**Exhibit10.60**

** **

 

**SECURITIES PURCHASE AGREEMENT**

 

**THIS SECURITIES PURCHASEAGREEMENT** (this “**Agreement**”),dated as of June 29, 2010, is entered into by and among FirstCityFinancial 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 deliveringthis Agreement in reliance upon the exemption from registration afforded by Section 4(2) ofthe Securities Act of 1933, as amended (the “**SecuritiesAct**”), and Rule 506 of Regulation D (“**Regulation D**”) as promulgated by the UnitedStates Securities and Exchange Commission (the “**SEC**”) under the Securities Act.

 

B.            The Investor wishes to purchase, and the Company wishesto sell, upon the terms and conditions stated in this Agreement, that number ofshares 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 isreferred to herein as the “**Securities**.”

 

NOW, THEREFORE, INCONSIDERATION of the mutual covenants contained in this Agreement, and forother good and valuable consideration the receipt and adequacy of which arehereby acknowledged, the Company and the Investor agree as follows:

 

ARTICLE IDEFINITIONS

 

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

 

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

 

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

 

“**Business Day**” means any day other than Saturday, Sunday, anyday which shall be a federal legal holiday in the United States or any day onwhich national banking institutions in The State of New York are authorized orrequired 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).

 

----

 

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

 

**“****Company****”**hasthe meaning set forth in the Preamble.

 

“**Company Counsel**” means Haley & Olson, P.C., counselto 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, asamended.

 

“**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 adverseeffect on the business, financial condition or results of operations of theCompany and its Subsidiaries, taken as a whole (other than events,circumstances, changes, occurrences or any state of facts relating to (A) anychange in general economic conditions that affect the industries in which theCompany and its Subsidiaries conduct their business, so long as such changes orconditions do not adversely affect the Company and its Subsidiaries, taken as awhole, in a materially disproportionate manner relative to other similarlysituated participants in the industries or markets in which they operate, (B) general legal, regulatory, political, business, economic, financial or securitiesmarket conditions in the United States or elsewhere (including fluctuations, inand of themselves, in the price of the Common Stock), (C) the negotiation,execution or the announcement of this Agreement, the undertaking andperformance or observance of the obligations contemplated by this Agreement ornecessary to consummate the transactions or the 

 

2

----

 

consummation of anytransaction by the Company, including the impact thereof on relationships, contractualor otherwise, with customers, suppliers, distributors, partners or employees, (D) actsof war, insurrection, sabotage or terrorism, not having a disproportionateeffect on the Company and its Subsidiaries, taken as a whole, relative to otherparticipants in the industries or markets in which the Company and itsSubsidiaries operate, (E) changes in GAAP or the accounting rules orregulations of the SEC, (F) the effect of incurring out-of-pocket expensesin connection with negotiating, entering into, performing or consummating thetransactions contemplated by this Agreement, or (G) the failure, in and ofitself, by the Company to meet any internal or published projections, forecastsor revenue or earnings predictions for any period ending on or after the dateof this Agreement (it being understood that the causes underlying such failuremay be considered in determining whether a Material Adverse Effect has occurredor would reasonably be expected to occur)) or (ii) prevents the Companyfrom 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 tosubscribe for or purchase Common Stock or Convertible Securities.

 

**“Person**” has themeaning set forth in Section 3.1(x).

 

“**PiggybackRegistration**” has the meaning set forth in Section 5.1(a).

 

“**Previously Disclosed**”with regard to the Company means any information contained in any periodic orcurrent report filed with the SEC since January 1, 2009, or otherwisedisclosed in a specific section of this Agreement; provided that informationwhich, on its face, reasonably should indicate to the reader that it relates toanother provision of this Agreement, shall also be deemed to be PreviouslyDisclosed 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, withoutlimitation, a partial proceeding, such as a deposition), whether commenced orthreatened in writing.

 

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

 

“**RegistrableSecurities**” means the Common Stock issued pursuant to the TransactionDocuments, together with any securities issued or issuable upon any stocksplit, dividend or other distribution, recapitalization or similar event withrespect 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).

 

3

----

 

“**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 istraded on a Trading Market (other than the OTC Bulletin Board), or (ii) ifthe Common Stock is not listed or quoted on a Trading Market (other than theOTC Bulletin Board), a day on which the Common Stock is traded in theover-the-counter market, as reported by the OTC Bulletin Board, or (iii) ifthe Common Stock is not listed or quoted on any Trading Market, a day on whichthe Common Stock is quoted in the over-the-counter market as reported by thePink Sheets LLC (or any similar organization or agency succeeding to itsfunctions of reporting prices); provided, that in the event that the CommonStock 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 StockExchange, the American Stock Exchange, the NASDAQ Global Select Market, theNASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on whichthe Common Stock is listed or quoted for trading on the date in question.

 

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

 

**“TransactionDocuments**” means this Agreement, the schedules and exhibitsattached hereto, and the Transfer Agent Instructions.

 

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

 

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

 

ARTICLE IIPURCHASE AND SALE

 

2.1          Closing.

 

(a)           At the Closing (asdefined 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 pricefor the Common Stock constituting the Investment shall be $889,500.00 (the “**Purchase Price**”) reflecting the closing trading price of theCommon Stock on the Trading Day immediately preceding the date hereof of $5.93per share.  At the Closing, the Companyshall issue to the Investor 150,000 shares of Common Stock.

 

4

----

 

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

 

2.2          ClosingDeliveries.

 

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

 

(i)            a copy of theCompany’s irrevocable instructions to the Transfer Agent instructing theTransfer Agent to deliver, on an expedited basis, one or more stockcertificates, free and clear of all restrictive and other legends (except asexpressly provided in Section 4.1(b) hereof), evidencing theInvestment registered in the name of the Investor;

 

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

 

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

 

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

 

(b)           At the Closing, theInvestor shall deliver or cause to be delivered to the Company the PurchasePrice in United States dollars and in immediately available funds, by wiretransfer to an account designated in writing to the Investor by the Company forsuch purpose.

 

ARTICLE IIIREPRESENTATIONS AND WARRANTIES

 

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

 

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

 

5

----

 

(b)           Organization andQualification. The Company is an entity duly organized, validly existingand 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 andto carry on its business as currently conducted.  The Company is not in violation of any of theprovisions of its certificate or articles of incorporation, bylaws or otherorganizational or charter documents.  TheCompany is duly qualified to do business and is in good standing as a foreigncorporation or other entity in each jurisdiction in which the nature of thebusiness conducted or property owned by it makes such qualification necessary,except where the failure to be so qualified or in good standing, as the casemay be, would not, individually or in the aggregate, have or reasonably beexpected to result in a Material Adverse Effect.

 

(c)           Authorization;Enforcement. The Company has the requisite corporate authority to enterinto and to consummate the transactions contemplated by each of the TransactionDocuments to which it is a party and otherwise to carry out its obligationshereunder and thereunder.  The executionand delivery of each of the Transaction Documents to which it is a party by theCompany and the consummation by it of the transactions contemplated hereby andthereby have been duly authorized by all necessary corporate action on the partof the Company and no further consent or action is required by the Company, itsBoard of Directors or its stockholders. Each of the Transaction Documents to which it is a party has been (orupon delivery will be) duly executed by the Company and is, or when deliveredin accordance with the terms hereof, will constitute, the valid and bindingobligation of the Company enforceable against the Company in accordance withits terms, except (i) as limited by general equitable principles andapplicable bankruptcy, insolvency, reorganization, moratorium and other laws ofgeneral application affecting enforcement of creditors’ rights generally, (ii) aslimited by laws relating to the availability of specific performance,injunctive relief or other equitable remedies and (iii) insofar asindemnification and contribution provisions may be limited by applicable law.

 

(d)           No Conflicts.  The execution, delivery and performance bythe Company of the Transaction Documents to which it is a party and theconsummation by the Company of the transactions contemplated hereby and therebydo not, and will not, (i) conflict with or violate any provision of theCompany’s certificate or articles of incorporation, bylaws or otherorganizational or charter documents, (ii) conflict with, or constitute adefault (or an event that with notice or lapse of time or both would become adefault) 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 towhich the Company is a party or by which any property or asset of the Companyis bound, or affected, or (iii) result in a material violation of any law,rule, regulation, order, judgment, injunction, decree or other restriction ofany court or governmental authority to which the Company is subject (including,assuming the accuracy of the representations and warranties of the Investor setforth in Section 3.2 hereof, federal and state securities laws andregulations and the rules and regulations of any self-regulatory organizationto which the Company or its securities are subject, including all applicableTrading Markets), or by which any property or asset of the Company is bound oraffected.

 

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

 

6

----

 

paidand nonassessable, free and clear of all Liens and will not be subject topreemptive or similar rights of stockholders (other than those imposed by theInvestor).

 

(f)            Capitalization.  The aggregate number of shares and type ofall authorized, issued and outstanding classes of capital stock, options andother securities of the Company (whether or not presently convertible into orexercisable or exchangeable for shares of capital stock of the Company) is setforth in Schedule 3.1(f) hereto.  All outstanding shares of capital stock areduly authorized, validly issued, fully paid and nonassessable and have beenissued in compliance in all material respects with all applicable securitieslaws.  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 whatsoeverrelating to, or securities, rights or obligations convertible into orexercisable or exchangeable for, or entered into any agreement giving anyPerson any right to subscribe for or acquire, any shares of Common Stock, orsecurities or rights convertible or exchangeable into shares of CommonStock.  Except as set forth on Schedule3.1(f) hereto, and except for customary adjustments as a result ofstock dividends, stock splits, combinations of shares, reorganizations, recapitalizations,reclassifications or other similar events, there are no anti-dilution or priceadjustment provisions contained in any security issued by the Company (or inany agreement providing rights to security holders) and the issuance and saleof the Securities will not obligate the Company to issue shares of Common Stockor other securities to any Person (other than the Investor) and will not resultin 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 Reportsand any Schedules 13D or 13G filed with the SEC pursuant to Rule 13d-1 ofthe Exchange Act by reporting persons or in Schedule 3.1(f) hereto,no Person or group of related Persons beneficially owns (as determined pursuantto Rule 13d-3 under the Exchange Act), or has the right to acquire, byagreement with or by obligation binding upon the Company, beneficial ownershipof in excess of 5% of the outstanding Common Stock.

 

(g)                           SECReports; Financial Statements. Except as set forth on Schedule 3.1(g), the Company has filed allreports required to be filed by it under the Exchange Act, including pursuantto Section 13(a) or 15(d) thereof, for the 12 months preceding thedate hereof on a timely basis or has received a valid extension of such time offiling and has filed any such SEC Reports prior to the expiration of any suchextension.  Such reports required to befiled by the Company under the Exchange Act, including pursuant to Section 13(a) or15(d) thereof, together with any materials filed or furnished by theCompany under the Exchange Act, whether or not any such reports were requiredbeing 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 filingprior to the Closing Date, then on the date of such filing), the SEC Reportsfiled by the Company complied in all material respects with the requirements ofthe Securities Act and the Exchange Act and the rules and regulations ofthe SEC promulgated thereunder, and none of the SEC Reports, when filed (or, ifamended or superseded by a filing prior to the Closing Date, then on the dateof such filing) by the Company, contained any untrue statement of a materialfact or omitted to state a material fact required to be stated therein ornecessary in order to make the statements therein, in the light of the circumstancesunder which they were made, not misleading. The financial statements of the Company included in the SEC Reportscomply in all material respects with applicable accounting requirements and therules and regulations of the SEC with respect thereto as in effect at thetime of filing (or, if amended or 

 

7

----

 

supersededby a filing prior to the Closing Date, then on the date of such filing).  Such financial statements have been preparedin accordance with United States generally accepted accounting principlesapplied on a consistent basis during the periods involved (“**GAAP**”), except as may be otherwisespecified in such financial statements and the notes thereto, and except thatunaudited financial statements may not contain all footnotes required by GAAPor may be condensed or summary statements, and fairly present in all materialrespects the consolidated financial position of the Company and itsconsolidated Subsidiaries as of and for the dates thereof and the results ofoperations and cash flows for the periods then ended, subject, in the case ofunaudited statements, to normal, year-end audit adjustments.  All material agreements to which the Companyor any Subsidiary is a party or to which the property or assets of the Companyor any Subsidiary are subject are included as part of or identified in the SECReports, to the extent such agreements are required to be included oridentified pursuant to the rules and regulations of the SEC.

 

(h)           Material Changes;Undisclosed Events, Liabilities or Developments; Solvency.   Since the date of the latest auditedfinancial statements included within the SEC Reports, except as disclosed inthe SEC Reports or in Schedule 3.1(h) hereto, (i) there hasbeen no event, occurrence or development that, individually or in theaggregate, 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 ofbusiness consistent with past practice and (B) liabilities not required tobe reflected in the Company’s financial statements pursuant to GAAP or notrequired to be disclosed in filings made with the SEC, (iii) the Companyhas not altered its method of accounting or changed its auditors, except asdisclosed in its SEC Reports, (iv) the Company has not declared or madeany dividend or distribution of cash or other property to its stockholders, intheir capacities as such, or purchased, redeemed or made any agreements topurchase or redeem any shares of its capital stock, except as disclosed in itsSEC Reports, and (v) the Company has not issued any equity securities toany officer, director or Affiliate, except pursuant to existing Company stock-basedplans.  The Company has not taken anysteps to seek protection pursuant to any bankruptcy law nor does the Companyhave any knowledge or reason to believe that its creditors intend to initiateinvoluntary bankruptcy proceedings or any actual knowledge of any fact thatwould reasonably lead a creditor to do so. The Company is not as of the date hereof, and after giving effect to thetransactions contemplated hereby to occur at the Closing will not be Insolvent(as defined below).  For purposes of thisSection 3.1(h), **“Insolvent”**means (i) the present fair saleable value of the Company’s assets is lessthan the amount required to pay the Company’s total Indebtedness (as defined inSection 3.1(x)), (ii) the Company is unable to pay its debtsand liabilities, subordinated, contingent or otherwise, as such debts andliabilities become absolute and matured, (iii) the Company intends toincur or believes that it will incur debts that would be beyond its ability topay as such debts mature, or (iv) the Company has unreasonably smallcapital with which to conduct the business in which it is engaged as suchbusiness is now conducted and is proposed to be conducted.

 

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

 

8

----

 

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

 

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

 

(l)            No GeneralSolicitation; Placement Agent’s Fees. Neither the Company, nor any of its Affiliates, nor any Person acting onits or their behalf, has engaged in any form of general solicitation or generaladvertising (within the meaning of Regulation D) in connection with theoffer or sale of the Securities.  TheCompany shall be responsible for the payment of any placement agent’s fees,financial advisory fees, or brokers’ commission (other than for persons engagedby the Investor or its investment advisor) relating to or arising out of theissuance of the Securities pursuant to this Agreement.  The Company shall pay, and hold the Investorharmless against, any liability, loss or expense (including, withoutlimitation, reasonable attorney’s fees and out-of-pocket expenses) arising inconnection with any such claim for fees arising out of the issuance of theSecurities pursuant to this Agreement.

 

(m)            Private Placement; Investment Company.  Neither the Company nor any of its Affiliatesnor, any Person acting on the Company’s behalf has, directly or indirectly, atany time within the past six months, made any offer or sale of any security orsolicitation of any offer to buy any security under circumstances that would(i) eliminate the availability of the exemption from registration underRegulation D under the Securities Act in connection with the offer andsale by the Company of the Securities as contemplated hereby or (ii) causethe offering of the Securities pursuant to the Transaction Documents to beintegrated with prior offerings by the Company for purposes of any applicablelaw, regulation or stockholder approval provisions, including, withoutlimitation, under the rules and regulations of any Trading Market.  Assuming the accuracy of the representationsand warranties of the Investor set forth in Section 3.2, noregistration under the Securities Act is required for the offer and sale of theSecurities by the Company to the Investor as contemplated hereby. The sale andissuance of the Securities hereunder does not contravene the rules andregulations of any Trading Market on which the Common Stock is listed orquoted.  The Company is not required tobe registered as, and is not an Affiliate of, an “investment company” withinthe meaning of the Investment Company Act of 1940, as amended.

 

(n)           Listing andMaintenance Requirements.  TheCompany 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 hasbeen listed or quoted to the effect that the Company is not in 

 

9

----

 

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

 

(o)           RegistrationRights.  Except as described in Schedule3.1(o), the Company has not granted or agreed to grant to any Person anyrights (including “piggy-back” registration rights) to have any securities ofthe Company registered with the SEC or any other governmental authority thathave not expired or been satisfied or waived.

 

(p)           Application ofTakeover Protections.  The Companyand its Board of Directors have taken all necessary action, if any, to renderinapplicable any control share acquisition, business combination, poison pill(including any distribution under a rights agreement) or other similaranti-takeover provision under the Company’s charter documents or the laws ofits state of incorporation that is or could become applicable to the Investoras a result of the Investor and the Company fulfilling their obligations orexercising their rights under the Transaction Documents, including, withoutlimitation, as a result of the Company’s issuance of the Securities and theInvestor’s ownership of the Securities. The Company’s charter documents prohibit any Person from acquiring fivepercent (5%) or more of the Common Stock.

 

(q)           AcknowledgmentRegarding Investors’ Purchase of Securities.  Based upon the assumption that thetransactions contemplated by this Agreement are consummated in all materialrespects in conformity with the Transaction Documents, the Company acknowledgesand agrees that the Investor is acting solely in the capacity of an arm’slength purchaser with respect to the Transaction Documents and the transactionscontemplated hereby and thereby.  TheCompany further acknowledges that the Investor is not acting as a financialadvisor or fiduciary of the Company (or in any similar capacity) with respect tothis Agreement and the transactions contemplated hereby and any advice given bythe Investor or any of its representatives or agents in connection with theTransaction Documents and the transactions contemplated hereby and thereby ismerely incidental to the Investor’s purchase of the Securities.  The Company further represents to theInvestor that the Company’s decision to enter into this Agreement has beenbased solely on the independent evaluation of the transactions contemplatedhereby by the Company and its advisors and representatives.

 

(r)            Insurance.  The Company is insured by insurers ofrecognized financial responsibility against such losses and risks and in suchamounts as are prudent and customary in the businesses and locations in whichthe Company is engaged.

 

(s)            RegulatoryPermits.  The Company possesses allmaterial certificates, authorizations and permits issued by the appropriatefederal, state, local or foreign regulatory authorities necessary to conductbusiness as presently conducted and described in the SEC Reports (“**Material Permits”**) and the Company has notreceived any written notice of proceedings relating to the revocation ormodification of any Material Permit.

 

(t)            TransactionsWith Affiliates and Employees. Except as set forth or incorporated by reference in the Company’s SECReports, none of the officers, directors or employees of the Company ispresently a party to any transaction with the Company that would be 

 

10

----

 

requiredto be reported on Form 10-K by Item 13 thereof pursuant to Regulation S-KItem 404(a) (other than for ordinary course services as employees,officers or directors), including any contract, agreement or other arrangementproviding for the furnishing of services to or by, providing for rental of realor personal property to or from, or otherwise requiring payments to or from anysuch officer, director or employee or, to the Company’s knowledge, anycorporation, 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)           InternalAccounting Controls.  The Companymaintains a system of internal accounting controls sufficient to providereasonable assurance that (i) transactions are executed in accordance withmanagement’s general or specific authorizations, (ii) transactions arerecorded as necessary to permit preparation of financial statements inconformity with generally accepted accounting principles and to maintain assetaccountability, (iii) access to assets is permitted only in accordancewith management’s general or specific authorization, and (iv) the recordedaccountability for assets is compared with the existing assets at reasonableintervals and appropriate action is taken with respect to any differences.

 

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

 

(w)          Foreign CorruptPractices.  The Company, nor to theknowledge of the Company, any director, officer, agent, employee or otherPerson 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 unlawfulcontribution, gift, entertainment or other unlawful expenses relating topolitical activity; (ii) made any direct or indirect unlawful payment toany foreign or domestic government official or employee or to any foreign ordomestic political parties or campaigns from corporate funds; (iii) violatedor is in violation in any material respect of any provision of the U.S. ForeignCorrupt Practices Act of 1977, as amended; or (iv) made any unlawfulbribe, rebate, payoff, influence payment, kickback or other unlawful payment toany foreign or domestic government official or employee.

 

(x)           Indebtedness.  Except as disclosed in the SEC Reports or inSchedule 3.1(h), the Company (i) does not have any outstandingIndebtedness (as defined below), (ii) is not in violation of any term ofor is in default under any material contract, agreement or instrument relatingto any Indebtedness, and (iii) is not a party to any contract, agreementor instrument relating to any Indebtedness, the performance of which, in thejudgment of the Company’s officers, has or is expected to have a MaterialAdverse Effect.    For purposes of thisAgreement:  (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) allreimbursement or payment obligations with respect to letters of credit, suretybonds and other similar instruments, (D) all obligations evidenced bynotes, bonds, debentures or similar instruments, including obligations soevidenced incurred in connection with the acquisition of property, assets orbusinesses, (E) all indebtedness created or arising under any conditionalsale or other title retention agreement, or incurred as financing, in eithercase with respect to any property or assets acquired with the proceeds 

 

11

----

 

ofsuch indebtedness (even though the rights and remedies of the seller or bankunder such agreement in the event of default are limited to repossession orsale of such property), (F) all monetary obligations under any leasing orsimilar arrangement which, in connection with generally accepted accountingprinciples, consistently applied for the periods covered thereby, is classifiedas 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 anexisting right, contingent or otherwise, to be secured by) any mortgage, lien,pledge, charge, security interest or other encumbrance upon or in any propertyor assets (including accounts and contract rights) owned by any Person, eventhough the Person which owns such assets or property has not assumed or becomeliable for the payment of such indebtedness, and (H) all ContingentObligations in respect of indebtedness or obligations of others of the kindsreferred to in clauses (A) through (G) above; (y) **“Contingent Obligation”** means, as to any Person, any director indirect liability, contingent or otherwise, of that Person with respect toany indebtedness, lease, dividend or other obligation of another Person if theprimary purpose or intent of the Person incurring such liability, or theprimary effect thereof, is to provide assurance to the obligee of suchliability that such liability will be paid or discharged, or that anyagreements relating thereto will be complied with, or that the holders of suchliability will be protected (in whole or in part) against loss with respectthereto; and (z) **“Person”** meansan individual, a limited liability company, a partnership, a joint venture, acorporation, a trust, an unincorporated organization, a government or anydepartment or agency thereof and any other legal entity.

 

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

 

3.2          Representationsand Warranties of the Investor.  TheInvestor hereby represents and warrants to the Company as follows:

 

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

 

12

----

 

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

 

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

 

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

 

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

 

(f)            Access toInformation.  The Investoracknowledges that it has reviewed the Disclosure Materials and has beenafforded:  (i) the opportunity toask such questions as it has deemed necessary of, and to receive answers from,representatives of the Company concerning the terms and conditions of theoffering of the Securities and the merits and risks of investing in theSecurities; (ii) access to information (other than material nonpublicinformation) about the Company and its financial condition, results ofoperations, business, properties, management and prospects sufficient to enableit to evaluate its investment; (iii) has been provided, subject to aconfidentiality agreement, a copy of the Reducing Note Facility Agreement to beentered into among Bank of Scotland, plc, as agent, collateral agent andlender, BoS (USA), Inc., as lender, FirstCity Commercial Corporation andFH Partners, LLC, as borrowers, and FLBG Corporation, as guarantor, of evendate with this Agreement, and the Limited Guaranty Agreement executed byCompany in favor of Bank of Scotland, plc, as agent for the benefit of thelenders, also of even date with this Agreement (the **“PriorDisclosure”**); and (iv) the opportunity to obtain suchadditional information 

 

13

----

 

thatthe Company possesses or can acquire without unreasonable effort or expensethat is necessary to make an informed investment decision with respect to theinvestment.  Neither such inquiries norany other investigation conducted by or on behalf of the Investor or itsrepresentatives or counsel shall modify, amend or affect the Investor’s rightto rely on the truth, accuracy and completeness of the Disclosure Materials andthe Company’s representations and warranties contained in the TransactionDocuments.  The Investor acknowledgesreceipt of copies of the SEC Reports and the Prior Disclosure.

 

(g)           No GovernmentalReview.  The Investor understandsthat no United States federal or state agency or any other government orgovernmental agency has passed on or made any recommendation or endorsement ofthe Securities or the fairness or suitability of the investment in theSecurities nor have such authorities passed upon or endorsed the merits of theoffering of the Securities.

 

(h)           No Conflicts.  The execution, delivery and performance bythe Investor of this Agreement and the consummation by the Investor of thetransactions contemplated hereby will not (i) result in a violation of theorganizational documents of the Investor or (ii) conflict with, orconstitute a default (or an event which with notice or lapse of time or bothwould become a default) under, or give to others any rights of termination,amendment, acceleration or cancellation of, any agreement, indenture orinstrument to which the Investor is a party, or (iii) result in aviolation of any law, rule, regulation, order, judgment or decree (includingfederal and state securities laws) applicable to the Investor, except in thecase of clauses (ii) and (iii) above, for such that are not materialand do not otherwise affect the ability of the Investor to consummate thetransactions contemplated hereby.

 

(i)            ProhibitedTransactions; Confidentiality. Neither the Investor, directly or indirectly, nor any Person acting onbehalf of or pursuant to any understanding with the Investor, has engaged inany 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 wasfirst contacted by the Company or any other Person regarding an investment inthe Company.  The Investor covenants thatneither it nor any Person acting on its behalf or pursuant to any understandingwith the Investor will engage, directly or indirectly, in any Transactions inthe securities of the Company (including Short Sales) prior to the time thetransactions contemplated by this Agreement are publicly disclosed.  **“Short Sales”**include, without limitation, all “short sales” as defined in Rule 200promulgated under Regulation SHO under the Exchange Act and all types of directand indirect stock pledges, forward sale contracts, options, puts, calls, shortsales, swaps, derivatives and similar arrangements (including on a total returnbasis), and sales and other transactions through non-U.S. broker-dealers orforeign regulated brokers.

 

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

 

14

----

 

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

 

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

 

ARTICLE IVOTHER AGREEMENTS OF THE PARTIES

 

4.1          TransferRestrictions.

 

(a)           The Investorcovenants that the Securities will only be disposed of pursuant to an effectiveregistration statement under, and in compliance with the requirements of, theSecurities Act or pursuant to an available exemption from the registrationrequirements of the Securities Act, and in compliance with any applicable statesecurities laws.  In connection with anytransfer of Securities other than pursuant to an effective registrationstatement or to the Company, or pursuant to Rule 144 of the SecuritiesAct, the Company may require the transferor to provide to the Company anopinion of counsel selected by the transferor, the form and substance of whichopinion shall be reasonably satisfactory to the Company, to the effect thatsuch transfer does not require registration under the Securities Act.  Notwithstanding the foregoing, the Companyhereby consents to and agrees to register on the books of the Company and withits Transfer Agent, without any such legal opinion, except to the extent thatthe Transfer Agent requests such legal opinion, any transfer of Securities by theInvestor to an Affiliate of the Investor, provided that the transfereecertifies to the Company that it is an “accredited investor” as defined in Rule 501(a) underthe Securities Act and provided that such Affiliate does not request anyremoval of any existing legends on any certificate evidencing the Securities.

 

(b)           The Investor agreesto 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 NOTBEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIESCOMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDERTHE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANYAPPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED ORSOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THESECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTIONNOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND INCOMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS.

 

15

----

 

Certificates evidencing theSecurities shall not be required to contain such legend or any other legend (i) whilea registration statement covering the resale of the Securities is effectiveunder the Securities Act, (ii) when any Securities are eligible for salepursuant to Rule 144 of the Securities Act, or (iii) if the holderprovides the Company with a legal opinion (and the documents upon which thelegal opinion is based) reasonably acceptable to the Company to the effect thatthe legend is not required under applicable requirements of the Securities Act(including controlling judicial interpretations and pronouncements issued bythe staff of the SEC).

 

4.2          Furnishingof Information.  Until the date thatthe Investor may sell all of the Securities under Rule 144 of theSecurities Act (or any successor provision), the Company covenants to use itscommercially reasonable efforts to timely file (or obtain extensions in respectthereof and file within the applicable grace period) all reports required to befiled by the Company after the date hereof pursuant to the Exchange Act.

 

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

 

4.4          Reservationof Securities.  The Company shallmaintain a reserve from its duly authorized shares of Common Stock for issuancepursuant to the Transaction Documents in such amount as may be required tofulfill its obligations to issue such Securities under the TransactionDocuments.  In the event that at any timethe then authorized shares of Common Stock are insufficient for the Company tosatisfy its obligations to issue such Securities under the TransactionDocuments, the Company shall promptly take such actions as may be required toincrease the number of authorized shares.

 

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

 

ARTICLE VREGISTRATION RIGHTS

 

5.1          PiggybackRegistration.

 

(a)           If at any time theCompany shall determine to prepare and file with the SEC a registrationstatement relating to an offering for its own account or the account of othersunder the 

 

16

----

 

SecuritiesAct 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 relatingto equity securities to be issued solely in connection with any acquisition ofany entity or business or equity securities issuable in connection with stockoption or other employee benefit plans, and the Investor is not then eligibleto sell all of its Registrable Securities under Rule 144 of the SecuritiesAct, the Company shall send to the Investor written notice of suchdetermination and, if within ten (10) days after receipt of such notice,the Investor shall so request in writing (which request shall specify theRegistrable Securities intended to be disposed of by the Investor), the Companywill cause the registration under the Securities Act of all RegistrableSecurities which the Company has been so requested to register by the Investor,to the extent required to permit the disposition of the Registrable Securitiesso to be registered (a “**Piggyback Registration**”),provided that if at any time after giving written notice of its intention toregister any securities and prior to the effective date of the registrationstatement filed in connection with such registration, the Company shalldetermine for any reason not to register or to delay registration of all ofsuch securities, the Company may, at its election, give written notice of suchdetermination to the Investor and, thereupon, (i) in the case of adetermination not to register, shall be relieved of its obligation to registerany Registrable Securities in connection with such registration (but not fromits obligation to pay expenses in accordance with the terms hereof), and (ii) inthe case of a determination to delay registering, shall be permitted to delayregistering any Registrable Securities being registered pursuant to this Section 5.1for the same period as the delay in registering such other securities.

 

(b)           In the case of anunderwritten public offering, if the managing underwriter(s) orunderwriter(s) should object to the inclusion of the RegistrableSecurities in such registration statement, then if the Company afterconsultation with the managing underwriter should reasonably determine that theinclusion of such Registrable Securities would materially adversely affect theoffering contemplated in such registration statement, and based on suchdetermination recommends inclusion in such registration statement of fewer or noneof the Registrable Securities of the Investor, then (x) the number ofRegistrable Securities of the Investor included in such registration statementshall be reduced if the Company after consultation with the underwriter(s) recommendsthe inclusion of fewer Registrable Securities, or (y) none of theRegistrable Securities of the Investor shall be included in such registrationstatement if the Company after consultation with the underwriter(s) recommendsthe inclusion of none of such Registrable Securities; *provided,however*, that if securities are being offered for the account ofother persons or entities as well as the Company, such reduction shall notrepresent a greater fraction of the number of Registrable Securities intendedto be offered by the Investor than the fraction of similar reductions imposedon such other persons or entities (other than the Company).

 

(c)           Notwithstanding theregistration obligations set forth in this Section 5.1, in theevent the SEC informs the Company that all of the Registrable Securities thenoutstanding cannot, as a result of the application of Rule 415 of theSecurities Act, be registered for resale as a secondary offering on a singleregistration statement, the Company agrees to promptly (a) inform theInvestor thereof and use its commercially reasonable efforts to file amendmentsto the initial registration statement as required by the SEC and/or (b) withdrawthe initial registration statement and file a new registration statement, ineither case covering the maximum number of Registrable Securities permitted tobe registered by the SEC, on Form S-3, Form S-1 or such other formavailable to the Company to register for resale the Registrable Securities as asecondary offering; provided, that prior 

 

17

----

 

tofiling such amendment or new registration statement, the Company shall beobligated to use its commercially reasonable efforts to advocate with the SECfor the registration of all of the Registrable Securities in accordance withthe SEC guidance, including without limitation, Compliance and DisclosureInterpretation 612.09.  Notwithstandingany other provision of this Agreement, if any SEC guidance sets forth alimitation of the number of Registrable Securities or other shares of CommonStock permitted to be registered on a particular Registration Statement as asecondary offering (and notwithstanding that the Company used diligent effortsto advocate with the SEC for the registration of all or a greater number ofRegistrable Securities), the number of Registrable Securities or other sharesof Common Stock to be registered on such registration statement will be reducedon a pro rata basis. In the event the Company amends the initial registrationstatement or files a new registration statement, as the case may be, underclauses (a) or (b) above, the Company will use its commerciallyreasonable efforts to file with the SEC, as promptly as allowed by SEC or SECguidance provided to the Company or to registrants of securities in general,one or more registration statements on Form S-3, Form S-1 or suchother form available to the Company to register for resale those RegistrableSecurities that were not registered for resale on the initial registrationstatement, as amended, or the new registration statement.

 

5.2          RegistrationExpenses.  The Company shall pay allfees and expenses incident to the performance of or compliance withArticle V of this Agreement by the Company, including without limitation(a) all registration and filing fees and expenses, including withoutlimitation those related to filings with the SEC, any Trading Market and inconnection with applicable state securities or Blue Sky laws, (b) printingexpenses (including without limitation expenses of printing certificates forRegistrable Securities), (c) messenger, telephone and delivery expenses,(d) fees and disbursements of counsel for the Company, (e) fees andexpenses of all other Persons retained by the Company in connection with theconsummation 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)           Indemnificationby the Company.  The Company shall,notwithstanding any termination of this Agreement, indemnify and hold harmlessthe Investor, and its Affiliates and each of their respective officers,directors, partners, employees and agents, and each Person who controls theInvestor within the meaning of the Exchange Act and the rules andregulations promulgated thereunder, to the fullest extent permitted byapplicable law, from and against any and all Losses, as incurred, arising outof or relating to (i) any misrepresentation or breach of anyrepresentation or warranty made by the Company in the Transaction Documents orany other certificate, instrument or document contemplated hereby or thereby, (ii) anybreach of any covenant, agreement or obligation of the Company contained in theTransaction Documents or any other certificate, instrument or documentcontemplated hereby or thereby, (iii) any cause of action, suit or claimbrought 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, warrantiesor covenants under the Transaction Documents or any conduct by the Investorthat constitutes fraud, gross negligence or willful misconduct) or (iv) anyuntrue or alleged untrue statement of a material fact contained in aregistration statement or prospectus filed by the Company pursuant to Section 5.1or in any amendment or supplement thereto or in any Company preliminaryprospectus, or arising 

 

18

----

 

outof or relating to any omission or alleged omission of a material fact requiredto be stated therein or necessary to make the statements therein, in the lightof the circumstances under which they were made, not misleading, except to theextent, but only to the extent, that (A) such untrue statements, allegeduntrue statements, omissions or alleged omissions are based solely uponinformation regarding the Investor furnished in writing to the Company by theInvestor for use therein, or to the extent that such information relates to theInvestor or the Investor’s proposed method of distribution of RegistrableSecurities and was reviewed and expressly approved by the Investor in writingexpressly for use in the registration statement, or (B) with respect toany prospectus, if the untrue statement or omission of material fact containedin such prospectus was corrected on a timely basis in the prospectus, as thenamended or supplemented, if such corrected prospectus was timely made availableby the Company to the Investor, and the Investor seeking indemnity hereunderwas advised in writing not to use the incorrect prospectus prior to the usegiving rise to Losses.

 

(b)           Indemnificationby the Investor.  The Investor shallindemnify and hold harmless the Company and its Affiliates and each of theirrespective officers, directors, partners, employees and agents, and each Personwho controls the Company within the meaning of the Exchange Act and the rules andregulations promulgated thereunder, to the fullest extent permitted byapplicable law, from and against all Losses (as determined by a court ofcompetent jurisdiction in a final judgment not subject to appeal or review)arising solely out of any untrue statement of a material fact contained in anyregistration statement, any prospectus, or in any amendment or supplementthereto, or arising out of or relating to any omission of a material factrequired to be stated therein or necessary to make the statements therein, inthe light of the circumstances under which they were made, not misleading, butonly to the extent that (i) such untrue statements or omissions are basedsolely upon information regarding the Investor furnished to the Company by theInvestor in writing expressly for use therein, or to the extent that suchinformation relates to the Investor or the Investor’s proposed method ofdistribution of Registrable Securities and was reviewed and expressly approvedin writing by the Investor expressly for use in the registration statement (itbeing understood that the information provided by the Investor to the Companyin ExhibitsA-1, A-2 and A-3 and the Plan ofDistribution set forth on Exhibit C, as the same may be modified bythe Investor and other information provided by the Investor to the Company inor pursuant to the Transaction Documents constitutes information reviewed andexpressly approved by the Investor in writing expressly for use in theregistration statement), such prospectus or in any amendment or supplementthereto.  In no event shall the liabilityof the Investor hereunder be greater in amount than the dollar amount of thenet proceeds received by the Investor upon the sale of the Registrable Securitiesgiving rise to such indemnification obligation.

 

(c)           Conduct ofIndemnification Proceedings.  If anyProceeding shall be brought or asserted against any Person entitled toindemnity hereunder (an “**Indemnified Party**”),such Indemnified Party shall promptly notify the Person from whom indemnity issought (the “**Indemnifying Party**”)in writing, and the Indemnifying Party shall assume the defense thereof,including the employment of counsel reasonably satisfactory to the IndemnifiedParty and the payment of all fees and expenses incurred in connection withdefense thereof; provided, that the failure of any Indemnified Party to givesuch notice shall not relieve the Indemnifying Party of its obligations orliabilities pursuant to this Agreement, except (and only) to the extent that itshall be finally determined by a court of competent jurisdiction (whichdetermination is not subject to appeal 

 

19

----

 

orfurther review) that such failure shall have proximately and materiallyadversely prejudiced the Indemnifying Party.

 

An Indemnified Party shallhave the right to employ separate counsel in any such Proceeding and toparticipate in the defense thereof, but the fees and expenses of such counselshall be at the expense of such Indemnified Party or Parties unless:  (i) the Indemnifying Party has agreed inwriting to pay such fees and expenses; or (ii) the Indemnifying Partyshall have failed promptly to assume the defense of such Proceeding and toemploy counsel reasonably satisfactory to such Indemnified Party in any suchProceeding; or (iii) the named parties to any such Proceeding (includingany impleaded parties) include both such Indemnified Party and the IndemnifyingParty, and such Indemnified Party shall have been advised by counsel that a conflictof interest is likely to exist if the same counsel were to represent suchIndemnified Party and the Indemnifying Party (in which case, if suchIndemnified Party notifies the Indemnifying Party in writing that it elects toemploy separate counsel at the expense of the Indemnifying Party, theIndemnifying Party shall not have the right to assume the defense thereof andthe reasonable fees and expenses of separate counsel shall be at the expense ofthe Indemnifying Party).  It shall beunderstood, however, that the Indemnifying Party shall not, in connection withany one such Proceeding (including separate Proceedings that have been or willbe consolidated before a single judge) be liable for the fees and expenses ofmore than one separate firm of attorneys at any time for all IndemnifiedParties, which firm shall be appointed by a majority of the IndemnifiedParties.  The Indemnifying Party shallnot be liable for any settlement of any such Proceeding effected without its writtenconsent, which consent shall not be unreasonably withheld.  No Indemnifying Party shall, without theprior written consent of the Indemnified Party, effect any settlement of anypending Proceeding in respect of which any Indemnified Party is a party, unlesssuch settlement includes an unconditional release of such Indemnified Partyfrom all liability on claims that are the subject matter of such Proceeding.

 

All reasonable fees andexpenses of the Indemnified Party (including reasonable fees and expenses tothe extent incurred in connection with investigating or preparing to defendsuch Proceeding in a manner not inconsistent with this Section) shall be paidto the Indemnified Party, as incurred, within 20 Trading Days of written noticethereof to the Indemnifying Party (regardless of whether it is ultimatelydetermined that an Indemnified Party is not entitled to indemnificationhereunder; provided, that the Indemnifying Party may require such IndemnifiedParty to undertake to reimburse all such fees and expenses to the extent it isfinally judicially determined that such Indemnified Party is not entitled toindemnification hereunder).

 

(d)           Contribution.  If a claim for indemnification under Section 5.3(a) or (b) isunavailable 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 aresult of such Losses, in such proportion as is appropriate to reflect therelative fault of the Indemnifying Party and Indemnified Party in connectionwith the actions, statements or omissions that resulted in such Losses as wellas any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shallbe determined by reference to, among other things, whether any action inquestion, including any untrue or alleged untrue statement of a material factor omission or alleged omission of a material fact, has been taken or made by,or relates to information supplied by, such Indemnifying Party or IndemnifiedParty, and the parties’ relative intent, knowledge, access to 

 

20

----

 

informationand opportunity to correct or prevent such action, statement or omission.  The amount paid or payable by a party as aresult of any Losses shall be deemed to include, subject to the limitations setforth in Section 5.3(c), any reasonable attorneys’ or otherreasonable fees or expenses incurred by such party in connection with anyProceeding to the extent such party would have been indemnified for such feesor expenses if the indemnification provided for in this Section wasavailable to such party in accordance with its terms.

 

The parties hereto agreethat it would not be just and equitable if contribution pursuant to this Section 5.3(d) weredetermined by pro rata allocation or by any other method of allocation thatdoes not take into account the equitable considerations referred to in theimmediately preceding paragraph.  Notwithstandingthe provisions of this Section 5.3(d), the Investor shall not berequired to contribute, in the aggregate, any amount in excess of the amount bywhich the net proceeds actually received by the Investor from the sale of theRegistrable Securities subject to the Proceeding exceed the amount of anydamages that the Investor has otherwise been required to pay by reason of suchuntrue or alleged untrue statement or omission or alleged omission.  No Person guilty of fraudulentmisrepresentation (within the meaning of Section 11(f) of theSecurities Act) shall be entitled to contribution from any Person who was notguilty of such fraudulent misrepresentation.

 

The indemnity andcontribution agreements contained in this Section are in addition to anyliability that the Indemnifying Parties may have to the Indemnified Parties.

 

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

 

ARTICLE VIMISCELLANEOUS

 

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

 

6.2          Feesand Expenses.  Except as expresslyset forth in the Transaction Documents to the contrary, each party shall paythe fees and expenses of its advisers, counsel, accountants and other experts,if any, and all other expenses incurred by such party incident to thenegotiation, preparation, execution, delivery and performance of thisAgreement.  The Company shall pay allTransfer Agent fees, stamp taxes and other taxes and duties levied inconnection with the sale and issuance of the applicable Securities.

 

6.3          EntireAgreement.  The TransactionDocuments, together with the Exhibits and Schedules thereto, contain the entireunderstanding of the parties with respect to the subject matter hereof andsupersede all prior agreements and understandings, oral or written, withrespect to such matters, which the parties acknowledge have been merged intosuch documents, exhibits and schedules. At or after the Closing, and without further consideration, the Companywill execute 

 

21

----

 

anddeliver to the Investor such further documents as may be reasonably requestedin order to give practical effect to the intention of the parties under theTransaction Documents.

 

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

 

·                                          If to theInvestor:

 

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

 

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

 

Andrew P. LeeLeonard, Street and DeinardProfessional Association150 S. Fifth StreetMinneapolis, MN  55402 Telephone No.: 612-335-1881Fax No.: 612-335-1657E-Mail Address: andrew.lee@Leonard.com

 

 

·                                          If to theCompany:

 

FirstCity FinancialCorporation6400 Imperial Drive (Delivery only)Waco, TX 76714-8216P.O. Box 8216 (mail)

 

22

----

 

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

 

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

 

BrianD. BarnardHaynes and Boone, LLP201 Main Street, Suite 2200Fort Worth, Texas 76102Telephone No.: 817-347-6605Fax No.: 817-348-2303E-Mail Address: brian.barnard@haynesboone.com

 

6.5          Amendments;Waivers.  No provision of thisAgreement may be waived or amended except in a written instrument signed, inthe case of an amendment, by the Company and the Investor or, in the case of awaiver, by the party against whom enforcement of any such waiver issought.  No waiver of any default withrespect to any provision, condition or requirement of this Agreement shall bedeemed to be a continuing waiver in the future or a waiver of any subsequentdefault 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 inany 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 oraffect any of the provisions hereof.  Thelanguage used in this Agreement will be deemed to be the language chosen by theparties to express their mutual intent, and no rules of strictconstruction will be applied against any party.

 

6.7          Successorsand Assigns.  This Agreement shall bebinding upon and inure to the benefit of the parties and their successors andpermitted assigns.  The Company may notassign this Agreement or any rights or obligations hereunder without the priorwritten consent of the Investor.  TheInvestor may assign its rights under this Agreement to any Person to whom theInvestor assigns or transfers any Securities, provided (i) such transferoragrees in writing with the transferee or assignee to assign such rights, and acopy of such agreement is furnished to the Company after such assignment, (ii) theCompany is furnished with written notice of (x) the name and address ofsuch transferee or assignee and (y) the Registrable Securities withrespect to which such registration rights are being transferred or assigned, (iii) followingsuch transfer or assignment, the further disposition of such securities by thetransferee or assignee is restricted under the Securities Act and applicablestate securities laws, (iv) such transferee agrees in writing to be bound,with respect to the transferred Securities, by the provisions hereof that applyto the “Investor” and (v) such transfer shall have been made in accordancewith the applicable requirements of this Agreement and with all laws applicablethereto.

 

23

----

 

6.8                               No Third-Party Beneficiaries.  This Agreement is intended for the benefit ofthe parties hereto and their respective successors and permitted assigns and isnot for the benefit of, nor may any provision hereof be enforced by, any otherPerson, except that each Indemnified Party is an intended third partybeneficiary of Section 5.3 and (in each case) may enforce theprovisions of such Section directly against the parties with obligationsthereunder.

 

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

 

6.10                        Survival.  Each of the representations and warrantiesset forth in this Agreement shall survive the Closing under this Agreement butonly for a period of twelve (12) months following the Closing Date (or untilfinal resolution of any claim or action arising from the breach of any suchrepresentation and warranty, if notice of such breach was provided prior to theend of such period) and thereafter shall expire and have no further force andeffect; 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) shallsurvive indefinitely and the representations and warranties in Section 3.1(y) shallsurvive until the expiration of the applicable statutory periods oflimitations.  Except as otherwiseprovided herein, all covenants and agreements contained herein shall survivefor the duration of any statutes of limitations applicable thereto or until, bytheir respective terms, they are no longer operative.

 

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

 

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

 

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

 

24

----

 

circumstancesshall also pay any reasonable third-party costs associated with the issuance ofsuch replacement Securities.

 

6.14                              Remedies.  In addition to being entitled to exercise allrights provided herein or granted by law, including recovery of damages, theInvestor and the Company will be entitled to seek specific performance underthe Transaction Documents.  The partiesagree that monetary damages may not be adequate compensation for any lossincurred by reason of any breach of obligations described in the foregoingsentence and hereby agree to waive in any action for specific performance ofany such obligation (other than in connection with any action for a temporaryrestraining order) the defense that a remedy at law would be adequate.

 

SIGNATUREPAGE TO FOLLOW

 

25

----

 

IN WITNESS WHEREOF, theparties hereto have caused this Securities Purchase Agreement to be dulyexecuted by their respective authorized signatories as of the date firstindicated 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:                                                                 |

 

SIGNATUREPAGE

 

----

 

**Exhibit A**

 

**INSTRUCTION SHEET FOR INVESTOR**

 

(tobe read in conjunction with the entire Securities Purchase Agreement)

 

A.                                    Complete thefollowing items in the Securities Purchase Agreement:

 

1.                                      Complete andexecute the Investor Signature Page.  TheAgreement must be executed by an individual authorized to bind the Investor.

 

2.                                      Exhibit A-1- Stock Certificate Questionnaire:

 

Provide the informationrequested by the Stock Certificate Questionnaire;

 

3.                                      Exhibit A-2- Registration Statement Questionnaire:

 

Provide the informationrequested by the Registration Statement Questionnaire.

 

4.                                      Exhibit A-3- Investor Certificate:

 

Provide the informationrequested by the Investor Certificate.

 

5.                                      Return, viafacsimile, the signed Securities Purchase Agreement including the properlycompleted Exhibits A-1 through A-3, to:

 

Facsimile:

Telephone:

Attn:

 

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

 

Address:

 

B.                                    Instructionsregarding the wire transfer of funds for the purchase of the Securities will betelecopied 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 theRegistration Statement, please provide us with the following informationregarding the Investor.

 

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

 

 

Except asset forth below, your organization does not hold any equity securities of theCompany on behalf of another person or entity.

 

State anyexceptions here:

 

 

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

 

 

2.  Address of your organization:

 

 

Telephone: 

 

Fax:  

 

ContactPerson:  

 

3.  Have you or your organization had anyposition, office or other material relationship within the past three yearswith 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 officeor has had any other material relationship with the Company (or itspredecessors or affiliates) during the past three years.)

 

o  Yes                          o  No

 

Ifyes, please indicate the nature of any such relationship below:

 

4.  Are you the beneficial owner of any othersecurities of the Company?  (Include anyequity securities that you beneficially own or have a right to acquire within60 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

 

Ifyes, please describe the nature and amount of such ownership as of a recentdate.

 

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

 

State anyexceptions here:

 

6.  Have you made or are you aware of anyarrangements relating to the distribution of the shares of the Company pursuantto the Registration Statement?

 

o  Yes                          o  No

 

Ifyes, please describe the nature and amount of such arrangements.

 

----

 

7.              FINRA Matters

 

(a)                                 State below whether (i) youor any *associate* or *affiliate* of yours are a *member* of the FINRA, a *controlling* shareholder of a FINRA *member*, a *personassoc*i*ated with a member*,a direct or indirect *affiliate* ofa *member*, or an *underwriter or related person* with respectto the proposed offering; (ii) you or any *associate*or *affiliate* of yours owns anystock 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 subordinatedloans to any FINRA *member*. If youare a general or limited partnership, a no answer asserts that no suchrelationship exists for you as well as for each of your general or limitedpartners.

 

| Yes: |   | No: |   |
|------|--------|-----|--------|
| o    |   | o   |   |

 

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

 

 

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

 

(b)                                 State belowwhether you or any *associate* or *affiliate* of yours has been anunderwriter, or a *controlling*person or member of any investment banking or brokerage firm which has been ormight be an underwriter for securities of the Corporation or any *affiliate* thereof including, but notlimited 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 limitedpartner, the name of the partner.

 

----

 

ACKNOWLEDGEMENT

 

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

 

Theundersigned understands and acknowledges that the Company will rely on theinformation set forth herein for purposes of the preparation and filing of theRegistration Statement.

 

Theundersigned understands that the undersigned may be subject to serious civiland criminal liabilities if the Registration Statement, when it becomeseffective, either contains an untrue statement of a material fact or omits tostate a material fact required to be stated in the Registration Statement ornecessary to make the statements in the Registration Statement notmisleading.  The undersigned representsand warrants that all information it provides to the Company and its counsel iscurrently accurate and complete and will be accurate and complete at the timethe Registration Statement becomes effective and at all times subsequentthereto, and agrees to notify the Company immediately of any misstatement of amaterial fact in the Registration Statement, and of the omission of anymaterial fact necessary to make the statements contained therein notmisleading.

 

 
| Dated: |   |   |                        |
|--------|--------|--------|-----------------------------|
|   |   |   |                        |
|   |   |   |                        |
|   |   |   | Name                        |
|   |   |   |                        |
|   |   |   |                        |
|   |   |   | Signature                   |
|   |   |   |                        |
|   |   |   |                        |
|   |   |   | Name and Title of Signatory |

 

----

 

 

**Exhibit A-3**

 

**FIRSTCITYFINANCIAL CORPORATION**

 

**CERTIFICATE FOR CORPORATE, PARTNERSHIP, LIMITED LIABILITYCOMPANY, TRUST, FOUNDATION AND JOINT INVESTORS**

 

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

 

**CERTIFICATE**

 

The undersigned certifiesthat the representations and responses below are true and accurate:

 

(a)                                 The Investorhas been duly formed and is validly existing and has full power and authorityto invest in the Company.  The personsigning on behalf of the undersigned has the authority to execute and deliverthe Securities Purchase Agreement on behalf of the Investor and to take otheractions with respect thereto.

 

(b)                                 Indicate theform 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 isrevocable by the grantor): 

 

(Continue on a separatepiece of paper, if necessary.)

 

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

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

 

o                                    Other form oforganization (indicate form of organization (

                                                                                                                                                                                                                    ).

 

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

 

----

 

(d)                                 In order forthe Company to offer and sell the Securities in conformance with state andfederal securities laws, the following information must be obtained regardingyour investor status.  Please initialeach category applicable to you as an investor in the Company.

 

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

 

o                                    2.                                      A broker ordealer registered pursuant to Section 15 of the Securities Exchange Act of1934;

 

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

 

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

 

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

 

o                                    6.                                      A planestablished and maintained by a state, its political subdivisions, or anyagency or instrumentality of a state or its political subdivisions, for thebenefit of its employees, if such plan has total assets in excess of$5,000,000;

 

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

 

o                                    8.                                      A privatebusiness development company as defined in Section 202(a)(22) of theInvestment Advisers Act of 1940;

 

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

 

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

 

o                                    11.                               An entity inwhich all of the equity owners qualify under any of the abovesubparagraphs.  If the undersignedbelongs to this investor category only, list the equity owners of theundersigned, and the investor category which each such equity owner satisfies:

 

----

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

 

Please set forth in thespace provided below the (i) states, if any, in the U.S. in which youmaintained your principal office during the past two years and the dates duringwhich you maintained your office in each state, (ii) state(s), if any, inwhich you are incorporated or otherwise organized and (iii) state(s), ifany, 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 C****O****MPANY COUNSEL**

 

----

 

**Exhibit C**

 

**PLAN OF DISTRIBUTION**

 

The selling stockholdersmay, from time to time, sell any or all of their shares of common stock on anystock exchange, market or trading facility on which the shares are traded or inprivate transactions.  These sales may beat fixed or negotiated prices.  Theselling stockholders may use any one or more of the following methods whenselling shares:

 

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

 

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

 

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

 

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

 

·                  privately negotiated transactions;

 

·                  short sales;

 

·                  broker-dealers may agree with the sellingstockholders to sell a specified number of such shares at a stipulated priceper share;

 

·                  a combination of any such methods of sale;and

 

·                  any other method permitted pursuant toapplicable law.

 

The selling stockholders mayalso sell shares under Rule 144 under the Securities Act, if available, ratherthan under this prospectus.

 

Broker-dealers engaged bythe selling stockholders may arrange for other brokers-dealers to participatein sales.  Broker-dealers may receivecommissions or discounts from the selling stockholders (or, if anybroker-dealer acts as agent for the purchaser of shares, from the purchaser) inamounts to be negotiated.  The sellingstockholders do not expect these commissions and discounts to exceed what iscustomary in the types of transactions involved.  Any profits on the resale of shares of commonstock by a broker-dealer acting as principal might be deemed to be underwritingdiscounts or commissions under the Securities Act.  Discounts, concessions, commissions andsimilar selling expenses, if any, attributable to the sale of shares will beborne by a selling stockholder.  Theselling stockholders may agree to indemnify any agent, dealer or broker-dealerthat participates in transactions involving sales of the shares if liabilitiesare imposed on that person under the Securities Act.

 

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

 

----

 

from time to time under thisprospectus after we have filed a supplement to this prospectus under Rule424(b)(3) or other applicable provision of the Securities Act of 1933supplementing or amending the list of selling stockholders to include thepledgee, transferee or other successors in interest as selling stockholdersunder this prospectus.

 

The selling stockholdersalso may transfer the shares of common stock in other circumstances, in whichcase the transferees, pledgees or other successors in interest will be theselling beneficial owners for purposes of this prospectus and may sell theshares of common stock from time to time under this prospectus after we havefiled a supplement to this prospectus under Rule 424(b)(3) or other applicableprovision of the Securities Act of 1933 supplementing or amending the list ofselling stockholders to include the pledgee, transferee or other successors ininterest as selling stockholders under this prospectus.

 

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

 

We are required to pay allfees and expenses incident to the registration of the shares of commonstock.  We have agreed to indemnify theselling stockholders against certain losses, claims, damages and liabilities, includingliabilities under the Securities Act.

 

The selling stockholdershave advised us that they have not entered into any agreements, understandingsor arrangements with any underwriters or broker-dealers regarding the sale oftheir shares of common stock, nor is there an underwriter or coordinatingbroker acting in connection with a proposed sale of shares of common stock byany selling stockholder.  If we arenotified by any selling stockholder that any material arrangement has beenentered into with a broker-dealer for the sale of shares of common stock, ifrequired, we will file a supplement to this prospectus.  If the selling stockholders use thisprospectus for any sale of the shares of common stock, they will be subject tothe prospectus delivery requirements of the Securities Act.

 

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

 

----

 

**Exhibit D**

 

**COMPANY TRANSFER AGENT INSTRUCTIONS**

 

American Stock Transfer& Trust Company

[Address]

Attention:  [              ]

 

Ladies and Gentlemen:

 

Reference is made to that certainSecurities Purchase Agreement, dated as of June      ,2010 (the “**Agreement**”), by and amongFirstCity Financial Corporation, a Delaware corporation (the “**Company**”), and Värde Investment Partners, L.P., a Delawarelimited 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 theconsummation of the transactions contemplated by the Agreement, this lettershall 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 Iattached hereto. The certificates should bear the legend set forth on Annex IIattached hereto and “stop transfer” instructions should be placed against theirsubsequent transfer.  Kindly deliver thecertificates to the respective delivery addresses set forth on Annex I via handdelivery or overnight courier.  Weconfirm that these shares will be validly issued, fully paid and non-assessableupon issuance; and

 

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

 

You acknowledge and agreethat so long as you have previously received (a) written confirmation fromthe Company’s legal counsel that either (i) a registration statementcovering resales of the Common Shares has been declared effective by theSecurities and Exchange Commission (the “**SEC**”)under the Securities Act of 1933, as amended (the “**Securities Act**”), or (ii) the Common Shares areeligible for sale in conformity with Rule 144 under the Securities Act (“**Rule 144**”) and (b) ifapplicable, a copy of such registration statement, then, unless otherwiserequired by law, within three (3) business days of your receipt ofcertificates representing the Common Shares, you shall issue the certificatesrepresenting the Common Shares to the Holder or its transferees, as the casemay be, registered in the names of such Holder or transferees, as the case maybe, and such certificates shall not bear any legend restricting transfer of theCommon Shares thereby and should not be subject to any stop-transferrestriction.  Any certificates tenderedfor transfer shall be endorsed or with stock powers attached, signaturesguaranteed, and otherwise in form necessary to affect transfer.

 

----

 

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

 

Please be advised that theHolder is relying upon this letter as an inducement to enter into the Agreementand, accordingly, the Holder is a third party beneficiary to theseinstructions.

 

Please execute this letterin the space indicated to acknowledge your agreement to act in accordance withthese instructions.  Should you have anyquestions concerning this matter, please contact ourcounsel, Brian D. Barnard at (817) 347-6605.

 
|   | Very truly yours,                    |
|--------|--------------------------------------|
|   |                                 |
|   | **FIRSTCITY  FINANCIAL CORPORATION** |
|   | ** **                           |
|   |                                 |
|   | By:                                  |   |
|   |                                 | Name: |
|   |                                 | Title: |

 

THEFOREGOING INSTRUCTIONS ARE

ACKNOWLEDGEDAND AGREED TO

this        day of                      ,2010

 

 
| **AMERICAN  STOCK TRANSFER & TRUST COMPANY** |
|--------------------------------------------------|
|                                             |   |
|                                             |   |
| By:                                              |   |   |
|                                             | Name: |   |
|                                             | Title: |   |
|                                             |   |   |
| Enclosures                                       |   |

 

----

 

ANNEX I

 

SCHEDULE OF INVESTORS

 

----

 

ANNEX II

 

FORMOF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT

 

American Stock Transfer& Trust Company

[Address]

Attention:  [              ]

 

Re:                             FirstCityFinancial Corporation

 

Ladies and Gentlemen:

 

We are counsel to FirstCityFinancial Corporation, a Delaware corporation (the “**Company**”), and have represented the Company in connectionwith 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., aDelaware limited partnership (the “**Purchaser**”),pursuant to which the Company issued to the Purchaser shares of Common Stock ofthe Company, par value $0.01 per share (the “**CommonShares**”).  Pursuant to theSecurities Purchase Agreement, the Company agreed to register the resale of theCommon Shares (the “**RegistrableSecurities**”) under the Securities Act of 1933, as amended (the “**Securities Act**”). In connectionwith 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 whichnames the Purchaser as a selling shareholder thereunder.

 

In connection with theforegoing, we advise you that a member of the SEC’s staff has advised us bytelephone that the SEC has entered an order declaring the RegistrationStatement 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 anyproceedings for that purpose are pending before, or threatened by, theCommission and the Registrable Securities are available for resale under theSecurities Act pursuant to the Registration Statement.

 

This letter shall serve asour standing notice to you that the Common Shares may be freely transferred bythe Purchaser pursuant to the Registration Statement so long as the Purchasercertifies that it will comply with the plan of distribution description inconnection with sales or transfers of the Common Shares set forth in theRegistration Statement and with the prospectus delivery requirements of theSecurities Act, to the extent such delivery requirement are applicable. Youneed not require further letters from us to effect any future legend-freeissuance or reissuance of shares of the Common Shares to the Purchaser or thetransferees of the Purchaser, as the case may be, as contemplated by theCompany’s Irrevocable Transfer Agent Instructions dated                    .

 

----

 

**Schedule 3.1(f)**

 

**Capitalization**

 

The authorized capital stockof 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 theCompany (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 sharesof treasury stock) and no shares of Preferred Stock outstanding.

 

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

 

----

 

**Schedule 3.1(g)**

 

**SECReports; Financial Statements**

 

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

 

 

2

----

 

**Schedule 3.1(h)**

 

**MaterialChanges; Undisclosed Events, Liabilities or Developments; Solvency.**

 

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

 

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

 

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

 

(c)that certain Subordinated Delayed Draw Credit Agreement dated as of September5, 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 Agreementtogether, the “Existing Credit Agreements”);

 

OnJune 25, 2010, the Company executed a Limited Guaranty Agreement guaranteeingthe payment of up to 75,000,000 plus an amount equal to any lossesincurred by Lenders arising from the failure of the Guarantor to pay federalincome taxes as required in Section 10(q) of the Limited Guaranty Agreementwhich result in a levy or other enforcement proceeding by the United StatesInternal Revenue Servicer that reduces the cash flow from or results in a lossof collateral or security interests or pledges securing the guarantiedobligations (and any expenses of the Collateral Agent and Lenders related todefense 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”) fromtime to time party to the Reducing Note Facility Agreement referred to below.

 

3

----

 

**Schedule 3.1(o)**

 

**RegistrationRights**

 

**None**

 

----