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<title>First Financial Corporation Form 8-K</title>


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<p align=center style='text-align:center'><font size="2">UNITED STATES<br>
SECURITIES AND EXCHANGE COMMISSION<br>
Washington, D.C. 20549</font></p>



<p align=center style='text-align:center'><font size="2">____________</font></p>



<p align="center"><b>FORM 8-K</b></p>



<p align=center style='text-align:center'><b>CURRENT REPORT<br>
</b><font size="2">Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934<br>
_____________________</font></p>



<p align=center style='text-align:center'><font size="2">Date of Report <i>(Date of earliest event reported)</i>
December 13, 2005</font></p>



<p align=center style='text-align:center'><b><font size="5">First Financial Corporation<br>
</font></b><i><font size="2">(Exact name of
registrant as specified in its charter)</font></i></p>
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<p align=center style='text-align:center;'><font size="2">Texas</font></p>
		</td>
		<td align="center"><font size="2">0-5559&nbsp; </font></td>
		<td align="center"><font size="2">74-1502313</font></td>
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<p align=center style='margin-left:144.0pt;text-align:center;
text-indent:-144.0pt'> <i><font size="2">(State of incorporation)</font></i></p></td>
		<td align="center"> <i><font size="2">(Commission File Number)</font></i></td>
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<p align=center style='margin-left:144.0pt;text-align:center;
text-indent:-144.0pt'> <i><font size="2">(IRS Employer Identification No.)</font></i></p>





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		<td align="center"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 800
Washington Avenue, Waco, Texas</font></td>
		<td align="center">&nbsp;</td>
		<td align="center"><font size="2">76701</font></td>
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<p align=center style='text-align:center'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</font> <i><font size="2">(Address
of principal executive offices)</font></i></p></td>
		<td align="center">&nbsp;</td>
		<td align="center"> <i><font size="2">&nbsp;(Zip Code)</font></i></td>
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<p align=center style='text-align:center'><font size="2">(254) 757-2424<br>
</font><i><font size="2">(Registrant's
telephone number, including area code)</font></i></p>





<p align=center style='text-align:center'><font size="2">N/A<br>
</font><i><font size="2">(Former name or
former address, if changed since last report)</font></i></p>





<p><font size="2">Check the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligations of the registrant
under any of the following provisions:</font></p>



<p><font size="2">[&nbsp; ]&nbsp; Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)</font></p>



<p><font size="2">[&nbsp; ]&nbsp; Soliciting material pursuant to Rule 14a-12 under the
Exchange Act (17 CFR 240.14a-12)</font></p>



<p><font size="2">[&nbsp; ]&nbsp; Pre-commencement communications pursuant to Rule
14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))</font></p>



<p><font size="2">[&nbsp; ]&nbsp; Pre-commencement communications pursuant to Rule
13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))</font></p>





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<p style='text-indent:0pt'><b><font size="2">Item 1.01&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Entry
into a Material Definitive Agreement</font></b></p>

<p style="text-indent: 0.5in"><i><font size="2">Introduction</font></i></p>



<p style="text-indent: 0.5in"><font size="2">On December 13, 2005, First Financial Corporation
(the &quot;Company&quot;) entered into a note purchase agreement (the &quot;Note Purchase
Agreement&quot;) with Bluebonnet Investments, Ltd., a Texas limited partnership
(&quot;BIL&quot;) and JRPM Investments, Ltd., a Texas limited partnership (&quot;JRPM&quot;) as
purchasers, pursuant to which the Company sold three promissory notes (the
&quot;Notes&quot;), two of which are convertible, for an aggregate principal amount of
$1.2 million.&nbsp; David W. Mann, the president, chief executive officer and chief
financial officer of the Company, is a general and limited partner of JRPM, and
RAM Investors, Inc., a corporation of which Mr. Mann is the sole owner, is the other
general partner of JRPM.&nbsp; Bluebonnet Enterprises, Inc., a corporation which is
owned by a trust established for the benefit of Mr. Mann and of which Mr. Mann
is the president, is the sole general partner of BIL.</font></p>



<p style="text-indent: 0.5in"><i><font size="2">Background</font></i></p>










<p style="text-indent: 0.5in"><font size="2">In view of the general decline in the Company's
performance over approximately the past 24 months and the settlement by First
Preference Mortgage Corp. (&quot;FPMC&quot;), the Company's principal operating
subsidiary, of claims made by CitiMortgage, Inc. under its loan purchase
agreement with FPMC, as reported in the Company's Form 8-K filed with the
Commission on August 15, 2005, the Board of Directors of the Company, after
receiving reports from the Company's management, determined that it would be
necessary for the Company to obtain an infusion of cash prior to December 15,
2005, and that the only effective means of obtaining the needed capital was to
obtain it from affiliates (including BIL and JRPM) of its principal
shareholder, First Financial Holdings, Ltd, a limited partnership controlled by
Mr. David W. Mann, the president and a director of the Company.&nbsp; On August 18,
2005, the Board of Directors appointed a committee (the &quot;Committee&quot;) consisting
of its independent directors (Mr. Walter J. Rusek, who served as chairman of
the Committee, Mr. Joe Walker, Mr. James Motheral and Dr. Raymond Parker) to
consider and act on proposals from Mr. Mann and his affiliates.&nbsp; Mr. Herbert S.
Bristow of the firm of Haley &amp; Olsen of Waco, Texas, acted as legal counsel
to the Committee.&nbsp; In early September 2005, after the Committee considered
the qualifications of several financial advisory firms, the Committee engaged the firm
of Bernstein Conklin &amp; Balcombe of Dallas, Texas to serve as the
Committee's financial advisor.&nbsp; Bernstein Conklin &amp; Balcombe, founded in
1974, is an independent business valuation and financial advisory firm with
substantial experience in providing valuations and consulting services for the
financial services industry, among others. After Bernstein Conklin &amp;
Balcombe was engaged in early September 2005, the Committee, or representatives
of the Committee, and Mr. Bristow met in person or by telephone on several
occasions with representatives of Bernstein Conklin &amp; Balcombe and with Mr.
Mann to discuss and negotiate proposals made by Mr. Mann on behalf of JRPM and
BIL. On December 13, 2005, after negotiations had concluded, the Committee
received the report of Bernstein Conklin &amp; Balcombe to the Board of
Directors of the Company that, subject to the assumptions set forth in the
report, in its opinion, the financial terms of the transaction provided for in
the Note Purchase Agreement and related documents were fair to the shareholders
of FFC.&nbsp; A copy of the opinion of Bernstein Conklin &amp; Balcombe is attached
as Exhibit 10.01 to this Current Report on Form 8-K.</font></p>
<p style="text-indent: 0.5in">&nbsp;</p>
<p align="center"><font size="2">2</font></p>

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<p style="text-indent: 0.5in">&nbsp;</p>



<p style='text-indent:18.0pt'><i><font size="2">Note Purchase
Agreement</font></i></p>



<p style='text-indent:0.5in'><font size="2">Pursuant
to the Note Purchase Agreement, a copy of which is attached as Exhibit 10.02 to
this Current Report on Form 8-K, BIL purchased the first Note (&quot;Note 1&quot;), which
is not convertible, for the principal amount of $350,000.&nbsp; The remaining two
Notes (&quot;Note 2&quot; and &quot;Note 3&quot;) were purchased by JRPM and have principal amounts
of $350,000 and $500,000, respectively. The principal amount of each Note is
payable in full on December 29, 2006 and interest is payable monthly at the
rate of interest published by The Wall Street Journal (WSJ) as the base rate on
corporate loans plus 2%. Upon an event of default
under the Notes, the interest rate on each Note will increase by 1%, payable on
demand. &nbsp;As more fully described below, each Note is secured by a deed
of trust against certain real property owned by the Company or its subsidiaries
and each of Note 2 and 3 is also secured by a pledge of stock of direct or
indirect subsidiaries of the Company.&nbsp; Each of Note 2 and Note 3 is convertible
into shares of our common stock (the &quot;Common Stock&quot;) at the election of the
holder.&nbsp; The conversion price of Note 2 is equal to the greater of $2.50 per
share or the book value per share as of the date of conversion.&nbsp; Unless book
value per share exceeds $2.50 on the date of conversion, Note 2 is convertible
into 140,000 shares.&nbsp; The conversion price of Note 3 is $1.5315249 per share
and so Note 3 is convertible into 326,472 shares. The conversion prices of
Notes 2 and 3 (and therefore the numbers of shares into which these Notes are
convertible) are subject to adjustment under customary anti-dilution
provisions. Notes 2 and 3 are convertible in whole or in part from date of
issuance until their maturity dates or the dates they are paid in full. The final
conversion dates are subject to extension, as described below.</font></p>



<p style='text-indent:0.5in;background:white'><font size="2">The Note Purchase Agreement also grants JRPM an option
(the &quot;Option&quot;) to acquire up to that number of shares equal to $350,000 divided
by the exercise price of the option, which is equal to the greater of $5.00 per
share or the book value per share on the date of exercise.&nbsp; Thus, the maximum
number of shares of Common Stock that could be acquired upon the full exercise
of the Option is 70,000. Like Notes 2 and 3, the Option exercise price is
subject to adjustment under customary anti-dilution provisions. The Option is
exercisable in whole or in part from date of issuance until December 31, 2006.
The final Option exercise date is subject to extension, as described below.</font></p>



<p style="text-indent: 0.5in"><font size="2">There are currently 500,000 shares of Common Stock
authorized for issuance under the Company's articles of incorporation, 173,528
of which are issued and outstanding.&nbsp; As a result, only 326,472 shares may be
issued pursuant to the conversion of Note 2, Note 3 or the exercise of the
Option, without an amendment to the articles to increase the authorized shares
of Common Stock.&nbsp; Pursuant to the Note Purchase Agreement, if JRPM should
request it, the Company will be obliged to call a meeting of its shareholders
for the purpose of consideration and action by the shareholders with respect to
a proposal to amend its articles of incorporation to increase the number of its
authorized shares of Common Stock to at least the maximum number of such shares
required to effect the conversions and exercise. If JRPM makes such a request,
the expiration dates for the conversion of Notes 2 and 3 and for exercise of
the Option would be extended until the tenth business day after the date that
the Company has sufficient authorized shares to accommodate conversion and
exercise. </font></p>



<p align=center style='text-align:center'><font size="2">3</font></p>

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<p style='text-indent:36.0pt;background:white'>&nbsp;</p>



<p style='text-indent:0.5in'><font size="2">The Company used the proceeds from
the sale of the Notes for working capital needs of the Company and of FPMC, and to bring FPMC
into compliance with certain covenants contained in its loan agreement with
Colonial Bank, N.C.</font></p>



<p style='text-indent:18.0pt;background:white'><i><font size="2">Collateral and Intercreditor Agreement</font></i></p>



<p style='text-indent:0.5in;background:white'><font size="2">On December 13, 2005, the Company and its
subsidiaries entered into various pledge agreements and mortgages in order to
secure the Company's obligations under the Notes.&nbsp; In particular, each of the
Notes is secured by liens and security interests in and to certain real
property, personal property and fixtures at the site owned by FPMC located at
Highway 77 in McLennan County Texas (the &quot;Hwy 77 Property&quot;).&nbsp; Note 1 is secured
by a second lien on the Hwy 77 Property (BIL also holds the first lien on that
property).&nbsp; Note 2 is secured by a third lien on the Hwy 77 Property, and Note
3 is secured by a fourth lien on the property.&nbsp; </font> </p>



<p style='text-indent:0.5in;background:white'><font size="2">Note 2 and Note 3 are also secured by
various liens and security interests in and to certain real property, personal
property and fixtures owned by the Company, Shelter Resources, Inc. (&quot;SRI&quot;), a
wholly-owned subsidiary of the Company, and First Preference Properties, Inc.
(&quot;FPP&quot;), a wholly-owned subsidiary of FPMC.&nbsp; In addition, Note 2 and Note 3 are
also secured by a pledge of all the stock of FPMC, SRI and First Advisory
Services, Inc. held by the Company, and all the stock of FPP held by FPMC.&nbsp;&nbsp;
</font> </p>



<p style="text-indent: 0.5in"><font size="2">On December 13, 2005, the Company, Colonial Bank,
N.A., BIL, JRPM, and FPMC also entered into an Intercreditor Agreement,
pursuant to which the parties agreed to their relative priority and
relationship with regard to (i) payments under the Notes and under a pre-existing
loan from Colonial Bank to FPMC, and (ii) exercising remedies against the
Company and FPMC and any collateral securing the Notes.&nbsp; Under the
Intercreditor Agreement, no party may exercise any rights it may have under the
Notes or other loan documents until all parties ranking senior to that party
have been paid in full.&nbsp;&nbsp; A copy of the Intercreditor Agreement is attached as
Exhibit 10.03 to this Current Report on Form 8-K.</font></p>



<p style='margin-left:18.0pt;text-indent:0pt'><i><font size="2">Amendment
to FPMC Bank Loan</font></i></p>










<p style='text-indent:0.5in'><font size="2">On December 13,
2005, FPMC and Colonial Bank also executed the Eleventh Amendment to Mortgage
Warehouse Loan and Security Agreement, Waiver and Consent (the &quot;Loan
Amendment&quot;) pursuant to which Colonial Bank consented to the transactions
between FPMC and its affiliates described in this Item 1.01 and agreed to waive
certain financial covenant violations under the Mortgage Warehouse Loan and
Security Agreement, as amended (the &quot;Agreement&quot;).&nbsp; Under the terms of the Loan
Amendment, Colonial Bank also agreed to extend the scheduled maturity date of
the Agreement to March 31, 2006, and to make certain other changes to the
Agreement.&nbsp; A copy of the Eleventh Amendment to Mortgage Warehouse Loan and
Security Agreement is attached as Exhibit 10.04 to this Current Report on Form
8-K.</font></p>

<p style='text-align:justify'><b><font size="2">&nbsp;</font></b></p>
<p style='text-align:center'><font size="2">4</font></p>

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<p style='text-align:justify'><b><font size="2">Item
2.03&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant</font></b></p>



<p style='text-indent:0pt'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The information
provided in Item 1.01 of this Current Report on Form 8-K regarding the
financial obligations that we incurred as a result of the execution of the Note
Purchase Agreement is incorporated by reference into this Item 2.03. </font> </p>



<p style='text-indent:0pt'><b><font size="2">Item 3.02&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Unregistered
Sales of Equity Securities</font></b></p>



<p style='text-indent:0pt'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; On December 13,
2005, pursuant to the Note Purchase Agreement, the Company issued certain
instruments that may be considered securities under the Securities Act of 1933,
as amended (the &quot;Act&quot;), including Notes 2 and 3 and the Option, which are
convertible or exercisable for an aggregate of up to 536,472 shares of Common
Stock.&nbsp; The terms of conversion and exercise of the Notes and the Option,
respectively, described in Item 1.01 of this Current Report on Form 8-K are
incorporated by reference into this Item 3.02.&nbsp; To the extent that these
instruments are securities, the Company is issuing them and the shares of
Common Stock for which they are convertible or exercisable in reliance on
exemptions from registration under the Act, including Section 4(2) and Rule 506
of Regulation D thereunder.&nbsp; Notes 2 and 3 were issued for aggregate
consideration of $850,000 cash. The Option is exercisable for an aggregate
price of $350,000 cash.</font></p>



<p style='text-indent:0pt'><b><font size="2">Item 3.03&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Material
Modification to Rights of Security Holders.</font></b></p>



<p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company's
obligations under the Note Purchase Agreement described in Item 1.01 of this
Current Report on Form 8-K, could materially modify the rights of our common
shareholders.&nbsp; If issued, the Common Stock described in Item 3.02 of this
Current Report on Form 8-K will result in significant dilution to our existing
common shareholders. </font> </p>



<p style='text-align:justify'><b><font size="2">Item
9.01&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Financial Statements and Exhibits.</font></b></p>



<p style='text-align:justify'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Exhibits:</font></p>



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		<p align="right"><font size="2">10.01&nbsp;&nbsp;&nbsp;</font></td>
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<p style='text-align:justify;'><font size="2">Letter dated December 13, 2005,
from Bernstein Conklin &amp; Balcombe<b> </b>to the Board of Directors of
First Financial Corporation.</font></p>



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		<p align="right"><font size="2">10.02&nbsp;&nbsp;&nbsp;</font></td>
		<td width="991" valign="top">



<p style='text-align:justify;'><font size="2">Note Purchase Agreement, dated
as of December 13, 2005, by and among First Financial Corporation, as borrower,
and JRPM Investments, Ltd., and Bluebonnet Investments, Ltd., as purchasers.</font></p>



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		<p align="right"><font size="2">10.03&nbsp;&nbsp;&nbsp;&nbsp; </font>
		</td>
		<td width="990" valign="top"><font size="2">Intercreditor Agreement, dated as of December
13, 2005, by and Colonial Bank, N.A., Bluebonnet Investments, Ltd., JRPM
Investments, Ltd., First Financial Corporation, and First Preference Mortgage
Corp.</font></td>
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		<td valign="top">&nbsp;</td>
		<td width="990" valign="top">&nbsp; </td>
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		<p align="right"><font size="2">10.04&nbsp;&nbsp;&nbsp;&nbsp; </font>
		</td>
		<td width="990" valign="top"><font size="2">Eleventh Amendment to Mortgage Warehouse Loan
and Security Agreement, Waiver and Consent, dated as of December 13, 2005,
between Colonial Bank, N.A. and First Preference Mortgage Corp.</font></td>
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<p align=center style='text-align:center'><font size="2">SIGNATURE</font></p>





<p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.</font></p>





<p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; FIRST
FINANCIAL CORPORATION</font></p>







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			<p align="right"><font size="2">By:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
			<td valign="top" width="479"><font size="2"><u>/s/ David W. Mann&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<br>
</u>David
W. Mann<br>
			President <br>
			and
Chief Executive Officer </font></td>
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<p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</font> </p>

<p><font size="2">Date: December 19, 2005</font></p>

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{"company-data": {"conformed-name": "FIRST FINANCIAL CORP /TX/", "cik": "0000036315", "assigned-sic": "6162", "irs-number": "741502313", "state-of-incorporation": "TX", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-05559", "film-number": "051273385"}, "business-address": {"street1": "800 WASHINGTON AVE", "city": "WACO", "state": "TX", "zip": "76701", "phone": "8177572424"}, "mail-address": {"street1": "800 WASHINGTON AVE", "city": "WACO", "state": "TX", "zip": "76701"}}
First Financial Corporation Form 8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
_____________________
Date of Report
(Date of earliest event reported)
December 13, 2005
First Financial Corporation
(Exact name of
registrant as specified in its charter)
Texas
0-5559
74-1502313
(State of incorporation)
(Commission File Number)
(IRS Employer Identification No.)
800
Washington Avenue, Waco, Texas
76701
(Address
of principal executive offices)
(Zip Code)
(254) 757-2424
(Registrant's
telephone number, including area code)
N/A
(Former name or
former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligations of the registrant
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Item 1.01        Entry
into a Material Definitive Agreement
Introduction
On December 13, 2005, First Financial Corporation
(the "Company") entered into a note purchase agreement (the "Note Purchase
Agreement") with Bluebonnet Investments, Ltd., a Texas limited partnership
("BIL") and JRPM Investments, Ltd., a Texas limited partnership ("JRPM") as
purchasers, pursuant to which the Company sold three promissory notes (the
"Notes"), two of which are convertible, for an aggregate principal amount of
$1.2 million.  David W. Mann, the president, chief executive officer and chief
financial officer of the Company, is a general and limited partner of JRPM, and
RAM Investors, Inc., a corporation of which Mr. Mann is the sole owner, is the other
general partner of JRPM.  Bluebonnet Enterprises, Inc., a corporation which is
owned by a trust established for the benefit of Mr. Mann and of which Mr. Mann
is the president, is the sole general partner of BIL.
Background
In view of the general decline in the Company's
performance over approximately the past 24 months and the settlement by First
Preference Mortgage Corp. ("FPMC"), the Company's principal operating
subsidiary, of claims made by CitiMortgage, Inc. under its loan purchase
agreement with FPMC, as reported in the Company's Form 8-K filed with the
Commission on August 15, 2005, the Board of Directors of the Company, after
receiving reports from the Company's management, determined that it would be
necessary for the Company to obtain an infusion of cash prior to December 15,
2005, and that the only effective means of obtaining the needed capital was to
obtain it from affiliates (including BIL and JRPM) of its principal
shareholder, First Financial Holdings, Ltd, a limited partnership controlled by
Mr. David W. Mann, the president and a director of the Company.  On August 18,
2005, the Board of Directors appointed a committee (the "Committee") consisting
of its independent directors (Mr. Walter J. Rusek, who served as chairman of
the Committee, Mr. Joe Walker, Mr. James Motheral and Dr. Raymond Parker) to
consider and act on proposals from Mr. Mann and his affiliates.  Mr. Herbert S.
Bristow of the firm of Haley & Olsen of Waco, Texas, acted as legal counsel
to the Committee.  In early September 2005, after the Committee considered
the qualifications of several financial advisory firms, the Committee engaged the firm
of Bernstein Conklin & Balcombe of Dallas, Texas to serve as the
Committee's financial advisor.  Bernstein Conklin & Balcombe, founded in
1974, is an independent business valuation and financial advisory firm with
substantial experience in providing valuations and consulting services for the
financial services industry, among others. After Bernstein Conklin &
Balcombe was engaged in early September 2005, the Committee, or representatives
of the Committee, and Mr. Bristow met in person or by telephone on several
occasions with representatives of Bernstein Conklin & Balcombe and with Mr.
Mann to discuss and negotiate proposals made by Mr. Mann on behalf of JRPM and
BIL. On December 13, 2005, after negotiations had concluded, the Committee
received the report of Bernstein Conklin & Balcombe to the Board of
Directors of the Company that, subject to the assumptions set forth in the
report, in its opinion, the financial terms of the transaction provided for in
the Note Purchase Agreement and related documents were fair to the shareholders
of FFC.  A copy of the opinion of Bernstein Conklin & Balcombe is attached
as Exhibit 10.01 to this Current Report on Form 8-K.
2
Note Purchase
Agreement
Pursuant
to the Note Purchase Agreement, a copy of which is attached as Exhibit 10.02 to
this Current Report on Form 8-K, BIL purchased the first Note ("Note 1"), which
is not convertible, for the principal amount of $350,000.  The remaining two
Notes ("Note 2" and "Note 3") were purchased by JRPM and have principal amounts
of $350,000 and $500,000, respectively. The principal amount of each Note is
payable in full on December 29, 2006 and interest is payable monthly at the
rate of interest published by The Wall Street Journal (WSJ) as the base rate on
corporate loans plus 2%. Upon an event of default
under the Notes, the interest rate on each Note will increase by 1%, payable on
demand.  As more fully described below, each Note is secured by a deed
of trust against certain real property owned by the Company or its subsidiaries
and each of Note 2 and 3 is also secured by a pledge of stock of direct or
indirect subsidiaries of the Company.  Each of Note 2 and Note 3 is convertible
into shares of our common stock (the "Common Stock") at the election of the
holder.  The conversion price of Note 2 is equal to the greater of $2.50 per
share or the book value per share as of the date of conversion.  Unless book
value per share exceeds $2.50 on the date of conversion, Note 2 is convertible
into 140,000 shares.  The conversion price of Note 3 is $1.5315249 per share
and so Note 3 is convertible into 326,472 shares. The conversion prices of
Notes 2 and 3 (and therefore the numbers of shares into which these Notes are
convertible) are subject to adjustment under customary anti-dilution
provisions. Notes 2 and 3 are convertible in whole or in part from date of
issuance until their maturity dates or the dates they are paid in full. The final
conversion dates are subject to extension, as described below.
The Note Purchase Agreement also grants JRPM an option
(the "Option") to acquire up to that number of shares equal to $350,000 divided
by the exercise price of the option, which is equal to the greater of $5.00 per
share or the book value per share on the date of exercise.  Thus, the maximum
number of shares of Common Stock that could be acquired upon the full exercise
of the Option is 70,000. Like Notes 2 and 3, the Option exercise price is
subject to adjustment under customary anti-dilution provisions. The Option is
exercisable in whole or in part from date of issuance until December 31, 2006.
The final Option exercise date is subject to extension, as described below.
There are currently 500,000 shares of Common Stock
authorized for issuance under the Company's articles of incorporation, 173,528
of which are issued and outstanding.  As a result, only 326,472 shares may be
issued pursuant to the conversion of Note 2, Note 3 or the exercise of the
Option, without an amendment to the articles to increase the authorized shares
of Common Stock.  Pursuant to the Note Purchase Agreement, if JRPM should
request it, the Company will be obliged to call a meeting of its shareholders
for the purpose of consideration and action by the shareholders with respect to
a proposal to amend its articles of incorporation to increase the number of its
authorized shares of Common Stock to at least the maximum number of such shares
required to effect the conversions and exercise. If JRPM makes such a request,
the expiration dates for the conversion of Notes 2 and 3 and for exercise of
the Option would be extended until the tenth business day after the date that
the Company has sufficient authorized shares to accommodate conversion and
exercise.
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The Company used the proceeds from
the sale of the Notes for working capital needs of the Company and of FPMC, and to bring FPMC
into compliance with certain covenants contained in its loan agreement with
Colonial Bank, N.C.
Collateral and Intercreditor Agreement
On December 13, 2005, the Company and its
subsidiaries entered into various pledge agreements and mortgages in order to
secure the Company's obligations under the Notes.  In particular, each of the
Notes is secured by liens and security interests in and to certain real
property, personal property and fixtures at the site owned by FPMC located at
Highway 77 in McLennan County Texas (the "Hwy 77 Property").  Note 1 is secured
by a second lien on the Hwy 77 Property (BIL also holds the first lien on that
property).  Note 2 is secured by a third lien on the Hwy 77 Property, and Note
3 is secured by a fourth lien on the property.
Note 2 and Note 3 are also secured by
various liens and security interests in and to certain real property, personal
property and fixtures owned by the Company, Shelter Resources, Inc. ("SRI"), a
wholly-owned subsidiary of the Company, and First Preference Properties, Inc.
("FPP"), a wholly-owned subsidiary of FPMC.  In addition, Note 2 and Note 3 are
also secured by a pledge of all the stock of FPMC, SRI and First Advisory
Services, Inc. held by the Company, and all the stock of FPP held by FPMC.
On December 13, 2005, the Company, Colonial Bank,
N.A., BIL, JRPM, and FPMC also entered into an Intercreditor Agreement,
pursuant to which the parties agreed to their relative priority and
relationship with regard to (i) payments under the Notes and under a pre-existing
loan from Colonial Bank to FPMC, and (ii) exercising remedies against the
Company and FPMC and any collateral securing the Notes.  Under the
Intercreditor Agreement, no party may exercise any rights it may have under the
Notes or other loan documents until all parties ranking senior to that party
have been paid in full.   A copy of the Intercreditor Agreement is attached as
Exhibit 10.03 to this Current Report on Form 8-K.
Amendment
to FPMC Bank Loan
On December 13,
2005, FPMC and Colonial Bank also executed the Eleventh Amendment to Mortgage
Warehouse Loan and Security Agreement, Waiver and Consent (the "Loan
Amendment") pursuant to which Colonial Bank consented to the transactions
between FPMC and its affiliates described in this Item 1.01 and agreed to waive
certain financial covenant violations under the Mortgage Warehouse Loan and
Security Agreement, as amended (the "Agreement").  Under the terms of the Loan
Amendment, Colonial Bank also agreed to extend the scheduled maturity date of
the Agreement to March 31, 2006, and to make certain other changes to the
Agreement.  A copy of the Eleventh Amendment to Mortgage Warehouse Loan and
Security Agreement is attached as Exhibit 10.04 to this Current Report on Form
8-K.
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Item
2.03        Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant
The information
provided in Item 1.01 of this Current Report on Form 8-K regarding the
financial obligations that we incurred as a result of the execution of the Note
Purchase Agreement is incorporated by reference into this Item 2.03.
Item 3.02        Unregistered
Sales of Equity Securities
On December 13,
2005, pursuant to the Note Purchase Agreement, the Company issued certain
instruments that may be considered securities under the Securities Act of 1933,
as amended (the "Act"), including Notes 2 and 3 and the Option, which are
convertible or exercisable for an aggregate of up to 536,472 shares of Common
Stock.  The terms of conversion and exercise of the Notes and the Option,
respectively, described in Item 1.01 of this Current Report on Form 8-K are
incorporated by reference into this Item 3.02.  To the extent that these
instruments are securities, the Company is issuing them and the shares of
Common Stock for which they are convertible or exercisable in reliance on
exemptions from registration under the Act, including Section 4(2) and Rule 506
of Regulation D thereunder.  Notes 2 and 3 were issued for aggregate
consideration of $850,000 cash. The Option is exercisable for an aggregate
price of $350,000 cash.
Item 3.03        Material
Modification to Rights of Security Holders.
The Company's
obligations under the Note Purchase Agreement described in Item 1.01 of this
Current Report on Form 8-K, could materially modify the rights of our common
shareholders.  If issued, the Common Stock described in Item 3.02 of this
Current Report on Form 8-K will result in significant dilution to our existing
common shareholders.
Item
9.01        Financial Statements and Exhibits.
(c)        Exhibits:
10.01
Letter dated December 13, 2005,
from Bernstein Conklin & Balcombe
to the Board of Directors of
First Financial Corporation.
10.02
Note Purchase Agreement, dated
as of December 13, 2005, by and among First Financial Corporation, as borrower,
and JRPM Investments, Ltd., and Bluebonnet Investments, Ltd., as purchasers.
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10.03
Intercreditor Agreement, dated as of December
13, 2005, by and Colonial Bank, N.A., Bluebonnet Investments, Ltd., JRPM
Investments, Ltd., First Financial Corporation, and First Preference Mortgage
Corp.
10.04
Eleventh Amendment to Mortgage Warehouse Loan
and Security Agreement, Waiver and Consent, dated as of December 13, 2005,
between Colonial Bank, N.A. and First Preference Mortgage Corp.
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SIGNATURE
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
FIRST
FINANCIAL CORPORATION
By:
/s/ David W. Mann
David
W. Mann
President
and
Chief Executive Officer
Date: December 19, 2005
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