ARCADIA FINANCIAL LTD, 10-Q, 1999-05-14

ARCADIA FINANCIAL LTD
10-Q, 1999-05-14
SHORT-TERM BUSINESS CREDIT INSTITUTIONS

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<PAGE>

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

-----------

FORM 10-Q

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, 1999 Commission file number 0-20526

-----------

ARCADIA FINANCIAL LTD.
(Exact name of registrant as specified in its charter)

MINNESOTA 41-1664848
(State or other jurisdiction (I.R.S. Employer Identification
Of incorporation or organization) Number)

7825 WASHINGTON AVENUE SOUTH, MINNEAPOLIS, MN 55439-2435
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (612) 942-9880

-----------

Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was require to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes /X/ No / /

The number of shares of the Common Stock of the registrant outstanding as
of May 7, 1999 was 39,204,110.

<PAGE>

<TABLE>
<CAPTION>
FORM 10-Q INDEX

PAGE
<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 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20

PART II OTHER INFORMATION

Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21

SIGNATURES 24

EXHIBIT INDEX 25
</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 and
regulatory changes; interest rate fluctuations; difficulties or delays in the
securitization of automobile loans; availability of adequate short- and
long-term financing; general economic and business conditions; and other matters
set forth under the caption "Cautionary Statements" in exhibit 99.1 to the
Company's 1998 Annual Report on Form 10-K filed March 24, 1999.

<PAGE>

ARCADIA FINANCIAL LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) MARCH 31, 1999 DECEMBER 31, 1998
------------------- ------------------------

ASSETS

<S> <C> <C>
Cash and cash equivalents $ 12,116 $ 10,827
Due from securitization trust 148,819 62,081
Auto loans held for sale 43,731 17,899
Finance income receivable 607,996 587,946
Furniture, fixtures and equipment 16,239 17,511
Other assets 31,379 31,419
------------- --------------
Total assets $ 860,280 $ 727,683
------------- --------------
------------- --------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Amounts due under warehouse facilities $ 129,482 $ -
Senior notes 366,911 366,657
Subordinated notes 59,764 51,898
Capital lease obligations 3,167 3,384
Accounts payable and accrued liabilities 25,330 36,935
------------- --------------
Total liabilities 584,654 458,874

Commitments and contingencies

Shareholders' equity:

Capital stock, $.01 par value, 100,000,000 shares authorized:
Common stock 39,204,110 and 39,156,888 shares issued
and outstanding, respectively 392 392
Additional paid-in capital 324,995 324,565
Accumulated other comprehensive income 17,062 18,550
Retained earnings (66,823) (74,698)
------------- --------------
Total shareholders' equity 275,626 268,809
------------- --------------
Total liabilities and shareholders' equity $ 860,280 $ 727,683
------------- --------------
------------- --------------
</TABLE>

See notes to unaudited consolidated financial statements.

<PAGE>

ARCADIA FINANCIAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(UNAUDITED)
<TABLE>
<CAPTION>

THREE MONTHS ENDED
MARCH 31,
-------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
---------------- ----------------
<S> <C> <C>
REVENUES:
Net interest margin $21,289 $ 19,947
Gain on sale of loans 21,995 27,000
Servicing fee income 21,815 19,666
---------------- ----------------
Total revenues 65,099 66,613

EXPENSES:

Salaries and benefits 18,479 17,685
General and administrative and other operating expenses 25,279 28,149
---------------- ----------------
Total operating expenses 43,758 45,834
Long-term debt and other interest expense 13,466 12,785
---------------- ----------------
Total expenses 57,224 58,619
---------------- ----------------

Operating income before income taxes 7,875 7,994
Income tax expense - 3,038
---------------- ----------------
Net income 7,875 4,956

OTHER COMPREHENSIVE INCOME (LOSS):

Net unrealized gain (loss) on finance income receivable (1,488) 2,024
Income tax expense - 771
---------------- ----------------
(1,488) 1,253
---------------- ----------------

COMPREHENSIVE INCOME (LOSS) $ 6,387 $ 6,209
---------------- ----------------
---------------- ----------------
EARNINGS PER SHARE:

Basic $ 0.20 $ 0.13
Diluted $ 0.20 $ 0.13

Weighted average shares:

Basic 39,204,110 38,988,885
Diluted 39,279,849 39,360,968
</TABLE>

See notes to unaudited consolidated financial statements.

<PAGE>

ARCADIA FINANCIAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)
<TABLE>
<CAPTION>

THREE MONTHS ENDED
MARCH 31,

------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,875 $ 4,956
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 2,018 2,938
(Increase) decrease in assets:
Automobile loans held for sale:
Purchases of automobile loans (583,671) (585,583)
Sales of automobile loans 550,000 588,194
Repayments of automobile loans 7,839 25,939
Finance income receivable (21,538) (51,630)
Due from securitization trusts (86,738) (15,016)
Prepaid expenses and other assets 156 500
Increase (decrease) in liabilities:
Deferred income taxes - 3,807
Accounts payable and accrued liabilities (11,605) (5,865)
-------------- -------------

Total cash used in operating activities (135,664) (31,760)

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sales of furniture, fixtures, and equipment 1,078 -
Purchase of furniture, fixtures and equipment (1,713) (1,431)
Collections on subordinated certificates 236 274
-------------- -------------

Total cash used in investing activities (399) (1,157)

CASH FLOWS FROM FINANCING ACTIVITIES:

Net proceeds from issuance of Common Stock 221 304
Proceeds from borrowings under warehouse facilities 542,284 716,229
Repayment of borrowings under warehouse facilities (412,802) (693,190)
Unsecured subordinated notes, net 7,866 (927)
Reduction of capital lease obligations (217) (386)
-------------- -------------

Total cash provided by financing activities 137,352 22,030
-------------- -------------

Net increase (decrease) in cash and cash equivalents 1,289 (10,887)
Cash and cash equivalents at beginning of period 10,827 17,274
-------------- -------------

Cash and cash equivalents at end of period $12,116 $ 6,387
-------------- -------------
-------------- -------------
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $25,659 $24,638
</TABLE>

See notes to unaudited consolidated financial statements.

<PAGE>

ARCADIA FINANCIAL LTD.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(UNAUDITED)
<TABLE>
<CAPTION>

ACCUMULATED
NUMBER OF COMMON ADDITIONAL OTHER RETAINED
COMMON PAR PAID IN COMPREHENSIVE EARNINGS
SHARES VALUE CAPITAL INCOME (DEFICIT) TOTAL
---------- ------- ---------- ------------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 39,156,888 $ 392 $ 324,565 $ 18,550 $ (74,698) $ 268,809
Issuance of Common Stock:
Benefit plans 47,222 -- 221 -- -- 221

Amortization of deferred compensation -- -- 209 -- -- 209

Unrealized loss on financed income receivable -- -- -- (1,488) -- (1,488)

Net income -- -- -- -- 7,875 7,875

---------- ------ --------- ---------- ---------- ----------

BALANCE, MARCH 31, 1999 39,204,110 $ 392 $ 324,995 $ 17,062 $ (66,823) $ 275,626
---------- ------ --------- ---------- ---------- ----------
---------- ------ --------- ---------- ---------- ----------
</TABLE>

<PAGE>

ARCADIA FINANCIAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED MARCH 31, 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION. The interim financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission applicable to quarterly reports on Form 10-Q. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although management
believes that the disclosures present fairly the financial position of the
Company and its subsidiaries for the periods presented. These financial
statements should be read in conjunction with the audited consolidated financial
statements and related notes and schedules included in the Company's 1998 Annual
Report on Form 10-K filed March 24, 1999.

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

Certain reclassifications have been made to the March 31, 1998 balances to
conform to current period presentation.

USE OF ESTIMATES

In conformity with generally accepted accounting principles, management
utilizes assumptions and estimates that affect the reported value of finance
income receivable and the gain on sale of automobile receivables. Such
assumptions include, but are not limited to, estimates of loan prepayments,
defaults, recovery rates and present value discount. The Company uses a
combination of its own historical experience, industry statistics and
expectation of future performance to determine such estimates. The Company's
estimation process is evaluated on a regular basis and modified when deemed
necessary. Modifications to the estimation process may result in changes in
estimates utilized to determine the carrying value of financed income
receivables. 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.

<PAGE>

ARCADIA FINANCIAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE QUARTER ENDED MARCH 31, 1999

2. FINANCE INCOME RECEIVABLE

The following table sets forth the components of finance income receivable:

<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
1999 1998
---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Estimated cash flows on loans sold, net of estimated prepayments (1) $1,210,064 $1,195,466
Deferred servicing income (102,034) (101,996)
Reserve for loan losses (408,038) (415,401)
---------------- ----------------

Undiscounted cash flows on loans sold, net of estimated prepayments 699,992 678,069
Discount to present value (91,996) (90,123)
---------------- ----------------
$ 607,996 $ 587,946
---------------- ----------------
---------------- ----------------
Reserve for loan losses as a percentage of servicing portfolio 7.92% 8.15%
</TABLE>

- --------------

(1) Includes restricted cash deposits in securitization spread accounts of
$237.8 million and $227.7 million at March 31, 1999 and December 31, 1998,
respectively.

The following represents the roll-forward of the finance income receivable
balance:
<TABLE>
<CAPTION>

(DOLLARS IN THOUSANDS)
<S> <C>
BALANCE, DECEMBER 31, 1998 $ 587,946
Present value of estimated future cash flows from current period securitizations 49,765
Interest earned on spread accounts 3,790
Recognition of present value effect of discounted cash flows 13,242
Unrealized loss on retained assets (1,488)
Less:
Excess cash flows released to the Company (1) (45,259)

---------
BALANCE AT MARCH 31, 1999 $ 607,996
---------
---------
</TABLE>
- ----------------

(1) Pursuant to an arrangement between the Company and its provider of
asset-backed securities insurance, if any insured securitization trust
exceeds a specified portfolio performance test as defined within the trust
agreement, the Company may, in lieu of retaining excess cash from that
securitization trust in the related spread accounts, pledge an equivalent
amount of cash, which has the effect of preventing the violation of the
portfolio performance test. Under such arrangement, the Company had
approximately $9.4 million pledged and deposited in restricted accounts at
March 31, 1999. Such pledged amounts are included in cash and cash
equivalents. 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.

<PAGE>

ARCADIA FINANCIAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE QUARTER ENDED MARCH 31, 1999

3. OTHER ASSETS

<TABLE>
<CAPTION>
AT AT
MARCH 31, 1999 DECEMBER 31, 1998
------------------ ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest advances to securitization trusts $ 4,743 $ 5,967
Deferred debt issuance costs 9,757 10,110
Investment in subordinated certificates 1,637 1,873
Servicing fee receivable 4,932 4,841
Prepaid expenses 1,398 1,717
Other assets 8,912 6,911
-------- --------
$ 31,379 $ 31,419
-------- --------
-------- --------
</TABLE>

4. SUBORDINATED NOTES

<TABLE>
<CAPTION>
AT AT
MARCH 31, 1999 DECEMBER 31, 1998
------------------ ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Senior subordinated notes, Series 1996-A $ 30,000 $ 30,000
Junior subordinated notes 29,764 21,898
-------- --------
$ 59,764 $ 51,898
-------- --------
-------- --------
</TABLE>

5. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share for each of the three month periods ended March 31:

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
------------------ -----------------
Numerator:

<S> <C> <C>
Net income $ 7,875 $ 4,956
---------- ----------
---------- ----------

Denominator:

Denominator for basic earnings per share - weighted
average shares 39,204,110 38,988,885
Dilutive effect of options and warrants (1) 75,739 372,083
---------- ----------

Denominator for diluted earnings per share - adjusted
weighted average shares 39,279,849 39,360,968
---------- ----------
---------- ----------
Basic earnings per share $ 0.20 $ 0.13
---------- ----------
---------- ----------
Diluted earnings per share $ 0.20 $ 0.13
---------- ----------
---------- ----------
</TABLE>

- -------------

(1) At March 31, 1999 and 1998, there were options and warrants outstanding to
purchase an aggregate 7.0 million and 4.9 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.

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The Company derives substantially all of its earnings from the purchase,
securitization and servicing of consumer automobile loans originated in 45
states primarily by car dealers affiliated with major foreign and domestic
manufacturers. Loans are purchased through 18 regional buying centers (or
"hubs") located in 15 states, supplemented by a network of dealer development
representatives ("DDRs") which develop and maintain relationships with car
dealers operating within each "hub's" immediate market area or in surrounding
market areas referred to as "spokes." Credit approval and loan processing are
generally performed at the "hub" or at the Company's headquarters in
Minneapolis, Minnesota. The Company acts as the servicer of all loans originated
and securitized by it in return for a monthly servicing fee. To perform its
servicing responsibilities the Company operates a national customer service
center in Minneapolis, Minnesota and four regional collection centers located in
Charlotte, North Carolina; Dallas, Texas; Denver, Colorado; and Minneapolis,
Minnesota.

THREE MONTHS ENDED MARCH 31, 1999 AND 1998

RESULTS OF OPERATIONS

NET INTEREST MARGIN. The components of net interest margin for each of the
three months ended March 31 were:

<TABLE>
<CAPTION>
1999 1998
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest income on loans, net $ 7,105 $ 6,279
Interest income on short-term investments and other cash accounts 1,842 3,060
Recognition of present value discount 13,242 11,577
Provision for credit losses on loans held for sale (900) (969)

-------- -------
Net interest margin $ 21,289 $19,947
-------- -------
-------- -------
</TABLE>

Net interest margin for the three months ended March 31, 1999 increased 7%,
compared with the same period a year ago. The change in net interest margin is
primarily due to an increase in present value discount recognized, resulting
from higher discount rate assumptions used during the first quarter of 1999 in
connection with the gain on sale of loans and the establishment of finance
income receivable.

Net interest margin also benefited from an increase in the average monthly
balance of loans held for sale, on which the Company earns interest income until
such loans are securitized, to $233.8 million from $183.1 million during the
quarters ended March 31, 1999 and 1998, respectively, and a rise in the weighted
average net interest rate spread earned on such loans held for sale to 12.18%
during the first quarter of 1999 compared with 11.48% during the same period in
1998.

The Company's loan purchasing and securitization volume for each of the
three months ended March 31 are set forth in the table below.

<TABLE>
<CAPTION>
1999 1998
---------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total automobile loans purchased $ 582,468 $ 583,973

Automobile loans securitized $ 550,000 $ 588,194
</TABLE>

<PAGE>

GAIN ON SALE OF LOANS. Revenue provided from gain on sale of loans was
$22.0 million and $27.0 million during the three months ended March 31, 1999 and
1998, respectively. The decrease in gain on sale of loans reflects a 7% decrease
in loan securitization volume and the effect of lower estimated recovery rates
on future loan charge-offs compared with recovery rate estimates utilized in the
first quarter of 1998. The Company made a change in accounting estimate and
recognized a special charge to earnings during the second quarter of 1998, after
determining it appropriate to lower its estimate of future recovery rates.

The following table summarizes the significant factors and assumptions
utilized in determining gain on sale of loans for each of the three month
periods ended March 31:

<TABLE>
<CAPTION>
1999 1998
-------------- ------------

<S> <C> <C>
Weighted average APR of loans securitized 17.34% 17.04%
Weighted average securitization rate 5.95 5.98
----- -----
Gross interest rate spread (1) 11.39% 11.06%
----- -----
----- -----

Weighted average cumulative net losses (2) 8.33% 6.14%
Weighted average present value discount rate on future excess cash flows 10.00% 8.93%
</TABLE>

- -----------
(1) Before gains/losses on hedging transactions.

(2) Assumptions for 1998 are based on original computation prior to adjustments
to record permanent impairment of finance income receivable during June
1998.

The rise in gross interest rate spread during the three months ended March
31, 1999 is primarily due to the Company's continued refinements to its
risk-based pricing strategy resulting in slightly higher APR's.

Any unamortized balance of participations paid to dealers is expensed at
the time the related loans are securitized and recorded as a reduction to gain
on sale. Participations paid as a percentage of the principal balance of loans
purchased declined slightly to 2.83% during the three months ended March 31,
1999, from 2.86% in the same period a year ago.

Gain on sale of loans has been adjusted for a $70,100 net realized gain and
a $5.8 million net realized loss on hedging transactions during the first
quarters of 1999 and 1998, respectively. The first quarter of 1998 realized
hedging losses primarily resulted from the downward movement of treasury rates.

SERVICING FEE INCOME. The components of servicing fee income for each of
the three month periods ended March 31 were:

<TABLE>
<CAPTION>
1999 1998
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Contractual servicing fee income $14,354 $13,928
Other servicing income 7,461 5,738
------- -------
Total servicing fee income $21,815 $19,666
------- -------
------- -------
</TABLE>

The Company earns contractual servicing fee income for servicing loans sold
to investors through securitizations. Contractual servicing income is earned at
rates ranging from 1% to 1.25% per annum on the outstanding principal balance of
all loans securitized. The Company's servicing fee approximates adequate
compensation as defined by SFAS 125 and therefore, the Company has not recorded
a servicing asset or liability at March 31, 1999.

Other servicing income consists primarily of collection fees, such as late
payment fees and insufficient fund charges, and interest on collection accounts
earned by the Company as servicer of the loans. The rise in other servicing
income for the quarter ended March 31, 1999 compared to the quarter ended March
31, 1998 is primarily due to an increase in fees associated with certain
customer payment services utilized for collecting delinquent accounts. Prior to
the second quarter of 1998 the majority of such services were provided by
outside vendors in return for a portion of the fee.

<PAGE>

The following table reflects the growth in the Company's servicing
portfolio from March 31, 1998 to March 31, 1999:

<TABLE>
<CAPTION>
AT MARCH 31,
1999 1998
---------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
<S> <C> <C>
Principal balance of automobile loans held for sale $ 44,125 $ 21,129
Principal balance of loans serviced under securitizations 5,104,822 5,005,350
----------- -----------

Servicing portfolio $ 5,148,947 $ 5,026,479
----------- -----------
----------- -----------
Average unpaid principal balance (actual dollars) $ 11,177 $ 11,775
Number of loans serviced 460,692 426,884
</TABLE>

The Company's servicing portfolio (measured by principal balance) increased
2% from March 31, 1998 to March 31, 1999, reflecting loan purchases and
subsequent securitizations, partially offset by defaults, prepayments and
scheduled repayments. The decline in average outstanding balance of loans during
the first quarter of 1999 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 $18.5 million in the
first quarter of 1999, up 4% from $17.7 million during the same period in 1998.
The increase in salaries and benefits is primarily due to an enhanced incentive
program for collectors, partially offset by fewer FTE's and lower overtime
compensation resulting from centralizing the Company's collection operations
during 1998.

Other operating costs, including administrative, occupancy, depreciation
and amortization, origination, servicing and collection expenses, decreased 11%
for the three months ended March 31, 1999, compared with the same period in
1998. The decrease is primarily attributable to lower repossession and
remarketing expenses due to the elimination of the Company's retail remarketing
program.

IMPACT OF YEAR 2000. The Company recognizes that the arrival of the Year
2000 poses a unique worldwide challenge to the ability of all computer based
applications to recognize the date change from December 31, 1999 to January 1,
2000, potentially causing miscalculations, system failures and other operational
problems.

One of the Company's most critical operating systems is its loan accounting
system. In July 1997, an internal implementation team along with outside
consultants was assigned to evaluate, select, and implement a new installment
loan accounting system and various sub-systems (the "ILA system") in connection
with an initiative to replace and enhance the Company's key operating systems.
One of the requirements for consideration was that the new ILA system be Year
2000 compliant. In late 1997, a contract was signed with a nationally recognized
vendor to provide the Company with such a system. The contract warrants, among
other things, that the core software system being purchased is fully Year 2000
compliant and that the software will be installed and in a testing phase with
the Company's current system in the second quarter of 1999. To date, the Company
believes that the terms of the contract have been met and that testing will be
complete and the new ILA system placed into operation early in the third quarter
of 1999.

In addition, in early 1998 the Company formed a dedicated project team to
conduct an extensive analysis of the impact that the Year 2000 issue might have
on its automated information systems (exclusive of the ILA system), business
support systems and facility operating systems. The project team has been
responsible for the prioritization of Year 2000 tasks, development of
implementation plans, and the establishment of timetables for completion and
testing of all necessary modifications. As a result, the Company has initiated
the replacement, modification or reprogramming of Year 2000 non-compliant
hardware and software and since 1997 has required that all new hardware and
software be certified as Year 2000 compliant prior to purchase. To assist in
this process, the Company engaged an independent

<PAGE>

company to aid in the remediation of non-compliant programs. The modification,
reprogramming, testing and implementation of the Company's non-compliant
programs were completed in the first quarter of 1999. All Year 2000 testing was
executed in an isolated systems environment dedicated for Year 2000 issues. As a
contingency to the possibility of an unplanned delay in the implementation of
the new ILA system discussed above, the Company's current loan accounting system
was included in the programs provided to the independent company for
remediation. This provides a Year 2000 compliant installment loan accounting
system even if the implementation of the new ILA system should be delayed beyond
the end of 1999.

The Company estimates that the cost of its Year 2000 project will aggregate
approximately $1.5 million, of which approximately $0.8 million has been
expended through March 31, 1999. These costs do not include amounts related to
the implementation of the ILA system or other hardware and software purchases
which the Company had planned to acquire and which are not directly related to,
or the purchase of which has not been accelerated because of, the Year 2000
issue. Consistent with the Company's capitalization policy, the cost of such
non-Year 2000 hardware and software purchases will be capitalized and amortized
over their expected useful lives.

Ultimately, the potential impact of the Year 2000 issue will depend not
only on the success of the corrective measures that the Company undertakes, but
also on the way in which the Year 2000 issue is addressed by its business
partners, service providers, utility providers, governmental agencies and other
entities with which the Company does business. The Company has developed and
implemented a plan to contact parties which provide services critical to the
successful operation of its business to heighten their awareness of the Year
2000 issue, to learn how they are addressing it and to evaluate any likely
impact on the Company. For example, the Company completed a Year 2000 survey of
its credit bureaus, investment bankers and warehouse providers during 1999. The
Year 2000 efforts of third parties are not within the Company's control,
however, and their failure to remediate Year 2000 issues successfully could
result in business disruption, increased operating costs and increased credit
risk for the Company. At the current time, it is not possible to determine
whether any such events are likely to occur, or to quantify any potential
negative impact they may have on the Company's future results of operations and
financial condition.

The Company believes that it has an effective plan in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Company has not yet
completed all necessary processes of its Year 2000 plan. The Company plans to
continuously monitor the status of completion of its Year 2000 plan and, based
on such information, will develop contingency plans as necessary. In the event
that the Company does not complete any additional phases of its plan, the
Company may be unable to perform its key operating activities, such as the
purchase of loans and the invoicing, collecting and application of obligor
repayments. The Company could be subject to litigation for computer systems
failure, such as improper application of repayments and resulting incorrect
credit reporting to credit bureaus. In addition, disruptions in the economy
generally resulting from Year 2000 issues could also materially adversely affect
the Company. The amount of potential liability and lost revenue cannot
reasonably be estimated at this time.

The foregoing discussion regarding Year 2000, including the discussion of
the timing and effectiveness of implementation and cost of the Company's Year
2000 project, contains forward-looking statements, which are based on
management's best estimates derived using various assumptions. These
forward-looking statements involve inherent risks and uncertainties, and actual
results could differ materially from those contemplated by such statements.
Factors that might cause material difference include, but are not limited to,
the continued availability of key Year 2000 personnel, the Company's ability to
locate and correct all relevant computer codes, the performance of contractors
and companies retained to provide new software and to remediate existing
hardware and software, and the Company's ability to respond to unforeseen Year
2000 complications. Such material differences could result in, among other
things, business disruption, operational problems, financial loss, legal
liability and similar risks.

INCOME TAXES. The Company did not record an income tax provision during the
three months ended March 31, 1999, due to the utilization of net operating loss
carryforwards.

<PAGE>

FINANCIAL CONDITION

DUE FROM SECURITIZATION TRUST. At March 31, 1999 and December 31, 1998, the
Company had delivered $148.8 million and $62.1 million, respectively, of loans
into securitization trusts for which the Company received cash from the trusts
concurrent with the legal closing of the transactions in April 1999 and January
1999, respectively. The increase in due from securitization trust at March 31,
1999, is primarily due to the increase in size of the securitization transaction
and timing of deliveries to the trust.

AUTO LOANS HELD FOR SALE. The Company's portfolio of auto loans held for
sale increased to $43.7 million at March 31, 1999, compared with $17.9 million
at December 31, 1998, primarily due to an increase in loan purchasing volume
during the first quarter 1999 compared with the fourth quarter of 1998.

FINANCE INCOME RECEIVABLE. Finance income receivable increased to $608.0
million at March 31, 1999 from $587.9 million at December 31, 1998. This
increase is primarily due to amounts capitalized upon completion of
securitization transactions during the first quarter of 1999 related to the
present value of estimate cash flows partially off-set by excess cash flows
released to the Company from securitization trusts.

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES. Accounts payable and accrued
liabilities decreased 31% to $25.3 million at March 31, 1999 as compared with
$36.9 million at December 31, 1998. This decrease primarily reflects the
semi-annual payment in March 1999 of accrued interest associated with the
Company's Senior Notes.

<PAGE>

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 that set forth
below.

DELINQUENCY EXPERIENCE (1):

<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
--------------------------------- ----------------------------------
NUMBER OF PRINCIPAL NUMBER OF PRINCIPAL
LOANS BALANCE LOANS BALANCE
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Servicing portfolio at end of period 460,692 $5,148,947 450,635 $5,096,222
Delinquencies:
31-60 days 8,021 $ 87,630 12,176 $ 135,633
61-90 days 3,505 39,477 4,161 47,599
91 days or more 5,596 60,381 5,165 60,591
------- ---------- ------- ----------
Total loans delinquent 31 or more days 17,122 $ 187,488 21,502 $ 243,823
------- ---------- ------- ----------
------- ---------- ------- ----------
Delinquencies as a percentage of
number of loans and amount
outstanding at end of period (2) 3.72% 3.64% 4.77% 4.78%

Amount in repossession 5,542 $ 31,501 5,686 $ 32,676
</TABLE>

- -----------

(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each loan. The information in the table includes previously sold
loans which the Company continues to service.

(2) Amounts shown do not include loans which are less than 31 days delinquent.

CREDIT LOSS/REPOSSESSION EXPERIENCE (1):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
1999 1998
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average servicing portfolio outstanding during the period $5,112,482 $5,001,781
Average number of loans outstanding during the period 451,813 419,179
Number of charge-offs 8,116 7,597

Gross charge-offs (2) $ 62,907 $ 52,479
Recoveries (3) 8,207 3,576
---------- ----------
Net losses $ 54,700 $ 48,903
---------- ----------
---------- ----------

Annualized gross charge-offs as a percentage of average
servicing portfolio 4.92% 4.20%
Annualized net losses as a percentage of average
servicing portfolio 4.28% 3.91%
</TABLE>

- -----------

(2) Gross charge-offs represent principal amounts which management estimated to
be uncollectable after the consideration of anticipated proceeds from the
disposition of repossessed assets and selling expenses.

(3) Includes post-disposition amounts received on previously charged off loans.

<PAGE>

The Company's delinquency rate has declined compared to December 31, 1998,
in part because of a recovery from the normal seasonal pressure on collection
efforts which is generally highest in the fourth quarter of the year. Management
also believes that the decrease in the delinquency rate reflects improvements in
the Company's collections and servicing functions implemented during 1998 and
the first quarter of 1999.

The increase in gross charge-offs and net losses during the three months
ended March 31, 1999, compared to the same period a year ago primarily reflects
the utilization of only wholesale disposition channels for the sale of
repossessed vehicles. Although recovery rates on the sale of vehicles through
wholesale channels is generally lower than those realized through retail
distribution channels, management believes that its decision in June 1998 to
discontinue its retail remarketing operations has enabled it to better manage
its level of repossessed inventory, due to the increase in the speed at which
repossessed vehicles can be liquidated, and as a result has improved the timing
of excess cash flows released to the Company from securitization trusts.

LIQUIDITY

The Company's business requires substantial cash to support its operating
activities. The principal cash requirements include (i) the purchase and
financing of automobile loans pending securitization, (ii) payment of dealer
participations, (iii) deposits of cash held from time to time in restricted
accounts to support securitizations and warehouse facilities and other
securitization expenses, (iv) interest advances to securitization trusts, (v)
the cost of repossessed inventory, and (vi) interest expense. The Company also
uses significant amounts of cash for operating expenses. The Company receives
cash principally from interest on loans held pending securitization, excess cash
flow received from securitization trusts and fees earned through servicing of
loans held by such trusts. The Company has operated to date on a negative
operating cash flow basis and expects to continue to do so in the near future.
The Company has historically funded these negative operating cash flows
principally through borrowings from financial institutions, sales of equity
securities and sales of senior and subordinated notes. The Company expects that
it will require additional capital in the future to fund continued negative cash
flows, although there can be no assurance that the Company will have access to
capital markets in the future or that financing will be available to satisfy the
Company's operating and debt service requirements or to fund its future growth.
See "Capital Resources."

PRINCIPAL USES OF CASH IN OPERATING ACTIVITIES

PURCHASE AND FINANCING OF AUTOMOBILE LOANS. Automobile loan purchases
represent the Company's most significant cash flow requirement. The Company
purchased $582.5 million of loans during the first three months of 1999 compared
to $584.0 million during the same period in 1998. The Company funds the purchase
price of loans primarily through the use of warehouse facilities. However,
because the warehouse facilities limit the advance rate to less than 100% of the
loan balances being purchased, the Company is required to fund the remainder of
all purchases prior to securitization with other available cash resources.

DEALER PARTICIPATIONS. Consistent with industry practice, the Company pays
dealer participations for selling loans to the Company. These participations
typically require the Company to advance an up-front amount to dealers. When
loans are securitized, the related dealer participation is expensed and
subsequently recovered over the estimated life of the related loan through the
return to the Company of excess cash flow from the securitization trust.
Participations paid by the Company to dealers during the three months ended
March 31, 1999 were $16.5 million, or approximately 2.83% of the principal
balance of loans purchased, compared with $16.7 million, or approximately 2.86%
of loans purchased, during the same period in 1998.

SPREAD ACCOUNT AND SECURITIZATION EXPENSES. In connection with
securitizations, the Company is required to fund spread accounts related to each
transaction. The Company primarily funds these spread accounts by foregoing
receipt of excess cash flow until these spread accounts exceed predetermined
levels. In addition, for certain securitizations the Company has been required
to provide initial cash deposits into the spread accounts which generally ranged
from one to two percent of the principal balance of loans securtized. In
exchange for an increase in the insurance premiums paid to the Company's
provider of asset-backed

<PAGE>

securities insurance, the Company has eliminated or significantly reduced the
amount of cash required for initial deposits in connection with securitizations
completed since 1997. There can be no assurance that similar insurance
arrangements will be negotiated for future securitizations; failure to negotiate
similar terms would increase the Company's need for cash to fund its
securitization activity.

The Company had $237.8 million of restricted cash in spread accounts at
March 31, 1999, compared with $227.7 million at December 31, 1998. The increase
in restricted cash in spread accounts reflects the continued securitization of
loan purchases and the related accumulation of excess cash flows to levels
defined within each securitization agreement, partially offset by the release of
excess cash flows from securitization trusts spread accounts which have reached
appropriate levels. In addition to the restricted cash noted above, spread
accounts were further supported by $34.5 million and $18.5 million of
reinsurance contracts at March 31, 1999 and December 31, 1998, respectively,
purchased by the Company's asset-backed securities insurance provider in
connection with the initial deposit arrangement discussed above, as well as an
additional $60.0 million in reinsurance contracts related to the early release
of $60.0 million of cash from spread accounts during 1998. The $60.0 million
will be replenished in the relevant spread accounts, and the amount of
reinsurance reduced, by means of a $3.0 million reduction in the level of
monthly cash releases from the spread accounts beginning in May 1999 and
increasing to $5.0 million per month beginning in October 1999.

The Company also incurs certain expenses in connection with
securitizations, including underwriting fees, credit enhancement fees, trustee
fees and other costs, which approximate 0.5% of the principal amount of the
asset-backed securities sold into the securitizations.

INTEREST ADVANCES TO SECURITIZATION TRUSTS. As the servicer of loans sold
in securitizations, the Company periodically makes interest advances to the
securitization trusts to provide for temporary delays in the receipt of required
interest payments from borrowers. In accordance with the relevant servicing
agreements, the Company makes advances only in the event it expects to recover
such advances through the ultimate payments from the obligor over the life of
the loan.

REPOSSESSED INVENTORY. At March 31, 1999, repossessed inventory managed or
owned by the Company and held for resale was $31.5 million, compared with $32.7
million at December 31, 1998. The rate of repossessed inventory turnover impacts
cash available for deposit to spread accounts from securitization trusts and,
consequently, the excess cash potentially available for distribution to the
Company. At March 31, 1999, and December 31, 1998, repossessed inventory was
0.6% of the total servicing portfolio. Any improvement in excess cash flows due
to an increase in the inventory turnover rate may be partially reduced by lower
recoveries realized through the exclusive use of wholesale auctions after
December 31, 1998, and generally lower wholesale used car prices.

INTEREST EXPENSE. Although the Company records net interest margin as
earned, a significant portion of the interest income component is generally
received in cash from excess cash flow, while the interest expense component
(primarily warehousing interest) is paid prior to securitization. The Company
also incurs interest expense related to both short-term and long-term debt
obligations.

PRINCIPAL SOURCES OF CASH IN OPERATING ACTIVITIES

EXCESS CASH FLOW. The Company receives excess cash flow from securitization
trusts, including the realization of gain on sale, the recovery of dealer
participations, and the recovery of accrued interest receivable earned, but not
yet collected, on loans held for sale prior to securitization. During the first
quarter of 1999, the Company received $45.3 million of excess cash flow,
compared with $25.0 million during the first quarter 1998. The Company has
entered into an arrangement with its provider of asset-backed insurance which
provides that, if any insured securitization trust exceeds its specified
portfolio performance test as defined within the trust agreement, the Company
may, in lieu of retaining excess cash from that securitization trust in the
related spread accounts, pledge an equivalent amount of cash, which has the
effect of preventing the violation of the portfolio performance test. At March
31, 1999 an aggregate $9.4 million of cash released from spread accounts was
restricted pursuant to such arrangement. Such pledged amounts are included in
cash and cash equivalents. Restrictions on the pledged amounts may be lifted if
the portfolio performance

<PAGE>

tests for the related securitization trusts are met and maintained as defined in
the arrangement, the violations are waived, or the loans within the
securitization trusts are repurchased at the end of the securitization term.
There can be no assurance that the restrictions will be lifted or, absent
amendments to the portfolio performance tests, that additional performance tests
will not be exceeded thereby increasing the level of excess cash which must be
pledged. A significant increase in the level of cash pledged under such
arrangement would significantly limit the Company's ability to fund the purchase
and securitization of loans.

SERVICING FEES. The Company receives servicing fees for servicing
securitized loans included in various securitization trusts. The servicing fee
for loans in securitization trusts ranges from one percent to 1.25 percent of
the outstanding principal balance on loans subsequently securitized. The Company
also receives collection fees, such as late payment fees and insufficient fund
charges, and interest on collection accounts earned by the Company as servicer
of the loans. During the three months ended March 31, 1999 and 1998, the Company
received cash for such services in the amount of $21.8 million and $19.9
million, respectively. Servicing fee income is reflected in the Company's
revenues as earned.

CAPITAL RESOURCES

The Company finances the acquisition of automobile loans primarily through
(i) warehouse facilities, pursuant to which loans are financed generally on a
temporary basis, and (ii) the securitization of loans, pursuant to which loans
are sold as asset-backed securities. Additional financing is required to fund
the Company's operations.

WAREHOUSE FACILITIES. Automobile loans held for sale are funded on a
short-term basis primarily through warehouse facilities. At March 31, 1999, the
Company had three warehouse facilities in place with various financial
institutions and institutional lenders with an aggregate capacity of $700.0
million, of which $570.5 million was available. Proceeds from securitizations,
generally received within seven to ten days following the cut-off date
established for the securitization transaction, are applied to repay amounts
outstanding under warehouse facilities. One of the Company's warehouse
facilities with a capacity of $400.0 million will expire in July 1999 and the
remaining facilities expire in September and October of 1999. Management
believes that these facilities will be renewed or replaced and will continue to
provide adequate capacity for loan originations. However, failure to renew or
find satisfactory replacements for these facilities, would have a significant
adverse impact on the Company's operations by significantly reducing the
Company's ability to purchase automobile loans.

SECURITIZATION PROGRAM. An important capital resource for the Company has
been its ability to realize the value of its automobile loans in the secondary
markets through securitizations. The following table summarizes the Company's
securitization transactions during the three months ended March 31, 1999, all of
which were publicly issued and rated "AAA/Aaa".

<TABLE>
<CAPTION>
REMAINING
BALANCE AS A CURRENT
REMAINING PERCENTAGE OF CURRENT WEIGHTED GROSS
BALANCE AS ORIGINAL BALANCE WEIGHTED AVERAGE INTEREST
DATE ORIGINAL OF MARCH 31, AVERAGE SECURITIZATION RATE
BALANCE 1999 APR RATE SPREAD
- ---------------------- --------------- --------------- ------------------ -------------- ----------------- -------------
(DOLLARS IN
THOUSANDS)

<S> <C> <C> <C> <C> <C> <C>
March 1999 (1) $ 550,000 $ 394,943 71.81% 17.34% 5.95% 11.39%

</TABLE>

(1) As of March 31, 1999, the Company had delivered $401.2 million of
automobile loans and $148.8 million of cash remained in the pre-funded
portion of the trust.

<PAGE>

HEDGING STRATEGY

The Company enters into hedging transactions to manage its gross interest
rate spread on loans held for sale. The Company sells forward US Treasuries that
most closely parallel the average life of its portfolio of loans held for sale.
Hedging gains and losses are recognized as a component of the gain on sale of
loans on the date such loans are sold. To the extent hedging gains or losses are
significant, the resulting up-front cash payments or receipts may impact the
Company's liquidity. These up-front cash receipts or payments are off-set in
future periods through the realization of a lower or higher spread,
respectively, established at the time of pricing the hedged transaction. During
the first quarter of 1999, the Company's hedging activities generated net cash
flows to the Company of $70,107 compared to a net use of cash during the same
period a year ago of $5.8 million. There were no unrealized gains or losses
outstanding at March 31, 1999.

OTHER CAPITAL RESOURCES

Historically, the Company has utilized various debt and equity financings
to offset negative operating cash flows and support its operations.

The Company has a program to sell up to $100.0 million of unsecured
subordinated notes (the "Junior Subordinated Notes") to be offered to the public
from time to time (the "Note Program"). Issuance of Junior Subordinated Notes
under the Note Program is subject to restrictions under the Company's Senior
Note indenture. The Note Program includes Junior Subordinated Notes extendible
by the investor having maturities of 90 and 180 days and one year after the date
of issue and fixed-term Junior Subordinated Notes having maturities of one, two,
three, four, five and 10 years after the date of issue. Interest rates on any
unsold Junior Subordinated Notes are subject to change by the Company from time
to time based on market conditions. Interest rates on extendible Junior
Subordinated Notes may be adjusted at any roll-over date. During the first three
months of 1999 proceeds from the issuance of Junior Subordinated Notes, net of
redemptions, were $7.9 million.

<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Because the Company's funding strategy is dependent upon the issuance of
interest-bearing securities and the incurrence of debt, fluctuations in interest
rates impact the Company's profitability. Therefore, the Company employs various
hedging strategies to minimize the risk of interest rate fluctuations. See
"Management's Discussion and Analysis - Capital Resources - Hedging Strategy"
for additional information regarding such market risks.

<PAGE>

PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Under the applicable Securities and Exchange Commission rules, there is
no further new information with respect to legal proceedings that the Company is
required to report in connection with this Quarterly Report on Form 10-Q.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURING HOLDERS

None

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
NO. DESCRIPTION
<S> <C>
3.1 Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998).

3.2 Restated Bylaws of the Company, as amended (incorporated by reference
to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).

4.1 Rights Agreement dated as of November 1, 1996, between the Company and
Norwest Bank Minnesota, National Association, as Rights Agent
(incorporated by reference to Exhibit 1 to the Company's Registration
Statement on Form 8-A filed November 7, 1996).

4.2 Amendment No. 1 to Rights Agreement, dated January 16, 1998, to Rights
Agreement, dated as of November 1, 1996 between the Company and
Norwest Bank Minnesota, National Association, as Rights Agent
(incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K dated January 8, 1998 and filed January 20, 1998).

4.3 Amendment No. 2 to Rights Agreement, dated October 5, 1998, to Rights
Agreement, dated as of November 1, 1996 between the Company and
Norwest Bank Minnesota, National Association, as Rights Agent
(incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K dated September 30, 1998 and filed October 8,
1998).

4.4 First Amendment and Restatement, dated as of April 28, 1995 of
Indenture, dated July 1, 1994, between the Company and Norwest Bank
Minnesota, National Association, as Trustee, relating to the Company's
Unsecured Extendible Notes and Fixed Term Notes, including forms of
Notes (incorporated by reference to Exhibit No. 4.8.1 to
Post-Effective Amendment No. 2 on Form S-3 to the Company's
Registration Statement on Form S-1, File No. 33-81512).

<PAGE>

<TABLE>
<S> <C>
Bank, as Successor Trustee, relating to the Company's Unsecured
Extendible Notes and Fixed Term Notes (incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement on Form S-3, File
No. 333-60531).

4.6 First Supplemental Indenture dated as of August 13, 1998, to Indenture
dated as of July 1, 1994 as amended and restated by that First
Amendment and Restatement dated as of April 28, 1995 and as further
amended by that Instrument of Resignation, Appointment and Acceptance
dated as of August 13,1998, between the Company and Marine Midland
Bank, as Trustee, relating to the Company's Unsecured Extendible Notes
and Fixed Term Notes (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-3, File No. 333-60531).

4.7 Indenture dated as of March 15, 1996, between the Company and Norwest
Bank Minnesota, National Association, as Trustee, relating to the
Company's Subordinated Notes, Series 1996-A due 2001 (incorporated by
reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).

4.8 First Supplemental Indenture, dated as of March 15, 1996, to
Indenture, dated as of March 15, 1996, between the Company and Norwest
Bank Minnesota, National Association, as Trustee, relating to the
Company's Subordinated Notes, Series 1996-A due 2001 (incorporated by
reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).

4.9 Indenture dated as of March 12, 1997, between the Company and Norwest
Bank Minnesota, National Association, as Trustee, relating to the
Company's 11 1/2% Senior Notes due 2007 (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated March
12, 1997 and filed March 18, 1997).

4.10 First Supplemental Indenture, dated as of March 12, 1997 between the
Company and Norwest Bank Minnesota, National Association, as Trustee,
relating to $300,000,000 of the Company's 11 1/2% Senior Notes due
2007 issued March 12, 1997 (incorporated by reference to Exhibit 4.2
to the Company's Current Report on Form 8-K dated March 12, 1997 and
filed March 18, 1997).

4.11 Warrant Agreement, dated as of March 12, 1997 by and between the
Company and Norwest Bank Minnesota, National Association, as Warrant
Agent (incorporated by reference to Exhibit 4.3 to the Company's
Current Report on Form 8-K dated March 12, 1997 and filed March 18,
1997).

4.12 Form of Unit (incorporated by reference to Exhibit 4.4 to the
Company's Current Report on Form 8-K dated March 12, 1997 and filed
March 18, 1997).

4.13 Form of 111/2% Senior Notes due March 15, 2007 (incorporated by
reference to Exhibit 4.5 to the Company's Current Report on Form 8-K
dated March 12, 1997 and filed March 18, 1997).

4.14 Form of Initial Warrant Certificate (incorporated by reference to
Exhibit 4.6 to the Company's Current Report on Form 8-K dated March
12, 1997 and filed March 18, 1997).

4.15 Second Supplemental Indenture, dated as of October 8, 1997, to
Indenture, dated as of March 12, 1997, between the Company and Norwest
Bank Minnesota, National Association, as Trustee, including form of
Notes , relating to $75,000,000 of the Company's 11 1/2% Senior Notes
due 2007 issued October 8, 1997 (incorporated by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K dated October 8, 1997,
filed October 15, 1997).

10.1 Series 1999-A Supplement, dated as of March 17, 1999, to Spread
Account Agreement dated as of March 25, 1993, as amended and restated
as of November 19,1998, among the Company, Arcadia Receivables Finance
Corp., Financial Security Assurance Inc. and Norwest Bank Minnesota,
National Association (filed herewith).

10.2 Insurance and Indemnity Agreement, dated as of March 17, 1999, among
Financial Security Assurance, Inc., Arcadia Automobile Receivables
Trust, 1999-A, Arcadia Receivables Finance Corp. and the Company
(filed herewith).

10.3 Consulting Agreement, dated as of January 20, 1999, by and between the
Company and Warren Kantor (filed herewith).

10.4 Employment Agreement dated as of January 20, 1999, by and between the
Company and Robert A. Marshall (filed herewith).

10.5 Non-statutory Stock Option Agreement, dated January 20, 1999, by and
between the Company and Warren Kantor (filed herewith).

10.6 Arcadia Financial Ltd. 1999 Omnibus Stock Plan (filed herewith).

10.7 1992 Director Stock Option Plan, (as amended January 27, 1999) (filed
herewith).

27.1 Financial Data Schedule (filed herewith).
</TABLE>

<PAGE>

(b) REPORTS ON FORM 8-K

On March 3, 1999, the Company filed a Current Report on Form 8-K dated
March 1, 1999, announcing that the Company had dismissed Ernst & Young LLP as
the Company's independent auditors.

On March 8, 1999 the Company filed a Current Report on Form 8-K dated March
5, 1999, reporting that the Company's independent auditors had released their
report dated January 25, 1999 on the Company's consolidated balance sheets as of
December 31, 1998 and 1997 (as restated) and the related consolidated statements
of operations and comprehensive income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998 (as restated with
respect to 1997 and 1996).

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

ARCADIA FINANCIAL LTD.
<TABLE>
<CAPTION>

SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Richard A. Greenawalt Director and Chief Executive Officer May 14, 1999
- ---------------------------------
Richard A. Greenawalt

/s/ John A. Witham Executive Vice President and Chief Financial Officer May 14, 1999
- --------------------------------- (Principal Financial Officer)
John A. Witham

/s/ Brian S. Anderson Senior Vice President, Corporate Controller and May 14, 1999
- --------------------------------- Assistant Secretary (Principal Accounting Officer)
Brian S. Anderson
</TABLE>

<PAGE>

EXHIBIT INDEX
<TABLE>
<CAPTION>

EXHIBIT NO. DESCRIPTION
<S> <C>
3.1 Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998).

3.2 Restated Bylaws of the Company, as amended (incorporated by reference
to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).

4.5 Instrument of Resignation, Appointment and Acceptance, dated as of
August 13, 1998, among the Company, Norwest Bank Minnesota, National
Association, as Resigning Trustee, and Marine Midland Bank, as
Successor Trustee, relating to the Company's Unsecured Extendible
Notes and Fixed Term Notes (incorporated by reference to Exhibit 4.2
to the Company's Registration Statement on Form S-3, File No.
333-60531).

<PAGE>

<TABLE>
<S> <C>
4.12 Form of Unit (incorporated by reference to Exhibit 4.4 to the
Company's Current Report on Form 8-K dated March 12, 1997 and filed
March 18, 1997).

4.13 Form of 111/2% Senior Notes due March 15, 2007 (incorporated by
reference to Exhibit 4.5 to the Company's Current Report on Form 8-K
dated March 12, 1997 and filed March 18, 1997).

4.14 Form of Initial Warrant Certificate (incorporated by reference to
Exhibit 4.6 to the Company's Current Report on Form 8-K dated March
12, 1997 and filed March 18, 1997).

10.3 Consulting Agreement, dated as of January 20, 1999, by and between the
Company and Warren Kantor (filed herewith).

10.4 Employment Agreement dated as of January 20, 1999, by and between the
Company and Robert A. Marshall (filed herewith).

10.5 Non-statutory Stock Option Agreement, dated January 20, 1999, by and
between the Company and Warren Kantor (filed herewith).

10.6 Arcadia Financial Ltd. 1999 Omnibus Stock Plan (filed herewith).

10.7 1992 Director Stock Option Plan, (as amended January 27, 1999) (filed
herewith).

27.1 Financial Data Schedule (filed herewith).
</TABLE>

<PAGE>

EXECUTION COPY

SERIES 1999-A SUPPLEMENT

dated as of March 17, 1999

SPREAD ACCOUNT AGREEMENT

dated as of March 25, 1993,

as amended and restated

as of November 19, 1998

among

ARCADIA FINANCIAL LTD.

ARCADIA RECEIVABLES FINANCE CORP.

FINANCIAL SECURITY ASSURANCE INC.

and

NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
<PAGE>

TABLE OF CONTENTS
Page

Article I.

DEFINITIONS

<TABLE>
<S> <C>
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.2 Rules of Interpretation . . . . . . . . . . . . . . . . . . . . .5

Article II.

CREDIT ENHANCEMENT FEE; SERIES SUPPLEMENTS; THE COLLATERAL

Section 2.1 Series 1999-A Credit Enhancement Fee. . . . . . . . . . . . . . .6
Section 2.2 Series Supplements. . . . . . . . . . . . . . . . . . . . . . . .6
Section 2.3 Grant of Security Interest by Arcadia Financial and
the Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Article III.

SPREAD ACCOUNT

Section 3.1 Establishment of Series 1999-A Spread Account; Initial
Deposit into Series 1999-A Spread Account . . . . . . . . . . . .7
Section 3.2 Spread Account Additional Deposits. . . . . . . . . . . . . . . .8

Article IV.

MISCELLANEOUS

Section 4.1 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . .8
Section 4.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 4.3 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 4.4 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Schedule I
</TABLE>
<PAGE>

SERIES 1999-A SUPPLEMENT

SERIES 1999-A SUPPLEMENT, dated as of March 17, 1999 (the "Series 1999-A
Supplement"), by and among ARCADIA FINANCIAL LTD., a Minnesota corporation
("Arcadia Financial"), ARCADIA RECEIVABLES FINANCE CORP., a Delaware
corporation (the "Seller"), FINANCIAL SECURITY ASSURANCE INC., a New York
stock insurance company ("Financial Security"), NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, a national banking association, in its capacity as
Indenture Trustee under the Indenture and as Collateral Agent hereunder.

RECITALS

1. The parties hereto have previously entered into a Spread Account
Agreement, dated as of March 25, 1993, as amended and restated as of November
19, 1998 (the "Spread Account Agreement"), and, as contemplated by Section
2.02 of the Spread Account Agreement, this Series 1999-A Supplement
constitutes a Series Supplement to the Spread Account Agreement so that
hereafter this Series 1999-A Supplement shall form a part of the Spread
Account Agreement for all purposes thereof, and all references herein and
hereafter to the Spread Account Agreement shall mean the Spread Account
Agreement, as supplemented hereby.

2. Arcadia Automobile Receivables Trust, 1999-A (the "Series 1999-A
Trust") is being formed contemporaneously herewith pursuant to the Series
1999-A Trust Agreement (as defined herein).

3. Pursuant to the Series 1999-A Sale and Servicing Agreement, the
Seller is selling to the Series 1999-A Trust all of its right, title and
interest in and to the Initial Receivables (as defined in the Series 1999-A
Sale and Servicing Agreement) and certain other Trust Property (as defined in
the Series 1999-A Trust Agreement).

4. Pursuant to the Series 1999-A Indenture, the Series 1999-A Trust is
issuing the Series 1999-A Notes (as defined herein).

5. The Seller has requested that Financial Security issue the Series
1999-A Note Policy to the Trustee to guarantee payment of the Scheduled
Payments (as deemed in such Policy) on each Payment Date in respect of the
Series 1999-A Notes.

6. In partial consideration of the issuance of the Series 1999-A Note
Policy, the Seller has agreed that Financial Security shall have certain
rights as Controlling Party, to the extent set forth in the Spread Account
Agreement and the Series 1999-A Indenture.

7. The Seller is a wholly-owned special purpose subsidiary of Arcadia
Financial. The Series 1999-A Trust has agreed to pay the Series 1999-A
Credit
<PAGE>

Enhancement Fee to the Seller in consideration of the obligations of the
Seller and Arcadia Financial pursuant hereto and in consideration of the
obligations of Arcadia Financial pursuant to the Series 1999-A Insurance
Agreement (such obligations forming part of the Series 1999-A Insurer Secured
Obligations as referred to herein). The Series 1999-A Insurer Secured
Obligations form part of the consideration to Financial Security for its
issuance of the Series 1999-A Note Policy.

8. In order to secure the performance of the Series 1999-A Secured
Obligations, to further effect and enforce the subordination provisions to
which the Series 1999-A Credit Enhancement Fee is subject, and in
consideration of the receipt of the Series 1999-A Credit Enhancement Fee,
Arcadia Financial and the Seller have agreed to pledge the Series 1999-A
Collateral as Collateral to the Collateral Agent for the benefit of Financial
Security and for the benefit of the Trustee on behalf of the Trust, upon the
terms and conditions set forth herein.

AGREEMENTS

In consideration of the premises, and for other good and valuable
consideration, the adequacy, receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

ARTICLE I.

DEFINITIONS

Section 1.1 DEFINITIONS. All terms defined in Section 1.1 of
the Series 1999-A Sale and Servicing Agreement shall have the same meaning
with respect to this Series 1999-A Supplement. The following terms shall have
the following meanings:

"COLLECTION ACCOUNT SHORTFALL" means, with respect to Series 1999-A and
any Distribution Date, the Deficiency Claim Amount, as defined in the Series
1999-A Sale and Servicing Agreement, with respect to such Distribution Date.

"DEEMED CURED" means with respect to Series 1999-A, (a) with respect to
an event that has occurred pursuant to clause (A)(i) of the definition of
Trigger Event, as of a Determination Date with respect to Series 1999-A, that
no event as specified in clause (A)(i) of the definition thereof with respect
to such Series shall have occurred as of such Determination Date or as of any
of the two consecutively preceding Determination Dates, and (b) with respect
to an event that has occurred pursuant to clause (A)(ii) or clause (A)(iii)
of the definition of Trigger Event, as of the next Determination Date which
occurs in a calendar month which is a multiple of three months succeeding the
Series 1999-A Closing Date, that no event specified in clause (A)(ii) or
clause (A)(iii) of the definition of Trigger Event with respect to such
Series shall have occurred as of such Determination Date.

2
<PAGE>

"INITIAL PRINCIPAL AMOUNT" means $550,000,000 with respect to Series
1999-A.

"INITIAL SPREAD ACCOUNT DEPOSIT" means $0 for Series 1999-A.

"INITIAL SPREAD ACCOUNT MAXIMUM AMOUNT" means, with respect to Series
1999-A and any Distribution Date, an amount equal to the greater of (i) 9% of
the Series 1999-A Balance as of the close of business on such Distribution
Date and (ii) the Spread Account Minimum Amount as of the close of business
on such Distribution Date.

"SERIES 1999-A BALANCE" means, with respect to Series 1999-A and any
Distribution Date, the aggregate principal amount of the Series 1999-A Notes
as of such Distribution Date (after giving effect to the distributions in
respect of principal on the Notes made on such Distribution Date).

"SERIES 1999-A COLLATERAL" has the meaning specified in Section 2.3(a)
hereof.

"SERIES 1999-A CREDIT ENHANCEMENT FEE" means the amount distributable on
each Distribution Date pursuant to Section 4.6(vi) and (vii) of the Series
1999-A Sale and Servicing Agreement.

"SERIES 1999-A INDENTURE" means the Indenture, dated as of March 1,
1999, among the Series 1999-A Trust, the Trustee and the Indenture Collateral
Agent.

"SERIES 1999-A NOTE POLICY" means the financial guaranty insurance
policy issued by Financial Security with respect to the Series 1999-A Notes.

"SERIES 1999-A NOTES" means the Class A-1, Class A-2, Class A-3, Class
A-4 and Class A-5 Notes issued pursuant to the Series 1999-A Indenture.

"SERIES 1999-A OWNER TRUSTEE" means Wilmington Trust Company, not in its
individual capacity but solely as Owner Trustee, or its successor in
interest, and any successor Owner Trustee appointed as provided in the Series
1999-A Trust Agreement.

"SERIES 1999-A RECEIVABLE" means each Receivable referenced on the
Schedule of Receivables attached to the Series 1999-A Sale and Servicing
Agreement, as supplemented from time to time during the Funding Period by one
or more Subsequent Transfer Agreements.

"SERIES 1999-A RESERVE ACCOUNT" means the Reserve Account established
pursuant to Section 4.1(d) of the Series 1999-A Sale and Servicing Agreement.

"SERIES 1999-A SALE AND SERVICING AGREEMENT" means the Sale and
Servicing Agreement, dated as of March 1, 1999, among the Series 1999-A
Trust, Arcadia Financial, in its individual capacity and as Servicer, the
Seller and the Backup Servicer, as such agreement may be supplemented,
amended or modified from time to time.

3
<PAGE>

"SERIES 1999-A SECURED OBLIGATIONS" means the Insurer Secured
Obligations and the Trustee Secured Obligations with respect to Series 1999-A.

"SERIES 1999-A SPREAD ACCOUNT" means the Spread Account established
pursuant to Section 3.1(a) hereof.

"SERIES 1999-A SUPPLEMENT" means this Series 1999-A Supplement which
constitutes a Series Supplement to the Spread Account Agreement.

"SERIES 1999-A TRUST AGREEMENT" means the Trust Agreement, dated as of
March 1, 1999, among the Seller, Financial Security and the Series 1999-A
Owner Trustee.

"SPREAD ACCOUNT ADDITIONAL DEPOSIT" means, with respect to Series 1999-A
and any Subsequent Transfer Date, an amount equal to 0.00% of the aggregate
Principal Balance (as of the related Subsequent Cutoff Date) of the
Subsequent Receivables being transferred to the Series 1999-A Trust on such
Subsequent Transfer Date or such greater amount as required by the Rating
Agencies to confirm that the rating assigned to the Series 1999-A Notes will
be in the highest category by such Rating Agencies.

"SPREAD ACCOUNT MAXIMUM AMOUNT" means, with respect to Series 1999-A and
any Distribution Date:

(i) if no Insurance Agreement Event of Default with respect to
Series 1999-A has occurred and is continuing, no Capture Event has occurred
and is continuing, no Trigger Event has occurred on the related
Determination Date, and if any Trigger Event with respect to Series 1999-A
has occurred as of a prior Determination Date, such Trigger Event is Deemed
Cured as of the related Determination Date, the Initial Spread Account
Maximum Amount with respect to Series 1999-A and such Distribution Date;

(ii) if an event specified in clause (A) of the definition of Trigger
Event with respect to Series 1999-A has occurred as of the Determination
Date or has occurred as of a prior Distribution Date (and whether or not a
Trigger Event shall occur or shall have occurred in connection with such
event), and such event is not Deemed Cured as of the related Determination
Date and no Insurance Agreement Event of Default with respect to Series
1999-A has occurred and is continuing and no Capture Event has occurred and
is continuing, the Spread Account Maximum Amount shall be equal to the
greater of (i) 12% of the Series 1999-A Balance as of the close of business
on such Distribution Date and (ii) the Spread Account Minimum Amount as of
the close of business on such Distribution Date; or

(iii) if (A) an Insurance Agreement Event of Default with respect to
Series 1999-A has occurred and is continuing or (B) a Capture Event has
occurred and is continuing as of the related Determination Date, the Spread
Account Maximum Amount shall be equal to the greater of (i) 25% of the
Series 1999-A

4
<PAGE>

Balance as of the close of business on such Distribution Date and (ii) the
Spread Account Minimum Amount as of the close of business on such
Distribution Date.

"SPREAD ACCOUNT MINIMUM AMOUNT" means, with respect to Series 1999-A and
any Distribution Date, an amount equal to the greater of:

(i) $100,000, and

(ii) the lesser of:

(A) 2.0% of the Initial Principal Amount of Series 1999-A, and

(B) the Series 1999-A Balance.

"TRIGGER EVENT" means, with respect to Series 1999-A and as of a
Determination Date, the occurrence of any of the events specified in clause
(A) together with the occurrence of the event specified in clause (B):

(A) (i) the Average Delinquency Ratio for such Determination Date shall
be 8.31% or greater;

(ii) with respect to any Determination Date, the Cumulative Default
Rate shall be equal to or greater than the percentage set forth
in Column A of Schedule I attached hereto corresponding to such
Determination Date;

(iii) with respect to any Determination Date, the Cumulative Net Loss
Rate shall be equal to or greater than the percentage set forth
in Column B of Schedule I attached hereto corresponding to such
Determination Date;

(B) The amount specified with respect to such Series in the last sentence
of Section 2.09(f) of the Spread Account Agreement is positive on such
Determination Date, and such amount has not been deposited in the
related Tag Account on such Determination Date.

Section 1.2 RULES OF INTERPRETATION. The terms "hereof,"
"herein," "hereto" or "hereunder," unless otherwise modified by more specific
reference, shall refer to this Series 1999-A Supplement. Unless otherwise
indicated in context, the terms "Article," "Section" or "Exhibit" shall refer
to an Article or Section of, or Exhibit to, this Series 1999-A Supplement.
The definition of a term shall include the singular, the plural, the past,
the present, the future, the active and the passive forms of such term. A
term defined herein and used herein preceded by a Series designation, shall
mean such term as it relates to the Series designated.

5
<PAGE>

ARTICLE II.

CREDIT ENHANCEMENT FEE; SERIES SUPPLEMENTS; THE COLLATERAL

Section 2.1 SERIES 1999-A CREDIT ENHANCEMENT FEE. The Series
1999-A Sale and Servicing Agreement provides for the payment to the Seller of
the Series 1999-A Credit Enhancement Fee, to be paid to the Seller by
distribution of such amounts to the Collateral Agent for deposit and
distribution pursuant to this Agreement. The Seller and Arcadia Financial
hereby agree that payment of the Series 1999-A Credit Enhancement Fee in the
manner and subject to the conditions set forth herein and in the Series
1999-A Sale and Servicing Agreement is adequate consideration and the
exclusive consideration to be received by the Seller or Arcadia Financial for
the obligations of the Seller pursuant hereto and the obligations of Arcadia
Financial pursuant hereto (including, without limitation, the transfer by the
Seller to the Collateral Agent of the Initial Spread Account Deposit with
respect to Series 1999-A) and pursuant to the Series 1999-A Insurance
Agreement. The Seller and Arcadia Financial hereby agree with the Trustee and
with Financial Security that payment of the Series 1999-A Credit Enhancement
Fee to the Seller is expressly conditioned on subordination of the Series
1999-A Credit Enhancement Fee to payments on the Notes and Certificates (if
any) of any Series, payments of amounts due to Financial Security and the
other obligations of the Trusts, in each case to the extent provided in
Section 4.6 of the Standard Terms and Conditions or Section 4.6 of the
related Sale and Servicing Agreement, as applicable, and Section 3.03 of the
Spread Account Agreement, and the Security Interest of the Secured Parties in
the Series 1999-A Collateral is intended to effect and enforce such
subordination and to provide security for the Series 1999-A Secured
Obligations and subject to the terms hereof the Secured Obligations with
respect to other Series.

Section 2.2 SERIES SUPPLEMENTS. As provided in and subject to
the conditions specified in Section 2.02 of the Spread Account Agreement, the
parties hereto are entering into this Series 1999-A Supplement with respect
to the Series 1999-A Securities.

Section 2.3 GRANT OF SECURITY INTEREST BY ARCADIA FINANCIAL AND
THE SELLER.

(a) In order to secure the performance of the Secured
Obligations with respect to each Series, the Seller (and Arcadia Financial,
to the extent it may have any rights therein) hereby pledges, assigns,
grants, transfers and conveys to the Collateral Agent, on behalf of and for
the benefit of the Secured Parties to secure the Secured Obligations, a lien
on and security interest in (which lien and security interest is intended to
be prior to all other liens, security interests or other encumbrances), all
of its right, title and interest in and to the following (all being
collectively referred to herein as the "Series 1999-A Collateral"):

6
<PAGE>

(i) the Series 1999-A Credit Enhancement Fee and all rights and
remedies that the Seller may have to enforce payment of the Series 1999-A
Credit Enhancement Fee whether under the Series 1999-A Sale and Servicing
Agreement or otherwise;

(ii) the Series 1999-A Spread Account established pursuant to
Section 3.1 of this Series 1999-A Supplement and Section 3.01 of the Spread
Account Agreement, and each other account owned by the Seller and
maintained by the Collateral Agent (including, without limitation, all
monies, checks, securities, investments and other documents from time to
time held in or evidencing any such accounts);

(iii) all of the Seller's right, title and interest in and to
investments made with proceeds of the property described in clauses (i) and
(ii) above, or made with amounts on deposit in the Series 1999-A Spread
Account; and

(iv) all distributions, revenues, products, substitutions,
benefits, profits and proceeds, in whatever form, of any of the foregoing.

(b) In order to effectuate the provisions and purposes of this
Series 1999-A Supplement, including for the purpose of perfecting the
security interests granted hereunder, the Seller represents and warrants that
it has, prior to the execution of this Series 1999-A Supplement, executed and
filed an appropriate Uniform Commercial Code financing statement in Minnesota
sufficient to ensure that the Collateral Agent, as agent for the Secured
Parties, has a first priority perfected security interest in all Series
1999-A Collateral which can be perfected by the filing of a financing
statement.

ARTICLE III.

SPREAD ACCOUNT

Section 3.1 ESTABLISHMENT OF SERIES 1999-A SPREAD ACCOUNT;
INITIAL DEPOSIT INTO SERIES 1999-A SPREAD ACCOUNT.

(a) On or prior to the Closing Date, the Collateral Agent shall
establish with respect to Series 1999-A, at its office or at another
depository institution or trust company, an Eligible Account, designated
"Spread Account - Series 1999-A - Norwest Bank Minnesota, National
Association, as Collateral Agent for Financial Security Assurance Inc. and
another Secured Party" (the "Series 1999-A Spread Account").

(b) On the Closing Date relating to Series 1999-A, the
Collateral Agent shall deposit the Initial Spread Account Deposit with
respect to Series 1999-A received from the Seller into the Series 1999-A
Spread Account.

7
<PAGE>

Section 3.2 SPREAD ACCOUNT ADDITIONAL DEPOSITS. On each
Subsequent Transfer Date, the Series 1999-A Trust will, pursuant to Section
2.4 of the Series 1999-A Sale and Servicing Agreement, deliver on behalf of
the Seller the Spread Account Additional Deposit for such Subsequent Transfer
Date to the Collateral Agent. The Collateral Agent shall deposit each such
Spread Account Additional Deposit received from the Series 1999-A Trust into
the Series 1999-A Spread Account.

ARTICLE IV.

MISCELLANEOUS

Section 4.1 FURTHER ASSURANCES. Each party hereto shall take
such action and deliver such instruments to any other party hereto, in
addition to the actions and instruments specifically provided for herein, as
may be reasonably requested or required to effectuate the purpose or
provisions of this Series 1999-A Supplement or to confirm or perfect any
transaction described or contemplated herein.

Section 4.2 GOVERNING LAW. This Series 1999-A Supplement shall
be governed by and construed, and the obligations, rights and remedies of the
parties hereunder shall be determined, in accordance with the laws of the
State of New York.

Section 4.3 COUNTERPARTS. This Series 1999-A Supplement may be
executed in two or more counterparts by the parties hereto, and each such
counterpart shall be considered an original and all such counterparts shall
constitute one and the same instrument.

Section 4.4 HEADINGS. The headings of sections and paragraphs
and the Table of Contents contained in this Series 1999-A Supplement are
provided for convenience only. They form no part of this Series 1999-A
Supplement and shall not affect its construction or interpretation.

8
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Series 1999-A
Supplement as of the date set forth on the first page hereof.

ARCADIA FINANCIAL LTD.

By: /S/ JOHN A WITHAM
--------------------------------------
Name: John A. Witham
Title: Executive Vice President and
Chief Financial Officer

ARCADIA RECEIVABLES FINANCE CORP.

By: /S/ JOHN A WITHAM
--------------------------------------
Name: John A. Witham
Title: Senior Vice President and
Chief Financial Officer

FINANCIAL SECURITY ASSURANCE INC.

By: /S/ DAN FARRELL
--------------------------------------
Authorized Officer

NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee

By: /S/ EILEEN R O'CONNOR
--------------------------------------

NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Collateral Agent

By: /S/ EILEEN R O'CONNOR
--------------------------------------
<PAGE>

SCHEDULE I

<TABLE>
<CAPTION>
Determination Date Cumulative Default Rate Cumulative Net Loss Rate
(month) (Column A) (Column B)
<S> <C> <C>
0 to 3 2.11% 1.05%
3 to 6 4.21% 2.11%
6 to 9 6.10% 3.05%
9 to 12 7.79% 3.90%
12 to 15 10.03% 5.02%
15 to 18 12.07% 6.04%
18 to 21 13.85% 6.93%
21 to 24 15.40% 7.70%
24 to 27 16.21% 8.10%
27 to 30 16.86% 8.43%
30 to 33 17.43% 8.71%
33 to 36 17.92% 8.96%
36 to 39 18.15% 9.08%
39 to 42 18.34% 9.17%
42 to 45 18.49% 9.25%
45 to 48 18.62% 9.31%
48 to 51 18.73% 9.36%
51 to 54 18.81% 9.41%
54 to 57 18.88% 9.44%
57 to 60 18.93% 9.46%
60 to 63 18.96% 9.48%
63 to 66 18.98% 9.49%
66 to 69 18.99% 9.50%
69 and higher 19.00% 9.50%
</TABLE>

- ---------
* Such Determination Date occurring after the designated calendar months
succeeding the Series 1999-A Closing Date appearing first in the column
below, and prior to or during the designated calendar months succeeeding the
Series 1999-A Distribution Date appearing second in the column below.

<PAGE>

EXECUTION COPY

- -------------------------------------------------------------------------------

INSURANCE AND INDEMNITY AGREEMENT

among

FINANCIAL SECURITY ASSURANCE INC.,

ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1999-A,

ARCADIA RECEIVABLES FINANCE CORP.

and

ARCADIA FINANCIAL LTD.

Dated as of March 17, 1999

- -------------------------------------------------------------------------------

Arcadia Automobile Receivables Trust, 1999-A

$ 60,000,000 -- 4.960% Class A-1 Automobile Receivables-Backed Notes

$ 153,000,000 -- 5.373% Class A-2 Automobile Receivables-Backed Notes

$ 65,000,000 -- 5.750% Class A-3 Automobile Receivables-Backed Notes

$ 105,000,000 -- 5.940% Class A-4 Automobile Receivables-Backed Notes

$ 167,000,000 -- 6.120% Class A-5 Automobile Receivables-Backed Notes

- -------------------------------------------------------------------------------

<PAGE>

TABLE OF CONTENTS

<TABLE>

Page
<S> <C>
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Section 1.01 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .2

ARTICLE II. REPRESENTATIONS, WARRANTIES AND COVENANTS . . . . . . . . . . . . . .7

Section 2.01 Representations and Warranties of the Trust. . . . . . . . . . .7
Section 2.02 Affirmative Covenants of the Trust . . . . . . . . . . . . . . 10
Section 2.03 Negative Covenants of the Trust. . . . . . . . . . . . . . . . 15
Section 2.04 Representations and Warranties of Arcadia Financial and
the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.05 Affirmative Covenants of Arcadia Financial and
the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.06 Negative Covenants of Arcadia Financial and the Seller . . . . 26
Section 2.07 Representations and Warranties of Arcadia Financial. . . . . . 28
Section 2.08 Affirmative Covenants of Arcadia Financial . . . . . . . . . . 30
Section 2.09 Negative Covenants of Arcadia Financial. . . . . . . . . . . . 34

ARTICLE III. THE NOTE POLICY; REIMBURSEMENT; INDEMNIFICATION . . . . . . . . . . 36

Section 3.01 Conditions Precedent to Issuance of the Note Policy. . . . . . 36
Section 3.02 Payment of Fees and Premium. . . . . . . . . . . . . . . . . . 40
Section 3.03 Reimbursement and Additional Payment Obligation. . . . . . . . 41
Section 3.04 Certain Obligations Not Recourse to Arcadia Financial;
Recourse to Trust Property . . . . . . . . . . . . . . . . . . 42
Section 3.05 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 43
Section 3.06 Payment Procedure. . . . . . . . . . . . . . . . . . . . . . . 44
Section 3.07 Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . 45

ARTICLE IV. FURTHER AGREEMENTS; MISCELLANEOUS . . . . . . . . . . . . . . . . . 45

Section 4.01 Effective Date: Term of Agreement. . . . . . . . . . . . . . . 45
Section 4.02 Further Assurances and Corrective Instruments. . . . . . . . . 45
Section 4.03 Obligations Absolute.. . . . . . . . . . . . . . . . . . . . . 45
Section 4.04 Assignments; Reinsurance; Third-Party Rights.. . . . . . . . . 47
Section 4.05 Liability of Financial Security. . . . . . . . . . . . . . . . 48

ARTICLE V. EVENTS OF DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . . 48

Section 5.01 Events of Default. . . . . . . . . . . . . . . . . . . . . . . 48
Section 5.02 Remedies; Waivers. . . . . . . . . . . . . . . . . . . . . . . 50

ARTICLE VI. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Section 6.01 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . 51
Section 6.02 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 6.03 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 53

<PAGE>

Section 6.04 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.05 Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . . 53
Section 6.06 Consent of Financial Security. . . . . . . . . . . . . . . . . 54
Section 6.07 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 6.08 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 6.09 Trial by Jury Waived . . . . . . . . . . . . . . . . . . . . . 54
Section 6.10 Limited Liability. . . . . . . . . . . . . . . . . . . . . . . 55
Section 6.11 Limited Liability of Wilmington Trust Company. . . . . . . . . 55
Section 6.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 55

</TABLE>

Schedule 1

<PAGE>

INSURANCE AND INDEMNITY AGREEMENT

INSURANCE AND INDEMNITY AGREEMENT dated as of March 17, 1999, among
FINANCIAL SECURITY ASSURANCE INC., a New York stock insurance company
("Financial Security"), ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1999-A, a Delaware
business trust (the "Trust"), ARCADIA RECEIVABLES FINANCE CORP., a Delaware
corporation (the "Seller"), and ARCADIA FINANCIAL LTD., a Minnesota corporation
(when referred to individually hereunder, "Arcadia Financial", when referred to
as servicer under the Sale and Servicing Agreement referred to below, the
"Servicer").

INTRODUCTORY STATEMENTS

1. The Seller is the owner of the Receivables. The Seller proposes
to sell to the Trust all of its right, title and interest in and to the
Receivables and certain other property pursuant to the Sale and Servicing
Agreement. The Trust will issue Notes pursuant to the Indenture.

2. Each Note will be secured by the Indenture Property. The Trust
has requested that Financial Security issue a financial guaranty insurance
policy guarantying respectively certain distributions of interest and principal
on the Notes on each Distribution Date (including any such distributions
subsequently avoided as a preference under applicable bankruptcy law) upon the
terms, and subject to the conditions, provided herein.

3. Arcadia Financial and the Seller have previously entered into and
may in the future enter into one or more pooling and servicing agreements or
sale and servicing agreements with a trust and Seller has previously entered
into an Amended and Restated Sale and Servicing Agreement, dated as of July 21,
1998, among the Seller, Arcadia Automobile Receivables Warehouse Trust, Arcadia
Financial, Bank of America National Trust and Savings Association, Morgan
Guaranty Trust Company of New York, Norwest Bank Minnesota, National Association
and Arcadia Receivables Conduit Corp., in each case, pursuant to which the
Seller sold or will sell all of its right, title and interest in and to
receivables and the other trust property and in connection therewith Financial
Security has and may in the future issue additional policies with respect to
certain guaranteed distributions on the corresponding certificates, the
corresponding notes or both.

4. The parties hereto desire to specify the conditions precedent to
the issuance of the Note Policy by Financial Security, the payment of premium in
respect of the Note Policy, the indemnity and reimbursement to be provided to
Financial Security in respect of amounts paid by Financial Security under the
Note Policy or otherwise and certain other matters.

<PAGE>

In consideration of the premises and of the agreements herein
contained, Financial Security, the Trust, Arcadia Financial, individually and as
Servicer, and the Seller hereby agree as follows:

ARTICLE I.

DEFINITIONS

Section 1.01 DEFINITIONS. All words and phrases defined in the
Trust Agreement, the Sale and Servicing Agreement or in the Spread Account
Agreement shall have the same meanings in this Agreement. Unless otherwise
specified, if a word or phrase defined in the Trust Agreement, the Sale and
Servicing Agreement or in the Spread Account Agreement can be applied with
respect to one or more Series, such a word or phrase shall be used herein as
applied to Series 1999-A. In addition, the following words and phrases shall
have the following respective meanings:

"ACCUMULATED FUNDING DEFICIENCY" shall have the meaning provided in
Section 412 of the Code and Section 302 of ERISA, whether or not waived.

"AGREEMENT" means this Insurance and Indemnity Agreement, as the same
may be amended, modified or supplemented from time to time.

"AUTHORIZED OFFICER" means, with respect to a corporation, the
president, the chief financial officer or any vice president.

"CODE" means the Internal Revenue Code of 1986, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.

"COMMISSION" means the Securities and Exchange Commission.

"COMMONLY CONTROLLED ENTITY" means with respect to the Trust, the
Seller or Arcadia Financial, as the case may be, each entity, whether or not
incorporated, which is affiliated with the Trust, the Seller or Arcadia
Financial, as the case may be, pursuant to Section 414(b), (c), (m) or (o) of
the Code.

"DEFAULT" means any event which results, or which with the giving of
notice or the lapse of time or both would result, in an Event of Default.

"ERISA" means the Employee Retirement Income Security Act of 1974,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.

"EVENT OF DEFAULT" means any event of default specified in Section
5.01 of this Agreement.

<PAGE>

"EXPIRATION DATE" means, with respect to the Note Policy, the final
date of the Term of such Note Policy, as specified therein.

"FINANCIAL SECURITY" means Financial Security Assurance Inc., a New
York stock insurance company, its successors and assigns.

"FINANCIAL STATEMENTS" means with respect to Arcadia Financial the
audited consolidated balance sheets as of December 31, 1997, December 31, 1996,
and December 31, 1995 and the related audited consolidated statements of income,
retained earnings and cash flows for the 12-month periods then ended and the
notes thereto.

"FISCAL AGENT" means the Fiscal Agent, if any, designated pursuant to
the terms of the Note Policy.

"INDENTURE COLLATERAL AGENT" means initially, Norwest Bank Minnesota,
National Association, in its capacity as collateral agent on behalf of Financial
Security and the Indenture Trustee on behalf of the Noteholders pursuant to the
Indenture, its successor in interest and any successor Indenture Collateral
Agent under the Indenture.

"INDENTURE PROPERTY" means the property pledged to the Indenture
Collateral Agent on behalf of Financial Security and the Indenture Trustee on
behalf of the Noteholders pursuant to the Indenture.

"INSURANCE AGREEMENT INDENTURE CROSS DEFAULT" means an Event of
Default specified in clause (a), (f), (g), (h) or (i) of Section 5.01.

"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.

"IRS" means the Internal Revenue Service.

"LATE PAYMENT RATE" means the greater of (i) a per annum rate equal
to 3 percent in excess of Financial Security's cost of funds, determined on a
monthly basis, or (ii) a per annum rate equal to 3 percent in excess of the
arithmetic average of the prime or base lending rates publicly announced by The
Chase Manhattan Bank, N.A. (New York, New York) and Citibank, N.A. (New York,
New York), as in effect on the last day of the month for which interest is being
computed, but, in either case, in no event greater than the maximum rate
permitted by law.

"LIEN" means, as applied to the property or assets (or the income or
profits therefrom) of any Person, in each case whether the same is consensual or
nonconsensual or arises by contract, operation of law, legal process or
otherwise: (a) any mortgage, lien, pledge, attachment, charge, lease,
conditional sale or other title retention agreement, or other security interest
or encumbrance of any kind; or (b) any arrangement, express or implied, under
which such property or assets are transferred, sequestered or otherwise
identified for the purpose of

3
<PAGE>

subjecting or making available the same for the payment of debt or
performance of any other obligation in priority to the payment of the
general, unsecured creditors of such Person.

"MATERIAL ADVERSE CHANGE" means, in respect of any Person, a material
adverse change in (i) the business, financial condition, results of operations,
or properties of such Person and its Subsidiaries taken as a whole, (ii) the
ability of such Person to perform its obligations under any of the Transaction
Documents to which it is a party or (iii) the ability of Financial Security or
the Trust to realize the benefits or security afforded under the Transaction
Documents.

"MULTIEMPLOYER PLAN" means a multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled Entity
makes contributions or has liability.

"NOTE POLICY" means the financial guaranty insurance policy, including
any endorsements thereto, issued by Financial Security with respect to the
Notes, substantially in the form attached as Exhibit A hereto.

"NOTICE OF CLAIM" means the Notice of Claim and Certificate in the
form attached as Exhibit A to Endorsement No. 1 to the Note Policy.

"OTHER TRUST PROPERTY" means the property conveyed by the Seller to
the Trust pursuant to the Sale and Servicing Agreement and any Subsequent
Transfer Agreement.

"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency, corporation or instrumentality of the United States to which the duties
and powers of the Pension Benefit Guaranty Corporation are transferred.

"PLAN" means any pension plan (other than a Multiemployer Plan)
covered by Title IV of ERISA, which is maintained by a Commonly Controlled
Entity or in respect of which a Commonly Controlled Entity has liability.

"PORTFOLIO PERFORMANCE EVENT OF DEFAULT" means an Event of Default
specified in clause (j), (k), or (l) of Section 5.01.

"PREMIUM" means the premium payable in accordance with Section 3.02 of
this Agreement.

"PREMIUM LETTER" means the side letter between Financial Security and
Arcadia Financial dated the date hereof in respect of the premium payable by
Arcadia Financial in consideration of the issuance of the Note Policy.

"PREMIUM SUPPLEMENT" means a non-refundable premium, in addition to
the premium payable in accordance with Section 3.02 of this Agreement, payable
by Arcadia Financial to Financial Security in monthly installments commencing on
the first Distribution

4
<PAGE>

Date following the Premium Supplement Commencement Date and on each
Distribution Date thereafter, payable in accordance with the terms of the
Premium Letter.

"PREMIUM SUPPLEMENT COMMENCEMENT DATE" means the date of occurrence of
an Event of Default in respect of which the Premium Supplement shall have been
declared due and payable in accordance with Section 5.02 of this Agreement.

"PREVIOUS SERIES TRANSACTION DOCUMENTS" means the transaction
documents as defined in each of the insurance and indemnity agreements related
to Olympic Automobile Receivables Trust, 1993-A, Olympic Automobile Receivables
Trust, 1993-B, Olympic Automobile Receivables Trust, 1993-C, Olympic Automobile
Receivables Trust, 1993-D, Olympic Automobile Receivables Trust, 1994-A, Olympic
Automobile Receivables Trust, 1994-B, Olympic Automobile Receivables Trust,
1995-A, Olympic Automobile Receivables Trust, 1995-B, Olympic Automobile
Receivables Trust, 1995-C, Olympic Automobile Receivables Trust, 1995-D, Olympic
Automobile Receivables Trust, 1995-E, Olympic Automobile Receivables Trust,
1996-A, Olympic Automobile Receivables Trust, 1996-B, Olympic Automobile
Receivables Trust, 1996-C, Olympic Automobile Receivables Trust, 1996-D, Olympic
Automobile Receivables Trust, 1997-A, Arcadia Automobile Receivables Trust,
1997-B, Arcadia Automobile Receivables Trust 1997-C, Arcadia Automobile
Receivables Trust, 1997-D, Arcadia Automobile Receivables Trust, 1998-A, Arcadia
Automobile Receivables Trust, 1998-B, Arcadia Automobile Receivables Trust,
1998-C, Arcadia Automobile Receivables Trust, 1998-D, Arcadia Automobile
Receivables Trust, 1998-E and the Warehousing Notes.

"PROSPECTUS" has the meaning set forth in Section 2.04(o) of this
Agreement.

"RELATED DOCUMENTS" means the Transaction Documents except for the
Sale and Servicing Agreement.

"REGISTRATION STATEMENT" has the meaning set forth in Section 2.04(o)
of this Agreement.

"REPORTABLE EVENT" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.

"RESTRICTIONS ON TRANSFERABILITY" means, as applied to the property or
assets (or the income or profits therefrom) of any Person, in each case whether
the same is consensual or nonconsensual or arises by contract, operation of law,
legal process or otherwise, any material condition to, or restriction on, the
ability of such Person or any transferee therefrom to sell, assign, transfer or
otherwise liquidate such property or assets in a commercially reasonable time
and manner or which would otherwise materially deprive such Person or any
transferee therefrom of the benefits of ownership of such property or assets.

"SALE AND SERVICING AGREEMENT" means the Sale and Servicing Agreement
dated as of March 1, 1999 among the Seller, Arcadia Financial, in its individual
capacity and as Servicer, the Back-up Servicer and the Trust pursuant to which
the Initial Receivables are to be sold, serviced and administered, as the same
may be amended from time to time.

5
<PAGE>

"SECURITIES ACT" means the Securities Act of 1933, including, unless
the context otherwise requires, the rules and regulations thereunder, as amended
from time to time.

"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.

"SENIOR NOTE INDENTURE" means the Indenture dated as of March 12, 1997
between Arcadia Financial (f/k/a Olympic Financial Ltd.) and Norwest Bank
Minnesota, National Association, as amended or supplemented (including that
First Supplemental Indenture dated as of March 12, 1997 and that Second
Supplemental Indenture dated as of October 8, 1997 (each, a "Supplemental
Indenture")), relating to $375,000,000 principal amount of Arcadia Financial's
currently outstanding 11 1/2% Senior Notes due 2007.

"SERIES 1999-A" means the Series of Notes issued on the date hereof
pursuant to the Indenture.

"SERIES OF NOTES" or "SERIES" means Series 1999-A or any, or as the
context may require, all, additional series of notes issued as described in
paragraph 3 of the Introductory Statements hereto.

"SERVICER TERMINATION SIDE LETTER" means the letter from Financial
Security to the Servicer dated as of March 17, 1999, with regard to the renewal
of the term of the Servicer.

"SPREAD ACCOUNT AGREEMENT" means the Spread Account Agreement, dated
as of March 25, 1993, as amended and restated as of November 19, 1998 and
supplemented in accordance with the terms thereof, among Arcadia Financial, the
Seller, Financial Security, the Indenture Trustee and the Collateral Agent.

"STOCK PLEDGE AGREEMENT" means the Third Amended and Restated Stock
Pledge Agreement, dated as of December 3, 1996, as amended and restated, among
Financial Security, Arcadia Financial, and the Collateral Agent, as the same may
be amended from time to time.

"SUBSIDIARY" means, with respect to any Person, any corporation of
which a majority of the outstanding shares of capital stock having ordinary
voting power for the election of directors is at the time owned by such Person
directly or through one or more Subsidiaries.

"TERM OF THE NOTE POLICY" means, with respect to the Note Policy, the
meaning provided therein.

"TERM OF THIS AGREEMENT" shall be determined as provided in Section
4.01 of this Agreement.

"TRANSACTION" means the transactions contemplated by the Transaction
Documents, including the transactions described in the Registration Statement.

6
<PAGE>

"TRANSACTION DOCUMENTS" means this Agreement, the Sale and Servicing
Agreement, the Trust Agreement, the Certificate of Trust, the Indenture, the
Underwriting Agreement, the Purchase Agreement, the Premium Letter, the Stock
Pledge Agreement, the Lockbox Agreement, the Depository Agreements, the
Custodian Agreement, the Servicer Termination Side Letter, the Spread Account
Agreement and the Administration Agreement.

"TRUST AGREEMENT" means the Trust Agreement, dated as of March 1,
1999, among the Seller, Financial Security and Wilmington Trust Company, as
Owner Trustee.

"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.

"UNDERFUNDED PLAN" means any Plan that has an Underfunding.

"UNDERFUNDING" means, with respect to any Plan, the excess, if any, of
(a) the present value of all benefits under the Plan (based on the assumptions
used to fund the Plan pursuant to Section 412 of the Code) as of the most recent
valuation date over (b) the fair market value of the assets of such Plan as of
such valuation date.

"UNDERWRITERS" means Chase Securities Inc., Credit Suisse First Boston
Corporation, J.P. Morgan Securities Inc. and NationsBanc Montgomery Securities
LLC.

"UNDERWRITING AGREEMENT" means the Pricing Agreement, dated March 11,
1999, among Arcadia Financial and the Seller and the Underwriters.

"WAREHOUSING NOTES" means the Floating Rate Variable Funding Notes
issued pursuant to the Amended and Restated Indenture dated as of July 21, 1998,
between Arcadia Automobile Receivables Warehouse Trust, as issuer, and Norwest
Bank Minnesota, National Association, as trustee.

ARTICLE II.

REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 2.01 REPRESENTATIONS AND WARRANTIES OF THE TRUST. The Trust
represents, warrants and covenants, as of the date hereof and as of the Closing
Date, as follows:

(a) DUE ORGANIZATION AND QUALIFICATION. The Trust is duly formed and
validly existing as a Delaware statutory business trust and is in good standing
under the laws of the State of Delaware, with power and authority to own its
properties and to conduct its business. The Trust is duly qualified to do
business, is in good standing and has obtained all necessary licenses, permits,
charters, registrations and approvals (together, "approvals") necessary for the
conduct of its business as described in the Prospectus and the performance of
its obligations under the Transaction Documents, in each jurisdiction in which
the failure to be so qualified or to obtain

<PAGE>

such approvals would render the Receivables in such jurisdiction or any
Transaction Document unenforceable in any respect or would otherwise have a
material adverse effect upon the Transaction.

(b) POWER AND AUTHORITY. The Trust has all necessary trust power and
authority to conduct its business as described in the Prospectus, to execute,
deliver and perform its obligations under this Agreement and each other
Transaction Document to which the Trust is a party and to carry out the terms
of each such agreement, and has full power and authority to issue the Notes
and pledge and assign its assets pursuant to the Indenture and has duly
authorized the issuance of the Notes and the assignment of its assets by all
necessary trust proceedings.

(c) DUE AUTHORIZATION. The execution, delivery and performance of this
Agreement and each other Transaction Document to which the Trust is a party
has been duly authorized by all necessary action on the part of the Trust and
does not require any additional approvals or consents or other action by or
any notice to or filing with any Person by or on behalf of the Trust,
including, without limitation, any governmental entity.

(d) NONCONTRAVENTION. Neither the execution and delivery of this
Agreement and each other Transaction Document to which the Trust is a party,
the consummation of the Transaction nor the satisfaction of the terms and
conditions of this Agreement and each other Transaction Document to which the
Trust is a party,

(i) conflicts with or results in any breach or violation of
any provision of the Certificate of Trust or the Trust Agreement or any
law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award currently in effect having applicability to the
Trust or any of its properties, including regulations issued by an
administrative agency or other governmental authority having supervisory
powers over the Trust,

(ii) constitutes a default by the Trust under or a breach of
any provision of any loan agreement, mortgage, indenture or other agreement
or instrument to which the Trust is a party or by which it or any of its
properties is or may be bound or affected, or

(iii) results in or requires the creation of any Lien upon or
in respect of any of the Trust's assets except as otherwise expressly
contemplated by the Transaction Documents.

(e) PENDING LITIGATION OR OTHER PROCEEDING. There is no action,
proceeding or investigation pending, or, to the Trust's best knowledge,
threatened, before any court, regulatory body, administrative agency, arbitrator
or governmental agency or instrumentality having jurisdiction over the Trust or
its properties: (A) asserting the invalidity of this Agreement or any other
Transaction Document to which the Trust is a party, (B) seeking to prevent the
issuance of the Notes or the consummation of the Transaction, (C) seeking any
determination or ruling that might materially and adversely affect the validity
or enforceability of this Agreement or any other Transaction Document to which
the Trust is a party, (D) which might result in a Material

8
<PAGE>

Adverse Change with respect to the Trust or (E) which might adversely affect
the federal or state tax attributes of the Notes or the Trust.

(f) VALID AND BINDING OBLIGATIONS. Each of the Transaction Documents
to which the Trust is a party, when executed and delivered by the Trust, and
assuming due authorization, execution and delivery by the other parties thereto,
will constitute the legal, valid and binding obligation of the Trust enforceable
in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equitable principles. The
Notes, when executed, authenticated and delivered in accordance with the
Indenture, will be entitled to the benefits of the Indenture and will constitute
legal, valid and binding obligations of the Trust, enforceable in accordance
with their terms.

(g) NO CONSENTS. No consent, license, approval or authorization from,
or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any
consent, approval, waiver or notification of any creditor, lessor or other
non-governmental person, is required in connection with the execution,
delivery and performance by the Trust of this Agreement or of any other
Transaction Document to which the Trust is a party, except (in each case)
such as have been obtained and are in full force and effect.

(h) COMPLIANCE WITH LAW, ETC. No practice, procedure or policy
employed or proposed to be employed by the Trust in the conduct of its
business violates any law, regulation, judgment, agreement, order or decree
applicable to the Trust which, if enforced, would result in a Material
Adverse Change with respect to the Trust.

(i) ERISA. The Trust does not maintain or contribute to, or have any
obligation to maintain or contribute to, any Plan. The Trust is not subject to
any of the provisions of ERISA.

(j) COLLATERAL. On the Closing Date, and on each Subsequent Transfer
Date, the Trust will have good and marketable title to each item of Other Trust
Property conveyed on such date and will own each such item free and clear of any
Lien (other than Liens contemplated under the Indenture) or any equity or
participation interest of any other Person.

(k) PERFECTION OF LIENS AND SECURITY INTEREST. On the Closing Date,
the Lien and security interest in favor of the Indenture Collateral Agent
with respect to Indenture Property will be perfected by the filing of
financing statements on Form UCC-1 in each jurisdiction where such recording
or filing is necessary for the perfection thereof, the delivery of the
Receivable Files for the Receivables to the Custodian, and the establishment
of the Collection Account, the Subcollection Account, the Lockbox Account,
the Pre-Funding Account, the Reserve Account and the Note Distribution
Account in accordance with the provisions of the Transaction Documents, and
no other filings in any jurisdiction or any other actions (except as
expressly provided herein) are necessary to perfect the Collateral Agent's
Lien on and security interest in the Collateral as against any third parties.

9
<PAGE>

(l) SECURITY INTEREST IN FUNDS AND INVESTMENTS. Assuming the retention
of funds in the Accounts and the acquisition of Eligible Investments in
accordance with the Transaction Documents, such funds and Eligible
Investments will be subject to a valid and perfected, first priority security
interest in favor of the Collateral Agent on behalf of the Indenture Trustee
(on behalf of the Noteholders) and Financial Security.

(m) COMPLIANCE WITH INVESTMENT COMPANY ACT. The Trust is not required
to be registered as an "investment company" under the Investment Company Act.

(n) INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Trust set forth in each Transaction
Document are (in each case) true and correct as if set forth herein.

(o) SPECIAL PURPOSE ENTITY.

(i) The capital of the Trust is adequate for the business
and undertakings of the Trust.

(ii) Except as contemplated by the Transaction Documents,
the Trust is not engaged in any business transactions with Arcadia
Financial, the Seller or any Affiliate of either of them.

(iii) The Trust's funds and assets are not, and will not be,
commingled with the funds of any other Person, except as provided in the
Transaction Documents.

(p) SOLVENCY; FRAUDULENT CONVEYANCE. The Trust is solvent and will not
be rendered insolvent by the Transaction or by the performance of its
obligations under the Transaction Documents and, after giving effect to such
Transaction, the Trust will not be left with an unreasonably small amount of
capital with which to engage in its business. The Trust does not intend to
incur, or believes that it has incurred, debts beyond its ability to pay such
debts as they mature. The Trust does not contemplate the commencement of
insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar
official in respect of the Trust or any of its assets.

Section 2.02 AFFIRMATIVE COVENANTS OF THE TRUST. The Trust hereby
agrees that during the Term of the Agreement, unless Financial Security shall
otherwise expressly consent in writing:

(a) COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS. The Trust will
comply with all terms and conditions of this Agreement and each other
Transaction Document to which it is a party and with all material requirements
of any law, rule or regulation applicable to it. The Trust will not cause or
permit to become effective any amendment to or modification of any of the
Transaction Documents to which it is a party unless (i) (so long as no Insurer
Default shall have occurred and be continuing) Financial Security shall have
previously approved in writing the form of such amendment or modification or
(ii) if an Insurer Default shall have occurred and be continuing, such
amendment would not adversely affect the interests of

10
<PAGE>

Financial Security. The Trust shall not take any action or fail to take any
action that would interfere with the enforcement of any rights under this
Agreement or the other Transaction Documents.

(b) FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION. The
Trust shall keep or cause to be kept in reasonable detail books and records
of account of the Trust's assets and business, which shall be furnished to
Financial Security upon request. The Trust shall furnish to Financial
Security, simultaneously with the delivery of such documents to the Indenture
Trustee or the Noteholders, as the case may be, copies of all reports,
certificates, statements, financial statements or notices furnished to the
Indenture Trustee or the Noteholders, as the case may be, pursuant to the
Transaction Documents.

(i) ANNUAL FINANCIAL STATEMENTS. As soon as available, and
in any event within 90 days after the close of each fiscal year of the
Trust, the audited balance sheets of the Trust as of the end of such fiscal
year and the audited statements of income, changes in equityowners' equity
and cash flows of the Trust for such fiscal year, all in reasonable detail
and stating in comparative form the respective figures for the
corresponding date and period in the preceding fiscal year, prepared in
accordance with generally accepted accounting principles, consistently
applied, and accompanied by the certificate of the Trust's independent
accountants (who shall be acceptable to Financial Security) and by the
certificate specified in Section 2.02(c) hereof.

(ii) QUARTERLY FINANCIAL STATEMENTS. As soon as available,
and in any event within 45 days after the close of each of the first three
quarters of each fiscal year of the Trust, the unaudited balance sheets of
the Trust as of the end of such quarter and the unaudited statements of
income, changes in equityowners' equity and cash flows of the Trust for the
portion of the fiscal year then ended, all in reasonable detail and stating
in comparative form the respective figures for the corresponding date and
period in the preceding fiscal year, prepared in accordance with generally
accepted accounting principles consistently applied (subject to normal
year-end adjustments), and accompanied by the certificate specified in
Section 2.02(c) hereof.

(iii) ACCOUNTANTS' REPORTS. Promptly upon receipt thereof,
copies of any reports or comment letters submitted to the Trust by its
independent accountants in connection with any examination of the financial
statements of the Trust.

(iv) CERTAIN INFORMATION. Not less than ten days prior to
the date of filing with the IRS of any tax return or amendment thereto,
copies of the proposed form of such return or amendment and, promptly after
the filing or sending thereof, (i) copies of each tax return and amendment
thereto that the Trust files with the IRS and (ii) copies of all financial
statements, reports, and registration statements which the Trust files
with, or delivers to, any federal government agency, authority or body
which supervises the issuance of securities by the Trust.

(v) OTHER INFORMATION. Promptly upon the request of Financial
Security, copies of all schedules, financial statements or other similar
reports delivered to or by the

11
<PAGE>

Trust pursuant to the terms of this Agreement and the other Transaction
Documents and such other data as Financial Security may reasonably request.

(c) COMPLIANCE CERTIFICATE. The Trust shall deliver to Financial
Security and, upon request, any Noteholder, concurrently with the delivery of
the financial statements required pursuant to Section 2.02(b)(i) and (ii)
hereof, a certificate signed by an Authorized Officer of the Administrator
stating that:

(i) a review of the Trust's performance under the Transaction
Documents during such period has been made under such officer's
supervision;

(ii) to the best of such individual's knowledge following
reasonable inquiry, no Default or Event of Default has occurred and is
continuing or, if a Default or Event of Default has occurred and is
continuing, specifying the nature thereof and, if the Trust has a right to
cure pursuant to Section 5.01, stating in reasonable detail the steps, if
any, being taken by the Trust to cure such Default or Event of Default or
to otherwise comply with the terms of the agreement or agreements to which
such Default or Event of Default relates; and

(iii) The financial reports submitted in accordance with
Section 2.02(b)(i) or (ii) hereof, as applicable, are complete and
correct in all material respects and present fairly the financial condition
and results of operations of the Trust as of the dates and for the periods
indicated, in accordance with generally accepted accounting principles
consistently applied (subject as to interim statements to normal year-end
adjustments).

(d) ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS. The
Trust shall, upon the request of Financial Security, permit Financial
Security or its authorized agents (i) to inspect the books and records of the
Trust as they may relate to the Notes, the Receivables and the Other Trust
Property, the obligations of the Trust under the Transaction Documents, the
Trust's business and the Transaction and (ii) to discuss the affairs,
finances and accounts of the Trust with any of its personnel and
representatives, including its Independent Accountants. Such inspections and
discussions shall be conducted during normal business hours and shall not
unreasonably disrupt the business of the Trust. The books and records of the
Trust will be maintained at the address of the Trust designated herein for
receipt of notices, unless the Trust shall otherwise advise the parties
hereto in writing.

(e) NOTICE OF MATERIAL EVENTS. The Trust shall promptly inform
Financial Security in writing of the occurrence of any of the following:

(i) the submission of any claim or the initiation of any
legal process, litigation or administrative or judicial investigation
against the Trust involving potential damages or penalties in an uninsured
amount in excess of $100,000 in any one instance or $500,000 in the
aggregate;

(ii) any change in the location of Trust's principal office
or any change in the location of the Trust's books and records;

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<PAGE>

(iii) the occurrence of any Default or Event of Default;

(iv) the commencement or threat of any rule making or
disciplinary proceedings or any proceedings instituted by or against the
Trust in any federal, state or local court or before any governmental body
or agency, or before any arbitration board, or the promulgation of any
proceeding or any proposed or final rule which, if adversely determined,
would result in a Material Adverse Change with respect to the Trust;

(v) the commencement of any proceedings by or against the
Trust under any applicable bankruptcy, reorganization, liquidation,
rehabilitation, insolvency or other similar law now or hereafter in effect
or of any proceeding in which a receiver, liquidator, conservator, trustee
or similar official shall have been, or may be, appointed or requested for
the Trust or any of its assets;

(vi) the receipt of notice that (A) the Trust is being
placed under regulatory supervision, (B) any license, permit, charter,
registration or approval necessary for the conduct of the Trust's business
is to be, or may be, suspended or revoked, or (C) the Trust is to cease and
desist any practice, procedure or policy employed by the Trust in the
conduct of its business, and such cessation may result in a Material
Adverse Change with respect to the Trust; or

(vii) any other event, circumstance or condition that has
resulted, or has a material possibility of resulting, in a Material Adverse
Change in respect of the Trust.

(f) FURTHER ASSURANCES. The Trust will file all necessary financing
statements, assignments or other instruments, and any amendments or continuation
statements relating thereto, necessary to be kept and filed in such manner and
in such places as may be required by law to preserve and protect fully the Lien
and security interest in, and all rights of the Indenture Collateral Agent with
respect to the Indenture Property, under the Indenture. In addition, the Trust
shall, upon the request of Financial Security (so long as no Insurer Default has
occurred and is continuing), from time to time, execute, acknowledge and deliver
and, if necessary, file such further instruments and take such further action as
may be reasonably necessary to effectuate the intention, performance and
provisions of the Transaction Documents to which the Trust is a party or to
protect the interest of the Indenture Collateral Agent in the Indenture Property
under the Indenture. The Trust agrees to cooperate with the Rating Agencies in
connection with any review of the Transaction which may be undertaken by the
Rating Agencies after the date hereof.

(g) MAINTENANCE OF LICENSES. The Trust shall maintain all licenses,
permits, charters and registrations which are material to the performance by the
Trust of its obligations under this Agreement and each other Transaction
Document to which the Trust is a party or by which the Trust is bound.

(h) RETIREMENT OF NOTES. The Trust shall, upon retirement of the
Notes, furnish to Financial Security a notice of such retirement, and, upon
such retirement and the

13
<PAGE>

expiration of the term of the Note Policy, surrender the Note Policy to
Financial Security for cancellation.

(i) DISCLOSURE DOCUMENT. Each Prospectus delivered with respect to
the Notes shall clearly disclose that the Note Policy is not covered by the
property/casualty insurance security fund specified in Article 76 of the New
York Insurance Law. In addition, each Prospectus delivered with respect to the
Notes which include financial statements of Financial Security prepared in
accordance with generally accepted accounting principles (other than a
Prospectus that only incorporates such financial statements by reference) shall
include the following statement immediately preceding such financial statements:

The New York State Insurance Department recognizes only
statutory accounting practices for determining and reporting
the financial condition and results of operations of an
insurance company, for determining its solvency under the
New York Insurance Law, and for determining whether its
financial condition warrants the payment of a dividend to
its stockholders. No consideration is given by the New York
State Insurance Department to financial statements prepared
in accordance with generally accepted accounting principles
in making such determinations.

(j) SPECIAL PURPOSE ENTITY.

(i) The Trust shall conduct its business solely in its own
name through its duly authorized officers or agents so as not to mislead
others as to the identity of the entity with which those others are
concerned, and particularly will use its best efforts to avoid the
appearance of conducting business on behalf of Arcadia Financial, the
Seller, or any other Affiliates thereof or that the assets of the Trust are
available to pay the creditors of Arcadia Financial, the Seller, or any
other Affiliates thereof. Without limiting the generality of the foregoing,
all oral and written communications, including, without limitation,
letters, invoices, purchase orders, contracts, statements and loan
applications, will be made solely in the name of the Trust.

(ii) The Trust shall maintain trust records and books of
account separate from those of Arcadia Financial, the Seller and Affiliates
of any of them.

(iii) The Trust shall obtain proper authorization from its
equity owners of all trust action requiring such authorization, and copies
of each such authorization and the minutes or other written summary of each
such meeting shall be delivered to Financial Security within two weeks of
such authorization or meeting as the case may be.

(iv) Although the organizational expenses of the Trust have
been paid by Arcadia Financial, operating expenses and liabilities of the
Trust shall be paid from its own funds.

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<PAGE>

(v) The annual financial statements of the Trust shall disclose
the effects of the Trust's transactions in accordance with generally
accepted accounting principles and shall disclose that the assets of the
Trust are not available to pay creditors of Arcadia Financial, the
Seller or any Affiliate of any of them.

(vi) The resolutions, agreements and other instruments of the
Trust underlying the transactions described in this Agreement and in the
other Transaction Documents shall be continuously maintained by the
Trust as official records of the Trust separately identified and held
apart from the records of Arcadia Financial, the Seller and each
Affiliate of any of them.

(vii) The Trust shall maintain an arm's-length relationship with
Arcadia Financial, the Seller and each Affiliate of any of them and will
not hold itself out as being liable for the debts of any such Person.

(viii) The Trust shall keep its assets and its liabilities wholly
separate from those of all other entities, including, but not limited
to, Arcadia Financial, the Seller and each Affiliate of any of them
except, in each case, as contemplated by the Transaction Documents.

(k) CLOSING DOCUMENTS. The Trust shall provide or cause to be provided
to Financial Security an executed original copy of each document executed in
connection with the Transaction within 10 days after the Closing Date, except
that the Seller shall cause a copy of the Trust Agreement, the Sale and
Servicing Agreement, the Series 1999-A Supplement, the Indenture, the
Administration Agreement and each Transaction Document to which Financial
Security is a party to be provided to Financial Security on the Closing Date.

(l) TAX MATTERS. The Trust will take all actions necessary to ensure
that, for federal and state income tax purposes, the Trust is not taxable as
an association (or publicly traded partnership) or taxable as a corporation.

(m) SECURITIES LAWS. The Trust shall comply in all material respects
with all applicable provisions of state and federal securities laws,
including blue sky laws and the Securities Act, the Exchange Act and the
Investment Company Act and all rules and regulations promulgated thereunder
for which non-compliance would result in a Material Adverse Change with
respect to the Trust.

(n) INCORPORATION OF COVENANTS. The Trust agrees to comply with each
of the covenants of the Trust set forth in the Transaction Documents and
hereby incorporates such covenants by reference as if each were set forth
herein.

Section 2.03 NEGATIVE COVENANTS OF THE TRUST. The Trust hereby agrees
that during the Term of this Agreement, unless Financial Security shall
otherwise give its prior express written consent:

15
<PAGE>

(a) WAIVER; AMENDMENTS; ETC. The Trust shall not waive, modify,
amend, supplement or consent to any waiver, modification, amendment of or
supplement to, any of the provisions of the Certificate of Trust, the Trust
Agreement or any of the other Transaction Documents unless, if no Insurer
Default shall have occurred and be continuing, Financial Security shall have
consented thereto in writing.

(b) CREATION OF INDEBTEDNESS; GUARANTEES. The Trust shall not create,
incur, assume or suffer to exist any indebtedness or assume, guarantee,
endorse or otherwise be or become directly or contingently liable for the
obligations of any Person by, among other things, agreeing to purchase any
obligation of another Person, agreeing to advance funds to such Person or
causing or assisting such Person to maintain any amount of capital, except as
contemplated by the Transaction Documents.

(d) NO LIENS. The Trust shall not, except as contemplated by the
Transaction Documents, create, incur, assume or suffer to exist any Lien of any
nature upon or with respect to any of its properties or assets, now owned or
hereafter acquired, or sign or file under the Uniform Commercial Code of any
jurisdiction any financing statement that names the Trust as debtor, or sign any
security agreement authorizing any secured party thereunder to file such a
financing statement.

(e) IMPAIRMENT OF RIGHTS. The Trust shall not take any action, or
fail to take any action, if such action or failure to take action may interfere
with the enforcement of any rights under the Transaction Documents that are
material to the rights, benefits or obligations of the Indenture Trustee, the
Noteholders or Financial Security.

(f) NO MERGERS. The Trust shall not consolidate with or merge into
any Person or transfer all or any material amount of its assets to any Person
(except as contemplated by the Transaction Documents) or liquidate or dissolve.

(g) ERISA. The Trust shall not contribute or incur any obligation to
contribute to, or incur any liability in respect of, any Plan or Multiemployer
Plan.

(h) OTHER ACTIVITIES. The Trust shall not:

(i) sell, pledge, transfer, exchange or otherwise dispose
of any of its assets except as permitted under the Transaction Documents;
or

(ii) engage in any business or activity except as
contemplated by the Transaction Documents and as permitted by its
Certificate of Trust.

(i) INSOLVENCY. The Trust shall not commence any case, proceeding or
other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief

16
<PAGE>

entered with respect to it, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, consolidation or other
relief with respect to it or (B) seeking appointment of a receiver, trustee,
custodian or other similar official for it or for all or any substantial part
of its assets or make a general assignment for the benefit of its creditors.
The Trust shall not take any action in furtherance of, or indicating the
consent to, approval of, or acquiescence in any of the acts set forth above.
The Trust shall not admit in writing its inability to pay its debts.

(j) SUCCESSOR PARTIES. The Trust will not remove or replace, or
cause to be removed or replaced, the Servicer, the Indenture Trustee, the Owner
Trustee or the Administrator.

Section 2.04 REPRESENTATIONS AND WARRANTIES OF ARCADIA FINANCIAL AND
THE SELLER. Each of Arcadia Financial and the Seller represent and warrant as
of the date hereof and as of the Closing Date, as follows:

(a) DUE ORGANIZATION AND QUALIFICATION. The Seller is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Delaware, with power and authority to own its properties and to conduct
its business. The Seller is duly qualified to do business, is in good standing
and has obtained all necessary licenses, permits, charters, registrations and
approvals (together, "approvals") necessary for the conduct of its business as
currently conducted and as described in the Prospectus and the performance of
its obligations under the Transaction Documents, in each jurisdiction in which
the failure to be so qualified or to obtain such approvals would render the
Receivables in such jurisdiction or any Transaction Document unenforceable in
any respect or would otherwise have a material adverse effect upon the
Transaction.

(b) POWER AND AUTHORITY. The Seller has all necessary corporate power
and authority to conduct its business as currently conducted and as described
in the Prospectus, to execute, deliver and perform its obligations under this
Agreement and each other Transaction Document to which the Seller is a party
and to carry out the terms of each such agreement, and has full power and
authority to sell and assign the Receivables and the Other Trust Property to
the Trust and has duly authorized such sale and assignment to the Trust by
all necessary corporate action.

(c) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement and each other Transaction Document to which the Seller is a
party has been duly authorized by all necessary corporate action on the part of
the Seller and does not require any additional approvals or consents or other
action by or any notice to or filing with any Person by or on behalf of the
Seller, including, without limitation, any governmental entity or the Seller's
stockholder.

(d) NONCONTRAVENTION. None of the execution and delivery of this
Agreement and each other Transaction Document to which the Seller is a party,
the consummation of the

<PAGE>

Transaction or the satisfaction of the terms and conditions of this Agreement
and each other Transaction Document to which the Seller is a party,

(i) conflicts with or results in any breach or violation of
any provision of the charter or bylaws of the Seller or any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or
award currently in effect having applicability to the Seller or any of its
properties, including regulations issued by an administrative agency or
other governmental authority having supervisory powers over the Seller,

(ii) constitutes a default by the Seller under or a breach
of any provision of any loan agreement, mortgage, indenture or other
agreement or instrument to which the Seller is a party or by which it or
any of its properties is or may be bound or affected, or

(iii) results in or requires the creation of any Lien upon or
in respect of any of the Seller's assets except as otherwise expressly
contemplated by the Transaction Documents.

(e) PENDING LITIGATION OR OTHER PROCEEDING. There is no action,
proceeding or investigation pending, or, to the Seller's or Arcadia Financial's
best knowledge, threatened, before any court, regulatory body, administrative
agency, arbitrator or governmental agency or instrumentality having jurisdiction
over the Seller or its properties: (A) asserting the invalidity of this
Agreement or any other Transaction Document to which the Seller is a party,
(B) seeking to prevent the issuance of the Notes or the consummation of the
Transaction, (C) seeking any determination or ruling that might materially and
adversely affect the validity or enforceability of this Agreement or any other
Transaction Document to which the Seller is a party, (D) which might result in a
Material Adverse Change with respect to the Seller or (E) which might adversely
affect the federal or state tax attributes of the Notes or the Trust.

(f) VALID AND BINDING OBLIGATIONS. Each of the Transaction Documents
to which the Seller is a party, when executed and delivered by the Seller, and
assuming due authorization, execution and delivery by the other parties thereto,
will constitute the legal, valid and binding obligation of the Seller
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and general equitable principles.
The Notes, when executed, authenticated and delivered in accordance with the
Indenture, will be entitled to the benefits of the Indenture and will constitute
legal, valid and binding obligations of the Trust, enforceable in accordance
with their terms.

(g) NO CONSENTS. No consent, license, approval or authorization
from, or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any
consent, approval, waiver or notification of any creditor, lessor or other
non-governmental person, is required in connection with the execution,
delivery and performance by the Seller of this Agreement or of any other
Transaction Document to which the Seller is a party, except (in each case)
such as have been obtained and are in full force and effect.

<PAGE>

(h) COMPLIANCE WITH LAW, ETC. No practice, procedure or policy
employed or proposed to be employed by the Seller in the conduct of its business
violates any law, regulation, judgment, agreement, order or decree applicable to
the Seller which, if enforced, would result in a Material Adverse Change with
respect to the Seller.

(i) GOOD TITLE; VALID TRANSFER; ABSENCE OF LIENS; SECURITY INTEREST.
Immediately prior to the sale of the Initial Receivables and related Other Trust
Property to the Trust pursuant to the Sale and Servicing Agreement, the Seller
was the owner of, and had good and marketable title to, such property free and
clear of all Liens and Restrictions on Transferability, and had full right,
corporate power and lawful authority to assign, transfer and pledge the Initial
Receivables and the related Other Trust Property. The Sale and Servicing
Agreement constitutes a valid sale, transfer and assignment of the Other Trust
Property to the Trust enforceable against creditors of and purchasers of the
Seller. In the event that, in contravention of the intention of the parties,
the transfer of the Other Trust Property by the Seller to the Trust is
characterized as other than a sale, such transfer shall be characterized as a
secured financing, and the Trust shall have a valid and perfected first priority
security interest in the Other Trust Property free and clear of all Liens and
Restrictions on Transferability.

(j) ACCURACY OF INFORMATION. Neither the Transaction Documents nor
any documents, agreements, instruments, schedules, certificates, statements,
cash flow schedules, number runs or other writings or data (collectively, the
"Documents") furnished to Financial Security by the Seller or Arcadia Financial
with respect to either of them, their Subsidiaries, the Receivables or the
Transaction contain any statement of a material fact which was untrue or
misleading in any material respect when made (except insofar as any Document was
corrected or superseded by a subsequent Document and Financial Security has not
detrimentally relied on the original Document). There is no fact known to the
Seller or Arcadia Financial which has a material possibility of causing a
Material Adverse Change with respect to the Seller or Arcadia Financial, or
which has a material possibility of impairing the value or marketability of the
Receivables, taken as a whole, or decreasing the probability that amounts due in
respect of the Receivables will be collected as due. Since the furnishing of
the Transaction Documents, there has been no change or any development or event
involving a prospective change known to the Seller or Arcadia Financial which
would render any representation or warranty or other statement made by either of
them in any of the Transaction Documents untrue or misleading in a material
respect.

(k) COMPLIANCE WITH INVESTMENT COMPANY ACT. The Seller is not
required to be registered as an "investment company" under the Investment
Company Act.

(l) INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Seller set forth in the Transaction
Documents are (in each case) true and correct as if set forth herein.

(m) SPECIAL PURPOSE ENTITY.

(i) The capital of the Seller is adequate for the business
and undertakings of the Seller.

<PAGE>

(ii) Other than with respect to the ownership by Arcadia
Financial of the stock of the Seller and as provided in the Previous Series
Transaction Documents, the Purchase Agreement, the Sale and Servicing
Agreement, and the Spread Account Agreement, the Seller is not engaged in
any business transactions with Arcadia Financial or any Affiliate of
Arcadia Financial.

(iii) At least one director of the Seller shall be a person
who is not, and will not be, a director, officer, employee or holder of any
equity securities of Arcadia Financial or any of its Affiliates or
Subsidiaries.

(iv) The Seller's funds and assets are not, and will not be,
commingled with the funds of any other Person, except as provided in the
Transaction Documents.

(v) The by-laws of the Seller require it to maintain
(A) correct and complete minute books and records of account, and
(B) minutes of the meetings and other proceedings of its shareholders and
board of directors.

(n) SOLVENCY; FRAUDULENT CONVEYANCE. The Seller is solvent and will
not be rendered insolvent by the Transaction and, after giving effect to such
Transaction, the Seller will not be left with an unreasonably small amount of
capital with which to engage in its business. The Seller does not intend to
incur, or believe that it has incurred, debts beyond its ability to pay such
debts as they mature. The Seller does not contemplate the commencement of
insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar official
in respect of the Seller or any of its assets. The amount of consideration
being received by the Seller upon the sale of the Initial Receivables and
related Other Trust Property and contemplated to be received upon the Sale of
the Subsequent Receivables and related Other Trust Property constitutes
reasonably equivalent value and fair consideration for interest in such
Receivables and such Other Trust Property. The Seller is not transferring the
Other Trust Property to the Trust, as provided in the Transaction Documents,
with any intent to hinder, delay or defraud any of the Seller's creditors.

(o) REGISTRATION STATEMENT; PROSPECTUS. The Seller has filed with
the Securities and Exchange Commission (the "Commission") a registration
statement on Form S-3 (No. 333-48141), including a preliminary prospectus and
prospectus supplement for the registration of the Notes under the Securities
Act, has filed such amendments thereto, and such amended preliminary
prospectuses and prospectus supplements as may have been required to the date
hereof, and will file such additional amendments thereto and such amended
prospectuses and prospectus supplements as may hereafter be required. Such
registration statement (as amended, if applicable) and the prospectus, together
with the prospectus supplement relating to the Notes, constituting a part
thereof (including in each case all documents, if any, incorporated by reference
therein and the information, if any, deemed to be part thereof pursuant to the
rules and regulations of the Commission under the Securities Act (the "Rules and
Regulations"), as from time to time amended or supplemented pursuant to the
Securities Act or otherwise) are hereinafter referred to as the "Registration
Statement" and the "Prospectus," respectively, except that if any revised
prospectus or prospectus supplement shall be provided by the Seller for use in

<PAGE>

connection with the offering of the Notes which differs from the Prospectus
filed with the Commission pursuant to Rule 424 of the Rules and Regulations
(whether or not such revised prospectus is required to be filed by the Seller
pursuant to Rule 424 of the Rules and Regulations), the term "Prospectus" shall
refer to such revised prospectus and prospectus supplement from and after the
time it is first provided to the Underwriters for such use. The Registration
Statement at the time they became effective complied, and at each time that the
Prospectus is provided to the Underwriters for use in connection with the
offering or sale of any Note will comply, in all material respects with the
requirements of the Securities Act and the Rules and Regulations. The
Registration Statement and the Prospectus at the time the Registration Statement
became effective did not and on the date hereof does not, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
the Prospectus at the time it was first provided to the Underwriters for use in
connection with the offering of the Notes did not, and on the date hereof does
not, contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein in light of the circumstances
under which they were made not misleading, except that the representations and
warranties in this subparagraph shall not apply to statements in or omissions
from the Registration Statement or the Prospectus or any preliminary prospectus
made in reliance upon information furnished to the Seller in writing by
Financial Security expressly for use therein or the financial statements
(including the related notes thereto) of Financial Security.

(p) ERISA. The Seller is in compliance with ERISA and has not
incurred and does not reasonably expect to incur any liabilities to the PBGC
under ERISA in connection with any Plan or Multiemployer Plan or to contribute
now or in the future in respect of any Plan or Multiemployer Plan.

(q) PLEDGE OF SHARES. The shares of stock of the Seller which have
been pledged pursuant to the Stock Pledge Agreement constitute all of the issued
and outstanding shares of the Seller.

(r) PERFECTION OF LIENS AND SECURITY INTEREST. On the Closing Date,
the Lien and security interest in favor of the Indenture Collateral Agent with
respect to Indenture Property will be perfected by the filing of financing
statements on Form UCC-1 in each jurisdiction where such recording or filing is
necessary for the perfection thereof, the delivery of the Receivable Files for
the Receivables to the Custodian, and the establishment of the Collection
Account, the Subcollection Account, the Lockbox Account, the Pre-Funding
Account, the Reserve Account and the Note Distribution Account in accordance
with the provisions of the Transaction Documents, and no other filings in any
jurisdiction or any other actions (except as expressly provided herein) are
necessary to perfect the Collateral Agent's Lien on and security interest in the
Collateral as against any third parties.

(s) SECURITY INTEREST IN FUNDS AND INVESTMENTS. Assuming the
retention of funds in the Accounts and the acquisition of Eligible Investments
in accordance with the Transaction Documents, such funds and Eligible
Investments will be subject to a valid and

<PAGE>

perfected, first priority security interest in favor of the Collateral Agent
on behalf of the Indenture Trustee (on behalf of the Noteholders) and
Financial Security.

Section 2.05 AFFIRMATIVE COVENANTS OF ARCADIA FINANCIAL AND THE
SELLER. Each of Arcadia Financial and the Seller hereby agree that during the
Term of the Agreement, unless Financial Security shall otherwise expressly
consent in writing:

(a) COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS. The Seller will
comply with all terms and conditions of this Agreement and each other
Transaction Document to which it is a party and with all material requirements
of any law, rule or regulation applicable to it. The Seller will not cause or
permit to become effective any amendment to or modification of any of the
Transaction Documents to which it is a party unless (i) (so long as no Insurer
Default shall have occurred and be continuing) Financial Security shall have
previously approved in writing the form of such amendment or modification or
(ii) if an Insurer Default shall have occurred and be continuing, such
amendment would not adversely affect the interests of Financial Security. The
Seller shall not take any action or fail to take any action that would interfere
with the enforcement of any rights under this Agreement or the other Transaction
Documents.

(b) CORPORATE EXISTENCE. The Seller shall maintain its corporate
existence and shall at all times continue to be duly organized under the laws of
Delaware and duly qualified and duly authorized (as described in Sections
2.04(a), (b) and (c) hereof) and shall conduct its business in accordance with
the terms of its corporate charter and bylaws.

(c) FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION.
The Seller shall keep or cause to be kept in reasonable detail books and records
of account of the Seller's assets and business, and shall clearly reflect
therein the transfer of the Receivables and the Other Trust Property to the
Trust and the sale of the Receivables as a sale to the Trust of the Seller's
interest in the Receivables and the Other Trust Property. The Seller shall
furnish to Financial Security, simultaneously with the delivery of such
documents to the Trustee or the Noteholders, as the case may be, copies of all
reports, certificates, statements, financial statements or notices furnished to
the Trustee or the Noteholders, as the case may be, pursuant to the Transaction
Documents. The Seller shall furnish to Financial Security as soon as available,
and in any event within 90 days after the close of each fiscal year of the
Seller, the unaudited balance sheet of the Seller as of the end of such fiscal
year and the unaudited statements of income, changes in shareholders' equity and
cash flows of the Seller for such fiscal year, all in reasonable detail and
stating in comparative form the respective figures for the preceding fiscal
year, prepared in accordance with generally accepted accounting principles,
consistently applied.

(d) COMPLIANCE CERTIFICATE. The Seller shall deliver to Financial
Security, within 90 days after the close of each fiscal year of the Seller, a
certificate signed by an Authorized Officer of the Seller stating that:

(i) a review of the Seller's performance under the
Transaction Documents during such period has been made under such officer's
supervision; and

<PAGE>

(ii) to the best of such individual's knowledge following
reasonable inquiry, no Default or Event of Default has occurred, or if a
Default or Event of Default has occurred, specifying the nature thereof
and, if the Seller has or had a right to cure pursuant to Section 5.01,
stating in reasonable detail the steps, if any, taken or being taken by the
Seller to cure such Default or Event of Default or to otherwise comply with
the terms of the Transaction Document to which such Default or Event of
Default relates.

(iii) the financial reports submitted in accordance with
Section 2.05(c) hereof, are complete and correct in all material respects
and present fairly the financial condition and results of operations of the
Seller as of the dates and for the periods indicated, in accordance with
generally accepted accounting principles consistently applied.

(e) ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS.
The Seller shall, upon the request of Financial Security, permit Financial
Security or its authorized agents (i) to inspect the books and records of the
Seller as they may relate to the Notes, the Receivables and the Other Trust
Property, the obligations of the Seller under the Transaction Documents, the
Seller's business and the Transaction and (ii) to discuss the affairs, finances
and accounts of the Seller with any of its officers, directors and
representatives, including its Independent Accountants. Such inspections and
discussions shall be conducted during normal business hours and shall not
unreasonably disrupt the business of the Seller. The books and records of the
Seller will be maintained at the address of the Seller designated herein for
receipt of notices, unless the Seller shall otherwise advise the parties hereto
in writing.

(f) NOTICE OF MATERIAL EVENTS. The Seller shall promptly inform
Financial Security in writing of the occurrence of any of the following:

(i) the submission of any claim or the initiation of any
legal process, litigation or administrative or judicial investigation
against the Seller involving potential damages or penalties in an uninsured
amount in excess of $5,000 in any one instance or $25,000 in the aggregate;

(ii) any change in the location of Seller's principal office
or any change in the location of the Seller's books and records;

(iii) the occurrence of any Default or Event of Default;

(iv) the commencement or threat of any rule making or
disciplinary proceedings or any proceedings instituted by or against the
Seller in any federal, state or local court or before any governmental body
or agency, or before any arbitration board, or the promulgation of any
proceeding or any proposed or final rule which, if adversely determined,
would result in a Material Adverse Change with respect to the Seller or the
Trust;

(v) the commencement of any proceedings by or against the
Seller under any applicable bankruptcy, reorganization, liquidation,
rehabilitation, insolvency or other

<PAGE>

similar law now or hereafter in effect or of any proceeding in which a
receiver, liquidator, conservator, trustee or similar official shall
have been, or may be, appointed or requested for the Seller or any of
its assets;

(vi) the receipt of notice that (A) the Seller is being
placed under regulatory supervision, (B) any license, permit, charter,
registration or approval necessary for the conduct of the Seller's business
is to be, or may be, suspended or revoked, or (C) the Seller is to cease
and desist any practice, procedure or policy, employed by the Seller in the
conduct of its business, and such cessation may result in a Material
Adverse Change with respect to the Seller or the Trust; or

(vii) any other event, circumstance or condition that has
resulted, or has a material possibility of resulting, in a Material Adverse
Change in respect of the Seller, or the Trust.

(g) FURTHER ASSURANCES. The Seller will file all necessary financing
statements, assignments or other instruments, and any amendments or continuation
statements relating thereto, necessary to be kept and filed in such manner and
in such places as may be required by law to preserve and protect fully the Lien
and security interest in, and all rights of the Trust with respect to Other
Trust Property, under the Sale and Servicing Agreement. In addition, the Seller
shall, upon the request of Financial Security (so long as no Insurer Default has
occurred and is continuing), from time to time, execute, acknowledge and deliver
and, if necessary, file such further instruments and take such further action as
may be reasonably necessary to effectuate the intention, performance and
provisions of the Transaction Documents to which the Seller is a party or to
protect the interest of the Trust in the Receivables under the Sale and
Servicing Agreement. The Seller agrees to cooperate with the Rating Agencies in
connection with any review of the Transaction which may be undertaken by the
Rating Agencies after the date hereof.

(h) MAINTENANCE OF LICENSES. The Seller shall maintain all licenses,
permits, charters and registrations which are material to the performance by the
Seller of its obligations under this Agreement and each other Transaction
Document to which the Seller is a party or by which the Seller is bound.

(i) DISCLOSURE DOCUMENT. Each Prospectus delivered with respect to
the Notes shall clearly disclose that the Note Policy is not covered by the
property/casualty insurance security fund specified in Article 76 of the New
York Insurance Law. In addition, each Prospectus delivered with respect to the
Notes which includes financial statements of Financial Security prepared in
accordance with generally accepted accounting principles (other than a
Prospectus that only incorporates such financial statements by reference) shall
include the following statement immediately preceding such financial statements:

<PAGE>

Insurance Law, and for determining whether its financial condition
warrants the payment of a dividend to its stockholders. No
consideration is given by the New York State Insurance Department
to financial statements prepared in accordance with generally
accepted accounting principles in making such determinations.

(j) SPECIAL PURPOSE ENTITY.

(i) The Seller shall conduct its business solely in its own
name through its duly authorized officers or agents so as not to mislead
others as to the identity of the entity with which those others are
concerned, and particularly will use its best efforts to avoid the
appearance of conducting business on behalf of Arcadia Financial or any
other Affiliate thereof or that the assets of the Seller are available to
pay the creditors of Arcadia Financial or any Affiliate thereof. Without
limiting the generality of the foregoing, all oral and written
communications, including, without limitation, letters, invoices, purchase
orders, contracts, statements and loan applications, will be made solely in
the name of the Seller.

(ii) The Seller shall maintain corporate records and books
of account separate from those of Arcadia Financial and the other
Affiliates thereof.

(iii) The Seller shall obtain proper authorization from its
board of directors of all corporate action requiring such authorization,
meetings of the board of directors of the Seller shall be held not less
frequently than three times per annum and copies of the minutes of each
such board meeting shall be delivered to Financial Security within two
weeks of such meeting.

(iv) The Seller shall obtain proper authorization from its
shareholders of all corporate action requiring shareholder approval,
meetings of the shareholders of the Seller shall be held not less
frequently than one time per annum and copies of each such authorization
and the minutes of each such shareholder meeting shall be delivered to
Financial Security within two weeks of such authorization or meeting, as
the case may be.

(v) Although the organizational expenses of the Seller have
been paid by Arcadia Financial, operating expenses and liabilities of the
Seller shall be paid from its own funds.

(vi) The annual financial statements of the Seller shall
disclose the effects of the Seller's transactions in accordance with
generally accepted accounting principles and shall disclose that the assets
of the Seller are not available to pay creditors of Arcadia Financial or
any other Affiliate thereof.

(vii) The resolutions, agreements and other instruments of
the Seller underlying the transactions described in this Agreement and in
the other Transaction Documents shall be continuously maintained by the
Seller as official records of the Seller

<PAGE>

separately identified and held apart from the records of Arcadia Financial
and each other Affiliate thereof.

(viii) The Seller shall maintain an arm's-length relationship
with Arcadia Financial and the other Affiliates thereof and will not hold
itself out as being liable for the debts of Arcadia Financial or any
Affiliate thereof.

(ix) The Seller shall keep its assets and its liabilities
wholly separate from those of all other entities, including, but not
limited to Arcadia Financial and the other Affiliates thereof except, in
each case, as contemplated by the Transaction Documents.

(k) CLOSING DOCUMENTS. The Seller shall provide or cause to be
provided to Financial Security an executed original copy of each document
executed in connection with the Transaction within 10 days after the Closing
Date, except that the Seller shall cause a copy of the Trust Agreement, the Sale
and Servicing Agreement, the Series 1999-A Supplement, the Indenture, the
Administration Agreement and each Transaction Document to which Financial
Security is a party to be provided to Financial Security on the Closing Date.

(l) SUBSEQUENT RECEIVABLES; GOOD TITLE; VALID TRANSFER; ABSENCE OF
LIENS; SECURITY INTEREST. Immediately prior to the sale to the Trust pursuant
to a Subsequent Transfer Agreement, the Seller will be the owner of, and shall
have good and marketable title to, the Subsequent Receivables transferred
thereby and the related Other Trust Property free and clear of all Liens and
Restrictions on Transferability, and shall have full right, corporate power and
lawful authority to assign, transfer and pledge such property.

(m) INCORPORATION OF COVENANTS. The Seller agrees to comply with
each of the Seller's covenants set forth in the Transaction Documents and hereby
incorporates such covenants by reference as if each were set forth herein.

Section 2.06 NEGATIVE COVENANTS OF ARCADIA FINANCIAL AND THE SELLER.
Each of Arcadia Financial and the Seller hereby agrees that during the Term of
this Agreement, unless Financial Security shall otherwise give its prior express
written consent:

(a) WAIVER; AMENDMENTS, ETC. The Seller shall not waive, modify,
amend, supplement or consent to any waiver, modification, amendment of or
supplement to, any of the provisions of any of the Transaction Documents or
Previous Series Transaction Documents or of its certificate of incorporation or
by-laws (i) unless, if no Insurer Default shall have occurred and be
continuing, Financial Security shall have consented thereto in writing or (ii)
if an Insurer Default shall have occurred and be continuing, which would
adversely affect the interests of Financial Security.

(b) CREATION OF INDEBTEDNESS; GUARANTEES. The Seller shall not
create, incur, assume or suffer to exist any indebtedness or assume, guarantee,
endorse or otherwise be or become directly or contingently liable for the
obligations of any Person by, among other things, agreeing to purchase any
obligation of another Person, agreeing to advance funds to such Person

<PAGE>

or causing or assisting such Person to maintain any amount of capital, except as
contemplated by the Transaction Documents or as contemplated by the documents
relating to a Series of Notes.

(d) NO LIENS. The Seller shall not, except as contemplated by the
Transaction Documents or as contemplated by the documents relating to a Series
of Notes, create, incur, assume or suffer to exist any Lien of any nature upon
or with respect to any of its properties or assets, now owned or hereafter
acquired, or sign or file under the Uniform Commercial Code of any jurisdiction
any financing statement that names the Seller as debtor, or sign any security
agreement authorizing any secured party thereunder to file such a financing
statement.

(e) ISSUANCE OF STOCK. The Seller shall not issue any shares of
capital stock or rights, warrants or options in respect of its capital stock or
securities convertible into or exchangeable for its capital stock, other than
the shares of common stock which have been pledged to Financial Security under
the Stock Pledge Agreement.

(f) IMPAIRMENT OF RIGHTS. The Seller shall not take any action, or
fail to take any action, if such action or failure to take action may interfere
with the enforcement of any rights under the Transaction Documents that are
material to the rights, benefits or obligations of the Trust, the Indenture
Trustee, the Noteholders or Financial Security.

(g) NO MERGERS. The Seller shall not consolidate with or merge into
any Person or transfer all or any material amount of its assets to any Person
(except as contemplated by the Transaction Documents or the documents relating
to a Series of Notes).

(h) ERISA. The Seller shall not contribute or incur any obligation
to contribute to, or incur any liability in respect of, any Plan or
Multiemployer Plan.

(i) OTHER ACTIVITIES. The Seller shall not:

(i) sell, pledge, transfer, exchange or otherwise dispose
of any of its assets except as permitted under the Transaction Documents or
the documents relating to a Series of Notes; or

(ii) engage in any business or activity except as
contemplated by the Transaction Documents or as contemplated by the
documents relating to a Series of Notes and as permitted by its certificate
of incorporation.

(j) INSOLVENCY. The Seller shall not commence any case, proceeding
or other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect to
it, or seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, consolidation or other relief with respect to it or the Trust or
(B) seeking appointment of a receiver, trustee, custodian or other similar
official for it or for the Trust or for

<PAGE>

all or any substantial part of its assets or the Collateral related to any or
all Series, or make a general assignment for the benefit of its creditors.
The Seller shall not take any action in furtherance of, or indicating the
consent to, approval of, or acquiescence in any of the acts set forth above.
The Seller shall not admit in writing its inability to pay its debts.

(k) DIVIDENDS. The Seller shall not declare or make payment of (i)
any dividend or other distribution on any shares of its capital stock, or (ii)
any payment on account of the purchase, redemption, retirement or acquisition of
any option, warrant or other right to acquire shares of its capital stock,
unless (in each case) at the time of such declaration or payment (and after
giving effect thereto) no amount payable by the Seller under any Transaction
Document with respect to any Series is then due and owing but unpaid.

Section 2.07 REPRESENTATIONS AND WARRANTIES OF ARCADIA FINANCIAL.
Arcadia Financial represents and warrants, as of the date hereof and as of the
Closing Date, as follows:

(a) DUE ORGANIZATION AND QUALIFICATION. Arcadia Financial and each
of its Subsidiaries is a corporation, duly organized, validly existing and in
good standing under the laws of the State of its respective incorporation with
power and authority to own its properties and conduct its business. Arcadia
Financial and each of its Subsidiaries is duly qualified to do business and is
in good standing in each jurisdiction in which the failure to be so qualified
would render any of the Receivables unenforceable in any respect or would
otherwise have a material adverse effect upon the Transaction. Arcadia
Financial and each of its Subsidiaries has obtained all licenses, permits,
charters, registrations and approvals necessary for the conduct of its business
as currently conducted and as described in the Prospectus and for the
performance of its obligations under the Transaction Documents.

(b) POWER AND AUTHORITY. Arcadia Financial has all necessary
corporate power and authority to conduct its business as currently conducted and
as described in the Prospectus, to execute, deliver and perform its obligations
under this Agreement and each other Transaction Document to which it is a party
and to carry out the terms of each such agreement.

(c) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement and each other Transaction Document to which Arcadia Financial is
a party has been duly authorized by all necessary corporate action and does not
require any additional approvals or consents or other action by or any notice to
or filing with any Person, including, without limitation, any governmental
entity or Arcadia Financial's shareholders.

(d) NONCONTRAVENTION. Neither the execution and delivery of this
Agreement and each other Transaction Document to which Arcadia Financial is a
party, the consummation of the Transaction, nor the satisfaction of the terms
and conditions of this Agreement and each other Transaction Document to which
Arcadia Financial is a party,

(i) conflicts with or results in any breach or violation of
any provision of the corporate charter or bylaws of Arcadia Financial or
any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award currently in effect having

<PAGE>

applicability to Arcadia Financial or any of its properties, including
regulations issued by an administrative agency or other governmental
authority having supervisory powers over Arcadia Financial,

(ii) constitutes a default by Arcadia Financial under or a
breach of any provision of any loan agreement, mortgage, indenture or other
agreement or instrument to which Arcadia Financial or any of its
Subsidiaries is a party or by which it or any of its or their properties is
or may be bound or affected, or

(iii) results in or requires the creation of any Lien upon or
in respect of any of Arcadia Financial's assets, except as otherwise
expressly contemplated by the Transaction Documents.

(e) PENDING LITIGATION OR OTHER PROCEEDING. There is no action,
proceeding or investigation pending, or, to Arcadia Financial's best knowledge,
threatened, before any court, regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over Arcadia Financial or its
properties: (A) asserting the invalidity of this Agreement or any other
Transaction Document to which Arcadia Financial is a party, (B) seeking to
prevent the issuance of the Notes, or the consummation of the Transaction,
(C) seeking any determination or ruling that might materially and adversely
affect the validity or enforceability of, this Agreement or any other
Transaction Document to which Arcadia Financial is a party, (D) which might
result in a Material Adverse Change with respect to Arcadia Financial or
(E) which might adversely affect the federal or state tax attributes of the
Notes or the Trust.

(f) VALID AND BINDING OBLIGATIONS. The Purchase Agreement
constitutes a valid sale, transfer, and assignment of the Receivables and Other
Trust Property to the Seller, enforceable against creditors of and purchasers
from Arcadia Financial. Each of the other Transaction Documents to which
Arcadia Financial is a party when executed and delivered by Arcadia Financial,
and assuming the due authorization, execution and delivery by the other parties
thereto, will constitute the legal, valid and binding obligation of Arcadia
Financial enforceable in accordance with its respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
general equitable principles.

(g) NO CONSENTS. No consent, license, approval or authorization
from, or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any
consent, approval, waiver or notification of any creditor, lessor or other
non-governmental person, is required in connection with the execution,
delivery and performance by Arcadia Financial of this Agreement or of any
other Transaction Document to which Arcadia Financial is a party, except (in
each case) such as have been obtained and are in full force and effect.

(h) FINANCIAL STATEMENTS. The Financial Statements of Arcadia
Financial, copies of which have been furnished to Financial Security, (i) are,
as of the dates and for the periods referred to therein, complete and correct in
all material respects, (ii) present fairly the financial condition and results
of operations of Arcadia Financial as of the dates and for the

<PAGE>

periods indicated and (iii) have been prepared in accordance with generally
accepted accounting principles consistently applied, except as noted therein
(subject as to interim statements to normal year-end adjustments and the
absence of notes). Since the date of the most recent Financial Statements,
there has been no material adverse change in such financial condition or
results of operations. Except as disclosed in the Financial Statements,
Arcadia Financial is not subject to any contingent liabilities or commitments
that, individually or in the aggregate, have a reasonable likelihood of
causing a Material Adverse Change in respect of Arcadia Financial.

(i) COMPLIANCE WITH LAW, ETC. No practice, procedure or policy
employee or proposed to be employed by Arcadia Financial in the conduct of its
business violates any law, regulation, judgment, agreement, order or decree
applicable to Arcadia Financial which, if enforced, would result in a Material
Adverse Change with respect to Arcadia Financial.

(j) TAXES. Arcadia Financial has, and each of its Subsidiaries have,
filed all federal and state tax returns and paid all taxes to the extent that
such taxes have become due. Any taxes, fees and other governmental charges
payable by Arcadia Financial in connection with the Transaction, the execution
and delivery of the Transaction Documents and the issuance of the Notes have
been paid or shall have been paid at or prior to the Closing Date.

(k) ERISA. Arcadia Financial is in compliance with ERISA and has not
incurred and does not reasonably expect to incur any liabilities to the PBGC
under ERISA in connection with any Plan or Multiemployer Plan or to contribute
now or in the future in respect of any Plan or Multiemployer Plan except in
accordance with the provisions of Section 2.9(e) hereof.

(l) INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES. Arcadia
Financial represents and warrants to Financial Security that the representations
and warranties of Arcadia Financial set forth in the Transaction Documents are
(in each case) true and correct as if set forth herein.

Section 2.08 AFFIRMATIVE COVENANTS OF ARCADIA FINANCIAL. Arcadia
Financial hereby agrees that during the Term of the Agreement, unless Financial
Security shall otherwise expressly consent in writing:

(a) COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS. Arcadia
Financial will comply with all terms and conditions of this Agreement and each
other Transaction Document to which it is a party and all material requirements
of any law, rule or regulation applicable to it. Arcadia Financial will not
cause or permit to become effective any amendment to or modification of any
Transaction Document to which it is a party (i) unless, so long as no Insurer
Default shall have occurred and be continuing, Financial Security shall have
previously approved in writing the form of such amendment or modification or
(ii) if an Insurer Default shall have occurred and be continuing, such
amendment would not adversely affect the interests of Financial Security.
Arcadia Financial shall not take any action or fail to take any action that
would interfere with the enforcement of any rights under this Agreement or the
other Transaction Documents.

<PAGE>

(b) CORPORATE EXISTENCE. Arcadia Financial shall maintain its
corporate existence and shall at all times continue to be duly organized under
the laws of Minnesota and duly qualified and duly authorized (as described in
Sections 2.07(a), (b) and (c) hereof) and shall conduct its business in
accordance with the terms of its corporate charter and bylaws.

(c) FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION.
Arcadia Financial shall keep or cause to be kept in reasonable detail books and
records of account of Arcadia Financial's assets and business. Arcadia
Financial, so long as it shall be the Servicer, shall furnish to Financial
Security, simultaneously with the delivery of such documents to the Owner
Trustee, Indenture Trustee or the Noteholders, as the case may be, copies of all
reports, certificates, statements or notices furnished to the Owner Trustee,
Indenture Trustee or the Noteholders, as the case may be, pursuant to the
Transaction Documents. Arcadia Financial shall also furnish or cause to be
furnished to Financial Security:

(i) ANNUAL FINANCIAL STATEMENTS. As soon as available, and
in any event within 90 days after the close of each fiscal year of Arcadia
Financial, the audited balance sheets of Arcadia Financial and its
subsidiaries as of the end of such fiscal year and the audited consolidated
statements of income, changes in shareholders' equity and cash flows of
Arcadia Financial for such fiscal year, all in reasonable detail and
stating in comparative form the respective figures for the corresponding
date and period in the preceding fiscal year, prepared in accordance with
generally accepted accounting principles, consistently applied, and
accompanied by the certificate of Arcadia Financial's independent
accountants (which, so long as no Insurer Default shall have occurred and
be continuing, shall be acceptable to Financial Security) and by the
certificate specified in Section 2.08(d) hereof.

(ii) QUARTERLY FINANCIAL STATEMENTS. As soon as available,
and in any event within 45 days after the close of each of the first three
quarters of each fiscal year of Arcadia Financial, the unaudited
consolidated balance sheets of Arcadia Financial as of the end of such
quarter and the unaudited consolidated statements of income, changes in
shareholders' equity and cash flows of Arcadia Financial for the portion of
the fiscal year then ended, all in reasonable detail and stating in
comparative form the respective figures for the corresponding date and
period in the preceding fiscal year, prepared in accordance with generally
accepted accounting principles consistently applied (subject to normal
year-end adjustments), and accompanied by the certificate specified in
Section 2.08(d) hereof.

(iii) ACCOUNTANTS' REPORTS. Promptly upon receipt thereof,
copies of any reports submitted to Arcadia Financial by its independent
accountants in connection with any examination of the financial statements
of Arcadia Financial.

(iv) CERTAIN INFORMATION. Promptly after the filing or
sending thereof, copies of all proxy statements, financial statements,
reports and registration statements which Arcadia Financial files, or
delivers to, the IRS, the Commission, or any other

31
<PAGE>

federal government agency, authority or body which supervises the
issuance of securities by Arcadia Financial or any national securities
exchange.

(d) COMPLIANCE CERTIFICATE. Arcadia Financial shall deliver to
Financial Security within 90 days after the close of each fiscal year of Arcadia
Financial, a certificate signed by an Authorized Officer of Arcadia Financial
stating that:

(i) a review of Arcadia Financial's performance under the
Transaction Documents during such period has been made under such officer's
supervision;

(ii) to the best of such individual's knowledge following
reasonable inquiry, no Default or Event of Default has occurred, or if a
Default or Event of Default has occurred, specifying the nature thereof
and, if Arcadia Financial has or had a right to cure pursuant to Section
5.01 hereof, stating in reasonable detail the steps, if any, taken or being
taken by Arcadia Financial to cure such Default or Event of Default or to
otherwise comply with the terms of the Transaction Document to which such
Default or Event of Default relates; and

(iii) the financial statements submitted in accordance with
Section 2.08(c) hereof, as applicable, are complete and correct in all
material respects and present fairly the financial condition and results of
operations of Arcadia Financial as of the dates and for the periods
indicated, in accordance with generally accepted accounting principles
consistently applied (subject as to interim statements to normal year-end
adjustments and the absence of notes).

(e) ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS.
Arcadia Financial shall, upon the request of Financial Security, permit
Financial Security or its authorized agents (i) to inspect the books and
records of Arcadia Financial as they may relate to the Notes, the Receivables,
the obligations of Arcadia Financial as Servicer under the Transaction
Documents, its business and the Transaction and (ii) to discuss the affairs,
finances and accounts of Arcadia Financial with any of its officers, directors
and representatives, including its Independent Accountants. Such inspections and
discussions shall be conducted during normal business hours and shall not
unreasonably disrupt the business of Arcadia Financial. The books and records
of Arcadia Financial will be maintained at the address of Arcadia Financial
designated herein for receipt of notices, unless Arcadia Financial shall
otherwise advise the parties hereto in writing.

(f) NOTICE OF MATERIAL EVENTS. Arcadia Financial shall promptly
inform Financial Security in writing of the occurrence of any of the following:

(i) the submission of any claim or the initiation of any
legal process, litigation or administrative or judicial investigation
against Arcadia Financial involving potential damages or penalties in an
uninsured amount in excess of $10,000 in any one instance or $25,000 in the
aggregate;

32
<PAGE>

(ii) any change in the location of Arcadia Financial's
principal office or any change in the location of the Arcadia Financial's
books and records;

(iii) the occurrence of any Default or Event of Default;

(iv) the commencement or threat of any rule making or
disciplinary proceedings or any proceedings instituted by or against
Arcadia Financial in any federal, state or local court or before any
governmental body or agency, or before any arbitration board, or the
promulgation of any proceeding or any proposed or final rule which, if
adversely determined, would result in a Material Adverse Change with
respect to Arcadia Financial;

(v) the commencement of any proceedings by or against
Arcadia Financial under any applicable bankruptcy, reorganization,
liquidation, rehabilitation, insolvency or other similar law now or
hereafter in effect or of any proceeding in which a receiver, liquidator,
conservator, trustee or similar official shall have been, or may be,
appointed or requested for Arcadia Financial or any of its assets;

(vi) the receipt of notice that (A) Arcadia Financial is
being placed under regulatory supervision, (B) any license, permit,
charter, registration or approval necessary for the conduct of Arcadia
Financial's business is to be, or may be, suspended or revoked, or
(C) Arcadia Financial is to cease and desist any practice, procedure or
policy employed by Arcadia Financial in the conduct of its business, and
such cessation may result in a Material Adverse Change with respect to
Arcadia Financial; or

(vii) any other event, circumstance or condition that has
resulted, or has a material possibility of resulting, in a Material Adverse
Change in respect of Arcadia Financial.

(g) MAINTENANCE OF LICENSES. Arcadia Financial shall maintain all
licenses, permits, charters and registrations which are material to the
performance by Arcadia Financial of its obligations under this Agreement and
each other Transaction Document to which Arcadia Financial is a party or by
which Arcadia Financial is bound.

(h) ERISA. Arcadia Financial shall give Financial Security prompt
notice of each of the following events (but in no event more than 30 days after
the occurrence of the event): (i) an Accumulated Funding Deficiency, (ii) the
failure to make a required contribution to a Plan or Multiemployer Plan, (iii)
a Reportable Event, (iv) any action by a Commonly Controlled Entity to
terminate any Plan or withdraw from any Multiemployer Plan, (v) any action by
the PBGC to terminate or appoint a trustee to administer a Plan, (vi) the
reorganization or insolvency of any Multiemployer Plan and (vii) an aggregate
Underfunding for all Underfunded Plans in excess of $100,000. In addition,
Arcadia Financial shall promptly (but in no case more than 30 days following
issuance or receipt by the Commonly Controlled Entity) provide to Financial
Security a copy of all correspondence between a Commonly Controlled Entity and
the PBGC, IRS, Department of Labor or the administrators of a Multiemployer Plan

33
<PAGE>

relating to any of the events described in the preceding sentence or the
underfunded status, termination or possible termination of a Plan or a
Multiemployer Plan.

(i) THIRD-PARTY BENEFICIARY. Arcadia Financial agrees that Financial
Security shall have all rights of a third-party beneficiary in respect of the
Sale and Servicing Agreement, it being understood that the remedies of Financial
Security with respect to the representations and warranties set forth in Section
2.4(b) thereof and the covenants set forth in Section 3.6(a) thereof shall be
limited to the remedies set forth in the Sale and Servicing Agreement.

(j) INCORPORATION OF COVENANTS. Arcadia Financial agrees to comply
with each of Arcadia Financial's covenants set forth in the Transaction
Documents and hereby incorporates such covenants by reference as if each were
set forth herein.

Section 2.09 NEGATIVE COVENANTS OF ARCADIA FINANCIAL. Arcadia
Financial hereby agrees that during the Term of this Agreement, unless
Financial Security shall otherwise give its express written consent:

(a) RESTRICTIONS ON LIENS. Arcadia Financial shall not create, incur
or suffer to exist, or agree to create, incur or suffer to exist, or consent to
cause or permit in the future (upon the happening of a contingency or otherwise)
the creation, incurrence or existence of any Lien or Restriction on
Transferability on the Receivables and the Other Trust Property except for the
Liens in favor of the Seller, the Trust and the Indenture Collateral Agent for
the benefit of the Indenture Trustee and Financial Security contemplated by the
Transaction Documents and the Restrictions on Transferability imposed by the
Purchase Agreement and the Sale and Servicing Agreement.

(b) IMPAIRMENT OF RIGHTS. Arcadia Financial shall not take any
action, or fail to take any action, if such action or failure to take action may
interfere with the enforcement of any rights under the Transaction Documents
that are material to the rights, benefits or obligations of the Seller, the
Trust, the Indenture Trustee, the Noteholders or Financial Security.

(c) LIMITATION ON MERGERS. Arcadia Financial shall not consolidate
with or merge with or into any Person or transfer all or any material part of
its assets to any Person (except as contemplated by the Transaction Documents)
or liquidate or dissolve, provided that Arcadia Financial may consolidate with,
merge with or into, or transfer all or a material part of its assets to, another
corporation if (i) the acquiror of its assets, or the corporation surviving
such merger or consolidation, shall be organized and existing under the laws of
any state and shall be qualified to transact business in each jurisdiction in
which failure to qualify would render any Transaction Document unenforceable or
would result in a Material Adverse Change in respect of Arcadia Financial or the
Trust Property; (ii) after giving effect to such consolidation, merger or
transfer of assets, no Default or Event of Default shall have occurred or be
continuing; (iii) such acquiring or surviving entity can lawfully perform the
obligations of Arcadia Financial under the Transaction Documents and shall
expressly assume in writing all of the obligations of Arcadia Financial,
including, without limitation, its obligations under the Transaction Documents;
and (iv) such acquiring or surviving entity and the consolidated group of which
it is a part shall each

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have a net worth immediately subsequent to such consolidation, merger or
transfer of assets at least equal to the net worth of Arcadia Financial
immediately prior to such consolidation, merger or transfer of assets; and
Arcadia Financial shall give Financial Security written notice of any such
consolidation, merger or transfer of assets on the earlier of: (A) the date
upon which any publicly available filing or release is made with respect to
such action or (B) 10 Business Days prior to the date of consummation of such
action. Arcadia Financial shall furnish to Financial Security all information
requested by it that is reasonably necessary to determine compliance with
this paragraph.

(d) WAIVER; AMENDMENTS, ETC. Arcadia Financial shall not waive,
modify, amend, supplement or consent to any waiver, modification, amendment of
or supplement to, any of the provisions of any of the Transaction Documents
without the prior written consent of Financial Security (i) unless, so long as
no Insurer Default shall have occurred and be continuing, Financial Security
shall have consented thereto in writing or (ii) if an Insurer Default shall
have occurred and be continuing, which would adversely affect the interests of
Financial Security.

(e) ERISA. Arcadia Financial shall not contribute or incur any
obligation to contribute to, or incur any liability in respect of, any Plan or
Multiemployer Plan, except that Arcadia Financial may make such a contribution
or incur such a liability provided that neither Arcadia Financial nor any
Commonly Controlled Entity will:

(i) terminate any Plan so as to incur any material
liability to the PBGC;

(ii) knowingly participate in any "prohibited transaction"
(as defined in ERISA) involving any Plan or Multiemployer Plan or any trust
created thereunder which would subject any of them to a material tax or
penalty on prohibited transactions imposed under Section 4975 of the Code
or ERISA;

(iii) fail to pay to any Plan or Multiemployer Plan any
contribution which it is obligated to pay under the terms of such Plan or
Multiemployer Plan, if such failure would cause such Plan to have any
material Accumulated Funding Deficiency, whether or not waived; or

(iv) allow or suffer to exist any occurrence of a Reportable
Event, or any other event or condition, which presents a material risk of
termination by the PBGC of any Plan or Multiemployer Plan, to the extent
that the occurrence or nonoccurrence of such Reportable Event or other
event or condition is within the control of it or any Commonly Controlled
Entity.

(f) INSOLVENCY. Arcadia Financial shall not commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, consolidation or other relief
with respect to the Seller or (B) seeking appointment of a receiver, trustee,
custodian or other similar

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official for the Seller. Arcadia Financial shall not take any action in
furtherance of, or indicating the consent to, approval of, or acquiescence in
any of the acts set forth above.

ARTICLE III.

THE NOTE POLICY; REIMBURSEMENT; INDEMNIFICATION

Section 3.01 CONDITIONS PRECEDENT TO ISSUANCE OF THE NOTE POLICY.
Financial Security agrees to issue the Note Policy subject to satisfaction of
the conditions set forth below.

(a) The obligation of Financial Security to issue the Note Policy is
subject to the following having occurred or being true (as the case may be):
(i) Financial Security shall have received evidence satisfactory to it that the
Seller shall have assigned, conveyed and transferred, or caused to be assigned,
conveyed and transferred, the Initial Receivables to the Trust, (ii) the Seller
shall have created a valid security interest in, and Lien on, the Receivables in
favor of the Trust, (iii) the Trust shall have created a valid security
interest in, and Lien on, the Indenture Property in favor of the Indenture
Collateral Agent on behalf of the Indenture Trustee (on behalf of the
Noteholders) and Financial Security, (iv) the initial Premium shall have been
paid in accordance with Section 3.02 hereof, (v) the representations and
warranties of the Trust, the Seller and of Arcadia Financial and the Servicer
set forth or incorporated by reference in this Agreement shall be true and
correct on and as of the Closing Date, and (vi) each Transaction Document shall
be in full force and effect and no Default thereunder shall have occurred and be
continuing.

(b) The obligation of Financial Security to issue the Note Policy is
further subject to the condition precedent that Financial Security shall have
received on the Closing Date, or, in its sole and absolute discretion, received
the opportunity to review prior to and on the Closing Date, the following, each
dated the Closing Date and in full force and effect on such date, except as
otherwise provided herein, in form and substance satisfactory to Financial
Security and its counsel:

(i) a certificate of an Authorized Officer of each of the
Seller and Arcadia Financial stating that nothing has come to the attention
of such entity to indicate that the Registration Statement or the
Prospectus, on the date the Registration Statement became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus on any date on
which it was forwarded to the Underwriter for use in connection with the
offering of the Notes contained, or on the Closing Date contains, any
untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading;

(ii) copies, certified to be true copies by an Authorized
Officer of the Owner Trustee, of (i) the resolutions of the board of
directors of the Owner Trustee authorizing the execution, delivery and
performance by the Owner Trustee of this

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Agreement and each other Transaction Document to which the Owner Trustee
is a party and all transactions and documents contemplated hereby and
thereby, and of all other documents evidencing any other necessary
action of the Owner Trustee (which certification shall state that such
resolutions have not been modified, are in full force and effect and
constitute the only resolutions adopted by the Owner Trustee's board of
directors or any committee thereof with respect thereto and (ii) the
Certificate of Trust, certified by the Secretary of State or other
appropriate official of the State of Delaware;

(iii) copies, certified to be true copies by an Authorized
Officer of the Seller, of (i) the resolutions of the board of directors of
the Seller authorizing the execution, delivery and performance of this
Agreement and each other Transaction Document to which the Seller is a
party and all transactions and documents contemplated hereby and thereby,
and of all other documents evidencing any other necessary action of the
Seller (which certification shall state that such resolutions have not been
modified, are in full force and effect and constitute the only resolutions
adopted by the Seller's board of directors or any committee thereof with
respect thereto), (ii) the corporate charter of the Seller and (iii) the
by-laws, as amended, of the Seller;

(iv) copies, certified to be true copies by an Authorized
Officer of Arcadia Financial, of (i) the resolutions of the board of
directors of Arcadia Financial authorizing the execution, delivery and
performance of this Agreement and each other Transaction Document to which
Arcadia Financial is a party and all other transactions and documents
contemplated hereby and thereby, and of all documents evidencing any other
necessary action of Arcadia Financial (which certification shall state that
such resolutions have not been modified, are in full force and effect and
constitute the only resolutions adopted by Arcadia Financial's board of
directors or any committee thereof with respect thereto), (ii) the
corporate charter of Arcadia Financial and (iii) the by-laws, as amended,
of Arcadia Financial;

(v) a certificate of an Authorized Officer of the Owner
Trustee stating that (i) all consents, licenses and approvals necessary
for the Owner Trustee to execute, deliver and perform this Agreement, the
other Transaction Documents to which the Owner Trustee is a party and all
other documents and instruments on the part of the Owner Trustee to be
delivered pursuant hereto or thereto have been obtained, and (ii) all such
consents, licenses and approvals are in full force and effect, the Owner
Trustee has not received any notice of any proceeding for the revocation of
any such license, charter, permit or approval, and, to the Owner Trustee's
knowledge, there is no threatened action or proceeding or any basis
therefor;

(vi) a certificate of an Authorized Officer of the Seller
stating that (i) all consents, licenses and approvals necessary for the
Seller to execute, deliver and perform this Agreement, the other
Transaction Documents to which the Seller is a party and all other
documents and instruments on the part of the Seller to be delivered
pursuant hereto or thereto have been obtained, and (ii) all such consents,
licenses and approvals are in full force and effect, the Seller has not
received any notice of any proceeding for the

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<PAGE>

revocation of any such license, charter, permit or approval, and, to the
Seller's knowledge, there is no threatened action or proceeding or any
basis therefor;

(vii) a certificate of an Authorized Officer of Arcadia
Financial stating that (i) all consents, licenses and approvals necessary
for Arcadia Financial to execute, deliver and perform this Agreement, the
other Transaction Documents to which Arcadia Financial is a party and all
other documents and instruments on the part of Arcadia Financial to be
delivered pursuant hereto or thereto have been obtained, and (ii) all such
consents, licenses and approvals are in full force and effect, Arcadia
Financial has not received any notice of any proceeding for the revocation
of any such license, charter, permit or approval, and, to Arcadia
Financial's knowledge, there is no threatened action or proceeding or any
basis therefor;

(viii) a certificate of an Authorized Officer of the Owner
Trustee certifying (i) the names and true signatures of the officers of the
Owner Trustee executing and delivering this Agreement, the other
Transaction Documents to which the Owner Trustee is a party and the other
documents to be executed and delivered by the Owner Trustee hereunder and
thereunder, (ii) that approval by the Owner Trustee's equity holders of
the execution and delivery of this Agreement, the other Transaction
Documents and all other such documents to be executed and delivered, by the
Owner Trustee hereunder, has been obtained or is not required, and (iii)
that no action for the dissolution of the Owner Trustee has been adopted or
contemplated and that no such proceedings have been commenced or are
contemplated;

(ix) a certificate of an Authorized Officer of the Seller
certifying (i) the names and true signatures of the officers of the Seller
executing and delivering this Agreement, the other Transaction Documents to
which the Seller is a party and the other documents to be executed and
delivered by the Seller hereunder and thereunder, (ii) that approval by
the Seller's stockholder of the execution and delivery of this Agreement,
the other Transaction Documents and all other such documents to be executed
and delivered, by the Seller hereunder, has been obtained or is not
required, and (iii) that no resolution for the dissolution of the Seller
has been adopted or contemplated and that no such proceedings have been
commenced or are contemplated;

(x) a certificate of an Authorized Officer of Arcadia
Financial certifying (i) the names and true signatures of the officers of
Arcadia Financial executing and delivering this Agreement, the other
Transaction Documents to which Arcadia Financial is a party and the other
documents to be executed and delivered by Arcadia Financial hereunder and
thereunder, (ii) that approval by Arcadia Financial's shareholders of the
execution and delivery of this Agreement, the other Transaction Documents
and all other such documents to be executed and delivered, by Arcadia
Financial hereunder, has been obtained or is not required, and (iii) that
no resolution for the dissolution of Arcadia Financial has been adopted or
contemplated and that no such proceedings have been commenced or are
contemplated;

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(xi) a certificate of an Authorized Officer of the Trust to
the effect that (x) the representations and warranties of the Trust set
forth or incorporated by reference in this Agreement are true and correct
on and as of the Closing Date and (y) confirming that the conditions
precedent set forth herein with respect to the Trust are satisfied;

(xii) a certificate of an Authorized Officer of the Seller to
the effect that (x) the representations and warranties of the Seller set
forth or incorporated by reference in this Agreement are true and correct
on and as of the Closing Date and (y) confirming that the conditions
precedent set forth herein with respect to the Seller are satisfied;

(xiii) a certificate of an Authorized Officer of Arcadia
Financial to the effect that (x) the representations and warranties of
Arcadia Financial set forth or incorporated by reference in this Agreement
are true and correct on and as of the Closing Date, and (y) confirming that
the conditions precedent set forth herein with respect to Arcadia Financial
are satisfied;

(xiv) favorable opinions of counsel and special Texas counsel
to the Seller and Arcadia Financial in form and substance satisfactory to
Financial Security and its counsel;

(xv) a favorable opinion of counsel to each of the Trust,
the Owner Trustee, the Indenture Trustee and the Collateral Agent and the
Indenture Collateral Agent, in form and substance satisfactory to Financial
Security and its counsel;

(xvi) evidence that amounts due and payable Financial
Security under Section 3.02 of this Agreement have been paid or that
acceptable provisions therefor have been made;

(xvii) a fully executed copy of each of the Transaction
Documents;

(xviii) evidence that all actions necessary or, in the opinion
of Financial Security, desirable to perfect and protect the interests
transferred by the Sale and Servicing Agreement, the liens and security
interests created with respect to the Spread Account, the Liens and
security interest created in favor of the Indenture Collateral Agent with
respect to the Indenture Property pursuant to the Indenture, including,
without limitation, the filing of any financing statements required by
Financial Security or its counsel, have been taken;

(xix) a certificate or opinion of Independent Accountants
addressed to Financial Security in form and substance satisfactory to
Financial Security;

(xx) evidence that the Seller shall have deposited, or
caused to have been deposited, the deposits required under the Sale and
Servicing Agreement and the Spread Account Agreement, and any other
deposits required to be made on the Closing Date under the Transaction
Documents to which the Seller is a party; and

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<PAGE>

(xxi) such other documents, instruments, approvals (and, if
requested by Financial Security, certified duplicates of executed copies
thereof) or opinions as Financial Security may reasonably request.

(c) ISSUANCE OF RATINGS. Financial Security shall have received
confirmation that the risk secured by the Note Policy constitutes an investment
grade risk by Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("S&P"), and an insurable risk by Moody's Investors Service,
Inc. ("Moody's"), that the Class A-1 Notes will be rated "A-1+" by S&P and "P-1"
by Moody's and that the Class A-2 Notes, Class A-3 Notes, Class A-4 Notes and
Class A-5 Notes, when issued, will each be rated "AAA" by S&P and "Aaa" by
Moody's.

(d) DELIVERY OF DOCUMENTS. Financial Security shall have received
evidence satisfactory to it that delivery has been made to the Trust or to a
Custodian of the Receivable Files required to be so delivered pursuant to
Section 2.2 of the Sale and Servicing Agreement.

(e) NO DEFAULT. No Default or Event of Default shall have occurred
and be continuing.

(f) NO LITIGATION, ETC. No suit, action or other proceeding,
investigation, or injunction or final judgment relating thereto, shall be
pending or threatened before any court or governmental agency in which it is
sought to restrain or prohibit or to obtain damages or other relief in
connection with any of the Transaction Documents or the consummation of the
Transaction.

(g) LEGALITY. No statute, rule, regulation or order shall have been
enacted, entered or deemed applicable by any government or governmental or
administrative agency or court which would make the transactions contemplated by
any of the Transaction Documents illegal or otherwise prevent the consummation
thereof.

(h) SATISFACTION OF CONDITIONS OF UNDERWRITING AGREEMENT. All
conditions in the Underwriting Agreement to the Underwriters' obligation to
purchase the Notes (other than the issuance of the Note Policy) shall have been
concurrently satisfied.

Section 3.02 PAYMENT OF FEES AND PREMIUM.

(a) LEGAL FEES. On the Closing Date, Arcadia Financial shall pay or
cause to be paid legal fees and disbursements incurred by Financial Security in
connection with the issuance of the Note Policy up to an amount not to exceed
$20,000.00, plus disbursements.

(b) RATING AGENCY FEES. The initial fees of S&P and Moody's with
respect to the Notes and the Transaction shall be paid by Arcadia Financial in
full on the Closing Date. All periodic and subsequent fees of S&P or Moody's
with respect to, and directly allocable to, the Notes shall be for the account
of, shall be billed to, and shall be paid by Arcadia Financial. The fees for
any other rating agency shall be paid by the party requesting such other
agency's rating, unless such other agency is a substitute for S&P or Moody's in
the event that S&P or Moody's is

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<PAGE>

no longer rating the Notes, in which case the cost for such agency shall be
paid by Arcadia Financial.

(c) AUDITORS' FEES. In the event that Financial Security's auditors
are required to provide information or any consent in connection with the
Registration Statement fees therefor shall be paid by Arcadia Financial. Any
additional fees incurred by Financial Security after the Closing Date in respect
of any additional consents shall be paid by Arcadia Financial on demand.

(d) PREMIUM. In consideration of the issuance by Financial Security
of the Note Policy, Arcadia Financial shall pay Financial Security the Premium
and Premium Supplement, if any, as and when due in accordance with the terms of
the Premium Letter. The Premium and Premium Supplement, if any, paid hereunder
or under the Sale and Servicing Agreement shall be nonrefundable without regard
to whether Financial Security makes any payment under the Note Policy or any
other circumstances relating to the Notes or provision being made for payment of
the Notes prior to maturity. Although the Premium is fully earned by Financial
Security as of the Closing Date, the Premium shall be payable in periodic
installments as provided in the Premium Letter. Anything herein or in any of
the Transaction Documents notwithstanding, upon the occurrence of an Event of
Default, the entire outstanding balance of further installments of the Premium
and Premium Supplement shall be immediately due and payable. All payments of
Premium and Premium Supplement, if any, shall be made by wire transfer to an
account designated from time to time by Financial Security by written notice to
the Seller and Arcadia Financial.

Section 3.03 REIMBURSEMENT AND ADDITIONAL PAYMENT OBLIGATION. Each
of Arcadia Financial and the Trust agrees to pay to Financial Security as
follows:

(a) a sum equal to the total of all amounts paid by Financial
Security under the Note Policy;

(b) any and all charges, fees, costs and expenses which Financial
Security may reasonably pay or incur, including, but not limited to, attorneys'
and accountants' fees and expenses, in connection with (i) any accounts
established to facilitate payments under the Note Policy to the extent Financial
Security has not been immediately reimbursed on the date that any amount is paid
by Financial Security under the Note Policy, (ii) the administration,
enforcement, defense or preservation of any rights in respect of any of the
Transaction Documents, including defending, monitoring or participating in any
litigation, proceeding (including any insolvency or bankruptcy proceeding in
respect of any Transaction participant or any Affiliate thereof), restructuring
or engaging in any protective measures or monitoring activities relating to any
of the Transaction Documents, any party to any of the Transaction Documents or
the Transaction, (iii) the foreclosure against, sale or other disposition of
any collateral securing any obligations under any of the Transaction Documents
or otherwise in the discretion of Financial Security, or pursuit of any other
remedies under any of the Transaction Documents, to the extent such costs and
expenses are not recovered from such foreclosure, sale or other disposition,
(iv) any amendment, waiver or other action with respect to, or related to, any
Transaction Document whether or not executed or completed, (v) preparation of
bound volumes of the Transaction

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<PAGE>

Documents, (vi) any review or investigation made by Financial Security in
those circumstances where its approval or consent is sought under any of the
Transaction Documents, (vii) any federal, state or local tax (other than
taxes payable in respect of the gross income of Financial Security) or other
governmental charge imposed in connection with the issuance of the Note
Policy, and (viii) Financial Security reserves the right to charge a
reasonable fee as a condition to executing any amendment, waiver or consent
proposed in respect of any of the Transaction Documents (for the purpose of
this paragraph (b), costs and expenses shall include a reasonable allocation
of compensation and overhead attributable to time of employees of Financial
Security spent in connection with the actions described in the foregoing
clauses (ii) and (iii));

(c) interest on any and all amounts described in this Section 3.03
from the date payable to or paid by Financial Security until payment thereof in
full, and interest on any and all amounts described in Section 3.02, in each
case payable to Financial Security at the Late Payment Rate per annum; and

(d) any payments made by Financial Security on behalf of, or advanced
to, the Seller, Arcadia Financial, the Indenture Trustee, the Owner Trustee or
the Trust including, without limitation, any amounts payable by Arcadia
Financial in its capacity as Servicer or by the Trust, in respect of the Notes
and any other amounts owed pursuant to any Transaction Documents; and any
payments made by Financial Security as, or in lieu of, any servicing,
administration, management, trustee, custodial, collateral agency or
administrative fees payable, in the sole discretion of Financial Security to
third parties in connection with the Transaction.

All such amounts are to be immediately due and payable without demand.
Financial Security shall notify Arcadia Financial of amounts due hereunder.

Section 3.04 CERTAIN OBLIGATIONS NOT RECOURSE TO ARCADIA FINANCIAL;
RECOURSE TO TRUST PROPERTY.

(a) Notwithstanding any provision of Section 3.03 to the contrary,
the payment obligations provided in Section 3.03(a), b (iii) and (d) (to the
extent of advances to the Trust or to the Indenture Trustee in respect of
payments on the Notes), in each case, to the extent that such payment
obligations do not arise from any failure or default in the performance by
Arcadia Financial or the Seller of any of its obligations under the Transaction
Documents, and any interest on the foregoing in accordance with Section 3.03(c),
shall not be recourse to Arcadia Financial, but shall be payable in the manner
and in accordance with priorities provided in the Sale and Servicing Agreement.

(b) Financial Security covenants and agrees that it shall not be
entitled to any payment from the Trust Property with respect to amounts owed
under this Agreement other than as set forth in Section 4.6 and Section 9.1 of
the Sale and Servicing Agreement and Section 5.06 of the Indenture.

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Section 3.05 INDEMNIFICATION.

(a) INDEMNIFICATION BY ARCADIA FINANCIAL. In addition to any and all
rights of reimbursement, indemnification, subrogation and any other rights
pursuant hereto or under law or in equity, Arcadia Financial agrees to pay, and
to protect, indemnify and save harmless, Financial Security and its officers,
directors, shareholders, employees, agents and each Person, if any, who controls
Financial Security within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act from and against any and all claims, losses,
liabilities (including penalties), actions, suits, judgments, demands, damages,
costs or expenses (including, without limitation, fees and expenses of
attorneys, consultants and auditors and reasonable costs of investigations) of
any nature arising out of or relating to the Transaction by reason of:

(i) any statement, omission or action (other than of or by
Financial Security) in connection with the offering, issuance, sale or
delivery of the Notes;

(ii) the negligence, bad faith, willful misconduct,
misfeasance malfeasance or theft committed by any director, officer,
employee or agent of the Trust the Seller or Arcadia Financial in
connection with the Transaction;

(iii) the violation by the Trust, the Seller or Arcadia
Financial of any federal, state or foreign law, rule or regulation, or any
judgment, order or decree applicable to it;

(iv) the breach by the Trust, the Seller or Arcadia
Financial of any representation, warranty or covenant under any of the
Transaction Documents or the occurrence, in respect of the Trust, the
Seller or Arcadia Financial, under any of the Transaction Documents of any
event of default or any event which, with the giving of notice or the lapse
of time or both, would constitute any event of default; or

(v) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus or
in any amendment or supplement thereto or any omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as such
claims arise out of or are based upon any untrue statement or omission
(A) included in the Registration Statement or the Prospectus and furnished
by Financial Security in writing expressly for use therein (all such
information so furnished being referred to herein as "Financial Security
Information"), it being understood that the Financial Security Information
is limited to the information included under the caption "Financial
Security Assurance Inc.," and the financial statements of Financial
Security included in the Registration Statement or the Prospectus or
(B) included in the information set forth under the caption "Underwriting"
in the Prospectus.

(b) CONDUCT OF ACTIONS OR PROCEEDINGS. If any action or proceeding
(including any governmental investigation) shall be brought or asserted against
Financial Security, any officer, director, shareholder, employee or agent of
Financial Security or any Person controlling Financial Security (individually,
an "Indemnified Party" and, collectively, the "Indemnified

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<PAGE>

Parties") in respect of which indemnity may be sought from Arcadia Financial
hereunder, Financial Security shall promptly notify Arcadia Financial in
writing, and Arcadia Financial shall assume the defense thereof, including
the employment of counsel satisfactory to Financial Security and the payment
of all expenses. The Indemnified Party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof
at the expense of the Indemnified Party; PROVIDED, HOWEVER, that the fees and
expenses of such separate counsel shall be at the expense of Arcadia
Financial if (i) Arcadia Financial has agreed to pay such fees and expenses,
(ii) Arcadia Financial shall have failed to assume the defense of such
action or proceeding and employ counsel satisfactory to Financial Security in
any such action or proceeding or (iii) the named parties to any such action
or proceeding (including any impleaded parties) include both the Indemnified
Party and the Trust, the Seller or Arcadia Financial, and the Indemnified
Party shall have been advised by counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the Trust, the Seller or Arcadia Financial (in which case, if
the Indemnified Party notifies Arcadia Financial in writing that it elects to
employ separate counsel at the expense of Arcadia Financial, Arcadia
Financial shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, it being understood, however,
that Arcadia Financial shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses
of more than one separate form of attorneys at any time for the Indemnified
Parties, which firm shall be designated in writing by Financial Security).
Arcadia Financial shall not be liable for any settlement of any such action
or proceeding effected without its written consent to the extent that any
such settlement shall be prejudicial to it, but, if settled with its written
consent, or if there be a final judgment for the plaintiff in any such action
or proceeding with respect to which Arcadia Financial shall have received
notice in accordance with this subsection (c) Arcadia Financial agrees to
indemnify and hold the Indemnified Parties harmless from and against any loss
or liability by reason of such settlement or judgment.

(c) CONTRIBUTION. To provide for just and equitable contribution if
the indemnification provided by Arcadia Financial is determined to be
unavailable for any Indemnified Party (other than due to application of this
Section), Arcadia Financial shall contribute to the losses incurred by the
Indemnified Party on the basis of the relative fault of Arcadia Financial, on
the one hand, and the Indemnified Party, on the other hand.

Section 3.06 PAYMENT PROCEDURE. In the event of the incurrence by
Financial Security of any cost or expense or any payment by Financial Security
for which it is entitled to be reimbursed or indemnified as provided above
Arcadia Financial agrees to accept the voucher or other evidence of payment as
prima facie evidence of the propriety thereof and the liability therefor to
Financial Security. All payments to be made to Financial Security under this
Agreement shall be made to Financial Security in lawful currency of the United
States of America in immediately available funds to the account number provided
in the Premium Letter before 1:00 p.m. (New York, New York time) on the date
when due or as Financial Security shall otherwise direct by written notice to
Arcadia Financial. In the event that the date of any payment to Financial
Security or the expiration of any time period hereunder occurs on a day which is
not

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<PAGE>

a Business Day, then such payment or expiration of time period shall be made
or occur on the next succeeding Business Day with the same force and effect
as if such payment was made or time period expired on the scheduled date of
payment or expiration date. Payments to be made to Financial Security under
this Agreement shall bear interest at the Late Payment Rate from the date
when due to the date paid.

Section 3.07 SUBROGATION. Subject only to the priority of
payment provisions of the Sale and Servicing Agreement, each of the Trust,
the Indenture Trustee, the Seller and Arcadia Financial acknowledges that, to
the extent of any payment made by Financial Security pursuant to the Note
Policy, Financial Security is to be fully subrogated to the extent of such
payment and any additional interest due on any late payment, to the rights of
the Noteholders to any moneys paid or payable in respect of the Notes under
the Transaction Documents or otherwise. Each of the Trust, the Indenture
Trustee, the Seller and Arcadia Financial agrees to such subrogation and,
further, agrees to execute such instruments and to take such actions as, in
the sole judgment of Financial Security, are necessary to evidence such
subrogation and to perfect the rights of Financial Security to receive any
such moneys paid or payable in respect of the Notes under the Transaction
Documents or otherwise.

ARTICLE IV.

FURTHER AGREEMENTS; MISCELLANEOUS

Section 4.01 EFFECTIVE DATE: TERM OF AGREEMENT. This Agreement
shall take effect on the Closing Date and shall remain in effect until the
later of (a) such time as Financial Security is no longer subject to a claim
under the Note Policy and the Note Policy shall have been surrendered to
Financial Security for cancellation and (b) all amounts payable to Financial
Security and the Noteholders under the Transaction Documents and under the
Notes have been paid in full; PROVIDED, HOWEVER, that the provisions of
Sections 3.02, 3.03, 3.04, 3.05, 3.06 and 4.03 hereof shall survive any
termination of this Agreement.

Section 4.02 FURTHER ASSURANCES AND CORRECTIVE INSTRUMENTS. To
the extent permitted by law, each of the Trust, the Seller and Arcadia
Financial agree that it will, from time to time, execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, such
supplements hereto and such further instruments as Financial Security may
request and as may be required in Financial Security's judgment to effectuate
the intention of or facilitate the performance of this Agreement.

Section 4.03 OBLIGATIONS ABSOLUTE.

(a) The obligations of the Trust, the Seller and Arcadia Financial
hereunder shall be absolute and unconditional, and shall be paid or performed
strictly in accordance with this Agreement under all circumstances
irrespective of:

45
<PAGE>

(i) any lack of validity or enforceability of, or any
amendment or other modifications of, or waiver with respect to any of the
Transaction Documents, the Notes or the Note Policy; PROVIDED, that
Financial Security shall not have consented to any such amendment,
modification or waiver;

(ii) any exchange or release of any other obligations
hereunder;

(iii) the existence of any claim, setoff, defense, reduction,
abatement or other right which the Trust, the Seller or Arcadia Financial
may have at any time against Financial Security or any other Person;

(iv) any document presented in connection with the Note
Policy proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;

(v) any payment by Financial Security under the Note Policy
against presentation of a certificate or other document which does not
strictly comply with terms of the Note Policy;

(vi) any failure of the Seller or the Trust to receive the
proceeds from the Sale of the Notes;

(vii) any breach by the Trust, the Seller or Arcadia
Financial of any representation, warranty or covenant contained in any of
the Transaction Documents; or

(viii) any other circumstances, other than payment in full,
which might otherwise constitute a defense available to, or discharge of,
the Trust, the Seller or Arcadia Financial in respect of any Transaction
Document.

(b) The Trust, the Seller and Arcadia Financial and any and all
others who are now or may become liable for all or part of the obligations of
any of them under this Agreement agree to be bound by this Agreement and (i)
to the extent permitted by law, waive and renounce any and all redemption and
exemption rights and the benefit of all valuation and appraisement privileges
against the indebtedness and obligations evidenced by any Transaction
Document or by any extension or renewal thereof; (ii) waive presentment and
demand for payment, notices of nonpayment and of dishonor, protest of
dishonor and notice of protest; (iii) waive all notices in connection with
the delivery and acceptance hereof and all other notices in connection with
the performance, default or enforcement of any payment hereunder except as
required by the Transaction Documents other than this Agreement; (iv) waive
all rights of abatement, diminution, postponement or deduction, or to any
defense other than payment, or to any right of setoff or recoupment arising
out of any breach under any of the Transaction Documents, by any party
thereto or any beneficiary thereof, or out of any obligation at any time
owing to the Trust, the Seller or Arcadia Financial; (v) agree that its
liabilities hereunder shall, except as otherwise expressly provided in this
Section 4.03, be unconditional and without regard to any setoff, counterclaim
or the liability of any other Person for the payment hereof; (vi) agree that
any consent, waiver or forbearance hereunder with respect to an event shall
operate only for such

46
<PAGE>

event and not for any subsequent event; (vii) consent to any and all
extensions of time that may be granted by Financial Security with respect to
any payment hereunder or other provisions hereof and to the release of any
security at any time given for any payment hereunder, or any part thereof,
with or without substitution, and to the release of any Person or entity
liable for any such payment; and (viii) consent to the addition of any and
all other makers, endorsers, guarantors and other obligors for any payment
hereunder, and to the acceptance of any and all other security for any
payment hereunder, and agree that the addition of any such obligors or
security shall not affect the liability of the parties hereto for any payment
hereunder.

(c) Nothing herein shall be construed as prohibiting the Trust,
Seller or Arcadia Financial from pursuing any rights or remedies it may have
against any other Person in a separate legal proceeding.

Section 4.04 ASSIGNMENTS; REINSURANCE; THIRD-PARTY RIGHTS.

(a) This Agreement shall be a continuing obligation of the parties
hereto and shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Neither the
Trust, the Seller nor Arcadia Financial may assign its rights under this
Agreement, or delegate any of its duties hereunder, without the prior written
consent of Financial Security. Any assignment made in violation of this
Agreement shall be null and void.

(b) Financial Security shall have the right to give participations
in its rights under this Agreement and to enter into contracts of reinsurance
with respect to the Note Policy upon such terms and conditions as Financial
Security may in its discretion determine; PROVIDED, HOWEVER, that no such
participation or reinsurance agreement or arrangement shall relieve Financial
Security of any of its obligations hereunder or under the Note Policy.

(c) In addition, Financial Security shall be entitled to assign or
pledge to any bank or other lender providing liquidity or credit with respect
to the Transaction or the obligations of Financial Security in connection
therewith any rights of Financial Security under the Transaction Documents or
with respect to any real or personal property or other interests pledged to
Financial Security, or in which Financial Security has a security interest,
in connection with the Transaction.

(d) Except as provided herein with respect to participants and
reinsurers, nothing in this Agreement shall confer any right, remedy or
claim, express or implied, upon any Person, including, particularly, any
Noteholder (except to the extent provided herein and without limitation of
their rights to receive payments with respect to the Trust Property,
including without limitation payments under the Note Policy), other than
Financial Security, against the Trust, the Seller, Arcadia Financial or the
Servicer, and all the terms, covenants, conditions, promises and agreements
contained herein shall be for the sole and exclusive benefit of the parties
hereto and their successors and permitted assigns. Neither the Trustee, the
Owner Trustee nor any Noteholder shall have any right to payment from any
premiums paid or payable hereunder or from any other amounts paid by the
Seller or Arcadia Financial pursuant to Section

47
<PAGE>

3.02, 3.03 or 3.04 hereof (without limitation to the rights of the
Noteholders to receive payments with respect to the Trust Property, as
provided in the Indenture and the Trust Agreement).

Section 4.05 LIABILITY OF FINANCIAL SECURITY. Neither Financial
Security nor any of its officers, directors or employees shall be liable or
responsible for: (a) the use which may be made of the Note Policy by the
Owner Trustee or the Indenture Trustee or for any acts or omissions of the
Owner Trustee or the Indenture Trustee in connection therewith; or (b) the
validity, sufficiency, accuracy or genuineness of documents delivered to
Financial Security (or its Fiscal Agent) in connection with any claim under
the Note Policy, or of any signatures thereon, even if such documents or
signatures should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged (unless Financial Security shall have
actual knowledge thereof). In furtherance and not in limitation of the
foregoing, Financial Security (or its Fiscal Agent) may accept documents that
appear on their face to be in order, without responsibility for further
investigation.

ARTICLE V.

EVENTS OF DEFAULT; REMEDIES

Section 5.01 EVENTS OF DEFAULT. The occurrence of any of the
following events shall constitute an Event of Default hereunder:

(a) any demand for payment shall be made under the Note Policy;

(b) any representation or warranty made by the Trust, the Seller,
Arcadia Financial or the Servicer under any of the Related Documents, or in
any certificate or report furnished under any of the Related Documents, shall
prove to be untrue or incorrect in any material respect;

(c) (i) the Trust, the Seller, Arcadia Financial or the
Servicer shall fail to pay, when due, any amount payable by the Seller,
Arcadia Financial or the Servicer under any of the Related Documents (other
than payments of principal and interest on the Notes); (ii) the Trust, the
Seller, Arcadia Financial or the Servicer shall have asserted that any of the
Transaction Documents to which it is a party is not valid and binding on the
parties thereto; or (iii) any court, governmental authority or agency having
jurisdiction over any of the parties to any of the Transaction Documents or
property thereof shall find or rule that any material provision of any of the
Transaction Documents is not valid and binding on the parties thereto;

(d) the Trust, the Seller, Arcadia Financial or the Servicer shall
fail to perform or observe any other covenant or agreement contained in any
of the Related Documents (except for the obligations described under clause
(b) or (c) above) and such failure shall continue for a period of 30 days
after written notice given to the Trust, the Seller, Arcadia Financial or the
Servicer (as applicable); PROVIDED that, if such failure shall be of a nature
that it cannot be cured within 30 days, such failure shall not constitute an
Event of Default hereunder if within such 30

48
<PAGE>

day period such party shall have given notice to Financial Security of
corrective action it proposes to take, which corrective action is agreed in
writing by Financial Security to be satisfactory and such party shall
thereafter pursue such corrective action diligently until such default is
cured;

(e) there shall have occurred an "Event of Default" as specified
in Section 701(i) or 701(ii) of the Senior Note Indenture or any Supplemental
Indenture thereto or the unpaid principal amount of, premium, if any, and
accrued and unpaid interest on the Securities (as defined in the Senior Note
Indenture) shall have, upon the declaration of the holders of the Securities,
as specified in Section 702 of the Senior Note Indenture, become immediately
due and payable;

(f) the Trust shall adopt a voluntary plan of liquidation or shall
fail to pay its debts generally as they come due, or shall admit in writing
its inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors, or shall institute any proceeding seeking to
adjudicate the Trust insolvent or seeking a liquidation, or shall take
advantage of any insolvency act, or shall commence a case or other proceeding
naming the Trust as debtor under the United States Bankruptcy Code or similar
law, domestic or foreign, or a case or other proceeding shall be commenced
against the Trust under the United States Bankruptcy Code or similar law,
domestic or foreign, or any proceeding shall be instituted against the Trust
seeking liquidation of its assets and the Trust shall fail to take
appropriate action resulting in the withdrawal or dismissal of such
proceeding within 30 days or there shall be appointed or the Trust consent
to, or acquiesce in, the appointment of a receiver, liquidator, conservator,
trustee or similar official in respect of the Trust or the whole or any
substantial part of its properties or assets, or the Trust shall take any
corporate action in furtherance of any of the foregoing or the Trust
terminates pursuant to Section 9.1 of the Trust Agreement;

(g) the Trust becomes taxable as an association (or publicly traded
partnership) taxable as a corporation for federal or state income tax purposes;

(h) on any Distribution Date, the sum of Available Funds with respect
to such Distribution Date and the amounts available in the Series 1999-A Spread
Account (prior to any deposits into such Spread Account from Spread Accounts
related to any other Series) and the amount that may be withdrawn from the
Reserve Account pursuant to Section 5.1 of the Sale and Servicing Agreement is
less than the sum of the amounts payable on such Distribution Date pursuant to
clauses (i) through (viii) of Section 4.6 of the Sale and Servicing Agreement;

(i) any default in the observance or performance of any covenant or
agreement of the Trust made in the Indenture (other than a default in the
payment of the interest or principal on any Note when due) or any representation
or warranty of the Trust made in the Indenture or in any certificate or other
writing delivered pursuant thereto or in connection therewith proving to have
been incorrect in any material respect as of the time when the same shall have
been made, and such default shall continue or not be cured, or the circumstance
or condition in respect of which such misrepresentation or warranty was
incorrect shall not have been eliminated or otherwise cured, for a period of 30
days after there shall have been given, by

49
<PAGE>

registered or certified mail, to the Trust and the Indenture Trustee by
Financial Security, a written notice specifying such default or incorrect
representation or warranty and requiring it to be remedied;

(j) the Average Delinquency Ratio with respect to any
Determination Date shall have been equal to or greater than 9.08%;

(k) with respect to any Determination Date, the Cumulative Default
Rate shall be equal to or greater than the percentage set forth in Column A
of Schedule I attached hereto corresponding to such Determination Date;

(l) with respect to any Determination Date, the Cumulative Net
Loss Rate shall be equal to or greater than the percentage set forth in
Column B of Schedule I attached hereto corresponding to such Determination
Date;

(m) the occurrence of an Event of Servicing Termination under the
Sale and Servicing Agreement; or

(n) the occurrence of an "Event of Default" under and as defined
in any Insurance and Indemnity Agreement among Financial Security, Arcadia
Financial, the Seller and any other parties thereto, which "Event of Default"
is not defined as a "Portfolio Performance Event of Default" in such
Insurance and Indemnity Agreement.

Section 5.02 REMEDIES; WAIVERS.

(a) Upon the occurrence of an Event of Default, Financial Security
may exercise any one or more of the rights and remedies set forth below:

(i) declare the Premium Supplement to be immediately due
and payable, and the same shall thereupon be immediately due and payable,
whether or not Financial Security shall have declared an "Event of Default"
or shall have exercised, or be entitled to exercise, any other rights or
remedies hereunder;

(ii) exercise any rights and remedies available under the
Transaction Documents in its own capacity or in its capacity as the Person
entitled to exercise the rights of Controlling Party under the Transaction
Documents; or

(iii) take whatever action at law or in equity as may appear
necessary or desirable in its judgment to enforce performance of any
obligation of the Trust, the Seller or Arcadia Financial under the
Transaction Documents; PROVIDED, HOWEVER, that Financial Security shall not
be entitled hereunder to file any petition with respect to the Trust or the
Trust Property under any bankruptcy or insolvency law.

(b) Unless otherwise expressly provided, no remedy herein
conferred upon or reserved is intended to be exclusive of any other available
remedy, but each remedy shall be cumulative and shall be in addition to other
remedies given under the Transaction Documents or

50
<PAGE>

existing at law or in equity. No delay or failure to exercise any right or
power accruing under any Transaction Document upon the occurrence of any
Event of Default or otherwise shall impair any such right or power or shall
be construed to be a waiver thereof, but any such right and power may be
exercised from time to time and as often as may be deemed expedient. In
order to entitle Financial Security to exercise any remedy reserved to
Financial Security in this Article, it shall not be necessary to give any
notice.

(c) If any proceeding has been commenced to enforce any right or
remedy under this Agreement, and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to Financial
Security, then and in every such case the parties hereto shall, subject to
any determination in such proceeding, be restored to their respective former
positions hereunder, and, thereafter, all rights and remedies of Financial
Security shall continue as though no such proceeding had been instituted.

(d) Financial Security shall have the right, to be exercised in
its complete discretion, to waive any covenant, Default or Event of Default
by a writing setting forth the terms, conditions and extent of such waiver
signed by Financial Security and delivered to the Seller and Arcadia
Financial. Any such waiver may only be effected in writing duly executed by
Financial Security, and no other course of conduct shall constitute a waiver
of any provision hereof. Unless such writing expressly provides to the
contrary, any waiver so granted shall extend only to the specific event or
occurrence so waived and not to any other similar event or occurrence which
occurs subsequent to the date of such waiver.

ARTICLE VI.

MISCELLANEOUS

Section 6.01 AMENDMENTS, ETC. This Agreement may be amended,
modified or terminated only by written instrument or written instruments
signed by the parties hereto. No act or course of dealing shall be deemed to
constitute an amendment, modification or termination hereof.

Section 6.02 NOTICES. All demands, notices and other
communications to be given hereunder shall be in writing (except as otherwise
specifically provided herein) and shall be mailed by registered mail or
overnight carrier, personally delivered or telecopied (with confirmation by
registered mail) to the recipient as follows:

51
<PAGE>

(a) To Financial Security:

Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Attention: Transaction Oversight
Confirmation: (212) 826-0100
Telecopy Nos.: (212) 339-3518
(212) 339-3529

(in each case in which notice or other communication to Financial
Security refers to an Event of Default, a claim on the Note
Policy or with respect to which failure on the part of Financial
Security to respond shall be deemed to constitute consent or
acceptance, then a copy of such notice or other communication
should also be sent to the attention of each of the General
Counsel and the Head - Financial Guaranty Group and shall be
marked to indicate "URGENT MATERIAL ENCLOSED").

(b) To the Seller:

Arcadia Receivables Finance Corp.
7825 Washington Avenue South, Suite 410
Minneapolis, Minnesota 55439-2435
Telephone: (612) 942-9888
Telecopier: (612) 942-6730

Arcadia Financial Ltd.
7825 Washington Avenue South
Minneapolis, Minnesota 55439-2435
Telephone: (612) 942-9880
Telecopier: (612) 942-6730

(d) To the Trust:

Arcadia Automobile Receivables Trust, 1999-A
c/o Wilmington Trust Company,
as Owner Trustee
Rodney Square North, 1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telephone: (302) 651-1000
Telecopier: (302) 651-8882

52
<PAGE>

with a copy to:

Wilmington Trust Company, as Owner Trustee
Rodney Square North, 1100 North Market Street
Wilmington, Delaware 19890

A party may specify an additional or different address or addresses
by writing mailed or delivered to the other party as aforesaid. All such
notices and other communications shall be effective upon receipt.

Section 6.03 SEVERABILITY. In the event that any provision of
this Agreement shall be held invalid or unenforceable by any court of
competent jurisdiction, the parties hereto agree that such holding shall not
invalidate or render unenforceable any other provision hereof. The parties
hereto further agree that the holding by any court of competent jurisdiction
that any remedy pursued by any party hereto is unavailable or unenforceable
shall not affect in any way the ability of such party to pursue any other
remedy available to it.

Section 6.04 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

Section 6.05 CONSENT TO JURISDICTION.

(a) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES
THERETO HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE
OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK, AND ANY APPELLATE COURT
FROM ANY THEREOF, IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR
IN CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTION OR FOR
RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD OR DETERMINED IN SUCH NEW YORK STATE COURT OR
IN SUCH FEDERAL COURT. THE PARTIES HERETO AGREE THAT A FINAL JUDGMENT IN ANY
SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO HEREBY WAIVE AND
AGREE NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN
AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER OR THAT THE RELATED DOCUMENTS OR

53
<PAGE>

THE SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS.

(b) To the extent permitted by applicable law, the parties hereto
shall not seek and hereby waive the right to any review of the judgment of
any such court by any court of any other nation or jurisdiction which may be
called upon to grant an enforcement of such judgment.

(c) Arcadia Financial and the Seller hereby irrevocably appoints
and designates CT Corporation System, whose address is 1633 Broadway, New
York, New York 10019, as its true and lawful attorney and duly authorized
agent for acceptance of service of legal process. The Seller and Arcadia
Financial agrees that service of such process upon such Person shall
constitute personal service of such process upon it.

(d) Nothing contained in the Agreement shall limit or affect
Financial Security's right to serve process in any other manner permitted by
law or to start legal proceedings relating to any of the Transaction
Documents against the Seller or Arcadia Financial or its property in the
courts of any jurisdiction.

Section 6.06 CONSENT OF FINANCIAL SECURITY. In the event that
Financial Security's consent is required under any of the Transaction
Documents, the determination whether to grant or withhold such consent shall
be made by Financial Security in its sole discretion without any implied duty
towards any other Person, except as otherwise expressly provided therein.

Section 6.07 COUNTERPARTS. This Agreement may be executed in
counterparts by the parties hereto, and all such counterparts shall
constitute one and the same instrument.

Section 6.08 HEADINGS. The headings of articles and sections and
the table of contents contained in this Agreement are provided for
convenience only. They form no part of this Agreement and shall not affect
its construction or interpretation. Unless otherwise indicated, all
references to articles and sections in this Agreement refer to the
corresponding articles and sections of this Agreement.

Section 6.09 TRIAL BY JURY WAIVED. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR
IN CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTION. EACH
PARTY HERETO (A) CERTIFIES THAI NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION DOCUMENTS
TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THIS WAIVER.

54
<PAGE>

Section 6.10 LIMITED LIABILITY. No recourse under any Transaction
Document shall be had against, and no personal liability shall attach to, any
officer, employee, director, affiliate or shareholder of any party hereto, as
such, by the enforcement of any assessment or by any legal or equitable
proceeding, by virtue of any statute or otherwise in respect of any of the
Transaction Documents, the Notes or the Note Policy, it being expressly agreed
and understood that each Transaction Document is solely a corporate obligation
of each party hereto, and that any and all personal liability, either at common
law or in equity, or by statute or constitution, of every such officer,
employee, director, affiliate or shareholder for breaches by any party hereto of
any obligations under any Transaction Document is hereby expressly waived as a
condition of and in consideration for the execution and delivery of this
Agreement.

Section 6.11 LIMITED LIABILITY OF WILMINGTON TRUST COMPANY. It is
expressly understood and agreed by the parties hereto that (a) this Agreement
is executed and delivered by Wilmington Trust Company, not individually or
personally but solely as Owner Trustee on behalf of the Trust, (b) each of
the representations, undertakings and agreements herein made on the part of
the Trust is made and intended not as personal representations, undertakings
and agreements by Wilmington Trust Company, but are made and intended for the
purpose of binding only the Trust Estate, (c) nothing herein contained shall
be construed as creating any liability on Wilmington Trust Company,
individually or personally, to perform any covenant of the Trust either
expressed or implied contained herein, all such liability, if any, being
expressly waived by the parties hereto and by any person claiming by, through
or under such parties and (d) under no circumstances shall Wilmington Trust
Company be personally liable for the payment of any indebtedness or expenses
of the Trust or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Trust under
this Agreement.

Section 6.12 ENTIRE AGREEMENT. This Agreement and the Note Policy
set forth the entire agreement between the parties with respect to the
subject matter thereof, and this Agreement supersedes and replaces any
agreement or understanding that may have existed between the parties prior to
the date hereof in respect of such subject matter.

55
<PAGE>

IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Insurance and Indemnity Agreement, all as of the day and year
first above written.

FINANCIAL SECURITY ASSURANCE INC.

By: /s/ DAN FARRELL
-----------------------------------
Authorized Officer

ARCADIA AUTOMOBILE RECEIVABLES
TRUST, 1999-A

By: Wilmington Trust Company, as Owner
Trustee under the Trust Agreement

By: /s/ THOMAS P. LASKARIS
-----------------------------------

ARCADIA FINANCIAL LTD.

By: /s/ JOHN A WITHAM
-----------------------------------
Name: John A. Witham
Title: Executive Vice President and
Chief Financial Officer

ARCADIA RECEIVABLES FINANCE CORP.

By: /s/ JOHN A WITHAM
-----------------------------------
Name: John A. Witham
Title: Senior Vice President and
Chief Financial Officer
<PAGE>

SCHEDULE I

<TABLE>
<CAPTION>
Determination Date* Cumulative Default Rate Cumulative Net Loss Rate
(month) (Column A) (Column B)
<S> <C> <C>
.0 to 3 2.66% 1.33%
3 to 6 5.32% 2.66%
6 to 9 7.71% 3.85%
9 to 12 9.84% 4.92%
12 to 15 12.68% 6.34%
15 to 18 15.25% 7.63%
18 to 21 17.50% 8.75%
21 to 24 19.45% 9.73%
24 to 27 20.47% 10.24%
27 to 30 21.29% 10.65%
30 to 33 22.01% 11.01%
33 to 36 22.63% 11.32%
36 to 39 22.93% 11.47%
39 to 42 23.16% 11.58%
42 to 45 23.36% 11.68%
45 to 48 23.52% 11.76%
48 to 51 23.65% 11.83%
51 to 54 23.76% 11.88%
54 to 57 23.84% 11.92%
57 to 60 23.91% 11.95%
60 to 63 23.95% 11.97%
63 to 66 23.98% 11.99%
66 to 69 23.99% 12.00%
69 and higher 24.00% 12.00%
</TABLE>

- ----------------
* Such Determination Date occurring after the designated calendar months
succeeding the Series 1999-A Closing Date appearing first in the column
below, and prior to or during the designated calendar months succeeding the
Series 1999-A Distribution Date appearing second in the column below.

<PAGE>

CONSULTING AGREEMENT

THIS CONSULTING AGREEMENT, herein referred to as "Agreement" made and
entered into as of the 20th day of January, 1999, by and between Arcadia
Financial Ltd., a Minnesota corporation (the "Company") and Warren Kantor
("Consultant").

WHEREAS, the Company engages in the sales finance business, and

WHEREAS, the Consultant has numerous years of experience in the
financial services accounting and finance profession, and

WHEREAS, the Company desires to engage Consultant to perform certain
consulting services for the Company, and

WHEREAS, Consultant is seeking such engagement, and

WHEREAS, the parties desire to set forth the terms and conditions of
consulting services to be provided by Consultant to the Company.

NOW, THEREFORE, in consideration of the promises and the mutual benefits
which will accrue to the parties to this Agreement, it is mutually understood
and agreed as follows:

1. DESCRIPTION OF SERVICES. Consultant shall furnish and perform the
consulting services pertinent to the operations of the Company which are
specifically set forth in Exhibit A attached hereto and made a part hereof
(the "Consulting Services"). The Consulting Services shall be provided as
needed by the Company. Such services shall be performed to be best of the
Consultant's ability and in a competent, efficient and satisfactory manner.
The Company acknowledges that Consultant is engaged in various other
substantial business activities, that the Company's request for Consulting
Services hereunder from Consultant shall not unreasonably interfere with
Consultant's other business activities and that Consultant shall be entitled
to engage in other business for other persons or entities during the term
hereof subject to the provisions of paragraph 6 hereof.

2. PAYMENT FOR SERVICES. In consideration of the Consulting Services
to be provided by Consultant to the Company and of other obligations of
Consultant contained herein, the Company shall, concurrent with the execution
hereof, execute and deliver to Consultant a non-statutory stock option in the
form and substance of Exhibit B attached hereto (the "Option Agreement").
Pursuant to the Option Agreement, the Company shall grant to Consultant the
option to purchase up to 125,000 shares of the $.01 par value common stock of
the Company ("Common Stock") at an option price equal to $4.00 per share (the
fair market value of the Common Stock on the date of this Agreement), subject
to the terms and conditions of the Option Agreement. Such grant shall also
be subject to

<PAGE>

the approval of the shareholders of the Company at its next annual meeting.

3. REIMBURSEMENT OF EXPENSES. Consultant shall be reimbursed for any
and all travel or other expenses borne or expended by Consultant in
connection with the Consulting Services. Any reasonable expenses incurred by
Consultant in performing his duties hereunder shall be reimbursed by the
Company when he furnishes appropriate documentation.

4. TERM OF ENGAGEMENT. Subject to the terms and conditions hereof,
the term of Consultant's engagement hereunder (the "Consulting Term") shall
commence as of January 1, 1999, and shall continue until December 31, 1999,
unless earlier terminated pursuant to paragraph 5.1.

5. TERMINATION.

5.1 TERMINATION. Consultant's engagement hereunder shall terminate
upon the happening of any of the following events:

a. by the mutual written agreement of the Company and Consultant;

b. upon the death of Consultant;

c. upon 14 days' prior written notice from the Company to Consultant with
Cause (as defined below); or

d. upon 14 days' prior written notice from Consultant to the Company, if
the Company shall make a material breach of the terms of this
Agreement.

As used in this Agreement, the term "Cause" shall mean (i) any fraud,
misappropriation or embezzlement by Consultant in connection with the
business of the Company; (ii) any failure by Consultant to perform the
Consulting Services assigned hereunder, provided that Consultant shall first
have received a written notice from the Company which sets forth in
reasonable detail the manner in which Consultant has failed to perform his
duties, in which case Consultant shall have a period of thirty (30) days to
cure the same, unless the same cannot be reasonably cured within said thirty
(30) day period, in which event Consultant shall have up to an additional
ninety (90) days to cure the same; (iii) any material breach by Consultant of
this Agreement, provided that Consultant shall first have received written
notice from the Company which sets forth in reasonable detail the breach by
Consultant and Consultant shall have a period of thirty (30) days after
receipt of such notice to cure such breach, unless the same cannot be
reasonably cured within said thirty (30) day period, in which event
Consultant shall have up to an additional ninety (90) days to cure the same;
(iv) willful destruction of the property or records of the Company; (v)
dishonesty or deliberate falsification of the Company records; or (vi)
harassment (including sexual harassment) of a Company employee. The sole
remedy of the Company in the event of a breach of this Agreement

<PAGE>

shall be to terminate this Agreement.

6. PROPRIETARY INFORMATION.

6.1 PROPRIETARY INFORMATION. Except by the prior written permission
from the Company, Consultant shall never disclose or use any proprietary
information ("Proprietary Information") of the Company of which Consultant
becomes or has become informed during his past or future engagement with the
Company or any of its subsidiaries, whether or not developed by Consultant,
except as required by his duties to the Company or any of its subsidiaries.
Proprietary Information shall mean information concerning the Company, its
business or its customers that derives independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can derive economic value
from its disclosure or use. Proprietary Information includes, but is not
limited to, the following types of information and other information of a
similar nature (whether or not reduced to writing), all of which Consultant
agrees constitutes the valuable trade secrets of the Company; research,
development, know-how, plans and processes, marketing plans and techniques,
existing and contemplated products and services, customer and prospect names
and related information, prices, sales, credit scoring, personnel, computer
programs and related documentation, technical and strategic plans, and
finances. Proprietary Information also includes any information of the
foregoing nature that the Company treats as proprietary or designates as
Proprietary Information, whether or not owned or developed by the Company.
Information does not lose its Proprietary Information status merely because
it was known by a limited number of other persons or entities or because it
did not entirely originate with the Company. Such nondisclosure and non-use
shall mean, without limiting the generality of the foregoing, during the
Consulting Term and at all times thereafter, the Consultant agrees to
receive, maintain, and use Proprietary Information in the strictest
confidence and, except with the consent of the Company will not directly or
indirectly reveal, report, publish, disclose, or transfer any Proprietary
Information to any person, firm, corporation, or other entity or utilize any
Proprietary Information for the Consultant's own benefit or intended benefit
or for the benefit or intended benefit of any other person, firm, corporation
or other entity.

6.2 DELIVERY OF PROPRIETARY INFORMATION. Upon the request of the
Company or the termination of his engagement, Consultant agrees to deliver to
the Company all materials that include Proprietary Information, including
without limitation customer lists, instruction sheets, manuals, computer
programs (including source codes), letters, financial records, notes,
notebooks, reports and copies thereof, and all other materials which are
under his control and which relate to the business of the Company or its
subsidiaries. Consultant agrees and understands that the Proprietary
Information and all information contained therein shall be at all times the
property of the Company. Further, upon termination of his engagement,
Consultant agrees to make available to any person designated by the Company
all information concerning pending or preceding transactions or programs
which may affect the operation of the Company or any of its subsidiaries
about which Consultant has knowledge. The obligations of Consultant
contained in this

<PAGE>

paragraph are in addition to the obligation of Consultant to return to the
Company, upon the request of the Company or the termination of his
engagement, all property of the Company then in his possession.

6.3 SEVERABILITY. The covenants of Consultant set forth in this
paragraph 6 are separate and independent covenants for which valuable
consideration has been or will be paid or given, receipt of which is
acknowledged by Consultant, and have also been made by Consultant to induce
the Company to enter into this Agreement. Each of the aforesaid covenants
may be availed of or relied upon by the Company in any court of competent
jurisdiction.

6.4 SPECIFIC ENFORCEMENT. Consultant understands and agrees that a
breach by him of any provisions of this Agreement will cause the Company
irreparable injury and damage which cannot by compensable by receipt of money
damages. Consultant, therefore, expressly agrees that the Company shall be
entitled, in addition to any other remedies legally available, to injunctive
and/or other equitable relief to prevent a breach of this Agreement or any
part thereof.

7. OWNERSHIP OF PROPRIETARY INFORMATION. All Proprietary Information
prepared, created or assembled by Consultant or caused by Consultant to be
prepared, created or assembled in connection with this Agreement, as well as
any copyright, patent and trademark rights related thereto, shall be work
made for hire and shall at all times remain the sole and exclusive property
of the Company.

8. RELATIONSHIP OF PARTIES. Consultant is engaged by the Company only
for the purpose and to the extent set forth in this Agreement, and
Consultant's relationship to the Company shall, during the period covered by
this Agreement, be that of an independent contractor. Consultant shall not
be considered an employee of the Company and shall not be entitled to
participate in any plans, arrangements or distributions by the Company
pertaining to or in connection with any insurance, pension, stock, bonus,
profit sharing or similar employee benefits given employees of the Company.
Consultant shall be under the control of the Company as to the result of
Consultant's work only and not as to the means by which such result is
accomplished. Consultant shall not represent that Consultant has any power
to bind the Company or to assume or to create any obligation or
responsibility, express or implied, on behalf of the Company or in its name.
The Company shall not be liable for any losses, injuries, damages, or claims
of any nature whatsoever arising out of Consultant's activities or
representations under or in connection with this Agreement.

9. TAXES. Consultant acknowledges and agrees that it shall be the
obligation of Consultant to report as income, all compensation received by
Consultant hereunder and agrees to reimburse, indemnify and to hold and save
the Company harmless to the extent of any obligations imposed by law on the
Company to pay withholding taxes, social security, unemployment or disability
liability insurance or similar items in connection with any compensation paid
to Consultant.

<PAGE>

10. MISCELLANEOUS.

10.1 VALIDITY. Whenever possible, each provision of this Agreement
shall be interpreted so that it is valid under applicable law. In case any
one or more of the provisions of this Agreement is to any extent found to be
invalid, illegal or unenforceable in any respect under applicable law, that
provision shall still be effective to the extent it remains valid and the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. If, moreover,
any one or more of the restrictions contained in this Agreement is for any
reason held excessively broad, it shall be construed or rewritten
(blue-lined) so as to be enforceable to the extent of the greatest protection
to the Company compatible with applicable law.

10.2 APPLICABLE LAW. This Agreement is entered into in the State of
Minnesota and shall be construed, interpreted and enforced according to the
statutes, rules of law and court decisions of said state.

10.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Option
Agreement constitute the entire agreement of the Company and Consultant with
respect to Consultant's engagement by the Company and supersedes any other
understandings or agreements, whether written or oral. This Agreement may be
amended or superseded only by an agreement in writing by the Company and
Consultant.

10.4 NOTICES. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be sufficiently
given if and when mailed by registered or certified mail, return receipt
requested, to the Company and its executive offices and to Consultant at his
address set forth below or in either case such other address specified by a
party hereto in a written notice hereunder, or when personally delivered.

10.5 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns. This Agreement
shall also be binding upon the inure to the benefit of Consultant and his
heirs and representatives. This Agreement may not be assigned by either
party without the prior written consent of the other party.

10.6 RESERVATION OF RIGHTS. Nothing contained herein shall limit any
other rights the Company has at law in connection with Consultant's
obligations to the Company, all of which are preserved.

10.7 SURVIVAL. Notwithstanding any termination of Consultant's
engagement hereunder or any termination of this Agreement, the provisions of
paragraph 6 hereof shall survive termination of this Agreement and
termination of Consultant's engagement hereunder.

<PAGE>

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.

Arcadia Financial Ltd.

By:
Warren Kantor Richard A. Greenawalt
720 Springmill Road Its Chief Executive Officer
Villanova, PA 19185 7825 Washington Avenue South
Minneapolis, MN 55439-2435

<PAGE>

CONSULTING AGREEMENT

EXHIBIT A

CONSULTANT'S SERVICES. Consultant shall endeavor to promote the interests of
the Company and shall provide to the Company advice as to its manner of doing
business in such of the following areas as are requested by the Company:

long range planning,
tax strategies development, treasury function review,
internal audit function review,
asset liability strategy development,
asset backed securitization development,
asset backed securitization planning,
corporate development (merger, acquisition)
investor relations,
due diligence (re: acquisitions),
financing strategies,
SEC relations,
capital raising strategies,
reserving architecture,
asset quality review, and
note program strategy.

Consultant shall provide advice and services as to such other related areas
of the business of the Company as may be reasonably requested from time to
time by the Chief Executive Officer of the Company. The Company desires to
retain the services of Consultant, even though Consultant may become disabled
or incapacitated. Accordingly, notwithstanding anything to the contrary
contained herein, it is expressly understood that the inability of Consultant
from time to time to render services to the Company by reason of absences, or
temporary, or permanent illness, disability, or incapacity, or for any other
reasonable cause beyond the control of Consultant, shall not constitute a
failure by him to perform his obligations hereunder and shall not be deemed a
breach or default by him hereunder.

<PAGE>

EMPLOYMENT AGREEMENT

THIS AGREEMENT between Arcadia Financial Ltd. (the "Company") and
Robert A. Marshall (the "Executive") is dated as of this 20th day of January,
1999.

W I T N E S S E T H :

WHEREAS, the Company and the Executive have agreed to enter into
an agreement providing the Company and the Executive with certain rights to
assure the Company of continuity of management;

NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is hereby agreed by and between the Company
and the Executive as follows:

1. EFFECTIVE DATE; TERM. This Agreement shall govern the
terms and conditions of Executive's employment commencing as of February 1,
1999 (the "Effective Date").

2. PRIOR EMPLOYMENT AGREEMENT. Intentionally omitted.

3. RETENTION PERIOD. The Company agrees to continue the
Executive in its employ, and the Executive agrees to remain in the employ of
the Company, for the period (the "Retention Period") commencing on the
Effective Date and ending on the date of any termination of the Executive's
employment in accordance with Section 6 of this Agreement.

4. POSITION AND DUTIES. (a) CHANGE IN POSITION PRIOR TO
CHANGE OF CONTROL. During the Retention Period, prior to a Change of Control
(as hereinafter defined), the Executive's position (including titles),
authority and responsibilities as an officer of the Company shall be at least
commensurate with the highest of those held or exercised by him at any time
during the 90-day period immediately following the Effective Date; provided,
however, that the Chief Executive Officer of the Company may, in his sole
discretion, make changes to the Executive's position (including titles),
authority and responsibilities if he determines in good faith that such
changes are appropriate in light of the Company's business plan including,
without limitation, financial, strategic and operating objectives, and,
provided further, that in the event the Chief Executive Officer elects to
make a reduction in the Executive's position, authority or responsibilities
pursuant hereto, such changes shall not otherwise impact or in any way reduce
the Executive's compensation and benefits under Section 5 or the Company's
obligations under this Agreement including, without limitation, its
obligations under Section 7(d) hereof.

(b) CHANGE IN POSITION AFTER CHANGE OF CONTROL. In the event a
Change of Control (as hereinafter defined) occurs during the Retention Period,
thereafter the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with the highest of those held
or exercised by him at any time during the 10-day period immediately preceding
the date of the Change of Control.

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<PAGE>

(c) CHANGE OF CONTROL. As used herein the term "Change of
Control" shall mean the closing of any transaction or series of transactions
by which the Company shall merge with (whether or not the Company is the
surviving entity) or consolidate into any other person or lease or sell
substantially all of its and its subsidiaries' assets (other than asset sales
in connection with automobile loan securitization transactions) substantially
as an entirety to any other person or by which any person, entity or group
(within the meaning of Rule 13d-5 under the Securities Exchange Act of 1934)
acquires, directly or indirectly, 51% or more of the Company's outstanding
common stock (calculated on a fully diluted basis).

(d) BUSINESS TIME. During the Retention Period, the Executive
shall devote his full business time during normal business hours to the business
and affairs of the Company and use his best efforts to perform faithfully and
efficiently the responsibilities assigned to him hereunder, to the extent
necessary to discharge such responsibilities, except for

(i) reasonable time spent in serving on corporate, civic or
charitable boards or committees of the nature similar to those on which
the Executive served prior to the Effective Date, in each case only if and
to the extent not substantially interfering with the performance of such
responsibilities,

(ii) reasonable time spent in managing the Executive's
investment portfolio, but only if and to the extent not substantially
interfering with the performance of such responsibilities, and

(iii) periods of vacation and sick leave to which he is
entitled.

It is expressly understood and agreed that the Executive's continuing to
serve on any boards and committees on which he is serving or with which he is
otherwise associated immediately preceding the Effective Date shall not be
deemed to interfere with the performance of the Executive's services to the
Company. The Executive shall be entitled to serve on additional outside
boards and committees with the prior written consent by the Chief Executive
Officer of the Company.

(e) PLACE OF PERFORMANCE. During the Retention Period, the
Executive's principal places of performance will be at the Company's offices
in Minneapolis, Minnesota and at his office located in Ambler, Pennsylvania,
with the Executive dividing his time between the two locations on such basis
as shall be mutually agreeable to the Executive and the Company, except for
reasonably required travel on behalf of the Company.

5. COMPENSATION AND BENEFITS. (a) BASE SALARY. During the
first year of the Retention Period, the Executive shall receive a base salary
("Base Salary") at a monthly rate of Twelve Thousand Five Hundred and 00/100
Dollars ($12,500.00). The Base Salary shall be reviewed at least once each year
after the Effective Date, and may be increased (but not decreased) at any time
and from time to time by action of the Board or any committee thereof or any
individual having authority to take such action in accordance with the Company's
regular practices. Neither payment of the Base Salary nor payment of any
increased Base Salary after

2
<PAGE>

the Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder. For purposes of the remaining provisions of this
Agreement, the term "Base Salary" shall mean Base Salary as defined in this
Section 5(a) or, if increased after the Effective Date, the Base Salary as so
increased.

(b) ANNUAL BONUS. In addition to the Base Salary, the
Executive shall be eligible for each fiscal year of the Company during the
Retention Period an annual bonus, with the target amount at least equal to
$150,000, and vesting and payment thereof to be based on reasonable and
customary criteria consistent with the Company's practices for the Chief
Operating Officer of the Company (the "Annual Bonus"), provided however, for
the years 1999 through 2000 eighty percent (80%) of the Executive's Annual
Bonus shall be applied toward participation in the Company's 1998-2000
Restricted Stock Election Plan. If the Executive is employed for less than a
full fiscal year in either the first or final fiscal year of the Retention
Period, the Executive shall be eligible to receive an amount with respect to
such fiscal year at least equal to the amount of the Annual Bonus multiplied
by a fraction, the numerator of which is the number of days in such fiscal
year occurring during the Retention Period and the denominator of which is
365. In the event the Executive has elected to receive his or her Annual
Bonus for such year in the form of restricted shares of the Common Stock of
the Company, upon termination of the Executive's employment for any reason
the Executive shall be deemed to have revoked such election as to any then
unvested shares of such restricted stock and the Executive's pro-rated Annual
Bonus for such year shall be determined based upon the amount of the cash
Annual Bonus the Executive would have received absent such election. Each
amount payable in respect of the Executive's Annual Bonus shall be paid not
later than 90 days after the fiscal year next following the fiscal year for
which the Annual Bonus (or pro-rated portion) is earned or awarded. Neither
the Annual Bonus nor any bonus amount paid in excess thereof after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.

(c) FRINGE BENEFITS. Subject to the Company's rights under
subsection (vi) of this Section 5(c), during the Retention Period, the
Company shall provide the following fringe benefits to Executive:

(i) HEALTH, DISABILITY AND LIFE INSURANCE. Subject to
satisfaction of the eligibility requirements of such plans and the rules
and regulations applicable thereto, Executive and his family members shall
be entitled to be covered by the Company's group health and dental
insurance plans presently in effect or hereafter adopted by the Company
and applicable to employees of the Company generally and Executive shall
be entitled to be covered by the Company's group disability and life
insurance plans presently in effect or hereafter adopted by the Company
and applicable to the employees of the Company in general. The Company
shall pay the premiums associated with such coverage. In the event
Executive makes a claim against any disability policy provided to
Executive by the Company pursuant to this Section 5(c)(i) and such policy
calls for a waiting period which is applicable to Executive's claim, the
Company shall pay to Executive during such waiting period his monthly base
salary due during such period and shall provide the other benefits due him
under this Section 5(c)(i).

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<PAGE>

(ii) VACATION. Executive shall be entitled to four weeks of
vacation each year of the Retention Period, without loss of compensation
or other benefits pursuant to such general policies and procedures of the
Company as are from time to time adopted by the Company.

(iii) EXPENSE REIMBURSEMENT. Executive shall be reimbursed
by the Company for all reasonable expenses incurred by him in connection
with the conduct of the Company's business for which he furnishes
appropriate documentation.

(iv) AUTOMOBILE. The Company shall at the Company's option
either (A) provide to Executive use of an automobile to be used by
Executive in conducting the Company's business; or (B) pay to Executive a
monthly auto expense in the amount of not less than Four Hundred Dollars
($400) per month. In addition, in the event the Company provides to
Executive an automobile, the Company shall reimburse Executive (1) an
amount equal to the reasonable cost of insuring and maintaining the
automobile used by Executive for the Company's business, and (2) the cost
of maintenance and the cost of gasoline and oil used in the automobile,
and in the event of a loss under the policies insuring said automobile,
the amount of any deductible thereunder applicable to such loss. Such
insurance and the coverage and deductibles thereof shall cover both the
business and personal use of such automobile by Employee, his family and
invitees and shall include such other terms and conditions as are
reasonably acceptable to Executive. Any such reimbursements shall be made
upon the Company's receipt of invoices evidencing incurrence of such
expenses. Executive shall also be paid a monthly amount equal to the
reasonable value of personal use of such automobile, determined in
accordance with applicable federal income tax regulations.

(v) CLUB DUES. The Company shall provide to Executive and
his family a membership at Olympic Hills Golf Club and shall reimburse the
Executive for the reasonable cost of the monthly or annual dues, as the
case may be, paid by Executive to maintain such membership. The Company
shall also reimburse Executive the reasonable cost of the monthly or
annual dues, as the case may be, paid by Executive to maintain his status
as a member of the Flagship Athletic Club or of any other athletic club
having equal or lesser membership costs in lieu of such club.

(vi) REDUCTION IN BENEFITS. At any time, and from time to
time, prior to a Change of Control, the Company shall be entitled to
reduce the benefits provided to the Executive under this Subsection (c)
provided that any such reduction must be made concurrently with an equal
reduction to the fringe benefits granted to all executives holding the
office of Executive Vice President.

6. TERMINATION. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon his death. The Company may
terminate Executive's employment during the Retention Period, after having
established the Executive's Disability, by giving the Executive written notice
of its intention to terminate his employment, and his employment with the
Company shall terminate effective on the 90th day after receipt of such notice
if, within 90 days after such receipt, the Executive shall fail to return to
full-time performance of his duties.

4
<PAGE>

For purposes of this Agreement, "Disability" means disability which, after
the expiration of more than 26 weeks after its commencement, is determined to
be total and permanent by a physician selected by the Company or its insurers
and acceptable to the Executive or his legal representatives (such agreement
to acceptability not to be withheld unreasonably).

(b) VOLUNTARY TERMINATION. Notwithstanding anything in this
Agreement to the contrary, the Executive may, upon not less than 15 days advance
written notice to the Company, voluntarily terminate employment during the
Retention Period for any reason, provided that any termination by the Executive
pursuant to Section 6(d) of this Agreement on account of Good Reason (as defined
therein) shall not be treated as a voluntary termination under this
Section 6(b).

(c) CAUSE. The Company may terminate the Executive's employment
during the Retention Period for Cause. As used in this Agreement, the term
"Cause" shall mean (i) any fraud, misappropriation or embezzlement by the
Executive in connection with the business of the Company or any of its
subsidiaries, (ii) any conviction of a felony or a gross misdemeanor by the
Executive that has or can reasonably be expected to have a detrimental effect on
the Company or any of its subsidiaries, (iii) any gross neglect by the Executive
of the duties assigned to him or her hereunder which continues for a period of
90 days after written notice to the Executive of such neglect, or, (iv) any
material breach by Executive of any provisions of Section 12 of this Agreement.
It is understood and agreed that the Company may not terminate Executive's
employment for Cause in the event Executive is unable to perform his or her
duties due to partial or permanent or temporary or total disability from injury
or sickness.

(d) GOOD REASON. The Executive may terminate his employment
during the Retention Period for Good Reason. For purposes of this Agreement,
"Good Reason" means:

(i) without the Executive's prior written consent, the
Company or any of its officers takes or fails to take any action which
changes the Executive's position (including titles), authority or
responsibilities which is inconsistent with Section 4 of this Agreement or
reduces the Executive's ability to carry out his duties and
responsibilities under Section 4 of this Agreement provided that any
change which is permissible under Section 4(a) of this Agreement shall not
constitute "Good Reason"; or

(ii) any failure by the Company to comply with any of the
provisions of Section 5 of this Agreement, other than an insubstantial or
inadvertent failure remedied by the Company promptly after receipt of
notice thereof from the Executive, provided however, a reduction in the
fringe benefits granted to the Executive pursuant to Section 5(c)(v)
hereof which is consistent with reductions thereto made to the fringe
benefits granted to all executives holding the office of Executive Vice
President during the Retention Period shall not constitute "Good Reason";
or

(iii) any failure by the Company to obtain the assumption of
and agreement to perform this Agreement by a successor as contemplated by
Section 13(b) of this Agreement.

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<PAGE>

(e) WITHOUT CAUSE. The Company may terminate the Executive's
employment during the Retention Period without Cause. The Company shall give
Executive at least 15 days' advance written notice of any termination of
Executive's employment which is not for Cause and not on account of
Executive's Disability.

(f) NOTICE OF TERMINATION. Any termination of Executive's
employment by the Company for Cause or by the Executive for Good Reason
during the Retention Period shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 14(c) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice given, in the case of a termination by the Company for Cause,
within 10 business days of the Company's having actual knowledge of all of
the events giving rise to such termination, and in the case of a termination
by Executive for Good Reason, within 180 days of the Executive's having
actual knowledge of the events giving rise to such termination, and which (i)
indicates the specific termination provision in this Agreement relied upon,
(ii) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated, and (iii) if the termination date is other than the
date of receipt of such notice, specifies such termination date (which date
shall be not more than 15 days after the giving of such notice). The failure
by the Executive to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason shall not waive
any right of the Executive hereunder or preclude the Executive from asserting
such fact or circumstance in enforcing his rights hereunder.

(g) DATE OF TERMINATION. For purposes of this Agreement, the
term "Date of Termination" means (i) in the case of a termination for which a
Notice of Termination is required, the date of receipt of such Notice of
Termination or, if later, the date specified therein and (ii) in all other
cases, the actual date on which the Executive's employment terminates during
the Retention Period.

7. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH.
If the Executive's employment is terminated during the Retention Period by
reason of the Executive's death, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this Agreement other
than those obligations accrued hereunder at the date of his death, including,
for this purpose (i) the Executive's full Base Salary through the Date of
Termination, (ii) the product of the target Annual Bonus for the year in which
the death occurred and a fraction, the numerator of which is the number of days
in the current fiscal year of the Company through the Date of Termination, and
the denominator of which is 365 (the "Pro-rated Bonus Obligation"). For the
purposes of computing the Pro-rated Bonus Obligation, the Executive shall be
deemed to have revoked his election, if any, to receive such bonus in the form
of restricted stock of the Company and to have earned the maximum cash Annual
Bonus which he was eligible to earn for the year in which the termination
occurred, (iii) any compensation previously deferred by the Executive (together
with any accrued earnings thereon) and not yet paid by the Company, (iv) any
other amounts or benefits then owing to the Executive under any of the Company's
incentive compensation plans, stock option plans, restricted stock plans or
other similar plans as determined pursuant to the terms of such plans and this
Agreement and (v) any amounts or benefits owing to the Executive under any of
the Company's employee benefit plans or policies (such amounts specified in
clauses (i), (ii), (iii),

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(iv) and (v) are hereinafter referred to as "Accrued Obligations"). Unless
otherwise directed by the Executive prior to his death, all Accrued
Obligations shall be paid to the Executive's estate.

(b) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability, the Executive shall receive all Accrued
Obligations and, in addition, from the Date of Termination until the date
when the Retention Period would otherwise have terminated, shall continue to
participate in or be covered under the benefit plans and programs referred to
in Section 5(c)(i) of this Agreement or, at the Company's option, to receive
equivalent benefits by alternate means at least equal to those provided in
accordance with Section 5(c)(i) of this Agreement. Anything in this
Agreement to the contrary notwithstanding, the Executive shall be entitled
to receive disability and other benefits at least equal to the most favorable
level of benefits available to disabled employees and/or their families in
accordance with the plans, programs and policies maintained by the Company or
its affiliates relating to disability at any time during the 90-day period
immediately preceding the Effective Date.

(c) CAUSE AND VOLUNTARY TERMINATION. If, during the Retention
Period, the Executive's employment shall be terminated for Cause or
voluntarily terminated by the Executive (other than on account of Good
Reason), the Executive shall receive all Accrued Obligations other than the
Pro-rated Bonus Obligation.

(d) TERMINATION BY COMPANY OTHER THAN FOR CAUSE OR DISABILITY
AND TERMINATION BY EXECUTIVE FOR GOOD REASON. LUMP SUM PAYMENT. If, during
the Retention Period, the Company terminates the Executive's employment other
than for Cause or Disability, or the Executive terminates his employment for
Good Reason, the Executive shall receive all Accrued Obligations. In
addition, the Company shall pay to the Executive in a lump sum, a cash amount
equal to two (2) times the sum of the following amounts:

(1) the Executive's annual Base Salary at the rate specified
in Section 5(a) of this Agreement;

(2) an amount equal to the target cash Annual Bonus
determined without proration payable to the Executive in respect to
the calendar year in which the termination event occurred;

(3) an amount equal to the average annual amount paid and/or
reimbursed to the Executive pursuant to Section 5(c)(iv) hereof
during the two calendar years preceding the Date of Termination; and

(4) the present value, calculated using the annual federal
short-term rate as determined under Section 1274(d) of the Code, of
(without duplication) the annual cost to the Company (based on the
premium rates or other costs to it) of obtaining coverage equivalent
to the coverage under the plans and programs described in Section
5(c)(i) of this Agreement;

provided, however, that with respect to the life and medical
insurance coverage referred to in Section 5(c)(i) of this Agreement,
at the Executive's election made

7
<PAGE>

prior to the Date of Termination, the Company shall use its best
efforts to secure conversion coverage and shall pay the cost of
such coverage in lieu of paying the lump sum amount attributable
to such life or medical insurance coverage.

In consideration of the Company's payment of the amounts payable to the
Executive pursuant to this Subsection 7(d) and the Executive's acceptance
thereof, the Executive and the Company shall enter into a mutual release in a
form acceptable to the Executive and the Company releasing each other and
their respective agents from all claims arising from or in any way related to
the Executive's employment by the Company and the termination of such
employment relationship. The Executive shall not receive any of the amounts
payable pursuant to this Subsection 7(d) until after the Executive has
executed and delivered the release to the Company and all rescission periods
under applicable state and federal laws have expired without rescission of
the release by the Executive. The Company shall make such payment within
fifteen (15) days after the longest applicable rescission period has elapsed
without rescission.

8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise prejudice such rights as the
Executive may have with respect to awards granted to him prior to or during
the Retention Period under any stock option, restricted stock or other plans
or agreements with the Company or any of its affiliated companies except as
to restrictions on the Executive's rights to any restricted stock received by
the Executive in lieu of a cash Annual Bonus as set forth in Sections 5(b),
7(a) and 7(d) of this Agreement. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or program of
the Company or any of its affiliated companies shall be payable in accordance
with such plan or program.

9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.

(a) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment, distribution,
acceleration of vesting or other benefit which the Executive receives or
becomes entitled to receive, whether alone or in combination, and whether
pursuant to the terms of this Agreement or any other agreement, plan or
arrangement with the Company or any of its affiliates or any of their
respective successors or assigns, but determined without regard to any
additional payments required under this Section 9 (collectively, the
"Payments"), would be subject to the excise tax imposed by Section 4999 of
the Code (or any successor provision), or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of (i) all taxes with respect to the Gross-Up
Payment (including any interest or penalties imposed with respect to such
taxes) including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto), and (ii) the Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Payments.

8
<PAGE>

(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by KPMG Peat Marwick or such other nationally recognized
accounting firm then auditing the accounts of the Company (the "Accounting
Firm") which shall provide detailed supporting calculations both to the
Company and the Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is unwilling
or unable to perform its obligations pursuant to this Section 9, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the potential uncertainty
in the application of Section 4999 of the Code (or any successor provision)
at the time of the initial determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.

(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 20 business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which he gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:

(i) give the Company any information reasonably requested by the
Company relating to such claim,

(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,

(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and

9
<PAGE>

(iv) permit the Company to participate in any proceedings
relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limiting the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the Company directs
the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free
basis, and shall indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and further provided that
any extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested amount
is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.

(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of Section
9(c)) promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 9(c), a determination is made that the Executive shall
not be entitled to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.

10. FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive or others whether by
reason of the subsequent employment of the Executive or otherwise. In no
event shall the Executive be obligated to seek other employment by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement, and no amount payable under

10
<PAGE>

this Agreement shall be reduced on account of any compensation received by
the Executive from other employment. In the event that the Executive shall
in good faith give a Notice of Termination for Good Reason and it shall
thereafter be determined by mutual consent of the Executive and the Company
or by a tribunal having jurisdiction over the matter that Good Reason did not
exist, the employment of the Executive shall, unless the Company and the
Executive shall otherwise mutually agree, be deemed to have terminated, at
the date of giving such purported Notice of Termination, by mutual consent of
the Company and the Executive and, except as provided in the last preceding
sentence, the Executive shall be entitled to receive only those payments and
benefits which he would have been entitled to receive at such date otherwise
than under this Agreement.

11. DISPUTES; LEGAL FEES AND EXPENSES. (a) Any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively and finally by expedited arbitration, conducted before a
single arbitrator in Minneapolis, Minnesota, in accordance with the rules
governing employment disputes then in effect of the American Arbitration
Association. The arbitrator shall be approved by both the Company and the
Executive. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.

(b) In the event that any claim by the Executive under this
Agreement is disputed, the Company shall pay all reasonable legal fees and
expenses incurred by the Executive in pursuing such claim, provided that the
Executive is successful as to at least part of the disputed claim by reason
of arbitration, settlement or otherwise.

12. CONFIDENTIAL INFORMATION; NONCOMPETITION. (a) The
Executive shall hold in a fiduciary capacity for the benefit of the Company
all secret or confidential information, knowledge or data relating to the
Company or any of its affiliated companies, and their respective businesses,
(i) obtained by the Executive during his employment by the Company or any of
its affiliated companies and (ii) not otherwise public knowledge (other than
by reason of an unauthorized act by the Executive). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company, unless compelled pursuant to an order
of a court or other body having jurisdiction over such matter, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those designated by it.

(b) It is mutually acknowledged that by virtue of Executive's
positions with the Company and its subsidiaries, he will become possessed of
certain valuable and confidential information concerning the customers,
business methods, procedures and techniques of the Company and its
subsidiaries. It is further understood that Executive will develop contacts
among the customers of the Company and its subsidiaries, and it is mutually
understood and agreed that the customers of the Company and its subsidiaries
and the business methods and procedures and techniques developed by the
Company and its subsidiaries are valuable assets and properties of the
Company and its subsidiaries. Without limitation, it is also specifically
acknowledged that great trust on the part of the Company and its subsidiaries
will reside in Executive, since Executive's duties will include involvement
in the management, promotion and development of the Company's business.
Accordingly, the parties deem it necessary to enter into the protective
covenants set

11
<PAGE>

forth below, the terms and conditions of which have been negotiated by and
between the parties hereto:

(i) Executive agrees that during the Retention Period and until
the last day of the Non-compete Period (as hereinafter defined), he will not,
directly or indirectly, on his own behalf or on the behalf of any third
party, perform management, accounting, financial, marketing, sales,
administrative or executive duties, in any business conducted within the
Territories (as defined below) whose primary business consists of originating
or purchasing automobile or truck loans or leases from automobile or truck
dealers, packaging such loans or leases, reselling such loans or leases or
servicing such loans or leases (the "Restricted Activities") or for any
subdivision or department of any business whose primary business does not
consist of Restricted Activities, but where the primary business of such
subdivision or department consists of Restricted Activities. As used in this
Addendum, the term "Territories" means any state in which any loans or leases
originated or acquired by the Company are originated (determined by the
location of the dealers from whom the loans or leases were purchased or, in
the case of loans or leases, originated by the Company where the borrower or
lessee resides). As used herein the term "Non-compete Period" shall mean as
follows: (i) in the event the Executive's employment hereunder is terminated
pursuant to Section 6(b) or 6(c), the period commencing on the Termination
Date and continuing until the first anniversary of the Termination Date; and
(ii) in the event of the Executive's employment hereunder is terminated
pursuant to Section 6(a), 6(d) or 6(e), the period commencing on the
Termination Date and continuing until the same day of the sixth consecutive
month thereafter.

(ii) Executive agrees that during the Retention Period and until
the first anniversary of the Date of Termination, he will not, directly or
indirectly, solicit, divert, take away or attempt to solicit, divert, or take
away from the Company, or any subsidiary, any of the dealers and other
sources from which the Company or any subsidiary acquires loans or leases or
from whom the loan or lease packages are received by the Company or any
subsidiary.

(iii) Executive agrees that during the Retention Period and until
the first anniversary of the Date of Termination, he will not, directly or
indirectly, on his own behalf or in the service or on behalf of others,
solicit, divert or hire away, or in any manner attempt to solicit, divert or
hire away any person employed by the Company or any subsidiary, whether or
not such employee is a full-time employee or a temporary employee of the
Company or any subsidiary, and whether or not such employment was pursuant to
a written or oral contract of employment and whether or not such employment
was for a determined period or was at will.

(c) Executive acknowledges that the provisions of this Section
12 constitute a material inducement to the Company to enter into the
Agreement. Executive further acknowledges that the Company's remedy at law
for a breach by him of the provisions of this Section 12 will be inadequate.
Accordingly, in the event of a breach or threatened breach by Executive of
any provision of this Section 12, the Company will be entitled to injunctive
relief in addition to any other remedy it may have. If any of the provisions
of, or covenants contained in, this Section 12 are hereafter construed to be
invalid or unenforceable in any jurisdiction, the same will not affect the
remainder of the provisions or the enforceability thereof in any other
jurisdiction, which will be given full effect, without regard to the
invalidity or unenforceability in

12
<PAGE>

such other jurisdiction. If any of the provisions of, or covenants contained
in, this Section 12 are held to be unenforceable in any jurisdiction because
of the duration or geographical scope thereof, the parties agree that the
court making such determination will have the power to reduce the duration or
geographical scope of such provision or covenant and, in its reduced form,
such provision or covenant will be enforceable; provided, however, that the
determination of such court will not affect the enforceability of this
Section 12 in any other jurisdiction.

(d) In no event shall an asserted violation of the provisions
of this Section 12 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement or under any
other agreement, plan or arrangement.

13. SUCCESSORS. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.

(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors. The Company shall require any successor
to all or substantially all of the business and/or assets of the Company,
whether direct or indirect, by purchase, merger, consolidation, acquisition
of stock, or otherwise, by an agreement in form and substance satisfactory to
the Executive, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent as the Company would be required to
perform if no such succession had taken place.

14. MISCELLANEOUS. (a) APPLICABLE LAW. This Agreement shall
be governed by and construed in accordance with the laws of the State of
Minnesota, applied without reference to principles of conflict of laws.

(b) AMENDMENTS. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.

(c) NOTICES. All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:

If to the Executive: Robert A. Marshall
209 Wolf Lane
Ambler, Pennsylvania 19002

13
<PAGE>

If to the Company: Arcadia Financial Ltd.
7825 Washington Avenue South
Minneapolis, MN 55439

Attention: Secretary
(with a copy to the attention of the
General Counsel)

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be
effective when actually received by the addressee.

(d) TAX WITHHOLDING. The Company may withhold from any amounts
payable under this Agreement such Federal, State or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.

(e) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.

(f) CAPTIONS. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect.

15. ADDITIONAL CONSIDERATION. As additional consideration for
Executive's agreement to the terms and conditions hereof, the Company shall
(i) grant to Executive a stock option to purchase two hundred thousand
(200,000) shares of the Company's Common Stock at an exercise price equal to
the fair market value of the stock on the grant date; and/or (ii) make a
grant of Restricted Stock to Executive pursuant to the Company's 1998-2000
Restricted Stock Election Plan, as amended.

IN WITNESS WHEREOF, the Executive has hereunto set his hand and
the Company has caused this Agreement to be executed in its name on its
behalf, all as of the day and year first above written.

ARCADIA FINANCIAL LTD.

By:___________________________
Name:_________________________
Title:________________________

______________________________
Robert A. Marshall

<PAGE>

ARCADIA FINANCIAL LTD.

NON-STATUTORY STOCK OPTION AGREEMENT

Arcadia Financial Ltd., a Minnesota corporation (the "Company"), hereby
grants to Warren Kantor (the "Optionee"), an option (the "Option") to
purchase a total of 125,000 shares of the $.01 par value common stock
("Common Stock") of the Company (the "Shares"), at the price determined as
provided herein, and in all respects subject to the terms, definitions and
provisions hereof. The grant of this Option is subject to the approval
thereof by the shareholders of the Corporation (if such approval is required
by applicable laws or regulations) and by the Board of Directors of the
Corporation.

1. NATURE OF THE OPTION. This Non-Statutory Stock Option is not intended
to qualify as an Incentive Stock Option as defined in Section 422A of the Code.

2. EXERCISE PRICE. The exercise price is $4.00 for each share of
Common Stock, which price the Board of Directors of the Company (the "Board')
has determined is not less than the fair market value per share of the Common
Stock on the date of grant.

3. EXERCISE OF OPTION. The Option shall be exercisable during its
term as follows:

(i) RIGHT TO EXERCISE.

(a) Subject to subsections 3(i)(b), (c) and (d) below, this
Option shall be exercisable to the extent of one hundred percent (100%) of
the Shares subject to the Option commencing on December 31, 1999.
Notwithstanding the previous sentence of this subsection 3(i)(a), this Option
shall be exercisable cumulatively to the extent of one hundred percent (100%)
of the Shares subject to the Option regardless of whether otherwise
exercisable by the Optionee as of the date of the occurrence of the first to
occur of any of the following events prior to December 31, 1999:

x) the death or disability of Optionee; or

y) the termination by the Company of the Consulting
Agreement dated as of January 20, 1999, by and between the Company and
the Optionee (the "Consulting Agreement") without Cause as such term
is defined in the Consulting Agreement; or the termination of the
Consulting Agreement by Optionee due to the material breach thereof by
the Company; or

z) a "Change of Control" of the Company. As used herein
the term "Change of Control" shall mean the closing of any transaction
or series of transactions by which the Company shall merge with
(whether or not the Company is the surviving entity) or consolidate
into any other person or lease or sell substantially all of its and
its subsidiaries assets (other than asset sales in connection with
automobile loan securitization transactions) substantially as an

<PAGE>

entirety to any other person or by which any person or group (within
the meaning of Rule 13d-5 under the Securities Exchange Act of 1934)
acquires, directly or indirectly, 51% or more of the Company's
outstanding common stock (calculated on a fully diluted basis); or

and, provided further, in the event the Consulting Agreement is terminated prior
to December 31, 1999 by the mutual agreement of the Company and the Optionee,
notwithstanding the previous sentence of this subsection 3(i)(a), this Option
shall be exercisable cumulatively to the extent of that fraction of the Shares
subject to the Option the numerator of which shall be the number of days elapsed
in 1999 as of the date of such termination and the denominator of which shall be
365, rounded down to the next lower full share amount.

(b) This Option may not be exercised for a fraction of a share.

(c) In the event of Optionee's death, disability or other
termination of the Consulting Agreement, the exercisability of the Option is
governed by Sections 7, 8 and 9 below, subject to the limitations contained in
subsection 3(i)(d).

(d) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in Section 11 below.

(ii) METHOD OF EXERCISE. This Option shall be exercisable by written
notice which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with respect
to such shares of Common Stock as may be required by the Company. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the exercise price. Until certificates for the Shares
are issued to the Optionee, such Optionee shall not have any rights as a
shareholder of the Company.

No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange upon which the Shares may then be listed.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.

4. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, concurrently with the exercise of all or any portion of this
Option, deliver to the Company his Investment Representation Statement in the
form reasonably required by the Company.

5. METHOD OF PAYMENT. Payment of the exercise price shall be by (i)
cash; (ii) check; or (iii) if authorized by the Board of Directors of the
Company, the surrender of other shares of Common Stock of the Company which (A)
either have been owned by the Optionee for more that six (6) months on the date
of surrender or were not acquired, directly or indirectly, from the

<PAGE>

Company and (B) have a fair market value (as determined by the Board) on the
date of surrender equal to the exercise price of the Shares as to which the
Option is being exercised.

6. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.

7. TERMINATION OF CONSULTING AGREEMENT. In the event of termination of
the Consulting Agreement prior to January 1, 2000 (i) by Optionee other than due
to the material breach of the terms thereof by the Company or (ii) by the
Company for Cause, the Option shall terminate.

8. DISABILITY OF OPTIONEE. In the event of termination of the
Consulting Agreement, as a result of Optionee's disability, he may, but only
within one year from the date of such termination (but in no event later than
the date of expiration of the term of this Option as set forth in Section 11
below), exercise his Option to the extent he was entitled to exercise it at
the date of such termination. To the extent that Optionee was not entitled
to exercise the Option at the date of termination, or if he does not exercise
such Option (which he was entitled to exercise) within the time specified
herein, the Option shall terminate.

9. DEATH OF OPTIONEE. In the event of the death of Optionee during
the term of this Option, the Option may be exercised, at any time within one
(1) year following the date of death (but in no event later than the date of
expiration of the term of this Option as set forth in Section 11 below), by
Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent Optionee was
entitled to exercise the Option at the date of death.

10. NON-TRANSFERABILITY OF OPTION. Without the prior written consent
of the Company, this Option may not be transferred in any manner otherwise
than by will or by the laws of descent or distribution and may be exercised
during the lifetime of Optionee only by him. The terms of this Option shall
be binding upon the Optionee and his or her personal representatives, heirs,
successors and assigns.

11. TERM OF OPTION. This Option may not be exercised after January 20,
2009, and may be exercised only in accordance with the terms of this Option.

12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. The number of
shares of Common Stock covered by this Option and the exercise price 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

<PAGE>

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 this Option.

In the event of the proposed dissolution or liquidation of the Company,
the 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 the
Option shall terminate as of a date fixed by the Board and give the Optionee
the right to exercise his Option as to all or any part of the Shares. In the
event of a change of control of the Company, the Board shall notify the
Optionee that the Option shall be fully exercisable for a period of ten (10)
days from the date of such notice, and the Option will terminate upon the
expiration of such period.

13. NO RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a
shareholder with respect to any Shares subject to this Option prior to the
date of issuance to him of a certificate or certificates for such shares.

DATE OF GRANT: January 20, 1999

ARCADIA FINANCIAL LTD.

By: __________________________
Richard A. Greenawalt
Title: Chief Executive Officer

<PAGE>

OPTIONEE ACKNOWLEDGES RECEIPT OF A COPY OF THE OPTION AGREEMENT AND
CERTAIN INFORMATION RELATED THERETO AND REPRESENTS THAT HE IS FAMILIAR WITH
THE TERMS AND PROVISIONS THEREOF, AND HEREBY ACCEPTS THIS OPTION SUBJECT TO
ALL OF THE TERMS AND PROVISIONS THEREOF. OPTIONEE HAS REVIEWED THIS OPTION
IN ITS ENTIRETY, HAS HAD AN OPPORTUNITY TO OBTAIN THE ADVICE OF COUNSEL PRIOR
TO EXECUTING THIS OPTION AND FULLY UNDERSTANDS ALL PROVISIONS OF THE OPTION.
OPTIONEE HEREBY AGREES TO ACCEPT AS BINDING, CONCLUSIVE AND FINAL ALL
DECISIONS OR INTERPRETATIONS OF THE BOARD UPON ANY QUESTIONS ARISING UNDER
THE OPTION. OPTIONEE FURTHER AGREES TO NOTIFY THE COMPANY UPON ANY CHANGE IN
THE RESIDENCE ADDRESS INDICATED BELOW.

Optionee:

Dated: January 20, 1999 ______________________________________
Warren Kantor
Residence Address:
720 Springmill Road
Villanova, PA 19185

<PAGE>

ARCADIA FINANCIAL LTD.
1999 OMNIBUS STOCK PLAN

SECTION 1. PURPOSE.

The purpose of the Plan is to promote the interests of the Company and
its shareholders by aiding the Company in attracting, retaining and
incentivizing employees, officers, consultants, independent contractors and
non-employee directors.

SECTION 2. DEFINITIONS.

As used in the Plan, the following terms shall have the meanings set
forth below:

(a) Affiliate shall mean (i) any entity that, directly or indirectly
through one or more intermediaries, is controlled by the Company and (ii) any
entity in which the Company has a significant equity interest, in each case
as determined by the Committee.

(b) Award shall mean any Option, Stock Appreciation Right, Restricted
Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent, Other
Stock Grant or Other Stock-Based Award granted under the Plan.

(c) Award Agreement shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan.

(d) Code shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any regulations promulgated thereunder.

(e) Committee shall mean either the Board of Directors of the Company
or a committee of the Board of Directors appointed by the Board of Directors
to administer the Plan, which committee shall be comprised of not less than
such number of directors as shall be required to permit the Plan to satisfy
the requirements of Rule 16b-3. Each member of the Committee shall be a
nonemployee director within the meaning of Rule 16b-3 and an outside director
within the meaning of Section 162(m) of the Code.

(f) Company shall mean Arcadia Financial Ltd., a Minnesota corporation,
and any successor corporation.

(g) Dividend Equivalent shall mean any right granted under Section 6(e)
of the Plan.

(h) Eligible Person shall mean any employee, officer, consultant,
independent contractor or director providing services to the Company or any
Affiliate whom the Committee determines to be an Eligible Person.

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(i) Fair Market Value shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair
market value of such property determined by such methods or procedures as
shall be established from time to time by the Committee. Notwithstanding the
foregoing, unless otherwise determined by the Committee, the Fair Market
Value of Shares on a given date for purposes of the Plan shall not be less
than (i) the closing price as reported for composite transactions, if the
Shares are then listed on the New York Stock Exchange or another national
securities exchange, (ii) the last sale price, if the Shares are then quoted
on the NASDAQ National Market, or (iii) the average of the closing
representative bid and asked prices of the Shares in all other cases, on the
date as of which fair market value is being determined. If on a given date
the Shares are not traded in an established securities market, the Committee
shall make a good faith attempt to satisfy the requirements of this clause
and in connection therewith shall take such action as it deems necessary or
advisable.

(j) Incentive Stock Option shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422 of
the Code or any successor provision.

(k) Non-Qualified Stock Option shall mean an option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.

(l) Option shall mean an Incentive Stock Option or a Non-Qualified
Stock Option, and shall include Reload Options.

(m) Other Stock Grant shall mean any right granted under Section 6(f)
of the Plan.

(n) Other Stock-Based Award shall mean any right granted under Section
6(g) of the Plan.

(o) Participant shall mean an Eligible Person designated to be granted
an Award under the Plan.

(p) Performance Award shall mean any right granted under Section 6(d)
of the Plan.

(q) Person shall mean any individual, corporation, partnership,
association or trust.

(r) Plan shall mean the Arcadia Financial Ltd. 1999 Omnibus Stock Plan,
as amended from time to time.

(s) Reload Option shall mean any Option granted under Section 6(a)(iv)
of the Plan.

(t) Restricted Stock shall mean any Shares granted under Section 6(c)
of the Plan.

(u) Restricted Stock Unit shall mean any unit granted under Section
6(c) of the Plan evidencing the right to receive a Share (or a cash payment
equal to the Fair Market Value of a Share) at some future date.

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<PAGE>

(v) Rule 16b-3 shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act or any successor rule or regulation.

(w) Shares shall mean shares of Common Stock, $0.01 par value, of the
Company or such other securities or property as may become subject to Awards
pursuant to an adjustment made under Section 4(c) of the Plan.

(x) Stock Appreciation Right shall mean any right granted under Section
6(b) of the Plan.

SECTION 3. ADMINISTRATION.

(a) POWER AND AUTHORITY OF THE COMMITTEE. The Plan shall be
administered by the Committee. Subject to the express provisions of the Plan
and to applicable law, the Committee shall have full power and authority to:
(i) designate Participants; (ii) determine the type or types of Awards to be
granted to each Participant under the Plan; (iii) determine the number of
Shares to be covered by (or with respect to which payments, rights or other
matters are to be calculated in connection with) each Award; (iv) determine
the terms and conditions of any Award or Award Agreement; (v) amend the terms
and conditions of any Award or Award Agreement and accelerate the
exercisability of Options or the lapse of restrictions relating to Restricted
Stock, Restricted Stock Units or other Awards; (vi) determine whether, to
what extent and under what circumstances Awards may be exercised in cash,
Shares, other securities, other Awards or other property, or canceled,
forfeited or suspended; (vii) determine whether, to what extent and under
what circumstances cash, Shares, other securities, other Awards, other
property and other amounts payable with respect to an Award under the Plan
shall be deferred either automatically or at the election of the holder
thereof or the Committee; (viii) interpret and administer the Plan and any
instrument or agreement relating to, or Award made under, the Plan; (ix)
establish, amend, suspend or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the
Plan; and (x) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee,
may be made at any time and shall be final, conclusive and binding upon any
Participant, any holder or beneficiary of any Award.

(b) DELEGATION. The Committee may delegate its powers and duties under
the Plan to one or more officers of the Company or any Affiliate or a
committee of such officers, subject to such terms, conditions and limitations
as the Committee may establish in its sole discretion; PROVIDED, HOWEVER,
that the Committee shall not delegate its powers and duties under the Plan
(i) with regard to officers or directors of the Company or any Affiliate who
are subject to Section 16 of the Exchange Act or (ii) in such a manner as
would cause the Plan not to comply with the requirements of Section 162(m) of
the Code.

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<PAGE>

SECTION 4. SHARES AVAILABLE FOR AWARDS.

(a) SHARES AVAILABLE. Subject to adjustment as provided in Section
4(c), the aggregate number of Shares that may be issued under all Awards
under the Plan shall be 5,000,000. Shares to be issued under the Plan may be
either shares reacquired or newly issued, authorized but unissued shares. If
any Shares covered by an Award or to which an Award relates are not purchased
or are forfeited, or if an Award otherwise terminates without delivery of any
Shares, then the number of Shares counted against the aggregate number of
Shares available under the Plan with respect to such Award, to the extent of
any such forfeiture or termination, shall again be available for granting
Awards under the Plan. Notwithstanding the foregoing, the number of Shares
available for granting Incentive Stock Options under the Plan shall not
exceed 5,000,000, subject to adjustment as provided in the Plan and Section
422 or 424 of the Code or any successor provision, and the number of Shares
available for granting Restricted Stock and Restricted Stock Units under the
Plan shall not exceed 1,000,000 Shares, subject to adjustment as provided in
the Plan and Section 422 or 424 of the Code or any successor provision.

(b) ACCOUNTING FOR AWARDS. For purposes of this Section 4, if an Award
entitles the holder thereof to receive or purchase Shares, the number of
Shares covered by such Award or to which such Award relates shall be counted
on the date of grant of such Award against the aggregate number of Shares
available for granting Awards under the Plan.

(c) ADJUSTMENTS. In the event that the Committee shall determine that
any dividend or other distribution (whether in the form of cash, Shares,
other securities or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to
be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all
of (i) the number and type of Shares (or other securities or other property)
that thereafter may be made the subject of Awards, (ii) the number and type
of Shares (or other securities or other property) subject to outstanding
Awards and (iii) the purchase or exercise price with respect to any Award;
PROVIDED, HOWEVER, that the number of Shares covered by any Award or to which
such Award relates shall always be a whole number.

(d) AWARD LIMITATIONS UNDER THE PLAN. No Eligible Person may be
granted any Award or Awards under the Plan, the value of which Awards is
based solely on an increase in the value of the Shares after the date of
grant of such Awards, for more than 1,000,000 Shares (subject to adjustment
as provided for in Section 4(c)), in the aggregate in any calendar year. The
foregoing annual limitation specifically includes the grant of any Awards
representing qualified performance-based compensation within the meaning of
Section 162(m) of the Code.

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<PAGE>

SECTION 5. ELIGIBILITY.

Any Eligible Person of the Company or any Affiliate, shall be eligible
to be designated a Participant. In determining which Eligible Persons shall
receive an Award and the terms of any Award, the Committee may take into
account the nature of the services rendered by the respective Eligible
Persons, their present and potential contributions to the success of the
Company or such other factors as the Committee, in its discretion, shall deem
relevant. Notwithstanding the foregoing, an Incentive Stock Option may only
be granted to full or part-time employees (which term as used herein
includes, without limitation, officers and directors who are also employees),
and an Incentive Stock Option shall not be granted to an employee of an
Affiliate unless such Affiliate is also a subsidiary corporation of the
Company within the meaning of Section 424(f) of the Code or any successor
provision.

SECTION 6. AWARDS.

(a) OPTIONS. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:

(i) EXERCISE PRICE. The purchase price per Share purchasable
under an Option shall be determined by the Committee; PROVIDED, HOWEVER,
that the purchase price of an Incentive Stock Option shall not be less
than 100% of the Fair Market Value of a Share on the date of grant of
such Option.

(ii) OPTION TERM. The term of each Option shall be fixed by the
Committee; PROVIDED that no Incentive Stock Option shall be granted for
a term in excess of 10 years.

(iii) TIME AND METHOD OF EXERCISE. The Committee shall determine
the time or times at which an Option may be exercised in whole or in
part and the method or methods by which, and the form or forms
(including, without limitation, cash, Shares, other securities, other
Awards or other property, or any combination thereof, having a Fair
Market Value on the exercise date equal to the relevant exercise price)
in which, payment of the exercise price with respect thereto may be made
or deemed to have been made.

(iv) RELOAD OPTIONS. The Committee may grant Reload Options,
separately or together with another Option, pursuant to which, subject
to the terms and conditions established by the Committee, the
Participant would be granted a new Option when the payment of the
exercise price of a previously granted option is made by the delivery of
Shares owned by the Participant pursuant to Section 6(a)(iii) hereof or
the relevant provisions of another plan of the Company, and/or when
Shares are tendered or forfeited as payment of the amount to be withheld
under applicable income tax laws in connection with the exercise of an
Option, which new Option would be an Option to purchase the number of
Shares not exceeding the sum of (A) the number of Shares so provided as
consideration upon the exercise of the previously granted option to
which such Reload Option relates and (B) the number of Shares, if any,
tendered or withheld as payment of

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<PAGE>

the amount to be withheld under applicable tax laws in connection with
the exercise of the option to which such Reload Option relates pursuant
to the relevant provisions of the plan or agreement relating to such
option. Reload Options may be granted with respect to Options previously
granted under the Plan or any other stock option plan of the Company,
and may be granted in connection with any Option granted under the Plan
or any other stock option plan of the Company at the time of such grant.
Such Reload Options shall have a per share exercise price equal to the
Fair Market Value as of the date of grant of the new Option. Any Reload
Option shall be subject to availability of sufficient Shares for grant
under the Plan. Shares surrendered as part or all of the exercise price
of the Option to which it relates that have been owned by the optionee
less than six months will not be counted for purposes of determining the
number of Shares that may be purchased pursuant to a Reload Option.

(b) STOCK APPRECIATION RIGHTS. The Committee is hereby authorized to
grant Stock Appreciation Rights to Participants subject to the terms of the
Plan and any applicable Award Agreement. A Stock Appreciation Right granted
under the Plan shall confer on the holder thereof a right to receive upon
exercise thereof the excess of (i) the Fair Market Value of one Share on the
date of exercise (or, if the Committee shall so determine, at any time during
a specified period before or after the date of exercise) over (ii) the grant
price of the Stock Appreciation Right as specified by the Committee, which
price shall not be less than 100% of the Fair Market Value of one Share on
the date of grant of the Stock Appreciation Right. Subject to the terms of
the Plan and any applicable Award Agreement, the grant price, term, methods
of exercise, dates of exercise, methods of settlement and any other terms and
conditions of any Stock Appreciation Right shall be as determined by the
Committee. The Committee may impose such conditions or restrictions on the
exercise of any Stock Appreciation Right as it may deem appropriate.

(c) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Committee is
hereby authorized to grant Restricted Stock and Restricted Stock Units to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:

(i) RESTRICTIONS. Shares of Restricted Stock and Restricted
Stock Units shall be subject to such restrictions as the Committee may
impose (including, without limitation, a waiver by the Participant of
the right to vote or to receive any dividend or other right or property
with respect thereto), which restrictions may lapse separately or in
combination at such time or times, in such installments or otherwise as
the Committee may deem appropriate.

(ii) STOCK CERTIFICATES. Any Restricted Stock shall be registered
in the name of the Participant and shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to such
Restricted Stock. In the case of Restricted Stock Units, no Shares
shall be issued at the time such Awards are granted.

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<PAGE>

(iii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of employment (as determined under criteria established
by the Committee) during the applicable restriction period, all Shares
of Restricted Stock and all Restricted Stock Units at such time subject
to restriction shall be forfeited and reacquired by the Company;
PROVIDED, HOWEVER, that the Committee may, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in part
any or all remaining restrictions with respect to Shares of Restricted
Stock or Restricted Stock Units. Upon the lapse or waiver of
restrictions and the restricted period relating to Restricted Stock
Units evidencing the right to receive Shares, such Shares shall be
issued and delivered to the holders of the Restricted Stock Units.

(d) PERFORMANCE AWARDS. The Committee is hereby authorized to grant
Performance Awards to Participants subject to the terms of the Plan and any
applicable Award Agreement. A Performance Award granted under the Plan (i)
may be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock and Restricted Stock Units), other securities, other Awards
or other property and (ii) shall confer on the holder thereof the right to
receive payments, in whole or in part, upon the achievement of such
performance goals during such performance periods as the Committee shall
establish. Subject to the terms of the Plan and any applicable Award
Agreement, the performance goals to be achieved during any performance
period, the length of any performance period, the amount of any Performance
Award granted, the amount of any payment or transfer to be made pursuant to
any Performance Award and any other terms and conditions of any Performance
Award shall be determined by the Committee.

(e) DIVIDEND EQUIVALENTS. The Committee is hereby authorized to grant
Dividend Equivalents to Participants, subject to the terms of the Plan and
any applicable Award Agreement, under which such Participants shall be
entitled to receive payments (in cash, Shares, other securities, other Awards
or other property as determined in the discretion of the Committee)
equivalent to the amount of cash dividends paid by the Company to holders of
Shares with respect to a number of Shares determined by the Committee.

(f) OTHER STOCK GRANTS. The Committee is hereby authorized, subject to
the terms of the Plan and any applicable Award Agreement, to grant to
Participants Shares without restrictions thereon as are deemed by the
Committee to be consistent with the purpose of the Plan.

(g) OTHER STOCK-BASED AWARDS. The Committee is hereby authorized to
grant to Participants subject to the terms of the Plan and any applicable
Award Agreement, such other Awards that are denominated or payable in, valued
in whole or in part by reference to, or otherwise based on or related to,
Shares (including, without limitation, securities convertible into Shares),
as are deemed by the Committee to be consistent with the purpose of the Plan.
Shares or other securities delivered pursuant to a purchase right granted
under this Section 6(g) shall be purchased for such consideration, which may
be paid by such method or methods and in such form or forms (including,
without limitation, cash, Shares, other securities, other Awards or other
property or any combination thereof), as the Committee shall determine.

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(h) GENERAL.

(i) NO CASH CONSIDERATION FOR AWARDS. Awards shall be granted
for no cash consideration or for such minimal cash consideration as may
be required by applicable law.

(ii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards may, in
the discretion of the Committee, be granted either alone or in addition
to, in tandem with or in substitution for any other Award or any award
granted under any plan of the Company or any Affiliate other than the
Plan. Awards granted in addition to or in tandem with other Awards or
in addition to or in tandem with awards granted under any such other
plan of the Company or any Affiliate may be granted either at the same
time as or at a different time from the grant of such other Awards or
awards.

(iii) FORMS OF PAYMENT UNDER AWARDS. Subject to the terms of the
Plan and of any applicable Award Agreement, payments or transfers to be
made by the Company or an Affiliate upon the grant, exercise or payment
of an Award may be made in such form or forms as the Committee shall
determine (including, without limitation, cash, Shares, other
securities, other Awards or other property or any combination thereof),
and may be made in a single payment or transfer, in installments or on a
deferred basis, in each case in accordance with rules and procedures
established by the Committee. Such rules and procedures may include,
without limitation, provisions for the payment or crediting of
reasonable interest on installment or deferred payments or the grant or
crediting of Dividend Equivalents with respect to installment or
deferred payments.

(iv) LIMITS ON TRANSFER OF AWARDS. No Award (other than Other
Stock Grants) and no right under any such Award shall be transferable by
a Participant otherwise than by will or by the laws of descent and
distribution; PROVIDED, HOWEVER, that, if so determined by the
Committee, a Participant may, in the manner established by the
Committee, transfer Options (other than Incentive Stock Options) or
designate a beneficiary or beneficiaries to exercise the rights of the
Participant and receive any property distributable with respect to any
Award upon the death of the Participant. Each Award or right under any
Award shall be exercisable during the Participant's lifetime only by the
Participant or, if permissible under applicable law, by the
Participant's guardian or legal representative. No Award or right under
any such Award may be pledged, alienated, attached or otherwise
encumbered, and any purported pledge, alienation, attachment or
encumbrance thereof shall be void and unenforceable against the Company
or any Affiliate.

(v) TERM OF AWARDS. The term of each Award shall be for such
period as may be determined by the Committee.

(vi) RESTRICTIONS; SECURITIES EXCHANGE LISTING. All Shares or
other securities delivered under the Plan pursuant to any Award or the
exercise thereof shall be subject to such restrictions as the Committee
may deem advisable under the Plan, applicable federal

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<PAGE>

or state securities laws and regulatory requirements, and the Committee
may cause appropriate entries to be made or legends to be affixed to
reflect such restrictions. If the Shares or other securities are listed
on a securities exchange, the Company shall not be required to deliver
any Shares or other securities covered by an Award until such Shares or
other securities have been listed on such securities exchange.

SECTION 7. AMENDMENT AND TERMINATION; ADJUSTMENTS.

Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:

(a) AMENDMENTS TO THE PLAN. The Board of Directors of the Company may
amend, alter, suspend, discontinue or terminate the Plan; PROVIDED, HOWEVER,
that, notwithstanding any other provision of the Plan or any Award Agreement,
without the approval of the shareholders of the Company, no such amendment,
alteration, suspension, discontinuation or termination shall be made that,
absent such approval:

(i) would cause Rule 16b-3 or Section 162(m) of the Code to
become unavailable with respect to the Plan;

(ii) would violate the rules or regulations of the New York Stock
Exchange, any other securities exchange or the National Association of
Securities Dealers, Inc. that are applicable to the Company; or

(iii) would cause the Company to be unable, under the Code, to
grant Incentive Stock Options under the Plan.

(b) AMENDMENTS TO AWARDS. The Committee may waive any conditions of or
rights of the Company under any outstanding Award, prospectively or
retroactively. The Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Award, prospectively or retroactively, without the
consent of the Participant or holder or beneficiary thereof, except as
otherwise herein provided or in the Award Agreement.

(c) CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it
shall deem desirable to carry the Plan into effect.

SECTION 8. INCOME TAX WITHHOLDING; TAX BONUSES.

(a) WITHHOLDING. In order to comply with all applicable federal or
state income tax laws or regulations, the Company may take such action as it
deems appropriate to ensure that all applicable federal or state payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant are withheld or collected from such
Participant. In order to assist a Participant in paying all or a portion of
the federal and state taxes to be withheld or collected upon exercise or
receipt of (or the lapse of restrictions relating to) an Award, the

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Committee, in its discretion and subject to such additional terms and
conditions as it may adopt, may permit the Participant to satisfy such tax
obligation by (i) electing to have the Company withhold a portion of the
Shares otherwise to be delivered upon exercise or receipt of (or the lapse of
restrictions relating to) such Award with a Fair Market Value equal to the
amount of such taxes or (ii) delivering to the Company Shares other than
Shares issuable upon exercise or receipt of (or the lapse of restrictions
relating to) such Award with a Fair Market Value equal to the amount of such
taxes. The election, if any, must be made on or before the date that the
amount of tax to be withheld is determined.

(b) TAX BONUSES. The Committee, in its discretion, shall have the
authority, at the time of grant of any Award under this Plan or at any time
thereafter, to approve cash bonuses to designated Participants to be paid
upon their exercise or receipt of (or the lapse of restrictions relating to)
Awards in order to provide funds to pay all or a portion of federal and state
taxes due as a result of such exercise or receipt (or the lapse of such
restrictions). The Committee shall have full authority in its discretion to
determine the amount of any such tax bonus.

SECTION 9. GENERAL PROVISIONS.

(a) NO RIGHTS TO AWARDS. No Eligible Person, Participant or other
Person shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Eligible Persons,
Participants or holders or beneficiaries of Awards under the Plan. The terms
and conditions of Awards need not be the same with respect to any Participant
or with respect to different Participants.

(b) AWARD AGREEMENTS. No Participant will have rights under an Award
granted to such Participant unless and until an Award Agreement shall have
been duly executed on behalf of the Company and, if requested by the Company,
signed by the Participant.

(c) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in
the Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in
specific cases.

(d) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of
the Company or any Affiliate, nor will it affect in any way the right of the
Company or an Affiliate to terminate such employment at any time, with or
without cause. In addition, the Company or an Affiliate may at any time
dismiss a Participant from employment free from any liability or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any
Award Agreement.

(e) GOVERNING LAW. The validity, construction and effect of the Plan
or any Award, and any rules and regulations relating to the Plan or any
Award, shall be determined in accordance with the laws of the State of
Minnesota.

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(f) SEVERABILITY. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be so construed or
deemed amended without, in the determination of the Committee, materially
altering the purpose or intent of the Plan or the Award, such provision shall
be stricken as to such jurisdiction or Award, and the remainder of the Plan
or any such Award shall remain in full force and effect.

(g) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant
or any other Person. To the extent that any Person acquires a right to
receive payments from the Company or any Affiliate pursuant to an Award, such
right shall be no greater than the right of any unsecured general creditor of
the Company or any Affiliate.

(h) NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash shall be paid in lieu of any fractional Shares or
whether such fractional Shares or any rights thereto shall be canceled,
terminated or otherwise eliminated.

(i) HEADINGS. Headings are given to the Sections and subsections of
the Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.

(j) OTHER BENEFITS. No compensation or benefit awarded to or realized
by any Participant under the Plan shall be included for the purpose of
computing such Participant's compensation under any compensation-based
retirement, disability, or similar plan of the Company unless required by law
or otherwise provided by such other plan.

SECTION 10. EFFECTIVE DATE OF THE PLAN.

The Plan shall be effective as of January 20, 1999; PROVIDED, HOWEVER,
that if the Company's shareholders do not approve the Plan at the 1999 Annual
Meeting of Shareholders, the Plan shall be null and void and all Awards
granted prior to the date of such Annual Meeting shall be of no force or
effect.

SECTION 11. TERM OF THE PLAN.

Awards shall only be granted under the Plan during a 10-year period
beginning on the effective date of the Plan. However, unless otherwise
expressly provided in the Plan or in an applicable Award Agreement, any Award
theretofore granted may extend beyond the end of such 10-year period, and the
authority of the Committee provided for hereunder with respect to the Plan
and any Awards, and the authority of the Board of Directors of the Company to
amend the Plan, shall extend beyond the termination of the Plan.

<PAGE>

ARCADIA FINANCIAL LTD.

1992 DIRECTOR STOCK OPTION PLAN
(As Amended January 27, 1999)

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.

(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.

<PAGE>

(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.

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

<PAGE>

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

<PAGE>

1999 and thereafter Annual Grant Amount
</TABLE>

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:

<PAGE>

(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.

(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

<PAGE>

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

<PAGE>

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:

(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

<PAGE>

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 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.

(i) during the term of the Option, and provided that the

<PAGE>

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.

<PAGE>

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 Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation.

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

<PAGE>

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.

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 12,116
<SECURITIES> 0
<RECEIVABLES> 800,546
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 33,239
<DEPRECIATION> 17,000
<TOTAL-ASSETS> 860,280
<CURRENT-LIABILITIES> 0
<BONDS> 429,842
0
0
<COMMON> 392
<OTHER-SE> 275,234
<TOTAL-LIABILITY-AND-EQUITY> 860,280
<SALES> 0
<TOTAL-REVENUES> 65,099
<CGS> 0
<TOTAL-COSTS> 43,758
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,466
<INCOME-PRETAX> 7,875
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,875
<EPS-PRIMARY> .20
<EPS-DILUTED> .20

</TABLE>