-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Db71t6/1mXyYP8fZ03JdCDmqtC5Wygyl6jB5tSOYYQ6xhVN9Lm9FSiXN2dcoMcW/ y/f1QVK6ZoCmgBLZaaW+aA== 0000941302-98-000092.txt : 19980717 0000941302-98-000092.hdr.sgml : 19980717 ACCESSION NUMBER: 0000941302-98-000092 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19980716 SROS: NONE GROUP MEMBERS: VALUE PARTNERS GROUP MEMBERS: VALUE PARTNERS LTD /TX/ SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: HAWTHORNE FINANCIAL CORP CENTRAL INDEX KEY: 0000046267 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 952085671 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-08281 FILM NUMBER: 98667395 BUSINESS ADDRESS: STREET 1: 2381 ROSECRANS AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107255000 MAIL ADDRESS: STREET 1: 2381 ROSECRANS AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: VALUE PARTNERS LTD /TX/ CENTRAL INDEX KEY: 0000926614 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 752291866 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: C/O FISHER EWING PARTNERS STREET 2: 2200 ROSE AVE SUITE 4660 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2149991900 MAIL ADDRESS: STREET 1: C/O FISHER EWING PARTNERS STREET 2: 2200 ROSS AVE #4660 CITY: DALLAS STATE: TX ZIP: 75201 SC 13D 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) Under the Securities Exchange Act of 1934 Hawthorne Financial Corporation - --------------------------------------------------------------------------- (Name of Issuer) Common Stock, par value $.01 per share - --------------------------------------------------------------------------- (Title of Class of Securities) 420542102 - --------------------------------------------------------------------------- (CUSIP Number) Timothy G. Ewing Value Partners, Ltd. c/o Ewing & Partners Suite 4660 West 2200 Ross Avenue Dallas, Texas 75201 (214) 999-1900 - --------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) July 8, 1998 - --------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this Schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g) check the following box [ ]. CUSIP NO. 420542102 13D (1) Name of Reporting Person Value Partners, Ltd. S.S. or I.R.S. Identification 75-2291866 No. of Above Person (Not Required To Be Reported) (2) Check the Appropriate Box if a (a) Member of a Group (See instructions) (b) X (3) SEC Use Only (4) Source of Funds (See instructions) WC (5) Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d) or 2(e) (6) Citizenship or Place of Organization Texas Number of Shares (7) Sole Voting Power 1,241,100* Beneficially Owned by Each Reporting (8) Shared Voting -0- Person with: Power (9) Sole Dispositive 1,241,100* Power (10) Shared Dispositive -0- Power (11) Aggregate Amount Beneficially Owned by Each Reporting Person 1,241,100* (12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See instructions) (13) Percent of Class Represented by 20.8% Amount in Row (11) (14) Type of Reporting Person (See PN Instructions) - ------------ *But see Item 5 CUSIP NO. 420542102 13D (1) Name of Reporting Person Ewing & Partners S.S. or I.R.S. Identification 75-2741747 No. of Above Person (Not Required To Be Reported) (2) Check the Appropriate Box if a (a) Member of a Group (See instructions) (b) X (3) SEC Use Only (4) Source of Funds (See instructions) 00 (5) Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d) or 2(e) (6) Citizenship or Place of Organization Texas Number of Shares (7) Sole Voting Power -0- Beneficially Owned by Each Reporting (8) Shared Voting -0-* Person with: Power (9) Sole Dispositive -0- Power (10) Shared Dispositive -0-* Power (11) Aggregate Amount Beneficially Owned by Each Reporting Person -0-* (12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See instructions) (13) Percent of Class Represented by -0-%* Amount in Row (11) (14) Type of Reporting Person (See PN Instructions) - ------------ *But see Item 5 CUSIP NO. 420542102 13D (1) Name of Reporting Person Timothy G. Ewing S.S. or I.R.S. Identification ###-##-#### No. of Above Person (Not Required To Be Reported) (2) Check the Appropriate Box if a (a) Member of a Group (See instructions) (b) X (3) SEC Use Only (4) Source of Funds (See instructions) 00 (5) Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d) or 2(e) (6) Citizenship or Place of Organization United States of America Number of Shares (7) Sole Voting Power -0- Beneficially Owned by Each Reporting (8) Shared Voting -0-* Person with: Power (9) Sole Dispositive -0- Power (10) Shared Dispositive -0-* Power (11) Aggregate Amount Beneficially Owned by Each Reporting Person -0-* (12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See instructions) (13) Percent of Class Represented by -0-%* Amount in Row (11) (14) Type of Reporting Person (See IN Instructions) - ------------ *But see Item 5 CUSIP NO. 420542102 13D ITEM 1. SECURITY AND ISSUER This Schedule 13D relates to the common stock, par value $.01 per share (the "Common Stock"), of Hawthorne Financial Corporation, a Delaware corporation ("Hawthorne" or the "Issuer"), whose principal executive offices are located at 2381 Rosecrans Avenue, El Segundo, California 90245. ITEM 2. IDENTITY AND BACKGROUND (a)-(c) This Schedule 13D is filed by Value Partners, Ltd., a Texas limited partnership ("Value Partners"), Ewing & Partners, a Texas general partnership (formerly known as Fisher Ewing Partners) ("Ewing & Partners"), and Timothy G. Ewing ("Ewing"). Ewing & Partners is the general partner of Value Partners. Ewing and Ewing Asset Management, Inc., a Texas limited liability company ("EAM"), are the general partners of Ewing & Partners, and Ewing is the managing general partner of Ewing & Partners. EAM is controlled by Ewing. The principal place of business for Value Partners, Ewing & Partners, EAM and Ewing is Suite 4660 West, 2200 Ross Avenue, Dallas, Texas 75201. The present principal occupation or employment of Ewing is managing general partner of Ewing & Partners. The principal business of EAM is acting as a general partner of Ewing & Partners. The principal business of Ewing & Partners is the management of Value Partners. The principal business of Value Partners is the investment in and trading of capital stocks, warrants, bonds, notes, debentures and other securities. (d) None of Value Partners, Ewing & Partners, EAM or Ewing, during the last five years, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) None of Value Partners, Ewing & Partners, EAM or Ewing has, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. (f) Ewing is a citizen of the United States of America. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION Pursuant to a Unit Purchase Agreement (the "Agreement"), dated as of October 10, 1995, by and among Hawthorne and the other signatories thereto (the "Purchasers"), Value Partners purchased 17 (the "Units") units from Hawthorne for $8.5 million. All of such funds came from the working capital of Value Partners. Each Unit consisted of a package of the following securities: $250,000 principal amount of senior notes, five shares of Series A preferred stock, par value $.01 per share, of Hawthorne (the "Preferred Stock"), and a common stock purchase warrant (each, a "Warrant") representing the right to purchase 44,000 shares of Common Stock at a price of $2.25 per share. Each such note and share of Preferred Stock acquired by Value Partners was redeemed by Hawthorne on December 31, 1997. In connection with a public offering of Common Stock that was effective on July 7, 1998, each Warrant owned by Value Partners was adjusted to represent the right to purchase 46,522 shares of Common Stock at a price of $2.139 per share. Such Warrants may be exercised at any time during the period beginning December 11, 1998 through December 11, 2005. As of the date hereof, Value Partners owns 17 Warrants, and if such Warrants are exercised in full, Value Partners would acquire 790,874 shares of Common Stock. All of the funds utilized in this exercise, if Value Partners should decide to exercise such Warrants, are expected to come from the working capital of Value Partners. Although Value Partners does not beneficially own the shares of Common Stock underlying such Warrants as of the date hereof, it has chosen to report such shares as beneficially owned as of the date hereof rather than file a amendment to this Schedule 13D sixty (60) days prior to when such Warrants become exercisable, which is when such shares shall become beneficially owned by Value Partners. On June 14, 1997, Value Partners received 122,757 shares of Common Stock as a dividend declared and paid on its Preferred Stock. These shares were obtained without consideration from Value Partners. An additional dividend of Common Stock was received by Value Partners on September 15, 1997 in the amount of 12,969 shares. These shares were also received without consideration from Value Partners. On July 8, 1998, Value Partners purchased 314,500 shares of Common Stock in a public offering by the Issuer that went effective on July 7, 1998 for $4.7 million. All of such funds came from the working capital of Value Partners. ITEM 4. PURPOSE OF TRANSACTION Value Partners has acquired the Common Stock and the Warrants solely for investment purposes. Depending on its evaluation of the Issuer, other investment opportunities, market conditions, and such other factors as it may deem material, Value Partners may seek to acquire additional shares of Common Stock in the open market, in private transactions, or otherwise, or may dispose of all or a portion of such Warrants or the shares of Common Stock owned by it. As of the date hereof, such Warrants are not exercisable. Value Partners may exercise such Warrants and acquire the underlying shares of Common Stock at any time during the period beginning December 11, 1998 through December 11, 2005. Except as set forth above, none of Value Partners, Ewing & Partners, EAM or Ewing has any plans or proposals of the type referred to in clauses (a) through (j) of Item 4 of Schedule 13D. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER (a) As of the date hereof, Value Partners owns 450,226 shares of Common Stock, which represents 8.7% of the 5,182,792 shares of Common Stock outstanding (as reported on Hawthorne's Rule 424(b)(1) Prospectus filed with the Securities and Exchange Commission on July 7, 1998 (the "Prospectus"). Each Warrant owned by Value Partners entitles Value Partners to purchase 46,522 shares of Common Stock. Consequently, Value Partners may acquire an additional 790,874 shares of Common Stock pursuant to the exercise of such Warrants. Although Value Partners does not beneficially own the 790,874 shares of Common Stock underlying such Warrants as of the date hereof, it has chosen to report such shares as beneficially owned as of the date hereof rather than file an amendment to this Schedule 13D sixty (60) days prior to when such Warrants become exercisable, which is when such shares shall become beneficially owned by Value Partners. Thus, in so reporting, Value Partners beneficially owns 20.8% of the shares of Common Stock outstanding, which such percentage was calculated by dividing (i) 1,241,100 shares of Common Stock, which equals the sum of (a) 450,226 shares of Common Stock beneficially owned by Value Partners as of the date hereof plus (b) 790,874 shares of Common Stock underlying such Warrants and reported as beneficially owned as of the date hereof, by (ii) 5,973,666 shares of Common Stock, which equals the sum of (x) 5,182,792 shares of Common Stock as reported in the Prospectus and (y) 790,874 shares of Common Stock underlying such Warrants and reported as beneficially owned as of the date hereof. Thus, Value Partners, Ewing & Partners and Ewing (the "Reporting Persons") beneficially own a total of 1,241,100 shares of Common Stock as follows: Shares of % of Common Name Common Stock Stock Outstanding ---- ------------ ----------------- Value Partners 1,241,100 20.8% Ewing & Partners -0- -0- Ewing -0- -0- Ewing & Partners and Ewing are deemed to have beneficial ownership of the shares of Common Stock beneficially owned by Value Partners. (b) Value Partners has the sole power to vote and dispose of the 1,241,100 shares of Common Stock beneficially owned by it. Value Partners does not share the power to vote or to direct the vote of, or the power to dispose or to direct the disposition of, the Common Stock owned by it. However, Ewing & Partners, as general partner of Value Partners, may be deemed, for purposes of determining beneficial ownership pursuant to Rule 13d-3, to have the shared power with Value Partners to vote or direct the vote of, and the shared power with Value Partners to dispose or direct the disposition of, the 1,241,100 shares of Common Stock owned by Value Partners. Ewing, as managing general partner of Ewing & Partners, may be deemed, for purposes of determining beneficial ownership pursuant to Rule 13d-3, to have the shared power with Value Partners to vote or to direct the vote of, and the shared power to dispose or to direct the disposition of, the 1,241,100 shares of Common Stock owned by Value Partners. The filing of this statement on Schedule 13D shall not be construed as an admission that Ewing or Ewing & Partners is for the purposes of Section 13(d) or 13(g) of the Securities Exchange Act of 1934, as amended, the beneficial owner of any of the 1,241,100 shares of Common Stock beneficially owned by Value Partners. Pursuant to Rule 13d-4, Ewing and Ewing & Partners disclaim all such beneficial ownership. (c) No other transactions in Common Stock were effected by any of the Reporting Persons during the 60 days prior to July 8, 1998 or the date hereof. (d) Ewing and Ewing & Partners may be deemed to have the power to direct the receipt of dividends from, or the proceeds from the sale of, the Common Stock beneficially owned by Value Partners. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER Value Partners, Ewing & Partners and Ewing have no contracts, arrangements, understandings or relationships (legal or otherwise) between themselves and any person with respect to any securities of the Issuer other than those described below: (a) Joint Filing Agreement, dated as of the date hereof, between Value Partners, Ewing & Partners, and Ewing, which was entered into to enable more than one person to report on this Schedule 13D. (b) Unit Purchase Agreement, dated as of October 10, 1995, pursuant to which Value Partners acquired the Units from Hawthorne. (c) Warrant to purchase shares of Common Stock. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS The following are filed as exhibits to this Statement on Schedule 13D: Exhibit 1 Joint Filing Agreement, dated as of July 16, 1998. Exhibit 2 Unit Purchase Agreement, dated as of October 10, 1995. Exhibit 3 Form of Warrant to purchase shares of Common Stock. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. DATED: July 16, 1998 VALUE PARTNERS, LTD. By: EWING & PARTNERS as General Partner By: /S/TIMOTHY G. EWING --------------------- Timothy G. Ewing as Managing Partner EWING & PARTNERS By: /S/TIMOTHY G. EWING --------------------- Timothy G. Ewing as Managing Partner /S/TIMOTHY G. EWING --------------------- Timothy G. Ewing EXHIBIT INDEX Page No. Exhibit 1 Joint Filing Agreement, dated as of July 16, 1998. Exhibit 2 Note Purchase Agreement, dated as of October 10, 1995. Exhibit 3 Form of Warrant to purchase shares of Common Stock EX-99.1 2 EXHIBIT 1 JOINT FILING AGREEMENT In accordance with Rule 13d-1(k) under the Securities Exchange Act of 1934, as amended, the undersigned agree to the joint filing on behalf of each of them of a Statement on Schedule 13D (including any and all amendments thereto) with respect to the common stock, par value $.01 per share, of Hawthorne Financial Corporation, and further agree that this Joint Filing Agreement shall be included as an Exhibit to such joint filings. The undersigned further agree that each party hereto is responsible for timely filing of such Statement on Schedule 13D and any amendments thereto, and for the accuracy and completeness of the information concerning such party contained therein; provided, however, that no party is responsible for the accuracy or completeness of the information concerning any other party, unless such party knows or has reason to believe that such information is inaccurate. This Joint Filing Agreement may be signed in counterparts with the same effect as if the signature on each counterpart were upon the same instrument. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of July 16, 1998. VALUE PARTNERS, LTD. By: EWING & PARTNERS as General Partner By: /S/TIMOTHY G. EWING --------------------- Timothy G. Ewing as Managing Partner EWING & PARTNERS By: /S/TIMOTHY G. EWING --------------------- Timothy G. Ewing as Managing Partner /S/TIMOTHY G. EWING --------------------- Timothy G. Ewing EX-99.2 3 EXHIBIT 2 UNIT PURCHASE AGREEMENT BY AND AMONG HAWTHORNE FINANCIAL CORPORATION AND EACH OF THE PURCHASERS REFERRED TO HEREIN DATED AS OF OCTOBER 10, 1995 TABLE OF CONTENTS Page ---- Article I. Definitions 1 Section 1.1 Definitions 1 Article II. Purchase and Sale of Units 6 Section 2.1 Purchase and Sale of Units 6 Section 2.2 Closing 6 Section 2.3 Price Allocation 6 Article III. Representations and Warranties 7 Section 3.1 Representations and Warranties of the Company 7 Section 3.2 Representations and Warranties of the Purchasers 14 Article IV. Conditions Precedent to Closing 19 Section 4.1 Conditions to Obligations of the Parties 19 Section 4.2 Conditions to Obligations of the Purchasers 20 Section 4.3 Conditions to Obligations of the Company 22 Article V. Covenants 23 Section 5.1 Shareholder Meeting; Exemption 23 Section 5.2 Applications 24 Section 5.3 Investigation and Confidentiality 24 Section 5.4 Press Releases 25 Section 5.5 No Solicitation 25 Section 5.6 Use of Proceeds 26 Section 5.7 Current Information 26 Section 5.8 Listing of Additional Shares of Common Stock 26 Section 5.9 Rights of First Refusal 27 Section 5.10 Rule 144 and Rule 144A Reporting 31 Section 5.11 Purchases of Securities 31 Section 5.12 Stock Options 32 Section 5.13 Exchange of Securities 32 Section 5.14 Acquisition of Common Stock 32 Article VI. Miscellaneous 33 Section 6.1 Survival of Provisions 33 Section 6.2 Termination 33 Section 6.3 Waiver; Amendments 33 Section 6.4 Communications 34 Section 6.5 Costs, Expenses and Taxes 34 Section 6.6 Execution in Counterparts 35 Section 6.7 Binding Effect; Assignment 35 Section 6.8 Governing Law 35 Section 6.9 Severability of Provisions 35 Section 6.10 Headings and Gender 36 Section 6.11 Integration 36 Exhibit A List of Purchasers Exhibit B Form of Senior Note Exhibit C Form of Certificate of Designations Exhibit D Form of Warrant Exhibit E Form of Security Agreement Exhibit F Form of Director Agreement Exhibit G Form of Registration Rights Agreement Exhibit H Matters to be covered by Opinion of Counsel to the Company and the Bank UNIT PURCHASE AGREEMENT Unit Purchase Agreement, dated as of October 10, 1995 (the "Agreement"), by and among Hawthorne Financial Corporation, a Delaware corporation, and the other parties named on the signature pages hereof (each of which is acting severally and not jointly and as to itself only). In consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 DEFINITIONS. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Affiliate" means, with respect to any Person, any Person that, directly or indirectly, controls, is controlled by or is under common control with such Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Agreement" means this Unit Purchase Agreement, as amended, supplemented or modified from time to time. "Bank" means Hawthorne Savings, F.S.B., a federally-chartered savings bank, together with its successors. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the city of Los Angeles, California are authorized by law to close. "Capital Securities" of any Person means Capital Stock of the Person and Stock Equivalents of the Person. "Capital Stock" of any Person means any and all shares or other equity interest of such Person. "Certificate of Designations" means the Certificate of Designations and Preferences relating to the Series A Preferred Stock, substantially in the form of Exhibit C hereto, as amended, supplemented or otherwise modified from time to time. "Closing" has the meaning set forth in Section 2.2. "Closing Date" has the meaning set forth in Section 2.2. "Code" means the Internal Revenue Code of 1986, as amended (or any successor statute in effect from time to time), and the rules and regulations promulgated thereunder. "Commission" means the Securities and Exchange Commission and any successor thereto. "Common Stock" means the Common Stock, par value $.01 per share, of the Company. "Company" means Hawthorne Financial Corporation, a Delaware corporation, together with its successors. "Confidential Memorandum" means the Private Placement Memorandum, dated August 22, 1995, with respect to the Units referred to therein, as amended or supplemented at any time prior to the Closing. "Director Agreements" means the Director Agreements to be entered into by the Company and each of Value Partners, LTD, Lee M. Bass and Fort Pitt Fund, substantially in the form of Exhibit F hereto, as amended, supplemented or otherwise modified from time to time. "Environmental Claim" means any written notice from any governmental authority or third party alleging potential liability (including without limitation potential liability for investigating costs, cleanup costs, governmental response costs, natural resource damages, property damages, personal injuries or penalties) arising out of, based on, or resulting from the presence, or release into the environment of any Materials of Environmental Concern. "Environmental Laws" means any law, statute, rule or regulation of any governmental, judicial, legislative, executive, administrative or regulatory authority of the United States, or of any state, local or foreign government or any subdivision thereof or of any governmental body or other regulatory or administrative agency or commission, domestic or foreign (a "Law"), relating to pollution or protection of the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including without limitation the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Resource Conservation and Recovery Act of 1976, as amended, and other Laws relating to (i) emissions, discharges or releases of pollutants, contaminants, chemicals, or industrial toxic or hazardous substances or wastes (collectively known as "Polluting Substances") or (ii) the handling, storage, disposal, reclamation, recycling or transportation of Polluting Substances. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended (or any successor statute in effect from time to time). "Exchange Act" means the Securities Exchange Act of 1934, as amended and in effect from time to time (or any successor statute in effect from time to time), and the rules and regulations of the Commission promulgated thereunder. "FDIA" means the Federal Deposit Insurance Act, as amended (or any successor statute in effect from time to time). "FDIC" means the Federal Deposit Insurance Corporation and any successor thereto. "Fractional Unit" shall mean one fifth, two fifths, three fifths or four fifths of a Unit. "HOLA" means the Home Owners' Loan Act, as amended (or any successor statute in effect from time to time). "HSR" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (or any successor statute in effect from time to time), and the rules and regulations of the Federal Trade Commission promulgated thereunder. "Lien" means, with respect to any asset, any mortgage, lien, pledge, encumbrance, charge or security interest of any kind in respect of such asset. "Management" means the following members of the senior management of the Company: President and Chief Executive Officer, Chief Financial Officer and any Executive Vice President. "Material Adverse Effect" means a material adverse effect on the condition (financial or otherwise), business, assets or results of operations of the Company and the Bank taken as a whole. "Material Securityholder" means any Person who holds, either directly or indirectly with any of its Affiliates, any of (i) $1,250,000 principal amount of Senior Notes, (ii) 25 shares of Series A Preferred Stock or (iii) Warrants to purchase 220,000 shares of Common Stock or 220,000 shares of Common Stock acquired through the exercise of such Warrants, or any combination of such Warrants and shares of Common Stock. "Materials of Environmental Concern" means pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products and any other materials regulated under Environmental Laws. "NASD" means National Association of Securities Dealers, Inc. "Non-performing Assets" means the following consolidated assets of the Company: (i) non-performing loans, securities or other assets (i.e., all assets on which the Company or the Bank has ceased recognizing interest under generally accepted accounting principles or as to which any payments of principal or interest are past due 90 days or more as of the applicable date) and (ii) Real Estate Owned, exclusive of apartment buildings included in Real Estate Owned; and references herein to the amounts of Non- performing Assets shall mean and refer to the aggregate carrying value of such assets as stated in the books and financial statements of the Company and the Bank under generally accepted accounting principles. "OTS" means the Office of Thrift Supervision and any successor thereto. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or a political subdivision or an agency or instrumentality thereof. "Placement Agent" means Sandler O'Neill, in its capacity as private placement agent with respect to the offering of Units described in the Confidential Memorandum. "Preferred Stock" means the Preferred Stock, par value $.01 per share, of the Company. "Previously Disclosed" means disclosed in a letter dated the date hereof delivered from the Company to each Purchaser or from a Purchaser to the Company, as applicable, specifically referring to the appropriate section of this Agreement and describing in reasonable detail the matters contained therein. "Purchaser" means each Person (other than the Company) listed on the signature pages of this Agreement, and its permitted successors and assigns as provided herein, including any Person who becomes a party hereto by executing and delivering a signature page hereto after the date of this Agreement. "Real Estate Owned" means the consolidated properties of the Company acquired by foreclosure on a loan or deed-in-lieu thereof or otherwise included in the Company's real estate owned for purposes of reporting asset quality of the Company in its reports filed with the Commission under the Exchange Act and the asset quality of the Bank in its reports filed with the OTS. "Registration Rights Agreement" means the Registration Rights Agreement by and among the Company and the Purchasers, substantially in the form of Exhibit G hereto, as amended, supplemented or otherwise modified from time to time. "Related Agreements" means the Senior Notes, the Security Agreement, the Director Agreements and the Registration Rights Agreement. "SAIF" means the Savings Association Insurance Fund administered by the FDIC, and any successor thereto. "Securities" means (i) the Senior Notes, the Series A Preferred Stock and the Warrants included in the Units to be issued and sold by the Company and purchased by the Purchasers pursuant to this Agreement and (ii) the Common Stock issuable by the Company (x) upon exercise of the Warrants and (y) pursuant to Section 6(b) of the Senior Notes and/or Section 2(b) of the Certificate of Designations. "Securities Act" means the Securities Act of 1933, as amended (or any successor statute thereto as in effect from time to time), and the rules and regulations of the Commission promulgated thereunder. "Security Agreement" means the Security Agreement by and among the Company and the Purchasers, substantially in the form of Exhibit E hereto, as amended, supplemented or otherwise modified from time to time. "Senior Notes" means the Senior Notes due 2000 included in the Units to be issued and sold by the Company and purchased by the Purchasers pursuant to this Agreement, substantially in the form of Exhibit B hereto, as amended, supplemented or otherwise modified from time to time. "Series A Preferred Stock" means the Cumulative Preferred Stock, Series A, par value $.01 per share, of the Company included in the Units to be issued and sold by the Company and purchased by the Purchasers pursuant to this Agreement. "State" means each of the states of the United States, the District of Columbia and the Commonwealth of Puerto Rico. "Stock Equivalents" means, with respect to any Person, options, warrants, calls, contracts or other rights entered into or issued by such Person which confer upon the holder thereof the right (whether or not contingent) to acquire any Capital Stock, voting securities or securities convertible into or exchangeable for Capital Stock or voting securities of such Person. "Stock Option Plan" means the Stock Option Plan adopted by the Company in 1993 and approved by its shareholders in 1994. "Subsidiary" of any Person means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are owned directly or indirectly by such Person. "Taxes" means all taxes, charges, fees, levies or other governmental assessments, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated, severance, stamp, occupation, property or other taxes, customs, dues, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign). "Tax Returns" means all foreign, federal, State and local returns relating to Taxes. "Unit" means a package of the following securities to be issued and sold by the Company and purchased by Purchasers pursuant to the terms of this Agreement: (i) $250,000 principal amount of Senior Notes, (ii) five shares of Series A Preferred Stock and (iii) a Warrant to purchase 44,000 shares of Common Stock. "Warrants" means the Warrants to purchase shares of Common Stock included in the Units to be issued and sold by the Company and purchased by the Purchasers pursuant to this Agreement, substantially in the form of Exhibit D hereto, as amended, supplemented or otherwise modified from time to time. ARTICLE II PURCHASE AND SALE OF UNITS SECTION 2.1 PURCHASE AND SALE OF UNITS. Subject to the terms and conditions herein set forth, the Company agrees that it will issue and sell to each Purchaser and each such Purchaser agrees, severally and not jointly, that it will purchase from the Company the number of Units set forth below such Purchaser's name on Exhibit A hereto at a price equal to $500,000 per Unit (subject to pro rata adjustment in the case of any Fractional Unit). SECTION 2.2 CLOSING. The purchase and sale of the Units will take place at a closing (the "Closing") to be held at the offices of Mayer, Brown & Platt, Los Angeles, California, at 10:00 a.m., Pacific Time, on December 15, 1995, or on such earlier date as all of the conditions to the parties' obligations hereunder specified in Article IV of this Agreement (other than the delivery of certificates, opinions and other instruments and documents to be delivered at the Closing) have been satisfied or waived, or at such other location, and on such other Business Day and time as the parties hereto shall mutually agree. The date on which the Closing is to occur is referred to herein as the "Closing Date." SECTION 2.3 PRICE ALLOCATION. The Company and the Purchasers each hereby acknowledge and agree that for United States Federal, State and local income tax purposes, the "issue price" of the Senior Notes, Series A Preferred Stock and Warrants included in the Units will be determined by Deloitte & Touche LLP prior to the Closing and the Company and the Purchasers each agree to use the issue prices as so determined for all income tax purposes with respect to this transaction. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as Previously Disclosed, the Company represents and warrants to, and covenants and agrees with, each of the Purchasers as follows: (a) CAPITAL STRUCTURE. The authorized capital stock of the Company consists of 20,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. As of the date hereof, there are (i) 2,599,275 shares of Common Stock issued and outstanding and 5,400 shares of Common Stock are held as treasury shares which are issued but not outstanding, and (ii) no shares of Preferred Stock are issued and outstanding or held as treasury shares. Immediately prior to the Closing on the Closing Date, the Company's outstanding Capital Stock will be as set forth in the preceding sentence, except for any increases in outstanding Common Stock as a result of the exercise of options referred to in the last sentence of this Section 3.1(a). All outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and nonassessable and none of the outstanding shares of Common Stock has been issued in violation of the preemptive rights of any Person. Except for options to purchase 252,500 shares of Common Stock pursuant to the Stock Option Plan as of the date hereof and as contemplated by this Agreement, there are no Stock Equivalents authorized, issued or outstanding with respect to the Capital Stock of the Company as of the date hereof. (b) ORGANIZATION, STANDING AND AUTHORITY OF THE COMPANY. The Company is a corporation duly organized and validly existing under the laws of Delaware with full corporate power and authority to own or lease all of its properties and assets and to carry on its business as now conducted and is duly licensed or qualified to do business and is in good standing in each jurisdiction in which its ownership or leasing of property or the conduct of its business requires such licensing or qualification and where the failure to be so licensed, qualified or in good standing would have a Material Adverse Effect. The Company is duly registered as a savings and loan holding company under the HOLA and the regulations of the OTS thereunder. The Company has heretofore delivered true and complete copies of the Certificate of Incorporation and Bylaws of the Company as in effect as of the date hereof to each Purchaser which has requested the same. Prior to the Closing, the Certificate of Designations will have been filed with the Secretary of State of the State of Delaware in accordance with the Delaware General Corporation Law. (c) OWNERSHIP OF THE BANK. The Bank is the only Subsidiary of the Company and except for (i) 15,000 shares of the Bank's common stock, which constitutes all of the Bank's outstanding Capital Stock, (ii) stock in the Federal Home Loan Bank of San Francisco, and (iii) securities and other interests taken in consideration of debts previously contracted, the Company does not own or have the right to acquire, directly or indirectly, any outstanding Capital Stock or other voting securities or ownership interests of any corporation, bank, savings association, partnership, joint venture or other organization. The outstanding shares of Capital Stock of the Bank have been duly authorized and validly issued, are fully paid and nonassessable, and are directly owned by the Company free and clear of all Liens. No Stock Equivalents are authorized, issued or outstanding with respect to the Capital Stock of the Bank and there are no agreements, understandings or commitments relating to the right of the Company to vote or to dispose of such Capital Stock. (d) ORGANIZATION, STANDING AND AUTHORITY OF THE BANK. The Bank is a federally-chartered savings bank duly organized and validly existing under the laws of the United States. The deposit accounts of the Bank are insured by the SAIF to the maximum extent permitted by the FDIA, and the Bank has paid all premiums and assessments required by the FDIA and the regulations thereunder. The Bank has full power and authority to own or lease all of its properties and assets and to carry on its business as now conducted and is duly licensed or qualified to do business and is in good standing in each jurisdiction in which its ownership or leasing of property or the conduct of its business requires such qualification, except where the failure to be so licensed, qualified or in good standing would not have a Material Adverse Effect. The Company has heretofore delivered true and complete copies of the Charter and Bylaws of the Bank as in effect as of the date hereof to each Purchaser which has requested the same. (e) AUTHORITY. Each of the Company and the Bank has full corporate power and authority to perform its respective obligations under this Agreement and each of the Related Agreements to which it is or will become a party, and the execution, delivery and performance by (i) the Company of this Agreement and (ii) the Company and the Bank of each Related Agreement to which it is or will become a party have been duly authorized by all necessary corporate action on the part of the Company or the Bank, as the case may be. (f) DUE EXECUTION. This Agreement constitutes, and each of the Related Agreements to which the Company or the Bank is or will become a party, when duly authorized, executed and delivered by the Company or the Bank, as the case may be, will constitute a valid and binding obligation of the Company or the Bank, as the case may be, enforceable against the Company or the Bank, as the case may be, in accordance with its terms, except (i) rights to indemnity and contribution under the Registration Rights Agreement may be limited by applicable law, (ii) enforceability may be limited by bankruptcy, insolvency, moratorium and similar laws affecting creditors' rights generally and (iii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (g) NO CONFLICT. The execution, delivery and performance of this Agreement and each of the Related Agreements to which the Company or the Bank, as the case may be, is or will become a party will not conflict with or constitute a breach of, or a default under (i) the Certificate of Incorporation or Charter, as the case may be, or the Bylaws of the Company or the Bank, (ii) any material obligation, agreement, indenture, bond, debenture, note, instrument or any other evidence of indebtedness to which the Company or the Bank is a party or the assets of either of which are subject, or (iii) subject to the approvals and compliance referred to in the next sentence, any law, ordinance, order, license, rule or other regulation or demand of any court or governmental agency, arbitration panel or authority applicable to the Company or the Bank. Except for (i) the approval of the issuance of the Warrants by the shareholders of the Company pursuant to Section 6(i)(1)(d) of Part III to Schedule D of the Bylaws of the NASD (unless exempted therefrom upon application to the NASD), (ii) compliance with applicable federal and State securities laws in connection with this Agreement and the performance by the Company of its obligations under the Registration Rights Agreement and (iii) any required compliance by the Company with applicable federal and State securities laws and/or HSR in connection with (x) the issuance of shares of Common Stock upon exercise of the Warrants in accordance with their terms or (y) any issuance of Common Stock pursuant to Section 6(b) of the Senior Notes or Section 2(b) of the Certificate of Designations, no consent, approval, order or other authorization of any governmental, administrative or regulatory body or agency is legally required by or on behalf of the Company or the Bank in connection with the execution, delivery and performance of this Agreement and each of the Related Agreements to which the Company or the Bank, as the case may be, is or will become a party. The representations and warranties contained in this Section 3.1(g), insofar as they relate to federal and State securities laws requirements, are made in reliance on the representations and warranties of the Purchasers contained in Section 3.2 of this Agreement. (h) STATUS OF SECURITIES. Subject to satisfaction of the condition set forth in Section 4.1(a) hereof, the Units and the shares of Common Stock issuable upon exercise of the Warrants have been authorized by all necessary corporate action on the part of the Company. When the Units are delivered to the Purchasers at the Closing against payment therefor as provided herein, the Senior Notes, Series A Preferred Stock and Warrants included therein will be duly authorized, validly issued and, in the case of the Series A Preferred Stock, fully paid and nonassessable, and in each case will not be issued in violation of the preemptive rights of any Person. Subject to the approvals and compliance referred to in the second sentence of Section 3.1(g) hereof, shares of Common Stock issued by the Company (i) upon exercise of Warrants in accordance with their terms or (ii) pursuant to Section 6(b) of the Senior Notes or Section 2(b) of the Certificate of Designations, will be duly authorized, validly issued and non-assessable at the time of issuance and will not be issued in violation of the preemptive rights of any Person. The representations and warranties contained in this Section 3.1(h), insofar as they relate to federal and State securities laws requirements, are made in reliance on the representations and warranties of the Purchasers contained in Section 3.2 of this Agreement. (i) SECURITIES REPORTS. The Company has filed all reports and other documents required to be filed by it under the Exchange Act and the Securities Act on a timely basis or has received a valid extension of such time of filing, and all such reports and other documents complied in all material respects with the requirements of the Exchange Act and the Securities Act, as applicable, and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, at the time and in light of the circumstances under which they were made, not misleading. (j) FINANCIAL STATEMENTS. (i) The Company has previously delivered to each Purchaser (x) consolidated balance sheets of the Company as of December 31, 1994 and 1993 and consolidated statements of operations, changes in shareholders' equity and cash flows of the Company for each of the years ended December 31, 1994, 1993 and 1992, accompanied by the related audit report of Deloitte & Touche LLP, and (y) an unaudited consolidated balance sheet of the Company as of June 30, 1995 and unaudited consolidated statements of operations, changes in shareholders' equity and cash flows of the Company for the six months ended June 30, 1995. The foregoing financial statements, as well as the financial statements of the Company to be delivered pursuant to Section 5.7(a) hereof (collectively the "Company Financial Statements"), fairly present or will fairly present, as the case may be, the consolidated financial condition of the Company as of the respective dates set forth therein, and the consolidated results of operations, changes in shareholders' equity and cash flows of the Company for the respective periods or as of the respective dates set forth therein. (ii) Each of the Company Financial Statements has been or will be, as the case may be, prepared in accordance with generally accepted accounting principles consistently applied during the periods involved, except as stated therein, and except that unaudited Company Financial Statements need not contain all of the footnote and line item disclosures that would be required for financial statements prepared in accordance with generally accepted accounting principles. The books and records of the Company and the Bank are being maintained in material compliance with applicable legal and accounting requirements, and such books and records accurately reflect in all material respects all dealings and transactions in respect of the business, assets, liabilities and affairs of the Company and the Bank. (iii) Except to the extent (x) reflected, disclosed or provided for in the consolidated statement of financial condition of the Company as of June 30, 1995 (including related notes) and (y) of liabilities incurred since such date in the ordinary course of business, neither the Company nor the Bank has any liabilities, whether absolute, accrued, contingent or otherwise, which would have a Material Adverse Effect. (k) MATERIAL ADVERSE CHANGE. Except as Previously Disclosed, since June 30, 1995, no events or developments involving the Company or the Bank have occurred which, individually or in the aggregate, (i) have had, or would reasonably be likely to have, a Material Adverse Effect, provided that any special assessment of SAIF-insured institutions to recapitalize the SAIF shall not be deemed to have such an effect if the condition set forth in Section 4.1(f)(iii) hereof is satisfied, or (ii) materially impair the ability of the Company or the Bank to perform its obligations under this Agreement, any Related Agreement to which it will become a party or any of the Securities. (l) ENVIRONMENTAL MATTERS. (i) To the best of the knowledge of the Company and the Bank, the Company and the Bank are in compliance with all Environmental Laws, except for any violations of any Environmental Law which would not, individually or in the aggregate, have a Material Adverse Effect. Neither the Company nor the Bank has received any communication alleging that the Company or any Company Subsidiary is not in such compliance and, to the best knowledge of the Company, there are no present circumstances that would prevent or interfere with the continuation of such compliance. (ii) To the best of the knowledge of the Company and the Bank, none of the properties owned, leased or operated by the Company or the Bank has been or is in violation of or liable under any Environmental Law, except for any such violations or liabilities which would not individually or in the aggregate have a Material Adverse Effect. (iii) To the best of the knowledge of the Company and the Bank, there are no past or present actions, activities, circumstances, conditions, events or incidents that could reasonably form the basis of any Environmental Claim or other claim or action or governmental investigation that could result in the imposition of any liability arising under any Environmental Law against the Company or the Bank or against any Person whose liability for any Environmental Claim the Company or the Bank has or may have retained or assumed either contractually or by operation of law, except such as would not have a Material Adverse Effect. (m) TAX MATTERS. The Company and the Bank have timely filed all Tax Returns required by applicable law to be filed by them (including, without limitation, estimated tax returns, income tax returns, information returns and withholding and employment tax returns) and have paid, or where payment is not required to have been made, have set up an adequate reserve or accrual for the payment of, all Taxes required to be paid in respect of the periods covered by such Tax Returns, except in all cases where the failure to do so does not or will not have a Material Adverse Effect. As of the date hereof, there is no audit examination, assessed deficiency, deficiency litigation or refund litigation with respect to any Taxes of the Company or the Bank. All Taxes due with respect to completed and settled examinations or concluded litigation relating to the Company have been paid in full or adequate provision has been made for any such Taxes on the Company's consolidated statement of financial condition in accordance with generally accepted accounting principles. The Company has not executed an extension or waiver of any statute of limitations on the assessment or collection of any material tax due that is currently in effect. Nothing has occurred, whether by action or by failure to act, which would subject to recapture the bad debt reserves established by the Bank for federal income tax purposes under Section 593 of the Code. (n) ERISA. The Company is in compliance in all material respects with all presently applicable provisions of ERISA; no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company would have any material liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 (whether or not waived) or 4971 of the Code; and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (o) LITIGATION. There are no actions, suits, investigations or legal proceedings pending against, or to the knowledge of the Company threatened against, or affecting the Company or the Bank or their respective properties before any court or governmental body or agency which would reasonably be expected to have a Material Adverse Effect or which in any manner challenge the legality, validity or enforceability of this Agreement, any of the Related Agreements or any of the Securities, or which would reasonably be expected to materially impair the ability or obligation of the Company or the Bank to perform fully on a timely basis their respective obligations under this Agreement, any Related Agreement to which it will become a party or any of the Securities. (p) COMPLIANCE WITH LAWS. Each of the Company and the Bank has all permits, licenses, certificates of authority, orders and approvals of, and has made all filings, applications and registrations with, federal, State, local and foreign governmental or regulatory bodies that are necessary in order to permit it to carry on its business as it is presently being conducted and the absence of which could have a Material Adverse Effect; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect; and to the best knowledge of the Company, no suspension or cancellation of any of the same is threatened. (q) NO DEFAULT OR VIOLATION. Neither the Company nor the Bank currently is in violation of its Certificate of Incorporation and Charter, respectively, its Bylaws, or of any applicable federal, state or local law or ordinance or any order, rule or regulation of any federal, state, local or other governmental agency or body (including, without limitation, all banking, securities, safety, health, environmental, zoning, anti- discrimination, antitrust, and wage and hour laws, ordinances, orders, rules and regulations), or in default with respect to any order, writ, injunction or decree of any court, or in default under any order, license, regulation or demand of any governmental agency, any of which violations or defaults could, individually or in the aggregate, reasonably be deemed (i) to have a Material Adverse Effect or (ii) materially adversely impair the ability of the Company or the Bank to perform on a timely basis any obligation which it has under this Agreement, any Related Agreement to which it will become a party or any of the Securities and neither the Company nor the Bank has received any notice or communication from any federal, state or local governmental authority asserting that the Company or the Bank is in violation of any of the foregoing which could reasonably be deemed to have any effect set forth in clauses (i) or (ii) above. Except for the Capital Directive issued by the OTS to the Bank as of June 30, 1995 and as Previously Disclosed, neither the Company nor the Bank is subject to any regulatory or supervisory cease and desist order, agreement, written directive, memorandum of understanding or written commitment, and none of them has received any written communication requesting that they enter into any of the foregoing. (r) CERTAIN FEES. Except for fees and expenses payable by the Company to the Placement Agent, as Previously Disclosed, no fees or commissions will be payable by the Company or the Bank to brokers, finders, investment bankers or banks pursuant to any agreement entered into by the Company or the Bank with respect to the offer and sale of the Units or any of the other transactions contemplated hereby. (s) USURY LAWS. The Senior Notes will not be subject to a defense that the interest rate is in violation of the usury laws of the State of California, as currently in effect. The Company hereby waives, to the fullest extent permitted by applicable law, its right to assert the violation of any such usury law and the usury law of any other applicable jurisdiction as a defense to the fulfillment of any of its obligations under the Senior Notes and covenants and agrees to take all reasonable actions as may be necessary in the future to make such waiver effective. (t) CERTAIN ASSETS. The Company has Previously Disclosed a true and correct listing of the following assets of the Company and its Subsidiaries as of August 31, 1995: (i) all non-performing loans, securities or other assets (i.e., all assets on which the Company or the Bank has ceased recognizing interest under generally accepted accounting principles or as to which any payments of principal or interest are past due 90 or more days as of such date), (ii) all loans, securities or other assets as to which any payments of principal or interest are past due 60 or more days, (iii) all loans, securities or other assets not included in the foregoing which have been classified special mention, substandard, doubtful or loss by management of the Company or the Bank or regulatory examiners, and (iv) each parcel of Real Estate Owned (excepting such parcels as may have been disposed of in the ordinary course of business subsequent to such date), including an identification of the amount of reserves which have been established with respect to each such parcel and its net carrying value. (u) NO DEBT. Except for the Senior Notes and Permitted Debt (as defined in Section 4(c)(i) and (ii) of the Senior Notes), as of the date hereof the Company, on an unconsolidated basis, does not have any outstanding Debt (as defined in Section 3 of the Senior Notes), and except for the Senior Notes and Permitted Debt, the Company will have no outstanding Debt on the Closing Date. (v) PRIVATE OFFERING. Neither the Company nor, assuming the accuracy of such representations of the Placement Agent as may be requested by the Company in connection with the transactions contemplated hereby, any Person acting on its behalf, has taken or will take any action which might subject the offering, issuance or sale of the Units to the registration requirements of the Securities Act or comparable provisions of any applicable State securities laws. (w) DISCLOSURE. None of the representations and warranties of the Company or any of the information or documents which have been Previously Disclosed to a Purchaser pursuant hereto are false or misleading in any material respect or contain any untrue statement of a material fact, or omit to state any material fact required to be stated or necessary to make any such information or document, at the time and in light of the circumstances, not misleading. Copies of all documents referred to in this Section 3.1 are true, correct and complete copies thereof and include all amendments, supplements and modifications thereto and all waivers thereunder. SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. (a) INVESTMENT INTENT. Each Purchaser, severally and not jointly and as to itself only, represents and warrants to, and covenants and agrees with, the Company that the Securities to be acquired by it hereunder are being acquired for its own account for investment and with no intention of distributing or reselling such Securities or any part thereof or interest therein in any transaction which would be in violation of the securities laws of the United States of America or any State, without prejudice, however, to a Purchaser's right, subject to the provisions of this Agreement and the Registration Rights Agreement, at all times to sell or otherwise dispose of all or any part of such Securities under an effective registration statement under the Securities Act and other applicable State securities laws or under an exemption from such registration, and subject, nevertheless, to the disposition of a Purchaser's property being at all times within its control. Each Purchaser, severally and not jointly and as to itself only, further represents and warrants to the Company that such Purchaser has no present agreement, understanding, plan or intent to transfer the Units (including the Warrants) to be purchased by it to any transferee. (b) TRANSFER RESTRICTIONS. (i) If a Purchaser should decide to dispose of any of the Securities, such Purchaser understands and agrees that it may do so only pursuant to an effective registration statement under the Securities Act or as set forth below: (i) to the Company, (ii) to any Person reasonably believed by such Purchaser to be a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in compliance with Rule 144A under the Securities Act, (iii) pursuant to an exemption from registration set forth in Rule 144 under the Securities Act, (iv) to any Person who is reasonably believed by such Purchaser to be an "accredited investor" (as defined in Rule 501(a) under the Securities Act) and that, prior to such transfer, furnishes to the Purchaser and the Company a signed letter confirming its status as an accredited investor and agreeing to the restrictions on transfer of the Securities set forth in this Agreement or (v) to any Affiliate of such Purchaser pursuant to an applicable exemption under the Securities Act. In connection with any transfer of any Securities other than (i) any transfer pursuant to an effective registration statement or (ii) any transfer by a qualified institutional buyer (as defined in Rule 144A under the Securities Act) pursuant to clause (i) or (ii) above, the Company may require that the transferor of any such Securities provide to the Company an opinion of counsel experienced in the area of United States securities laws selected by the transferor (which may include in-house counsel of a transferor), which counsel shall be and the form and substance of which opinion shall be, reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such Securities under the Securities Act or any State securities laws. In connection with any transfer pursuant to clause (ii) above, the Company may request reasonable certification as to the status of the transferor's transferee as a qualified institutional buyer. Each Purchaser agrees to the imprinting, so long as appropriate, (i) on the Senior Notes of the first legend set forth on the form of Senior Note included as Exhibit B hereto, (ii) on the Warrants of the first legend set forth on the form of Warrant included as Exhibit D hereto and (iii) on certificates representing the Series A Preferred Stock and the Common Stock issuable (x) upon exercise of the Warrants or (y) pursuant to Section 6(b) of the Senior Notes and/or Section 2(b) of the Certificate of Designations, a legend substantially similar to the foregoing legends. The legends set forth above may be removed if and when the applicable Securities are disposed of pursuant to an effective registration statement under the Securities Act or in the opinion of counsel to the Company experienced in the area of United States securities laws such legend is no longer required under applicable requirements of the Securities Act. The Senior Notes, Warrants and certificates evidencing the Series A Preferred Stock and Common Stock referred to in clauses (i), (ii) and (iii) above also shall bear any other legends required by applicable federal or state securities laws, which legends may be removed when, in the opinion of counsel to the Company experienced in the applicable securities laws, the same are no longer required under the applicable requirements of such securities laws. The Company agrees that it will provide each Purchaser, upon request, with a substitute document evidencing the Securities not bearing such legend at such time as such legend is no longer applicable. (ii) Each Purchaser understands and agrees that it may transfer the Senior Note, shares of Series A Preferred Stock and Warrant which comprise a Unit (including any Fractional Unit) only together as such until the earlier of (x) the date the Company files with the Commission its annual report on Form 10-K for the year ended December 31, 1996 and (y) March 30, 1997. Each Purchaser agrees to the imprinting, so long as appropriate, of the second legend set forth on the form of Senior Notes and the form of Warrant included as Exhibit B and Exhibit D hereto, respectively, on the Senior Notes, certificates evidencing Series A Preferred Stock and Warrants which are included in the Units. Such legends may be removed following the expiration of the restrictions on transfer contained in paragraph (b)(ii) and (iii) of this Section 3.2, and the Company agrees that it will provide each Purchaser, upon request, with a substitute document evidencing the Senior Notes, Series A Preferred Stock and Warrants comprising the Units not bearing such legend at such time as such legend is no longer applicable. (iii) Each Purchaser understands and agrees that until the Warrants become exercisable in accordance with their terms, it will give the Company not less than 10 Business Days' notice of any proposed transfer of Units and/or Securities, accompanied by information related to such transfer which is reasonably sufficient to enable the Company to make the determinations referred to herein, so that the Company may determine in its reasonable judgment whether (i) such proposed transfer involves a person who is a "5% shareholder" of the Company, as that term is defined in Section 382(k)(7) of the Code, or who would become a 5% shareholder of the Company as a result of such proposed transfer, and, if so, (ii) whether such proposed transfer could reasonably be expected to result in an "ownership change" under Section 382 of the Code and the regulations promulgated thereunder (taking into account both the proposed transfer and any other transactions of which the Company is aware) and, if so, (iii) whether such "ownership change" would result in a material loss of tax benefits to the Company. In the event the Company makes such determinations and provides the Purchaser with written notice of the same within 10 Business Days of its receipt of the above-referenced notice from the Purchaser, or in the event the Company makes a reasonable written request to such Purchaser for further information concerning such proposed transfer within the same 10-Business Day period and makes the foregoing determinations within 10 Business Days after receipt of such further information, the Purchaser agrees not to effect any such transfer as the Company may request in order to avoid such an "ownership change." (c) STOP TRANSFER INSTRUCTIONS. Each Purchaser agrees that the Company shall be entitled to make a notation on its records and give instructions to any transfer agent of the Securities in order to implement the restrictions on transfer set forth in Section 3.2(b) of this Agreement. (d) ACCREDITED INVESTOR. Each Purchaser, severally and not jointly and as to itself only, represents and warrants to, and covenants and agrees with, the Company that (i) at the time it was offered the Units, it was, (ii) at the date hereof, it is, and (iii) at the Closing, it will be, an "accredited investor" as defined in Rule 501(a) under the Securities Act, and has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment, is able to bear the economic risk of such investment and, at the present time, is able to afford a complete loss of such investment. (e) DUE EXECUTION. Each Purchaser, severally and not jointly and as to itself only, represents and warrants to the Company that this Agreement has been, and each Related Agreement to which it will become a party will be, duly executed and delivered by it or on its behalf and constitutes, or will constitute, as applicable, a valid and binding obligation of such Purchaser, enforceable against the Purchaser in accordance with its terms, except that (i) rights to indemnity and contribution under the Registration Rights Agreement may be limited by applicable law, (ii) enforceability may be limited by bankruptcy, insolvency, moratorium and similar laws affecting creditors' rights generally and (iii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (f) NO CONFLICT. Each Purchaser, severally and not jointly and as to itself only, represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement and each of the Related Agreements to which it will become a party do not and will not, as applicable, conflict with or constitute a breach or a default under (i) its articles of incorporation, charter or other organizational document or bylaws, as applicable, (ii) any material obligation, agreement, indenture, bond, debenture, note, instrument or any other evidence of indebtedness to which it is a party or its assets are subject or (iii) subject to Section 3.2(i) hereof, any law, ordinance, order, license, rule or other regulation or demand of any court or governmental agency, arbitration panel or authority applicable to it. (g) ACCESS TO INFORMATION. Each Purchaser acknowledges receipt of the Confidential Memorandum and further acknowledges that prior to the date hereof and, subject to the Company's compliance with its obligations pursuant to Section 5.3(a) hereof, on and subsequent to the date hereof, it has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Units and the merits and risks of investing in the Units and (ii) access to information about the Company and the Company's financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment in the Units. (h) RELIANCE. Each Purchaser also understands and acknowledges that (i) the Units are being offered and sold without registration under the Securities Act in a private placement that is exempt from the registration provisions of the Securities Act and (ii) such exemption depends in part on, and that the Company, its counsel and the Private Placement Agent will rely upon, the accuracy and truthfulness of the foregoing representations and warranties of such Purchaser, and such Purchaser hereby consents to such reliance. (i) GOVERNMENTAL AUTHORIZATION. Except for (i) compliance with applicable federal and State securities laws in connection with the performance by a Purchaser of its obligations under the Registration Rights Agreement, (ii) any required compliance by a Purchaser with applicable federal and State securities laws, HSR and/or federal banking laws and regulations in connection with (x) the issuance of shares of Common Stock upon exercise of the Warrants in accordance with their terms or (y) any issuance of Common Stock pursuant to Section 6(b) of the Senior Notes or Section 2(b) of the Certificate of Designations and (iii) such written confirmations from the OTS as may be reasonably determined by a Purchaser to be necessary to ensure that upon consummation of the transactions contemplated by Section 2.1 hereof it will not be deemed to be in control of the Company or subject to a rebuttable presumption of control of the Company under the HOLA and 12 C.F.R. Part 574, each Purchaser, severally and not jointly and as to itself only, represents and warrants to the Company that no consent, approval, order or other authorization of any governmental, administrative or regulatory body or agency is legally required by or on behalf of the Purchaser in connection with the execution, delivery and performance of this Agreement and each Related Agreement to which it will become a party. (j) OWNERSHIP OF COMPANY STOCK. (i) Each Purchaser who is an individual, severally and not jointly and as to itself only, represents and warrants to the Company that, other than by virtue of this Agreement and in the case of Management as Previously Disclosed, (A) he does not own any Capital Stock or Stock Equivalents of the Company, and that to his knowledge after due inquiry none of his spouse, parents, children or grandchildren (including for this purpose, persons related by blood or adoption) (collectively, the "Related Persons") owns any Capital Stock or Stock Equivalents of the Company, (B) to his knowledge after due inquiry no partnership, limited liability company or corporation in which he or any of his Related Persons owns a 5% or greater interest and no estate or trust of which he or any of his Related Persons is a beneficiary (collectively, "Related Entities"), owns, directly or indirectly, any Capital Stock or Stock Equivalents of the Company, and (C) neither such Purchaser nor to the knowledge of such Purchaser after due inquiry any of such Purchaser's Related Persons or any entity that constitutes a Related Entity with respect to such Purchaser has any present intention or plan to acquire Common Stock or Stock Equivalents of the Company otherwise than through the exercise of the Warrants and the terms of the Units. (ii) Each Purchaser that is not an individual, severally and not jointly and as to itself only, represents and warrants to the Company that, other than by virtue of this Agreement, (A) it does not own any Capital Stock or Stock Equivalents of the Company, (B) to such Purchaser's knowledge after due inquiry, no partnership, limited liability company or corporation in which it owns a 5% or greater interest, or estate or trust of which it is a beneficiary owns, directly or indirectly, any Capital Stock or Stock Equivalents of the Company and (C) neither it nor to its knowledge after due inquiry any Affiliate has any present intention or plan to acquire Common Stock or Stock Equivalents of the Company otherwise than through the exercise of the Warrants and the terms of the Units. (iii) Each Purchaser, whether or not an individual, severally and not jointly and as to itself only, further represents and warrants to the Company that (A) such Purchaser owns no shares of stock of any funds advised by Heine Securities Corporation or Dimensional Fund Advisors Inc and (B) to such Purchaser's knowledge, no partnership, limited liability company or corporation in which he or it owns an interest of less than 5% owns, directly or indirectly, any Common Stock, or Stock Equivalents of the Company, nor does any such partnership, limited liability company or corporation have any present intention or plan to acquire any such Common Stock or Stock Equivalents. (iv) Each Purchaser, severally and not jointly and as to itself only, represents and warrants to the Company that, except as Previously Disclosed, it does not bear a relationship to any other Purchaser that is specified in Section 267(b) or Section 707(b) of the Code. ARTICLE IV CONDITIONS PRECEDENT TO THE CLOSING SECTION 4.1 CONDITIONS TO OBLIGATIONS OF THE PARTIES. The respective obligations of each of the parties hereto to fulfill their obligations under Section 2.1 hereof at the Closing shall be subject to the satisfaction or waiver prior to the Closing of the following conditions: (a) All requirements prescribed by law which are necessary to the consummation of the transactions contemplated by this Agreement shall have been satisfied. (b) No party hereto shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of any of the transactions contemplated by this Agreement. (c) No statute, rule or regulation shall have been enacted, entered, promulgated, interpreted, applied or enforced by any governmental authority which prohibits, restricts or makes illegal consummation of any of the transactions contemplated by this Agreement. (d) Each of the parties hereto shall have received (i) a counterpart to this Agreement, duly executed and delivered by the parties hereto, and (ii) a counterpart of each Related Agreement (other than the Senior Notes) to which it is a party, in form and substance satisfactory to the parties, which shall have been duly executed and delivered by the Company, the Bank and the Purchaser or Purchasers, as applicable. (e) The Certificate of Designations shall have been filed with the Secretary of State of the State of Delaware in accordance with the Delaware General Corporation Law. (f) The OTS shall have indicated in writing to the Bank that upon the submission by the Company of notice to the OTS of the consummation of the transactions contemplated by Section 2.1 hereof, (i) the Prompt Corrective Action Directive issued to the Bank by the OTS as of June 30, 1995 will be terminated, (ii) the regulatory capital requirements applicable to the Bank will be the requirements of general applicability set forth at 12 C.F.R. 567.2 and related regulations and there will be no individual minimum regulatory capital requirement required to be maintained by the Bank, (iii) the OTS will not, solely by virtue of any special assessment to recapitalize the SAIF, require the Bank to meet an individual minimum regulatory capital requirement or otherwise increase the amount of regulatory capital required to be maintained by the Bank, and (iv) the Bank will not be subject to any capital restoration plan filing requirement and the Bank's revised capital plan submitted to the OTS on June 22, 1995 will be void. SECTION 4.2 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS. The obligations of each of the Purchasers to fulfill its obligations under Section 2.1 hereof shall be subject to the satisfaction or waiver prior to the Closing of the following conditions: (a) Each of the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as if made on the Closing Date (or on the date when made in the case of any representation or warranty which specifically relates to an earlier date); the Company shall have performed, in all material respects, each of its covenants and agreements contained in this Agreement to be performed prior to the Closing; and each of the Purchasers shall have received a certificate signed by the Chief Executive Officer and the Chief Financial Officer of the Company, dated the Closing Date, to the foregoing effect. (b) The Company shall have delivered to each Purchaser a Senior Note, certificate evidencing Series A Preferred Stock and a Warrant, in each case registered in the name of the Purchaser, sufficient to evidence the Securities in the Units to be issued and sold by the Company and purchased by the Purchaser, as set forth on Exhibit A hereto, against payment therefor to the Company in the amount of $500,000 per Unit (subject to pro rata adjustment in the case of any Fractional Unit). (c) Each Purchaser shall have received such written confirmations from the OTS as may be reasonably determined by it to be necessary to ensure that upon consummation of the transactions contemplated by Section 2.1 hereof it will not be deemed to be in control of the Company or subject to a rebuttable presumption of control of the Company under the HOLA and 12 C.F.R. Part 574, and no such confirmation shall include any condition or requirement that, individually or in the aggregate, would reduce the benefits of the transactions contemplated by this Agreement in so significant a manner that the party, in its judgment, would not have entered into this Agreement had such condition or requirement been known at the date hereof. (d) The Company shall have delivered to each Purchaser a certificate signed by the Chief Executive Officer and Chief Financial Officer of the Company, dated the Closing Date, to the following effect: (i) at November 30, 1995, the Company had not less than $23,500,000 of consolidated shareholders' equity under generally accepted accounting principles; (ii) at November 30, 1995, the Company's consolidated general allowance for loan losses and consolidated general allowance for losses on Real Estate Owned (x) amounted to not less than $12,500,000 in the aggregate and (y) complied with any applicable requirement of the OTS, including without limitation the requirements set forth in a letter, dated October 5, 1995, from Timothy J. Layne, Assistant Regional Director of the OTS, to Scott A. Braly; (iii) from August 1, 1995 to November 30, 1995, the Company received not less than $14,000,000 of net proceeds from the sale of Real Estate Owned (other than apartment buildings), which sales in each case have been recorded by the Company as such under generally accepted accounting principles; (iv) at November 30, 1995, the Company's consolidated Non-performing Assets amounted to not more than $50,600,000; and (v) to the best of the knowledge and belief of each such officer, no event has occurred subsequent to November 30, 1995 which would make the statements in clauses (i)-(iv) above inaccurate. (e) Unless waived by the Purchasers in accordance with Section 6.3(a) hereof, either (i) the Company's issuance of the Warrants included in the Units to be sold pursuant to this Agreement shall have been approved by the requisite vote of the holders of the Common Stock pursuant to Section 6(i)(1)(D) of Part III to Schedule D of the Bylaws of the NASD or (ii) the Company shall have obtained an exemption from such requirement to obtain shareholder approval upon application to the NASD and mailed to all shareholders of the Company the notice referred to in Section 6(i)(1)(e) of Part III to Schedule D of the Bylaws of the NASD. (f) Members of Management shall have agreed, by their execution of this Agreement, to purchase in the aggregate not less than 5% of the aggregate Units to be sold by the Company pursuant to this Agreement. (g) Each Purchaser shall have received, in form and substance reasonably satisfactory to it, an opinion, addressed to the Purchasers and dated the Closing Date, of Mayer, Brown & Platt, counsel for the Company and the Bank, with respect to the matters set forth in Exhibit H hereto. (h) No party to this Agreement (other than the relevant Purchaser) shall be in material breach of this Agreement unless such breach shall have been waived in writing by each of the other parties to this Agreement. (i) Each Purchaser shall have received such other certificates, opinions, documents and instruments related to the transactions contemplated hereby as may have been reasonably required by it and are customary for transactions of this type, and all corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement, shall be reasonably satisfactory in form and substance to it and its counsel. SECTION 4.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of the Company to fulfill its obligations under this Agreement, including without limitation the obligations set forth in Section 2.1 hereof, shall be subject to the satisfaction or waiver prior to the Closing of the following conditions, provided that the condition set forth at paragraph (e) below may not be waived without the prior written consent of the Purchasers: (a) Each of the representations and warranties of the Purchasers contained in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as if made on the Closing Date, and the Company shall have received a certificate signed by each Purchaser who is an individual and by a duly authorized officer of each other Purchaser to the foregoing effect. (b) Each Purchaser shall have delivered to the Company $500,000 per Unit (subject to pro rata adjustment in the case of any Fractional Unit) for each of the Units to be issued and sold by the Company and purchased by the Purchaser pursuant to this Agreement, as set forth on Exhibit A hereto, such amount to be payable (i) by wire transfer of immediately available funds to an account with a bank designated by the Company, by notice to each of the Purchasers to be provided no later than two Business Days prior to the Closing Date, or (ii) a federal (same day) funds check payable to the order of the Company. (c) No party to this Agreement (other than the Company) shall be in material breach of this Agreement unless such breach shall have been waived in writing by each of the other parties to this Agreement. (d) The Company shall have received such other certificates, opinions, documents and instruments related to the transactions contemplated hereby as may have been reasonably required by the Company and are customary for transactions of this type, and all corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement, shall be reasonably satisfactory in form and substance to the Company and its counsel. (e) The Company shall have received, in form and substance reasonably satisfactory to the Company, an opinion, addressed to it and dated the Closing Date of Mayer, Brown & Platt, counsel for the Company and the Bank, to the effect that there is "substantial authority" within the meaning of Treasury Regulation 1.6662-4(d) to support the conclusion that consummation of the transactions contemplated by Section 2.1 hereof will not result in a change of ownership of the Company for purposes of Section 382 of the Code. ARTICLE V COVENANTS SECTION 5.1 SHAREHOLDER MEETING; EXEMPTION. The Company agrees to use its best efforts to obtain from the NASD an exemption from the requirement, pursuant to Section 6(i)(1)(d) of Part III to Schedule D of the Bylaws of the NASD, to obtain shareholder approval of the issuance of the Warrants included in the Units to be sold pursuant to this Agreement and, in the event it obtains such exemption, to mail to all shareholders of the Company the notice referred to in Section 6(i)(1)(e) of Part III to Schedule D of the Bylaws of the NASD (collectively, the "NASD Exemption"). In the event that the Company does not obtain the NASD Exemption by October 15, 1995, the Company shall (i) take all action necessary (including without limitation the preparation, filing and dissemination of requisite proxy materials) to have its shareholders consider the issuance of the Warrants included in the Units to be sold pursuant to this Agreement at a special meeting of shareholders which is called for the purpose as promptly as practicable after the date hereof, (ii) recommend that its shareholders approve the issuance of the Warrants included in the Units to be sold pursuant to this Agreement and use its best efforts to obtain (including without limitation retaining a proxy solicitor if requested by any Purchaser), as promptly as practicable, such approval and (iii) cooperate and consult with the Purchasers with respect to each of the foregoing matters, provided that the Company may cease taking any of the actions set forth in the foregoing clauses if it obtains the NASD Exemption. SECTION 5.2 APPLICATIONS. In the event that any approval, consent or non-objection need be obtained by the Company, the Bank or any Purchaser from, or a notice or other filing need be filed by the Company, the Bank or any Purchaser with, the OTS, the FDIC or any other governmental authority (including without limitation the Federal Trade Commission and the Assistant Attorney General in charge of the Antitrust Division of the U.S. Department of Justice pursuant to the HSR) in connection with (i) the execution, delivery and performance of this Agreement or any Related Agreement by the Company, the Bank or any Purchaser or (ii) the Company's issuance of Common Stock upon exercise of Warrants or pursuant to Section 6(b) of the Senior Notes or Section 2(b) of the Certificate of Designations, such party shall take all actions necessary to obtain any such approval, consent or non-objection or file such notice or other filing as promptly as practicable, and the other parties hereto agree to cooperate with such party in obtaining or filing the same. Any party that is required to file any notice, application or other document pursuant to the preceding sentence shall provide copies thereof (excluding any confidential information) for review to each Purchaser who is a Material Securityholder in the case of the Company, and to the Company in the case of a Purchaser, not less than three Business Days prior to the making of such filing and shall keep such other party or parties hereto, as applicable, apprised of the status of such filing and the consideration thereof by the relevant governmental authority. SECTION 5.3 INVESTIGATION AND CONFIDENTIALITY. (a) Prior to the Closing, the Company shall permit each Purchaser and its representatives reasonable access to its properties and personnel, and shall disclose and make available to each Purchaser all books, papers and records relating to the assets, stock ownership, properties, operations, obligations and liabilities of the Company and its Subsidiaries, including, but not limited to, all books of account (including the general ledger), tax records, minute books of meetings of boards of directors (and any committees thereof) and shareholders, organizational documents, bylaws, material contracts and agreements, filings with any regulatory authority, accountants' work papers, litigation files, loan files, plans affecting employees, and any other business activities or prospects in which a Purchaser may have a reasonable interest, provided that such access shall be reasonably related to the transactions contemplated hereby and not unduly interfere with normal operations, and provided further that in the event that any of the foregoing are in the control of any third party, the Company shall use its best efforts to cause such third party to provide access to such materials to each Purchaser who shall request the same. In the event that the Company is prohibited by law from providing any of the access referred to in the preceding sentence to a Purchaser, it shall use its best efforts to obtain promptly waivers thereof so as to permit such access. The Company shall make the directors, officers, employees and agents and authorized representatives (including counsel and independent public accountants) of the Company and its Subsidiaries available to confer with a Purchaser and its representatives, provided that such access shall be reasonably related to the transactions contemplated hereby and not unduly interfere with normal operations. (b) All information furnished to a Purchaser by the Company previously in connection with the transactions contemplated by this Agreement or pursuant hereto shall be treated as the sole property of the Company and each Purchaser covenants, severally and not jointly and as to itself only, that it shall use its best efforts to keep confidential all such information and shall not directly or indirectly use such information for any competitive or other commercial purposes. The obligation to keep such information confidential shall continue for five years from the date hereof but shall not apply to (i) any information which (x) a Purchaser can establish by convincing evidence was already in its possession prior to the disclosure thereof by the Company; (y) was then generally known to the public; or (z) became known to the public through no fault of a Purchaser; or (ii) disclosures pursuant to a legal requirement or in accordance with an order of a court of competent jurisdiction, provided that a Purchaser shall use its best efforts to give the Company at least ten Business Days prior notice thereof and shall limit such disclosure to the minimum amount required by such legal requirement or court order. SECTION 5.4 PRESS RELEASES. The Company and each Purchaser who will be a Material Securityholder upon consummation of the transactions specified in Section 2.1 hereof shall agree with each other as to the form and substance of any press release related to this Agreement or the transactions contemplated hereby, and consult with each other as to the form and substance of other public disclosures which may relate to the transactions contemplated by this Agreement, provided, however, that nothing contained herein shall prohibit any party, following notification to such other parties, from making any disclosure which it determines in good faith is required by law or regulation. For purposes of the foregoing, the Company may treat a law firm designated from time to time by the Purchasers who are Material Securityholders as the authorized representative of each of the Purchasers. SECTION 5.5 NO SOLICITATION. Prior to the Closing, neither the Company nor the Bank, nor any of the directors, officers, employees, representatives or agents of the Company or other persons controlled by the Company, shall solicit or encourage inquiries or proposals with respect to, furnish any information relating to, or participate in any negotiations or discussions concerning, any acquisition, lease or purchase of all or a substantial portion of the assets of, or any equity interest in, the Company or the Bank, or any business combination with the Company or the Bank, other than as contemplated by this Agreement. The Company will immediately notify the Purchasers orally and in writing if any such inquiries or proposals are received by, or such information is requested from, or any such negotiations or discussions are sought to be initiated with, the Company or the Bank. SECTION 5.6 USE OF PROCEEDS. On the Closing Date the Company shall apply the net proceeds from the sale of Units pursuant to this Agreement as follows: (i) not less than $17,500,000 of such net proceeds shall be contributed by the Company to the Bank as additional paid-in capital on the Capital Stock of the Bank held by the Company; and (ii) an amount of such net proceeds equal to the first six full semi-annual interest payments which become due on the Senior Notes shall be used to establish and maintain the Interest Reserve Account required by Section 1(b) of the Senior Notes and the Security Agreement. SECTION 5.7 CURRENT INFORMATION. (a) Between the date hereof and the Closing, the Company shall provide to each Purchaser (i) promptly following the filing thereof, copies of each report filed by the Company under the Exchange Act and each regular and periodic report filed by the Company and the Bank with the OTS, (ii) concurrently with the mailing thereof, copies of each communication sent by the Company to its shareholders generally and (iii) within 15 days after the end of the month of November 1995 (and in any event prior to the Closing), a consolidated statement of operations of the Company for each of October and November 1995 and for the period beginning at the commencement of the fiscal year and ending at the end of each such monthly period, and a consolidated balance sheet of the Company as of November 30, 1995, in each case prepared in accordance with generally accepted accounting principles. (b) Subsequent to the Closing, the Company shall furnish to each Purchaser who holds Series A Preferred Stock and/or Warrants, promptly upon their becoming available, (i) each communication sent by the Company to its shareholders generally, (ii) each report filed by the Company with the Commission pursuant to the Exchange Act and (iii) each registration statement and prospectus filed by the Company with the Commission under the Securities Act, provided that the Company shall not be required to furnish any such Purchaser any of the same to the extent that it already has done so pursuant to Section 4(h)(iv) of the Senior Notes or the Registration Rights Agreement. SECTION 5.8 LISTING OF ADDITIONAL SHARES OF COMMON STOCK. The Company shall take all action which is necessary to ensure that Common Stock issuable upon exercise of the Warrants and Common Stock which may be issued pursuant to Section 6(b) of the Senior Notes or Section 2(b) of the Certificate of Designations will be eligible upon issuance for quotation on the Nasdaq Stock Market's National Market or any exchange on which the Common Stock is then traded. SECTION 5.9 RIGHTS OF FIRST REFUSAL. (a) Subject to subsection (g), for so long as a Purchaser is a holder of a Unit (an "Eligible Purchaser"), the Company agrees not to issue any of its Capital Securities or to permit the Bank to issue any of its Capital Securities (such Capital Securities of the Company and the Bank hereinafter deemed to be jointly covered by the term "Capital Securities") to any Person or Persons, other than in the case of Capital Securities of the Bank to the Company (a "Third Party Purchaser"), without first offering or causing the Bank to offer, as applicable, to such Eligible Purchaser the opportunity to purchase all or part of such Capital Securities being issued at the same purchase price and on the same terms as are proposed to be offered to a Third Party Purchaser. For this purpose, the Company shall deliver a written notice, or cause the Bank to deliver a written notice, as applicable (in each case a "Notice"), to each Eligible Purchaser of any proposed issuance of Capital Securities which shall contain all of the material terms of the proposed issuance, including, without limitation, the purchase price and total amount of Capital Securities proposed to be issued, which terms, including without limitation the purchase price and any conversion price or rate of such Capital Securities, may to the extent necessary be expressed in the form of good faith estimates by the Board of Directors of the Company. (b) Upon receipt of the Notice, each Eligible Purchaser will have the right to subscribe for all or part of the Capital Securities on the same terms set forth in the Notice, by delivery of written notice to the Company or the Bank, as applicable ("Acceptance Notice"), in accordance with the instructions set forth in the Notice, within 20 days from the date of its receipt of the Notice (the "Offer Period"). The Acceptance Notice shall specify the amount (not exceeding all) of the Capital Securities being offered with respect to which the Eligible Purchaser wishes to exercise its subscription rights. (c) An Acceptance Notice, once given by an Eligible Purchaser in accordance with subsection (b), shall become irrevocable at the end of the Offer Period unless it is withdrawn prior to the expiration of the Offer Period (any such Acceptance Notice which so becomes irrevocable being called an "Irrevocable Acceptance" and the Eligible Purchaser giving such notice being an "Accepting Eligible Purchaser"). (d) (i) In the event that any Eligible Purchaser fails to have delivered an Irrevocable Acceptance with respect to any Notice on or prior to the last day of the Offer Period with respect to such Notice, such Eligible Purchaser will have no further right to subscribe for the Capital Securities proposed to be issued in such Notice during a Free Sale Period commencing on the date immediately following the end of the Offer Period with respect to such Notice. (ii) In the event that no Eligible Purchasers shall have delivered an Irrevocable Acceptance with respect to a Notice on or prior to the last day of the Offer Period with respect to such Notice, the Company or the Bank, as applicable, will be entitled to a Free Sale Period with respect to the Capital Securities proposed to be issued in such Notice commencing on the date immediately following the end of the Offer Period with respect to such notice. (iii) In the event that Accepting Eligible Purchasers deliver Irrevocable Acceptances relating to an amount of Capital Securities in the aggregate in excess of the amount of Capital Securities proposed to be issued pursuant to the Notice, the amount of Capital Securities which each Accepting Eligible Purchaser shall be obligated to purchase will be such Eligible Purchaser's Purchaser Percentage of the Capital Securities proposed to be issued pursuant to such Notice (provided that, if one or more Accepting Eligible Purchasers deliver Irrevocable Acceptances to subscribe for less than such Eligible Purchaser's Purchaser Percentage, then the Capital Securities that would have been allocated to such Eligible Purchaser or Purchasers pursuant to this subsection (d)(iii) shall be allocated to the other Accepting Eligible Purchasers in accordance with their respective Purchaser's Percentages, except that no Accepting Eligible Purchaser shall be required to purchase any Capital Securities in an amount greater than the amount elected to be subscribed for by such Accepting Eligible Purchaser pursuant to its Irrevocable Acceptance). (iv) In the event that Accepting Eligible Purchasers exercise their option to purchase, pursuant to the foregoing provisions of this Section 5.9, in the aggregate, all (or, if the Company or the Bank, as applicable, shall so elect, more than 90%) of the Capital Securities proposed to be issued in the Notice, all such Eligible Purchasers and the Company or the Bank, as applicable, shall complete the purchase of the Capital Securities on the terms set forth in the Notice within 30 days of the expiration of the Offer Period, or within such longer period (not to exceed six months from the date of the Accepting Eligible Purchaser's Irrevocable Acceptance) as may be required for such Accepting Eligible Purchaser to obtain any applicable regulatory approvals that such Accepting Eligible Purchaser is making a good faith effort to obtain. If an Accepting Eligible Purchaser does not complete the purchase of Capital Securities as set forth above, other than as a result of the negligence, bad faith or wilful misconduct of the Company or the Bank or any action or omission made by the Company or the Bank that would prevent such an Accepting Eligible Purchaser from completing its purchase, the Company or the Bank, as applicable, will be entitled to a Free Sale Period commencing on the 31st day following the expiration of the Offer Period, subject to extension as set forth in the immediately preceding sentence. (v) Other than as set forth in subsection (vi) below (and subject to subsection (iv) above), in the event that Accepting Eligible Purchasers shall have delivered Irrevocable Acceptances for all or less than all of the Capital Securities set forth in the Notice, each Accepting Eligible Purchaser shall purchase, within the applicable period set forth in subsection (iv) above or subsection (vi) below, as the case may be, the amount of Capital Securities set forth in its Irrevocable Acceptance. (vi) In the event that Accepting Eligible Purchasers elect to subscribe for, in the aggregate, less than all (or if the Company or the Bank, as applicable, shall so elect 90%) of the Capital Securities proposed to be offered pursuant to the Notice, the Company or the Bank, as applicable, shall have a Free Sale Period commencing on the date immediately following the end of the Offer Period with respect to the Capital Securities offered pursuant to such Notice as to which Accepting Eligible Purchasers do not elect to subscribe and the Company agrees to sell, and to cause the Bank to sell, as applicable, and the Accepting Eligible Purchasers shall be obligated to purchase, the Capital Securities for which they subscribed substantially simultaneously (or, with respect to any Accepting Eligible Purchaser, within such longer period (not to exceed four months from the relevant purchase by the Third Party Purchaser) as may be required for such Accepting Eligible Purchaser to obtain any applicable regulatory approvals that such Accepting Eligible Purchaser is making a good faith effort to obtain) with the purchase by the Third Party Purchaser of the balance of the Capital Securities proposed to be offered pursuant to such Notice, it being understood that if such balance of Capital Securities is not so purchased on the terms set forth in the Notice, no Eligible Purchaser will be required or entitled to purchase such Capital Securities as to which its Irrevocable Acceptance applied. (e) If at any time during a Free Sale Period the terms of a proposed issuance shall have changed in any material respect from the terms set forth in the Notice, the Company or the Bank, as applicable, shall give notice (the "Alteration Notice") to the Eligible Purchasers describing the changes in terms. Upon receipt of any Alteration Notice, each Eligible Purchaser will have the right to subscribe for all or part of the Capital Securities on the terms set forth in the Alteration Notice, by delivery of an Acceptance Notice to the Company or the Bank, as applicable, in accordance with the instructions set forth in the Alteration Notice, within 20 days from the date of receipt of the Alteration Notice (the "Altered Offer Period"), stating the amount (not exceeding all) of Capital Securities proposed to be offered as to which such Eligible Purchaser wishes to exercise its right to subscribe. In any such case, the procedures set forth in subsection (d), to the extent applicable, shall be followed. (f) The failure of an Eligible Purchaser to respond to any particular Notice or Alteration Notice will not constitute a waiver of such Eligible Purchaser's rights with respect to any proposed issuance of Capital Securities pursuant to a subsequent Notice or Alteration Notice. (g) Subsections (a)-(f) shall not apply to the issuance of Capital Securities pursuant to or in connection with (i) the purchase and sale of the Securities contemplated by this Agreement, (ii) a reorganization, merger or consolidation of the Company or the Bank or a sale, disposition or other transfer of all or substantially all of the assets of the Company or the Bank to any Person or any Person to the Company or the Bank pursuant to one transaction or series of related transactions, (iii) any conversion or exchange of any Capital Securities (including without limitation the Warrants) in accordance with the terms of such securities or of the instruments relating to or governing the issuance of such Capital Securities, (iv) any employee benefit plans, other than the Employee Stock Ownership Plan or any similar plan of the Company, (v) any stock dividends, or pro rata (as to any class) split-ups, combinations or exchanges of or similar transactions involving Capital Securities, (vi) the issuance of Common Stock pursuant to Section 6(b) of the Senior Notes or Section 2(b) of the Certificate of Designations, (vii) any bona fide public offering of Capital Securities which is registered under the Securities Act and underwritten by an underwriting firm or firms of national reputation or (viii) any issuance of Common Stock, Options (as defined in the Warrants) or Convertible Securities (as defined in the Warrants) which would result in an adjustment in accordance with the terms of the Warrants to the number of shares of Common Stock issuable upon exercise of the Warrants or the exercise price of a share of Common Stock which may be acquired upon exercise thereof and (ix) any issuance of Common Stock, Options (as so defined) or Convertible Securities (as so defined) to the holders of Common Stock in their capacities as such which would not result in an adjustment in accordance with the terms of the Warrants to the number of shares of Common Stock issuable upon exercise of the Warrants or the exercise price of a share of Common Stock which may be acquired upon exercise thereof, provided that the Company concurrently therewith grants to each Eligible Purchaser as of the record date for such transaction the rights, warrants or options to which each Eligible Purchaser would have been entitled if, on the record date used to determine the stockholders entitled to the rights, warrants or options being granted by the Company, the Eligible Purchaser was the holder of record of the number of whole shares of Common Stock then issuable upon exercise of the Warrants held by such Eligible Purchaser. (h) Notwithstanding anything to the contrary contained in this Section 5.9, except as permitted under subsection (g) above, neither Eligible Purchasers nor any Third Party Purchaser will be permitted to purchase an amount of Capital Securities of the Bank which, when combined with any other Capital Securities of the Bank owned by such Purchasers, would result in the Company and the Bank not being permitted to file a consolidated federal income tax return in the opinion of independent public accountants or counsel for the Company, in form and substance reasonably satisfactory to each Accepting Eligible Purchaser. (i) For the purposes of this Section 5.9, "Purchaser Percentage" means, at any time of determination with respect to an Eligible Purchaser, the aggregate number of shares of Common Stock (including shares of Common Stock which may be acquired upon exercise of outstanding Warrants, whether or not then exercisable) then held by such Eligible Purchaser divided by the aggregate number of shares of Common Stock (including shares of Common Stock which may be acquired upon exercise of outstanding Warrants, whether or not then exercisable) outstanding at such time, expressed as a percentage, with fractional percentages of .5 or more and less than .5 rounded up and down, respectively. "Free Sale Period" means a period of three months (or such longer period of time, not in excess of one year, required to obtain any regulatory approvals, consents or other actions necessary to consummate a sale to a Third Party Purchaser which has agreed in writing (subject to such regulatory approvals, consents or actions and other reasonable closing conditions) to purchase Capital Securities on or prior to the end of such three- month period), during which the Company or the Bank, as applicable, shall be permitted to issue the Capital Securities which were proposed to be issued pursuant to a Notice or Alteration Notice to a Third Party Purchaser on terms no more favorable to the Third Party Purchaser than those set forth in such Notice or Alteration Notice, as the case may be. SECTION 5.10 RULE 144 AND RULE 144A REPORTING. With a view to making available to holders of Securities the benefits of certain rules and regulations of the Commission which may permit the sale of the Securities to the public without registration, the Company agrees at all times to: (a) make and keep public information available, as those terms are understood and defined in Rules 144 and 144A under the Securities Act (or any successors thereto); and (b) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act. SECTION 5.11 PURCHASES OF SECURITIES. The Company will not, and will not permit any of its Subsidiaries to, purchase any: (i) Senior Notes except in accordance with Section 4(m) of the Senior Notes; (ii) Series A Preferred Stock except pursuant to a repurchase offer made to each holder of shares of Series A Preferred Stock pro rata in accordance with the aggregate number of shares of Series A Preferred Stock held by such holder; and (iii) Warrants except pursuant to a repurchase offer made to each holder of a Warrant pro rata in accordance with the aggregate number of shares of Common Stock which may be acquired upon exercise of the Warrants held by such holder. SECTION 5.12 STOCK OPTIONS. Between the date hereof and the Closing, the Company shall use its best efforts to cancel all unexercised stock options issued to Management pursuant to the Stock Option Plan prior to the Closing and to grant to members of Management substitute options under the Stock Option Plan to purchase an aggregate of 360,000 shares of Common Stock, which options shall (i) have a per share exercise price equal to the greater of the fair market value of a share of Common Stock on the date of grant, as determined pursuant to the Stock Option Plan, and $3.875, (ii) become vested and exercisable in three equal annual installments commencing on the first anniversary of the date of grant and (iii) terminate seriatim in three equal annual installments commencing on the fifth anniversary of the date of grant. The Purchasers acknowledge that an aggregate of an additional 240,000 shares of Common Stock may be made subject to options to be granted to other employees of the Company or the Bank in connection with a program to reduce the amounts of annual cash compensation payable by the Company and the Bank. SECTION 5.13 EXCHANGE OF SECURITIES. The Company will, at its expense, promptly upon surrender of (i) any Senior Note, (ii) any certificate evidencing Series A Preferred Stock and (iii) any Warrant, at the office of the Company referred to in, or designated pursuant to, Section 6.4, respectively execute and deliver to the Purchaser (i) a new Senior Note or Senior Notes in aggregate principal amounts specified by the Purchaser (subject to the minimum denomination of the Senior Notes) for an aggregate principal amount equal to the Senior Note or Senior Notes surrendered, (ii) a new certificate or certificates in denominations specified by the Purchaser for an aggregate number of shares of Series A Preferred Stock equal to the number of shares of such stock represented by the certificate or certificates surrendered and (iii) a new Warrant or Warrants covering a number of shares of Common Stock specified by the Purchaser for an aggregate number of shares of Common Stock equal to the shares of Common Stock covered by the Warrant or Warrants surrendered. SECTION 5.14 ACQUISITION OF COMMON STOCK. Until the Warrants become exercisable in accordance with their terms, each Purchaser who is a Material Securityholder agrees to give the Company not less than 10 Business Days' notice of any proposed purchase or other acquisition of "stock" of the Company (as defined under Section 382 of the Code and the regulations thereunder), including any acquisition of "stock" pursuant to Section 5.9 hereof but excluding shares of Common Stock which may be acquired pursuant to Section 6(b) of the Senior Notes and/or Section 2(b) of the Certificate of Designations, accompanied by information related to such proposed transaction which is reasonably sufficient to enable the Company to make the determinations referred to herein, so that the Company may determine in its reasonable judgment whether such purchase or other acquisition (i) would result in such Material Securityholder becoming a "5% shareholder" of the Company, as that term is defined in Section 382(k)(7) of the Code and, if so, (ii) whether such purchase or other acquisition could reasonably be expected to result in an "ownership change" under Section 382 of the Code and the regulations promulgated thereunder (taking into account both the proposed transfer and any other transactions of which the Company is aware) and, if so, (iii) whether such "ownership change" would result in a material loss of tax benefits to the Company. In the event the Company makes such determinations and provides the Purchaser with written notice of the same within 10 Business Days of its receipt of the above-referenced notice from the Purchaser, or in the event the Company makes a reasonable written request to such Purchaser for further information concerning such proposed transaction within the same 10- Business Day period and makes the foregoing determinations within 10 Business Days after receipt of such further information, the Purchaser agrees not to effect any such purchase or other acquisition as the Company may request in order to avoid such an "ownership change." ARTICLE VI MISCELLANEOUS SECTION 6.1 SURVIVAL OF PROVISIONS. The representations, warranties and covenants of the Company and the Purchasers made herein and each of the provisions of Articles V and VI shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Purchaser or the Company, as the case may be, (ii) acceptance of any of the Securities and payment by the Purchasers therefor and retirement thereof, (iii) the transfer of any Securities or interest therein by any Purchaser, provided that no transferee may claim the benefit of any such representation or warranty, or (iv) any termination of this Agreement. SECTION 6.2 TERMINATION. This Agreement may be terminated (as between the party electing so to terminate it and the counterparty to which termination is directed) by giving written notice of termination to the applicable counterparty at any time prior to the Closing: (a) By the Company if any of the conditions specified in Sections 4.1 and 4.3 of this Agreement has not been met or waived by it pursuant to the terms of this Agreement by 3:00 p.m., Pacific Time on December 15, 1995; or (b) By any Purchaser if any of the conditions specified in Sections 4.1 and 4.2 of this Agreement has not been met or waived by such Purchaser pursuant to the terms of this Agreement by 3:00 p.m., Pacific Time, on December 15, 1995. SECTION 6.3 WAIVER; AMENDMENTS. (a) No failure or delay on the part of the Company or any Purchaser in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company or any Purchaser at law or in equity. No waiver of or consent to any departure by the Company or any Purchaser from any provision of this Agreement shall be effective unless signed in writing by the party entitled to the benefit thereof. Except as otherwise provided herein, no amendment, modification or termination of any provision of this Agreement shall be effective unless signed in writing by or on behalf of the Company and each Purchaser. Any amendment, supplement or modification of or to any of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure from the terms of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, no notice to or demand on any party hereto in any case shall entitle another party hereto to any other or further notice or demand in similar or other circumstances. (b) The Company shall not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of dividends, redemption premiums, fees or otherwise, to any holder of any Securities as consideration for or as an inducement to any consent, waiver or amendment of any of the terms and provisions of this Agreement unless such remuneration is paid to all Purchasers; provided, however, that this Section 6.3(b) does not restrict the Company's ability to deal individually with any Purchaser or any subsequent holder with respect to any settlement of a dispute or in the ordinary course of business. SECTION 6.4 COMMUNICATIONS. All notices, demands and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to any Purchaser, initially at the address set forth below its name on Exhibit A hereto, and thereafter at such other address, notice of which is given in accordance with this Section 6.4; and (ii) if to the Company, initially at 2381 Rosecrans Avenue, El Segundo, California 90245, Attention: President; and thereafter at such other address notice of which is given in accordance with this Section 6.4. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being sent by certified mail, return receipt requested, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next Business Day if timely delivered to an air courier guaranteeing overnight delivery. SECTION 6.5 COSTS, EXPENSES AND TAXES. The Company agrees to pay all reasonable costs and expenses incurred by it in connection with the negotiation, preparation, typing, reproduction, execution, delivery and performance of this Agreement and the Related Agreements and any amendment or supplement or modification hereof or thereof (except to the extent otherwise provided in the Registration Rights Agreement), including without limitation, attorneys fees and expenses and all reasonable costs and expenses incurred by it in connection with the Company's administration of this Agreement and any Related Agreement. The Company also agrees to pay up to $150,000 of the expenses of the Purchasers incurred in connection with the transactions provided for herein, including reasonable fees and expenses payable to Elias, Matz, Tiernan & Herrick L.L.P. in connection with the negotiation, preparation, typing, reproduction, execution and delivery of this Agreement and the Related Agreements. The Company shall pay all reasonable costs and expenses (including, without limitation, attorneys' fees and expenses), if any, incurred by the Purchasers in connection with any waiver, amendment or modification of any provision of this Agreement or any Related Agreement with respect to an obligation of, or requested by, the Company. In addition, the Company shall pay any and all stamp, transfer and other similar taxes payable in connection with the execution and delivery of this Agreement or the original issuance of any Securities, and shall save and hold each Purchaser harmless from and against any and all liabilities with respect to or resulting from any delay in paying, or omission to pay, such taxes. SECTION 6.6 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. SECTION 6.7 BINDING EFFECT; ASSIGNMENT. Prior to the Closing, the rights and obligations of any Purchaser under this Agreement may not be assigned to any other Person except with the prior written consent of the Company, and after the Closing the rights and obligations of any Purchaser may be assigned by such Purchaser to any Person purchasing Securities from the Purchaser contemporaneously with such assignment (provided the rights so assigned shall apply to the Securities so purchased), subject to the provisions of Section 3.2(b), provided that the rights of a Purchaser pursuant to Section 5.9 hereof may not be assigned to any Person other than an Affiliate of such Purchaser. The rights and obligations of the Company under this Agreement may not be assigned by the Company without the consent of each Purchaser. Except as expressly provided in this Agreement, this Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement, and their respective successors and permitted assigns. This Agreement shall be binding upon the Company and each Purchaser, and their respective successors and permitted assigns. SECTION 6.8 GOVERNING LAW. This Agreement shall be deemed to be a contract made under the laws of the State of California, and for all purposes shall be construed in accordance with the laws of said state, without regard to principles of conflict of laws. SECTION 6.9 SEVERABILITY OF PROVISIONS. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability only without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 6.10 HEADINGS AND GENDER. The Article and Section headings and Table of Contents used or contained in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. Use of a particular gender herein shall be considered to represent the masculine, feminine or neuter gender whenever appropriate. SECTION 6.11 INTEGRATION. This Agreement (including documents delivered pursuant hereto) and the Related Agreements constitute the entire agreement among the parties with respect to the subject matter thereof and there are no promises or undertakings with respect thereto not expressly set forth or referred to herein or therein. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. HAWTHORNE FINANCIAL CORPORATION By: /S/ SCOTT A. BRALY ------------------------------------- Name: Scott A. Braly Title: President and Chief Executive Officer VALUE PARTNERS, LTD By: /S/ TIMOTHY G. EWING ------------------------------------- Name: Timothy G. Ewing Title: Partner-in-Charge SID R. BASS MANAGEMENT TRUST By: /S/ SID R. BASS* ------------------------------------- Name: Sid R. Bass Title: Trustee THE BASS MANAGEMENT TRUST By: /S/ PERRY R. BASS ------------------------------------- Name: Perry R. Bass Title: Trustee /S/ MR. LEE M. BASS* ------------------------------------- Mr. Lee M. Bass _____ *By William P. Hallman, Jr., Attorney-in-fact. FORT PITT FUND, L.P. By: FORT PITT CAPITAL MANAGEMENT CORPORATION By: /S/ HARRY F. RADCLIFFE ------------------------------------- Name: Harry F. Radcliffe Title: President and Chief Executive Officer PROSPER VALUE FUND, L.P. By: PROSPER CAPITAL MANAGEMENT, L.P., its General Partner By: CHAPARRAL CAPITAL CORPORATION, its General Partner By: /S/ DAVID S. HUNT ---------------------------------- Name: David S. Hunt Title: President TYNDALL PARTNERS By: HALO CAPITAL PARTNERS, L.P., its General Partner By: /S/ JEFFREY HALIS ------------------------------------- Name: Jeffrey Halis Title: General Partner /S/ SCOTT A. BRALY ------------------------------------- Mr. Scott A. Braly /S/ MR. DAVID HARDIN ------------------------------------- Mr. David Hardin /S/ MR. NORMAN MORALES ------------------------------------- Mr. Norman Morales /S/ DR. JEFF SCHULTZ ------------------------------------- Dr. Jeff Schultz /S/ MR. TIMOTHY B. MATZ ------------------------------------- Mr. Timothy B. Matz /S/ W. MICHAEL HERRICK ------------------------------------- W. Michael Herrick /S/ RAYMOND A. TIERNAN ------------------------------------- Raymond A. Tiernan /S/ JOHN P. SOUKENIK ------------------------------------- John P. Soukenik /S/ WILLIAM H. SAVAGE ------------------------------------- William H. Savage EXHIBIT A Name and Address of Purchaser No. of Units Dollar Amount ------------------- ------------ -------------- Value Partners, LTD 17 Units $8,500,000 2200 Ross Avenue 4660 West Dallas, TX 75201 Attn: Mr. Timothy Ewing W (214) 999-1900 FAX (214) 999-1901 Lee M. Bass 6 Units $3,000,000 201 Main Street (32nd Floor) Fort Worth, TX 76102 Attn: Mr. Brian McManus W (817) 338-2681 FAX (817) 338-8366 Sid R. Bass Management 6 Units $3,000,000 Trust 201 Main Street (32nd Floor) Fort Worth, TX 76102 Attn: Mr. Brian McManus W (817) 338-2681 FAX (817) 338-8366 The Bass Management Trust 5 Units $2,500,000 201 Main Street (32nd Floor) Fort Worth, TX 76102 Attn: Mr. Brian McManus W (817) 338-2681 FAX (817) 338-8366 Fort Pitt Fund, L.P. 7 Units $3,500,000 Birmingham Tower Suite 710 2100 Wharton Street Pittsburgh, PA 15203 Attn: Mr. Harry F. Radcliffe W (412) 488-1550 FAX (412) 488-1930 Name and Address of Purchaser No. of Units Dollar Amount ------------------- ------------ -------------- Mr. Scott A. Braly 2.4 Units $1,200,000 Hawthorne Financial Corporation 2381 Rosecrans Avenue 2nd Floor El Segundo, CA 90245 W (310) 725-5600 FAX (310) 725-5038 Mr. David Hardin .2 Units $ 100,000 Hawthorne Financial Corporation 2381 Rosecrans Avenue 2nd Floor El Segundo, CA 90245 W (310) 725-5600 FAX (310) 725-5038 Mr. Norman Morales .4 Units $ 200,000 Hawthorne Financial Corporation 2381 Rosecrans Avenue 2nd Floor El Segundo, CA 90245 W (310) 725-5600 FAX (310) 725-5038 Prosper Value Fund, L.P. 2 Units $1,000,000 3900 Thanksgiving Tower Dallas, TX 75201 Attn: Mr. David Hunt W (214) 880-8484 FAX (214) 880-7101 Tyndall Partners 1 Unit $ 500,000 500 Park Avenue New York, NY 10022 Attn: Mr. Jeff Halis W (212) 486-4794 FAX (212) 644-4482 Dr. Jeff Schultz 3 Units $ 1,500,000 Christian Brothers University 650 East Parkway South Memphis, TN 38104 W (901) 722-0300 FAX (901) 722-0580 Name and Address of Purchaser No. of Units Dollar Amount ------------------- ------------ -------------- Mr. Timothy B. Matz 1 Unit $ 500,000 Elias, Matz, Tiernan & Herrick L.L.P. 734 15th Street, N.W. 12th Floor Washington, D.C. 20005 W (202) 347-0300 FAX (202) 347-2172 W. Michael Herrick .1 Units $100,000 Elias, Matz, Tiernan & Herrick L.L.P. 734 15th Street, N.W. 12th Floor Washington, D.C. 20005 W (202) 347-0300 FAX (202) 347-2172 Raymond A. Tiernan .2 Units $200,000 Elias, Matz, Tiernan & Herrick L.L.P. 734 15th Street, N.W. 12th Floor Washington, D.C. 20005 W (202) 347-0300 FAX (202) 347-2172 John P. Soukenik .1 Units $100,000 Elias, Matz, Tiernan & Herrick L.L.P. 734 15th Street, N.W. 12th Floor Washington, D.C. 20005 W (202) 347-0300 FAX (202) 347-2172 William H. Savage .1 Units $100,000 3110 Mount Vernon Avenue Suite 100 Alexandria, Virginia 22305 W (703) 683-5625 FAX (703) 683-4732 EX-99.3 4 EXHIBIT 3 NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY ITS ACCEPTANCE HEREOF, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS WARRANT MAY BE OFFERED, SOLD OR OTHERWISE DISPOSED OF ONLY (1) TO THE COMPANY, (2) SO LONG AS THIS WARRANT IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER," AS DEFINED IN RULE 144A, THAT IS PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE SALE OR OTHER DISPOSITION IS BEING MADE IN RELIANCE ON RULE 144A, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (4) TO AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501 UNDER THE SECURITIES ACT ("ACCREDITED INVESTOR"), THAT IS ACQUIRING THIS WARRANT FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER ACCREDITED INVESTOR FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, IF A SIGNED CERTIFICATION LETTER (A FORM OF WHICH MAY BE OBTAINED FROM THE COMPANY) IS DELIVERED BY THE TRANSFEREE TO THE COMPANY, (5) AS OTHERWISE PROVIDED IN THE UNIT PURCHASE AGREEMENT (AS DEFINED BELOW) OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. BY PURCHASING THIS WARRANT, THE HOLDER HEREOF AGREES AND REPRESENTS FOR THE BENEFIT OF THE COMPANY THAT (A) IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN ACCREDITED INVESTOR ACQUIRING THIS WARRANT FOR INVESTMENT PURPOSES FOR ITS OWN ACCOUNT OR THE ACCOUNT OF ANOTHER ACCREDITED INVESTOR FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT AND (B) IT WILL NOTIFY ANY PURCHASER OF THIS WARRANT FROM IT OF THE RESALE RESTRICTIONS REFERRED TO ABOVE. THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO CERTAIN ADDITIONAL RESTRICTIONS ON TRANSFER CONTAINED IN SECTION 3.2 OF THE UNIT PURCHASE AGREEMENT DATED AS OF OCTOBER 10, 1995 AMONG THE COMPANY AND THE OTHER PARTIES NAMED ON THE SIGNATURE PAGES THEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. ANY SALE OR TRANSFER NOT IN COMPLIANCE WITH SUCH UNIT PURCHASE AGREEMENT SHALL BE NULL AND VOID. VOID AFTER 5:00 P.M., PACIFIC TIME, ON DECEMBER __, 2005 No. ___ HAWTHORNE FINANCIAL CORPORATION WARRANT TO PURCHASE _______ SHARES OF COMMON STOCK (SUBJECT TO ADJUSTMENT) THIS CERTIFIES THAT, FOR VALUE RECEIVED, _______ or its registered assigns (the "Holder"), is entitled to purchase from Hawthorne Financial Corporation (the "Company"), subject to the terms and conditions set forth hereinafter, _______ fully paid and nonassessable shares of the Common Stock, $.01 par value, of the Company (the "Common Stock") at an exercise price of $2.25 per share upon surrender of this Warrant to the Company at the Company's principal office in El Segundo, California with the form of election to purchase attached to this Warrant duly completed and signed, together with payment of the exercise price by wire transfer or other payment of immediately available funds. The exercise price and the number of shares of Common Stock for which this Warrant is exercisable are subject to change or adjustment upon the occurrence of certain events as set forth below. SECTION 1. DURATION AND EXERCISE OF WARRANTS. 1.1 (a) This Warrant may be exercised on or after December __, 1998 and will expire at 5:00 p.m., Pacific Time, on December __, 2005 (the "Expiration Date"), provided that, notwithstanding anything to the contrary contained herein, this Warrant may be exercised in whole or in part prior to December __, 1998 in connection with or following a Change in Control. On the Expiration Date, all rights evidenced by this Warrant shall cease and this Warrant shall become void. For purposes of this Warrant, a "Change in Control" means the occurrence of any of the following events after the date of issuance of this Warrant: (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the aggregate voting power of all classes of capital stock of the Company entitled to vote generally in an election of directors; (ii) the Company is merged with or into another corporation or another corporation is merged with or into the Company with the effect that immediately after such transaction the stockholders of the Company immediately prior to such transaction hold less than a majority in interest of the total voting power entitled to vote in the election of directors, managers or trustees of the entity surviving the transaction; (iii) all or substantially all of the assets of the Company or Hawthorne Savings, F.S.B., or any successor thereto, are sold to any person or persons (as an entirety in one transaction or a series of related transactions); or (iv) the voluntary or involuntary dissolution, liquidation or winding up of the Company. (b) Subject to the provisions of this Warrant, the registered holder of this Warrant shall have the right to purchase from the Company (and the Company shall issue and sell to such registered holder) the number of fully paid and nonassessable shares of Common Stock set forth on the face of this Warrant (or such number of shares of Common Stock as may result from adjustments made from time to time as provided herein), at the price of $2.25 per share in lawful money of the United States of America (such exercise price per share, as adjusted from time to time as provided herein, being referred to herein as the "Exercise Price"), upon (i) surrender of this Warrant to the Company at the Company's principal office in El Segundo, California with the exercise form attached hereto duly completed and signed by the registered holder or holders thereof, and (ii) payment by wire transfer or other payment of immediately available funds, in lawful money of the United States of America, of the Exercise Price for the shares of Common Stock in respect of which this Warrant is then exercised (and any applicable transfer taxes pursuant to Section 2 hereof). Upon surrender of this Warrant, and payment of the Exercise Price as provided above, the Company shall promptly issue and cause to be delivered to or upon the written order of the registered holder of this Warrant and in such name or names as such registered holder may designate, a certificate or certificates for the number of shares of Common Stock so purchased upon the exercise of this Warrant, together with payment in respect of any fraction of a share of Common Stock issuable upon such surrender pursuant to Section 11 hereof. (c) The exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day (as defined in Section 17 hereof) on which the holder surrenders this Warrant to the Company and payment of the Exercise Price (and any applicable transfer taxes pursuant to Section 2 hereof) is made, and at such time the person in whose name any certificate for shares of Common Stock shall be issuable upon such exercise shall be deemed to be the record holder of such shares of Common Stock for all purposes. 1.2 In the event that less than all of the shares of Common Stock represented by this Warrant are exercised on or prior to the Expiration Date, a new Warrant, duly executed by the Company, will be issued for the remaining number of shares of Common Stock exercisable pursuant to the Warrant so surrendered, and the Company shall deliver the required new Warrant pursuant to the provisions of this Section 1. 1.3 The number of shares of Common Stock to be received upon the exercise of this Warrant and the Exercise Price are subject to adjustment from time to time as hereinafter set forth. SECTION 2. PAYMENT OF TAXES. The Company will pay all stamp transfer and other similar taxes payable in connection with the original issuance of this Warrant and the shares of Common Stock issuable upon exercise thereof, provided, however, that the Company shall not be required to (i) pay any such tax which may be payable in respect of any transfer involving the transfer and delivery of this Warrant or the issuance or delivery of certificates for shares of Common Stock issuable upon exercise thereof in a name other than that of the registered holder of this Warrant or (ii) issue or deliver any certificate for shares of Common Stock upon the exercise of this Warrant until any such tax required to be paid under clause (i) shall have been paid, all such tax being payable by the holder of this Warrant at the time of surrender. SECTION 3. MUTILATED OR MISSING WARRANTS. In case this Warrant shall be mutilated, lost, stolen or destroyed, the Company will issue and deliver in exchange and substitution for and upon cancellation of, the mutilated Warrant, or in substitution for the lost, stolen or destroyed Warrant, a new Warrant of like tenor evidencing the number of shares of Common Stock purchasable upon exercise of the Warrant so mutilated, lost, stolen or destroyed, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant and an indemnity, if requested, reasonably satisfactory to it. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. SECTION 4. RESERVATION OF WARRANT SHARES. The Company shall at all times reserve for issuance and delivery upon exercise of this Warrant such number of shares of Common Stock or other shares of capital stock of the Company as from time to time shall be issuable upon exercise of this Warrant. All such shares shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances and free and clear of all preemptive rights. After 5:00 p.m., Pacific Time, on the Expiration Date, no shares of Common Stock shall be subject to reservation in respect of this Warrant. SECTION 5. RESTRICTIONS ON TRANSFER. Neither this Warrant nor the shares of Common Stock issuable upon exercise thereof may be sold, transferred or otherwise disposed of, except in accordance with and subject to (i) the provisions of the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations promulgated thereunder and (ii) the applicable requirements of Section 3.2 of the Unit Purchase Agreement dated as of October 10, 1995 among the Company and the Purchasers named on the signature pages thereto (as amended, supplemented or otherwise modified from time to time, the "Unit Purchase Agreement"). SECTION 6. RIGHTS AND LIABILITY OF WARRANT HOLDER. The holder of this Warrant shall not, by virtue thereof, be (i) entitled to any rights of a stockholder of the Company, either at law or in equity, and the rights of such holder are limited to those expressed herein, or (ii) subject to any liability as a stockholder of the Company. SECTION 7. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON STOCK. The Exercise Price and the number and kind of shares of Common Stock issuable upon the exercise of this Warrant will be subject to change or adjustment from time to time as follows: (a) Change in Common Stock. In the event the Company shall, at any time or from time to time after the date hereof, (i) issue any shares of Common Stock as a stock dividend to the holders of Common Stock (other than pursuant to Section 2(b) of the Certificate of Designations and Preferences relating to the Company's Cumulative Preferred Stock, Series A), (ii) subdivide or combine the outstanding shares of Common Stock into a greater or lesser number of shares or (iii) issue any shares of its capital stock in a reclassification or reorganization of the Common Stock (any such issuance, subdivision, combination, reclassification or reorganization being herein called a "Change of Shares"), then (A) in the case of (i) or (ii) above, the number of shares of Common Stock that may be purchased upon the exercise of this Warrant shall be adjusted to the number of shares of Common Stock that the Holder of such Warrant would have owned or have been entitled to receive after the happening of such event had such Warrant been exercised immediately prior to the record date (or, if there is no record date, the effective date) for such event, and the Exercise Price shall be adjusted to the price (calculated to the nearest 1,000th of one cent) determined by multiplying the Exercise Price immediately prior to such event by a fraction, the numerator of which shall be the number of shares of Common Stock purchasable with this Warrant immediately prior to such event and the denominator of which shall be the number of shares of Common Stock purchasable with this Warrant after the adjustment referred to above and (B) in the case of clause (iii) above, paragraph (l) below shall apply. An adjustment made pursuant to clause (A) of this paragraph (a) shall become effective retroactively immediately after the record date in the case of such dividend and shall become effective immediately after the effective date in other cases, but any shares of Common Stock issuable solely as a result of such adjustment shall not be issued prior to the effective date of such event. (b) Common Stock Distribution. In the event the Company shall, at any time or from time to time after the date hereof, issue, sell or otherwise distribute (including by way of deemed distributions pursuant to paragraphs (c) and (d) below) any shares of Common Stock (other than pursuant to (A) a Change of Shares, (B) the exercise or conversion, as the case may be, of any Option, Convertible Security (each as defined in paragraph (c) below) or Warrant) or (C) Section 6(b) of the Company's Senior Notes due 2002 (any such event, including any deemed distributions described in paragraphs (c) and (d), being herein called a "Common Stock Distribution"), for a consideration per share less than the current market price per share of Common Stock (as defined in paragraph (f) below), on the date of such Common Stock Distribution, then, effective upon such Common Stock Distribution, the Exercise Price shall be reduced to the price (calculated to the nearest 1,000th of one cent) determined by multiplying the Exercise Price in effect immediately prior to such Common Stock Distribution by a fraction, the numerator of which shall be the sum of (i) the number of shares of Common Stock outstanding (exclusive of any treasury shares) immediately prior to such Common Stock Distribution multiplied by the current market price per share of Common Stock on the date of such Common Stock Distribution, plus (ii) the consideration, if any, received by the Company upon such Common Stock Distribution, and the denominator of which shall be the product of (A) the total number of shares of Common Stock issued and outstanding immediately after such Common Stock Distribution multiplied by (B) the current market price per share of Common Stock on the date of such Common Stock Distribution. If any Common Stock Distribution shall require an adjustment to the Exercise Price pursuant to the foregoing provisions of this paragraph (b), including by operation of paragraph (c) or (d) below, then, effective at the time such adjustment is made, the number of shares of Common Stock purchasable upon the exercise of this Warrant shall be increased to a number determined by multiplying the number of shares so purchasable immediately prior to such Common Stock Distribution by a fraction, the numerator of which shall be the Exercise Price in effect immediately prior to such adjustment and the denominator of which shall be the Exercise Price in effect immediately after such adjustment. In computing adjustments under this paragraph, fractional interests in Common Stock shall be taken into account to the nearest 1,000th of a share. The provisions of this paragraph (b), including by operation of paragraph (c) or (d) below, shall not operate to increase the Exercise Price or reduce the number of shares of Common Stock purchasable upon the exercise of this Warrant, except by operation of paragraph (j) or (k) below. (c) Issuance of Options. In the event the Company shall, at any time or from time to time after the date hereof, issue, sell, distribute or otherwise grant in any manner (including by assumption) any rights to subscribe for or to purchase, or any warrants or options for the purchase of, Common Stock or any stock or securities convertible into or exchangeable for Common Stock (any such rights, warrants or options being herein called "Options" and any such convertible or exchangeable stock or securities being herein called "Convertible Securities"), whether or not such Options or the rights to convert or exchange such Convertible Securities are immediately exercisable, and the price per share at which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (determined by dividing (i) the aggregate amount, if any, received or receivable by the Company as consideration for the issuance, sale, distribution or granting of such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of all such Options, plus, in the case of Options to acquire Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the conversion or exchange of all such Convertible Securities, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of all such Options) shall be less than the current market price per share of Common Stock on the date of the issuance, sale, distribution or granting of such Options, then, for the purposes of paragraph (b) above, the total maximum number of shares of Common Stock issuable upon the exercise of all such Options or upon the conversion or exchange of the total maximum amount of the Convertible Securities issuable upon the exercise of all such Options shall be deemed to have been issued as of the date of the issuance, sale, distribution or granting of such Options and thereafter shall be deemed to be outstanding and the Company shall be deemed to have received as consideration such price per share, determined as provided above, therefor. Except as otherwise provided in paragraphs (j) and (k) below, no additional adjustment of the Exercise Price shall be made upon the actual exercise of such Options or upon conversion or exchange of the Convertible Securities issuable upon the exercise of such Options. If the minimum and maximum numbers or amounts referred to in this paragraph (c) or in paragraph (d) below cannot be calculated with certainty as of the date of the required adjustment, such numbers and amounts shall be determined in good faith by the Board of Directors of the Company. (d) Issuance of Convertible Securities. In the event the Company shall, at any time or from time to time after the date hereof, issue, sell or otherwise distribute (including by assumption) any Convertible Securities (other than upon the exercise of any Option), whether or not the rights to convert or exchange such Convertible Securities are immediately exercisable, and the price per share at which Common Stock is issuable upon the conversion or exchange of such Convertible Securities (determined by dividing (i) the aggregate amount, if any, received or receivable by the Company as consideration for the issuance, sale or distribution of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange of all such Convertible Securities, by (ii) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the current market price per share of Common Stock on the date of such issuance, sale or distribution, then, for the purposes of paragraph (b) above, the total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities shall be deemed to have been issued as of the date of the issuance, sale or distribution of such Convertible Securities and thereafter shall be deemed to be outstanding and the Company shall be deemed to have received as consideration such price per share, determined as provided above, therefor. Except as otherwise provided in paragraphs (j) and (k) below, no additional adjustment of the Exercise Price shall be made upon the actual conversion or exchange of such Convertible Securities. (e) Dividends and Distributions. In the event the Company shall, at any time or from time to time after the date hereof, distribute to the holders of Common Stock any dividend or other distribution of cash, evidences of its indebtedness, other securities or other properties or assets (in each case other than (i) dividends payable in Common Stock, Options or Convertible Securities and (ii) any cash dividend declared and paid pursuant to a regular quarterly dividend policy of the Company), or any options, warrants or other rights to subscribe for or purchase any of the foregoing, then (A) the Exercise Price shall be decreased to a price determined by multiplying the Exercise Price then in effect by a fraction, the numerator of which shall be the current market price per share of Common Stock on the record date for such distribution less the sum of (X) the cash portion, if any, of such distribution per share of Common Stock outstanding (exclusive of any treasury shares) plus (Y) the then fair market value (as determined in good faith by the Board of Directors of the Company) per share of Common Stock issued and outstanding on the record date for such distribution of that portion, if any, of such distribution consisting of evidences of indebtedness, other securities, properties, assets, options, warrants or subscription or purchase rights, and the denominator of which shall be such current market price per share of Common Stock and (B) the number of shares of Common Stock purchasable upon the exercise of this Warrant shall be increased to a number determined by multiplying the number of shares of Common Stock so purchasable immediately prior to the record date for such distribution by a fraction, the numerator of which shall be the Exercise Price in effect immediately prior to the adjustment required by clause (A) of this sentence and the denominator of which shall be the Exercise Price in effect immediately after such adjustment. The adjustments required by this paragraph (e) shall be made whenever any such distribution is made and shall be retroactive to the record date for the determination of stockholders entitled to receive such distribution. (f) Current Market Price. For the purpose of any computation under paragraphs (b), (c), (d) and (e) of this Section 7, the current market price per share of Common Stock at any date shall be the average of the daily closing prices for the shorter of (i) the 20 consecutive trading days ending on the last full trading day on the exchange or market specified in the second succeeding sentence, prior to the Time of Determination and (ii) the period commencing on the date next succeeding the first public announcement of the issuance, sale, distribution or granting in question through such last full trading day prior to the Time of Determination. The term "Time of Determination" as used herein shall be the time and date of the earlier to occur of (A) the date as of which the current market price is to be computed and (B) the last full trading day on such exchange or market before the commencement of "ex-dividend" trading in the Common Stock relating to the event giving rise to the adjustment required by paragraph (b), (c), (d) or (e). The closing price for any day shall be the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the closing bid and asked prices regular way for such day, in each case (1) on the principal national securities exchange on which the shares of Common Stock are listed or to which such shares are admitted to trading or (2) if the Common Stock is not listed or admitted to trading on a national securities exchange, in the over-the- counter market as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or any comparable system or (3) if the Common Stock is not listed on NASDAQ or a comparable system, as furnished by two members of the National Association of Securities Dealers, Inc. ("NASD") selected from time to time in good faith by the Board of Directors of the Company for that purpose. In the absence of all of the foregoing, or if for any other reason the current market price per share cannot be determined pursuant to the foregoing provisions of this paragraph (f), the current market price per share shall be the fair market value thereof as determined in good faith by the Board of Directors of the Company. (g) Certain Distributions. If the Company shall pay a dividend or make any other distribution payable in Options or Convertible Securities, then, for purposes of paragraph (b) above (including dividends or distributions by operation of paragraph (c) or (d) above, as the case may be), such Options or Convertible Securities shall be deemed to have been issued or sold without consideration except for such amounts of consideration as shall have been deemed to have been received by the Company pursuant to paragraphs (c) or (d) above, as, appropriate. (h) Consideration Received. If any shares of Common Stock shall be issued and sold in an underwritten public offering, the consideration received by the Company for such shares of Common Stock shall be deemed to include the underwriting discounts and commissions realized by the underwriters of such public offering. If any shares of Common Stock, Options or Convertible Securities shall be issued, sold or distributed for a consideration other than cash, the amount of the consideration other than cash received by the Company in respect thereof shall be deemed to be the then fair market value of such consideration (as determined in good faith by the Board of Directors of the Company). If any Options shall be issued in connection with the issuance and sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued, sold or distributed for such amount of consideration as shall be allocated to such Options in good faith by the Board of Directors of the Company. (i) Deferral of Certain Adjustments. No adjustments to the Exercise Price (including the related adjustment to the number of shares of Common Stock purchasable upon the exercise of this Warrant) shall be required hereunder unless such adjustment, together with other adjustments carried forward as provided below, would result in an increase or decrease of at least one percent of the Exercise Price; provided, however, that any adjustment which by reason of this paragraph (i) is not required to be made shall be carried forward and taken into account in any subsequent adjustment. (j) Changes in Options and Convertible Securities. If the exercise price provided for in any Options referred to in paragraph (c) above, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in paragraph (c) or (d) above, or the rate at which any Convertible Securities referred to in paragraph (c) or (d) above are convertible into or exchangeable for Common Stock shall change at any time (other than under or by reason of provisions designed to protect against dilution upon an event which results in a related adjustment pursuant to this Section 7), the Exercise Price then in effect and the number of shares of Common Stock purchasable upon the exercise of this Warrant shall forthwith be readjusted (effective only with respect to any exercise of this Warrant after such readjustment) to the Exercise Price and number of shares of Common Stock so purchasable that would then be in effect had the adjustment made upon the issuance, sale, distribution or granting of such Options or Convertible Securities been made based upon such changed purchase price, additional consideration or conversion rate, as the case may be, but only with respect to such Options and Convertible Securities as then remain outstanding. (k) Expiration of Options and Convertible Securities. If, at any time after any adjustment to the number of shares of Common Stock purchasable upon the exercise of this Warrant shall have been made pursuant to paragraph (c), (d) or (j) above or this paragraph (k), any Options or Convertible Securities shall have expired unexercised or, solely with respect to Options that are rights ("Rights"), are redeemed, the number of such shares so purchasable shall, upon such expiration or such redemption, be readjusted and shall thereafter be such as they would have been had they been originally adjusted (or had the original adjustment not been required, as the case may be) as if (i) the only shares of Common Stock deemed to have been issued in connection with such Options or Convertible Securities were the shares of Common Stock, if any, actually issued or sold upon the exercise of such Options or Convertible Securities and (ii) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for the issuance, sale, distribution or granting of all such Options or Convertible Securities, whether or not exercised; provided, however, that (x) no such readjustment shall have the effect of decreasing the number of shares so purchasable by an amount (calculated by adjusting such decrease to account for all other adjustments made pursuant to this Section 7 following the date of the original adjustment referred to above) in excess of the amount of the adjustment initially made in respect of the issuance, sale, distribution or granting of such Options or Convertible Securities and (y) in the case of the redemption of any Rights, there shall be deemed (for the purposes of paragraph (c) above) to have been issued as of the date of such redemption for no consideration a number of shares of Common Stock equal to the aggregate consideration paid to effect such redemption divided by the current market price of the Common Stock on the date of such redemption. (l) Other Adjustments. In the event that at any time the Holder shall become entitled to receive any securities of the Company other than shares of Common Stock as constituted on the date of issuance of his Warrant the number of such other securities so receivable upon exercise of this Warrant and the Exercise Price applicable to such exercise shall be adjusted at such time, and shall be subject to further adjustment from time to time thereafter, in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Common Stock contained in this Section 7. (m) Excluded Transactions. Notwithstanding any provision in this Section 7 to the contrary, no adjustment shall be made pursuant to this Section 7 in respect of (i) any change in the par value of the Common Stock, (ii) the granting of any Options or the issuance of any shares of Common Stock, in either case, which would otherwise trigger an adjustment under paragraph (b) above, that may be registered on Form S-8 or any successor form under the Securities Act, to any directors, officers or employees of the Company, provided that the granting of Options or the issuance of shares of Common Stock pursuant to this clause (ii) are in the ordinary course of business and are usual and customary, or (iii) the issuance of Common Stock pursuant to any dividend reinvestment plan which provides that the price of the Common Stock purchased for plan participants from the Company will be no less than 95% of the average of the high and low sales prices of the Common Stock on the investment date or, if no trading in the Common Stock occurs on such date, the next preceding date on which trading occurred (1) on the principal national securities exchange on which the shares of Common Stock are listed or to which such shares are admitted to trading or (2) if the Common Stock is not listed or admitted to trading on a national securities exchange, in the over-the-counter market as reported by NASDAQ or any comparable system or (3) if the Common Stock is not listed on NASDAQ or a comparable system, as furnished by two members of the NASD selected from time to time in good faith by the Board of Directors of the Company for that purpose. In the absence of all of the foregoing, or if for any other reason the current market price per share cannot be determined pursuant to the foregoing provisions of this paragraph, the current market price per share shall be the fair market value thereof as determined in good faith by the Board of Directors of the Company. SECTION 8. REORGANIZATIONS AND ASSET SALES. If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby the Holder of this Warrant shall thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in this Warrant and in lieu of the shares of Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including without limitation provisions for adjustments of the Exercise Price and of the number of shares purchasable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume, by written instrument executed and mailed by first class mail, postage prepaid, to the Holder hereof at the last address of such Holder appearing on the register maintained by the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. SECTION 9. NOTICE OF ADJUSTMENT. 9.1 Whenever the number of shares of Common Stock or other stock or property issuable upon the exercise of this Warrant is adjusted, as herein provided, the Company shall promptly mail by first class mail, postage prepaid, to the Holder at the last address of such Holder appearing on the register maintained by the Company, notice of such adjustment or adjustments. In addition, the Company at its sole expense shall within 90 calendar days following the end of each fiscal year of the Company during which this Warrant remains outstanding and an adjustment has occurred, and promptly upon the request of the Holder of this Warrant in connection with the exercise thereof, cause to be delivered to the Holder a certificate of a firm of independent public accountants selected by the Board of Directors of the Company (which may be the regular accountants employed by the Company) setting forth the number of shares of Common Stock or other stock or property issuable upon the exercise of this Warrant after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. 9.2 If at any time after the date of issuance of this Warrant and ending on December __, 1998, the Company enters into an agreement providing for a Change in Control or otherwise becomes aware of the occurrence of a Change in Control not directly or indirectly resulting from actions taken by it, then the Company will cause to be mailed by first class mail, postage prepaid, to the Holder at the last address of such Holder appearing on the register maintained by the Company, as soon as practicable and in any event within 20 days thereafter, a notice describing any such agreement or the occurrence of such a Change in Control, and stating the anticipated effective date of the Change in Control if it has not yet occurred or, if it has occurred, the effective date thereof. SECTION 10. STATEMENT OF WARRANTS. This Warrant may continue to express the same number and kind of shares which may be purchased upon exercise hereof as are stated in the Warrant initially issued pursuant to the Unit Purchase Agreement or any substitute Warrant issued therefor, notwithstanding any adjustment in the Exercise Price and/or in the number or kind of shares issuable upon exercise of this Warrant. In the event of any such adjustment, the Company will, at its expense, promptly upon the Holder's surrender of this Warrant to the Company, execute a new Warrant or Warrants stating the Exercise Price and the number and kind of shares issuable upon exercise of this Warrant. SECTION 11. FRACTIONAL INTEREST. The Company shall not be required to issue fractional shares of Common Stock on the exercise of this Warrant. If more than one Warrant shall be presented for exercise at the same time by the Holder, the number of full shares of Common Stock which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of shares of Common Stock acquirable on exercise of the Warrants so presented. If any fraction of a share of Common Stock would, except for the provisions of this Section 11, be issuable on the exercise of any Warrant (or specified portion thereof), the Company shall pay an amount in cash calculated by it to be equal to the then current market price per share multiplied by such fraction computed to the nearest whole cent. The Holder by his acceptance of this Warrant expressly waives any and all rights to receive any fraction of a share of Common Stock or a stock certificate representing a fraction of a share of Common Stock. SECTION 12. ENTIRE AGREEMENT. This Warrant, the Unit Purchase Agreement and the Related Agreements (as defined in the Unit Purchase Agreement) constitute the full and entire understanding and agreement among the parties with regard to the subject matter hereof and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants or agreements except as specifically set forth herein or therein. SECTION 13. SUCCESSORS AND ASSIGNS. 13.1 All covenants and provisions of this Warrant by or for the benefit of the Company or the holder of this Warrant shall bind and inure to the benefit of their respective successors, assigns, heirs and personal representatives. 13.2 Subject to the requirements of Section 6 of this Warrant, this Warrant is assignable, in whole or in part, without charge to the holder hereof upon surrender of this Warrant with a properly executed assignment at the principal office of the Company. Upon any partial assignment, the Company will at its expense issue and deliver to the holder hereof a new Warrant of like tenor, in the name of the holder hereof, which shall be exercisable for such number of shares of Common Stock (or any shares of stock or other securities at the time issuable upon exercise of this Warrant) which were not so assigned. Except as provided in this Section 13.2, this Warrant may not be assigned or transferred. SECTION 14. TERMINATION. This Warrant shall terminate at 5:00 p.m., Pacific Time, on the Expiration Date or upon such earlier date on which all of this Warrant has been exercised. SECTION 15. HEADINGS. The headings of sections of this Warrant have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 16. AMENDMENTS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the Company and the holder of this Warrant. SECTION 17. NOTICES. All notices, demands and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier, or air courier guaranteeing overnight delivery: (a) if to the holder of this Warrant, at the address set forth on the register of the Warrants maintained by the Company, or at such other address as the holder of this Warrant shall have furnished to the Company in writing; (b) if to the Company, initially at 2381 Rosecrans Avenue, El Segundo, California 90245, and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 17. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being sent by certified mail, return receipt requested, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next Business Day if timely delivered to an air courier guaranteeing overnight delivery. For purposes of this Warrant, a "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the State of California are authorized by law to close. SECTION 18. BENEFITS OF THIS WARRANT. Nothing in this Warrant shall be construed to give to any person or corporation, other than the Company and the registered holder of this Warrant, any legal or equitable right, remedy or claim under this Warrant, it being intended that this Warrant shall be for the sole and exclusive benefit of the Company and the registered holder thereof. SECTION 19. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officers. Dated: December __, 1995 HAWTHORNE FINANCIAL CORPORATION By: ---------------------------------------- Name: Scott A. Braly Title: President and Chief Executive Officer Attest: By: --------------------------------- Name: James D. Sage Title: Senior Vice President and Corporate Secretary ELECTION TO PURCHASE DATED: ________ The undersigned hereby irrevocably exercises this Warrant to purchase _______ shares of Common Stock and herewith makes payment of $_______ in payment of the Exercise Price thereof on the terms and conditions specified in this Warrant, surrenders this Warrant and all right, title and interest herein to the Company and directs that the shares of Common Stock deliverable upon the exercise of this Warrant be registered in the name and at the address specified below and delivered thereto. Name: --------------------------------------------------- (Please Print) Address: --------------------------------------------------- City, State and Zip Code: ------------------------------------------ If such number of shares of Common Stock is less than the aggregate number of shares of Common Stock purchasable hereunder, the undersigned requests that a new Warrant representing the balance of such shares of Common Stock be registered in the name and at the address specified below and delivered thereto. Name: --------------------------------------------------- (Please Print) Address: --------------------------------------------------- City, State and Zip Code: ------------------------------------------ Taxpayer Identification or Social Security Number: ----------------- Signature: --------------------------------------------------- Note: The above signature must correspond with the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever. -----END PRIVACY-ENHANCED MESSAGE-----