<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTER ENDED MARCH 31, 2000
COMMISSION FILE NUMBER 0-20526
------------------------
ARCADIA FINANCIAL LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MINNESOTA 41-1664848
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
</TABLE>
7825 WASHINGTON AVENUE SOUTH, MINNEAPOLIS, MN 55439-2435
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 942-9880
------------------------
Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was require to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
The Registrant meets the conditions set forth in General Instruction H
(1) (a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the
reduced disclosure format.
The number of shares of the Common Stock of the registrant outstanding as of
April 30, 2000 was 39,504,342.
- --------------------------------------------------------------------------------
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<PAGE>
FORM 10-Q INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements........................... 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 15
Item 5. Other Information........................................... 16
Item 6. Exhibits and Reports on Form 8-K............................ 16
SIGNATURES........................................................... 19
</TABLE>
The financial information for the interim periods presented herein is
unaudited. In the opinion of management, all adjustments necessary (which are of
a normal recurring nature) have been included for a fair presentation of the
results of operations. The results of operations for an interim period are not
necessarily indicative of the results that may be expected for a full year or
any other interim period.
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements under the captions "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and elsewhere in this Form
10-Q constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements may be
identified by the use of terminology such as "may," "will," "expect,"
"anticipate," "estimate," "should," or "continue" or the negative thereof or
other variations thereon or comparable terminology. Such forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical results or from those
results presently anticipated or projected. Such factors include, among other
things, the following: increased delinquency and loan loss rates; accounting
charges; regulatory changes; interest rate fluctuations; difficulties or delays
in the securitization of automobile loans; availability of adequate short- and
long-term financing; general economic and business conditions; and other matters
set forth under the caption "Cautionary Statements" in exhibit 99.1 to the
Company's 1999 Annual Report on Form 10-K filed March 17, 2000.
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) -------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 4,799 $ 13,489
Restricted cash............................................. 20,796 4,073
Auto loans held for sale.................................... 679,924 220,012
Auto loans held for investment.............................. 18,793 21,143
Allowance for credit losses on loans held for investment.... (5,438) (1,832)
Retained interest in securitized assets..................... 492,239 557,372
Furniture, fixtures and equipment........................... 15,036 16,366
Other assets................................................ 35,057 34,692
---------- ----------
Total assets.............................................. $1,261,206 $ 865,315
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Amounts due under warehouse facilities...................... $ 132,834 $ --
Amounts due under sale agreement............................ 528,671 192,886
Senior notes................................................ 367,928 367,674
Subordinated notes.......................................... 102,718 92,556
Capital lease obligations................................... 2,286 2,774
Interest payable............................................ 4,884 15,102
Accounts payable and accrued liabilities.................... 20,121 22,239
---------- ----------
Total liabilities......................................... 1,159,442 693,231
Commitments and contingencies
Shareholders' equity:
Capital stock, $.01 par value, 1000,000,000 shares
authorized; Common stock 39,504,342 and 39,433,842 shares
issued and outstanding, respectively...................... 395 394
Additional paid-in capital.................................. 326,994 326,471
Accumulated other comprehensive (loss) income............... (12,790) 12,372
Accumulated deficit......................................... (212,835) (167,153)
---------- ----------
Total shareholders' equity................................ 101,764 172,084
---------- ----------
Total liabilities and shareholders' equity................ $1,261,206 $ 865,315
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ----------- -----------
<S> <C> <C>
REVENUES:
Net interest margin....................................... $ 20,432 $ 21,289
Gain on sale of loans, net of impairments................. (16,837) 25,971
Loss on commitment to repurchase securitized assets....... (10,341) --
Servicing fee income...................................... 21,029 21,815
----------- -----------
Total revenues............................................ 14,283 69,075
EXPENSES:
Salaries and benefits..................................... 21,393 18,479
General and administrative and other operating expenses... 24,281 25,279
----------- -----------
Total operating expenses................................ 45,674 43,758
Interest Expense............................................ 14,291 13,466
----------- -----------
Total expenses............................................ 59,965 57,224
----------- -----------
Operating (loss) income before income taxes and cumulative
effect.................................................... (45,682) 11,851
Income tax expense.......................................... -- --
----------- -----------
Operating (loss) income before cumulative effect............ (45,682) 11,851
Cumulative effect of change in accounting, net of taxes of
$0........................................................ -- (3,976)
----------- -----------
Net (loss) income......................................... (45,682) 7,875
OTHER COMPREHENSIVE LOSS:
Net unrealized loss on retained interest in securitized
assets.................................................. (25,162) (1,488)
----------- -----------
COMPREHENSIVE (LOSS) INCOME................................. $ (70,844) $ 6,387
=========== ===========
EARNINGS PER SHARE:
Operating (loss) income per share before cumulative
effect--basic........................................... $ (1.16) $ 0.30
Cumulative effect per share--basic........................ -- (0.10)
----------- -----------
Net (loss) income per share--basic...................... $ (1.16) $ 0.20
=========== ===========
Operating (loss) income per share before cumulative
effect--diluted........................................... (1.16) 0.30
Cumulative effect per share--dilutive..................... -- (0.10)
----------- -----------
Net (loss) income per share--dilutive................... $ (1.16) $ 0.20
=========== ===========
Weighted average shares:
Basic..................................................... 39,430,166 39,204,110
Diluted................................................... 39,430,166 39,279,849
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
(DOLLARS IN THOUSANDS) --------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ (45,682) $ 7,875
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization............................. 3,348 2,018
Provision for credit losses............................... 4,483 900
Gain (loss) on sale of furniture, fixtures and equipment (8) --
(Increase) decrease in assets:............................
Automobile loans held for sale and investment:
Purchases of automobile loans......................... (469,094) (583,671)
Sales of automobile loans............................. -- 463,262
Repayments of automobile loans........................ 10,655 6,939
Restricted Cash......................................... (16,723) (5,469)
Retained interest in securitized assets................. 39,971 (21,538)
Prepaid expenses and other assets....................... (879) 156
Decrease in liabilities:
Accounts payable an accrued liabilities................. (12,336) (11,605)
--------- ---------
Total cash used in operating activities............... (486,265) (141,133)
CASH FLOWS FORM INVESTING ACTIVITIES:
Proceeds from sales of furniture, fixtures, and equipment... -- 1,078
Purchase of furniture, fixtures and equipment............... (1,103) (1,713)
Collections on subordinated certificates.................... 160 236
--------- ---------
Total cash used in investing activities............... (943) (399)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Common Stock.................. 225 221
Proceeds from borrowings under warehouse facilities......... 309,139 542,284
Repayment of borrowings under warehouse facilities.......... (176,305) (412,802)
Proceeds from transfer of loans to Associates, net of
payments received......................................... 335,785 --
Unsecured subordinated notes, net........................... 10,162 7,866
Reduction of capital lease obligations...................... (488) (271)
--------- ---------
Total cash provided by financing activities........... 478,518 137,352
--------- ---------
Net decrease in cash and cash equivalents................... (8,690) (4,180)
Cash and cash equivalents at end of period.................. 13,489 6,326
--------- ---------
Cash and cash equivalents at end of period.................. $ 4,799 $ 2,146
========= =========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest................................................ $ 24,663 $ 25,659
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE>
ARCADIA FINANCIAL LTD.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
(DOLLARS IN THOUSANDS, EXCEPT SHARE NUMBER OF COMMON ADDITIONAL OTHER
COMMON PAR PAID IN COMPREHENSIVE ACCUMULATED
SHARES VALUE CAPITAL INCOME (LOSS) DEFICIT TOTAL
AMOUNTS) ---------- -------- ---------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999......... 39,433,842 $394 $326,471 $ 12,372 $(167,153) $172,084
Exercise of options................ 75,000 1 224 -- -- 225
Cancellation of Common Stock:
Benefit plans.................... (4,500) -- -- -- -- --
Amortization of deferred
compensation..................... -- -- 299 -- -- 299
Unrealized loss on retained
interests........................ -- -- -- (25,162) -- (25,162)
Net loss........................... -- -- -- -- (45,682) (45,682)
---------- ---- -------- -------- --------- --------
BALANCE, MARCH 31, 2000............ 39,504,342 $395 $326,994 $(12,790) $(212,835) $101,764
========== ==== ======== ======== ========= ========
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000
1. SUBSEQUENT EVENTS
MERGER WITH ASSOCIATES FIRST CAPITAL CORPORATION
On April 3, 2000, the Company merged with AFCC Newco, Inc. ("Sub") a
Minnesota Corporation and wholly owned subsidiary of Associates First Capital
Corporation ("Associates"). As a result, the Company became a wholly owned
subsidiary of Associates.
Subsequent to the acquisition, it was announced that the Company's corporate
headquarters office in Minneapolis, Minnesota and certain of the Company's
regional buying centers would be closed and operations at its other locations
would be consolidated. Immediately prior to the closing of the acquisition,
Associates made a capital contribution of $100 million to its subsidiary that
merged with the Company to ensure that the Company would be able to meet its
working capital needs following closing of the acquisition. During April the
Company has effected a clean-up call on six of its existing securitization
transactions having an aggregate outstanding principal balance of approximately
$160 million, terminated its two existing warehouse facilities having an
aggregate borrowing capacity of approximately $350 million, issued notices of
intent to redeem approximately $68 million of its unsecured subordinated notes
and repurchased from Associates approximately $800 million aggregate principal
amount of motor vehicle retail installment sales contracts purchased by
Associates from the Company. On April 13, 2000, the Company commenced a tender
offer to acquire both tranches of its 11.5% Senior Notes due 2007 for 101% of
their principal amount plus accrued and unpaid interest to the date of purchase.
This tender offer expired on May 11, 2000. On May 8, 2000, the Company commenced
a second tender offer to purchase both tranches of its 11.5% Senior Notes due
2007 for a purchase determined by reference to specified U.S. Treasury notes and
will expire on June 2, 2000, unless extended.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The interim financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission applicable to quarterly reports on Form 10-Q. These interim
financial statements have been prepared on a historical cost basis and do not
reflect any adjustments related to the acquisition by Associates. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although management
believes that the disclosures present fairly the financial position of the
Company and its subsidiaries for the periods presented. These financial
statements should be read in conjunction with the audited consolidated financial
statements and related notes and schedules included in the Company's 1999 Annual
Report on Form 10-K filed March 17, 2000.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Certain reclassifications have been made to the March 31, 1999 balances to
conform to current period presentation.
USE OF ESTIMATES. In conformity with generally accepted accounting
principles, management utilizes assumptions and estimates that affect the
reported value of retained interest in securitized assets and the gain on sale
of automobile receivables. Such assumptions include, but are not limited to,
estimates of loan prepayments, defaults, recovery rates, and present value
discount. The Company uses a combination of its own historical experience,
industry statistics and expectation of future performance to determine such
7
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE QUARTER ENDED MARCH 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
estimates. The Company's estimation process is evaluated on a regular basis and
modified when deemed necessary. Modifications to the estimation process may
result in changes in estimates utilized to determine the carrying value of
retained interest in securitized assets. Actual results may differ from the
Company's estimates due to numerous factors both within and beyond the control
of Company management. Changes in these factors could require the Company to
revise its assumptions concerning the amount of voluntary prepayments, the
frequency and/or severity of defaults and the recovery rates associated with the
disposition of repossessed vehicles. The range of assumptions, as well as actual
performance, are reflective of the risk characteristics of the loans within
specific securitization pools.
3. RETAINED INTEREST IN SECURITIZED ASSETS
The following table sets forth the components of retained interest in
securitized assets:
<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
2000 1999
(DOLLARS IN THOUSANDS) ---------- ------------
<S> <C> <C>
Estimated cash flows on loans sold, net of estimated
prepayments (1)................................... $1,059,511 $1,173,652
Deferred servicing income........................... (73,265) (87,908)
Reserve for loan losses............................. (323,555) (366,316)
---------- ----------
Undiscounted cash flows on loans sold............... 662,691 719,428
Discount to present value........................... (170,452) (162,056)
---------- ----------
$ 492,239 $ 557,372
========== ==========
Reserve for loan losses as a percentage of
securitized servicing portfolio................... 7.94% 7.95%
---------- ----------
</TABLE>
- ------------------------
(1) Includes restricted cash deposits in securitization spread accounts of
$339.4 million and $338.1 million at March 31, 2000 and December 31, 1999,
respectively.
The following represents the roll-forward of the retained interest in
securitized assets balance:
<TABLE>
<S> <C>
(DOLLARS IN THOUSANDS)
BALANCE, DECEMBER 31, 1999.................................. $557,372
Accretion of discount on estimated future cash flows...... 19,960
Spread account replenishment related to reinsurance
contracts, administrative fees and other charges........ 15,307
Less:
Changes in estimates of future cash flows................. (52,261)
Excess cash flows released to the Company (1)............. (48,139)
--------
BALANCE AT MARCH 31, 2000................................... $492,239
========
</TABLE>
- ------------------------
(1) Pursuant to an arrangement between the Company and its provider of
asset-backed securities insurance, if any insured securitization trust
exceeds a specified portfolio performance test as defined
8
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE QUARTER ENDED MARCH 31, 2000
3. RETAINED INTEREST IN SECURITIZED ASSETS (CONTINUED)
within the trust agreement, the Company may, in lieu of retaining excess
cash from that securitization trust in the related spread accounts, pledge
an equivalent amount of cash, which has the effect of preventing the
violation of the portfolio performance test. Under such arrangement, the
Company had approximately $18.4 million pledged and deposited in restricted
accounts at March 31, 2000. Such pledged amounts are included in restricted
cash. Restrictions on the pledged amounts may be lifted if the portfolio
performance for the related securitization trusts tests are met and
maintained as defined in the arrangement, the violations are waived, or the
loans within the securitization trust are repurchased by the Company at the
end of the securitization term.
4. OTHER ASSETS
<TABLE>
<CAPTION>
AT AT
MARCH 31, 2000 DECEMBER 31, 1999
(DOLLARS IN THOUSANDS) -------------- -----------------
<S> <C> <C>
Interest advances to securitization trusts..... $ 5,885 $ 8,494
Deferred debt issuance costs................... 8,348 8,701
Investment in subordinated certificates........ 848 1,008
Servicing fee receivable....................... 4,978 5,082
Prepaid expenses............................... 1,391 1,468
Other assets................................... 13,607 9,939
------- -------
$35,057 $34,692
======= =======
</TABLE>
5. SUBORDINATED NOTES
<TABLE>
<CAPTION>
AT AT
MARCH 31, 2000 DECEMBER 31, 1999
(DOLLARS IN THOUSANDS) -------------- -----------------
<S> <C> <C>
Senior subordinated notes, Series 1996-A....... $ 30,000 $30,000
Junior subordinated notes...................... 72,718 62,556
-------- -------
$102,718 $92,556
======== =======
</TABLE>
9
<PAGE>
ARCADIA FINANCIAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE QUARTER ENDED MARCH 31, 2000
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share for the three month periods ended March 31:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND 2000 1999
PER SHARE AMOUNTS) ----------- -----------
<S> <C> <C>
Numerator:
(Loss) income from operations before cumulative
effect......................................... $ (45,682) $ 11,851
=========== ===========
Denominator:
Denominator for basic earnings per
share--weighted average shares................. 39,430,166 39,204,110
Dilutive effect of options and warrants (1)...... -- 75,739
----------- -----------
Denominator for diluted earnings per
share--adjusted weighted average shares........ 39,430,166 39,279,849
=========== ===========
Basic (loss) income per share from operations
before cumulative effect......................... $ (1.16) $ 0.30
=========== ===========
Diluted (loss) income per share from operations
before cumulative effect......................... $ (1.16) $ 0.30
=========== ===========
</TABLE>
- ------------------------
(1) At March 31, 2000 and 1999, there were options and warrants outstanding to
purchase an aggregate 6.3 million and 7.0 million common shares,
respectively. All of these potential common shares have been excluded from
the computation of diluted earnings per share because their inclusion would
have been anti-dilutive.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
On April 3, 2000, the Company merged with AFCC Newco, Inc. ("Sub") a
Minnesota Corporation and wholly owned subsidiary of Associates First Capital
Corporation ("Associates"). As a result, the Company became a wholly owned
subsidiary of Associates.
The Company derives substantially all of its earnings from the purchase and
servicing of consumer automobile loans originated in 45 states primarily by car
dealers affiliated with major foreign and domestic manufacturers. Loans are
purchased through 17 regional buying centers (or "hubs") located in 14 states,
supplemented by a network of dealer development representatives ("DDRs") which
develop and maintain relationships with car dealers operating within each
"hub's" immediate market area or in surrounding market areas referred to as
"spokes". Credit approval and loan processing are generally performed at the
"hub" or at the Company's headquarters in Minneapolis, Minnesota. The Company
acts as the servicer of all loans originated and securitized in return for a
monthly servicing fee. To perform its servicing responsibilities, the Company
operates a national customer service center in Minneapolis, Minnesota and four
regional collection centers located in Charlotte, North Carolina; Dallas, Texas;
Denver, Colorado; and Minneapolis, Minnesota.
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
RESULTS OF OPERATIONS
NET INTEREST MARGIN. The components of net interest margin for each of the
three months ended March 31 were:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 2000 1999
- ---------------------- -------- --------
<S> <C> <C>
Interest income on loans.................................... $ 4,525 $ 7,105
Interest income on short-term investments and other cash
accounts.................................................. 430 1,842
Recognition of present value discount on residual interest
of securitized assets..................................... 19,960 13,242
Provision for credit losses on loans held for investment.... (4,483) (900)
------- -------
$20,432 $21,289
======= =======
</TABLE>
Net interest margin for the three months ended March 31, 2000 decreased
slightly, compared with the same period a year ago. The change in net interest
margin is primarily due to an increase in the present value discount recognized,
because of a higher discount rate used, offset by an increase in provision for
credit losses on loans held for investment and a lower average daily balance of
loans held for sale (excluding loans held under agreements to repurchase).
The Company's loan purchasing volume for each of the three months ended
March 31, are set forth in the table below.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 2000 1999
- ---------------------- -------- --------
<S> <C> <C>
Total automobile loans purchased............................ $468,639 $582,468
</TABLE>
GAIN ON SALE OF LOANS. During the first three months ended March 31, 2000,
gain on sale of loans reflected a $16.8 million loss compared to a $26.0 million
gain for the same period in 1999. This decrease primarily reflects the
discontinuation of securitizing loans with securitization trusts and recording
the related gain. As of November 12, 1999, the date on which the Company signed
its merger and purchase agreements with Associates, it began to exclusively
sell/transfer loans to Associates. Also, during the first quarter of 2000, the
Company recognized a $16.8 million permanent impairment adjustment to several of
11
<PAGE>
the Company's outstanding securitizations. These impairments were largely due to
increases in the risk free rate of interest and defaults in excess of those
previously anticipated. A permanent impairment adjustment to the carrying value
of the Retained Interest is required if the present value (determined using a
risk-free interest rate) of an individual Retained Interest is less than its
carrying value. This determination is made on a disaggregated (pool by pool)
basis. Permanent impairment adjustments are recorded as a component of Gain of
Sale of Loans. The Company also recorded temporary impairments in the amount of
$23.5 million in the first quarter of 2000. This entire amount is reflected in
the Consolidated Statement of Shareholders' Equity as unrealized loss.
LOSS ON COMMITMENT TO REPURCHASE SECURITIZED ASSETS. As of March 31, 2000,
the Company made a commitment to repurchase the outstanding loans in six of its
existing securitization transactions having an aggregate outstanding principal
balance of approximately $159.6 million. The loss recognized during the first
quarter was due to the present value of the expected cashflows from the loans
being less than the outstanding principal balance of the loans.
SERVICING FEE INCOME. Servicing fee income decreased slightly to $21.0
million for the three months ended March 31, 2000, compared to $21.8 million for
the same period a year ago primarily due to a decrease in the Company's
servicing portfolio as reflected in the table below.
The Company earns contractual servicing fee income for servicing loans sold
to securitization trusts in connection with securitizations and for loans
sold/transferred to Associates (see Note 1 to the consolidated financial
statements). Contractual servicing income is earned at rates ranging from 1% to
1.25% per annum on the outstanding principal balance of the loans. The Company's
servicing fee approximates adequate compensation as defined by SFAS 125 and
therefore, the Company has not recorded a servicing asset or liability at March
31, 2000. Other servicing income consists primarily of collection fees, such as
late payment fees and insufficient fund charges, and document fee income earned
by the Company as servicer of the loans securitized and loans held for sale or
investment, excluding loans sold/transferred to Associates.
The following table reflects the Company's servicing portfolio at March 31:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED) 2000 1999
- --------------------------------------- ---------- ----------
<S> <C> <C>
Principal balance of automobile loans held for sale (1)..... $ 662,997 $ 171,801
Principal balance of automobile loans held for investment... 18,793 21,143
Principal balance of loans serviced under securitizations... 4,073,834 4,956,003
Principal balance of loans sold to Associates............... 274,988 --
---------- ----------
Servicing portfolio......................................... $5,030,612 $5,148,947
========== ==========
Average unpaid principal balance (actual dollars)........... $ 10,853 $ 11,177
Number of loans serviced.................................... 463,528 480,692
</TABLE>
- ------------------------
(1) Includes $501.1 million of loan receivables transferred to Associates with
call options.
The Company's servicing portfolio (measured by principal balance) decreased
2% from March 31, 1999 to March 31, 2000, reflecting loan purchases and
subsequent securitizations or loan sale/transfers to Associates, partially
offset by defaults, prepayments and scheduled repayments. The decline in average
outstanding balance of loans reflects an increase in the proportion of used to
new cars financed by the Company and a reduction in average loan-to-value ratio
on loan purchases resulting from the Company's more selective buying practices.
OPERATING EXPENSES. Salaries and benefits increased to $21.4 million in the
first quarter of 2000, up 16% from $18.5 million during the same period in 1999.
The increase in salaries and benefits is primarily due to an enhanced incentive
program for collectors and an increase in the number of employees.
12
<PAGE>
Other operating costs, including administrative, occupancy, depreciation and
amortization, origination, servicing and collection expenses, decreased 4% for
the three months ended March 31, 2000, compared with the same period in 1999.
The decrease is primarily attributable to decreases in outside consulting fees
and Y2K expenses.
INCOME TAXES. The Company did not record an income tax benefit during the
three months ended March 31, 2000, due to the uncertainty of the realization of
net operating loss carryforwards.
DELINQUENCY, CREDIT LOSS AND REPOSSESSION EXPERIENCE
The following tables describe the delinquency and credit loss and
repossession experience of the Company's servicing portfolio for the periods
indicated. A delinquent loan may result in the repossession and foreclosure of
the collateral for the loan. Losses resulting from repossession and disposition
of automobiles are charged against applicable allowances, which management
reviews on a monthly basis. There can be no assurance that future delinquency,
credit loss and repossession experience will be comparable to those set forth
below.
DELINQUENCY EXPERIENCE (1):
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
------------------- -------------------
(DOLLARS IN THOUSANDS) AMOUNT PERCENT AMOUNT PERCENT
- ---------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Delinquencies:
31-60 days.......................................... $ 78,773 1.57% $144,749 2.82%
Greater than 60 days................................ 42,339 0.84% 76,783 1.50%
-------- -------- -------- -----
121,112 2.41% 221,532 4.32%
In repossession....................................... 69,768 1.38% 62,881 1.23%
-------- -------- -------- -----
$190,880 3.79% $284,413 5.55%
======== ======== ======== =====
</TABLE>
- ------------------------
(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each loan. The information in the table includes previously sold
loans, including loans sold/transferred to Associates, which the Company
continues to service.
The Company's delinquency rate has declined compared to December 31, 1999,
primarily due to a recovery from the normal seasonal pressure on collection
efforts, which is generally highest in the fourth quarter of the year.
CREDIT LOSS/REPOSSESSION EXPERIENCE (1):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
(DOLLARS IN THOUSANDS) 2000 1999
- ---------------------- ---------- ----------
<S> <C> <C>
Average servicing portfolio outstanding during the period... $5,067,273 $5,113,482
Average number of loans outstanding during the period....... 465,723 451,813
Number of charge-offs (2)................................... $ 9,992 $ 8,116
Gross charge-offs (2)....................................... $ 75,964 $ 62,907
Recoveries (3).............................................. 9,311 8,207
---------- ----------
Net losses.................................................. $ 66,653 54,700
========== ==========
Annualized gross charge-offs as a percentage of average
servicing portfolio....................................... 6.00% 4.92%
Annualized net losses as a percentage of average servicing
portfolio................................................. 5.26% 4.28%
</TABLE>
13
<PAGE>
(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each loan. The information in the table includes previously sold
loans, including loans sold/transferred to Associates, which the Company
continues to service.
(2) Gross charge-offs represent principal amounts which management estimated to
be uncollectable after the consideration of anticipated proceeds from the
disposition of repossessed assets and selling expenses.
(3) Recoveries post-disposition amounts received on previously charged off
loans.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted pursuant to General Instruction H to Form 10-Q.
14
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 4, 1997, a shareholder commenced an action against the Company and
certain named directors and officers of the Company entitled Taran v. Olympic
Financial Ltd. et al. in the United States District Court for the District of
Minnesota. Four similar lawsuits, three of them in the United States District
Court for the District of Minnesota (Frank Dibella, on behalf of himself and all
others similarly situated vs. Olympic Financial Ltd. et al., Michael Diemer vs.
Olympic Financial Ltd. et al. and Howard Piznoy vs. Olympic Financial Ltd. et
al.) and one in the United states District Court for the Eastern District of New
York (North River Trading, LLC, and Allan Farkas, an All Others Similarly
Situated vs. Olympic Financial Ltd. et al.) were filed after that time. These
suits have been consolidated in one suit, In re Olympic Financial Ltd.
Securities Litigation, in the United States District Court for the District of
Minnesota. Planitffs in the consolidated action allege that during the period
from July 20, 1995 through March 3, 1997 the defendants, in violation of federal
securities laws, engaged in a scheme that had the effect of artificailly
inflating, maintaining and otherwise manipulating the value of the Company's
Common Stock by, among other things, making baseless, false and misleading
statements about the current state and future prospects of the Company,
particularly with respect to the Classic program and the refinancing of
repossessed automobiles. Plaintiffs allege that this scheme included making
false and misleading statements and/or concealing material adverse facts. The
Company has reviewed the complaint in the consolidated action and believes that
the consolidated action is without merit and intends to defend it vigorously.
There can, however, be no assurance that the Company will prevail in such
defense or that any order, judgment, settlement or decree arising out of this
litigation will not have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
Another case which was filed November 8, 1996, Powel et al. V. Arcadia
Financial Ltd. et al., involved a complaint by approximately 200 borrowers who
purchased vehicles from a dealer which sold certain of Arcadia's repossessed
vehicles on a consignment basis. The plaintiffs in this case alleged that
Arcadia was either directly or vicariously liable for damages incurred as a
result of the consignment dealer's alleged wrongful actions. The Company
resolved the claims by such borrowers through the mediation process in June
1998. However, prior to the dismissal of those plaintiffs' action, an additional
three plaintiffs entered the case. Since the entry of those three plaintiffs, an
additional 670 borrowers have also been added as named plaintiffs. In accordance
with Texas statutes, the Company made settlement offers in February 2000 to the
individuals involved in the case. The settlement offers totaled approximately
$6.0 million and such amount was included in accrued liabilities as of March 31,
2000. To date some of the borrowers have accepted the offers, some remain
outstanding, and some have rejected. In the event the Company is not able to
resolve the entire matter with these offers, the Company intends to defend the
case vigorously. There can, however, be no assurance that the Company will
prevail in such defense or that any order, judgment, settlement or decree
arising out of this litigation will not have a material adverse effect on the
Company's financial condition, results of operations or liquidity.
On November 16, 1999, a shareholder commenced an action on behalf of himself
and all others similarly situated against the Company and certain named
directors and officers of the Company entitled Ruohonen vs. Arcadia Financial
Ltd. et al. in the Fourth Judicial District Court of Minnesota. Two similar
lawsuits, LeMire vs. Arcadia Financial Ltd. et al. and Halpern vs. Arcadia
Financial Ltd. et al., were filed subsequently in the same venue. On January 18,
2000, these suits were consolidated into one action, In Re Arcadia Financial
Ltd. Shareholder Litigation. In the suits, the plaintiffs allege that the
defendants violated fiduciary obligations to Company shareholders when they
entered into the merger agreement with the Associates. The Company has reviewed
the complaints and believes that the consolidated action is without merit and
intends to defend it vigorously. There can, however, be no assurance that the
Company will prevail in such defense or that any order, judgment, settlement or
decree arising out of this litigation
15
<PAGE>
will not have a material adverse effect on the Company's financial condition,
results of operation or liquidity.
On January 26, 2000, a lawsuit was commenced by Reliance Insurance Company
("Reliance") against Arcadia seeking a declaratory judgement against Arcadia
rescinding a blanket GAP insurance policy issued by Reliance to Arcadia and
seeking recovery of approximately $1.4 million of claim monies paid by Reliance
to Arcadia under that policy. Arcadia has begun to review the complaint and
believes that the claims are without merit and intends to defend them
vigorously. Arcadia has also filed a counterclaim against Reliance seeking
declaratory judgement, specific performance and damages. There can, however, be
no assurance that Arcadia will prevail in its defense and counterclaims.
The nature of the Company's business is such that it is routinely a party or
subject to other items of pending or threatened litigation, including litigation
involving actions against borrowers to collect amounts on loans or to repossess
vehicles and litigation challenging the terms of loans purchased by the Company.
Although the ultimate outcome of certain of these matters cannot be predicted,
management of the Company believes, based upon information currently available
and the advice of counsel, that the resolution of those various matters
currently pending will not result in any material adverse effect on the
Company's financial condition, results of operations or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Omitted pursuant to General Instruction H to Form 10-Q.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Omitted pursuant to General Instruction H to Form 10-Q.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction H to Form 10-Q.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed in response to Item 601 of Regulation S-K.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of November 12, 1999,
by and among the Registrant, Associates First Capital
Corporation ("Associates") and AFCC Newco, Inc.
(incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated November 12,
1999, filed November 16, 1999).
3.1 Restated Articles of Incorporation of the Registrant, as
amended (filed herewith).
3.2 Restated Bylaws of the Registrant, as amended (filed
herewith).
4.1 Rights Agreement dated as of November 1, 1996, between the
Registrant and Norwest Bank Minnesota, National Association,
as Rights Agent (incorporated by reference to Exhibit 1 to
the Registrant's Registration Statement on Form 8-A filed
November 7, 1996).
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- -----------
<C> <S>
4.2 Amendment No. 1 to Rights Agreement, dated January 16, 1998,
to Rights Agreement, dated as of November 1, 1996 between
Arcadia Financial Ltd. and Norwest Bank Minnesota, N.A.
(incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K dated January 8,
1998 and filed January 20, 1998).
4.3 Amendment No. 2 to Rights Agreement, dated October 5, 1998,
to Right Agreement, dated as of November 1, 1996 between the
Registrant and Norwest Bank Minnesota, National Association,
as Rights Agent (incorporated by reference to Exhibit 4.1 to
the Registrant's Current Report on Form 8-K dated
September 30, 1998 and filed October 8, 1998).
4.4 Amendment No. 3 to the Rights Agreement, dated as of
November 12, 1999, by and between the Company and Norwest
Bank Minnesota, National Association (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report
on Form 8-K dated November 12, 1999, filed November 16,
1999).
4.5 First Amendment and Restatement, dated of of April 28, 1995,
of Indenture, dated July 1, 1994, between the Registrant
and Norwest Bank Minnesota, National Association, as
Trustee, relating to the Registrant's Unsecured Extendible
Notes and Fixed-Term Notes, including forms of Notes
(incorporated by reference to Exhibit 4.8.1 to
Post-Effective Amendment No. 2 on Form S-3 to Registrant's
Registration Statement on Form S-1, File No. 33-61512).
4.6 Instrument of Resignation, Appointment and Acceptance, dated
as of August 13, 1998, among the Registrant, Norwest Bank
Minnesota, National Association, as Resigning Trustee, and
Marine Midland Bank, as Successor Trust, relating to the
Registrant's Unsecured Extendible Notes and Fixed Term Notes
(incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-3, File
No. 33-60531).
4.7 First Supplemental Indenture dated as of August 13, 1998, to
Indenture dated as of July 1, 1994 as amended and restated
by that First Amendment and Restatement dated as of
April 28, 1995 and as further amended by that Instrument of
Resignation, Appointment and Acceptance dated as of
August 13, 1998, between the Registrant and Marine Midland
Bank, as Trustee relating to the Registrant's Unsecured
Extendible Notes and Fixed Term Notes (incorporated by
reference to Exhibit 4.3 to the Registrant's Registration
Statement on Form S-3, File No. 333-60531).
4.8 Indenture dated as of March 15, 1996, between the Registrant
and Norwest Bank Minnesota, National Association, as
Trustee, relating to the Registrant's Subordinated Notes,
Series 1996-A due 2001 (incorporated by reference to
Exhibit 4.5 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996).
4.9 First Supplemental Indenture, dated as of March 15, 1996, to
Indenture, dated as of March 15, 1996, between the
Registrant and Norwest Bank Minnesota, National Association,
as Trustee, relating to the Registrant's Subordinated Notes,
Series 1996-A due 2001 (incorporated by reference to
Exhibit 4.6 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996).
4.10 Indenture dated as of March 12, 1997, between the Registrant
and Norwest Bank Minnesota, National Association, as Trustee
(incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K dated March 12, 1997
and filed March 18, 1997).
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- -----------
<C> <S>
4.11 First Supplemental Indenture, dated as of March 12, 1997
between the Registrant and Norwest Bank Minnesota, National
Association, as Trustee (incorporated by reference to
Exhibit 4.2 to the Registrant's Current Report on Form 8-K
dated March 12, 1997 and filed March 18, 1997).
4.12 Warrant Agreement, dated as of March 12, 1997 by and between
the Registrant and Norwest Bank Minnesota, National
Association, as Warrant Agent (incorporated by reference to
Exhibit 4.3 to the Registrant's Current Report on Form 8-K
dated March 12, 1997 and filed March 18, 1997).
4.13 Form of Unit (incorporated by reference to Exhibit 4.4 to
the Registrant's Current Report on Form 8-K dated March 12,
1997 and filed March 18, 1997).
4.14 Form on 11.5% Senior Notes due March 15, 2007 (incorporated
by reference to Exhibit 4.5 to the Registrant's Current
Report on Form 8-K dated March 12, 1997 and filed March 18,
1997).
4.15 Form of Initial Warrant Certificate (incorporated by
reference to Exhibit 4.6 to the Registrant's Current Report
on Form 8-K dated March 12, 1997 and filed March 18, 1997).
4.16 Second Supplemental Indenture, dated as of October 8, 1997,
to Indenture, dated as of March 12, 1997, between the
Registrant and Norwest Bank Minnesota, National Association,
as Trustee, including Form of Notes (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report
on Form 8-K dated October 8, 1997 and filed October 15,
1997).
10.1 1990 Stock Option Plan (as amended March 16, 2000) (filed
herewith).
10.2 1992 Director Stock Option Plan (as amended March 16, 2000)
(filed herewith).
27.1 Financial Data Schedule (filed herewith).
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended March 31, 2000.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to its
Quarterly Report on Form 10-Q be signed on its behalf by the undersigned,
thereunto duly authorized.
ARCADIA FINANCIAL LTD.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN A. WITHAM Executive Vice President and
------------------------------------------- Chief Financial Officer May 15, 2000
John A. Witham (Principal Financial Officer)
/s/ BRIAN S. ANDERSON Senior Vice President, Assistant
------------------------------------------- Secretary (Principal May 15, 2000
Brian S. Anderson Accounting Officer)
</TABLE>
19
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ARCADIA FINANCIAL LTD.
FIRST: The name of the corporation (hereinafter called the "corporation") is
Arcadia Financial Ltd.
SECOND: The address of the registered office of the corporation in the State of
Minnesota is c/o Corporation Service Company, Multifoods Tower, 33 South Sixth
Street, Minneapolis 55402, and the name of the initial registered agent of the
corporation at that address is Corporation Service Company. The said initial
registered office is located in the County of Hennepin.
THIRD: The aggregate number of shares that the corporation has authority to
issue is three thousand (3,000), all of which are of a par value of twenty-five
dollars ($25.00) each and are of the same class and series and are Common
shares.
FOURTH: The duration of the corporation shall be perpetual.
FIFTH: The corporation has general business purposes. Without limiting the
generality of such purposes, the corporation has the following purposes:
To carry on a general mercantile, industrial, investing, and trading
business in all its branches; to devise, invent, manufacture, fabricate,
assemble, install, service, maintain, alter, buy, sell, import, export, license
as licensor or licensee, lease as lessor or lessee, distribute, job, enter into,
negotiate, execute, acquire, and assign contracts in respect of, acquire,
receive, grant, and assign licensing arrangements, options, franchises, and
other rights in respect of, and generally deal in and with, at wholesale and
retail, as principal, and as sales, business, special, or general agent,
representative, broker, factor, merchant, distributor, jobber, advisor, and in
any other lawful capacity, goods, wares, merchandise, commodities, and
unimproved, improved, finished, processed, and other real, personal, and mixed
property of any and all kinds, together with the components, resultants, and
by-products thereof; to acquire by purchase or otherwise own, hold, lease,
mortgage, sell, or otherwise dispose of, erect, construct, make, alter, enlarge,
improve, and to aid or subscribe toward the construction, acquisition, or
improvement of any factories, shops, storehouses, buildings, and commercial and
retail establishments of every character, including all equipment, fixtures,
machinery, implements, and supplies necessary, or incidental to, or connected
with, any of the purposes or business of the corporation; and generally to
perform any and all acts connected therewith or arising therefrom or incidental
thereto, and all acts proper or necessary for the purpose of the business.
To engage generally in the real estate business as principal, agent, broker,
and in any lawful capacity, and generally to take, lease, purchase, or otherwise
acquire, and to own, use, hold, sell, convey, exchange, lease, mortgage, work,
clear, improve, develop, divide, and otherwise handle, manage, operate, deal in,
and dispose of real estate, real property, lands, multiple-dwelling structures,
houses, buildings, and other works and any interest or right therein; to take,
lease, purchase, or otherwise acquire, and to own, use, hold, sell, convey,
exchange, hire, lease, pledge, mortgage, and otherwise handle, and deal in and
dispose of, as principal, agent, broker, and in any lawful capacity, such
personal property, chattels, chattels real, rights, easements, privileges,
choses in action, notes, bonds, mortgages, and securities as may lawfully be
acquired, held, or disposed of; and to acquire, purchase, sell, assign,
transfer, dispose of, and generally deal in and with, as principal, agent,
broker, and in any lawful capacity, mortgages and other interests in real,
personal, and mixed properties; to carry on a general construction, contracting,
building, and realty management business as principal, agent, representative,
contractor, subcontractor, and in any other lawful capacity.
To apply for, register, obtain, purchase, lease, take licenses in respect
of, or otherwise acquire, and to hold, own, use, operate, develop, enjoy, turn
to account, grant licenses and immunities in respect of, manufacture under and
to introduce, sell, assign, mortgage, pledge, or otherwise dispose of, and, in
any manner deal with and contract with reference to:
(a) inventions, devices, formulae, processes, and any improvements and
modifications thereof;
<PAGE>
(b) letters patent, patent rights, patented processes, copyrights, designs,
and similar rights, trade-marks, trade symbols and other indications of
origin and ownership granted by or recognized under the laws of the
United States of America or of any state or subdivision thereof, or of
any foreign country or subdivision thereof, and all rights connected
therewith or appertaining thereunto;
(c) franchises, licenses, grants, and concessions.
To have, in furtherance of the corporate purposes, all of the powers
conferred upon corporations incorporated under Chapter 302A, Minnesota Statutes.
SIXTH: No shareholder entitled to vote in the election of directors shall be
entitled as of right to cumulative voting in any such election.
SEVENTH: Any action required or permitted to be taken at a meeting of the Board
of Directors of the corporation, other than an action requiring shareholder
approval, may be taken by written action signed by the number of directors that
would be required to take the same action at a meeting of the Board of Directors
at which all directors were present.
EIGHTH: No director of this corporation shall be personally liable to this
corporation or its shareholders for monetary damages for breach of fiduciary
duty by such director; provided, however, that this Article shall not eliminate
or limit the liability of a director to the extent provided by applicable law
(i) for any breach of the director's duty of loyalty to this corporation or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under
Section 302A.559 or 80A.23 of the Minnesota Statutes, (iv) for any transaction
from which the director derived an improper personal benefit or (v) for any act
or omission occurring prior to the effective date of this Article. No amendment
to or repeal of this Article shall apply to or have any effect on the liability
or alleged liability of any director of this corporation for or with respect to
any acts or omissions of such director occurring prior to such amendment or
repeal.
NINTH: No holder of any securities of the corporation shall be entitled to
preemptive rights.
Signed on April 3, 2000.
I certify that I am authorized to execute this document and I further
certify that I understand that by signing this document, I am subject to the
penalties of perjury as set forth in Section 609.48, Minnesota Statues, as if I
had signed this document under oath.
<TABLE>
<S> <C> <C>
-----------------------------------------
Karen L. Robb, Assistant Secretary
</TABLE>
<PAGE>
BY-LAWS
OF
ARCADIA FINANCIAL LTD.
(MINNESOTA)
AS RESTATED AND AMENDED ON 4/03/2000
ARTICLE I--STOCKHOLDERS
SECTION 1. PLACE OF MEETING: Meetings of the stockholders (whether annual or
special) may be held at such place, within or without the state of its
incorporation, as the board of directors or the president shall from time to
time designate, provided, however, in the absence of such designation, meetings
shall be held at the Associates Building, Irving, Texas.
SECTION 2. ANNUAL MEETING: The annual meeting of stockholders shall be held on
the third Friday of February in each year. Should said day be a legal holiday,
such annual meeting shall be held on the preceding regular business day. If, for
any reason, the annual meeting be not held at the time aforesaid, the board of
directors or the president shall fix another date for such meeting.
SECTION 3. NOTICE OF ANNUAL MEETING: The secretary shall mail, in the manner
provided in Section 2 of Article V of these by-laws, or shall deliver, a written
or printed notice of each annual meeting to each stockholder of record entitled
to vote thereat, at least ten (10) days and not more than 60 days before the
date of such meeting.
SECTION 4. PURPOSE OF ANNUAL MEETING: Annual meetings of stockholders shall be
held for the purpose of electing directors and transacting such other business
as may be properly presented thereat.
SECTION 5. SPECIAL MEETINGS: Special meetings of the stockholders may be held
at any time upon the call of the board of directors or any two or more member
thereof, or of the president, or of stockholders holding not less than one-tenth
(1/10th) of the outstanding shares entitled, by the Articles of Incorporation
and by the Minnesota Business Corporation Act, to vote on the business to be
transacted thereat (except that a special meeting for the purpose of considering
any action to directly or indirectly facilitate or effect a business
combination, including any action to change or otherwise affect the composition
of the board of directors for that purpose, must be called by stockholders
holding not less than twenty-five percent (25%) of the voting power of all
shares of the company entitled to vote).
SECTION 6. NOTICE OF SPECIAL MEETINGS: The person or persons calling a special
meeting, or the secretary at their direction, shall mail, in the manner provided
in Section 2 of Article V of these by-laws, or shall deliver, a written or
printed notice thereof to each holder of outstanding shares entitled, by the
Articles of Incorporation and by the Minnesota Business Corporation Act Law of
the state of its incorporation, to vote on the business proposed to be
transacted at such meeting, at least ten (10) days before the date of such
meeting. Such notice shall specify the time and place thereof and the purpose or
purposes for which such meeting was called.
SECTION 7. WAIVER OF NOTICE: Any stockholder may waive, in writing, notice of
any meeting of stockholders. Presence of a stockholder, in person or by proxy,
at any meeting of stockholders, shall constitute a waiver of notice thereof on
the part of such stockholder.
SECTION 8. QUORUM: A majority of the shares of issued and outstanding capital
stock entitled, by the Articles of Incorporation and by the Minnesota Business
Corporation Act, to vote on the business proposed to be transacted at such
meeting represented by the holders of record thereof, in person or by proxy,
shall constitute a quorum for the transaction of business.
SECTION 9. VOTING RIGHTS: Shares which have been transferred on the books of
the company after the record date of such meeting fixed by the board of
directors (which date shall be not more than 60 days before the date of such
meeting) shall not be entitled to vote at such meeting.
At all stockholders' meetings, each share of common stock shall be entitled
to one (1) vote.
<PAGE>
SECTION 10. PROXIES: Any stockholder entitled to vote at any meeting of
stockholders may vote either in person or by proxy executed in writing by the
stockholder or any authorized attorney in fact. All proxies shall be delivered
to the secretary at or before the time of such meeting. No proxy shall be valid
after eleven (11) months from the date of its execution unless a longer time is
expressly provided therein.
SECTION 11. ORDER OF BUSINESS: The order of business at the annual meeting
and, so far as practical, at all other meetings shall be as follows:
1. Determination of shares present.
2. Reading and disposal of any unapproved minutes.
3. Reports of officers and committees, if any.
4. Election of directors.
5. Unfinished business.
6. New business.
ARTICLE II--DIRECTORS
SECTION 1. NUMBER AND ELECTION: The number of directors of this company shall
be three (3) provided, however, however, that such number may be increased or
decreased from time to time by resolution of the board of directors adopted by
the vote of a majority of the then number of directors, or by a majority vote of
the stockholders, but in no case shall the number be less than one (1). Each
director shall be elected each year by a majority vote of the stockholders
present in person or by proxy at the annual meeting of stockholders each year
and shall hold office until the next annual meeting of stockholders and until
his successor is elected and qualified.
SECTION 2. PLACE OF MEETING: Meetings of the board of directors of this
company may be held at such place, either within or without the state of its
incorporation, as may from time to time be designated by the president, or by
agreement in writing of not less than a majority of the directors, or upon the
unanimous consent of the members of the board of directors. In the absence of
any such designation, the meeting shall be held at the Associates Building,
Irving, Texas.
SECTION 3. REGULAR MEETINGS: Regular meetings of the board of directors shall
be held immediately after each annual meeting of stockholders and at such other
times as may from time to time be fixed by resolution of the board of directors.
Notice need not be given of regular meetings of the board of directors.
SECTION 4. SPECIAL MEETINGS: Special meetings of the board of directors may be
held at any time upon the call of the president, or of a majority of the board
of directors, or without notice upon the unanimous consent of the members of the
board.
SECTION 5. NOTICE OF SPECIAL MEETINGS: The person or persons calling a special
meeting, or the secretary, at their direction, shall do so by oral, telegraphic
or written notice duly delivered to each director not less than four (4) days
before such meeting. Notice of any special meeting need not specify the purpose
thereof.
SECTION 6. WAIVER OF NOTICE: Any director may waive, in writing, notice of any
meeting of the board of directors. The presence of a director at any meeting of
the board of directors shall constitute a waiver of notice thereof on the part
of such director.
SECTION 7. QUORUM: A majority of the duly elected and qualified directors then
holding such positions shall constitute a quorum for the transaction of
business.
SECTION 8. VACANCIES: If permitted by law, any vacancy occurring in the board
of directors caused by death, resignation, increase in number of directors or
otherwise need not be filled unless such vacancy reduces the number of remaining
directors to less than three (3), or in the alternative such vacancy may be
filled by a majority vote of the then remaining members of the board, though
less than a quorum, and any
<PAGE>
director so elected shall hold office until the next annual meeting of
stockholders and until his successor is elected and qualified.
SECTION 9. ORDER OF BUSINESS: The regular order of business of the meetings of
directors, so far as practical, shall be as follows:
1. Reading and disposal of unapproved minutes.
2. Reports of officers and committees.
3. Unfinished business.
4. New Business
ARTICLE III--OFFICERS
SECTION 1. OFFICERS: The officers of the company shall consist of the
president, who shall exercise the functions of chief executive officer, the
secretary, the treasurer, who shall exercise the functions of the chief
financial officer, the controller, and such vice presidents, assistant vice
presidents, assistant secretaries, assistant treasurers and other officers as
may from time to time be elected by the board of directors or appointed by the
president as provided herein. Any two or more offices may be held by the same
person, excepting that the duties of the president and secretary shall not be
performed by one person.
SECTION 2. ELECTION: At the first meeting after their election the board of
directors shall elect annually the officers enumerated in Section 1 of this
Article to hold office until the regular meeting of directors following the next
annual meeting of the stockholders and until others are elected and shall have
qualified in their stead, excepting as in this Article otherwise provided.
SECTION 3. APPOINTMENT: The president may, from time to time, designate and
appoint any officers as may be necessary or desirable and define the duties
thereof. Such persons shall hold office until the regular meeting of the board
of director following the next annual meeting of the stockholders, excepting as
in this Article otherwise provided.
SECTION 4. PRESIDENT: The president shall be a director. He shall exercise the
functions of chief executive officer. He shall preside at all meetings of
stockholders and at all meetings of the board of directors. As chief executive
office he shall have general supervision of the affairs of the company. He is
charged with the responsibility for the prudential affairs of the company and
for the maintenance of harmony and accord and may at his discretion discharge
any and all officers, excepting any officer who is also a director, and appoint
their successors who shall hold office until the next meeting of the board of
directors. He shall also perform all such other duties as are incidental to his
office or properly required of him by the board of directors.
SECTION 5. VICE PRESIDENT: Each vice president shall have general supervision
of those affairs of the company designated for his attention by the president
and such other officer or officers to whom he is directly responsible and may
employ and discharge subordinate officers, employees, clerks and agents under
his supervision. Each vice president shall perform all such duties as are
incidental to his office or properly required of him by the president and such
other officer or officers to whom he is directly responsible.
SECTION 6. SECRETARY: The secretary shall keep full and accurate minutes of
the meetings of stockholders and of the board of directors in the proper record
book of the company provided therefor, give due notice of all annual meetings of
stockholders and of all special meetings of stockholders and the board of
directors on proper call therefor being filed with him. He shall have custody of
the seal of the company, if any, and shall perform all such duties as are
incidental to his office or properly required of him by the president and such
other officer or officers to whom he is directly responsible.
SECTION 7. TREASURER: The treasurer shall exercise the functions of the chief
financial officer. He shall perform all such duties as are incidental to his
office or properly required of him by the president and such other officer or
officers to whom he is directly responsible.
<PAGE>
SECTION 8. CONTROLLER: The controller shall keep and maintain the books of
account of the company in such manner that they fairly present the financial
condition of the company and its subsidiaries. The controller shall perform all
such duties as are incidental to his office or properly required of him by the
president and such other officer or officers to whom he is directly responsible.
SECTION 9. ASSISTANT VICE PRESIDENTS; ASSISTANT SECRETARIES; ASSISTANT
TREASURERS AND OTHER SUBORDINATE OFFICERS: Each assistant vice president,
assistant secretary, assistant treasurer and other subordinate officers shall
perform such duties as may be incidental to his office or properly required of
him by the president and such other officer or officers to whom he is directly
responsible.
SECTION 10. VACANCIES: A vacancy in any office filled by election of the board
of directors existing at the time of any meeting of the board of directors may
be filled by the board of directors by the election of a new officer who shall
hold office, subject to the provisions of this Article, until the regular
meeting of the board of directors following the next annual meeting of
stockholders and until his successor is elected and qualified.
SECTION 11. REMOVAL OR DISCHARGE: Any officer may be removed or discharged by
action of the board of directors. The employment of all officers shall be for an
indefinite time terminable at will.
ARTICLE IV--CAPITAL STOCK
SECTION 1. CERTIFICATE OF STOCK: Each stockholder of the company whose stock
has been paid in full shall be entitled to a certificate or certificates showing
the amount of stock of the company standing on the books in his or her name.
Each certificate of stock shall be numbered and bear the manual or facsimile
signatures of the president, or a vice president and secretary or assistant
secretary.
SECTION 2. FORM OF CERTIFICATE: The form of stock certificate shall be as
prescribed from time to time by resolution of the board of directors.
SECTION 3. RECORD HOLDER OF SHARES: The company shall be entitled to treat the
holder of record of any share or shares as the holder in fact thereof, and
accordingly shall not be bound to recognize any equitable or other claims to or
interest in such shares on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided by the laws of
the state of its incorporation. The company shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends and to vote as such owner.
SECTION 4. LOST STOCK CERTIFICATE: In case of loss or destruction of a
certificate of stock, a new certificate shall be issued upon satisfactory proof
of such loss or destruction and the giving of security by bond, or the giving of
security otherwise satisfactory to the board of directors or the president.
ARTICLE V--MISCELLANEOUS
SECTION 1. FISCAL YEAR: The fiscal year of the company shall be the calendar
year.
SECTION 2. MAILING OF NOTICES: Mailing of notices to stockholders or directors
shall be by depositing the same in a post office or letter box in a postpaid
sealed wrapper, addressed to such stockholder or director at his, her or its
address, as the same appears on the books of the company. Such notice shall be
deemed to be given at the time when the same shall be thus mailed.
SECTION 3. CORPORATE SEAL: The corporate seal of the company, if any, shall be
in such form as the board of directors shall from time to time prescribe.
SECTION 4. CONSENT IN LIEU OF MEETING: If permitted by law, any action
required or permitted to be taken at any meeting of the stockholders, or of the
board of directors, or of any committee thereof, may be taken without a meeting,
without prior notice and without a vote, if all stockholders, or members of the
board of directors, or of any committee thereof, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
the company.
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ARTICLE VI--AMENDMENTS
These by-laws may be amended or repealed at any meeting of the board of
directors by a vote of a majority of all members of the board of directors then
elected and qualified; provided, however, that such power, having been conferred
upon the board of directors, shall not divest the stockholders of the power to
adopt, amend or repeal by-laws. The power to make, alter and repeal that portion
of the by-laws relating to the establishment of a quorum at stockholder
meetings, prescribing procedures for removing directors or filling vacancies in
the board of directors, or fixing the number of directors or their
classifications, qualifications or terms of office, shall be reserved to the
stockholders. The board of directors shall have the power to adopt or amend a
by-law that increases the number of directors.
ARTICLE VII--INDEMNIFICATION
The company shall indemnify, in accordance with the terms and conditions of
Minnesota Statutes, Section 302A.521, the following persons: (a) officers and
former officers; (b) directors and former directors; (c) members and former
members of committees appointed or designated by the board of directors; and
(d) employees and former employees of the company. The company shall not be
obligated to indemnify any other person or entity, except to the extent such
obligation shall be specifically approved by resolution of the board of
directors. This Article VII is for the sole and exclusive benefit of the persons
designated herein and no person, firm or entity shall have any rights under this
Article VII by way of assignment, subrogation or otherwise and whether
voluntarily, involuntarily or by operation of law.
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ARCADIA FINANCIAL LTD.
1990 STOCK OPTION PLAN
(AS AMENDED MARCH 16, 2000)
1. PURPOSE
The purpose of this 1990 Stock Option Plan (the "Plan") is to promote the
interests of Arcadia Financial Ltd., a Minnesota corporation (the "Company"), by
providing employees of the Company and certain independent contractors with an
opportunity to acquire a proprietary interest in the Company, and thereby
develop a stronger incentive to contribute to the Company's continued success
and growth. In addition, the opportunity to acquire a proprietary interest in
the Company by the offering and availability of stock options will assist the
Company in attracting and retaining key personnel and consultants of outstanding
ability.
2. DEFINITIONS
Wherever used in the Plan, the following terms have the meanings set forth
below:
2.1 "Board" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
2.3 "Committee" means the Committee which may be designated from time to
time by the Board to administer the Plan pursuant to Section 3.5.
2.4 "Incentive Stock Option" or "ISO" means a stock option which is
intended to qualify as an incentive stock option as defined in Section 422A of
the Code.
2.5 "Non-Statutory Stock Option" or "NSO" means a stock option that is
not intended to, or does not, qualify as an incentive stock option as defined in
Section 422A of the Code.
2.6 "Option" means, where required by the context of the Plan, an ISO
and/or NSO granted pursuant to the Plan.
2.7 "Optionee" means a Participant in the Plan who has been granted one
or more Options under the Plan.
2.8 "Participant" means an individual described in Section 5 of this Plan
who may be granted Options under the Plan.
2.9 "Stock" means the Common Stock, $.01 par value, of the Company.
2.10 "Subsidiary" means any corporation, other than the Company, in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns 50% or
more of the voting stock in one of the other corporations in such chain.
3. ADMINISTRATION
3.1 The Plan shall be administered by the Board, which shall have full
power, subject to the provisions of the Plan, to grant Options, construe and
interpret the Plan, establish rules and regulations with respect to the Plan and
Options granted hereunder, and perform all other acts, including the delegation
of administrative responsibilities, that it believes reasonable and necessary.
3.2 The Board shall have the sole discretion, subject to the provisions
of the Plan, to determine the Participants eligible to receive Options pursuant
to the Plan and the amount, type, and terms of any Options and the terms and
conditions of option agreements relating to any Option.
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3.3 The Board may correct any defect, supply any omission, or reconcile
any inconsistency in the Plan or in any Option granted hereunder in the manner
and to the extent it shall deem necessary to carry out the terms of the Plan.
3.4 Any decision made, or action taken, by the Board arising out of or in
connection with the interpretation and administration of the Plan shall be
final, conclusive and binding upon all Optionees.
3.5 The Board may designate a Committee from time to time to administer
the Plan. If designated, the Committee shall be composed of not less than two
persons (who need not be members of the Board) who are appointed from time to
time by the Board. If the Board has appointed a Committee pursuant to this
Section 3.5 of the Plan, then the Committee may administer the Plan and exercise
all of the rights and powers granted to the Board in this Plan, including,
without limitation, the right to grant Options pursuant to the Plan and to
establish the Option price as provided in the Plan.
4. SHARES SUBJECT TO THE PLAN
4.1 The total number of shares of Stock reserved for issuance upon
exercise of Options under the Plan is 5,000,000. Such shares shall consist of
authorized but unissued Stock. If any Option granted under the Plan lapses or
terminates for any reason before being completely exercised, the shares covered
by the unexercised portion of such Option may again be made subject to Options
under the Plan.
4.2 CHANGES IN CAPITALIZATION. In the event of any change in the
outstanding shares of Stock of the Company by reason of any stock dividend,
split, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, or rights offering to purchase stock at a price
substantially below fair market value, or other similar corporate change, the
aggregate number of shares which may be subject to Options under the Plan and
the terms of any outstanding Option, including the number and kind of shares
subject to such Options and the purchase price per share thereof, shall be
appropriately adjusted by the Board, consistent with such change and in such
manner as the Board, in its sole discretion, may deem equitable to prevent
substantial dilution or enlargement of the rights granted to or available for
Optionees. Notwithstanding the preceding sentence, in no event shall any
fraction of a share of Stock be issued upon the exercise of an Option.
4.3 AWARD LIMITATIONS UNDER THE PLAN. No eligible participant, who is an
employee of the Company at the time of grant, may be granted any Option or
Options, the value of which Options are based solely on an increase in the value
of the Shares after the date of grant of such Options for more than 1,500,000
shares (subject to adjustment as provided for in Section 4.2 relating to stock
splits, etc.), in the aggregate, in any one calendar year period beginning with
the period commencing January 1, 1997 and ending December 31, 1997. The
foregoing annual limitation specifically includes the grant of any Options
representing "qualified performance based compensation" within the meaning of
Section 162(m) of the Code.
5. ELIGIBLE PARTICIPANTS
The following persons are Participants eligible to participate in the Plan:
5.1 INCENTIVE STOCK OPTIONS. Incentive Stock Options may be granted only
to employees of the Company or any Subsidiary, including officers and directors
who are also employees of the Company or any Subsidiary.
5.2 NON-STATUTORY STOCK OPTIONS. Non-statutory stock options may be
granted to (i) any employee of the Company or any Subsidiary, including any
officer or director who is also an employee of the Company or any Subsidiary;
and (ii) any consultant to, or other independent contractor of, the Company.
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6. GRANT OF OPTIONS
Subject to the terms, conditions, and limitations set forth in this Plan,
the Company, by action of its Board, may from time to time grant Options to
purchase shares of the Company's Stock to those eligible Participants as may be
selected by the Board, in such amounts and on such other terms as the Board in
its sole discretion shall determine. Such Options may be (i) "Incentive Stock
Options" so designated by the Board and which, when granted, are intended to
qualify as incentive stock options as defined in Section 422A of the Code; (ii)
"Non-Statutory Stock Options" so designated by the Board and which, when
granted, are not intended to, or do not, qualify as incentive stock options
under Section 422A of the Code; or (iii) a combination of both. The date on
which the Board approves the granting of an Option shall be the date of grant of
such Option, unless a different date is specified by the Board on such date of
approval. Notwithstanding the foregoing, with respect to the grant of any
Incentive Stock Option under the Plan, the aggregate fair market value of Stock
(determined as of the date the Option is granted) with respect to which
incentive stock options are exercisable for the first time by an Optionee in any
calendar year (under all such stock option plans of the Company or Subsidiaries)
shall not exceed $100,000. Each grant of an Option under the Plan shall be
evidenced by a written stock option agreement between the Company and the
Optionee setting forth the terms and conditions, not inconsistent with the Plan,
under which the Option so granted may be exercised pursuant to the Plan and
containing such other terms with respect to the Option as the Board in its sole
discretion may determine.
7. OPTION PRICE AND FORM OF PAYMENT
7.1 INCENTIVE STOCK OPTIONS. The purchase price for a share of Stock
subject to an Incentive Stock Option granted hereunder shall not be less than
100% of the fair market value of the Stock. Notwithstanding the foregoing, in
the case of an Incentive Stock Option granted to any Optionee then owning more
than 10% of the voting power of all classes of the Company's stock, the purchase
price per share of the Stock subject to such Option shall not be less than 110%
of the fair market value of the Stock on the date of grant of the Incentive
Stock Option, determined as provided in Section 7.3.
7.2 NON-STATUTORY STOCK OPTIONS. The purchase price for a share of Stock
subject to a non-statutory stock Option shall be not less than the lesser of
(a) 100% of the fair market value of the Stock on the date of grant or (b) the
greater of (i) 85% of the fair market value of the Stock on the date of grant
and (ii) $6.00 per share.
7.3 DETERMINATION OF FAIR MARKET VALUE. For purposes of this Section 7,
the "fair market value" of the Stock shall be determined as follows:
(a) if the Stock of the Company is listed or admitted to unlisted
trading privileges on a national securities exchange, the fair market value
on any given day shall be the closing sale price for the Stock, or if no
sale is made on such day, the closing bid price for such day on such
exchange;
(b) if the Stock is not listed or admitted to unlisted trading
privileges on a national securities exchange, the fair market value on any
given day shall be the closing sale price for the Stock as reported on the
NASDAQ National Market System on such day, or if no sale is made on such
day, the closing bid price for such day as entered by a market maker for the
Stock;
(c) if the Stock is not listed on a national securities exchange, it is
not admitted to unlisted trading privileges on any such exchange, and is not
eligible for inclusion in the NASDAQ National Market System, the fair market
value on any given day shall be the average of the closing representative
bid and asked prices as reported by the National Quotation Bureau, Inc. or,
if the Stock is not quoted on the National Association of Securities Dealers
Automated Quotations System, then as reported in any publicly available
compilation of the bid and asked prices of the Stock in any over-the-
counter market on which the Stock is traded; or
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(d) if there exists no public trading market for the Stock, the fair
market value on any given day shall be an amount determined in good faith by
the Board in such manner as it may reasonably determine in its discretion,
provided that such amount shall not be less than the book value per share as
reasonably determined by the Board as of the date of determination or less
than the par value of the Stock.
7.4. PAYMENT OF PURCHASE PRICE. Except as provided herein, the purchase
price of each share of Stock purchased upon the exercise of any Option shall be
paid:
(a) in United States dollars in cash or by check, bank draft or money
order payable to the order of the Company; or
(b) at the discretion of the Board, through the delivery of shares of
Stock, having initially or as a result of successive exchanges of shares, an
aggregate fair market value (as determined in the manner provided under this
Plan) equal to the aggregate purchase price for the Stock as to which the
Option is being exercised; or
(c) at the discretion of the Board, by a combination of both (a) and
(b) above; or
(d) by such other method as may be permitted in the written stock option
agreement between the Company and the Optionee.
If such form of payment is permitted, the Board shall determine procedures
for tendering Stock as payment upon exercise of an Option and may impose such
additional limitations and prohibitions on the use of Stock as payment upon the
exercise of an Option as it deems appropriate.
If the Board in its sole discretion so agrees, the Company may finance the
amount payable by an Optionee upon exercise of any Option upon such terms and
conditions as the Board may determine at the time such Option is granted under
this Plan.
8. EXERCISE OF OPTIONS
8.1 MANNER OF EXERCISE. An Option, or any portion thereof, shall be
exercised by delivering a written notice of exercise to the Board and paying to
the Company the full purchase price of the Stock to be acquired upon the
exercise of the Option. Until certificates for Stock acquired upon the exercise
of an Option are issued to an Optionee, such Optionee shall not have any rights
as a shareholder of the Company.
8.2 LIMITATIONS AND CONDITIONS ON EXERCISE OF OPTIONS. In addition to
any other limitations or conditions contained in this Plan or that may be
imposed by the Board from time to time or in the stock option agreement to be
entered into with respect to Options granted hereunder, the following
limitations and conditions shall apply to the exercise of Options granted under
this Plan:
8.2.1 No Incentive Stock Option may be exercisable by its terms after the
expiration of 10 years from the date of the grant thereof.
8.2.2 No Incentive Stock Option granted pursuant to the Plan to an eligible
Participant then owning more than 10% of the voting power of all classes of the
Company's stock may be exercisable by its terms after the expiration of five
years from the date of the grant thereof.
9. INVESTMENT PURPOSES
Unless a registration statement under the Securities Act of 1933 is in
effect with respect to Stock to be purchased upon exercise of Options to be
granted under the Plan, the Company shall require that an Optionee agree with
and represent to the Company in writing that he or she is acquiring such shares
of Stock for the purpose of investment and with no present intention to
transfer, sell or otherwise dispose of such shares of stock other than by
transfers which may occur by will or by the laws of descent and
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distribution, and no shares of Stock may be transferred unless, in the opinion
of counsel to the Company, such transfer would be in compliance with applicable
securities laws. In addition, unless a registration statement under the
Securities Act of 1933 is in effect with respect to the Stock to be purchased
under the Plan, each certificate representing any shares of Stock issued to an
Optionee hereunder shall have endorsed thereon a legend in substantially the
following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED WITHOUT REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND WITHOUT
REGISTRATION UNDER ANY APPLICABLE STATE SECURITIES LAWS, IN RELIANCE UPON
EXEMPTION(S) CONTAINED THEREIN. NO TRANSFER OF THESE SHARES OR ANY INTEREST
THEREIN MAY BE MADE EXCEPT PURSUANT TO EFFECTIVE REGISTRATION STATEMENTS
UNDER SAID LAWS UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO IT THAT SUCH TRANSFER OR DISPOSITION DOES NOT REQUIRE
REGISTRATION UNDER SAID LAWS AND, FOR ANY SALES UNDER RULE 144 OF THE ACT,
SUCH EVIDENCE AS IT SHALL REQUEST FOR COMPLIANCE WITH THAT RULE, OR
APPLICABLE STATE SECURITIES LAWS.
10. TRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be transferable by an Optionee
(whether by sale, assignment, hypothecation or otherwise) other than by will or
the laws of descent and distribution, and shall be exercisable during the
Optionee's lifetime only by the Optionee.
11. TERMINATION OF EMPLOYMENT
11.1 GENERALLY. Except as otherwise provided in this Section 11, if any
Optionee's employment with the Company or Subsidiary is terminated (hereinafter
"Termination") other than by death or disability (as hereinafter defined), the
Optionee may exercise any Option granted under the Plan, to the extent the
Optionee was entitled to exercise the Option at the date of Termination, for a
period of three (3) months after the date of Termination or until the term of
the Option has expired, whichever date is earlier.
11.1.1 The Optionee may exercise any Incentive Stock Option granted under
the Plan, to the extent the Optionee was entitled to exercise the Incentive
Stock Option at the date of Termination, for a period three (3) months after the
date of Termination or until the term of the Incentive Stock Option has expired,
whichever date is earlier.
11.1.2 The Optionee may exercise any Non-Statutory Stock Option granted
under the Plan, to the extent the Optionee was entitled to exercise the
Non-Statutory Stock Option at the date of Termination, for a period of up to
eighteen (18) months after the date of Termination, as determined by the
Committee, or until the term of the Non-Statutory Option has expired, whichever
date is earlier.
11.2 DEATH OR DISABILITY OF OPTIONEE. In the event of the death or
disability of an Optionee prior to expiration of an Option held by him or her,
the following provisions shall apply:
11.2.1 If the Optionee is at the time of his or her Disability employed by
the Company or a Subsidiary and has been in continuous employment (as determined
by the Board in its sole discretion) since the date of grant of the Option, then
the Option may be exercised by the Optionee until the earlier of one year
following the date of such Disability or the expiration date of the Option, but
only to the extent the Optionee was entitled to exercise such Option at the time
of his or her Disability. For the purpose of this Section 11, the term
"Disability" shall mean a permanent and total disability as defined in Section
22(e)(3) of the Code. The determination of whether an Optionee has a Disability
within the meaning of Section 22(e)(3) shall be made by the Board in its sole
discretion.
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11.2.2 If the Optionee is at the time of his or her death employed by the
Company or a Subsidiary and has been in continuous employment (as determined by
the Board in its sole discretion) since the date of grant of the Option, then
the Option (including all then vested and unvested options) may be exercised by
the Optionee's estate or by a person who acquired the right to exercise the
Option by will or the laws of descent and distribution, until the earlier of one
year from the date of the Optionee's death or the expiration date of the Option.
11.2.3 If the Optionee dies within three (3) months after Termination, the
Option may be exercised until the earlier of nine months following the date of
death or the expiration date of the Option, by the Optionee's estate or by a
person who acquired the right to exercise the Option by will or the laws of
descent or distribution, but only to the extent the Optionee was entitled to
exercise the Option at the time of Termination.
11.3 TERMINATION FOR CAUSE. If the employment of an Optionee is
terminated by the Company or a Subsidiary for cause, then the Board shall have
the right to cancel any Options granted to the Optionee under the Plan.
12. AMENDMENT AND TERMINATION OF PLAN
12.1 The Board, may at any time and from time to time suspend or terminate
the Plan in whole or in part or amend it from time to time in such respects as
may be in the best interests of the Company; provided, however, that no such
amendment shall be made without the approval of the shareholders if it would:
(a) materially modify the eligibility requirements for Participants as set forth
in Section 5 hereof; (b) increase the maximum aggregate number of shares of
Stock which may be issued pursuant to Options, except in accordance with Section
4.2 of the Plan; (c) reduce the minimum Option price per share as set forth in
Section 7 of the Plan, except in accordance with Section 4.2 of the Plan;
(d) extend the period of granting Options; or (e) materially increase in any
other way the benefits accruing to Optionees.
12.2 No amendment, suspension or termination of this Plan shall, without
the Optionee's consent, alter or impair any of the rights or obligations under
any Option theretofore granted to him or her under the Plan.
12.3 The Board may amend the Plan, subject to the limitations cited above,
in such manner as it deems necessary to permit the granting of Incentive Stock
Options meeting the requirements of future amendments to the Code.
12.4 In the event of the proposed dissolution or liquidation of the
Company, each Option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may, in
the exercise of its sole discretion in such instances, declare that any Option
shall terminate as of a date fixed by the Board and give each Optionee the right
to exercise his or her Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable.
In the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation, the
Optionee shall have the right to exercise the Option as to all of the Optioned
Stock, including Shares as to which the Option would not otherwise be
exercisable. Not less than fifteen (15) days prior to the effective date of the
sale or merger, the Board shall notify the Optionee that the Option shall be
fully exercisable for the period from the date of the notice through and
including the date prior to the effective date of the merger, and the Option
will terminate upon expiration of such period as to any then unexercised
Options.
13. MISCELLANEOUS PROVISIONS
13.1 RIGHT TO CONTINUED EMPLOYMENT. No person shall have any claim or
right to be granted an Option under the Plan, and the grant of an Option under
the Plan shall not be construed as giving an
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Optionee the right to continued employment with the Company. The Company further
expressly reserves the right at any time to dismiss an Optionee or reduce an
Optionee's compensation with or without cause, free from any liability, or any
claim under the Plan, except as provided herein or in a stock option agreement.
13.2 WITHHOLDING TAXES. The Company shall have the right to require that
payment or provision for payment of any and all withholding taxes due upon the
grant or exercise of an Option hereunder or the disposition of any Stock or
other property acquired upon exercise of an Option be made by an Optionee. In
connection therewith, the Board shall have the right to establish such
rules and regulations or impose such terms and conditions in any agreement
relating to an Option granted hereunder with respect to such withholding as the
Board may deem necessary and appropriate.
13.3 GOVERNING LAW. The Plan shall be administered in the State of
Minnesota, and the validity, construction, interpretation, and administration of
the Plan and all rights relating to the Plan shall be determined solely in
accordance with the laws of such state, unless controlled by applicable federal
law, if any.
14. EFFECTIVE DATE
The effective date of the Plan is January 18, 1991. No Option may be granted
after January 17, 2001, provided, however, that the Plan and all outstanding
Options shall remain in effect until such outstanding Options have expired or
been canceled.
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ARCADIA FINANCIAL LTD.
1992 DIRECTOR STOCK OPTION PLAN
(AS AMENDED MARCH 16, 2000)
1. PURPOSE OF THE PLAN. The purpose of this 1992 Director Stock Option
Plan, initially adopted by the Board on January 7, 1992, is to attract and
retain the best available individuals to serve as Directors of the Company, to
provide additional incentive to the Outside Directors of the Company to serve as
Directors, and to encourage their continued service on the Board.
The Company intends that the options granted hereunder shall not constitute
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986. The Plan is intended to comply with the requirements of
Rule 16b-3 under the Exchange Act.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "COMMON STOCK" shall mean the Common Stock, $.01 par value per
share, of the Company.
(c) "COMPANY" shall mean Arcadia Financial Ltd., a Minnesota
corporation.
(d) "COMMITTEE" shall mean a committee of the Board appointed by the
Board to administer the Plan.
(e) "CONTINUOUS SERVICE AS A DIRECTOR" shall mean the absence of any
interruption or termination of service as a Director. Continuous Service as
a Director shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Board or
Committee.
(f) "DIRECTOR" shall mean a member of the Board.
(g) "EMPLOYEE" shall mean any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The
payment of fees to a Director shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "OPTION" shall mean a stock option granted pursuant to the Plan.
(j) "OPTIONED STOCK" shall mean the Common Stock subject to an Option.
(k) "OPTIONEE" shall mean an Outside Director who receives an option.
(l) "OUTSIDE DIRECTOR" shall mean a Director who is not an Employee.
(m) "PARENT" shall mean a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Internal Revenue Code of 1986,
as amended.
(n) "PLAN" shall mean this 1992 Director Stock Option Plan.
(o) "SHARE" shall mean a share of Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(p) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue
Code of 1986, as amended.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 840,000 shares of Common Stock. The shares may be authorized,
but unissued, or reacquired Common Stock.
1
<PAGE>
If an Option expires or becomes unexercisable for any reason without having
been exercised in full, the unexercised Shares which were subject thereto shall,
unless the Plan has been terminated, become available for future grant under the
Plan. If Shares which were acquired upon exercise of an Option are subsequently
repurchased by the Company, such Shares shall not become available for future
grant under the Plan.
4. GRANTS OF OPTIONS. All grants of Options hereunder shall be made
strictly in accordance with the following provisions:
(a) Intentionally omitted.
(b) Each Outside Director, including persons who are Outside Directors
on the date of adoption of the Plan, shall be automatically granted an
option to purchase Shares (the "First Option") upon the date on which such
person first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board to fill a vacancy.
The number of Shares constituting the First Option shall be determined based
upon the calendar year in which the Outside Director first becomes an
Outside Director, as follows:
<TABLE>
<CAPTION>
CALENDAR YEAR OPTION SHARES
- ------------- --------------------
<S> <C>
1992................................. 15,000
1993................................. 15,000
1994................................. 15,000
1995................................. 15,000
1996................................. 5,000
1997................................. 25,000
1998................................. 25,000
1999 and thereafter.................. Annual Grant Amount
</TABLE>
; provided however, if an Outside Director first becomes a director on any
day of the calendar year other than the first day thereof, the number of shares
constituting the First Option shall be reduced prorata based upon the days
elapsed in such year as of the date he or she becomes a director.
For each calendar year commencing with 1999, the Board of Directors shall
each year prior to the date of the annual meeting of the Company for such year
determine the number of Shares which shall constitute the Options to be granted
to each Outside Director for such calendar year (the "Annual Grant Amount"). The
Annual Grant Amount as so determined shall be the number of Shares granted as to
both First Options and Annual Options granted during such calendar year.
(c) Each calendar year after the First Option has been granted to an
Outside Director, such Outside Director shall be granted an Option (the
"Annual Option") on the Grant Date (as hereinafter defined) to purchase the
number of Shares to be determined based upon the calendar year in which the
Grant Date occurs, as follows:
<TABLE>
<CAPTION>
CALENDAR YEAR OPTION SHARES
- ------------- --------------------
<S> <C>
1992................................. 15,000
1993................................. 15,000
1994................................. 15,000
1995................................. 15,000
1996................................. 5,000
1997................................. 25,000
1998................................. 25,000
1999 and thereafter.................. Annual Grant Amount
</TABLE>
2
<PAGE>
As used herein, as to each Outside Director the term "Grant Date" shall mean
as follows: (i) for calendar years 1993 through 1997, the anniversary date
of the date of the grant of the First Option to such director; (ii) for the
calendar year 1998, January 25, 1998; and (iii) for the calendar year 1999
and thereafter, such date as determined by the Board of Directors as the
Grant Date for such calendar year in conjunction with its determination of
the Annual Grant Amount for such year.
(d) Each Outside Director who is an Outside Director on January 2, 1997,
shall be automatically granted on such date an Option to purchase 10,000
Shares.
(e) Each Outside Director who is an Outside Director on January 20, 1999
and who has had an Option granted prior to January 1, 1996 expire without
exercise prior to January 20, 1999 (an "Expired Option"), shall be granted
on January 20, 1999 an Option (the "Replacement Option") to replace each
such Expired Option. Each Replacement Option shall (i) be for 15,000 shares;
(ii) have a term equal to the number of days determined by deducting the
number of days from the grant date of the Expired Option to January 20, 1999
from 3,650 days; and (iii) shall have an exercise price per share equal to
the exercise price of the Expired Option.
(f) Notwithstanding anything to the contrary contained herein, in no
event shall an Outside Director be granted Options to purchase in the
aggregate more than 250,000 Share pursuant to the Plan.
(g) Notwithstanding the provisions of Sections 4(b), (c) and
(d) hereof, in the event that a grant would cause the number of Shares
subject to outstanding Options by Outside Directors plus Shares previously
purchased upon exercise of Options by Outside Directors to exceed 840,000
Shares, then each such automatic grant shall be for that number of Shares
determined by dividing the total number of shares remaining available for
grant by the number of Outside Directors on the automatic grant date. Any
further grants shall then be deferred until such time, if any, as additional
Shares become available for grant under the Plan through action of the
shareholders to increase the number of Shares which may be issued under the
Plan or through cancellation or expiration of Options previously granted
hereunder.
5. OPTION TERMS AND CONDITIONS. The terms and conditions of an Option
granted hereunder shall be as follows:
(a) subject to Sections 12 and 13 hereof, the term of each Option (other
than a Replacement Option) shall be ten (10) years. Any Option granted prior
to January 1, 1996 and not exercised or expired as of January 20, 1999 shall
be amended to extend the term thereof to ten (10) years from the date of the
original grant date thereof.
(b) subject to Sections 12 of 13 hereof, the term of each Replacement
Option shall be equal to the number of days determined by deducting the
number of days from the grant date of the related Expired Option to January
20, 1999 from 3,650 days.
(c) each First Option and each Annual Option shall become exercisable in
full beginning on the first anniversary of the grant of the Option provided
in each case that the Outside Director shall have maintained Continuous
Service as an Outside Director throughout such 12-month period. Each
Replacement Option shall be exercisable in full on the grant date thereof.
(d) the Option shall be exercisable only while the Outside Director
serves as an Outside Director of the Company, and for a period of two
(2) years after ceasing to be an Outside Director pursuant to Section
10(b) hereof.
(e) except as provided for a Replacement Option in Section 4(e), the
exercise price per Share shall be 100% of the fair market value per Share on
the date of grant of the Option, as determined in accordance with Section
9(a) hereof.
3
<PAGE>
(f) the effectiveness of any Options granted hereunder is conditioned
upon shareholder approval of the Plan in accordance with Rule 16b-3 under
the Exchange Act.
6. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) ADMINISTRATION. Except as otherwise required herein, the Plan shall
be administered by the Board or a Committee.
(b) POWERS OF THE BOARD OR COMMITTEE. Subject to the provisions and
restrictions of the Plan, the Board or Committee shall have the authority,
in its discretion: (i) to determine the Annual Grant Amount and the Grant
Date for each calendar year after 1997; (ii) to determine, upon review of
relevant information and in accordance with Section 9(a) hereof, the fair
market value of the Common Stock; (iii) to interpret the Plan; (iv) to
prescribe, amend and rescind rules and regulations relating to the Plan;
(v) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option hereunder; (vi) to
accelerate the exercise date of any Option granted hereunder; and (vii) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
(c) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board or Committee shall be final and binding on all
Optionees and any other holders of any Options granted under the Plan.
(d) SUSPENSION OR TERMINATION OF OPTION. If the Board or Committee
reasonably believes that an Optionee has committed an act of misconduct, it
may suspend the Optionee's right to exercise any Option pending a
determination by the Board or Committee (excluding the Outside Director
accused of such misconduct). If the Board or Committee (excluding the
Outside Director accused of such misconduct) determines that an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an
obligation owed to the Company, breach of fiduciary duty or deliberate
disregard of the Company's rules resulting in loss, damage or injury to the
Company, or if an Optionee makes an unauthorized disclosure of any Company
trade secret or confidential information, engages in any conduct
constituting unfair competition with respect to the Company, or induces any
party to breach a contract with the Company, neither the Optionee nor the
Optionee's estate shall be entitled to exercise any Option whatsoever. In
making such determination, the Board or Committee (excluding the Outside
Director accused of such misconduct) shall act fairly and shall give the
Optionee an opportunity to appear and present evidence on the Optionee's
behalf at a hearing before the Board or Committee.
(e) DATE OF GRANT OF OPTIONS. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof,
notwithstanding the fact that an Optionee may not have entered into an
option agreement with the Company on such date. Notice of the grant of an
Option shall be given to the Optionee within a reasonable time after the
date of such grant.
7. ELIGIBILITY. Options may be granted only to Outside Directors. All
Options shall be granted in accordance with the terms set forth in Section 4
hereof. The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which a Director or the Company
may have to terminate such Director's directorship at any time.
8. TERM OF PLAN. The effective date of this Plan is January 7, 1992, the
date upon which it was adopted by the Board. The Plan shall continue in effect
for a term of ten (10) years unless terminated sooner under Section 13 hereof.
9. FAIR MARKET VALUE AND FORM OF CONSIDERATION.
(a) FAIR MARKET VALUE. The fair market value per share shall be
determined as follows:
4
<PAGE>
(i) if the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange, the fair
market value on any given day shall be the closing sale price for the
Common Stock on such day, as reported in the Wall Street Journal or other
newspaper of general circulation;
(ii) if the Common Stock is not listed on a national securities
exchange, the fair market value on any given day shall be the closing
sale price for the Common Stock on the NASDAQ National Market System on
such day, as reported in the Wall Street Journal or other newspaper of
general circulation;
(iii) if the Common Stock is not listed on a national securities
exchange, is not admitted to unlisted trading privileges on any such
exchange, and is not eligible for inclusion on the NASDAQ National Market
System, the fair market value on any given day shall be the average of
the closing representative bid and asked prices on such day, as reported
on the NASDAQ System, and if not reported on such system, then as
reported by the National Quotation Bureau, Inc. or such other publicly
available compilation of the bid and asked prices of the Common Stock in
any over-the-counter market on which the Common Stock is traded; or
(iv) if there exists no public trading market for the Common Stock,
the fair market value on any given day shall be an amount determined by
the Board or Committee in such manner as it may reasonably determine in
its discretion, provided that such amount shall not be less than the book
value per share as reasonably determined by the Board or Committee as of
the date of determination nor less than the par value of the Stock.
(b) FORM OF CONSIDERATION. The consideration to be paid for the Shares
to be issued upon exercise of an Option shall consist entirely of cash or
such other form of consideration as the Board or Committee may determine, in
its sole discretion, to be appropriate for payment, including but not
limited to other shares of Common Stock having a fair market value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which the Option is exercised, or any combination of such methods of
payment.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted
hereunder shall be exercisable at such times as are set forth in Section 5
hereof. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received
by the Company. Full payment may consist of any consideration and method of
payment allowable under Section 9(b) hereof. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. A share certificate for the
number of Shares so acquired shall be issued to the Optionee as soon as
practicable after exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 12 hereof.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option was exercised.
(b) TERMINATION OF STATUS AS A DIRECTOR. If an Optionee ceases to serve
as a Director, the Optionee may, but only within two (2) years after the
date the Optionee ceases to be an Outside
5
<PAGE>
Director of the Company, exercise his or her Option to the extent the
Optionee was entitled to exercise it at the date of such termination. To the
extent that the Optionee was not entitled to exercise an Option at the date
of such termination, or if the Optionee does not exercise such Option within
the time specified herein, the Option shall terminate.
(c) DEATH OF OPTIONEE. In the event of the death of an Optionee
occurring:
(i) during the term of the Option, and provided that the Optionee was
at the time of death a Director of the Company and had been in Continuous
Service as a Director since the date of grant of the Option, the Option
may be exercised, at any time within six (6) months following the date of
death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of
the right to exercise that would have accrued had the Optionee continued
living and remained in Continuous Service a Director for six (6) months
after the date of death.
(ii) within thirty (30) days after the termination of Continuous
Service as a Director, the Option may be exercised, at any time within
six (6) months following the date of death, by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had
accrued at the date of termination of Continuous Service as a Director.
11. NON-TRANSFERABILITY OF OPTIONS. Without the prior written consent of
the Board, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. The number of
shares of Common Stock covered by each outstanding Option, and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but as to which Options have not yet been granted or which have been returned to
the Plan upon cancellation or expiration of an Option, as well as the price per
share of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
and outstanding shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, or options or rights to purchase
shares of stock of any class shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, each
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his or her Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable.
In the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation, the
Optionee shall have the right to exercise the Option as to all of the Optioned
Stock, including Shares as to which the Option would not otherwise be
exercisable. Not less than fifteen (15) days prior to the effective date of the
sale or merger, the Board shall notify the Optionee that the Option shall be
fully exercisable for the period from the date of the notice through and
6
<PAGE>
including the date prior to the effective date of the merger, and the Option
will terminate upon expiration of such period as to any then unexercised
Options.
13. AMENDMENT, TERMINATION AND APPROVAL OF THE PLAN. The Board may at any
time amend or terminate the Plan, except that the Board shall not amend the Plan
more than once every six (6) months with respect to the provisions of the Plan
relating to the amount, price, and timing of grants, other than to comply with
changes in the Internal Revenue Code of 1986, the Employee Retirement Income
Security Act of 1974, as amended, or the regulations thereunder. No Option may
be granted after the Plan is terminated. The foregoing provisions of this
Section notwithstanding, no amendment or termination shall, without the consent
of the holder of an Option, alter or impair any rights or obligations under any
Option theretofore granted under the Plan except as is permitted pursuant to
Section 12 of the Plan.
If any amendment to the Plan requires approval by the shareholders of the
Company for continued applicability of Rule 16b-3 under the Exchange Act, or for
initial or continued listing of the Common Stock or other securities of the
Company upon any stock exchange, then such amendment shall be approved by the
holders of a majority of the Company's outstanding capital stock entitled to
vote.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder,
state securities laws, and the requirements of the NASD or any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares, if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law. Such Shares may also be issued with
appropriate legends on stock certificates representing such Shares, and the
Company may place stop transfer orders with respect to such Shares.
Inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company's counsel to be necessary
to the lawful issuance and sale of any Shares hereunder, shall relieve the
Company of any liability in respect of the failure to issue or sell such Shares
as to which such requisite authority shall not have been obtained.
15. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
16. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in substantially the form attached hereto or in such other form as
the Board or Committee shall approve.
17. INFORMATION TO OPTIONEES. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company.
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME OF THE COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 25,595
<SECURITIES> 0
<RECEIVABLES> 1,185,518
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 40,084
<DEPRECIATION> 25,048
<TOTAL-ASSETS> 1,261,206
<CURRENT-LIABILITIES> 0
<BONDS> 1,134,437
0
0
<COMMON> 395
<OTHER-SE> 101,369
<TOTAL-LIABILITY-AND-EQUITY> 1,261,206
<SALES> 0
<TOTAL-REVENUES> 14,283
<CGS> 0
<TOTAL-COSTS> 45,674
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,291
<INCOME-PRETAX> (45,682)
<INCOME-TAX> 0
<INCOME-CONTINUING> (45,682)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,682)
<EPS-BASIC> (1.16)
<EPS-DILUTED> (1.16)
</TABLE>
