Exhibit 10.02

 

Note Purchase Agreement

This Note Purchase Agreement (the "Agreement") is made as of this 13th  day of
December, 2005 among JRPM Investments, Ltd., a Texas limited partnership
("JRPM"), Bluebonnet Investments, Ltd., a Texas limited partnership ("BIL" and,
collectively with JRPM, the "Purchasers" and each a "Purchaser"), and First
Financial Corporation, a Texas corporation ("Issuer").

Introduction

Whereas, Issuer desires to obtain funding so that it may increase the working
capital of itself and its subsidiary, First Preference Mortgage Corp. ("FPMC")
and Purchasers desire to make that funding available to Issuer and FPMC upon the
terms and conditions set forth herein.

Now, Therefore, in consideration of the foregoing, the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchasers and Issuer hereby agree
as follows:

Article I
Definitions

1.01          Definitions.  In addition to the terms defined elsewhere herein,
when used herein, the following capitalized terms have the meanings indicated:

"Act of Bankruptcy" means the occurrence of any of the following with respect to
Issuer: (a) an assignment for the benefit of its creditors; (b) an admission in
writing of its inability to pay its debts as they become due; (c) filing of a
voluntary petition in bankruptcy; (d) an adjudication of bankruptcy or
insolvency; (e) filing any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future applicable law pertinent to such
circumstances; (f) filing any answer admitting or not contesting the material
allegations of a bankruptcy, insolvency or similar petition filed against
Issuer; (g) seeking or consenting to, or acquiescing in, the appointment of any
trustee, receiver or liquidator of Issuer; (h) sixty (60) calendar days elapse
after the commencement of an action against Issuer seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future applicable law without such action being
dismissed or without all orders or proceedings thereunder affecting the
operations or the business of Issuer being stayed, or if a stay of any such
order or proceedings is thereafter set aside and the action setting it aside is
not timely appealed; or (i) sixty (60) calendar days elapse after the
appointment, without the consent or acquiescence of Issuer, of any trustee,
receiver or liquidator of Issuer or of all or any substantial part of the assets
and properties of Issuer without such appointment being vacated.

"Act of Dissolution" means the occurrence of any action initiating, or any event
that results in, the dissolution, liquidation, winding-up or termination of
Issuer.

 

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

"Book Value" or "Book Value per Share" means the consolidated total
stockholder's equity of the Issuer divided by the number of Shares of the Issuer
outstanding, as shown in the Issuer's most recent balance sheet included in the
Issuer's most recent annual report on Form 10-KSB or quarterly report on Form
10-QSB, on file with the SEC or, if the Issuer is no longer required to file
such reports, the most recent annual or quarterly balance sheet of the Issuer,
which balance sheet shall be prepared by the Issuer in accordance with generally
accepted accounting principles, consistently applied.

"Business Day" means any day other than a Saturday, Sunday or a day on which
banks in Waco, Texas are authorized or required by law to close.

"Common Stock" means the Issuer's common capital stock, no par value per share.

"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended.

"Holder" means JRPM or BIL and any person to whom a Note is transferred in
accordance with the terms of such Note and this Agreement.

"Intercreditor Agreement" means the Intercreditor Agreement dated the date
hereof among the Issuer and each Holder from time to time party thereto.

"Issuer Constituent Documents" means Issuer's articles or certificate of
incorporation, by-laws and all amendments and supplements thereto, together with
good standing certificates from each jurisdiction in which Issuer is required to
maintain good standing issued by the Secretary of State of such jurisdiction no
earlier than thirty (30) calendar days prior to the date hereof.

"Note" means any of Note 1, Note 2 or Note 3, and any other promissory note
issued in replacement of a Note.

"Note 1" means that certain promissory note, dated the date of this Agreement,
in the initial principal amount of $350,000, made by the Issuer in favor of BIL.

"Note 2" means that certain convertible promissory note, dated the date of this
Agreement, in the initial principal amount of $350,000, made by the Issuer in
favor of JRPM and any note issued on (i) partial conversion of such Note in
accordance with Section 3.02(c) or (ii) assignment thereof in accordance with
Section 2.04.

"Note 3" means that certain convertible promissory note, dated the date of this
Agreement, in the initial principal amount of $500,000, made by the Issuer in
favor of JRPM and any note issued on (i) partial conversion of such Note in
accordance with Section 3.02(c) or (ii) assignment thereof in accordance with
Section 2.04.

"Note Register" means the record maintained by the Issuer detailing the current
Holder of each Note.

"Notes" means Note 1, Note 2 and Note 3, collectively.

2

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

"Obligations" means, collectively, all of Issuer's indebtedness, liabilities and
obligations arising under this Agreement and the Notes and any renewals,
modifications and extensions thereof, including, but not limited to, the
principal, interest, late charges and other sums due and owing under the Notes.

"Person" means any individual, corporation, partnership, limited liability
company, association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.

"Pledge Agreement" means, collectively, the Pledge Agreements dated the date
hereof in favor of JRPM by Issuer and by FPMC, respectively.

"Purchase Price" has the meaning provided for in Section 4.01.

"Record Date" has the meaning provided for in Section 3.04(d).

"Related Documents" means the Notes, the Pledge Agreement, the Intercreditor
Agreement, the deeds of trust dated the date of this Agreement pursuant to which
the Notes are secured, and all other documents delivered pursuant to this
Agreement by Issuer or by FPMC.

"SEC" means the United States Securities and Exchange Commission.

"Securities Act" means the United States Securities Act of 1933, as amended.

"Shares" means shares of the Issuer's common capital stock.

Article II
Purchase of Notes

2.01          Purchase of Note 1.  BIL hereby purchases Note 1 from Issuer, and
Issuer acknowledges such purchase and receipt from BIL of cash in the principal
amount of $350,000.

2.02          Purchase of Note 2.  JRPM hereby purchases Note 2 from Issuer, and
Issuer acknowledges such purchase and receipt from JRPM of cash in the principal
amount of $350,000.

2.03          Purchase of Note 3.  JRPM hereby purchases Note 3 from Issuer, and
Issuer acknowledges such purchase and receipt from JRPM of cash in the principal
amount of $500,000.

3

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

2.04          Assignment.  The Notes shall not be assignable, except that JRPM
may assign Note 2 and Note 3, or any portion thereof, provided such assignment
complies with the requirements set forth in Sections 7.04 and 7.05 hereof.  Such
assignment shall be effective upon the completion of (a) the delivery of the
original Note to be assigned in whole or in part to the Issuer, (b) the payment
by assignee to assignor of the face amount of the new Note to be issued to
assignee, (c) the execution and delivery of new Notes to each assignee and the
assignor, as the case may be, with face amounts corresponding to the principle,
interest and other amounts owed to each such Holder after giving effect to such
assignments and (d) the execution and delivery of an amendment to the
Intercreditor Agreement to make such assignee a party thereto.  Upon any such
permitted assignment, the Issuer shall record the name of the new Holder in the
Note Register.

2.05          Prepayment Only Upon Notice.  Each Note may be prepaid, but only
as provided for therein; provided, however, that neither Note 2 nor Note 3 may
be prepaid unless notice of such prepayment has been given by the Issuer to the
Holder of the Note proposed to be prepaid at least 15 Business Days before the
proposed prepayment.  Any prepayment of Note 2 or Note 3 will be subject to the
Holder's prior exercise of the Holder's conversion right in accordance with
Article III hereof on any day prior to such prepayment.

2.06          Surrender of Notes.  The Issuer may, after payment of all
principal, interest and other amounts owed under any Note, require the surrender
of such Note to the Issuer in a reasonable period after payment in full. 

Article III
Conversion of Notes

3.01          Conversion Right and Conversion Price.

(a)                Subject to and upon compliance with the provisions of this
Article, at the option of the Holder thereof, Note 2 and Note 3 or any portion
of the unpaid principal amount thereof which is $1,000 or an integral multiple
of $1,000 may be converted at the principal amount thereof, or of such portion
thereof, into duly authorized, fully paid and non-assessable shares of Common
Stock, at the Conversion Price in effect at the time of conversion, determined
as hereinafter provided.  With respect to either such Note, such conversion
right shall expire upon the first to occur of (i) the repayment thereof in full
or (ii) 5:00 pm, Waco, Texas time, on the maturity date of such Note; provided
however, that if the Issuer does not have sufficient shares of Common Stock to
accommodate the conversion of the Notes and if JRPM has given to the Issuer a
Request to Call Meeting, as provided in Section 5.01(b), such date shall be
extended until the tenth Business Day after the date that the Issuer has
sufficient shares of Common Stock to accommodate the conversion of the Notes.

(b)               The price at which each Share of Common Stock shall be
delivered upon each conversion (the "Conversion Price") shall initially be (i)
equal to the greater of $2.50 per Share and the Book Value per Share in the case
of any conversion of Note 2, with Book Value being determined as of the date of
such conversion and (ii) the number of dollars that is equal to the quotient
obtained by dividing 500,000 by 326,472 per Share in the case of any conversion
of Note 3. The Conversion Price shall be adjusted in certain instances as
provided in paragraphs (a), (b) and (c) of Section 3.04 hereof.

3.02          Exercise of Conversion Right.

(a)                To exercise the conversion right, the Holder of any Note to
be converted shall, on a Business Day, surrender such Note duly endorsed or
assigned to the Issuer or in blank, at the Issuer's principal office in Waco,
Texas, accompanied by a duly signed conversion notice substantially in the form
attached as Exhibit B hereto stating that the Holder elects to convert such Note
or, if less than the entire principal amount thereof is to be converted, the
portion thereof to be converted.

4

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

(b)               Notes shall be deemed to have been converted immediately prior
to the close of business on the day of surrender of such Notes for conversion in
accordance with the foregoing provisions, and at such time the rights of the
Holders of such Notes as Holders, to the extent of the converted principal
thereof, shall cease and the Person or Persons entitled to receive the Common
Stock issuable upon conversion shall be treated for all purposes as the record
holder or holders of such Common Stock at such time. As promptly as practicable
on or after the conversion date of any Note, the Issuer shall cause to be issued
and delivered to the Holder a certificate or certificates for the number of full
shares of Common Stock issuable upon conversion, together with payment in lieu
of any fraction of a share as provided in Section 3.03 hereof and payment of any
interest and other amounts owed on the converted portion of the Note that was
accrued and unpaid on the date of conversion.

(c)                In the case of any Note which is converted in part only, upon
such conversion the Issuer and the Holders shall execute, at the expense of the
Issuer, a new Note or Notes of authorized denominations in aggregate principal
amount equal to the unconverted portion of the principal owed under such Notes.

3.03          No Fractional Shares.   No fractional shares of Common Stock shall
be issued upon conversion of any Note or Notes. If more than one Note shall be
surrendered for conversion at one time by the same Holder, the number of full
shares which shall be issued upon conversion thereof shall be computed on the
basis of the aggregate principal amount of the Notes (or specified portions
thereof) so surrendered. Instead of any fractional share of Common Stock which
would otherwise be issued upon conversion of any Note or Notes (or specified
portions thereof), the Issuer shall pay a cash adjustment in respect of such
fraction (calculated to the nearest one-100th of a share) in an amount equal to
the Conversion Price applicable to the conversion.

3.04          Adjustment of Conversion Price.  The Conversion Price shall be
subject to adjustments, calculated by the Issuer, from time to time as set forth
below; provided, that no such adjustment shall be made as a result of any event
provided for below if the Conversion Price shall have been appropriately
adjusted by virtue of a change in Book Value resulting from such event.

(a)                In case Issuer shall hereafter pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock, the Conversion Price in effect at the opening of business on the date
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction:

(i)                  the numerator of which shall be the number of shares of
Common Stock outstanding at the close of business on the Record Date fixed for
such determination, and

(ii)                the denominator of which shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution.

5

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

Such reduction shall become effective immediately after the opening of business
on the day following the Record Date.  If any dividend or distribution of the
type described in this Section 3.04(a) is declared but not so paid or made, the
Conversion Price shall again be adjusted to the Conversion Price which would
then be in effect if such dividend or distribution had not been declared.

(b)               In case the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the Conversion Price
in effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately reduced, and
conversely, in case outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the opening
of business on the day following the day upon which such subdivision or
combination becomes effective.

(c)                If the Issuer shall issue shares of Common Stock or rights to
acquire or instruments convertible into shares of Common Stock, in any case at a
price below the Conversion Price at the close of business at the last Business
Day immediately preceding such issuance, the Conversion Price shall be adjusted
so that it shall equal the Conversion Price in effect at the close of business
on such Business Day multiplied by a fraction (i) the numerator which is the
number of shares of Common Stock outstanding at the close of business on such
Business Day plus the number of shares which the aggregate price of which such
shares were sold by the Issuer or the aggregate price of which such rights or
interests are exercisable or convertible into shares with Common Stock would
purchase at the current Conversion Price and (ii) the nominator of which is the
number of shares of Common Stock outstanding of the close of business on such
Business Day plus the total number of shares of Common Stock so issued were
issuable pursuant to such rights or instruments.

(d)               For purposes of this Section 3.04, "Record Date" shall mean,
with respect to any dividend, distribution or other transaction or event in
which the holders of Common Stock have the right to receive any cash, securities
or other property or in which the Common Stock (or other applicable security) is
exchanged for or converted into any combination of cash, securities or other
property, the date fixed for determination of stockholders entitled to receive
such cash, securities or other property (whether such date is fixed by the board
of directors of Issuer or by statute, contract or otherwise).

(e)                All calculations under this Article III shall be made by
Issuer and shall be made to the nearest cent or to the nearest one hundredth of
a share, as the case may be. No adjustment need be made for a change in the par
value of the Common Stock.

(f)                 In any case in which this Section 3.04 provides that an
adjustment shall become effective immediately after a Record Date for an event,
Issuer may defer until the occurrence of such event (i) issuing to the Holder of
any Note converted after such Record Date and before the occurrence of such
event the additional shares of Common Stock issuable upon such conversion by
reason of the adjustment required by such event over and above the Common Stock
issuable upon such conversion before giving effect to such adjustment and (ii)
paying to such holder any amount in cash in lieu of any fraction pursuant to
Section 3.03 hereof.

6

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

(g)                For purposes of this Section 3.04, the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of Issuer.  Issuer will not pay any dividend or make any distribution
on shares of Common Stock held in the treasury of Issuer. 

3.05          Notice of Adjustments of Conversion Price.  Whenever the
Conversion Price is adjusted as herein provided, Issuer shall promptly mail to
each Holder at the address of such Holder as it appears in the Note Register, an
Officers' Certificate setting forth the adjusted Conversion Price and showing in
reasonable detail the facts upon which such adjustment is based within 20 days
of the effective date of such adjustment. Failure to deliver such notice shall
not affect the legality or validity of any such adjustment.

3.06          Cancellation of Converted Notes.  All Notes delivered for
conversion or for assignment shall be canceled by the Issuer.

3.07          Effect of Reclassification, Consolidation, Merger or Sale. 

(a)                If any of following events occur, namely:

(i)                  any reclassification or change of the outstanding shares of
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination),

(ii)                any merger, consolidation, statutory share exchange or
combination of Issuer with another corporation as a result of which holders of
Common Stock shall be entitled to receive stock, securities or other property or
assets (including cash) with respect to or in exchange for such Common Stock or

(iii)               any sale or conveyance of all or substantially all the
properties and assets of Issuer to any other corporation as a result of which
holders of Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock,

7

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

Issuer or the successor or purchasing corporation, as the case may be, shall
execute with the Holders a supplemental agreement providing that such Note shall
be convertible into the kind and amount of shares of stock and other securities
or property or assets (including cash) which such Holder would have been
entitled to receive upon such reclassification, change, merger, consolidation,
statutory share exchange, combination, sale or conveyance had such Notes been
converted into Common Stock immediately prior to such reclassification, change,
merger, consolidation, statutory share exchange, combination, sale or conveyance
assuming such holder of Common Stock did not exercise its rights of election, if
any, as to the kind or amount of securities, cash or other property receivable
upon such reclassification, change, merger, consolidation, statutory share
exchange, combination, sale or conveyance (provided that, if the kind or amount
of securities, cash or other property receivable upon such reclassification,
change, merger, consolidation, statutory share exchange, combination, sale or
conveyance is not the same for each share of Common Stock in respect of which
such rights of election shall not have been exercised ("Non-Electing Share"),
then for the purposes of this Section 3.07 the kind and amount of securities,
cash or other property receivable upon such reclassification, change, merger,
consolidation, statutory share exchange, combination, sale or conveyance for
each Non-Electing Share shall be deemed to be the kind and amount so receivable
per share by a plurality of the Non-Electing Shares).  Such supplemental
agreement shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article III.  If, in
the case of any such reclassification, change, merger, consolidation, statutory
share exchange, combination, sale or conveyance, the stock or other securities
and assets receivable thereupon by a holder of shares of Common Stock includes
shares of stock or other securities and assets of a corporation other than the
successor purchasing corporation, as the case may be, in such reclassification,
change, merger, consolidation, statutory share exchange, combination, sale or
conveyance, then such supplemental agreement shall also be executed by such
other corporation and shall contain such additional provisions to protect the
interests of the Holders of the Notes as the board of directors of Issuer shall
reasonably consider necessary by reason of the foregoing.

(b)               The Issuer shall cause notice of the execution of such
supplemental agreement to be mailed to each Holder, at the address of such
Holder as it appears on the Note Register, within 20 days after execution
thereof.  Failure to deliver such notice shall not affect the legality or
validity of such supplemental indenture. 

(c)                The above provisions of this Section 3.07 shall similarly
apply to successive reclassifications, mergers, consolidations, statutory share
exchanges, combinations, sales and conveyances.

(d)              If this Section 3.07 applies to any event or occurrence,
Section 3.04 hereof shall not apply.

Article IV
Option to Purchase Shares

4.01          Right to Purchase Shares.  Issuer does hereby grant to JRPM, upon
the terms and conditions set forth herein, the right to acquire from the Issuer
in whole or in part, from time to time, up to that number of fully paid and
non-assessable shares of its Common Stock equal to $350,000 divided by the
Purchase Price (the "Option").  The "Purchase Price" shall be equal to the
greater of $5.00 per share and the Book Value per share, and shall be adjusted
as the Conversion Price is adjusted, in accordance with the provisions of
Section 3.04.  Such Option is exercisable immediately and shall continue to be
exercisable through and until December 31, 2006; provided, however, that if the
Issuer does not have sufficient shares of Common Stock to accommodate the
exercise of the Option and if JRPM has given to the Issuer a Request to Call
Meeting, as provided in Section 5.01(b), such date shall be extended until the
tenth Business Day after the date that the Issuer has sufficient shares of
Common Stock to accommodate JRPM's exercise of the Option. The Option shall be
exercised, in each case, by the delivery to Issuer of a Notice of Exercise in
the form attached hereto as Exhibit A.

8

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

4.02          Delivery of Shares.  Certificates for Shares purchased pursuant to
the Option shall be delivered to JRPM promptly after the date on which the
Option shall have been exercised in accordance with the terms hereof.  Such
Shares so issued shall be and shall for all purposes be deemed to have been
issued to JRPM as the record owner of such Shares as of the close of business on
the date on which the Option shall have been exercised in accordance with the
terms hereof.

Article V
Affirmative Covenants

5.01          Reservation of Common Stock; Increase in Authorized Shares. 

(a)                Subject to Section 5.01(b), Issuer shall at all times be
obligated to reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock, for the purpose of effecting the
conversion of Note 2 and Note 3 and the exercise of the Option, the full number
of shares of fully paid and nonassessable Common Stock then issuable upon the
conversion of such Notes outstanding and upon exercise of the Option.

(b)               It is recognized that the Issuer's authorized but unissued
shares of Common Stock are insufficient to effect the conversion in full of the
Notes and the exercise of the Option.  The Issuer agrees, as soon as practicable
after receipt of JRPM's request (the "Request to Call Meeting"), to call a
meeting of its shareholders for the purpose of consideration and action by the
shareholders with respect to a proposal to amend the Issuer's articles of
incorporation to increase the number of its authorized shares of Common Stock to
at least the maximum number of such shares required to effect such conversion
and exercise, including any increases in such number that the Issuer's board of
directors reasonably anticipates would be required for the Issuer's business,
including any increases resulting from adjustments to the Conversion Price and
Purchase Price that the board of directors can reasonably foresee, if any.

5.02          Security Interest.  Issuer shall grant and maintain a lien or
security interest in favor of each of JRPM and BIL to secure the Obligations in
and to the Issuer's ownership of First Advisory Services, Inc., First Preference
Mortgage Corp., Shelter Resources, Inc. and First Preference Properties, Inc.
and in and to any and all real property serving as collateral securing such
Obligations pursuant to the Related Documents.

5.03          Real Estate Transfers.  Issuer has caused or shall cause First
Preference Mortgage Corp. to transfer to First Preference Properties, Inc. the
following properties:

(a)                Asset # 61101: 901 Columbus Ave., Farm Lot 17, Block D, Lots
1, 2 & 3.

(b)               Asset # 61102: 325 N. 9th St., Farm Lot 43, Block 43, Lots 6,
7, 8 A10.

5.04          Notice Prior to Certain Actions. 

(a)                Issuer shall provide notice to all Holders, at least 20 days
(or 10 days in any case specified in clause (i) or (ii) below) prior to the
applicable record or effective date hereinafter specified, if any of the
following events occur after the date of this Agreement:

(i)                  Issuer shall declare a dividend (or any other distribution)
on its Common Stock payable otherwise than in cash out of its capital surplus or
its consolidated retained earnings;

9

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

(ii)                Issuer shall authorize the granting to the holders of its
Common Stock of rights or warrants to subscribe for or purchase any shares of
capital stock of any class (or of securities convertible into shares of capital
stock of any class) or of any other rights;

(iii)               there shall occur any reclassification of the Common Stock
of Issuer (other than a subdivision or combination of its outstanding Common
Stock, a change in par value, a change from par value to no par value or a
change from no par value to par value), or any merger, consolidation, statutory
share exchange or combination to which Issuer is a party and for which approval
of any shareholders of Issuer is required, or the sale, transfer or conveyance
of all or substantially all of the assets of Issuer; or

(iv)              there shall occur the voluntary or involuntary dissolution,
liquidation or winding up of Issuer.

(b)               The notice referred to in Section 5.04(a) shall state:

(i)                  the date on which a record is to be taken for the purpose
of such dividend, distribution, rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution, rights or warrants are to be determined; or

(ii)                the date on which such reclassification, merger,
consolidation, statutory share exchange, combination, sale, transfer,
conveyance, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
merger, consolidation, statutory share exchange, sale, transfer, dissolution,
liquidation or winding up.

(c)                Neither the failure to give such notice nor any defect
therein shall affect the legality or validity of the proceedings or actions
described in clauses (i) through (iv) of Section 5.04(a).

Article VI
Representations and Warranties of Issuer

Issuer represents and warrants to the Purchasers the following:

6.01          Organization and Power.  The Issuer is a corporation duly
organized and validly existing under the laws of the State of Texas and is duly
qualified to do business in each additional jurisdiction in which it is required
to be qualified.  Issuer has all requisite power and authority to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and to deliver, execute and perform its obligations under this
Agreement and the Related Documents.

10

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

6.02          Authority; No Conflict.  The execution, delivery and performance
of this Agreement and the Related Documents and the consummation of the
transactions contemplated thereby and compliance by the Issuer with its
obligations thereunder have been duly authorized by all necessary corporate
action and do not and will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a breach of, or default
under any Issuer Constituent Document or any material agreement to which Issuer
or any of its subsidiaries is a party.

6.03          Binding Effect.  This Agreement has been duly executed and
delivered by the Issuer and constitutes, and the Notes when issued, executed and
delivered by the Issuer, will constitute, the legal, valid and binding
obligations, enforceable against the Issuer in accordance with their respective
terms except as such enforceability may be limited by bankruptcy, insolvency or
similar laws and by equitable principles.

6.04          Consents.  No consent, approval or authorization of or
declaration, registration or filing within any governmental authority or any
non‑governmental Person (including any creditor or shareholder of the Issuer):
(a) is required in connection with (i) the execution and delivery of this
Agreement and the Related Documents to which the Issuer is a party or (ii) the
performance by the Issuer of its obligations hereunder or thereunder, or (b) is
a condition to the legality, validity or enforceability of this Agreement or any
such Related Documents.

6.05          Common Stock.  The Issuer hereby represents and warrants that all
Shares that may be issued upon the conversion of the Notes and the exercise of
the Option will, upon such conversion or exercise be duly and validly authorized
and issued, fully paid and non-assessable and free from all taxes, liens and
charges in respect thereof (other than taxes, liens or charges created by or
imposed upon JRPM as the holder of the Option).

Article VII
Representations and Warranties of Purchasers

Each Purchaser represents and warrants to the Issuer the following:

7.01          No Distribution.  Such Purchaser is acquiring the Notes being
purchased by it for  its own account, for the account of no other Person and not
with a view to, or for sale or other disposition in connection with, any
distribution thereof, provided that the disposition of such Purchaser's property
shall at all times be within its control. 

7.02          Sophistication; Financial Strength.  Such Purchaser is an
"Accredited Investor" (as such term is defined in Rule 501 of the SEC under the
Securities Act) having or having a general partner that has or having partners
with trustees that have such knowledge and experience in business and financial
matters as to be capable of evaluating the merits and risks of the investment
contemplated to be made hereunder.  Such Purchaser has sufficient financial
strength to hold the Notes as an investment and to bear fully the economic risks
of such investment. 

7.03          Brokers.  Such Purchaser has not engaged any broker or finder who
is entitled to any fee or commission from the Issuer in connection with this
Agreement or the other transactions contemplated hereby. 

7.04          Purchaser Acknowledgements.  Such Purchaser hereby acknowledges
that:

11

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

(a)                the Notes, the Option and the Common Stock issuable upon
conversion of such Notes and exercise of the Option are characterized as
"restricted securities" under the Securities Act inasmuch as they are being
acquired from the Issuer in a transaction not involving a public offering and
that under the Securities Act and applicable regulations thereunder such
securities may be resold without registration under the Securities Act only in
certain limited circumstances;

(b)               it is familiar with Rule 144 of the SEC, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act; and

(c)                the Issuer is under no obligation to cause any exemptions
provided by Rule 144 to be available with respect to transfer of the Notes or
such Common Stock or to register any of the Notes or the Common Stock issuable
upon conversion of the Notes and exercise of the Option under the Securities Act
or the securities laws of any jurisdiction.

7.05          Further Limitations on Transfer.  Without in any way limiting the
representations set forth above, such Purchaser acknowledges the restrictions on
transfer or assignment of the Notes set forth in this Agreement and agrees not
to transfer or assign all or any portions of the Notes until:

(a)                there is then in effect a registration statement under the
Securities Act covering such proposed transfer and such transfer or assignment
is made in accordance with such registration statement; or

(b)               such Purchaser shall have notified the Issuer of the proposed
transfer or assignment and shall have furnished the Issuer with a (i) statement
of the circumstances surrounding the proposed transfer or assignment, and (ii)
such certifications, legal opinions or other information as the Issuer may
reasonably require to confirm that such transfer or assignment is being made
pursuant to an exemption from, or a transaction not subject to, the registration
requirements of the Securities Act and otherwise in compliance with this
Agreement.

7.06          Organization and Power.  Such Purchaser is a limited partnership
duly organized and validly existing under the laws of the State of Texas and is
duly qualified to do business in each additional jurisdiction in which it is
required to be qualified.  Such Purchaser has all requisite power and authority
to own its properties and to carry on its business as now being conducted and as
proposed to be conducted and to deliver, execute and perform its obligations
under this Agreement and the Related Documents.

7.07          Authority; No Conflict.  The execution, delivery and performance
of this Agreement and the Related Documents and the consummation of the
transactions contemplated thereby and compliance by the Purchaser with its
obligations thereunder have been duly authorized by all necessary corporate
action and do not and will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a breach of, or default
under any organizational document of the Purchaser or any material agreement to
which the Purchaser or any of its subsidiaries is a party.

12

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

7.08          Binding Effect.  This Agreement has been duly executed and
delivered by the Purchaser and constitutes, and the Notes when issued, executed
and delivered to the Purchaser, will constitute, the legal, valid and binding
obligations, enforceable against the Purchaser in accordance with their
respective terms except as such enforceability may be limited by bankruptcy,
insolvency or similar laws and by equitable principles.

7.09          Consents.  Except for filings that may be required by the Exchange
Act, no consent, approval or authorization of or declaration, registration or
filing within any governmental authority or any non-governmental Person
(including any creditor or partner of such Purchaser): (a) is required in
connection with (i) the execution and delivery of this Agreement and the Related
Documents to which the Purchaser is a party or (ii) the performance by the
Purchaser of its obligations hereunder or thereunder, or (b) is a condition to
the legality, validity or enforceability of this Agreement or any such Related
Documents.

Article VIII
Default Provisions

The occurrence of any of the following events (each, an "Event of Default")
constitutes an immediate breach of, and default under, this Agreement entitling
Purchasers to exercise all of the rights and remedies specified in this
Agreement, in the Notes and under all applicable laws:

8.01          Monetary Defaults.  Any payment of principal, interest or other
charge under a Note is not received by the applicable Purchaser within ten
Business Days of the due date thereof, or any other Obligation is not fully paid
and discharged within ten Business Days of the due date thereof.

8.02          Breaches.  Issuer fails to comply with its affirmative or negative
covenants, agreements or undertakings in this Agreement or a Note and such
failure continues for a period of ten Business Days from the date of the
delivery of written notice thereof from a Purchaser.

8.03          Misrepresentation.  Any representation or warranty made by Issuer
in this Agreement is materially untrue when made.

8.04          Act of Bankruptcy or Dissolution.  Any Act of Bankruptcy or Act of
Dissolution occurs with respect to Issuer.

8.05          Cross-Defaults.  Any default is declared (after giving effect to
any applicable notice and/or grace periods) under any material loan, lease, debt
or obligation of Issuer (other than the Obligations), any event occurs that,
with the passage of time or the delivery of notice or both, would be a default
under any such agreement.

8.06          Judgments.  Any judgment or judgments obtained against Issuer
which, individually or in the aggregate, exceeds $100,000 remains unpaid for
over twenty Business Days without Issuer obtaining a stay of execution, release,
discharge or appropriate surety bond.

13

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

Article IX
Certain Remedies

9.01          Acceleration.  Following the occurrence of an Event of Default,
the Purchasers may, at their option, accelerate the maturity of the Notes and
all other Obligations and demand immediate payment in full of all amounts
payable under the Notes and all of the Obligations.

9.02          Costs.  Following an acceleration in accordance with Section 9.01,
Issuer shall pay all reasonable expenses of any nature, whether incurred in or
out of court, and whether incurred before or after each Note becomes due at its
maturity date or otherwise (including, but not limited to, reasonable attorneys'
fees and costs) which Purchasers may deem necessary or proper in connection with
the collection of any of the Obligations.

9.03          Remedies Non-Exclusive.  None of Purchasers' rights, remedies,
privileges or powers expressly provided for herein are exclusive, but each of
them is cumulative with, and in addition to, every other right, remedy,
privilege and power now or hereafter existing in Purchasers' favor, whether
pursuant to the Notes, at law or in equity, by statute or otherwise.

Article X
Miscellaneous

10.01      Non-Waiver.  No course of dealing between Purchasers and any other
party hereto or any failure or delay on the part of Purchasers in exercising any
rights or remedies under this Agreement or the Notes operates as a waiver of any
rights or remedies of Purchasers under this Agreement, the Notes or any other
agreement.  No single or partial exercise of any rights or remedies hereunder
operates as a waiver or precludes the exercise of any other rights or remedies
hereunder.

10.02      Notices.  All notices, requests, demands and other communications
required or permitted under this Agreement or by law shall be in writing and
given to the parties at the address listed below (or to such other address as
shall at any time be designated by any party in writing to the other parties): 
(a) by certified U.S. mail, return receipt requested, postage prepaid; (b) by
facsimile transmission (provided confirmation of the receipt thereof is
obtained); (c) by recognized overnight courier service (e.g., Federal Express);
or (d) by hand-delivery:

14

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

If to BIL:

If to JRPM:

If to Issuer:

Bluebonnet Investments, Ltd.

JRPM Investments, Ltd.

First Financial Corporation

800 Washington Avenue
                Waco, TX   76701

800 Washington Avenue
                Waco, TX   76701

2121 Lake James Drive
                Waco, TX   76710

Attn:  David W. Mann

Attn:  David W. Mann

Attn:  Walter J. Rusek

With a copy to:

With a copy to:

With a copy to:

     

Jones, Walker, Waechter,
                Poitevent, Carrère & Denègre, L.L.P.

Jones, Walker, Waechter,
                Poitevent, Carrère & Denègre, L.L.P.

Haley & Olson, P.C.
                North Valley Mills Drive
                Suite 600

201 St. Charles Ave., 51st Fl.

201 St. Charles Ave., 51st Fl

Waco, TX  76710

New Orleans, LA 70170-5100

New Orleans, LA 70170-5100

Attn:  Herbert S. Bristow

Attn:  Carl C. Hanemann

Attn:  Carl C. Hanemann

All such notices shall be deemed effective (x) when actually delivered or when
sent by facsimile (upon electronic confirmation of receipt), (y) three days
after being deposited in the United States mail, first class, postage prepaid,
or (z) one day after being delivered to a reputable overnight delivery service.

10.03      Entire Agreement; Integration Clause.  This Agreement and the Related
Documents set forth the entire agreements and understandings of the parties
hereto with respect to this transaction, and any prior agreements are hereby
merged herein and terminated.

10.04      No Oral Modification or Waivers.  The terms of this Agreement may not
be modified or waived orally, but only by an instrument in writing signed by the
party against which enforcement of the modification or waiver (as the case may
be) is sought.

10.05      Governing Law.  The laws of the State of Texas (other than its
conflicts of law principles) govern this Agreement and the Notes.

10.06      Headings.  The headings of the paragraphs and sub-paragraphs of this
Agreement and the Notes are inserted for convenience only and do not constitute
a part of this Agreement and the Notes.

10.07      Severability.  To the extent any provision herein violates any
applicable law, that provision shall be considered void and the balance of this
Agreement shall remain unchanged and in full force and effect.

10.08      Counterparts.  This Agreement may be executed in counterparts.  The
signature of, or on behalf of, each party does not need to appear on each
counterpart, so long as it appears on one or more of the counterparts.  All
counterparts shall collectively constitute one original document. 

10.09      No Personal Liability.  Neither the officers, directors or
shareholders of Issuer, nor any person executing the Notes on behalf of Issuer,
shall be liable personally or be subject to any personal liability or
accountability with respect to the Obligations by reason of issuance of the
Notes.

10.10      Assignment.  Purchaser may assign its interest under this Agreement
and each Note, in whole or in part, only as set forth herein.  Issuer may not
assign this Agreement or any of the Notes, and any attempted assignment shall be
void.

[Signatures on Next Page]

15

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

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

ISSUER:

First Financial Corporation

By:  /s/ Walter J. Rusek                                
                 Name: Walter J. Rusek, Director

PURCHASERS:

JRPM Investments, Ltd.

By:    /s/ David W. Mann                                
              David W. Mann, General Partner

                                 and

By: RAM Investors, Inc., General Partner

By:    /s/ David W. Mann                    
              David W. Mann, President

 

Bluebonnet Investments, Ltd.

By: Bluebonnet Enterprises, Inc., its General Partner

By:    /s/ David W. Mann                    
              David W. Mann, President

 

 

16

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

EXHIBIT A

NOTICE OF EXERCISE
(To be signed only upon exercise of the Option)

TO:      First Financial Corporation

JRPM Investments, Ltd. hereby irrevocably elects to exercise the Option granted
pursuant to that certain Note Purchase Agreement dated ________________, 2005,
and to purchase thereunder, ________ shares of Common Stock of First Financial
Corporation, and herewith makes payment of $_____________ therefor, and requests
that such shares be issued in the name of, and delivered to JRPM Investments,
Ltd., whose address is ___________________________________. 

Dated:                                                 

 

                                                                                               
            (Signature)

 

                                                                                               
            (Address)

 

 

 

 

 

 

 

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

EXHIBIT B

 

 

NOTICE OF CONVERSION
(To be signed only upon conversion of the Convertible Promissory Note)

To: First Financial Corporation

 1. The undersigned hereby (a) elects to convert $____________________ (______%)
    of the principal amount of the attached Convertible Promissory Note (the
    "Note") into ____________ shares (the "Shares") of common capital stock, no
    par value per share, of First Financial Corporation (the "Company") pursuant
    to the terms of that certain Note Purchase Agreement pursuant to which the
    Note was issued by the Company and (b) tenders the Note duly endorsed or
    assigned to the Company or in blank.

 2. The Shares to be received by the undersigned upon conversion of the Note are
    being acquired for the undersigned's own account, not as a nominee or agent,
    and not with a view to resale or distribution of any part thereof, and the
    undersigned has no present intention of selling, granting any participation
    in, or otherwise distributing the same, except in compliance with applicable
    federal and state securities laws.

 3. The undersigned understands that the Shares are characterized as "restricted
    securities" under the federal securities laws inasmuch as they are being
    acquired from the Company in transactions not involving a public offering
    and that under such laws and applicable regulations such securities may be
    resold without registration under the Securities Act of 1933, as amended
    (the "Act"), only in certain limited circumstances.

 4. The undersigned understands the certificates evidencing the Shares may bear
    the following legend:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.  THESE
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION,
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS.

 

 

 

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

 5. Please issue a certificate or certificates representing said Shares in the
    name of the undersigned.

                                                                       
            [Printed Name of Holder]

 6. Please issue a new Convertible Promissory Note for the unexercised portion
    of the attached Note in the name of the undersigned.

                                                                       
            [Printed Name of Holder]

   This Notice of Exercise is dated this _____ day of ______________, 20__.

                                                                 
                                                                       
                                                                             
[Signature of Holder]

 

 

 

 

 

 

 

19

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