<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999
Commission file number 0-20526
-----------
ARCADIA FINANCIAL LTD.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1664848
(State or other jurisdiction (I.R.S. Employer Identification
Of incorporation or organization) Number)
7825 WASHINGTON AVENUE SOUTH, MINNEAPOLIS, MN 55439-2435
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 942-9880
-----------
Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of the Common Stock of the registrant outstanding as
of July 16, 1999 was 39,274,527.
<PAGE>
FORM 10-Q INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 28
EXHIBIT INDEX 29
</TABLE>
The financial information for the interim periods presented herein is
unaudited. In the opinion of management, all adjustments necessary (which are of
a normal recurring nature) have been included for a fair presentation of the
results of operations. The results of operations for an interim period are not
necessarily indicative of the results that may be expected for a full year or
any other interim period.
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and elsewhere in this Form
10-Q constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements may be
identified by the use of terminology such as "may," "will," "expect,"
"anticipate," "estimate," "should," or "continue" or the negative thereof or
other variations thereon or comparable terminology. Such forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical results or from those
results presently anticipated or projected. Such factors include, among other
things, the following: increased delinquency and loan loss rates; accounting
changes; regulatory changes; interest rate fluctuations; difficulties or delays
in the securitization of automobile loans; availability of adequate debt and/or
equity financing; general economic and business conditions; and other matters
set forth under the caption "Cautionary Statements" in exhibit 99.1 to this
Quarterly Report on Form 10-Q.
2
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) JUNE 30, 1999 DECEMBER 31, 1998
-------------------- ------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,294 $ 6,326
Restricted cash 10,138 4,501
Due from securitization trust --- 62,081
Auto loans held for sale 208,717 17,899
Finance income receivable 577,134 587,946
Furniture, fixtures and equipment 15,200 17,511
Other assets 29,988 31,419
--------------- ---------------
Total assets $ 842,471 $ 727,683
--------------- ---------------
--------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Amounts due under warehouse facilities $ 137,287 $ ---
Senior notes 367,166 366,657
Subordinated notes 69,738 51,898
Capital lease obligations 2,820 3,384
Accounts payable and accrued liabilities 37,390 36,935
--------------- ---------------
Total liabilities 614,401 458,874
Commitments and contingencies
Shareholders' equity:
Capital stock, $.01 par value, 100,000,000 shares authorized:
Common stock 39,260,938 and 39,156,888 shares issued
and outstanding, respectively 393 392
Additional paid-in capital 325,240 324,565
Accumulated other comprehensive income (45,620) 18,550
Retained earnings (deficit) (51,943) (74,698)
--------------- ---------------
Total shareholders' equity 228,070 268,809
--------------- ---------------
Total liabilities and shareholders' equity $ 842,471 $ 727,683
--------------- ---------------
--------------- ---------------
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------- --------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1999 1998
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Net interest margin $ 22,322 $ 20,971 $43,611 $40,918
Gain (loss) on sale of loans 27,533 (87,298) 53,504 (60,298)
Servicing fee income 21,075 20,184 42,890 39,850
-------------- --------------- -------------- --------------
Total revenues 70,930 (46,143) 140,005 20,470
EXPENSES:
Salaries and benefits 19,446 16,315 37,925 34,000
General and administrative and other operating expenses 22,946 38,376 48,226 66,525
-------------- --------------- -------------- --------------
Total operating expenses 42,392 54,691 86,151 100,525
Long-term debt and other interest expense 13,657 12,908 27,123 25,693
-------------- --------------- -------------- --------------
Total expenses 56,049 67,599 113,274 126,218
-------------- --------------- -------------- --------------
Operating income (loss) before income taxes and
cumulative effect 14,881 (113,742) 26,731 (105,748)
Less related income tax expense (benefit) --- (12,273) --- (9,235)
-------------- --------------- -------------- --------------
Net income (loss) before cumulative effect 14,881 (101,469) 26,731 (96,513)
Cumulative effect of change in accounting, net of --- --- (3,976) ---
taxes of $0 ------------- --------------- -------------- --------------
Net Income (loss) after cumulative effect 14,881 (101,469) 22,755 (96,513)
OTHER COMPREHENSIVE INCOME (LOSS):
Net unrealized gain (loss) on finance income receivable (62,683) 1,081 (64,170) 3,105
Income tax expense (benefit) --- (3,042) --- (2,271)
-------------- --------------- -------------- --------------
(62,683) 4,123 (64,170) 5,376
-------------- --------------- -------------- --------------
COMPREHENSIVE LOSS $(47,802) $(97,346) $(41,415) $(91,137)
-------------- --------------- -------------- --------------
-------------- --------------- -------------- --------------
BASIC EARNINGS PER SHARE:
Operating income before cumulative effect $ 0.38 $ (2.60) $ 0.68 $ (2.48)
Cumulative effect --- --- $ (0.10) ---
Net income $ 0.38 $ (2.60) $ 0.58 $ (2.48)
DILUTED EARNINGS PER SHARE:
Operating income before cumulative effect $ 0.37 $ (2.60) $ 0.67 $ (2.48)
Cumulative effect --- --- $ (0.10) ---
Net income $ 0.37 $ (2.60) $ 0.57 $ (2.48)
Weighted average shares outstanding:
Basic 39,260,938 38,966,697 39,260,938 38,965,549
Diluted 40,261,159 38,966,697 39,754,181 38,965,549
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 22,755 $ (96,513)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 4,056 5,138
Gain on Sale of Equipment (11) ---
(Increase) decrease in assets:
Automobile loans held for sale:
Purchases of automobile loans (1,214,617) (1,159,784)
Sales of automobile loans 1,067,868 1,159,976
Repayments of automobile loans 18,011 33,461
Restricted Cash (5,637) (5,596)
Finance income receivable (53,358) 53,201
Due from securitization trusts --- (26,344)
Prepaid expenses and other assets 1,664 1,026
Increase (decrease) in liabilities:
Deferred income taxes --- (11,506)
Accounts payable and accrued liabilities 456 13,066
---------------- ----------------
Total cash used in operating activities (158,813) (33,875)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of furniture, fixtures and equipment 1,076 ---
Purchase of furniture, fixtures and equipment (2,550) (2,655)
Collections on subordinated certificates 471 527
---------------- ----------------
Total cash used in investing activities (1,003) (2,128)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Common Stock 221 304
Proceeds from borrowings under warehouse facilities 1,181,813 1,512,737
Repayment of borrowings under warehouse facilities (1,044,526) (1,489,655)
Unsecured subordinated notes, net 17,840 (1,091)
Reduction of capital lease obligations (564) (1,002)
---------------- ----------------
Total cash provided by financing activities 154,784 21,293
---------------- ----------------
Net increase (decrease) in cash and cash equivalents (5,032) (14,710)
Cash and cash equivalents at beginning of period 6,326 18,946
---------------- ----------------
Cash and cash equivalents at end of period $ 1,294 $ 4,236
---------------- ----------------
---------------- ----------------
Supplemental disclosures of cash flow information:
Non cash activities:
Additions to capital leases 99 ---
Cash paid for:
Interest $ 31,072 $ 28,928
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
-----------------------------------------------------------------
ACCUMULATED
NUMBER OF COMMON ADDITIONAL OTHER
COMMON PAR PAID IN COMPREHENSIVE
SHARES VALUE CAPITAL INCOME
------------- ------------ ------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 39,156,888 $ 392 $ 324,565 $ 18,550
Issuance of Common Stock:
Benefit plans 104,050 1 221 ---
Amortization of deferred compensation --- --- 454 ---
Unrealized gain on financed income receivable --- --- --- (64,170)
Net income --- --- --- ---
------------- ------------- ------------- ------------
BALANCE, JUNE 30, 1999 39,260,938 $ 393 $ 325,240 $(45,620)
------------ ------------- ------------- ------------
------------ ------------- ------------- ------------
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
----------------------------------------------------
RETAINED
EARNINGS
(DEFICIT) TOTAL
------------- -------------
<S> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
BALANCE, DECEMBER 31, 1998 $(74,698) $ 268,809
Issuance of Common Stock:
Benefit plans --- 222
Amortization of deferred compensation --- 454
Unrealized gain on financed income receivable --- (64,170)
Net income 22,755 22,755
------------- -------------
BALANCE, JUNE 30, 1999 $(51,943) $ 228,070
------------ ------------
------------ ------------
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JUNE 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The interim financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission applicable to quarterly reports on Form 10-Q. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although management
believes that the disclosures present fairly the financial position of the
Company and its subsidiaries for the periods presented. These financial
statements should be read in conjunction with the audited consolidated financial
statements and related notes and schedules included in the Company's 1998 Annual
Report on Form 10-K filed March 24, 1999.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Certain reclassifications have been made to the June 30, 1998 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.
2. CHANGES IN ACCOUNTING METHOD AND ACCOUNTING ESTIMATES
Effective January 1, 1999 the Company changed its accounting method for
recognition of sales of asset-backed securities. Previously, the Company
recognized sales of asset-backed securities once an irrevocable commitment
had been received, the loans to be sold had been identified and segregated
from loans held for sale, and cash proceeds had been placed in the trust by a
third party. The Company now records sales of asset-backed securities upon
physical settlement, which generally occurs within 5 to 10 days of the
segregation of the loans to be sold. As a result of the change, gain on sale
of approximately $9.0 million related to the sale of approximately $148.8
million of automobile loans was recorded in the second quarter, that
otherwise would have been recorded in the first quarter. In addition, the
Company removed an accrual which was recorded in the first quarter for
unidentified loan loss contingencies of approximately $9.0 million.
7
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE QUARTER ENDED JUNE 30, 1999
3. FINANCE INCOME RECEIVABLE
The following table sets forth the components of finance income receivable:
<TABLE>
<CAPTION>
AT AT
JUNE 30, DECEMBER 31,
1999 1998
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Estimated future excess cash flows on loans sold, net of estimated
prepayments (1) $1,249,665 $1,195,466
Deferred servicing income (106,038) (101,996)
Reserve for loan losses (397,891) (415,401)
-------------- --------------
Undiscounted cash flows on loans sold, net of estimated prepayments 745,736 678,069
Discount to present value (168,602) (90,123)
-------------- --------------
$577,134 $587,946
-------------- --------------
-------------- --------------
Reserve for loan losses as a percentage of securitized servicing portfolio 7.93% 8.18%
</TABLE>
- -----------
(1) Includes restricted cash deposits in securitization spread accounts of
$260.7 million and $227.7 million at June 30, 1999 and December 31, 1998,
respectively.
The following represents the roll-forward of the finance income receivable
balance:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
BALANCE, DECEMBER 31, 1998 $587,946
Present value of estimated future cash flows from current period securitizations 108,066
Interest earned on spread accounts 7,741
Recognition of present value effect of discounted cash flows 27,341
Unrealized loss on retained assets (64,170)
Less:
Excess cash flows released to the Company (1) (89,790)
--------------
BALANCE, JUNE 30, 1999 $577,134
--------------
--------------
</TABLE>
- -----------
(1) Pursuant to an arrangement between the Company and its provider of
asset-backed securities insurance, if any insured securitization trust
exceeds a 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. Under such arrangement, the Company had
approximately $8.2 million pledged and deposited in restricted accounts at
June 30, 1999. Such pledged amounts are included in restricted cash.
Restrictions on the pledged amounts may be lifted if the portfolio
performance for the related securitization trusts tests are met and
maintained as defined in the arrangement, the violations are waived, or
the loans within the securitization trust are repurchased by the Company at
the end of the securitization term.
During the three months ended June 30, 1999 the Company changed several
factors and assumptions utilized in determining the gain on sale of asset
backed securities. First, based on the mix of vehicles and the relative risk
associated with loans sold during the quarter, management increased the
estimated cumulative default rate to 16.03% from the prior quarter rate of
15.15%. Second, the Company has continued to experience a recovery rate in
excess of 48% on the sale of repossessed vehicles during 1998 and 1999 and
therefore the Company increased its estimated recovery rate to 48% from the
prior rate of 45%. Finally, based on a review of industry-reported discount
rates in the consumer finance markets, the Company increased the discount
rate used to estimate the present value of the future excess cash flows to be
released from spread accounts to 15%. Increasing the overall discount rate on
an existing securitization transaction has the effect of creating an
unrealized loss, while increasing the rate on a new securitization
transaction defers a greater portion of the gain to the Company from that
transaction.
8
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE QUARTER ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
4. OTHER ASSETS At At
June 30, December 31,
1999 1998
--------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Advances due to servicer $ 4,558 $ 5,967
Deferred debt issuance costs 9,405 10,110
Investment in subordinated certificates 1,401 1,873
Servicing fee receivable 5,046 4,841
Prepaid expenses 907 1,717
Other assets 8,671 6,911
--------------- ---------------
$29,988 $31,419
--------------- ---------------
--------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
5. SUBORDINATED NOTES At At
June 30, December 31,
1999 1998
--------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Senior subordinated notes, Series 1996-A $30,000 $30,000
Junior subordinated notes 39,738 21,898
--------------- ---------------
$69,738 $51,898
--------------- ---------------
--------------- ---------------
</TABLE>
9
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE QUARTER ENDED JUNE 30, 1999
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share for each of the three and six month periods ended June 30:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1999 1998 1999 1998
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss ) from operations
before cumulative effect $ 14,881 $(101,469) $ 26,731 $(96,513)
-------------- -------------- --------------- --------------
-------------- -------------- --------------- --------------
Denominator:
Denominator for basic earnings per
share - weighted average shares 39,260,938 38,966,697 39,260,938 38,965,549
Dilutive effect of options and warrants (1) 1,000,221 --- 493,243 ---
--------------- -------------- --------------- --------------
Denominator for diluted earnings per
share - adjusted weighted average
shares 40,261,159 38,966,697 39,754,181 38,965,549
--------------- -------------- --------------- --------------
--------------- -------------- --------------- --------------
Basic income from operations before
cumulative effect $ 0.38 $ (2.60) $ 0.68 $ (2.48)
--------------- -------------- --------------- --------------
--------------- -------------- --------------- --------------
Diluted income from operations before
cumulative effect $ 0.37 $ (2.60) $ 0.67 $ (2.48)
--------------- -------------- --------------- --------------
--------------- -------------- --------------- --------------
</TABLE>
- --------------
(1) For the three and six months ended June 30, 1999 and 1998, there were 5.2
million, 6.5 million, 4.4 million, and 4.4 million options and warrants
respectively, that were excluded from the computation of diluted earnings
per share because the impact was anti-dilutive.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Substantially all of the Company's revenues are derived from the purchase,
securitization and servicing of consumer automobile loans originated in 45
states primarily by car dealers affiliated with major foreign and domestic
manufacturers. Loans are purchased through 18 regional buying centers (or
"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.
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
RESULTS OF OPERATIONS
CHANGES IN ACCOUNTING METHOD AND ACCOUNTING ESTIMATES
Effective January 1, 1999 the Company changed its accounting method for
recognition of sales of asset-backed securities. Previously, the Company
recognized sales of asset-backed securities once an irrevocable commitment
had been received, the loans to be sold had been identified and segregated
from loans held for sale, and cash proceeds had been placed in the trust by a
third party. The Company now records sales of asset-backed securities upon
physical settlement, which generally occurs within 5 to 10 days of the
segregation of the loans to be sold. As a result of the change, gain on sale
of approximately $9.0 million related to the sale of approximately $148.8
million of automobile loans was recorded in the second quarter, that
otherwise would have been recorded in the first quarter. In addition, the
Company removed an accrual which was recorded in the first quarter for
unidentified loan loss contingencies of approximately $9.0 million.
NET INTEREST MARGIN. The components of net interest margin for each of the
three and six months ended June 30 were:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income on loans, net $ 7,417 $ 6,753 $ 14,521 $ 13,032
Interest income on short-term investments
and other cash accounts 1,905 2,887 3,748 5,947
Recognition of present value discount 14,100 12,031 27,342 23,608
Provision for credit losses on loans held for sale (1,100) (700) (2,000) (1,669)
------------ ------------ ----------- ------------
Net interest margin $ 22,322 $ 20,971 $ 43,611 $ 40,918
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
Net Interest Margin increased 6% for the three months ended June 30,
1999 compared to the three months ended June 30, 1998, and increased 7% for the
six months ended June 30, 1999 compared to the same period in 1998. The increase
in net margin for the three and six months ended June 30, 1999 compared to the
same periods in 1998 is primarily due to an increase in the recognition of
present value discount reflecting the growth in the Company's finance income
receivable.
11
<PAGE>
A 10% and 5% increase in loan purchasing volume (see table below) during
the three and six months ended June 30, 1999, respectively, resulted in (i) a
higher average monthly balance of loans held for sale, on which the Company
earns interest income until such loans are securitized, $303.8 million and
$268.8 million, respectively, up from $191.4 million and $187.3 million in the
same periods of 1998, respectively, and (ii) the rise in the weighted average
net interest rate spread earned on such loans held for sale. During the three
and six months ended June 30, 1999, the weighted average net interest rate
spread earned rose to 11.83% and 11.98% respectively, compared with 11.04% and
11.23%, respectively, during the same periods in 1998.
The Company's loan purchasing volume for each of the three and six months
ended June 30 are set forth in the table below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- -----------------------------------
---------------- ----------------- ---------------- -----------------
1999 1998 1999 1998
---------------- ----------------- ---------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total automobile loans purchased $ 629,688 $ 572,880 $ 1,212,157 $ 1,156,853
</TABLE>
GAIN ON SALE OF LOANS. During the three and six months ended June 30,
1998, the Company recognized a non-recurring pre-tax charge to gain on sale
of loans of $114.5 million resulting in a loss on sale of loans of $87.3
million and $60.3 million for the three and six months ended June 30, 1998,
respectively. Included in the Gain on Sale of Loans for the three and six
months ended June 30, 1999 is a $1.3 million loss on $3.6 million of loans
sold that the Company had been unable to sell in the secondary markets
through securitization.
The following table summarizes the Company's gross interest rate spreads
for each of the three and six month periods ended June 30:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- ------------------------------
----------- ----------- ----------- -----------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Initial weighted average APR of loans securitized 17.28 % 17.06 % 17.30 % 17.05 %
Initial weighted average securitization rate 6.28 5.97 6.15 5.97
=========== =========== =========== ===========
Gross interest rate spread (1) 11.00 % 11.09 % 11.15 % 11.08 %
=========== =========== =========== ===========
</TABLE>
- --------
(1) Before gains/losses on hedging transactions.
During the three months ended June 30, 1999 the Company changed several
factors and assumptions utilized in determining the gain on sale of asset
backed securities. First, based on the mix of vehicles and the relative risk
associated with loans sold during the quarter, management increased the
estimated cumulative default rate to 16.03% from the prior quarter rate of
15.15%. Second, the Company has continued to experience a recovery rate in
excess of 48% on the sale of repossessed vehicles during 1998 and 1999 and
therefore the Company increased its estimated recovery rate to 48% from the
prior rate of 45%. Finally, based on a review of industry-reported discount
rates in the consumer finance markets, the Company increased the discount
rate used to estimate the present value of the future excess cash flows to be
released from spread accounts to 15%. Increasing the overall discount rate on
an existing securitization transaction has the effect of increasing an
unrealized loss, while increasing the rate on a new securitization
transaction defers a greater portion of the gain to the Company from that
transaction.
12
<PAGE>
Any unamortized balance of participations paid to dealers is included
in the cost basis of the loans at the time the related loans are securitized and
recorded as a reduction to gain on sale. Participations paid as a percentage of
the principal balance of loans purchased were 3.0% and 2.9% during the three and
six months ended June 30, 1999, compared to 2.80% and 2.83%, respectively, in
the same periods a year ago.
Gain on sale of loans has been adjusted for net realized gains on
hedging transactions of $2.8 million and $2.9 million during the three and six
months ended June 30, 1999, compared with net realized losses of $2.6 million
and $8.4 million, respectively, in the same periods a year ago. The hedging
losses that were charged against gain on sale of loans in 1998 were primarily
due to the downward movement of treasury rates.
SERVICING FEE INCOME. The components of servicing fee income for each
of the three and six months ended June 30 were:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Contractual servicing fee income $14,529 $14,251 $28,883 $28,179
Other servicing income 6,546 5,933 14,007 11,671
-------------- ------------- ------------- -------------
Total servicing fee income $21,075 $20,184 $42,890 $39,850
============== ============= ============= =============
</TABLE>
The Company earns contractual servicing fee income for servicing loans
sold to investors through securitizations. Contractual servicing income is
earned at rates ranging from 1% to 1.25% per annum on the outstanding principal
balance of all loans securitized. The Company's servicing fee approximates
adequate compensation as defined by SFAS 125 and therefore, the Company has not
recorded a servicing asset or liabilty at June 30, 1999. The growth in
contractual servicing fee income is primarily related to an increase in the
average servicing portfolio outstanding (see table below).
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 collection account interest
attributable to the growth in the average servicing portfolio outstanding and in
fees associated with certain customer payment services utilized for collecting
delinquent accounts.
The following table reflects the growth in the Company's servicing
portfolio from June 30, 1998 to June 30, 1999:
<TABLE>
<CAPTION>
AT JUNE 30,
-------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
Principal balance of automobile loans held for sale $ 209,098 $ 14,726
Principal balance of loans serviced under securitizations 5,014,485 5,070,879
----------------- -----------------
Servicing portfolio $5,223,583 $5,085,605
================= =================
Average unpaid principal balance (actual dollars) $ 11,122 $ 11,609
Number of loans serviced 469,664 438,063
</TABLE>
The Company's servicing portfolio (measured by principal balance)
increased 3% from June 30, 1998 to June 30, 1999, reflecting loan purchases and
subsequent securitizations, partially offset by defaults, prepayments and
scheduled repayments. The decline in average outstanding balance of loans at
June 30, 1999 compared to June 30, 1998 reflects an increase in the proportion
of used to new cars financed by the Company and a reduction in the average
13
<PAGE>
loan-to-value ratio on loan purchases resulting from the Company's more
selective buying practices.
OPERATING EXPENSES. During the three and six months ended June 30, 1999,
salaries and benefits increased 19% and 12%, respectively, from the same periods
a year ago. The increase in salaries and benefits is primarily due to an
enhanced incentive program for collectors and an increase in FTE's, partially
offset by lower overtime compensation resulting from centralizing the Company's
collection operations during 1998.
Other operating costs, including administrative, occupancy, depreciation
and amortization, origination, servicing and collection expenses, decreased 40%
and 28% for the three and six months ended June 30, 1999, respectively, compared
with the same periods in 1998. Included in operating costs during the three and
six months ended June 30, 1998 is a pre-tax charge of approximately $10.5
million. This charge is related to the elimination of the Company's retail
remarketing program and other organizational changes designed to improve
operating efficiency. Excluding this charge, other operating costs decreased 19%
and 14% for the three and six months ended June 30, 1999, respectively, compared
with the same periods in 1998. The decrease is primarily attributable to lower
repossession and remarketing expenses due to the elimination of the Company's
retail remarketing program.
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 compliant. The software was installed in a testing phase with
the Company's current system in the second quarter of 1999. To date, the Company
believes that the terms of the contract have been met and that testing will be
complete and the new ILA system placed into operation in the third quarter of
1999.
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 might
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 engaged an independent company to aid in the
remediation of non-compliant programs, The modification, reprogramming, testing
and implementation of the Company's non-compliant programs were completed in the
first quarter of 1999. All Year 2000 testing was executed 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 was included in the programs
provided to the independent company for remediation. This provides 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 estimates that the cost of its Year 2000 project will
aggregate approximately $1.5 million, of which approximately $0.8 million has
been expended through June 30, 1999. 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.
14
<PAGE>
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 had developed and
implemented a plan to contact parties which proved 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 completed a Year 2000 survey of
its credit bureaus, investment bankers and warehouse providers 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 is currently developing
contingency plans for third party services that are critical to the Company's
operations and plans to complete this process in the third quarter of 1999.
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. In addition, the Company could be subject to litigation for computer
systems failure such as improper application of repayments and resulting
incorrect credit reporting to credit bureaus. Finally, 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
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.
INCOME TAXES. The Company did not record an income tax provision during
three and six months ended June 30, 1999, due to the utilization of net
operating loss carryforwards.
FINANCIAL CONDITION
DUE FROM SECURITIZATION TRUST. The decrease in due from securitization
trust is due primarily to the timing of loans transferred to securitization
trusts combined with an accounting method change to recognition of gain upon
physical settlement (SEE "CHANGES IN ACCOUNTING METHOD AND ACCOUNTING
ESTIMATES").
AUTO LOANS HELD FOR SALE. The Company's portfolio of auto loans held
for sale increased to $208.7 million at June 30, 1999, compared with $17.9
million at December 31, 1998, due primarily to the timing of loans transferred
to securitization trusts combined with an accounting method change to
recognition of gain upon physical settlement (SEE "CHANGES IN ACCOUNTING
METHOD AND ACCOUNTING ESTIMATES"). An increase in loan purchasing volume during
the first six months of 1999 compared with the same period in 1998 also
contributed to the increase in auto loans held for sale.
FINANCE INCOME RECEIVABLE. Finance income receivable decreased to
$577.1 million at June 30, 1999 from $587.9 million at December 31, 1998. This
decrease is primarily due to an increase in the unrealized loss associated with
the increase in discount rate assumptions used in determination of fair value.
15
<PAGE>
DELINQUENCY, CREDIT LOSS AND REPOSSESSION EXPERIENCE
The following tables describe delinquency, credit loss and repossession
experience of the Company's servicing portfolio for the periods indicated. 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.
DELINQUENCY EXPERIENCE (1):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
---------------------------------- ---------------------------------
Number of Number of
Loans Balance Loans Balance
---------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Servicing portfolio at end of period 469,664 $ 5,223,583 450,635 $ 5,096,222
Delinquencies:
31-60 days 9,062 $ 99,211 12,176 $ 135,633
61-90 days 3,853 41,964 4,161 47,599
91 days or more 5,005 52,438 5,165 60,591
---------------- --------------- -------------- ---------------
Total loans delinquent 31 or more days 17,920 $ 193,613 21,502 $ 243,823
Delinquencies as a percentage of
servicing portfolio (2) 3.82% 3.71% 4.77% 4.78%
Amount in repossession 4,977 $ 27,818 5,686 $ 32,676
</TABLE>
___________
(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each loan. The information in the table includes previously sold
loans which the Company continues to service.
(2) Amounts shown do not include loans which are less than 31 days delinquent.
16
<PAGE>
CREDIT LOSS/REPOSSESSION EXPERIENCE (1):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------- -----------------------------------
1999 1998 1999 1998
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Average servicing portfolio $ 5,184,063 $5,049,786 $ 5,148,176 $5,025,684
Average number of loans 465,031 432,007 459,828 425,408
Number of charge-offs 8,827 8,677 16,943 16,274
Gross charge-offs (2) $ 60,928 $ 78,947 $ 123,835 $ 131,426
Recoveries (3) 6,872 4,172 15,079 7,748
--------------- ---------------- --------------- ----------------
Net losses $ 54,056 $ 74,775 $ 108,756 $ 123,678
=============== ================ =============== ================
Annualized gross charge-offs as a percentage
of average servicing portfolio 4.70% 6.25% 4.81% 5.23%
Annualized net losses as a percentage
of average servicing portfolio 4.17% 5.92% 4.23% 4.92%
</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.
17
<PAGE>
The Company's delinquency rate has declined compared to December 31,
1998, in part because of a recovery from the normal seasonal pressure on
collection efforts which is generally highest in the fourth quarter of the year.
Management also believes that the decrease in the delinquency rate reflects
improvements in the Company's collections and servicing functions implemented
during 1998 and the first six months of 1999.
Annualized gross charge-offs and net losses during the three and six
month periods ended June 30, 1998, include a charge of 1.72% and 0.86%,
respectively, representing the impact of a write-down of current inventory
resulting from a revision to the estimate of net realizable value and the
write-off of all remaining problem loans from one of the Company's original
consignment dealers with which it has since ceased doing business. The increase
in gross charge-offs for the three and six months ending June 30, 1999 compared
to the same periods in 1998 (excluding the write-down charge) reflects the
utilization of only wholesale disposition channels for the sale of repossessed
vehicles following the Company's discontinuation of its retail remarketing
program. 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 in June 1998 to discontinue its
retail remarketing operations has enabled it to better manage its level of
repossessed inventory due to the increase in the speed at which repossessed
vehicles can be liquidated, and as a result has improved the timing of excess
cash flows released to the Company from securitization trusts.
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) payment of dealer
participations, (iii) deposits of cash held from time to time in restricted
accounts to support securitizations and warehouse facilities and other
securitization expenses, (iv) interest advances to securitization trusts, (v)
the cost of repossessed inventory, and (vi) interest expense. The Company also
uses significant amounts of cash for operating expenses. The Company receives
cash principally from interest on loans held pending securitization, from excess
cash flow received from securitization trusts and fees earned through servicing
of loans held by such trusts. The Company has operated on a negative cash flow
basis and expects to continue to do so in the near future. The Company has
historically funded these negative operating cash flows principally through
borrowings from financial institutions, sales of equity securities and sales of
senior and subordinated notes. The Company expects that it will require
additional capital in the future to fund continued negative cash flows, 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 $1.2 billion of loans during the first six months of 1999 compared to
$1.2 billion during the same period in 1998. 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
loans being purchased, the Company is required to fund the remainder of all
purchases prior to securitization with other available cash resources.
DEALER PARTICIPATIONS. Consistent with industry practice, the Company
pays dealers 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
included in the cost basis at the loans 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. Participations paid by the Company to
dealers during the six months ended June 30, 1999 were $35.1 million, or
approximately 2.89% of the principal balance of loans purchased, compared with
$32.7 million, or approximately 2.83% of loans purchased, during the same period
in 1998.
18
<PAGE>
SPREAD ACCOUNT AND SECURITIZATION EXPENSES. In connection with
securitizations, the Company is required to fund spread accounts related to each
transaction. The Company primarily funds these spread accounts by foregoing
receipt of excess cash flow until these spread accounts exceed predetermined
levels. In addition, for some securitizations the Company has been required to
provide initial cash deposits into the spread accounts which generally ranged
from zero to 2.5% of the principal balance of the loans securitized. In
connection with securitizations completed during 1998 and the first half of
1999, the Company was able to eliminate or significantly reduce the amount of
cash required for initial deposits in exchange for an increase in the insurance
premiums paid to Financial Security Assurance Inc. ("FSA"), the Company's
provider of asset-backed securities insurance. However, in June 1999 FSA advised
the Company that it expects that similar arrangements reducing initial spread
account deposits will not be available in the future. In addition, FSA advised
the Company that it expects to require a higher level of initial cash deposits
into the spread accounts, and higher maximum levels for the spread accounts, for
any future securitization transaction where FSA provides asset-backed securities
insurance. Even if the Company is able to make alternative arrangements, the
Company expects that this will increase the Company's need for cash to fund
securitization activity.
The Company's securitization trusts had $260.7 million of restricted
cash in spread accounts at June 30, 1999, compared with $227.7 million at
December 31, 1998. The increase in restricted cash in spread accounts
reflects the continued securitization of loan purchases and the related
accumulation of excess cash flows to levels defined within each
securitization agreement, partially offset by the release of excess cash
flows from securitization trusts spread accounts which have reached
appropriate levels. In addition to the restricted cash noted above, spread
accounts were further supported by $39.7 million and $18.5 million of
reinsurance contracts at June 30, 1999 and December 31, 1998, respectively,
purchased by the Company's asset-backed securities insurance provider in
connection with the initial deposit arrangement discussed above, as well as
an additional $54.0 million in reinsurance contracts related to the early
release of $60.0 million of cash from spread accounts during 1998. The $54.0
million will be replenished in the relevant spread accounts, and the amount
of reinsurance reduced, by means of a $3.0 million reduction in the level of
monthly cash releases from the spread accounts which began in May 1999 and
will change to $5.0 million per month in October 1999, $6.0 million in
November 1999, $4.0 million in December 1999, $3.0 million in January through
July of 2000, and $2.0 million in August through October of 2000.
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 into 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 from borrowers. In accordance with the relevant servicing
agreements, the Company makes advances only in the event it expects to recover
such advances through the ultimate payments from the obligor over the life of
the loan or proceeds from dispositions of repossessed vehicles.
REPOSSESSED INVENTORY. At June 30, 1999, repossessed inventory managed
or owned by the Company and held for resale was $27.8 million, compared with
$32.7 million at December 31, 1998. 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 June 30, 1999, repossessed inventory was 0.5% of the total servicing
portfolio compared with 0.6% at December 31, 1998. Any 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 after December 31, 1998, and generally lower wholesale used car prices.
19
<PAGE>
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 SOURCES OF CASH IN OPERATING ACTIVITIES
EXCESS CASH FLOW. The Company receives excess cash flow from
securitization trusts, including the realization of gain on sale, the recovery
of dealer participations, and the recovery of accrued interest receivable
earned, but not yet collected, on loans held for sale prior to securitization.
During the first six months of 1999, the Company received $89.8 million of
excess cash flow, compared with $59.6 million during the six months of 1998. The
Company has entered into an arrangement with its provider of asset-backed
insurance which provides that, if any insured securitization trust exceeds its
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. At June
30, 1999 an aggregate $8.2 million of cash released from spread accounts was
restricted pursuant to such arrangement. Restrictions on the pledged amounts may
be lifted if the portfolio performance tests for the related securitization
trusts are met and maintained as defined in the arrangement, the violations are
waived, or the loans within the securitization trusts are repurchased at the end
of the securitization term. There can be no assurance that the restrictions will
be lifted or, absent amendments to the portfolio performance tests, that
additional performance tests will not be exceeded thereby increasing the level
of excess cash which must be pledged. A significant increase in the level of
cash pledged under such arrangement could significantly limit the Company's
ability to fund the purchase and securitization of loans.
SERVICING FEES. The Company receives servicing fees for servicing
securitized loans included in various securitization trusts. The servicing fee
for loans in securitization trusts ranges from one percent to 1.25 percent of
the outstanding principal balance on loans. The Company also receives 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. During the
six months ended June 30, 1999 and 1998, the Company received cash for such
services in the amount of $42.9 million and $39.9 million, 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 financed generally
on a temporary basis, and (ii) the securitization of loans, pursuant to which
loans are sold as asset-backed securities. Additional financing is required to
fund the Company's operations.
WAREHOUSE FACILITIES. Automobile loans held for sale are funded on a
short-term basis primarily through warehouse facilities. At June 30, 1999, the
Company had three warehouse facilities in place with various financial
institutions and institutional lenders with an aggregate capacity of $700.0
million, of which $562.7 million was available. 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. One of the Company's warehouse
facilities with a capacity of $400.0 million was renewed on July 13, 1999. FSA
provides credit enhancement with respect to this facility in the form of a
financial guaranty insurance policy guaranteeing certain payments. This policy
will be reduced from $400.0 million to $200.0 million on February 15, 2000; at
the same time the capacity of the facility will be reduced to $200.0 million.
This facility will expire on July 12, 2000. The remaining facilities expire in
September and October of 1999. Management believes that these facilities will be
renewed or replaced and will continue to provide adequate capacity for loan
originations. However, failure to renew or find satisfactory replacements for
these facilities, would have a significant adverse impact on the Company's
operations by significantly reducing the Company's ability to purchase
automobile loans.
20
<PAGE>
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. If in the future the Company is
unable to obtain financial guaranty insurance policies, or determines that they
are too expensive, it could reduce the Company's ability to sell the
asset-backed securities the Company sponsors and also reduce the price at which
it is able to sell them. All of the securitizations the Company has sponsored
since March 1993 and one of the Company's current "warehouse" credit facilities
have utilized credit enhancements in the form of financial guaranty insurance
policies issued by FSA. These financial guaranty insurance policies have
resulted in those asset-backed securities being rated "AAA/Aaa." The Company
believes that this rating has made those securities easier to sell than
securities with a lower rating and has enhanced the price at which they have
been sold. The Company also believes that the use of this form of credit
enhancement was cheaper than alternative forms available to it at the time.
However, FSA is not required to insure the securitizations the Company sponsors
and may not continue to do so. In June 1999, FSA advised the Company that it
expects to modify its requirements for any future securitization transaction
with respect to which it provides financial guaranty insurance. These
modifications could significantly increase the cash cost to the Company of using
FSA as the provider of credit enhancement for future securitizations. The
Company is currently examining its options in this regard, which may include
issuing uninsured asset-backed securities with other credit enhancement
features. If the Company were to do this, some of those securities are likely to
receive a rating that is somewhat lower than "AAA/Aaa," which could reduce the
Company's ability to sell those securities at prices comparable to those
received in the past.
The following table summarizes the Company's securitization
transactions during the six months ended June 30, 1999, both of which were
publicly issued and rated "AAA/Aaa."
<TABLE>
<CAPTION>
REMAINING
BALANCE AS A CURRENT
REMAINING PERCENTAGE CURRENT WEIGHTED GROSS
BALANCE AS OF WEIGHTED AVERAGE INTEREST
SECURITIZATION ORIGINAL OF JUNE 30, ORIGINAL AVERAGE SECURITIZATION RATE
TRANSACTION BALANCE 1999 BALANCE APR RATE SPREAD
- ---------------------- --------------- ----------------- ---------------- -------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN
THOUSANDS)
1999-A $ 550,000 $ 511,886 93.07% 17.38% 5.95% 11.43%
1999-B (1) $ 650,000 $ 447,861 68.90% 17.26% 6.39% 10.87%
--------------- -----------------
$ 1,200,000 $ 959,747
=============== =================
</TABLE>
- ----------
(1) As of June 30, 1999 the Company had delivered $455.8 million of automobiles
loans for the 1999-B securitization transaction and $194.2 million of cash
remained in the pre-funded portion of the trust.
HEDGING STRATEGY
The Company enters into hedging transactions to manage its gross
interest rate spread on loans held for sale. The Company sells forward U.S.
Treasuries that most closely parallel the average life of its portfolio of loans
held for sale. Hedging gains and losses are recognized as a component of the
gain on sale of loans on the date such loans are sold. To the extent hedging
gains or losses are significant, the resulting up-front cash payments or
receipts may impact the Company's liquidity. These up-front cash receipts or
payments are off-set in future periods through the realization of a lower or
higher spread, respectively, established at the time of pricing the hedged
transaction. During the first six months of 1999, the Company's hedging
activities generated net cash flows to the Company of $2.9 million compared to a
net use of cash during the same period a year ago of $5.8 million. There were
$237,000 unrealized losses outstanding at June 30, 1999.
21
<PAGE>
OTHER CAPITAL RESOURCES
Historically, the Company has utilized various debt and equity
financings to offset negative operating cash flows and support its operations.
The Company has a program to sell 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 Company's Senior Note indenture. The Note
Program currently offers Junior Subordinated Notes extendible by the investor
having 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 10 years after the date of issue. Interest rates on any newly issued
Junior Subordinated Notes are based on market conditions. Interest rates on
extendible Junior Subordinated Notes may be adjusted by the Company at any
roll-over date. During the first six months of 1999 proceeds from the issuance
of Junior Subordinated Notes, net of repayments at maturity, were $17.8 million.
22
<PAGE>
ITEM 3. 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 Strategy" for additional information regarding such market risks.
23
<PAGE>
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Under the applicable Securities and Exchange Commission rules, there is
no further new information with respect to legal proceedings that the Company is
required to report in connection with this Quarterly Report on Form 10-Q.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 27, 1999, the Company held its annual shareholders' meeting.
There were 39,204,110 shares of common stock outstanding and entitled to vote on
the record date (March 30, 1999), and a total of 37,157,283 shares (94.78%) were
represented at the meeting in person or by proxy. The following summarizes vote
results for the proposals submitted to the Company's shareholders.
1. Proposal to elect six directors, each for a one-year term.
<TABLE>
FOR WITHHELD
------------- ------------
<S> <C> <C>
Scott H. Anderson 36,354,615 802,668
Robert J. Cresci 36,287,733 869,550
James L. Davis 36,335,118 822,165
Richard A. Greenawalt 36,409,983 747,300
Warren Kantor 36,267,234 890,049
Robert A. Marshall 36,415,481 741,802
</TABLE>
2. Proposal to adopt the Company's 1999 Omnibus Stock Plan.
FOR AGAINST ABSTAIN BROKER NON-VOTE
15,439,386 3,866,083 326,224 17,525,590
3. Proposal to approve an amendment to the Company's 1998-2000
Restricted Stock Election Plan to increase the number of shares of
the Company's Common Stock subject to issuance under the Plan.
FOR AGAINST ABSTAIN BROKER NON-VOTE
16,062,476 3,259,073 310,144 17,525,590
4. Proposal to approve the grant of a stock option to Warren Kantor.
FOR AGAINST ABSTAIN BROKER NON-VOTE
16,209,320 3,081,581 340,792 17,525,590
24
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are filed in response to Item 601 of Regulation
S-K.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
3.1 Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998).
3.2 Restated Bylaws of the Company, as amended (incorporated by
reference to Exhibit 3.2 to the Company'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
Company and Norwest Bank Minnesota, National Association, as
Rights Agent (incorporated by reference to Exhibit 1 to the
Company'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
the Company and Norwest Bank Minnesota, National
Association, as Rights Agent (incorporated by reference to
Exhibit 4.1 to the Company'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 Rights Agreement, dated as of November 1, 1996 between
the Company and Norwest Bank Minnesota, National
Association, as Rights Agent (incorporated by reference to
Exhibit 4.1 to the Company'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 Company and
Norwest Bank Minnesota, National Association, as Trustee,
relating to the Company'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 the Company'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 Company, Norwest Bank
Minnesota, National Association, as Resigning Trustee, and
Marine Midland Bank, as Successor Trustee, relating to the
Company's Unsecured Extendible Notes and Fixed Term Notes
(incorporated by reference to Exhibit 4.2 to the Company'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 Company and Marine Midland Bank, as
Trustee, relating to the Company's Unsecured Extendible
Notes and Fixed Term Notes (incorporated by reference to
Exhibit 4.3 to the Company's Registration Statement on Form
S-3, File No. 333-60531).
4.7 Indenture dated as of March 15, 1996, between the Company
and Norwest Bank Minnesota, National Association, as
Trustee, relating to the Company's Subordinated Notes,
Series 1996-A due 2001 (incorporated by reference to Exhibit
4.5 to the Company'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 Company
and Norwest Bank Minnesota, National Association, as
Trustee, relating to the
25
<PAGE>
Company's Subordinated Notes, Series 1996-A due 2001
(incorporated by reference to Exhibit 4.6 to the Company'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 Company
and Norwest Bank Minnesota, National Association, as
Trustee, relating to the Company's 11 1/2% Senior Notes due
2007 (incorporated by reference to Exhibit 4.1 to the
Company'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 Company and Norwest Bank Minnesota, National
Association, as Trustee, relating to $300,000,000 of the
Company's 11 1/2% Senior Notes due 2007 issued March 12,
1997 (incorporated by reference to Exhibit 4.2 to the
Company'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 Company and Norwest Bank Minnesota, National
Association, as Warrant Agent (incorporated by reference to
Exhibit 4.3 to the Company'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 Company's Current Report on Form 8-K dated March 12,
1997 and filed March 18, 1997).
4.13 Form of 11 1/2% Senior Notes due March 15, 2007
(incorporated by reference to Exhibit 4.5 to the Company'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 Company'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
Company and Norwest Bank Minnesota, National Association, as
Trustee, including form of Notes, relating to $75,000,000 of
the Company's 11 1/2% Senior Notes due 2007 issued October
8, 1997 (incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated October 8, 1997,
filed October 15, 1997).
10.1 Insurance and Indemnity Agreement, dated as of June 17,
1999, among Financial Security Assurance Inc. ("FSA"),
Arcadia Automobile Receivables Trust, 1999-B, Arcadia
Receivables Finance Corp. ("ARFC") and the Registrant (filed
herewith).
10.2 Series 1999-B Supplement, dated as of June 17, 1999, to
Spread Account Agreement dated as of March 25, 1993, as
amended and restated, among the Registrant, ARFC, FSA and
Norwest Bank Minnesota, National Association, as trustee and
as collateral agent (filed herewith).
10.3 Amendment, dated as of June 1, 1999, among the Registrant,
ARFC, FSA and Norwest Bank, Minnesota, National Association,
as Collateral Agent, 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 November 19, 1998 (filed
herewith).
10.4 Amendment, dated as of June 1, 1999, to Insurance and
Indemnity Agreement dated as of March 14, 1996, Insurance
and Indemnity Agreement dated as of December 6, 1995,
Insurance and Indemnity Agreement dated as of September 21,
1995, Insurance and Indemnity Agreement dated as of June 15,
1995, Insurance and Indemnity Agreement dated as of March
15, 1995, and Insurance and Indemnity dated as of February
9, 1995 (filed herewith).
10.5 Amendment, dated as of June 1, 1999, to Insurance and
Indemnity Agreement dated as of March 17, 1999, Insurance
and Indemnity Agreement dated as of December 22, 1998,
Insurance and Indemnity Agreement dated as of September 22,
1998, Insurance and Indemnity Agreement dated as of June 23,
1998, Insurance and Indemnity Agreement dated as of March
25, 1998, Insurance and Indemnity Agreement dated as of
December 16, 1997, Insurance and Indemnity Agreement dated
as of September 18, 1997, Insurance and Indemnity Agreement
dated as of June 19, 1997, Insurance and Indemnity Agreement
dated as of March 20, 1997, Insurance and Indemnity
Agreement dated as of December 12, 1996, Insurance and
Indemnity Agreement dated as of September 12, 1996,
Insurance and Indemnity Agreement dated as of June 14, 1996,
Insurance and Indemnity Agreement dated as of March 14,
1996, Insurance and Indemnity Agreement dated as of December
6, 1995, Insurance and Indemnity Agreement dated as of
September 21, 1995, Insurance and Indemnity Agreement dated
as of June 15, 1995, Insurance and Indemnity Agreement dated
as of March 15, 1995, Insurance and Indemnity Agreement
dated as of February 9, 1995, Insurance and Indemnity
Agreement dated as of September 23, 1994, and Insurance and
Indemnity Agreement dated as of December 3, 1996, as amended
and restated as of July
26
<PAGE>
21, 1998 (filed herewith).
10.6 Amendment No. 1 dated as of July 13, 1999, to Amended and
Restated Receivables Purchase Agreement and Assignment,
dated as of July 21, 1998, between ARFC, as purchaser, and
the Registrant, as seller (filed herewith).
10.7 First Amendment, dated as of July 13, 1999, to the Amended
and Restated Note Purchase Agreement, dated as of July 21,
1998, among Arcadia Automobile Receivables Warehouse Trust
("AARWT"), the Registrant, Receivables Capital Corporation,
Bank of America National Trust and Savings Association,
Delaware Funding Corporation and Morgan Guaranty Trust
Company of New York (filed herewith).
10.8 Amendment No. 1, dated as of July 13,1999, to Amended and
Restated Sale and Servicing Agreement, dated as of July 21,
1998, among AARWT, ARFC, the Registrant, and Norwest Bank
Minnesota, National Association (filed herewith).
10.9 Amendment, dated as of July 13, 1999, to Insurance and
Indemnity Agreement dated as of December 3, 1996, as amended
and restated as of July 21, 1998, among FSA, AAWRT, ARFC and
the Registrant (filed herewith).
10.10 Arcadia Financial Ltd. 1990 Stock Option Plan (as amended)
(filed herewith).
27.1 Financial Data Schedule (filed herewith).
99.1 Cautionary Statement (filed herewith).
(b) REPORTS ON FORM 8-K
On May 21, 1999, the Company filed a Current Report on Form
8-K dated May 21, 1999, announcing that the Company had engaged
new independent accountants, Deloitte & Touche LLP.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARCADIA FINANCIAL LTD.
SIGNATURE TITLE DATE
/s/ Richard A. Greenawalt Director and Chief Executive July 28, 1999
- ----------------------------- Officer (Principal Executive
Richard A. Greenawalt Officer)
/s/ John A. Witham Executive Vice President and July 28, 1999
- ----------------------------- Chief Financial Officer
John A. Witham (Principal Financial Officer)
/s/ Brian S. Anderson Senior Vice President, July 28, 1999
- ----------------------------- Corporate Controller and
Brian S. Anderson Assistant Secretary (Principal
Accounting Officer)
28
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.1 Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998).
3.2 Restated Bylaws of the Company, as amended (incorporated
by reference to Exhibit 3.2 to the Company'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 Company and Norwest Bank Minnesota, National
Association, as Rights Agent (incorporated by reference
to Exhibit 1 to the Company'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 the Company and Norwest Bank Minnesota, National
Association, as Rights Agent (incorporated by reference
to Exhibit 4.1 to the Company'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 Rights Agreement, dated as of November 1, 1996
between the Company and Norwest Bank Minnesota, National
Association, as Rights Agent (incorporated by reference
to Exhibit 4.1 to the Company'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
Company and Norwest Bank Minnesota, National Association,
as Trustee, relating to the Company'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 the
Company'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 Company, Norwest
Bank Minnesota, National Association, as Resigning
Trustee, and Marine Midland Bank, as Successor Trustee,
relating to the Company's Unsecured Extendible Notes and
Fixed Term Notes (incorporated by reference to Exhibit
4.2 to the Company'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 Company and
Marine Midland Bank, as Trustee, relating to the
Company's Unsecured Extendible Notes and Fixed Term Notes
(incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-3, File No.
333-60531).
4.7 Indenture dated as of March 15, 1996, between the Company
and Norwest Bank Minnesota, National Association, as
Trustee, relating to the Company's Subordinated Notes,
Series 1996-A due 2001 (incorporated by reference to
Exhibit 4.5 to the Company'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
Company and Norwest Bank Minnesota, National Association,
as Trustee, relating to the Company's Subordinated Notes,
Series 1996-A due 2001 (incorporated by reference to
Exhibit 4.6 to the Company'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 Company
and Norwest Bank Minnesota, National Association, as
Trustee, relating to the Company's 11 1/2% Senior Notes
due 2007 (incorporated by reference to Exhibit 4.1 to the
Company'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 Company and Norwest Bank Minnesota, National
Association, as Trustee, relating to $300,000,000 of the
Company's 11 1/2% Senior Notes due 2007 issued March 12,
1997 (incorporated by reference to Exhibit 4.2 to the
Company'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 Company and Norwest Bank
29
<PAGE>
Minnesota, National Association, as Warrant Agent
(incorporated by reference to Exhibit 4.3 to the
Company'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 Company's Current Report on Form 8-K dated March
12, 1997 and filed March 18, 1997).
4.13 Form of 11 1/2% Senior Notes due March 15, 2007
(incorporated by reference to Exhibit 4.5 to the
Company'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 Company'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 Company and Norwest Bank Minnesota, National
Association, as Trustee, including form of Notes ,
relating to $75,000,000 of the Company's 11 1/2% Senior
Notes due 2007 issued October 8, 1997 (incorporated by
reference to Exhibit 4.1 to the Company's Current Report
on Form 8-K dated October 8, 1997, filed October 15,
1997).
10.1 Insurance and Indemnity Agreement, dated as of June 17,
1999, among Financial Security Assurance Inc. ("FSA"),
Arcadia Automobile Receivables Trust, 1999-B, Arcadia
Receivables Finance Corp. ("ARFC") and the Registrant
(filed herewith).
10.2 Series 1999-B Supplement, dated as of June 17, 1999, to
Spread Account Agreement dated as of March 25, 1993, as
amended and restated, among the Registrant, ARFC, FSA and
Norwest Bank Minnesota, National Association, as trustee
and as collateral agent (filed herewith).
10.3 Amendment, dated as of June 1, 1999, among the
Registrant, ARFC, FSA and Norwest Bank, Minnesota,
National Association, as Collateral Agent, 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 November 19, 1998 (filed herewith).
10.4 Amendment, dated as of June 1, 1999, to Insurance and
Indemnity Agreement dated as of March 14, 1996, Insurance
and Indemnity Agreement dated as of December 6, 1995,
Insurance and Indemnity Agreement dated as of September
21, 1995, Insurance and Indemnity Agreement dated as of
June 15, 1995, Insurance and Indemnity Agreement dated as
of March 15, 1995, and Insurance and Indemnity dated as
of February 9, 1995 (filed herewith).
10.5 Amendment, dated as of June 1, 1999, to Insurance and
Indemnity Agreement dated as of March 17, 1999, Insurance
and Indemnity Agreement dated as of December 22, 1998,
Insurance and Indemnity Agreement dated as of September
22, 1998, Insurance and Indemnity Agreement dated as of
June 23, 1998, Insurance and Indemnity Agreement dated as
of March 25, 1998, Insurance and Indemnity Agreement
dated as of December 16, 1997, Insurance and Indemnity
Agreement dated as of September 18, 1997, Insurance and
Indemnity Agreement dated as of June 19, 1997, Insurance
and Indemnity Agreement dated as of March 20, 1997,
Insurance and Indemnity Agreement dated as of December
12, 1996, Insurance and Indemnity Agreement dated as of
September 12, 1996, Insurance and Indemnity Agreement
dated as of June 14, 1996, Insurance and Indemnity
Agreement dated as of March 14, 1996, Insurance and
Indemnity Agreement dated as of December 6, 1995,
Insurance and Indemnity Agreement dated as of September
21, 1995, Insurance and Indemnity Agreement dated as of
June 15, 1995, Insurance and Indemnity Agreement dated as
of March 15, 1995, Insurance and Indemnity Agreement
dated as of February 9, 1995, Insurance and Indemnity
Agreement dated as of September 23, 1994, and Insurance
and Indemnity Agreement dated as of December 3, 1996, as
amended and restated as of July 21, 1998 (filed
herewith).
10.6 Amendment No. 1 dated as of July 13, 1999, to Amended and
Restated Receivables Purchase Agreement and Assignment,
dated as of July 21, 1998, between ARFC, as purchaser,
and the Registrant, as seller (filed herewith).
10.7 First Amendment, dated as of July 13, 1999, to the
Amended and Restated Note Purchase Agreement, dated as of
July 21, 1998, among Arcadia Automobile Receivables
Warehouse Trust ("AARWT"), the Registrant, Receivables
Capital Corporation, Bank of America National Trust and
Savings Association, Delaware Funding Corporation and
Morgan Guaranty Trust Company of New York (filed
herewith).
10.8 Amendment No. 1, dated as of July 13, 1999, to Amended
and Restated Sale and Servicing Agreement, dated as of
July 21, 1998, among AARWT, ARFC, the Registrant, and
Norwest Bank Minnesota, National Association (filed
herewith).
30
<PAGE>
10.9 Amendment, dated as of July 13,1999, to Insurance and
Indemnity Agreement dated as of December 3, 1996, as
amended and restated as of July 21, 1998, among FSA,
AAWRT, ARFC and the Registrant (filed herewith).
10.10 Arcadia Financial Ltd. 1990 Stock Option Plan (as
amended) (filed herewith).
27.1 Financial Data Schedule (filed herewith).
99.1 Cautionary Statement (filed herewith).
31
<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
INSURANCE AND INDEMNITY AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1999-B,
ARCADIA RECEIVABLES FINANCE CORP.
and
ARCADIA FINANCIAL LTD.
Dated as of June 17, 1999
- -------------------------------------------------------------------------------
Arcadia Automobile Receivables Trust, 1999-B
$ 71,500,000 -- 5.099% Class A-1 Automobile Receivables-Backed Notes
$ 211,100,000 -- 5.715% Class A-2 Automobile Receivables-Backed Notes
$ 126,525,000 -- 6.300% Class A-3 Automobile Receivables-Backed Notes
$ 151,650,000 -- 6.510% Class A-4 Automobile Receivables-Backed Notes
$ 89,225,000 -- 6.660% Class A-5 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 . . . . . . . . . . 8
Section 2.01 Representations and Warranties of the Trust . . . . . . . 8
Section 2.02 Affirmative Covenants of the Trust. . . . . . . . . . . . 11
Section 2.03 Negative Covenants of the Trust . . . . . . . . . . . . . 16
Section 2.04 Representations and Warranties of Arcadia Financial
and the Seller. . . . . . . . . . . . . . . . . . . . . 17
Section 2.05 Affirmative Covenants of Arcadia Financial and the Seller 22
Section 2.06 Negative Covenants of Arcadia Financial and the Seller. . 27
Section 2.07 Representations and Warranties of Arcadia Financial . . . 28
Section 2.08 Affirmative Covenants of Arcadia Financial. . . . . . . . 31
Section 2.09 Negative Covenants of Arcadia Financial . . . . . . . . . 34
ARTICLE III. THE NOTE POLICY; REIMBURSEMENT; INDEMNIFICATION . . . . . . . 36
Section 3.01 Conditions Precedent to Issuance of the Note Policy . . . 36
Section 3.02 Payment of Fees and Premium.. . . . . . . . . . . . . . . 41
Section 3.03 Reimbursement and Additional Payment Obligation . . . . . 42
Section 3.04 Certain Obligations Not Recourse to Arcadia Financial;
Recourse to Trust Property . . . . . . . . . . . . . . 43
Section 3.05 Indemnification.. . . . . . . . . . . . . . . . . . . . . 43
Section 3.06 Payment Procedure . . . . . . . . . . . . . . . . . . . . 45
Section 3.07 Subrogation . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE IV. FURTHER AGREEMENTS; MISCELLANEOUS . . . . . . . . . . . . . . 46
Section 4.01 Effective Date: Term of Agreement . . . . . . . . . . . . 46
Section 4.02 Further Assurances and Corrective Instruments . . . . . . 46
Section 4.03 Obligations Absolute. . . . . . . . . . . . . . . . . . . 46
Section 4.04 Assignments; Reinsurance; Third-Party Rights. . . . . . . 47
Section 4.05 Liability of Financial Security . . . . . . . . . . . . . 48
ARTICLE V. EVENTS OF DEFAULT; REMEDIES . . . . . . . . . . . . . . . 49
Section 5.01 Events of Default . . . . . . . . . . . . . . . . . . . . 49
Section 5.02 Remedies; Waivers.. . . . . . . . . . . . . . . . . . . . 51
ARTICLE VI. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . .52
Section 6.01 Amendments, Etc.. . . . . . . . . . . . . . . . . . . . . 52
Section 6.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 6.03 Severability. . . . . . . . . . . . . . . . . . . . . . . 53
<PAGE>
Section 6.04 Governing Law . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.05 Consent to Jurisdiction.. . . . . . . . . . . . . . . . . 53
Section 6.06 Consent of Financial Security . . . . . . . . . . . . . . 54
Section 6.07 Counterparts. . . . . . . . . . . . . . . . . . . . . . . 54
Section 6.08 Headings. . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 6.09 Trial by Jury Waived. . . . . . . . . . . . . . . . . . . 55
Section 6.10 Limited Liability . . . . . . . . . . . . . . . . . . . . 55
Section 6.11 Limited Liability of Wilmington Trust Company . . . . . . 55
Section 6.12 Entire Agreement. . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
Schedule I - Cumulative Default Rate/Cumulative Net Loss Rate Triggers
Exhibit A - Form of Policy
ii
<PAGE>
INSURANCE AND INDEMNITY AGREEMENT
INSURANCE AND INDEMNITY AGREEMENT dated as of June 17, 1999, among
FINANCIAL SECURITY ASSURANCE INC., a New York stock insurance company
("Financial Security"), ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1999-B, 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. Arcadia Financial has previously entered into and may enter into
one or more pooling and servicing agreements with Arcadia Receivables Finance
Corp. V ("ARFC V") and Arcadia Financial and ARFC V have previously entered into
a Receivables Transfer Agreement (the "Receivables Transfer Agreement"), dated
as of October 16, 1998, among ARFC V, as seller, Arcadia Financial, individually
and as servicer, Park Avenue Receivables Corporation, as purchaser and The Chase
Manhattan Bank, as funding agent and backup servicer,
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in each case, pursuant to which ARFC V sold or will sell all of its right,
title and interest in and to certain receivables and other related property
and ARFC V has issued, and may in the future issue, certificates in
connection therewith. The Seller and ARFC V have entered into a Receivables
Purchase Agreement dated as of May 3, 1999, pursuant to which the Seller has
purchased or will purchase all of ARFC V's right, title and interest in and
to such receivables and other related property.
5. The parties hereto desire to specify the conditions precedent to
the issuance of the Note Policy by Financial Security, the payment of premium in
respect of the Note Policy, the indemnity and reimbursement to be provided to
Financial Security in respect of amounts paid by Financial Security under the
Note Policy or otherwise and certain other matters.
In consideration of the premises and of the agreements herein
contained, Financial Security, the Trust, Arcadia Financial, individually and as
Servicer, and the Seller hereby agree as follows:
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 1999-B. 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
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affiliated with the Trust, the Seller or Arcadia Financial, as the case may
be, pursuant to Section 414(b), (c), (m) or (o) of the Code.
"DEFAULT" means any event which results, or which with the giving of
notice or the lapse of time or both would result, in an Event of Default.
"ERISA" means the Employee Retirement Income Security Act of 1974,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"EVENT OF DEFAULT" means any event of default specified in Section
5.01 of this Agreement.
"EXPIRATION DATE" means, with respect to the Note Policy, the final
date of the Term of such Note Policy, as specified therein.
"FINANCIAL SECURITY" means Financial Security Assurance Inc., a New
York stock insurance company, its successors and assigns.
"FINANCIAL STATEMENTS" means with respect to Arcadia Financial the
audited consolidated balance sheets as of December 31, 1998, December 31, 1997,
and December 31, 1996 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
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annum rate equal to 3 percent in excess of the arithmetic average of the
prime or base lending rates publicly announced by The Chase Manhattan Bank,
N.A. (New York, New York) and Citibank, N.A. (New York, New York), as in
effect on the last day of the month for which interest is being computed,
but, in either case, in no event greater than the maximum rate permitted by
law.
"LIEN" means, as applied to the property or assets (or the income or
profits therefrom) of any Person, in each case whether the same is consensual or
nonconsensual or arises by contract, operation of law, legal process or
otherwise: (a) any mortgage, lien, pledge, attachment, charge, lease,
conditional sale or other title retention agreement, or other security interest
or encumbrance of any kind; or (b) any arrangement, express or implied, under
which such property or assets are transferred, sequestered or otherwise
identified for the purpose of subjecting or making available the same for the
payment of debt or performance of any other obligation in priority to the
payment of the general, unsecured creditors of such Person.
"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.
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"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.
"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, Arcadia Automobile
Receivables Trust, 1998-E, Arcadia Automobile Receivables Trust, 1999-A 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.
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"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 June 1, 1999 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.
"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 1999-B" means the Series of Notes issued on the date hereof
pursuant to the Indenture.
"SERIES OF NOTES" or "SERIES" means Series 1999-B 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 June 17, 1999, 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.
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"SUBSIDIARY" means, with respect to any Person, any corporation of
which a majority of the outstanding shares of capital stock having ordinary
voting power for the election of directors is at the time owned by such Person
directly or through one or more Subsidiaries.
"TERM OF THE NOTE POLICY" means, with respect to the Note Policy, the
meaning provided therein.
"TERM OF THIS AGREEMENT" shall be determined as provided in Section
4.01 of this Agreement.
"TRANSACTION" means the transactions contemplated by the Transaction
Documents, including the transactions described in the Registration Statement.
"TRANSACTION DOCUMENTS" means this Agreement, the Sale and Servicing
Agreement, the Trust Agreement, the Certificate of Trust, the Indenture, the
Underwriting Agreement, the Purchase Agreement, the Premium Letter, the Stock
Pledge Agreement, the Lockbox Agreement, the Depository Agreements, the
Custodian Agreement, the Servicer Termination Side Letter, the Spread Account
Agreement and the Administration Agreement.
"TRUST AGREEMENT" means the Trust Agreement, dated as of June 1, 1999,
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 Banc of America Securities LLC, Chase Securities
Inc., Credit Suisse First Boston Corporation and J.P. Morgan Securities Inc.
"UNDERWRITING AGREEMENT" means the Pricing Agreement, dated June 3,
1999, 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.
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ARTICLE II.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.01 REPRESENTATIONS AND WARRANTIES OF THE TRUST. The Trust
represents, warrants and covenants, as of the date hereof and as of the Closing
Date, as follows:
(a) DUE ORGANIZATION AND QUALIFICATION. The Trust is duly formed and
validly existing as a Delaware statutory business trust and is in good standing
under the laws of the State of Delaware, with power and authority to own its
properties and to conduct its business. The Trust is duly qualified to do
business, is in good standing and has obtained all necessary licenses, permits,
charters, registrations and approvals (together, "approvals") necessary for the
conduct of its business as described in the Prospectus and the performance of
its obligations under the Transaction Documents, in each jurisdiction in which
the failure to be so qualified or to obtain such approvals would render the
Receivables in such jurisdiction or any Transaction Document unenforceable in
any respect or would otherwise have a material adverse effect upon the
Transaction.
(b) POWER AND AUTHORITY. The Trust has all necessary trust power and
authority to conduct its business as described in the Prospectus, to execute,
deliver and perform its obligations under this Agreement and each other
Transaction Document to which the Trust is a 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,
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(ii) constitutes a default by the Trust under or a breach of
any provision of any loan agreement, mortgage, indenture or other agreement
or instrument to which the Trust is a party or by which it or any of its
properties is or may be bound or affected, or
(iii) results in or requires the creation of any Lien upon or
in respect of any of the Trust's assets except as otherwise expressly
contemplated by the Transaction Documents.
(e) PENDING LITIGATION OR OTHER PROCEEDING. There is no action,
proceeding or investigation pending, or, to the Trust's best knowledge,
threatened, before any court, regulatory body, administrative agency, arbitrator
or governmental agency or instrumentality having jurisdiction over the Trust or
its properties: (A) asserting the invalidity of this Agreement or any other
Transaction Document to which the Trust is a party, (B) seeking to prevent the
issuance of the Notes or the consummation of the Transaction, (C) seeking any
determination or ruling that might materially and adversely affect the validity
or enforceability of this Agreement or any other Transaction Document to which
the Trust is a party, (D) which might result in a Material Adverse Change with
respect to the Trust or (E) which might adversely affect the federal or state
tax attributes of the Notes or the Trust.
(f) VALID AND BINDING OBLIGATIONS. Each of the Transaction Documents
to which the Trust is a party, when executed and delivered by the Trust, and
assuming due authorization, execution and delivery by the other parties thereto,
will constitute the legal, valid and binding obligation of the Trust enforceable
in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other 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.
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(j) COLLATERAL. On the Closing Date, and on each Subsequent Transfer
Date, the Trust will have good and marketable title to each item of Other Trust
Property conveyed on such date and will own each such item free and clear of any
Lien (other than Liens contemplated under the Indenture) or any equity or
participation interest of any other Person.
(k) PERFECTION OF LIENS AND SECURITY INTEREST. On the Closing Date,
the Lien and security interest in favor of the Indenture Collateral Agent with
respect to Indenture Property will be perfected by the filing of financing
statements on Form UCC-1 in each jurisdiction where such recording or filing is
necessary for the perfection thereof, the delivery of the Receivable Files for
the Receivables to the Custodian, and the establishment of the Collection
Account, the Subcollection Account, the Lockbox Account, the Pre-Funding
Account, the Reserve Account and the Note Distribution Account in accordance
with the provisions of the Transaction Documents, and no other filings in any
jurisdiction or any other actions (except as expressly provided herein) are
necessary to perfect the Collateral Agent's Lien on and security interest in the
Collateral as against any third parties.
(l) SECURITY INTEREST IN FUNDS AND INVESTMENTS. Assuming the
retention of funds in the Accounts and the acquisition of Eligible Investments
in accordance with the Transaction Documents, such funds and Eligible
Investments will be subject to a valid and perfected, first priority security
interest in favor of the Collateral Agent on behalf of the Indenture Trustee (on
behalf of the Noteholders) and Financial Security.
(m) COMPLIANCE WITH INVESTMENT COMPANY ACT. The Trust is not
required to be registered as an "investment company" under the Investment
Company Act.
(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
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as they mature. The Trust does not contemplate the commencement of
insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar
official in respect of the Trust or any of its assets.
Section 2.02 AFFIRMATIVE COVENANTS OF THE TRUST. The Trust hereby
agrees that during the Term of the Agreement, unless Financial Security shall
otherwise expressly consent in writing:
(a) COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS. The Trust will
comply with all terms and conditions of this Agreement and each other
Transaction Document to which it is a party and with all material requirements
of any law, rule or regulation applicable to it. The Trust will not cause or
permit to become effective any amendment to or modification of any of the
Transaction Documents to which it is a party unless (i) (so long as no Insurer
Default shall have occurred and be continuing) Financial Security shall have
previously approved in writing the form of such amendment or modification or
(ii) if an Insurer Default shall have occurred and be continuing, such
amendment would not adversely affect the interests of Financial Security. The
Trust shall not take any action or fail to take any action that would interfere
with the enforcement of any rights under this Agreement or the other Transaction
Documents.
(b) FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION.
The Trust shall keep or cause to be kept in reasonable detail books and records
of account of the Trust's assets and business, which shall be furnished to
Financial Security upon request. The Trust shall furnish to Financial Security,
simultaneously with the delivery of such documents to the Indenture Trustee or
the Noteholders, as the case may be, copies of all reports, certificates,
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
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principles consistently applied (subject to normal year-end adjustments),
and accompanied by the certificate specified in Section 2.02(c) hereof.
(iii) ACCOUNTANTS' REPORTS. Promptly upon receipt thereof,
copies of any reports or comment letters submitted to the Trust by its
independent accountants in connection with any examination of the financial
statements of the Trust.
(iv) CERTAIN INFORMATION. Not less than ten days prior to
the date of filing with the IRS of any tax return or amendment thereto,
copies of the proposed form of such return or amendment and, promptly after
the filing or sending thereof, (i) copies of each tax return and amendment
thereto that the Trust files with the IRS and (ii) copies of all financial
statements, reports, and registration statements which the Trust files
with, or delivers to, any federal government agency, authority or body
which supervises the issuance of securities by the Trust.
(v) OTHER INFORMATION. Promptly upon the request of
Financial Security, copies of all schedules, financial statements or other
similar reports delivered to or by the Trust pursuant to the terms of this
Agreement and the other Transaction Documents and such other data as
Financial Security may reasonably request.
(c) COMPLIANCE CERTIFICATE. The Trust shall deliver to Financial
Security and, upon request, any Noteholder, concurrently with the delivery of
the financial statements required pursuant to Section 2.02(b)(i) and (ii)
hereof, a certificate signed by an Authorized Officer of the Administrator
stating that:
(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
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Trust's business and the Transaction and (ii) to discuss the affairs, finances
and accounts of the Trust with any of its personnel and representatives,
including its Independent Accountants. Such inspections and discussions shall
be conducted during normal business hours and shall not unreasonably disrupt the
business of the Trust. The books and records of the Trust will be maintained at
the address of the Trust designated herein for receipt of notices, unless the
Trust shall otherwise advise the parties hereto in writing.
(e) NOTICE OF MATERIAL EVENTS. The Trust shall promptly inform
Financial Security in writing of the occurrence of any of the following:
(i) the submission of any claim or the initiation of any
legal process, litigation or administrative or judicial investigation
against the Trust involving potential damages or penalties in an uninsured
amount in excess of $100,000 in any one instance or $500,000 in the
aggregate;
(ii) any change in the location of Trust's principal office
or any change in the location of the Trust's books and records;
(iii) the occurrence of any Default or Event of Default;
(iv) the commencement or threat of any rule making or
disciplinary proceedings or any proceedings instituted by or against the
Trust in any federal, state or local court or before any governmental body
or agency, or before any arbitration board, or the promulgation of any
proceeding or any proposed or final rule which, if adversely determined,
would result in a Material Adverse Change with respect to the Trust;
(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
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Collateral Agent with respect to the Indenture Property, under the Indenture.
In addition, the Trust shall, upon the request of Financial Security (so
long as no Insurer Default has occurred and is continuing), from time to
time, execute, acknowledge and deliver and, if necessary, file such further
instruments and take such further action as may be reasonably necessary to
effectuate the intention, performance and provisions of the Transaction
Documents to which the Trust is a party or to protect the interest of the
Indenture Collateral Agent in the Indenture Property under the Indenture. The
Trust agrees to cooperate with the Rating Agencies in connection with any
review of the Transaction which may be undertaken by the Rating Agencies
after the date hereof.
(g) MAINTENANCE OF LICENSES. The Trust shall maintain all licenses,
permits, charters and registrations which are material to the performance by the
Trust of its obligations under this Agreement and each other Transaction
Document to which the Trust is a party or by which the Trust is bound.
(h) RETIREMENT OF NOTES. The Trust shall, upon retirement of the
Notes, furnish to Financial Security a notice of such retirement, and, upon such
retirement and the expiration of the term of the Note Policy, surrender the Note
Policy to Financial Security for cancellation.
(i) DISCLOSURE DOCUMENT. Each Prospectus delivered with respect to
the Notes shall clearly disclose that the Note Policy is not covered by the
property/casualty insurance security fund specified in Article 76 of the New
York Insurance Law. In addition, each Prospectus delivered with respect to the
Notes which include financial statements of Financial Security prepared in
accordance with generally accepted accounting principles (other than a
Prospectus that only incorporates such financial statements by reference) shall
include the following statement immediately preceding such financial statements:
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
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of Arcadia Financial, the Seller, or any other Affiliates thereof. Without
limiting the generality of the foregoing, all oral and written
communications, including, without limitation, letters, invoices, purchase
orders, contracts, statements and loan applications, will be made solely
in the name of the Trust.
(ii) The Trust shall maintain trust records and books of
account separate from those of Arcadia Financial, the Seller and Affiliates
of any of them.
(iii) The Trust shall obtain proper authorization from its
equity owners of all trust action requiring such authorization, and copies
of each such authorization and the minutes or other written summary of each
such meeting shall be delivered to Financial Security within two weeks of
such authorization or meeting as the case may be.
(iv) Although the organizational expenses of the Trust have
been paid by Arcadia Financial, operating expenses and liabilities of the
Trust shall be paid from its own funds.
(v) The annual financial statements of the Trust shall
disclose the effects of the Trust's transactions in accordance with
generally accepted accounting principles and shall disclose that the assets
of the Trust are not available to pay creditors of Arcadia Financial, the
Seller or any Affiliate of any of them.
(vi) The resolutions, agreements and other instruments of
the Trust underlying the transactions described in this Agreement and in
the other Transaction Documents shall be continuously maintained by the
Trust as official records of the Trust separately identified and held apart
from the records of Arcadia Financial, the Seller and each Affiliate of any
of them.
(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 1999-B 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.
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(l) TAX MATTERS. The Trust will take all actions necessary to ensure
that, for federal and state income tax purposes, the Trust is not taxable as an
association (or publicly traded partnership) or taxable as a corporation.
(m) SECURITIES LAWS. The Trust shall comply in all material
respects with all applicable provisions of state and federal securities laws,
including blue sky laws and the Securities Act, the Exchange Act and the
Investment Company Act and all rules and regulations promulgated thereunder
for which non-compliance would result in a Material Adverse Change with
respect to the Trust.
(n) INCORPORATION OF COVENANTS. The Trust agrees to comply with each
of the covenants of the Trust set forth in the Transaction Documents and hereby
incorporates such covenants by reference as if each were set forth herein.
Section 2.03 NEGATIVE COVENANTS OF THE TRUST. The Trust hereby
agrees that during the Term of this Agreement, unless Financial Security shall
otherwise give its prior express written consent:
(a) WAIVER; AMENDMENTS; ETC. The Trust shall not waive, modify,
amend, supplement or consent to any waiver, modification, amendment of or
supplement to, any of the provisions of the Certificate of Trust, the Trust
Agreement or any of the other Transaction Documents unless, if no Insurer
Default shall have occurred and be continuing, Financial Security shall have
consented thereto in writing.
(b) CREATION OF INDEBTEDNESS; GUARANTEES. The Trust shall not
create, incur, assume or suffer to exist any indebtedness or assume, guarantee,
endorse or otherwise be or become directly or contingently liable for the
obligations of any Person by, among other things, agreeing to purchase any
obligation of another Person, agreeing to advance funds to such Person or
causing or assisting such Person to maintain any amount of capital, except as
contemplated by the Transaction Documents.
(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.
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(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
ori other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect to
it, or seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, consolidation or other relief with respect to it or (B) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its assets or make a general assignment
for the benefit of its creditors. The Trust shall not take any action in
furtherance of, or indicating the consent to, approval of, or acquiescence in
any of the acts set forth above. The Trust shall not admit in writing its
inability to pay its debts.
(j) SUCCESSOR PARTIES. The Trust will not remove or replace, or
cause to be removed or replaced, the Servicer, the Indenture Trustee, the Owner
Trustee or the Administrator.
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.
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(b) POWER AND AUTHORITY. The Seller has all necessary corporate
power and authority to conduct its business as currently conducted and as
described in the Prospectus, to execute, deliver and perform its obligations
under this Agreement and each other Transaction Document to which the Seller is
a party and to carry out the terms of each such agreement, and has full power
and authority to sell and assign the Receivables and the Other Trust Property to
the Trust and has duly authorized such sale and assignment to the Trust by all
necessary corporate action.
(c) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement and each other Transaction Document to which the Seller is a
party has been duly authorized by all necessary corporate action on the part of
the Seller and does not require any additional approvals or consents or other
action by or any notice to or filing with any Person by or on behalf of the
Seller, including, without limitation, any governmental entity or the Seller's
stockholder.
(d) NONCONTRAVENTION. None of the execution and delivery of this
Agreement and each other Transaction Document to which the Seller is a party,
the consummation of the Transaction or the satisfaction of the terms and
conditions of this Agreement and each other Transaction Document to which the
Seller is a party,
(i) conflicts with or results in any breach or violation of
any provision of the charter or bylaws of the Seller or any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or
award currently in effect having applicability to the Seller or any of its
properties, including regulations issued by an administrative agency or
other governmental authority having supervisory powers over the Seller,
(ii) constitutes a default by the Seller under or a breach
of any provision of any loan agreement, mortgage, indenture or other
agreement or instrument to which the Seller is a party or by which it or
any of its properties is or may be bound or affected, or
(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.
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(f) VALID AND BINDING OBLIGATIONS. Each of the Transaction Documents
to which the Seller is a party, when executed and delivered by the Seller, and
assuming due authorization, execution and delivery by the other parties thereto,
will constitute the legal, valid and binding obligation of the Seller
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and general equitable principles.
The Notes, when executed, authenticated and delivered in accordance with the
Indenture, will be entitled to the benefits of the Indenture and will constitute
legal, valid and binding obligations of the Trust, enforceable in accordance
with their terms.
(g) NO CONSENTS. No consent, license, approval or authorization
from, or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any
consent, approval, waiver or notification of any creditor, lessor or other
non-governmental person, is required in connection with the execution,
delivery and performance by the Seller of this Agreement or of any other
Transaction Document to which the Seller is a party, except (in each case)
such as have been obtained and are in full force and effect.
(h) COMPLIANCE WITH LAW, ETC. No practice, procedure or policy
employed or proposed to be employed by the Seller in the conduct of its business
violates any law, regulation, judgment, agreement, order or decree applicable to
the Seller which, if enforced, would result in a Material Adverse Change with
respect to the Seller.
(i) GOOD TITLE; VALID TRANSFER; ABSENCE OF LIENS; SECURITY INTEREST.
Immediately prior to the sale of the Initial Receivables and related Other Trust
Property to the Trust pursuant to the Sale and Servicing Agreement, the Seller
was the owner of, and had good and marketable title to, such property free and
clear of all Liens and Restrictions on Transferability, and had full right,
corporate power and lawful authority to assign, transfer and pledge the Initial
Receivables and the related Other Trust Property. The Sale and Servicing
Agreement constitutes a valid sale, transfer and assignment of the Other Trust
Property to the 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
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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 Receivables Purchase Agreement and Assignment
between the Seller and Arcadia Receivables Finance Corp. IV dated as of May
3, 1999, the Receivables Purchase Agreement and Assignment between the
Seller and ARFC V dated as of May 3, 1999, the Receivables Purchase
Agreement and Indemnification Agreement between the Seller and AFL dated as
of May 3, 1999, the Purchase Agreement, the Sale and Servicing Agreement,
and the Spread Account Agreement, the Seller is not engaged in any business
transactions with Arcadia Financial or any Affiliate of Arcadia Financial.
(iii) At least one director of the Seller shall be a person
who is not, and will not be, a director, officer, employee or holder of any
equity securities of Arcadia Financial or any of its Affiliates or
Subsidiaries.
(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,
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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 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.
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(p) ERISA. The Seller is in compliance with ERISA and has not
incurred and does not reasonably expect to incur any liabilities to the PBGC
under ERISA in connection with any Plan or Multiemployer Plan or to contribute
now or in the future in respect of any Plan or Multiemployer Plan.
(q) PLEDGE OF SHARES. The shares of stock of the Seller which have
been pledged pursuant to the Stock Pledge Agreement constitute all of the issued
and outstanding shares of the Seller.
(r) PERFECTION OF LIENS AND SECURITY INTEREST. On the Closing Date,
the Lien and security interest in favor of the Indenture Collateral Agent with
respect to Indenture Property will be perfected by the filing of financing
statements on Form UCC-1 in each jurisdiction where such recording or filing is
necessary for the perfection thereof, the delivery of the Receivable Files for
the Receivables to the Custodian, and the establishment of the Collection
Account, the Subcollection Account, the Lockbox Account, the Pre-Funding
Account, the Reserve Account and the Note Distribution Account in accordance
with the provisions of the Transaction Documents, and no other filings in any
jurisdiction or any other actions (except as expressly provided herein) are
necessary to perfect the Collateral Agent's Lien on and security interest in the
Collateral as against any third parties.
(s) SECURITY INTEREST IN FUNDS AND INVESTMENTS. Assuming the
retention of funds in the Accounts and the acquisition of Eligible Investments
in accordance with the Transaction Documents, such funds and Eligible
Investments will be subject to a valid and perfected, first priority security
interest in favor of the Collateral Agent on behalf of the Indenture Trustee (on
behalf of the Noteholders) and Financial Security.
Section 2.05_ AFFIRMATIVE COVENANTS OF ARCADIA FINANCIAL AND THE
SELLER. Each of Arcadia Financial and the Seller hereby agree that during the
Term of the Agreement, unless Financial Security shall otherwise expressly
consent in writing:
(a) COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS. The Seller will
comply with all terms and conditions of this Agreement and each other
Transaction Document to which it is a party and with all material requirements
of any law, rule or regulation applicable to it. The Seller will not cause or
permit to become effective any amendment to or modification of any of the
Transaction Documents to which it is a party unless (i) (so long as no Insurer
Default shall 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
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and duly authorized (as described in Sections 2.04(a), (b) and (c) hereof)
and shall conduct its business in accordance with the terms of its corporate
charter and bylaws.
(c) FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION.
The Seller shall keep or cause to be kept in reasonable detail books and records
of account of the Seller's assets and business, and shall clearly reflect
therein the transfer of the Receivables and the Other Trust Property to the
Trust and the sale of the Receivables as a sale to the Trust of the Seller's
interest in the Receivables and the Other Trust Property. The Seller shall
furnish to Financial Security, simultaneously with the delivery of such
documents to the Trustee or the Noteholders, as the case may be, copies of all
reports, certificates, statements, financial statements or notices furnished to
the Trustee or the Noteholders, as the case may be, pursuant to the Transaction
Documents. The Seller shall furnish to Financial Security as soon as available,
and in any event within 90 days after the close of each fiscal year of the
Seller, the unaudited balance sheet of the Seller as of the end of such fiscal
year and the unaudited statements of income, changes in shareholders' equity and
cash flows of the Seller for such fiscal year, all in reasonable detail and
stating in comparative form the respective figures for the preceding fiscal
year, prepared in accordance with generally accepted accounting principles,
consistently applied.
(d) COMPLIANCE CERTIFICATE. The Seller shall deliver to Financial
Security, within 90 days after the close of each fiscal year of the Seller, a
certificate signed by an Authorized Officer of the Seller stating that:
(i) a review of the Seller's performance under the
Transaction Documents during such period has been made under such officer's
supervision; and
(ii) to the best of such individual's knowledge following
reasonable inquiry, no Default or Event of Default has occurred, or if a
Default or Event of Default has occurred, specifying the nature thereof
and, if the Seller has or had a right to cure pursuant to Section 5.01,
stating in reasonable detail the steps, if any, taken or being taken by the
Seller to cure such Default or Event of Default or to otherwise comply with
the terms of the Transaction Document to which such Default or Event of
Default relates.
(iii) the financial reports submitted in accordance with
Section 2.05(c) hereof, are complete and correct in all material respects
and present fairly the financial condition and results of operations of the
Seller as of the dates and for the periods indicated, in accordance with
generally accepted accounting principles consistently applied.
(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
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records of the Seller will be maintained at the address of the Seller
designated herein for receipt of notices, unless the Seller shall otherwise
advise the parties hereto in writing.
(f) NOTICE OF MATERIAL EVENTS. The Seller shall promptly inform
Financial Security in writing of the occurrence of any of the following:
(i) the submission of any claim or the initiation of any
legal process, litigation or administrative or judicial investigation
against the Seller involving potential damages or penalties in an uninsured
amount in excess of $5,000 in any one instance or $25,000 in the aggregate;
(ii) any change in the location of Seller's principal office
or any change in the location of the Seller's books and records;
(iii) the occurrence of any Default or Event of Default;
(iv) the commencement or threat of any rule making or
disciplinary proceedings or any proceedings instituted by or against the
Seller in any federal, state or local court or before any governmental body
or agency, or before any arbitration board, or the promulgation of any
proceeding or any proposed or final rule which, if adversely determined,
would result in a Material Adverse Change with respect to the Seller or the
Trust;
(v) the commencement of any proceedings by or against the
Seller under any applicable bankruptcy, reorganization, liquidation,
rehabilitation, insolvency or other similar law now or hereafter in effect
or of any proceeding in which a receiver, liquidator, conservator, trustee
or similar official shall have been, or may be, appointed or requested for
the Seller or any of its assets;
(vi) the receipt of notice that (A) the Seller is being
placed under regulatory supervision, (B) any license, permit, charter,
registration or approval necessary for the conduct of the Seller's business
is to be, or may be, suspended or revoked, or (C) the Seller is to cease
and desist any practice, procedure or policy, employed by the Seller in the
conduct of its business, and such cessation may result in a Material
Adverse Change with respect to the Seller or the Trust; or
(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
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occurred and is continuing), from time to time, execute, acknowledge and deliver
and, if necessary, file such further instruments and take such further action as
may be reasonably necessary to effectuate the intention, performance and
provisions of the Transaction Documents to which the Seller is a party or to
protect the interest of the Trust in the Receivables under the Sale and
Servicing Agreement. The Seller agrees to cooperate with the Rating Agencies in
connection with any review of the Transaction which may be undertaken by the
Rating Agencies after the date hereof.
(h) MAINTENANCE OF LICENSES. The Seller shall maintain all licenses,
permits, charters and registrations which are material to the performance by the
Seller of its obligations under this Agreement and each other Transaction
Document to which the Seller is a party or by which the Seller is bound.
(i) DISCLOSURE DOCUMENT. Each Prospectus delivered with respect to
the Notes shall clearly disclose that the Note Policy is not covered by the
property/casualty insurance security fund specified in Article 76 of the New
York Insurance Law. In addition, each Prospectus delivered with respect to the
Notes which includes financial statements of Financial Security prepared in
accordance with generally accepted accounting principles (other than a
Prospectus that only incorporates such financial statements by reference) shall
include the following statement immediately preceding such financial statements:
The New York State Insurance Department recognizes only
statutory accounting practices for determining and reporting
the financial condition and results of operations of an
insurance company, for determining its solvency under the
New York Insurance Law, and for determining whether its
financial condition warrants the payment of a dividend to
its stockholders. No consideration is given by the New York
State Insurance Department to financial statements prepared
in accordance with generally accepted accounting principles
in making such determinations.
(j) SPECIAL PURPOSE ENTITY.
(i) The Seller shall conduct its business solely in its own
name through its duly authorized officers or agents so as not to mislead
others as to the identity of the entity with which those others are
concerned, and particularly will use its best efforts to 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.
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(iii) The Seller shall obtain proper authorization from its
board of directors of all corporate action requiring such authorization,
meetings of the board of directors of the Seller shall be held not less
frequently than three times per annum and copies of the minutes of each
such board meeting shall be delivered to Financial Security within two
weeks of such meeting.
(iv) The Seller shall obtain proper authorization from its
shareholders of all corporate action requiring shareholder approval,
meetings of the shareholders of the Seller shall be held not less
frequently than one time per annum and copies of each such authorization
and the minutes of each such shareholder meeting shall be delivered to
Financial Security within two weeks of such authorization or meeting, as
the case may be.
(v) Although the organizational expenses of the Seller have
been paid by Arcadia Financial, operating expenses and liabilities of the
Seller shall be paid from its own funds.
(vi) The annual financial statements of the Seller shall
disclose the effects of the Seller's transactions in accordance with
generally accepted accounting principles and shall disclose that the assets
of the Seller are not available to pay creditors of Arcadia Financial or
any other Affiliate thereof.
(vii) The resolutions, agreements and other instruments of
the Seller underlying the transactions described in this Agreement and in
the other Transaction Documents shall be continuously maintained by the
Seller as official records of the Seller separately identified and held
apart from the records of Arcadia Financial and each other Affiliate
thereof.
(viii) The Seller shall maintain an arm's-length
relationship with Arcadia Financial and the other Affiliates thereof and
will not hold itself out as being liable for the debts of Arcadia Financial
or any Affiliate thereof.
(ix) The Seller shall keep its assets and its liabilities
wholly separate from those of all other entities, including, but not
limited to Arcadia Financial and the other Affiliates thereof except, in
each case, as contemplated by the Transaction Documents.
(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 1999-B 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
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all Liens and Restrictions on Transferability, and shall have full right,
corporate power and lawful authority to assign, transfer and pledge such
property.
(m) INCORPORATION OF COVENANTS. The Seller agrees to comply with
each of the Seller's covenants set forth in the Transaction Documents and hereby
incorporates such covenants by reference as if each were set forth herein.
Section 2.06 NEGATIVE COVENANTS OF ARCADIA FINANCIAL AND THE SELLER.
Each of Arcadia Financial and the Seller hereby agrees that during the Term of
this Agreement, unless Financial Security shall otherwise give its prior express
written consent:
(a) WAIVER; AMENDMENTS, ETC. The Seller shall not waive, modify,
amend, supplement or consent to any waiver, modification, amendment of or
supplement to, any of the provisions of any of the Transaction Documents or
Previous Series Transaction Documents or of its certificate of incorporation or
by-laws (i) unless, if no Insurer Default shall have occurred and be
continuing, Financial Security shall have consented thereto in writing or (ii)
if an Insurer Default shall have occurred and be continuing, which would
adversely affect the interests of Financial Security.
(b) CREATION OF INDEBTEDNESS; GUARANTEES. The Seller shall not
create, incur, assume or suffer to exist any indebtedness or assume, guarantee,
endorse or otherwise be or become directly or contingently liable for the
obligations of any Person by, among other things, agreeing to purchase any
obligation of another Person, agreeing to advance funds to such Person or
causing or assisting such Person to maintain any amount of capital, except as
contemplated by the Transaction Documents or as contemplated by the documents
relating to a Series of Notes.
(c) SUBSIDIARIES. The Seller shall not form, or cause to be formed,
any Subsidiaries.
(d) NO LIENS. The Seller shall not, except as contemplated by the
Transaction Documents or as contemplated by the documents relating to a Series
of Notes, create, incur, assume or suffer to exist any Lien of any nature upon
or with respect to any of its properties or assets, now owned or hereafter
acquired, or sign or file under the Uniform Commercial Code of any jurisdiction
any financing statement that names the Seller as debtor, or sign any security
agreement authorizing any secured party thereunder to file such a financing
statement.
(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.
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(g) NO MERGERS. The Seller shall not consolidate with or merge into
any Person or transfer all or any material amount of its assets to any Person
(except as contemplated by the Transaction Documents or the documents relating
to a Series of Notes).
(h) ERISA. The Seller shall not contribute or incur any obligation
to contribute to, or incur any liability in respect of, any Plan or
Multiemployer Plan.
(i) OTHER ACTIVITIES. The Seller shall not:
(i) sell, pledge, transfer, exchange or otherwise dispose
of any of its assets except as permitted under the Transaction Documents or
the documents relating to a Series of Notes; or
(ii) engage in any business or activity except as
contemplated by the Transaction Documents or as contemplated by the
documents relating to a Series of Notes and as permitted by its certificate
of incorporation.
(j) INSOLVENCY. The Seller shall not commence any case, proceeding
or other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect to
it, or seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, consolidation or other relief with respect to it or the Trust or
(B) seeking appointment of a receiver, trustee, custodian or other similar
official for it or for the Trust or for all or any substantial part of its
assets or the Collateral related to any or all Series, or make a general
assignment for the benefit of its creditors. The Seller shall not take any
action in furtherance of, or indicating the consent to, approval of, or
acquiescence in any of the acts set forth above. The Seller shall not admit in
writing its inability to pay its debts.
(k) DIVIDENDS. The Seller shall not declare or make payment of (i)
any dividend or other distribution on any shares of its capital stock, or (ii)
any payment on account of the purchase, redemption, retirement or acquisition of
any option, warrant or other right to acquire shares of its capital stock,
unless (in each case) at the time of such declaration or payment (and after
giving effect thereto) no amount payable by the Seller under any Transaction
Document with respect to any Series is then due and owing but unpaid.
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
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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
(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.
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(f) VALID AND BINDING OBLIGATIONS. The Purchase Agreement
constitutes a valid sale, transfer, and assignment of the Receivables and Other
Trust Property to the Seller, enforceable against creditors of and purchasers
from Arcadia Financial. Each of the other Transaction Documents to which
Arcadia Financial is a party when executed and delivered by Arcadia Financial,
and assuming the due authorization, execution and delivery by the other parties
thereto, will constitute the legal, valid and binding obligation of Arcadia
Financial enforceable in accordance with its respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
general equitable principles.
(g) NO CONSENTS. No consent, license, approval or authorization
from, or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any
consent, approval, waiver or notification of any creditor, lessor or other
non-governmental person, is required in connection with the execution,
delivery and performance by Arcadia Financial of this Agreement or of any
other Transaction Document to which Arcadia Financial is a party, except (in
each case) such as have been obtained and are in full force and effect.
(h) FINANCIAL STATEMENTS. The Financial Statements of Arcadia
Financial, copies of which have been furnished to Financial Security, (i) are,
as of the dates and for the periods referred to therein, complete and correct in
all material respects, (ii) present fairly the financial condition and results
of operations of Arcadia Financial as of the dates and for the periods indicated
and (iii) have been prepared in accordance with generally accepted accounting
principles consistently applied, except as noted therein (subject as to interim
statements to normal year-end adjustments and the absence of notes). Since the
date of the most recent Financial Statements, there has been no material adverse
change in such financial condition or results of operations. Except as
disclosed in the Financial Statements, Arcadia Financial is not subject to any
contingent liabilities or commitments that, individually or in the aggregate,
have a reasonable likelihood of causing a Material Adverse Change in respect of
Arcadia Financial.
(i) COMPLIANCE WITH LAW, ETC. No practice, procedure or policy
employee or proposed to be employed by Arcadia Financial in the conduct of its
business violates any law, regulation, judgment, agreement, order or decree
applicable to Arcadia Financial which, if enforced, would result in a Material
Adverse Change with respect to Arcadia Financial.
(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
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of any Plan or Multiemployer Plan except in accordance with the provisions of
Section 2.09(e) hereof.
(l) INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES. Arcadia
Financial represents and warrants to Financial Security that the representations
and warranties of Arcadia Financial set forth in the Transaction Documents are
(in each case) true and correct as if set forth herein.
Section 2.08 AFFIRMATIVE COVENANTS OF ARCADIA FINANCIAL. Arcadia
Financial hereby agrees that during the Term of the Agreement, unless Financial
Security shall otherwise expressly consent in writing:
(a) COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS. Arcadia
Financial will comply with all terms and conditions of this Agreement and each
other Transaction Document to which it is a party and all material requirements
of any law, rule or regulation applicable to it. Arcadia Financial will not
cause or permit to become effective any amendment to or modification of any
Transaction Document to which it is a party (i) unless, so long as no Insurer
Default shall have occurred and be continuing, Financial Security shall have
previously approved in writing the form of such amendment or modification or
(ii) if an Insurer Default shall have occurred and be continuing, such
amendment would not adversely affect the interests of Financial Security.
Arcadia Financial shall not take any action or fail to take any action that
would interfere with the enforcement of any rights under this Agreement or the
other Transaction Documents.
(b) CORPORATE EXISTENCE. Arcadia Financial shall maintain its
corporate existence and shall at all times continue to be duly organized under
the laws of Minnesota and duly qualified and duly authorized (as described in
Sections 2.07(a), (b) and (c) hereof) and shall conduct its business in
accordance with the terms of its corporate charter and bylaws.
(c) FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION.
Arcadia Financial shall keep or cause to be kept in reasonable detail books and
records of account of Arcadia Financial's assets and business. Arcadia
Financial, so long as it shall be the Servicer, shall furnish to Financial
Security, simultaneously with the delivery of such documents to the Owner
Trustee, Indenture Trustee or the Noteholders, as the case may be, copies of all
reports, certificates, statements or notices furnished to the Owner Trustee,
Indenture Trustee or the Noteholders, as the case may be, pursuant to the
Transaction Documents. Arcadia Financial shall also furnish or cause to be
furnished to Financial Security:
(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
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principles, consistently applied, and accompanied by the certificate of
Arcadia Financial's independent accountants (which, so long as no Insurer
Default shall have occurred and be continuing, shall be acceptable to
Financial Security) and by the certificate specified in Section 2.08(d)
hereof.
(ii) QUARTERLY FINANCIAL STATEMENTS. As soon as available,
and in any event within 45 days after the close of each of the first three
quarters of each fiscal year of Arcadia Financial, the unaudited
consolidated balance sheets of Arcadia Financial as of the end of such
quarter and the unaudited consolidated statements of income, changes in
shareholders' equity and cash flows of Arcadia Financial for the portion of
the fiscal year then ended, all in reasonable detail and stating in
comparative form the respective figures for the corresponding date and
period in the preceding fiscal year, prepared in accordance with generally
accepted accounting principles consistently applied (subject to normal
year-end adjustments), and accompanied by the certificate specified in
Section 2.08(d) hereof.
(iii) ACCOUNTANTS' REPORTS. Promptly upon receipt thereof,
copies of any reports submitted to Arcadia Financial by its independent
accountants in connection with any examination of the financial statements
of Arcadia Financial.
(iv) CERTAIN INFORMATION. Promptly after the filing or
sending thereof, copies of all proxy statements, financial statements,
reports and registration statements which Arcadia Financial files, or
delivers to, the IRS, the Commission, or any other federal government
agency, authority or body which supervises the issuance of securities by
Arcadia Financial or any national securities exchange.
(d) COMPLIANCE CERTIFICATE. Arcadia Financial shall deliver to
Financial Security within 90 days after the close of each fiscal year of Arcadia
Financial, a certificate signed by an Authorized Officer of Arcadia Financial
stating that:
(i) a review of Arcadia Financial's performance under the
Transaction Documents during such period has been made under such officer's
supervision;
(ii) to the best of such individual's knowledge following
reasonable inquiry, no Default or Event of Default has occurred, or if a
Default or Event of Default has occurred, specifying the nature thereof
and, if Arcadia Financial has or had a right to cure pursuant to Section
5.01 hereof, stating in reasonable detail the steps, if any, taken or being
taken by Arcadia Financial to cure such Default or Event of Default or to
otherwise comply 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
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consistently applied (subject as to interim statements to normal year-end
adjustments and the absence of notes).
(e) ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS.
Arcadia Financial shall, upon the request of Financial Security, permit
Financial Security or its authorized agents (i) to inspect the books and
records of Arcadia Financial as they may relate to the Notes, the Receivables,
the obligations of Arcadia Financial as Servicer under the Transaction
Documents, its business and the Transaction and (ii) to discuss the affairs,
finances and accounts of Arcadia Financial with any of its officers, directors
and representatives, including its Independent Accountants. Such inspections and
discussions shall be conducted during normal business hours and shall not
unreasonably disrupt the business of Arcadia Financial. The books and records
of Arcadia Financial will be maintained at the address of Arcadia Financial
designated herein for receipt of notices, unless Arcadia Financial shall
otherwise advise the parties hereto in writing.
(f) NOTICE OF MATERIAL EVENTS. Arcadia Financial shall promptly
inform Financial Security in writing of the occurrence of any of the following:
(i) the submission of any claim or the initiation of any
legal process, litigation or administrative or judicial investigation
against Arcadia Financial involving potential damages or penalties in an
uninsured amount in excess of $10,000 in any one instance or $25,000 in the
aggregate;
(ii) any change in the location of Arcadia Financial's
principal office or any change in the location of the Arcadia Financial's
books and records;
(iii) the occurrence of any Default or Event of Default;
(iv) the commencement or threat of any rule making or
disciplinary proceedings or any proceedings instituted by or against
Arcadia Financial in any federal, state or local court or before any
governmental body or agency, or before any arbitration board, or the
promulgation of any proceeding or any proposed or final rule which, if
adversely determined, would result in a Material Adverse Change with
respect to Arcadia Financial;
(v) the commencement of any proceedings by or against
Arcadia Financial under any applicable bankruptcy, reorganization,
liquidation, rehabilitation, insolvency or other similar law now or
hereafter in effect or of any proceeding in which a receiver, 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
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by Arcadia Financial in the conduct of its business, and such cessation
may result in a Material Adverse Change with respect to Arcadia
Financial; or
(vii) any other event, circumstance or condition that has
resulted, or has a material possibility of resulting, in a Material Adverse
Change in respect of Arcadia Financial.
(g) MAINTENANCE OF LICENSES. Arcadia Financial shall maintain all
licenses, permits, charters and registrations which are material to the
performance by Arcadia Financial of its obligations under this Agreement and
each other Transaction Document to which Arcadia Financial is a party or by
which Arcadia Financial is bound.
(h) ERISA. Arcadia Financial shall give Financial Security prompt
notice of each of the following events (but in no event more than 30 days after
the occurrence of the event): (i) an Accumulated Funding Deficiency, (ii) the
failure to make a required contribution to a Plan or Multiemployer Plan, (iii)
a Reportable Event, (iv) any action by a Commonly Controlled Entity to
terminate any Plan or withdraw from any Multiemployer Plan, (v) any action by
the PBGC to terminate or appoint a trustee to administer a Plan, (vi) the
reorganization or insolvency of any Multiemployer Plan and (vii) an aggregate
Underfunding for all Underfunded Plans in excess of $100,000. In addition,
Arcadia Financial shall promptly (but in no case more than 30 days following
issuance or receipt by the Commonly Controlled Entity) provide to Financial
Security a copy of all correspondence between a Commonly Controlled Entity and
the PBGC, IRS, Department of Labor or the administrators of a Multiemployer Plan
relating to any of the events described in the preceding sentence or the
underfunded status, termination or possible termination of a Plan or a
Multiemployer Plan.
(i) THIRD-PARTY BENEFICIARY. Arcadia Financial agrees that Financial
Security shall have all rights of a third-party beneficiary in respect of the
Sale and Servicing Agreement, it being understood that the remedies of Financial
Security with respect to the representations and warranties set forth in Section
2.4(b) thereof and the covenants set forth in Section 3.6(a) thereof shall be
limited to the remedies set forth in the Sale and Servicing Agreement.
(j) INCORPORATION OF COVENANTS. Arcadia Financial agrees to comply
with each of Arcadia Financial's covenants set forth in the Transaction
Documents and hereby incorporates such covenants by reference as if each were
set forth herein.
Section 2.09 NEGATIVE COVENANTS OF ARCADIA FINANCIAL. Arcadia
Financial hereby agrees that during the Term of this Agreement, unless Financial
Security shall otherwise give its express written consent:
(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
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Indenture Trustee and Financial Security contemplated by the Transaction
Documents and the Restrictions on Transferability imposed by the Purchase
Agreement and the Sale and Servicing Agreement.
(b) IMPAIRMENT OF RIGHTS. Arcadia Financial shall not take any
action, or fail to take any action, if such action or failure to take action may
interfere with the enforcement of any rights under the Transaction Documents
that are material to the rights, benefits or obligations of the Seller, the
Trust, the Indenture Trustee, the Noteholders or Financial Security.
(c) LIMITATION ON MERGERS. Arcadia Financial shall not consolidate
with or merge with or into any Person or transfer all or any material part of
its assets to any Person (except as contemplated by the Transaction Documents)
or liquidate or dissolve, provided that Arcadia Financial may consolidate with,
merge with or into, or transfer all or a material part of its assets to, another
corporation if (i) the acquiror of its assets, or the corporation surviving
such merger or consolidation, shall be organized and existing under the laws of
any state and shall be qualified to transact business in each jurisdiction in
which failure to qualify would render any Transaction Document unenforceable or
would result in a Material Adverse Change in respect of Arcadia Financial or the
Trust Property; (ii) after giving effect to such consolidation, merger or
transfer of assets, no Default or Event of Default shall have occurred or be
continuing; (iii) such acquiring or surviving entity can lawfully perform the
obligations of Arcadia Financial under the Transaction Documents and shall
expressly assume in writing all of the obligations of Arcadia Financial,
including, without limitation, its obligations under the Transaction Documents;
and (iv) such acquiring or surviving entity and the consolidated group of which
it is a part shall each have a net worth immediately subsequent to such
consolidation, merger or transfer of assets at least equal to the net worth of
Arcadia Financial immediately prior to such consolidation, merger or transfer of
assets; and Arcadia Financial shall give Financial Security written notice of
any such consolidation, merger or transfer of assets on the earlier of: (A) the
date upon which any publicly available filing or release is made with respect to
such action or (B) 10 Business Days prior to the date of consummation of such
action. Arcadia Financial shall furnish to Financial Security all information
requested by it that is reasonably necessary to determine compliance with this
paragraph.
(d) WAIVER; AMENDMENTS, ETC. Arcadia Financial shall not waive,
modify, amend, supplement or consent to any waiver, modification, amendment of
or supplement to, any of the provisions of any of the Transaction Documents
without the prior written consent of Financial Security (i) unless, so long as
no Insurer Default shall have occurred and be continuing, Financial Security
shall have consented thereto in writing or (ii) if an Insurer Default shall
have occurred and be continuing, which would adversely affect the interests of
Financial Security.
(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:
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(i) terminate any Plan so as to incur any material
liability to the PBGC;
(ii) knowingly participate in any "prohibited transaction"
(as defined in ERISA) involving any Plan or Multiemployer Plan or any trust
created thereunder which would subject any of them to a material tax or
penalty on prohibited transactions imposed under Section 4975 of the Code
or ERISA;
(iii) fail to pay to any Plan or Multiemployer Plan any
contribution which it is obligated to pay under the terms of such Plan or
Multiemployer Plan, if such failure would cause such Plan to have any
material Accumulated Funding Deficiency, whether or not waived; or
(iv) allow or suffer to exist any occurrence of a Reportable
Event, or any other event or condition, which presents a material risk of
termination by the PBGC of any Plan or Multiemployer Plan, to the extent
that the occurrence or nonoccurrence of such Reportable Event or other
event or condition is within the control of it or any Commonly Controlled
Entity.
(f) INSOLVENCY. Arcadia Financial shall not commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, consolidation or other relief
with respect to the Seller or (B) seeking appointment of a receiver, trustee,
custodian or other similar official for the Seller. Arcadia Financial shall not
take any action in furtherance of, or indicating the consent to, approval of, or
acquiescence in any of the acts set forth above.
ARTICLE III.
THE NOTE POLICY; REIMBURSEMENT; INDEMNIFICATION
Section 3.01 CONDITIONS PRECEDENT TO ISSUANCE OF THE NOTE POLICY.
Financial Security agrees to issue the Note Policy subject to satisfaction of
the conditions set forth below.
(a) The obligation of Financial Security to issue the Note Policy is
subject to the following having occurred or being true (as the case may be):
(i) Financial Security shall have received evidence satisfactory to it that the
Seller shall have assigned, conveyed and transferred, or caused to be assigned,
conveyed and transferred, the Initial Receivables to the Trust, (ii) the Seller
shall have created a valid security interest in, and Lien on, the Receivables in
favor of the Trust, (iii) the Trust shall have created a valid security
interest in, and Lien on, the Indenture Property in favor of the Indenture
Collateral Agent on behalf of the Indenture Trustee (on behalf 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
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Transaction Document shall be in full force and effect and no Default
thereunder shall have occurred and be continuing.
(b) The obligation of Financial Security to issue the Note Policy is
further subject to the condition precedent that Financial Security shall have
received on the Closing Date, or, in its sole and absolute discretion, received
the opportunity to review prior to and on the Closing Date, the following, each
dated the Closing Date and in full force and effect on such date, except as
otherwise provided herein, in form and substance satisfactory to Financial
Security and its counsel:
(i) a certificate of an Authorized Officer of each of
the Seller and Arcadia Financial stating that nothing has come to the
attention of such entity to indicate that the Registration Statement or the
Prospectus, on the date the Registration Statement became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus on any date on
which it was forwarded to the Underwriter for use in connection with the
offering of the Notes contained, or on the Closing Date contains, any
untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading;
(ii) copies, certified to be true copies by an Authorized
Officer of the Owner Trustee, of (i) the resolutions of the board of
directors of the Owner Trustee authorizing the execution, delivery and
performance by the Owner Trustee of this Agreement and each other
Transaction Document to which the Owner Trustee is a party and all
transactions and documents contemplated hereby and thereby, and of all
other documents evidencing any other necessary action of the Owner Trustee
(which certification shall state that such resolutions have not been
modified, are in full force and effect and constitute the only resolutions
adopted by the Owner Trustee's board of directors or any committee thereof
with respect thereto and (ii) the Certificate of Trust, certified by the
Secretary of State or other appropriate official of the State of Delaware;
(iii) copies, certified to be true copies by an Authorized
Officer of the Seller, of (i) the resolutions of the board of directors of
the Seller authorizing the execution, delivery and performance of this
Agreement and each other Transaction Document to which the Seller is a
party and all transactions and documents contemplated hereby and thereby,
and of all other documents evidencing any other necessary action of the
Seller (which certification shall state that such resolutions have not been
modified, are in full force and effect and constitute the only resolutions
adopted by the Seller's board of directors or any committee thereof with
respect thereto), (ii) the corporate charter of the Seller and (iii) the
by-laws, as amended, of the Seller;
(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
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Document to which Arcadia Financial is a party and all other transactions
and documents contemplated hereby and thereby, and of all documents
evidencing any other necessary action of Arcadia Financial (which
certification shall state that such resolutions have not been modified,
are in full force and effect and constitute the only resolutions adopted
by Arcadia Financial's board of directors or any committee thereof with
respect thereto), (ii) the corporate charter of Arcadia Financial and
(iii) the by-laws, as amended, of Arcadia Financial;
(v) a certificate of an Authorized Officer of the Owner
Trustee stating that (i) all consents, licenses and approvals necessary
for the Owner Trustee to execute, deliver and perform this Agreement, the
other Transaction Documents to which the Owner Trustee is a party and all
other documents and instruments on the part of the Owner Trustee to be
delivered pursuant hereto or thereto have been obtained, and (ii) all such
consents, licenses and approvals are in full force and effect, the Owner
Trustee has not received any notice of any proceeding for the revocation of
any such license, charter, permit or approval, and, to the Owner Trustee's
knowledge, there is no threatened action or proceeding or any basis
therefor;
(vi) a certificate of an Authorized Officer of the Seller
stating that (i) all consents, licenses and approvals necessary for the
Seller to execute, deliver and perform this Agreement, the other
Transaction Documents to which the Seller is a party and all other
documents and instruments on the part of the Seller to be delivered
pursuant hereto or thereto have been obtained, and (ii) all such consents,
licenses and approvals are in full force and effect, the Seller has not
received any notice of any proceeding for the revocation of any such
license, charter, permit or approval, and, to the Seller's knowledge, there
is no threatened action or proceeding or any basis therefor;
(vii) a certificate of an Authorized Officer of Arcadia
Financial stating that (i) all consents, licenses and approvals necessary
for Arcadia Financial to execute, deliver and perform this Agreement, the
other Transaction Documents to which Arcadia Financial is a party and all
other documents and instruments on the part of Arcadia Financial to be
delivered pursuant hereto or thereto have been obtained, and (ii) all such
consents, licenses and approvals are in full force and effect, Arcadia
Financial has not received any notice of any proceeding for the revocation
of any such license, charter, permit or approval, and, to Arcadia
Financial's knowledge, there is no threatened action or proceeding or any
basis therefor;
(viii) a certificate of an Authorized Officer of the Owner
Trustee certifying (i) the names and true signatures of the officers of the
Owner Trustee executing and delivering this Agreement, the other
Transaction Documents to which the Owner Trustee is a party and the other
documents to be executed and delivered by the Owner Trustee hereunder and
thereunder, (ii) that approval by the Owner Trustee's equity holders of
the 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
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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;
(xiv) favorable opinions of counsel and special Texas
counsel to the Seller and Arcadia Financial in form and substance
satisfactory to Financial Security and its counsel;
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(xv) a favorable opinion of counsel to each of the Trust,
the Owner Trustee, the Indenture Trustee and the Collateral Agent and the
Indenture Collateral Agent, in form and substance satisfactory to Financial
Security and its counsel;
(xvi) evidence that amounts due and payable Financial
Security under Section 3.02 of this Agreement have been paid or that
acceptable provisions therefor have been made;
(xvii) a fully executed copy of each of the Transaction
Documents;
(xviii) evidence that all actions necessary or, in the
opinion of Financial Security, desirable to perfect and protect the
interests transferred by the Sale and Servicing Agreement, the liens and
security interests created with respect to the Spread Account, the Liens
and security interest created in favor of the Indenture Collateral Agent
with respect to the Indenture Property pursuant to the Indenture,
including, without limitation, the filing of any financing statements
required by Financial Security or its counsel, have been taken;
(xix) a certificate or opinion of Independent Accountants
addressed to Financial Security in form and substance satisfactory to
Financial Security;
(xx) evidence that the Seller shall have deposited, or
caused to have been deposited, the deposits required under the Sale and
Servicing Agreement and the Spread Account Agreement, and any other
deposits required to be made on the Closing Date under the Transaction
Documents to which the Seller is a party; and
(xxi) such other documents, instruments, approvals (and,
if requested by Financial Security, certified duplicates of executed copies
thereof) or opinions as Financial Security may reasonably request.
(c) ISSUANCE OF RATINGS. Financial Security shall have received
confirmation that the risk secured by the Note Policy constitutes an investment
grade risk by Standard & 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"), that the Class A-1 Notes will be rated "A-1+" by S&P and "P-1"
by Moody's and that the Class A-2 Notes, Class A-3 Notes, Class A-4 Notes and
Class A-5 Notes, when issued, and giving effect to the Note Policy, 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.
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(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
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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
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Documents; and any payments made by Financial Security as, or in lieu of, any
servicing, 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;
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(iv) the breach by the Trust, the Seller or Arcadia
Financial of any representation, warranty or covenant under any of the
Transaction Documents or the occurrence, in respect of the Trust, the
Seller or Arcadia Financial, under any of the Transaction Documents of any
event of default or any event which, with the giving of notice or the lapse
of time or both, would constitute any event of default; or
(v) any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement or the Prospectus
or in any amendment or supplement thereto or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as
such claims arise out of or are based upon any untrue statement or omission
(A) included in the Registration Statement or the Prospectus and furnished
by Financial Security in writing expressly for use therein (all such
information so furnished being referred to herein as "Financial Security
Information"), it being understood that the Financial Security Information
is limited to the information included under the caption "Financial
Security Assurance Inc.," and the financial statements of Financial
Security included in the Registration 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
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proceeding effected without its written consent to the extent that any
such settlement shall be prejudicial to it, but, if settled with its written
consent, or if there be a final judgment for the plaintiff in any such action or
proceeding with respect to which Arcadia Financial shall have received notice in
accordance with this subsection (c) Arcadia Financial agrees to indemnify and
hold the Indemnified Parties harmless from and against any loss or liability by
reason of such settlement or judgment.
(c) CONTRIBUTION. To provide for just and equitable contribution if
the indemnification provided by Arcadia Financial is determined to be
unavailable for any Indemnified Party (other than due to application of this
Section), Arcadia Financial shall contribute to the losses incurred by the
Indemnified Party on the basis of the relative fault of Arcadia Financial, on
the one hand, and the Indemnified Party, on the other hand.
Section 3.06 PAYMENT PROCEDURE. In the event of the incurrence
by Financial Security of any cost or expense or any payment by Financial
Security for which it is entitled to be reimbursed or indemnified as provided
above Arcadia Financial agrees to accept the voucher or other evidence of
payment as prima facie evidence of the propriety thereof and the liability
therefor to Financial Security. All payments to be made to Financial Security
under this Agreement shall be made to Financial Security in lawful currency of
the United States of America in immediately available funds to the account
number provided in the Premium Letter before 1:00 p.m. (New York, New York time)
on the date when due or as Financial Security shall otherwise direct by written
notice to Arcadia Financial. In the event that the date of any payment to
Financial Security or the expiration of any time period hereunder occurs on a
day which is not a Business Day, then such payment or expiration of time period
shall be made or occur on the next succeeding Business Day with the same force
and effect as if such payment was made or time period expired on the scheduled
date of payment or expiration date. Payments to be made to Financial Security
under this Agreement shall bear interest at the Late Payment Rate from the date
when due to the date paid.
Section 3.07 SUBROGATION. Subject only to the priority of
payment provisions of the Sale and Servicing Agreement, each of the Trust, the
Indenture Trustee, the Seller and Arcadia Financial acknowledges that, to the
extent of any payment made by Financial Security pursuant to the Note Policy,
Financial Security is to be fully subrogated to the extent of such payment and
any additional interest due on any late payment, to the rights of the
Noteholders to any moneys paid or payable in respect of the Notes under the
Transaction Documents or otherwise. Each of the Trust, the Indenture Trustee,
the Seller and Arcadia Financial agrees to such subrogation and, further, agrees
to execute such instruments and to take such actions as, in the sole judgment of
Financial Security, are necessary to evidence such subrogation and to perfect
the rights of Financial Security to receive any such moneys paid or payable in
respect of the Notes under the Transaction Documents or otherwise.
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<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;
46
<PAGE>
(vi) any failure of the Seller or the Trust to receive
the proceeds from the Sale of the Notes;
(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
47
<PAGE>
of Financial Security. Any assignment made in violation of this Agreement
shall be null and void.
(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.
48
<PAGE>
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:
(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
49
<PAGE>
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 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 1999-B 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 (vi) 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 9.01%;
(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
50
<PAGE>
(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, including any "Event of
Default" defined as a "Portfolio Performance Event of Default" in such Insurance
and Indemnity Agreement.
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
51
<PAGE>
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.
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: Transaction Oversight
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) 942-9880
Telecopier: (612) 942-6730
52
<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, 1999-B
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
HERETO HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
53
<PAGE>
YORK AND 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 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.
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<PAGE>
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 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.
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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 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.
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<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/ SCOTT GORDON
---------------------------------
Authorized Officer
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1999-B
By: Wilmington Trust Company, as Owner Trustee
under the Trust Agreement
By: /S/ ANITA E. DALLAGO
---------------------------------
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 54 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 1999-B Closing Date appearing first in the column
below, and prior to or during the designated calendar months succeeding the
Series 1999-B Distribution Date appearing second in the column below.
<PAGE>
EXHIBIT A
FORM OF NOTE POLICY
<PAGE>
EXECUTION COPY
SERIES 1999-B SUPPLEMENT
dated as of June 17, 1999
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>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <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 1999-B 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 1999-B Spread Account; Initial Deposit into
Series 1999-B 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 1999-B SUPPLEMENT
SERIES 1999-B SUPPLEMENT, dated as of June 17, 1999 (the "Series 1999-B
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 1999-B Supplement constitutes a
Series Supplement to the Spread Account Agreement so that hereafter this Series
1999-B 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, 1999-B (the "Series 1999-B
Trust") is being formed contemporaneously herewith pursuant to the Series 1999-B
Trust Agreement (as defined herein).
3. Pursuant to the Series 1999-B Sale and Servicing Agreement, the
Seller is selling to the Series 1999-B Trust all of its right, title and
interest in and to the Initial Receivables (as defined in the Series 1999-B Sale
and Servicing Agreement) and certain other Trust Property (as defined in the
Series 1999-B Trust Agreement).
4. Pursuant to the Series 1999-B Indenture, the Series 1999-B Trust is
issuing the Series 1999-B Notes (as defined herein).
5. The Seller has requested that Financial Security issue the Series
1999-B 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 1999-B
Notes.
6. In partial consideration of the issuance of the Series 1999-B 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 1999-B Indenture.
7. The Seller is a wholly-owned special purpose subsidiary of Arcadia
Financial. The Series 1999-B Trust has agreed to pay the Series 1999-B 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 1999-B Insurance Agreement (such
obligations forming part of the Series 1999-B Insurer Secured Obligations as
referred to herein). The Series 1999-B Insurer Secured Obligations form part of
the consideration to Financial Security for its issuance of the Series 1999-B
Note Policy.
8. In order to secure the performance of the Series 1999-B Secured
Obligations, to further effect and enforce the subordination provisions to which
the Series 1999-B Credit Enhancement Fee is subject, and in consideration of the
receipt of the Series 1999-B Credit Enhancement Fee, Arcadia Financial and the
Seller have agreed to pledge the Series 1999-B 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 1999-B Sale and Servicing Agreement shall have the same meaning with
respect to this Series 1999-B Supplement. The following terms shall have the
following meanings:
"COLLECTION ACCOUNT SHORTFALL" means, with respect to Series 1999-B and
any Distribution Date, the Deficiency Claim Amount, as defined in the Series
1999-B Sale and Servicing Agreement, with respect to such Distribution Date.
"DEEMED CURED" means with respect to Series 1999-B, (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 1999-B, 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 1999-B
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 $650,000,000 with respect to Series
1999-B.
"INITIAL SPREAD ACCOUNT DEPOSIT" means $0 for Series 1999-B.
"INITIAL SPREAD ACCOUNT MAXIMUM AMOUNT" means, with respect to Series
1999-B and any Distribution Date, an amount equal to the greater of (i) 9% of
the Series 1999-B 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 1999-B BALANCE" means, with respect to Series 1999-B and any
Distribution Date, the aggregate principal amount of the Series 1999-B 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 1999-B COLLATERAL" has the meaning specified in Section
2.3(a) hereof.
"SERIES 1999-B CREDIT ENHANCEMENT FEE" means the amount distributable
on each Distribution Date pursuant to Section 4.6(vi) and (vii) of the Series
1999-B Sale and Servicing Agreement.
"SERIES 1999-B INDENTURE" means the Indenture, dated as of June 1,
1999, among the Series 1999-B Trust, the Trustee and the Indenture Collateral
Agent.
"SERIES 1999-B NOTE POLICY" means the financial guaranty insurance
policy issued by Financial Security with respect to the Series 1999-B Notes.
"SERIES 1999-B NOTES" means the Class A-1, Class A-2, Class A-3, Class
A-4 and Class A-5 Notes issued pursuant to the Series 1999-B Indenture.
"SERIES 1999-B 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
1999-B Trust Agreement.
"SERIES 1999-B RECEIVABLE" means each Receivable referenced on the
Schedule of Receivables attached to the Series 1999-B Sale and Servicing
Agreement, as supplemented from time to time during the Funding Period by one or
more Subsequent Transfer Agreements.
"SERIES 1999-B RESERVE ACCOUNT" means the Reserve Account established
pursuant to Section 4.1(d) of the Series 1999-B Sale and Servicing Agreement.
"SERIES 1999-B SALE AND SERVICING AGREEMENT" means the Sale and
Servicing Agreement, dated as of June 1, 1999, among the Series 1999-B 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 1999-B SECURED OBLIGATIONS" means the Insurer Secured
Obligations and the Trustee Secured Obligations with respect to Series 1999-B.
"SERIES 1999-B SPREAD ACCOUNT" means the Spread Account established
pursuant to Section 3.1(a) hereof.
"SERIES 1999-B SUPPLEMENT" means this Series 1999-B Supplement which
constitutes a Series Supplement to the Spread Account Agreement.
"SERIES 1999-B TRUST AGREEMENT" means the Trust Agreement, dated as of
June 1, 1999, among the Seller, Financial Security and the Series 1999-B Owner
Trustee.
"SPREAD ACCOUNT ADDITIONAL DEPOSIT" means, with respect to Series
1999-B 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 1999-B 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 1999-B Notes will be
in the highest category by such Rating Agencies.
"SPREAD ACCOUNT MAXIMUM AMOUNT" means, with respect to Series 1999-B
and any Distribution Date:
(i) if no Insurance Agreement Event of Default with respect to
Series 1999-B 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 1999-B 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 1999-B and
such Distribution Date;
(ii) if an event specified in clause (A) of the definition of
Trigger Event with respect to Series 1999-B 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 1999-B 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
1999-B 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 1999-B 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 1999-B
4
<PAGE>
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 1999-B
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
1999-B, and
(B) the Series 1999-B Balance.
"TRIGGER EVENT" means, with respect to Series 1999-B 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 8.26% 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 1999-B 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 1999-B 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 1999-B CREDIT ENHANCEMENT FEE. The Series 1999-B
Sale and Servicing Agreement provides for the payment to the Seller of the
Series 1999-B 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 1999-B Credit Enhancement Fee in the manner and subject to the
conditions set forth herein and in the Series 1999-B 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 1999-B) and
pursuant to the Series 1999-B Insurance Agreement. The Seller and Arcadia
Financial hereby agree with the Trustee and with Financial Security that payment
of the Series 1999-B Credit Enhancement Fee to the Seller is expressly
conditioned on subordination of the Series 1999-B 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 1999-B Collateral is intended to
effect and enforce such subordination and to provide security for the Series
1999-B 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 1999-B Supplement with respect to
the Series 1999-B 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 1999-B
Collateral"):
6
<PAGE>
(i) the Series 1999-B Credit Enhancement Fee and all rights and
remedies that the Seller may have to enforce payment of the Series 1999-B
Credit Enhancement Fee whether under the Series 1999-B Sale and Servicing
Agreement or otherwise;
(ii) the Series 1999-B Spread Account established pursuant to Section
3.1 of this Series 1999-B 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 1999-B
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 1999-B 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 1999-B 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
1999-B Collateral which can be perfected by the filing of a financing
statement.
ARTICLE III.
SPREAD ACCOUNT
Section 3.1 ESTABLISHMENT OF SERIES 1999-B SPREAD ACCOUNT; INITIAL
DEPOSIT INTO SERIES 1999-B SPREAD ACCOUNT.
(a) On or prior to the Closing Date, the Collateral Agent shall
establish with respect to Series 1999-B, at its office or at another depository
institution or trust company, an Eligible Account, designated "Spread Account -
Series 1999-B - Norwest Bank Minnesota, National Association, as Collateral
Agent for Financial Security Assurance Inc. and another Secured Party" (the
"Series 1999-B Spread Account").
(b) On the Closing Date relating to Series 1999-B, the Collateral Agent
shall deposit the Initial Spread Account Deposit with respect to Series 1999-B
received from the Seller into the Series 1999-B Spread Account.
7
<PAGE>
Section 3.2 SPREAD ACCOUNT ADDITIONAL DEPOSITS. On each Subsequent
Transfer Date, the Series 1999-B Trust will, pursuant to Section 2.4 of the
Series 1999-B 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 1999-B Trust into the Series 1999-B
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 1999-B Supplement or to confirm or perfect any transaction described or
contemplated herein.
Section 4.2 GOVERNING LAW. This Series 1999-B 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 1999-B 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 1999-B Supplement are provided for
convenience only. They form no part of this Series 1999-B Supplement and shall
not affect its construction or interpretation.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Series 1999-B
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/ SCOTT GORDON
-------------------------------------
Authorized Officer
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By: /S/ EILEEN R. O'CONNOR
-------------------------------------
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Collateral Agent
By: /S/ EILEEN R. O'CONNOR
-------------------------------------
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
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 1999-B Closing Date appearing first in the column below,
and prior to or during the designated calendar months succeeding the Series
1999-B Distribution Date appearing second in the column below.
<PAGE>
EXECUTION COPY
AMENDMENT
dated as of June 1, 1999
among
ARCADIA FINANCIAL LTD.
ARCADIA RECEIVABLES FINANCE CORP.
FINANCIAL SECURITY ASSURANCE INC.
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Collateral Agent
Series 1996-A Supplement Series 1995-E Supplement
Series 1995-D Supplement Series 1995-C Supplement
Series 1995-B Supplement Series 1995-A Supplement
to
Spread Account Agreement
dated as of March 25, 1993
as amended and restated as of
November 19, 1998
<PAGE>
Amendment dated as of June 1, 1999 ("Amendment") among ARCADIA
FINANCIAL LTD. (formerly known as Olympic Financial Ltd.), a Minnesota
corporation ("AFL"), ARCADIA RECEIVABLES FINANCE CORP. (formerly known as
Olympic Receivables Finance Corp.), a Delaware corporation (the "Seller"),
FINANCIAL SECURITY ASSURANCE INC., a New York stock insurance company
("Financial Security") and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as
Collateral Agent to the Series Supplements listed on Schedule IV hereto
(collectively, the "Series Supplements") to the Spread Account Agreement, dated
as of March 25, 1993, as amended and restated as of November 19, 1998 among AFL,
the Seller, Financial Security and Norwest Bank Minnesota, National Association,
as Trustee and Collateral Agent (the "Spread Account Agreement").
WHEREAS, Section 8.03 of the Spread Account Agreement permits
amendment of the Spread Account Agreement upon the terms and conditions
specified therein;
WHEREAS, the parties to the Spread Account Agreement (the
"PARTIES") have heretofore executed the Series Supplements;
WHEREAS, the Parties wish to amend the Series Supplements.
NOW, THEREFORE, the Parties agree that the Series Supplements
are hereby amended effective as of the date hereof as follows:
Section 1. DEFINITIONS. Each term used but not defined herein shall
have the meaning assigned to such term in the Spread Account Agreement or in the
relevant Series Supplement thereto, and when used herein with respect to a
particular Series shall have the meaning assigned to such term of such Series.
Section 2. AMENDMENT TO DEFINITION OF "TRIGGER EVENT" IN EACH SERIES
SUPPLEMENT.
A. Paragraph (A)(ii) of the definition of "Trigger Event" in Section
1.1 of each Series Supplement is amended by deleting the percentage specified
therein and replacing such percentage in each instance with the percentage
corresponding to the applicable Series specified in Schedule III attached
hereto.
B. All references contained in each Series Supplement to "Schedule I"
or "Schedule II" (including, without limitation, the references contained in
Paragraphs (A)(iii) and (A)(iv) of the definition of "Trigger Event" in Section
1.1 of each of the Series Supplements) shall be deemed to refer, in each case,
to the schedules attached hereto as Schedule I or Schedule II, respectively and
each of Schedule I and Schedule II attached hereto shall be deemed to be
incorporated with and made a part of each Series Supplement.
<PAGE>
Section 3. AMENDMENT TO DEFINITIONS OF "INITIAL SPREAD ACCOUNT MAXIMUM
AMOUNT" IN EACH SERIES SUPPLEMENT.
A. Clause (i) of the definition of "Initial Spread Account Maximum
Amount" in Section 1.1 of each of the Series 1995-B Supplement, Series 1995-A
Supplement is amended by deleting the reference to 7% and replacing such
percentage in each instance with "8.75%".
B. Clause (i) of the definition of "Initial Spread Account Maximum
Amount" in Section 1.1 of each of the Series 1996-A Supplement, Series 1995-E
Supplement, Series 1995-D Supplement and Series 1995-C Supplement is amended by
deleting the reference to 6% and replacing such percentage in each instance with
"7.75%".
Section 4. 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 5. 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.
Section 6. ENTIRE AGREEMENT. This Amendment sets forth the entire
agreement between the Parties with respect to the subject matter hereof, and
this Amendment 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, including without limitation, the agreements contained in that
certain Letter Agreement dated December 10, 1997 between Financial Security and
AFL.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date set forth on the first page hereof.
ARCADIA FINANCIAL LTD.
By /S/ JOHN A. WITHAM
--------------------------------------
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/ ERROL UHR
--------------------------------------
Authorized Officer
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee and Collateral Agent
By /S/ EILEEN R. O'CONNOR
--------------------------------------
Name: Eileen R. O'Connor
Title: Corporate Trust Officer
<PAGE>
SCHEDULE I
CUMULATIVE DEFAULT RATES
<TABLE>
<CAPTION>
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
Series Series Series Series Series Series
Month 1996-A 1995-E 1995-D 1995-C 1995-B 1995-A
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
0 to 3 2.05% 2.08% 1.92% 1.89% 1.90% 1.86%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
3 to 6 4.10% 4.15% 3.84% 3.77% 3.79% 3.72%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
6 to 9 5.93% 6.00% 5.56% 5.46% 5.49% 5.39%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
9 to 12 7.58% 7.67% 7.10% 6.98% 7.01% 6.88%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
12 to 15 9.76% 9.88% 9.15% 8.99% 9.03% 8.87%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
15 to 18 11.74% 11.89% 11.00% 10.81% 10.86% 10.66%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
18 to 21 13.47% 13.64% 12.63% 12.41% 12.47% 12.24%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
21 to 24 14.97% 15.15% 14.04% 13.79% 13.86% 13.60%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
24 to 27 15.76% 15.95% 14.78% 14.52% 14.59% 14.32%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
27 to 30 16.40% 16.60% 15.36% 15.10% 15.17% 14.88%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
30 to 33 16.95% 17.15% 15.88% 15.61% 15.68% 15.42%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
33 to 36 17.43% 17.63% 16.34% 16.05% 16.13% 15.83%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
36 to 39 17.66% 17.87% 16.55% 16.26% 16.34% 16.03%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
39 to 42 17.83% 18.04% 16.71% 16.42% 16.50% 16.19%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
42 to 45 17.98% 18.19% 16.86% 16.57% 16.65% 16.33%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
45 to 48 18.12% 18.32% 16.97% 16.68% 16.76% 16.44%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
48 to 51 18.22% 18.43% 17.07% 16.77% 16.85% 16.54%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
51 to 54 18.30% 18.51% 17.15% 16.85% 16.93% 16.61%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
54 to 57 18.35% 18.58% 17.21% 16.91% 16.99% 16.67%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
57 to 60 18.41% 18.63% 17.25% 16.95% 17.03% 16.71%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
60 to 63 18.43% 18.66% 17.29% 16.99% 17.07% 16.75%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
63 to 66 18.46% 18.68% 17.30% 17.01% 17.09% 16.77%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
66 to 69 18.48% 18.70% 17.32% 17.02% 17.10% 16.78%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
69 to 72 18.48% 18.70% 17.32% 17.02% 17.10% 16.78%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
</TABLE>
I-1
<PAGE>
SCHEDULE II
CUMULATIVE NET LOSS RATES
<TABLE>
<CAPTION>
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
Series Series Series Series Series Series
Month 1996-A 1995-E 1995-D 1995-C 1995-B 1995-A
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
0 to 3 0.91% 0.84% 0.75% 0.73% 0.73% 0.73%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
3 to 6 1.82% 1.68% 1.50% 1.47% 1.47% 1.45%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
6 to 9 2.64% 2.43% 2.18% 2.13% 2.12% 2.10%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
9 to 12 3.37% 3.11% 2.78% 2.71% 2.71% 2.69%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
12 to 15 4.33% 4.00% 3.58% 3.50% 3.49% 3.46%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
15 to 18 5.21% 4.81% 4.31% 4.21% 4.20% 4.16%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
18 to 21 5.98% 5.52% 4.94% 4.83% 4.82% 4.78%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
21 to 24 6.64% 6.13% 5.50% 5.37% 5.36% 5.31%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
24 to 27 6.99% 6.45% 5.78% 5.65% 5.64% 5.59%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
27 to 30 7.28% 6.71% 6.02% 5.87% 5.86% 5.81%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
30 to 33 7.52% 6.95% 6.22% 6.07% 6.06% 6.01%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
33 to 36 7.73% 7.14% 6.39% 6.24% 6.23% 6.18%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
36 to 39 7.84% 7.24% 6.48% 6.32% 6.32% 6.26%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
39 to 42 7.92% 7.30% 6.54% 6.39% 6.38% 6.32%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
42 to 45 7.98% 7.37% 6.60% 6.44% 6.43% 6.37%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
45 to 48 8.04% 7.42% 6.64% 6.49% 6.48% 6.42%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
48 to 51 8.09% 7.46% 6.68% 6.52% 6.51% 6.46%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
51 to 54 8.12% 7.49% 6.71% 6.55% 6.54% 6.48%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
54 to 57 8.14% 7.52% 6.74% 6.58% 6.57% 6.51%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
57 to 60 8.17% 7.54% 6.75% 6.59% 6.58% 6.52%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
60 to 63 8.18% 7.55% 6.77% 6.61% 6.60% 6.54%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
63 to 66 8.19% 7.56% 6.77% 6.61% 6.60% 6.54%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
66 to 69 8.20% 7.57% 6.78% 6.62% 6.61% 6.55%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
69 to 72 8.20% 7.57% 6.78% 6.62% 6.61% 6.55%
- -------------- ------------ ------------ ----------- ------------ ------------ ------------
</TABLE>
II-1
<PAGE>
SCHEDULE III
AVERAGE DELINQUENCY RATES
<TABLE>
<CAPTION>
- -------------- ------------ ------------ ----------- ------------ ------------
Series Series Series Series Series Series
1996-A 1995-E 1995-D 1995-C 1995-B 1995-A
- -------------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
8.00% 8.00% 8.00% 8.00% 8.00% 8.00%
- -------------- ------------ ------------ ----------- ------------ ------------
</TABLE>
III-1
<PAGE>
SCHEDULE IV
(1) Series 1996-A Supplement dated as of March 14, 1996, as amended by that
certain Amendment dated as of May 31, 1996 (the "May 1996 Amendment")
to certain of the Series Supplements, as further amended by that
certain Amendment dated as of March 1, 1997 (the "March 1997
Amendment") to certain of the Series Supplements and that certain
Amendment dated as of December 16, 1997 (the "December 1997 Amendment")
to certain of the Series Supplements (as amended, the "Series 1996-A
Supplement")
(2) Series 1995-E Supplement dated as of December 6, 1995, as amended by
the May 1996 Amendment, as further amended by the March 1997 Amendment
and the December 1997 Amendment (as amended, the "Series 1995-E
Supplement")
(3) Series 1995-D Supplement dated as of September 21, 1995, as amended by
the May 1996 Amendment, as further amended by the March 1997 Amendment
and the December 1997 Amendment (as amended, the "Series 1995-D
Supplement")
(4) Series 1995-C Supplement dated as of June 15, 1995, as amended by that
certain Amendment dated as of June 15, 1995 (the "June 1995 Amendment")
to certain of the Series Supplements, as further amended by the May
1996 Amendment, the March 1997 Amendment and the December 1997
Amendment (as amended, the "Series 1995-C Supplement")
(5) Series 1995-B Supplement dated as of March 15, 1995, as amended by the
September 1995 Amendment, as further amended by the June 1995
Amendment, May 1996 Amendment, the March 1997 Amendment and the
December 1997 Amendment (as amended, the "Series 1995-B Supplement")
(6) Series 1995-A Supplement dated as of February 9, 1995, as amended by
the September 1995 Amendment, as further amended by the June 1995
Amendment, the May 1996 Amendment, the March 1997 Amendment and the
December 1997 Amendment (as amended, the "Series 1995-A Supplement")
IV-1
<PAGE>
EXECUTION COPY
AMENDMENT
dated as of June 1, 1999
to
Insurance and Indemnity Agreement dated as of March 14, 1996
Insurance and Indemnity Agreement dated as of December 6, 1995
Insurance and Indemnity Agreement dated as of September 21, 1995
Insurance and Indemnity Agreement dated as of June 15, 1995
Insurance and Indemnity Agreement dated as of March 15, 1995
Insurance and Indemnity Agreement dated as of February 9, 1995
<PAGE>
AMENDMENT dated as of June 1, 1999 ("Amendment") to the
Insurance and Indemnity Agreements listed on Schedule IV hereto (collectively,
the "Insurance Agreements") among Financial Security Assurance Inc. ("Financial
Security"), Olympic Automobile Receivables Trust, 1996-A, Olympic Automobile
Receivables Trust, 1995-E, Olympic Automobile Receivables Trust, 1995-D, Olympic
Automobile Receivables Trust, 1995-C, Olympic Automobile Receivables Trust,
1995-B, Olympic Automobile Receivables Trust, 1995-A, Arcadia First GP Inc.
(formerly known as Olympic First GP Inc.), Arcadia Second GP Inc. (formerly
known as Olympic Second GP Inc.), Arcadia Receivables Finance Corp. (formerly
known as Olympic Receivables Finance Corp.), and Arcadia Financial Ltd. ("AFL",
formerly known as Olympic Financial Ltd.), in each case with respect to each
Insurance and Indemnity Agreement with respect to which such person is a party.
WHEREAS, the respective parties to each Insurance and
Indemnity Agreement (the "Respective Parties") have heretofore executed such
Insurance and Indemnity Agreement;
WHEREAS, the Respective Parties to each Insurance and
Indemnity Agreement wish to amend such Agreement.
NOW, THEREFORE, the Respective Parties to each Insurance and
Indemnity Agreement agree that such Agreement is hereby amended as follows:
Section 1. AMENDMENT TO THE SERIES 1996-A INSURANCE AND
INDEMNITY AGREEMENT, THE SERIES 1995-E INSURANCE AND INDEMNITY AGREEMENT, THE
SERIES 1995-D INSURANCE AND INDEMNITY AGREEMENT, THE SERIES 1995-C INSURANCE AND
INDEMNITY AGREEMENT AND THE SERIES 1995-A INSURANCE AND INDEMNITY AGREEMENT.
Paragraph (k) of Section 5.01 of each of the Series 1996-A Insurance and
Indemnity Agreement, the Series 1995-E Insurance and Indemnity Agreement, the
Series 1995-D Insurance and Indemnity Agreement, the Series 1995-C Insurance and
Indemnity Agreement and the Series 1995-A Insurance and Indemnity Agreement is
hereby amended by deleting the percentage specified therein and replacing such
percentage in each instance with the percentage corresponding to the applicable
Series specified in Schedule III attached hereto.
Section 2. AMENDMENT TO THE SERIES 1995-B INSURANCE AND
INDEMNITY AGREEMENT. Paragraph (m) of Section 5.01 of the Series 1995-B
Insurance and Indemnity Agreement is hereby amended by deleting the percentage
specified therein and replacing such percentage with the percentage
corresponding to Series 1995-B specified in Schedule III attached hereto.
Section 3. COUNTERPARTS. This Amendment to the Insurance and
Indemnity Agreements may be executed in several counterparts, each of which
shall be deemed an original hereof and all of which, when taken together, shall
constitute one and the same Amendment to the Insurance and Indemnity Agreements.
<PAGE>
Section 4. RATIFICATION OF INSURANCE AND INDEMNITY AGREEMENTS.
Except as provided herein, all provisions, terms and conditions of the Insurance
and Indemnity Agreements shall remain in full force and effect. As amended
hereby, the Insurance and Indemnity Agreements are ratified and confirmed in all
respects.
Section 5. AUTHORIZATION. By its execution hereof, Financial
Security Assurance Inc. hereby instructs the Owner Trustee of each of Olympic
Automobile Receivables Trust, 1996-A, Olympic Automobile Receivables Trust,
1995-E, Olympic Automobile Receivables Trust, 1995-D, Olympic Automobile
Receivables Trust, 1995-C, Olympic Automobile Receivables Trust, 1995-B and
Olympic Automobile Receivables Trust, 1995-A, each in accordance with the
respective Trust Agreements, to execute this Amendment.
Section 6. ENTIRE AGREEMENT. This Amendment sets forth the
entire agreement between the Respective Parties with respect to the subject
matter hereof, and this Amendment supersedes and replaces any agreement or
understanding that may have existed between the Respective Parties prior to
the date hereof in respect of such subject matter, including without
limitation, the agreements contained in that certain Letter Agreement dated
December 10, 1997 between Financial Security and AFL.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment to the respective Insurance and Indemnity Agreements specified below
as of the date set forth on the first page hereof.
With respect to each Insurance and Indemnity
Agreement:
FINANCIAL SECURITY ASSURANCE INC.
By: /s/ ERROL UHR
-----------------------------
Authorized Officer
ARCADIA RECEIVABLES FINANCE CORP.
By: /s/ JOHN A. WITHAM
--------------------------------------
Name: John A. Witham
Title: Senior Vice President and
Chief Financial Officer
ARCADIA FINANCIAL LTD.
By: /s/ JOHN A. WITHAM
---------------------------------------
Name: John A. Witham
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
With respect to the:
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,
ARCADIA FIRST GP INC.
By: /s/ JOHN A. WITHAM
-------------------------------------------
Name: John A. Witham
Title: Executive Vice President and
Chief Financial Officer
ARCADIA SECOND GP INC.
By: /s/ JOHN A. WITHAM
---------------------------------------------
Name: John A. Witham
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
With respect to the:
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,
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1995-E
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1995-D
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1995-C
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1995-B
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1995-A
By: Wilmington Trust Company,
not in its individual capacity, but solely
in its capacity as Owner Trustee
By: /s/ DENISE M. GERAN
------------------------------------------
Name: Denise M. Geran
Title: Senior Financial Services Officer
<PAGE>
With respect to the:
Series 1996-A Insurance and Indemnity Agreement:
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1996-A
By: Chase Manhattan Bank Delaware, as successor
to Mellon Bank (DE), National Association,
not in its individual capacity, but solely in
its capacity as Owner Trustee
By: /s/ DENIS KELLY
--------------------------------------
Name: Denis Kelly
Title: Assistant Vice President
<PAGE>
SCHEDULE I
RESERVED
I-1
<PAGE>
SCHEDULE II
RESERVED
II-1
<PAGE>
SCHEDULE III
AVERAGE DELINQUENCY RATES
<TABLE>
<CAPTION>
- -------------- ------------ ------------ ----------- ------------ ------------
Series Series Series Series Series Series
1996-A 1995-E 1995-D 1995-C 1995-B 1995-A
- -------------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
- -------------- ------------ ------------ ----------- ------------ ------------
</TABLE>
III-1
<PAGE>
SCHEDULE IV
(1) Insurance and Indemnity Agreement dated as of March 14, 1996, as
amended by that certain Amendment dated as of May 31, 1996 (the "May
1996 Amendment") to certain of the Insurance and Indemnity Agreements,
as further amended by that certain Amendment dated as of September 12,
1996 (the "September 1996 Amendment") to certain of the Insurance and
Indemnity Agreements, the December 1997 Amendment and that certain
Amendment dated as of December 16, 1997 (the "December 1997 Amendment")
to certain of the Insurance and Indemnity Agreements (as amended, the
"Series 1996-A Insurance and Indemnity Agreement");
(2) Insurance and Indemnity Agreement dated as of December 6, 1995, as
amended by the May 1996 Amendment, as further amended by the September
1996 Amendment and the December 1997 Amendment (as amended, the "Series
1995-E Insurance and Indemnity Agreement");
(3) Insurance and Indemnity Agreement dated as of September 21, 1995, as
amended by that certain Amendment dated as of December 6, 1995 (the
"December 1995 Amendment") to certain of the Insurance and Indemnity
Agreements, as further amended by the May 1996 Amendment, the September
1996 Amendment and the December 1997 Amendment (as amended, the "Series
1995-D Insurance and Indemnity Agreement");
(4) Insurance and Indemnity Agreement dated as of June 15, 1995, as amended
by the December 1995 Amendment, as further amended by the May 1996
Amendment, as further amended by the September 1996 Amendment and the
December 1997 Amendment (as amended, the "Series 1995-C Insurance and
Indemnity Agreement");
(5) Insurance and Indemnity Agreement dated as of March 15, 1995, as
amended by that certain Amendment dated as of June 15, 1995 (the "June
1995 Amendment") to certain of the Insurance and Indemnity Agreements,
as further amended by the December 1995 Amendment, the May 1996
Amendment, the September 1996 Amendment and the December 1997 Amendment
(as amended, the "Series 1995-B Insurance and Indemnity Agreement");
and
(6) Insurance and Indemnity Agreement dated as of February 9, 1995, as
amended by the June 1995 Amendment, as further amended by the December
1995 Amendment and May 1996 Amendment, as further amended by the
September 1996 Amendment, as further amended by the December 1997
Amendment (as amended, the "Series 1995-A Insurance and Indemnity
Agreement").
IV-1
<PAGE>
EXECUTION COPY
AMENDMENT
dated as of June 1, 1999
to
Insurance and Indemnity Agreement dated as of March 17, 1999
Insurance and Indemnity Agreement dated as of December 22, 1998
Insurance and Indemnity Agreement dated as of September 22, 1998
Insurance and Indemnity Agreement dated as of June 23, 1998
Insurance and Indemnity Agreement dated as of March 25, 1998
Insurance and Indemnity Agreement dated as of December 16, 1997
Insurance and Indemnity Agreement dated as of September 18, 1997
Insurance and Indemnity Agreement dated as of June 19, 1997
Insurance and Indemnity Agreement dated as of March 20, 1997
Insurance and Indemnity Agreement dated as of December 12, 1996
Insurance and Indemnity Agreement dated as of September 12, 1996
Insurance and Indemnity Agreement dated as of June 14, 1996
Insurance and Indemnity Agreement dated as of March 14, 1996
Insurance and Indemnity Agreement dated as of December 6, 1995
Insurance and Indemnity Agreement dated as of September 21, 1995
Insurance and Indemnity Agreement dated as of June 15, 1995
Insurance and Indemnity Agreement dated as of March 15, 1995
Insurance and Indemnity Agreement dated as of February 9, 1995
Insurance and Indemnity Agreement dated as of September 23, 1994
Insurance and Indemnity Agreement dated as of December 3, 1996 as amended
and restated as of July 21, 1998
<PAGE>
AMENDMENT dated as of June 1, 1999 to the Insurance and
Indemnity Agreements listed on Schedule IV hereto (collectively, the "Insurance
Agreements") among Financial Security Assurance Inc. ("Financial Security"),
Arcadia Automobile Receivables Trust, 1999-A, Arcadia Automobile Receivables
Trust, 1998-E, Arcadia Automobile Receivables Trust, 1998-D, Arcadia Automobile
Receivables Trust, 1998-C, Arcadia Automobile Receivables Trust, 1998-B, Arcadia
Automobile Receivables Trust, 1998-A, Arcadia Automobile Receivables Trust,
1997-D, Arcadia Automobile Receivables Trust, 1997-C, Arcadia Automobile
Receivables Trust, 1997-B, Olympic Automobile Receivables Trust, 1997-A, Olympic
Automobile Receivables Trust, 1996-D, Olympic Automobile Receivables Trust,
1996-C, Olympic Automobile Receivables Trust, 1996-B, Olympic Automobile
Receivables Trust, 1996-A, Olympic Automobile Receivables Trust, 1995-E, Olympic
Automobile Receivables Trust, 1995-D, Olympic Automobile Receivables Trust,
1995-C, Olympic Automobile Receivables Trust, 1995-B, Olympic Automobile
Receivables Trust, 1995-A, Olympic Automobile Receivables Trust, 1994-B, Arcadia
Automobile Receivables Warehouse Trust, Arcadia First GP Inc. (formerly known as
Olympic First GP Inc.), Arcadia Second GP Inc. (formerly known as Olympic Second
GP Inc.), Arcadia Receivables Finance Corp. (formerly known as Olympic
Receivables Finance Corp.), and Arcadia Financial Ltd. ("AFL", formerly known as
Olympic Financial Ltd.), in each case with respect to each Insurance and
Indemnity Agreement with respect to which such person is a party.
WHEREAS, the respective parties to each Insurance and
Indemnity Agreement (the "Respective Parties") have heretofore executed such
Insurance and Indemnity Agreement;
WHEREAS, the Respective Parties to each Insurance and
Indemnity Agreement wish to amend such Agreement.
NOW, THEREFORE, the Respective Parties to each Insurance and
Indemnity Agreement agree that such Agreement is hereby amended as follows:
Section 1. AMENDMENT TO THE INSURANCE AND INDEMNITY
AGREEMENTS.
A. Paragraph (n) of Section 5.01 of each of the Series 1999-A Insurance
and Indemnity Agreement, Series 1998-E Insurance and Indemnity Agreement, Series
1998-D Insurance and Indemnity Agreement, Series 1998-C Insurance and Indemnity
Agreement, Series 1998-B Insurance and Indemnity Agreement, Series 1998-A
Insurance and Indemnity Agreement, the Series 1997-D Insurance and Indemnity
Agreement, the Series 1997-C Insurance and Indemnity Agreement, the Series
1997-B Insurance and Indemnity Agreement and the Series 1997-A Insurance and
Indemnity Agreement is hereby amended by deleting the text contained therein and
replacing such text in each instance with the text specified in Exhibit A
hereto.
B. Paragraph (o) of Section 5.01 of each of the Series 1996-D Insurance
and Indemnity Agreement, the Series 1996-C Insurance and Indemnity Agreement,
the Series 1996-B Insurance and Indemnity Agreement, the Series 1996-A Insurance
and Indemnity Agreement, the Series 1995-E Insurance and Indemnity Agreement,
the Series 1995-D
<PAGE>
Insurance and Indemnity Agreement, the Series 1995-C Insurance and Indemnity
Agreement and the Series 1995-A Insurance and Indemnity Agreement is hereby
amended by deleting the text contained therein and replacing such text in
each instance with the text specified in Exhibit A hereto.
C. Paragraph (q) of Section 5.01 of the Series 1995-B Insurance and
Indemnity Agreement is hereby amended by deleting the text contained therein and
replacing such text in each instance with the text specified in Exhibit A
hereto.
D. Paragraph (p) of Section 5.01 of the Series 1994-B Insurance and
Indemnity Agreement is hereby amended by deleting the text contained therein and
replacing such text in each instance with the text specified in Exhibit A
hereto.
E. Paragraph (f) of Section 5.01 of the Warehousing Series Insurance
and Indemnity Agreement is hereby amended by deleting the text contained therein
and replacing such text in each instance with the text specified in Exhibit A
hereto.
Section 2. COUNTERPARTS. This Amendment to the Insurance and
Indemnity Agreements may be executed in several counterparts, each of which
shall be deemed an original hereof and all of which, when taken together, shall
constitute one and the same Amendment to the Insurance and Indemnity Agreements.
Section 3. RATIFICATION OF INSURANCE AND INDEMNITY AGREEMENTS.
Except as provided herein, all provisions, terms and conditions of the Insurance
and Indemnity Agreements shall remain in full force and effect. As amended
hereby, the Insurance and Indemnity Agreements are ratified and confirmed in all
respects.
Section 4. AUTHORIZATION. By its execution hereof, Financial
Security Assurance Inc. hereby instructs the Owner Trustee of each of Arcadia
Automobile Receivables Trust, 1999-A, Arcadia Automobile Receivables Trust,
1998-E, Arcadia Automobile Receivables Trust, 1998-D, Arcadia Automobile
Receivables Trust, 1998-C, Arcadia Automobile Receivables Trust, 1998-B, Arcadia
Automobile Receivables Trust, 1998-A, Arcadia Automobile Receivables Trust,
1997-D, Arcadia Automobile Receivables Trust, 1997-C, Arcadia Automobile
Receivables Trust, 1997-B, Olympic Automobile Receivables Trust, 1997-A, Olympic
Automobile Receivables Trust, 1996-D, Olympic Automobile Receivables Trust,
1996-C, Olympic Automobile Receivables Trust, 1996-B, Olympic Automobile
Receivables Trust, 1996-A, Olympic Automobile Receivables Trust, 1995-E, Olympic
Automobile Receivables Trust, 1995-D, Olympic Automobile Receivables Trust,
1995-C, Olympic Automobile Receivables Trust, 1995-B, Olympic Automobile
Receivables Trust, 1995-A, Olympic Automobile Receivables Trust, 1994-B and
Arcadia Automobile Receivables Warehouse Trust each in accordance with the
respective Trust Agreements, to execute this Amendment.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment to the respective Insurance and Indemnity Agreements specified below
as of the date set forth on the first page hereof.
With respect to each Insurance and
Indemnity Agreement:
FINANCIAL SECURITY ASSURANCE INC.
By: /s/ ERROL UHR
--------------------------------
Authorized Officer
ARCADIA RECEIVABLES FINANCE CORP.
By: /s/ JOHN A. WITHAM
------------------------------------
Name: John A. Witham
Title: Senior Vice President and
Chief Financial Officer
ARCADIA FINANCIAL LTD.
By: /s/ JOHN A. WITHAM
---------------------------------------
Name: John A. Witham
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
With respect to the:
Series 1997-A Insurance and Indemnity Agreement,
Series 1996-D Insurance and Indemnity Agreement,
Series 1996-C Insurance and Indemnity Agreement,
Series 1996-B Insurance and Indemnity Agreement,
Series 1996-A Insurance and Indemnity Agreement,
Series 1995-E Insurance and Indemnity Agreement,
Series 1995-D Insurance and Indemnity Agreement,
Series 1995-C Insurance and Indemnity Agreement,
Series 1995-B Insurance and Indemnity Agreement,
Series 1995-A Insurance and Indemnity Agreement,
and
Series 1994-B Insurance and Indemnity Agreement:
ARCADIA FIRST GP INC.
By: /s/ JOHN A. WITHAM
---------------------------------------
Name: John A. Witham
Title: Executive Vice President and
Chief Financial Officer
ARCADIA SECOND GP INC.
By: /s/ JOHN A. WITHAM
----------------------------------------
Name: John A. Witham
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
With respect to the:
Series 1999-A Insurance and Indemnity Agreement,
Series 1998-E Insurance and Indemnity Agreement,
Series 1998-D Insurance and Indemnity Agreement,
Series 1998-C Insurance and Indemnity Agreement,
Series 1998-B Insurance and Indemnity Agreement,
Series 1998-A Insurance and Indemnity Agreement,
Series 1997-D Insurance and Indemnity Agreement,
Series 1997-C 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, and
Warehousing Series Insurance and Indemnity Agreement
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1999-A
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1998-E
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1998-D
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1998-C
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1998-B
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1998-A
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-D
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-C
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1995-E
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1995-D
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1995-C
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1995-B
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1995-A
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1994-B
ARCADIA AUTOMOBILE RECEIVABLES WAREHOUSE TRUST
By: Wilmington Trust Company,
not in its individual capacity, but solely
in its capacity as Owner Trustee
By: /s/ DENISE M. GERAN
-------------------------------------------
Name: Denise M. Geran
Title: Senior Financial Services Officer
<PAGE>
With respect to the:
Series 1997-B Insurance and Indemnity Agreement,
Series 1997-A Insurance and Indemnity Agreement,
Series 1996-D Insurance and Indemnity Agreement,
Series 1996-C Insurance and Indemnity Agreement,
Series 1996-B Insurance and Indemnity Agreement, and
Series 1996-A Insurance and Indemnity Agreement:
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-B
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1997-A
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1996-D
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1996-C
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1996-B
OLYMPIC AUTOMOBILE RECEIVABLES TRUST, 1996-A
By: chase Manhattan Bank Delaware, as successor
to Mellon Bank (DE), National Association,
not in its individual capacity, but solely
in its capacity as Owner Trustee
By: /s/ DENIS KELLY
----------------------------------
Name: Denis Kelly
Title: Assistant Vice President
<PAGE>
SCHEDULE I
RESERVED
I-1
<PAGE>
SCHEDULE II
RESERVED
II-1
<PAGE>
SCHEDULE III
RESERVED
III-1
<PAGE>
SCHEDULE IV
(1) Insurance and Indemnity Agreement dated as of March 17, 1999 (the "Series
1999-A Insurance and Indemnity Agreement");
(2) Insurance and Indemnity Agreement dated as of December 22, 1998 (the
"Series 1998-E Insurance and Indemnity Agreement");
(3) Insurance and Indemnity Agreement dated as of November 19, 1998 (the
"Series 1998-D Insurance and Indemnity Agreement");
(4) Insurance and Indemnity Agreement dated as of September 22, 1998 (the
"Series 1998-C Insurance and Indemnity Agreement");
(5) Insurance and Indemnity Agreement dated as of June 23, 1998 (the "Series
1998-B Insurance and Indemnity Agreement");
(6) Insurance and Indemnity Agreement dated as of March 25, 1998 (the "Series
1998-A Insurance and Indemnity Agreement");
(7) Insurance and Indemnity Agreement dated as of December 16 1997 (the "Series
1997-D Insurance and Indemnity Agreement");
(8) Insurance and Indemnity Agreement dated as of September 18, 1997, as
amended by that certain Amendment dated as of December 16, 1997 (the
"December 1997 Amendment") to certain of the Insurance and Indemnity
Agreements (as amended, the "Series 1997-C Insurance and Indemnity
Agreement");
(9) Insurance and Indemnity Agreement dated as of June 19, 1997, as amended by
the December 1997 Amendment (as amended, the "Series 1997-B Insurance and
Indemnity Agreement");
(10) Insurance and Indemnity Agreement dated as of March 20, 1997, as amended by
the December 1997 Amendment (as amended, the "Series 1997-A Insurance and
Indemnity Agreement");
(11) Insurance and Indemnity Agreement dated as of December 12, 1996, as amended
by the December 1997 Amendment (as amended, the "Series 1996-D Insurance
and Indemnity Agreement");
(12) Insurance and Indemnity Agreement dated as of September 12, 1996, as
amended by the December 1997 Amendment (as amended, the "Series 1996-C
Insurance and Indemnity Agreement");
(13) Insurance and Indemnity Agreement dated as of June 14, 1996, as amended by
that certain Amendment dated as of September 12, 1996 (the "September 1996
Amendment") to certain of the Insurance and Indemnity Agreements, as
further
IV-1
<PAGE>
amended by the December 1997 Amendment (as amended, the "Series 1996-B
Insurance and Indemnity Agreement");
(14) Insurance and Indemnity Agreement dated as of March 14, 1996, as amended by
that certain Amendment dated as of May 31, 1996 (the "May 1996 Amendment")
to certain of the Insurance and Indemnity Agreements, as further amended by
the September 1996 Amendment, the December 1997 Amendment and the December
1997 Amendment (as amended, the "Series 1996-A Insurance and Indemnity
Agreement");
(15) Insurance and Indemnity Agreement dated as of December 6, 1995, as amended
by the May 1996 Amendment, as further amended by the September 1996
Amendment and the December 1997 Amendment (as amended, the "Series 1995-E
Insurance and Indemnity Agreement");
(16) Insurance and Indemnity Agreement dated as of September 21, 1995, as
amended by that certain Amendment dated as of December 6, 1995 (the
"December 1995 Amendment") to certain of the Insurance and Indemnity
Agreements, as further amended by the May 1996 Amendment, the September
1996 Amendment and the December 1997 Amendment (as amended, the "Series
1995-D Insurance and Indemnity Agreement");
(17) Insurance and Indemnity Agreement dated as of June 15, 1995, as amended by
the December 1995 Amendment, as further amended by the May 1996 Amendment,
as further amended by the September 1996 Amendment and the December 1997
Amendment (as amended, the "Series 1995-C Insurance and Indemnity
Agreement");
(18) Insurance and Indemnity Agreement dated as of March 15, 1995, as amended by
that certain Amendment dated as of June 15, 1995 (the "June 1995
Amendment") to certain of the Insurance and Indemnity Agreements, as
further amended by the December 1995 Amendment, the May 1996 Amendment, the
September 1996 Amendment and the December 1997 Amendment (as amended, the
"Series 1995-B Insurance and Indemnity Agreement");
(19) Insurance and Indemnity Agreement dated as of February 9, 1995, as amended
by the June 1995 Amendment, as further amended by the December 1995
Amendment and May 1996 Amendment, as further amended by the September 1996
Amendment, as further amended by the December 1997 Amendment (as amended,
the "Series 1995-A Insurance and Indemnity Agreement"); and
(20) Insurance and Indemnity Agreement dated as of September 23, 1994, as
amended by the June 1995 Amendment, as further amended by the December 1995
Amendment, the September 1996 Amendment and the December 1997 Amendment (as
amended, the "Series 1994-B Insurance and Indemnity Agreement").
IV-2
<PAGE>
(21) Insuranceand Indemnity Agreement dated as of December 3, 1996, as amended
and restated as of July 21, 1998 pertaining to Arcadia Automobile
Receivables Warehouse Trust (as amended and restated, the "Warehousing
Series Insurance and Indemnity Agreement").
IV-3
<PAGE>
EXHIBIT A
1. With respect to the Series 1999-A Insurance and Indemnity Agreement, Series
1998-E Insurance and Indemnity Agreement, Series 1998-D Insurance and Indemnity
Agreement, Series 1998-C Insurance and Indemnity Agreement, Series 1998-B
Insurance and Indemnity Agreement, Series 1998-A Insurance and Indemnity
Agreement, Series 1997-D Insurance and Indemnity Agreement, Series 1997-C
Insurance and Indemnity Agreement and Series 1997-B Insurance and Indemnity
Agreement:
"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, including any
"Event of Default" defined as a "Portfolio Performance Event of
Default" in such Insurance and Indemnity Agreement."
2. With respect to the Series 1997-A Insurance and Indemnity Agreement, Series
1996-D, Insurance and Indemnity Agreement, Series 1996-C Insurance and Indemnity
Agreement, Series 1996-B Insurance and Indemnity Agreement, Series 1996-A
Insurance and Indemnity Agreement, Series 1995-E Insurance and Indemnity
Agreement, Series 1995-D Insurance and Indemnity Agreement, Series 1995-C
Insurance and Indemnity Agreement, Series 1995-B Insurance and Indemnity
Agreement, Series 1995-A Insurance and Indemnity Agreement and Series 1994-B
Insurance and Indemnity Agreement:
"the occurrence of an "Event of Default" under and as defined in any
Insurance and Indemnity Agreement among Financial Security, OFL, the
Seller and any other parties thereto, including any "Event of Default"
defined as a "Portfolio Performance Event of Default" in such Insurance
and Indemnity Agreement."
3. With respect to the Warehousing Series Insurance and Indemnity Agreement:
"the occurrence of an Insurance Agreement Event of Default with respect
to any Term Transaction, including any Insurance Agreement Event of
Default defined as a "Portfolio Performance Event of Default" in the
related Insurance Agreement."
A-1
<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
AMENDMENT NO. 1
to
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
AND ASSIGNMENT
between
ARCADIA RECEIVABLES FINANCE CORP.
Purchaser
and
ARCADIA FINANCIAL LTD.
Seller
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE I
DEFINITIONS
ARTICLE II
AMENDMENTS
<S> <C>
SECTION 2.1 Amendments to Section 1.01 of the Receivables
Purchase Agreement ....................................... 1
SECTION 2.2 Substitution for "Dealer" References ....................... 2
SECTION 2.3 Amendment to Schedule B of the Receivables
Purchase Agreement ....................................... 2
ARTICLE III
MISCELLANEOUS
SECTION 3.1 Counterparts; Effectiveness ................................ 2
SECTION 3.2 Governing Law; Entire Agreement ............................ 3
SECTION 3.3 Headings ................................................... 3
SECTION 3.4 Receivables Purchase Agreement in Full Force and
Effect as Amended ........................................ 3
</TABLE>
-i-
<PAGE>
AMENDMENT NO. 1 dated as of July 13, 1999 (this "AMENDMENT") to
AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT AND ASSIGNMENT dated as
of July 21, 1998 (the "RECEIVABLES PURCHASE AGREEMENT"), between Arcadia
Receivables Finance Corp., a Delaware corporation, as Purchaser (the
"PURCHASER") and Arcadia Financial Ltd., a Minnesota corporation, as Seller,
(the "SELLER").
WHEREAS, the parties listed above have entered into the Receivables
Purchase Agreement;
WHEREAS, pursuant to Section 6.04(b) of the Receivables Purchase
Agreement, the Purchaser and the Seller desire to amend the Receivables
Purchase Agreement in certain respects as provided below;
WHEREAS, the Security Insurer is willing to consent to this
Amendment as required by Section 6.04(b) of the Receivables Purchase
Agreement.
NOW, THEREFORE, the parties to this Amendment hereby agree as
follows:
ARTICLE I
DEFINITIONS
Unless otherwise defined herein or the context otherwise requires,
defined terms used herein shall have the meaning ascribed thereto in the
Receivables Purchase Agreement.
ARTICLE II
AMENDMENTS
SECTION 2.1 AMENDMENTS TO SECTION 1.01 OF THE RECEIVABLES PURCHASE
AGREEMENT. The following new definitions are hereby added in their
appropriate alphabetical order to Section 1.01 of the Receivables Purchase
Agreement:
"RECEIVABLE ASSIGNMENT" means with respect to a Receivable
sold to AFL by a Third-Party Seller (other than a Dealer), the executed
assignment executed by such Third-Party Seller conveying such Receivable
to AFL.
"RECEIVABLES SALE AGREEMENT" means an agreement between AFL
and a Third-Party Seller (other than a Dealer), relating to the sale of
retail installment sales contracts and installment notes of AFL and all
documents and instruments relating thereto.
"THIRD-PARTY AGREEMENT" means a Dealer Agreement or a
Receivables Sale Agreement.
"THIRD-PARTY ASSIGNMENT" means a Dealer Assignment or a
Receivable Assignment.
<PAGE>
"THIRD-PARTY SELLER" means a Dealer or other Person who (i) is
not AFL or a Subsidiary of AFL, (ii) is acceptable to the Security
Insurer and the Agents and (iii) sells Receivables to AFL pursuant to a
Receivables Sale Agreement.
SECTION 2.2 SUBSTITUTION FOR "DEALER" REFERENCES. All references
to "Dealer," "Dealer Agreement" and "Dealer Assignment" in the following
sections of the Receivables Purchase Agreement are hereby deleted and
replaced with "Third-Party Seller," "Third-Party Agreement" and "Third-Party
Assignment", as applicable: the definition of "Other Conveyed Property" in
Section 1.01; Section 2.03(iv); and paragraphs 14, 17, 18 and 25 of Schedule B.
SECTION 2.3 AMENDMENT TO SCHEDULE B OF THE RECEIVABLES PURCHASE
AGREEMENT. Paragraphs 1 and 2 of Schedule B are deleted in their entirety and
replaced with the following:
1. CHARACTERISTICS OF RECEIVABLES. Each Receivable (A) was
originated by (i) AFL or (ii) a Third-Party Seller or other Person (if
purchased by AFL pursuant to a Receivables Sale Agreement with a
Third-Party Seller who did not originate such Receivable) for the retail
sale of a Financed Vehicle in the ordinary course of business of such
Third-Party Seller or other Person, as the case may be, and such
Third-Party Seller or other Person had all necessary licenses and
permits to originate Receivables in the state where such Third-Party
Seller or other Person was located, was fully and properly executed by
the parties thereto, was purchased by Arcadia from the applicable
Third-Party Seller under an existing Third-Party Agreement with AFL and
was validly assigned by the applicable Third-Party Seller to Arcadia,
(B) contains customary and enforceable provisions such as to render the
rights and remedies of the holder thereof adequate for realization
against the collateral security, and (C) is a fully amortizing
Receivable which provides for level monthly payments (provided that the
payment in the first Monthly Period and the final Monthly Period of the
life of the Receivable may be minimally different from the level payment)
which, if made when due, shall fully amortize the Amount Financed over
the original term.
2. NO FRAUD OR MISREPRESENTATION. Each Receivable was
originated by AFL or by a Third-Party Seller or other Person (if
purchased by AFL pursuant to a Receivables Sale Agreement with a
Third-Party Seller who did not originate such Receivable) and was sold
by the applicable Third-Party Seller to AFL without any fraud or
misrepresentation on the part of such Third-Party Seller in either case.
ARTICLE III
MISCELLANEOUS
SECTION 3.1 COUNTERPARTS; EFFECTIVENESS. This Amendment may be
executed by the parties hereto in several counterparts, each of which shall
be deemed to be an original and all of which shall constitute together but one
and the same agreement. This Amendment shall become effective when the
Servicer shall have received (a) counterparts hereof executed on behalf of
the Seller and the Purchaser, (b) the consent of the Security Insurer to the
2
<PAGE>
terms of this Amendment, and (c) evidence of notice to Standard & Poor's and
Moody's of this Amendment.
SECTION 3.2 GOVERNING LAW; ENTIRE AGREEMENT. THIS AMENDMENT SHALL
BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF NEW YORK. This Amendment and the Receivables Purchase Agreement
(and all exhibits, annexes and schedules thereto) constitute the entire
understanding among the parties hereto with respect to the subject matter
hereof and supersede any prior agreements, written or oral, with respect
thereto.
SECTION 3.3 HEADINGS. The various headings of this Amendment are
inserted for convenience only and shall not affect the meaning or
interpretation of this Amendment or any provisions hereof or thereof.
SECTION 3.4 RECEIVABLES PURCHASE AGREEMENT IN FULL FORCE AND
EFFECT AS AMENDED. Except as specifically stated herein, all of the terms and
conditions of the Receivables Purchase Agreement shall remain in full force
and effect. All reference to the Receivables Purchase Agreement in any other
document or instrument shall be deemed to mean the Receivables Purchase
Agreement, as amended by this Amendment. This Amendment shall not constitute
a novation of the Receivables Purchase Agreement, but shall constitute an
amendment thereto. The parties hereto agree to be bound by the terms and
obligations of the Receivables Purchase Agreement, as amended by this
Amendment, as though the terms and obligations of the Receivables Purchase
Agreement were set forth herein.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their authorized officers, all as of the
date and year first above written.
PURCHASER:
ARCADIA RECEIVABLES FINANCE CORP.
By: /s/ John Witham
--------------------------
Name: John Witham
Title: SVP & CFO
SELLER:
ARCADIA FINANCIAL LTD.
By: /s/ John Witham
--------------------------
NAME: John Witham
TITLE: EVP & CFO
ASSURED AND CONSENTED:
SECURITY INSURER:
FINANCIAL SECURITY ASSURANCE INC.
By: /s/ Dan Farrell
----------------------------
Name:
Title:
4
<PAGE>
EXECUTION COPY
FIRST AMENDMENT
TO THE
AMENDED AND RESTATED
NOTE PURCHASE AGREEMENT
Arcadia Automobile Receivables Warehouse Trust
THIS FIRST AMENDMENT TO THE AMENDED AND RESTATED NOTE PURCHASE
AGREEMENT dated as of July 13, 1999 (this "Amendment"), among ARCADIA
AUTOMOBILE RECEIVABLES WAREHOUSE TRUST (the "Issuer"), ARCADIA FINANCIAL LTD.
("Arcadia"), RECEIVABLES CAPITAL CORPORATION (a "Purchaser" or "RCC"), BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION as RCC Agent (in such
capacity, the "RCC Agent") and as Administrative Agent (in such capacity, the
"Administrative Agent"), DELAWARE FUNDING CORPORATION (a "Purchaser" or
"DFC"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as DFC Agent (the "DFC
Agent").
WHEREAS, the parties hereto wish to amend the Amended and Restated
Note Purchase Agreement dated as of July 21, 1998 (as amended and in effect
from time to time, the "NOTE PURCHASE AGREEMENT"), among the Issuer, Arcadia,
the Purchasers, the RCC Agent and the DFC Agent to (i) extend the Purchase
Period and (ii) provide for reduction of the Maximum Authorized Amount, the
DFC Purchase Limit and the RCC Purchase Limit upon the occurrence of certain
events, all as provided herein; and
WHEREAS, in accordance with the provisions of Section 7.1(b) of the
Sale and Servicing Agreement and Section 9.02 of the Indenture, the consent
of the Purchasers is required for certain amendments to the Sale and
Servicing Agreement and the Indenture, respectively, and RCC and DFC desire
to consent to the provisions of Amendment No. 1 to Sale and Servicing
Agreement dated the date hereof ("Sale Agreement Amendment"), by and among
the Issuer, Arcadia Receivables Finance Corp., AFL, the RCC Agent and the DFC
Agent and the Indenture Supplement dated the date hereof (the "Indenture
Supplement"), among the Issuer, the Trustee, the RCC Agent and the DFC Agent.
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein, the parties hereto agree as follows:
SECTION 1. AMENDMENT OF SECTION 1. Section 1 of the Note Purchase
Agreement shall be amended by adding a new last sentence which reads as
follows:
On any Guaranty Reduction Event Date, the Maximum Authorized Amount
will be automatically reduced by an amount equal to the Guaranty
Reduction Amount specified in clause (i) of the definition thereof and
the DFC Purchase Limit and the RCC Purchase Limit will be automatically
reduced in accordance with their respective Purchase Percentages.
<PAGE>
SECTION 2. AMENDMENTS TO SECTION 8. Section 8 of the Note Purchase
Agreement is amended as follows:
a. The following definition shall be added in alphabetical order
and Section 8 realphabetized accordingly:
the terms "Guaranty Reduction Amount" and "Guaranty Reduction
Event Date" shall have the meanings set forth in the Sale and Servicing
Agreement;
b. Letter (j) is deleted in its entirety and replaced with the
following:
(j) the term "Purchase Period" shall mean the period from the
date of execution hereof to the earliest to occur of (i) July 11, 2000,
(ii) the commencement of the Amortization Period, (iii) the commitment
of related Liquidity Purchasers to purchase interests in the respective
Notes from a Purchaser under the related Liquidity Agreement shall
expire and (iv) the date specified by the Issuer with five Business
Day's prior notice to the Administrative Agent, each Agent, the Security
Insurer, the Indenture Trustee and the Rating Agencies;
SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of Arcadia and the
Issuer represents and warrants that as of the date hereof no Event of Default
has occurred under the Sale and Servicing Agreement, and to the best of the
Issuer's or Arcadia's knowledge there is no set of circumstances existing
that with the passage of time, would constitute such an Event of Default or
Servicer Termination Event.
SECTION 4. CONSENT TO SALE AGREEMENT AMENDMENT AND INDENTURE
SUPPLEMENT. In accordance with the provisions Section 7.1(b) of the Sale and
Servicing Agreement and Section 9.02 of the Indenture, RCC and DFC hereby
consent to the provisions of the Sale Agreement Amendment and the Indenture
Supplement.
SECTION 5. EFFECTIVENESS. The amendments and consent provided for
by this Amendment shall become effective on July 13, 1999, upon the
occurrence of the following: (i) receipt by each Agent, in form and substance
satisfactory to the RCC Agent and the DFC Agent, of (a) this Amendment duly
executed and delivered by each of the parties hereto (and consented to by
each of the required parties), (b) an opinion of counsel to AFL and ARFC,
dated the date hereof, addressed to each Agent, the Security Insurer and each
Purchaser, covering such matters as the RCC Agent or the DFC Agent may
reasonably request, (c) an Officers' Certificate of each of the Issuer, AFL
and ARFC, dated the date hereof, (d) duly executed counterparts of the Sale
Agreement Amendment and the Indenture Supplement, (e) fully executed
Endorsement No. 5 of the Policy amending the last sentence of "Scheduled
Payments" such that the date therein is extended to July 13, 2000 and a duly
executed counterpart of an amendment to the Insurance Agreement, and (f) an
opinion of counsel to the Security Insurer, dated the date hereof, addressed
to the Issuer, AFL, ARFC, each Agent and the Indenture Trustee, covering such
matters as the RCC Agent or the DFC Agent may reasonably request.
SECTION 6. NOTE PURCHASE AGREEMENT IN FULL FORCE AND EFFECT AS
AMENDED. Except as specifically amended hereby, all of the terms and
conditions of the Note Purchase Agreement shall remain in full force and
effect and, except as expressly provided
2
<PAGE>
herein, the effectiveness of this Amendment shall not operate as, or
constitute a waiver or modification of, any right, power or remedy of any
party to the Note Purchase Agreement. All references to the Note Purchase
Agreement in any other document or instrument shall be deemed to mean the Note
Purchase Agreement as amended by this Amendment. This Amendment shall not
constitute a novation of the Note Purchase Agreement, but shall constitute an
amendment thereof.
SECTION 7. COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by separate parties hereto on separate
counterparts, each of which when executed shall be deemed an original, but
all such counterparts taken together shall constitute one and the same
instrument.
SECTION 8. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS.
SECTION 9. DEFINED TERMS. Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to such terms in the Note
Purchase Agreement.
SECTION 10. LIMITATION OF OWNER TRUSTEE LIABILITY. It is expressly
understood and agreed by the parties hereto that (a) this Amendment is
executed and delivered by Wilmington Trust Company, not individually or
personally but solely as Owner Trustee of the Issuer, in the exercise of the
powers and authority conferred and vested in it under the Trust Agreement,
(b) each of the representations, undertakings and agreements herein made on
the part of the Issuer is made and intended not as a personal representation,
undertaking and agreement by Wilmington Trust Company but is made and intended
for the purpose of binding only the Issuer and (c) under no circumstances
shall Wilmington Trust Company be personally liable for the payment of any
indebtedness or expenses of the Issuer or be liable for the breach or failure
of any obligation, representation, warranty or covenant made or undertaken by
the Issuer under this Amendment or the other related documents.
3
<PAGE>
IN WITNESS WHEREOF, each Purchaser, the RCC Agent, the DFC Agent,
Arcadia and the Issuer have caused this First Amendment to Note Purchase
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the date first above written.
ARCADIA AUTOMOBILE RECEIVABLES TRUST
By: Wilmington Trust Company, not in its
individual capacity but solely as
Owner Trustee
By: /s/ Denise M. Geran
---------------------------
Name: Denise M. Geran
Title: Senior Financial Services Officer
ARCADIA FINANCIAL LTD.
By: /s/ John Witham
---------------------------
Name:
Title:
RECEIVABLES CAPITAL CORPORATION,
as a Purchaser
By: /s/ Stephen Newman
---------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent and RCC Agent
By: /s/ Marianne Mihalik
---------------------------
Name: MARIANNE MIHALIK
Title: Vice President
<PAGE>
DELAWARE FUNDING CORPORATION,
as a Purchaser
By: Morgan Guaranty Trust Company of New
York as attorney-in-fact for
Delaware Funding Corporation
By: /s/ Robert S. Jones
---------------------------
Name: Robert S. Jones
Title: Vice President
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK,
as DFC Agent
By: /s/ Robert S. Jones
---------------------------
Name: Robert S. Jones
Title: Vice President
5
<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
AMENDMENT NO. 1
to
AMENDED AND RESTATED
SALE AND SERVICING AGREEMENT
among
ARCADIA AUTOMOBILE RECEIVABLES WAREHOUSE TRUST
Issuer
ARCADIA RECEIVABLES FINANCE CORP.
Seller
ARCADIA FINANCIAL LTD.
In its individual capacity and as Servicer
BANK OF AMERICA, NATIONAL TRUST AND SAVINGS ASSOCIATION
Administrative Agent And RCC Agent
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
DFC Agent
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Backup Servicer, Collateral Agent and Indenture Trustee
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I
DEFINITIONS
ARTICLE II
AMENDMENTS
SECTION 2.1 Amendments to Section 1.1 of the Sale and Servicing Agreement....................... 1
SECTION 2.2 Amendment to Section 2.1(d) of the Sale and Servicing Agreement..................... 5
SECTION 2.3 Amendment to Section 2.6(a) of the Sale and Servicing Agreement .................... 5
SECTION 2.4 Amendment to Section 2.7 of the Sale and Servicing Agreement........................ 5
SECTION 2.5 Addition of New Section 2.12 to the Sale and Servicing Agreement.................... 6
SECTION 2.6 Substitution for "Dealer" References................................................ 6
SECTION 2.7 Amendment to Exhibit B to Sale and Servicing Agreement.............................. 6
SECTION 2.8 Amendment to Exhibit E of Sale and Servicing Agreement.............................. 6
SECTION 2.9 Amendment to Schedule A of the Sale and Servicing Agreement......................... 6
ARTICLE III
MISCELLANEOUS
SECTION 3.1 Counterparts; Effectiveness......................................................... 7
SECTION 3.2 Governing Law; Entire Agreement..................................................... 8
SECTION 3.3 Headings............................................................................ 8
SECTION 3.4 Sale and Servicing Agreement in Full Force and Effect as Amended.................... 8
SECTION 3.5 Limitation of Owner Trustee Liability............................................... 8
</TABLE>
-I-
<PAGE>
AMENDMENT NO. 1 dated as of July 13, 1999 (this "AMENDMENT") to
AMENDED AND RESTATED SALE AND SERVICING AGREEMENT dated as of July 21, 1998
(the "SALE AND SERVICING AGREEMENT"), among Arcadia Automobile Receivables
Warehouse Trust, a Delaware business trust (the "ISSUER"), Arcadia
Receivables Finance Corp., a Delaware corporation, as Seller (the "SELLER"),
Arcadia Financial Ltd., a Minnesota corporation, in its individual capacity
and as Servicer, (in its individual capacity, "AFL" and in its capacity as
Servicer, the "SERVICER") and Norwest Bank Minnesota, National Association, a
national banking association, as Backup Servicer (in such capacity, the
"BACKUP SERVICER"), as Collateral Agent (in such capacity, the "COLLATERAL
AGENT") and as Indenture Trustee (in such capacity, the "INDENTURE TRUSTEE").
WHEREAS, the parties listed above have entered into the Sale and
Servicing Agreement;
WHEREAS, pursuant to Section 7.1(b) of the Sale and Servicing
Agreement, the Issuer, the Seller, AFL, the Servicer, the Administrative
Agent and each Agent desire to amend the Sale and Servicing Agreement in
certain respects as provided below;
WHEREAS, each of the Indenture Trustee, the Backup Servicer, and
the Security Insurer and a Note Majority is willing to consent to this
Amendment as required by Section 7.1(b) of the Sale and Servicing Agreement;
NOW, THEREFORE, the parties to this Amendment hereby agree as
follows:
ARTICLE I
DEFINITIONS
Unless otherwise defined herein or the context otherwise requires,
defined terms used herein shall have the meaning ascribed thereto in the Sale
and Servicing Agreement.
ARTICLE II
AMENDMENTS
SECTION 2.1 AMENDMENTS TO SECTION 1.1 OF THE SALE AND SERVICING
AGREEMENT. The following definitions in Section 1.1 of the Sale and Servicing
Agreement are hereby amended:
(a) Clause (i) of the definition of "AMORTIZATION EVENT" is deleted
in its entirety and replaced with the following:
(i) an Event of Default shall have occurred and either the
Repurchase Date or the Amortization Date shall be deemed to occur
automatically or the Issuer, the Administrative Agent or the Security
Insurer shall exercise its option to have the Repurchase Date or the
Amortization Date with respect to all Transactions occur automatically,
<PAGE>
(b) The definition of "AMORTIZATION PERIOD" is amended by deleting
"July 20, 1999" in clause (i) thereof and replacing it with "July 11, 2000."
(c) The definition of "AUTO RECEIVABLES" is deleted in its
entirety and replaced with the following:
AUTO RECEIVABLE: An installment sales contract or promissory note
originated by AFL or purchased by AFL or a Subsidiary of AFL from a
Third-Party Seller and, in each case, secured by new and used automobiles
and light trucks.
(d) The definition of "BASIC SERVICING FEE RATE" is amended by
deleting the reference to "1.40% per annum" and replacing it with "1.65% per
annum."
(e) The definitions "CLASSIC RECEIVABLES" and "PREMIER RECEIVABLES"
are deleted and all references to those definitions elsewhere in the Sale and
Servicing Agreement are hereby deleted.
(f) The definition of "COLLATERAL TEST" is amended by deleting
clause (ii) thereof in its entirety and replacing it with:
(ii) the product of (I) 0.93 and (II) the sum of the aggregate
outstanding Principal Balance of Receivables that are Qualifying
Receivables:
(g) The definition of "COMMITMENT AMOUNT" is hereby deleted in its
entirety and replaced with the following:
COMMITMENT AMOUNT: Initially, $400,000,000, and, upon the
occurrence of a Guaranty Reduction Event, the amount by which $400,000,000
exceeds the Guaranty Reduction Amount.
(h) The definition of "FINAL SCHEDULED DISTRIBUTION DATE" is
amended by deleting the reference to "fourth" therein and replacing it with
"ninth".
(i) The definition of "MAXIMUM INTEREST RATE" is amended by
deleting the reference to "7.25%" in clause (II) thereof and replacing it
with "8.25%."
(j) The definition of "Non-Callable Notes" is deleted in its
entirety and is replaced with the following:
NON-CALLABLE NOTES: A Note issued in connection with a
Recapitalization that is not subject to prepayment in whole or in part
in connection with the occurrence of a Repurchase Date specified in
clause (i), (ii), (iii) or (v) of the definition of Repurchase Date in
this Section 1.1, as applied pursuant to Sections 2.1(d), 2.1(e) and
4.10(b), but is otherwise subject to mandatory prepayment in the situation
described in the third sentence and the last sentence of Section 2.1(d)
as applied pursuant to Sections 2.1(e) and 4.10(b).
2
<PAGE>
(k) The definition of "PURCHASE PRICE" is hereby deleted in its
entirety and replaced with the following:
PURCHASE PRICE: With respect to each Purchase Date, the price at
which Receivables are transferred by the Seller to the Issuer, which
shall equal the product of 0.93 and the outstanding Principal Balance of
the Receivables being transferred on such Purchase Date.
(l) The definition of "QUALIFYING RECEIVABLE" is amended by
deleting the proviso at the end thereof and replacing it with the following:
PROVIDED, the aggregate Principal Balance of the following types of
Receivables in excess of the applicable specified percentages shall
be excluded from the Principal Balance of Qualifying Receivables for
all purposes hereunder, including, the denominator of the
aforesaid calculation and the calculation of the Collateral Test:
<TABLE>
<CAPTION>
Type of Receivable Applicable Percentage
------------------ ---------------------
<S> <C>
Risk Tranche A 5%
Risk Tranche B 15%
Risk Tranche C 30%
Risk Tranche D 37%
Risk Tranche E 12%
Risk Tranche F 0.5%
Risk Tranche G 0.0%
Risk Tranche H 1.5%
</TABLE>
(m) The definition of "REPURCHASE DATE" is hereby amended to
include a new clause (vi) and to add a reference to such clause (vi) to the
proviso at the end of such definition such clause (vi) and the proviso read
as follows:
(vi) the Business Day next preceding a Guaranty Reduction Event
Date and such Receivable is listed on the schedule delivered by the
Seller to the Issuer pursuant to Section 2.12 hereof; PROVIDED, that
notwithstanding the above, after a Recapitalization, the Repurchase
Date with respect to a Receivable shall refer only to the date
determined in accordance with clauses (iv) and (vi) of this definition.
(n) The definition of "REPURCHASE PRICE" is amended by deleting
the references to "0.96" and "96%" therein and replacing the same with "0.93"
and "93%."
(o) The definition of "TOTAL EXPENSE PERCENT" is amended by
increasing the Total Expense Percent from "1.68%" to "1.93%".
(p) The definition of "WAC DEFICIENCY PERCENTAGE" is amended by
deleting the reference to "7.25% in clause (A) thereof and replacing it with
"8.25%".
(q) The following new definitions are added in their appropriate
alphabetical order:
3
<PAGE>
GUARANTY REDUCTION AMOUNT: On each Guaranty Reduction Event Date, the
amount by which the maximum amount of "Obligations" insured under the Note
Policy is reduced, which amount shall be equal to the reduction amount
specified in writing by the Security Insurer.
GUARANTY REDUCTION EVENT: The reduction of the maximum amount of
"Obligations" insured under the Note Policy.
GUARANTY REDUCTION EVENT DATE: The date specified in a written notice
from the Security Insurer to the Issuer, the Trustee, the Servicer and the
Agents as of which a Guaranty Reduction Event occurs or is scheduled to
occur, which notice shall be delivered not later than 10 Business Days
before the reduction date specified therein.
RECEIVABLE ASSIGNMENT: With respect to a Receivable sold to AFL by a
Third-Party Seller (other than a Dealer), the executed assignment executed by
such Third-Party Seller conveying such Receivable to AFL.
RECEIVABLES SALE AGREEMENT: An agreement between AFL and a Third-Party
Seller (other than a Dealer) relating to the sale of retail installment sale
contracts and installment notes of AFL and all documents and instruments
relating thereto.
RISK TRANCHE A RECEIVABLES: Receivables classified by AFL as Risk
Tranche A Receivables in accordance with AFL's risk tranche scoring program.
RISK TRANCHE B RECEIVABLES: Receivables classified by AFL as Risk
Tranche B Receivables in accordance with AFL's risk tranche scoring program.
RISK TRANCHE C RECEIVABLES: Receivables classified by AFL as Risk
Tranche C Receivables in accordance with AFL's risk tranche scoring program.
RISK TRANCHE D RECEIVABLES: Receivables classified by AFL as Risk
Tranche D Receivables in accordance with AFL's risk tranche scoring program.
RISK TRANCHE E RECEIVABLES: Receivables classified by AFL as Risk
Tranche E Receivables in accordance with AFL's risk tranche scoring program.
RISK TRANCHE F RECEIVABLES: Receivables classified by AFL as Risk
Tranche F Receivables in accordance with AFL's risk tranche scoring program.
RISK TRANCHE G RECEIVABLES: Receivables classified by AFL as Risk
Tranche G Receivables in accordance with AFL's risk tranche scoring program.
RISK TRANCHE H RECEIVABLES: Receivables classified by AFL as Risk
Tranche H Receivables in accordance with AFL's risk tranche scoring program.
THIRD-PARTY AGREEMENT: A Dealer Agreement or a Receivables Sale Agreement.
THIRD-PARTY ASSIGNMENT: A Dealer Assignment or a Receivable Assignment.
4
<PAGE>
THIRD-PARTY SELLER: A Dealer or other Person who (i) is not AFL or
a Subsidiary of AFL, (ii) is acceptable to the Security Insurer and the
Agents and (iii) sells Receivables to AFL pursuant to a Receivables Sale
Agreement.
UNINSURED AMOUNT: In connection with any Guaranty Reduction Event,
the aggregate principal amount of Notes, if any, which would be uninsured
under the Note Policy if the maximum amount of "Obligations" insured under
the Note Policy were reduced in the amount specified in writing by the
Security Insurer (without giving effect to any simultaneous prepayment of
the Notes).
SECTION 2.2 AMENDMENT TO SECTION 2.1(d) OF THE SALE AND SERVICING
AGREEMENT. A new sentence is hereby added to the end of Section 2.1(d) of
the Sale and Servicing Agreement and reads as follows:
On a Repurchase Date specified in clause (vi) of the definition of
Repurchase Date herein, the Seller shall effect a repayment of Advances
pursuant to Sections 2.1(e) and 2.12 hereof.
SECTION 2.3 AMENDMENT TO SECTION 2.6(a) OF THE SALE AND SERVICING
AGREEMENT. Section 2.6(a) and (b) of the Sale and Servicing Agreement is
deleted in its entirety and replaced with the following:
(a) At the option of the Seller, if the Issuer is the defaulting
party (it being understood that the Issuer shall be deemed to be the
defaulting party only upon the occurrence of an Event of Default specified in
Section 2.5(a), (b), (d) or (e) with respect to the Issuer), or if the Seller
is the defaulting party, the Administrative Agent (at the direction of both
Agents) or the Security Insurer, exercised by written notice to the other
parties hereto (which option shall be deemed to have been exercised, even if
no notice is given, immediately upon the occurrence of an Act of Insolvency),
the Repurchase Date for each Transaction hereunder shall be deemed
immediately to occur or, if a Recapitalization has occurred, the Amortization
Date shall be deemed immediately to occur and, in either case, if the Seller
is the defaulting party, all outstanding Advances shall be and become
immediately due and payable hereunder without notice or any further action;
PROVIDED, that from and after a Recapitalization, the Seller shall have no
liability to repay the Advances, which shall be payable solely from the
Collateral.
(b) If the defaulting party is the Seller and if the Issuer, the
Administrative Agent or the Security Insurer exercises or is deemed to have
exercised the option referred to in paragraph (a) of this Section, (i) prior
to a Recapitalization, the Seller's obligations hereunder to repurchase all
Receivables shall thereupon become immediately due and payable, and (ii) the
Seller shall immediately deliver to the Issuer any Receivables subject to
such Transactions then in the Seller's custody or possession.
SECTION 2.4 AMENDMENT TO SECTION 2.7 OF THE SALE AND SERVICING
AGREEMENT. Section 2.7 of the Sale and Servicing Agreement is hereby deleted
in its entirety and replaced with the following:
Section 2.7 TERM OF COMMITMENT. Unless terminated earlier by
mutual agreement of the Issuer and the Seller with prior written notice
to each Rating Agency
5
<PAGE>
and subject to earlier termination as otherwise set forth herein, the
commitment of the Issuer hereunder to make Advances and purchase
Receivables shall remain in effect until July 11, 2000 and such
commitment shall terminate automatically without any requirement for
notice on the date occurring three years from the Effective Date;
PROVIDED, HOWEVER, that such commitment may be extended by mutual
agreement of the Issuer and the Seller; and PROVIDED FURTHER, HOWEVER,
that no such party shall be obligated to agree to such an extension.
SECTION 2.5 ADDITION OF NEW SECTION 2.12 TO THE SALE AND SERVICING
AGREEMENT. A new Section 2.12 is hereby added to the Sale and Servicing
Agreement and reads as follows:
Section 2.12. REPURCHASE IN CONNECTION WITH GUARANTY REDUCTION
EVENT. If a Guaranty Reduction Event would result in the Notes having
an Uninsured Amount, a Repurchase Date will occur on the Business Day
next preceding a Guaranty Reduction Event Date with respect to the
Receivables listed on Schedule 1 to the Notice of Repurchase Date
delivered by the Seller to the Issuer no later than 5 Business Days
before such Repurchase Date. On each such Repurchase Date, the Seller
will be required to repurchase Receivables having an aggregate Principal
Balance such that the principal portion of the Repurchase Price thereof
is equal to the Uninsured Amount. Any repurchase pursuant to this
Section 2.12 shall be effected by prepaying Advances in accordance with
the provisions of Section 2.1(e).
SECTION 2.6 SUBSTITUTION FOR "DEALER" REFERENCES. All references to
"Dealer," "Dealer Agreement" and "Dealer Assignment" in the following
sections of the Sale and Servicing Agreement are hereby deleted and replaced
with "Third-Party Seller," "Third-Party Agreement" and "Third-Party
Assignment", as applicable: the definition of "Monthly Records" in Section 1.1;
Sections 2.3(c)(iv), 3.1, 3.2(a), 3.3(a), 3.3(b), 3.6(a)(ii) and 3.17;
and paragraphs 14, 17, 18 and 25 of Schedule A.
SECTION 2.7 AMENDMENT TO EXHIBIT B TO SALE AND SERVICING AGREEMENT.
The form of Servicer's Certificate, Exhibit B to the Sale and Servicing
Agreement, is hereby deleted in its entirety and replaced with the new form
of Servicer's Certificate attached hereto as Exhibit B.
SECTION 2.8 AMENDMENT TO EXHIBIT E OF SALE AND SERVICING
AGREEMENT. The Form of Confirmation Letter, Exhibit E to the Sale and
Servicing Agreement, is hereby replaced in its entirety and replaced with the
new Form of Confirmation Letter attached hereto as Exhibit E.
SECTION 2.9 AMENDMENT TO SCHEDULE A OF THE SALE AND SERVICING
AGREEMENT. The following amendments are hereby made to Schedule A of the Sale
and Servicing Agreement;
(a) Paragraphs 1 and 2 of Schedule A are deleted in their entirety
and replaced with the following:
6
<PAGE>
1. CHARACTERISTICS OF RECEIVABLES. Each Receivable (A) was
originated by (i) AFL or (ii) a Third-Party Seller or other Person (if
purchased by AFL pursuant to a Receivables Sale Agreement with a
Third-Party Seller who did not originate such Receivable) for the retail
sale of a Financed Vehicle in the ordinary course of business of such
Third-Party Seller or other Person, as the case may be, and such
Third-Party Seller or other Person had all necessary licenses and
permits to originate Receivables in the state where such Third-Party
Seller or other Person was located, was fully and properly executed by
the parties thereto, was purchased by Arcadia from the applicable
Third-Party Seller under an existing Third-Party Agreement with AFL and
was validly assigned by the applicable Third-Party Seller to Arcadia,
(B) contains customary and enforceable provisions such as to render the
rights and remedies of the holder thereof adequate for realization
against the collateral security, and (C) is a fully amortizing
Receivable which provides for level monthly payments (PROVIDED that the
payment in the first Monthly Period and the final Monthly Period of the
life of the Receivable may be minimally different from the level
payment) which, if made when due, shall fully amortize the Amount
Financed over the original term.
2. NO FRAUD OR MISREPRESENTATION. Each Receivable was originated
by AFL or by a Third-Party Seller or other Person (if purchased by AFL
pursuant to a Receivables Sale Agreement with a Third-Party Seller who
did not originate such Receivable) and was sold by the applicable
Third-Party Seller to AFL without any fraud or misrepresentation on the
part of such Third-Party Seller in either case.
(b) The last sentence of paragraph 27 in Schedule A of the Sale and
Servicing Agreement is hereby deleted in its entirety and replaced with the
following:
Each of the following types of Receivables constitutes no more than
the applicable specified percentage of the aggregate outstanding
Principal Balance of the Receivables:
<TABLE>
<CAPTION>
Type of Receivable Applicable Percentage
------------------ ---------------------
<S> <C>
Risk Tranche A 5%
Risk Tranche B 15%
Risk Tranche C 30%
Risk Tranche D 37%
Risk Tranche E 12%
Risk Tranche F 0.5%
Risk Tranche G 0.0%
Risk Tranche H 1.5%
</TABLE>
ARTICLE III
MISCELLANEOUS
SECTION 3.1 COUNTERPARTS; EFFECTIVENESS. This Amendment may be
executed by the parties hereto in several counterparts, each of which shall
be deemed to be an original and
7
<PAGE>
all of which shall constitute together but one and the same agreement. This
Amendment shall become effective when the Servicer shall have received (a)
counterparts hereof executed on behalf of the Issuer, the Seller (including
in its capacity as Owner), the Servicer, the Administrative Agent and the
Agents, (b) the consents of the Backup Servicer, the Indenture Trustee, the
Security Insurer and the Noteholders, to the terms of this Amendment, (c)
evidence of notice to Standard & Poor's and Moody's of this Amendment and (d)
an opinion of counsel to AFL and the Seller, dated the date hereof, addressed
to the Agents, the Indenture Trustee, the Owner Trustee and the Security
Insurer, to the effect that (i) the execution of this Amendment is authorized
by the Sale and Servicing Agreement and (ii) no financing statements are
required to be filed in connection with this Amendment in order to preserve
and protect the interest of the Issuer and the Collateral Agent in the
Receivables and other Seller Conveyed Property.
SECTION 3.2 GOVERNING LAW; ENTIRE AGREEMENT. THIS AMENDMENT SHALL
BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF NEW YORK. This Amendment and the Sale and Servicing Agreement
(and all exhibits, annexes and schedules thereto) constitute the entire
understanding among the parties hereto with respect to the subject matter
hereof and supersede any prior agreements, written or oral, with respect
thereto.
SECTION 3.3 HEADINGS. The various headings of this Amendment are
inserted for convenience only and shall not affect the meaning or
interpretation of this Amendment or any provision hereof or thereof.
SECTION 3.4 SALE AND SERVICING AGREEMENT IN FULL FORCE AND EFFECT
AS AMENDED. Except as specifically stated herein, all of the terms and
conditions of the Sale and Servicing Agreement shall remain in full force and
effect. All reference to the Sale and Servicing Agreement in any other
document or instrument shall be deemed to mean the Sale and Servicing
Agreement, as amended by this Amendment. This Amendment shall not constitute
a novation of the Sale and Servicing Agreement, but shall constitute an
amendment thereto. The parties hereto agree to be bound by the terms and
obligations of the Sale and Servicing Agreement, as amended by this
Amendment, as though the terms and obligations of the Sale and Servicing
Agreement were set forth herein.
SECTION 3.5 LIMITATION OF OWNER TRUSTEE LIABILITY. It is expressly
understood and agreed by the parties hereto that (a) this Amendment is
executed and delivered by Wilmington Trust Company, not individually or
personally but solely as Owner Trustee of the Issuer, in the exercise of the
powers and authority conferred and vested in it under the Trust Agreement,
(b) each of the representations, undertakings and agreements herein made on
the part of the Issuer is made and intended not as a personal representation,
undertaking and agreement by Wilmington Trust Company but is made and
intended for the purpose of binding only the Issuer and (c) under no
circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Issuer or be liable for the
breach or failure of any obligation, representation, warranty or covenant
made or undertaken by the Issuer under this Amendment or the other related
documents.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their authorized officers, all as of the
date and year first above written.
ISSUER:
ARCADIA AUTOMOBILE RECEIVABLES
WAREHOUSE TRUST
By: WILMINGTON TRUST COMPANY, not in
its individual capacity but solely as
Owner Trustee
By: /s/ Denise M. Geran
----------------------------------
Name: Denise M. Geran
Title: Senior Financial Services
Officer
SELLER:
ARCADIA RECEIVABLES FINANCE CORP.
By: /s/ John Witham
----------------------------------
Name: John Witham
Title: SVP & CFO
SERVICER:
ARCADIA FINANCIAL LTD.,
in its individual capacity and as
Servicer
By: /s/ John Witham
----------------------------------
Name: John Witham
Title: EVP & CFO
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Administrative Agent and RCC Agent
By: /s/ Marianne Mihalik
----------------------------------
Name: MARIANNE MIHALIK
Title: Vice President
9
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as DFC Agent
By: /s/ Robert S. Jones
----------------------------------
Name: Robert S. Jones
Title: Vice President
10
<PAGE>
AGREED AND CONSENTED:
BACKUP SERVICER:
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, not in its
individual capacity but as Backup
Servicer and Collateral Agent
By: /s/ Eileen R. O'Connor
----------------------------------
Name: Eileen R. O'Connor
Title: Corporate Trust Officer
INDENTURE TRUSTEE:
NORWEST BANK MINNESOTA
NATIONAL ASSOCIATION, not in its
individual capacity but as Indenture
Trustee
By: /s/ Eileen R. O'Connor
----------------------------------
Name: Eileen R. O'Connor
Title: Corporate Trust Officer
FINANCIAL SECURITY ASSURANCE INC.
By: /s/ Dan Farrell
----------------------------------
Name:
Title:
11
<PAGE>
EXHIBIT E
FORM OF CONFIRMATION LETTER
---------------------------
[date]
Arcadia Automobile Receivables Warehouse Trust
c/o Arcadia Financial Ltd.
7825 Washington Avenue South
Minneapolis, Minnesota 55439-2435
Attention: Treasurer
Confirmation No.:
Ladies and Gentlemen:
This letter confirms our agreement to sell to you the Receivables listed in
SCHEDULE A hereto, pursuant to the Amended and Restated Sale and Servicing
Agreement between us, dated as of July 21, 1998 (as amended from time to
time, the "Agreement"), as follows:
Purchase Date:
Cut-Off Date:
Receivables: See SCHEDULE A hereto
1) Purchase Price: Product of 0.93 and the Aggregate
Outstanding Principal Balance of Receivables
being transferred: $
--------------
Calculation of Amount to be released from the Collection Account:
The least of
1) Purchase Price: $
--------------
2) On each such date occurring during the period from but
excluding a Determination Date through and including the
related Distribution Date:
a) Amount on deposit in Collection Account $
--------------
b) minus amount of distributions or retentions to be made
pursuant to SECTIONS 4.6(a)(i) THROUGH (ix) of the Agreement $
--------------
<PAGE>
c) minus any increase in the WAC Deficiency Amount above
the WAC Deficiency Amount on such Determination Date $
--------------
3) a) Amount on deposit in Collection Account $
--------------
b) plus Advances requested $
--------------
c) minus WAC Deficiency Amount on deposit in
Collection Account $
--------------
The least of 1), 2), and 3): $
--------------
Less 1% deposit to Spread Account $
--------------
ARCADIA RECEIVABLES FINANCE CORP.
By:
------------------------------
Responsible Officer
ARCADIA FINANCIAL LTD.,
as Servicer
By:
------------------------------
Responsible Officer
2
<PAGE>
EXECUTION COPY
AMENDMENT
dated as of July 13, 1999
to
Insurance and Indemnity Agreement dated as of December 3, 1996 as amended and
restated as of July 21, 1998
<PAGE>
AMENDMENT dated as of July 13, 1999 to Insurance and Indemnity
Agreement dated as of December 3, 1996 as amended and restated as of July 21,
1998 (the "Warehousing Series Insurance and Indemnity Agreement") among
Financial Security Assurance Inc. ("Financial Security"), Arcadia Automobile
Receivables Warehouse Trust, Arcadia Receivables Finance Corp., and Arcadia
Financial Ltd. ("AFL"). Capitalized terms used herein and not defined have
the meanings set forth in the Warehousing Series Insurance and Indemnity
Agreement.
WHEREAS, the parties to the Warehousing Series Insurance and
Indemnity Agreement (the "Parties") have heretofore executed the Warehousing
Series Insurance and Indemnity Agreement; and
WHEREAS, the Parties wish to amend the Warehousing Series Insurance
and Indemnity Agreement.
NOW, THEREFORE, the Parties agree that the Warehousing Series
Insurance and Indemnity Agreement is hereby amended as follows:
Section 1. AMENDMENT. Clause (j) of Section 5.01 of the
Warehousing Series Insurance and Indemnity Agreement is hereby amended by
deleting it in its entirety and replacing it with the following:
"(j) the occurrence of an "Event of Default" under the Sale and
Servicing Agreement; or"
Section 2. COUNTERPARTS. This Amendment to the Warehousing Series
Insurance and Indemnity Agreement 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 Warehousing
Series Insurance and Indemnity Agreement.
Section 3. RATIFICATION OF THE WAREHOUSING SERIES INSURANCE AND
INDEMNITY AGREEMENT. Except as provided herein, all provisions, terms and
conditions of the Warehousing Series Insurance and Indemnity Agreement shall
remain in full force and effect. As amended hereby, the Warehousing Series
Insurance and Indemnity Agreement is ratified and confirmed in all respects.
Section 4. AUTHORIZATION. By its execution hereof, Financial
Security Assurance Inc. hereby instructs the Owner Trustee of Arcadia
Automobile Receivables Warehouse Trust, in accordance with the Trust
Agreement, to execute this Amendment.
Section 5. LIMITATION OF OWNER TRUSTEE LIABILITY. It is expressly
understood and agreed by the parties hereto that (a) this Amendment the
Warehousing Series Insurance and Indemnity Agreement is executed and
delivered by Wilmington Trust Company, not individually or personally but
solely as Owner Trustee of the Issuer, in the exercise of the powers and
authority conferred and vested in it under the Trust Agreement, (b) each of
the representations, undertakings and agreements herein made on the part of
the Issuer is made and intended not as a personal representation, undertaking
<PAGE>
and agreement by Wilmington Trust Company but is made and intended for the
purpose of binding only the Issuer and (c) under no circumstances shall
Wilmington Trust Company be personally liable for the payment of any
indebtedness or expenses of the Issuer or be liable for the breach or failure
of any obligation, representation, warranty or covenant made or undertaken by
the Issuer under this Amendment to the Warehousing Series Insurance and
Indemnity Agreement or the other related documents.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
to the Warehousing Series Insurance and Indemnity Agreement as of the date
set forth on the first page hereof.
FINANCIAL SECURITY ASSURANCE INC.
By: /s/ Dan Farrell
-------------------------------------
Authorized Officer
ARCADIA RECEIVABLES FINANCE CORP.
By: /s/ John Witham
-------------------------------------
Name: John Witham
Title: SVP & CFO
ARCADIA FINANCIAL LTD.
By: /s/ John Witham
-------------------------------------
Name: John Witham
Title: EVP & CFO
ARCADIA AUTOMOBILE RECEIVABLES
WAREHOUSE TRUST
By: Wilmington Trust Company, not in
its individual capacity, but solely in
its capacity as Owner Trustee
By: /s/ Denise M. Geran
-------------------------------------
Name: Denise M. Geran
Title: Senior Financial Services
Officer
<PAGE>
ARCADIA FINANCIAL LTD.
1990 STOCK OPTION PLAN
(AS AMENDED)
1. PURPOSE
The purpose of this 1990 Stock Option Plan (the "Plan") is to promote the
interests of Arcadia Financial Ltd., a Minnesota corporation (the "Company"), by
providing employees of the Company and certain independent contractors with an
opportunity to acquire a proprietary interest in the Company, and thereby
develop a stronger incentive to contribute to the Company's continued success
and growth. In addition, the opportunity to acquire a proprietary interest in
the Company by the offering and availability of stock options will assist the
Company in attracting and retaining key personnel and consultants of outstanding
ability.
2. DEFINITIONS
Wherever used in the Plan, the following terms have the meanings set
forth below:
2.1 "Board" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
2.3 "Committee" means the Committee which may be designated from time
to time by the Board to administer the Plan pursuant to Section 3.5.
2.4 "Incentive Stock Option" or "ISO" means a stock option which is
intended to qualify as an incentive stock option as defined in Section 422A of
the Code.
2.5 "Non-Statutory Stock Option" or "NSO" means a stock option that is
not intended to, or does not, qualify as an incentive stock option as defined in
Section 422A of the Code.
2.6 "Option" means, where required by the context of the Plan, an ISO
and/or NSO granted pursuant to the Plan.
2.7 "Optionee" means a Participant in the Plan who has been granted
one or more Options under the Plan.
<PAGE>
2.8 "Participant" means an individual described in Section 5 of this
Plan who may be granted Options under the Plan.
2.9 "Stock" means the Common Stock, $.01 par value, of the Company.
2.10 "Subsidiary" means any corporation, other than the Company, in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns 50% or
more of the voting stock in one of the other corporations in such chain.
3. ADMINISTRATION
3.1 The Plan shall be administered by the Board, which shall have full
power, subject to the provisions of the Plan, to grant Options, construe and
interpret the Plan, establish rules and regulations with respect to the Plan and
Options granted hereunder, and perform all other acts, including the delegation
of administrative responsibilities, that it believes reasonable and necessary.
3.2 The Board shall have the sole discretion, subject to the
provisions of the Plan, to determine the Participants eligible to receive
Options pursuant to the Plan and the amount, type, and terms of any Options and
the terms and conditions of option agreements relating to any Option.
3.3 The Board may correct any defect, supply any omission, or
reconcile any inconsistency in the Plan or in any Option granted hereunder in
the manner and to the extent it shall deem necessary to carry out the terms of
the Plan.
3.4 Any decision made, or action taken, by the Board arising out of or
in connection with the interpretation and administration of the Plan shall be
final, conclusive and binding upon all Optionees.
3.5 The Board may designate a Committee from time to time to
administer the Plan. If designated, the Committee shall be composed of not less
than two persons (who need not be members of the Board) who are appointed from
time to time by the Board. If the Board has appointed a Committee pursuant to
this Section 3.5 of the Plan, then the Committee may administer the Plan and
exercise all of the rights and powers granted to the Board in this Plan,
including, without limitation, the right to grant Options pursuant to the Plan
and to establish the Option price as provided in the Plan.
4. SHARES SUBJECT TO THE PLAN
4.1 The total number of shares of Stock reserved for issuance upon
exercise of Options under the Plan is 5,000,000. Such shares shall consist of
authorized but unissued Stock. If any Option granted under the Plan lapses or
terminates for any reason before being completely
<PAGE>
exercised, the shares covered by the unexercised portion of such Option may
again be made subject to Options under the Plan.
4.2 CHANGES IN CAPITALIZATION. In the event of any change in the
outstanding shares of Stock of the Company by reason of any stock dividend,
split, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, or rights offering to purchase stock at a price
substantially below fair market value, or other similar corporate change, the
aggregate number of shares which may be subject to Options under the Plan and
the terms of any outstanding Option, including the number and kind of shares
subject to such Options and the purchase price per share thereof, shall be
appropriately adjusted by the Board, consistent with such change and in such
manner as the Board, in its sole discretion, may deem equitable to prevent
substantial dilution or enlargement of the rights granted to or available for
Optionees. Notwithstanding the preceding sentence, in no event shall any
fraction of a share of Stock be issued upon the exercise of an Option.
4.3 AWARD LIMITATIONS UNDER THE PLAN. No eligible participant, who is
an employee of the Company at the time of grant, may be granted any Option or
Options, the value of which Options are based solely on an increase in the value
of the Shares after the date of grant of such Options for more than 1,500,000
shares (subject to adjustment as provided for in Section 4.2 relating to stock
splits, etc.), in the aggregate, in any one calendar year period beginning with
the period commencing January 1, 1997 and ending December 31, 1997. The
foregoing annual limitation specifically includes the grant of any Options
representing "qualified performance based compensation" within the meaning of
Section 162(m) of the Code.
5. ELIGIBLE PARTICIPANTS
The following persons are Participants eligible to participate in the
Plan:
5.1 INCENTIVE STOCK OPTIONS. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary, including officers and
directors who are also employees of the Company or any Subsidiary.
5.2 NON-STATUTORY STOCK OPTIONS. Non-statutory stock options may be
granted to (i) any employee of the Company or any Subsidiary, including any
officer or director who is also an employee of the Company or any Subsidiary;
and (ii) any consultant to, or other independent contractor of, the Company.
6. GRANT OF OPTIONS
Subject to the terms, conditions, and limitations set forth in this Plan,
the Company, by action of its Board, may from time to time grant Options to
purchase shares of the Company's Stock to those eligible Participants as may be
selected by the Board, in such amounts and on such other terms as the Board in
its sole discretion shall determine. Such Options may be (i) "Incentive Stock
Options" so designated by the Board and which, when granted, are intended to
qualify as incentive stock options as defined in Section 422A of the Code; (ii)
"Non-Statutory
<PAGE>
Stock Options" so designated by the Board and which, when granted, are not
intended to, or do not, qualify as incentive stock options under Section 422A
of the Code; or (iii) a combination of both. The date on which the Board
approves the granting of an Option shall be the date of grant of such Option,
unless a different date is specified by the Board on such date of approval.
Notwithstanding the foregoing, with respect to the grant of any Incentive
Stock Option under the Plan, the aggregate fair market value of Stock
(determined as of the date the Option is granted) with respect to which
incentive stock options are exercisable for the first time by an Optionee in
any calendar year (under all such stock option plans of the Company or
Subsidiaries) shall not exceed $100,000. Each grant of an Option under the
Plan shall be evidenced by a written stock option agreement between the
Company and the Optionee setting forth the terms and conditions, not
inconsistent with the Plan, under which the Option so granted may be
exercised pursuant to the Plan and containing such other terms with respect
to the Option as the Board in its sole discretion may determine.
7. OPTION PRICE AND FORM OF PAYMENT
7.1 INCENTIVE STOCK OPTIONS. The purchase price for a share of Stock
subject to an Incentive Stock Option granted hereunder shall not be less than
100% of the fair market value of the Stock. Notwithstanding the foregoing, in
the case of an Incentive Stock Option granted to any Optionee then owning more
than 10% of the voting power of all classes of the Company's stock, the purchase
price per share of the Stock subject to such Option shall not be less than 110%
of the fair market value of the Stock on the date of grant of the Incentive
Stock Option, determined as provided in Section 7.3.
7.2 NON-STATUTORY STOCK OPTIONS The purchase price for a share of
Stock subject to a non-statutory stock Option shall be not less than the lesser
of (a) 100% of the fair market value of the Stock on the date of grant or (b)
the greater of (i) 85% of the fair market value of the Stock on the date of
grant and (ii) $6.00 per share.
7.3 DETERMINATION OF FAIR MARKET VALUE. For purposes of this Section
7, the "fair market value" of the Stock shall be determined as follows:
(a) if the Stock of the Company is listed or admitted to
unlisted trading privileges on a national securities exchange, the fair
market value on any given day shall be the closing sale price for the
Stock, or if no sale is made on such day, the closing bid price for such
day on such exchange;
(b) if the Stock is not listed or admitted to unlisted trading
privileges on a national securities exchange, the fair market value on
any given day shall be the closing sale price for the Stock as reported
on the NASDAQ National Market System on such day, or if no sale is made
on such day, the closing bid price for such day as entered by a market
maker for the Stock;
<PAGE>
(c) if the Stock is not listed on a national securities
exchange, it is not admitted to unlisted trading privileges on any such
exchange, and is not eligible for inclusion in the NASDAQ National Market
System, the fair market value on any given day shall be the average of
the closing representative bid and asked prices as reported by the
National Quotation Bureau, Inc. or, if the Stock is not quoted on the
National Association of Securities Dealers Automated Quotations System,
then as reported in any publicly available compilation of the bid and
asked prices of the Stock in any over-the-counter market on which the
Stock is traded; or
(d) if there exists no public trading market for the Stock, the
fair market value on any given day shall be an amount determined in good
faith by the Board in such manner as it may reasonably determine in its
discretion, provided that such amount shall not be less than the book
value per share as reasonably determined by the Board as of the date of
determination or less than the par value of the Stock.
7.4. PAYMENT OF PURCHASE PRICE. Except as provided herein, the
purchase price of each share of Stock purchased upon the exercise of any Option
shall be paid:
(a) in United States dollars in cash or by check, bank draft or
money order payable to the order of the Company; or
(b) at the discretion of the Board, through the delivery of
shares of Stock, having initially or as a result of successive exchanges
of shares, an aggregate fair market value (as determined in the manner
provided under this Plan) equal to the aggregate purchase price for the
Stock as to which the Option is being exercised; or
(c) at the discretion of the Board, by a combination of both
(a) and (b) above; or
(d) by such other method as may be permitted in the written
stock option agreement between the Company and the Optionee.
If such form of payment is permitted, the Board shall determine
procedures for tendering Stock as payment upon exercise of an Option and may
impose such additional limitations and prohibitions on the use of Stock as
payment upon the exercise of an Option as it deems appropriate.
If the Board in its sole discretion so agrees, the Company may finance
the amount payable by an Optionee upon exercise of any Option upon such terms
and conditions as the Board may determine at the time such Option is granted
under this Plan.
<PAGE>
8. EXERCISE OF OPTIONS
8.1 MANNER OF EXERCISE. An Option, or any portion thereof, shall be
exercised by delivering a written notice of exercise to the Board and paying to
the Company the full purchase price of the Stock to be acquired upon the
exercise of the Option. Until certificates for Stock acquired upon the exercise
of an Option are issued to an Optionee, such Optionee shall not have any rights
as a shareholder of the Company.
8.2 LIMITATIONS AND CONDITIONS ON EXERCISE OF OPTIONS. In addition to
any other limitations or conditions contained in this Plan or that may be
imposed by the Board from time to time or in the stock option agreement to be
entered into with respect to Options granted hereunder, the following
limitations and conditions shall apply to the exercise of Options granted under
this Plan:
8.2.1 No Incentive Stock Option may be exercisable by its terms after
the expiration of 10 years from the date of the grant thereof.
8.2.2 No Incentive Stock Option granted pursuant to the Plan to an
eligible Participant then owning more than 10% of the voting power of all
classes of the Company's stock may be exercisable by its terms after the
expiration of five years from the date of the grant thereof.
9. INVESTMENT PURPOSES
Unless a registration statement under the Securities Act of 1933 is in
effect with respect to Stock to be purchased upon exercise of Options to be
granted under the Plan, the Company shall require that an Optionee agree with
and represent to the Company in writing that he or she is acquiring such shares
of Stock for the purpose of investment and with no present intention to
transfer, sell or otherwise dispose of such shares of stock other than by
transfers which may occur by will or by the laws of descent and distribution,
and no shares of Stock may be transferred unless, in the opinion of counsel to
the Company, such transfer would be in compliance with applicable securities
laws. In addition, unless a registration statement under the Securities Act of
1933 is in effect with respect to the Stock to be purchased under the Plan, each
certificate representing any shares of Stock issued to an Optionee hereunder
shall have endorsed thereon a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND WITHOUT REGISTRATION UNDER ANY APPLICABLE STATE
SECURITIES LAWS, IN RELIANCE UPON EXEMPTION(S) CONTAINED THEREIN.
NO TRANSFER OF THESE SHARES OR ANY INTEREST THEREIN MAY BE MADE
EXCEPT PURSUANT TO EFFECTIVE REGISTRATION STATEMENTS UNDER SAID
LAWS UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO IT THAT SUCH TRANSFER OR
<PAGE>
DISPOSITION DOES NOT REQUIRE REGISTRATION UNDER SAID LAWS AND,
FOR ANY SALES UNDER RULE 144 OF THE ACT, SUCH EVIDENCE AS IT
SHALL REQUEST FOR COMPLIANCE WITH THAT RULE, OR APPLICABLE STATE
SECURITIES LAWS.
10. TRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be transferable by an Optionee
(whether by sale, assignment, hypothecation or otherwise) other than by will or
the laws of descent and distribution, and shall be exercisable during the
Optionee's lifetime only by the Optionee.
11. TERMINATION OF EMPLOYMENT
11.1 GENERALLY. Except as otherwise provided in this Section 11, if
any Optionee's employment with the Company or Subsidiary is terminated
(hereinafter "Termination") other than by death or disability (as hereinafter
defined), the Optionee may exercise any Option granted under the Plan, to the
extent the Optionee was entitled to exercise the Option at the date of
Termination, for a period of three (3) months after the date of Termination or
until the term of the Option has expired, whichever date is earlier.
11.1.1 The Optionee may exercise any Incentive Stock Option
granted under the Plan, to the extent the Optionee was entitled to exercise the
Incentive Stock Option at the date of Termination, for a period three (3) months
after the date of Termination or until the term of the Incentive Stock Option
has expired, whichever date is earlier.
11.1.2 The Optionee may exercise any Non-Statutory Stock Option
granted under the Plan, to the extent the Optionee was entitled to exercise the
Non-Statutory Stock Option at the date of Termination, for a period of up to
eighteen (18) months after the date of Termination, as determined by the
Committee, or until the term of the Non-Statutory Option has expired, whichever
date is earlier.
11.2 DEATH OR DISABILITY OF OPTIONEE. In the event of the death or
disability of an Optionee prior to expiration of an Option held by him or her,
the following provisions shall apply:
11.2.1 If the Optionee is at the time of his or her Disability
employed by the Company or a Subsidiary and has been in continuous employment
(as determined by the Board in its sole discretion) since the date of grant of
the Option, then the Option may be exercised by the Optionee until the earlier
of one year following the date of such Disability or the expiration date of the
Option, but only to the extent the Optionee was entitled to exercise such Option
at the time of his or her Disability. For the purpose of this Section 11, the
term "Disability" shall mean a permanent and total disability as defined in
Section 22(e)(3) of the Code. The determination of whether an Optionee has a
Disability within the meaning of Section 22(e)(3) shall be made by the Board in
its sole discretion.
<PAGE>
11.2.2 If the Optionee is at the time of his or her death employed
by the Company or a Subsidiary and has been in continuous employment (as
determined by the Board in its sole discretion) since the date of grant of the
Option, then the Option (including all then vested and unvested options) may be
exercised by the Optionee's estate or by a person who acquired the right to
exercise the Option by will or the laws of descent and distribution, until the
earlier of one year from the date of the Optionee's death or the expiration date
of the Option.
11.2.3 If the Optionee dies within three (3) months after
Termination, the Option may be exercised until the earlier of nine months
following the date of death or the expiration date of the Option, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by will or the laws of descent or distribution, but only to the extent the
Optionee was entitled to exercise the Option at the time of Termination.
11.3 TERMINATION FOR CAUSE. If the employment of an Optionee is
terminated by the Company or a Subsidiary for cause, then the Board shall have
the right to cancel any Options granted to the Optionee under the Plan.
12. AMENDMENT AND TERMINATION OF PLAN
12.1 The Board, may at any time and from time to time suspend or
terminate the Plan in whole or in part or amend it from time to time in such
respects as may be in the best interests of the Company; provided, however, that
no such amendment shall be made without the approval of the shareholders if it
would: (a) materially modify the eligibility requirements for Participants as
set forth in Section 5 hereof; (b) increase the maximum aggregate number of
shares of Stock which may be issued pursuant to Options, except in accordance
with Section 4.2 of the Plan; (c) reduce the minimum Option price per share as
set forth in Section 7 of the Plan, except in accordance with Section 4.2 of the
Plan; (d) extend the period of granting Options; or (e) materially increase in
any other way the benefits accruing to Optionees.
12.2 No amendment, suspension or termination of this Plan shall,
without the Optionee's consent, alter or impair any of the rights or obligations
under any Option theretofore granted to him or her under the Plan.
12.3 The Board may amend the Plan, subject to the limitations cited
above, in such manner as it deems necessary to permit the granting of Incentive
Stock Options meeting the requirements of future amendments to the Code.
12.4 In the event of the proposed dissolution or liquidation of the
Company, each Option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may, in
the exercise of its sole discretion in such instances, declare that any Option
shall terminate as of a date fixed by the Board and give each Optionee the right
to exercise his or her Option as to all or any part of the optioned stock,
including shares as to which the Option would not otherwise be exercisable. In
the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, the
Optionee shall have the right to exercise the
<PAGE>
Option as to all of the optioned stock, including shares as to which the
Option would not otherwise be exercisable, and the Option shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation; and such new or
substituted option shall apply to all shares issued in addition to or in
substitution, replacement or modification of the shares theretofore covered
by such option provided that:
(a) the excess of the aggregate fair market value of the shares
subject to the option immediately after the substitution or assumption
over the aggregate option price of such shares shall not be more than the
excess of the aggregate fair market value of all shares subject to the
option immediately before such substitution or assumption over the
aggregate option price of such shares,
(b) the new option or the assumption of the existing option
shall not give the optionee additional benefits which he did not have
under the old option or prior to such assumption except as to the
accelerated vesting of the option due to such sale or merger, and
(c) a propriety adjustment of the original price shall be made
among original shares subject to the option and any additional share or
shares issued in substitution, replacement, or modification thereof.
13. MISCELLANEOUS PROVISIONS
13.1 RIGHT TO CONTINUED EMPLOYMENT. No person shall have any claim or
right to be granted an Option under the Plan, and the grant of an Option under
the Plan shall not be construed as giving an Optionee the right to continued
employment with the Company. The Company further expressly reserves the right
at any time to dismiss an Optionee or reduce an Optionee's compensation with or
without cause, free from any liability, or any claim under the Plan, except as
provided herein or in a stock option agreement.
13.2 WITHHOLDING TAXES. The Company shall have the right to require
that payment or provision for payment of any and all withholding taxes due upon
the grant or exercise of an Option hereunder or the disposition of any Stock or
other property acquired upon exercise of an Option be made by an Optionee. In
connection therewith, the Board shall have the right to establish such rules and
regulations or impose such terms and conditions in any agreement relating to an
Option granted hereunder with respect to such withholding as the Board may deem
necessary and appropriate.
13.3 GOVERNING LAW. The Plan shall be administered in the State of
Minnesota, and the validity, construction, interpretation, and administration of
the Plan and all rights relating to the Plan shall be determined solely in
accordance with the laws of such state, unless controlled by applicable federal
law, if any.
<PAGE>
14. EFFECTIVE DATE
The effective date of the Plan is January 18, 1991. No Option may be
granted after January 17, 2001, provided, however, that the Plan and all
outstanding Options shall remain in effect until such outstanding Options
have expired or been canceled.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000879674
<NAME> ARCADIA FINANCIAL LTD.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,432
<SECURITIES> 0
<RECEIVABLES> 785,851
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 33,814
<DEPRECIATION> 18,614
<TOTAL-ASSETS> 842,470
<CURRENT-LIABILITIES> 0
<BONDS> 439,724
0
0
<COMMON> 393
<OTHER-SE> 227,677
<TOTAL-LIABILITY-AND-EQUITY> 842,470
<SALES> 0
<TOTAL-REVENUES> 140,005
<CGS> 0
<TOTAL-COSTS> 86,151
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,123
<INCOME-PRETAX> 26,731
<INCOME-TAX> 0
<INCOME-CONTINUING> 26,731
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (3,976)
<NET-INCOME> 22,755
<EPS-BASIC> .58
<EPS-DILUTED> .57
</TABLE>
<PAGE>
Exhibit 99.1
CAUTIONARY STATEMENT
WE, OR PERSONS ACTING ON OUR BEHALF, OR OUTSIDE REVIEWERS WE HAVE RETAINED
WHO ARE MAKING STATEMENTS ON OUR BEHALF, OR UNDERWRITERS OF OUR 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
OUR BUSINESS, FINANCIAL CONDITION, LIQUIDITY, RESULTS OF OPERATIONS OR
PROSPECTS, FINANCIAL OR OTHERWISE. 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 OUR LIQUIDITY AND ACCESS TO CAPITAL RESOURCES
WE 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, we have operated on a negative operating cash flow basis, and we expect
to continue to do so in the near future. Our business requires substantial
cash to make payments in connection with the purchase and securitization of
loans, for operating expenses and to service our debt. We may require
additional capital in the future to satisfy our operating and debt service
requirements, to fund growth or to repay our outstanding indebtedness at
maturity. We may not, however, be able to access the capital markets in the
future on terms acceptable to us, if at all. Factors which could affect our
ability to access the capital markets or the costs of any capital raised
include:
- changes in interest rates;
- general economic conditions;
- the perception of us in the capital markets; and
<PAGE>
- the performance of our securitization trusts.
In addition, the agreements governing our existing debt securities and credit
facilities significantly restrict our ability to incur additional
indebtedness and to issue new classes of preferred stock. Any agreements
governing future debt securities or credit facilities may contain similar
restrictions.
ADVERSE CHANGES IN OUR ASSET-BACKED SECURITIES PROGRAM OR IN THE
ASSET-BACKED SECURITIES MARKET FOR AUTOMOBILE RECEIVABLES IN GENERAL COULD
MATERIALLY ADVERSELY AFFECT US. Our 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 our
reported earnings for each quarter. Accordingly, adverse changes in our
asset-backed securities program --such as a delay in the consummation of a
planned securitization beyond quarter end, negative market perception of us
or the failure of the loans we intend to sell to conform to insurance company
and rating agency requirements --or in the general market for automobile
loan asset-backed securities could materially adversely affect our ability
to purchase and resell loans on a timely basis and on terms reasonably
satisfactory to us.
IF IN THE FUTURE WE ARE UNABLE TO OBTAIN FINANCIAL GUARANTY
INSURANCE POLICIES, OR DETERMINE THAT THEY ARE TOO EXPENSIVE, IT COULD REDUCE
OUR ABILITY TO SELL THE ASSET-BACKED SECURITIES WE SPONSOR AND ALSO REDUCE
THE PRICE AT WHICH WE ARE ABLE TO SELL THEM. All of the securitizations we
have sponsored since March 1993 and one of our current "warehouse" credit
facilities have utilized credit enhancement in the form of financial guaranty
insurance policies issued by Financial Security Assurance, Inc., which is
known as "FSA." These financial guaranty insurance policies have resulted in
those asset-backed securities being rated "AAA/Aaa." We believe that this
rating has made those securities easier to sell than securities with a lower
rating and has enhanced the price at which they have been sold. We also
believe that the use of this form of credit enhancement was cheaper than
alternative forms available to us at the time. However, FSA is not required
to insure the securitizations we sponsor and may not continue to do so. In
June 1999, FSA advised us that it expects to modify its requirements for any
future securitization transaction with respect to which it provides financial
guaranty insurance. These modifications could significantly increase the cash
cost to us of using FSA as the provider of credit enhancement for future
securitizations. We are currently examining our options in this regard, which
may include issuing uninsured asset-backed securities with other credit
enhancement features. If we were to do this, some of those securities are
likely to receive a rating that is somewhat lower than "AAA/Aaa," which could
reduce our ability to sell those securities at prices comparable to those
received in the past.
EARLY TERMINATION OF OUR "WAREHOUSE" CREDIT FACILITIES, OR OUR
INABILITY TO ARRANGE ADDITIONAL WAREHOUSE FACILITIES OR TO EXTEND OR REPLACE
EXISTING FACILITIES WHEN THEY EXPIRE, WOULD
-2-
<PAGE>
HAVE A MATERIAL ADVERSE EFFECT ON US. We depend on warehouse facilities with
financial institutions or institutional lenders to finance our purchase of
loans on a short-term basis pending securitization. At June 30, 1999, we had
three primary warehouse facilities with an aggregate borrowing capacity of
approximately $700 million. One of these facilities, with a capacity of $400
million, was renewed on July 13, 1999, and will expire in July of 2000. The
FSA financial guaranty insurance policy with respect to this facility will be
reduced from $400 million to $200 million on February 15, 2000; at the same
time, the capacity of the facility itself will also be reduced to $200
million. The remaining facilities expire in September and October of 1999,
subject to earlier termination on the occurrence of certain events and to
renewal or extension at the option of the lenders. These or similar
facilities may not continue to be available on terms reasonably satisfactory
to us. Early termination of these warehouse facilities, or our inability to
arrange additional warehouse facilities or to extend or replace existing
facilities when they expire, would significantly reduce or end our ability to
purchase and securitize automobile loans.
MOST OF OUR CASH FLOW COMES FROM, AND ASSETS BELONG TO, LEGALLY
DISTINCT SUBSIDIARIES WITH NO OBLIGATIONS TO PAY AMOUNTS DUE FROM US AND
WHOSE CREDITORS HAVE CLAIMS ON THOSE ASSETS THAT ARE SENIOR TO OUR CLAIMS OR
THE CLAIMS OF OUR CREDITORS. A significant portion of our cash flow comes in
the form of distributions from our special-purpose subsidiaries, which have
the legal right to receive the excess cash flow from the securitization
trusts we have sponsored. These subsidiaries are separate and distinct legal
entities with no obligation to pay any amounts due under our debt instruments
or to make any funds available to us, whether by paying dividends or
otherwise, so that we can do so. As a result, if any third party were to
enforce any of the restrictions on the distribution of cash from our
subsidiaries discussed below, our ability to pay interest and principal on
our outstanding debt would be significantly impaired. In addition,
substantially all of the assets shown on our financial statements, in
particular the "finance income receivable" and the loans held for sale, are
legally owned by these special-purpose subsidiaries, not us. Thus, creditors
of those subsidiaries would have first claim to those assets in any
liquidation or similar event, rather than us or any of our creditors. As of
June 30, 1999, our subsidiaries had approximately $98.3 million of
indebtedness.
WE HAVE A LARGE AMOUNT OF OUTSTANDING DEBT, WHICH MAY MAKE IT HARDER
TO OBTAIN FINANCING, WILL INCREASE THE COST TO US OF OUR DEBT AND MAY MAGNIFY
THE RESULTS OF ANY DEFAULT UNDER ANY OF OUR OUTSTANDING INDEBTEDNESS. At June
30, 1999, we had a total of $447.6 million of debt outstanding and had a
debt-to-equity ratio of 1.69. (These amounts do not include any debt of our
subsidiaries.) The issuance of additional debt securities could increase our
debt-to-equity ratio or "leverage," which may in turn make it harder for us
to obtain future financing. In addition, the issuance of any debt securities
will increase the cost of paying interest on our debt, except to the extent
that the proceeds from the sales are used to repay other outstanding
indebtedness. Although our cash flow from operations and capital raising
activities has historically been sufficient to pay amounts due on our
indebtedness, this may not continue to be the case; any additional
indebtedness may increase the risk that our cash flow is insufficient to
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pay amounts due. Finally, our level of indebtedness, and in particular any
significant increase in it, may make us more vulnerable if there is a
downturn in our business.
OUR OUTSTANDING DEBT SECURITIES CONTAIN RESTRICTIVE COVENANTS THAT
MAY RESTRICT OUR ABILITY TO OBTAIN FINANCING AND NONCOMPLIANCE WITH WHICH
COULD LEAD TO A DEFAULT WITH RESPECT TO THAT AND ANY OTHER INDEBTEDNESS. We
are subject to restrictive covenants under our outstanding debt securities
and our other debt financing agreements, some of which may significantly
restrict our ability to incur additional indebtedness or to issue preferred
stock. Any future indebtedness may also contain similar restrictive
covenants. Noncompliance with any covenants under any of our outstanding
indebtedness, unless cured, modified or waived, could lead to a default not
only with respect to that indebtedness, but also under other indebtedness. If
this were to happen, we might not be able to repay or refinance all of our
debt.
IF THE HOLDERS OF OUR CURRENTLY OUTSTANDING SENIOR NOTES ISSUED IN
MARCH AND OCTOBER 1997 WERE TO EXERCISE THEIR RIGHT TO REQUIRE US TO
REPURCHASE THEIR NOTES, IT MIGHT CAUSE A DEFAULT UNDER OUR OUTSTANDING
INDEBTEDNESS. The holders of our currently outstanding senior notes issued in
March and October 1997 may require us to repurchase all or a portion of those
notes upon the occurrence of various events, including a change of control,
specified types of asset sales and specified adverse loss experiences with
respect to the securitization trusts we have sponsored. In 1996, we received
an indication of interest to buy our company. At that time, we examined our
strategic alternatives, including a sale. While no definitive offers to buy
were received, a transaction like this might cause a change in control in the
future. If we were required to repurchase any of these senior notes for this
or any other reason, any funds so used would not be available to pay
principal or interest on any other indebtedness that did not have a similar
covenant, and we might not be able to access other funds to do so. Moreover,
we might not have sufficient funds available to repurchase the senior notes.
Our inability to do so could cause defaults under, and acceleration of, both
the senior notes and, under cross-default provisions, our other indebtedness.
RISKS RELATED TO THE PERFORMANCE OF LOANS IN SECURITIZATION TRUSTS THAT WE
HAVE SPONSORED
ANY MATERIAL DEFICIENCIES BETWEEN FUTURE LOAN PERFORMANCE AND OUR
CURRENT ESTIMATES OF THAT PERFORMANCE COULD HAVE A MATERIAL ADVERSE EFFECT ON
US, INCLUDING LEADING TO A REDUCTION IN THE VALUATION OF OUR MAIN ASSET,
FINANCE INCOME RECEIVABLE. When we sell 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 our principal
asset, which represents our retained interest in the loans sold. Finance
income receivable is calculated using assumptions and estimates concerning
future delinquency, default, prepayment, repossession and net loss rates on
the securitized loans that management believes are reasonable at the time. We
base these assumptions on our historical experience, externally generated
industry information, market conditions and expectations of future
performance and present value discount rates that we believe would be
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requested by an unrelated purchaser of a similar asset. However, the loans
that we securitize may not perform under varying economic conditions in the
manner we currently estimate. In particular, the actual rates of defaults,
prepayments and net losses may exceed the estimates used in valuing the
finance income receivable and would adversely affect anticipated future cash
flow. We periodically review our default, prepayment and net loss assumptions
in relation to the current performance of the loans and market conditions
and, if necessary, adjust the balance of finance income receivable. We have
made two significant permanent 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 permanent reductions to finance income receivable
could adversely affect the price for our securities and our ability to raise
capital as needed. In addition, we may not be able to sell our finance income
receivable at its stated value on our balance sheet.
ANY DECREASE IN OR INTERRUPTION OF EXCESS CASH FLOW FROM
SECURITIZATION TRUSTS THAT WE HAVE SPONSORED COULD MATERIALLY ADVERSELY
AFFECT US. Our future liquidity and financial condition, and our ability to
finance the growth of our business and to repay or refinance our outstanding
indebtedness, will depend to a material extent on distributions of excess
cash flow from securitization trusts that we have sponsored. The agreements
related to the financial guaranty insurance policies on asset-backed
securities issued by these securitization trusts require us to maintain
specified amounts of cash in "spread accounts" for each insured
securitization trust. Our obligation to establish and fund these spread
accounts are initially met by means of letters of credit, cash deposits
and/or cash flows from the related trust. Each month after the spread account
has been established, 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 our agreements with FSA, 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 remaining cash distributed as "excess cash flow" to Arcadia
Receivables Finance Corporation, one of our subsidiaries known as "ARFC," and
then on to us. Thus, if the cash flow from all insured securitization trusts
is not sufficient to replenish all spread accounts, excess cash flow may not
be available to us 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;
- how quickly repossessed vehicles can be resold and the price
at which this is accomplished;
- ages of the loans in the portfolio;
- levels of voluntary prepayments; and
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- required spread account levels and the amount of cash in the
spread accounts relative to those required levels.
Any negative change in these factors could reduce or eliminate excess cash
flows to us. We have in the past experienced interruptions in excess cash
flows and this may occur again in the future.
LOAN PORTFOLIO DELINQUENCY, DEFAULT AND NET LOSS RATES THAT ARE
POORER THAN SET "PORTFOLIO PERFORMANCE TESTS" COULD RESULT IN A DECREASE IN
OR INTERRUPTION OF EXCESS CASH FLOW AVAILABLE TO US. Each insured
securitization trust has certain "portfolio performance tests" that relate to
levels of delinquencies, defaults and net losses on the loans in the trust.
These 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;
- a cumulative default rate not equal to or in excess of
specified percentages, which vary based on the aging of the
loan portfolio; and
- 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. FSA as provider of financial guaranty insurance can waive a
violation of these portfolio performance tests. We have an arrangement with
FSA under which, if loan portfolio performance is poorer than the portfolio
performance test levels, our 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 June 30, 1999, but this
arrangement has prevented a violation. It has also, however, reduced the
amount of cash that would have been available to us for use if we had
received a waiver of the violation. An increase in loan delinquencies,
cumulative defaults or net losses could result in one or more additional
existing securitization trusts exceeding one or more of the portfolio
performance tests unless the portfolio performance test levels are changed.
FSA is not required either to continue its arrangement with us or to waive
any future violations of portfolio performance test levels and might not do
so if additional trusts were to perform more poorly than required.
THE OCCURRENCE OF AN "INSURANCE AGREEMENT EVENT OF DEFAULT" COULD
HAVE A MATERIAL ADVERSE EFFECT ON US. Our agreement with FSA specifies that
there 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
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described above but at significantly higher levels. Following an insurance
agreement event of default, FSA may:
- suspend distributions of cash flow from the related
securitization trust and all other insured trusts (including
one of our "warehouse" credit facilities) until the amount of
cash in the affected spread account reaches a preset level
(generally 25% of the balance of outstanding asset-backed
securities in that series);
- capture excess cash flow from performing trusts;
- increase its premiums;
- replace us as servicer with respect to all insured trusts; and
- foreclose on its collateral security interest in the stock of
our subsidiary ARFC.
FSA may waive an insurance agreement event of default. Some of the insured
trusts have exceeded these thresholds in the past, but to date we have
obtained waivers to permit distributions of excess cash flow. A further
increase in loan delinquencies, cumulative defaults and net losses might
result in one or more additional securitization trusts exceeding one or more
of these thresholds unless the required performance levels are changed. If
this were to occur, further waivers may not be available to us. Any action
that FSA might take in the absence of a waiver could have a material adverse
effect on us, including our ability to pay our obligations. If FSA terminated
us as servicer, we would no longer receive the related servicing fees. If FSA
foreclosed on the stock that we own in ARFC, it would prevent that subsidiary
from providing cash to us.
CURRENT AND HISTORICAL DELINQUENCY AND DEFAULT RATES OF LOANS IN OUR
SERVICING PORTFOLIO MAY UNDERSTATE FUTURE DELINQUENCY AND DEFAULT RATES. The
future performance of our servicing portfolio may vary from current and
historical rates for a number of reasons. The incidence of delinquencies and
defaults on automobile loans tends to vary with the age of the loans. For
example, loans that are between six and 14 months old generally have a higher
likelihood of being delinquent or defaulting than loans with similar credit
characteristics that are less than six months or greater than 14 months old.
Accordingly, to the extent that in the future our servicing portfolio grows
so that it 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 delinquency and default rates after
that time. In addition, to the extent we offer new loan products which
involve different underwriting policies from those we have used in the past,
the delinquency and default rates of our servicing portfolio may change.
PAST PURCHASES OF HIGHER RISK LOANS MAY CONTINUE TO NEGATIVELY
IMPACT THE PERFORMANCE OF OUR SERVICED LOAN PORTFOLIO. Through 1997, we
consistently increased our purchases of higher risk loans. These historic
increases in the proportion of higher risk loans in our serviced loan
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portfolio led to an increase in the rates of delinquencies, repossessions and
losses on those loans. These higher risk loans will likely continue to
negatively impact our loan performance statistics in the near future.
INCREASES IN LOAN DELINQUENCY, DEFAULT AND LOSS RATES MAY VIOLATE
TESTS IN THE AGREEMENTS THAT GOVERN OUR "WAREHOUSE" CREDIT FACILITIES. The
agreements that govern our "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; and
- 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 substantially reduce or eliminate our capacity to
purchase 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 require us to immediately pay all amounts due under
those agreements.
THERE MAY BE A FUTURE INCREASE IN THE NUMBER OF LOANS THAT WE HAVE
EXTENDED OR AMENDED, WHICH GENERALLY PRESENT SUBSTANTIALLY HIGHER DEFAULT
RISKS THAN LOANS THAT HAVE NEITHER OF THESE CHARACTERISTICS. Like others in
the industry, we give certain borrowers 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
neither of these characteristics. 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 an increase in
such statistics. The granting of an extension or amendment may have the
effect of removing the related loan from delinquent status.
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RISKS RELATED TO GENERAL ECONOMIC CONDITIONS
ECONOMIC CONDITIONS INFLUENCE OUR 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 in defaults
would have the adverse effects noted above. These periods may also be
accompanied by decreased consumer demand for automobiles which would result
in reduced demand for automobile loans and could reduce business for us.
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.
OUR BUSINESS MAY BE AFFECTED BY PRICES FOR USED AUTOMOBILES.
Significant increases in the inventory of used automobiles during recessions
may depress the prices at which we can sell our inventory of repossessed
vehicles or delay sales. In addition, average used car prices have fluctuated
in the past, and any future softening of the used car market could cause our
recovery rate on repossessed vehicles to decline below the current level.
This, in turn, might have an adverse effect 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.
OUR PROFITABILITY MAY BE DIRECTLY AFFECTED 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 we purchase and the interest rate on the asset-back
securities we sell. This "gross interest rate spread" is a major source of
profit for us. We monitor the interest rate environment and employ strategies
designed to mitigate the effect of changes in interest rates on our gross
interest rate spread. However, changes in interest rates may adversely affect
our profitability.
A CONTINUATION OR INCREASE IN RECENT LEVELS OF PERSONAL BANKRUPTCY
FILINGS COULD ADVERSELY AFFECT THE PERFORMANCE OF THE LOAN PORTFOLIO WE
SERVICE. Recent media reports have suggested an increase in the number of
personal bankruptcy filings and defaults on consumer credit. During most of
1997, much of 1998 and the first five months of 1999, we experienced a slight
increase in the proportion of our 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 we have historically experienced. In addition, this increase in consumer
bankruptcy filings and defaults on consumer credit during a period of
economic growth indicates that the impact of consumer behavior on default
rates is not limited to periods of economic slowdown or recession.
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OTHER RISKS RELATING TO US
WE MAY BE UNABLE TO IMPROVE OUR SERVICING PERFORMANCE, IN PARTICULAR
AS THE RESULT OF HIGH EMPLOYEE TURNOVER OR AN INABILITY TO ATTRACT AND RETAIN
REPLACEMENT SERVICING AND COLLECTION PERSONNEL. Our 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.
We may not succeed in the efforts we have undertaken since 1996 to improve
our servicing and collection performance. During 1997 and 1998 we experienced
an increase in employee turnover rate, especially among our collection
personnel. This increase was due in part to low unemployment rates driven by
economic growth and the continued expansion of the consumer credit markets
and in part to our efforts to consolidate our servicing and collection
operations. This consolidation resulted in service centers being moved from
one location to another. Similar high turnover in the future, or an inability
to attract and retain replacement personnel, could have an adverse effect on
our performance, especially our portfolio delinquency, default and net loss
rates.
WE ARE A DEFENDANT IN LEGAL PROCEEDINGS THE OUTCOME OF WHICH COULD
HAVE AN ADVERSE EFFECT ON US. We and some of our 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, we and our directors and officers illegally engaged in
a scheme that had the effect of artificially inflating, maintaining and
otherwise manipulating the value of our common stock. While we believe that
this action is without merit and intend to defend it vigorously, we cannot be
sure of success. In addition, in the course of our business, we are 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 we have
purchased. The ultimate outcome of these matters cannot be predicted and we
may not prevail in all of these lawsuits. Any order, judgment, settlement or
decree that was adverse to us could have a material adverse effect on us.
THE FAILURE OF YEAR 2000 NON-COMPLIANT SYSTEMS, EITHER OUR OWN OR
THOSE OF OUR SIGNIFICANT THIRD PARTY PROVIDERS, MAY MAKE US UNABLE TO PERFORM
KEY OPERATING ACTIVITIES AND COULD ALSO SUBJECT US TO LITIGATION. We have
reviewed our automated information systems, including our loan accounting
system, business support systems and facility operating systems and have
initiated the replacement, modification or reprogramming of Year 2000
non-compliant hardware and software. In addition, we have developed and are
implementing a plan to contact parties which provide services critical to the
successful operation of our business to learn how they are addressing the
issue and to evaluate any likely impact on us. However, we have not yet
completed all necessary processes of our Year 2000 plan. Nor do we have
contingency plans in place in case we do not complete all phases of our Year
2000 program. If we do not complete our Year 2000 program successfully, we
may be unable to perform our key operating activities and could also be
subject to litigation regarding the results of systems failures, such as
improper application of repayments and resulting incorrect credit reporting
to credit bureaus.
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OUR ABILITY TO COMPETE IN THE HIGHLY COMPETITIVE AUTOMOBILE
FINANCING MARKET MAY BE LIMITED BY OUR COMPETITORS' GREATER RESOURCES AND
BECAUSE WE DO NOT OFFER DEALERS ALL THE PROGRAMS THAT SOME COMPETITORS DO.
Many of our 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 we have. From
time to time these competitors offer special buyer incentives in the form of
below-market interest rates on certain classes of vehicles that we are unable
to match. Many of these competitors also have longstanding relationships with
automobile dealers, making it difficult for us to develop relationships with
those dealers. In addition, some of the major entities that compete with us
provide other forms of financing to automobile dealers, including dealer
floor plan financing and leasing, which we do not provide. All of this may
have the effect of making us less competitive.
VIOLATIONS OF OR CHANGES IN THE LAWS AND REGULATIONS THAT GOVERN OUR
BUSINESS COULD HAVE A MATERIAL ADVERSE EFFECT ON US. Our business is subject
to numerous federal and state consumer protection laws and regulations. Among
other things, these laws and regulations:
- require us to obtain and maintain licenses and qualifications;
- limit interest rates, fees and other charges;
- limit or prescribe various other terms of our automobile loan
contracts;
- require specific disclosures; and
- define our rights to repossess and sell collateral vehicles.
If we were to violate these laws and regulations, even unintentionally, we
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
their interpretation, or the promulgation of additional laws or regulations
could, among other things, impose significant new restrictions on the way in
which we do business or result in significantly increased compliance costs.
If any of this happened, it could have a material adverse effect on us.
OUR 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 OUR COMMON STOCK. Our authorized
and unissued stock includes shares that are undesignated as to rights. Under
our articles of incorporation, our board of directors has the power to create
and issue new classes or series of stock using these undesignated shares. In
connection with this, our board of directors may give the new class or series
any rights, preferences and privileges that the
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board of directors 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 our common stock and, possibly, any other class or
series of stock that is then in existence.
OUR CHARTER DOCUMENTS AND SHAREHOLDER RIGHTS PLAN AND MINNESOTA LAW
MAY DISCOURAGE AN ACQUISITION OF OUR COMPANY. Provisions of our articles of
incorporation and bylaws, the existence of our shareholder rights plan and
the provisions of Minnesota law could make it more difficult for a third
party to acquire us, even if doing so would be beneficial to our shareholders.
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