IRELL MANELLA LLP N. 93202) 128706) 400IRELL 8 MANELLA LLP A Reglslemd Limited Liability Law Patlnership Including Professional Corporations detriment of the Plaintiffs. Plaintiffs

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IRELL 8 MANELLA LLP A Registered Limned Liablny

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IRELL & MANELLA LLP WILLIAM N. LOBEL (State Bar No. 93202) EVAN C. BORGES (State Bar No. 128706) 840 Newport Center Drive, Suite 400 Newport Beach, California 92660-6324 Telephone: Facsimile:

Attorceys for Debtors, Debtors-in- Possession and Defendants First Alliance Mortgage Company, et al.

FEDERAL TRADE COMMISSION RNNE M. MCCORMICK RAMONA D. ELLIOTT JOHN A. KREBS JEANNE-MARIE S. RAYMOND 600 Pennsylvania Avenue, NW 3oom 4429 dashinuton, D.C. 20580

lttorneys for Plaintiff 'ederal Trade Commission

:Additional counsel on attached page]

UNITED STATES DISTRICT COURT

FOR THE CENTRAL DISTRICT OF CALIFORNIA

SOUTHERN DIVISION

:n re First Alliance Mortgage ) Case No. SA CV 00-964 DOC (EEx) :ompany, a California . ) :orPoration; First Alliance ) :orPoration, a Delaware ) :orPoration; First Alliance )

'ortfolio Services, Inc., a )

) Debtors. 1

) 'ederal Trade Commission, )

) Plaintiff, )

V. ) )

'irst Alliance Mortgage ) ompany, et al., )

) Defendants. )

[ortgage Company, a Mirinesota ) iorporation; and First Alliance )

evada Corporation, ) STIPULATION OF SETTLEMENT

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IRELL a MANELLA LLP A Registered Limlted Liakllty

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This Stipulation of Settlement dated as of February 25, 2002

(the "Stipulation"), is made and entered into by and among the

parties to this Stipulation, by and through their counsel of

record as necessary: (i) the Representative Plaintiffs (on behalf

of themselves and each of the Class Members) ; (11) AARP; (111)

Velda Durney; (iv) Ida M. Forrest; (v) Henry M. Hong; (vi) Carol

J. Hong; (vii) Mary Ryan; (viii) Lucretia Wilder; (ix) Fred L.

Passmore; (x) Julia G. Passmore; (xi) Geneva A. Spires; (xii)

Seorge Jerolemon; (xiii) Michael Austin; (xiv) Barbara Austin;

(xv) the Official Joint Borrowers' Committee; (xvi) the FTC;

(xvii) the State Attorneys General; (xviii) the Related Debtors;

(xix) the Individual Defendants; (xx) the Mortgage Loan Trusts;

(xxi) the Trustees; (xxii) MBIA; and (xxiii) FSA.

All parties to this Stipulation are referred to collectively

in this Stipulation as the "Settling Parties."

The Stipulation, the Supplemental Agreement and the Consent

Iecrees are intended by the Settling Parties to fully, finally

tnd forever resolve, discharge and settle the Released Claims (as

iefined in ¶ 1.46 hereof), upon and subject to the terms and

:onditions hereof.

1 . THE LITIGATION AND RELATED PROCEEDINGS

On March 23, 2000, the Related Debtors filed their Chapter

1 petitions in the United States Bankruptcy Court for the

lentral District of California, Southern Division, initiating

heir Chapter 11 cases.

Beginning in approximately 1996 and continuing after the

late on which the Related Debtors filed their bankruptcy

letitions, the Related Debtors and certain of the Individual

- 1 - L 68 6 4 Stipuiacion of Settlenent

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IRELL a MANELLA LLP A Registered Lirnrled LiabdRy

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Defendants were named as defendants in a number of lawsuits

brought by borrowers, private parties, and governmental agencies

alleging causes of action under state and federal law based on

the nature of the Related Debtors' business, sales, advertising,

and lending practices, including without limitation allegations

concerning the terms of the borrowers' loans, alleged

nisrepresentations made in connection with those loans, and

dleged misconduct inducing borrowers to enter into the loans.

Each of the Plaintiffs except the Official Joint Borrowers'

:omittee has filed a proof of claim in the Related Debtors'

2ankruptcy cases, either on their own behalf, through

representative counsel, or both. Approximately 2000 individual

)orrowers filed proofs of claim in the Related Debtors'

lankruptcy cases. In addition, each of the Representative

?laintiffs has filed individual and class action proofs of claim

in the Related Debtors' bankruptcy cases on behalf of themselves

m d similarly situated borrowers. AARP filed a non-class proof

if claim on behalf of the general public under sections 17200, et

seq., of the California Business and Professions Code (the

'UCL"), and the California Six filed individual and non-class

>roofs of claim on behalf of the general public under the UCL.

:inally, each of the governmental entities has filed a proof of

:laim.

On or about September 28, 2001, the Hon. David 0. Carter,

Jnited States District Court Judge, entered an order that, among

ither things, certified a no-opt-out class action pursuant to

tule 23(b) (1) of the Federal Rules of Civil Procedure in Frank G.

16864

- 2 - Stipulation of Settlement

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IRELL 8 MANELLA LLP A Registered Limlted Liabllty

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l i e l l o v. First Al l iance Mortgage Corporation, identified fully

ielow.

In late 2001, certain of the Representative Plaintiffs and

:he Borrowers' Committee commenced actions against Lehman seeking

iamages based on state and federal law and seeking to equitably

subordinate Lehman's claims against the Related Debtors.

On or about February 8th, 2 0 0 2 , eight individual FAMCO

lorrowers filed a class action complaint in the United States

listrict Court for the Central District of California, captioned

?ranees M . Bohnsack, e t al. v. Lehman Brothers Incorporated, e t

d, Case No. 02-CV-1214. The plaintiffs assert the right to

serve as named representatives of the putative class action - -

:hey are all members of the presently certified no opt-out class,

2nd will all be Class Members hereunder if they do not timely and

Jalidly opt out of the Class.

?rudential, and First Union and certain of the Trustees

few York, Chase Manhattan Bank, and Wells Fargo Bank). The

iomplaint seeks damages and certain equitable relief based on

Eederal and state law.

The named defendants are Lehman,

(Bank of

To the extent the above-described actions or proofs of claim

Mere filed in Bankruptcy Court, Judge Carter has withdrawn the

reference for those actions and proofs of claim. Each of the

3bove described actions is now pending in the District Court,

Zentral District of California, Southern Division, Judge Carter

presiding.

11. DEFENDANTS' DENIALS OF WRONGDOING AND LIABILITY

The Defendants have denied and continue to deny each and all

of the claims and contentions alleged by the Plaintiffs in the


516864

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IRELL a MANELIA LLP A Registered Limned bakliy

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Actions. The Defendants expressly have denied and continue to

deny all charges of wrongdoing or liability against them arising

out of or related to any of the conduct, statements, acts or

omissions alleged, or that could have been alleged, in the

Actions. The Defendants also have denied and continue to deny,

inter a l i a , the allegations that the Plaintiffs (including

without limitation any of members of the Class) have suffered

damage or were harmed by the conduct alleged in the Actions.

Nonetheless, the Related Debtors and their counsel have

zoncluded that further conduct of litigation would be protracted

2nd expensive and would not be in the best interest of the

:states, and that it is desirable that the Actions be fully and

€inally settled between the Settling Parties in the manner and

ipon the terms and conditions set forth in this Stipulation. The

ither Defendants have also concluded that further conduct of

Litigation would not be in their best interests and that it is

lesirable to settle the Actions on the terms and conditions set

forth herein.

CII. CLAIMS OF THE PLAINTIFFS AND BENEFITS OF SETTLEMENT

The Plaintiffs have contended and continue to contend that

:he claims asserted in the Actions have merit and that the value

If their claims substantially exceeds the amounts in the Related

Iebtors Estates and the amounts being provided in this

settlement. However, Plaintiffs and their counsel recognize and

kcknowledge the expense and length of continued proceedings

iecessary to prosecute the Actions against the Defendants through

:rial and through appeals and are concerned that further

xosecution of these actions could deplete the.Estates to the

- 4 - 1 1 6 8 6 4 S t i p u l a t i o n of S e t t l e r n e n c

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IRELL 8 MANELLA LLP A Reglslemd Limited Liability

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detriment of the Plaintiffs. Plaintiffs and their counsel also

have taken into account the uncertain outcome and the risk of any

litigation, especially in complex actions such as the Actions,

the possibility that the Plaintiffs, including the Class, would

be unable to collect all or part of any judgment, as well as the

difficulties and delays inherent in such litigation. Counsel f o r

the Plaintiffs also are mindful of the burdens of proof under and

possible defenses to the violations asserted in the Actions.

Counsel for the Representative Plaintiffs believe that the

settlement set forth in this Stipulation confers substantial

benefits upon and is in the best interests of the Class.

IV. TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT

NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and

among the Plaintiffs, on one hand, and the Defendants, on the

other, on their own behalf o r by and through their respective

counsel or attorneys of record, that, subject to the approval of

the Court, the Actions as to the Settling Parties, and the

Released Claims shall be finally compromised, settled and

released, and, with the exception of the actions brought by the

FTC and the State Attorneys General (which shall be resolved by

entry of the Consent Decrees against certain of the Defendants),

the Actions shall be dismissed with prejudice, as to all Settling

Parties, upon\and ..-I subject to the terms and conditions of this

Stipulation, as follows.

1. D e f i n i t i o n s

As used in the Stipulation the following terms have the

meanings specified below:

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IRELL 8 MANELLA LLP A Registered Limded Lietrlay

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1.1 "AARP" means AARP, formerly known as the American

4ssociation of Retired Persons.

1.2 ''Actions" means the following actions, cases eventually

zonsolidated into one of the following actions, or proofs of

zlaim filed by any claimant, including but not limited to any and

311 complaints, counterclaims, cross-claims, third party

zomplaints or other claims for relief filed in the following

xtions and any currently pending appeals taken from orders in

those actions, which are identified below by the jurisdiction in

dhich such action, case, or claim originally was filed:

(a) American A s s o c i a t i o n of R e t i r e d Persons (AARP) v.

First A l l i a n c e Mortgage Company, Superior Court of the State of

Zalifornia for the County of Santa Clara, Case No. CV 778453;

(b) V e l d a Durney v. First A l l i a n c e Mortgage Company,

Superior Court of the State of California for the County of Santa

Xara, Case No. CV 765935;

(c) Ida M . Forres t v. First A l l i a n c e Mortgage Company,

Superior Court of the State of California for the County of

hlameda, Case No. 799294-0 [Cross-Complaint] ;

.

(d) Henry M . Hong and Carol J . Hong v. Firs t A l l i a n c e

Mortgage Company, Superior Court of the State of'california for

the County of Alameda, Case No. 784938-3;

(e) Mary Ryan v. F i r s t A l l i a n c e Mortgage Company,

Superior Court of the State of California for the County of Santa

Clara, Case No. CV 759815;

(f) L u c r e t i a Wi lder v. First A l l i a n c e Mortgage

Company, Superior Court of the State of California for the County

of Santa Clara, Case No CV 760638;

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(9 ) Fred L . Passmore and J u l i a G . Passmore v. First

A l l i a n c e Mortgage Company, S u p e r i o r Cour t o f t h e S t a t e of

Z a l i f o r n i a f o r t h e County o f Alameda, Case No. 823272-8;

( h ) Geneva A . S p i r e s v . First A l l i a n c e Mortgage

Company, S u p e r i o r Cour t of t h e S t a t e of C a l i f o r n i a f o r t h e County

of Alameda, Case No. 807253-5;

( i) Frank G . A i e l l o , e t . a l . v. First A l l i a n c e

Mortgage Company, e t . a l . , U n i t e d S t a t e s Bankruptcy Cour t ,

C e n t r a l Dis t r i c t o f C a l i f o r n i a , Adv. No. SA00-01456, now

c o n s o l i d a t e d i n t o No. SA CV 00-964 DOC ( E e x ) ;

(j) Jacque l ine Bowser and I r e n e Huston v. Firs t

A l l i a n c e Mortgage C o . , e t a l . , Uni t ed S t a t e s Bankruptcy Cour t ,

C e n t r a l Dis t r ic t o f C a l i f o r n i a , Adv. No. SA00-01343, now

c o n s o l i d a t e d i n t o No. SA CV 00-964 DOC ( E e x ) ;

( k ) Commonwealth of Massachusetts v. First A l l i a n c e

Mortgage Company, S u p e r i o r C o u r t f o r S u f f o l k County of t h e

Commonwealth of M a s s a c h u s e t t s , C i v i l Ac t ion’ No. 98-5534-A;

(1) Federa l T r a d e Commission v. First A l l i a n c e

Mortgage Company, e t a l . , U n i t e d S t a t e s Dis t r ic t Cour t f o r t h e

C e n t r a l Distr ict of C a l i f o r n i a , Case No. SA CV 00-964-DOC;

(m) The People o f the S t a t e of C a l i f o r n i a v. First

A l l i a n c e Mortgage Company, e t a l . , S u p e r i o r Cour t of t h e S t a t e of

C a l i f o r n i a f o r t h e County o f Los Ange les , Case No. BC 252112 (now

c o n s o l i d a t e d , a f t e r d i s m i s s a l i n s t a t e c o u r t and r e f i l i n g i n t h e

Un i t ed S t a t e s Distr ict Cour t f o r t h e C e n t r a l Distr ict o f

C a l i f o r n i a , i n t o Case No. SA CV 00-964 DOC ( E e x ) ) ;

( n ) Department of L e g a l A f f a i r s , O f f i c e o f the

A t t o r n e y General , S t a t e o f Florida v. First A l l i a n c e Mortgage

- 7 - 516864 Stipulation of Settlement

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IRELL a MANELIA LLP A Rqisiered Lirniled h a b i l i

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Company, C i r c u i t C o u r t of t h e 17th J u d i c i a l C i r c u i t , i n and f o r

Broward Coun ty , F l o r i d a , Case No. 21000009116 ( a c o m p l a i n t i n

i n t e r v e n t i o n h a s b e e n f i l e d i n t h e U n i t e d S t a t e s Distr ict C o u r t

f o r t h e C e n t r a l Distr ict o f C a l i f o r n i a i n Case No. SA CV 00-964

DOC ( E e x ) ) ;

( 0 ) People of the S t a t e of I l l i n o i s v. Firs t A l l i a n c e

Mortgage Company, C i r c u i t C o u r t o f Cook County , I l l i n o i s , County

Depar tmen t , C h a n c e r y D i v i s i o n , Case No. 98CH16598 (now

c o n s o l i d a t e d , a f t e r e n t r y o f a s t a y a n d r e f i l i n g i n t h e U n i t e d

S t a t e s Dis t r ic t C o u r t f o r t h e C e n t r a l Distr ict o f C a l i f o r n i a ,

i n t o Case No. SA CV 00-964 DOC ( E e x ) ) ;

( p ) T h i r d Amended Proof o f C l a i m f i l e d by t h e S t a t e

A t t o r n e y G e n e r a l o f A r i z o n a a g a i n s t F i r s t A l l i a n c e Mortgage

Zompany, e t a l . i n t h e U n i t e d S t a t e s B a n k r u p t c y C o u r t f o r t h e

Z e n t r a l District o f C a l i f o r n i a ;

(9) P r o o f o f C l a i m f i l e d b y t h e N e w York S t a t e Banking

Depar tment a g a i n s t F i r s t A l l i a n c e Mor tgage Company i n t h e U n i t e d

S t a t e s B a n k r u p t c y C o u r t f o r t h e C e n t r a l Dis t r ic t of C a l i f o r n i a ;

( ( r ) Frank and Nicolena A i e l l o , e t a l . v. Brian

Chis ick , e t a l . , U n i t e d S t a t e s Dis t r ic t C o u r t , C e n t r a l Distr ict

3f C a l i f o r n i a , Case No. SA CV 01-971 DOC ( f o r m e r l y f i l e d i n t h e

J n i t e d S t a t e s B a n k r u p t c y C o u r t , C e n t r a l Distr ict of C a l i f o r n i a ,

q d v e r s a r y Case No. AD 01-01463 L R ) ;

( s ) O f f i c i a l J o i n t Borrowers Committee v. Lehman

Zommercial C r e d i t , I n c . , e t al., U n i t e d S t a t e s Dis t r i c t C o u r t ,

Z e n t r a l Dis t r ic t o f C a l i f o r n i a , Case No. SA CV 01-1111 DOC

( f o r m e r l y f i l e d i n t h e U n i t e d S t a t e s B a n k r u p t c y C o u r t , C e n t r a l

Distr ict o f C a l i f o r n i a , A d v e r s a r y Case No. AD 1647 L R ) ; a n d

- 8 - 516364 Stipulation o f Settlement

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(t) Frank and Nicolena Aiello, e t a l . v. BNY Western

T r u s t Company, e t a l . , United States District Court, Central

District of California, Case No. SA CVO2-52 DOC.

1.3 "Administrative Expenses" means expenses, other than

Professional Fees, that are determined and allowed in the Related

Debtors' Estates under Section 503(b) of the Bankruptcy Code, 11

U.S.C. 5 503(b), and paid pursuant to the confirmed Plan of

Liquidation and Section 1129 of the Bankruptcy Code, 11 U.S.C. 5

1129.

1.4 "Bar Order" means, collectively, an order, after

hearing and notice to all Non-Settling Defendants in all actions

arising out of or related to the business of the Related Debtors,

2nd all parties who have submitted a proof of claim in the

Related Debtors' bankruptcy proceedings, and such other Persons

3s to whom Defendants or the Court deem notice is necessary and

3ppropriate, in form and substance satisfactory to Coordinated

Plaintiffs and Defendants: (a) dismissing all pending claims

Drought by Non-Settling Defendants against the Defendants, and

further providing, (b) that, 'for all Defendants the settlement is

in "good faith" within the meaning of Section 877.6 of the

Zalifornia Code of Civil Procedure ("Section 877.6") ; and (c)

that, pursuant to each of Section 877.6, 11 U.S.C. 5 105, and

Federal Rule of Civil Procedure 16, all Persons receiving notice,

including without limitation the Non-Settling Defendants, are

iarred from asserting any claims or demands against the

lefendants to recover losses or attorneys fees in litigation

xising out of or related to the business of Related Debtors,

llrhether such claims or demands are denominated. as fraud claims,

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IRELL & MANELLA LLP A Registered Limiled Liability

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indemnity claims, contribution claims, state- or federal

Racketeering Influenced and Corrupt Organization (RICO) claims,

state common law claims, state statutory law claims, federal

statutory law claims, breach of representation and warranty

claims, or otherwise.

1.5 "California Six" means Velda Durney, Lucrecia Wilder,

Yary Ryan, Ida Mae Forrest, and Carol and Henry Hong.

1.6 "Chisick Shares" means shares in the Related Debtors

neld directly or indirectly by or for the benefit of Brian and

Sarah Chisick and/or members of their family (in whatever form

they are held), including but not limited to shares held by

:rusts in which Brian or Sarah Chisick are beneficiary or

xustee, or held directly or indirectly by any other heirs,

representatives or Related Persons.

1.7 "Class" means a class certified by the Court consisting

if all Persons who entered into mortgage loan agreements with the

?elated Debtors during the period January 1, 1992 through

larch 23, 2000.

1.8 "Class Period" means the period commencing on

January 1, 1992, through March 23, 2000.

1.9 "Class Member" or "Member of the Class" means a Person

iho falls within the definition of the Class described in ¶ 1.7

iereof who does not validly and timely request exclusion from the

:lass.

1.10 "Coordinated Plaintiffs" means AARP, the California

iix, Representative Plaintiffs, the Official Joint Borrowers'

:omittee, the FTC, and the State Attorneys General.

16864


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IRELL B MANELLA LLP A Regidend Limlted Liabliiy

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1.11 Vonfirmation Order" means the order of the United

States District Court confirming the Related Debtors' Liquidating

Plan pursuant to Section 1129 of the Bankruptcy Code,

11 U.S.C. 5 1129.

1.12 "Consent Decrees" means the stipulated final judgments

to be entered into by the FTC and certain of the Defendants and

the State Attorneys General and certain of the Defendants.

1.13 IlDefendantsIl means the Related Debtors, the Individual

Defendants, the Mortgage Loan Trusts, the Trustees, MBIA, FSA,

and Wells Fargo Bank, N.A.

1.14 "Effective Date" shall be the first business day after

the expiration of five (5) calendar days following the occurrence

Df the last of the conditions set forth in ¶ 7.1 of this

Stipulation.

1.15 IIErnployee Claimsll means any allowed priority claim by

any employee of Related Debtors, other than Brian and Sarah

Zhisick, for payment of wages, salary, benefits, bonus, pension,

3r other compensation, as determined and allowed pursuant to

Section 507(a) (3) and (a) ( 4 ) of the Bankruptcy Code, 11 U . S . C .

507(a) (3) and (a) ( 4 ) , and paid pursuant to the confirmed

Liquidating Plan and Section 1129 of the Bankruptcy Code, 11

J . S . C . § 1129.

1.16 llEstatesll shall mean the Related Debtors' legal and

zquitable interests in property as defined under Section

5 4 l ( a ) (1) of the Bankruptcy Code, 11 U . S . C . 5 541(a) (1).

1.17 llFACO1l means First Alliance Corporation, a Delaware

Zorporation.

- 11 - Stipulation of Setrlement

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IRELL 6 MANELLA LLP A Registered timiled Liability

Law Pannenhip Induding Professional Corporations

conveyance or preference, in an individual or representative

capacity, on behalf of itself, a class or the public, including

without limitation under a statutory, contract or tort theory,

for declaratory relief, for intentional, fraudulent, negligent or

Dther wrongdoing, for bad faith or unfair business practices or

any other similar or dissimilar tort, or for compensatory,

consequential, punitive or exemplary damages or any damages or

penalties whatsoever, for specific performance, injunctive or

declaratory relief, or any relief whatsoever, under the laws,

rules and/or regulations or otherwise of any jurisdiction, court,

body or tribunal or otherwise of any sort or kind whatsoever,

whether in the United States of America, whether federal or state

3r otherwise, and/or any other foreign jurisdiction. Generally

Released Claims expressly include Unknown Claims of the kind or

nature set out in this Paragraph.

1.24 "Individual Defendants" means Brian Chisick; Sarah

Chisick; Patricia G. Sullivan; Jeffrey Smith; Salah Bastawy;

Francisco Nebot; Bruce Bollong; Todd Feldman; Jeffrey Phillips;

Scott Gardner; Diane Clark West; Vanita Cillo; David Sproul; Ted

Kegel; Howard Coleman; Chris Jensen; Tom Neate; Kelly Lee; Joe

O'Laughlin; Steven Graber; Don Terry; Mitchell C. Horwitz; Mark

Mason; Albert Lord; George Gibbs; and, Merrill Butler.

1.25 "Judgment" means a judgment in a form acceptable to the

Settling Parties certified to be final pursuant to Rule 54 of the

Federal Rules of Civil Procedure.

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1.2 6 "Lehman" means Lehman Commercial Paper, Inc., Lehman

Brothers, Inc., and their parents, affiliates, and subsidiaries.

- 13 - 5 1 6 9 6 4 Stipuiatizn of Set t lemen:

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IRELL a MANELLA LLP A Registered Limned Liatiliiy

Law Pallnership Including Professional Corporations

1.27 "Liquidating Plan" means the Chapter 11 liquidating

plan of reorganization to be filed by the Related Debtors

consistent with the terms of this Stipulation as confirmed by the

Court.

1.28 'I L i qu i da t i ng Trust Fund" means that fund to be created

by Related Debtors as part of their Liquidating Plan into which

Related Debtors shall place on the Effective Date (1) any

unliquidated assets that cannot be distributed in cash to the

Redress Fund, (2) any mortgage loans owned by the Debtors whether

or not subject to a secured claim in favor of Lehman, (3)an

amount of cash equal to the distribution payable under the

zonfirmed Liquidating Plan to the holders of claims not paid on

the Effective Date to the extent they are later allowed of (a)

3ther Creditors; (b) Professional Fees; (c) Administrative

Zxpenses; (d) Employee Claims, (e) anticipated future

Wninistrative Expenses and Professional Fees, as approved by the

Zourt; and, (f) the reserve required by the Supplemental

Igreement, (4) the proceeds, if any, from the Reliance Company

Litigation, or the rights the'reto, and if such litigation is not

zoncluded by a Final judgment or order, the right to continue to

xosecute such actioni and (5) the proceeds, if any, from the $1

nillion Chubb CGL policy, or the rights thereto. All actions

issigned to the Liquidating Trust Fund shall be pursued by the

fund as representative of the Estate pursuant t o l l U.S.C.

j 1123 (b) (3) . 1.29 "Liquidating Trustee'' means such agents or trustees as

ire approved by the Court to maintain and administer the

- 14 - 16864 Stipula:ion of Setclement

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IRELL & MANELLA LLP A Regisled Lhl'Iilcd Liabilily

Law Pafinership Including Professional Corporations

Liquidating Trust Fund pursuant to the terms of the Liquidating

Plan.

1.30 11LloydIs Policy" means Policy No. 757/FD971617 issued

by Lloyds Underwriters at Interest subscribing to said policy to

First Alliance Corporation Directors and Officers and Company on

or about July 29, 1997, which, with extensions, covers the period

from July 29, 1997 to June 1, 2002.

1.31 llMBIA1l means MBIA, Insurance Corporation, and its

parents, subsidiaries and affiliates.

1.32 "Mortgage Loan Trusts" means, collectively, First

Alliance Mortgage Loan Trust 1993-1; First Alliance Mortgage Loan

Trust 1993-2; First Alliance Mortgage Loan Trust 1994-1; First









Alliance Mortgage Loan Trust 1998-1A; First Alliance Mortgage

Loan Trust 1998-1F; First Alliance Mortgage Loan Trust 1998-2;

First Alliance Mortgage Loan Trust 1998-3; First Alliance

Mortgage Loan Trust 1998-4; First Alliance Mortgage Loan Trust

1999-1; First Alliance Mortgage Loan Trust 1999-2; First Alliance

Mortgage Loan Trust 1999-3; and First Alliance Mortgage Loan

Trust 1999-4; and the certificate and note holders thereof.


516864

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IRELL & MANELLA LLP A Reglslered Limilsd Liability

Law Partnership Inducting Professional Corporations

1.33 "Non-Settling Defendants" means (a) Lehman and any of

its parents, subsidiaries, related, or affiliated companies;

(b) Prudential and any of its parents, subsidiaries, related, c)r

affiliated companies; (c) First Union and any of its parents,

subsidiaries, related, or affiliated companies; and (d) other

?otential defendants not released pursuant. to this Stipulation

2nd not yet parties to litigation arising out of or related to

the business of Related Debtors.

1.34 "Notice" means the notice described in 3.1 hereof, in a

€orm acceptable to the Settling Parties.

1.35 "Official Joint Borrowers' Committee" means that

ifficial committee as appointed by the U.S. Trustee in or around

July 30, 2000.

1.36 "Other Creditors" means the holders of general

insecured claims, other than the Plaintiffs, persons who validly

ind timely opt out of the Class and Brian and Sarah Chisick.

1.37 "Person" means an individual, corporation, limited

iability corporation, professional corporation, limited

iability partnership, partnership, limited partnership,

ssociation, joint stock company, estate, legal representative,

rust, unincorporated association, government or .any political

ubdivision or agency thereof, and any business or legal entity

nd their spouses, heirs, predecessors, successors,

epresentatives, or assignees.

1.38 "Plaintiffs" means the Class Members, the Official

oint Borrowers' Committee, the FTC, the State Attorneys General,

ARP, Barbara Austin, Michael Austin, Velda Durney, Ida M.

orrest, Henry M. Hong, Carol J. Hong, Mary Ryan, Lucretia


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IRELL a MANELLA LLP A Registered Limited Liabilily

Law Partnemhip lndudiq Pmfessional Corporations

Wilder, George Jerolemon, Fred L. Passmore, Julia G. Passmore,

Geneva A. Spires, Frank G. Aiello, Nicolena Aiello, Paul

Carabetta, Lenore Carabetta, Vito Cicci, Stella Cicci, Veronica

Maines, Thaddeus Zychlinski, Marissa Zychlinski, Jacqueline

Bowser and Irene Huston.

1.39 "Prior Borrower Settlements" means borrowers who

settled a claim or lawsuit with Related Debtors and were paid by

the Related Debtors within the ninety days prior to the filing of

the bankruptcy by Related Debtors.

1.40 "Professional Fees" means fees, expenses, and costs to

be paid to professionals employed by the Related Debtors, the

Official Creditors' Committee, or the Official Joint Borrowers

Committee, which are determined and allowed in the Related

Debtors' Estates pursuant to Sections 330, 331, 503 and 507 of

the Bankruptcy Code, 11 U.S.C. §§ 330, 331, 503 and 507, and paid

pursuant to the confirmed Liquidating Plan and Section 1129 of

the Bankruptcy Code, 11 U.S.C. § 1129.

1.41 "Prudential" means Prudential Securities, Inc., and its

parents, affiliates, and subsidiaries.

1.42 "Redress Fund" means a fund to be established and

administered by the FTC for the benefit of the Members of the

Class and other Plaintiffs, as more fully described herein.

1.43 "Redress Fund Administrator" means the FTC, or such

agents or trustees that the FTC pursuant to the Consent Decree,

in its sole discretion, will appoint, to establish, maintain, and

administer the Redress Fund.

1.44 "Related Debtors" means First Alliance Mortgage

Company, a California corporation; First Alliance Corporation, a

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IRELL B MANELLA LLP A Registered Limited Liabilty


lelaware corporation; First Alliance Mortgage Company, a

qinnesota corporation; and First Alliance Portfolio Services,

Inc., a Nevada corporation as debtors and debtors-in-possession.

1.45 "Related Persons" means, with respect to any individual

3r entity to whom it refers, each of its, his, her, or their,

?ast or present directors, officers, managers, employees,

?artners, members, principals, agents, controlling shareholders,

venture capital investors, attorneys, accountants or auditors,

financial advisors, associates, personal or legal

representatives, predecessors, successors, parents, subsidiaries,

divisions, joint ventures, assigns, spouses, heirs, related or

3ffiliated entities, any entity in which a person or entity has a

zontrollhg interest, any members of their immediate families, or

m y trust of which any individual is the settlor or which is for

the benefit of any individual and/or member(s) of his or her

f ami 1 y . 1.46 "Released Claims" means, collectively, all claims

released pursuant to any Paragraph of this Stipulation.

releases and discharges referred to herein are not bankruptcy

The

discharges.

1.47 "Reliance Company Litigation" means the action between

the Related Debtors and Reliance Insurance Company in

Liquidation, as successor-in-interest by merger to Reliance

Insurance Company of Illinois, currently pending in the United

States District Court for the Central District of California as

Case No. CV 00-3282 GAF, and any proceeding related thereto,

including without limitation any liquidation proceeding for

Reliance.

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IRELL S MANELLA LLP A Rmislered Limned L i a k l i

Law Paltnership including Professional Corporalions

1.48 "Representative Plaintiffs" means Frank G. Aiello,

Nicolena Aiello, Barbara Austin, Michael Austin, Paul Carabetta,

Lenore Carabetta, Vito Cicci, Stella Cicci, George Jerolemon,

Veronica Maines, Thaddeus Zychlinski, Marissa Zychlinski,

Jacqueline Bowser and Irene Huston, as individuals and on behalf

of Class Members.

1.49 "Residuals" means the securities representing the

residual interests held by and property of the Estate in the

various Mortgage Loan Trusts that were formed for the purpose of

securitizing pools of real estate mortgages for sale to the

investing public.

1.50 "Residual Proceeds" means all proceeds received by the

Estate from the Residuals for the period between January 1, 2002

2nd the Effective Date, and the interest earned thereon, such

?roceeds to be accounted for separately by Related Debtors.

1.51 "Residual Certificateholder" means a holder of Class R

Zertificates in the Mortgage Loan Trusts. "Class R Certificates"

neans any of those certificates representing certain residual

rights to distributions from the Mortgage Loan Trusts, designated

3s a "Class R Certificate" on the face thereof.

1.52 "Securitization Documents" means any and all documents

2xecuted in connection with the issuance of asset backed notes by

:he Mortgage Loan Trusts and the Trustees, including but not

Limited to, purchase and sale agreements, trust agreements,

indenture of trust agreements, insurance agreements, indemnity

3greements, and servicing agreements.

1.53 "Settling Parties" means, collectively, each of the

?arties to this Stipulation.

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IRELL a YANELIA LLP A Rwistered brnlted Liatrllty

Law Partnership Inducting Professional Cornrations

1.54 "Specifically Released Claims" means, collectively, any

and all lawsuits, actions, causes of action, debts, obligations,

promises, guarantees, agreements, contracts, rights of

contribution and/or indemnification, claims, liabilities and/or

demands, of whatever kind or nature, whether known or unknown,

fixed or contingent, liquidated or unliquidated, suspected or

unsuspected, at law or equity, under any theory of law or equity

including under the Bankruptcy Code or any theory of fraudulent

conveyance or preference, in an individual or representative

capacity, on behalf of itself, a class or the public, including

without limitation under a statutory, contract or tort theory,

for declaratory relief, for intentional, fraudulent, negligent or

other wrongdoing, for bad faith or unfair business practices or

any other similar or dissimilar tort, or for compensatory,

consequential, punitive or exemplary damages or any damages or

penalties whatsoever, for specific performance, injunctive or

declaratory relief, or any relief whatsoever, under the laws,

rules and/or regulations or otherwise of any jurisdiction, court,

body or tribunal or otherwise of any sort or kind whatsoever,

whether in the United States of America, whether federal or state

or otherwise, and/or any other foreign jurisdiction, based on,

arising out of, related to or the subject of: (a) the Actions;

(b) facts, transactions, events, occurrences, acts, disclosures,

statements, omissions, or failures to act which were or could

have been alleged with respect to such conduct in the Actions;

(c) any and all claims arising out of or relatin'g to or in

connection with the settlement or resolution of the Actions;

(d) mortgage loans issued by the Related Debtors during the Class

- 20 - 516864 Stipulaticn of Settlement

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IRELL a MANELLA LLP A Registered Limited Liabilly

Law Pannenhip Including Professional Corporalions

Period and the Actions; and (e) the sale and securitization of

such loans to the Mortgage Loan Trusts and the Trustees.

Specifically Released Claims expressly include Unknown Claims of

the kind or nature set out in this Paragraph.

1.55 "State Attorneys General" means the attorneys general

from the States of Arizona, California, Florida, Illinois, and

Massachusetts, and the New York State Banking Department.

1.56 "Supplemental Agreement" means the agreement relating

to potential termination of this Stipulation that will be filed

under seal with the District Court.

1.57 "Term Sheet" means the February 15, 2002 letter

agreement provisionally agreed upon by the FTC subject to

Zommission approval and accepted on behalf of the Coordinated

Plaintiffs, and certain of the Defendants.

1.58 "Trustees" means, collectively, in their individual

zapacities, in their respective capacities as trustees of the

vlortgage Loan Trusts and in any other capacity under the

Securitization Documents, JP Morgan Chase Bank as successor in

interest to the Chase Manhattan Bank (hereinafter "Chase

qanhattan Bank"), Trustee of First Alliance Mortgage Loan Trust

1993-1; Chase Manhattan Bank, Trustee of First Alliance Mortgage

Loan Trust 1993-2; Chase Manhattan Bank, Trustee of First

Uliance Mortgage Loan Trust 1994-1; Chase Manhattan Bank,

Crustee of First Alliance Mortgage- Loan Trust 1994-2; Chase

lanhattan Bank, TrusJee of First Alliance Mortgage Loan Trust

1994-3; Chase Manhattan Bank, Trustee of First Alliance Mortgage

Loan Trust 1994-4; Chase Manhattan Bank, Trustee of First

Uliance Mortgage Loan Trust 1995-2; Chase Manhattan Bank,

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IRELL a MANELLA LLP A Registered Limited Liabiliy


Trustee of First Alliance Mortgage Loan Trust 1996-1; Chase

Manhattan Bank, Trustee of First Alliance Mortgage Loan Trust

1996-2; Bank of New York, Trustee of First Alliance Mortgage Loan

Trust 1996-3; Chase Manhattan Bank, Trustee of First Alliance

Mortgage Loan Trust 1996-4; Chase Manhattan Bank, Trustee of

First Alliance Mortgage Loan Trust 1997-1; Chase' Manhattan Bank,

Trustee of First Alliance Mortgage Loan Trust 1997-2; Chase

Manhattan Bank, Trustee of First Alliance Mortgage Loan Trust

1997-3; Bank of New York, Trustee of First Alliance Mortgage Loan

Trust 1997-4; Chase Manhattan Bank, Trustee of First Alliance

Mortgage Loan Trust 1998-1A; Chase Manhattan Bank, Trustee of

First Alliance Mortgage Loan Trust 1998-1F; Chase Manhattan Bank,

Trustee of First Alliance Mortgage Loan Trust 1998-2; Wells Fargo

Bank Minnesota, N.A. (formerly Norwest Bank Minnesota, N.A.),


Bank Minnesota, N . A . (formerly Norwest Bank Minnesota, N.A.),

Trustee of First Alliaqce Mortgage Loan Trust 1998-4; Wells Fargo






Trustee of First Alliance Mortgage Loan Trust 1999-3; and Chase

Yanhattan Bank, Trustee of First Alliance Mortgage Loan Trust

1999-4, any owner trustees of the Mortgage Loan Trusts and the

parents, subsidiaries and affiliates of these entities.

1.59 "Unknown Claims" means any Released Claims which any

releasing party does not know or suspect to exist in his, her or

- 2 2 - ~~

516864 Stipuiation of Settlement

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IRELL & MANELLA LLP A Registered Lrnded Liatnlly


its favor at the time of the release of the released persons

dhich, if known by him, her or it, might have affected his, her

3r its settlement with and release of the released persons, or

night have affected his, her, or its decision not to object to

this settlement. With respect to any and all Specifically and

Senerally Released Claims, all parties providing releases

stipulate and agree that, upon the Effective Date, they shall

?xpressly, and each of the Class Members shall be deemed to have,

m d by operation of the order approving this Stipulation and the

Zonsent Decrees shall have, expressly waived the pr.ovisions,

rights and benefits of Californizl Civil Code S 1542, which

provides :

A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.

A l l parties providing releases of Unknown Claims shall expressly, . and each of the Class Members shall be deemed to have, and by

operation of this Stipulation and the Consent Decrees shall have,

expressly waived any and all provisions, rights and benefits

conferred by any law o€ any state or territory of the United

States, or principle of common law, which is similar, comparable

or equivalent to California Civil Code S 1542. All parties

providing relez.ses of Unknown Claims (including without

limitation any individual Class Member) may hereafter discover

facts in addition to or different from those which he, she or it

now knows or believes to be true with respect to the subject

matter of the Specifically or Generally Released Claims, but each

shall expressly, and each Class Member, upon the Effective Date,

- 2 3 - I

5 1 6 8 6 4 S t i p u l a t i m o f Settlement

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shall be deemed to have, and by operation of this Stipulation

shall have, fully, finally, and forever settled and released any

and all Specifically and Generally Released Claims, known or

unknown, suspected or unsuspected, contingent or non-contingent,

whether or not concealed or hidden, which now exist, or

heretofore have existed upon any theory of law or equity now

existing or coming into existence in the future, including

without limitation conduct which is negligent, intentional, with

or without malice, or a breach of any duty, law or rule, without

regard to the subsequent discovery or existence of such different

or additional facts. All parties providing releases of Unknown

Claims expressly acknowledge, and the Class Members shall be

deemed by operation of the Stipulation to have acknowledged, that

the foregoing waiver was separately bargained for and a key

3lement of the settlement of which this release is a part.

2. The Settlement

a.

2.1 Upon the Effective Date, Brian and Sarah Chisick

Zollectively shall (i) contribute the amount of $20,000,000.00

(adjusted in the manner set forth in the Supplemental Agreement)

:o the capital of Related Debtors, and (ii) agree to the

:ancellation of any Chisick Shares. Said contribution is an

3ddition to the assets of the Estates as of February 25, 2002.

Payments by Brian and Sarah Chisick and Consent Decrees

(a) Following February 15, 2002, and until the

lffective Date, Brian and Sarah Chisick will not transfer, or

Zause to be transferred, any Chisick Shares.

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- 24 - Stipulation J f Settlement

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IRELL a MANELLA LLP A Repistered Limited Liatiliy Law Parlnenhip Including Professional Corporations

(b) Brian and Sarah Chisick represent that they have

transferred no Chisick Shares to persons whose holdings would not

constitute Chisick Shares since March 23, 2000.

(c) To secure the payment in ¶ 2.1 above, three days

before the hearing on confirmation of the Liquidating Plan, Brian

and Sarah Chisick will obtain and deliver to the FTC an

irrevocable letter of credit issued by a financial institution

payable to the Liquidating Trustee. Both the financial

institution that issues the letter of credit and the form of the

letter of credit must be acceptable to the FTC, which acceptance

will not be unreasonably withheld.

2.2 Upon the Effective Date, Brian Chisick will purchase

the Residuals, including the Residual Proceeds, by paying in cash

to the Related Debtors (i) the amount of $25,100,000.00, plus

(ii) interest in an amount equal to the total amount that would

be received on a $25.1 million deposit for a period from January

1, 2002 to the Effective Date, based on an annual (365-day) rate

of simple interest of three percent ( 3 % ) , or, if Mr. Chisick puts

this $25.1 million plus the interest thereon at three percent

(3%) from January 1, 2002 into a separate account by April 1,

2002 and it remains in a separate account until the Effective

Date, then the interest obligation from the date of the deposit

shall be the amount earned on the funds so deposited.

2 . 3 (a) Upon the Effective Date, MBIA will release all of

its right, title and interest in and to the remaining balance of

the escrow account established f o r the benefit Of MBIA pursuant

to the July 14, 2000 Consent Agreement ("Consent Agreement")

between certain of the Related Debtors, the Trustees, and MBIA.


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IRELL & MANELLA LLP A Registered Limited Liatiliy Law Pailnefship lncludiw Professional Corporations

Upon the final resolution, by settlement, final judgment or

otherwise, of any and all claims brought against the Mortgage

Loan Trusts insured by MBIA ("the MBIA-Insured Trusts") or the

Trustees by any Person who falls within the definition of the

Class described in Paragraph 1.7 of this Stipulation who has

validly and timely requested exclusion from the Class, or by any

Person seeking contribution or indemnity on account of such

claims, the Trustees will transfer to the Liquidating Trust Fund

311 of their right, title and interest in and to the remaining

Dalance of the escrow accounts established for the benefit of the

I'rustees under the Consent Agreement except that with respect to

the release of the escrow funds held by Chase Manhattan Bank they

shall have appropriate consents from the Residual

Zertificateholders. Until such time as MBIA or the Trustees

release their right, title and interest in their respective

3scrow accounts pursuant to the terms of this Stipulation,

iothing in this Stipulation shall affect, alter or amend any

right of MBIA or the Trustees under the Consent Agreement to make

iithdrawals from the escrow accounts in accordance with the terms

if the Consent Agreement.

(b) In the event that any claim, action or proceeding

- s brought against the Mortgage Loan Trusts or Trustees by any

'erson who falls within the definition of the Class described in

'aragraph 1.7 of this Stipulation who has validly and timely

requested exclusion from the Class, the Trustees and the Mortgage

,oan Trusts shall have the right to require the Residual

Iertificateholders to defend such claim, action or proceeding;

irovided, however, that the Residual Certificateholders may not

- 26 - 1 6 8 6 4 Stipulation of Settlement

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IRELL & MANELLA LLP A Regislered Limited Liability

Law Partnership lndudirq Professional Corporalions

without the prior written consent of the relevant Trustee and its

insurer settle any such action, claim or proceeding if such

settlement would result in any payment from the assets of the

Mortgage Loan Trusts or Trustees.

2.4 Brian Chisick, Sarah Chisick, and the Related Debtors

will agree to Consent Decrees barring future violations of the

law, which Consent Decrees shall become operative on the

Effective Date. The form and content of such decrees will be

negotiated in good faith, but it is generally agreed that the

consent decree will be in a form similar to the types of decrees

used to resolve FTC and State actions, without any admission of

wrongdoing.

2.5 Upon the Effective Date, Brian and Sarah Chisick shall,

pursuant to the Consent Decrees, be enjoined from engaging in any

residential loan origination business for ten years.

b . The Allowance of the Coordinated P l a i n t i f f s ' Claim.

2.6 For purposes of this Stipulation and distribution under

the confirmed Liquidating Plan, the claims of the Plaintiffs will

3e treated as a joint claim and allowed, pursuant to 11 U . S . C . 5

502, as a general, unsecured claim against the Related Debtors in

the amount of Two Hundred Seventeen Million Dollars

($217,000,000); provided that this amount shall not be binding in

?roceedings by Plaintiffs against Non-Settling Defendants, and

?rovided further that the amount shall not be binding in the

?vent that the Effective Date of this Stipulation fails to occur.

c . Distr ibut ions on the Effective D a t e

2.7 (a) Upon the Effective Date and pursuant to the

confirmed Liquidating Plan, the Related Debtors shall transfer


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IRELL 6 MANELLA LLP A Regidered Limned babllty

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m d distribute the Estates as follows:

layable on that date pursuant to the terms of the Liquidating

?lan, (ii) transfer to the Liquidating Trust Fund all

inliquidated assets of the Estates, including the mortgage loans

iwned by Related Debtors, and cash in the amounts provided for

inder ¶ 1.28, and (iii) transfer all remaining cash of the

lstates to the Redress Fund, including the additional amounts

2aid to Related Debtors by Brian and Sarah Chisick pursuant to

2aragraph 2.1.

(i) pay all allowed claims

(b) Assuming the Court hearing the interpleader action

€iled by Lloyd's approves such payment, the insureds under the

Lloyd's Policy will on the Effective Date pay to the Redress Fund

;3,000,000, the money to come from the Lloyd's Policy and not the

insureds themselves; and

(c) Upon the Effective Date, the sum of $1,000,000

shall be paid by MBIA and FSA ($960,000 and $40,000 respectively)

to the Redress Fund on behalf of the Mortgage Loan Trusts.

d. The Liquidating Trust Fund

2.8 Pursuant to the confirmed Liquidating Plan, Related

3ebtors shall establish the Liquidating Trust Fund to be

administered after the Effective Date by the Liquidating Trustee.

The Liquidating Trustee shall liquidate the assets (a)

in the Liquidating Trust Fund and make payments from the

Liquidating Trust Fund to any holder of the allowed claims set

forth in Paragraph 1.28 hereof and to the Redress Fund, pursuant

to the Liquidating Plan.

(b) No Person shall have any claim against the Related

Debtors or the Liquidating Trustee or their counsel based on

- 28 - 516364 Stipulation of Set:iement

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IRELL L MANELLA LLP A Registered Limited Liability

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distributions of the Liquidating Trust Fund made in accordance

with this Stipulation and the confirmed Liquidating Plan.

(c) It is acknowledged by the Settling Parties that

the total amount of allowed claims paid from the Liquidating

Trust Fund may be less than the amount of the Liquidating Trust

Fund as a consequence of a determination of the distribution to

such allowed claims that is less than the amount reserved under

Paragraph 1.28 hereof or an agreement by such creditors as to the

amount of their claims and the payment therefor. The amount

remaining in the Liquidating Trust Fund after payment of the

allowed claims for which the furd was established, shall revert

to and become part of the Redress Fund.

‘e. Subsequent Transfers

2.9 The Redress Fund shall also be entitled to receive the

following:

(a) Any proceeds remaining from the Lloyd’s Policy,

after the resolution of all other claims against that policy,

including the past and future claims of the insureds for the

reimbursement of expenses (including those related to any

prospective Lehman, Prudential, or First Union contribution or

indemnity claims). The Related Debtors shall provide the

Coordinated Plaintiffs with an accounting for the amounts paid

hereunder, including LJ the amount of attorney fees paid to

Individual Defendants’ counsel; and

(b) The amounts remaining in the Liquidating Trust

Fund as defined in T 1 . 2 8 following the satisfaction of the

obligations to be paid from that fund.

5 1 6 8 6 4

- 2 9 - Stipulation of Settlzment

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IRELL a MANELLA LLP A Registered timiled t i a k l i

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2.10 The Plaintiffs agree not to object to any allocation of

the proceeds of the Lloyd's Policy described above to settle

third party claims or pay attorneys' fees. The Settling Parties

nereby stipulate and agree that the stay of the Lloyd's Policy

should be immediately terminated by the Court.

f. Administration of the Redress Fund

2.11 The Redress Fund shall be established and administered

~y the FTC for the benefit of the Class and other Plaintiffs.

The FTC, with the input of the Coordinated Plaintiffs, shall

submit to the Court for review and approval a plan for the

disbursement of funds to the Members of the Class and other

Plaintiffs. Settling Defendants shall have no right to contest

the substance or manner of distribution of the Redress Fund nor

m y responsibility in connection therewith.

g. FACO Shares

2.12 Under the terms of the Liquidating Plan, the Related

Debtors will cancel all FACO Shares. Following the Effective

Date, the Redress Fund Administrator shall pay those Persons who

held FACO shares on the Effective Date the lesser of $1.50 per

share or the basis of such shares prior to cancellation, provided

that the total amount of such payments does not exceed

$3,250,000.00.

purchased on or after February 25, 2002 shall be conclusively

presumed to be 9 cents.

such payments would exceed $3.25 million, the Redress Fund

Administrator shall reduce the payment to each former FACO

shareholder on an equal proportionate basis (that is, so that

each former FACO shareholder will receive an equal percentage of

The basis of any Person in a share of FACO stock

To the extent that the total amount of

516864


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IRELL a MANELLA LLP A Rqystered Lirnlted Lialnlfiy

Law Partnership Including Professional CorpOrations

the amount that they otherwise would receive under the formula

above) until the total payments do not exceed $ 3 . 2 5 million.

the amount of payments to shareholders as calculated above is

less than $3.25 million, then the remainder shall revert to the

Redress Fund.

Shares or FACO Shares held by other Individual Defendants or

their Related Persons.

If

No payment will be made on account of the Chisick

h. Dismissals and Releases

2.13 The Actions shall be dismissed as to the Defendants

with prejudice, with the exception of (i) the joint proof of

claim referenced in ¶I 2.6 which shall be treated in accordance

with that paragraph and the confirmed Liquidating Plan, (ii) the

actions filed by the State Attorney Generals and the FTC which

are to be resolved by the entry of Consent Decrees as to certain

Defendants and (iii) Plaintiffs' claims against Jeffrey Smith

unless he makes the election set forth in the final sentence of

¶ 4.12. Notwithstanding (ii) above, the Florida actions agairst

Francisco Nebot and Bruce Bollong shall be dismissed without

prejudice.

pending before the District Court, the dismissals shall be

TZI the extent a dismissal is required in an Action

entered as part of the District Court's orders implementing this

Stipulation.

Actions not pending before the District Court, that action shall

immediately be stayed, so long as the Individual Defendants in

such action agree to waive all rules relating to the prompt

prosecution of that action and the Court approves the stay; those

Actions shall then be dismissed with prejudice on the Effective

Date.

To the extent a dismissal is required in any of the

- 3 1 - Stipulation of Settlement

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iProvisions re Taxes 2

1 Attorneys

3

Order"), the form and content of which will be negotiated by the

parties in good faith, requesting, i n t e r alia, approval of the

method of dissemination of a settlement notice (the 'VJotice").

'The Related Debtors shall disseminate the Notice to all Class

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IRELL & MANELLA LLP A Registered Urnled Uabil i

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i . Payment of Coordinated P l a i n t i f f s ' Counsel F e e s and

2.14 Any attorneys fees awarded by the Court to counsel for

Coordinated Plaintiffs and/or the National Association of

General will be paid out of the Redress Fund, save and

except those fees and costs that are payable for.services

rendered by the Official Joint Borrowers Committee as an

Administrative Expense of the Estates or the Liquidating Trust

Fund. The Defendants will have no right to object to the fee

procedure established by the Coordinated Plaintiffs and approved

by the Court, or fees to be paid under that procedure, to the

extent those fees are paid from the Redress Fund.

2.15 Settling Parties and the Redress Fund Administrator

agree to treat the Redress Fund as being at a l l times a

"qualified settlement fund" within the meaning of Treas. Reg.

5 1.4688-1. The Settling Parties agree that the exact tax

structure of the Redress Fund will be set forth in the

Liquidating Plan.

3 . N o t i c e Order and Settlement Hearing

3.1 Promptly after execution of the Stipulation, the

Coordinated Plaintiffs shall submit any additional documents

necessary to obtain preliminary approval of the settlement by the

District Court and shall apply for entry of an order (the "Notice

Members.

516864

The Notice shall be in a form agreed upon


the

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IRELL & MANELLA LLP A Registered Lirnled Liablii


Settling Parties and approved by the Court.

Notice shall be borne by the Related Debtors.

The cost of such

3.2 The Coordinated Plaintiffs shall request that after the

Notice is given, the Court hold a hearing under Rule 23(e) of the

Federal Rules of Civil Procedure (the "Settlement Hearing") and

approve the settlement as set forth herein.

4 . Releases

4.1 All Persons granting releases under this ¶ 4 shall have

expressly waived the provisions, rights and benefits of

California Civil Code 5 1542, which provides:

A general release does not extend to c l a i m s which the creditor does not know o r suspect to ex is t i n h i s favor a t the time o f executing the r e l e a s e , which if known by him must have materially affected h i s sett lement with the debtor.

4.2 Except as set forth in MI 4.11 and '4.12, upon the

Effective Date, the Plaintiffs and their Related Persons shal

have, and each of the Class Members and their Related Persons

shall be deemed to have, and by operation of the Judgment shall

have, fully, finally, and forever relieved, released, and

discharged the Defendants, the family members of Brian and Sarah

Chisick and all entities controlled by them (now or in the past),

the Trustees, MBIA, FSA, and any other insurer of the Mortgage

Loan Trusts (or any of the securities issued by any of the

Mortgage Loan Trusts) and all of its, his, her, or their Related

Persons from the Specifically Released Claims.

4.3 Except as set forth in ¶ 4.11, upon the Effective Date,

the Defendants and their Related Persons shall have fully,

finally, and forever relieved, released, and discharged the

Plaintiffs and their Related Persons (excluding the Commonwealth


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IRELL & MANELLA LLP A Registered Limled LiabilQ

Law Partnership lndudiq Professional Corporalions

of Massachusetts; it being understood that the Individual

Defendants have no present intention of bringing any such claim

against the Commonwealth of Massachusetts), the members of the

Official Creditors' Committee, the professionals of the Official

Creditors' Committee, members of the Borrowers' Committee, and

the professionals of the Official Borrowers' Committee, and all

Df its, his, her, or their Related Persons from any claims,

including Unknown Claims, arising out of or related in any manner

to the filing of claims or Actions against them so that no such

zlaims against these releasees arising out of or related to their

zonduct in the Actions shall survive. The releases provided by

this paragraph are not intended to, and shall not, release any of

the Plaintiffs or their Related Persons from any of their

respective obligations on loans originated by Related Debtors.

4.4 Except as set forth in 9 4.11, upon the Effective Date,

:he Related Debtors shall have fully, finally, and forever

relieved, released, and discharged Brian and Sarah Chisick, the

€amily members of Brian and Sarah Chisick and all entities

:ontrolled by them (now or in' the past), the Trustees, the

Cndividual Defendants, all of Related Debtors' current and former

ifficers, directors and employees, MBIA and FSA and all of their

?elated Persons from the Generally Released Claims. Related

lebtors shall also release any claims against Plaintiffs arising

iut of the Prior Borrower Settlements.


3rian and Sarah Chisick shall have fully, finally, and forever

relieved, released, and discharged the Related Debtors, the

Individual Defendants and their respective Related Persons from


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the Generally Released Claims; and the other Individual

Defendants shall have fully, finally, and forever relieved,

released, and discharged Brian and Sarah Chisick and their

respective Related Persons from the Generally Released Claims.


MBIA and FSA shall have fully, finally, and forever relieved,

released, and discharged the Related Debtors and Plaintiffs and

each of its, his, her, or their Related Persons from any claims

for malicious prosecution, abuse of process, or similar torts

arising out of or related to the filing of claims against their

insureds, so that no such claims against these releasees arising

out of or related to their conduct in the Actions shall survive.


Brian and Sarah Chisick and MBIA shall have released any and all

claims each may have against the others relating to the business

of the Related Debtors; provided, however, that it is the intent

of Brian and Sarah Chisick and MBIA that nothing herein shall

affect, alter or amend the terms of the transaction documents

relating to the MBIA insured Mortgage Loan Trusts, or otherwise

affect the rights of the Residual Certificateholder under the

transaction documents; Brian and Sarah Chisick shall also have

released the indemnification claim asserted against the Trustees

and the Mortgage Loan Trusts as to monies paid pursuant to this

Settlement and fees and costs incurred in litigating the Actions.

4.8 Except as otherwise provided herein, including without

limitation in ¶ ¶ 4.10, 4.11 and 4.12 below, following the

Effective Date the Plaintiffs will forever refrain and forbear

from commencing, instituting, and/or prosecuting any lawsuit,


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3ction, and/or other proceeding and/or making any claim against

m y Person receiving a release from Plaintiffs hereunder, based

upon or arising out of or related to any Released Claim.

4.9 Upon the Effective Date, the Plaintiffs shall have, and

sach of the Class Members shall be deemed to have, expressly

jlJaived and released claims for rescission Or reformation of any

loan originated by the Related' Debtors.

4.10 In addition to the foregoing releases, the State

Attorneys General: (i) commit that the State Attorneys General

dill not seek'administrative sanctions arising out of or related

to the Specifically Released Claims; (ii) represent, for the

States of California, New York, Illinois, Massachusetts, Florida

m d Arizona, that the State Attorneys General do not have any

pending criminal investigations against any of the Defendants

3rising out of or related to the Specifically Released Claims,

m d that they are not aware of any such investigation; and (iii)

agree not to seek any injunctive relief against Francisco Nebot

3r Bruce Bollong.

(a) The State Attorneys General for California,

Illinois, Florida, and the New York State Banking Department

further represent that they will not attempt to initiate any

criminal investigations against any of the Defendants arising out

of or related to the Specifically Released Claims.

(b) The State Attorneys- General for Arizona and

Massachusetts represent that they have no current intention to

initiate any criminal investigation against any of the Defendants

arising out of or related to the Specifically Released Claims.

In the event any State Attorney General of Arizona initiates a

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criminal investigation against any of the Defendants arising out

of or related to the Specifically Released Claims, the release of

that State described in ¶ 4.3 herein given by the Defendant who

is the subject of such investigation shall be void and of no

further force and effect and such Defendant shall be entitled to

an offset against any monetary sanction imposed against that

Defendant in an amount equal to the amount of that Defendant's

nonetary contribution to the Redress Fund.

4.11 Notwithstanding any contrary provision herein, this

Stipulation does not and cannot be construed (a) to release

Lehman, Prudential, or First Union; (b) to release any Class

qember who validly and timely requests exclusion from the Class;

ir (c) to release any Settling Party from any obligation under

:his Stipulation, the Supplemental Agreement or the Consent

lecrees.

4.12 Notwithstanding any contrary provision herein, the

State Attorneys General do not release Patricia Sulliva and ,

Salah Bastawy, and none of the Plaintiffs releases Jeffrey Smith,

from any claim or demand unless and until he or she has agreed to

>e bound by this Stipulation, including without limitation a

:onsent decree identical to that applicable to Brian Chisick

inder ¶ 2.4 (or on such other lesser inclusive terms as

icceptable to the States), the allocation of the Lloyd's Policy

Yeflected in ¶ 4.15 below and the releases contained in ¶ 4.3 '<.

iereof. In the event, Mr. Smith elects to be bound by this

Stipulation, but not to accept a consent decree, and agrees to

jive the same release as Francisco Nebot is giving in ¶ 4.13

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IRELL & MANELLA LLP A Registered Limited LiabilQ

Law Partnership lndudiq Professional Corporalions

below, then he shall be released by all Plaintiffs other than the

State Attorneys General.


Francisco Nebot shall have fully, finally, and forever relieved,

released, and discharged the Related Debtors from the Generally

Released Claims.

4.14 Each of the Related Debtors, Brian Chisick, any other

party hereto which is or may become a holder of a Residuals,

acknowledges and agrees that the release by the Trustees of their

rights, title and interests in the escrow accounts established in

accordance with the terms of the Consent Agreement shall not be

or be construed to be or constitute a breach of trust or a breach

of fiduciary duty by the Trustees and each of the foregoing.

parties hereby fully, finally and forever releases the Trustees

from any and all claims arising in connection with the execution

and delivery by the Trustees of this Stipulation.

4.15 Plaintiffs agree that they shall have no interest in

the proceeds of the Lloyd's Policy except as provided in ¶ ¶ 2.7

and 2.9 hereof (the initial $3 million payment and the residual,

if any, of that policy); the Related Debtors and the Individual

Defendants consent to the use of proceeds of the Lloyd's Policy

to the extent provided in the Supplemental Agreement to address

claims brought by persons who validly and timely opts out of the

Class, to the use of up to $2.5 million of those proceeds to

reimburse Individual Defendants for attorneys fees incurred in

defending the Actions, and to the use of the remainder of the

Lloyd's Policy to defend, settle and pay any judgment in L e o n

R a s a c h a c k , e t a l . , On B e h a l f of T h e m s e l v e s and A l l O t h e r s

- 38 - 5 1 6 8 6 4 Stipulation of Settlement

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28

IRELL 6, MANELLA LLP A Registered Limited Lisbiliy

Law Parlnership lnduding Profeessional Corporations

thereof, shall not operate to terminate or cancel the

Stipulation, or affect or delay the finality of the judgment

approving the Stipulation and the settlement of the Actions set

forth herein.

6 . 3 Defendants and their Related Persons shall have no

responsibility for, no liability, and no ability to object

whatsoever with respect to, an'y payment to Plaintiffs' counsel

and/or the National Association of Attorneys General from the

Redress Fund. I

6.4 Defendants and their Related Persons shall have no

responsibility for, no liability, and no ability to object

dhatsoever with respect to the allocation among Plaintiffs'

Zounsel, and/or the National Association of Attorneys General,

md/or any other Person who may assert some claim thereto, of any

Fee or expenses that the Court may make in connection with the

ktions.

7. Conditions of Settlement, Effect of Disapproval, Cancellation or Termination

7.1 The Effective Date of the Stipulation shall be

zonditioned on the occurrence of all of the following events, and

;hall occur the first business day after the expiration of five

15) calendar days after the occurrence of the last of these

!vents :

(a) An Order has been entered authorizing the Related

Iebtors to enter into and consummate this Stipulation and such

xder either has become Final, or no part of such order has been

stayed pending appeal;

1 6 8 6 4

- 40 - S t i p u i a t i o n of Settlernenc