<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1999
REGISTRATION NO. 333-84433
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ARCADIA FINANCIAL LTD.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1664848
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7825 WASHINGTON AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55439-2435
(612) 942-9880
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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JAMES D. ATKINSON
ARCADIA FINANCIAL LTD.
7825 WASHINGTON AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55439-2435
(612) 942-9880
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPY TO:
William B. Payne, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402
(612) 340-2600
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Approximate date of commencement of proposed sale to the public: from time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis under Rule 415 under the Securities Act of 1933,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: /X/
If this Form is filed to register additional securities for an offering
under Rule 462(b) under the Securities Act, please check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this Form is a post-effective amendment filed under Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made under Rule 434, please
check the following box: / /
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING UNDER SAID SECTION 8(a), MAY
DETERMINE.
IN ACCORDANCE WITH RULE 429 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, THE PROSPECTUS CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATES
TO THE COMPANY'S REGISTRATION STATEMENT ON FORM S-3 (NO. 333-60531) DECLARED
EFFECTIVE ON AUGUST 14, 1998. THIS REGISTRATION STATEMENT, WHICH IS A NEW
REGISTRATION STATEMENT, ALSO CONSTITUTES POST-EFFECTIVE AMENDMENT NO. 1 TO
REGISTRATION STATEMENT NO. 333-60531, WHICH SHALL HEREAFTER BECOME EFFECTIVE
CONCURRENTLY WITH THE EFFECTIVENESS OF THIS REGISTRATION STATEMENT IN
ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED.
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<PAGE>
PROSPECTUS
$150,000,000
PRINCIPAL AMOUNT
[Arcadia Financial Ltd. logo]
30, 60, 90 AND 180-DAY AND ONE-YEAR SUBORDINATED EXTENDIBLE NOTES
ONE, TWO, THREE, FOUR, FIVE AND TEN-YEAR SUBORDINATED FIXED-TERM NOTES
SUBORDINATED NOTE UNITS
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We are offering the maturities and types of subordinated notes listed above.
We may also offer any combination of types and maturities of subordinated
notes that are sold together in "subordinated note units." The minimum
investment is $1,000. We will sell the subordinated notes directly on a
continuous basis utilizing the efforts of our officers and employees. We may
also sell the subordinated notes through one or more broker-dealers on a
non-exclusive basis without a firm underwriting commitment. We reserve the
right to reject any subscription for subordinated notes in whole or in part.
The interest rates available for new subordinated notes will change from time
to time. Accordingly, this prospectus will be accompanied by a prospectus
supplement that lists the interest rates then in effect and provides other
relevant information, such as the availability of maturities, any
subordinated note units being offered and information about any nonexclusive
selling agents then selling subordinated notes on our behalf.
There is no public market for the subordinated notes and you cannot expect to
resell any subordinated notes you buy.
The subordinated notes are unsecured general obligations and are subordinated in
right of payment to all of our existing and future "senior indebtedness," as
defined in the indenture governing the subordinated notes. At June 30, 1999, we
had approximately $405.0 million of "senior indebtedness" outstanding.
THE SUBORDINATED NOTES ARE NOT DEPOSITS OR ACCOUNTS WITH A BANK, SAVINGS AND
LOAN ASSOCIATION OR OTHER FINANCIAL INSTITUTION REGULATED BY FEDERAL OR STATE
BANKING AUTHORITIES AND ARE NOT ENTITLED TO ANY OF THE REGULATORY PROTECTIONS
APPLICABLE TO DEPOSITS OR ACCOUNTS WITH REGULATED FINANCIAL INSTITUTIONS, SUCH
AS DEPOSIT INSURANCE AND GOVERNMENTAL GUARANTEES.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 TO READ ABOUT SOME FACTORS YOU SHOULD
CONSIDER BEFORE BUYING ANY OF THE SUBORDINATED NOTES.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<TABLE>
<S> <C>
Public offering price (as a percentage of principal amount) . . . . . . . . . . . . . . . . . 100%
Selling agent commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0% to 5.0%
Proceeds, before expenses, to Arcadia Financial . . . . . . . . . . . $142,500,000 to $150,000,000
</TABLE>
We will not pay commissions on subordinated notes sold directly by our
officers and employees. We will pay commissions of 0.25% to 5.0% to any
broker-dealers we retain as nonexclusive selling agents with respect to the
subordinated notes. Accordingly, the amount of proceeds we will receive will
depend on whether we pay any commissions and at what rate we pay them.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
THE DATE OF THIS PROSPECTUS IS AUGUST 16, 1999
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission with respect to offers and sales of
our subordinated notes and subordinated note units consisting of a mixture of
maturities of subordinated notes. This prospectus provides you with a
general description of the subordinated notes. Each time we offer
subordinated notes or subordinated note units, we will provide a prospectus
supplement that will contain specific information about the terms then in
effect. The prospectus supplement may also add, update or change information
contained in this prospectus. You should read this prospectus and the
accompanying prospectus supplement together with the additional information
described under the heading "Where You Can Find More Information."
You should rely only on the information incorporated by reference or
provided in this prospectus and the accompanying prospectus supplement. We have
not authorized anyone else to provide you with information that is different.
We are only offering the subordinated notes in states where it is legal to offer
and sell them. You should not assume that the information in this prospectus or
the accompanying prospectus supplement is accurate as of any date other than the
date on the cover page of the document. If any statement in one of these
documents is inconsistent with a statement in another document having a later
date--for example, a prospectus supplement or a document incorporated by
reference in this prospectus--the statement in the document having the later
date modifies or supersedes the earlier statement.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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ABOUT THIS PROSPECTUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
DESCRIPTION OF THE SUBORDINATED NOTES. . . . . . . . . . . . . . . . . . . . .15
FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . . . . . . . .20
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
REPORTS TO HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
WHERE YOU CAN FIND MORE INFORMATION. . . . . . . . . . . . . . . . . . . . . .22
</TABLE>
2
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PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND THE INFORMATION AND
FINANCIAL STATEMENTS APPEARING IN THE DOCUMENTS INCORPORATED BY REFERENCE IN
THIS PROSPECTUS.
ABOUT ARCADIA FINANCIAL LTD.
We purchase, securitize and service consumer automobile loans
originated primarily by car dealers affiliated with major foreign and
domestic manufacturers. We purchase our consumer automobile loans through 18
regional buying centers located in 15 states. These buying centers are
supplemented by a network of dealer development representatives who develop
and maintain relationships with car dealers operating within each buying
center's immediate market area or in surrounding market areas. Credit
approval and loan processing are generally performed at the regional buying
center or at our headquarters in Minneapolis, Minnesota.
Our lending programs are designed to serve consumers who have limited
access to traditional automobile financing, typically because they have prior
credit difficulties or limited credit histories. Because we serve consumers
who are unable to meet the credit standards imposed by most traditional
automobile financing sources, we generally charge interest at rates higher
than those charged by traditional sources. We also expect to sustain a
higher level of credit losses than traditional sources because we provide
financing to relatively high-risk borrowers.
We employ a risk-based pricing strategy for determining which loans to
purchase and the terms of the loans we purchase. We compare the terms the
borrower wishes to obtain with the results of an evaluation of his or her
credit characteristics on the basis of our underwriting and credit scoring
criteria. Our underwriting procedures focus on a borrower's credit
characteristics and collateral value and do not distinguish between new and
used vehicles, which represented approximately 13% and 87%, respectively, of
our loan purchases in 1998. In the past, we marketed our loan products using
two programs. However, in 1998, we determined that it was more appropriate
to make underwriting decisions based on a multi-tiered risk-based pricing
matrix. We believe that this tiering provides us with a higher level of
precision in estimating future default rates and loan profitability. We base
our analysis of loan loss reserves in part on the credit performance we
expect from each risk tier and on the proportion of loan portfolio in each of
the tiers. Our goal is to maximize the difference between the borrowers'
interest rates and the level of net losses we expect on the loans we
purchase.
We fund our initial purchases of loans primarily with money borrowed
under warehouse facilities, which are arrangements that allow us to borrow
cash secured by the loans we purchase with the cash. We then securitize the
loans we have purchased, generally on a quarterly or more frequent basis. To
securitize loans, we transfer them through one of our special purpose
subsidiaries to a securitization trust that has been newly created for the
transaction. The securitization trust issues one or more classes of debt
securities called asset-backed securities and sells them to investors. When
the sale of the securities is completed (which may be some time after the
sale of the asset-backed securities), we recognize an accounting gain on the
sale of the loans.
Each month, collections of principal and interest on the loans in each
securitization trust are used by the trustee of that trust to pay amounts due
to the holders of the trust's asset-backed securities, to establish and
maintain spread accounts as a source of cash to cover possible shortfalls in
collections on the loans in the trust and to pay expenses associated with the
securitization and the servicing of
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the loans. Any funds that remain are generally distributed to us, subject to
our agreements with Financial Security Assurance Inc., our provider of
financial guaranty insurance policies.
We also act as servicer for the loans included in securitization trusts.
In return, we receive servicing fees based on the outstanding principal
balance on the loans and also receive collection fees, such as late payment
fees and insufficient fund charges, and interest on collection accounts. To
perform our servicing responsibilities, we operate 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.
Arcadia Financial is a Minnesota corporation that was incorporated on
March 8, 1990. Our principal executive offices are located at 7825 Washington
Avenue South, Minneapolis, Minnesota 55439-2435, and our telephone number is
(612) 942-9880.
ABOUT THE OFFERING
Securities Offered . . . . . . . . . Up to $150 million in principal amount
of unsecured subordinated notes in
minimum denominations of $1,000. The
subordinated notes include extendible
notes having maturities of 30, 60, 90
and 180 days and one year after the date
of issue and fixed-term notes having
maturities of one, two, three, four,
five and ten years after the date of
issue.
Subordination. . . . . . . . . . . . The subordinated notes are our unsecured
general obligations and are subordinated
in right of payment to all existing and
future "senior indebtedness," as defined
in the indenture governing the
subordinated notes. At June 30, 1999,
we had approximately $405 million of
"senior indebtedness" outstanding.
Interest Rates and Payment . . . . . Current interest rates are listed in the
prospectus supplement accompanying this
prospectus. Interest on the
subordinated notes accrues from the date
of issuance, which is the business day
on which we receive funds in payment for
the subordinated note purchased. For
subordinated notes with maturities in
excess of one year, interest compounds
quarterly. Interest on all other
subordinated notes (including one-year
subordinated notes) is not compounded.
Interest on 30, 60, 90 and 180 day
extendible subordinated notes will be
paid at maturity only. Interest on
longer-term subordinated notes will be
paid, at the election of the original
purchaser, monthly, quarterly,
semi-annually, annually or at maturity.
The interest rate of an extendible
subordinated note may be adjusted every
time the subordinated note extends or
"rolls over," unless it is redeemed by
the holder or us. The interest rate of a
fixed-term subordinated note will not
adjust prior to maturity.
Automatic Extension. . . . . . . . . If we do not redeem an extendible
subordinated note prior to a roll-over
date, we will mail to the holder a
notice on or within five days after that
date listing the current interest rate
applicable to the subordinated note. If
the holder does not present the
subordinated note for redemption on or
within 10 days after a roll-over date,
that subordinated note will extend
automatically for a period equal to its
original term at the interest rate then
being offered on newly issued
subordinated notes of the same term and
principal amount. If similar
subordinated notes are not then being
offered, absent instructions from the
holder selecting a subordinated note
with a term then being offered, the
maturing subordinated note will be
redeemed.
Redemption by Arcadia Financial. . . We may at any time elect to redeem the
subordinated notes in whole or part,
except for five and ten year
subordinated notes, which may not be
redeemed during the first two years
after issuance.
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Redemption by Holder . . . . . . . . The subordinated notes may be redeemed
prior to maturity or roll-over (1) by
holders (other than holders of 30 and 60
day subordinated notes) upon written
request at the principal amount plus
accrued interest to the redemption date
less a specified interest penalty
(redemptions of this type may not exceed
a total of $2.0 million in any fiscal
quarter),(2) by the holder's estate
after death,at the principal amount
(not to exceed $25,000) plus accrued
interest to the redemption date or (3)
in the case of extendible notes, as
provided under "Description of the
Subordinated Notes--Automatic
Extension."
Modification, Termination or We reserve the right to modify at any
Extension of Offering. . . . . . . . time the terms of the offering or the
subordinated notes being offered. Any
modification will apply only to
subordinated notes offered after the
date of the modification, except as
described under "Description of Notes."
We may terminate the offering at any
time. From time to time, we may issue
additional debt securities in private
placements or through additional
registered public offerings, including
debt that may be "senior indebtedness"
with respect to the subordinated notes.
Indenture and Indenture Trustee. . . The subordinated notes will be issued
under the terms of an indenture with
HSBC Bank USA (formerly Marine Midland
Bank) as trustee.
RATIOS OF EARNINGS TO FIXED CHARGES AND
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following are the consolidated ratios of earnings to fixed charges and
to combined fixed charges and preferred stock dividends for the periods
presented.
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
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1994 1995 1996 1997 1998 1998 1999
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<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges ........................ 1.76x 3.33x 4.08x - - - 1.95x
Deficiency in earnings to fixed charges ................... - - - 69,633 92,476 105,748 -
Ratio of earnings to combined fixed charges and
preferred stock dividends .............................. 1.12x 2.76x 3.81x - - - 1.95x
Deficiency in earnings to combined fixed charges
and preferred stock dividends .......................... - - - 69,633 92,476 105,748 -
</TABLE>
For purposes of calculating the ratios of earnings to fixed charges and
earnings to combined fixed charges and preferred stock dividends, earnings are
defined as income (loss) before income taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of debt discount and the interest
factor in rental charges. Combined fixed charges and preferred stock dividends
consist of the fixed charges described above plus the pre-tax income necessary
to pay dividends on our previously outstanding 8% Cumulative Convertible
Exchangeable Preferred Stock, all of which was converted or redeemed on or
before December 2, 1996.
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RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING RISKS CAREFULLY BEFORE YOU DECIDE TO BUY
ANY SUBORDINATED NOTES.
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
- 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 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
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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.
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
principle 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
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 is
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 our 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 any of
that 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
- 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.
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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 PORTFOLIO PERFORMANCE TESTS COULD RESULT IN A DECREASE IN OR
INTERRUPTION OF EXCESS CASH FLOW AVAILABLE TO US. Each insured
securitization trust has 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 make 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 listed events occur with
respect to any series of insured asset-backed securities. These events include
loan portfolio performance tests similar to those described above but at
significantly higher levels. Following an insurance agreement event of default,
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 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
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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 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 result in our being required immediately to 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
these statistics. The granting of an extension or amendment may have the
effect of removing the related loan from delinquent status.
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 on 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 recession
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
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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 six 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.
RISKS RELATED TO THE NATURE OF THE SUBORDINATED NOTES
MOST OF OUR CASH FLOW COMES FROM, AND ASSETS BELONG TO, LEGALLY DISTINCT
SUBSIDIARIES WITH NO OBLIGATIONS TO PAY AMOUNTS DUE UNDER THE SUBORDINATED
NOTES AND WHOSE CREDITORS HAVE CLAIMS ON THOSE ASSETS THAT ARE SENIOR TO OUR
CLAIMS OR THE CLAIMS OF OUR CREDITORS, INCLUDING THE HOLDERS OF THE
SUBORDINATED NOTES. 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 indebtedness, including the
subordinated notes, 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 above, our ability to pay interest and
principal on our outstanding indebtedness, including the subordinated notes,
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, including the holders of the
subordinated notes. As of June 30, 1999, our subsidiaries had approximately
$98.3 million of indebtedness.
ALL PAYMENTS ON THE SUBORDINATED NOTES ARE SUBORDINATED TO THE PRIOR
PAYMENT OF ALL AMOUNTS DUE ON ANY SENIOR INDEBTEDNESS. The right of holders
of subordinated notes to receive payment of any amounts due to them--whether
interest or principal--is subordinated to the right of all holders of any
senior indebtedness to receive prior payment of all amounts due to them. As
a result, if any of the following occurred:
- a payment default under the terms of any senior indebtedness;
- any default other than a payment default that allowed the holders
of any senior indebtedness to accelerate its maturity;
- our dissolution, liquidation, winding up or reorganization; or
- our bankruptcy or similar insolvency-related event,
then the holders of subordinated notes would not receive any payments with
respect to their subordinated notes until all amounts then due on all senior
indebtedness had first been paid in full. On June 30, 1999, approximately
$405 million of our indebtedness was senior indebtedness with respect to
the subordinated notes.
THE SUBORDINATED NOTES DO NOT HAVE EXTENSIVE COVENANTS OR OTHER PROTECTIVE
PROVISIONS OF THE TYPE ASSOCIATED WITH OTHER DEBT SECURITIES. The indenture
governing the subordinated notes contains only very limited covenants with
respect to what we may or may not do while the subordinated notes are
outstanding. In particular, there are NO covenants or other protective
provisions that:
- restrict our ability to incur additional indebtedness, including
indebtedness that is senior indebtedness with respect to the
subordinated notes;
- restrict our ability to pay dividends to shareholders;
- restrict our ability to make any other payments;
- protect holders in the event of adverse changes in our financial
condition or results of operations;
- protect holders in the event of a highly leveraged transaction
involving us;
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- permit the holders to require that we repurchase or redeem the
subordinated notes in the event of a takeover, recapitalization or
similar restructuring of us; or
- provide for a sinking fund to repay amounts outstanding under the
subordinated notes.
As a result, the subordinated notes do not have the contractual protections
associated with other debt securities, including our other debt securities that
are senior indebtedness with respect to the subordinated notes.
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,
including subordinated notes similar to the ones being sold by this
prospectus, and had a debt-to-equity ratio of 1.96. (These amounts do not
include any debt of our subsidiaries.) The issuance of additional
subordinated notes 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 the subordinated notes 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 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, including
the subordinated notes. If this were to happen, we might not be able to
repay or refinance all of our debt and in particular might not be able to
repay the subordinated notes, since their repayment is subordinated to the
prior repayment of all senior debt outstanding at the time.
THERE IS NO EXISTING MARKET FOR THE SUBORDINATED NOTES AND THE HOLDER
CANNOT EXPECT TO BE ABLE TO RESELL ANY SUBORDINATED NOTES. There is no existing
market for the subordinated notes and we do not intend to apply to list them on
any securities exchange. As a result, a purchaser cannot be certain of being
able to resell any subordinated notes if desired. Any market that might develop
is likely to offer little liquidity. In addition, even if a market were to
develop, the subordinated notes could trade at prices that may be lower than the
price initially paid depending on many factors, including prevailing interest
rates, our operating results and the markets for similar securities.
WE MAY REDEEM THE SUBORDINATED NOTES WITHOUT PAYING AN EARLY REDEMPTION
PREMIUM, WHICH MAY REDUCE THE HOLDER'S RETURN ON THE INVESTMENT. Subject to the
requirements of any senior indebtedness then outstanding, we may at any time
redeem, in whole or in part, any or all of the outstanding subordinated notes of
any type, selected by interest rate or maturity, except for five and ten year
fixed-term subordinated notes, which may not be redeemed during their first two
years. If we redeem less than all of the outstanding subordinated notes
selected for redemption, we will do so ratably or by lot. Subordinated notes
will be redeemed at 100% of their principal amount plus accrued but unpaid
interest to the redemption date, but will not include any early redemption
premium. An early redemption may reduce the return that holder receives by
reducing the term of the holder's investment. In addition, a holder whose
subordinated note has been redeemed early may not be able to reinvest the
proceeds for the remainder of the original term at an interest rate comparable
to the rate paid on the subordinated notes redeemed. See "Description of
Notes--Redemption by Arcadia Financial."
IF THE HOLDERS OF OUR OUTSTANDING SENIOR NOTES WERE TO EXERCISE THEIR
RIGHT TO REQUIRE US TO REPURCHASE THEIR NOTES, IT MIGHT CAUSE A DEFAULT UNDER
OUR OUTSTANDING INDEBTEDNESS AND MAKE US UNABLE TO PAY AMOUNTS DUE ON THE
SUBORDINATED NOTES. The holders of our currently outstanding senior notes
(which are senior indebtedness with respect to the subordinated notes) 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 the senior notes for this or any
other reason, any funds so used would not be available to pay principal or
interest on the subordinated notes, 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.
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PURCHASERS MAY BE REQUIRED TO INCLUDE INTEREST ON THE SUBORDINATED NOTES
THAT HAS ACCRUED BUT NOT BEEN PAID IN THEIR INCOME FOR TAX PURPOSES. Under
certain circumstances, cash basis taxpayers, such as individual tax payers,
may be required to include accrued interest payable on the subordinated notes in
their ordinary gross income for federal income tax purposes for a tax year prior
to the year in which the taxpayer receives the related cash payment from us.
See "Federal Income Tax Considerations."
WE SET THE INTEREST RATES ON THE SUBORDINATED NOTES WITHOUT THIRD PARTY
INPUT. We set the interest rates on the subordinated notes from time to time in
our discretion based on our capital needs. The rates are not set with the help
or input of any third parties, such as investment banks or broker-dealers, that
are familiar with conditions in the markets for corporate debt securities such
as the subordinated notes. As such, the rates should not be deemed to be
indicative of the rates that a professional securities market participant would
set for the subordinated notes.
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. In particular, 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 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.
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 which 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.
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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.
--------------
THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS
PROSPECTUS CONTAIN FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT EXPECTATIONS,
ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT OURSELVES AND OUR INDUSTRY.
FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF LANGUAGE SUCH AS
"MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE," "SHOULD" OR "CONTINUE," AND
SIMILAR LANGUAGE. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISK AND
UNCERTAINTY. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY FACTORS, WHICH ARE
DESCRIBED IN THIS SECTION AND ELSEWHERE. WE UNDERTAKE NO OBLIGATION TO UPDATE
PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON, EVEN IF NEW INFORMATION
BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
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USE OF PROCEEDS
Unless otherwise specified in an applicable prospectus supplement, we
intend to add the net proceeds we receive from the sale of the subordinated
notes to our general funds, in which case they will be available for working
capital and other general corporate purposes. These uses may include funding
loan purchases, repaying maturing obligations and redeeming outstanding
indebtedness, including other subordinated notes. Pending those uses, we may
temporarily invest the net proceeds in short-term investments or use them to
reduce short-term indebtedness, including indebtedness under our warehouse
facilities.
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DESCRIPTION OF THE SUBORDINATED NOTES
GENERAL
The subordinated notes are unsecured general obligations of Arcadia
Financial, subordinated to all existing and future senior indebtedness. They
are issued under the terms of an Indenture dated as of July 1, 1994, as
amended and restated by a First Amendment and Restatement dated as of April
28, 1995, between Arcadia Financial and Norwest Bank Minnesota, National
Association, as further amended and supplemented by an Instrument of
Resignation, Appointment and Acceptance dated as of August 13, 1998, among
Arcadia Financial, Norwest and Marine Midland Bank, and a First Supplemental
Indenture dated as of August 13, 1998 between Arcadia Financial and HSBC Bank
USA (formerly Marine Midland Bank), as trustee. The indenture provides that an
unlimited principal amount of subordinated notes may be issued. The
subordinated notes may be issued in one or more series having those
maturities, interest rates, principal amounts, redemption provisions and
other features that we establish. This prospectus relates to subordinated
extendible notes having maturities of 30, 60, 90 and 180 days and one year
after the date of issue, and subordinated fixed-term notes having maturities
of one, two, three, four, five and ten years after the date of issue. There
is no limitation on the respective amounts of each series of subordinated
notes that may be outstanding at any time.
The terms of the subordinated notes include those stated in the indenture
and those made part of the indenture by reference to the Trust Indenture Act of
1939 as in effect on the date of the indenture. The subordinated notes are
subject to all of these terms, and holders of the subordinated notes are
referred to the indenture and the Trust Indenture Act for a full understanding
of all of these terms. The following section of this prospectus contains a
description of the provisions of the indenture that we believe are material to a
purchaser of the subordinated notes. All references to a section or an article
what follows refer to the applicable section or article of the indenture. A copy
of the indenture is filed as an exhibit to the registration statement and is
available for inspection at our principal executive offices.
The subordinated notes will be issued in registered form, without
coupons, in any amount of $1,000 or more. We intend initially to issue the
subordinated notes in uncertificated form. Prior to the summer of 1998, we
issued subordinated notes in certificated form. Payment of any certificated
subordinated note requires surrender of the certificate. If the certificate
is lost, the holder will be required to provide an affidavit of loss and a
surety bond, available through our office, at a cost equal to the greater of
2% of the principal amount of the subordinated note or $50.
The subordinated notes may from time to time be issued as original issue
discount securities, which means that they are legally considered to have
been sold for an amount less than their principal amount. The holders of
original issue discount subordinated notes may be required to include the
value of the original issue discount in their income for tax purposes before
they receive any cash with respect to that amount. In addition, if a
subordinated note is an original issue discount security, an amount less than
its full principal amount may become due and payable upon a declaration of
acceleration of maturity. The accompanying prospectus supplement will
describe the federal income tax consequences and other special factors that
should be considered prior to purchasing any subordinated notes that are
considered to be original issue discount securities.
There is no sinking fund or other provision for payment of the subordinated
notes at maturity. Subordinated notes that mature will be paid from our general
funds, which may include funds generated by the sale of new subordinated notes.
INTEREST
The interest rates we offer on the subordinated notes will change from time
to time. Accordingly, then-current interest rates will be described in
prospectus supplements. The interest rates we offer will be based on our
analysis market conditions and our financial requirements. No change in
interest rates will affect any note sold prior to the effective date of the
change, except as described below regarding extendible subordinated notes.
Interest on the subordinated notes accrues from the date of issuance and is
calculated based on a 365-day year.
Interest on the two, three, four, five and ten year subordinated notes
compounds quarterly. Interest on all other subordinated notes is not compounded.
Interest on 30, 60, 90 and 180 day extendible subordinated notes will be paid at
maturity only. Interest on fixed-term subordinated notes and one year extendible
subordinated notes will be paid, at the election of the original purchaser,
monthly, quarterly, semi-annually, annually or at maturity. This election may
be changed, one time only, by the holder during the term of the note.
The interest rate on an extendible note will be adjusted to the
then-current rate on each date on which that subordinated note extends. Each of
these dates is called a "roll-over date." The roll-over dates occur every 30,
60, 90, 180 or 365 days, depending upon
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the series to which the extendible note belongs, unless the extendible note is
redeemed by the holder or Arcadia Financial. The interest rate on a fixed-term
note will not adjust prior to maturity.
AUTOMATIC EXTENSION
If we do not redeem an extendible note prior to a roll-over date, we will
send a notice to the holder on or within five days after that roll-over date
listing the current interest rate applicable to the extendible note. If the
holder does not present the subordinated note for redemption on or within 10
days after the roll-over date, the note will be extended automatically for the
same term. All extendible subordinated notes will continue to renew in this
manner unless either the holder or Arcadia Financial does something to stop the
automatic extensions. Each extended subordinated note will continue to be
subject to all the prior provisions that governed it, except that interest will
accrue at the new rate from the first day of the renewed term. If extendible
subordinated notes with the same term are not then being offered, the extendible
note will not renew, and, absent instructions from the holder selecting a note
with a term that is currently being offered, the extendible note will be
redeemed. If a holder submits a written request for redemption within 10 days
after a roll-over date, we will redeem the subordinated note, but no interest
will accrue after the roll-over date. For purposes of the notice described
above, notice is deemed given when the letter is deposited in the mail.
The fixed-term subordinated notes will not automatically extend, but will
be automatically paid at maturity.
REDEMPTION BY ARCADIA FINANCIAL
If permitted by any senior indebtedness outstanding at the time, we may
elect to redeem subordinated notes prior to maturity on at least 30 days' but
not more than 60 days' notice to each holder of subordinated notes to be
redeemed. This notice will be sent to the holder at his, her or its
registered address. The redemption price will be 100% of the principal
amount of the subordinated notes, plus accrued interest to the redemption
date. We may not redeem five and ten year fixed-term subordinated notes at
any time during the first two years after their dates of issuance. In any
redemption, we may select only subordinated notes of a single class, interest
rate or maturity. If we redeem less than all of a single class, interest rate
or maturity of subordinated notes, the trustee will choose the subordinated
notes (or portions of the subordinated notes) to be redeemed in the manner
provided in the indenture, which will generally be pro rata or by lot. On and
after the redemption date, interest will cease to accrue on subordinated
notes or portions of them called for redemption.
REDEMPTION BY THE HOLDER
Subject to the subordination limitations in the indenture, holders may
request redemption of a 90 or 180 day or one year extendible or any fixed-term
note. To do this, the holder must submit a written request for redemption.
Within 30 calendar days following our receipt of a request, we will repay the
principal amount of the subordinated note, together with interest accrued to the
redemption date, less a penalty. The penalty will be the higher of:
1. 90 days' interest at the actual rate of interest borne by the
subordinated note, plus an amount equal to the difference, if any,
between the interest actually earned on the subordinated note from
the date of issue to the redemption date and the interest that
would have been earned on the subordinated note for that period at
an interest rate of 5% per year, if 5% is lower than the rate borne
by the subordinated note; or
2. the interest that would be earned from the date of redemption to
the next roll-over date or to maturity, as the case may be,
calculated at a rate per year equal to the difference between the
interest rate borne by the subordinated note and the interest rate
currently being offered by Arcadia Financial on subordinated notes
having like or similar terms to the subordinated note being
redeemed.
We will not be obligated to redeem at the request of holders more than
$2,000,000 in original principal amount of subordinated notes in any calendar
quarter. If more than $2,000,000 in original principal amount of subordinated
notes are presented for redemption in a calendar quarter, we will select, in any
manner we deem appropriate and fair, the subordinated notes or portions to be
redeemed.
Subject to the subordination limitations in the indenture, the estate of a
deceased holder may request redemption of any subordinated notes owned by the
deceased holder. To do this, the estate must submit a written notice to Arcadia
Financial. Within 30 calendar days following our receipt of this notice, we
will repay the principal amount of the subordinated note, together with interest
accrued to the redemption date. We will not be obligated to redeem more than a
$25,000 in aggregate principal amount of subordinated notes owned by any
deceased holder, including the principal amount of subordinated notes owned by
any trust or other entity of which the deceased holder is a beneficiary or
owner. If two or more persons are joint record holders of a subordinated note,
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the election to redeem will not apply until all record holders are deceased,
except that if the joint holders are husband and wife, the election may be made
after the death of either spouse. The person electing redemption must provide us
with whatever evidence we may reasonably require to establish death. Our
decision with respect to determining death will be conclusive and binding.
On redemption of a subordinated note and as a condition to the holder's
right of redemption, the holder may be required, at our request, to supply
written evidence, satisfactory in form and substance to us and the trustee, of
the discharge of our obligation to the holder under the note.
INTEREST ACCRUAL DATE
Interest on the subordinated notes accrues from the date of issuance. The
date of issuance is the business day on which we receive funds in payment for
the subordinated note purchased. For this purpose, our business days are Monday
through Friday, except for national bank holidays.
INTEREST WITHHOLDING
For those investors who do not provide us with a fully executed Form W-8 or
Form W-9, we will withhold 31% of any interest paid. Otherwise, no interest will
be withheld.
ADDITIONAL BENEFITS
We may, from time to time, offer to make additional payments of
interest, premiums or other benefits, in those amounts, in those forms, on
those terms and at whatever times as we may determine. For example, we may
limit an offer of additional benefits only to new investors, to investors
purchasing subordinated notes for IRA, SEP or Keogh accounts, to current
investors increasing or renewing their investments in the subordinated notes
or to purchasers of subordinated note units. Also, we may limit an offer of
additional benefits to current or new investors residing in particular states
or localities where we may legally sell the subordinated notes. We may
modify or discontinue any benefits like this at any time.
SUBORDINATION
The subordinated notes are subordinated in right of payment to the prior
payment in full of all "senior indebtedness." Each noteholder, by accepting
a subordinated note, agrees to the subordination and authorizes the trustee
to give it effect. Senior indebtedness means all of our indebtedness except
for (a) indebtedness evidenced by the subordinated notes and any extension or
refunding of the subordinated notes and (b) indebtedness that is expressly
made equal in right of payment to the subordinated notes. Senior indebtedness
includes, without limitation, indebtedness under the following as amended,
renewed or extended from time to time:
- our 11 1/2% Senior Subordinated Notes due 2007; and
- our Subordinated Notes, Series 1996-A due 2001.
More generally, our indebtedness on any date will include each of the
following:
- all its indebtedness for money borrowed, including all loans
evidenced by subordinated notes, bonds, debentures or similar
evidences of indebtedness;
- indebtedness under leases which are capitalized under generally
accepted accounting principles;
- indebtedness representing the deferred and unpaid purchase price of
any property or business, excluding trade and service payables
incurred in the ordinary course of business and constituting
current liabilities;
- all guarantees of indebtedness of others, including repurchase
arrangements and financial condition or liquidity or capital
maintenance arrangements;
- all obligations in respect of interest rate protection agreements
and foreign currency hedging arrangements; and
- all obligations in respect of letters of credit, other than
documentary letters of credit, and in respect of banker's
acceptances.
If any senior indebtedness matures, whether by lapse of time, acceleration
or otherwise, then all senior indebtedness must be paid in full before we can
make any payment on account of the subordinated notes. We may not pay any
amounts for the subordinated notes, including by redemption or otherwise,
designate or set aside any amount for payment, or acquire any subordinated notes
for cash or property other than our capital stock, if (a) we are then in default
in the payment of any obligation due for senior indebtedness
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or (b) if a default on senior indebtedness occurs and is continuing that permits
holders of that senior indebtedness to accelerate its maturity, other than a
payment default, and we receive a notice of the default. We may resume payments
on the subordinated notes and may acquire them when the default is cured or
waived or, in the case of a default described in clause (b) in the preceding
sentence, 180 days pass after the notice is given, if the indenture otherwise
permits the payment or acquisition at that time.
During any period in which we are prohibited from making any payments on
the subordinated notes neither the trustee nor any noteholders may (a) initiate
any insolvency proceeding unless an insolvency proceeding has be initiated by
another person or (b) collect on or seek to enforce any judgment or otherwise
receive any payment from Arcadia Financial for the subordinated notes. If
payments are made to noteholders contrary to the subordination provisions of the
indenture, the noteholders are required to pay over such amounts on demand to
the trustee under the indenture or other agreement under which senior
indebtedness may have been issued.
Upon any distribution to our creditors in an insolvency proceeding, holders
of senior indebtedness will be entitled to receive payment in full in cash of
all obligations due in respect of senior indebtedness before the subordinated
noteholders will be entitled to receive any payment of principal of or interest
on subordinated notes. Until the senior indebtedness is paid in full in cash,
any distribution to which noteholders would have been entitled will be made to
holders of senior indebtedness.
For these purposes, an insolvency proceeding means any bankruptcy,
liquidation, winding-up, dissolution, insolvency, general assignment, including
an assignment for the benefit of creditors, or appointment of a receiver,
liquidator, custodian, sequestrator or similar official, or any similar
proceeding or creditor's remedy occurring regarding Arcadia Financial or any of
our subsidiaries or any substantial part of our respective assets.
MODIFICATION OF INDENTURE
We may modify the indenture and change the trustee at any time with the
consent of the holders of not less than a majority in principal amount of
subordinated notes then outstanding. However, unless each affected holder gives
consent, we may not modify the indenture if the modification will affect the
terms of payment or the principal or interest on any subordinated note or reduce
the percentage of holders whose consent to modification is required. Without the
consent of noteholders, Arcadia Financial and the trustee may amend the
indenture or the subordinated notes to cure any ambiguity, defect or
inconsistency; to comply with Section 5.01 of the indenture in the event of a
merger or sale of substantially all of our assets; or to make any change that
does not adversely affect the legal rights of any noteholder. Article 10 of the
indenture, which contains provisions subordinating the right of noteholders to
senior indebtedness, may not be amended or modified without the consent of the
holders of any senior indebtedness that may be required in any documentation
governing our senior indebtedness.
PLACE, METHOD AND TIME OF PAYMENT
Principal and interest on the subordinated notes will be payable on the
applicable payment date at our then-current principal executive office or at any
other place we may designate for that purpose. We may, however, elect to make
payments by check or draft mailed on the applicable payment date or, in the case
of maturity, the business day following the date of maturity, to the person
entitled to the payment at his, her or its address appearing in the register
that we maintain. Any payment of principal or interest that is due on a
non-business day will be payable on the next business day.
EVENTS OF DEFAULT AND REMEDIES
It will be an event of default under the subordinated notes if:
- we fail to pay all or any part of the interest on any subordinated
note when it becomes due and payable and this failure continues for
a period of 30 days;
- we fail to pay all or any part of the principal of any subordinated
note when it becomes due and payable at maturity, whether upon
redemption or otherwise;
- we fail to comply with any of our other agreements or covenants in,
or provisions of, the subordinated notes or the indenture, provided
that this will not be an event of default until the trustee or the
holders of at least 25% in principal amount of the then outstanding
subordinated notes notify us of the default and we do not cure the
default within 60 days after receipt of the notice. The notice must
specify the default, demand that it be remedied and state that the
notice is a "Notice of Default";
- we, under or within the meaning of any bankruptcy law:
(1) commence a voluntary proceeding under any bankruptcy law
(2) consent to the entry of an order for relief against us in an
involuntary bankruptcy proceeding
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(3) consent to the appointment of a custodian of us or for all
or substantially all of our property
(4) make a general assignment for the benefit of our creditors
(5) generally are unable to pay our debts as the same become
due;
- a court of competent jurisdiction enters an order or decree under
any bankruptcy law that:
(1) is for relief against us in an involuntary bankruptcy
proceeding
(2) appoints a custodian of us or for all or substantially all
of our property
(3) orders our liquidation, and the order or decree remains
unstayed and in effect for 60 days; or
- the maturity of any senior indebtedness in an aggregate amount
exceeding $5,000,000 is accelerated under the terms of the
instrument under which the senior indebtedness is outstanding, if
the acceleration is not rescinded within 30 days after written
notice of the acceleration.
Noteholders may not enforce the indenture or the subordinated notes except
as provided in the indenture. The trustee may require indemnity satisfactory to
it before it enforces the indenture or the subordinated notes. Subject to
limitations contained in the indenture and described in the following paragraph,
holders of a majority in principal amount of the then outstanding subordinated
notes may direct the trustee in its exercise of any trust or power. The trustee
may withhold from noteholders notice of any continuing default, except a default
in payment of principal or interest, if it determines that withholding notice is
in their interests. We must furnish an annual compliance certificate to the
trustee.
If an event of default occurs and is continuing, and subject to the
limitation on exercising remedies contained in the subordination provisions of
the indenture, the trustee by notice to us, or the holders of at least 25% in
principal amount of the then outstanding subordinated notes by notice to us and
the trustee, may declare the principal of and accrued interest on all the
subordinated notes to be due and payable. Following a declaration like this, the
principal and interest owing on the then outstanding subordinated notes will be
due and payable immediately. The holders of a majority in principal amount of
the then outstanding subordinated notes by notice to the trustee may rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing events of default other than nonpayment
of principal or interest that has become due solely because of the acceleration
have been cured or waived. The holders of a majority in principal amount of the
then outstanding subordinated notes may direct the time, method and place of
conducting any proceeding for any remedy available to the trustee or exercising
any trust or power conferred on the trustee. The trustee may refuse to follow
any direction that conflicts with law or the indenture, is unduly prejudicial to
the rights of other noteholders, or would involve the trustee in personal
liability.
A noteholder may pursue a remedy with respect to the indenture or the
subordinated notes only if:
- the holder gives to the trustee notice of a continuing event of
default;
- the holders of at least 25% in principal amount of the then
outstanding subordinated notes make a request to the trustee to
pursue the remedy;
- the holder or holders offer to the trustee indemnity satisfactory
to the trustee against any loss, liability or expense;
- the trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
- during the 60-day period the holders of a majority in principal
amount of the then outstanding subordinated notes do not give the
trustee a direction inconsistent with the request.
A noteholder may not use the indenture to prejudice the rights of another
noteholder or to obtain a preference or priority over another noteholder.
COVENANTS UNDER THE INDENTURE
The indenture contains a number of covenants by us. In particular,
we agree to pay the principal of and interest on the subordinated
notes in accordance with their terms. In addition, we agree that we will
not consolidate or merge with or into any other corporation, unless the other
corporation expressly assumes our obligations under the indenture.
EXCHANGES
We may offer or accept outstanding subordinated notes in exchange for other
subordinated notes issued under the indenture.
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TRANSFER AND EXCHANGE
A holder may transfer or exchange subordinated notes in accordance with the
indenture. We are currently the registrar under the indenture. We, or another
registrar under the indenture, may require a holder, among other things, to
furnish appropriate endorsements and transfer documents, and to pay any taxes
and fees required by law or permitted by the indenture. We are not required to
transfer or exchange any subordinated notes selected for redemption, beginning
at the opening of business 15 days before the day that we intend to mail the
notice of redemption. Also, we are not required to transfer or exchange any
note for a period of 15 days before its roll-over date, in the case of an
extendible note, or its maturity date, in the case of a fixed-term note.
ABOUT THE TRUSTEE
If an event of default occurs and is continuing, the trustee is required to
exercise its rights and powers under the indenture, including its right to
accelerate the subordinated notes or pursue other remedies to collect principal
and interest. In exercising its rights and powers, the trustee is required to
use the same degree of care and skill as a prudent person would exercise or use
under the circumstances in the conduct of his or her own affairs. As noted
above, the holders of a majority in principal amount of the then outstanding
subordinated notes issued under the indenture have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the trustee. The trustee will be under no obligation to exercise
any of its rights or powers under the indenture at the request of any of the
holders of subordinated notes, unless they have offered the trustee security and
indemnity satisfactory to it.
The indenture contains a number of limitations on the right of the trustee,
if it becomes our creditor, to obtain payment of claims in various types of
cases, or to realize on listed types of property that it claims as security or
otherwise. The trustee will be permitted to engage in other transactions. If it
acquires any conflicting interest and if the subordinated notes are in default,
it must eliminate the conflict or resign. The trustee may resign or be removed,
effective upon the appointment of a successor trustee.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The indenture may be discharged following the payment of all subordinated
notes then outstanding or deposit in trust of funds sufficient to pay all
subordinated notes then outstanding. We would also have to comply with some
formal procedures to discharge the indenture.
SERVICE CHARGES
We reserve the right to assess service charges for services such as
changing the registration of any subordinated note when such change is
occasioned by a change in name of the holder or a transfer, whether by operation
of law or otherwise, of a subordinated note by the holder to another person.
VARIATIONS IN TERMS AND CONDITIONS
We may elect to offer only some of the classes and maturities of
subordinated notes described in this prospectus, depending on our financial
requirements and market conditions. We may offer securities different from
the subordinated notes, including debt that may be "senior indebtedness" with
respect to the subordinated notes. We may vary the terms and conditions of
the offering of the subordinated notes depending on various factors,
including the state or locality where the purchaser resides, the purchaser's
tenure as an investor with us, whether an investor is increasing or renewing
his or her investment in our securities, or purchasing subordinated notes for
an IRA, SEP or Keogh account. In addition, we may vary the terms and
conditions of the subordinated notes for our employees and the employees of
our subsidiaries.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of some of the federal income tax
consequences relating to the purchase, ownership and disposition of the
subordinated notes. The discussion is based upon the current provisions of
the Internal Revenue Code of 1986, the related Treasury regulations and
judicial or ruling authority. All of these are subject to change, including
change with retroactive effect. The discussion assumes that the subordinated
notes are held as capital assets and does not deal with federal income tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. Investors should consult their own tax advisors to
determine the federal, state, local and any other tax consequences of the
purchase, ownership and disposition of the subordinated notes.
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INTEREST INCOME ON THE SUBORDINATED NOTES
A holder of a 30, 60, 90 or 180 day extendible subordinated note generally
will be required to include interest on that note in ordinary gross income on
each roll-over date, even if the holder elects not to have interest paid on that
date. A holder of a one year extendible note or a fixed term note generally will
be required to include interest on that note in ordinary gross income on a daily
basis, even though interest may be paid less frequently. As a result, a holder
of a subordinated note may have taxable interest income for that subordinated
note before any cash payment is received.
SALE, EXCHANGE OR RETIREMENT
Upon the sale, exchange or retirement of a subordinated note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale, exchange or retirement and the holder's adjusted
tax basis in the note. The adjusted tax basis of a subordinated note to a
particular holder generally will equal the holder's cost for the note, increased
by any accrued but unpaid interest previously included in the holder's income
and decreased by principal payments previously received. Any gain or loss will
be capital gain or loss, except for gain representing accrued interest not
previously included in income. Any capital gain or loss will be short-term or
long-term capital gain or loss, depending on whether the subordinated note had
been held for more or less than 12 months.
FOREIGN HOLDERS
Generally, interest paid to a holder of a subordinated note who is a
nonresident alien individual or a foreign corporation and who does not hold the
note in connection with a United States trade or business will be treated as
"portfolio interest" and will be exempt from the applicable withholding tax.
This type of holder will be entitled to receive interest payments on the
subordinated notes free of United States federal income tax provided that the
holder periodically provides us with a statement certifying under penalty of
perjury that the holder is not a United States person and providing the holder's
name and address. This type of holder will not be subject to federal income tax
on gain from the disposition of a subordinated note unless the holder is an
individual who is present in the United States for 183 days or more during the
taxable year in which the disposition takes place and certain other requirements
are met.
REPORTING AND BACKUP WITHHOLDING
We will report annually to the Internal Revenue Service and to holders of
record that are not excepted from the reporting requirements whatever
information may then be required by law with respect to interest on the
subordinated notes. Under some circumstances, a holder of a note may be subject
to "backup withholding" at a 31% rate. Backup withholding may apply to a holder
who is a United States person if the holder, among other circumstances, fails to
furnish a Social Security number or other taxpayer identification number to us.
Backup withholding at the appropriate rate, which may vary, may also apply to a
holder of a note who is a foreign person if the holder fails to provide us with
the statement necessary to establish the exemption from federal income and
withholding tax on interest on the subordinated note. Backup withholding does
not apply to payments on a subordinated note made to some exempt recipients,
such as corporations and tax-exempt organizations, and to some foreign persons.
PLAN OF DISTRIBUTION
The subordinated notes are being offered on a continuous basis. The
subordinated notes will be sold directly by our officers and other employees,
without an underwriter or selling agent. We may also elect to sell
subordinated notes through one or more registered broker-dealers who will act
as selling agents for us without a firm underwriting commitment. If we sell
through broker-dealers, the terms of the subordinated notes that we sell
directly to the public will be the same as the terms of any similar classes
and maturities that we sell through the brokers.
From time to time, we may limit the volume of subordinated notes or
classes or maturities of subordinated notes sold. We may vary the terms of
the offering or the subordinated notes offered by state, locality or as
otherwise described under "Description of Subordinated Notes--Variations in
Terms and Conditions." At different times we may also offer only some of the
maturities listed on the cover of this prospectus, depending on factors such
as our liquidity requirements, the interest rate environment and other
economic conditions.
From time to time we may offer "subordinated note units" that consist of
subordinated notes of more than one type or maturity of that are sold together.
We will allocate an investor's total unit purchase among the different types and
maturities of subordinated notes included in the unit in the manner stated on
the prospectus supplement that accompanies this prospectus. The interest rates
on subordinated notes included in the subordinated note units may be different
from the interest rates that are then available on individually purchased
subordinated notes of the same type and maturity.
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We intend to enter into non-exclusive selling agreements with any brokers
that act as selling agents for the subordinated notes. Under the terms of these
agreements, brokers will sell subordinated notes to the public and we will pay
them commissions. Commissions will range from 0.25% to 5.0% of the principal
amount of subordinated notes sold. The commission rate will vary according to
the principal amount and term of the subordinated notes. We will agree to
indemnify the brokers for losses arising out of certain liabilities, including
liabilities under the Securities Act of 1933, as amended. The prospectus
supplement that accompanies this prospectus will provide information about any
selling agents then selling subordinated notes, including the commissions
payable to that selling agent.
REPORTS TO HOLDERS
We publish annual reports containing audited financial statements and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year. Copies of these reports will be sent to any
noteholder upon oral or written request. See "Where You Can Find More
Information" for further details.
LEGAL MATTERS
The validity of the subordinated notes offered under this registration
statement will be passed upon for us by Dorsey & Whitney LLP, Minneapolis,
Minnesota.
EXPERTS
The consolidated financial statements of the Company appearing in our
Annual Report on Form 10-K for the year ended December 31, 1998 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires the filing of certain information with the
SEC, including annual, quarterly and special reports, proxy statements and other
information. You can read and copy these documents at the public reference
facility maintained by the SEC at Judiciary Plaza, 450 Fifth Street, NW, Room
1024, Washington, DC 20549. You can also copy and inspect such reports, proxy
statements and other information at the following regional offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, NY 10048 Chicago, Illinois 60661
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. SEC filings are also available to the public on the SEC's web
site at http://www.sec.gov. Our SEC filings are also available at the offices
of the New York Stock Exchange. For further information on obtaining copies of
our public filings at the NYSE, you should call 1-212-656-5060.
This prospectus and the accompanying prospectus supplements are part of
a registration statement we filed with the SEC (Registration No. 333- ).
The registration statement and the exhibits filed with it contain additional
information about us and the subordinated notes. The registration statement
and the exibits filed with it are also available at the SEC locations listed
above and on the SEC's web site.
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information that we incorporate by
reference is considered to be part of this prospectus, and later information
that we file with the SEC will automatically update and supersede the
information in this prospectus and any accompanying prospectus supplement. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934 prior to the termination of the offering of the subordinated
notes:
a. Annual Report on Form 10-K for the year ended December 31, 1998,
filed March 24, 1999;
b. Current Report on Form 8-K dated March 5, 1999, filed March 8,
1999;
c. Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
filed May 14, 1999;
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d. Current Report on Form 8-K dated May 21, 1999, filed May 21,
1999;
e. Amendment to Quarterly Report on Form 10-Q/A-1 for the quarter
ended March 31, 1999, filed July 28, 1999; and
f. Quarterly Report on Form 10-Q for the quarter ended June 30, 1999,
filed July 28, 1999.
You may request a free copy of any of the above filings by writing or
calling:
Arcadia Financial Ltd.
Arcadia Financial Center
7825 Washington Avenue South
Minneapolis, MN 55439
Attention: Secretary
(612) 942-9880
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The table below sets forth expenses in connection with the issuance and
distribution of the securities registered by this prospectus. All fees and
expenses other than the SEC registration fee are estimated. The expenses listed
will be paid by Arcadia Financial.
<TABLE>
<S> <C>
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . $ 27,800
Accounting Fees and Expenses . . . . . . . . . . . . . . . . 5,000
Legal Fees and Expenses. . . . . . . . . . . . . . . . . . . 10,000
Printing Expenses. . . . . . . . . . . . . . . . . . . . . . 20,000
Blue Sky and legal investment fees and related expenses. . . 5,000
Miscellaneous (including listing fees, if applicable). . . . 2,200
--------
Total. . . . . . . . . . . . . . . . . . . . . . . . $ 70,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521 of the Minnesota Business Corporation Act requires
corporations to indemnify any person who is made or threatened to be made a
party to any proceeding, by reason of the person's former or present official
capacity, against judgments, penalties, fines, settlements and reasonable
expenses, including attorneys' fees and disbursements, incurred by the person in
connection with the proceeding if certain statutory standards are met.
"Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including one by or in
the right of the corporation. Section 302A.521 contains detailed terms
regarding this right of indemnification, and reference is made to Section
302A.521 for a complete statement of indemnification rights. The general effect
of Minnesota Statutes Section 302A.521 is to require Arcadia Financial to
reimburse (or pay on behalf of) our directors and officers with respect to any
personal liability that may be imposed on them for certain acts performed in
their capacity as our directors and officers, except where they have not acted
in good faith.
Article 6 of our restated bylaws, as amended, provides that our directors,
officers, employees and agents, past or present, and persons serving as
directors, officers, employees and agents of another corporation or entity at
Arcadia Financial's request, shall be indemnified by Arcadia Financial for such
expenses and liabilities, in such manner, under such circumstances, and to such
extent as permitted under Minnesota Statutes Section 302A.521.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <C>
4.1 First Amendment and Restatement dated as of April 28, 1995, to Indenture
dated as of July 1, 1994, between the Registrant and Norwest Bank
Minnesota, National Association, as trustee (incorporated by reference
to Exhibit 4.8.1 to Post-Effective Amendment No. 2, filed May 4, 1995,
to the Registrant's Registration Statement on Form S-1, File No.
33-81512).
4.2 Instrument of Resignation, Appointment and Acceptance dated as of
August 13, 1998, among the Registrant, Norwest Bank Minnesota, National
Association, and Marine Midland Bank (incorporated by reference to
Exhibit 4.2 to Amendment No. 1, filed August 14, 1998, to the
Registrant's Registration Statement on Form S-3, File No. 333-60531).
4.3 First Supplemental Indenture dated as of August 13, 1998, between the
Registrant and Marine Midland Bank, as trustee, to Indenture dated as of
July 1, 1994, as amended and restated by that First Amendment and
Restatement dated as of April 28, 1995 (incorporated by reference to
Exhibit 4.3 to Amendment No. 1, filed August 14, 1998, to the
Registrant's Registration Statement on Form S-3, File No. 333-60531).
5.1 Opinion and consent of Dorsey & Whitney LLP (filed herewith).
12.1 Computation of Ratio of Earnings to Fixed Charges (previously filed).
12.2 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends (previously filed).
23.1 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP (filed herewith).
24.1 Power of Attorney (previously filed).
25.1 Statement of Eligibility of Marine Midland Bank on Form T-1
(previously filed).
</TABLE>
24
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the SEC
by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act
that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance on Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
(2) for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
25
<PAGE>
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of section 310 of the Trust Indenture Act of 1939, as amended, in accordance
with the rules and regulations prescribed by the SEC under section 305(b)(2)
thereof.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to Registration Statement on
Form S-3 to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Minneapolis, State of Minnesota on August 16, 1999.
ARCADIA FINANCIAL LTD.
/s/ Richard A. Greenawalt
-------------------------------------
Richard A. Greenawalt
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 has been signed by the following persons in the capacities and
on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ Richard A. Greenawalt Chief Executive Officer August 16, 1999
- ----------------------------- and Director (Principal
Richard A. Greenawalt Executive Officer)
/s/ Robert A. Marshall President, Chief Operating August 16, 1999
- ----------------------------- Officer and Director
Robert A. Marshall
/s/ John A. Witham Executive Vice President and August 16, 1999
- ----------------------------- Chief Financial Officer
John A. Witham (Principal Financial Officer)
/s/ Brian S. Anderson Senior Vice President, August 16, 1999
- ----------------------------- Corporate Controller and
Brian S. Anderson Assistant Secretary
(Principal Accounting Officer)
* Director August 16, 1999
- -----------------------------
Scott H. Anderson
* Director August 16, 1999
- -----------------------------
Robert J. Cresci
* Director August 16, 1999
- -----------------------------
James L. Davis
* Chairman of the Board August 16, 1999
- -----------------------------
Warren Kantor
*By: /s/ Richard A. Greenawalt August 16, 1999
-------------------------
Attorney-in-fact**
- -------------
** Executed on behalf of the indicated persons by Richard A. Greenawalt,
pursuant to the Power of Attorney included as Exhibit 24.1 to this
registration statement.
27
<PAGE>
EXHIBIT INDEX
<TABLE>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
4.1 First Amendment and Restatement dated as of April 28, 1995, to Indenture
dated as of July 1, 1994, between the Registrant and Norwest Bank
Minnesota, National Association, as trustee (incorporated by reference
to Exhibit 4.8.1 to Post-Effective Amendment No. 2, filed May 4, 1995,
to the Registrant's Registration Statement on Form S-1, File
No. 33-81512).
4.2 Instrument of Resignation, Appointment and Acceptance dated as of
August 13, 1998, among the Registrant, Norwest Bank Minnesota, National
Association, and Marine Midland Bank (incorporated by reference to
Exhibit 4.2 to Amendment No. 1, filed August 14, 1998, to the
Registrant's Registration Statement on Form S-3, File No. 333-60531).
4.3 First Supplemental Indenture dated as of August 13, 1998, between the
Registrant and Marine Midland Bank, as trustee, to Indenture dated as of
July 1, 1994, as amended and restated by that First Amendment and
Restatement dated as of April 28, 1995 (incorporated by reference to
Exhibit 4.3 to Amendment No. 1, filed August 14, 1998, to the
Registrant's Registration Statement on Form S-3, File No. 333-60531).
5.1 Opinion and consent of Dorsey & Whitney LLP (filed herewith).
12.1 Computation of Ratio of Earnings to Fixed Charges (previously filed).
12.2 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends (previously filed).
23.1 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP (filed herewith).
24.1 Power of Attorney (previously filed).
25.1 Statement of Eligibility of Marine Midland Bank on Form T-1
(previously filed).
</TABLE>
28
<PAGE>
Exhibit 5.1
Arcadia Financial Ltd.
7825 Washington Avenue South
Minneapolis, Minnesota 55439-2435
Ladies and Gentlemen:
We have acted as counsel to Arcadia Financial Ltd., a Minnesota
corporation (the "Company"), in connection with the preparation of its
Registration Statement on Form S-3 (the "Registration Statement") relating to
the sale by the Company of up to $100,000,000 principal amount of the
Company's 30-, 60-, 90- and 180-Day and One-Year Subordinated Extendible
Notes and One-, Two-, Three-, Four-, Five- and Ten-Year Subordinated
Fixed-Term Notes (the "Notes"), pursuant to an Indenture dated as of July 1,
1994, between the Company and Norwest Bank Minnesota, National Association
("Norwest"), as Trustee, as amended and restated by that First Amendment and
Restatement dated as of April 28, 1995, that Instrument of Resignation,
Appointment and Acceptance dated as of August 13, 1998, among the Company,
Norwest and Marine Midland Bank and that First Supplemental Indenture dated
as of August 13, 1998 between the Company and HSBC Bank USA (formerly Marine
Midland Bank), as Trustee.
We have examined such documents and have reviewed such questions of
law as we have considered necessary and appropriate for the purposes of our
opinion set forth below. In rendering our opinion, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness
of all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We also have assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all
parties to agreements or instruments relevant hereto other than the Company,
that such parties had the requisite power and authority (corporate or
otherwise) to execute, deliver and perform such agreements or instruments,
that such agreements or instruments have been duly authorized by all
requisite action (corporate or otherwise), executed and delivered by such
parties and that such agreements or instruments are the valid, binding and
enforceable obligations of such parties. As to questions of fact material to
our opinion, we have relied upon certificates of officers of the Company and
of public officials. We have also assumed that the Notes will be issued and
sold as described in the Registration Statement.
Based on the foregoing, we are of the opinion that the Notes, when
issued against payment therefor in the manner described in the Registration
Statement, will constitute binding obligations of the Company.
<PAGE>
The opinion set forth above is subject to the following
qualifications and exceptions:
(a) The opinion set forth above is subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar law of general application affecting creditors' rights.
(b) The opinion set forth above is subject to the effect of
general principles of equity, including (without limitation) concepts of
materiality, reasonableness, good faith and fair dealing and other similar
doctrines affecting the enforceability of agreements generally (regardless
of whether considered in a proceeding in equity or at law).
(c) Minnesota Statutes Section 290.371, Subd. 4, provides that any
corporation required to file a Notice of Business Activities Report does
not have a cause of action upon which it may bring suit under Minnesota
law unless the corporation has filed a Notice of Business Activities
Report and provides that the use of the courts of the State of Minnesota
for all contracts executed and all causes of action that arose before the
end of any period for which a corporation failed to file a required report
is precluded. Insofar as our opinion may relate to the valid, binding and
enforceable character of any agreement under Minnesota law or in a
Minnesota court, we have assumed that any party seeking to enforce such
agreement has at all times been, and will continue at all times to be,
exempt from the requirement of filing a Notice of Business Activities
Report or, if not exempt, has duly filed, and will continue to duly file,
all Notice of Business Activities Reports.
The opinion expressed above is limited to the laws of the State of
Minnesota.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the caption
"Legal Matters" in the prospectus constituting part of the Registration
Statement.
Dated: August 16, 1999
Very truly yours,
/s/ Dorsey & Whitney LLP
WBP/CFS
-2-
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Arcadia Financial
Ltd. for the registration of $100,000,000 of Subordinated Extendible Notes
and Subordinated Fixed-Term Notes and Subordinated Note Units and to the
incorporation by reference therein of our report dated January 25, 1999, with
respect to the consolidated financial statements of Arcadia Financial Ltd.
included in its Annual Report on Form 10-K for the year ended December 31,
1998, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
August 16, 1999
Minneapolis, Minnesota
