Exhibit 10.60

 

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of June 29,
2010, is entered into by and among FirstCity Financial Corporation, a Delaware
corporation (the “Company”), and Värde Investment Partners, L.P., a Delaware
limited partnership (the “Investor”).

 

BACKGROUND

 

A.            The Company and the Investor are executing and delivering this
Agreement in reliance upon the exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”),
and Rule 506 of Regulation D (“Regulation D”) as promulgated by the United
States Securities and Exchange Commission (the “SEC”) under the Securities Act.

 

B.            The Investor wishes to purchase, and the Company wishes to sell,
upon the terms and conditions stated in this Agreement, that number of shares of
the common stock, par value $0.01 per share, of the Company (the “Common Stock”)
as prescribed herein.

 

C.            The Common Stock issued pursuant to this Agreement is referred to
herein as the “Securities.”

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investor agree as
follows:

 

ARTICLE I
DEFINITIONS

 

1.1          Definitions.  In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:

 

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144 under the
Securities Act.

 

“Agreement” has the meaning set forth in the Preamble.

 

“Business Day” means any day other than Saturday, Sunday, any day which shall be
a federal legal holiday in the United States or any day on which national
banking institutions in The State of New York are authorized or required by law
or other governmental action to close.

 

“Closing” has the meaning set forth in Section 2.1(c).

 

“Closing Date” has the meaning set forth in Section 2.1(c).

 

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“Common Stock” has the meaning set forth in the Preamble.

 

“Company” has the meaning set forth in the Preamble.

 

“Company Counsel” means Haley & Olson, P.C., counsel to the Company.

 

“Contingent Obligation” has the meaning set forth in Section 3.1(x).

 

“Disclosure Materials” has the meaning set forth in Section 3.1(g).

 

“8-K Filing” has the meaning set forth in Section 4.5.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“GAAP” has the meaning set forth in Section 3.1(g).

 

“Indebtedness” has the meaning set forth in Section 3.1(x).

 

“Indemnified Party” has the meaning set forth in Section 5.3(c).

 

“Indemnifying Party” has the meaning set forth in Section 5.3(c).

 

“Insolvent” has the meaning set forth in Section 3.1(h).

 

“Investment” has the meaning set forth in Section 2.1(a).

 

“Investor” has the meaning set forth in the Preamble.

 

“Lien” means any lien, charge, claim, security interest, encumbrance, right of
first refusal or other restriction.

 

“Losses” means any and all losses, claims, damages, liabilities, settlement
costs and expenses, including, without limitation, reasonable attorneys’ fees.

 

“Material Adverse Effect” means any event, circumstance, change, occurrence or
state of facts that (i) has a material adverse effect on the business, financial
condition or results of operations of the Company and its Subsidiaries, taken as
a whole (other than events, circumstances, changes, occurrences or any state of
facts relating to (A) any change in general economic conditions that affect the
industries in which the Company and its Subsidiaries conduct their business, so
long as such changes or conditions do not adversely affect the Company and its
Subsidiaries, taken as a whole, in a materially disproportionate manner relative
to other similarly situated participants in the industries or markets in which
they operate, (B)  general legal, regulatory, political, business, economic,
financial or securities market conditions in the United States or elsewhere
(including fluctuations, in and of themselves, in the price of the Common
Stock), (C) the negotiation, execution or the announcement of this Agreement,
the undertaking and performance or observance of the obligations contemplated by
this Agreement or necessary to consummate the transactions or the

 

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consummation of any transaction by the Company, including the impact thereof on
relationships, contractual or otherwise, with customers, suppliers,
distributors, partners or employees, (D) acts of war, insurrection, sabotage or
terrorism, not having a disproportionate effect on the Company and its
Subsidiaries, taken as a whole, relative to other participants in the industries
or markets in which the Company and its Subsidiaries operate, (E) changes in
GAAP or the accounting rules or regulations of the SEC, (F) the effect of
incurring out-of-pocket expenses in connection with negotiating, entering into,
performing or consummating the transactions contemplated by this Agreement, or
(G) the failure, in and of itself, by the Company to meet any internal or
published projections, forecasts or revenue or earnings predictions for any
period ending on or after the date of this Agreement (it being understood that
the causes underlying such failure may be considered in determining whether a
Material Adverse Effect has occurred or would reasonably be expected to occur))
or (ii) prevents the Company from performing its obligations under this
Agreement; provided, that “material” and “materially” have correlative meanings.

 

“Material Permits” has the meaning set forth in Section 3.1(s).

 

“Options” means any outstanding rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.

 

“Person” has the meaning set forth in Section 3.1(x).

 

“Piggyback Registration” has the meaning set forth in Section 5.1(a).

 

“Previously Disclosed” with regard to the Company means any information
contained in any periodic or current report filed with the SEC since January 1,
2009, or otherwise disclosed in a specific section of this Agreement; provided
that information which, on its face, reasonably should indicate to the reader
that it relates to another provision of this Agreement, shall also be deemed to
be Previously Disclosed with respect to such other provision.

 

“Prior Disclosure” has the meaning set forth in Section 3.2(f).

 

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, a partial proceeding, such as a deposition),
whether commenced or threatened in writing.

 

“Purchase Price” has the meaning set forth in Section 2.1(b).

 

“Registrable Securities” means the Common Stock issued pursuant to the
Transaction Documents, together with any securities issued or issuable upon any
stock split, dividend or other distribution, recapitalization or similar event
with respect to the foregoing.

 

“Regulation D” has the meaning set forth in the Preamble.

 

“SEC” has the meaning set forth in the Preamble.

 

“SEC Reports” has the meaning set forth in Section 3.1(g).

 

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“Securities” has the meaning set forth in the Preamble.

 

“Securities Act” has the meaning set forth in the Preamble.

 

“Short Sales” has the meaning set forth in Section 3.2(i).

 

“Trading Day” means (i) a day on which the Common Stock is traded on a Trading
Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not
listed or quoted on a Trading Market (other than the OTC Bulletin Board), a day
on which the Common Stock is traded in the over-the-counter market, as reported
by the OTC Bulletin Board, or (iii) if the Common Stock is not listed or quoted
on any Trading Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the Pink Sheets LLC (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

 

“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the
NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed
or quoted for trading on the date in question.

 

“Transaction” has the meaning set forth in Section 3.2(i).

 

“Transaction Documents” means this Agreement, the schedules and exhibits
attached hereto, and the Transfer Agent Instructions.

 

“Transfer Agent” means American Stock Transfer & Trust Company, or any successor
transfer agent for the Company.

 

“Transfer Agent Instructions” means, with respect to the Company, the
Irrevocable Transfer Agent Instructions, in the form of Exhibit D, executed by
the Company and delivered to and acknowledged in writing by the Transfer Agent.

 

ARTICLE II
PURCHASE AND SALE

 

2.1          Closing.

 

(a)           At the Closing (as defined below), the Investor will purchase
150,000 shares of Common Stock (the “Investment”) as calculated pursuant to
Section 2.1(b) below.

 

(b)           The purchase price for the Common Stock constituting the
Investment shall be $889,500.00 (the “Purchase Price”) reflecting the closing
trading price of the Common Stock on the Trading Day immediately preceding the
date hereof of $5.93 per share.  At the Closing, the Company shall issue to the
Investor 150,000 shares of Common Stock.

 

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(c)           Subject to the terms and conditions of this Agreement, the
issuance, sale and purchase of the Common Stock constituting the Investment
shall take place at a closing (the “Closing”) to be held at a mutually agreeable
location on the date hereof, or at such other date and time as may be agreed
upon by the Company and the Investor (the date upon which the Closing occurs is
referred to herein as the “Closing Date”).

 

2.2          Closing Deliveries.

 

(a)           At the Closing, the Company shall deliver or cause to be delivered
to the Investor the following:

 

(i)            a copy of the Company’s irrevocable instructions to the Transfer
Agent instructing the Transfer Agent to deliver, on an expedited basis, one or
more stock certificates, free and clear of all restrictive and other legends
(except as expressly provided in Section 4.1(b) hereof), evidencing the
Investment registered in the name of the Investor;

 

(ii)           an executed copy of the Investment Agreement, to be effective as
of April 1, 2010, by and among FC Diversified Holdings LLC, FirstCity Servicing
Corporation and Värde;

 

(iii)          a legal opinion of Company Counsel, in the form of Exhibit B,
executed by such counsel and delivered to the Investor; and

 

(iv)          a certificate of the Secretary of the Company, dated as of the
Closing Date, (a) certifying the resolutions adopted by the Board of Directors
of the Company approving the transactions contemplated by this Agreement and the
other Transaction Documents and the issuance of the Securities, (b) certifying
the current versions of the certificate of incorporation, as amended and by-laws
of the Company and (c) certifying as to the signatures and authority of persons
signing the Transaction Documents and related documents on behalf of the
Company.

 

(b)           At the Closing, the Investor shall deliver or cause to be
delivered to the Company the Purchase Price in United States dollars and in
immediately available funds, by wire transfer to an account designated in
writing to the Investor by the Company for such purpose.

 

ARTICLE III
REPRESENTATIONS AND WARRANTIES

 

3.1          Representations and Warranties of the Company.. Except as
Previously Disclosed, the Company hereby represents and warrants to the Investor
as follows:

 

(a)           Subsidiaries.  The Company owns or controls, directly or
indirectly, all of the capital stock or comparable equity interests of each of
its subsidiaries free and clear of any Lien other than Liens granted to Bank of
Scotland, plc and BoS (USA), Inc. which secure Indebtedness disclosed in the SEC
Reports and Schedule 3.1(h), and all issued and outstanding shares of capital
stock or comparable equity interest of each such subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar rights.

 

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(b)           Organization and Qualification. The Company is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite legal authority to own and
use its properties and assets and to carry on its business as currently
conducted.  The Company is not in violation of any of the provisions of its
certificate or articles of incorporation, bylaws or other organizational or
charter documents.  The Company is duly qualified to do business and is in good
standing as a foreign corporation or other entity in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, would not, individually or in the aggregate, have
or reasonably be expected to result in a Material Adverse Effect.

 

(c)           Authorization; Enforcement. The Company has the requisite
corporate authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents to which it is a party and
otherwise to carry out its obligations hereunder and thereunder.  The execution
and delivery of each of the Transaction Documents to which it is a party by the
Company and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of the Company and no further consent or action is required by the Company, its
Board of Directors or its stockholders.  Each of the Transaction Documents to
which it is a party has been (or upon delivery will be) duly executed by the
Company and is, or when delivered in accordance with the terms hereof, will
constitute, the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

 

(d)           No Conflicts.  The execution, delivery and performance by the
Company of the Transaction Documents to which it is a party and the consummation
by the Company of the transactions contemplated hereby and thereby do not, and
will not, (i) conflict with or violate any provision of the Company’s
certificate or articles of incorporation, bylaws or other organizational or
charter documents, (ii) conflict with, or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation (with
or without notice, lapse of time or both) of, any material agreement, credit
facility, debt or other instrument (evidencing a Company debt or otherwise) or
other material understanding to which the Company is a party or by which any
property or asset of the Company is bound, or affected, or (iii) result in a
material violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company is subject (including, assuming the accuracy of the representations and
warranties of the Investor set forth in Section 3.2 hereof, federal and state
securities laws and regulations and the rules and regulations of any
self-regulatory organization to which the Company or its securities are subject,
including all applicable Trading Markets), or by which any property or asset of
the Company is bound or affected.

 

(e)           The Securities.  The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully

 

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paid and nonassessable, free and clear of all Liens and will not be subject to
preemptive or similar rights of stockholders (other than those imposed by the
Investor).

 

(f)            Capitalization.  The aggregate number of shares and type of all
authorized, issued and outstanding classes of capital stock, options and other
securities of the Company (whether or not presently convertible into or
exercisable or exchangeable for shares of capital stock of the Company) is set
forth in Schedule 3.1(f) hereto.  All outstanding shares of capital stock are
duly authorized, validly issued, fully paid and nonassessable and have been
issued in compliance in all material respects with all applicable securities
laws.  Except as disclosed in Schedule 3.1(f) hereto, the Company did not have
outstanding on the date hereof any other options, script rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exercisable or exchangeable for, or
entered into any agreement giving any Person any right to subscribe for or
acquire, any shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock.  Except as set forth on Schedule
3.1(f) hereto, and except for customary adjustments as a result of stock
dividends, stock splits, combinations of shares, reorganizations,
recapitalizations, reclassifications or other similar events, there are no
anti-dilution or price adjustment provisions contained in any security issued by
the Company (or in any agreement providing rights to security holders) and the
issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the
Investor) and will not result in a right of any holder of securities to adjust
the exercise, conversion, exchange or reset price under such securities.  To the
knowledge of the Company, except as disclosed in the SEC Reports and any
Schedules 13D or 13G filed with the SEC pursuant to Rule 13d-1 of the Exchange
Act by reporting persons or in Schedule 3.1(f) hereto, no Person or group of
related Persons beneficially owns (as determined pursuant to Rule 13d-3 under
the Exchange Act), or has the right to acquire, by agreement with or by
obligation binding upon the Company, beneficial ownership of in excess of 5% of
the outstanding Common Stock.

 

(g)                           SEC Reports; Financial Statements.  Except as set
forth on Schedule 3.1(g), the Company has filed all reports required to be filed
by it under the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the 12 months preceding the date hereof on a timely basis or
has received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension.  Such reports required to
be filed by the Company under the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, together with any materials filed or furnished
by the Company under the Exchange Act, whether or not any such reports were
required being collectively referred to herein as the “SEC Reports” and,
together with this Agreement and the Schedules to this Agreement, the
“Disclosure Materials.”  As of their respective dates (or, if amended or
superseded by a filing prior to the Closing Date, then on the date of such
filing), the SEC Reports filed by the Company complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the
rules and regulations of the SEC promulgated thereunder, and none of the SEC
Reports, when filed (or, if amended or superseded by a filing prior to the
Closing Date, then on the date of such filing) by the Company, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.  The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the SEC with respect thereto as in effect at the time of filing
(or, if amended or

 

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superseded by a filing prior to the Closing Date, then on the date of such
filing).  Such financial statements have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
during the periods involved (“GAAP”), except as may be otherwise specified in
such financial statements and the notes thereto, and except that unaudited
financial statements may not contain all footnotes required by GAAP or may be
condensed or summary statements, and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to normal,
year-end audit adjustments.  All material agreements to which the Company or any
Subsidiary is a party or to which the property or assets of the Company or any
Subsidiary are subject are included as part of or identified in the SEC Reports,
to the extent such agreements are required to be included or identified pursuant
to the rules and regulations of the SEC.

 

(h)           Material Changes; Undisclosed Events, Liabilities or Developments;
Solvency.   Since the date of the latest audited financial statements included
within the SEC Reports, except as disclosed in the SEC Reports or in Schedule
3.1(h) hereto, (i) there has been no event, occurrence or development that,
individually or in the aggregate, has had or that would result in a Material
Adverse Effect, (ii) the Company has not incurred any material liabilities other
than (A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Company’s financial statements pursuant to GAAP or not required
to be disclosed in filings made with the SEC, (iii) the Company has not altered
its method of accounting or changed its auditors, except as disclosed in its SEC
Reports, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders, in their capacities as such, or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock, except as disclosed in its SEC Reports, and (v) the Company
has not issued any equity securities to any officer, director or Affiliate,
except pursuant to existing Company stock-based plans.  The Company has not
taken any steps to seek protection pursuant to any bankruptcy law nor does the
Company have any knowledge or reason to believe that its creditors intend to
initiate involuntary bankruptcy proceedings or any actual knowledge of any fact
that would reasonably lead a creditor to do so.  The Company is not as of the
date hereof, and after giving effect to the transactions contemplated hereby to
occur at the Closing will not be Insolvent (as defined below).  For purposes of
this Section 3.1(h), “Insolvent” means (i) the present fair saleable value of
the Company’s assets is less than the amount required to pay the Company’s total
Indebtedness (as defined in Section 3.1(x)), (ii) the Company is unable to pay
its debts and liabilities, subordinated, contingent or otherwise, as such debts
and liabilities become absolute and matured, (iii) the Company intends to incur
or believes that it will incur debts that would be beyond its ability to pay as
such debts mature, or (iv) the Company has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.

 

(i)            Absence of Litigation.  Except as disclosed in the SEC Reports,
there is no action, suit, claim, or Proceeding, or, to the Company’s knowledge,
inquiry or investigation, before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company that could, individually or
in the aggregate, have a Material Adverse Effect.

 

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(j)            Compliance.  The Company is not in default under or in violation
of (and no event has occurred that has not been waived that, with notice or
lapse of time or both, would result in a default by the Company under), nor has
the Company received written notice of a claim that it is in default under or
that it is in violation of, any material indenture, loan or credit agreement or
any other material agreement or instrument to which it is a party or by which it
or any of its properties is bound (whether or not such default or violation has
been waived).  The Company is in material compliance with all orders of any
court, arbitrator or governmental body.  The Company is in material compliance
with all statutes, rules or regulations of any governmental authority.

 

(k)           Title to Assets.  The Company does not own any real property.  The
Company has good and marketable title in all personal property owned by it that
is material to the business of the Company free and clear of all Liens, except
for Liens held by Bank of Scotland and BoS (USA), Inc. to secure Indebtedness as
disclosed in the SEC Reports and in Schedule 3.1(h).  Any real property and
facilities held under lease by the Company is held by it under valid, subsisting
and enforceable leases with which the Company is in material compliance.

 

(l)            No General Solicitation; Placement Agent’s Fees.  Neither the
Company, nor any of its Affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities.  The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or brokers’ commission (other than for
persons engaged by the Investor or its investment advisor) relating to or
arising out of the issuance of the Securities pursuant to this Agreement.  The
Company shall pay, and hold the Investor harmless against, any liability, loss
or expense (including, without limitation, reasonable attorney’s fees and
out-of-pocket expenses) arising in connection with any such claim for fees
arising out of the issuance of the Securities pursuant to this Agreement.

 

(m)            Private Placement; Investment Company.  Neither the Company nor
any of its Affiliates nor, any Person acting on the Company’s behalf has,
directly or indirectly, at any time within the past six months, made any offer
or sale of any security or solicitation of any offer to buy any security under
circumstances that would (i) eliminate the availability of the exemption from
registration under Regulation D under the Securities Act in connection with the
offer and sale by the Company of the Securities as contemplated hereby or
(ii) cause the offering of the Securities pursuant to the Transaction Documents
to be integrated with prior offerings by the Company for purposes of any
applicable law, regulation or stockholder approval provisions, including,
without limitation, under the rules and regulations of any Trading Market. 
Assuming the accuracy of the representations and warranties of the Investor set
forth in Section 3.2, no registration under the Securities Act is required for
the offer and sale of the Securities by the Company to the Investor as
contemplated hereby. The sale and issuance of the Securities hereunder does not
contravene the rules and regulations of any Trading Market on which the Common
Stock is listed or quoted.  The Company is not required to be registered as, and
is not an Affiliate of, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.

 

(n)           Listing and Maintenance Requirements.  The Company has not, in the
12 months preceding the date hereof, received notice (written or oral) from any
Trading Market on which the Common Stock is or has been listed or quoted to the
effect that the Company is not in

 

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compliance with the listing or maintenance requirements of such Trading Market. 
The Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance
requirements.

 

(o)           Registration Rights.  Except as described in Schedule 3.1(o), the
Company has not granted or agreed to grant to any Person any rights (including
“piggy-back” registration rights) to have any securities of the Company
registered with the SEC or any other governmental authority that have not
expired or been satisfied or waived.

 

(p)           Application of Takeover Protections.  The Company and its Board of
Directors have taken all necessary action, if any, to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s charter documents or the laws of its state of incorporation
that is or could become applicable to the Investor as a result of the Investor
and the Company fulfilling their obligations or exercising their rights under
the Transaction Documents, including, without limitation, as a result of the
Company’s issuance of the Securities and the Investor’s ownership of the
Securities.  The Company’s charter documents prohibit any Person from acquiring
five percent (5%) or more of the Common Stock.

 

(q)           Acknowledgment Regarding Investors’ Purchase of Securities.  Based
upon the assumption that the transactions contemplated by this Agreement are
consummated in all material respects in conformity with the Transaction
Documents, the Company acknowledges and agrees that the Investor is acting
solely in the capacity of an arm’s length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and thereby.  The
Company further acknowledges that the Investor is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement and the transactions contemplated hereby and any advice given by
the Investor or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to the Investor’s purchase of the Securities.  The Company
further represents to the Investor that the Company’s decision to enter into
this Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its advisors and
representatives.

 

(r)            Insurance.  The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses and locations in which the Company
is engaged.

 

(s)            Regulatory Permits.  The Company possesses all material
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct business as
presently conducted and described in the SEC Reports (“Material Permits”) and
the Company has not received any written notice of proceedings relating to the
revocation or modification of any Material Permit.

 

(t)            Transactions With Affiliates and Employees.  Except as set forth
or incorporated by reference in the Company’s SEC Reports, none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company that would be

 

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required to be reported on Form 10-K by Item 13 thereof pursuant to Regulation
S-K Item 404(a) (other than for ordinary course services as employees, officers
or directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
such officer, director or employee or, to the Company’s knowledge, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.

 

(u)           Internal Accounting Controls.  The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

 

(v)           Sarbanes-Oxley Act. The Company is in compliance in all material
respects with applicable requirements of the Sarbanes-Oxley Act of 2002 and
applicable rules and regulations promulgated by the SEC thereunder.

 

(w)          Foreign Corrupt Practices.  The Company, nor to the knowledge of
the Company, any director, officer, agent, employee or other Person acting on
behalf of the Company has, in the course of its actions for, or on behalf of,
the Company (i) used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity;
(ii) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee or to any foreign or domestic political parties
or campaigns from corporate funds; (iii) violated or is in violation in any
material respect of any provision of the U.S. Foreign Corrupt Practices Act of
1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.

 

(x)           Indebtedness.  Except as disclosed in the SEC Reports or in
Schedule 3.1(h), the Company (i) does not have any outstanding Indebtedness (as
defined below), (ii) is not in violation of any term of or is in default under
any material contract, agreement or instrument relating to any Indebtedness, and
(iii) is not a party to any contract, agreement or instrument relating to any
Indebtedness, the performance of which, in the judgment of the Company’s
officers, has or is expected to have a Material Adverse Effect.    For purposes
of this Agreement:  (x) “Indebtedness” of any Person means, without duplication
(A) all indebtedness for borrowed money, (B) all obligations issued, undertaken
or assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business), (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds

 

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of such indebtedness (even though the rights and remedies of the seller or bank
under such agreement in the event of default are limited to repossession or sale
of such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses
(A) through (G) above; (y) “Contingent Obligation” means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto; and
(z) “Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, a
government or any department or agency thereof and any other legal entity.

 

(y)           Tax Status.  The Company (i) has made or filed all foreign,
federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject, (ii) has paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply.  There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.

 

3.2          Representations and Warranties of the Investor.  The Investor
hereby represents and warrants to the Company as follows:

 

(a)           Organization; Authority.  The Investor is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate, partnership or
other power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder.  The purchase by the Investor of the
Securities hereunder has been duly authorized by all necessary corporate,
partnership or other action on the part of the Investor.  This Agreement has
been duly executed and delivered by the Investor and constitutes the valid and
binding obligation of the Investor, enforceable against it in accordance with
its terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.

 

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(b)           No Public Sale or Distribution.  The Investor is (i) acquiring the
Common Stock in the ordinary course of business for its own account and not with
a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered under the Securities
Act or under an exemption from such registration and in compliance with
applicable federal and state securities laws, and the Investor does not have a
present arrangement to effect any distribution of the Securities to or through
any person or entity; provided, however, that by making the representations
herein, the Investor does not agree to hold any of the Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act.

 

(c)           Investor Status.  At the time the Investor was offered the
Securities, it was, at the date hereof it is, and on the Closing Date it will be
an “accredited investor” as defined in Rule 501(a) under the Securities Act or a
“qualified institutional buyer” as defined in Rule 144A(a) under the Securities
Act.  The Investor is not a registered broker dealer registered under
Section 15(a) of the Exchange Act, or a member of the Financial Industry
Regulatory Authority, Inc. or an entity engaged in the business of being a
broker dealer.  Except as otherwise disclosed in writing to the Company on
Exhibit A-2 (attached hereto) on or prior to the date of this Agreement, the
Investor is not affiliated with any broker dealer registered under
Section 15(a) of the Exchange Act, or a member of the Financial Industry
Regulatory Authority, Inc. or an entity engaged in the business of being a
broker dealer.

 

(d)         General Solicitation.  The Investor is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media,
broadcast over television or radio, disseminated over the Internet or presented
at any seminar or any other general solicitation or general advertisement.

 

(e)           Experience of the Investor.  The Investor, either alone or
together with its representatives has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.  The Investor understands
that it must bear the economic risk of this investment in the Securities
indefinitely, and is able to bear such risk and is able to afford a complete
loss of such investment.

 

(f)            Access to Information.  The Investor acknowledges that it has
reviewed the Disclosure Materials and has been afforded:  (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information (other than material nonpublic
information) about the Company and its financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment; (iii) has been provided, subject to a
confidentiality agreement, a copy of the Reducing Note Facility Agreement to be
entered into among Bank of Scotland, plc, as agent, collateral agent and lender,
BoS (USA), Inc., as lender, FirstCity Commercial Corporation and FH Partners,
LLC, as borrowers, and FLBG Corporation, as guarantor, of even date with this
Agreement, and the Limited Guaranty Agreement executed by Company in favor of
Bank of Scotland, plc, as agent for the benefit of the lenders, also of even
date with this Agreement (the “Prior Disclosure”); and (iv) the opportunity to
obtain such additional information

 

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that the Company possesses or can acquire without unreasonable effort or expense
that is necessary to make an informed investment decision with respect to the
investment.  Neither such inquiries nor any other investigation conducted by or
on behalf of the Investor or its representatives or counsel shall modify, amend
or affect the Investor’s right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company’s representations and warranties
contained in the Transaction Documents.  The Investor acknowledges receipt of
copies of the SEC Reports and the Prior Disclosure.

 

(g)           No Governmental Review.  The Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

 

(h)           No Conflicts.  The execution, delivery and performance by the
Investor of this Agreement and the consummation by the Investor of the
transactions contemplated hereby will not (i) result in a violation of the
organizational documents of the Investor or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Investor is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws) applicable to the Investor, except in the case of clauses (ii) and
(iii) above, for such that are not material and do not otherwise affect the
ability of the Investor to consummate the transactions contemplated hereby.

 

(i)            Prohibited Transactions; Confidentiality.  Neither the Investor,
directly or indirectly, nor any Person acting on behalf of or pursuant to any
understanding with the Investor, has engaged in any purchases or sales in the
securities, including derivatives, of the Company (including, without
limitation, any Short Sales (a “Transaction”) involving any of the Company’s
securities) since the time that the Investor was first contacted by the Company
or any other Person regarding an investment in the Company.  The Investor
covenants that neither it nor any Person acting on its behalf or pursuant to any
understanding with the Investor will engage, directly or indirectly, in any
Transactions in the securities of the Company (including Short Sales) prior to
the time the transactions contemplated by this Agreement are publicly
disclosed.  “Short Sales” include, without limitation, all “short sales” as
defined in Rule 200 promulgated under Regulation SHO under the Exchange Act and
all types of direct and indirect stock pledges, forward sale contracts, options,
puts, calls, short sales, swaps, derivatives and similar arrangements (including
on a total return basis), and sales and other transactions through non-U.S.
broker-dealers or foreign regulated brokers.

 

(j)            Restricted Securities.  The Investor understands that the
Securities are characterized as “restricted securities” under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act only in certain limited circumstances.

 

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(k)           Legends.                It is understood that, except as provided
in Section 4.1(b) of this Agreement, certificates evidencing such Securities may
bear the legend set forth in Section 4.1(b).

 

(l)            No Legal, Tax or Investment Advice.  The Investor understands
that nothing in this Agreement or any other materials presented by or on behalf
of the Company to the Investor in connection with the purchase of the Securities
constitutes legal, tax or investment advice.  The Investor has consulted such
legal, tax and investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of the Securities.

 

ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES

 

4.1          Transfer Restrictions.

 

(a)           The Investor covenants that the Securities will only be disposed
of pursuant to an effective registration statement under, and in compliance with
the requirements of, the Securities Act or pursuant to an available exemption
from the registration requirements of the Securities Act, and in compliance with
any applicable state securities laws.  In connection with any transfer of
Securities other than pursuant to an effective registration statement or to the
Company, or pursuant to Rule 144 of the Securities Act, the Company may require
the transferor to provide to the Company an opinion of counsel selected by the
transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration under the Securities Act.  Notwithstanding the foregoing, the
Company hereby consents to and agrees to register on the books of the Company
and with its Transfer Agent, without any such legal opinion, except to the
extent that the Transfer Agent requests such legal opinion, any transfer of
Securities by the Investor to an Affiliate of the Investor, provided that the
transferee certifies to the Company that it is an “accredited investor” as
defined in Rule 501(a) under the Securities Act and provided that such Affiliate
does not request any removal of any existing legends on any certificate
evidencing the Securities.

 

(b)           The Investor agrees to the imprinting, until no longer required by
this Section 4.1(b), of the following legend on any certificate evidencing any
of the Securities:

 

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE
SKY LAWS.

 

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Certificates evidencing the Securities shall not be required to contain such
legend or any other legend (i) while a registration statement covering the
resale of the Securities is effective under the Securities Act, (ii) when any
Securities are eligible for sale pursuant to Rule 144 of the Securities Act, or
(iii) if the holder provides the Company with a legal opinion (and the documents
upon which the legal opinion is based) reasonably acceptable to the Company to
the effect that the legend is not required under applicable requirements of the
Securities Act (including controlling judicial interpretations and
pronouncements issued by the staff of the SEC).

 

4.2          Furnishing of Information.  Until the date that the Investor may
sell all of the Securities under Rule 144 of the Securities Act (or any
successor provision), the Company covenants to use its commercially reasonable
efforts to timely file (or obtain extensions in respect thereof and file within
the applicable grace period) all reports required to be filed by the Company
after the date hereof pursuant to the Exchange Act.

 

4.3          Integration.  The Company shall not, and shall use its commercially
reasonable efforts to ensure that no Affiliate thereof shall, sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in Section 2 of the Securities Act) that would be integrated with
the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Investor or that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market.

 

4.4          Reservation of Securities.  The Company shall maintain a reserve
from its duly authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations to issue such Securities under the Transaction Documents.  In the
event that at any time the then authorized shares of Common Stock are
insufficient for the Company to satisfy its obligations to issue such Securities
under the Transaction Documents, the Company shall promptly take such actions as
may be required to increase the number of authorized shares.

 

4.5          Securities Laws Disclosure; Publicity.  Following execution of this
Agreement the Company shall, within the time period required by the rules and
regulations of the SEC, file a Current Report on Form 8-K with the SEC (the “8-K
Filing”) describing the terms of the transactions contemplated by the
Transaction Documents and including as exhibits to such Current Report on
Form 8-K the Transaction Documents (including the schedules and the name, and
address of the Investor and the amount of Securities purchased).  Thereafter,
the Company shall timely file any filings and notices required by the SEC or
applicable law with respect to the transactions contemplated hereby.

 

ARTICLE V
REGISTRATION RIGHTS

 

5.1          Piggyback Registration.

 

(a)           If at any time the Company shall determine to prepare and file
with the SEC a registration statement relating to an offering for its own
account or the account of others under the

 

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Securities Act of any of its equity securities, other than on Form S-4 or
Form S-8 (each as promulgated under the Securities Act) or its then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, and the Investor
is not then eligible to sell all of its Registrable Securities under Rule 144 of
the Securities Act, the Company shall send to the Investor written notice of
such determination and, if within ten (10) days after receipt of such notice,
the Investor shall so request in writing (which request shall specify the
Registrable Securities intended to be disposed of by the Investor), the Company
will cause the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the Investor,
to the extent required to permit the disposition of the Registrable Securities
so to be registered (a “Piggyback Registration”), provided that if at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register or to delay registration of all of such securities, the Company may, at
its election, give written notice of such determination to the Investor and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay expenses in accordance with the
terms hereof), and (ii) in the case of a determination to delay registering,
shall be permitted to delay registering any Registrable Securities being
registered pursuant to this Section 5.1 for the same period as the delay in
registering such other securities.

 

(b)           In the case of an underwritten public offering, if the managing
underwriter(s) or underwriter(s) should object to the inclusion of the
Registrable Securities in such registration statement, then if the Company after
consultation with the managing underwriter should reasonably determine that the
inclusion of such Registrable Securities would materially adversely affect the
offering contemplated in such registration statement, and based on such
determination recommends inclusion in such registration statement of fewer or
none of the Registrable Securities of the Investor, then (x) the number of
Registrable Securities of the Investor included in such registration statement
shall be reduced if the Company after consultation with the
underwriter(s) recommends the inclusion of fewer Registrable Securities, or
(y) none of the Registrable Securities of the Investor shall be included in such
registration statement if the Company after consultation with the
underwriter(s) recommends the inclusion of none of such Registrable Securities;
provided, however, that if securities are being offered for the account of other
persons or entities as well as the Company, such reduction shall not represent a
greater fraction of the number of Registrable Securities intended to be offered
by the Investor than the fraction of similar reductions imposed on such other
persons or entities (other than the Company).

 

(c)           Notwithstanding the registration obligations set forth in this
Section 5.1, in the event the SEC informs the Company that all of the
Registrable Securities then outstanding cannot, as a result of the application
of Rule 415 of the Securities Act, be registered for resale as a secondary
offering on a single registration statement, the Company agrees to promptly
(a) inform the Investor thereof and use its commercially reasonable efforts to
file amendments to the initial registration statement as required by the SEC
and/or (b) withdraw the initial registration statement and file a new
registration statement, in either case covering the maximum number of
Registrable Securities permitted to be registered by the SEC, on Form S-3,
Form S-1 or such other form available to the Company to register for resale the
Registrable Securities as a secondary offering; provided, that prior

 

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to filing such amendment or new registration statement, the Company shall be
obligated to use its commercially reasonable efforts to advocate with the SEC
for the registration of all of the Registrable Securities in accordance with the
SEC guidance, including without limitation, Compliance and Disclosure
Interpretation 612.09.  Notwithstanding any other provision of this Agreement,
if any SEC guidance sets forth a limitation of the number of Registrable
Securities or other shares of Common Stock permitted to be registered on a
particular Registration Statement as a secondary offering (and notwithstanding
that the Company used diligent efforts to advocate with the SEC for the
registration of all or a greater number of Registrable Securities), the number
of Registrable Securities or other shares of Common Stock to be registered on
such registration statement will be reduced on a pro rata basis. In the event
the Company amends the initial registration statement or files a new
registration statement, as the case may be, under clauses (a) or (b) above, the
Company will use its commercially reasonable efforts to file with the SEC, as
promptly as allowed by SEC or SEC guidance provided to the Company or to
registrants of securities in general, one or more registration statements on
Form S-3, Form S-1 or such other form available to the Company to register for
resale those Registrable Securities that were not registered for resale on the
initial registration statement, as amended, or the new registration statement.

 

5.2          Registration Expenses.  The Company shall pay all fees and expenses
incident to the performance of or compliance with Article V of this Agreement by
the Company, including without limitation (a) all registration and filing fees
and expenses, including without limitation those related to filings with the
SEC, any Trading Market and in connection with applicable state securities or
Blue Sky laws, (b) printing expenses (including without limitation expenses of
printing certificates for Registrable Securities), (c) messenger, telephone and
delivery expenses, (d) fees and disbursements of counsel for the Company,
(e) fees and expenses of all other Persons retained by the Company in connection
with the consummation of the transactions contemplated by this Agreement, and
(f) all listing fees to be paid by the Company to the Trading Market.

 

5.3          Indemnification

 

(a)           Indemnification by the Company.  The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
the Investor, and its Affiliates and each of their respective officers,
directors, partners, employees and agents, and each Person who controls the
Investor within the meaning of the Exchange Act and the rules and regulations
promulgated thereunder, to the fullest extent permitted by applicable law, from
and against any and all Losses, as incurred, arising out of or relating to
(i) any misrepresentation or breach of any representation or warranty made by
the Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (ii) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(iii) any cause of action, suit or claim brought or made against such
Indemnified Party (as defined in Section 5.3(c) below) by a third party arising
out of the transactions contemplated by this Agreement (unless, and only to the
extent that, such action, suit or claim is based, including in part, upon a
breach of the Investor’s representations, warranties or covenants under the
Transaction Documents or any conduct by the Investor that constitutes fraud,
gross negligence or willful misconduct) or (iv) any untrue or alleged untrue
statement of a material fact contained in a registration statement or prospectus
filed by the Company pursuant to Section 5.1 or in any amendment or supplement
thereto or in any Company preliminary prospectus, or arising

 

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out of or relating to any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except to the extent, but only to the extent, that (A) such untrue statements,
alleged untrue statements, omissions or alleged omissions are based solely upon
information regarding the Investor furnished in writing to the Company by the
Investor for use therein, or to the extent that such information relates to the
Investor or the Investor’s proposed method of distribution of Registrable
Securities and was reviewed and expressly approved by the Investor in writing
expressly for use in the registration statement, or (B) with respect to any
prospectus, if the untrue statement or omission of material fact contained in
such prospectus was corrected on a timely basis in the prospectus, as then
amended or supplemented, if such corrected prospectus was timely made available
by the Company to the Investor, and the Investor seeking indemnity hereunder was
advised in writing not to use the incorrect prospectus prior to the use giving
rise to Losses.

 

(b)           Indemnification by the Investor.  The Investor shall indemnify and
hold harmless the Company and its Affiliates and each of their respective
officers, directors, partners, employees and agents, and each Person who
controls the Company within the meaning of the Exchange Act and the rules and
regulations promulgated thereunder, to the fullest extent permitted by
applicable law, from and against all Losses (as determined by a court of
competent jurisdiction in a final judgment not subject to appeal or review)
arising solely out of any untrue statement of a material fact contained in any
registration statement, any prospectus, or in any amendment or supplement
thereto, or arising out of or relating to any omission of a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, but
only to the extent that (i) such untrue statements or omissions are based solely
upon information regarding the Investor furnished to the Company by the Investor
in writing expressly for use therein, or to the extent that such information
relates to the Investor or the Investor’s proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by the
Investor expressly for use in the registration statement (it being understood
that the information provided by the Investor to the Company in Exhibits A-1,
A-2 and A-3 and the Plan of Distribution set forth on Exhibit C, as the same may
be modified by the Investor and other information provided by the Investor to
the Company in or pursuant to the Transaction Documents constitutes information
reviewed and expressly approved by the Investor in writing expressly for use in
the registration statement), such prospectus or in any amendment or supplement
thereto.  In no event shall the liability of the Investor hereunder be greater
in amount than the dollar amount of the net proceeds received by the Investor
upon the sale of the Registrable Securities giving rise to such indemnification
obligation.

 

(c)           Conduct of Indemnification Proceedings.  If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
“Indemnified Party”), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the “Indemnifying Party”) in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal

 

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or further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.

 

An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless:  (i) the Indemnifying Party has agreed in writing to pay such fees and
expenses; or (ii) the Indemnifying Party shall have failed promptly to assume
the defense of such Proceeding and to employ counsel reasonably satisfactory to
such Indemnified Party in any such Proceeding; or (iii) the named parties to any
such Proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that a conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense
thereof and the reasonable fees and expenses of separate counsel shall be at the
expense of the Indemnifying Party).  It shall be understood, however, that the
Indemnifying Party shall not, in connection with any one such Proceeding
(including separate Proceedings that have been or will be consolidated before a
single judge) be liable for the fees and expenses of more than one separate firm
of attorneys at any time for all Indemnified Parties, which firm shall be
appointed by a majority of the Indemnified Parties.  The Indemnifying Party
shall not be liable for any settlement of any such Proceeding effected without
its written consent, which consent shall not be unreasonably withheld.  No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.

 

All reasonable fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 20 Trading
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).

 

(d)           Contribution.  If a claim for indemnification under
Section 5.3(a) or (b) is unavailable to an Indemnified Party (by reason of
public policy or otherwise), then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such proportion
as is appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations. 
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties’ relative intent, knowledge, access to

 

20

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information and opportunity to correct or prevent such action, statement or
omission.  The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 5.3(c),
any reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5.3(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph. 
Notwithstanding the provisions of this Section 5.3(d), the Investor shall not be
required to contribute, in the aggregate, any amount in excess of the amount by
which the net proceeds actually received by the Investor from the sale of the
Registrable Securities subject to the Proceeding exceed the amount of any
damages that the Investor has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.  No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.

 

The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

 

5.4          Dispositions.  The Investor agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the registration
statement and shall sell its Registrable Securities in accordance with the Plan
of Distribution set forth in the prospectus.

 

ARTICLE VI
MISCELLANEOUS

 

6.1          Termination.  This Agreement may be terminated by the Company or
the Investor, by written notice to the other parties, if the Closing has not
been consummated by June 30, 2010; provided that no such termination will affect
the right of any party to sue for any breach by the other party.

 

6.2          Fees and Expenses.  Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.  The Company
shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied
in connection with the sale and issuance of the applicable Securities.

 

6.3          Entire Agreement.  The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.  At or
after the Closing, and without further consideration, the Company will execute

 

21

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and deliver to the Investor such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties
under the Transaction Documents.

 

6.4          Notices.  Any notice, request, instruction or other document to be
given hereunder by any party to the other will be in writing and will be deemed
to have been duly given (a) on the date of delivery if delivered personally or
by telecopy or facsimile, upon confirmation of receipt, (b) on the first
business day following the date of dispatch if delivered by a recognized
next-day courier service, or (c) on the third business day following the date of
mailing if delivered by registered or certified mail, return receipt requested,
postage prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice.

 

·                                          If to the Investor:

 

Värde Investment Partners, L.P.
8500 Normandale Lake Blvd., Suite 1500
Minneapolis, MN 55437
Attn: Christopher N. Giles
Tel: 952-646-2062
Fax: 952-893-9613
Email: cgiles@varde.com

 

with a copy to (which copy alone shall not constitute notice):

 

Andrew P. Lee
Leonard, Street and Deinard
Professional Association
150 S. Fifth Street
Minneapolis, MN  55402
Telephone No.: 612-335-1881
Fax No.: 612-335-1657
E-Mail Address: andrew.lee@Leonard.com

 

 

·                                          If to the Company:

 

FirstCity Financial Corporation
6400 Imperial Drive (Delivery only)
Waco, TX 76714-8216
P.O. Box 8216 (mail)

 

22

--------------------------------------------------------------------------------

 

Waco, TX 76712
Attn: James T. Sartain
Tel: 254-761-2800
Fax: 254-761-2950
Email: jsartain@fcfc.com

 

with a copy to (which copy alone shall not constitute notice):

 

Brian D. Barnard
Haynes and Boone, LLP
201 Main Street, Suite 2200
Fort Worth, Texas 76102
Telephone No.: 817-347-6605
Fax No.: 817-348-2303
E-Mail Address: brian.barnard@haynesboone.com

 

6.5          Amendments; Waivers.  No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and the Investor or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought.  No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right.

 

6.6          Construction.  The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.  The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

 

6.7          Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns. 
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investor.  The Investor may assign its
rights under this Agreement to any Person to whom the Investor assigns or
transfers any Securities, provided (i) such transferor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company after such assignment, (ii) the Company is furnished
with written notice of (x) the name and address of such transferee or assignee
and (y) the Registrable Securities with respect to which such registration
rights are being transferred or assigned, (iii) following such transfer or
assignment, the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, (iv) such transferee agrees in writing to be bound, with respect to the
transferred Securities, by the provisions hereof that apply to the “Investor”
and (v) such transfer shall have been made in accordance with the applicable
requirements of this Agreement and with all laws applicable thereto.

 

23

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6.8                               No Third-Party Beneficiaries.  This Agreement
is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except that each Indemnified
Party is an intended third party beneficiary of Section 5.3 and (in each case)
may enforce the provisions of such Section directly against the parties with
obligations thereunder.

 

6.9                               Governing Law.  This Agreement shall be
governed by, enforced under, and construed in accordance with the laws of the
State of Texas without regard to conflict of law principles.  Any and all
disputes arising under or related to this Agreement, or the obligations
contained herein, shall be brought only in a federal or state court of competent
jurisdiction in McLennan County, Texas.

 

6.10                        Survival.  Each of the representations and
warranties set forth in this Agreement shall survive the Closing under this
Agreement but only for a period of twelve (12) months following the Closing Date
(or until final resolution of any claim or action arising from the breach of any
such representation and warranty, if notice of such breach was provided prior to
the end of such period) and thereafter shall expire and have no further force
and effect; provided that the representations and warranties in Sections 3.1(a),
3.1(b), 3.1(c), 3.1(e), 3.1(f), 3.2(a), 3.2(b) and 3.2(c) shall survive
indefinitely and the representations and warranties in Section 3.1(y) shall
survive until the expiration of the applicable statutory periods of
limitations.  Except as otherwise provided herein, all covenants and agreements
contained herein shall survive for the duration of any statutes of limitations
applicable thereto or until, by their respective terms, they are no longer
operative.

 

6.11                        Execution.  This Agreement may be executed in two or
more counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart.  In the event that any signature is
delivered by facsimile transmission or email attachment, such signature shall
create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such facsimile
or email-attached signature page were an original thereof.

 

6.12                        Severability.  If any provision of this Agreement is
held to be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision that is a reasonable substitute therefor,
and upon so agreeing, shall incorporate such substitute provision in this
Agreement.

 

6.13                        Replacement of Securities.  If any certificate or
instrument evidencing any Securities is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and the execution
by the holder thereof of a customary lost certificate affidavit of that fact and
an agreement to indemnify and hold harmless the Company for any losses in
connection therewith.  The applicants for a new certificate or instrument under
such

 

24

--------------------------------------------------------------------------------

 

circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Securities.

 

6.14                              Remedies.  In addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, the Investor and the Company will be entitled to seek specific
performance under the Transaction Documents.  The parties agree that monetary
damages may not be adequate compensation for any loss incurred by reason of any
breach of obligations described in the foregoing sentence and hereby agree to
waive in any action for specific performance of any such obligation (other than
in connection with any action for a temporary restraining order) the defense
that a remedy at law would be adequate.

 

SIGNATURE PAGE TO FOLLOW

 

25

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

 

FIRSTCITY FINANCIAL CORPORATION

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

 

 

VÄRDE INVESTMENT PARTNERS, L.P.

 

By Värde Investment Partners G.P., LLC, Its General Partner

 

By Värde Partners, L.P., Its Managing Member

 

By Värde Partners, Inc., Its General Partner

 

 

 

By:

 

 

Name:

 

Title:

 

SIGNATURE PAGE

 

--------------------------------------------------------------------------------

 

Exhibit A

 

INSTRUCTION SHEET FOR INVESTOR

 

(to be read in conjunction with the entire Securities Purchase Agreement)

 

A.                                    Complete the following items in the
Securities Purchase Agreement:

 

1.                                      Complete and execute the Investor
Signature Page.  The Agreement must be executed by an individual authorized to
bind the Investor.

 

2.                                      Exhibit A-1 - Stock Certificate
Questionnaire:

 

Provide the information requested by the Stock Certificate Questionnaire;

 

3.                                      Exhibit A-2 - Registration Statement
Questionnaire:

 

Provide the information requested by the Registration Statement Questionnaire.

 

4.                                      Exhibit A-3 - Investor Certificate:

 

Provide the information requested by the Investor Certificate.

 

5.                                      Return, via facsimile, the signed
Securities Purchase Agreement including the properly completed Exhibits A-1
through A-3, to:

 

Facsimile:

Telephone:

Attn:

 

6.                                      After completing instruction number five
(5) above, deliver the original signed Securities Purchase Agreement including
the properly completed Exhibits A-1 through A-3 to:

 

Address:

 

B.                                    Instructions regarding the wire transfer
of funds for the purchase of the Securities will be telecopied to the Investor
by the Company at a later date.

 

--------------------------------------------------------------------------------

 

Exhibit A-1

 

FIRSTCITY FINANCIAL CORPORATION

 

STOCK CERTIFICATE QUESTIONNAIRE

 

 

 

 

Please provide us with the following information:

 

 

 

 

 

 

 

1.

 

The exact name that the Securities are to be registered in (this is the name
that will appear on the stock certificate(s)). You may use a nominee name if
appropriate:

 

 

 

 

 

 

 

2.

 

The relationship between the Investor of the Securities and the Registered
Holder listed in response to item 1 above:

 

 

 

 

 

 

 

3.

 

The mailing address, telephone and telecopy number and email address of the
Registered Holder listed in response to item 1 above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.

 

The Tax Identification Number of the Registered Holder listed in response to
item 1 above:

 

 

 

--------------------------------------------------------------------------------

 

Exhibit A-2

 

FIRSTCITY FINANCIAL CORPORATION

 

REGISTRATION STATEMENT QUESTIONNAIRE

 

In connection with the Registration Statement, please provide us with the
following information regarding the Investor.

 

1.                                        Please state your organization’s name
exactly as it should appear in the Registration Statement:

 

 

Except as set forth below, your organization does not hold any equity securities
of the Company on behalf of another person or entity.

 

State any exceptions here:

 

 

If the Investor is not a natural person, please identify the natural person or
persons who will have voting and investment control over the Securities owned by
the Investor:

 

 

2.  Address of your organization:

 

 

Telephone:

 

Fax: 

 

Contact Person: 

 

3.  Have you or your organization had any position, office or other material
relationship within the past three years with the Company or its affiliates? 
(Include any relationships involving you or any of your affiliates, officers,
directors, or principal equity holders (5% or more) that has held any

 

--------------------------------------------------------------------------------

 

position or office or has had any other material relationship with the Company
(or its predecessors or affiliates) during the past three years.)

 

o  Yes                           o  No

 

If yes, please indicate the nature of any such relationship below:

 

4.  Are you the beneficial owner of any other securities of the Company? 
(Include any equity securities that you beneficially own or have a right to
acquire within 60 days after the date hereof, and as to which you have sole
voting power, shared voting power, sole investment power or shared investment
power.)

 

o  Yes                           o  No

 

If yes, please describe the nature and amount of such ownership as of a recent
date.

 

5.  Except as set forth below, you wish that all the shares of the Company’s
common stock beneficially owned by you or that you have the right to acquire
from the Company be offered for your account in the Registration Statement.

 

State any exceptions here:

 

6.  Have you made or are you aware of any arrangements relating to the
distribution of the shares of the Company pursuant to the Registration
Statement?

 

o  Yes                           o  No

 

If yes, please describe the nature and amount of such arrangements.

 

--------------------------------------------------------------------------------

 

7.              FINRA Matters

 

(a)                                 State below whether (i) you or any associate
or affiliate of yours are a member of the FINRA, a controlling shareholder of a
FINRA member, a person associated with a member, a direct or indirect affiliate
of a member, or an underwriter or related person with respect to the proposed
offering; (ii) you or any associate or affiliate of yours owns any stock or
other securities of any FINRA member not purchased in the open market; or
(iii) you or any associate or affiliate of yours has made any outstanding
subordinated loans to any FINRA member. If you are a general or limited
partnership, a no answer asserts that no such relationship exists for you as
well as for each of your general or limited partners.

 

Yes:

 

No:

 

o

 

o

 

 

If “yes,” please identify the FINRA member and describe your relationship,
including, in the case of a general or limited partner, the name of the partner:

 

 

If you answer “no” to Question 7(a), you need not respond to Question 7(b).

 

(b)                                 State below whether you or any associate or
affiliate of yours has been an underwriter, or a controlling person or member of
any investment banking or brokerage firm which has been or might be an
underwriter for securities of the Corporation or any affiliate thereof
including, but not limited to, the common stock now being registered.

 

Yes:

 

No:

 

o

 

o

 

 

If “yes,” please identify the FINRA member and describe your relationship,
including, in the case of a general or limited partner, the name of the partner.

 

--------------------------------------------------------------------------------

 

ACKNOWLEDGEMENT

 

The undersigned hereby agrees to notify the Company promptly of any changes in
the foregoing information which should be made as a result of any developments,
including the passage of time.  The undersigned also agrees to provide the
Company and the Company’s counsel any and all such further information regarding
the undersigned promptly upon request in connection with the preparation,
filing, amending, and supplementing of the Registration Statement (or any
prospectus contained therein).  The undersigned hereby consents to the use of
all such information in the Registration Statement.

 

The undersigned understands and acknowledges that the Company will rely on the
information set forth herein for purposes of the preparation and filing of the
Registration Statement.

 

The undersigned understands that the undersigned may be subject to serious civil
and criminal liabilities if the Registration Statement, when it becomes
effective, either contains an untrue statement of a material fact or omits to
state a material fact required to be stated in the Registration Statement or
necessary to make the statements in the Registration Statement not misleading. 
The undersigned represents and warrants that all information it provides to the
Company and its counsel is currently accurate and complete and will be accurate
and complete at the time the Registration Statement becomes effective and at all
times subsequent thereto, and agrees to notify the Company immediately of any
misstatement of a material fact in the Registration Statement, and of the
omission of any material fact necessary to make the statements contained therein
not misleading.

 

 

Dated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

 

 

 

 

 

 

 

 

 

 

 

Signature

 

 

 

 

 

 

 

 

 

 

 

Name and Title of Signatory

 

--------------------------------------------------------------------------------

 

 

Exhibit A-3

 

FIRSTCITY FINANCIAL CORPORATION

 

CERTIFICATE FOR CORPORATE, PARTNERSHIP, LIMITED LIABILITY COMPANY,
TRUST, FOUNDATION AND JOINT INVESTORS

 

If the Investor is a corporation, partnership, limited liability company, trust,
pension plan, foundation, joint Investor (other than a married couple) or other
entity, an authorized officer, partner, or trustee must complete, date and sign
this Certificate.

 

CERTIFICATE

 

The undersigned certifies that the representations and responses below are true
and accurate:

 

(a)                                 The Investor has been duly formed and is
validly existing and has full power and authority to invest in the Company.  The
person signing on behalf of the undersigned has the authority to execute and
deliver the Securities Purchase Agreement on behalf of the Investor and to take
other actions with respect thereto.

 

(b)                                 Indicate the form of entity of the
undersigned:

 

o                                    Limited Partnership

 

o                                    General Partnership

 

o                                    Limited Liability Company

 

o                                    Corporation

 

o                                    Revocable Trust (identify each grantor and
indicate under what circumstances the trust is revocable by the grantor): 

 

(Continue on a separate piece of paper, if necessary.)

 

o                                    Other type of Trust (indicate type of trust
and, for trusts other than pension trusts, name the grantors and beneficiaries):

 

(Continue on a separate piece of paper, if necessary.)

 

o                                    Other form of organization (indicate form
of organization (

                                                                                                                                                                                                                    
).

 

(c)                                  Indicate the approximate date the
undersigned entity was formed:                                             .

 

--------------------------------------------------------------------------------

 

(d)                                 In order for the Company to offer and sell
the Securities in conformance with state and federal securities laws, the
following information must be obtained regarding your investor status.  Please
initial each category applicable to you as an investor in the Company.

 

o                                    1.                                      A
bank as defined in Section 3(a)(2) of the Securities Act, or any savings and
loan association or other institution as defined in Section 3(a)(5)(A) of the
Securities Act whether acting in its individual or fiduciary capacity;

 

o                                    2.                                      A
broker or dealer registered pursuant to Section 15 of the Securities Exchange
Act of 1934;

 

o                                    3.                                      An
insurance company as defined in Section 2(13) of the Securities Act;

 

o                                    4.                                      An
investment company registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of that Act;

 

o                                    5.                                      A
Small Business Investment Company licensed by the U.S.  Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958;

 

o                                    6.                                      A
plan established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of $5,000,000;

 

o                                    7.                                      An
employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment advisor, or if the
employee benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by persons that are
accredited investors;

 

o                                    8.                                      A
private business development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940;

 

o                                    9.                                      Any
partnership or corporation or any organization described in Section 501(c)(3) of
the Internal Revenue Code or similar business trust, not formed for the specific
purpose of acquiring the Shares, with total assets in excess of $5,000,000;

 

o                                    10.                               A trust,
with total assets in excess of $5,000,000, not formed for the specific purpose
of acquiring the Shares, whose purchase is directed by a sophisticated person as
described in Rule 506(b)(2)(ii) of the Exchange Act;

 

o                                    11.                               An entity
in which all of the equity owners qualify under any of the above subparagraphs. 
If the undersigned belongs to this investor category only, list the equity
owners of the undersigned, and the investor category which each such equity
owner satisfies:

 

--------------------------------------------------------------------------------

 

 

 

 

(Continue on a separate piece of paper, if necessary.)

 

Please set forth in the space provided below the (i) states, if any, in the U.S.
in which you maintained your principal office during the past two years and the
dates during which you maintained your office in each state, (ii) state(s), if
any, in which you are incorporated or otherwise organized and (iii) state(s), if
any, in which you pay income taxes.

 

 

Dated:                                   , 2010

 

 

 

 

Print Name of Investor

 

 

 

 

 

 

 

Name:

 

Title:

 

(Signature and title of authorized officer, partner or trustee)

 

 

--------------------------------------------------------------------------------

 

Exhibit B

 

OPINION OF COMPANY COUNSEL

 

--------------------------------------------------------------------------------

 

Exhibit C

 

PLAN OF DISTRIBUTION

 

The selling stockholders may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions.  These sales may be at fixed or
negotiated prices.  The selling stockholders may use any one or more of the
following methods when selling shares:

 

·                  ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;

 

·                  block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;

 

·                  purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;

 

·                  an exchange distribution in accordance with the rules of the
applicable exchange;

 

·                  privately negotiated transactions;

 

·                  short sales;

 

·                  broker-dealers may agree with the selling stockholders to
sell a specified number of such shares at a stipulated price per share;

 

·                  a combination of any such methods of sale; and

 

·                  any other method permitted pursuant to applicable law.

 

The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.

 

Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales.  Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated.  The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved. 
Any profits on the resale of shares of common stock by a broker-dealer acting as
principal might be deemed to be underwriting discounts or commissions under the
Securities Act.  Discounts, concessions, commissions and similar selling
expenses, if any, attributable to the sale of shares will be borne by a selling
stockholder.  The selling stockholders may agree to indemnify any agent, dealer
or broker-dealer that participates in transactions involving sales of the shares
if liabilities are imposed on that person under the Securities Act.

 

The selling stockholders may from time to time pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock

 

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from time to time under this prospectus after we have filed a supplement to this
prospectus under Rule 424(b)(3) or other applicable provision of the Securities
Act of 1933 supplementing or amending the list of selling stockholders to
include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus.

 

The selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus
and may sell the shares of common stock from time to time under this prospectus
after we have filed a supplement to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 supplementing or
amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus.

 

The selling stockholders and any broker-dealers or agents that are involved in
selling the shares of common stock may be deemed to be “underwriters” within the
meaning of the Securities Act in connection with such sales.  In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares of common stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.

 

We are required to pay all fees and expenses incident to the registration of the
shares of common stock.  We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.

 

The selling stockholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed sale
of shares of common stock by any selling stockholder.  If we are notified by any
selling stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares of common stock, if required, we will file
a supplement to this prospectus.  If the selling stockholders use this
prospectus for any sale of the shares of common stock, they will be subject to
the prospectus delivery requirements of the Securities Act.

 

The anti-manipulation rules of Regulation M under the Securities Exchange Act of
1934 may apply to sales of our common stock and activities of the selling
stockholders.

 

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Exhibit D

 

COMPANY TRANSFER AGENT INSTRUCTIONS

 

American Stock Transfer & Trust Company

[Address]

Attention:  [              ]

 

Ladies and Gentlemen:

 

Reference is made to that certain Securities Purchase Agreement, dated as of
June      , 2010 (the “Agreement”), by and among FirstCity Financial
Corporation, a Delaware corporation (the “Company”), and Värde Investment
Partners, L.P., a Delaware limited partnership (the “Holder”), pursuant to which
the Company is issuing to the Holder shares (the “Common Shares”) of Common
Stock of the Company, par value $0.01 per share (the “Common Stock”).

 

In connection with the consummation of the transactions contemplated by the
Agreement, this letter shall serve as our irrevocable authorization and
direction to you:

 

(i) to issue an aggregate of [               ] shares of our Common Stock in the
names and denominations set forth on Annex I attached hereto. The certificates
should bear the legend set forth on Annex II attached hereto and “stop transfer”
instructions should be placed against their subsequent transfer.  Kindly deliver
the certificates to the respective delivery addresses set forth on Annex I via
hand delivery or overnight courier.  We confirm that these shares will be
validly issued, fully paid and non-assessable upon issuance; and

 

(ii) to issue (provided that you are the transfer agent of the Company at such
time) certificates for shares of Common Stock upon transfer or resale of the
Common Shares and receipt by you of certificate(s) for the Common Shares so
transferred or sold (duly endorsed or accompanied by stock powers duly endorsed,
in each case with signatures guaranteed and otherwise in form eligible for
transfer).

 

You acknowledge and agree that so long as you have previously received
(a) written confirmation from the Company’s legal counsel that either (i) a
registration statement covering resales of the Common Shares has been declared
effective by the Securities and Exchange Commission (the “SEC”) under the
Securities Act of 1933, as amended (the “Securities Act”), or (ii) the Common
Shares are eligible for sale in conformity with Rule 144 under the Securities
Act (“Rule 144”) and (b) if applicable, a copy of such registration statement,
then, unless otherwise required by law, within three (3) business days of your
receipt of certificates representing the Common Shares, you shall issue the
certificates representing the Common Shares to the Holder or its transferees, as
the case may be, registered in the names of such Holder or transferees, as the
case may be, and such certificates shall not bear any legend restricting
transfer of the Common Shares thereby and should not be subject to any
stop-transfer restriction.  Any certificates tendered for transfer shall be
endorsed or with stock powers attached, signatures guaranteed, and otherwise in
form necessary to affect transfer.

 

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A form of written confirmation from the Company’s outside legal counsel that a
registration statement covering resales of the Common Shares has been declared
effective by the SEC under the Securities Act is attached hereto as Annex II.

 

Please be advised that the Holder is relying upon this letter as an inducement
to enter into the Agreement and, accordingly, the Holder is a third party
beneficiary to these instructions.

 

Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions.  Should you have any questions
concerning this matter, please contact our counsel, Brian D. Barnard at (817)
347-6605.

 

 

Very truly yours,

 

 

 

FIRSTCITY FINANCIAL CORPORATION

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

THE FOREGOING INSTRUCTIONS ARE

ACKNOWLEDGED AND AGREED TO

this         day of                      , 2010

 

 

AMERICAN STOCK TRANSFER & TRUST COMPANY

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

Enclosures

 

 

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ANNEX I

 

SCHEDULE OF INVESTORS

 

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ANNEX II

 

FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT

 

American Stock Transfer & Trust Company

[Address]

Attention:  [              ]

 

Re:                             FirstCity Financial Corporation

 

Ladies and Gentlemen:

 

We are counsel to FirstCity Financial Corporation, a Delaware corporation (the
“Company”), and have represented the Company in connection with that certain
Securities Purchase Agreement, dated as of June      , 2010 (the “Securities
Purchase Agreement”), entered into by and among the Company and Värde Investment
Partners, L.P., a Delaware limited partnership (the “Purchaser”), pursuant to
which the Company issued to the Purchaser shares of Common Stock of the Company,
par value $0.01 per share (the “Common Shares”).  Pursuant to the Securities
Purchase Agreement, the Company agreed to register the resale of the Common
Shares (the “Registrable Securities”) under the Securities Act of 1933, as
amended (the “Securities Act”). In connection with the Company’s obligations
under the Securities Purchase Agreement, on [                    ], the Company
filed a Registration Statement on Form S-3 (File No. 333-                    ])
(the “Registration Statement”) with the Securities and Exchange Commission (the
“Commission”) relating to the Registrable Securities which names the Purchaser
as a selling shareholder thereunder.

 

In connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the Securities Act at [              ] 
[a.m.][p.m.] on [                    ], and we have no knowledge, after
telephonic inquiry of a member of the staff, that any stop order suspending its
effectiveness has been issued or that any proceedings for that purpose are
pending before, or threatened by, the Commission and the Registrable Securities
are available for resale under the Securities Act pursuant to the Registration
Statement.

 

This letter shall serve as our standing notice to you that the Common Shares may
be freely transferred by the Purchaser pursuant to the Registration Statement so
long as the Purchaser certifies that it will comply with the plan of
distribution description in connection with sales or transfers of the Common
Shares set forth in the Registration Statement and with the prospectus delivery
requirements of the Securities Act, to the extent such delivery requirement are
applicable. You need not require further letters from us to effect any future
legend-free issuance or reissuance of shares of the Common Shares to the
Purchaser or the transferees of the Purchaser, as the case may be, as
contemplated by the Company’s Irrevocable Transfer Agent Instructions dated
                    .

 

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Schedule 3.1(f)

 

Capitalization

 

The authorized capital stock of the Company consists of 100,000,000 shares of
the common stock, par value $0.01 per share, of the Company (the “Common Stock”)
and 98,000,000 shares of preferred stock, par value $0.01 per share, of the
Company (the “Preferred Stock”).  As of the close of business on June 28, 2010,
there were 10,508,824 shares of Common Stock outstanding (and 1,500,000 shares
of treasury stock) and no shares of Preferred Stock outstanding.

 

At the close of business on June 28, 2010, there were (i) 865,400 options for
Common Stock outstanding and (ii) 28,890 shares of restricted stock outstanding.

 

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Schedule 3.1(g)

 

SEC Reports; Financial Statements

 

Form 8-K filed on March 31, 2010, related to acquisition on December 11, 2009,
by the Company, through a majority-owned subsidiary, of 87.45% of the common
stock of BEI Holding Corporation was not timely filed.

 

 

2

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Schedule 3.1(h)

 

Material Changes; Undisclosed Events, Liabilities or Developments; Solvency.

 

On June 25, 2010, FirstCity Commercial Corporation and FH Partners LLC, indirect
subsidiaries of the Company, as borrowers, FLBG Corporation, a direct subsidiary
of the Company, as guarantor, and Bank of Scotland Plc, acting through its New
York Branch, as agent, and the financial institutions party thereto as lenders
(the “Lenders”) entered in a Reducing Note Facility Agreement (the “Reducing
Note Facility Agreement”), which amended and restated the following loan
facilities provided by the Lenders to the Company and FH Partners LLC:

 

(a) that certain Revolving Credit Agreement dated as of November 12, 2004, among
the Company, the Lenders and the Agent (as amended from time to time, the
“Revolving Credit Agreement”);

 

(b) that certain Revolving Credit Agreement dated as of August 26, 2005, among
FH Partners LLC, the Lenders and the Agent (as amended from to time to time, the
“FH Partners Credit Agreement”);

 

(c) that certain Subordinated Delayed Draw Credit Agreement dated as of
September 5, 2007, between the Company and BoS (USA), Inc. (as amended from time
to time, the “Subordinated Credit Agreement”) (the Revolving Credit Agreement,
the FH Partners Credit Agreement and the Subordinated Credit Agreement together,
the “Existing Credit Agreements”);

 

On June 25, 2010, the Company executed a Limited Guaranty Agreement guaranteeing
the payment of up to 75,000,000 plus an amount equal to any losses incurred by
Lenders arising from the failure of the Guarantor to pay federal income taxes as
required in Section 10(q) of the Limited Guaranty Agreement which result in a
levy or other enforcement proceeding by the United States Internal Revenue
Servicer that reduces the cash flow from or results in a loss of collateral or
security interests or pledges securing the guarantied obligations (and any
expenses of the Collateral Agent and Lenders related to defense of the
Collateral from any such enforcement proceedings) under Reducing Note Facility
Agreement, in favor of Bank of Scotland Plc, acting through its New York Branch,
as Agent (in such capacity, and including its successors and assigns in such
capacity, the “Agent”), for the benefit of the lenders (the “Lenders”) from time
to time party to the Reducing Note Facility Agreement referred to below.

 

3

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Schedule 3.1(o)

 

Registration Rights

 

None

 

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