinquency rates
- loan default rates
- loan payment extensions
- loan loss rates
- interest rate yields
- borrower bankruptcy rates
- borrower credit scores
- loan-to-value ratios
If the performance of the relevant loan portfolios exceeds these limits,
lenders under the affected "warehouse" facility have no further obligation to
extend credit, which would prevent Arcadia from purchasing additional
automobile loans. In addition, if the limits under any one agreement are
exceeded, there may be cross-defaults under other credit agreements, which
could result in Arcadia being required immediately to pay all amounts due
under those agreements. The increase in higher risk loans in the loan
portfolio, among other things, has increased the risk that Arcadia's loan
portfolio may exceed the limits described above in the future.
THERE MAY BE A FUTURE INCREASE IN THE NUMBER OF LOANS THAT ARCADIA HAS
EXTENDED OR AMENDED, WHICH GENERALLY PRESENT SUBSTANTIALLY HIGHER DEFAULT
RISKS THAN LOANS THAT HAVE NEITHER OF THESE CHARACTERISTICS. Like others in
the industry, Arcadia gives certain obligors extensions or amendments to loan
terms in certain circumstances. Loans that have been extended or amended
generally present substantially higher default risks than loans that have
-6-
<PAGE>
neither of these characteristics. Extensions and amendments (in the
aggregate) averaged approximately 2.8% of the servicing portfolio per month
in 1998, 3.3% of the servicing portfolio per month in 1997 and 2.7% per month
in 1996. Continued slowing of the rate of portfolio growth, which will result
in a higher percentage of loans of the age that are more likely to be
extended or amended, could contribute to a further increase in such
statistics. In addition, the granting of an extension or amendment have the
effect of removing the related loan from delinquent status.
RISKS RELATED TO ECONOMIC CONDITIONS
ECONOMIC CONDITIONS INFLUENCE ARCADIA'S LEVEL OF BUSINESS AND THE
PERFORMANCE OF THE LOANS IN THE SERVICED PORTFOLIO. Periods of economic
slowdown or recession, whether general, regional or industry-related, may
increase the risk of default on automobile loans. Any increase on defaults
would have the adverse effects on Arcadia noted above. These periods may
also be accompanied by decreased consumer demand for automobiles which would
result in reduced demand for automobile loans and therefore reduced business
for Arcadia. Decreased consumer demand for automobiles also contributes to a
decline in the values of automobiles securing outstanding loans, thereby
weakening collateral coverage and increasing the possibility of losses in the
event of default. The increased proportion of higher risk loans in the loan
portfolio has increased Arcadia's sensitivity to changes in economic
conditions. 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.
ARCADIA'S BUSINESS IS DEPENDENT ON PRICES FOR USED AUTOMOBILES.
Significant increases in the inventory of used automobiles during
recessionary economies may depress the prices at which Arcadia can sell its
inventory of repossessed vehicles or delay the timing of sales. Recently,
the used car market has softened as the result of factors including the
recent start-up of superstore competition and forecasted levels of used lease
vehicles that will be available in the market. A continuation of this trend
or other factors (including the impact of the discontinuation of Arcadia's
program that channeled a portion of its repossession inventory through retail
resale markets, which reduced Arcadia's loan losses while increasing
repossession inventory and delaying cash flow recovered from inventory
turnover) could cause Arcadia's recovery rate on repossessed vehicles to
decline below the current level. This, in turn, might have an adverse impact
on loan loss levels, with all the potential effects of a decline in portfolio
performance, and could require adjustments to estimated recovery rates and
finance income receivable similar to those made at June 30, 1998 and March
31, 1997 (both of which included amounts related to a reduction in the
estimated recovery rates).
ARCADIA'S PROFITABILITY MAY BE DIRECTLY IMPACTED BY THE LEVEL OF AND
FLUCTUATIONS IN INTEREST RATES. The level of and fluctuations in interest
rates affect the difference between the annual percentage rate paid by the
borrowers under the loans Arcadia purchases and the interest rate on the
asset-back securities it sells. This "gross interest rate spread" is a major
source of
-7-
<PAGE>
profit for Arcadia. Arcadia monitors the interest rate environment and
employs 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 Arcadia would not be adversely affected during any
period of changes in interest rates.
A CONTINUATION OR INCREASE IN RECENT LEVELS OF PERSONAL BANKRUPTCY
FILINGS COULD ADVERSELY AFFECT THE PERFORMANCE OF THE LOAN PORTFOLIO ARCADIA
SERVICES. Recent media reports have suggested an increase in the number of
personal bankruptcy filings. During most of 1997 and much of 1998 Arcadia
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 this trend could contribute to greater default
and net loss rates than Arcadia has historically experienced.
OTHER RISKS
ARCADIA MAY BE UNABLE TO IMPROVE ITS SERVICING PERFORMANCE, IN
PARTICULAR AS THE RESULT OF HIGH EMPLOYEE TURNOVER OR AN INABILITY TO ATTRACT
AND RETAIN REPLACEMENT SERVICING AND COLLECTION PERSONNEL. The historical
growth of Arcadia's servicing portfolio and the greater proportion of higher
risk loans contained in that portfolio have resulted in increased demands on
Arcadia's personnel and systems. Arcadia's ability to support, manage and
control growth depends on, among other things, its ability to hire, train,
supervise and manage a larger workforce. In particular, Arcadia's ability to
manage portfolio delinquency, default and loss rates depends on the
maintenance of efficient collection and repossession procedures and on
attracting and retaining an adequate number of qualified servicing and
collection personnel. There can be no assurance that Arcadia will succeed in
the efforts it has undertaken since 1996 to improve its servicing and
collection performance. Moreover, during 1997 and 1998, 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 Arcadia'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 Arcadia's performance,
especially its portfolio delinquency, default and net loss rates.
ARCADIA'S PROVIDER OF FINANCIAL GUARANTY INSURANCE MAY TERMINATE ARCADIA
AS SERVICER OF THE LOANS IN INSURED SECURITIZATION TRUSTS. Arcadia's right
to service the loans sold in securitizations insured by Arcadia's provider of
financial guaranty insurance is generally subject to the discretion of that
insurer. Accordingly, the insurer could terminate Arcadia as servicer, which
would mean that Arcadia would no longer receive the related servicing fees.
ARCADIA IS A DEFENDANT IN LEGAL PROCEEDINGS THE OUTCOME OF WHICH COULD
HAVE AN ADVERSE EFFECT ON ARCADIA. Arcadia and some of its directors and
officers are defendants in a consolidated lawsuit, IN RE OLYMPIC FINANCIAL
LTD. SECURITIES LITIGATION. The plaintiffs allege that during the period
from July 20, 1995 through March 3, 1997 the defendants illegally engaged in
a scheme that had the effect of artificially inflating, maintaining and
otherwise manipulating
-8-
<PAGE>
the value of Arcadia's Common Stock. In addition, in the course of its
business, Arcadia is routinely a party or subject to other items of pending
or threatened litigation. This includes actions against borrowers to collect
amounts on loans or to repossess vehicles and litigation challenging the
terms of loans purchased by Arcadia. The ultimate outcome of these matters
cannot be predicted and there can be no assurance that Arcadia will prevail
in its defense of any of these lawsuits. Any order, judgment, settlement or
decree that was adverse to Arcadia could have a material adverse effect on
Arcadia.
THE FAILURE OF YEAR 2000 NON-COMPLIANT SYSTEMS, EITHER THOSE OF ARCADIA
ITSELF OR THOSE OF ITS SIGNIFICANT THIRD PARTY PROVIDERS, MAY MAKE ARCADIA
UNABLE TO PERFORM ITS KEY OPERATING ACTIVITIES AND COULD ALSO SUBJECT ARCADIA
TO LITIGATION. Arcadia has reviewed its automated information systems,
including its loan accounting system, its business support systems and its
facility operating systems and has initiated the replacement, modification or
reprogramming of Year 2000 non-compliant hardware and software. In addition,
Arcadia has developed and is implementing a plan to contact parties which
provide services critical to the successful operation of its business to
learn how they are addressing the issue and to evaluate any likely impact on
Arcadia. However, Arcadia has not yet completed all necessary processes of
its Year 2000 plan. Nor does Arcadia have contingency plans in place in case
it does not complete all phases of its Year 2000 program. If Arcadia does
not complete its Year 2000 program successfully, it may be unable to perform
its key operating activities and could also be subject to litigation
regarding the results of its systems failures, such as improper application
of repayments and resulting incorrect credit reporting to credit bureaus.
ARCADIA'S ABILITY TO COMPETE IN THE HIGHLY COMPETITIVE AUTOMOBILE
FINANCING MARKET MAY BE LIMITED BY ITS COMPETITORS' GREATER RESOURCES AND
BECAUSE IT DOES NOT OFFER DEALERS ALL THE PROGRAMS THAT SOME COMPETITORS DO.
Many of Arcadia's existing and potential competitors, which include
well-established financial institutions, such as banks, other automobile
finance companies, small loan companies, thrifts and leasing companies and
captive finance companies owned by automobile manufacturers, such as General
Motors Acceptance Corporation, Chrysler Credit Corp. and Ford Motor Credit
Company, have greater financial, technical and marketing resources than
Arcadia. From time to time these competitors offer special buyer incentives
in the form of below-market interest rates on certain classes of vehicles
which Arcadia is unable to match. Many of these competitors also have
longstanding relationships with automobile dealers, making it difficult for
Arcadia to develop relationships with those dealers. In addition, some of
major entities that compete with Arcadia provide other forms of financing to
automobile dealers, including dealer floor plan financing and leasing, which
are not provided by Arcadia and may have the effect of making Arcadia less
competitive.
VIOLATIONS OF OR CHANGES IN THE LAWS AND REGULATIONS THAT GOVERN
ARCADIA'S BUSINESS COULD HAVE A MATERIAL ADVERSE EFFECT ON ARCADIA.
Arcadia's business is subject to numerous federal and state consumer
protection laws and regulations. Among other things, these laws and
regulations
- require Arcadia to obtain and maintain licenses and qualifications
-9-
<PAGE>
- limit interest rates, fees and other charges
- limit or prescribe various other terms of Arcadia's automobile loan
contracts
- require specific disclosures
- define Arcadia's rights to repossess and sell collateral vehicles
If Arcadia were to violate these laws and regulations, even unintentionally,
it could be subject to government enforcement action or to consumer or
securityholder lawsuits seeking to recover for damages alleged to have
resulted from the violations. Changes in existing laws or regulations (or in
the interpretation thereof) or the promulgation of additional laws or
regulations could, among other things, impose significant new restrictions on
the way in which Arcadia does business or result in significantly increased
compliance costs. If any of this happened, it could have a material adverse
effect on Arcadia.
ARCADIA'S BOARD OF DIRECTORS HAS THE POWER TO CREATE AND ISSUE A NEW
CLASS OR SERIES OF STOCK THAT COULD ADVERSELY AFFECT THE VOTING POWER,
DIVIDEND, LIQUIDATION AND OTHER RIGHTS OF HOLDERS OF COMMON STOCK. The
authorized and unissued stock of Arcadia includes shares that are
undesignated as to rights. Under Arcadia's Articles of Incorporation, the
Board of Directors has the power to create and issue new classes or series of
stock using these undesignated shares. In connection with this, the Board of
Directors may give the new class or series any rights, preferences and
privileges that the Board deems appropriate, including special dividend,
liquidation and voting rights. The creation and issuance of a new class or
series of stock could adversely affect the voting power, dividend,
liquidation and other rights of holders of Common Stock.
ARCADIA'S CHARTER DOCUMENTS AND SHAREHOLDER RIGHTS PLAN AND MINNESOTA
STATUTES MAY DISCOURAGE AN ACQUISITION OF ARCADIA. Provisions of Arcadia's
Articles of Incorporation and Bylaws, the existence of a shareholder rights
plan and the provisions of the Minnesota Business Corporation Act could make
it more difficult for a third party to acquire Arcadia, even if doing so
would be beneficial to Arcadia's shareholders.
ARCADIA'S INABILITY TO FIND REPLACEMENT AUDITORS IN A TIMELY FASHION OR
TO FIND REPLACEMENT AUDITORS THAT ARE ONE OF THE "BIG FIVE" ACCOUNTING FIRMS
COULD HAVE AN ADVERSE EFFECT ON ARCADIA'S OPERATIONS AND THE PRICE FOR
ARCADIA'S STOCK AND NOTES. On March 1, 1999, Arcadia dismissed Ernst & Young
LLP as its independent auditors effective immediately following the filing of
Arcadia's Quarterly Report on Form 10-Q for the quarter ending March 31,
1999. Arcadia intends to retain another "Big Five" accounting firm as its
auditors effective immediately following that time. However, there can be no
assurance that Arcadia will be able to retain another auditing firm in a
timely fashion or that the replacement auditors will be one of the other "Big
Five" accounting firms. Arcadia's inability to retain replacement auditors in
a timely fashion could have a material adverse effect on Arcadia's
operations, including its ability to close on securitization transactions.
Arcadia's inability to retain replacement auditors that are one of the "Big
Five" accounting firms could have an adverse effect on market perception of
Arcadia and thus on the price for its Common Stock and its debt securities.
-10-
