EXECUTION COPY
================================================================================
MBIA INSURANCE CORPORATION,
as Insurer
FLAGSHIP CREDIT CORPORATION
as Originator
and
PRUDENTIAL SECURITIES INCORPORATED
as Underwriter
INDEMNIFICATION AGREEMENT
$250,000,000
Flagship Auto Receivables Owner Trust 1999-2
$117,000,000 6.420% Class A-1 Notes
$60,000,000 6.705% Class A-2 Notes
$43,000,000 6.835% Class A-3 Notes
$30,000,000 6.900% Class A-4 Notes
Dated as of November 17, 1999
================================================================================
TABLE OF CONTENTS
Page
Section 1. Definitions......................................................1
Section 2. Representations and Warranties of the Insurer....................3
Section 3. Agreements, Representations and Warranties of the Underwriter....4
Section 4. Agreements, Representations and Warranties of the Originator.....4
Section 5. Indemnification..................................................5
Section 6. Notice To Be Given...............................................6
Section 7. Contribution.....................................................8
Section 8. Notices..........................................................9
Section 9. Governing Law, Etc..............................................10
Section 10. Insurance Agreement; Underwriting Agreement; Indenture, Sales
and Servicing Agreement.........................................10
Section 11. Limitations.....................................................10
Section 12. Counterparts....................................................10
Section 13. Nonpetition.....................................................10
INDEMNIFICATION AGREEMENT
This Agreement, dated as of November 17, 1999, is by and among MBIA
INSURANCE CORPORATION (the "Insurer"), as the Insurer under the Note Guaranty
Insurance Policy (the "Policy") issued in connection with the Offered Notes
described below, FLAGSHIP CREDIT CORPORATION (the "Originator") and PRUDENTIAL
SECURITIES INCORPORATED (the "Underwriter").
Section 1. DEFINITIONS. As used in this Agreement, the following terms
shall have the respective meanings stated herein, unless the context clearly
requires otherwise, in both singular and plural form, as appropriate.
Capitalized terms used in this Agreement but not otherwise defined herein will
have the meanings ascribed to such terms in the Indenture (as described below).
"Act" means the Securities Act of 1933, as amended, together with all
related rules and regulations.
"Agreement" means this Indemnification Agreement by and among the Insurer,
the Originator and the Underwriter.
"Indemnified Party" means any person entitled to any indemnification
pursuant to Section 5 below, as the context requires.
"Indemnifying Party" means any person required to provide indemnification
pursuant to Section 5 below, as the context requires.
"Indenture" means the Indenture dated as of November 1, 1999 between
Flagship Credit Corporation, as Servicer, Flagship Auto Receivables Owner Trust
1999-2 as the Issuer, and Xxxxxx Trust and Savings Bank, as Indenture Trustee,
without regard to any amendment or supplement thereto, unless such amendment or
supplement has been approved in writing by the Insurer.
"Insurance Agreement" means the Insurance Agreement, dated as of November
1, 1999, by and among the Originator, the Servicer, Flagship Auto Receivables
Owner Trust 1999-2, as Issuer, Flagship Auto Loan Funding LLC 1999-II, as
Seller, Prudential Securities Secured Financing Corporation, as Depositor, First
Union National Bank, as Owner Trustee, Flagship Special Member, Inc., as Special
Member, Copelco Financial Services Group Inc., as Back-up Servicer and as
Guarantor, and Xxxxxx Trust and Savings Bank, as Trustee and as Collateral Agent
"Insurer Party" means the Insurer and its respective parents, subsidiaries
and affiliates and any shareholder, director, officer, employee, agent or any
"controlling person" (as such term is used in the Act) of any of the foregoing.
"Losses" means (i) any actual out-of-pocket loss paid by the party entitled
to indemnification or contribution hereunder and (ii) any actual out-of-pocket
costs and expenses paid by such party, including reasonable fees and expenses of
its counsel, to the extent not paid, satisfied or reimbursed from funds provided
by any other Person (provided that the foregoing shall not create or imply any
obligation to pursue recourse against any such other Person).
"Offered Notes" means the $250,000,000 Flagship Auto Receivables Owner
Trust 1999-2 $117,000,000 6.420% Class A-1 Notes $60,000,000 6.705% Class A-2
Notes $43,000,000 6.835% Class A-3 Notes $30,000,000 6.900% Class A-4 Notes
issued pursuant to the Indenture.
"Originator Party" means the Originator, and its parents, subsidiaries and
affiliates and any shareholder, director, officer, employee, agent or any
"controlling person" (as such term is used in the Act) of any of the foregoing.
"Person" means any individual, partnership, joint venture, corporation,
trust or unincorporated organization or any government or agency or political
subdivision thereof.
"Prospectus" means the form of final Prospectus included in the
Registration Statement on each date that the Registration Statement and any post
effective amendment or amendments thereto became effective.
"Prospectus Supplement" means the preliminary Prospectus Supplement dated
November 8, 1999 and the final Prospectus Supplement dated November 17, 1999,
each of the Depositor in respect of the Offered Notes (and any amendment or
supplement thereto) and any other offering document in respect of the Offered
Notes prepared by the Depositor, the Originator or the Seller that makes
reference to the Policy.
"Registration Statement" means the registration statement on Form S-3 of
the Depositor relating to the Offered Notes.
"Servicer" means Flagship Credit Corporation, as Servicer.
"Special Member" means Flagship Special Member, Inc.
"Underwriting Agreement" means the Underwriting Agreement by and between
the Originator, the Seller and the Underwriter, dated November 17, 1999.
"Underwriter Party" means the Underwriter and its parent, subsidiaries
(including the Depositor) and affiliates and any shareholder, director, officer,
employee, agent or "controlling person" (as such term is used in the Act) of any
of the foregoing.
Section 2. REPRESENTATIONS AND WARRANTIES OF THE INSURER. The Insurer
represents and warrants to the Underwriter and the Originator as follows:
2
(a) Organization and Licensing. The Insurer is a duly incorporated and
existing New York stock insurance company licensed to do business in the
State of New York and is in good standing under the laws of such state.
(b) Corporate Power. The Insurer has the corporate power and authority
to issue the Policy and execute and deliver this Agreement and the
Insurance Agreement and to perform all of its obligations hereunder and
thereunder.
(c) Authorization; Approvals. The Policy, this Agreement and the
Insurance Agreement have been duly authorized, executed and delivered. No
further approvals or filings of any kind, including, without limitation,
any further approvals of or further filings with any governmental agency or
other governmental authority, or any approval of the Insurer's board of
directors or stockholders, are necessary for the Policy, this Agreement and
the Insurance Agreement to constitute the legal, valid and binding
obligations of the Insurer.
(d) Enforceability. The Policy, when issued, and this Agreement and
the Insurance Agreement will each constitute legal, valid and binding
obligations of the Insurer, enforceable in accordance with their terms,
subject, as to the enforcement of remedies, to bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the
enforceability of creditors' rights generally applicable in the event of
the bankruptcy, insolvency or reorganization of the Insurer and to general
principles of equity and subject, in the case of this Agreement, to
principals of pubic policy limiting the right to enforce the
indemnification provisions contained herein.
(e) Financial Information. The consolidated financial statements of
the Insurer as of December 31, 1998 and December 31, 1997 and for the three
years ended December 31, 1998 incorporated by reference in the Prospectus
Supplement (the "Insurer Audited Financial Statements"), fairly present in
all material respects the financial condition of the Insurer as of such
date and for the period covered by such statements in accordance with
generally accepted accounting principles consistently applied. The
consolidated financial statements of the Insurer and its subsidiaries as of
June 30, 1999 incorporated by reference in the preliminary Prospectus
Supplement and as of September 30, 1999 incorporated by reference in the
final Prospectus Supplement (the "Insurer Unaudited Financial Statements")
present fairly in all material respects the financial condition of the
Insurer as of such date and for the period covered by such statements in
accordance with generally accepted accounting principles applied in a
manner consistent with the accounting principles used in preparing the
Insurer Audited Financial Statements, and, since September 30, 1999 there
has been no material change in such financial condition of the Insurer
which would materially and adversely affect its ability to perform its
obligations under the Policy.
3
(f) Insurer Information. The information in the Prospectus Supplement
as of the date hereof under the captions "The Policy" and "The Insurer" and
"Note Guaranty Insurance Policy" in Exhibit A thereto (the "Insurer
Information") is limited and does not purport to provide the scope of
disclosure required to be included in a prospectus for a registrant under
the Securities Act of 1933, in connection with the public offer and sale of
securities of such registrant. Within such limited scope of disclosure, the
Insurer Information does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(g) No Litigation. There are no actions, suits, proceedings or
investigations pending or, to the best of the Insurer's knowledge,
threatened against it at law or in equity or before or by any court,
governmental agency, board or commission or any arbitrator which, if
decided adversely, would materially and adversely affect its condition
(financial or otherwise) or its operations or would materially and
adversely affect its ability to perform its obligations under this
Agreement, the Policy or the Insurance Agreement.
Section 3. AGREEMENTS, REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITER.
The Underwriter represents and warrants to and agrees with the Insurer that the
statements in the Prospectus Supplement made in reliance upon and in conformity
with written information relating to the Underwriter furnished specifically for
use in the preparation of the Prospectus Supplement, (referred to herein as the
"Underwriter Information"), are true and correct in all material respects. The
parties each agree and acknowledge that the Underwriter Information is limited
to the information under "Underwriting" in the Prospectus Supplement.
Section 4. AGREEMENTS, REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR.
The Originator represents, warrants to and agrees with the Insurer, the
Depositor and the Underwriter as follows:
(a) Registration Statement. The information in the Registration
Statement, the Prospectus and the Prospectus Supplement, other than the
Insurer Information and the Underwriter Information, is true and correct in
all material respects and does not contain any untrue statement of a fact
that is material or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(b) Due Organization and Qualification. The Originator is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. The Originator is duly qualified
to be business and is in good standing in each jurisdiction in which
failure to be so qualified would render any Transaction Document
unenforceable in any respect or would have a material adverse effect upon
this transaction, the Noteholders or the Insurer.
4
(c) Corporate Power. The Originator has the corporate power and
authority to execute and deliver this Agreement, the Sales and Servicing
Agreement and the Insurance Agreement and to perform all of its obligations
hereunder and thereunder in all material respects.
(d) Authorization; Approvals. The execution, delivery and performance
of this Agreement, the Sales and Servicing Agreement and the Insurance
Agreement by the Originator has been duly authorized by all necessary
corporate proceedings. No further approvals or filings of any kind,
including, without limitation, any further approvals of or further filing
with any governmental agency or other governmental authority, or any
approval of the Originator's board of directors or stockholders, are
necessary for this Agreement, the Sales and Servicing Agreement and the
Insurance Agreement to constitute the legal, valid and binding obligations
of the Originator.
(e) Enforceability. This Agreement, the Sales and Servicing Agreement
and the Insurance Agreement will each constitute legal, valid and binding
obligations of the Originator, enforceable in accordance with their terms,
subject, as to the enforcement of remedies, to bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the
enforceability of creditors' rights generally applicable in the event of
the bankruptcy, insolvency or reorganization of the Originator and to
general principles of equity and subject, in the case of this Agreement, to
principals of pubic policy limiting the right to enforce the
indemnification provisions contained herein.
(f) No Litigation. There are no actions, suits, proceedings or
investigations pending or, to the best of the Originator's knowledge,
threatened against it at law or in equity or before any court, governmental
agency, board or commission or any arbitrator which, if decided adversely,
would materially and adversely affect its condition (financial or
otherwise) or its operations, taken as a whole, or would materially and
adversely affect its ability to perform its obligations under this
Agreement, the Underwriting Agreement, the Sales and Servicing Agreement or
the Insurance Agreement.
Section 5. INDEMNIFICATION.
(a) The Insurer hereby agrees, upon the terms and subject to the
conditions of this Agreement, to indemnify, defend and hold harmless each
Originator Party and each Underwriter Party against any and all Losses
incurred by them with respect to the offer and sale of any of the Offered
Notes and resulting from the Insurer's breach of any of its representations
and warranties set forth in Section 2 of this Agreement.
(b) The Underwriter hereby agrees, upon the terms and subject to the
conditions of this Agreement, to indemnify, defend and hold harmless each
Insurer Party against any and all Losses incurred by it with respect to the
offer and sale of any of the
5
Offered Notes and resulting from the Underwriter's breach of any of its
representations and warranties set forth in Section 3 of this Agreement.
(c) The Originator hereby agrees, upon the terms and subject to the
conditions of this Agreement, to indemnify, defend and hold harmless each
Insurer Party against any and all Losses incurred by it with respect to the
offer and sale of any of the Offered Notes and resulting from the
Originator's breach of any of its representations and warranties set forth
in Section 4 of this Agreement.
(d) Upon the incurrence of any Losses 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 6. NOTICE TO BE GIVEN.
(a) Except as provided in Section 7 below with respect to
contribution, the indemnification provided herein by the Indemnifying Party
shall be the exclusive remedy of each Indemnified Party for the Losses
resulting from the Indemnifying Party's breach of a representation,
warranty or agreement hereunder; 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.
(b) 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 facsimile notice of such action or claim reasonably
promptly after receipt of written notice thereof.
(c) Upon request of the Indemnified Party, the Indemnifying Party
shall retain counsel reasonably satisfactory to the Indemnified Party to
represent the Indemnified Party and any others the Indemnifying Party may
designate in such proceeding and shall pay the fees and disbursements of
such counsel related to such proceeding. The Indemnifying Party may, at its
option, at any time upon written notice to the Indemnified Party, assume
the defense of any proceeding and may designate counsel reasonably
satisfactory to the Indemnified Party in connection therewith, provided
that the counsel so designated would have no actual or potential conflict
of interest in connection with such representation. Unless it shall assume
the defense of any proceeding, the Indemnifying Party shall not be liable
for any settlement of any proceeding, effected without its written consent,
but if settled with such consent or if there be a final judgment for the
plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party
from and against any loss or liability by reason of such settlement or
judgment. The Indemnifying Party shall be entitled to participate in the
defense of any such action or claim in reasonable cooperation with, and
with the reasonable cooperation of, each Indemnified Party.
6
(d) The Indemnified Party will have the right to employ its own
counsel in any such action, but the fees and expenses of such counsel will
be at the expense of such Indemnified Party unless (i) the employment of
counsel by the Indemnified Party at the Indemnifying Party's expense has
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
within a reasonable time after receiving notice of the commencement of the
action or (iii) the named parties to any such action include the
Indemnifying Party on the one hand and, on the other hand, the Indemnified
Party, and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them
(in which case if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to
assume the defense of such action or proceeding on such Indemnified Party's
behalf), in each of which cases the reasonable fees and expenses of counsel
(including local counsel) will be at the expense of the Indemnifying Party,
and all such fees and expenses will be reimbursed promptly as they are
incurred. In the event that any expenses so paid by the Indemnifying Party
are subsequently determined not to be required to be borne by the
Indemnifying Party hereunder, the party which received such payment shall
promptly refund to the Indemnifying Party the amount so paid by such
Indemnifying Party. Notwithstanding the foregoing, in connection with any
one action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or
circumstances, the Indemnifying Party shall not be liable for the fees and
expenses of more than one counsel for all Originator Parties, more than one
counsel for all Underwriter Parties and more than one counsel for all
Insurer Parties, as applicable.
(e) The Indemnified Parties shall cooperate with the Indemnifying
Parties in resolving any event which would give rise to an indemnity
obligation pursuant to Section 5 hereof in the most efficient manner.
(f) No settlement of any such claim or action shall be entered into
without the consent of each Indemnified Party who is subject to such claim
or action, on the one hand, and each Indemnifying Party who is subject to
such claim or action, on the other hand; provided, however, that the
consent of such Indemnified Party shall not be required if such settlement
fully discharges, with prejudice against the plaintiff, the claim or action
against such Indemnified Party.
(g) 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 materially prejudicial to any legal pleadings, grounds,
defenses or remedies in respect thereof or the Indemnifying Party's
financial liability hereunder, and then only to the extent of such
prejudice.
7
Section 7. CONTRIBUTION.
(a) To provide for just and equitable contribution if the
indemnification provided by the Insurer is determined to be unavailable for
any Underwriter Party (other than pursuant to Section 5 or 6 of this
Agreement), or if the indemnification provided by the Underwriter is
determined to be unavailable for any Insurer Party (other than pursuant to
Section 5 or 6 of this Agreement), the Insurer and the Underwriter shall
contribute to the aggregate costs of liabilities arising from any breach of
their respective representations and warranties set forth in this Agreement
on the basis of the relative fault of all Insurer Parties and all
Underwriter Parties.
(b) To provide for just and equitable contribution if the
indemnification provided by the Insurer is determined to be unavailable for
any Originator Party (other than pursuant to Section 5 or 6 of this
Agreement), or if the indemnification provided by the Originator is
determined to be unavailable for any Insurer Party (other than pursuant to
Section 5 or 6 of this Agreement), the Insurer and the Originator shall
contribute to the aggregate cost of liabilities arising from any breach of
their respective representations and warranties set forth in this Agreement
on the basis of the relative fault of all Insurer Parties and all
Originator Parties.
(c) Notwithstanding anything in this Section 7 to the contrary, (i)
the Insurer shall not be required to contribute an amount in excess of the
amount by which the total of the insurance premiums that have been received
by the Insurer under the Insurance Agreement exceeds the amount of any
damages that the Insurer has otherwise been required to pay in respect of
any breach by the Insurer of the representations and warranties contained
in Section 2 hereof, and (ii) the Underwriter shall not be required to
contribute an amount in excess of the amount by which the total
underwriting fees, discounts and commissions received by the Underwriter
exceeds the amount of any damages that the Underwriter has otherwise been
required to pay in respect of any breach by the Underwriter of the
representations and warranties contained in Section 3 hereof.
(d) The relative fault of each Indemnifying Party, on the one hand,
and of each Indemnified Party, on the other hand, shall be determined by
reference to, among other things, whether the breach of, or alleged breach
of, any of its representations and warranties set forth in Section 2, 3 or
4 of 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.
(e) The parties agree that the Insurer shall be solely responsible for
the Insurer Information and for the Insurer Financial Statements, that the
Underwriter shall be solely responsible for the Underwriter Information and
that the Originator shall be responsible
8
for all other information in the Registration Statement, the Prospectus and
in the Prospectus Supplement.
(f) No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(g) 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 Underwriter Party, any
Originator Party or any Insurer Party, (ii) the issuance of any Offered
Notes or the Policy or (iii) any termination of this Agreement.
(h) 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 8. NOTICES. All notices and other communications provided for under
this Agreement shall be addressed to the address set forth below as to each
party or at such other address as shall be designated by a party in a written
notice to the other party.
(a) If to the Insurer: MBIA Insurance Corporation
000 Xxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Insured Portfolio Management--
Structured
Finance (IPM-SF)
(b) If to the Originator: Flagship Credit Corporation
0 Xxxxxxxxxxxxx Xxxxx
Xxxxxxxxxxxx XX 00000
Attention: General Counsel
(c) If to the Underwriter: Prudential Securities Incorporated
Xxx Xxx Xxxx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxxxx
Section 9. GOVERNING LAW, ETC. This Agreement shall be deemed to be a
contract under the laws of the State of New York and shall be governed by and
construed in accordance with the laws of the State of New York without regard to
its conflicts of laws provisions. This Agreement may not be assigned by any
party without the express written consent of each other party.
9
Amendments of this Agreement shall be in writing signed by each party. This
Agreement shall not be effective until executed by each of the Insurer, the
Originator and the Underwriter.
Section 10. INSURANCE AGREEMENT; UNDERWRITING AGREEMENT; INDENTURE, SALES
AND SERVICING AGREEMENT. This Agreement in no way limits or otherwise affects
the indemnification obligations of the Originator under (a) the Insurance
Agreement, (b) the Underwriting Agreement (c) the Indenture or (d) the Sales and
Servicing Agreement. To the extent that this Agreement conflicts with or does
not address the relative rights of the Underwriter and Originator as between
themselves as set forth in the Underwriting Agreement, the Underwriting
Agreement shall govern.
Section 11. LIMITATIONS. Nothing in this Agreement shall be construed as a
representation or undertaking by the Insurer concerning maintenance of the
rating currently assigned to its financial strength by Xxxxx'x Investors
Service, Inc. ("Moody's") and/or Standard & Poor's Ratings Services, a division
of The XxXxxx-Xxxx Companies, Inc. ("S&P") or any other rating agency
(collectively, the "Rating Agencies").
Section 12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall together constitute but one and the same
instrument.
Section 13. NONPETITION. So long as the Insurance Agreement is in effect,
and for one year following its termination, none of the parties hereto will file
any involuntary petition or otherwise institute any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding or other proceeding under any
federal or state bankruptcy or similar law against the Depositor, the Seller,
the Issuer or the Special Member.
[Remainder of this page intentionally left blank.]
10
IN WITNESS WHEREOF, the parties hereto have caused this Indemnification
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized, all as of the date first above written.
MBIA INSURANCE CORPORATION
By
------------------------------
Title
------------------------------
FLAGSHIP CREDIT CORPORATION,
as Originator
By
------------------------------
Title
------------------------------
PRUDENTIAL SECURITIES INCORPORATED,
as Underwriter
By
------------------------------
Title
------------------------------
