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INDEMNIFICATION AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
ACCREDITED HOME LENDERS, INC.,
and
XXXXXX BROTHERS INC.
Dated as of September 23, 1996
$14,073,000 Class A-1 Certificates
$78,048,000 Class A-2 Certificates
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TABLE OF CONTENTS
Page
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SECTION 1. Definitions ................................................. 1
SECTION 2. Representations, Warranties and
Agreements of Financial Security ............................ 3
SECTION 3. Representations, Warranties and
Agreements of the Underwriter................................ 6
SECTION 4. Indemnification ............................................. 7
SECTION 5. Indemnification Procedures................................... 8
SECTION 6. Contribution ................................................ 9
SECTION 7. Miscellaneous................................................ 10
EXHIBIT A Opinion of General Counsel
2
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT, dated as of September 23, 1996, among
FINANCIAL SECURITY ASSURANCE INC. ("Financial Security"), ACCREDITED HOME
LENDERS, INC. (the "Issuer"), and XXXXXX BROTHERS INC. (the "Underwriter"):
Section 1. Definitions. For purposes of this Agreement, the
following terms shall have the meanings provided below. Capitalized terms used
but not otherwise defined herein shall have the meaning ascribed thereto in the
Pooling and Servicing Agreement.
"Agreement" means this Indemnification Agreement, as amended from
time to time.
"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
regulations in effect from time to time under such Acts.
"Financial Security Agreements" means this Agreement and the
Insurance Agreement.
"Financial Security Financial Information" has the meaning provided
in Section 2(f).
"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 September 1, 1996, by and between Financial Security and the Issuer.
"Issuer Party" means any of the Issuer, 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.
"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 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 Supplement relating to the
Securities dated September 23, 1996.
"Offering Document" means the Offering Circular (including the
Financial Security Financial Information incorporated by reference therein) and
any other material or documents delivered by the Underwriter to any Person in
connection with the offer or sale of the Securities.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or other organization or entity
(whether governmental or private).
"Pooling and Servicing Agreement" means the Pooling and Servicing
Agreement, dated as of September 1, 1996, between the Issuer, as sponsor and
master servicer, and Bankers Trust Company, as trustee.
"Policy" means the financial guaranty insurance policy delivered by
Financial Security with respect to the Securities.
"Securities" means the Class A-1 Certificates and Class A-2
Certificates issued by the Issuer pursuant to the Pooling and Servicing
Agreement.
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"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Underwriter Information" has the meaning provided in Section 3(b)
hereof.
"Underwriter" means Xxxxxx Brothers Inc.
"Underwriter Party" means, the Underwriter, its parent, subsidiaries
and affiliates and any shareholder, director, officer, employee, agent or
"controlling person" (as such item is used in the Securities Act) of any of the
foregoing.
"Underwriting Agreement" means the Underwriting Agreement dated
September 23, 1996, between the Issuer and the Underwriter.
Section 2. Representations, Warranties and Agreements of Financial
Security. Financial Security represents, warrants and agrees 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 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
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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).
(f) Financial Information. The consolidated balance sheets of
Financial Security as of December 31, 1995 and December 31, 1994 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 June 30, 1996, 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, or incorporated by reference, in
the Offering Circular (collectively, the "Financial Security Financial
Information"), 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 (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 Certificate Insurer," including the
Financial Security Financial Information, (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 the light
of the circumstances under which they were made, not misleading.
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(h) Additional Information. Financial Security will furnish to the
Underwriter and the Issuer, 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
Underwriter or the Issuer 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 Underwriter or the Issuer, 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 Issuer or the Underwriter will notify Financial
Security of such requirement to deliver an Offering Circular and Financial
Security will promptly provide the Underwriter and the Issuer 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
Underwriter and the Issuer on the closing date for the sale of the Securities an
opinion of its General Counsel, to the effect set forth in Exhibit A attached
hereto, dated such closing date and addressed to the Issuer and the Underwriter.
(j) Consents and Reports of Independent Accountants. Financial
Security will furnish to the Underwriter and the Issuer, 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, a division of the XxXxxx-Xxxx Companies, Inc. or Xxxxx'x
Investors Service or any other rating agency (collectively, the "Rating
Agencies"). The Rating Agencies, in assigning such ratings, take into account
facts and
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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
Underwriter. The Underwriter represents, warrants and agrees as follows:
(a) 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 Document will include the following statement: "The Certificate
Insurance Policy is not covered by the property/casualty insurance security fund
specified in Article 76 of the New York Insurance Law".
(b) Underwriting Information. The following information constitutes
the only information furnished by the Underwriter (the "Underwriter
Information"): (i) the statements set forth in the last paragraph on the front
cover page of the Offering Circular; and (ii) the statements set forth in the
third paragraph under the heading "Underwriting". The Underwriter confirms that
such statements (to such extent) are correct.
Section 4. Indemnification. (a) Financial Security agrees, upon the
terms and subject to the conditions provided herein, to indemnify, defend and
hold harmless each Issuer 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 Issuer 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,
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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 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 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
Form 8-K 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) Each Issuer Party agrees, upon the terms and subject to the
conditions provided herein, to indemnify, defend and hold harmless each
Financial Security Party against 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, except insofar as such Losses arise out of or
are based upon any untrue statement or omission in the Financial Security
Information.
(d) 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. 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. 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,
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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 Issuer
Parties, one such firm for all Underwriter Parties relating to the Underwriter
and one such firm for all Financial Security Parties, as the case may be, which
firm shall be designated in writing by the Issuer in respect of the Issuer
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), 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
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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) For purposes of this Agreement, the parties agree that Financial
Security shall be solely responsible for the Financial Security Information and
the Underwriter shall be solely responsible for the Underwriter Information and
that the balance of each Offering Document shall be the responsibility of the
Issuer.
(d) Notwithstanding anything in this Section 6 to the contrary, the
Underwriter shall not be required to contribute an amount greater than the
excess, if any, of (x) the purchase prices paid by investors to the Underwriter
for the Certificates over (y) the purchase price paid by the Underwriter for the
Certificates.
(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.
If to Financial Security:
Financial Security Assurance Inc.
000 Xxxx Xxxxxx
0
Xxx Xxxx, XX 00000
Attention:
Surveillance Department
Re: Accredited Mortgage Loan Trust 1996-1,
Mortgage Loan Asset-Backed Certificates,
Series 1996-1
If to Issuer:
Accredited Home Lenders, Inc.
00000 Xxxxxx xx Xxxxxxx, Xxxxx 000
Xxx Xxxxx, Xxxxxxxxxx 00000
If to the Underwriter:
Xxxxxx Brothers Inc.
3 World Financial Center
American Express Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: President and Executive Vice President
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(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 Issuer 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.
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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 /s/ Xxxxxx Xxxxxxx
---------------------------
Name Xxxxxx Xxxxxxx
Authorized Officer
ACCREDITED HOME LENDERS, INC.
By /s/ Xxx X. XxXxxxx
---------------------------
Name Xxx X. XxXxxxx
Title Executive Vice President
XXXXXX BROTHERS INC., as
Underwriter
By /s/ Xxxxxxxx X. Xxxxxxx
---------------------------
Name Xxxxxxxx X. Xxxxxxx
Title Managing Director
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
1
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 Certificate Insurer" in the Prospectus
Supplement dated September 23, 1996 (the "Offering Document") of the Issuer 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 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).
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