Receivables Funding And Servicing Agreement

RECEIVABLES FUNDING AND SERVICING AGREEMENT


dated as of October 17, 1997


among


ARCADIA RECEIVABLES FINANCE CORP. III,


Borrower,


ARCADIA FINANCIAL LTD.,


as Servicer and Custodian,


DLJ MORTGAGE CAPITAL, INC. and its permitted assigns,


as Lenders,


DLJ MORTGAGE CAPITAL, INC.,


as Agent,


and


NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,


as Backup Servicer and Collateral Agent


RECEIVABLES FUNDING AND SERVICING AGREEMENT


THIS RECEIVABLES FUNDING AND SERVICING AGREEMENT is made and entered into as of October 17, 1997, among ARCADIA RECEIVABLES FINANCE CORP. III, a Delaware corporation having its principal office at 7825 Washington Avenue South, Suite 975, Minneapolis, MN 55439-2444 (the "BORROWER"), ARCADIA FINANCIAL LTD., a Minnesota corporation having its principal office at 7825 Washington Avenue South, Suite 500, Minneapolis, MN 55439-2444 (in its individual capacity, "ARCADIA"), as servicer (in such capacity the "SERVICER") and as custodian (in such capacity, the "CUSTODIAN"), DLJ MORTGAGE CAPITAL, INC. and its permitted assigns, as lenders (each, a "LENDER" and together, the "LENDERS"), DLJ MORTGAGE CAPITAL, INC. ("DLJ") a Delaware corporation, as Agent (the "AGENT"), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association ("NORWEST"), as backup servicer (in such capacity the "BACKUP SERVICER") and as collateral agent (in such capacity, the "COLLATERAL AGENT").

BACKGROUND


1. The Borrower desires that the Lenders extend financing to the Borrower on the terms and conditions set forth herein.


2. The Lenders (as defined herein) are willing to provide such financing on the terms and conditions set forth in this Agreement.


3. The Borrower is a wholly owned subsidiary of Arcadia, and to enable the Borrower to obtain the financing provided for herein, and for the consideration set forth herein, Arcadia is willing to act as Custodian and Servicer hereunder.


4. The Lenders and the Borrower have requested Norwest, and Norwest has agreed to act as Backup Servicer and Collateral Agent hereunder on the terms and conditions set forth herein.


NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree as follows:


ARTICLE I


DEFINITIONS


SECTION 1.1 DEFINED TERMS. As used in this Agreement, the following terms have the following meanings:


"ACCOUNTANTS' REPORT" has the meaning set forth in SECTION 8.11(a).


"ADVANCE" means any amount disbursed by any Lender to the Borrower under this Agreement.


"ADVANCE DATE" means the date any Advance is made under SECTION 2.3.


"ADVANCE RATE" means:


(a) with respect to Premier Receivables, 95%;


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(b) with respect to Classic Receivables (other than Financed Repo
Receivables), 93%; and


(c) with respect to Financed Repo Receivables, 85%.


"ADVANCE REQUEST" has the meaning set forth in SECTION 2.2.


"ADVERSE CLAIM" means any claim of ownership or any lien, security interest, title retention, trust or other charge or encumbrance, or other type of preferential arrangement having the effect or purpose of creating a lien or security interest, other than the security interest created under this Agreement.


"AFFECTED PERSON" has the meaning set forth in SECTION 6.1(a).


"AFFILIATE" of any Person means any other Person that directly or indirectly controls, is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any employee benefit plan). A Person shall be deemed to be "controlled by" any other Person if such other Person controls such Person within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended.


The word "AFFILIATED" has a correlative meaning.


"AGENT", prior to the Remarketing Date, has the meaning set forth in the PREAMBLE, and on and after the Remarketing Date, means the Custodian.


"AGENT'S ACCOUNT" has the meaning set forth in SECTION 5.1.


"AGGREGATE OUTSTANDING PRINCIPAL BALANCE" means, with respect to any group of Receivables as of any date, the sum of the outstanding Principal Balances of all such Receivables as at the close of business on such date.


"AGREEMENT" shall mean this Receivables Funding and Servicing Agreement, as it may be amended, supplemented or otherwise modified from time to time.


"AMOUNT FINANCED" means, with respect to a Receivable, the aggregate amount of credit extended under such Receivable toward the purchase price of the related Financed Vehicle and related costs, including amounts advanced in respect of accessories, insurance premiums, service and warranty contracts, other items customarily financed as part of retail automobile installment sale contracts or promissory notes, and related costs.


"ANNUAL PERCENTAGE RATE" or "APR" means, with respect to a Receivable, the rate per annum of finance charges stated in such Receivable as the "annual percentage rate" (within the meaning of the Federal Truth-in-Lending Act). If, after the Closing Date, the rate per annum with respect to a Receivable as of the Closing Date is reduced as a result of (a) an insolvency proceeding involving the relevant Obligor or (b) pursuant to the Soldiers' and Sailors' Act, the "Annual Percentage Rate" or "APR" shall refer to such reduced rate.


"APPLICABLE MARGIN" means .60% per annum; PROVIDED, HOWEVER, that in the event any Investor which is a Structured Lender funds or maintains any Advance or portion thereof through a


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Support Bank of such Structured Lender, the Applicable Margin for such Advance or portion thereof shall be 1.0% per annum.


"APPLICABLE PERIOD" means, with respect to an Advance and (a) an Interest Period of 21 days or more, 30 days; (b) an Interest Period of 14 or more but less than 21 days, 21 days; (c) an Interest Period of 7 or more but less than 14 days, 14 days and (d) an Interest Period of less than 7 days, 7 days; PROVIDED that the Applicable Period with respect to an Interest Period of less than 30 days will be 30 days if such Advance is not repaid in full on the last day of such Interest Period.


"APPLICABLE TELERATE PAGE" MEANS, WITH RESPECT TO LIBOR FOR ANY INTEREST PERIOD OF 30 DAYS, TELERATE PAGE 3750, AND FOR LIBOR FOR ANY INTEREST PERIOD OF LESS THAN 30 DAYS, THE HIGHEST RATE APPEARING ON TELERATE PAGE 4833.


"ARCADIA" has the meaning set forth in the PREAMBLE.


"ASSIGNMENT AND ACCEPTANCE" means an Assignment and Acceptance Agreement in the form of Exhibit F hereto or such other assignment agreement as may be agreed to between such assignee and the Agent.


"AVERAGE EXCESS SPREAD PERCENTAGE" means, with respect to any Determination Date following a Settlement Period during which Advances were outstanding, the average of the Spread Percentages for such Determination Date and the two most recent Determination Dates following a Settlement Period during which Advances were outstanding (or such lesser number of such Settlement Periods as shall have occurred after the Closing Date).


"AVERAGE SERVICING PORTFOLIO" means as of any date, the average of the Servicing Portfolio for the seven preceding Settlement Periods.


"BACKUP SERVICER" means Norwest Bank Minnesota, National Association, together with its permitted successors and assigns, in its capacity as such hereunder.


"BANKRUPTCY CODE" means the United States Bankruptcy Code, 11 U.S.C. Section 101, ET SEQ., as amended.


"BORROWER" has the meaning set forth in the PREAMBLE.


"BORROWER ACCOUNT COLLATERAL" has the meaning set forth in SECTION 9.1(c).


"BORROWER ASSIGNED AGREEMENTS" has the meaning set forth in SECTION 9.1(b).


"BORROWING BASE" shall mean (a) as of any Determination Date, the product of (i) the Weighted Average Advance Rate and (ii) (x) an amount equal to Aggregate Outstanding Principal Balance of the Pledged Receivables that are Eligible Receivables PLUS (y) an amount equal to the Aggregate Outstanding Principal Balance of the Pledged Receivables that are not Eligible Receivables to the extent such ineligibility results solely from such Pledged Receivables being Delinquent Receivables (excluding any Delinquent Receivables which are Defaulted Receivables); PROVIDED, HOWEVER, that such amount shall not exceed .75% of the Aggregate Outstanding Principal Balance of the Pledged Receivables, included pursuant to clauses (x) and (y) above, as calculated as of the last day of the Settlement Period preceding such Determination Date and (b) as of any other date of determination, the product of (i) the Weighted Average Advance Rate and (ii) (x) an amount equal to the Aggregate Outstanding Principal Balance of the Pledged Receivables that are Eligible Receivables PLUS (y) an amount equal to the Aggregate Outstanding Principal


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Balance of the Pledged Receivables that are not Eligible Receivables to the extent such ineligibility results solely from such Pledged Receivables being Delinquent Receivables (excluding any Pledged Receivables with respect to which an amount greater than $10 is 60 or more days past due); PROVIDED, HOWEVER, that such amount shall not exceed .75% of the Aggregate Outstanding Principal Balance of the Pledged Receivables, included pursuant to clauses (x) and (y) above, as calculated on such date.


"BORROWING BASE DEFICIENCY" has the meaning set forth in SECTION 15.1(e).


"BORROWER COLLATERAL" has the meaning set forth in SECTION 9.1.


"BUSINESS DAY" shall mean any day on which commercial banks in New York, New York, Minneapolis, Minnesota or Chicago, Illinois are not authorized or required to be closed.


"CHANGE OF CONTROL" means the occurrence of any of the following with respect to Arcadia:


(a)(i) a majority of the directors of Arcadia shall be Persons other than Persons (x) for whose election proxies shall have been solicited by the board of directors of Arcadia or (y) who are then serving as directors appointed by the board of directors to fill vacancies on the board of directors caused by death or resignation (but not by removal) or to fill newly-created directorships or (ii) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 50% or more in voting power of the outstanding voting stock of Arcadia; or


(b) Arcadia shall fail to own, directly or indirectly, 100% of the outstanding capital stock of the Borrower.


"CLASSIC RECEIVABLE" means a Receivable originated under Arcadia's "Classic Program."


"CLOSING DATE" means October 17, 1997.


"COLLATERAL" means the Pledged Receivables and the Other Conveyed Property.


"COLLATERAL AGENT AGREEMENT" means the Collateral Agent Agreement dated as of the Closing Date among the Collateral Agent, the Agent, the Borrower and the Servicer, including all amendments, modifications and supplements thereto.


"COLLATERAL INSURANCE" means a vendor's single interest or other collateral protection insurance policy with respect to Financed Vehicles, which policy by its terms insures against physical damage in the event any Obligor fails to maintain physical damage insurance with respect to the related Financed Vehicle.


"COLLATERAL RECEIPT AND CONFIRMATION" means a Custodial Receipt and Confirmation substantially in the form of EXHIBIT D.


"COLLECTION ACCOUNT" means the account designated as the Collection Account in, and which is established and maintained pursuant to, SECTION 8.15(a).


"COLLECTION RECORDS" means all manually prepared or computer generated records relating to collection efforts or payment histories with respect to the Pledged Receivables.


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"CONTINGENT LIABILITY" means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount (or maximum outstanding principal amount, if larger) of the debt, obligation or other liability guaranteed thereby.


"CRAM DOWN LOSS" means, with respect to a Receivable, if a court of appropriate jurisdiction in an insolvency proceeding shall have issued an order reducing the amount owed on such Receivable or otherwise modifying or restructuring the scheduled payments to be made on such Receivable, an amount equal to the excess of the principal balance of such Receivable immediately prior to such order, minus the principal balance of such Receivable as so reduced. A "Cram Down Loss" shall be deemed to have occurred on the date of issuance of such order.


"CUSTODIAN" means Arcadia and any successors and assigns in its capacity as custodian hereunder.


"DEALER" means a seller of new or used automobiles or light trucks that originated one or more of the Pledged Receivables and sold the respective Receivable, directly or indirectly, to Arcadia.


"DEALER AGREEMENT" means an agreement by and among Arcadia and a Dealer relating to the sale of Receivables to Arcadia and all documents and instruments relating thereto.


"DEALER ASSIGNMENT" means, with respect to a Receivable, the executed assignment executed by a Dealer conveying such Receivable to Arcadia.


"DEALER UNDERWRITING GUIDELINES" means, collectively, the underwriting guidelines used by Arcadia in the purchase of Receivables as amended from time to time.


"DEFAULT RATE" means a rate PER ANNUM equal to LIBOR PLUS 2% per annum.


"DEFAULTED RECEIVABLE" means, with respect to any date of determination, a Pledged Receivable with respect to which: (i) an amount greater than $10.00 is 60 days or more past due, (ii) the Servicer has repossessed the related Financed Vehicle (and any applicable redemption period has expired), (iii) such Pledged Receivable is in default and the Servicer has determined in good faith that payments thereunder are not likely to be resumed or (iv) the Obligor has been identified on the records of the Servicer as being the subject of a current bankruptcy proceeding.


"DELINQUENCY RATIO" means, as of any Determination Date, with respect to the Servicing Portfolio, the ratio (expressed as a percentage) computed by dividing:


(a) the Aggregate Outstanding Principal Balance of the
Receivables which were Delinquent Receivables on the last
day of the immediately preceding Settlement Period


BY


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(b) the sum of the Aggregate Outstanding Principal Balance of
the Receivables on the last day of such immediately
preceding Settlement Period.


"DELINQUENT RECEIVABLE" means a Receivable with respect to which an amount greater than $10.00 is more than 30 days past due thereunder.


"DETERMINATION DATE" means, with respect to a Distribution Date, the tenth day of the calendar month in which such Distribution Date occurs, or if such tenth day is not a Business Day, the next succeeding Business Day.


"DISTRIBUTABLE EXCESS SPREAD AMOUNT" means, with respect to any Determination Date prior to the Facility Termination Date following a Settlement Period during which any Advances were outstanding, the sum of the amounts to be distributed on the following Distribution Date pursuant to subsections 3(a)(i), 3(a)(ii) and 3(a)(v) of the Collateral Agent Agreement (other than any such amounts which relate to the maintenance of an Investor's commitment to make Advances hereunder rather than to maintaining or funding its interest in outstanding Advances).


"DISTRIBUTION DATE" means the 15th day of each calendar month, or if such 15th day is not a Business Day, the next succeeding Business Day, commencing the 15th day of the month following the month in which the initial Advance is made hereunder.


"DOLLAR(S)" and the sign "$" mean lawful money of the United States of America.


"ELECTRONIC LEDGER" means the electronic master record of the Receivables of Arcadia.


"ELIGIBLE ACCOUNT" means (a) a segregated trust account or (b) a segregated direct deposit account, in each case maintained with a depository institution or trust company organized under the laws of the United States of America, or any of the States thereof, or the District of Columbia, having a certificate of deposit, short term deposit or commercial paper rating of at least A-1+ by Standard & Poor's and P-1 by Moody's. In either case, such depository institution or trust company shall either (x) be Norwest or (y) have been approved by the Agent, acting in its discretion, by written notice to the Collateral Agent.


"ELIGIBLE ASSIGNEE" has the meaning set forth in SECTION 17.1.


"ELIGIBLE RECEIVABLE" means a Receivable:


() that (i) was originated by a Dealer for the retail sale of a Financed Vehicle in the ordinary course of such Dealer's business and such Dealer had all necessary licenses and permits to originate Receivables in the state where such Dealer was located, was fully and properly executed by the parties thereto, was purchased by Arcadia from such Dealer under an existing Dealer Agreement with Arcadia and was validly assigned by such Dealer to Arcadia, (ii) contains customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for realization against the collateral security, and (iii) is interest bearing, fully amortizing and provides for level monthly payments (PROVIDED that the payment in the first monthly period and the final monthly period of the life of the Receivable may be minimally different from the level monthly payment) which, if made when due, shall fully amortize the related Amount Financed over the original term;


() which is a United States dollar obligation of an Obligor domiciled in the United States and was sold by the Dealer to Arcadia without any fraud or material misrepresentation on the part of such Dealer;


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() with respect to which all requirements of applicable federal, state and local laws, and regulations thereunder (including, without limitation, usury laws, the Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Federal Trade Commission Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations "B" and "Z", the Soldiers' and Sailors' Act, the Minnesota Motor Vehicle Retail Installment Sales Act and state adaptations of the National Consumer Act and of the Uniform Consumer Credit Code and other consumer credit laws and equal credit opportunity and disclosure laws), in respect of such Receivable, the sale of the Financed Vehicle related thereto and the sale of credit life and credit accident and health insurance and any extended service contracts, if any, in connection with such Receivable, have been complied with in all material respects;


() that was originated in the United States of America and, at the time of origination, materially conformed to all requirements of the Dealer Underwriting Guidelines applicable to such Receivable;


() which represents the genuine, legal, valid and binding payment obligation of the Obligor thereon, enforceable by the holder thereof in accordance with its terms, except (i) as enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the enforcement of creditors' rights generally and by equitable limitations on the availability of specific remedies, regardless of whether such enforceability is considered in a proceeding in equity or at law and (ii) as such Receivable may be modified by the application of the Soldiers' and Sailors' Act; and all parties to such Receivable had full legal capacity to execute and deliver such Receivable and all other documents related thereto and to grant the security interest purported to be granted thereby;


() which is not due from the United States of America or any State or from any agency, department, subdivision or instrumentality thereof;


() with respect to which the information pertaining to such Receivable set forth in the applicable Schedule of Receivables has been produced from the Electronic Ledger and is true and correct in all material respects;


() with respect to which Arcadia will have caused the portions of the Electronic Ledger to be clearly and unambiguously marked to show that such Receivable is owned by the Borrower and is subject to the Lien of the Collateral Agent;


() with respect to which the Monthly Tape made available by the Servicer to the Agent was complete and accurate in all respects as of the date delivered and includes a description of such Receivable;


() which constitutes chattel paper within the meaning of the UCC;


() of which there is only one original executed copy;


() with respect to which a Receivable File is in the possession of the Custodian at its office specified herein and such Receivable File contains (i) the fully executed original of such Receivable, (ii) a certificate of insurance, an application form for insurance signed by the related Obligor, or a signed representation letter from the Obligor named in such Receivable pursuant to which such Obligor has agreed to obtain physical damage insurance for the related Financed Vehicle, or copies thereof, or a documented verbal confirmation by an insurance agent for such


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Obligor of a policy number for an insurance policy for the Financed Vehicle, (iii) the original Lien Certificate or application therefor or a letter from the applicable Dealer agreeing unconditionally to repurchase the related Receivable if the certificate of title is not received by the Servicer within 180 days (provided that the Lien Certificate is delivered to the Custodian within 180 days), and (iv) a credit application signed by the Obligor, or a copy thereof; each of such documents which is required to be signed by the Obligor has been signed by the Obligor in the appropriate spaces; and all blanks on any form have been properly filled in and each form has otherwise been correctly prepared;


() which has not been satisfied, subordinated or rescinded, and the Financed Vehicle securing such Receivable has not been released from the lien of such Receivable in whole or in part; no provisions of such Receivable have been waived, altered or modified in any respect since its origination, except by instruments or documents identified in the Receivable File; and no Receivable has been modified as a result of application of the Soldiers' and Sailors' Act;


() which was not originated in, or is subject to the laws of, any jurisdiction the laws of which would make unlawful, void or voidable the sale, transfer and assignment of such Receivable under this Agreement; with respect to such sale, transfer and assignment of such Receivable under the Purchase Agreement, any Assignment Agreement or the pledge of such Receivable under this Agreement either (i) no consent of any Person is required or (ii) all required consents have been obtained;


() which has not been sold, transferred, assigned or pledged by Arcadia to any Person other than the Borrower or by the Borrower to any Person other than the Collateral Agent. Arcadia was the sole owner of and had good and indefeasible title thereto, free and clear of any Lien immediately prior to the conveyance of such Receivable pursuant to the Purchase Agreement. The Borrower was the sole owner thereof and had good and indefeasible title thereto, free of any Lien immediately prior to the pledge of such Receivable to the Collateral Agent;


() which has created, or will create when all required procedures are completed by the Servicer, a valid, binding and enforceable first priority perfected security interest in the related Financed Vehicle in favor of Arcadia as secured party, and such security interest is, or will be upon the completion of all required procedures by the Servicer, prior to all other liens upon and security interests in such Financed Vehicle that now exist or may hereafter arise or be created (except, as to priority, for any tax liens, mechanic's liens or that may arise after the date an Advance is made with respect to such Pledged Receivable);


() as to which all filings (including, without limitation, UCC filings) required to be made by any Person and actions required to be taken or performed by any Person in any jurisdiction to give the Collateral Agent, for the benefit of the Investors, a first priority perfected lien on such Receivable and the proceeds thereof and the other Collateral related thereto have been made, taken or performed;


() as to which neither Arcadia nor the Borrower has done anything to convey any right to any Person that would result in such Person having a right to payments due under such Receivable or otherwise to impair the rights of the Collateral Agent in such Receivable or the proceeds thereof;


() which is not assumable by another Person in a manner which would release the Obligor thereof from such Obligor's obligations to the Borrower with respect to such Receivable;


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() which is not subject to any right of rescission, setoff, counterclaim or defense and no such right has been asserted or threatened with respect to such Receivable;


() as to which there has been no default, breach, violation or event permitting acceleration under the terms of such Receivable (other than payment delinquencies of not more than 30 days) and no condition exists or event has occurred and is continuing that with notice, the lapse of time or both would constitute a default, breach, violation or event permitting acceleration under the terms of such Receivable, and there has been no waiver of any of the foregoing except as otherwise permitted herein;


() as to which the related Financed Vehicle has not been repossessed from the related Obligor;


() at the date an Advance is mad ...