Warrant To Purchase 31,732 Shares

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.


VOID AFTER 5:00 P.M., NEW YORK TIME, ON MARCH 10, 2003 OR IF NOT A BUSINESS DAY, AS DEFINED HEREIN, AT 5:00 P.M., NEW YORK TIME, ON THE NEXT FOLLOWING BUSINESS DAY.


WARRANT TO PURCHASE


31,732 SHARES OF COMMON STOCK


NO. 2


WARRANT TO PURCHASE


COMMON STOCK


OF


BNC MORTGAGE, INC.


TRANSFER RESTRICTED -- SEE SECTION 5.02


This certifies that, for good and valuable consideration, Piper Jaffray Inc., and its registered, permitted assigns (collectively, the "Warrantholder"), is entitled to purchase from BNC Mortgage, Inc., a Delaware corporation (the "Company"), subject to the terms and conditions hereof, at any time on or after 9:00 A.M., New York time, on March 10, 1999, and before 5:00 P.M., New York time, on March 10, 2003 (or, if such day is not a Business Day, at or before 5:00 P.M., New York time, on the next following Business Day), the number of fully paid and non-assessable shares of Common Stock stated above at the Exercise Price. The Exercise Price and the number of shares purchasable hereunder are subject to adjustment from time to time as provided in Article III hereof.


ARTICLE I


SECTION 1.01: DEFINITION OF TERMS. As used in this Warrant, the following capitalized terms shall have the following respective meanings:


(a) Business Day: A day other than a Saturday, Sunday or other
day on which banks in the State of New York are authorized by law to
remain closed.


(b) Common Stock: Common Stock, $.001 par value per share, of
the Company.


(c) Common Stock Equivalents: Securities that are convertible
into or exercisable for shares of Common Stock.


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(d) Demand Registration: See Section 6.02.


(e) Exchange Act: The Securities Exchange Act of 1934, as
amended from time to time.


(f) Exercise Price: $10.45 per Warrant Share, as such price may
be adjusted from time to time pursuant to Article III hereof.


(g) Expiration Date: 5:00 P.M., New York time, on March 10, 2003
or if such day is not a Business Day, the next succeeding day which is a
Business Day.


(h) 25% Holders: At any time as to which a Demand Registration
is requested, the Holder and/or the holders of any other Warrants and/or
the holders of Warrant Shares who have the right to acquire or hold, as
the case may be, not less than 25% of the combined total of Warrant
Shares issuable and Warrant Shares outstanding at the time such Demand
Registration is requested.


(i) Holder: A Holder of Registrable Securities.


(j) NASD: National Association of Securities Dealers, Inc.; and
NASDAQ: NASD Automatic Quotation System.


(k) Person: An individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or any
department or agency thereof.


(l) Piggyback Registration: See Section 6.01.


(m) Prospectus: Any prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and all other
amendments and supplements to the Prospectus, including post-effective
amendments and all material incorporated by reference in such
Prospectus.


(n) Public Offerings: A public offering of any of the Company's
equity or debt securities pursuant to a registration statement under the
Securities Act.


(o) Registration Expenses: Any and all expenses incurred in
connection with any registration or action incident to performance of or
compliance by the Company with Article VI, including, without
limitation, (i) all SEC, national securities exchange and NASD
registration and filing fees; all listing fees and all transfer agent
fees; (ii) all fees and expenses of complying with state securities or
blue sky laws (including the fees and disbursements of counsel for the
underwriters in connection with blue sky qualifications of the
Registrable Securities; (iii) all printing, mailing, messenger and
delivery expenses and (iv) all fees and disbursements of counsel for the
Company and of its accountants, including the expenses of any special
audits and/or "cold comfort" letters required by or incident to such
performance and compliance, but excluding underwriting discounts and
commissions,


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brokerage fees and transfer taxes, if any, and fees of counsel or
accountants retained by the holders of Registrable Securities to advise
them in their capacity as Holders of Registrable Securities.


(p) Registrable Securities: Any Warrant Shares issued to Piper
Jaffray Inc and CIBC Oppenheimer Corp. and/or their designees or
transferees as permitted under Section 5.02 and/or other securities that
may be or are issued by the Company upon exercise of this Warrant,
including those which may thereafter be issued by the Company in respect
of any such securities by means of any stock splits, stock dividends,
recapitalizations, reclassifications or the like, and as adjusted
pursuant to Article III hereof.


(q) Registration Statement: Any registration statement of the
Company filed or to be filed with the SEC which covers any of the
Registrable Securities pursuant to the provisions of this Agreement,
including all amendments (including post-effective amendments) and
supplements thereto, all exhibits thereto and all material incorporated
therein by reference.


(r) SEC: The Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act or the
Exchange Act.


(s) Securities Act: The Securities Act of 1933, as amended from
time to time.


(t) Transfer: See Section 5.02.


(u) Warrants: This Warrant, all other warrants issued on the
date hereof and all other warrants that may be issued in its or their
place (together evidencing the right to purchase an aggregate of 317,319
shares of Common Stock), originally issued as set forth in the
definition of Registrable Securities.


(v) Warrantholder: The person(s) or entity(ies) to whom this
Warrant is originally issued, or any successor in interest thereto, or
any assignee or transferee thereof, in whose name this Warrant is
registered upon the books to be maintained by the Company for that
purpose.


(w) Warrant Shares: Common Stock, Common Stock Equivalents and
other securities purchased or purchasable upon exercise of the Warrants.


ARTICLE II


DURATION AND EXERCISE OF WARRANT


SECTION 2.01: DURATION OF WARRANT. Subject to the limitations specified in Section 2.02.(a)(ii) regarding a Cashless Exercise, the Warrantholder may exercise this Warrant at any time and from time to time after 9:00 A.M., New York time, on March 10, 1999, and before 5:00 P.M., New York time, on the Expiration Date. If this Warrant is not exercised on or prior to the Expiration Date, it shall become void, and all rights hereunder shall thereupon cease.


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SECTION 2.02: EXERCISE OF WARRANT.


(a) The Warrantholder may exercise this Warrant, in whole or in
part, as follows:


(i) By presentation and surrender of this Warrant to the
Company at its principal executive offices or at the office of
its stock transfer agent, if any, with the Subscription Form
annexed hereto duly executed and accompanied by payment of the
full Exercise Price for each Warrant Share to be purchased; or


(ii) By presentation and surrender of this Warrant to
the Company at its principal executive offices with a Cashless
Exercise Form annexed hereto duly executed (a "Cashless
Exercise"). In the event of a Cashless Exercise, the
Warrantholder shall exchange its warrant for that number of
shares of Common Stock determined by multiplying the number of
Warrant Shares by a fraction, the numerator of which shall be
the amount by which the then current market price per share of
Common Stock exceeds the Exercise Price, and the denominator of
which shall be the then current market price per share of Common
Stock. For purposes of any computation under this Section
2.02(a)(ii), the then current market price per share of Common
Stock at any date shall be deemed to be the average of the daily
closing prices for 20 consecutive trading days commencing 30
trading days before such date. The closing price for each day
shall be the last sale price regular way or, in case no such
reported sales take place on such day, the average of the last
reported bid and asked prices regular way, in either case on the
principal national securities exchange on which the Common Stock
is admitted to trading or listed, or if not listed or admitted
to trading on any such exchange, the representative closing bid
price as reported by NASDAQ, or other similar organization if
NASDAQ is no longer reporting such information, or if not so
available, the fair market price as determined by the Board of
Directors of the Company.


(b) Upon receipt of this Warrant, in the case of Section 2.02
(a)(i), with the Subscription Form duly executed and accompanied by
payment of the aggregate Exercise Price for the Warrant Shares for which
this Warrant is then being exercised, or, in the case of Section 2.02
(a)(ii), with the Cashless Exercise Form duly executed, the Company
shall cause to be issued certificates for the total number of whole
shares of Common Stock for which this Warrant is being exercised
(adjusted to reflect the effect of the anti-dilution provisions
contained in Article III hereof, if any, and as provided in Section 2.04
hereof) in such denominations as are requested for delivery to the
Warrantholder, and the Company shall thereupon deliver such certificates
to the Warrantholder. The Warrantholder shall be deemed to be the holder
of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then
be closed or that certificates representing such shares of Common Stock
shall not then be actually delivered to the Warrantholder. If at the
time this Warrant is exercised, a Registration Statement is not in
effect to register under the Securities Act the issuance of the Warrant
Shares upon exercise of this Warrant, the Company may require the
Warrantholder to make such representations, and may place such legends
on certificates representing the Warrant


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Shares, as may be reasonably required in the opinion of counsel to the
Company to permit the Warrant Shares to be issued without such
registration.


(c) In case the Warrantholder shall exercise this Warrant with
respect to less than all of the Warrant Shares that may be purchased
under this Warrant, the Company shall execute a new warrant in the form
of this Warrant for the balance of such Warrant Shares and deliver such
new warrant to the Warrantholder.


(d) The Company shall pay any and all stock transfer and similar
taxes which may be payable in respect of the issue of this Warrant or in
respect of the issue of any Warrant Shares; provided, however, that the
Company shall not be required to pay any tax which may be payable in
respect of any transfer of this Warrant, or the Warrant Shares, by any
Warrantholder.


SECTION 2.03: RESERVATION OF SHARES. The Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant such number of shares of Common Stock or other shares of capital stock of the Company from time to time issuable upon exercise of this Warrant. All such shares shall be duly authorized, and when issued upon such exercise, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale and free and clear of all preemptive rights (except the restrictions imposed by the legend appearing at the top of Page 1 of this Warrant).


SECTION 2.04: FRACTIONAL SHARES. The Company shall not be required to issue any fraction of a share of its capital stock in connection with the exercise of this Warrant, and in any case where the Warrantholder would, except for the provisions of this Section 2.04, be entitled under the terms of this Warrant to receive a fraction of a share upon the exercise of this Warrant, the Company shall, upon the exercise of this Warrant and tender of the Exercise Price (as adjusted to cover the balance of the share), issue the larger number of whole shares purchasable upon exercise of this Warrant. The Company shall not be required to make any cash or other adjustment in respect of such fraction of a share to which the Warrantholder would otherwise be entitled.


SECTION 2.05: LISTING. Prior to the issuance of any shares of Common Stock upon exercise of this Warrant, the Company shall secure the listing of such shares of Common Stock upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall so be listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system.


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ARTICLE III


ADJUSTMENT OF SHARES OF COMMON STOCK PURCHASABLE AND OF EXERCISE PRICE


The Exercise Price and the number and kind of Warrant Shares shall be subject to adjustment from time to time upon the happening of certain events as provided in this Article III.


SECTION 3.01: MECHANICAL ADJUSTMENTS.


(a) If at any time prior to the exercise of this Warrant in
full, the Company shall (i) declare a dividend or make a distribution on
the Common Stock payable in shares of its capital stock (whether shares
of Common Stock or of capital stock of any other class); (ii) subdivide,
reclassify or recapitalize outstanding Common Stock into a greater
number of shares; (iii) combine, reclassify or recapitalize its
outstanding Common Stock into a smaller number of shares; or (iv) issue
any shares of its capital stock by reclassification of its Common Stock
(including any such reclassification in connection with a consolidation
or a merger in which the Company is the continuing corporation), the
Exercise Price in effect at the time of the record date of such
dividend, distribution, subdivision, combination, reclassification or
recapitalization shall be adjusted so that the Warrantholder shall be
entitled to receive the aggregate number and kind of shares which, if
this Warrant had been exercised in full immediately prior to such event,
it would have owned upon such exercise and been entitled to receive by
virtue of such dividend, distribution, subdivision, combination,
reclassification or recapitalization. Any adjustment required by this
paragraph 3.01(a) shall be made successively immediately after the
record date, in the case of a dividend or distribution, or the effective
date, in the case of a subdivision, combination, reclassification or
recapitalization, to allow the purchase of such aggregate number and
kind of shares.


(b) If at any time prior to the exercise of this Warrant in
full, the Company shall fix a record date for the issuance or making a
distribution to all holders of Common Stock (including any such
distribution to be made in connection with a consolidation or merger in
which the Company is to be the continuing corporation) of evidences of
its indebtedness, any other securities of the Company or any cash,
property or other assets (excluding a combination, reclassification or
recapitalization referred to in Section 3.01(a), regular cash dividends
or cash distributions paid out of net profits legally available therefor
and in the ordinary course of business and subscription rights, options
or warrants for Common Stock or Common Stock Equivalents (any such
nonexcluded event being herein called a "Special Dividend"), (i) the
Exercise Price shall be decreased immediately after the record date for
such Special Dividend to a price determined by multiplying the Exercise
Price then in effect by a fraction, the numerator of which shall be the
then current market price of the Common Stock (as defined in Section
3.01(e)) on such record date less the fair market value (as determined
by the Company's Board of Directors) of the evidences of indebtedness,
securities or property, or other assets issued or distributed in such
Special Dividend applicable to one share of Common Stock or of such
subscription rights, options or warrants applicable to one share of
Common Stock and the denominator of which shall be such then


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current market price per share of Common Stock (as so determined) and
(ii) the number of shares of Common Stock subject to purchase upon
exercise of this Warrant shall be increased to a number determined by
multiplying the number of shares of Common Stock subject to purchase
immediately before such Special Dividend by a fraction, the numerator of
which shall be the Exercise Price in effect immediately before such
Special Dividend and the denominator of which shall be the Exercise
Price in effect immediately after such Special Dividend. Any adjustment
required by this paragraph 3.01(b) shall be made successively whenever
such a record date is fixed and in the event that such distribution is
not so made, the Exercise Price shall again be adjusted to be the
Exercise Price that was in effect immediately prior to such record date.


(c) If at any time prior to the exercise of this Warrant in
full, the Company shall make a distribution to all holders of the Common
Stock of stock of a subsidiary or securities convertible into or
exercisable for such stock, then in lieu of an adjustment in the
Exercise Price or the number of Warrant Shares purchasable upon the
exercise of this warrant, each Warrantholder, upon the exercise hereof
at any time after such distribution, shall be entitled to receive from
the Company, such subsidiary or both, as the Company shall determine,
the stock or other securities to which such Warrantholder would have
been entitled if such Warrantholder had exercised this Warrant
immediately prior thereto, all subject to further adjustment as provided
in this Article III, and the Company shall reserve, for the life of the
Warrant, such securities of such subsidiary or other corporation;
provided, however, that no adjustment in respect of dividends or
interest on such stock or other securities shall be made during the term
of this Warrant or upon its exercise.


(d) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to one or more of paragraphs (a) and (b) of
this Section 3.01, the Warrant Shares shall simultaneously be adjusted
by multiplying the number of Warrant Shares initially issuable upon
exercise of each Warrant by the Exercise Price in effect on the date of
such adjustment and dividing the product so obtained by the Exercise
Price, as adjusted.


(e) For the purpose of any computation under this Section 3.01,
the current market price per share of Common Stock at any date shall be
deemed to be the average of the daily closing prices for 20 consecutive
trading days commencing 30 trading days before such date. The closing
price for each day shall be the last sale price regular way or, in case
no such reported sales take place on such day, the average of the last
reported bid and asked prices regular way, in either case on the
principal national securities exchange on which the Common Stock is
admitted to trading or listed, or if not listed or admitted to trading
on any such exchange, the representative closing bid price as reported
by NASDAQ, or other similar organization if NASDAQ is no longer
reporting such information, or if not so available, the fair market
price as determined by the Board of Directors of the Company.


(f) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least ten
cents ($.10) in such price; provided, however, that any adjustments
which by reason of this paragraph (f) are not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 3.01 shall be made to the nearest
ce ...