FC Investment Holdings Corporation (a newly-formed wholly-owned subsidiary of FirstCity) and its current and future subsidiaries, or other entities in which such subsidiaries own any equity interest, are not subject to, do not guaranty and do not provide security interests in their assets, to secure the Reducing Note Facility. Further details about the structure and terms of the Reducing Note Facility are included in the above-mentioned press release and Current Report on Form 8-K.

Investment and Securities Purchase Agreements with Värde Investment Partners, L.P. ("Värde")

As reported in the same June 30, 2010 news release and Current Report on Form 8-K filed with the SEC on July 1, 2010 mentioned above, FirstCity and Värde entered into an Investment Agreement whereby Värde may invest up to $750 million, at its discretion, alongside FirstCity in distressed loan portfolios and similar investment opportunities, subject to the terms and conditions contained in the agreement. The primary terms of the Investment Agreement are as follows:
  • FirstCity will act as the exclusive servicer for the investment portfolios;
  • FirstCity will provide Värde with a "right of first refusal" with regard to distressed asset investment opportunities in excess of $3 million sourced by FirstCity;
  • FirstCity, at its determination, will co-invest between 5%-25% in each investment;
  • FirstCity will receive a $200,000 monthly retainer in exchange for its services and commitments;
  • FirstCity will receive a base servicing fee (based on investment portfolio collections) and will be eligible to receive additional incentive-based servicing fees (depending on the performance of the portfolios acquired); and
  • FirstCity will be eligible to receive incentive-based management fees (depending on the aggregate amount and performance of the portfolios acquired).

The cash flows from the assets and equity interests from the Company's investments under the Investment Agreement are not subject to the security interest requirements of Bank of Scotland's Reducing Note Facility described above.