<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Hawthorne Financial Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE> 2
LOGO
HAWTHORNE FINANCIAL CORPORATION
2381 ROSECRANS AVENUE
EL SEGUNDO, CA 90245
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 19, 1999
You are cordially invited to attend the Annual Meeting of Stockholders of
Hawthorne Financial Corporation (the "Company"), which will be held at the
Manhattan Beach Marriott Hotel at 1400 Parkview Avenue, Manhattan Beach,
California, on May 19, 1999, at 10:00 a.m., local time, to consider and act on
the following matters:
1. The election of seven directors to serve until the next Annual
Meeting of Stockholders and until their successors are elected and
qualified;
2. Such other business as may properly come before the Annual Meeting
and any adjournments thereof.
The Board of Directors has fixed the close of business on April 5, 1999 as
the record date for determining Stockholders of the Company entitled to notice
of, and to vote at, the Annual Meeting or any postponement or adjournment
thereof.
WE HOPE YOU WILL ATTEND THE ANNUAL MEETING IN PERSON IF IT IS CONVENIENT
FOR YOU TO DO SO. IF YOU ARE UNABLE TO ATTEND, IT IS IMPORTANT THAT YOU SIGN,
DATE AND RETURN PROMPTLY THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE IN
ORDER TO ASSURE THAT A QUORUM IS PRESENT FOR THE TRANSACTION OF BUSINESS AT THE
ANNUAL MEETING.
By Order of the Board of Directors
Scott Braly
President
Chief Executive Officer,
and Corporate Secretary
April 12, 1999
<PAGE> 3
HAWTHORNE FINANCIAL CORPORATION
2381 ROSECRANS AVENUE
EL SEGUNDO, CA 90245
PROXY STATEMENT
SOLICITATION OF PROXIES
This Proxy Statement is being sent to you in connection with the
solicitation of proxies by the Board of Directors (the "Board") of Hawthorne
Financial Corporation (the "Company") to be voted at the Annual Meeting of
Stockholders of the Company to be held on May 19, 1999, and at any postponement
or adjournment thereof (the "Annual Meeting"). The approximate date of mailing
of this Proxy Statement is April 12, 1999.
The expenses of this proxy solicitation will be paid by the Company. The
original mail solicitation may be supplemented by telephone, telegram, facsimile
transmission or personal solicitation. The Company will also request record
holders of shares beneficially owned by others to send proxy material to the
beneficial owners of such shares and will reimburse such holders for their
reasonable expenses incurred in doing so.
VOTING
The Board has selected April 5, 1999 as the record date (the "Record Date")
for the determination of Stockholders entitled to notice of, and to vote at, the
Annual Meeting. As of that date, there were outstanding 5,273,113 shares of
Common Stock, par value $0.01 per share ("Common Stock"), the only outstanding
class of voting securities of the Company. Holders of shares of Common Stock are
entitled to cast one vote for each share held as of the Record Date. In
addition, each Stockholder may cumulate his or her votes in the election of
directors and give any nominee a number of votes equal to the number of
directors to be elected multiplied by the number of his or her shares, or to
distribute his or her votes among as many nominees as he or she sees fit.
All proxies which are properly completed, signed and delivered to the
Company prior to the Annual Meeting, and not revoked, will be voted in
accordance with the instructions indicated thereon by the Stockholders giving
such proxies. Each proxy received without specific directions indicated thereon
will be voted FOR the election of the nominees named in this Proxy Statement, or
as many of such nominees as may be elected as directors of the Company. The
proxies solicited hereby confer authority on the proxy holders named therein to
cumulate votes in the election of directors among the nominees for whom such
proxies may be voted in such manner as they deem appropriate to elect the
maximum possible number of such nominees. Each proxy delivered may be revoked by
the Stockholder who executed it at any time before it is voted, by filing
written notice of revocation, which may consist of a later dated proxy, with the
Secretary of the Company prior to the vote on the matters described herein or by
attending the meeting and voting in person.
A majority of the outstanding shares of Common Stock, represented in person
or by proxy, will constitute a quorum for the transaction of business.
Abstentions and broker non-votes will be counted for purposes of determining the
presence or absence of a quorum. "Broker non-votes" are shares held by brokers
or nominees which are present in person or represented by proxy, but which are
not voted on a particular matter because instructions have not been received
from the beneficial owner. Under applicable law, the effect of broker non-votes
on a particular matter depends on whether the matter is one as to which the
broker or nominee has discretionary voting authority.
The Board does not know of any business to be presented for action at the
Annual Meeting other than that stated in this Proxy Statement. If any other
business is properly presented at the Annual Meeting and may properly be voted
upon, the proxies solicited hereby will be voted on such matters in accordance
with the best judgment of the proxy holders named therein.
1
<PAGE> 4
ELECTION OF DIRECTORS
A board of seven directors will be elected at the Annual Meeting to serve
for the ensuing year and until their successors are duly elected and qualified.
The following table sets forth certain information concerning the nominees
of the Board, each of whom is currently a director of the Company. Each nominee
has indicated his or her willingness to serve if elected. If any nominee is
unable to serve, an event the Board does not anticipate, the persons named in
the accompanying proxy will vote for such replacement nominees as the Board
shall select. Each of the directors of the Company is also a director of
Hawthorne Savings, F.S.B. (the "Bank"), a wholly owned subsidiary of the
Company.
NOMINEES FOR ELECTION AS DIRECTORS
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE OF
COMMON OUTSTANDING
DIRECTOR STOCK BENEFICIALLY COMMON
NAME AGE SINCE OWNED(1) STOCK
---- --- -------- ------------------ --------------
<S> <C> <C> <C> <C>
Marilyn Garton Amato(2)...................... 59 1988 27,462 *
Scott A. Braly(3)............................ 45 1993 437,710 7.8%
Timothy R. Chrisman(4)....................... 52 1994 38,037 *
Anthony W. Liberati(5)(6).................... 66 1996 15,000 *
Harry F. Radcliffe(6)(7)..................... 48 1996 615,651 10.8%
Howard E. Ritt(8)............................ 74 1993 16,500 *
Douglas J. Wallis(6)(9)...................... 48 1998 3,000 *
</TABLE>
- ---------------
* Less than 1 %.
(1) As of April 5, 1999. Except as may be indicated in the footnotes to the
table and subject to applicable community property laws, each of such
persons has the sole voting and investment power with respect to the shares
owned. Beneficial ownership has been determined in accordance with Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Under this Rule, certain shares may be deemed to be beneficially
owned by more than one person (such as where persons share voting power or
investment power). In addition, shares are deemed to be beneficially owned
by a person if the person has the right to acquire the shares (for example,
upon exercise of an option) within 60 days of the date as of which
information is provided; in computing the percentage ownership of any
person, the amount of shares outstanding is deemed to include the amount of
shares beneficially owned by such person (and only such person) by reason of
these acquisition rights. As a result, the percentage of outstanding shares
of any person as shown in the table above does not necessarily reflect the
person's actual voting power at any particular date.
(2) Includes (i) 17,462 shares directly owned, and (ii) 10,000 shares acquirable
upon the exercise of stock options which are exercisable within 60 days of
April 5, 1999. Does not include 10,000 shares acquirable upon the exercise
of stock options which are not exercisable within 60 days of April 5, 1999.
(3) Includes (i) 85,761 shares directly owned, (ii) 225,334 shares acquirable
upon the exercise of stock options which are exercisable within 60 days of
April 5, 1999, (iii) 111,653 shares acquirable upon the exercise of
Warrants, (iv) 13,468 shares held of record by the Hawthorne Savings, F.S.B.
Employee Stock Ownership Plan (the "ESOP") which have not been allocated to
participants' accounts, and with respect to which Mr. Braly, as one of the
trustees of the ESOP, shares voting power, and (v) 1,494 shares held by the
401(k) Plan which have been allocated to Mr. Braly. Does not include 48,644
shares and 48,362 shares held of record by the ESOP and the 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. Does not include
6,666 shares acquirable upon the exercise of stock options which are not
exercisable within 60 days of April 5, 1999.
(4) Includes (i) 21,693 shares directly owned, (ii) 10,000 shares acquirable
upon the exercise of stock options which are exercisable within 60 days of
April 5, 1999, and (iii) 6,344 shares acquirable upon the
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<PAGE> 5
exercise of Warrants. Does not include 10,000 shares acquirable upon the
exercise of stock options which are not exercisable within 60 days of April
5, 1999.
(5) Includes (i) 5,000 shares directly owned, and (ii) 10,000 shares acquirable
upon the exercise of stock options which are exercisable within 60 days of
April 5, 1999. Does not include 10,000 shares acquirable upon the exercise
of stock options which are not exercisable within 60 days of April 5, 1999.
(6) In December 1995, the Company sold $27.0 million of "investment units" in a
private placement offering. Pursuant to an agreement entered into in
connection with the offering, each of the three largest purchasers of
investment units is entitled to recommend one person for nomination by the
Board of Directors for election as a director. Pursuant to these rights,
Fort Pitt Fund, L.P. recommended Harry F. Radcliffe, and Lee M. Bass
recommended Anthony W. Liberati. Also pursuant to its rights, one of the
three largest purchasers of investment units, Value Partners Ltd.,
previously recommended Michael Hall, who served as a director of the Company
and the Bank from April 1996 to April 1998. Mr. Hall resigned from both
Boards in April 1998 for personal reasons. Value Partners subsequently
recommended Douglas J. Wallis, who became a director in July 1998. The right
of each of these purchasers to nominate a director terminates at the time
the purchaser no longer owns Warrants to purchase 220,000 shares of Common
Stock and/or shares of Common Stock acquired upon the exercise of Warrants.
(7) Includes (i) 196,258 shares directly owned by the Fort Pitt Fund, L.P., the
Fort Pitt Fund, III, L.P., and Harry F. Radcliffe, (ii) 10,000 shares
acquirable upon the exercise of stock options exercisable within 60 days of
April 5, 1999, and (iii) 409,393 shares acquirable upon the exercise of
Warrants. Does not include 10,000 shares acquirable upon the exercise of
stock options which are not exercisable within 60 days of April 5, 1999. Mr.
Radcliffe is the President and Chief Executive Officer of Fort Pitt Capital
Management Corp., the General Partner of Fort Pitt Fund, L.P., and Fort Pitt
Fund III, L.P.
(8) Includes (i) 6,500 shares directly owned by the Ritt Family Trust of which
Mr. Ritt is a co-trustee, and (ii) 10,000 shares acquirable upon the
exercise of stock options which are exercisable within 60 days of April 5,
1999. Does not include 10,000 shares acquirable upon the exercise of stock
options which are not exercisable within 60 days of April 5, 1999.
(9) Includes 3,000 shares directly owned. Does not include 10,000 shares
acquirable upon the exercise of stock options which are not exercisable
within 60 days of April 5, 1999.
BIOGRAPHICAL INFORMATION
MARILYN GARTON AMATO has owned and operated for more than the past five
years an interior design firm, The Finishing Touch, that specializes in both
commercial and residential interior design. She has also been active in many
civic and charitable groups over the years and is the daughter of Dr. Cecil O.
Garton, a past director and Chairman of the Board of Directors of the Company
and a director of the Bank.
SCOTT A. BRALY has served as President and Chief Executive Officer of the
Company and the Bank since July 1993.
TIMOTHY R. CHRISMAN has been the President and owner of Chrisman & Company,
Inc., an executive search firm specializing in the placement of senior
executives in the financial services industry, for more than the past five
years. Mr. Chrisman has previously served as a director of other savings
institutions. In February 1996, Mr. Chrisman was named Chairman of the Board of
the Company and the Bank.
ANTHONY W. LIBERATI has been the Chairman of the Board of Directors of
Miami Computer Supply Corporation, a distributor of computer supplies, since May
1996. Mr. Liberati retired in 1995 from the Edward J. DeBartolo Corporation,
Youngstown, Ohio where he was the Chief Operating Officer. Prior to his
appointment as Chief Operating Officer, he was the DeBartolo Corporation's Chief
Financial Officer. Mr. Liberati is a former member of the Board of Directors of
DeBartolo Realty Corporation, Youngstown, Ohio, a real estate investment trust.
Mr. Liberati is a Director of First Federal Bancorp. Mr. Liberati is a Limited
Partner in Fort Pitt Fund I, Ford Pitt Fund II, and Fort Pitt Fund III.
HARRY F. RADCLIFFE has been President and Chief Executive Officer of Fort
Pitt Capital Management Corp. since April 1997. From December 1993 through March
1997, Mr. Radcliffe was the President, Chief
3
<PAGE> 6
Executive Officer and a Director of First Home Bancorp, Inc., Pittsburgh,
Pennsylvania, and was President and Chief Executive Officer of its subsidiary
First Home Savings Bank, F.S.B., from December 1993 and a Director from May 1993
until March 1997. He previously served as a Director and President of First
South Savings Association from April 1989 to December 1993, and as its Chief
Executive Officer from June 1989 to December 1993 and Director, President and
Chief Executive Officer from May 1990 to December 1993. He also served as
Director of Home Bancorp, Inc. and Home Savings Bank, F.S.B., Norfolk, Virginia
from October 1994 to September 1995. Mr. Radcliffe is a Director of Essex
Savings Bank, F.S.B., Virginia Beach, Virginia, Miami Computer Supply
Corporation, First Home Bancorp and First Fidelity Bancorp.
HOWARD E. RITT retired in 1990 as an Executive Vice President of Sanwa
Bank.
DOUGLAS J. WALLIS was elected to the Boards of the Company and the Bank in
August 1998. Mr. Wallis is a California state-licensed attorney, and served as
Executive Vice President, General Counsel and Secretary of California Federal
Bank, F.S.B. from 1992, until the sale of the institution in 1997.
BOARD MEETINGS; BOARD COMMITTEES; COMPENSATION OF DIRECTORS
The Board of Directors held 12 meetings in 1998. All directors attended at
least 75% of the number of meetings held by the Board or any committee of the
Board on which he or she served.
The Boards of Directors of the Company and the Bank have established and
delegated certain powers to various committees, including (i) a Compensation
Committee, which acts on behalf of both the Boards of Directors of the Company
and the Bank, (ii) an Audit Committee of the Bank, (iii) a Credit Committee of
the Bank and (iv) a Capital Committee of the Company.
The Compensation Committee consists solely of non-management directors of
the Company and the Bank. During 1998, the committee was comprised of Mr.
Liberati (Chairman) and Mr. Ritt. In February 1999 the committee was expanded to
include Ms. Amato, and Messrs. Chrisman, Radcliffe and Wallis. The authority of
the Compensation Committee is described under "Executive Compensation -- Report
on Executive Compensation." The Compensation Committee met 10 times in 1998.
The Audit Committee consists solely of non-management directors of the
Bank. During 1998, the committee included Ms. Amato and Messrs. Ritt (Chairman),
Chrisman, Liberati, Wallis and Hall. Mr. Hall resigned from the Boards of the
Company and the Bank in April 1998. In February 1999, the committee was expanded
to include Mr. Radcliffe. The Committee maintains delegated responsibility to
(i) provide oversight to the Bank's internal audit group, including approving
the annual internal audit plan and monitoring individual audits and the
reporting thereon by the internal audit group, and (ii) meet periodically with
the Company's and the Bank's independent public accountants, including reviewing
the results of the annual audit and any findings of the accountants in
connection therewith. The Audit Committee met 12 times in 1998.
During 1998, the Credit Committee consisted of Messrs. Hall, Braly,
Liberati, Radcliffe and Wallis. Mr. Hall, who was Chairman of the committee,
resigned from the Boards of the Company and the Bank in April 1998, at which
time Mr. Radcliffe became the Chairman of the committee. In February 1999, the
committee was expanded to include Ms. Amato, and Messrs. Chrisman and Ritt. The
Credit Committee maintains delegated responsibility to (i) provide oversight
with respect to the Bank's lending activities, including the Bank's lending
administration, resourcing and scope of activities, and (ii) evaluate loans, or
groups of loans, prior to their funding. The Credit Committee met 12 times in
1998.
The Capital Committee consists of Messrs. Radcliffe (Co-Chairman), Liberati
(Co-Chairman), Braly and Chrisman. The Capital Committee is an ad hoc committee
which met periodically, as necessary, during 1998. The Capital Committee has
delegated responsibility to (i) periodically assess the Company's and the Bank's
capital structure and to make recommendations to the full Board with respect
thereto, and (ii) select professional advisors to the Company with respect to
individual capital-related transactions, including investment banking firms and
securities counsel.
Each non-employee director receives an annual retainer fee of $15,000 and
an additional fee of $1,000 for each Board meeting of the Company attended. In
addition to the $1,000 fee per meeting received by each
4
<PAGE> 7
director, the Chairman of the Board receives an additional fee of $1,500 per
meeting. The Chairmen of the Audit, Credit and Compensation Committees and the
Co-Chairmen of the Capital Committee also receive $500 per each committee
meeting at which they act in the capacity of chairman. All of the directors of
the Company are also directors of the Bank and receive only the above described
fees for their combined service.
In July 1998, each non-employee director was granted an option to purchase
20,000 shares, except for Mr. Wallis, who was granted an option to purchase
10,000 shares. The exercise price for these options was $18.44, the market value
of the Common Stock on the date of the grant. Each option to purchase 20,000
shares was 50% vested upon grant and the balance will vest one year from the
date of grant. The option to purchase 10,000 shares will vest entirely one year
from the date of grant.
5
<PAGE> 8
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth as of April 5, 1999 certain information
regarding the ownership of the Company's Common Stock by (i) each person known
by the Company to be the beneficial owner of more than 5% of the outstanding
shares of the Common Stock, (ii) each executive officer named in the Summary
Compensation Table in this Proxy Statement, and (iii) all of the Company's
executive officers and directors as a group. Except as may be indicated in the
footnotes to the table and subject to applicable community property laws, each
of such persons has the sole voting and investment power with respect to the
shares owned. Beneficial ownership has been determined in accordance with Rule
13d-3 under the Exchange Act. Under this Rule, certain shares may be deemed to
be beneficially owned by more than one person (such as where persons share
voting power or investment power). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the shares
(for example, upon exercise of an option) within 60 days of the date as of which
information is provided; in computing the percentage ownership of any person,
the amount of shares outstanding is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason of these
acquisition rights. As a result, the percentage of outstanding shares of any
person as shown in the following table does not necessarily reflect the person's
actual voting power at any particular date.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED CLASS
------------------------ ------------ ----------
<S> <C> <C>
Bass Group(1).......................................... 1,283,999 21.2%
Value Partners, Ltd.(2)................................ 1,241,100 20.5%
Harry F. Radcliffe(3).................................. 615,651 10.8%
Scott A. Braly(4)(5)................................... 437,710 7.8%
Financial Stocks, Inc.(6).............................. 307,800 5.8%
David L. Hardin, Jr.(5)(7)............................. 88,971 1.7%
Michael D. Cain(8)..................................... 13,740 *
James D. Sage(9)....................................... 13,358 *
Steven R. Gardner(10).................................. 12,874 *
All Directors and Executive Officers as a
group(5)(11)......................................... 1,268,835 20.6%
</TABLE>
- ---------------
* Less than 1%.
(1) This information is based on an amendment to the Schedule 13D filed on
October 12, 1998 by Portfolio II Investors, L.P., The Bass Management
Trust, Sid R. Bass Management Trust, Sid Bass and Lee M. Bass, (the "Bass
Group"). The Schedule 13D indicates that the Bass Group has beneficial
ownership of 1,283,999 shares of Common Stock, which amount includes
790,874 shares acquirable upon the exercise of Warrants and 493,125 shares
of Common Stock directly owned by members of the Bass Group. The Schedule
13D indicates that the Warrants and the Common Stock are held in the
following names: Portfolio II Investors, L.P. (357,400 shares), The Bass
Management Trust (272,529 shares), Sid R. Bass Management Trust (279,132
shares), Sid R. Bass (47,903 shares), and Lee M. Bass (327,035 shares). The
Schedule 13D provides an address for the Bass Group as c/o W. Robert
Cotham, 201 Main Street, Suite 2600, Fort Worth, Texas, 76102.
(2) This information is based on a Schedule 13D filed on July 8, 1998 by Value
Partners, Ltd., a Texas Limited Partnership, Ewing & Partners, a Texas
General Partnership, and Timothy G. Ewing. Ewing & Partners is the General
Partner of Value Partners. Timothy G. Ewing is the Managing General Partner
of Ewing & Partners. The Schedule 13D indicates that Value Partners, Ltd.
has beneficial ownership of 1,241,100 shares of Common Stock, which amount
includes 790,874 shares acquirable upon exercise of Warrants and 450,226
shares of Common Stock directly owned. The Schedule 13D provides an address
for Value Partners Ltd. as follows: Timothy G. Ewing, Value Partners, Ltd.,
c/o Ewing & Partners, Suite 4660 West, 2200 Ross Avenue, Dallas, Texas
75201.
(3) This information is based on the Schedule 13D filed on December 24, 1998 by
the Fort Pitt Fund, L.P., the Fort Pitt Fund, III, L.P., and Harry F.
Radcliffe. Mr. Radcliffe is the President and Chief Executive
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<PAGE> 9
Officer of Fort Pitt Capital Management Corp., the General Partner of Fort
Pitt Fund, L.P., and the Ford Pitt Fund III, L.P. The Schedule 13D
indicates that the Fort Pitt Fund, L.P. has beneficial ownership of 479,651
shares of Common Stock, which amount includes 409,393 shares acquirable
upon the exercise of Warrants and 70,258 shares of Common Stock directly
owned, and that Fort Pitt Fund, III has beneficial ownership of 120,000
shares of Common Stock directly owned. Harry F. Radcliffe's ownership
includes (i) 6,000 shares directly owned, and (ii) 10,000 shares acquirable
upon exercise of stock options exercisable within 60 days of April 5, 1999.
Does not include 10,000 shares acquirable by Mr. Radcliffe upon the
exercise of stock options which are not exercisable within 60 days of April
5, 1999. The Schedule 13D provides an address for the Fort Pitt Fund, L.P.
as follows: Gerard L. Hawkins, Esq., Jeffrey D. Haas, Esq., Cristin M.
Zeisler, Esq., Elias, Matz, Tiernan & Herrick L.L.P., 734 15th Street, N.W.
Washington, D.C. 20005
(4) Includes (i) 85,761 shares directly owned, (ii) 225,334 shares acquirable
upon the exercise of stock options exercisable within 60 days of April 5,
1999, (iii) 111,653 shares acquirable upon exercise of Warrants, (iv)
13,468 shares held of record by the ESOP which have not been allocated to
participants' accounts, and with respect to which Mr. Braly, as one of the
trustees of the ESOP, shares voting power and (v) 1,494 shares held by the
401(k) Plan which have been allocated to Mr. Braly. Does not include 48,644
and 48,362 shares held of record by the ESOP and the 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. Does not include
6,666 shares acquirable upon the exercise of stock options which are not
exercisable within 60 days of April 5, 1999.
(5) Shares beneficially owned by Mr. Braly and Mr. Hardin (i) include 13,468
shares held of record by the ESOP which have not been allocated to
participants' accounts, and with respect to which Messrs. Braly and Hardin
as trustees of the ESOP, have voting power, and (ii) do not include 48,644
shares and 48,362 shares held of record by the ESOP and the 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.
(6) This information is based on the Schedule 13D filed July 8, 1998 by
Financial Stocks, Inc. The Schedule 13D provides an address for Financial
Stocks, Inc. as follows: John M. Stein, 507 Carew Tower, 441 Vine Street,
Cincinnati, Ohio 45202.
(7) Includes (i) 3,193 shares directly owned, (ii) 57,000 shares acquirable
upon exercise of stock options exercisable within 60 days of April 5, 1999,
(iii) 13,957 shares acquirable upon exercise of Warrants, and (iv) 1,353
shares held by the 401(k) Plan which have been allocated to Mr. Hardin.
(8) Includes (i) 12,500 shares acquirable upon the exercise of stock options
exercisable within 60 days of April 5, 1999 and (ii) 1,240 shares held by
the 401(k) Plan, which have been allocated to Mr. Cain. Does not include
32,500 shares acquirable upon the exercise of stock options which are not
exercisable within 60 days of April 5, 1999.
(9) Includes (i) 12,800 shares directly owned and (ii) 558 shares held by the
401(k) Plan, which have been allocated to Mr. Sage.
(10) Includes (i) 12,500 shares acquirable upon the exercise of stock options
exercisable within 60 days of April 5, 1999 and (ii) 374 shares held by the
401(k) Plan, which have been allocated to Mr. Gardner. Does not include
32,500 shares acquirable upon the exercise of stock options which are not
exercisable within 60 days of April 5, 1999.
(11) Includes (i) 351,667 shares directly owned, (ii) 357,334 shares acquirable
upon exercise of stock options which are exercisable within 60 days of
April 5, 1999, (iii) 541,347 shares acquirable upon exercise of Warrants,
(iv) 5,019 shares held by the 401(k) Plan which have been allocated to the
executive officers and (v) 13,468 shares held of record by the ESOP with
respect to which Messrs. Braly and Hardin, as trustees of the ESOP, have
voting power.
7
<PAGE> 10
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the Chief Executive
Officer and the four other highest paid executive officers (the "Named Executive
Officers") of the Company and the Bank during 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
AWARDS
---------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING OTHER
NAME AND POSITION YEAR SALARY BONUS(1) OPTIONS/SARS(#) COMPENSATION(2)
----------------- ---- -------- -------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Scott A. Braly................... 1998 $400,000 $ -- -- $10,000
Chief Executive Officer 1997 337,500 -- 20,000 4,800
and President 1996 250,000 -- -- 4,917
Steven R. Gardner................ 1998 $200,000 $140,000 20,000 $ 6,000
Senior Vice President 1997 12,949 -- 25,000 50,000(3)
1996 -- -- -- --
David L. Hardin, Jr. ............ 1998 $195,417 $ 75,000 -- $ 6,954
Executive Vice President 1997 175,000 30,000 -- 4,800
1996 175,000 -- -- 3,938
Michael D. Cain.................. 1998 $150,000 $ 96,685 20,000 $ 7,000
Senior Vice President 1997 108,333 35,000 25,000 52,375(4)
1996 -- -- -- --
James D. Sage.................... 1998 $140,000 $ 38,500 -- $81,854(5)
Senior Vice President 1997 140,000 -- -- 4,845(6)
1996 140,000 24,500 -- 2,416(6)
</TABLE>
- ---------------
(1) Amounts were earned in the years indicated. Bonuses were paid in the year
earned or in the first quarter of the following year.
(2) Except as otherwise disclosed. Other Compensation is comprised solely of
401(k) matching contributions made by the Company.
(3) Includes a sign-on bonus of $50,000.
(4) Includes a relocation bonus of $50,000.
(5) Includes a relocation bonus of $75,000.
(6) Includes commuter incentives of $45 and $275 for 1997 and 1996,
respectively.
Mr. James D. Sage, the former General Counsel of the Company, resigned from
the Company effective February 28, 1999. Pursuant to an agreement between Mr.
Sage and the Company, Mr. Sage will continue to provide to the Company certain
legal services, at the discretion of the Company, through February 28, 2001 of
up to 8 hours of services per week, in exchange for a monthly payment averaging
$10,417 during the period of the agreement.
RETIREMENT PLANS
401(k) Plan. Employees of the Company who were employed by the Company for
six months and worked at least 500 hours are eligible to participate in the
Company's 401(k) Plan. For the period from April 1, 1996 through March 31, 1999,
the Company provided a matching contribution, in the form of shares owned by the
ESOP but previously unallocated to participants, equal to 100% of the dollar
amount each participant contributes into the ESOP, up to a maximum of 3% of the
participant's compensation for each calendar quarter. During 1998 23,854 shares
of the Company's Common Stock were allocated to participants in the 401(k) Plan.
8
<PAGE> 11
STOCK OPTION PLANS
1994 Stock Option Plan. An aggregate of 800,000 shares of Common Stock may
be issued to employees and directors under the 1994 Stock Option Plan. As of
April 5, 1999, 135,500 shares had been issued under the 1994 Stock Option Plan
and options to purchase 499,500 shares were outstanding. The exercise price of
any option granted under the 1994 Stock Option Plan may not be less than the
fair market value of the Common Stock at the grant date, and the term of any
option may not exceed ten years from the grant date.
1995 Stock Option Plan. An aggregate of 500,000 shares of Common Stock may
be issued to employees other than executive officers and directors subject to
Section 16(b) of the Exchange Act. As of April 5, 1999, a total of 80,200 shares
had been issued under the 1995 Stock Option Plan and options to purchase 372,300
shares were outstanding. The exercise price of any option granted under the 1995
Stock Option Plan may not be less than the fair market value of the Common Stock
at the grant date, and the term of any option may not exceed ten years from the
grant date.
OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth certain information regarding stock options
granted during 1998 to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED RATE OF STOCK
NUMBER OF PERCENT OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS GRANTED OPTION TERM(1)
UNDERLYING OPTION TO EMPLOYEES IN EXERCISE OR EXPIRATION --------------------------
NAME GRANTED(2) FISCAL YEAR(3) BASE PRICE(4) DATE 5% 10%
---- ----------------- ---------------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Steven R. Gardner.... 20,000 13.8% $16.31 12/16/2006 $131,800 $338,400
Michael D. Cain...... 20,000 13.8% 16.31 12/16/2006 131,800 338,400
</TABLE>
- ---------------
(1) The potential realizable value is based on the assumption that the Common
Stock appreciates at the annual rate shown (compounded annually) from the
date of grant until the expiration of the option term. These amounts are
calculated pursuant to applicable requirements of the Securities and
Exchange Commission and do not represent a forecast of the future
appreciation of the Common Stock.
(2) These options become exercisable ("vest") on December 16, 2001.
(3) Options covering an aggregate of 145,000 shares were granted to employees
during 1998.
(4) The exercise price and the tax withholding obligations related to such
exercise may be paid by delivery of already owned shares, subject to certain
conditions.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, for each of the Named Executive Officers,
certain information regarding options exercised in 1998 and options held at
December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
ON EXERCISE REALIZED YEAR-END (#) YEAR-END ($)
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- ----------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Scott A. Braly................ -- $ -- 218,667/13,333 $2,442,869/$73,332
Michael D. Cain............... -- -- 12,500/32,500 0/ 0
Steven R. Gardner............. -- -- 12,500/32,500 0/ 0
David L. Hardin, Jr........... 5,000 76,500 57,000/ 0 646,950/ 0
James D. Sage................. 6,300 47,546 8,000/ 0 85,920/ 0
</TABLE>
- ---------------
(1) Based on the closing sale price of $16.00 for the Common Stock on December
31, 1998, less the option exercise price.
9
<PAGE> 12
REPORT ON EXECUTIVE COMPENSATION
The Boards of Directors of the Company and the Bank, principally as
delegated to the Compensation Committee (the "Compensation Committee"), (i) have
oversight responsibility for the Company's and Bank's compensation policies,
benefits and practices, (ii) review and approve or disapprove management's
recommendations concerning the compensation of senior officers (i.e., those with
the title of Senior Vice President and above), all stock option grants and the
payment of bonuses (in the aggregate), and (iii) have oversight responsibility
for management planning and succession. The Compensation Committee has from time
to time retained an independent compensation consultant to assist it in the
exercise of its responsibilities where it has deemed such retention appropriate,
including the development of compensation plans and the propriety of the
Company's and the Bank's compensation policies and practices with those of
comparable companies.
The directors and management have structured the Bank's compensation
programs to provide the Bank's principal managers with (1) a competitive annual
salary and benefits, (2) the potential to earn cash bonuses based upon periodic,
measurable performance, and (3) the potential to receive one or more grants of
stock options under the Company's Option Plans, the annual vesting with respect
to which is generally dependent upon each option holder's performance, as
determined by the Chief Executive Officer and the directors. The directors and
management believe that this combination of programs provides reasonable
incentive to the Bank's principal managers to meet or exceed the Bank's annual
or multi-year financial and operational goals, and reasonably aligns the
interests of such managers with those of the Company's stockholders.
Commencing with the recapitalization of the Company and the Bank in late
1995, the Bank's principal managers have received, in addition to their annual
salaries, long-term incentive compensation in the form of stock option grants
from one of the Company's Option Plans. Including option grants made in late
1995, a total of 997,000 stock options have been granted to the Bank's principal
managers, of which 772,300 remained outstanding at April 5, 1999. In
consideration of these option grants, option holders received no material cash
bonuses during 1996 and 1997. With respect to all other employees, the Bank
maintains a performance-based, cash bonus program, under which individuals may
earn annual cash bonuses based upon individual, group and Bank-wide performance.
Commencing in 1998, the Bank modified its cash bonus program to include all
employees of the Company and the Bank, except for Mr. Braly, who is not entitled
to a cash bonus. See "Compensation of the Chief Executive Officer." The
inclusion of all employees (except for Mr. Braly) in the Bank's cash bonus
program reflected the Company's emphasis on the origination of substantial
(relative to the Bank's asset size) volumes of new loan commitments and growth
in core deposit accounts, and competitive factors which have required the Bank
to provide cash bonuses, based upon performance, to newly-hired senior managers.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Braly was hired by the Company and the Bank in July 1993. In November
1995, the directors granted stock options to purchase 212,000 shares of Common
Stock to Mr. Braly at the then market price of the Company's Common Stock. In
June 1997, the directors granted additional stock options to purchase 20,000
shares of Common Stock to Mr. Braly at the then market price of the Common
Stock. These option grants were made in recognition of Mr. Braly's contribution
to the successful recapitalization of the Company and the Bank, and the Bank's
post-recapitalization performance. In June 1997, the Board increased Mr. Braly's
annual salary to $400,000 from $250,000, the salary which had been in effect
since the commencement of Mr. Braly's employment in July 1993. In connection
with the recapitalization of the Company and the Bank in December 1995, Mr.
Braly purchased $1.2 million of investment units. Mr. Braly's purchase, which
was made from his personal funds and on the same terms as were applicable to the
other purchasers, was a condition imposed by the other purchasers of investment
units. During the period from Mr. Braly's hiring through the year ended December
31, 1995, Mr. Braly was entitled to, and received, cash bonuses tied to his and
the Company's performance, as determined by the Board of Directors. For 1996,
1997, and 1998, Mr. Braly was not entitled to, and did not receive, cash
bonuses.
10
<PAGE> 13
At his request, Mr. Braly is not a party to an employment contract with
either the Company or the Bank. Further, Mr. Braly has no arrangement with the
Company or the Bank to receive additional compensation, beyond that attributable
to the accelerated vesting or exercise of stock options under the terms
applicable to all option holders under the Company's Option Plans, in the event
that the Company or the Bank is sold or in the event of a change of control.
Accordingly, Mr. Braly serves at the will of the Board of Directors. There are
currently no plans to formalize, via an employment agreement or otherwise, Mr.
Braly's continued, long-term employment with the Company and the Bank.
COMPENSATION COMMITTEE
Anthony W. Liberati, Chairman
Marilyn Garton Amato
Timothy R. Chrisman
Harry F. Radcliffe
Howard E. Ritt
Douglas J. Wallis
11
<PAGE> 14
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total Stockholder return on the Company's Common Stock against
the cumulative total return of the Nasdaq Market Index and the SNL Securities
Western Thrift Index for publicly traded savings institution holding companies
for the period beginning December 31, 1993 and ended December 31, 1998.
COMPARISON OF FIVE YEAR CUMULATIVE RETURN AMONG HAWTHORNE FINANCIAL
CORPORATION, NASDAQ MARKET INDEX AND SNL SECURITIES WESTERN THRIFT INDEX
HAWTHORNE FINANCIAL CORPORATION
TOTAL RETURN PERFORMANCE
<TABLE>
<CAPTION>
HAWTHORNE FINANCIAL
YEAR ENDING CORPORATION NASDAQ - TOTAL US SNL WESTERN THRIFT INDEX
- ----------- ------------------- ----------------- ------------------------
<S> <C> <C> <C>
12/31/93 100.00 100.00 100.00
12/31/94 58.82 97.75 85.01
12/31/95 58.82 138.26 141.91
12/31/96 95.59 170.01 180.92
12/31/97 236.76 208.58 298.76
12/31/98 188.24 293.21 257.17
</TABLE>
12
<PAGE> 15
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1998, the Company entered into two agreements with Chrisman &
Company, Inc., a firm that specializes in executive recruiting for the financial
services industry, pursuant to which the Company engaged Chrisman & Company to
assist in recruiting qualified candidates for the positions of the Executive
Vice President -- Chief Financial Officer and Senior Vice President -- General
Counsel. Mr. Timothy R. Chrisman, Chairman of the Board of the Company, is the
President and owner of Chrisman & Company. As a result of this engagement, in
1999, the Company hired Simone Lagomarsino as Executive Vice President -- Chief
Financial Officer and Ann M. Tomkins as Senior Vice President -- General
Counsel, each of whom will serve in the stated position for the Company and the
Bank. Pursuant to the terms of these agreements, the Company agreed to pay to
Chrisman & Company an amount equal to 29% of the first years' annual cash
compensation paid to the selected candidates. To date, the Company has paid
Chrisman & Company an aggregate of $133,398 pursuant to these agreements. The
Company believes that the terms of these agreements are no less favorable to the
Company than the Company could have arranged with an unrelated third party. No
further payments are currently due to Chrisman & Company. Although, additional
payments may be due based on the annual cash compensation paid to these two
employees.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected Deloitte & Touche LLP, certified public accountants,
to audit the consolidated financial statements of the Company for the year
ending December 31, 1999. A representative of Deloitte & Touche LLP is expected
to be present at the Annual Meeting and is expected to be available to respond
to appropriate questions. The representative will be given the opportunity to
make a statement if the representative wishes to do so.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of copies of reports filed by reporting persons
of the Company pursuant to Section 16(a) of the Exchange Act, or written
representations from reporting persons that no Form 5 filing was required for
such person, the Company believes that all filings required to be made by
reporting persons of the Company were timely made in accordance with
requirements of the Exchange Act, except that Mr. David L. Hardin filed a Form 4
late.
STOCKHOLDERS' PROPOSALS FOR 1999 ANNUAL MEETING
All proposals of Stockholders intended to be presented for consideration at
the next annual meeting of Stockholders must be received by the Company no later
than December 13, 1999 for inclusion in the Company's proxy statement and form
of proxy relating to the next annual meeting.
THE COMPANY WILL PROVIDE EACH STOCKHOLDER FREE OF CHARGE, UPON WRITTEN
REQUEST TO THE SECRETARY OF THE COMPANY AT THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICES, AN ADDITIONAL COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K, WITHOUT EXHIBITS. THE
COMPANY WILL FURNISH A COPY OF THE EXHIBITS TO ITS FORM 10-K TO ANY STOCKHOLDER
UPON REQUEST AND PAYMENT OF A COPYING CHARGE OF ($.25) PER PAGE. REQUESTS SHOULD
BE ADDRESSED TO:
HAWTHORNE FINANCIAL CORPORATION
ATTN: INVESTOR RELATIONS
2381 ROSECRANS AVENUE
EL SEGUNDO, CA 90245
By Order of the Board of Directors
Scott Braly, President,
Chief Executive Officer
and Corporate Secretary
April 12, 1999
13
<PAGE> 16
PROXY
HAWTHORNE FINANCIAL CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
HAWTHORNE FINANCIAL CORPORATION
The undersigned, a stockholder of HAWTHORNE FINANCIAL CORPORATION, a
Delaware corporation, (the "Company") hereby appoints Scott A. Braly and
Timothy R. Chrisman, and each of them, the proxy of the undersigned, with full
power of substitution, to attend, vote and act for the undersigned at the
Company's Annual Meeting of Stockholders (the "Annual Meeting"), to be held on
May 19, 1999, and at any of its postponements or adjournments, to vote and
represent all of the shares of the Company which the undersigned would be
entitled to vote, as follows:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 17
PLEASE MARK
YOUR VOTES AS [X]
INDICATED IN
THIS EXAMPLE.
<TABLE>
<S> <C> <C>
FOR
all nominees listed WITHHOLD
below (except as marked Authority to vote for
to the contrary below). the nominees listed below.
1. ELECTION OF DIRECTORS as provided in the [ ] [ ]
Company's Proxy Statement:
(INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR A
NOMINEE, LINE THROUGH OR OTHERWISE STRIKE
OUT THE NAME OF THE NOMINEE BELOW)
Marilyn Garton Amato Scott A. Braly
Timothy R. Chrisman Anthony W. Liberati
Harry F. Radcliffe Howard E. Ritt
Douglas J. Wallis
</TABLE>
The undersigned hereby revokes any
other proxy to vote at the Annual
Meeting, and hereby ratifies and
confirms all that the proxy holder may
lawfully do by virtue hereof. AS TO ANY
OTHER BUSINESS THAT MAY PROPERLY COME
BEFORE THE ANNUAL MEETING AND ANY OF
ITS POSTPONEMENTS OR ADJOURNMENTS, THE
PROXY HOLDER IS AUTHORIZED TO VOTE IN
ACCORDANCE WITH ITS BEST JUDGMENT.
This Proxy will be voted in
accordance with the Instructions
set forth above. THIS PROXY WILL
BE TREATED AS GRANT OF AUTHORITY
TO VOTE FOR THE ELECTION OF THE
DIRECTORS NAMED AND AS THE PROXY
HOLDER SHALL DEEM ADVISABLE ON
SUCH OTHER BUSINESS AS MAY COME
BEFORE THE ANNUAL MEETING, UNLESS
OTHERWISE DIRECTED.
The undersigned acknowledges
receipt of a copy of the Notice of
Annual Meeting and accompanying
Proxy Statement dated April 12,
1999 relating to the Annual
Meeting.
Signature(s)____________________________________________ Date: __________, 1999
The signature(s) hereon should correspond exactly with the name(s) of the
stockholder(s) appearing on the Stock Certificate. If stock is jointly held,
all joint owners should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If signer
is a corporation, please sign the full corporation name, and give title of
signing officer.
- --------------------------------------------------------------------------------
*FOLD AND DETACH HERE*
