EXHIBIT 10.9
[SANDLER O'NEILL & PARTNERS,L.P. LOGO]
INVESTMENT BANKING GROUP
919 THIRD AVENUE. 6TH FL , NEW YORK NY 10022
TEL: 212.466.7700/800.635.6855
FAX 212.466 7711
January 20, 2004
Board of Directors
Hawthorne Financial Corporation
2381 Rosecrans Avenue
E1 Segundo, CA 90245
Attention: Mr. Timothy R. Chrisman
Chairman of the Board
Ladies and Gentlemen:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act
as an independent financial advisor to the Board of Directors of Hawthorne
Financial Corporation and its subsidiaries (together, the "Company") in
connection with the Company's consideration of a possible Business Combination
involving the Company and a second party (whether an individual, partnership,
company or other entity, and together with its affiliates, the "Second Party").
This letter is to confirm the terms and conditions of our engagement.
SPECIFIC ADVISORY SERVICES
As requested by the Company, Sandler O'Neill will assist the Company in
analyzing, structuring, negotiating and effecting a Business Combination or
other strategic alternative with a Second Party. In this regard, we anticipate
that our activities would include, as appropriate, the following:
1. Performing financial analyses of the Company and the Second
Party in the context of a possible Business Combination;
2. Assisting the Company in its determination of appropriate and
desirable values to be exchanged in a Business Combination;
3. Advising the Company as to the structure and form of any
proposed Business Combination;
4. Advising and assisting the Company's management in making
presentations to the Company's Board of Directors about any
proposed Business Combination;
Sandler 0'Neill & Partnership, L.P. is a limited partnership, the sole general
partner of which is Sandler O'Neill & Partners, Corp.,
a New York Corporation.
Board of Directors SANDLER O'NEILL
Hawthorne Financial Corporation & PARTNERS, L.P.
January 20, 2004
Page 2
5. Counseling and participating with the Company in any
approaches to, or discussions or negotiations with, a Second
Party;
6 Assuming an agreement in principle is reached for a Business
Combination, assisting the Company in negotiating the
financial terms of a definitive agreement;
7. If requested by the Company and agreed to by Sandler O'Neill,
rendering an opinion to the Board (the "Opinion") as to
whether the consideration to be exchanged in a proposed
Business Combination with the Second Party is fair, from a
financial point of view, to the Company's shareholders; and
8. Rendering such other financial advisory and investment banking
services as may from time to time be agreed upon by Sandler
O'Neill and the Company.
The Company hereby acknowledges and agrees that the financial models
and presentations used by Sandler O'Neill in performing its services hereunder
have been developed by and are proprietary to Sandler O'Neill and are protected
under applicable copyright laws. The Company agrees that it will not reproduce
or distribute all or any portion of such models or presentations without the
prior written consent of Sandler O'Neill.
TRANSACTION RELATED FEES
In connection with the Specific Advisory Services referred to above,
the Company agrees to pay Sandler O'Neill transaction related fees as set forth
below:
1. If during the period Sandler O'Neill is retained by the
Company hereunder or within 12 months thereafter (a) a
Business Combination is consummated with a Second Party (i) as
to which Sandler O'Neill provided the Company with material
financial advice as to a proposed or actual Business
Combination, or (ii) with which Sandler O'Neill had
substantive discussions with the prior consent of the Company
regarding a Business Combination, in each case during the term
of Sandler O'Neill's engagement hereunder, or (b) the Company
enters into a definitive agreement with any such Second Party
to engage in a Business Combination, a transaction fee shall
be paid in an amount equal to 1% of the Aggregate Purchase
Price. Such transaction fee shall become due and payable in
cash as follows: (x) 25% upon the signing of a definitive
agreement to effect a Business Combination, and (y) the
balance on the day of closing of the Business Combination.
Board of Directors SANDLER O'NEILL
Hawthorne Financial Corporation & PARTNERS, L.P.
January 20, 2004
Page 3
2. If Sandler O'Neill is asked by the Company to render an
Opinion in connection with a Business Combination, the Company
agrees to pay Sandler O'Neill a fee of $200,000, payable in
cash at the time such Opinion is rendered, which shall be
credited against any fee that may become due and payable
pursuant to clause (y) of paragraph (1) above.
EXPENSE REIMBURSEMENT
In addition to any fees that may be payable to Sandler O'Neill under
this letter, the Company agrees to reimburse Sandler O'Neill, upon request made
from time to time, for its reasonable out-of-pocket expenses incurred in
connection with Sandler O'Neill's activities under this letter, including the
reasonable fees and disbursements of its legal counsel.
FAIRNESS OPINIONS
It is understood that any Opinion will be dated as of a date reasonably
proximate to the date of any definitive agreement entered into by the Company
and any Second Party and, at the request of the Company, shall be updated as of
a date reasonably proximate to the date of any proxy statement or any offer to
purchase to be mailed to the shareholders of the Company in connection with the
Business Combination. It is further understood that if the Opinion is included
in any such proxy statement or offer to purchase, the Opinion will be reproduced
in such proxy statement or offer to purchase in full, and any description of or
reference to Sandler O'Neill or the analyses performed by Sandler O'Neill or any
summary of the Opinion in such proxy statement or offer to purchase will be in a
form acceptable to Sandler O'Neill and its counsel in the exercise of their
reasonable judgment. Except as provided in this letter or as required by law,
neither the Opinion nor any other advice delivered to the Board of Directors or
senior management of the Company by Sandler O'Neill may be reproduced,
summarized, described or referred to without Sandler O'Neill's prior written
consent.
CONFIDENTIAL INFORMATION
The Company will furnish Sandler O'Neill (and will request that any
Second Party furnish Sandler O'Neill) with such information as Sandler O'Neill
reasonably believes appropriate to its assignment (all such information so
furnished being the "Information"). The Company recognizes and confirms that
Sandler O'Neill (a) will use and rely primarily on the Information and on
information available from generally recognized public sources in performing the
services contemplated by this letter and in rendering the Opinion without having
independently verified the
Board of Directors SANDLER 0'NEILL
Hawthorne Financial Corporation & PARTNERS, L.P.
January 20, 2004
Page 4
same, (b) does not assume responsibility for the accuracy or completeness of the
Information and such other information and (c) will not make an appraisal of any
assets, collateral securing assets or liabilities of the Company or the Second
Party. Sandler O'Neill agrees to use all reasonable efforts to keep confidential
Information confidential.
INDEMNIFICATION
The Company agrees to indemnify and hold Sandler O'Neill and its
affiliates and their respective partners, directors, officers, employees, agents
and controlling persons (Sandler O'Neill and each such person being an
"Indemnified Party") harmless from and against any and all losses, claims,
damages and liabilities, joint or several, to which such Indemnified Party may
become subject under applicable federal or state law, or otherwise, related to
or arising out of any actual or proposed Business Combination or alternative
transaction or the engagement of Sandler O'Neill pursuant to, and the
performance by Sandler O'Neill of the services contemplated by, this letter, and
will reimburse any Indemnified Party for all expenses (including reasonable
counsel fees and expenses) as they are incurred, including expenses incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim or any action or proceeding arising therefrom, whether or
not such Indemnified Party is a party. The Company will not be liable under the
foregoing indemnification provision to the extent that any loss, claim, damage,
liability or expense is found in a final judgment by court of competent
jurisdiction to have resulted primarily from Sandler O'Neill's bad faith or
gross negligence.
In the event Sandler O'Neill appears as a witness in any action brought
against the Company in which an Indemnified Party is not named as a defendant,
the Company agrees to reimburse Sandler O'Neill for all reasonable expenses
incurred and time expended by it in connection with its appearing as a witness.
The Company agrees to notify Sandler O'Neill promptly of the assertion
against it or any other person of any claim or the commencement of any action or
proceeding relating to any transaction contemplated by this agreement.
CERTAIN DEFINITIONS
As used in this letter, the term:
1. "Business Combination" means (a) any merger, consolidation,
reorganization or other business combination pursuant to which
the business of the Company is
Board of Directors SANDLER O'NEILL
Hawthorne Financial Corporation & PARTNERS, L.P.
January 20, 2004
Page 5
combined with or comes under common control with that of a
Second Party, or (b) the acquisition, directly or indirectly,
by a Second Party or the Company of more than 24.9% of the
capital stock, or all or a substantial portion of the assets,
of the Company or the Second Party, as the case may be, by way
of tender or exchange offer, negotiated purchase or otherwise,
whether effected, in any such case, in one transaction or a
series of transactions.
2. "Aggregate Purchase Price" means an amount equal to the sum of
(a) the product of (1) the consideration agreed to be paid or
exchanged for each share of each class of stock of the Company
or the Second Party, as the case may be, and (2) the number of
such shares agreed to be acquired or exchanged and acquired or
exchanged by the Company or the Second Party, as the case may
be, plus (b) the product of (1) the number of such shares
issuable upon the exercise of any options, warrants or other
rights to purchase shares of any class of the Company's or the
Second Party's securities, as the case may be, all as
outstanding on or after the date of an agreement to effect a
Business Combination, and, without duplication, that are
cashed out or exchanged, as the case may be, as part of the
Business Combination and (2) the consideration to be paid with
respect to such underlying shares less any applicable exercise
or strike price. For the purpose of clause (a)(2) of the
foregoing sentence, all shares of any class of stock shall be
deemed to have been acquired if more than 75% of the
outstanding shares of that class, including in the total of
shares acquired shares that were acquired by the Company or
the Second Party, as the case may be, prior to or as an
integral part of, the Business Combination, are acquired. For
purposes of this agreement, the fair market value of any such
securities will be the value as the parties hereto shall
mutually agree on the day prior to the consummation of such
transaction; provided, however, that if such securities
consist of securities with an existing public trading market,
the value thereof shall be determined by the average of the
last sales prices for such securities on the five trading days
ending five days prior to such date. Solely for purposes of
calculating the amount of the partial payment referred to
under the caption "Transaction Related Fees" above, the
parties shall calculate the partial transaction fee as if the
date on which the partial payment is due were the date of
consummation. Any partial transaction fee paid shall then be
credited against the final transaction fee payable upon
consummation of the transaction. In the event a particular
transaction structure makes the calculation of the Aggregate
Purchase Price as set forth above impractical, the parties
hereto shall use their best efforts to determine an Aggregate
Purchase Price that would approximate the Aggregate Purchase
Price had the relevant Business Combination been structured as
a share purchase.
Board of Directors SANDLER O'NEILL
Hawthorne Financial Corporation & PARTNERS. L.P.
January 20, 2004
Page 6
TERMINATION OF ENGAGEMENT
Sandler O'Neill's engagement hereunder may be terminated by the Company
or by Sandler O'Neill at any time upon 30 days written notice to that effect, it
being understood that the provisions relating to the payment of fees and
expenses and indemnification will survive any such termination.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner.
By: /s/ WILLIAM F. HICKEY
----------------------
William F. Hickey
Vice President
Accepted and agreed to as of
the date first written above:
Hawthorne Financial Corporation
By: /s/ TIMOTHY R. CHRISMAN
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Its: CHAIRMAN
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Date: 1/27/04