EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of this
6th day of February, 1998 (the "Effective Date") by and among DOWNEY SAVINGS AND
LOAN ASSOCIATION, F. A. (the "Association"), Downey Financial Corp., a Delaware
Corporation, ("Downey") and James W. Lokey ("Executive") (all of whom are
sometimes hereinafter referred to collectively as the "Parties").
RECITALS
A. Whereas, Executive has been employed by the Association as its President
and Chief Executive Officer since February 18, 1997 and Executive is also the
President and Chief Executive Officer of the Association's parent unitary thrift
holding company, Downey and;
B. Whereas, the Association desires to continue to avail itself of the
skill, knowledge and experience of Executive in order to ensure the successful
management of the Association's business.
C. Whereas, the Parties hereto desire to specify the terms of Executive's
employment as President and Chief Executive Officer of the Association and
Executive's position and duties as President and Chief Executive Officer of
Downey.
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES, COVENANTS,
AGREEMENTS, CONDITIONS AND UNDERTAKINGS HEREINAFTER SET FORTH, THE PARTIES AGREE
AS FOLLOWS:
1. TERM. The Association hereby employs Executive and Executive hereby
accepts employment with the Association for the period beginning with the
Effective Date of this Agreement and ending on March 1, 1999 (the "Term"),
subject to prior termination of this Agreement as hereinafter provided. Where
used herein, "Term" shall refer to the entire period of employment of Executive
by the Association whether for the period provided above and as extended or
terminated earlier as hereinafter provided.
2. DUTIES; PERFORMANCE
(a) For Association. Executive shall hold the office of President and Chief
Executive Officer of the Association and perform the duties customarily
performed by such officer of a savings association, and including the general
supervision and operation of the business and affairs of the Association,
reporting to the applicable regulatory authorities regarding the activities of
the Association subject to the direction of and the powers vested by law in the
Board of Directors of the Association (the "Association Board") and the
Association's stockholder. The Parties hereto acknowledge and agree that
Executive shall be nominated as a Class 1 Director of the Association at the
Association's 1998 Annual Meeting of Stockholders and that, if elected,
Executive shall serve as a Class 1 Director of the Association until the
Association's 1999 Annual Meeting of Stockholders and until his successor is
duly elected and qualified.
(b) For Downey. Executive shall hold the office of President and Chief
Executive Officer of Downey and perform the duties customarily performed by such
officer of a unitary thrift holding company, including the general supervision
and operation of the business and affairs of Downey and reporting to the
applicable regulatory authorities regarding the activities of Downey, subject to
the direction of and the powers
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vested by law in the Board of Directors of Downey (the "Downey Board") and the
Downey stockholders. The Parties hereto acknowledge and agree that Executive
shall be nominated as a Class 1 Director of Downey at Downey's 1998 Annual
Meeting of Stockholders and that, if elected, Executive shall serve as a Class 1
Director of Downey until Downey's 1999 Annual Meeting of Stockholders and until
his successor is duly elected and qualified.
(c) Performance of Duties. Except as provided for herein, the duties and
position of Executive as President and Chief Executive Officer of the
Association and Downey hereunder may be changed only by the mutual written
agreement of the Parties. During the Term hereof, Executive shall perform the
services herein contemplated to be performed by Executive faithfully, diligently
and to the best of Executive's ability and in compliance with instructions and
policies of the respective Boards of Directors of the Association and Downey,
the Association's Charter and Bylaws, and Downey's Certificate of Incorporation
and Bylaws and with all applicable laws and regulations. As a member of the
respective Boards of Directors of the Association and Downey, Executive shall
faithfully, diligently and to the best of Executive's ability perform the
services of a Director of the Association and Downey. While an employee and a
Director of the Association and while serving as a Director of Downey, or any of
the Association's or Downey's respective subsidiaries, Executive shall not be
entitled to any retainer or Boards of Directors fees paid for attendance at
Association, Downey or their respective subsidiaries' Board of Directors or
Board Committee meetings.
3. COMPENSATION.
(a) Base Salary. For Executive's services rendered hereunder, during the
Term hereof, the Association shall pay or cause to be paid a base salary to
Executive at the rate of Three Hundred Thousand Dollars ($300,000) per annum
("Base Salary"), payable in conformity with the Association's normal payroll
periods and procedures.
(b) Annual Incentive Plan. In addition to Executive's Base Salary provided
for under subparagraph 3(a) hereof, Executive shall be eligible to participate
at a target of 50% of Executive's Base Salary in Downey's Annual Incentive Plan
(the "Annual Incentive Plan"). For purposes of determining the amount of
incentive compensation to be provided to Executive under the Annual Incentive
Plan, if any, Executive's performance will be measured by the results of
Downey's performance against Downey's Board-approved annual Business Plan as
determined solely by the Board. The targeted amount shall be adjusted based upon
Executive's individual (40%) and corporate (60%) performance goals. In addition,
Downey's Board shall review the target Annual Incentive Plan participation
levels established for other key executives of the Association during 1998.
(c) Long Term Incentive Plan. In addition to Executive's Base Salary and
Annual Incentive Plan compensation provided for under subparagraphs 3(a) and (b)
hereof, Downey's Board of Directors shall review its policy for implementing
Downey's 1994 Long Term Incentive Plan, for Executive and for other key
executives of the Association to the extent appropriate for companies within
Downey's peer performance group.
(d) Extension of Agreement. The Association's Board shall annually review
Executive's performance and determine at the sole discretion of the Board
whether to extend the Term of the Agreement for an additional term of one (1) or
more years. To that end and to accommodate the Parties' expressed desires, the
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Association's Board shall review the Executive's 1998 performance on or before
November 30, 1998.
4. PERSONAL TIME OFF (VACATION). During the Term hereof Executive shall be
entitled to paid personal time off, the amount and terms of which shall be
governed by the vacation policy of the Association for its senior executive of
ricers, as in effect from time to time.
5. GROUP MEDICAL, LIFE INSURANCE AND OTHER BENEFITS. Executive shall
participate in the Association's benefit programs which benefits shall be
governed by the Association's benefits policy for its senior executive officers,
as in effect from time to time.
6. BUSINESS EXPENSES. Executive shall be entitled to reimbursement by the
Association or Downey, as applicable, for any ordinary and necessary business
expenses reasonably incurred by Executive in the performance of Executive's
duties and in acting for the Association or Downey, as applicable, during the
Term of this Agreement, provided that Executive furnishes to the Association,
for review and approval by the Chairman of the Board, or Chair of the Audit
Committee, adequate records and other documentation as may be required for the
substantiation of such expenditures as a business expense of the Association or
Downey, as applicable.
7. TERMINATION.
(a) Termination for Cause. The Association's or Downey's Board may for
cause terminate Executive's employment at any time during the Term of this
Agreement. In such event, all rights of Executive under this Agreement shall
terminate and Executive shall have no right to receive compensation or other
benefits for any period after the effective date of such termination for cause.
Termination for cause shall be defined as Executive's personal dishonesty,
willful misconduct, breach of fiduciary duty involving personal profit,
continuing intentional or habitual failure to perform stated duties, violation
of any law, (other than minor traffic violations or similar misdemeanor offenses
not involving moral turpitude), or rule or regulation adopted by the Of lice of
Thrift Supervision or Federal Deposit Insurance Corporation or material breach
of any provision of this Agreement.
(b) Termination without Cause. The Board may without cause terminate
Executive's employment at any time during the Term of this Agreement. In such
event, Executive shall be entitled to receive as his sole and exclusive remedy a
severance payment equal to; (i) six (6) months of Executive's Base Salary as
provided for in subparagraph 3(a) of this Agreement, (ii) Executive's pro-rata
share of Downey's Annual Incentive Plan measured by the year-to-date results of
Downey's performance against Downey's Board approved annual Business Plan as
determined solely by the Downey Board, as described in subparagraph 3(b) of this
Agreement and (iii) six (6) months of continued group medical and life insurance
benefits in the manner and on the terms previously provided to Executive less
any amounts required to be deducted by the Association for federal and state
taxes or other applicable requirements. The severance payment shall be paid to
Executive upon the effectiveness of Executive's resignation from the Association
and Downey and their respective Boards of Directors and the termination of this
Agreement, either in a lump sum or in accordance with the Association's standard
payroll practices, at the Association's sole discretion. In the event a
severance payment is paid to Executive under this subparagraph 7(b), this
Agreement shall be terminated and the Association and Downey shall have no
further obligation to Executive under this Agreement, including without
limitation, any compensation or other obligations under subparagraphs 3(a)
through (c) hereof, provided, however, if the termination without
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cause occurs subsequent to the end of a "Plan Year" as defined in the Annual
Incentive Plan, but prior to the payment of the "Award" for such "Plan Year",
Executive shall be entitled to the "Award" for such "Plan Year" as if Executive
was still employed. The parties hereto expressly acknowledge and agree that the
payment made by the Association to Executive upon a termination without cause as
provided for in this subparagraph 7(b) will constitute full, reasonable and
adequate compensation for any such termination; and that such payment shall
Filly satisfy and discharge all obligations of the Association and Downey to
Executive in connection with such termination.
(c) Suspension and Removal Orders. If Executive is suspended and/or
temporarily prohibited from participating in the conduct of the Association's
affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. Section 1818(e)(3) and (g)(l), the
Association's obligations under this Agreement shall be suspended as of the date
of service, unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Association may in its discretion (i) pay Executive
all or part of the compensation withheld while its obligations under this
Agreement were suspended; and (ii) reinstate (in whole or in part) any of its
obligations which were suspended. If Executive is removed and/or permanently
prohibited from participating in the conduct of the Association's affairs by an
order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance
Act, (12 U.S.C. Section 1818(e)(4) or (g)(l)), all obligations of the
Association under this Agreement shall terminate as of the effective date of the
order, but vested rights of the Parties shall not be affected.
(d) Termination by Default. If the Association is in default (as defined in
Section 3(x)(1) of the Federal Deposit Insurance Act), all obligations under
this Agreement shall terminate as of the date of default, but vested rights of
the Parties shall not be affected.
(e) Supervisory Assistance or Merger. All obligations under this Agreement
shall be terminated, except to the extent that it is determined that
continuation of the Agreement is necessary for the continued operation of the
Association (i) by the Director of the Office of Thrift Supervision (the
"Director") or his or her designee, at the time the Federal Deposit Insurance
Corporation enters into an agreement to provide assistance to or on behalf of
the Association under the authority contained in Section 13(c) of the Federal
Deposit Insurance Act; or (ii) by the Director or his or her designee, at the
time the Director or his or her designee approves a supervisory merger to
resolve problems related to operation of the Association or when the Association
is determined by the Director to be in an unsafe or unsound condition. All
rights of the Parties that have already vested, however shall not be affected by
such action.
(f) Termination by Executive. Executive may terminate his employment
hereunder at any time upon thirty (30) days' written notice to the Association.
In such event, Executive shall be entitled to the Base Salary, personal time off
and other benefits which have accrued prior to the effective date of
termination. However, Executive shall not be entitled to any other form of
severance payment or other compensation, including, without limitation, any
compensation under subparagraph 3(b) hereof.
(g) Disability. In the event that Executive shall fail, because of illness,
Incapacity or injury, to render the services contemplated by this Agreement for
two (2) consecutive calendar months, or for shorter periods aggregating
forty-five (45) or more business days in any twelve (12) month period,
Executive's employment hereunder may be terminated by written notice of
termination from the Association to Executive. In the event that Executive's
employment is terminated within the meaning of this
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subparagraph 7(g), Executive shall receive the difference between any disability
payments provided by the Association's insurance plans and his base salary, at
the rate then in effect, for the remaining Term of this Agreement. Such
termination pursuant to this subparagraph 7(g) shall not affect any rights which
Executive may have at the time of termination, pursuant to any insurance or
other death benefit, bonus, retirement or stock award plans or arrangements of
the Association, or any stock option plan or any options thereunder, which
rights shall continue to be governed by the provisions of such plans and
arrangements.
(h) Death. If Executive's employment is terminated by reason of Executive's
death, this Agreement shall terminate without further obligations of the
Association to Executive (or Executive's heirs or legal representatives) under
this Agreement, other than for (1) payment of the sum of (A) Executive's Base
Salary through the date of termination to the extent not theretofore paid, (B)
any compensation previously deferred by Executive (together with any accrued
interest or earnings thereon), and (C) any accrued vacation pay, all of which
shall be paid to Executive's estate or beneficiary, as applicable, in a lump sum
in cash within thirty (30) days after the date of termination or any earlier
time required by applicable law; (2) payment to Executive's estate or
beneficiary as applicable, any amount then due pursuant to the terms of any
applicable welfare benefit plan; and (3) Executive's pro-rata share of Downey's
Annual Incentive Plan measured by the year-to-date results of Downey's
performance against Downey's Board approved Annual Business Plan as determined
solely by the Downey Board as described in subparagraph 3(b) of this Agreement.
8. DISCLOSURE OR USE OF TRADE SECRETS. During the Term hereof, Executive
will have access to and become acquainted with what Executive and the
Association acknowledge are trade secrets, including, but not limited to, the
following: knowledge or data concerning the Association, including its
operations, employees and business, and the identity of customers of the
Association, including knowledge of their financial condition, their financial
needs and their methods of doing business. Executive shall not use or disclose
any trade secrets or, directly or indirectly, cause them to be used or disclosed
in any way, either during the Term hereof or for a period of one (1) year after
the termination of this Agreement, except as required by the Association, in the
Association's sole discretion, or as may be required by Court order, or by
applicable statutes, rules or regulations of any federal or state agency with
supervisory authority over the Association.
9. RETURN OF DOCUMENTS. Executive expressly agrees that all manuals,
documents, files, reports, studies, instruments or other material used and/or
developed by Executive (excluding Executive's personal day calendar) for the
Association during the Term of this Agreement or prior thereto while Executive
was employed by the Association are solely the property of the Association, and
that Executive has no right title or interest therein. Upon termination of this
Agreement, Executive or Executive's representative shall promptly deliver
possession of all of that property, including any copies thereof, to the
Association in good and usable condition. Notwithstanding the foregoing
sentence, Executive shall be entitled to retain copies of Board packages and
related materials (collectively, "Board materials") provided to Executive in his
capacity as the Chief Executive Officer of the Association. Executive
acknowledges that Board materials contain confidential information regarding the
Association. Executive shall take all necessary and appropriate action to
preserve the confidentiality of Board materials remaining in Executive's
possession following termination of this Agreement. Executive shall not provide
Board materials or copies thereof, nor disclose any information regarding the
contents thereof, to any other person or entity, except with the express prior
consent of the Association or unless Executive is compelled to do so by
applicable law, regulation or court order.
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10. NOTICES. All notices, demands or other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered in
person, or sent by United States mail, certified or registered, with return
receipt requested, as follows:
If to Executive:
James W. Lokey
21401 Montbury Dr.
Lake Forest, CA 92630
If to the Association or Downey:
Donald E. Royer, Esq.
Executive Vice President and General Counsel
Downey Savings and Loan Association, F. A.
Suite 5000, Corporate Headquarters
3501 Jamboree Road, North Tower
Newport Beach, CA 92660
The person or address to which mailings or deliveries shall be made may
change from time to time by notice given pursuant to the provisions of this
Paragraph 10. Any notice, demand or other communication given pursuant to
provisions of this paragraph shall be deemed to have been given on the date
actually delivered or three (3) days following the date mailed, as the case may
be.
11. GOVERNING LAW AND JURISDICTION. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California. Each of the
Parties hereto consents to the jurisdiction of the California or federal courts,
as the case may be, for the enforcement of this Agreement.
12. ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement or the breach thereof shall be settled by arbitration
administered by the American Arbitration Association under its Commercial
Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof.
13. ATTORNEYS' FEES. In the event a dispute arises with respect to this
Agreement, the Party prevailing in such dispute shall be entitled to recover all
expenses, including, without limitation, reasonable attorneys' fees and
expenses.
14. BENEFIT OF AGREEMENT. This Agreement shall inure to the benefit of and
be binding upon the Parties hereto and their respective executors,
administrators, successors and assigns; provided, however, that Executive may
not assign any interest in this Agreement without the prior written consent of
the Association.
15. CAPTIONS AND PARAGRAPH HEADINGS. Captions and paragraph headings used
herein are for convenience only and are not a part of this Agreement and shall
not be used for construing it.
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16. INVALID PROVISIONS. Should any provision of this Agreement for any
reason be declared invalid, void or unenforceable by a court of competent
jurisdiction, the validity and binding effect of any remaining portions of this
Agreement shall remain in full force and effect as if this Agreement has been
executed with said provisions eliminated; provided, however, that the remaining
provisions still reflect the intent of the parties to this Agreement.
17. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
Parties with respect to the employment by the Association of Executive. It
supersedes any and all other agreements, either oral or in writing, between the
Parties hereto. Each Party to this Agreement acknowledges that no
representations, inducement, promises or agreements, oral or otherwise, have
been made by any Party, or anyone acting on behalf of any Party, which are not
embodied or expressly referred to herein, and that no other agreement, statement
or promise not contained in this agreement shall be valid or binding. This
Agreement may not be modified or amended by oral agreement, but only by an
agreement in writing signed by the Association and Executive. This Agreement may
be executed in counterparts.
18. REVIEW BY COUNSEL. Executive acknowledges and agrees that he has been
provided with adequate time and opportunity to review this Agreement and the
terms and conditions hereof with Executive's own legal counsel and that he has
been encouraged to obtain such independent legal advice. Executive further
acknowledges and agrees that he is entering into this Agreement with a full
understanding of each of the terms and conditions hereof and that is doing so
voluntarily in consideration for the promises, obligations and other rights set
forth herein.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the day and year first above written.
DOWNEY SAVINGS AND LOAN ASSOCIATION, F. A.
(the "Association")
By: /s/ Maurice L. McAlister
----------------------------
Maurice L. McAlister
Its: Chairman, Board of Directors
DOWNEY FINANCIAL CORP.
("Downey")
By: /s/ Maurice L. McAlister
----------------------------
Maurice L. McAlister
Its: Chairman, Board of Directors
James W. Lokey
("Executive")
/s/ James W. Lokey
----------------------------
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