EXHIBIT 10.1
RIGHT OF FIRST REFUSAL AGREEMENT AND
DUE DILIGENCE REIMBURSEMENT AGREEMENT
     THIS RIGHT OF FIRST REFUSAL AGREEMENT (the “Agreement”) is made and entered
into this ___ day of January, 1998, to be effective as of the 1st day of
January, 1998, by and between FirstCity Financial Corporation, a Delaware
corporation (“FCFC”) and FirstCity Servicing Corporation (formerly J-Hawk
Servicing Corporation), a Texas corporation (“Servicing”), on the one hand, and
Cargill Financial Services Corporation, a Delaware corporation (“CFSC”), and
CFSC Capital Corp. II, a Delaware corporation (“CCCII”) on the other hand.
W I T N E S S E T H:
     WHEREAS, Cargill or FirstCity may from time to time receive invitations to
bid on or otherwise obtain opportunities to acquire, directly or indirectly,
interests in loans, receivables, real estate and other assets (collectively the
“Asset Purchase Proposals”) from commercial banks, financial institutions,
insurance and finance companies, the Federal Deposit Insurance Corporation,
private creditors and noteholders and other sellers (each a “Seller”);
     WHEREAS, the parties intend that FirstCity will offer CFSC, or a CFSC
Affiliate, the exclusive right, with respect to all Asset Purchase Proposals
received by FirstCity to participate in the proposed purchase or other
acquisition in the manner provided herein;
     WHEREAS, FirstCity will cause its subsidiary, Servicing, to conduct due
diligence with respect to Asset Purchase Proposals on behalf of FirstCity and
Cargill, as provided in this Agreement, in connection with CFSC’s payment to
Servicing of the compensation set forth in this Agreement;
     WHEREAS, J-Hawk Corporation, a Texas corporation which was a predecessor to
FirstCity and was merged with and into First City Bancorporation of Texas, Inc.,
a Delaware corporation, on or about July 3, 1995, with FirstCity as the
surviving corporation (such J-Hawk Corporation in its position as the
predecessor to FirstCity being referred to hereinafter as “Old J-Hawk”), James
T. Sartain, Rick R. Hagelstein and James R. Hawkins (collectively the “FirstCity

     
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Principals”) and CFSC entered into an Amended and Restated Right of First
Refusal Agreement dated June 9, 1994, as amended, pursuant to which Old J-Hawk
and the FirstCity Principals agreed to offer CFSC the exclusive right to
participate in Loan Purchase Proposals (as defined therein), the term of which
Amended and Restated Right of First Refusal Agreement was originally set to
expire on March 31, 1997 (pursuant to its provisions on termination) but was
extended to November 30, 1997 and, unless further extended, will expire on
November 30, 1997;
     WHEREAS, Old J-Hawk and CFSC entered into a Due Diligence Expense
Reimbursement Agreement dated June 9, 1994 (the “DDER Agreement”), pursuant to
which Old J-Hawk agreed to conduct certain due diligence in exchange for stated
monthly compensation from CFSC, the term of such DDER Agreement being
co-terminus with the Amended and Restated Right of First Refusal Agreement
(pursuant to its provisions on termination), which DDER Agreement was originally
set to expire on March 31, 1997 (pursuant to its provisions on termination), but
was extended to November 30, 1997, and, unless further extended, will expire on
November 30, 1997;
     WHEREAS, the parties to that Amended and Restated Right of First Refusal
Agreement and the DDER Agreement (with the exception of the FirstCity
Principals) desire to enter into the following Agreement by and among CFSC,
CCCII, FCFC and Servicing, which Agreement terminates, supersedes and replaces
the agreements set forth in the DDER Agreement and in the Amended and Restated
Right of First Refusal Agreement dated June 9, 1994;
     NOW, THEREFORE, in consideration of the promises and agreements herein
contained, CFSC, CCCII, Servicing and FCFC hereby agree as follows:
ARTICLE 1.DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
     “Acquisition” means a transaction in which both of Cargill and FirstCity
contribute equity capital (not including a transaction in which a party’s sole
contribution is debt financing) to an entity for the purpose of acquiring a
direct or indirect interest in assets.
     “Acquisition Price” or “AP” means the gross purchase price payable to the
Seller in

     
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connection with any Acquisition or any other acquisition by FirstCity, including
but not limited to the actual net purchase price paid to the Seller plus interim
cash flows (i.e., cash collected between a cut-off date and the closing)
acquired by purchaser whether or not the purchaser receives a credit against the
gross purchase price.
     “Adjusted Acquisition Price” or “AAP” means the product of the Acquisition
Price multiplied by the applicable Leverage Factor from the schedule of leverage
Factors set forth in Section 4.1(b).
     “Affiliate” means any Person of which more than fifty percent (50%) of the
total outstanding equity interests of such Person are owned by the Person in
question and/or one or more of its Affiliates.
     “Agreement” has the meaning specified in the introduction to this
Agreement.
     “Asset Purchase Proposals” has the meaning specified in the first recital
of this Agreement.
     “Business Day” means any day (other than a day which is a Saturday, Sunday
or legal holiday in the State of Minnesota) on which banks are open for business
in Minneapolis, Minnesota, and Waco, Texas.
     “Calfund” means California Community Financial Institutions Fund Limited
Partnership, a California limited partnership.
     “Calibat” means Calibat Fund L.L.C., a Minnesota limited liability company
which is a limited partner in Calfund.
     “Cargill” means CFSC and its Affiliates.
     “Cargill Originations” has the meaning specified in Section 4.1 of this
Agreement.
     “Cargill Projects” means any Included Product for which Cargill has
delivered an affirmative Transaction Response.
     “CCCII” has the meaning specified in the introduction to this Agreement.
     “CFSC” has the meaning specified in the introduction to this Agreement.
     “CFSC Withdrawal Notice” has the meaning specified in Section 2.3(b) of
this Agreement.
     “Competitive Bid” means an Asset Purchase Proposal which is made available
to Persons in addition to CFSC or FirstCity involving the sale of the assets to
the highest bidder, in which the participation of Cargill does not provide a
material competitive advantage.

     
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     “Consumer Assets” means any asset which is used primarily for personal,
family or household purposes, or any unsecured loan or receivable or any loan or
receivable secured by such assets (whether any such loan or receivable is
considered to be performing, subperforming or non-performing), and including,
without limitation, loans or receivables secured by or assets consisting of: (a)
one to four family dwellings; (b) mobile homes, manufactured homes or housing
units; (c) automobiles, recreational vehicles and travel trailers; (d) credit
card balances; and (e) portfolios of loans having collective average outstanding
balances of $20,000.00 or less, which may include business assets (or loans or
receivables secured thereby) provided that business assets do not comprise more
than twenty percent (20%) of the legal balances of the portfolio assets.
     “Contract Year” means a twelve month period beginning on January 1 of each
calendar year during the term of this Agreement.
     “DDER Agreement” has the meaning specified in the fifth recital of this
Agreement.
     “Dollar,” “dollar,” “$,” “U.S. dollar/Dollar,” and “USD” each means the
lawful currency of the United States of America.
     “Effective Date” means January 1, 1998.
     “Excluded Product” means (a) any single asset acquisition or portfolio
acquisition with a purchase price or acquisition cost less than the Investment
Threshold, (b) non-performing and sub-performing Consumer Assets sourced and
acquired through a FCFC Affiliate which is engaged in the business of
originating or acquiring performing asset flow business when such Consumer
Assets are acquired by the FCFC Affiliate in connection with (as a part of the
acquisition of) a bulk acquisition of a pool of loans or receivables of which
more than fifty percent (50%) of the loans and receivables are performing loans
and receivables, (c) assets originated or acquired by any FCFC Affiliate set up
for the purpose of originating performing asset flow business or acquiring
performing asset flow business originated by other Persons, including, but not
limited to, NAF, Harbor Financial Group, FirstCity Funding Corporation,
FirstCity Capital Corporation or FirstCity Consumer Lending Corp., (d)
FirstCity’s acquisition or start up of niche or specialty finance operations or
companies (unless FirstCity invites Cargill to participate in the acquisition or
start up of such niche or specialty finance operations or companies), (e) the
acquisition of more than fifty percent (50%) of the stock or other equity
ownership interest by a FCFC Affiliate relating to the equity interest of any
Person which owns loans, receivables, real estate or related assets (unless
FirstCity invites Cargill to participate in any such acquisition, though the
participation of Cargill will be limited to the extent necessary to preserve the
ability to allow consolidation for tax purposes of FCFC and the acquired
entity), and (f) any product for which Cargill shall have delivered to FirstCity
a negative Transaction Response or CFSC Withdrawal Notice, or failed to deliver
a Transaction Response on or before the Transaction Response Date, from and
after the date of delivery of such response or notice to FirstCity, or after the
Transaction Response Date, as applicable.
     “FCFC” has the meaning specified in the introduction to this Agreement.
     “FCFC Affiliate” means an Affiliate of FCFC.

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     “FirstCity” means FCFC and its Affiliates.
     “FirstCity Principals” has the meaning specified in the fourth recital of
this Agreement.
     “FirstCity Representative” has the meaning specified in Section 2.8 of this
Agreement.
     “Foreign Currency” means the lawful currency of any country within the
Geographic Area other than the United States.
     “Geographic Area” means the United States, Canada, Mexico, the Caribbean,
Central America and South America.
     “Harbor Financial Group” means Harbor Financial Group, Inc. and its
Affiliates.
     “Included Product” means all assets of any type other than the Excluded
Product, including but not limited to any assets sourced through or in
connection with Calibat.
     “Investment Threshold” means $4,000,000.00.
     “Leverage Factor” has the meaning specified in Section 4.1(b) of this
Agreement.
     “Monthly Retainer” means a monthly payment from CFSC to Servicing as
compensation for the exclusivity provisions of this Agreement, with the gross
amount of such Monthly Retainer being a $20,000 per month; provided, however,
that the gross amount of the Monthly Retainer paid to Servicing shall be
adjusted to reflect Cargill’s contribution to deal flow as provided for in
Article 4 of this Agreement.
     “NAF” means FirstCity’s auto financing Affiliate and the auto financing
program conducted by such Affiliate.
     “Old J-Hawk” has the meaning specified in the fourth recital of this
Agreement.
     “Person” means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a foreign or
domestic state or political subdivision thereof or any agency of such state or
subdivision.
     “Potential Assets” has the meaning specified in Section 2.1 of this
Agreement but specifically excludes the Excluded Product.
     “Prospective Acquiror” has the meaning specified in Section 2.2 of this
Agreement.
     “Retainer Rebate” or “RR” has the meaning specified in Section 4.1(a) of
this Agreement.

     
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     “Seller” has the meaning specified in the first recital of this Agreement.
     “Servicing” has the meaning specified in the introduction to this
Agreement; provided that in the event FirstCity Servicing Corporation assigns
its rights under this Agreement as allowed under Section 5.4, then “Servicing”
shall mean the person to whom such rights, duties and obligations were assigned
as allowed under Section 5.4.
     “Termination Date” means the second anniversary of the Effective Date of
this Agreement or such earlier or later date as may be agreed to in writing by
all parties to this Agreement.
     “Transaction Notice” has the meaning specified in Section 2.2 of this
Agreement.
     “Transaction Response” has the meaning specified in Section 2.2 of this
Agreement.
     “Transaction Response Date” has the meaning specified in Section 2.2 of
this Agreement.
     “Withdrawal Notice” has the meaning specified in Section 2.3 of this
Agreement.
ARTICLE 2. CFSC RIGHT OF FIRST REFUSAL.
     Section 2.1 General Scope. During the term of this Agreement, neither FCFC
nor any Affiliate of FCFC shall purchase, attempt to purchase or otherwise
acquire a direct or indirect interest in, any Included Product with a proposed
purchase price or acquisition cost equal to or greater than the Investment
Threshold (the “Potential Assets”), except in accordance with the terms of this
Section or with an express written waiver of CFSC, which waiver may be withheld
in good faith for any commercial reason.
     Section 2.2 Notice Procedures. In the event that either Servicing, FCFC or
any FCFC Affiliate (a “Prospective Acquiror”) shall obtain an Asset Purchase
Proposal with respect to which such Prospective Acquiror or another FCFC
Affiliate proposes to acquire any interest, such Prospective Acquiror shall
first give written notice to CFSC by delivering a cover page substantially in
the form of Exhibit A hereto (the “Transaction Notice”) to CFSC, which notice
shall describe, in reasonable detail, the subject Asset Purchase Proposal.
Thereafter, on or before the second (2nd) Monday after receipt of the
Transaction Notice by CFSC (the “Transaction Response Date”), CFSC shall
complete and return to the Prospective Acquiror the cover page of the

     
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Transaction Notice (the “Transaction Response”) indicating whether CFSC has an
interest in the subject Asset Purchase Proposal. Upon execution of an
affirmative Transaction Response, CFSC shall be responsible for payment of
one-half of the due diligence expenses incurred and contracted for with respect
to the Asset Purchase Proposal as set forth in Sections 3.4 and 3.5.
Section 2.3 Due Diligence/Withdrawal.
          (a) Notwithstanding anything to the contrary in Section 2.2 above, if
after delivering a Transaction Notice to CFSC, for which CFSC has timely
returned (or subsequently timely returns) a Transaction Response, the
Prospective Acquiror determines through due diligence or otherwise that the
Prospective Acquiror has no further interest in pursuing the possible
acquisition of the Potential Assets, the Prospective Acquiror shall advise CFSC
in writing that it has withdrawn its interest in acquiring the Potential Assets
(a “Withdrawal Notice”) and shall not thereafter acquire any interest in the
Potential Assets, except with CFSC’s prior written consent. Such Prospective
Acquiror, at CFSC’s request, shall provide CFSC (if not prohibited or restricted
from so providing by any agreement entered into by the Prospective Acquiror for
the purpose of evaluating the Potential Assets) with the product of its due
diligence efforts to date for further evaluation by CFSC. Upon receiving a
Withdrawal Notice from any Prospective Acquiror, CFSC shall be free to proceed
with the acquisition of the Potential Assets, directly or indirectly, either by
itself or with any other Person. The Prospective Acquiror shall have no
responsibility for any due diligence expenses contracted for after receipt of
such Withdrawal Notice by CFSC. If CFSC acquires such Potential Assets, CFSC
shall reimburse the Prospective Acquiror for the due diligence expenses paid or
reimbursed by the Prospective Acquiror with respect to such Potential Assets.
          (b) Notwithstanding anything to the contrary in Section 2.2 above, if
after CFSC has timely returned a Transaction Response, CFSC determines through
due diligence or otherwise that CFSC has no further interest in pursuing the
possible acquisition of the Potential Assets, CFSC shall advise the Prospective
Acquiror in writing that it has withdrawn its interest in acquiring the
Potential Assets (a “CFSC Withdrawal Notice”) and shall not thereafter acquire
any interest in the

     
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Potential Assets, except with the Prospective Acquiror’s prior written consent.
     Section 2.4 Rejection/Deemed Rejection. If CFSC rejects the proposal
contained in the Transaction Notice, fails to deliver a Transaction Response by
the Transaction Response Date, or delivers a CFSC Withdrawal Notice, the
Prospective Acquiror shall be free to proceed with the acquisition of the
Potential Assets and may acquire an interest in the Potential Assets, directly
or indirectly, either by itself or with any other Person. If the Prospective
Acquiror acquires such Potential Assets, the Prospective Acquiror shall
reimburse CFSC for the due diligence expenses paid or reimbursed by CFSC with
respect to such Potential Assets.
     Section 2.5 Minimum Proposal. Notwithstanding anything in this Agreement to
the contrary, the restrictions contained herein shall not apply to any offering
which constitutes an Asset Purchase Proposal if the aggregate amount to be bid
with respect to such offering does not exceed the Investment Threshold.
     Section 2.6 Non-Exclusivity for FirstCity. Notwithstanding anything in this
Agreement to the contrary, the restrictions obtained herein shall not prohibit
FirstCity from holding discussions either prior to or after a Transaction
Response Date with entities other than CFSC regarding Asset Purchase Proposals
generally or the potential joint acquisition by that Prospective Acquiror and
such Person of the Potential Assets, provided, however, that any such
discussions regarding Potential Assets shall always be subject to CFSC’s rights
hereunder unless CFSC rejected the proposal contained in a Transaction Notice
from FirstCity, failed to deliver a Transaction Response to FirstCity by the
Transaction Response Date, or delivered a CFSC Withdrawal Notice to the
Prospective Acquiror. The rejection by CFSC of a Transaction Notice from any one
Prospective Acquiror shall not be considered as or deemed to be a rejection by
CFSC of a Transaction Notice from any other Prospective Acquiror. Nor shall
CFSC’s failure to deliver a Transaction Response or delivery of a CFSC
Withdrawal Notice to any one Prospective Acquiror be considered as or deemed to
be a failure to deliver a Transaction Response or delivery of a CFSC Withdrawal
Notice to any other Prospective Acquiror.
     Section 2.7 Estoppel. In the event that CFSC indicates an interest in the
Potential

     
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Assets by returning a Transaction Response to a Prospective Acquiror, each
Prospective Acquiror may rely on such interest or notice as indicating that CFSC
is not, either directly or indirectly, attempting to, and CFSC agrees that
neither CFSC, nor any CFSC Affiliate will, acquire an interest in the subject
Potential Assets other than through that Prospective Acquiror; provided,
however, that CFSC or a CFSC Affiliate may acquire an interest in the subject
Potential Assets after it has been determined that the bid of the Prospective
Acquiror was unsuccessful.
     Section 2.8 Officers and Directors of FirstCity. FirstCity, CFSC and CCCII
agree that the FirstCity Principals shall no longer be parties to or have any
individual liability arising from the Amended and Restated Right of First
Refusal Agreement dated June 9, 1994, as amended, the DDER Agreement or this
Agreement or the breach thereof. FirstCity, CFSC and CCCII further agree that
FirstCity shall not have any liability for the action(s) of any of the officers,
directors or employees of FirstCity (each a “FirstCity Representative”) related
to an acquisition by the FirstCity Representative of any Potential Assets which
would be in violation of the Amended and Restated Right of Refusal Agreement
dated June 9, 1994, as amended, the DDER Agreement or this Agreement, unless the
action of such FirstCity Representative was taken on behalf of FirstCity, or,
directly or indirectly, benefitted FirstCity. Notwithstanding the foregoing,
FirstCity agrees that it will use its best efforts to enforce any rights or
claims it may have against any FirstCity Representative arising by company
policy, by contract, by statute or under common law to restrict, prohibit or
seek damages arising from the breach by a FirstCity Representative of their
obligations to FirstCity related to the acquisition by a FirstCity
Representative of any Potential Assets, subject to exercise by FirstCity of its
reasonable judgment in determining whether to enforce any such rights.
ARTICLE 3. PORTFOLIO DUE DILIGENCE, MONTHLY RETAINER AND TRANSACTION EXPENSES.
     Section 3.1 Due Diligence. FirstCity shall cause its subsidiary, Servicing,
to conduct due diligence with respect to portfolios of Asset Purchase Proposals
on behalf of FirstCity and Cargill and Persons controlled by or to be formed by
FirstCity and Cargill. Such due diligence duty

     
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shall include such responsible investigation as FirstCity and Cargill shall deem
appropriate to satisfy the investment objectives of FirstCity and Cargill, as
shall be expressed from time to time. Servicing shall make available sufficient
personnel having appropriate training, skill and experience to conduct and
direct all such due diligence on Potential Assets.
     Section 3.2 Monthly Retainer. CFSC agrees that it will pay Servicing a
Monthly Retainer for overhead and related expenses incurred by Servicing related
to conduct of due diligence on Asset Purchase Proposals related to the potential
acquisition of Potential Assets during each month. The maximum (or base) amount
of the Monthly Retainer shall be $20,000.00 with the aggregate amount of the
cumulative Monthly Retainer amounts earned by Servicing (whether or not such
amount has already been paid over to Servicing or remains due and unpaid)
subject to adjustment in accordance with Article 4.
     Section 3.3 Right to Terminate Agreement. If at any time CFSC reasonably
determines that the due diligence services provided by Servicing are not being
performed by sufficient personnel having the appropriate training, skill or
experience, then CFSC may by written notice terminate this Agreement effective
upon the date of the notice or such later date as is specified in the notice.
Upon termination of this Agreement by CFSC pursuant to this Section 3.3, neither
party shall have any further rights, obligations, duties or liabilities under
this Agreement, except as to matters arising prior to the effective date of the
termination of this Agreement.
     Section 3.4 Domestic U.S. Transaction Expenses. For any Asset Purchase
Proposals relating to the potential acquisition of Potential Assets for which
(i) CFSC has completed a Transaction Response indicating CFSC has an interest in
acquiring the assets, and (ii) either the assets or the collateral securing such
assets is located within the United States, each of Cargill and FirstCity agree
to bear fifty percent (50%) of the due diligence expenses (excluding any
contract labor charges or fees and the cost of first class travel or upgrades to
first class travel) related to such Asset Purchase Proposals; provided that
should CFSC later provide a CFSC Withdrawal Notice relating to the acquisition
of the Potential Assets, CFSC shall have no responsibility for any due diligence
expenses contracted for after receipt of such CFSC Withdrawal Notice by FCFC or
the

     
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Prospective Acquiror. FirstCity and CFSC agree that out-of-pocket due diligence
expenses for domestic U.S. Acquisitions may be reimbursed to Servicing in full
or in part, by the investing entities, in which case Servicing shall refund any
portion of such expenses previously reimbursed to it. Except as it may otherwise
be agreed between the parties, reimbursement of Servicing and refunds by
Servicing for domestic transaction expenses previously reimbursed to it shall be
in U.S. Dollars.
     Section 3.5 Non-U.S. Transaction Expenses. For any Asset Purchase Proposals
related to the potential acquisition of Potential Assets for which (i) CFSC has
completed a Transaction Response indicating CFSC has an interest in acquiring
the assets, and (ii) either the assets or the collateral securing such assets is
located within the Geographic Area but outside the United States, each of
Cargill and FirstCity agree to bear fifty percent (50%) of the contract labor
charges/fees, and fifty percent (50%) of the out-of-pocket expenses (but not to
include the cost of first class travel or upgrades to first class travel)
related to such Asset Purchase Proposals; provided, however, that the maximum
amount which is reimbursable to the other party hereunder shall be limited to
fifty percent (50%) of an amount which is not greater than 110% of an amount
mutually agreed upon by Cargill and FirstCity as the due diligence budget for
such Asset Purchase Proposals; provided that should CFSC later provide a CFSC
Withdrawal Notice relating to the acquisition of the Potential Assets, CFSC
shall have no responsibility for any due diligence expenses contracted for after
receipt of such CFSC Withdrawal Notice by FCFC or the Prospective Acquiror.
Until such time as Cargill and FirstCity shall have agreed upon the budgeted
amount, the liability to any third party shall be the sole responsibility of the
Person which engages such third party. FirstCity and CFSC agree that
out-of-pocket due diligence expenses for non-U.S. Acquisitions may be reimbursed
to Servicing in full or in part, by the investing entities, in which case
Servicing shall refund any portion of such expenses previously reimbursed to it.
Except as it may otherwise be agreed between the parties, reimbursement of
Servicing and refunds by Servicing for expenses previously reimbursed to it
shall be in U.S. Dollars notwithstanding the fact that the expenses were
incurred in a Foreign Currency or, as to refunds, the reimbursement to Servicing
was (subject to its consent)

     
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made in a Foreign Currency. Expenses incurred in a Foreign Currency shall be
converted into the equivalent U.S. Dollar amount, or vice versa, at the then
prevailing foreign exchange rate applicable to U.S. Dollar purchases and sales
of such Foreign Currency.
ARTICLE 4.CARGILL ORIGINATIONS.
     Section 4.1 Cargill Originations.
          (a) In the event that Cargill, at its option and in its discretion,
elects to bring a proposed transaction within the Geographic Area to FirstCity
not involving a Competitive Bid and which was not otherwise made available to
FirstCity (the “Cargill Originations”) and such Cargill Originations become
either an Acquisition or an acquisition by FirstCity, Cargill may receive a
rebate of or credit for each Contract Year (as provided in this Section 4.1), on
a cumulative basis, against CFSC’s obligations pursuant to this Agreement to pay
the Monthly Retainer to Servicing (the “Retainer Rebate”) as set forth in this
Section 4.1 and Section 4.2. Each such Acquisition or acquisition by FirstCity
which is a Cargill Origination shall be acknowledged as such by FirstCity and
Cargill in writing on or prior to the Closing Date of the Acquisition or
acquisition by FirstCity. The amount of the Retainer Rebate to be
credited/rebated to CFSC for any Contract Year shall be determined by the
following schedule:

          cumulative annual       Adjusted Acquisition Price       for
acquisitions which   Retainer   are Cargill Originations   Rebate   during a
Contract Year   Amount  
Up to $24,999,999.99
  None
$25,000,000.00 to $49,999,999.99
  $ 60,000.00  
$50,000,000.00 to $99,999,999.99
  $ 120,000.00  
$100,000,000.00 or greater
  $ 240,000.00  

          (b) Before aggregating the cumulative Adjusted Acquisition Price of
all Cargill Originations during any Contract Year for purposes of determining
the applicable Retainer Rebate

     
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in Section 4.1(a), the Adjusted Acquisition Price shall be determined by
multiplying the Acquisition Price by the applicable Leverage Factor from the
following schedule:

              Cargill Originations           Leverage Factor
unlevered acquisitions/Acquisition
          100%
 
           
independent third party debt/leverage
      100%
 
           
Cargill debt/leverage
          (100% or 50%)*

in accordance with the following formula: AAP = (AP) X (LF)
where            AAP = Adjusted Acquisition Price;
                      AP = Acquisition Price; and
                      LF = the applicable Leverage Factor.
 
* by mutual agreement of Cargill and FirstCity as reflected on the
funding/closing/settlement statement or other writing executed in connection
with the closing of the acquisition of such Cargill Origination and based upon a
determination as to whether the Cargill debt/leverage is at or better than
market rates and terms for similar financings (in which case the Leverage Factor
shall be 100%), or whether the Cargill debt/leverage is less favorable to the
acquiring entity than the market rates and terms for similar financings (in
which case the Leverage Factor shall be 50%), and if not so reflected, then the
Leverage Factor applicable to such Cargill Origination shall be 50%. A Leverage
Factor which would otherwise be 50% may be 100% if FirstCity and Cargill agree
that the servicing fee charged by a FCFC Affiliate related to servicing of the
acquired assets is above market rates for servicing of a portfolio of assets of
similar size and composition.
          (c) Any Cargill Originations which are denominated in a Foreign
Currency shall be converted to the equivalent U.S. Dollar amount before
aggregating the Acquisition Price of all such Cargill Originations. Any such
Foreign Currency amount shall be converted into its equivalent U.S. Dollar
amount at the prevailing foreign exchange rate applicable to U.S. Dollar
purchases and sales of such Foreign Currency as of the date of the closing of
the transaction related

     
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to such Cargill Origination.
          (d) Nothing in this Section 4.1 or Section 4.2 shall affect the
obligation of Cargill to reimburse Servicing for due diligence expenses as
provided in Sections 3.4 and 3.5.
Section 4.2 Calculation/Payment of the Retainer Rebate.
          (a) On each anniversary of the Effective Date of this Agreement, the
parties shall determine whether a Retainer Rebate is due to CFSC (i.e., such
that a credit exists in CFSC’s favor) pursuant to the schedule set forth in
Section 4.1 of this Agreement. To the extent that any Retainer Rebate is due to
CFSC, CFSC shall credit such excess amount against payments of the Monthly
Retainer due in the next year. In the event that the anniversary date in
question is the Termination Date, Servicing shall pay such Retainer Rebate
amount to CFSC in cash within thirty (30) days of the Termination Date.
          (b) Notwithstanding anything to the contrary in Section 4.2(a) above,
CFSC may elect, from time to time during any Contract Year at its option and in
its discretion, to calculate whether a Retainer Rebate is due to CFSC (i.e.,
such that a credit exists in CFSC’s favor) pursuant to Section 4.1 of this
Agreement. To the extent that any Retainer Rebate is due to CFSC, CFSC, at its
option, may elect to credit such amount against the Monthly Retainer to be paid
to Servicing for the remaining calendar month(s); provided that CFSC may not
exercise such election until all amounts that would be payable based on such
computation during such Contract Year have first been paid to Servicing.
          (c) Upon the termination of this Agreement at any time other than an
anniversary thereof, the parties shall determine whether a Retainer Rebate is
due to CFSC (i.e., such that a credit exists in CFSC’s favor) by multiplying (i)
the Monthly Retainer for such part year, by (ii) the Retainer Rebate Percentage
applicable to such part year as taken from the schedule set forth in Section 4.1
of this Agreement. To the extent that any Retainer Rebate is due to CFSC,
Servicing shall pay such Retainer Rebate to CFSC in cash within ninety (90) days
of the termination of this Agreement.
ARTICLE 5. MISCELLANEOUS.

     
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     Section 5.1 Effective Date and Termination. This Agreement shall become
effective as of the Effective Date and shall continue in full force and effect
until midnight on the Termination Date, unless earlier terminated by Cargill
pursuant to Section 3.3.
     Section 5.2 Remedies. Each party to this Agreement shall have all remedies
available to it by applicable statute or at common law, including, without
limitation all equitable rights and remedies. In the event that either party
pursues its rights and remedies under this Agreement, the prevailing party shall
be entitled to recover all reasonable costs and expenses (including reasonable
attorneys’ fees and disbursements) incurred in its successful prosecution or
defense of any claim or action. FirstCity and CFSC acknowledge that a breach of
a provision(s) of this Agreement hereof will cause irrevocable harm to the other
party, for which there may be no adequate remedy at law and for which the
ascertainment of damages would be difficult. Therefore, the non-breaching party
shall be entitled, in addition to, and without having to prove the inadequacy
of, other remedies at law (including without limitation damages for prior
breaches hereof), to specific performance of this Agreement, as well as
injunctive relief (without being required to post bond or other security).
     Section 5.3 Amendments. This Agreement may not be amended or modified and
the provisions hereof may not be waived without the prior written consent of all
the parties hereto.
     Section 5.4 Transferability of Agreement. This Agreement shall be binding
upon the parties and their respective successors and permitted assigns. No
interest in this Agreement shall be transferable without the written consent of
all the other parties hereto, except that (i) CFSC may assign its interest in
this Agreement to a CFSC Affiliate without such written consent, and (ii)
Servicing may assign its rights, duties and obligations under this Agreement to
another wholly-owned subsidiary of FCFC.
     Section 5.5 Governing Law. This Agreement will be governed by the internal
laws of the State of Texas.
     Section 5.6 Enforceability of Agreement. Should any one or more of the
provisions of this Agreement be determined to be illegal or unenforceable, all
other provisions, nevertheless, shall remain effective and binding on the
parties hereto.

     
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     Section 5.7 Nature of Obligations. The obligations of all the parties
hereto shall be considered to be several and not joint obligations.
     Section 5.8 Titles. Titles of the Sections of this Agreement are merely for
convenience in reading and shall not be construed to alter, modify or interpret
the meaning of the provisions under said titles.
     Section 5.9 Notices. Any notice, request or demand to or upon the parties
hereto must be given in writing. Notices shall be sent by telecopy or other
similar facsimile means or sent certified, postage prepaid, and shall be
addressed to the party to receive the same as follows or to such other address
as may be hereafter designated in writing by the respective parties hereto:

             
 
  To FirstCity:       FirstCity Financial Corporation
P. O. Box 8216
Waco, Texas 76714-8216
ATTN: James T. Sartain
Fax: 817-751-7363
 
           
 
  To Servicing:       FirstCity Servicing Corporation
P. O. Box 8216
Waco, Texas 76714-8216
ATTN: Terry R. DeWitt
Fax: 817-751-7363
 
                To CFSC and CCCII:   Cargill Financial Services Corporation
 
          6000 Clearwater Drive
Minnetonka, Minnesota 55343-9497
ATTN: E. Gerald O’Brien, II
    Value Investment Group
Fax: 612-984-3905

     Section 5.10 Entire Agreement. This Agreement shall constitute the full and
entire understanding and agreement of the parties hereto and there are no
further or other agreements or undertakings written or oral, in effect between
the parties relating to the subject matter hereof unless expressly referred to
herein. All prior negotiations, agreements, representations, warranties,
statements and undertakings concerning the subject matter hereof between the
parties hereto are superseded by this Agreement.

     
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     Section 5.11 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute one and the same
instrument.
     Section 5.12 Replacement. The parties intend that this Agreement
terminates, supersedes and replaces in its entirety (i) that certain Amended and
Restated Right of First Refusal Agreement dated June 9, 1994, executed by and
among FirstCity, the FirstCity Principals and CFSC, and (ii) the DDER Agreement.
The FirstCity Principals are executing this Agreement for sole purpose of
acknowledging their consent and agreement to the termination of those agreements
as set forth in this Section 5.12.
[End of Page — Signature Page to Follow]

     
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     IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.

            FirstCity Financial Corporation
      By:              

Name:                                                                                
Title:                                                                                

            FirstCity Servicing Corporation
      By:              

Name:                                                                                
Title:                                                                                

            Cargill Financial Services Corporation
      By:              

Name:                                                                                
Title:                                                                                

            CFSC Capital Corp. II
      By:              

Name:                                                                                
Title:                                                                                
     For the sole purpose of evidencing consent and agreement to Section 5.12:

     
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                                                       James Hawkins
                                                                                
                                                      James T. Sartain
                                                                                
                                                  Rick R. Hagelstein

     
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EXHIBIT A
TRANSACTION NOTICE

                 
 
               
 
  JHC#            
 
               
 
  PACKAGE NAME            
 
               
 
  BID DATE            
 
               
 
  BOOK/REO VALUE                              
 
  NO. OF ASSETS            
 
               
 
  ASSET TYPE                              
 
  ESTIMATED CLOSING DATE            
 
                  TO:   Cargill Financial Services Corporation
       
 
  Attention: E. Gerald O’Brien, II            
 
               
FROM:
  FirstCity Servicing Corporation            

     Attached hereto is information regarding an Asset Purchase Proposal (as
such term is defined in that certain Right of First Refusal Agreement and Due
Diligence Reimbursement Agreement effective as of January 1, 1998 (the
“Agreement”) between FirstCity Financial Corporation and FirstCity Servicing
Corporation and Cargill Financial Services Corporation and CFSC Capital Corp.
II. Please indicate in the space below whether you have an interest in the
subject Asset Purchase Proposal.

            FirstCity Servicing Corporation
      By:   ________________________________________            

Name:                                                                                
Title:                                                                                
Date:                                                                                

     
                                        
  Yes, we have an interest in pursuing the Asset Purchase Proposal and will be
responsible for payment of one-half of the due diligence expense as set forth in
the Agreement.
 
   
                                        
  No, we do not have any interest in the subject Asset Purchase Proposal.

Cargill Financial Services Corporation

     
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                  By:   ________________________________________            

Name:                                                                                
Title:                                                                                
Date:                                                                                

     
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EXHIBIT B
WITHDRAWAL NOTICE

                 
 
               
 
  JHC#            
 
               
 
  PACKAGE NAME            
 
               
 
  BID DATE            
 
               
 
                TO:   Cargill Financial Services Corporation
       
 
  Attention: E. Gerald O’Brien, II            
 
               
FROM:
  FirstCity Servicing Corporation            

     FirstCity Servicing Corporation submitted to you a Transaction Notice with
respect to the above referenced package for which you sent an affirmative
Transaction Response. FirstCity Servicing Corporation has determined that it has
no further interest in pursuing the possible acquisition of the Potential Assets
and provides this Withdrawal Notice to you pursuant to Section 2.3(a) of that
certain Right of First Refusal Agreement and Due Diligence Reimbursement
Agreement effective as of January 1, 1998, between FirstCity Financial
Corporation, FirstCity Servicing Corporation, Cargill Financial Services
Corporation and CFSC Capital Corp. II. FirstCity Servicing Corporation will not
be responsible for any due diligence expenses contracted for after your receipt
of this Withdrawal Notice.

            FirstCity Servicing Corporation
      By:   ________________________________________            

Name:                                                                                
Title:                                                                                
Date:                                                                                

     
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EXHIBIT B
WITHDRAWAL NOTICE

                 
 
               
 
  JHC#            
 
               
 
  PACKAGE NAME            
 
               
 
  BID DATE            
 
               
 
                TO:   FirstCity Servicing Corporation
       
 
  Attention: Terry DeWitt            
 
               
FROM:
  Cargill Financial Services Corporation            

     FirstCity Servicing Corporation submitted to Cargill Financial Services
Corporation (“CFSC”) a Transaction Notice with respect to the above referenced
package for which CFSC sent an affirmative Transaction Response. CFSC has
determined that it has no further interest in pursuing the possible acquisition
of the Potential Assets and provides this Withdrawal Notice to you pursuant to
Section 2.3(b) of that certain Right of First Refusal Agreement and Due
Diligence Reimbursement Agreement effective as of January 1, 1998, between
FirstCity Financial Corporation, FirstCity Servicing Corporation, Cargill
Financial Services Corporation and CFSC Capital Corp. II. CFSC will not be
responsible for any due diligence expenses contracted for after your receipt of
this withdrawal notice.

            Cargill Financial Services Corporation
      By:   ________________________________________            

Name:                                                                                
Title:                                                                                
Date:                                                                                

     
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