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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
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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(1) Title of each class of securities to which transaction applies:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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[HAWTHORNE LOGO]
April 20, 2001
TO OUR FRIENDS AND SHAREHOLDERS
2000 was a year of positive change for Hawthorne Financial Corporation and
Hawthorne Savings, F.S.B. We made great strides in fulfilling the strategic plan
that we announced in November 1999: lowering the Bank's risk profile and
enhancing franchise value for our shareholders. We also produced increased net
income and growth in both assets and deposits. Our financial performance
benefited shareholders, who saw our stock price rise 28% since December 1999.
For a more in-depth view of our performance, we recommend that you review the
Management Discussion and Analysis section of our Form 10-K annual report that
is enclosed.
2001 promises to be another exciting year. Our management team is committed
to competing vigorously in the dynamic financial services industry. Indeed,
during the first quarter, we reduced delinquencies by 58% and nonperforming
assets by 25%. Please see the enclosed press release announcing our first
quarter 2001 earnings.
In addition, 2001 marks Hawthorne Savings' 50(th) anniversary of providing
extreme customer service. We have a number of events planned to celebrate this
milestone event and we hope you'll be a part of them. Contact our branches or
visit our website at www.hawthornesavings.com for more information.
The proxy statement for our 2001 Annual Meeting, which will be held on May
21, 2001, is also enclosed. We encourage our shareholders to join us for the
meeting and, whether or not you plan to attend, please mark your proxy card and
return it in the envelope provided.
On behalf of the Board of Directors, management and employees, we wish to
express our sincere appreciation for your continued support and confidence in
Hawthorne Financial Corporation and Hawthorne Savings, F.S.B.
Sincerely,
/s/ TIMOTHY R. CHRISMAN
Timothy R. Chrisman
Chairman of the Board
/s/ SIMONE F. LAGOMARSINO
Simone F. Lagomarsino
President and Chief Executive Officer
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[HAWTHORNE LOGO]
HAWTHORNE FINANCIAL CORPORATION
2381 ROSECRANS AVENUE
EL SEGUNDO, CA 90245
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 21, 2001
You are cordially invited to attend the Annual Meeting of Stockholders of
Hawthorne Financial Corporation (the "Company"), which will be held at the
Company's corporate headquarters, located at 2381 Rosecrans Avenue, El Segundo,
California, on May 21, 2001, at 11:00 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. To approve the Hawthorne Financial Corporation 2001 Stock Incentive
Plan.
3. 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 13, 2001 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
/s/ EILEEN LYON
Eileen Lyon
Senior Vice President, General Counsel
and Corporate Secretary
April 20, 2001
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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 21, 2001, and at any postponement
or adjournment thereof (the "Annual Meeting"). The approximate date of mailing
of this Proxy Statement is April 20, 2001.
The Company will pay the expenses of this proxy solicitation. 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 13, 2001 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 5,168,788 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 that 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, and FOR
approval of the Hawthorne Financial Corporation 2001 Stock Incentive Plan. 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.
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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.
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, Lee M. Bass recommended Anthony W. Liberati, and
Value Partners Ltd., recommended Gary W. Brummett, who became a director in
October 1999. 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.
NOMINEES FOR ELECTION AS DIRECTORS
SHARES OF PERCENTAGE OF
COMMON STOCK OUTSTANDING
DIRECTOR BENEFICIALLY COMMON
NAME AGE SINCE OWNED(1) STOCK
---- --- -------- ------------ -------------
Marilyn Garton Amato..................... 61 1988 17,662 *
Gary W. Brummett......................... 42 1999 2,000 *
Timothy R. Chrisman(2)................... 54 1994 28,693 *
Simone F. Lagomarsino.................... 39 1999 2,321(3) *
Anthony W. Liberati...................... 68 1996 5,000 *
Harry F. Radcliffe(4).................... 50 1996 611,651 10.96%
Howard E. Ritt........................... 76 1993 7,500 *
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* Less than 1%.
(1) As of April 13, 2001. 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) 22,349 shares directly owned and (ii) 6,344 shares which Mr.
Chrisman may acquire within 60 days of April 13, 2001 upon the exercise of
Warrants.
(3) Does not include 88,377 shares held of record by the ESOP which have been
allocated to participants' accounts and which are voted by Ms. Lagomarsino
and other officers as trustees at the direction of the participants or, if
no direction is given, by them as trustees in their discretion. Ms.
Lagomarsino disclaims beneficial ownership of such shares.
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(4) 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, and (ii) 409,393 shares
which Fort Pitt Fund, L.P. may acquire upon the exercise of Warrants. Mr.
Radcliffe is the General Partner of Fort Pitt Fund, L.P., and Fort Pitt Fund
III, L.P.
BIOGRAPHICAL INFORMATION
MARILYN GARTON AMATO has owned and operated for more than the past five
years an interior design firm, The Finishing Touch, which 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.
GARY W. BRUMMETT has been a principal in Brummett Consulting Group, a
consulting firm serving the financial services industry, since February 1997.
Prior to that, he had been Chief Operating Officer, of Cal Fed Bancorp since
April 1985. Mr. Brummett served as the Company's interim Chief Executive Officer
from November 17, 1999 to December 7, 1999.
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.
SIMONE F. LAGOMARSINO has been a director and the President and Chief
Executive Officer of the Company and the Bank since December 1999. Prior to
that, Ms. Lagomarsino was Executive Vice President and Chief Financial Officer
of the Company and the Bank from February 1999 to April 2000. She previously
served as Executive Vice President and Chief Financial Officer of First Plus
Bank from March 1998 to February 1999, Senior Vice President of Imperial
Financial Group from March 1997 to March 1998 and Senior Vice President and
Chief Financial Officer of Ventura County National Bancorp.
ANTHONY W. LIBERATI was the Chairman of the Board of Directors of MCSi
Inc., a distributor of computer supplies, from May 1996 until his retirement in
February 2000. 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 and
Zengine, Inc., an internet company. Mr. Liberati is a Limited Partner in Fort
Pitt Fund I, Ford Pitt Fund II, and Fort Pitt Fund III.
HARRY F. RADCLIFFE is an investment manager. He was President and Chief
Executive Officer of Fort Pitt Capital Management Corp. from April 1997 through
August 2000. From December 1993 through March 1997, Mr. Radcliffe was the
President, Chief 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, Promistar Financial Corporation,
Johnstown, Pennsylvania, MCSi Inc., and First Fidelity Bancorp, Irvine,
California, a privately held thrift holding company.
HOWARD E. RITT retired in 1990 as an Executive Vice President of Sanwa Bank
California.
BOARD MEETINGS; BOARD COMMITTEES; COMPENSATION OF DIRECTORS
The Board of Directors held 19 meetings in 2000. 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, except Mr. Radcliffe.
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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. The authority of the Compensation Committee is
described under "Executive Compensation -- Report on Executive Compensation."
The Compensation Committee met 7 times in 2000.
The Audit Committee consists solely of non-management directors of the Bank
and operates under a written charter adopted by the board of directors. The
responsibilities of the Audit Committee are contained in the Audit Committee
Report. Each of the members is "independent," as defined by Company policy and
the National Association of Securities Dealers, Inc. listing standards. 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 11
times in 2000.
The Credit Committee consists of all directors of the Bank. 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 37 times in
2000.
The Capital Committee consists of all directors of the Bank. The Capital
Committee is an ad hoc committee, which did not meet during 2000. 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 of $30,000 and an
additional $1,750 for each Company Board meeting attended. In addition to the
meeting fee received by each director, the Chairman of the Board receives an
additional fee of $1,500 per meeting attended. All of the directors of the
Company are also directors of the Bank and receive only the above described fees
for their combined service. Directors are also eligible to receive grants of
stock options under the Company's 1994 Stock Option Plan and will be eligible to
receive incentive awards under the Company's 2001 Stock Incentive Plan, if
approved by the stockholders.
AUDIT COMMITTEE REPORT
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filings under the Securities Act of 1933 or under the Securities
Act of 1934, except to the extent we specifically incorporate this Report by
reference.
The Audit Committee reports to the Board and is responsible for overseeing
and monitoring financial accounting and reporting, the system of internal
controls established by management and the audit process of the Company and the
Bank.
The Audit Committee Charter adopted by the Board sets out the
responsibilities, authority and specific duties of the Audit Committee. A copy
of the Audit Committee Charter is attached to this Proxy Statement as Appendix
A.
Pursuant to the charter, the Audit Committee has the following
responsibilities:
- Reviewing the performance of the independent accountants and making
recommendations to the Board of Directors regarding the appointment or
termination of the independent accountants;
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- Conferring with the independent accountants and the internal auditors
concerning the scope of their examinations of the books and records of
the Bank, and its subsidiaries; reviewing and approving the independent
accountants' annual engagement letter; reviewing and approving the Bank's
internal audit charter, annual audit plans and budgets; directing the
special attention of the auditors to specific matters or areas deemed by
the Committee or the auditors to be of special significance; and
authorizing the auditors to perform such supplemental reviews or audits
as the Committee may deem desirable;
- Reviewing with management, the independent accountants and internal
auditors significant risks and exposures, audit activities and
significant audit findings.
In discharging its oversight responsibility the Audit Committee has met and
held discussions with management and Deloitte & Touche LLP, the Company's
independent auditors. Management represented to the Audit Committee that all
consolidated financial statements were prepared in accordance with generally
accepted accounting principles, and the Audit Committee has reviewed and
discussed the consolidated financial statements with management and the
independent auditors. The Audit Committee discussed with the independent
auditors matters required to be discussed by Statement on Auditing Standards No.
61 (Communications with Audit Committees).
The Audit Committee also obtained from the independent auditors a formal
written statement describing all relationships between the Company and the
auditors that bear on the auditors' independence consistent with Independence
Standards Board Standard No. 1, Independence Discussions with Audit Committee.
The Audit Committee discussed with the independent auditors any relationships
that may impact on the firm's objectivity and independence and satisfied itself
as to the auditors' independence.
Based on these discussions and reviews, the Audit Committee recommended
that the Board of Directors approve the inclusion of the Company's audited
consolidated financial statements in the Company's Annual Report on Form 10-K
for the year ended December 31, 2000, for filing with the Securities and
Exchange Commission.
Respectfully submitted by the members of the Audit Committee of the Board
of Directors:
Howard Ritt, Chairman
Marilyn Garton Amato
Gary W. Brummett
Timothy R. Chrisman
Anthony W. Liberati
Harry F. Radcliffe
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth as of April 13, 2001 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
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person as shown in the following table does not necessarily reflect the person's
actual voting power at any particular date.
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED CLASS
------------------------ ------------ ----------
Value Partners, Ltd.(1)................................ 790,874 13.26%
Bass Group(2).......................................... 647,637 11.39
Harry F. Radcliffe(3).................................. 611,651 10.96
Scott A. Braly(4)...................................... 413,267 7.82
Wellington Management Company, LLP(5).................. 394,000 7.62
Dimensional Fund Advisors Inc.(6)...................... 384,400 7.43
Thomson Horstmann & Bryant Inc.(7)..................... 306,700 5.93
Simone F. Lagomarsino(8)(9)............................ 2,321 *
David L. Hardin, Jr.(10)(9)............................ 75,333 1.39
Charles Stoneburg(11).................................. 21,147 *
Karen C. Abajian....................................... -- --
Daniel Ruvalcaba....................................... -- --
All directors and executive officers as a group
(15 persons)(12)(13)................................. 167,220 3.09%
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* Less than 1%.
(1) This information is based on a Schedule 13D filed on April 20, 2000 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 790,874 shares that may be
acquired upon the exercise of Warrants. The address for Value Partners Ltd.
is c/o Timothy G. Ewing, Value Partners, Ltd., c/o Ewing & Partners, Suite
4660 West, 2200 Ross Avenue, Dallas, Texas 75201.
(2) This information is based on an amendment to the Schedule 13D filed on
December 3, 1999 by Portfolio II Investors, L.P., The Bass Management
Trust, Sid R. Bass Management Trust, Sid R. Bass and Lee M. Bass, (the
"Bass Group"). The Schedule 13D indicates that the Bass Group has
beneficial ownership of 647,637 shares of Common Stock, which amount
includes 511,742 shares which may be acquired upon the exercise of Warrants
and 135,725 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: The Bass Management Trust (39,919 shares
and 232,610 Warrants), Sid R. Bass Management Trust (279,132 Warrants), Sid
R. Bass (47,903 shares), and Lee M. Bass (47,903 shares). The address for
the Bass Group is c/o W. Robert Cotham, 201 Main Street, Suite 2600, Fort
Worth, Texas, 76102.
(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 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 directly owns 6,000 shares. The address
for the Fort Pitt Fund, L.P. is 40 Wiggins Lane, Uniontown, Pennsylvania
15401.
(4) Includes (i) 301,614 shares directly owned and (ii) 111,653 shares which
Mr. Braly may acquire within 60 days of April 13, 2001 upon the exercise of
Warrants.
(5) This information is based on the Schedule 13G filed February 14, 2001 by
Wellington Management Company, LLP. The address for Wellington Management
Company, LLP is 75 State Street, Boston,
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MA 02109. The shares are owned of record by advisory clients of Wellington
Management Company LLP, none of which owns in excess of 5% of the Common
Stock.
(6) This information is based on the Schedule 13G filed February 2, 2001 by
Dimensional Fund Advisors Inc. The address for Dimensional Fund Advisors
Inc. is 1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401. The
shares reported are owned by four advisory clients of Dimensional Fund
Advisors Inc., none of which owns in excess of 5% of the Common Stock.
Dimensional Fund Advisors Inc. has voting and/or investment power over the
shares, but disclaims beneficial ownership of such shares.
(7) This information is based on the Schedule 13G filed February 7, 2001 by
Thomson Horstmann & Bryant, Inc. The address for Thomson Horstmann &
Bryant, Inc. is Park 80 West, Plaza Two, Saddle Brook, NJ 07663.
(8) Includes (i) 2,073 shares directly owned and (ii) 248 shares allocated to
Ms. Lagomarsino's 401(k) Plan account.
(9) Shares beneficially owned by Ms. Lagomarsino and Mr. Hardin do not include
88,377 shares held of record by the ESOP which have been allocated to
participants' accounts and which are voted by them as trustees at the
direction of the participants or, if no direction is given, by them as
trustees in their discretion. Ms. Lagomarsino and Mr. Hardin disclaim
beneficial ownership of such shares.
(10) Includes (i) 2,948 shares directly owned, (ii) 57,000 shares which Mr.
Hardin may acquire within 60 days of April 13, 2001 upon the exercise of
stock options, (iii) 13,200 shares which Mr. Hardin may acquire upon the
exercise of Warrants, (iv) 2,038 shares allocated to Mr. Hardin's 401(k)
Plan account and (v) 174 shares held by the ESOP which have been allocated
to Mr. Hardin's account.
(11) Includes (i) 20,000 shares which Mr. Stoneburg may acquire within 60 days
of April 13, 2001 upon the exercise of stock options and (ii) 147 shares
allocated to Mr. Stoneburg's ESOP account.
(12) Current executive officers include Ms. Lagomarsino, Mr. Hardin, Mr.
Stoneburg, Ms. Abajian, Mr. Ruvalcaba, David L. Adams, Senior Vice
President, William R. Brown, Senior Vice President, Eileen Lyon, Senior
Vice President and General Counsel and Cynthia Morales, Senior Vice
President -- People Development.
(13) Includes (i) 66,541 shares directly owned, (ii) 77,000 shares which members
of the group may acquire within 60 days of April 13, 2001 upon the exercise
of stock options, (iii) 19,544 shares which members of the group may
acquire within 60 days of April 13, 2001 upon the exercise of Warrants,
(iv) 4,135 shares held by the 401(k) Plan or ESOP which have been allocated
to the accounts of executive officers. Excludes 88,377 shares held of
record by the ESOP which have been allocated to participants' accounts and
which are voted by them as trustees at the direction of the participants
or, if no direction is given, by them as trustees in their discretion.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the Chief Executive
Officer during 2000, and the four other most highly compensated executive
officers who were serving as executive officers of the Company and the Bank at
December 31, 2000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
---------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING OTHER
NAME AND POSITION YEAR SALARY BONUS(1) OPTIONS/SARS(#) COMPENSATION(2)
----------------- ---- -------- -------- --------------- ---------------
Simone F. Lagomarsino(3).............. 2000 $300,000 $145,000 40,000 $ 8,500
President and Chief Executive
Officer 1999 184,614 100,000 75,000 33,993(4)
1998 -- -- -- --
David L. Hardin, Jr. ................. 2000 $219,231 $100,000 30,000 $ 8,500
Executive Vice President 1999 210,000 25,000 -- 8,000
1998 195,417 75,000 -- 6,954
Chuck Stoneburg....................... 2000 $202,000 $100,000 15,000 $ 9,000(5)
Executive Vice President and 1999 168,076 20,000 -- 36,000(5)
Chief Operating Officer 1998 130,000 59,869 -- 36,000(5)
Karen C. Abajian(6)................... 2000 $150,000 $ 75,000 50,000 $32,466(7)
Executive Vice President and 1999 -- -- -- --
Chief Financial Officer 1998 -- -- -- --
Daniel Ruvalcaba(8)................... 2000 $189,807 $ 35,000 30,000 --
Executive Vice President and 1999 -- -- -- --
Chief Credit Officer 1998 -- -- -- --
- ---------------
(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) Ms. Lagomarsino was appointed Chief Executive Officer on December 7, 1999.
From February 17, 1999 to April 3, 2000, Ms. Lagomarsino served as the Chief
Financial Officer of the Company and the Bank.
(4) Includes a $30,000 signing bonus and $871 COBRA reimbursement.
(5) Represents housing allowances.
(6) Ms. Abajian was appointed Chief Financial Officer on April 3, 2000.
(7) Includes a $30,000 signing bonus.
(8) Mr. Ruvalcaba was appointed Chief Credit Officer on February 7, 2000.
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OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth certain information regarding stock options
granted during 2000 to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED RATE OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OPTION TERM(1)
OPTION TO EMPLOYEES IN EXERCISE OR EXPIRATION --------------------------
NAME GRANTED(2) FISCAL YEAR(3) BASE PRICE(4) DATE(5) 5% 10%
---- ---------- ---------------- ------------- ---------- ----------- -----------
Simone F. Lagomarsino..... 40,000 13.1% $8.22 7/18/08 $146,570 $168,176
David L. Hardin, Jr. ..... 30,000 9.8% 8.22 7/18/08 109,927 122,382
Chuck Stoneburg........... 15,000 4.9% 8.22 7/18/08 54,964 61,191
Karen C. Abajian.......... 50,000 16.4% 8.93 4/3/08 184,624 206,020
Daniel Ruvalcaba.......... 30,000 9.8% 9.07 2/23/08 122,081 135,740
- ---------------
(1) The potential realizable value is based on the Black-Scholes option-pricing
model. These amounts are calculated pursuant to applicable requirements of
the Securities and Exchange Commission and do not represent a forecast of
the future appreciation of the Common Stock.
(2) Options become exercisable ("vest") on the third anniversary of the grant
date.
(3) Options covering an aggregate of 305,000 shares were granted to employees
during 2000.
(4) The exercise price and the tax withholding obligations related to such
exercise may be paid by delivery of already owned shares, subject to certain
conditions.
(5) Options expire on the fifth anniversary of the date of first vesting, or any
portion thereof, including by way of acceleration.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, for each of the Named Executive Officers,
certain information regarding options exercised in 2000 and options held at
December 31, 2000:
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
ON EXERCISE REALIZED YEAR-END(#) YEAR-END($)
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- ----------- -------- -------------------------- -----------------------------
Simone F. Lagomarsino......... -- -- -- 115,000 -- $269,580
David L. Hardin, Jr. ......... -- -- 57,000 30,000 $554,895 184,860
Chuck Stoneburg............... 6,000 $46,690 20,000 45,000 164,540 647,325
Karen C. Abajian.............. -- -- -- 50,000 -- 273,000
Daniel Ruvalcaba.............. -- -- -- 30,000 -- 159,450
- ---------------
(1) Based on the closing sale price of $14.375 for the Common Stock on December
29, 2000, less the option exercise price.
CHANGE IN CONTROL ARRANGEMENTS
On February 22, 2000, the Compensation Committee of the Board of Directors
approved a change of control pay plan providing for the payment of three years'
base salary and bonus, including an excise tax gross-up payment, for the Chief
Executive Officer of the Company, and providing for two years' base salary and
bonus, including an excise tax gross-up payment, for all Executive Vice
Presidents of the Company (at present, 4 persons), all Senior Vice Presidents
reporting directly to the President (3 persons) and the Senior Vice
President-People Development.
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REPORT ON EXECUTIVE COMPENSATION
The Board of Directors of the Company and the Bank have established a joint
Compensation Committee (the "Compensation Committee") comprised of the
nonmanagement members of the Board. The Compensation Committee (i) has oversight
responsibility for the Bank's compensation policies, benefits and practices,
(ii) reviews and approves or disapproves the Chief Executive Officer's
recommendations concerning the compensation (including specific incentive
awards) of officers directly reporting to her, (iii) approves all stock option
grants, (iv) approves the aggregate amount of bonuses paid to employees, and (v)
has oversight responsibility for management planning and succession. The
Compensation Committee from time to time retains independent compensation
consultants to assist it in the exercise of its responsibilities, including
developing compensation plans and providing comparative data regarding the
Bank's compensation policies.
The Bank's compensation programs are designed to provide the Bank's
employees, including the Bank's executive officers, with a competitive annual
salary and benefits and the potential to earn cash bonuses based upon periodic,
measurable performance. In addition, key employees, including executive
officers, have the potential to receive one or more grants of stock options
under the Company's option plans. The Compensation Committee believes that this
combination of programs provides reasonable incentives to the Bank's executive
officers to meet or exceed the Bank's financial and operational goals, and
reasonably aligns the interests of such officers with those of the Company's
stockholders.
A review of the Bank's compensation programs was completed by an
independent compensation consultant (Sibson & Co.) in January 2000. The
compensation consultant reviewed compensation data from three data sources
specific to the retail banking industry: 1999 Executive Compensation
Database -- Financial Services Report from Towers Perrin; the 1999 Financial
Institutions Benchmark Survey from Watson Wyatt; and the 1999 Western Management
Group Report. The compensation consultant also considered a group of nine peer
banks, selected on the basis of asset size and location for comparison of the
top 5 executive compensation levels, and validated the information using other
surveys, such as the 1999 PricewaterhouseCoopers Compensation in Financial
Services report. The compensation consultant "matched" specific Bank officers as
closely as possible with officers from the data sources with similar functional
responsibilities.
The compensation consultant concluded that the Bank's compensation programs
are generally shareholder friendly, noting that base salaries were generally
near the 75th percentile of compensation paid in the thrift industry. However,
the consultant indicated that base salaries were overemphasized due to the
Bank's rate of turnover among executives. Specifically, the consultant
recommended that the Bank:
- Implement a more structured incentive program to lessen the emphasis on
base salaries.
- Implement realistic salary guidelines to use as a tool.
- Provide annual incentives with a formula and a specific target award
opportunity.
- Establish an approach to link incentive compensation to pre-established
financial objectives such as ROE and earnings per share growth targets.
- Provide long-term incentive opportunities.
- Investigate alternatives to the option program.
In February 2000, the Board approved an incentive compensation plan,
incorporating many of the recommendations of the compensation consultant. The
plan provided for incentives to employees, including the Company's executive
officers, which are based upon annual measurements of individual and collective
performance. The plan provides for variable incentive pay based on the
percentage of achievement of the performance measures. The executive officers
were measured primarily on the basis of corporate performance, meaning the
achievement of financial measures, targeted EPS and achievement of the strategic
goals. Payouts would range from 20% to 50% of base salary, with the potential
for a maximum payout of 75% if results exceeded the targeted measurements.
Payouts would be annual for executive officers. The Committee determined that
executive officers should have more emphasis placed on achievement of corporate
performance goals, such as EPS, than lower level employees, given the relative
ability of those groups of employees to
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effect corporate performance. Accordingly, as adopted, the incentive plan
weighted 75% of the executive officers' incentive on the achievement of a
specified EPS target. The Chief Executive Officer completed performance
evaluations for the other executive officers and made individual recommendations
for incentive awards.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Ms. Lagomarsino was appointed President and Chief Executive Officer of
Company and the Bank effective December 7, 1999. Ms. Lagomarsino also acted as
Chief Financial Officer until Ms. Abajian was hired in April 2000. In
determining Ms. Lagomarsino's salary of $300,000 per annum upon her promotion to
Chief Executive Officer, the Committee took into consideration the amount of
salary that had been paid to her predecessor, Ms. Lagomarsino's relative years
of service and experience as a chief executive officer, and competitive salaries
paid to individuals in comparable positions. In determining Ms. Lagomarsino's
incentive compensation for 2000, the Company's Chairman of the Board and the
Chair of the Compensation Committee reviewed Ms. Lagomarsino's performance
during 2000 as both Chief Financial Officer and President and Chief Executive
Officer. Based upon that review, the Company's progress of achievement of the
targeted earnings per share, and implementation of the Bank's strategic plan in
2000, the Committee approved an incentive award to Ms. Lagomarsino of $145,000.
COMPENSATION COMMITTEE
Anthony W. Liberati, Chairman
Marilyn Garton Amato
Gary W. Brummett
Timothy R. Chrisman
Harry F. Radcliffe
Howard E. Ritt
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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, 1995 and ended December 31, 2000.
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
[HAWTHORNE PERFORMANCE GRAPH]
HAWTHORNE FINANCIAL
CORPORATION NASDAQ - TOTAL US* SNL WESTERN THRIFT INDEX
------------------- ------------------ ------------------------
12/31/95 100.00 100.00 100.00
12/31/96 162.50 123.04 127.49
12/31/97 402.50 150.69 210.53
12/31/98 320.00 212.51 181.22
12/31/99 250.00 394.94 145.26
12/31/00 287.50 237.68 286.95
- ---------------
* Source: CRSP, Center for Research in Security Prices, Graduate School of
Business, The University of Chicago 2001. Used with permission. All rights
reserved. crsp.com
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APPROVAL OF HAWTHORNE FINANCIAL CORPORATION
2001 STOCK INCENTIVE PLAN
INTRODUCTION
On March 19, 2001, the Board of Directors approved the Hawthorne Financial
Corporation 2001 Stock Incentive Plan (the "2001 Plan"). The Board of Directors
believes that the 2001 Plan will benefit the Company and its shareholders by
providing incentive based compensation and will encourage officers, directors,
consultants and other key employees of the Company and its affiliates to attain
high performance and encourage stock ownership in the Company. Currently, the
Company has two stock-based incentive programs, the 1994 Stock Option Plan (the
"1994 Plan"), by which the Board may grant nonqualified stock options to
officers, directors and other key employees, and the 1995 Stock Option Plan (the
"1995 Plan"), by which the Board may grant nonqualified stock options to
employees who are not directors or executive officers of the Company. (The 1994
Plan and the 1995 Plan are collectively referred to as the "prior plans"). The
2001 Plan is intended to serve as the successor program to the prior plans. An
additional 250,000 shares will be reserved under the 2001 Plan.
As of March 31, 2001, 204,850 shares of Common Stock were available for
issuance under the prior plans and options to purchase 564,050 shares were
outstanding. Since the inception of the prior plans, 531,100 shares of Common
Stock have been issued upon the exercise of options granted under the prior
plans at an average exercise price per share of $4.98.
VOTE REQUIRED
Stockholders are requested to approve the 2001 Plan. A majority of the
votes cast on this proposal will be required to approve the 2001 Plan. For
purposes of this vote, abstentions and broker non-votes will not be counted for
any purpose in determining whether this matter has been approved. The Board of
Directors recommends a vote "FOR" approval of the 2001 Plan.
DESCRIPTION OF THE 2001 PLAN
Introduction. The 2001 Plan was adopted by the board of directors in March
2001 and, subject to shareholder approval, will become effective on the date of
adoption by the board. At that time, all outstanding options under the prior
plans will be transferred to the 2001 Plan, and no further option grants will be
made under the prior plans. The transferred options will continue to be governed
by their existing terms, unless the Compensation Committee decides to extend one
or more features of the 2001 Plan to those options.
Share Reserve. The Board has authorized up to 1,051,000 shares of the
common stock for issuance under the 2001 Plan. This share reserve consists of
the number of shares that are estimated will be carried over from the prior
plans plus an increase of approximately 250,000 shares. No participant in the
2001 Plan may be granted stock options, direct stock issuances and share right
awards for more than 1,051,000 shares of common stock in total in any calendar
year.
Programs. The 2001 Plan has two separate programs:
- the discretionary option grant program, under which the Compensation
Committee may grant (i) non-statutory options to purchase shares of the
common stock to eligible individuals in the employ or service (including
employees, non-employee board members and consultants) at an exercise
price not less than 85% of the fair market value of those shares on the
grant date and (ii) incentive stock options to purchase shares of common
stock to eligible employees at an exercise price not less than 100% of
the fair market value of those shares on the grant date; and
- the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, upon the attainment of
performance milestones or the completion of a specified period of service
or as a bonus for past services.
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17
Eligibility. The individuals eligible to participate in the 2001 Plan
include officers and other employees, directors and consultants.
Administration. The Compensation Committee will administer the
discretionary option grant and stock issuance programs. The Compensation
Committee will determine which eligible individuals are to receive option
grants, stock issuances or share right awards under those programs, the time or
times when the grants or issuances are to be made, the number of shares subject
to each grant or issuance, the status of any granted option as either an
incentive stock option or a non-statutory stock option under the federal tax
laws, the vesting schedule to be in effect for the option grant, stock issuance
or share right awards and the maximum term for which any granted option is to
remain outstanding.
Plan Features. The 2001 Plan will include the following features:
- The exercise price for any options granted under the 2001 Plan may be
paid in cash or in shares of Company common stock valued at fair market
value on the exercise date. Options may also be exercised through a
same-day sale program without any cash outlay by the optionee.
- The Compensation Committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from the 1994 plan and 1995 plan, in return for the
grant of new options for the same or different number of option shares
with an exercise price per share based upon the fair market value of the
common stock on the new grant date.
- Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election to
surrender their outstanding options for a payment equal to the fair
market value of the shares subject to the surrendered options less the
exercise price payable for those shares. Payment may be made in cash or
in shares of common stock.
Change in Control. The 2001 Plan will include the following change in
control provisions that may result in the accelerated vesting of outstanding
option grants and stock issuances:
- In the event that we are acquired by merger or asset sale or a successful
tender offer for more than fifty percent of our outstanding voting stock
which the board of directors recommends that the stockholders accept,
each outstanding option under the discretionary option grant program
which is not to be assumed by the successor corporation or otherwise
continued in full force and effect will immediately become exercisable
for all the option shares, and all outstanding unvested shares will
immediately vest, except to the extent our repurchase rights with respect
to those shares are to be assigned to the successor corporation.
- The Compensation Committee will have complete discretion to grant one or
more options which will become exercisable for all the option shares in
the event those options are assumed in the acquisition but the optionee's
service with us or the acquiring entity is subsequently terminated. The
vesting of any outstanding shares under the stock issuance program may be
accelerated upon similar terms and conditions.
- The Compensation Committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than twenty-five percent of our outstanding voting stock which the
board of directors does not recommend that the stockholders accept or a
change in the majority of the board through one or more contested
elections. This accelerated vesting may occur either at the time of the
transaction or upon the subsequent termination of the individual's
service.
Additional Program Features. The 2001 Plan will also have the following
features:
- Limited stock appreciation rights may be granted to one or more officers
or directors as part of their option grants under the discretionary
option grant program. Options with this feature may be surrendered to us
upon the successful completion of a hostile tender offer for more than
25% of our outstanding voting stock or a change in the majority of the
board through one or more contested elections. In return for the
surrendered option, the optionee will be entitled to a cash payment from
us
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in an amount per surrendered option share based upon the highest price
per share of our common stock paid in the tender offer, or the fair
market value per share of our common stock on the effective date of a
change in the majority of the board.
- The board may amend or modify the 2001 Plan at any time, subject to any
required stockholder approval. The 2001 Plan will terminate no later than
the tenth anniversary of the adoption of the plan by the board of
directors.
Federal Income Tax Consequences. The following discussion is intended to be
only a general description of the tax consequences of the 2001 Plan under the
provisions of U.S. federal income tax law currently in effect and does not
address any estate, gift, state, local or non-U.S. tax laws. U.S. federal income
tax law is subject to change at any time, possibly with retroactive effect.
Accordingly, each grantee should consult a tax advisor regarding his or her
specific tax situation.
Incentive Stock Options. The grant of an incentive stock option does not
give rise to federal income tax to the grantee. Similarly, the exercise of an
incentive stock option generally does not give rise to federal income tax to the
grantee, as long as the grantee is continuously employed by the Company from the
date the option is granted until the date the option is exercised. This
employment requirement is subject to certain exceptions. However, the exercise
of an incentive stock option may increase the grantee's alternative minimum tax
liability, if any.
If the grantee holds the option shares for more than 2 years from the date
the option is granted and more than 1 year from the date of exercise, any gain
or loss recognized on the sale or other disposition of the option shares will be
capital gain or loss, measured by the difference between the sales price and the
amount paid for the shares by the grantee. The capital gain or loss will be
long-term or short-term, depending on the grantee's holding period for the
shares. If the grantee disposes of the option shares before the end of the
required holding period, the grantee will recognize ordinary income at the time
of the disposition equal to the excess, if any, of (i) the fair market value of
the option shares at the time of exercise (or, under certain circumstances, the
selling price, if lower) over (ii) the option exercise price paid by the
grantee. Any additional amount received by the grantee would be treated as
capital gain. Under current law, there is a maximum tax rate of 20% for
long-term capital gains. The deductibility of capital losses is subject to
certain limitations.
The Company generally is not entitled to a tax deduction at any time with
respect to an incentive stock option. If, however, the grantee does not satisfy
the employment or holding period requirements described above, the Company will
be allowed a deduction in an amount equal to the ordinary income recognized by
the grantee, subject to certain limitations and W-2 reporting requirements. The
Internal Revenue Service ("IRS") has indicated that it may require income and
employment tax withholding with respect to such ordinary income and employment
tax withholding with respect to the exercise of incentive stock options. The IRS
intends to issue administrative guidance to clarify this issue. If withholding
is required, the obligation will be satisfied by withholding from the grantee's
wages or through payment by the grantee to the Company.
Non-Statutory Stock Options. The grant of a non-statutory stock option
generally does not result in federal income tax to the grantee. However, the
grantee will recognize taxable ordinary income upon the exercise of a
non-statutory option equal to the excess of the fair market value of the option
shares on the exercise date over the option exercise price paid. Slightly
different rules may apply to grantees who acquire stock under options subject to
certain vesting requirements or who are subject to Section 16(b) of the
Securities Exchange Act of 1934. With respect to employees, the Company is
required to withhold income and employment taxes based on the amount of ordinary
income recognized by the grantee.
On the sale of the option shares, the grantee will recognize capital gain
or loss in an amount equal to the difference between the sales price and the sum
of the exercise price paid by the grantee for the shares plus any amount
recognized as ordinary income upon the exercise of the option. The capital gain
or loss will be long-term or short-term depending on the grantee's holding
period for the shares.
The Company will be allowed a tax deduction on the exercise of the option
by the grantee, equal to the amount of ordinary income recognized by the
grantee, subject to certain limitations and W-2 or 1099 reporting requirements.
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Stock Grants. The grantee will generally recognize taxable ordinary income
on the receipt of a direct grant of stock from the Company. Slightly different
rules may apply to grantees who are granted stock or share right awards which
are subject to certain vesting requirements or who are subject to Section 16(b)
of the Securities Exchange Act of 1934. The rules regarding the Company's
entitlement to a tax deduction for the income recognized by the grantee and the
Company's tax withholding obligations are similar to those discussed above for
non-statutory stock options.
Change in Control. In general, if the total payments to an individual that
are contingent upon a "change in control" of the Company (as defined in Section
280G of the Internal Revenue Code of 1986, as amended (the "Code")), including
payments under the Plan that vest upon a "change in control," equal or exceed
three times the individual's "base amount" (generally, such individual's average
annual compensation for the five calendar years preceding the change in
control), then, subject to certain exceptions, the payments may be treated as
"parachute payments" under the Code, in which case a portion of such payments
would be non-deductible to the Company and the individual would be subject to a
20% excise tax on such portion of the payments.
Certain Limitations on Deductibility of Executive Compensation. Section
162(m) of the Code generally denies a deduction to publicly held corporations
for compensation paid to certain executive officers in excess of $1 million per
executive per taxable year (including any deduction attributable to stock
options or stock grants). Certain kinds of compensation, including qualified
"performance-based compensation," are disregarded for purposes of the deduction
limitation. Compensation attributable to stock options will qualify as
performance-based compensation if the exercise price of the options is no less
than the fair market value of stock on the date of grant, the options are
granted by a compensation committee comprised solely of "outside directors" (as
defined in the Treasury Regulations issued under Section 162(m)) and certain
other requirements are met. Compensation attributable to stock grants or share
right awards may also qualify as performance-based compensation if the stock's
grant or vesting is based on the attainment of a performance goal and otherwise
satisfies the standards for performance-based compensation.
The 2001 Plan is not subject to any provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA") and is not qualified under Section 401(a)
of the Code.
PLAN BENEFITS
The grant of awards under the 2001 Plan to employees, including the Named
Executive Officers, is subject to the discretion of the Board. As of the date of
this proxy statement, there has been no determination made by the Compensation
Committee with respect to future discretionary awards to the Named Executive
Officers, other executive officers, nonemployee directors, employees or
consultants under the 2001 Plan. Accordingly, future awards to such persons are
not determinable.
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The following table set forth the options granted during the year ended
December 31, 2000 under the prior plans to (a) the Named Executive Officers, (b)
all current executive officers as a group (9 persons), (c) all directors who are
not executive officers as a group (6 persons), and (d) all employees, including
all officers who are not executive officers, as a group (261 persons):
NAME AND POSITION SHARES GRANTED DOLLAR VALUE(1)
----------------- -------------- ---------------
Simone Lagomarsino.............................. 40,000 $ 328,800
David L. Hardin................................. 30,000 246,600
Charles Stoneburg............................... 15,000 123,300
Karen C. Abajian................................ 50,000 446,500
Daniel Ruvalcaba................................ 30,000 272,100
All current executive officers, as a group (9
persons)...................................... 215,000 1,846,450
All directors who are not executive officers,
as a group (6 persons)........................ -- --
All employees, as a group (261 persons)......... 90,000 739,800
- ---------------
(1) Dollar value does not represent potential realizable value to the optionee,
but was computed by multiplying the number of shares by the closing market
price of the Common Stock on the date grants were approved by the Board of
Directors, as quoted by Nasdaq.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" APPROVAL OF THE 2001 STOCK INCENTIVE PLAN
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, 2000. 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.
FEES
The table below sets forth the aggregate fees the Company has incurred for
audit and non-audit services provided by Deloitte & Touche, LLP, who acted as
independent auditors for the fiscal year ending December 31, 2000 and performed
audit services in fiscal year 2000. The table lists audit fees, financial
information systems design and implementation fees, and other fees.
Audit Fees. The audit fees include only fees that are customary under
generally accepted auditing standards and are the aggregate fees the Company
incurred for professional services rendered for the audit of the annual
financial statements for fiscal year 2000 and the reviews of the financial
statements included in the Quarterly Reports on Forms 10-Q for fiscal year 2000.
Financial Information Systems Design and Implementation Fees. The financial
information systems design and implementation fees include fees billed for
non-audit services performed during fiscal year 2000 such as directly or
indirectly operating, or supervising the operation of, the information system or
managing the local area network. These non-audit services also include services
such as designing or implementing a hardware or software system that aggregates
source data underlying the Company's financial statements or generates
information that is significant to the financial statements taken as a whole.
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All Other Fees. All other fees include the aggregate fees billed for
services rendered by Deloitte & Touche, LLP, other than those services covered
above.
FEES PAID
YEAR ENDED DECEMBER 31, 2000 ---------
Audit Fees.................................................. $271,547
Financial Information Systems Design and Implementation
Fees...................................................... 0
Other Fees.................................................. 217,836
The Audit Committee considered whether the provision of non-audit services
is compatible with maintaining the independence of Deloitte & Touche, LLP.
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 for Initial Reports of Beneficial
Ownership on Form 3 for Karen Abajian and William R. Brown, executive officers
of the Company, that were filed late.
STOCKHOLDERS' PROPOSALS FOR 2002 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 20, 2001 for inclusion in the Company's proxy statement and form
of proxy relating to the next annual meeting. Any Stockholder proposal submitted
on or after December 21, 2001 shall be considered untimely. If a stockholder
gives notice of such a proposal after that date, the stockholder will not be
permitted to present the proposal to the stockholders for a vote at the meeting.
SEC rules also establish a different deadline for submission of stockholder
proposals that are not intended to be included in the Company's proxy statement
with respect to discretionary voting. The deadline with respect to discretionary
voting for the year 2002 annual meeting is March 6, 2002 (45 calendar days
before to the anniversary of the mailing date of this proxy statement). If a
stockholder gives notice of such a proposal after March 6, 2002, the proxy
holders will be allowed to use their discretionary voting authority to vote
against the stockholder proposal when and if the proposal is raised at the
Company's year 2002 annual meeting.
The Company has not been notified by any stockholder of his or her intent
to present a stockholder proposal from the floor at this year's Annual Meeting.
The enclosed proxy card grants the proxy holders discretionary authority to vote
on any matter properly brought before the Annual Meeting.
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ANNUAL REPORT ON FORM 10-K
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
/s/ SIMONE LAGOMARSINO
Simone F. Lagomarsino,
President and Chief Executive Officer
April 20, 2001
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APPENDIX A
AUDIT COMMITTEE CHARTER
(RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS)
RESOLVED, FURTHER, that the Audit Committee shall have the following
specific powers and duties:
(1) Holding such regular meetings as may be necessary and such special
meetings as may be called by the Chairman of the Audit Committee or at the
request of the independent accountants or the Internal Audit Manager;
(2) Creating an agenda for the ensuing year;
(3) Reviewing the performance of the independent accountants and
making recommendations to the Board of Directors regarding the appointment
or termination of the independent accountants;
(4) Conferring with the independent accountants and the internal
auditors concerning the scope of their examinations of the books and
records of the Bank, and its subsidiaries; reviewing and approving the
independent accountants' annual engagement letter; reviewing and approving
the Bank's internal audit charter, annual audit plans and budgets;
directing the special attention of the auditors to specific matters or
areas deemed by the Committee or the auditors to be of special
significance; and authorizing the auditors to perform such supplemental
reviews or audits as the Committee may deem desirable;
(5) Reviewing with management, the independent accountants and
internal auditors significant risks and exposures, audit activities and
significant audit findings.
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APPENDIX B
HAWTHORNE FINANCIAL CORPORATION
2001 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. Purpose of the Plan
This 2001 Stock Incentive Plan is intended to promote the interests of
Hawthorne Financial Corporation, a Delaware corporation (the "Corporation"), by
providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the Service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. Structure of the Plan
A. The Plan shall be divided into two separate equity programs:
- the Discretionary Option Grant Program under which eligible persons may,
at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock and stock appreciation rights; and
- the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares, as a
bonus for services rendered the Corporation (or any Parent or
Subsidiary), or pursuant to share right awards which entitle Participants
to receive shares upon the attainment of designated performance goals or
Service requirements.
B. The provisions of Articles One and Four shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. Administration of the Plan
A. The Plan shall be administered by the Board or one or more committees
appointed by the Board, provided that with respect to Section 16 Insiders (i)
the Board may administer the Plan in compliance with Rule 16b-3 of the 1934 Act,
or (ii) the Primary Committee may, at the Board's discretion, administer the
Plan. Administration of the Plan may otherwise, at the Board's discretion, be
vested in the Primary Committee or a Secondary Committee. Any discretionary
option grants or stock issuances to members of the Board or the Primary
Committee must be authorized and approved by a disinterested majority of the
Board.
B. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of the
Primary Committee or any Secondary Committee and reassume all powers and
authority previously delegated to such committee.
C. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
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D. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine: (i) with respect
to the option grants or stock appreciation rights under the Discretionary Option
Grant Program, which eligible persons are to receive grants, the time or times
when such grants are to be made, the number of shares to be covered by each such
grant, the status of a granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding; and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
for such shares.
E. The Plan Administrator shall have the absolute discretion either to
grant options or stock appreciation rights in accordance with the Discretionary
Option Grant Program or to effect stock issuances in accordance with the Stock
Issuance Program.
F. Service on the Primary Committee or any Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or any Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
IV. Eligibility
The persons eligible to participate in the Discretionary Option Grant and
Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors of
any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide services
to the Corporation (or any Parent or Subsidiary).
V. Stock Subject to the Plan
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed One
Million Fifty One Thousand (1,051,000) shares. Such authorized reserve consists
of (i) the number of shares which remain available for issuance, as of the Plan
Effective Date, under the Predecessor Plans, (768,900 shares), consisting of the
maximum aggregate number of shares originally reserved for issuance under the
Predecessor Plans (1,300,000 shares), less the aggregate number of shares issued
upon the exercise of options under the Predecessor Plans as of the Plan
Effective Date (531,100 shares), plus (ii) an increase of 250,000 shares
authorized by the Board but subject to stockholder approval. No one person
participating in the Plan may receive stock options, direct stock issuances and
share right awards for more than One Million Fifty One Thousand (1,051,000)
shares of Common Stock in the aggregate per calendar year.
B. Shares of Common Stock subject to outstanding options (including options
incorporated into this Plan from the Predecessor Plans) shall be available for
subsequent issuance under the Plan to the extent (i) those options expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
Unvested shares issued under the Plan and subsequently cancelled or repurchased
by the Corporation at the original exercise or issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan, shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. In addition,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes
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incurred in connection with the exercise of an option or the vesting of a stock
issuance under the Plan, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced only by the net number of shares of
Common Stock issued to the holder of such option or stock issuance, and not by
the gross number of shares for which the option is exercised or which vest under
the stock issuance. However, shares of Common Stock underlying one or more stock
appreciation rights exercised under Section V of Article Two of the Plan shall
not be available for subsequent issuance under the Plan.
C. If any change is made to the Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be made
to: (i) the maximum number and/or class of securities issuable under the Plan;
(ii) the number and/or class of securities for which any one person may be
granted stock options, direct stock issuances and share right awards under this
Plan per calendar year; (iii) the number and/or class of securities and the
exercise price per share in effect under each outstanding option under the Plan;
(iv) the number and/or class of securities and exercise price per share in
effect under each outstanding option incorporated into this Plan from the
Predecessor Plans; and (v) the maximum number and/or class of securities which
may be added to the Plan through the forfeiture, surrender, cancellation or
termination of shares issued under the Predecessor Plans. Such adjustments to
the outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. Option Terms
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such option.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan Administrator
but shall not be less than eighty-five percent (85%) of the Fair Market Value
per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and may, subject to the provisions of Section I of Article Four and the
documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or certified check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period necessary to
avoid a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the sale complies with all applicable laws
relating to the regulation and sale of securities, through a special sale
and remittance procedure pursuant to which the Optionee shall concurrently
provide irrevocable written instructions to: (a) a brokerage firm to effect
the immediate sale of the purchased shares and remit to the Corporation,
out of the sale proceeds available on the settlement date, sufficient funds
to cover the aggregate exercise price payable for the purchased shares plus
all applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise; and
(b) the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
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Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any options held
by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's cessation of
Service for any reason shall remain exercisable for such period of time
thereafter as shall be determined by the Plan Administrator and set forth
in the documents evidencing the option.
(ii) Any option held by the Optionee at the time of death and
exercisable in whole or in part at that time may be subsequently exercised
by the personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's will
or in accordance with the laws of descent and distribution of by the
Optionee's designated beneficiary or beneficiaries of that option.
(iii) Except as otherwise determined in the discretion of the Plan
Administrator either at the time an option is granted or at any time the
option remains outstanding, should the Optionee's Service be terminated for
Misconduct or should the Optionee otherwise engage in Misconduct while
holding one or more outstanding options under this Article Two, then all
those options shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares for which the option is exercisable on the date of the Optionee's
cessation of Service. Upon the expiration of the applicable exercise period
or (if earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares for which the
option has not been exercised. However, the option shall, immediately upon
the Optionee's cessation of Service, terminate and cease to be outstanding
to the extent the option is not otherwise at that time exercisable for
vested shares.
2. The Plan Administrator shall have complete discretion, either at the
time an option is granted or at any time while the option remains outstanding,
to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the limited
exercise period otherwise in effect for that option to such greater period
of time as the Plan Administrator shall deem appropriate, but in no event
beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested had the
Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the exercise price paid per share, any or
all of those unvested shares. The terms upon which such repurchase right shall
be exercisable (including the
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period and procedure for exercise and the appropriate vesting schedule for the
purchased shares) shall be established by the Plan Administrator and set forth
in the document evidencing such repurchase right.
F. Limited Transferability of Options. During the lifetime of the Optionee,
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. Non-Statutory Options shall be
subject to the same limitation, except that a Non-Statutory Option may be
assigned in whole or in part during Optionee's lifetime to one or more members
of the Optionee's Immediate Family or to a trust established for the exclusive
benefit of one or more members of the Optionee's Immediate Family or the
Optionee's former spouse, to the extent such assignment is in connection with
Optionee's estate plan or pursuant to a domestic relations order. The assigned
portion shall be exercisable only by the person or persons who acquire a
proprietary interest in the option pursuant to such assignment. The terms
applicable to the assigned portion shall be the same as those in effect for this
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
Notwithstanding the foregoing, the Optionee may also designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options
under this Article Two, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred option subject to all the terms and
conditions of this Agreement, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.
II. Incentive Options
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Four shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options when issued under the
Plan shall NOT be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Exercise Price. The exercise price per share shall not be less than one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. Failure to Qualify as Incentive Option. To the extent that any option
governed by this Plan does not qualify as an Incentive Option by reason of the
dollar limitation described in Section II.C of this Article Two or for any other
reason, such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.
E. 10% Stockholder. If any Employee to whom an Incentive Option is granted
is a 10% Stockholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date, and the option term shall not exceed five (5)
years measured from the option grant date.
III. Cancellation and Regrant of Options
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plans) and to grant in substitution new options covering the same or different
number of shares of Common Stock but
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with an exercise price per share based on the Fair Market Value per share of
Common Stock on the new grant date.
IV. Change in Control/Hostile Take-Over
A. No option outstanding at the time of a Change in Control shall become
exercisable on an accelerated basis if and to the extent: (i) that option is, in
connection with the Change in Control, assumed by the successor corporation (or
parent thereof) or otherwise continued in full force and effect pursuant to the
terms of the Change in Control transaction, (ii) such option is replaced with a
cash incentive program of the successor corporation which preserves the spread
existing at the time of the Change in Control on the shares of Common Stock for
which the option is not otherwise at that time exercisable and provides for
subsequent payout in accordance with the same exercise/vesting schedule
applicable to those option shares or (iii) the acceleration of such option is
subject to other limitations imposed by the Plan Administrator at the time of
the option grant. However, if none of the foregoing conditions are satisfied,
then each option outstanding at the time of the Change in Control but not
otherwise exercisable for all the shares of Common Stock at that time subject to
such option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Change in Control, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock.
B. All of the Corporation's outstanding repurchase rights under the
Discretionary Option Grant Program shall also terminate automatically, and the
shares of Common Stock subject to those terminated rights shall immediately vest
in full, in the event of any Change in Control, except to the extent: (i) those
repurchase rights are assigned to the successor corporation (or parent thereof)
or otherwise continued in full force and effect pursuant to the terms of the
Change in Control transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the repurchase
right is issued.
C. Immediately following the consummation of the Change in Control, all
outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof) or otherwise
expressly continued in full force and effect pursuant to the terms of the Change
in Control transaction.
D. Each option which is assumed in connection with a Change in Control or
otherwise continued in effect shall be appropriately adjusted, immediately after
such Change in Control, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Change in
Control had the option been exercised immediately prior to such Change in
Control. Appropriate adjustments to reflect such Change in Control shall also be
made to: (i) the exercise price payable per share under each outstanding option
(including options incorporated into this Plan from the Predecessor Plans),
provided the aggregate exercise price payable for such securities shall remain
the same; (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan; (iii) the maximum number and/or
class of securities for which any one person may be granted options, direct
stock issuances and share right awards under the Plan per calendar year; and
(iv) the maximum number and class of securities which may be added to the Plan
through the repurchase of shares issued under the Predecessor Plans. To the
extent the actual holders of the Corporation's outstanding Common Stock receive
cash consideration for their Common Stock in consummation of the Change in
Control transaction, the successor corporation may, in connection with the
assumption of the outstanding options under the Discretionary Option Grant
Program, substitute one or more shares of its own common stock with a fair
market value equivalent to the cash consideration paid per share of Common Stock
in such Change in Control transaction.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Change in Control, become exercisable for all the shares of Common Stock at
that time subject to such options on an accelerated basis and may be exercised
for any or all of such shares as fully vested shares of Common Stock, whether or
not those options are to be assumed or otherwise continued in full force and
effect or replaced with a cash incentive program pursuant to the express terms
of the Change in
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Control transaction. In addition, the Plan Administrator shall have the
discretionary authority to structure one or more of the Corporation's repurchase
rights under the Discretionary Option Grant Program so that those rights shall
immediately terminate at the time of such Change in Control and shall not be
assignable to the successor corporation (or parent thereof), and the shares
subject to those terminated rights shall accordingly vest in full at the time of
such Change in Control.
F. The Plan Administrator shall have full power and authority to structure
one or more outstanding options under the Discretionary Option Grant Program so
that those options shall vest and become exercisable for all the shares of
Common Stock at that time subject to such options on an accelerated basis in the
event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Change in Control in which those
options do not otherwise accelerate. Any options so accelerated shall remain
exercisable for fully vested shares of Common Stock until the expiration or
sooner termination of the option term. In addition, the Plan Administrator may
structure one or more of the Corporation's repurchase rights under the
Discretionary Option Grant Program so that those rights shall immediately
terminate with respect to any shares of Common Stock held by the Optionee at the
time of his or her Involuntary Termination, and the shares subject to those
terminated repurchase rights shall accordingly vest in full at that time.
G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Hostile Take-Over, vest and become exercisable for all the shares of Common
Stock at that time subject to such options on an accelerated basis and may be
exercised for any or all of such shares as fully vested shares of Common Stock.
In addition, the Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the
Discretionary Option Grant Program so that those rights shall terminate
automatically upon the consummation of such Hostile Take-Over, and the shares
subject to those terminated rights shall thereupon immediately vest in full.
Alternatively, the Plan Administrator may condition the automatic acceleration
of one or more outstanding options under the Discretionary Option Grant Program
and the termination of one or more of the Corporation's outstanding repurchase
rights under such program upon the Involuntary Termination of the Optionee's
Service within a designated period (not to exceed eighteen (18) months)
following the effective date of such Hostile Take-Over. Each option so
accelerated shall remain exercisable for fully vested shares of Common Stock
until the expiration or sooner termination of the option term.
H. The portion of any Incentive Option accelerated in connection with a
Change in Control or Hostile Take-Over shall remain exercisable as an Incentive
Option only to the extent the applicable One Hundred Thousand Dollar ($100,000)
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
I. The grant of options under the Discretionary Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
V. Stock Appreciation Rights
A. The Plan Administrator shall have full power and authority to grant to
selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem stock
appreciation rights:
(i) One or more Optionees may be granted the right, exercisable upon
such terms as the Plan Administrator may establish, to elect between the
exercise of the underlying option for shares of Common Stock and the
surrender of that option in exchange for a payment from the Corporation in
an amount equal to the excess of (a) the Fair Market Value (on the option
surrender date) of the number of shares in which the Optionee is at the
time vested under the surrendered option (or surrendered portion thereof)
over (b) the aggregate exercise price payable for such shares.
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(ii) No such option surrender shall be effective unless it is approved
by the Plan Administrator, either at the time of the actual option
surrender or at any earlier time. If the surrender is so approved, then the
payment to which the Optionee shall be entitled may be made in shares of
Common Stock valued at Fair Market Value on the option surrender date, in
cash, or partly in shares and partly in cash, as the Plan Administrator
shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
later of (a) five (5) business days after the receipt of the rejection
notice or (b) the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option, but in
no event may such rights be exercised more than five (5) years after the
option grant date with respect to an Incentive Option held by a 10%
Stockholder and not more than ten (10) years after the option grant date
with respect to all other options.
C. The following terms shall govern the grant and exercise of limited stock
appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each individual
holding one or more options with such a limited stock appreciation right
shall have the unconditional right (exercisable for a thirty (30)-day
period following such Hostile Take-Over) to surrender each such option (or
any portion thereof) to the Corporation. In return for the surrendered
option, the Optionee shall receive a cash payment from the Corporation in
an amount equal to the excess of (A) the Take-Over Price of the shares of
Common Stock at the time subject to such option (whether or not the option
is otherwise vested and exercisable for those shares) over (B) the
aggregate exercise price payable for those shares. Such cash payment shall
be paid within five (5) days following the option surrender date.
(iii) At the time such limited stock appreciation right is granted,
the Plan Administrator shall pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no
further approval of the Plan Administrator or the Board shall be required
at the time of the actual option surrender and cash payment.
(iv) The balance of the option (if any) shall remain outstanding and
exercisable in accordance with the documents evidencing such option.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. Stock Issuances
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals or Service requirements.
II. Stock Issuance Terms
A. Purchase Price.
1. The purchase price per share shall be fixed by the Plan Administrator,
but shall not be less than one hundred percent (100%) of the Fair Market Value
per share of Common Stock on the issuance date.
B-8
32
2. Subject to the provisions of Section I of Article Four, shares of Common
Stock may be issued under the Stock Issuance Program for any of the following
items of consideration which the Plan Administrator may deem appropriate in each
individual instance:
(i) cash or certified check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock Issuance Program may, in
the discretion of the Plan Administrator, be fully and immediately vested upon
issuance or may vest in one or more installments over the Participant's period
of Service or upon attainment of specified performance objectives. The elements
of the vesting schedule applicable to any unvested shares of Common Stock issued
under the Stock Issuance Program shall be determined by the Plan Administrator
and incorporated into the Stock Issuance Agreement. Shares of Common Stock may
also be issued under the Stock Issuance Program pursuant to share right awards
which entitle the recipients to receive those shares upon the attainment of
designated performance goals or Service requirements. Upon the attainment of
such performance goals or Service requirements, fully vested shares of Common
Stock shall be issued upon satisfaction of those share right awards.
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to: (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock;
and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights with respect to any
shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant's interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares. The holder of a share
right award shall have no stockholder rights with respect to such award until
shares of Common Stock have been issued to such Participant in satisfaction of
such award.
4. Should the Participant cease to remain in Service while holding one or
more unvested shares of Common Stock issued under the Stock Issuance Program or
should the performance objectives not be attained with respect to one or more
such unvested shares of Common Stock, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the Participant shall have
no further stockholder rights with respect to those shares. To the extent the
surrendered shares were previously issued to the Participant for consideration
paid in cash or cash equivalent (including the Participant's purchase-money
indebtedness), the Corporation shall repay to the Participant the cash
consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender and
cancellation of one or more unvested shares of Common Stock which would
otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
6. Outstanding share right awards under the Stock Issuance Program shall
automatically terminate, and no shares of Common Stock shall actually be issued
in satisfaction of those awards, if the performance goals or Service
requirements established for such awards are not attained. The Plan
Administrator, however, shall have the discretionary authority to issue shares
of Common Stock under one or more outstanding share right awards as to which the
designated performance goals or Service requirements have not been attained.
B-9
33
III. Change in Control/Hostile Take-Over
A. All of the Corporation's outstanding repurchase rights under the Stock
Issuance Program shall terminate automatically, and all the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Change in Control, except to the extent (i) those repurchase rights
are assigned to the successor corporation (or parent thereof) or otherwise
continued in full force and effect pursuant to the express terms of the Change
in Control transaction or (ii) such accelerated vesting is precluded by other
limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part upon the occurrence of a Change in Control and shall not be assignable
to the successor corporation (or parent thereof), and the shares of Common Stock
subject to those terminated rights shall immediately vest in full at the time of
such Change in Control.
C. The Plan Administrator shall also have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, upon the Involuntary Termination of the Participant's
Service within a designated period (not to exceed eighteen (18) months)
following the effective date of any Change in Control in which those repurchase
rights do not otherwise terminate.
D. The Plan Administrator shall also have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part upon the occurrence of a Hostile Take-Over, and the shares of Common
Stock subject to those terminated rights shall immediately vest in full at the
time of such Hostile Take-Over.
ARTICLE FOUR
MISCELLANEOUS
I. Financing
The Plan Administrator may permit any Optionee or Participant to pay the
option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. Share Escrow/Legends
Unvested shares issued under the Plan may, in the Plan Administrator's
discretion, be held in escrow by the Corporation until the Participant's
interest in such shares vests or may be issued directly to the Participant with
restrictive legends on the certificates evidencing those unvested shares.
III. Tax Withholding
A. The Corporation's obligation to deliver shares of Common Stock upon the
exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan with the right to use shares of Common Stock in satisfaction of all or part
of the Taxes incurred by such holders in connection with the exercise of their
options
B-10
34
or the vesting of their shares. Such right may be provided to any such holder in
either or both of the following formats:
1. Stock Withholding: The election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of
such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the amount of the Taxes
(not to exceed one hundred percent (100%) of such Taxes) to be satisfied in
such manner as designated by the holder in writing; or
2. Stock Delivery: The election to deliver to the Corporation, at the
time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes)
with an aggregate Fair Market Value equal to the amount of the Taxes (not
to exceed one hundred percent (100%) of such Taxes) to be satisfied in such
manner as designated by the holder in writing.
IV. Effective Date and Term of the Plan
A. The Plan shall become effective immediately upon the Plan Effective
Date. Options may be granted under the Discretionary Option Grant at any time on
or after the Plan Effective Date. However, no options granted under the Plan may
be exercised, and no shares shall be issued under the Plan, until the Plan is
approved by the Corporation's stockholders. If such stockholder approval is not
obtained within twelve (12) months after the Plan Effective Date, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plans, and no
further option grants or direct stock issuances shall be made under the
Predecessor Plans after the Plan Effective Date. All options outstanding under
the Predecessor Plans on the Plan Effective Date shall be incorporated into the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock.
C. One or more provisions of the Plan, including (without limitation) the
option/vesting acceleration provisions of Article Two relating to Changes in
Control and Hostile Take-Overs, may, in the Plan Administrator's discretion, be
extended to one or more options incorporated from the Predecessor Plans which do
not otherwise contain such provisions.
D. The Plan shall terminate upon the EARLIEST of (i) the tenth anniversary
of the Plan Effective Date, (ii) the date on which all shares available for
issuance under the Plan shall have been issued as fully-vested shares or (iii)
the termination of all outstanding options in connection with a Change in
Control. Upon such plan termination, all outstanding option grants and unvested
stock issuances shall thereafter continue to have force and effect in accordance
with the provisions of the documents evidencing such grants or issuances.
V. Amendment of the Plan
A. The Board shall have complete and exclusive power and authority to amend
or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs shall be held in escrow until there
is obtained any required approval of an amendment sufficiently increasing the
number of shares of Common Stock available for
B-11
35
issuance under the Plan. If such approval is not obtained within twelve (12)
months after the date the first such excess issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall terminate
and cease to be outstanding and (ii) the Corporation shall promptly refund to
the Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically cancelled and cease
to be outstanding.
VI. Use of Proceeds
Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.
VII. Regulatory Approvals
A. The implementation of the Plan, the granting of any stock option under
the Plan and the issuance of any shares of Common Stock (i) upon the exercise of
any granted option or (ii) under the Stock Issuance Program shall be subject to
the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VIII. No Employment/Service Rights
Nothing in the Plan shall confer upon the Optionee or the Participant any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining such person) or of the Optionee or
the Participant, which rights are hereby expressly reserved by each, to
terminate such person's Service at any time for any reason, with or without
cause.
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B-12
36
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through any of the following transactions:
(i) a stockholder-approved merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting power
of the Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction;
(ii) a sale, transfer or other disposition of all or substantially all
of the Corporation's assets; or
(iii) the acquisition, directly or indirectly by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board recommends such stockholders accept.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATION shall mean Hawthorne Financial Corporation, a Delaware
corporation, and its successors.
F. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option
grant program in effect under the Plan.
G. EMPLOYEE shall mean an "employee" of the Corporation (or any Parent or
Subsidiary) within the meaning of Section 3401(c) of the Code and the
regulations thereunder.
H. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
I. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be deemed equal to the closing
selling price per share of Common Stock on the date in question, as such
price is reported on the Nasdaq National Market or any successor system. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be deemed equal to the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market for
the Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
J. HOSTILE TAKE-OVER shall mean:
(i) the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than twenty-five percent (25%)
of the total combined voting power of the
B-13
37
Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept; or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either: (a) have been
Board members continuously since the beginning of such period; or (b) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (a) who
were still in office at the time the Board approved such election or
nomination.
K. IMMEDIATE FAMILY shall mean any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include
adoptive relationships.
L. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.
M. INVOLUNTARY TERMINATION shall mean the termination of the Service of any
individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces his or
her level of responsibility or the level of management to which Optionee
reports, (B) a reduction in his or her level of compensation (including
base salary, fringe benefits and participation in any corporate-performance
based bonus or incentive programs) by more than fifteen percent (15%) or
(C) a relocation of such individual's place of employment by more than
fifty (50) miles, provided and only if such change, reduction or relocation
is effected by the Corporation without the individual's consent.
N. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee, Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).
O. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
P. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
Q. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant Program.
R. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
S. PARTICIPANT shall mean any person who is issued shares of Common Stock
or a share right award under the Stock Issuance Program.
T. PLAN shall mean the Corporation's 2001 Stock Incentive Plan, as set
forth in this document.
U. PLAN ADMINISTRATOR shall mean the particular entity, whether the Board,
the Primary Committee or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity
B-14
38
is carrying out its administrative functions under those programs with respect
to the persons under its jurisdiction.
V. PLAN EFFECTIVE DATE shall mean the date on which the Plan was adopted by
the Board.
W. PREDECESSOR PLANS shall collectively mean the Corporation's 1994 Stock
Option Plan and the Corporation's 1995 Stock Option Plan, as in effect
immediately prior to the Plan Effective Date hereunder.
X. PRIMARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Plan with respect to Section 16
Insiders, which shall be constituted in such a manner as to permit grants under
the Plan in compliance with Rule 16b-3 of the 1934 Act.
Y. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer any aspect of Plan not administered
by the Primary Committee. The members of the Secondary Committee may be Board
members who are Employees eligible to receive discretionary option grants or
direct stock issuances under the Plan or any other stock option, stock
appreciation, stock bonus or other stock plan of the Corporation (or any Parent
or Subsidiary).
Z. SECTION 16 INSIDER shall mean an officer or director of the Corporation
subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
AA. SERVICE shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
BB. SHORT TERM FEDERAL RATE shall mean the federal short-term rate in
effect under Section 1274(d) of the Code for the period the shares were held in
escrow.
CC. STOCK EXCHANGE shall mean either the American Stock Exchange or the New
York Stock Exchange.
DD. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
EE. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect
under the Plan.
FF. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
GG. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value per
share of Common Stock on the date the option is surrendered to the Corporation
in connection with a Hostile Take-Over or, if applicable, (ii) the highest
reported price per share of Common Stock paid by the tender offeror in effecting
the Hostile Take-Over through the acquisition of such Common Stock. However, if
the surrendered option is an Incentive Option, the Take-Over Price shall not
exceed the price per share described in clause (i) above.
HH. TAXES shall mean the Federal, state and local income and employment tax
liabilities incurred by the holder of Non-Statutory Options or unvested shares
of Common Stock in connection with the exercise of those options or the vesting
of those shares.
II. 10% STOCKHOLDER shall mean the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
B-15
39
REVOCABLE
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 Simone Lagomarsino 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 21, 2001, 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
40
Please mark your
vote as indicated [X]
in this example.
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 Simone Lagomarsino
Gary Brummett Anthony W. Liberati
Timothy R. Chrisman Howard E. Ritt
Harry F. Radcliffe
FOR AGAINST ABSTAIN
2. APPROVAL OF THE HAWTHORNE FINANCIAL [ ] [ ] [ ]
CORPORATION 2001 STOCK INCENTIVE PLAN.
The undersigned hereby revokes any other proxy to vote at the Annual
Meeting, and hereby ratifies and confirms all that the proxy holders 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 HOLDERS ARE AUTHORIZED TO VOTE IN ACCORDANCE WITH THEIR BEST JUDGMENT.
This Proxy will be voted in accordance with the instructions set forth
above. THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE FOR THE
ELECTION OF THE DIRECTORS NAMED, FOR APPROVAL OF THE 2001 STOCK INCENTIVE PLAN
AND AS THE PROXY HOLDERS 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 20, 2001 relating to the
Annual Meeting.
Signature(s)_______________________________________________ Date: ________, 2001
The signature(s) hereon should correspond 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.
[TRIANGLE] FOLD AND DETACH HERE [TRIANGLE]