1
EXHIBIT 10.3
EXECUTION COPY
INDEMNIFICATION AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
NATIONAL FINANCIAL AUTO FUNDING TRUST
and
FIRST UNION CAPITAL MARKETS CORP.
Dated as of July 23, 1997
National Auto Finance 1997-1 Trust
6.35% Automobile Receivables-Backed Notes
$66,891,200
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TABLE OF CONTENTS
Page
Section 1. Definitions 1
Section 2. Representations, Warranties and Agreements of
Financial Security 4
Section 3. Representations, Warranties and Agreements of
the Underwriter 7
Section 4. Indemnification 8
Section 5. Indemnification Procedures 9
Section 6. Contribution 10
Section 7. Miscellaneous 11
EXHIBIT A Opinion of Assistant General Counsel
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INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT dated as of July 23, 1997, among FINANCIAL
SECURITY ASSURANCE INC. ("Financial Security"), NATIONAL FINANCIAL AUTO FUNDING
TRUST (the "Company") and FIRST UNION CAPITAL MARKETS CORP. (the "Underwriter"):
Section 1. Definitions. For purposes of this Agreement, the following
terms shall have the meanings provided below:
"Agreement" means this Indemnification Agreement, as the same may be
amended, supplemented, or otherwise modified from time to time in accordance
with the terms hereof.
"Commission" means the SEC Commission.
"Company Party" means any of the Company, its subsidiaries and
affiliates and any trustee, holder of beneficial ownership interest, director,
officer, employee, agent or "controlling person" (as such term is used in the
Securities Act) of any of the foregoing.
"Federal Securities Laws" means the Securities Act, the Securities
Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company
Act of 1940, the Investment Advisers Act of 1940 and the Public Utility Holding
Company Act of 1935, each as amended from time to time, and the rules and
regulations in effect from time to time under such Acts.
"Financial Security Agreements" means this Agreement, the Spread
Account 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.
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"Indemnifying Party" means any party required to provide
indemnification pursuant to Section 4 hereof.
"Indenture" means the Indenture dated as of June 29, 1997, between
National Auto Finance 1997-1 Trust and Xxxxxx Trust and Savings Bank, as
Indenture Trustee and Trust Collateral Agent.
"Insurance Agreement" means the Insurance and Indemnity Agreement,
dated as of July 23, 1997, among Financial Security, the Trust, the Company and
NAFI, as the same may be amended, amended and restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"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 expenses 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.
"NAFI" means National Auto Finance Company, Inc., a Delaware
corporation.
"Offering Document" means the Prospectus and any other material or
documents delivered by the Underwriter or any Underwriter Party to any Person in
connection with the offer or sale of the Securities.
"Person" means any individual, partnership, joint venture, corporation,
limited liability company, limited liability partnership, trust, unincorporated
organization
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or other organization or entity (whether governmental or private).
"Policy" means the financial guaranty insurance policy delivered by
Financial Security with respect to the Securities.
"Prospectus" means any prospectus or preliminary prospectus relating to
the Securities included in the Registration Statement or filed with the
Commission (including all documents, if any, incorporated by reference therein
and the information, if any, deemed to be part thereof pursuant to the Rules and
Regulations), as the same may be amended or supplemented from time to time;
provided, however, that if any revised prospectus shall be provided by the
Company for use in connection with the offering of the Securities which differs
from the Prospectus filed with the Commission pursuant to Rule 424 of the
Securities Act (whether or not such revised prospectus is required to be filed
by the Seller pursuant to Rule 424 of the Securities Act), the term "Prospectus"
shall refer to such revised Prospectus from and after the time it is first
provided to the Underwriter or any Underwriter Party for such use.
"Registration Statement" means the registration statement on Form S-3
(No. 333-28829) including a prospectus and any amendments thereto relating to
the Securities, and any registration statement required to be filed under the
Securities Act or the Rules and Regulations (including all documents, if any,
incorporated by reference therein and the information, if any, deemed to be part
thereof pursuant to the Rules and Regulations), as the same may be amended or
supplemented from time to time.
"Rules and Regulations" means the rules and regulations of the
Commission under the Securities Act.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement,
dated as of June 29, 1997, among the Trust, the Company, NAFI, as Servicer, and
Xxxxxx Trust and Savings Bank, not in its individual capacity but solely as
Trust Collateral Agent.
"Securities" means the National Auto Finance 1997-1 Trust $66,891,200
6.35% Automobile Receivables-Backed Notes, described in the Offering Document
and issued pursuant to the Indenture and covered by the Policy.
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"Securities Act" means the Securities Act of 1933, as amended from time
to time, and any rule or regulation in effect from time to time under such Act.
"Spread Account Agreement" means the Master Spread Account Agreement
dated as of July 23, 1997, by and among the Company, Financial Security, the
Collateral Agent and the Trustee specified therein, as the same may be amended,
amended and restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
"Trust" means the National Auto Finance 1997-1 Trust, a Delaware
business trust.
"Underwriter Information" has the meaning provided in Section 3(c)
hereof.
"Underwriter Party" means any of the Underwriter, 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 as of
July 17, 1997, between the Company and the Underwriter, with respect to the
offer and sale of the Securities, as the same may be amended, amended and
restated, supplemented or otherwise modified from time to time in accordance
with the terms thereof.
Section 2. Representations, Warranties and Agreements of Financial
Security. Financial Security represents, warrants and agrees with the parties
hereto as follows:
A. Organization, Etc. 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.
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 valid and
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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 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).
F. Financial Information. The consolidated balance sheets of
Financial Security as of December 31, 1995 and December 31,
1996 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 March 31, 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 to the Underwriter, fairly present in all
material respects the financial condition of Financial
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Security as of such dates and for such periods in accordance
with generally accepted accounting principles consistently
applied (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
Prospectus set forth under the caption "The Insurer", or such
additional information as may be deemed to be included in the
Prospectus pursuant to the second paragraph under the heading
"Incorporation of Certain Documents By Reference" on page S-3
of the Prospectus (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 Prospectus 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 the light of the circumstances under which they
were made, not misleading.
H. Additional Information. Financial Security will furnish to the
Underwriter or the Company, upon request of the Underwriter or
the Company, 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). In
addition, if the delivery of a Prospectus relating to the
Securities is required at any time prior to the expiration of
nine months after the time of issuance of the Prospectus in
connection with the offering or
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sale of the Securities, the Company or the Underwriter will
notify Financial Security of such requirement to deliver a
Prospectus and Financial Security will promptly provide the
Underwriter and the Company with any revisions to the
Financial Security Information that are in the judgment of
Financial Security necessary to prepare an amended Prospectus
or a supplement to the Prospectus.
I. Opinion of Counsel. Financial Security will furnish to the
Underwriter and the Company on the closing date for the sale
of the Securities an opinion of its Assistant General Counsel,
to the effect set forth in Exhibit A attached hereto, dated
such closing date and addressed to the Company and the
Underwriter.
J. Consents and Reports of Independent Accountants. Financial
Security will furnish to the Underwriter and the Company, 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
Prospectus, 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 Xxxxx'x
Investors Service, Inc. or Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies, 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 Prospectus and the facts and
assumptions considered by the Rating Agencies, and the ratings issued thereby,
are subject to change over time.
Section 3. Representations, Warranties and Agreements of the
Underwriter. The Underwriter represents, warrants and agrees with the parties
hereto as follows:
A. Compliance With Laws. The Underwriter will comply in all
material respects with all legal
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requirements in connection with offers and sales of the
Securities and make such offers and sales in the manner
provided in the Offering Document.
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 Prospectus. Each Offering 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".
Each Offering Document including financial information with
respect to Financial Security prepared in accordance with
generally accepted accounting principles will include the
following statement immediately preceding such financial
information:
"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."
C. Underwriter Information. All material provided by the
Underwriter for inclusion in the Offering Document (as revised
from time to time, the "Underwriter Information"), insofar as
such information relates to the Underwriter and the manner
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of offer and sale of the Securities, is true and correct in
all material respects. In respect of the Prospectus, the
parties hereto acknowledge and agree that the Underwriter
Information is limited to the following: (i) the fifth
paragraph on the front cover page of the Offering Document
concerning market making activities; (ii) the first sentence
of the last paragraph on the front cover page of the Offering
Document concerning the terms of the offering; (iii) the first
paragraph on page S-2 of the Offering Document concerning
market making activities; (iv) the third paragraph on page S-2
of the Offering Document concerning stabilization activities;
and (v) the information under the caption "Underwriting" in
the Offering Document.
Section 4. Indemnification.
A. Financial Security agrees, upon the terms and subject to the conditions
provided herein, to indemnify, defend and hold harmless each Company
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 Company 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. The Underwriter agrees, upon the terms and subject to the conditions
provided herein, to indemnify, defend and hold harmless each Financial
Security Party and each Company Party against (i) any and all Losses
incurred by them with respect to the offer and sale of the Securities
and resulting from the 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 or
Company 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
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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, 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 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 shall 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 separate counsel shall be at the expense of the Indemnified
Party unless (i) the employment of counsel by the Indemnified Party at its
expense have been authorized in writing by the Indemnifying Party, (ii) the
Indemnifying Party has not in fact employed counsel to assume the defense of
such action or proceeding within a reasonable time after receiving notice of the
commencement of the action or proceeding or (iii) 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
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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 Company 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
Company in respect of the Company Parties, by the Underwriter 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 be 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
6), each Indemnifying Party shall contribute to the Losses arising from
any breach of any of its representations, warranties or agreements
contained in this Agreement on the basis of the relative fault of each
of the parties as set forth in Section 6(b) below; 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
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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 Underwriter shall be solely
responsible for the Underwriter Information and that the balance of
each Offering Document shall be the responsibility of the Company.
D. Notwithstanding anything in this Section 6 to the contrary, the
Underwriter shall not be required to contribute an amount in excess of
the amount by which the total offering price of the Securities
purchased by the Underwriter exceeds the amount of any damages that
such Underwriter has otherwise been required to pay in respect of any
breach by the Underwriter of its representations or warranties
contained in Section 3 hereof.
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.
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:
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If to Financial Security:
Financial Security Assurance Inc.
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Senior Vice President --
Surveillance Department (with a copy to the
attention of the General Counsel)
Re: National Auto Finance 1997-1 Trust,
6.35% Automobile Receivables-Backed Notes
Confirmation: (000) 000-0000
Telecopy Nos.: (000) 000-0000,
(000) 000-0000
(in each case in which notice or
other communication to Financial
Security refers to an Event of
Default, a claim on the 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 each such notice
shall be marked to indicate "URGENT
MATERIAL ENCLOSED.")
If to the Company:
National Financial Auto Funding Trust
c/o Chase Manhattan Bank Delaware
000 Xxxxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Corporate Trust Administration
Telecopy No.: (000) 000-0000
Confirmation: (000) 000-0000
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with a copy to:
Chase Manhattan Bank Delaware
c/o The Chase Manhattan Bank, N.A.
0 Xxxxx Xxxxxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attention: Corporate Trust Administration
Telecopy No.: (000) 000-0000
Confirmation: (000) 000-0000
If to the Underwriter:
First Union Capital Market Corp.
Xxx Xxxxx Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000-0000
Attention: Xxxxxxxx X. Xxxxxxx
Telecopy No.: (000) 000-0000
Confirm No.: (000) 000-0000
B. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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.
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 may otherwise have and shall in no way limit any
obligations of the Company under the Underwriting Agreement or the
Insurance Agreement.
F. Counterparts. This Agreement may be executed in counterparts by the
parties hereto, and all
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such counterparts shall constitute one and the same instrument.
[Remainder of Page Intentionally Blank]
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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 INC.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
FIRST UNION CAPITAL MARKETS CORP.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
NATIONAL FINANCIAL AUTO FUNDING TRUST
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
of Chase Manhattan Bank Delaware,
not in its individual capacity,
but solely in its capacity as
trustee for National Financial
Auto Funding Trust
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EXHIBIT A
OPINION OF ASSISTANT GENERAL COUNSEL
Based upon the foregoing, I am of the opinion that:
I. 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.
II. The Policy and the Financial Security Agreements have been duly
authorized, executed and delivered by Financial Security.
III. The Policy and the Financial Security 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.
IV. The Policy is exempt from registration under the Securities Act of
1933, as amended (the "Act").
V. 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 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
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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 July 17, 1997, which supplements the Base Prospectus dated July 17, 1997
(the "Offering Document") of the Company 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 the public offer 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, contained any untrue statement of a material fact or omitted 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 no opinion
is rendered with respect to any financial statements or other financial
information contained or referred to therein).
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