Execution Copy
INDEMNIFICATION AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
NATIONAL FINANCIAL AUTO FUNDING TRUST
and
FIRST UNION CAPITAL MARKETS CORP.
Dated as of November 21, 1995
National Auto Finance 1995-1 Trust
6.36% Automobile Loan Asset-Backed Certificates
$38,220,000
TABLE OF CONTENTS
Page
Section 1. Definitions...........................................................................................1
Section 2. Representations, Warranties and
Agreements of Financial Security...........................................................3
Section 3. Representations, Warranties and
Agreements of the Placement Agent..........................................................6
Section 4. Indemnification.......................................................................................7
Section 5. Indemnification Procedures............................................................................8
Section 6. Contribution..........................................................................................9
Section 7. Miscellaneous........................................................................................10
EXHIBIT A - Opinion of Assistant General Counsel
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT dated as of November 21, 1995,
among FINANCIAL SECURITY ASSURANCE INC. ("Financial Security"),
NATIONAL FINANCIAL AUTO FUNDING TRUST (the "Company") and FIRST
UNION CAPITAL MARKETS CORP. (the "Placement Agent"):
Section 1. Definitions. For purposes of this Agreement,
the following terms shall have the meanings provided below:
"Agreement" means this Indemnification Agreement, as amended
from time to time.
"Company Party" means any of the Company, its 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 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.
"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 November 21, 1995, among Financial
Security, the Company and NAFCO.
"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.
"NAFCO" means National Auto Finance Company L.P., a Delaware
limited partnership.
"Offering Circular" means the Preliminary Private Placement
Memorandum dated November 7, 1995 and the Private Placement
Memorandum dated November 16, 1995, in each case relating to the
Securities, and any amendment or supplement thereto, or a
prospectus in respect of the Securities that makes reference to
the Policy used in connection with the registration of the
Securities under the Securities Act pursuant to the Registration
Rights Agreement.
"Offering Document" means the Offering Circular and any
other material or documents delivered by the Placement Agent to
any Person in connection with the offer or sale of the Securities
or registration of the Securities under the Securities Act
pursuant to the Registration Rights Agreement.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or other
organization or entity (whether governmental or private).
"Placement Agent Agreement" means the Placement Agent
Agreement dated November 21, 1995, between the Company and the
Placement Agent in respect of the Securities.
"Placement Agent Information" has the meaning provided in
Section 3(c) hereof.
"Placement Agent Party" means any of the Placement Agent,
its parent, subsidiaries and affiliates and any shareholder,
director, officer, employee, agent of "controlling person" (as
such item is used in the Securities Act) of any of the foregoing.
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"Policy" means the financial guaranty insurance policy
delivered by Financial Security with respect to the Securities.
"Pooling and Servicing Agreement" means the Pooling and
Servicing Agreement, dated as of October 1, 1995, by and among
the Company, NAFCO, as Master Servicer and ▇▇▇▇▇▇ Trust and
Savings Bank, not in its individual capacity but solely as
Trustee.
"Registration Rights Agreement" means the Registration
Rights Agreement dated as of November 21, 1995, between the
Company and the initial purchasers of the Securities, pursuant to
which such initial purchasers may require the Company to register
the Securities on a Form S-3 registration statement under the
Securities Act if and when such Form S-3 registration statement
becomes available to the Company, subject to certain conditions
and limitations set forth therein.
"Securities" means the National Auto Finance 1995-1 Trust
$38,220,000 6.36% Automobile Loan Asset-Backed Certificates,
described in the Offering Circular and issued pursuant to the
Pooling and Servicing Agreement.
"Securities Act" means the Securities Act of 1933, as
amended from time to time.
"Spread Account Agreement" means the Master Spread Account
Agreement dated as of November 21, 1995 among the Company,
Financial Security and the Collateral Agent and Trustee specified
therein, as the same may be amended, supplemented or otherwise
modified in accordance with the terms thereof.
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
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laws affecting the enforceability of creditors' rights
generally applicable in the event of the bankruptcy or
insolvency of Financial Security and to the application of
general principles of equity and subject, in the case of
this Agreement, to principles of public policy limiting the
right to enforce the indemnification provisions contained
herein.
(d) Exemption From Registration. The Policy is exempt
from registration under the Securities Act.
(e) No Conflicts. Neither the execution or delivery
by Financial Security of the Policy or the Financial
Security Agreements, nor the performance by Financial
Security of its obligations thereunder, will conflict with
any provision of the certificate of incorporation or the
bylaws of Financial Security nor result in a breach of, or
constitute a default under, any material agreement or other
instrument to which Financial Security is a party or by
which any of its property is bound nor violate any judgment,
order or decree applicable to Financial Security of any
governmental or regulatory body, administrative agency,
court or arbitrator having jurisdiction over Financial
Security (except that, in the published opinion of the
Securities and Exchange Commission, the indemnification
provisions of this Agreement, insofar as they relate to
indemnification for liabilities arising under the Securities
Act, are against public policy as expressed in the
Securities Act and are therefore unenforceable).
(f) Financial Information. The consolidated balance
sheets of Financial Security as of December 31, 1993 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 September 30,
1995, 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 Placement
Agent, 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.
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(g) Financial Security Information. The information
in the Offering Circular set forth under the caption "The
Certificate Insurer" (as revised from time to time in
accordance with the provisions hereof, the "Financial
Security Information") is limited and does not purport to
provide the scope of disclosure required to be include 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.
(h) Additional Information. Financial Security will
furnish to the Placement Agent, or the Company, upon request
of the Placement Agent 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 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 or in connection with
the registration of the Securities under the Securities Act
in accordance with the Registration Rights Agreement, the
Company or the Placement Agent will notify Financial
Security of such requirement to deliver an Offering Circular
and Financial Security will promptly provide the Placement
Agent and the Company 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.
(i) Opinion of Counsel. Financial Security will
furnish to the Placement Agent 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 Placement Agent.
(j) Consents and Reports of Independent Accountants.
Financial Security will furnish to the Placement Agent and
the Company, upon request, as comfort from its independent
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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 ▇▇▇▇▇'▇ Investors Service, Inc. or
Standard & Poor's Ratings Services or any other rating agency
(collectively, the "Rating Agencies"). The Rating Agencies, in
assigning such ratings, take into account facts and assumptions
not described in the Offering Circular and the facts and
assumptions which are considered by the Rating Agencies, and the
ratings issued thereby, are subject to change over time.
Section 3. Representations, Warranties and Agreements of
the Placement Agent. The Placement Agent represents, warrants
and agrees as follows:
(a) Compliance With Laws. The Placement Agent will
comply in all material respects with all legal requirements
in connection with offers and sales of the Securities and
make such offers and sales in the manner provided in the
Offering Circular.
(b) Offering Document. The Placement Agent 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
Preliminary Private Placement Memorandum dated November 7,
1995 and the Private Placement Memorandum dated November 16,
1995, in each case relating to the Securities. 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
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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) Placement Agent Information. All material
provided by the Placement Agent for inclusion in the
Offering Circular (as revised from time to time, the
"Placement Agent Information"), insofar as such information
relates to the Placement Agent, is true and correct in all
material respects. In respect of the initial Offering
Circular, the Placement Agent Information is limited to the
information set forth under the caption "Offering" in the
Offering Circular.
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
Placement Agent 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 Placement Agent 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 Placement Agent 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
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and resulting from the Placement Agent'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 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 Placement Agent 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 or more legal defenses
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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 Placement Agent 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 Placement Agent in
respect of the Placement Agent 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 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.
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(c) The parties agree that Financial Security shall be
solely responsible for the Financial Security Information, the
Placement Agent shall be solely responsible for the Placement
Agent 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 Placement Agent shall not be required to contribute
an amount in excess of the amount by which the total offering
price of the Securities placed by the Placement Agent exceeds the
amount of any damages that such Placement Agent has otherwise
been required to pay in respect of any breach by the Placement
Agent 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:
If to Financial Security:
Financial Security Assurance Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Senior Vice President --
Surveillance Department (with a copy to
the attention of the General Counsel)
Re: National Auto Finance 1995-1 Trust,
6.36% Automobile Loan Asset-Backed
Certificates
Confirmation: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy Nos.: (▇▇▇) ▇▇▇-▇▇▇▇, (212)
339-3529
(in each case in which notice or other
communication to Financial Security
refers to an Event of Default, a claim
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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 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
▇/▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ (▇▇▇)
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Corporate Trust
Administration
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Confirmation: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: The Chase Manhattan Bank (USA)
▇/▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Bank, N.A.
▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: Corporate Trust
Administration
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Confirmation: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Placement Agent:
First Union Capital Market Corp.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Confirm No.: (▇▇▇) ▇▇▇-▇▇▇▇
(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.
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(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 Placement Agency 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:
---------------------------------
Name:
Title:
FIRST UNION CAPITAL MARKETS CORP.
By:
---------------------------------
Name:
Title:
NATIONAL FINANCIAL AUTO FUNDING
TRUST
By:
---------------------------------
Name:
Title: ______________ of
the Chase Manhattan Bank (USA),
as trustee for National
Financial Auto Funding Trust