<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 1998
REGISTRATION NO. 333-61707
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------
HAWTHORNE FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE
-------------------------------
(State or other Jurisdiction of
Incorporation or organization)
6035
----------------------------
(Primary Standard Industrial
Classification Code Number)
95-2085671
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(I.R.S. Employer
Identification No.)
2381 ROSECRANS AVENUE
2ND FLOOR
EL SEGUNDO, CALIFORNIA 90245
(310) 725-5000
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(Address, including zip code, and telephone number, including area
code, of Registrants' principal executive offices)
SCOTT A. BRALY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HAWTHORNE FINANCIAL CORPORATION
2381 ROSECRANS AVENUE
2ND FLOOR
EL SEGUNDO, CALIFORNIA 90245
(310) 725-5000
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(Name, address, including zip code, and telephone number, including area code,
of agents for service)
COPY TO:
JEFFREY D. HAAS, ESQ.
GERARD L. HAWKINS, ESQ.
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
734 15TH STREET, N.W.
WASHINGTON, D.C. 20005
Approximate Date of Commencement of Proposed Sale to the Public:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividends or
reinvestment plans, check the following box. [x]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED PER UNIT OFFERING PRICE FEE
<S> <C> <C> <C> <C>
- ------------------------------------------- ----------------- ------------------------ ------------------------- -----------------
Warrants to purchase Common Stock 2,512,188 $ 17.0625 (1) $ 42,864,207 (1) $ 12,644.94(3)
- ------------------------------------------- ----------------- ------------------------ ------------------------- -----------------
Common Stock 2,512,188 - (2) - (2) -
- ------------------------------------------- ----------------- ------------------------ ------------------------- -----------------
Common Stock 431,212 $ 17.0625 (1) $ 7,357,555 (1) $ 2,170.48(3)
- ------------------------------------------- ----------------- ------------------------ ------------------------- -----------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,815.42(3)
=========================================== ================= ======================== ========================= =================
</TABLE>
(1) Calculated pursuant to Rule 457(c) and/or (g) under the Securities Act
of 1933, as amended, solely for the purpose of calculating the
registration fee on the basis of the average of the high and low prices
of the Registrant's Common Stock on the Nasdaq Stock Market's National
Market on August 13, 1998.
(2) Pursuant to Rule 457(g), no fee is payable on the Common Stock
underlying the Warrants due to the registration of the Warrants.
(3) Previously paid.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO THE
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE.
SUBJECT TO COMPLETION, DATED OCTOBER 13, 1998
PROSPECTUS
HAWTHORNE FINANCIAL CORPORATION
2,943,309 SHARES OF COMMON STOCK
AND
WARRANTS TO PURCHASE 2,512,188 SHARES OF COMMON STOCK
(EXERCISE PRICE OF $2.128)
This Prospectus relates to the offer and sale by certain selling
securityholders named herein (the "Selling Securityholders") of up to (i)
431,121 shares of common stock, par value $0.01 per share (the "Common Stock"),
of Hawthorne Financial Corporation (the "Company"), (ii) Warrants to purchase
2,512,188 shares of Common Stock expiring December 11, 2005 with an exercise
price of $2.128 per share (the "Warrants") and (iii) 2,512,188 shares of Common
Stock issuable upon exercise of such Warrants (Warrants to purchase 2,140,012
shares of Common Stock and 2,140,012 shares of the Common Stock issuable upon
exercise of such Warrants may be deemed to be held by affiliates of the
Company). All Warrants and shares of Common Stock offered by this Prospectus are
referred to herein as the "Securities."
The Selling Securityholders from time to time may offer and sell the
Securities held by them directly, indirectly through brokers or dealers or in a
distribution by one or more underwriters on a firm commitment or best efforts
basis, in the over-the-counter market, on any national securities exchange or
automated inter-dealer quotation system on which the Securities are listed or
traded, if any, in privately-negotiated transactions or otherwise, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. To the extent required, the names of any
broker-dealer or agent and applicable commissions or discounts and any other
required information with respect to any particular offer will be set forth in
an accompanying Prospectus Supplement. The Company will not receive any of the
proceeds from the sale of Securities by the Selling Securityholders but has
agreed to bear certain expenses of registration of the Securities. See "Plan of
Distribution."
The Selling Securityholders and any broker-dealers or agents that
participate in the distribution of the Securities may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and any profit on the sale of the Securities by them and any
commissions received by any such broker-dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act. See "Plan of
Distribution."
The Common Stock is traded on the Nasdaq Stock Market's National Market
under the symbol "HTHR." The Warrants are not listed on any exchange or traded
on any automated inter-dealer quotation system.
SEE "RISK FACTORS" COMMENCING ON PAGE 3 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE SECURITIES OFFERED HEREBY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------
THESE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENTAL AGENCY.
-----------------
The date of this Prospectus is October ___, 1998.
<PAGE> 3
AVAILABLE INFORMATION
The Company (which term shall include its subsidiaries, unless the
context otherwise requires) is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information concerning the Company can be inspected and
copied at prescribed rates at the Commission's Public Reference Room, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the following
Regional Offices of the Commission: 7 World Trade Center, 13th Floor, New York,
New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may be obtained by mail from
the Commission's Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. If available, such reports and other
information also may be accessed through the Commission's electronic data
gathering, analysis and retrieval system ("EDGAR") via electronic means,
including the Commission's web site on the Internet (http://www.sec.gov). The
Common Stock is quoted on the Nasdaq Stock Market's National Market and,
consequently, such reports, proxy statements and other information also may be
inspected at the offices of the NASD, 1735 K Street, N.W., Washington, D.C.
20006.
This Prospectus constitutes a part of a Registration Statement on Form
S-3 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act with respect to the Securities offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and reference is hereby made to the Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and the Common Stock. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company
pursuant to Section 13 of the Exchange Act are incorporated by reference in this
Prospectus:
(a) Annual Report on Form 10-K for the year ended December 31,
1997, as amended;
(b) Quarterly Report on Form 10-Q for the three months ended
March 31, 1998 and June 30, 1998; and
(c) Current Reports on Form 8-K dated January 28, 1998, February
23, 1998 and March 26, 1998.
All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the
offering made hereby shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein will be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is, or is deemed to be, incorporated by reference herein modifies or
supersedes any such statement. Any such statement so modified or superseded will
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this
Prospectus, including the documents incorporated or deemed to be incorporated
herein by reference, as the same may be amended, supplemented or otherwise
modified from time to time. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein do not purport to
be complete, and where reference is made to the particular
2
<PAGE> 4
provisions of such contract or other document, such provisions are qualified in
all respects by reference to all of the provisions of such contract or other
document.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above which have been
incorporated by reference herein (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to Hawthorne Financial Corporation,
2381 Rosecrans Avenue, 2nd Floor, El Segundo, California 90245, Attention:
Norman Morales. The Company's telephone number is (310) 725-5000.
THE COMPANY
The Company is a financial services company specializing in making real
estate-secured loans in market niches which management believes generally
provide higher rates of return and greater growth potential than the traditional
mortgage products offered by competing mortgage lenders. The Company, through
Hawthorne Savings, F.S.B. (the "Bank"), its wholly-owned subsidiary, generally
seeks to originate real estate-secured loans in which it can earn a premium
yield for prompt, efficient execution and for tailoring the terms of the loans
to meet the objectives of both the Company and the borrower. The Company focuses
primarily on originating (1) loans secured by large homes and unique estates
("estate loans") with principal balances of $1.0 million or more, (2) loans for
the construction of individual and tracts of single-family residential homes and
the acquisition and development of land for such construction and (3) permanent
and construction loans secured by multi-family residential and commercial real
estate. The Company funds its lending activities primarily with retail deposits
obtained through the Bank's branch system and, to a lesser extent, advances from
the Federal Home Loan Bank ("FHLB") of San Francisco. At June 30, 1998, the
Company had assets of $1.20 billion, liabilities of $1.15 billion, including
deposits of $891.5 million, and stockholders' equity of $47.7 million.
The Company is a registered savings and loan holding company under the
Home Owners' Loan Act ("HOLA") subject to regulation by the Office of Thrift
Supervision ("OTS"). The Bank is subject to regulation by the OTS, as its
chartering authority, and by the Federal Deposit Insurance Corporation ("FDIC")
as a result of its membership in the Savings Association Insurance Fund, which
insures the Bank's deposits up to the maximum extent permitted by law.
The Company's principal executive offices are located at 2381 Rosecrans
Avenue, 2nd Floor, El Segundo, California 90245. The Company's telephone number
is (310) 725-5000.
RISK FACTORS
Prospective investors should carefully review the following factors, as
well as the other information contained in this Prospectus, in connection with
the Securities offered hereby. When used in this Prospectus, the words or
phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," "believe" or similar expressions are
intended to identify "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. The Company
wishes to caution readers that all forward-looking statements are necessarily
speculative and not to place undue reliance on any such forward-looking
statements, which speak only as of the date made, and to advise readers that
various risks and uncertainties, including regional and national economic
conditions, changes in levels of market interest rates, credit risks of lending
activities and competitive and regulatory factors, could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from those anticipated or projected. The risks
highlighted herein should not be assumed to be the only factors that could
affect the future performance of the Company.
3
<PAGE> 5
LIMITED HISTORY OF PROFITABILITY
The Company reported net losses of $14.2 million, $3.0 million and $29.6
million for the years ended December 31, 1995, 1994 and 1993, respectively.
These losses were attributable to the high levels of loans originated during the
late 1980s and early 1990s by prior management of the Company, which loans
became nonperforming and, in many instances, resulted in foreclosure with
respect to the underlying collateral. The high levels of nonperforming assets
resulted in significant provisions for loan losses, net loan charge-offs, loss
of interest income on nonperforming loans, write-downs of investments in real
estate and increases in operating expenses during 1993, 1994 and 1995. Continued
profitability in future periods will be dependent upon, among other things, the
quality of both the Company's existing assets and the assets to be originated or
acquired by the Company in the future. See "-Asset Quality" below. Although the
Company reported net earnings of $5.0 million, $9.6 million and $7.5 million
during the six months ended June 30, 1998 and years ended December 31, 1997 and
1996, respectively, there can be no assurance that the Company will maintain
profitable operations or that there will not be substantial inter-period
variations in its operating results.
RISKS ASSOCIATED WITH LENDING ACTIVITIES
Credit Risk. Since 1994, the Company's lending activities have
emphasized (i) estate loans, (ii) loans to local developers to construct
individual, detached single-family homes and small (two-to-four units)
condominium projects and loans to developers for the acquisition of land, lot
development and construction of tracts of homes and (iii) permanent and
construction loans secured by existing multi-family (over four units)
residential real estate and commercial real estate, such as office buildings,
retail properties, industrial properties and various special purpose properties.
Residential construction financing is generally considered to expose the lender
to a greater risk of loss than long-term lending on improved, occupied real
estate. The risk of loss on a residential construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value at completion
of construction or development, the estimated cost (including interest) of
construction, the ability of the developer or builder to complete the project on
a timely basis and within the established budget parameters, as well as the
availability of permanent take-out financing. During the construction phase, a
number of factors could result in delays and cost overruns. If the estimate of
value proves to be inaccurate, the Company may be confronted, at or prior to the
maturity of the loan, with a project which, when completed, has a value which is
insufficient to ensure full repayment. The Company's estate loans also entail
certain risks not typically associated with conventional loans, including the
size of many of such loans, the unique characteristics of certain of the
properties securing the estate loans, and the absence of demonstrated financial
capacity with respect to certain of the estate loan borrowers. Similarly,
multi-family residential and commercial real estate lending generally is
considered to involve a higher degree of risk than the single-family residential
lending traditionally emphasized by savings institutions because the payment
experience on multi-family residential and commercial real estate loans
typically is dependent on the successful operation of the project, and thus such
loans may be adversely affected to a greater extent by adverse conditions in the
real estate markets or in the economy generally, as well as the manner in which
the borrower manages the property. Moreover, the Company's income property loans
generally are made with primary reliance on the operation and/or sale of the
property and without recourse to the borrower. Finally, construction loans
secured by multi-family residential and construction real estate combine the
risks discussed above with respect to residential construction lending as well
as the risks discussed above with respect to permanent loans secured by
multi-family residential and commercial real estate.
Size of Loans. With the exception of its conventional single-family
residential loan programs, the Company seeks to originate relatively few,
high-dollar balance loans within each of its lending businesses. Except with
respect to single-family residential construction lending, the Company generally
emphasizes loans with individual commitments or multiple commitments to
affiliated borrowers of between $1.0 million and $6.0 million, although it may
make loans up to the Bank's loans-to-one borrower limitation under applicable
laws and regulations, which amounted to $14.4 million at June 30, 1998. With
respect to single-family residential construction lending, the Company provides
construction financing to builders (and, to a lesser extent, owner-occupants)
ranging from $500,000 to $2.0 million for individual home construction projects,
although the Company may finance several home
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<PAGE> 6
construction projects with any one builder. Larger balance loans or multiple
loans with affiliated borrowers (in each instance, relative to the regulatory
capital of the Bank), involve greater risk to the Company because a small number
of such loans could have significant effects on the amount of the Company's
nonperforming assets and the level of its interest income in the event of
default.
Terms of Loans. The Company generally offers a variety of loan terms and
conditions on all loan types, including fixed interest rates and interest rates
which adjust in accordance with various indices; payments which are
interest-only or payments which include the amortization of principal, either on
a partial or fully amortizing basis; varying adjustment frequencies for
adjustable-rate loans and interest rate payment floors and caps; and varying
maturity and extension options. Certain of these terms, which generally are
offered by the competition encountered by the Company in connection with its
lending activities, may increase the risk of default. For example, loans which
are not fully amortizing over their maturity and which have a balloon payment
due at their stated maturity, as is the case with substantially all of the
Company's estate, multi-family residential and commercial real estate loans,
involve a greater risk of loss than fully amortizing loans because the ability
of a borrower to make a balloon payment typically will depend on its ability
either to timely refinance the loan or to timely sell the security property. The
ability of a borrower to accomplish these results will be affected by a number
of factors, including the level of available mortgage rates at the time of sale
or refinancing, the financial condition and operating history of the borrower
and the property which secures the loan, tax laws, prevailing economic
conditions and the availability of financing for such loans generally.
Similarly, adjustable-rate loans, which comprised a substantial majority of all
of the loans originated by the Company during the six months ended June 30, 1998
and the years ended December 31, 1997, 1996 and 1995, may have an increased risk
of default thereon during periods of rising interest rates. Rising interest
rates could adversely affect a borrower's ability to make required payments
during the term of the loan or balloon payments at maturity due to the
accumulation of "negative amortization," which is the difference between the
interest rate on which payments are made during the term of the loan and the
accrual rate of interest thereon.
Limited Track Record of Performance for New Loan Originations. The
Company ceased loan origination activities during 1993 and 1994 in order to
focus on building a lending and operating infrastructure. The Company resumed
significant lending activities during 1995 and, as a result, $823.7 million or
74.4% of the Company's loan portfolio as of June 30, 1998 was originated
subsequent to 1994. Although such loans have generally performed in accordance
with their respective terms, they have generally not been outstanding long
enough to fully assess their ability to perform under changing economic and
market conditions.
RISKS ASSOCIATED WITH GROWTH IN LOAN ORIGINATIONS
The Company resumed significant lending activities in 1995. During the
period 1995 through 1997, the Company's annual volume of new loan commitments
increased substantially, reaching $494.9 million in 1997, as compared with
$332.3 million in 1996 and $197.3 million in 1995. During the six months ended
June 30, 1998, the Company recorded $439.4 million of new loan commitments. An
integral component of the Company's business strategy consists of expanding its
market share in each of its principal lending businesses, including the
financing of estate homes, residential construction and multi-family residential
and commercial real estate. The Company's ability to meet this objective will be
dependent on market and economic conditions, particularly the general level of
interest rates, the competition for such lending activities, which management
believes has increased significantly in recent years, the Company's ability to
attract and retain cost-efficient sources of funds in order to fund its lending
activities, and other factors which are beyond the control of the Company. As a
result of the foregoing, there can be no assurance that the Company will be able
to engage in the desired level of lending activities in order to meet its loan
growth objectives.
ASSET QUALITY
The Company's results of operations are significantly dependent on the
quality of its assets, which is measured by the level of its nonperforming
assets, nonaccruing and classified assets. Nonperforming assets consist of loans
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<PAGE> 7
which are 90 days or more past due ("nonperforming loans") and real estate
acquired by foreclosure or deed-in-lieu thereof, net of writedowns and reserves
("real estate owned"). In addition to its nonperforming assets, the Company has
loans which are delinquent 30 to 89 days, which the Company places on nonaccrual
status as a matter of policy, and loans which are performing in accordance with
their terms but which the Company has classified as substandard or lower in
accordance with OTS regulations because they were troubled debt restructurings
or contained one or more defined weaknesses, a portion of which also may be
placed on nonaccrual status. Management of the Company has devoted and continues
to devote substantial time and resources to the identification, collection and
workout of the Company's problem assets, which has resulted in a significant
decrease in the Company's nonperforming assets from a high of $151.2 million, or
17.15%, of total assets at December 31, 1993 to $20.4 million, or 1.70% of total
assets at June 30, 1998. Notwithstanding the substantial decline in
nonperforming assets since 1993, at June 30, 1998, the Company's nonperforming
assets and other classified assets aggregated $71.9 million, or 6.00%, of total
assets.
Although management of the Company has successfully reduced its
nonperforming assets in recent years, the real estate markets and the overall
economy in its market area are likely to be significant determinants of the
quality of the Company's assets in future periods and, thus, its financial
condition and results of operations. In addition, the Company's financial
condition and results of operations may be adversely affected to the extent the
Company's newly originated loans experience asset quality problems.
ADEQUACY OF ALLOWANCES FOR LOSSES
Management establishes general reserves against the Company's portfolio
of loans. Such general reserves are established for each segment of the
Company's loan portfolio. In establishing general reserves, management considers
(1) the recovery rate for similar properties previously sold by the Company, (2)
valuations of groups of similar assets, (3) the probability of future adverse
events (i.e., performing loans which are expected to become nonperforming and
loans in default which are expected to be foreclosed on) and (4) guidelines
published by the OTS.
At June 30, 1998, the Company's allowance for credit losses amounted to
1.31% of total loans and 87.39% of nonperforming loans. Although the Company
believes that it has established adequate allowances for losses on its loan
portfolio and real estate owned, material future additions to the allowance for
loan losses may be necessary due to changes in economic conditions, the
performance of the Company's loan portfolio and increases in loans. Future
additions to the allowance for losses on real estate owned may be necessary to
reflect changes in the economies and markets for real estate in which the
Company's real estate owned is located and other factors which may result in
adjustments which are necessary to ensure that the Company's real estate owned
is carried at the lower of cost or fair value, less estimated costs to dispose
of the properties. In addition, the OTS, as an integral part of its examination
process, periodically reviews the Company's allowance for losses and the
carrying values of its assets. Increases in the provisions for losses on loans
and real estate owned would adversely affect the Company's results of
operations.
SOURCE OF PAYMENTS ON THE SENIOR NOTES DUE 2004
The Company is a holding company with no material business operations of
its own. The Company's only significant asset is all of the common stock of the
Bank. In connection with the 1995 recapitalization of the Bank, the Company
issued $27 million of senior notes and preferred stock. In December 1997, the
Company repaid such senior notes and preferred stock with the proceeds of a $40
million offering of senior notes due 2004. The senior notes due 2004 have an
annual debt service requirement of $5.0 million. The principal source of cash to
pay interest on and principal of the senior notes due 2004 consists of dividends
from the Bank. There can be no assurance that the earnings from the Bank will be
sufficient to pay dividends to the Company or that such dividends will be
permitted by applicable federal banking laws and regulations. Failure to pay
interest and/or principal on the senior notes due 2004 would constitute an event
of default with respect to such senior notes. For additional information
concerning limitations on the Bank paying dividends to the Company, see "- No
Intention to Pay Dividends; Limited Sources for Dividends on the Common Stock
and Funding of Activities."
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<PAGE> 8
INTEREST RATE RISK
The Company's operating results depend to a large extent on its net
interest income, which is the difference between the interest income earned on
interest-earning assets and the interest expense incurred in connection with its
interest-bearing liabilities. Changes in the general level of interest rates can
affect the Company's net interest income by affecting the spread between the
Company's interest-earning assets and interest-bearing liabilities. This may be
due to the disparate maturities or period to repricing of the Company's
interest-earning assets and interest-bearing liabilities, as well as in the case
of an increase in the general level of interest rates and periodic caps which
limit the interest rate change on many of the Company's adjustable-rate mortgage
loans. Changes in the general level of interest rates also affect, among other
things, the ability of the Company to originate loans; the ability of borrowers
to make payments on loans; the value of the Company's interest-earning assets
and its ability to realize gains from the sale of such assets; the average life
of the Company's interest-earning assets; and the Company's ability to obtain
deposits in competition with other available investment alternatives. Interest
rates are highly sensitive to many factors, including governmental monetary
policies, domestic and international economic and political conditions and other
factors beyond the control of the Company.
The Company's interest rate risk strategy emphasizes the management of
asset and liability balances within repricing categories in order to limit the
Bank's exposure to earnings variations as well as variations in the value of
assets and liabilities due to changes in interest rates over time. The Company
does not currently utilize off-balance sheet hedging instruments in order to
hedge its interest rate exposure. Instead, the Company hedges such exposure
internally through the use of core deposit accounts and FHLB advances, together
with an emphasis on investing in shorter-term or adjustable-rate assets.
ECONOMIC CONDITIONS
The success of the Company is dependent to a certain extent upon general
economic conditions, particularly in the areas in Southern California in which
it conducts its business activities. Adverse changes in the economic conditions
of these areas may impair the ability of the Company to collect loans and would
otherwise have an adverse effect on its business, including the demand for new
loans, the ability of customers to repay loans and the value of both the real
estate which secures its loans and its real estate owned. Moreover, earthquakes
and other natural disasters could have similar effects. Although such disasters
have not significantly adversely affected the Company to date, the ability of
borrowers to acquire insurance for such disasters in California is severely
limited. The Company does not generally require individual borrowers to obtain
insurance coverage with respect to any damage to the collateral securing the
Bank's loans in the event of an earthquake. Instead, in June, 1997, the Company
purchased a $10 million blanket insurance policy covering the collateral
securing the Bank's estate loans in the event of an earthquake. Pursuant to this
blanket insurance policy, the Company will be reimbursed for any losses suffered
upon the disposition of the collateral securing an estate loan (whether by
foreclosure or sale), including interest foregone with respect to the loan for
the period from the 91st day of the loan's delinquency until the ultimate
disposition of the collateral. Nevertheless, no assurance can be made that in
the event of an earthquake, the Bank will recover amounts pursuant to such
insurance policy sufficient to cover all of the losses suffered by the Bank.
COMPETITION
The Company experiences substantial competition both in attracting and
retaining deposits and in making loans. Its most direct competition for deposits
historically has come from other thrift institutions, commercial banks and
credit unions doing business in its market areas in Southern California. In
addition, as with all banking organizations, the Company has experienced
increasing competition from nonbanking sources such as full service and discount
broker-dealers and other investment alternatives, such as mutual funds. The
Company's competition for estate loans comes principally from larger commercial
banks, investment banks and other thrift institutions and the Company's
competition for residential construction loans comes principally from smaller
commercial banks. The Company's competition for multi-family residential and
commercial real estate loans comes principally from other
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thrift institutions, commercial banks, insurance companies, mortgage real estate
investment trusts, mortgage conduits and other institutional lenders. A number
of institutions with which the Company competes for deposits and loans
(primarily with respect to estate loans and multi-family residential and
commercial real estate loans) have significantly greater assets, capital and
other resources than the Company. In addition, many of the Company's competitors
are not subject to the same extensive federal regulation that governs savings
and loan holding companies, such as the Company, and federally-chartered and
federally-insured savings institutions, such as the Bank. As a result, many of
the Company's competitors have advantages over the Company in conducting certain
businesses and providing certain services.
TECHNOLOGY
Data Processing Conversion. In July 1998, the Company completed a
conversion of substantially all of its computer-based systems and applications
to an in-house, client-server platform from an outsourced, host-based platform,
following over two years of planning, design, specification, hardware and
software acquisition and resource additions. The Company believes that the new
computer-based systems and applications will provide it with the information
processing, warehousing and reporting capabilities necessary to more efficiently
and reliably support its business activities in the future. Although management
believes that it has adequately planned for, and has prudently implemented its
data procession conversion plan, there is a risk, inherent in all conversions of
computer-based systems, that the conversion will not proceed in a manner
consistent with management's plan. This could result in the inability of the new
computer-based systems to accurately process and report information on a timely
basis, which could lead to the allocation of unplanned resources and the
expenditure of additional funds. In addition, significant problems with the
conversion could adversely affect the Company's ability to successfully
implement portions of its strategic plan on a timely basis.
Year 2000 Compliance. The Year 2000 issue is created by the potential
inability of computer systems to use more than two digits in the data field for
the year, thus making them unable to identify years after 1999 with accuracy. If
a bank does not resolve problems related to the Year 2000 issue, computer
systems may incorrectly compute payment, interest or delinquency information. In
addition, because payment and other important data systems are linked by
computer, if the banks with which the Company or its subsidiaries conducts
ongoing operations do not resolve this potential problem in time, the Company or
its subsidiaries may experience significant data processing delays, mistakes or
failures. These delays, mistakes or failures may have a significant adverse
impact on the financial condition, results of operations and cash flows of the
Company.
The Company, however, has adopted, and is implementing, a plan to
address Year 2000 data processing issues. The plan includes the assessment of
all internal systems, programs and data processing applications (with respect to
the Company, including the new applications which are integral to the conversion
of its computer-based systems), as well as those provided to the Company by
third-party vendors. As discussed above, the Company has recently completed the
process of converting from an outsourced, host-based program to an in-house
client-server computer platform. See. " - Data Processing Conversion." The
Company currently is performing its own Year 2000 testing by creating a database
that will roll forward systematically until the in-house computer systems
process data into what it believes is early 2000.
The Company no longer relies on any third-party provider for loan or
deposit accounting and has been actively requesting Year 2000 compliance
assurances from third-party providers of other services. Failure of third party
computer systems relative to the Year 2000 would have material adverse impact on
the Company's ability to conduct its business. Management continues to evaluate
the Company's third party vendors' efforts with respect to compliance with Year
2000 issues. No assurance can be given that such third party vendors' efforts
will be successful or that the Company's costs associated therewith will be
consistent with internal projections. Separately, the Company has identified
several larger borrowing customers that may have the potential to be adversely
impacted by Year 2000 problems. In all such instances, the credit extended to
these borrowers is collateralized by real estate, which inherently minimizes the
Company's exposure in case of any problems these loan customers may face. In
general,
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the Company does not believe that any Year 2000 issues will materially affect
the Company's products, services or competitive conditions.
The expense incurred and to be incurred by the Company to ensure Year
2000 compliance is substantially integrated and included with the expense
associated with the planned conversion of its computer-based systems. In
addition, the Company does not believe that the cost of addressing Year 2000
issues is a material event or uncertainty which would cause reported financial
information not to be necessarily indicative of future operating results or
financial conditions, and the costs or the consequences of incomplete or
untimely resolution of its Year 2000 issues do not represent a known material
event or uncertainty that is reasonably likely to affect its future financial
results, or cause its reported financial information to not be necessarily
indicative of future operating results or future financial condition. The
Company anticipates incurring approximately $3.3 million in costs related to the
foregoing data processing conversion and the implementation of the Company's
Year 2000 plan. Approximately $1.2 million of such costs are expected to be
expensed during 1998 while approximately $2.1 million of such costs are expected
to be capitalized and expensed over a three-year period.
REGULATION
Both the Company, as a savings and loan holding company, and the Bank,
as a federally-chartered savings institution, are subject to significant
governmental supervision and regulation, which is intended primarily for the
protection of depositors. Statutes and regulations affecting the Company and the
Bank may be changed at any time, and the interpretation of these statutes and
regulations by examining authorities also is subject to change. There can be no
assurance that future changes in applicable statutes and regulations or in their
interpretation will not adversely affect the business of the Company. The
Company is subject to regulation and examination by the OTS and the Bank is
subject to regulation and examination by the OTS and the FDIC. There can be no
assurance that the OTS or the FDIC will not, as a result of such regulation and
examination, impose various requirements or regulatory sanctions upon the
Company or the Bank, as applicable. In addition to governmental supervision and
regulation, each of the Company and the Bank is subject to changes in federal
and state laws, including changes in tax laws, which could materially affect the
real estate industry. "No Intention to Pay Dividends; Limited Sources for
Dividends on the Common Stock and Funding of Activities."
DEPENDENCE ON CHIEF EXECUTIVE OFFICER
Scott A. Braly, President and Chief Executive Officer of the Company,
has had, and will continue to have, a significant role in the development and
management of the Company's business, including in particular his active
involvement in the Bank's lending operations, whereby he functions as the Bank's
Chief Lending Officer. The loss of his services could have an adverse effect on
the Company. The Company and Mr. Braly are not parties to an employment
agreement, and the Company currently does not maintain key man life insurance
relating to Mr. Braly or any of its other officers.
NO INTENTION TO PAY DIVIDENDS; LIMITED SOURCES FOR DIVIDENDS ON THE COMMON STOCK
AND FUNDING OF ACTIVITIES
The Company does not currently pay cash dividends on the Common Stock
and has no current plans to do so in the future. See "Dividend Policy." As a
holding company whose only significant asset is all of the common stock of the
Bank, the ability of the Company to pay dividends on the Common Stock and to
conduct business activities directly or in non-banking subsidiaries will depend
significantly on the receipt of dividends or other distributions from the Bank.
Federal banking laws and regulations, including the regulations of the OTS,
limit the Bank's ability to pay dividends to the Company. The Bank generally may
not declare dividends or make any other capital distribution to the Company if,
after the payment of such dividend or other distribution, it would fall within
any of the three undercapitalized categories under the prompt corrective action
standards established by the OTS and the other federal banking agencies pursuant
to Section 38 of the Federal Deposit Insurance Act. A regulation of the OTS also
limits
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the Bank's ability to pay dividends and make other capital distributions in a
manner which depends upon the extent to which the Bank meets its regulatory
capital requirements. In addition, HOLA requires every savings association
subsidiary of a savings and loan holding company to give the OTS at least 30
days' advance notice of any proposed dividends to be made on its guarantee,
permanent or other non-withdrawable stock or else such dividend will be invalid.
Further, the OTS may prohibit any dividend or other capital distribution that it
determines would constitute an unsafe or unsound practice. In addition to the
regulation of dividends and other capital distributions, there are various
statutory and regulatory limitations on the extent to which the Bank can finance
or otherwise transfer funds to the Company or non-banking subsidiaries of the
Company, whether in the form of loans, extensions of credit, investments or
asset purchases. The Director of the OTS may further restrict these transactions
in the interests of safety and soundness.
As of June 30, 1998, the Bank met the capital and other requirements of
a "well capitalized" institution under the OTS' prompt corrective action
standards. There can be no assurance that the Bank will remain "well
capitalized" in the future or that the OTS will not require the Bank to maintain
higher levels of capital in light of the risk profile of its lending activities.
ABSENCE OF MARKET FOR THE WARRANTS AND LIMITED MARKET FOR THE COMMON STOCK;
POTENTIAL EFFECTS OF SALES OF SHARES AVAILABLE FOR FUTURE SALE
The Warrants are not listed on any exchange or traded on any automated
inter-dealer quotation system. There currently is no trading market for the
Warrants and there can be no assurance that such a trading market will develop
or if one develops, that it will continue. The Common Stock is traded on the
Nasdaq Stock Market's National Market, although it is not an actively-traded
stock. No assurance can be given that a more active and widespread trading
market for the Common Stock will develop or if one develops, that it will
continue. There also can be no assurance that sales of the Securities offered
hereby and/or other shares of Common Stock available for sale by stockholders,
including without limitation shares which may be acquired upon exercise of
options granted under the Company's stock option plans, will not adversely
affect the then-current market price of the Common Stock.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the sale of the
Securities offered hereby by the Selling Securityholders. The Warrants are
exerciseable at $2.128 per share. Because of the unpredictable timing of
receipt, the Company has no current plans for use of any of the proceeds that it
may receive from the exercise of the Warrants, which proceeds aggregate $5.3
million. The Company presently expects, however, that any such proceeds will be
employed for working capital purposes.
DIVIDEND POLICY
The Company does not currently pay cash dividends on the Common Stock
and has no current plans to do so in the future. In the future, the timing and
amount of any dividends will be determined by the Board of Directors of the
Company and will depend, among other factors, upon the Company's earnings,
financial condition, cash requirements, the capital requirements of the Bank and
investment opportunities at the time any such payment is considered.
As a holding company, the payment of any dividends by the Company will
be significantly dependent on dividends received by the Company from the Bank.
For a description of limitations on the ability of the Bank to pay dividends on
its capital stock to the Company, see "Risk Factors - No Intention to Pay
Dividends; Limited Sources for Dividends on the Common Stock and Funding of
Activities."
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DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation, as amended (the
"Certificate"), authorizes the issuance of up to 20,000,000 shares of Common
Stock and up to 10,000,000 shares of preferred stock, par value $0.01 per share
(the "Preferred Stock"). At July 31, 1998, the Company had 5,187,596 shares of
Common Stock outstanding, Warrants to purchase an additional 2,512,188 shares of
Common Stock outstanding and no Preferred Stock was outstanding. In addition, at
the same date the Company had granted options to purchase an aggregate of
739,300 shares of Common Stock pursuant to its two Stock Option Plans.
The following description of the Company's capital stock is a summary
which does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all of the provisions of the Certificate, the Bylaws
of the Company and the form of Warrant evidencing the outstanding Warrants,
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus is a part, as well as the applicable provisions of the Delaware
General Corporation Law.
COMMON STOCK
General. Each share of Common Stock has the same relative rights and is
identical in all respects with each other share of Common Stock. The Common
Stock is not subject to call for redemption and each outstanding share of Common
Stock as of the date hereof is fully paid and non-assessable and, upon receipt
of the purchase price payable upon exercise of the Warrants, the shares of
Common Stock issuable upon such exercise will be fully paid and non-assessable.
Voting Rights. Except as provided in any resolution or resolutions
adopted by the Board of Directors of the Company establishing any series of
Preferred Stock, the holders of Common Stock possess exclusive voting rights in
the Company. Each holder of Common Stock is entitled to one vote for each share
held on all matters voted upon by shareholders, and shareholders are permitted
to cumulate votes in elections of directors.
Dividends. Subject to the rights of the holders of any series of
Preferred Stock, the holders of Common Stock are entitled to such dividends as
may be declared from time to time by the Board of Directors of the Company out
of funds legally available therefor.
Preemptive Rights. Holders of Common Stock do not have any preemptive
rights with respect to any shares which may be issued by the Company in the
future; thus, the Company may sell shares of Common Stock without first offering
them to the then holders of Common Stock.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, the holders of Common Stock would be entitled to receive, after
payment of all debts and liabilities of the Company, all assets of the Company
available for distribution, subject to the rights of the holders of any
Preferred Stock which may be issued with a priority in liquidation or
dissolution over the holders of Common Stock.
PREFERRED STOCK
The Board of Directors of the Company is authorized to issue the
Preferred Stock and to fix and state voting powers, designations, preferences or
other special rights of such shares and the qualifications, limitations and
restrictions thereof. The Preferred Stock may be issued in distinctly designated
series, may be convertible into Common Stock and may rank prior to the Common
Stock as to dividend rights, liquidation preferences, or both.
The authorized but unissued shares of Preferred Stock (as well as the
authorized but unissued and unreserved shares of Common Stock) are available for
issuance in future mergers or acquisitions, in a future public offering or
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<PAGE> 13
private placement or for other general corporate purposes. Except as otherwise
required to approve the transaction in which the additional authorized shares of
Preferred Stock (as well as Common Stock) would be issued, shareholder approval
generally would not be required for the issuance of these shares. Depending on
the circumstances, however, shareholder approval may be required pursuant to the
requirements for continued quotation of the Common Stock on the Nasdaq Stock
Market's National Market or the requirements of any exchange on which the Common
Stock may then be listed.
WARRANTS
Exercise. The Warrants may be exercised on or after December 11, 1998
and will expire at 5:00 p.m., Pacific Time, on December 11, 2005 (the
"Expiration Date"), provided that the Warrants may be exercised in whole or in
part prior to December 11, 1998 in connection with or following a Change in
Control of the Company, as defined in the Warrants. The registered holder of a
Warrant (a "Holder" and collectively the "Holders") has the right to purchase
from the Company the number of shares of Common Stock set forth on the face
thereof (as may be adjusted pursuant to the terms of the Warrant) at the price
of $2.128 per share (as may be adjusted pursuant to the terms of the Warrant,
the "Exercise Price").
A Holder may exercise a Warrant by (i) surrendering the Warrant to the
Company at the Company's principal office in El Segundo, California with the
exercise form attached thereto duly completed and signed by the Holder or
Holders thereof, and (ii) submitting payment by wire transfer or other payment
of immediately available funds of the Exercise Price for the shares of Common
Stock in respect of which the Warrant is being exercised. Upon surrender of the
Warrant and payment of the Exercise Price, the Company shall promptly issue and
cause to be delivered to or upon the written order of the Holder of the Warrant
a certificate or certificates for the number of shares of Common Stock so
purchased upon the exercise of the Warrant, together with payment in respect of
any fraction of a share of Common Stock issuable upon such surrender pursuant to
the terms of the Warrant.
The exercise of a Warrant shall be deemed to have been effected
immediately prior to the close of business on the business day on which the
Holder surrenders a Warrant to the Company and payment of the Exercise Price 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.
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 the Warrants 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 issuance of the Warrants, (i) issue any shares of
Common Stock as a stock dividend to the holders of Common Stock, (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 a Warrant
shall be adjusted to the number of shares of Common Stock that the Holder 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 the Warrant immediately prior to such event and
the denominator of which shall be the number of shares of Common Stock
purchasable with the 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
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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 issuance of the Warrants, 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 or (B) the exercise or conversion, as the case may be, of
any Option, Convertible Security (each as defined in paragraph (c) below) or
Warrant) (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 a 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 a
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 issuance of the Warrants, 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
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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 issuance of the Warrants, 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 issuance of the Warrants, 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 a 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) above, 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
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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 Nasdaq Stock Market's National
Market or any comparable system or (3) if the Common Stock is not listed on the
Nasdaq Stock Market's National Market 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 a 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 the
Warrants), the Exercise Price then in effect and the number of shares of Common
Stock purchasable upon the exercise of a Warrant shall forthwith be readjusted
(effective only with respect to any exercise of a 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
15
<PAGE> 17
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 a 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 a 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 the Holder's Warrant, the
number of such other securities so receivable upon exercise of such 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 the Warrants.
(m) Excluded Transactions. Notwithstanding any provision in the Warrants
to the contrary, no adjustment shall be made 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) is in the ordinary course of
business and is 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 the Nasdaq Stock Market's National Market or any
comparable system or (3) if the Common Stock is not listed on the Nasdaq Stock
Market's National Market 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.
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
16
<PAGE> 18
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 a Warrant shall
thereafter have the right to purchase and receive, upon the basis and upon the
terms and conditions specified in the 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 the Warrant to the end that the provisions of the
Warrant (including without limitation provisions for adjustments of the Exercise
Price and of the number of shares purchasable upon the exercise of the 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 thereof.
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 each Holder at the last address of the
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 provisions of the Warrants such Holder may be entitled to
purchase.
Fractional Interests. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of a Warrant. If more than one
Warrant shall be presented for exercise at the same time by a 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 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.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
FEDERAL LAWS AND REGULATIONS
Federal laws and regulations generally require any person who intends to
acquire control of a savings and loan holding company or savings institution to
give at least 60 days prior written notice to the OTS. "Control" is defined as
the power, directly or indirectly, to direct the management or policies of a
savings institution or to vote 25% or more of any class of voting securities of
the savings institution. In addition to the foregoing restrictions, a company
must secure the approval of the OTS before it can acquire control of a savings
institution. Under federal regulations, a person (including business entities)
is deemed conclusively to have acquired control if, among other things, such
person acquires: (i) 25% or more of any class of voting stock of the savings
institution; (ii) irrevocable proxies representing 25% or more of any class of
voting stock of the savings institution; (iii) any combination of voting stock
and irrevocable proxies representing 25% or more of any class of such
institution's voting stock; or (iv) control of the election of a majority of the
directors of the savings institution. In addition, a rebuttable presumption of
control arises in the event a person acquires more than 10% of any class of
voting stock (or more than 25% of any class of non-voting stock) and is subject
to one or more of eight enumerated control factors. Such regulations also set
forth rebuttable presumptions of concerted action and the procedures to follow
to rebut any such presumptions. The OTS is specifically empowered to disapprove
such an acquisition of control if it finds, among other reasons, that (i) the
acquisition would substantially lessen competition; (ii) the financial condition
of the acquiring person might jeopardize the institution or its depositors; or
(iii) the competency, experience or integrity of the acquiring person indicates
that it would not be in the interest of the depositors, the institution or the
public to permit the acquisition of control by such person.
17
<PAGE> 19
DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law generally provides
that a Delaware corporation shall not engage in any "business combination" with
an "interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder unless (i) prior to such date
the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; or (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for this purpose,
shares owned by persons who are directors and also officers and shares owned by
employee stock ownership plans in which employee participants do not have the
right to determine confidentially whether the shares held subject to the plan
will be tendered in a tender offer or exchange offer; or (3) on or subsequent to
such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. The three-year prohibition on business combinations
with an interested stockholder does not apply under certain circumstances,
including business combinations with a corporation which does not have a class
of voting stock that is (i) listed on a national securities exchange, (ii)
authorized for quotation on an inter-dealer quotation system of a registered
national securities association, or (iii) held of record by more than 2,000
stockholders, unless in each case this result was directly or indirectly caused
by the interested stockholder.
An "interested stockholder" generally means any person that (i) is the
owner of 15% or more of the outstanding voting stock of the corporation or (ii)
is an affiliate or associate of the corporation and was the owner of 15% or more
of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder; and the affiliates
and associates of such a person. The term "business combination" is broadly
defined to include a wide variety of transactions, including mergers,
consolidations, sales of 10% or more of a corporation's assets and various other
transactions which may benefit an interested stockholder.
SELLING SECURITYHOLDERS
This Prospectus relates to the offer and sale by the Selling
Securityholders of up to (i) 431,121 shares of Common Stock, (ii) Warrants to
purchase 2,512,188 shares of Common Stock expiring December 11, 2005 and (iii)
2,512,188 shares of Common Stock issuable upon exercise of such Warrants
(Warrants to purchase 2,140,012 shares of Common Stock and 2,140,012 shares of
Common Stock issuable upon exercise of such Warrants may be deemed to be held by
affiliates of the Company).
The outstanding Securities were originally issued by the Company in
private transactions. The Company has registered the Securities pursuant to a
Registration Rights Agreement, dated as of December 12, 1995 (the "Registration
Rights Agreement"). Pursuant to the Registration Rights Agreement, the Company
shall pay its own legal and accounting fees, all registration and filing fees
attributable to the registration of the Securities, the filing fee payable to
The Nasdaq Stock Market, Inc. and any printing fees incurred in connection
herewith. Each Selling Securityholder shall pay his, her or its own legal and
accounting fees and any other expenses incurred by the Selling Securityholder.
Any commissions, discounts or other fees payable to broker-dealers or other
agents in connection with any sale of the Securities by a Selling Securityholder
will be payable by the Selling Securityholder.
The Company has agreed to indemnify the Selling Securityholders against
certain liabilities arising out of any actual or alleged material misstatements
or omissions in the Registration Statement, other than liabilities arising from
information supplied by the Selling Securityholders for use in the Registration
Statement. Each Selling Securityholder, severally but not jointly, has agreed to
indemnify the Company against liabilities arising out of any actual or alleged
material misstatements or omissions in the Registration Statement insofar as
such misstatements or
18
<PAGE> 20
omissions were made in reliance upon written information furnished to the
Company by such Selling Securityholder expressly for use in the Registration
Statement.
Because the Selling Securityholders may offer all or some of the
Securities, and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the Securities that will be
held by the Selling Securityholders after completion of the offering, no
estimate can be given as to the amount of the Securities that will be held by
the Selling Securityholders after completion of the offering.
The following table sets forth the name of each Securityholder and the
number and percentage of shares of Common Stock and Warrants beneficially owned
and offered hereby by each Selling Securityholder. Except as indicated in the
notes to the table, the Selling Securityholders have not held any position or
had any other material relationship with the Company in the past three years.
19
<PAGE> 21
<TABLE>
<CAPTION>
Common Stock(1)
---------------------------------------------------
Beneficially
Owned Prior Offered
to Offering Hereby
------------------------ ------------------------
Name of Selling # of % of Shares # of % of Shares
Securityholder Shares Outstanding Shares Outstanding
- -------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Value Partners, Ltd.(2)(3) 1,241,100 17.9% 926,600 17.9%
Lee M. Bass(2)(3)(4) 327,035 6.0 327,035 6.0
Sid R. Bass Management Trust (2)(3)(4) - -- - --
Sid R. Bass(2)(3)(4) 47,903 * 47,903 *
The Bass Management Trust(2)(3)(4) 272,529 5.3 272,529 5.3
Fort Pitt Fund, L.P.(2)(3) 479,651 9.2 479,651 9.2
Scott A. Braly(2)(3)(5)(6) 197,414 2.5 130,814 2.5
David L. Hardin, Jr.(2)(3)(5)(6) 17,150 * 17,150 *
Norman A. Morales(2)(3)((5)(6) 40,917 * 16,917 *
Tyndall Partners, L.P.(3) 7,983 * 7,983 *
Sierra Resources Limited(3) 23,951 * 23,951 *
Jane F. Matz(3) 7,983 * 7,983 *
A. Baxter & S. Cash, Trustees,
Elias, Matz, Tiernan & Herrick L.L.P
Svg. & PS Plan DTD 1/1/89 FBO
W. Michael Herrick(3) 1,596 * 1,596 *
Raymond A. Tiernan(3) 3,193 * 3,193 *
John P. Soukenik(3) 1,596 * 1,596 *
BT Alex. Brown Incorporated Cust. FBO William
H. Savage R-IRA DTD 11/2/95(3) 1,596 * 1,596 *
Timothy R. Chrisman(2)(5) 28,037 * 9,537 *
Prosper Capital Management, L.P. 223 * 223 *
Hemisphere Investment Limited Partnership 1,211 * 1,211 *
Lyda Hunt - Caroline Trust - Patrick Brian Sands 1,211 * 1,211 *
Lyda Hunt - Herbert Trusts - Barbara Ann Hunt 727 * 727 *
Lyda Hunt - Herbert Trusts - David Shelton Hunt 1,938 * 1,938 *
William Herbert Hunt Trust Estate 4,844 * 4,844 *
Crow Support Trust 1,695 * 1,695 *
Randy Best 484 * 484 *
Kelcy L. Warren 1,211 * 1,211 *
Primal Trust No. 3 606 * 606 *
Primal Trust No. 2 606 * 606 *
Primal Trust No. 1 848 * 848 *
John L. Zogg, Jr 363 * 363 *
--------- ---------
2,715,601 2,571,133
========= =========
Less than 1%. (footnotes on the following page)
</TABLE>
<TABLE>
<CAPTION>
Warrants
-------------------------------------------------------------
Beneficially
Owned Prior Offered
to Offering Hereby
------------------------------- ----------------------------
Warrants to
Warrants to Purchase #
Name of Selling Purchase # Shares % of Warrants Shares of % of Warrants
Securityholder of Common Stock Outstanding Common Stock Outstanding
- -------------------------------------------------- --------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Value Partners, Ltd.(2)(3) 790,874 31.5% 790,874 31.5%
Lee M. Bass(2)(3)(4) 279,132 11.1 279,132 11.1
Sid R. Bass Management Trust (2)(3)(4) 279,132 11.1 279,132 11.1
Sid R. Bass(2)(3)(4) - -- -- --
The Bass Management Trust(2)(3)(4) 232,610 9.3 232,610 9.3
Fort Pitt Fund, L.P.(2)(3) 409,393 16.3 409,393 16.3
Scott A. Braly(2)(3)(5)(6) 111,653 4.4 111,653 4.4
David L. Hardin, Jr.(2)(3)(5)(6) 13,957 * 13,957 *
Norman A. Morales(2)(3)((5)(6) 16,917 * 16,917 *
Tyndall Partners, L.P.(3) 46,522 1.9 46,522 1.9
Sierra Resources Limited(3) 139,566 5.6 139,566 5.6
Jane F. Matz(3) 46,522 1.9 46,522 1.9
A. Baxter & S. Cash, Trustees,
Elias, Matz, Tiernan & Herrick L.L.P
Svg. & PS Plan DTD 1/1/89 FBO
W. Michael Herrick(3) 9,304 * 9,304 *
Raymond A. Tiernan(3) 18,609 * 18,609 *
John P. Soukenik(3) 9,304 * 9,304 *
BT Alex. Brown Incorporated Cust. FBO William
H. Savage R-IRA DTD 11/2/95(3) 9,304 * 9,304 *
Timothy R. Chrisman(2)(5) 6,344 * 6,344 *
Prosper Capital Management, L.P. 1,297 * 1,297 *
Hemisphere Investment Limited Partnership 7,058 * 7,058 *
Lyda Hunt - Caroline Trust - Patrick Brian Sands 7,058 * 7,058 *
Lyda Hunt - Herbert Trusts - Barbara Ann Hunt 4,235 * 4,235 *
Lyda Hunt - Herbert Trusts - David Shelton Hunt 11,292 * 11,292 *
William Herbert Hunt Trust Estate 28,230 1.1 28,230 1.1
Crow Support Trust 9,881 * 9,881 *
Randy Best 2,823 * 2,823 *
Kelcy L. Warren 7,058 * 7,058 *
Primal Trust No. 3 3,528 * 3,528 *
Primal Trust No. 2 3,528 * 3,528 *
Primal Trust No. 1 4,940 * 4,940 *
John L. Zogg, Jr 2,117 * 2,117 *
--------- ---------
2,512,188 2,512,188
========= =========
Less than 1%. (footnotes on the following page)
</TABLE>
20
<PAGE> 22
- -------------------------
(1) In the case of each Selling Securityholder the number of shares of Common
Stock beneficially owned and offered hereby includes the number of shares of
Common Stock that may be acquired by each Selling Securityholder upon exercise
of the Warrants even if not currently exercisable (an aggregate of 2,512,188
shares). The percentage of outstanding Common Stock held by each Selling
Securityholder is based on the 5,187,596 shares of Common Stock outstanding as
of July 31, 1998 plus all 2,512,188 shares of Common Stock issuable upon
exercise of the Warrants even if not currently exercisable.
(2) Shares of Common Stock which may be sold by the Selling Securityholder
after acquisition of such shares upon exercise of the Selling Securityholders's
Warrants have been registered for resale in the event such Securityholder is
deemed to be an affiliate of the Company for purposes of the Securities Act.
Such action does not constitute an admission that the Selling Securityholder is
an affiliate of the Company.
(3) In December 1995, the Selling Securityholder participated in a private
placement by the Company (the "Private Offering") of an aggregate of $27.0
million of investment units (the "Units"), each of which consisted of $250,000
principal amount of the Company's Senior Notes due 2000 (the "Senior Notes"),
five shares of the Company's Cumulative Preferred Stock, Series A (the "Series A
Preferred") and a Warrant to purchase 46,522 shares of Common Stock (which
reflects an adjustment made as a result of a recent Common Stock offering
completed by the Company) December 31, 1997, the Senior Notes and the Series A
Preferred were redeemed by the Company in accordance with their terms with a
portion of the proceeds from the issuance of the Company's 12 1/2% Notes due
2004. Prior to redemption of the Series A Preferred, the Company had issued an
aggregate of 431,121 shares of Common Stock to the holders thereof in lieu of
quarterly cash dividends on the Series A Preferred, as required by the terms
thereof. Pursuant to agreements entered into with the Company in connection with
the Private Offering, each of the three largest purchasers of Units is entitled
to recommend one person for nomination by the Board of Directors for election as
a director of the Company as long as such purchaser owns a specified level of
the securities which comprise the Units. Pursuant to these rights, each of Value
Partners, Ltd., Lee M. Bass and Value Partners, Ltd. has recommended and/or
intends to recommend a person for election as a director of the Company.
(4) The Bass Management Trust is a revocable grantor trust established under
Texas law on June 4, 1982 by Perry R. Bass and his wife Nancy Lee Bass, as
grantors. Its sole trustee is Perry R. Bass. The Sid R. Bass Management Trust is
a revocable grantor trust established under Texas law on December 9, 1988 by
their son, Sid R. Bass, as grantor. Perry R. Bass, Sid R. Bass and Lee M. Bass
are its trustees. Lee M. Bass is Sid R. Bass's brother and the son of Perry R.
Bass and Nancy Lee Bass.
(5) Director and/or executive officer of the Company.
(6) In addition to the indicated shares of Common Stock, Messrs. Braly, Hardin
and Morales beneficially owned the following number and percentage of shares of
Common Stock as of July 31, 1998, none of which are available for sale pursuant
to this Prospectus:
<TABLE>
<CAPTION>
Common Stock
------------------------------------------------
# of % of
Name Shares Outstanding
------------------------ --------------------
<S> <C> <C>
Scott A. Braly 269,226* 5.05%*
Timothy R. Chrisman 21,693 **
David L. Hardin, Jr. 71,602* 1.37 *
Norman A. Morales 59,409* 1.15%*
</TABLE>
21
<PAGE> 23
* Shares owned by Messrs. Braly and Hardin include 148,000 shares and
33,000 shares, respectively, which may be acquired upon exercise of stock
options within 60 days of June 11, 1998. Shares owned by Messrs. Braly and
Chrisman include 66,600 shares and 5,000 shares, respectively, acquired pursuant
to the June 1998 public offering. Shares owned by Messrs. Braly, Hardin and
Morales (i) include 34,411 shares held of record by the Company's Employee Stock
Ownership Plan ("ESOP") which have not been allocated to participants' accounts,
and with respect to which Messrs. Braly, Hardin and Morales, as trustees of the
ESOP, have voting power and (ii) do not include 62,485 shares and 34,856 shares
held of record by the ESOP and the Company's 401(k) Plan, respectively, which
have been allocated to participants' accounts and which are voted by the
trustees at the direction of the participants or, if no direction is given, by
the trustees in their discretion. For purposes of calculating the percentage of
outstanding shares held by Messrs. Braly, Hardin and Morales, shares which may
be acquired upon exercise of stock options by any such person (and only such
person) within 60 days of June 11, 1998 are deemed to be outstanding shares, as
are shares which may be acquired upon exercise of Warrants (whether beneficially
owned by such person or others) even if not currently exercisable.
** Less than 1%.
PLAN OF DISTRIBUTION
The sale or distribution of all or any portion of the Securities may be
effected from time to time by the Selling Securityholders directly, indirectly
through brokers or dealers or in a distribution by one or more underwriters on a
firm commitment or best efforts basis, in the over-the-counter market, on any
national securities exchange or automated inter-dealer quotation system on which
the Securities are listed or traded, if any, in privately-negotiated
transactions or otherwise, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. The
Company will not receive any of the proceeds from the sale of the Securities by
the Selling Securityholders.
The methods by which the Securities may be sold or distributed include,
without limitation, (i) a block trade (which may involve crosses) in which the
broker or dealer so engaged will attempt to sell the Securities as agent but may
position and resell a portion of the block as principal to facilitate the
transaction, (ii) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus, (iii)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers, or to or through marketmakers, (iv) transactions in put or call
options or other rights established after the effectiveness of the Registration
Statement of which this Prospectus is a part, (v) pro rata distributions as part
of the liquidation and winding up of the affairs of a Selling Securityholder and
(vi) privately-negotiated transactions. In addition, any of the Securities that
qualify for sale pursuant to Rule 144 under the Securities Act, as discussed
below, may be sold in transactions complying with such Rule, rather than
pursuant to this Prospectus.
In the case of sales of the Securities effected to or through
broker-dealers, such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholder or the
purchasers of the Securities sold by or through such broker-dealers, or both.
The Selling Securityholder and any broker-dealers or agents participating in the
distribution of the Securities may be deemed to be "underwriters" within the
meaning of the Securities Act and any commissions received by any such
broker-dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Company has advised the Selling Securityholders of the need for
delivery of copies of this Prospectus and that each Selling Securityholder and
any other person participating in a distribution of the Securities will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation Regulation M and Rules 101
through 105 thereunder. Regulation M governs the activities of persons
participating in a distribution of securities and, consequently, may restrict
certain activities of, and limit the timing of purchases and sales of Securities
by, Selling Securityholders and other persons participating in a distribution of
the Securities. Furthermore, under Regulation M, persons engaged in a
distribution of securities are prohibited from simultaneously
22
<PAGE> 24
engaging in market making and certain other activities with respect to such
securities for a specified period of time prior to the commencement of such
distribution, subject to exceptions or exemptions. All of the foregoing may
affect the marketability of the Securities offered hereby.
Securities not sold pursuant to the Registration Statement of which this
Prospectus is a part may be subject to certain restrictions under the Securities
Act and could be sold, if at all, only pursuant to Rule 144 or another exemption
from the registration requirements of the Securities Act. In general, under Rule
144, a person (or persons whose Securities are aggregated) who has satisfied a
one-year holding period may, under certain circumstances, sell within any
three-month period a number of Securities which does not exceed the greater of
one percent of the outstanding Common Stock or the average weekly reported
trading volume of the Common Stock during the four calendar weeks prior to such
sale. Rule 144 also permits, under certain circumstances, the sale of Securities
by a person who is not an affiliate of the Company and who has satisfied a
two-year holding period without any volume limitation.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for
the Company by Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C. As of the
date of this Prospectus, certain members of Elias, Matz, Tiernan & Herrick
L.L.P. owned approximately 23,165 shares of Company Common Stock and 83,739
Warrants.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
23
<PAGE> 25
<TABLE>
<S> <C>
=============================================================== =========================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL
HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS IN CONNECTION WITH THE
OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCE CREATE AN 2,943,309 SHARES OF
IMPLICATION THAT THERE HAS BEEN NO CHANGE COMMON STOCK
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OR A SOLICITATION BY ANYONE IN ANY WARRANTS TO PURCHASE
JURISDICTION IN WHICH SUCH OFFER OR 2,512,188 SHARES OF
SOLICITATION IS NOT AUTHORIZED OR IN WHICH COMMON STOCK
THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
-----------------
Table of Contents
Page
Available Information.........................................2
Incorporation of Certain Documents by Reference...............2
The Company...................................................3
Risk Factors..................................................3 ----------
Use of Proceeds..............................................10
Dividend Policy..............................................10 PROSPECTUS
Description of Capital Stock.................................11
Restrictions on Acquisition of the Company...................17 ----------
Selling Securityholders......................................18
Plan of Distribution.........................................22
Legal Matters................................................23
Experts......................................................23 OCTOBER __, 1998
=============================================================== =========================================================
</TABLE>
<PAGE> 26
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the expenses to be incurred by the
Company in connection with the offering of Securities by the Selling
Securityholders described herein.
<TABLE>
<S> <C>
SEC registration fee........................................................ $ 14,815
Legal fees and expenses..................................................... 15,000
Accounting fees and expenses................................................ 5,000
Miscellaneous expenses...................................................... 5,000
-----
$ 39,815
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Thirteenth of the Company's Certificate of Incorporation
provides that a director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director except for liability: (i) for any breach of the director's duty of
loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv)
for any transaction from which the director derived any improper personal
benefit.
Article Fourteenth of the Company's Certificate of Incorporation
provides that each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a director or officer of the
Company or is or was serving at the request of the Company as a director or
officer of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director or officer or in any other capacity
while serving as a director or officer, shall be indemnified and held harmless
by the Company to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may be amended and without giving effect
to any provisions of the Delaware General Corporation Law which would make such
indemnification permissive and not mandatory on the part of the Company, but, in
the case of any amendment of the Delaware General Corporation Law, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment, against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director or officer and shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that, except as provided
in paragraph (B) of Article Fourteenth with respect to proceedings to enforce
rights to indemnification, the Company shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Company. Article Fourteenth of the Company's Certificate of Incorporation
also provides that the right to indemnification contained therein shall include
the right to be paid by the Company the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Company of an undertaking, by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such expenses
under Article Fourteenth or otherwise.
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<PAGE> 27
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
Exhibits are listed by number corresponding to the Exhibit Table of Item 601 of
Regulation S-K.
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------------------------- ---------------------------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of the Company (1)
3.2 Amendment to Certificate of Incorporation of the Company (2)
3.3 Bylaws of the Company (1)
4.1 Specimen certificate of the Company's Common Stock(3)
4.2 Indenture, dated as of December 31, 1997, between the Company and United
States Trust Company of New York, as Trustee, relating to the Company's
12 1/2% Notes due 2004 (4)
4.3 Form of the Company's 12 1/2% Notes due 2004 (included in Section 2.02 of the
Indenture included as Exhibit 4.2)
4.4 Form of Warrants to purchase an aggregate of 2,512,188 shares of Common
Stock (5)
4.5 Registration Rights Agreement among the Company and certain investors (5)
4.6 Unit Purchase Agreement among the Company and the investors named
therein (5)
5.1 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. regarding the legality of the
Securities*
23.1 Consent of Deloitte & Touche LLP*
23.2 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (included in Exhibit 5)
24.1 Power of Attorney (located on the signature page hereto)
</TABLE>
- ------------------
* Previously filed.
(1)Incorporated by reference to the Company's Registration Statement on Form S-8
(No. 33-74800) filed on February 3, 1994.
(2)Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995.
(3)Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1985.
(4)Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, as amended.
(5)Incorporated by reference to the Company's Current Report on Form 8-K filed
on February 7, 1996.
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<PAGE> 28
B. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted because they are not
applicable as the required information is included in the financial statements
or notes thereto incorporated by reference herein.
C. REPORTS, OPINIONS OR APPRAISALS.
Not applicable.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1)To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i)To include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
(ii)To reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (i) and (ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or 15 (d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2)That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3)To remove from registration by means of a post-effective amendment any of the
securities being transferred which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, as amended, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy
II-3
<PAGE> 29
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the undersigned Registrant of expenses incurred or paid by a director, officer
of controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by suchdirector, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by the controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
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<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of El Segundo, State of California as of the 5th day of October 1998.
HAWTHORNE FINANCIAL CORPORATION
By: /s/ Scott A. Braly
-------------------------------------
Scott A. Braly
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed for the following persons in the
capacities indicated by Scott A. Braly as each such person's duly appointed
attorney on the dates indicated.
<TABLE>
<S> <C>
/s/ Scott A. Braly Date: October 5, 1998
- ------------------------------------------
Marilyn Garton Amato
Director
/s/ Scott A. Braly Date: October 5, 1998
- -------------------------------------------
Scott A. Braly
Director and President and Chief Executive Officer
(principal executive officer)
/s/ Scott A. Braly Date: October 5, 1998
- -------------------------------------------
Timothy R. Chrisman
Chairman
/s/ Scott A. Braly Date: October 5, 1998
- -------------------------------------------
Anthony W. Liberati
Vice Chairman
/s/ Scott A. Braly Date: October 5, 1998
- ------------------------------------------
Harry F. Radcliffe
Director
/s/ Scott A. Braly Date: October 5, 1998
- -----------------------------------------
Howard E. Ritt
Director
</TABLE>
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<PAGE> 31
<TABLE>
<S> <C>
/s/ Scott A. Braly Date: October 5, 1998
- --------------------------------------------
Norman A. Morales
Executive Vice President
and Chief Financial Officer
(principal financial and accounting officer)
</TABLE>
II-6
