Document:

Prepared by R.R. Donnelley Financial -- INDEMNIFICATION AGREEMENT

Table of Contents

 Exhibit 10.2 
 EXECUTION COPY 

 
 INDEMNIFICATION AGREEMENT 
  
 among 
  
 FINANCIAL SECURITY ASSURANCE INC., 

 
 AFS FUNDING TRUST 
  
 and 
  
 J.P. MORGAN SECURITIES INC. 
  
 Dated as of September 5, 2002 
  
 $111,000,000 Class A-1 1.755% Asset Backed Notes 
 $153,000,000 Class A-2 2.04% Asset Backed Notes 
 $194,000,000 Class A-3 2.72% Asset Backed Notes 
 $142,000,000 Class A-4 3.40% Asset Backed Notes 

Table of Contents

 
TABLE OF CONTENTS 
  
 
	  	  	  	  	 Page
 

	 Section 1.
 	  	 Definitions
 	  	 1
 
	 Section 2.
 	  	 Representations, Warranties and Agreements of Financial Security
 	  	 3
 
	 Section 3.
 	  	 Representations, Warranties and Agreements of the Underwriters
 	  	 5
 
	 Section 4.
 	  	 Indemnification
 	  	 6
 
	 Section 5.
 	  	 Indemnification Procedures
 	  	 6
 
	 Section 6.
 	  	 Contribution
 	  	 7
 
	 Section 7.
 	  	 Miscellaneous
 	  	 8
 

 
  
 EXHIBIT A—Opinion of Assistant General Counsel 

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 INDEMNIFICATION AGREEMENT 
  

INDEMNIFICATION AGREEMENT dated as of September 5, 2002, among FINANCIAL SECURITY ASSURANCE INC. (“Financial Security”), AFS FUNDING TRUST, (the
“Seller”) and J.P. MORGAN SECURITIES INC., as the Representative (as defined below): 
  
 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. 
  
 “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, the Spread Account Agreement Supplement 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 September 5, 2002 among Financial
Security, the Trust, AmeriCredit Financial Services, Inc., AmeriCredit Corp. and AFS Funding Trust. 
  
 “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. 

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 “Offering Document” means the Prospectus and any other material
or documents delivered by the Underwriters 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). 
  
 “Policy” means the financial guaranty insurance policy delivered by Financial Security with respect to the Securities.

  
 “Prospectus” means, collectively, the Prospectus relating to the Securities dated January 25,
2002 and the Prospectus Supplement dated September 6, 2002 (the “Prospectus Supplement”) relating to the Securities. 
  
 “Representative” means J.P. Morgan Securities Inc., as representative of the Underwriters. 
  
 “Securities” means the Trust’s $111,000,000 Class A-1 1.755% Asset Backed Notes, $153,000,000 Class A-2 2.04% Asset Backed Notes, $194,000,000 Class A-3 2.72% Asset Backed Notes and $142,000,000 Class A-4 3.40%
Asset Backed Notes issued pursuant to the Series 2002-D Indenture. 
  
 “Securities Act” means the
Securities Act of 1933, as amended from time to time. 
  
 “Seller Party” means any of the Seller,
its parent, subsidiaries and affiliates and any employee, agent or “controlling person” (as such term is used in the Securities Act) of any of the foregoing. 
  
 “Spread Account Agreement” means the Spread Account Agreement, as amended and restated, dated as of May 11, 1998, as amended as of October 25, 1999, as
further amended as of May 22, 2000, as further amended as of November 29, 2000, among Financial Security, AFS Funding Trust, the collateral agent named therein and the trustees specified therein, as the same may be amended, supplemented or otherwise
modified in accordance with the terms thereof. 
  
 “Spread Account Agreement Supplement” means the
Series 2002-D Supplement to Spread Account Agreement, dated as of September 5, 2002, among Financial Security, AFS Funding Trust, the collateral agent named therein and the trustees specified therein. 
  
 “Trust” means AmeriCredit Automobile Receivables Trust 2002-D. 
  
 “Underwriter Information” has the meaning provided in Section 3(c) hereof. 
  
 “Underwriter Party” means any of the Underwriters, its respective 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. 
  
 “Underwriters” means J.P. Morgan Securities Inc. and Wachovia Securities, Inc., as underwriters. 
 

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 “Underwriting Agreement” means the Underwriting Agreement, dated
as of September 6, 2002 among the Seller, AmeriCredit Financial Services, Inc. and the Representative. 
  

	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 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, 2001 and December 31, 2000 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, 2002 (unaudited), and the related statements of income, changes in shareholder
equity and cash flows for the interim period then ended, which are incorporated by reference in the Prospectus, 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
 
 

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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 Supplement set forth under the caption “The Insurer” (as revised from time to time in accordance
with the provisions hereof, the “Financial Security Information”) is limited and does not purport to provide the scope of disclosure required to be included in a prospectus with respect to a registrant in connection with the offer
and sale of securities of such registrant registered under the Securities Act. Within such limited scope of disclosure, however, as of the date of the Prospectus Supplement 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
Underwriters or the Seller, upon request of the Underwriters or the Seller, 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 issue of the Prospectus in connection with the offering or sale of
the Securities, the Seller or the Underwriters will notify Financial Security of such requirement to deliver a Prospectus and Financial Security will promptly provide the Underwriters and the Seller 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 Underwriters and the Seller 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 Seller and the Underwriters. 
  
 (j)    Consents and Reports of Independent Accountants.    Financial Security will furnish to the
Underwriters and the Seller, 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 insurance financial strength by Moody’s Investors Service, its insurer financial strength by Standard & Poor’s Ratings Services and Standard & Poor’s 
 

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(Australia) Pty. Ltd., its claims-paying ability by Fitch IBCA, Inc. and Japan Rating and Investment Information, Inc. or any other rating assigned by a 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 which are considered by the Rating Agencies, and the ratings
issued thereby, are subject to change over time. 
  
 Section 3.    Representations, Warranties
and Agreements of the Underwriters.    Each of the Underwriters represents, warrants and agrees as follows: 
  
 (a)    Compliance With Laws.    Such Underwriter will comply in all material respects with all legal requirements in connection with offers and sales of
the Securities and make such offers and sales in the manner provided in the Prospectus. 
  
 (b)    Offering Document.    Such 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 statements with respect to Financial Security prepared in accordance with generally accepted
accounting principles (but excluding any Offering Document in which such financial statements are incorporated by reference) will include the following statement immediately preceding such financial statements: 
  
 “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 Underwriters for inclusion in the Prospectus (as revised from time
to time, the “Underwriter Information”), insofar as such information relates to the Underwriters, is true and correct in all material respects. In respect of the Prospectus Supplement, the Underwriter Information is limited
 
 

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to the information set forth in the body of the Prospectus Supplement and within the “Underwriting” section, the first, the third and final (i.e. sixth) paragraphs immediately following
the Class A-4 Notes Underwriter commitment table. 
  
 Section 4.    Indemnification.

  
 (a)    Financial Security agrees, upon the terms and subject to the
conditions provided herein, to indemnify, defend and hold harmless each Seller Party and each Underwriter Party against (i) any and all Losses incurred by them with respect to the offer and sale of the Securities and resulting from Financial
Security’s breach of any of its representations, warranties or agreements set forth in Section 2 hereof and (ii) any and all Losses to which any Seller Party or Underwriter Party may become subject, under the Securities Act or otherwise,
insofar as such Losses arise out of or result from an untrue statement of a material fact contained in any Offering Document or the omission to state therein a material fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such untrue statement or omission was made in the Financial Security Information included therein in accordance with the provisions hereof. 
  
 (b)    Each of the Underwriters, agrees, severally but not jointly, upon the terms and subject to the
conditions provided herein, to indemnify, defend and hold harmless each Financial Security Party and each Seller Party against (i) any and all Losses incurred by them with respect to the offer and sale of the Securities and resulting from the
Underwriters’ 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 Seller Party may become subject, under the Securities Act or
otherwise, insofar as such Losses arise out of or result from an untrue statement of a material fact contained in any Offering Document or the omission to state therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or omission was made in the Underwriter Information included therein. 
  
 (c)    Upon the incurrence of any Losses for which a party is entitled to indemnification hereunder, the Indemnifying Party shall
reimburse the Indemnified Party promptly upon establishment by the Indemnified Party to the Indemnifying Party of the Losses incurred. 
  
 Section 5.    Indemnification Procedures.    Except as provided below in Section 6 with respect to contribution, 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
 
 

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Indemnifying Party shall be entitled to participate in and, upon notice to the Indemnified Party, assume the defense of any such action or claim in reasonable cooperation with, and with the
reasonable cooperation of, the Indemnified Party. The Indemnified Party will have the right to employ its own counsel in any such action in addition to the counsel of the Indemnifying Party, but the fees and expenses of such counsel will be at the
expense of such Indemnified Party, unless (a) the employment of counsel by the Indemnified Party at its expense has been authorized in writing by the Indemnifying Party, (b) the Indemnifying Party has not in fact employed counsel to assume the
defense of such action within a reasonable time after receiving notice of the commencement of the action, or (c) the named parties to any such action or proceeding (including any impleaded parties) include both the Indemnifying Party and one or more
Indemnified Parties, and the Indemnified Parties shall have been advised by counsel that (A) there may be one or more legal defenses available to them which are different from or additional to those available to the Indemnifying Party and (B) the
representation of the Indemnifying Party and such Indemnified Parties by the same counsel would be inappropriate or contrary to prudent practice (in which case, if such Indemnified Parties notify the Indemnifying Party in writing that they elect 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 behalf of such Indemnified Parties, it being understood, however, that the
Indemnifying Party shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all Seller Parties, one such firm for all Underwriter Parties and one such firm for all Financial Security Parties, as the case may be, which
firm shall be designated in writing by the Seller in respect of the Seller Parties, by the Underwriters in respect of the Underwriter Parties and by Financial Security in respect of the Financial Security Parties), in each of which cases the fees
and expenses of counsel will be at the expense of the Indemnifying Party and all such fees and expenses will be reimbursed promptly as they are incurred. The Indemnifying Party shall not be liable for any settlement of any such claim or action
unless the Indemnifying Party shall have consented thereto or 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 or insufficient 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. 
 

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 (b)    The relative fault of each
Indemnifying Party, on the one hand, and of each Indemnified Party, on the other, shall be determined by reference to, among other things, whether the breach of, or alleged breach of, any representations, warranties or agreements contained in this
Agreement relates to information supplied by, or action within the control of, the Indemnifying Party or the Indemnified Party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such breach.

  
 (c)    The parties agree that Financial Security shall be solely responsible
for the Financial Security Information and the Underwriters shall be solely responsible for the Underwriter Information and that the balance of each Offering Document shall be the responsibility of the Seller. 
  
 (d)    Notwithstanding anything in this Section 6 to the contrary, the Underwriters shall not be
required to contribute an amount in excess of the amount by which the total price of the Securities underwritten by the Underwriters exceeds the amount of any damages that the Underwriters have otherwise been required to pay in respect of such
untrue statement or omission. 
  
 (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.
 
	  	  	 350 Park Avenue
 
	  	  	 New York, NY 10022
 
	  	  	 Attention: Senior Vice President—Transaction Oversight Department (with a copy to the attention of the General Counsel)
 
	  	  	 Re: AmeriCredit Automobile Receivables Trust 2002-D
 
	  	  	 Confirmation: (212) 826-0100
 
	  	  	 Telecopy Nos.: (212) 339-3518,
                            (212) 339-3529
 

 
  
 

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	 If to the Seller:
 	 	 AFS Funding Trust
 
	  	 	 c/o Deutsche Bank Trust Company Delaware
 
	  	 	 (f/k/a Bankers Trust (Delaware))
 
	  	 	 E.A. Delle Donne Corporate Center
 
	  	 	 Montgomery Building
 
	  	 	 1011 Centre Road
 
	  	 	 Wilmington, DE 19805-1266
 
	  	 	 Attention: Corporate Trust Administration
 
	  	 	 Confirmation: (302) 636-3305
 
	  
 With a copy to:
 	 	 AmeriCredit Financial Services, Inc.
 
	  	 	 Administrator of AFS Funding Trust
 
	  	 	 801 Cherry Street, Suite 3900
 
	  	 	 Fort Worth, TX 76102
 
	  	 	 Attn: Chief Financial Officer
 
	  	 	 Confirmation: (817) 302-7000
 
	  	 	 Telecopy No.: (817) 302-7942
 
	  
 If to the Underwriters:
 	 	 J.P. Morgan Securities Inc.
 
	  	 	 270 Park Ave, 7th Floor
 
	  	 	 New York, NY 10017
 
	  	 	 Attention: ITS_Structured Finance, AmeriCredit 2002-D
 
	  	 	 Confirmation: [                ]
 
	  	 	 Telecopy No.: 212-946-8552
 

 
  
 (b)    Governing
Law.    THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND THIS AGREEMENT AND ALL MATTERS ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT SHALL BE GOVERNED BY, THE LAW 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 Seller under the Underwriting Agreement or the Insurance Agreement. 
 

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 (f)    Counterparts.    This
Agreement may be executed in counterparts by the parties hereto, and all such counterparts shall constitute one and the same instrument. 
  
 [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 
 

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 IN WITNESS WHEREOF, the parties hereto have caused this Indemnification Agreement
to be duly executed and delivered as of the date first above written. 
  
 
	 FINANCIAL SECURITY ASSURANCE INC.
 
	 
	 By:
 	 	 /s/    RAYMOND GALKOWSKI
 

	  	 	 Name: Raymond Galkowski
 Title: Authorized Officer
 

 
  
 
	 AFS FUNDING TRUST
 
	 
	 By:
 	 	 AmeriCredit Financial Services, Inc., as
 Administrator
 
	 
	 By:
 	 	 /s/    PRESTON A. MILLER
 

	  	 	 Name: Preston A. Miller
 Title: Executive Vice President and Treasurer
 

 
  
 
	 J.P. MORGAN SECURITIES INC.
 
	 
	 By:
 	 	 /s/    MIKHAIL RADIK
 

	  	 	 Name: Mikhail Radik
 Title: Vice President
 

 
 

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 EXHIBIT A 
  
 OPINION OF ASSOCIATE 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 Financial Security Agreements have been duly authorized, executed and delivered by Financial Security. 
  
 3.    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. 
  
 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 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 violate any law or regulation, which violation would impair the binding effect or enforceability of
the Policy or any of the Agreements or, to the best of my knowledge, result in a breach of, or constitute a default under, any agreement or other instrument to which Financial Security is a party or by which it or any of its property is bound or, to
the best of my knowledge, violate any judgment, order or decree applicable to Financial Security of any governmental or regulatory body, administrative agency, court or arbitrator having jurisdiction over Financial Security (except that in the
published opinion of the Securities and Exchange Commission the indemnification provisions of the Indemnification Agreement, insofar as they relate to indemnification for liabilities arising under the Act, are against public policy as expressed in
the Act and are therefore unenforceable). 
  
 In addition, please be advised that I have reviewed the description of
Financial Security under the caption “The Insurer” in the Prospectus (the “Offering Document”) of the Seller 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, 
 

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 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). 
 

 A-2<PAGE>
                                                                    EXHIBIT 4.12

                           RECAPITALIZATION AGREEMENT

         This Recapitalization Agreement (this "Agreement") is made by and
between Kronos, Inc., a Delaware corporation ("KI"), and Kronos International,
Inc., a Delaware corporation ("KII"), as of June 4, 2002. RECITALS

     A.  KII has issued $100 par value Common Stock (the "Common Stock"), Class
         A Preferred Stock and Class B Preferred Stock (collectively, the
         "Preferred Stock"), and Profit Participation Certificates (the "PPCs",
         and collectively with the Common Stock and the Preferred Stock, the
         "Pledged Securities") to its direct parent and 100% owner, KI.

     B.  KI has pledged the Pledged Securities to its direct parent and 100%
         owner, NL Industries, Inc., a New Jersey corporation ("NL"), in
         connection with NL's 11 3/4% Senior Secured Notes Due 2003 (the "NL
         Debt"), which Pledged Securities NL subsequently pledged to the trustee
         of the NL Debt.

     C.  KII intends to make a private placement of certain Euro-based bonds to
         raise funds for debt reduction, including discharge of the NL Debt and
         elimination of certain debt between KI and KII (the "Debt Offering").

     D.  Certain proceeds of the Debt Offering will be applied, after a series
         of transactions, by NL to the redemption and discharge of the NL Debt
         (the "Redemption"), upon which discharge the trustee of the NL Debt
         will be required to release the Pledged Securities to NL which in turn
         will release the Pledged Securities to KI.

     E.  KI and KII wish to enter into certain agreements to facilitate the
         consummation of the Debt Offering and related transactions, the
         redemption of the PPCs, the conversion of the Preferred Stock to Common
         Stock and the other transactions more specifically described in this
         Agreement.

                                   AGREEMENTS

         1. As soon as reasonably practical after the trustee of the NL Debt
releases the Pledged Securities, KI and KII agree to consummate the following
transactions in the sequential order listed:

                  a. KII will redeem the issued and outstanding PPCs held by KI
for their nominal value in exchange for the assignment to KI by KII of a portion
of the principal and interest evidenced by the notes receivable from KI or NL
that would be reflected on the financial statements of KII immediately prior to
such redemption, which notes are held by KII (the "KI/NL Notes"), in an amount
equal to such nominal value.

                  b. KII and KI agree that the Preferred Stock held by KI,
including any accrued but unpaid dividends, will be converted into 1,385 newly
issued shares of $100 par value Common Stock, and in consideration of KI's
agreement to so convert, KII also will allocate (from

<PAGE>

the capital previously allocated to the Preferred Stock) additional capital to
such shares in an aggregate amount approximately equal to the value of such
Preferred Stock. KII agrees to issue to KI certificates evidencing the new
shares of Common Stock and KI will deliver to KII for cancellation certificates
evidencing all of the outstanding shares of Preferred Stock held by KI (the
"Conversion").

                  c. Concurrently with the Conversion, KII will take steps
necessary to increase the capital attributable to the outstanding 3,196 shares
of Common Stock previously issued to KI by reallocating from surplus an
aggregate amount to such shares such that each share of outstanding Common Stock
shall have the same amount of capital allocated to it, including par value, on a
per share basis.

                  d. In consideration of the assignment to KI by KII of the
remaining portion of the principal and accrued interest evidenced by the KI/NL
Notes as of the date of assignment (the "Note Amount"), KII will redeem shares
of the Common Stock held by KI (the "Common Stock Redemption"), based on the
capital allocated to such shares on a per share basis as described in clause c
above, so that the capital attributable to such shares is equal to the Note
Amount. After the Common Stock Redemption, KII will have assigned to KI all of
its right, title and interest in and to the KI/NL Notes. As a result of the
Common Stock Redemption, the aggregate capital allocated to the outstanding
Common Stock of KII will be reduced by the aggregate capital attributable to the
Common Shares so redeemed.

                  e. In respect of KII's Euro-dominated note payable to KI (the
"KI Payable"), KI will assign any balance remaining after application of
proceeds of the Debt Offering as a contribution to capital of KII.

         2. KI and KII each agree to execute all documents and take any and all
other actions that the parties deem to be necessary or desirable to consummate
the transactions contemplated by this Agreement.

         3. KI consents to each of the transactions contemplated by this
Agreement in its capacity as a stockholder of KII to the extent such consent is
required by KII's Certificate of Incorporation, as amended, any applicable law
or otherwise, and agrees to execute one or more stockholder consents or
resolution to evidence the same.

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<PAGE>

         4. This Agreement will be governed by and construed in accordance with
the laws of the State of Delaware, without regard to its conflicts of laws
rules.

         5. This Agreement will be binding upon, and will inure to the benefit
of, KI and KII and their respective successors and assigns.

         6. This Agreement may not be altered, amended, changed, terminated or
modified, or compliance with any provision waived, in any respect or any
particular, except by written instrument executed by each of KI and KII.

         7. This Agreement may be executed in any number of counterparts, each
of which will be deemed an original but all of which will constitute one and the
same instrument.

Each of the undersigned has executed this Recapitalization Agreement as of the
date first written above regardless of the actual date of signing.

KRONOS, INC.

By: /s/ Robert D. Hardy
   -----------------------------------------
Name: Robert D. Hardy
     ---------------------------------------
Title: Vice President
      --------------------------------------

KRONOS INTERNATIONAL, INC.

By: /s/ Volker Roth
   -----------------------------------------
Name: Volker Roth
     ---------------------------------------
Title: Vice President, Controller
      --------------------------------------

By: /s/ Dr. Ulrich Rothe
   -----------------------------------------
Name: Dr. Ulrich Rothe
     ---------------------------------------
Title: Senior Vice President, Technology
      --------------------------------------

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