--------------------------------------------------------------------------------
INDEMNIFICATION AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.
EMERGENT MORTGAGE HOLDINGS CORPORATION
EMERGENT MORTGAGE CORP.
EMERGENT GROUP, INC.
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
PRUDENTIAL SECURITIES INCORPORATED
and
FIRST UNION CAPITAL MARKETS,
A DIVISION OF WHEAT FIRST SECURITIES CORP.
Dated as of March 16, 1998
Emergent Home Equity Loan Trust 1998-1
$63,022,000 Emergent Home Equity Loan
Pass-Through Certificates, Series 1998-1, Class A
--------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
Section 1. Definitions........................................................1
Section 2. Representations, Warranties and
Agreements of Financial Security................................3
Section 3. Representations, Warranties and
Agreements of the Underwriters..................................5
Section 4. Indemnification....................................................6
Section 5. Indemnification Procedures.........................................6
Section 6. Contribution.......................................................7
Section 7. Miscellaneous......................................................8
EXHIBIT
Exhibit A Opinion of General Counsel
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT, dated as of March 16, 1998, among FINANCIAL
SECURITY ASSURANCE INC. ("Financial Security"), EMERGENT MORTGAGE HOLDINGS
CORPORATION (the "Seller"), EMERGENT MORTGAGE CORP. (the "Originator"), EMERGENT
GROUP, INC. (the "Company"), PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
(the "Depositor"), PRUDENTIAL SECURITIES INCORPORATED and FIRST UNION CAPITAL
MARKETS, A DIVISION OF WHEAT FIRST SECURITIES CORP. (each, an "Underwriter," and
together, the "Underwriters"):
Section 1. Definitions. Capitalized terms used herein and not defined
shall have the meanings assigned in the Insurance Agreement or, if not defined
therein, in the Pooling and Servicing Agreement. For purposes of this Agreement,
the following terms shall have the meanings provided below:
"Agreement" means this Indemnification Agreement, as amended from time to
time.
"Company Party" means any of the Company, its parent, subsidiaries and
affiliates and any shareholder, director, officer, employee, agent or
"controlling person" (as such term is used in the Securities Act) of any of the
foregoing.
"Depositor Party" means any of the Depositor, its parent, subsidiaries and
affiliates and any shareholder, director, officer, employee, agent or
"controlling person" (as such term is used in the Securities Act) of any of the
foregoing.
"Financial Security Agreements" means this Agreement and the Insurance
Agreement.
"Financial Security Information" has the meaning provided in Section 2(g)
hereof.
"Financial Security Party" means any of Financial Security, its parent,
subsidiaries and affiliates, and any shareholder, director, officer, employee,
agent or "controlling person" (as such term is used in the Securities Act) of
any of the foregoing.
"Indemnified Party" means any party entitled to any indemnification
pursuant to Section 4 hereof.
"Indemnifying Party" means any party required to provide indemnification
pursuant to Section 4 hereof.
"Insurance Agreement" means the Insurance and Indemnity Agreement, dated
as of March 1, 1998, by and among Financial Security, the Depositor, the
Company, the Originator and the Seller.
"Losses" means (a) any actual out-of-pocket damages incurred by the party
entitled to indemnification or contribution hereunder, (b) any actual
out-of-pocket costs or actual expenses
-2-
reasonably incurred by such party, including reasonable fees or expenses of its
counsel and other expenses incurred in connection with investigating or
defending any claim, action or other proceeding which entitle such party to be
indemnified hereunder (subject to the limitations set forth in Section 5
hereof), to the extent not paid, satisfied or reimbursed from funds provided by
any other Person other than an affiliate of such party (provided that the
foregoing shall not create or imply any obligation to pursue recourse against
any such other Person), plus (c) interest on the amount paid by the party
entitled to indemnification or contribution from the date of such payment to the
date of payment by the party who is obligated to indemnify or contribute
hereunder at the statutory rate applicable to judgments for breach of contract.
"Offering Circular" means the Prospectus relating to the Securities dated
June 10, 1997, as supplemented by the Prospectus Supplement relating to the
Securities dated March 16, 1998.
"Offering Document" means the Offering Circular and any amendments or
supplements thereto and any other material or documents delivered by the
Underwriter to any Person in connection with the offer or sale of the
Securities.
"Originator Party" means any of the Originator, its parent, subsidiaries
and affiliates and any shareholder, director, officer, employee, agent or
"controlling person" (as such term is used in the Securities Act) of any of the
foregoing.
"Person" means any individual, partnership, joint venture, corporation,
trust, unincorporated organization or other organization or entity (whether
governmental or private).
"Policy" means the financial guaranty insurance policy, including any
endorsements thereto, issued by Financial Security with respect to the
Securities.
"Pooling and Servicing Agreement" means the Pooling and Servicing
Agreement, dated as of March 1, 1998, among the Company as servicer, the
Depositor as depositor, Wilmington Trust Company as trustee and First Union
National Bank as trust administrator.
"Securities" means the Emergent Home Equity Loan Trust 1998-1, $63,022,000
Emergent Home Equity Loan Pass-Through Certificates, Series 1998-1, Class A
Certificates, issued pursuant to the Pooling and Servicing Agreement.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Seller Party" means any of the Seller, its parent, subsidiaries and
affiliates and any shareholder, director, officer, employee, agent or
"controlling person" (as such term is used in the Securities Act) of any of the
foregoing.
"Underwriting Agreement" means the Underwriting Agreement, dated March 16,
1998, among the Depositor and each of the Underwriters in respect of the
Securities.
-3-
"Underwriter Information" has the meaning provided in Section 3(b) hereof.
"Underwriter Party" means either of the Underwriters, its respective
parent, subsidiaries and affiliates and any shareholder, director, officer,
employee, agent or "controlling person" (as such term is used in the Securities
Act) of any of the foregoing.
Section 2. Representations, Warranties and Agreements of Financial
Security. Financial Security represents, warrants and agrees, as of the date
hereof and as of the Closing Date, as follows:
(a) Organization, Etc. Financial Security is a stock insurance company
duly organized, validly existing, in good standing and authorized to
transact financial guaranty insurance business under the laws of the State
of New York.
(b) Authorization, Etc. The Policy and the Financial Security Agreements
have been duly authorized, executed and delivered by Financial Security.
(c) Validity, Etc. The Policy and the Financial Security Agreements
constitute legal, valid and binding obligations of Financial Security,
enforceable against Financial Security in accordance with their terms,
subject, as to the enforcement of remedies, to bankruptcy, insolvency,
reorganization, rehabilitation, moratorium and other similar laws
affecting the enforceability of creditors' rights generally applicable in
the event of the bankruptcy or insolvency of Financial Security and to the
application of general principles of equity and subject, in the case of
this Agreement, to principles of public policy limiting the right to
enforce the indemnification provisions contained herein.
(d) Exemption From Registration. The Policy is exempt from registration
under the Securities Act.
(e) No Conflicts. Neither the execution or delivery by Financial Security
of the Policy or the Financial Security Agreements, nor the performance by
Financial Security of its obligations thereunder, will conflict with any
provision of the certificate of incorporation or the bylaws of Financial
Security nor result in a breach of, or constitute a default under, any
material agreement or other instrument to which Financial Security is a
party or by which any of its property is bound nor violate any judgment,
order or decree applicable to Financial Security of any governmental or
regulatory body, administrative agency, court or arbitrator having
jurisdiction over Financial Security (except that, in the published
opinion of the Securities and Exchange Commission, the indemnification
provisions of this Agreement, insofar as they relate to indemnification
for liabilities arising under the Securities Act, are against public
policy as expressed in the Securities Act and are therefore
unenforceable).
-4-
(f) Financial Information. The consolidated balance sheets of Financial
Security as of December 31, 1996 and December 31, 1995 and the related
consolidated statements of income, changes in shareholder's equity and
cash flows for the fiscal years then ended and the interim consolidated
balance sheet of Financial Security as of September 30, 1997, and the
related statements of income, changes in shareholder's equity and cash
flows for the interim period then ended, furnished by Financial Security
for use in the Offering Circular, fairly present in all material respects
the financial condition of Financial Security as of such dates and for
such periods in accordance with generally accepted accounting principles
consistently applied except as noted therein (subject as to interim
statements to normal year-end adjustments) and since the date of the most
current interim consolidated balance sheet referred to above there has
been no change in the financial condition of Financial Security which
would materially and adversely affect its ability to perform its
obligations under the Policy.
(g) Financial Security Information. The information in the Offering
Circular set forth under the caption "The Insurer" (as revised from time
to time in accordance with the provisions hereof, the "Financial Security
Information") is limited and does not purport to provide the scope of
disclosure required to be included in a prospectus with respect to a
registrant in connection with the offer and sale of securities of such
registrant registered under the Securities Act. Within such limited scope
of disclosure, however, as of the date of the Offering Circular and as of
the date hereof, the Financial Security Information does not contain any
untrue statement of a material fact, or omit to state a material fact
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
(h) Additional Information. Financial Security will furnish to, the
Seller, the Originator, the Company, the Depositor or either Underwriter,
upon request of the Seller, the Originator, the Company, the Depositor or
such Underwriter, as the case may be, copies of Financial Security's most
recent financial statements (annual or interim, as the case may be) which
fairly present in all material respects the financial condition of
Financial Security as of the dates and for the periods indicated, in
accordance with generally accepted accounting principles consistently
applied except as noted therein (subject, as to interim statements, to
normal year-end adjustments); provided, however, that, if the Seller, the
Originator, the Company, the Depositor or such Underwriter shall require a
manually signed report or consent of Financial Security's auditors in
connection with such financial statements, such report or consent shall be
at the expense of the Seller, the Originator, the Company, the Depositor
or such Underwriter, as the case may be. In addition, if the delivery of
an Offering Circular relating to the Securities is required at any time
prior to the expiration of nine months after the time of issue of the
Offering Circular in connection with the offering or sale of the
Securities, the Depositor or the Underwriters will notify Financial
Security of such
-5-
requirement to deliver an Offering Circular and Financial Security will
promptly provide the Depositor and the Underwriters with any revisions to
the Financial Security Information that are in the judgment of Financial
Security necessary to prepare an amended Offering Circular or a supplement
to the Offering Circular which will correct such statement or omission.
(i) Opinion of Counsel. Financial Security will furnish to the Seller, the
Originator, the Company, the Depositor and each Underwriter on the closing
date for the sale of the Securities an opinion of its Associate General
Counsel, to the effect set forth in Exhibit A attached hereto, dated such
closing date and addressed to the Seller, the Originator, the Company, the
Depositor and each Underwriter.
(j) Consents and Reports of Independent Accountants. Financial Security
will furnish to the Seller, the Originator, the Company, the Depositor and
each Underwriter, upon request, as comfort from its independent
accountants in respect of its financial condition, (i) at the expense of
the Person specified in the Insurance Agreement, a copy of the Offering
Circular, including either a manually signed consent or a manually signed
report of Financial Security's independent accountants and (ii) the
quarterly review letter by Financial Security's independent accountants in
respect of the most recent interim financial statements of Financial
Security.
Nothing in this Agreement shall be construed as a representation or warranty by
Financial Security concerning the rating of its claims-paying ability by
Standard & Poor's Ratings Services, a division of the XxXxxx-Xxxx Companies,
Inc. or Xxxxx'x Investors Service, Inc. or any other rating agency
(collectively, the "Rating Agencies"). The Rating Agencies, in assigning such
ratings, take into account facts and assumptions not described in the Offering
Circular and the facts and assumptions which are considered by the Rating
Agencies, and the ratings issued thereby, are subject to change over time.
Section 3. Representations, Warranties and Agreements of the Underwriters.
Each Underwriter individually represents, warrants and agrees, as of the date
hereof and as of the Closing Date, as follows:
(a) Compliance With Laws. The Underwriter will comply in all material
respects with all legal requirements in connection with offers and sales of the
Securities and make such offers and sales in the manner provided in the Offering
Circular.
(b) Offering Document. The Underwriter will not use, or distribute to
other broker-dealers for use, any Offering Document in connection with the offer
and sale of the Securities unless such Offering Document includes such
information as has been furnished by Financial Security for inclusion therein
and the information therein concerning Financial Security has been approved by
Financial Security in writing. Financial Security hereby consents to the
information in respect of Financial Security included in the Offering Circular.
Each Offering
-6-
Document will include the following statement: "The Policy is not covered by the
property/casualty insurance security fund specified in Article 76 of the New
York Insurance Law".
(c) Underwriting Information. All material provided by the Underwriter for
inclusion in the Offering Documents, insofar as such information relates to the
Underwriter, and any Derived Information (as defined in the Underwriting
Agreement) (as revised from time to time, collectively the "Underwriter
Information") is true and correct in all material respects. In respect of the
Offering Documents, the Underwriter Information is limited to the information
set forth under the caption "Plan of Distribution" in the Offering Documents.
Section 4. Indemnification. (a) Financial Security agrees, upon the terms
and subject to the conditions provided herein, to indemnify, defend and hold
harmless each Seller Party, each Originator Party, each Company Party, each
Depositor Party and each Underwriter Party against (i) any and all Losses
incurred by them with respect to the offer and sale of the Securities and
resulting from Financial Security's breach of any of its representations,
warranties or agreements set forth in Section 2 hereof and (ii) any and all
Losses to which any Seller Party, Originator Party, Company Party, Depositor
Party or Underwriter Party may become subject, under the Securities Act or
otherwise, insofar as such Losses arise out of or result from an untrue
statement of a material fact contained in any Offering Document or the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or omission was made in the Financial
Security Information included therein in accordance with the provisions hereof.
(b) Each Underwriter agrees, upon the terms and subject to the conditions
provided herein, to indemnify, defend and hold harmless each Financial Security
Party against (i) any and all Losses incurred by them with respect to the offer
and sale of the Securities and resulting from such Underwriter's breach of any
of its representations, warranties or agreements set forth in Section 3 hereof
and (ii) any and all Losses to which any Financial Security Party may become
subject, under the Securities Act or otherwise, insofar as such Losses arise out
of or result from an untrue statement of a material fact contained in any
Offering Document or the omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
omission was made in the Underwriter Information included therein.
(c) Upon the incurrence of any Losses for which a party is entitled to
indemnification hereunder, the Indemnifying Party shall reimburse the
Indemnified Party promptly upon establishment by the Indemnified Party to the
Indemnifying Party of the Losses incurred.
Section 5. Indemnification Procedures. Except as provided below in Section
6 with respect to contribution or in Section 7(e), the indemnification provided
herein by an Indemnifying Party shall be the exclusive remedy of any and all
Indemnified Parties for the breach of a representation, warranty or agreement
hereunder by an Indemnifying Party; provided, however, that each Indemnified
Party shall be entitled to pursue any other remedy at law or in equity for any
such breach so long as the damages sought to be recovered shall not exceed the
-7-
Losses incurred thereby resulting from such breach. In the event that any action
or regulatory proceeding shall be commenced or claim asserted which may entitle
an Indemnified Party to be indemnified under this Agreement, such party shall
give the Indemnifying Party written or telegraphic notice of such action or
claim reasonably promptly after receipt of written notice thereof. The
Indemnifying Party shall be entitled to participate in and, upon notice to the
Indemnified Party, assume the defense of any such action or claim in reasonable
cooperation with, and with the reasonable cooperation of, the Indemnified Party.
The Indemnified Party will have the right to employ its own counsel in any such
action in addition to the counsel of the Indemnifying Party, but the fees and
expenses of such counsel will be at the expense of such Indemnified Party,
unless (a) the employment of counsel by the Indemnified Party at its expense has
been authorized in writing by the Indemnifying Party, (b) the Indemnifying Party
has not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, or (c)
the named parties to any such action or proceeding (including any impleaded
parties) include both the Indemnifying Party and one or more Indemnified
Parties, and the Indemnified Parties shall have been advised by counsel that
there may be one or more legal defenses available to them which are different
from or additional to those available to the Indemnifying Party (it being
understood, however, that the Indemnifying Party 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 firm of attorneys at any time for all Seller
Parties, one such firm for all Originator Parties, one such firm for all Company
Parties, one such firm for all Depositor Parties, one such firm for all
Underwriter Parties and one such firm for all Financial Security Parties, as the
case may be, which firm shall be designated in writing by the Seller in respect
of the Seller Parties, by the Originator in respect of the Originator Parties,
by the Company in respect of the Company Parties, by the Depositor in respect of
the Depositor Parties, jointly by the Underwriters in respect of the Underwriter
Parties, and by Financial Security in respect of the Financial Security
Parties), in each of which cases the fees and expenses of counsel will be at the
expense of the Indemnifying Party and all such fees and expenses will be
reimbursed promptly as they are incurred. The Indemnifying Party shall not be
liable for any settlement of any such claim or action unless the Indemnifying
Party shall have consented thereto or been in default in its obligations
hereunder. Any failure by an Indemnified Party to comply with the provisions of
this Section shall relieve the Indemnifying Party of liability only if such
failure is prejudicial to the position of the Indemnifying Party and then only
to the extent of such prejudice.
Section 6. Contribution. (a) To provide for just and equitable
contribution if the indemnification provided by any Indemnifying Party is
determined to be unavailable for any Indemnified Party (other than due to
application of this Section), each Indemnifying Party shall contribute to the
Losses arising from any breach of any of its representations, warranties or
agreements contained in this Agreement in such proportion as is appropriate to
reflect (i) the benefits received by such Indemnifying Party relative to the
benefits received by the Indemnified Party or (ii) if the allocation provided by
clause (i)
-8-
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Indemnifying Party on the one hand and the
Indemnified Party on the other in connection with such Loss; provided, however,
that an Indemnifying Party shall in no event be required to contribute to all
Indemnified Parties an aggregate amount in excess of the Losses incurred by such
Indemnified Parties resulting from the breach of representations, warranties or
agreements contained in this Agreement.
(b) The relative fault of each Indemnifying Party, on the one hand, and of
each Indemnified Party, on the other, shall be determined by reference to, among
other things, whether the breach of, or alleged breach of, any representations,
warranties or agreements contained in this Agreement relates to information
supplied by, or action within the control of, the Indemnifying Party or the
Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such breach.
(c) The parties agree that Financial Security shall be solely responsible
for the Financial Security Information, the Underwriters shall be solely
responsible for the Underwriter Information and that, as and to the extent
provided in the Insurance Agreement, the balance of the Offering Document shall
be the responsibility of the Seller, the Originator, the Company and the
Depositor.
(d) Notwithstanding anything in this Section 6 to the contrary, no
Underwriter shall be required to contribute an amount greater than the excess,
if any, of (x) the purchase prices paid by investors to such Underwriter for the
Securities over (y) the purchase price paid by such Underwriter for such
Securities.
(e) No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(f) Upon the incurrence of any Losses entitled to contribution hereunder,
the contributor shall reimburse the party entitled to contribution promptly upon
establishment by the party entitled to contribution to the contributor of the
Losses incurred.
(g) The provisions relating to contribution set forth in this Section 6 do
not limit the rights of any party to indemnification under Section 4.
Section 7. Miscellaneous.
(a) Notices. All notices and other communications provided for under this
Agreement shall be delivered to the address set forth below or to such other
address as shall be designated by the recipient in a written notice to the other
party or parties hereto.
If to Financial Security: Financial Security Assurance Inc.
000 Xxxx Xxxxxx
-0-
Xxx Xxxx, XX 00000
Attention: Surveillance Department
Re: Emergent Home Equity Loan Trust 1998-1
If to the Seller: Emergent Mortgage Holdings Corporation
00 Xxxx Xxxxxxxxxx Xxx
Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx, Xx.
If to the Originator: Emergent Mortgage Corp.
00 Xxxxx Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxx X. Xxxx
If to the Company: Emergent Mortgage Group, Inc.
00 Xxxxx Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Chief Legal Counsel
If to the Depositor: Prudential Securities Secured
Financing Corporation
Xxx Xxx Xxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Managing Director,
Asset-Backed Finance Group
If to the Underwriters: Prudential Securities Incorporated
One Xxx Xxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Manager-Asset Finance Group
First Union Capital Markets
000 Xxxxx Xxxxxxx Xxxxxx XX-00
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Specialty Finance Group
(b) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflict of laws principles thereof.
(c) Assignments. This Agreement may not be assigned by any party without
the express written consent of each other party. Any assignment made in
violation of this Agreement shall be null and void.
-10-
(d) Amendments. Amendments of this Agreement shall be in writing signed by
each party hereto.
(e) Survival, Etc. The indemnity and contribution agreements contained in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Indemnifying Party, (ii)
the issuance of the Securities or (iii) any termination of this Agreement or the
Policy. The indemnification provided in this Agreement will be in addition to
any liability which the parties hereto may otherwise have and shall in no way
limit any rights or obligations of the parties under the Underwriting Agreement
or the Insurance Agreement.
(f) Counterparts. This Agreement may be executed in counterparts by the
parties hereto, and all such counterparts shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
FINANCIAL SECURITY ASSURANCE PRUDENTIAL SECURITIES SECURED
INC. FINANCING CORPORATION
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title: Authorized Officer Title:___________________________
EMERGENT MORTGAGE HOLDINGS PRUDENTIAL SECURITIES
CORPORATION INCORPORATED
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
EMERGENT MORTGAGE CORP. FIRST UNION CAPITAL MARKETS,
A DIVISION OF WHEAT FIRST
SECURITIES CORP.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
EMERGENT GROUP, INC.
By:______________________________
Name:____________________________
Title:___________________________
EXHIBIT A
OPINION OF GENERAL COUNSEL
Based upon the foregoing, I am of the opinion that:
1. Financial Security is a stock insurance company duly organized, validly
existing and authorized to transact financial guaranty insurance business under
the laws of the State of New York.
2. The Policy and the Agreements have been duly authorized, executed and
delivered by Financial Security.
3. The Policy and the Agreements constitute valid and binding obligations
of Financial Security, enforceable against Financial Security in accordance with
their terms, subject, as to the enforcement of remedies, to bankruptcy,
insolvency, reorganization, rehabilitation, moratorium and other similar laws
affecting the enforceability of creditors' rights generally applicable in the
event of the bankruptcy or insolvency of Financial Security and to the
application of general principles of equity and subject, in the case of the
Indemnification Agreement, to principles of public policy limiting the right to
enforce the indemnification provisions contained therein insofar as they relate
to indemnification for liabilities arising under applicable securities laws.
4. The Policy is exempt from registration under the Securities Act of
1933, as amended (the "Act").
5. Neither the execution or delivery by Financial Security of the Policy
or the Agreements, nor the performance by Financial Security of its obligations
thereunder, will conflict with any provision of the certificate of incorporation
or the by-laws of Financial Security or, to the best of my knowledge, result in
a breach of, or constitute a default under, any agreement or other instrument to
which Financial Security is a party or by which it or any of its property is
bound or, to the best of my knowledge, violate any judgment, order or decree
applicable to Financial Security of any governmental or regulatory body,
administrative agency, court or arbitrator having jurisdiction over Financial
Security (except that in the published opinion of the Securities and Exchange
Commission the indemnification provisions of the Indemnification Agreement,
insofar as they relate to indemnification for liabilities arising under the Act,
are against public policy as expressed in the Act and are therefore
unenforceable).
In addition, please be advised that I have reviewed the description of
Financial Security under the caption "The Insurer" in the Prospectus Supplement
dated March 16, 1998 (the "Offering Document") with respect to the Securities.
The information provided in the Offering Document with respect to Financial
Security is limited and does not purport to provide the scope of disclosure
required to be included in a prospectus with respect to a registrant under the
Act in connection with a public offering and sale of securities of such
registrant. Within such limited
scope of disclosure, however, there has not come to my attention any information
which would cause me to believe that the description of Financial Security
referred to above, as of the date of the Offering Document or as of the date of
this opinion, contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (except that I express no opinion with respect to any financial
statements or other financial information contained or referred to therein).
