RIGHT OF FIRST REFUSAL AGREEMENT AND DUE DILIGENCE REIMBURSEMENT AGREEMENT

EXHIBIT 10.1

RIGHT OF FIRST REFUSAL AGREEMENT AND
DUE DILIGENCE REIMBURSEMENT AGREEMENT

     THIS RIGHT OF FIRST REFUSAL AGREEMENT (the “Agreement”) is made and entered into this ___ day of January, 1998, to be effective as of the 1st day of January, 1998, by and between FirstCity Financial Corporation, a Delaware corporation (“FCFC”) and FirstCity Servicing Corporation (formerly J-Hawk Servicing Corporation), a Texas corporation (“Servicing”), on the one hand, and Cargill Financial Services Corporation, a Delaware corporation (“CFSC”), and CFSC Capital Corp. II, a Delaware corporation (“CCCII”) on the other hand.

W I T N E S S E T H:

      WHEREAS, Cargill or FirstCity may from time to time receive invitations to bid on or otherwise obtain opportunities to acquire, directly or indirectly, interests in loans, receivables, real estate and other assets (collectively the “Asset Purchase Proposals”) from commercial banks, financial institutions, insurance and finance companies, the Federal Deposit Insurance Corporation, private creditors and noteholders and other sellers (each a “Seller”);

      WHEREAS, the parties intend that FirstCity will offer CFSC, or a CFSC Affiliate, the exclusive right, with respect to all Asset Purchase Proposals received by FirstCity to participate in the proposed purchase or other acquisition in the manner provided herein;

      WHEREAS, FirstCity will cause its subsidiary, Servicing, to conduct due diligence with respect to Asset Purchase Proposals on behalf of FirstCity and Cargill, as provided in this Agreement, in connection with CFSC’s payment to Servicing of the compensation set forth in this Agreement;

      WHEREAS, J-Hawk Corporation, a Texas corporation which was a predecessor to FirstCity and was merged with and into First City Bancorporation of Texas, Inc., a Delaware corporation, on or about July 3, 1995, with FirstCity as the surviving corporation (such J-Hawk Corporation in its position as the predecessor to FirstCity being referred to hereinafter as “Old J-Hawk”), James T. Sartain, Rick R. Hagelstein and James R. Hawkins (collectively the “FirstCity

Principals”) and CFSC entered into an Amended and Restated Right of First Refusal Agreement dated June 9, 1994, as amended, pursuant to which Old J-Hawk and the FirstCity Principals agreed to offer CFSC the exclusive right to participate in Loan Purchase Proposals (as defined therein), the term of which Amended and Restated Right of First Refusal Agreement was originally set to expire on March 31, 1997 (pursuant to its provisions on termination) but was extended to November 30, 1997 and, unless further extended, will expire on November 30, 1997;

      WHEREAS, Old J-Hawk and CFSC entered into a Due Diligence Expense Reimbursement Agreement dated June 9, 1994 (the “DDER Agreement”), pursuant to which Old J-Hawk agreed to conduct certain due diligence in exchange for stated monthly compensation from CFSC, the term of such DDER Agreement being co-terminus with the Amended and Restated Right of First Refusal Agreement (pursuant to its provisions on termination), which DDER Agreement was originally set to expire on March 31, 1997 (pursuant to its provisions on termination), but was extended to November 30, 1997, and, unless further extended, will expire on November 30, 1997;

      WHEREAS, the parties to that Amended and Restated Right of First Refusal Agreement and the DDER Agreement (with the exception of the FirstCity Principals) desire to enter into the following Agreement by and among CFSC, CCCII, FCFC and Servicing, which Agreement terminates, supersedes and replaces the agreements set forth in the DDER Agreement and in the Amended and Restated Right of First Refusal Agreement dated June 9, 1994;

      NOW, THEREFORE, in consideration of the promises and agreements herein contained, CFSC, CCCII, Servicing and FCFC hereby agree as follows:

ARTICLE 1.DEFINITIONS.

As used in this Agreement, the following terms shall have the following meanings:

      “Acquisition” means a transaction in which both of Cargill and FirstCity contribute equity capital (not including a transaction in which a party’s sole contribution is debt financing) to an entity for the purpose of acquiring a direct or indirect interest in assets.

      “Acquisition Price” or “AP” means the gross purchase price payable to the Seller in

connection with any Acquisition or any other acquisition by FirstCity, including but not limited to the actual net purchase price paid to the Seller plus interim cash flows (i.e., cash collected between a cut-off date and the closing) acquired by purchaser whether or not the purchaser receives a credit against the gross purchase price.

      “Adjusted Acquisition Price” or “AAP” means the product of the Acquisition Price multiplied by the applicable Leverage Factor from the schedule of leverage Factors set forth in Section 4.1(b).

      “Affiliate” means any Person of which more than fifty percent (50%) of the total outstanding equity interests of such Person are owned by the Person in question and/or one or more of its Affiliates.

      “Agreement” has the meaning specified in the introduction to this Agreement.

      “Asset Purchase Proposals” has the meaning specified in the first recital of this Agreement.

      “Business Day” means any day (other than a day which is a Saturday, Sunday or legal holiday in the State of Minnesota) on which banks are open for business in Minneapolis, Minnesota, and Waco, Texas.

      “Calfund” means California Community Financial Institutions Fund Limited Partnership, a California limited partnership.

      “Calibat” means Calibat Fund L.L.C., a Minnesota limited liability company which is a limited partner in Calfund.

      “Cargill” means CFSC and its Affiliates.

      “Cargill Originations” has the meaning specified in Section 4.1 of this Agreement.

      “Cargill Projects” means any Included Product for which Cargill has delivered an affirmative Transaction Response.

      “CCCII” has the meaning specified in the introduction to this Agreement.

      “CFSC” has the meaning specified in the introduction to this Agreement.

      “CFSC Withdrawal Notice” has the meaning specified in Section 2.3(b) of this Agreement.

      “Competitive Bid” means an Asset Purchase Proposal which is made available to Persons in addition to CFSC or FirstCity involving the sale of the assets to the highest bidder, in which the participation of Cargill does not provide a material competitive advantage.

      “Consumer Assets” means any asset which is used primarily for personal, family or household purposes, or any unsecured loan or receivable or any loan or receivable secured by such assets (whether any such loan or receivable is considered to be performing, subperforming or non-performing), and including, without limitation, loans or receivables secured by or assets consisting of: (a) one to four family dwellings; (b) mobile homes, manufactured homes or housing units; (c) automobiles, recreational vehicles and travel trailers; (d) credit card balances; and (e) portfolios of loans having collective average outstanding balances of $20,000.00 or less, which may include business assets (or loans or receivables secured thereby) provided that business assets do not comprise more than twenty percent (20%) of the legal balances of the portfolio assets.

      “Contract Year” means a twelve month period beginning on January 1 of each calendar year during the term of this Agreement.

      “DDER Agreement” has the meaning specified in the fifth recital of this Agreement.

      “Dollar,” “dollar,” “$,” “U.S. dollar/Dollar,” and “USD” each means the lawful currency of the United States of America.

      “Effective Date” means January 1, 1998.

      “Excluded Product” means (a) any single asset acquisition or portfolio acquisition with a purchase price or acquisition cost less than the Investment Threshold, (b) non-performing and sub-performing Consumer Assets sourced and acquired through a FCFC Affiliate which is engaged in the business of originating or acquiring performing asset flow business when such Consumer Assets are acquired by the FCFC Affiliate in connection with (as a part of the acquisition of) a bulk acquisition of a pool of loans or receivables of which more than fifty percent (50%) of the loans and receivables are performing loans and receivables, (c) assets originated or acquired by any FCFC Affiliate set up for the purpose of originating performing asset flow business or acquiring performing asset flow business originated by other Persons, including, but not limited to, NAF, Harbor Financial Group, FirstCity Funding Corporation, FirstCity Capital Corporation or FirstCity Consumer Lending Corp., (d) FirstCity’s acquisition or start up of niche or specialty finance operations or companies (unless FirstCity invites Cargill to participate in the acquisition or start up of such niche or specialty finance operations or companies), (e) the acquisition of more than fifty percent (50%) of the stock or other equity ownership interest by a FCFC Affiliate relating to the equity interest of any Person which owns loans, receivables, real estate or related assets (unless FirstCity invites Cargill to participate in any such acquisition, though the participation of Cargill will be limited to the extent necessary to preserve the ability to allow consolidation for tax purposes of FCFC and the acquired entity), and (f) any product for which Cargill shall have delivered to FirstCity a negative Transaction Response or CFSC Withdrawal Notice, or failed to deliver a Transaction Response on or before the Transaction Response Date, from and after the date of delivery of such response or notice to FirstCity, or after the Transaction Response Date, as applicable.

      “FCFC” has the meaning specified in the introduction to this Agreement.

      “FCFC Affiliate” means an Affiliate of FCFC.

      “FirstCity” means FCFC and its Affiliates.

      “FirstCity Principals” has the meaning specified in the fourth recital of this Agreement.

      “FirstCity Representative” has the meaning specified in Section 2.8 of this Agreement.

      “Foreign Currency” means the lawful currency of any country within the Geographic Area other than the United States.

      “Geographic Area” means the United States, Canada, Mexico, the Caribbean, Central America and South America.

      “Harbor Financial Group” means Harbor Financial Group, Inc. and its Affiliates.

      “Included Product” means all assets of any type other than the Excluded Product, including but not limited to any assets sourced through or in connection with Calibat.

      “Investment Threshold” means $4,000,000.00.

      “Leverage Factor” has the meaning specified in Section 4.1(b) of this Agreement.

      “Monthly Retainer” means a monthly payment from CFSC to Servicing as compensation for the exclusivity provisions of this Agreement, with the gross amount of such Monthly Retainer being a $20,000 per month; provided, however, that the gross amount of the Monthly Retainer paid to Servicing shall be adjusted to reflect Cargill’s contribution to deal flow as provided for in Article 4 of this Agreement.

      “NAF” means FirstCity’s auto financing Affiliate and the auto financing program conducted by such Affiliate.

      “Old J-Hawk” has the meaning specified in the fourth recital of this Agreement.

      “Person” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a foreign or domestic state or political subdivision thereof or any agency of such state or subdivision.

      “Potential Assets” has the meaning specified in Section 2.1 of this Agreement but specifically excludes the Excluded Product.

      “Prospective Acquiror” has the meaning specified in Section 2.2 of this Agreement.

      “Retainer Rebate” or “RR” has the meaning specified in Section 4.1(a) of this Agreement.

      “Seller” has the meaning specified in the first recital of this Agreement.

      “Servicing” has the meaning specified in the introduction to this Agreement; provided that in the event FirstCity Servicing Corporation assigns its rights under this Agreement as allowed under Section 5.4, then “Servicing” shall mean the person to whom such rights, duties and obligations were assigned as allowed under Section 5.4.

      “Termination Date” means the second anniversary of the Effective Date of this Agreement or such earlier or later date as may be agreed to in writing by all parties to this Agreement.

      “Transaction Notice” has the meaning specified in Section 2.2 of this Agreement.

      “Transaction Response” has the meaning specified in Section 2.2 of this Agreement.

      “Transaction Response Date” has the meaning specified in Section 2.2 of this Agreement.

      “Withdrawal Notice” has the meaning specified in Section 2.3 of this Agreement.

ARTICLE 2. CFSC RIGHT OF FIRST REFUSAL.

      Section 2.1 General Scope . During the term of this Agreement, neither FCFC nor any Affiliate of FCFC shall purchase, attempt to purchase or otherwise acquire a direct or indirect interest in, any Included Product with a proposed purchase price or acquisition cost equal to or greater than the Investment Threshold (the “Potential Assets”), except in accordance with the terms of this Section or with an express written waiver of CFSC, which waiver may be withheld in good faith for any commercial reason.

      Section 2.2 Notice Procedures . In the event that either Servicing, FCFC or any FCFC Affiliate (a “Prospective Acquiror”) shall obtain an Asset Purchase Proposal with respect to which such Prospective Acquiror or another FCFC Affiliate proposes to acquire any interest, such Prospective Acquiror shall first give written notice to CFSC by delivering a cover page substantially in the form of Exhibit A hereto (the “Transaction Notice”) to CFSC, which notice shall describe, in reasonable detail, the subject Asset Purchase Proposal. Thereafter, on or before the second (2nd) Monday after receipt of the Transaction Notice by CFSC (the “Transaction Response Date”), CFSC shall complete and return to the Prospective Acquiror the cover page of the

Transaction Notice (the “Transaction Response”) indicating whether CFSC has an interest in the subject Asset Purchase Proposal. Upon execution of an affirmative Transaction Response, CFSC shall be responsible for payment of one-half of the due diligence expenses incurred and contracted for with respect to the Asset Purchase Proposal as set forth in Sections 3.4 and 3.5.

Section 2.3 Due Diligence/Withdrawal .

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

           (b) Notwithstanding anything to the contrary in Section 2.2 above, if after CFSC has timely returned a Transaction Response, CFSC determines through due diligence or otherwise that CFSC has no further interest in pursuing the possible acq