SEVERANCE AGREEMENT AND GENERAL RELEASE
This Severance Agreement and General Release ("Agreement") is made and
entered into this 20th day of November, 1998, by and among Downey Financial
Corp., a Delaware corporation ("DFC"), Downey Savings and Loan Association,
F.A., a federally chartered savings association and wholly owned subsidiary of
DFC ("DSLA"), and James W. Lokey, an individual ("Executive"). For purposes of
this Agreement, DFC, DSLA and/or their respective subsidiaries and affiliates
may collectively be referred to as the "Company" as the context requires. This
Agreement is entered into with reference to the following:
RECITALS
A. Executive has served as Chief Executive Officer, President and as a
director of DFC, DSLA and certain of their respective subsidiaries and
affiliates, pursuant to that certain Employment Agreement between Executive and
the Company, dated February 6, 1998 (the "Employment Agreement");
B. Executive has determined to resign all positions with the Company, such
resignation to be effective as of the close of the Company's business on
November 20, 1998 (the "Effective Date");
C. The Board of Directors of the Company, after careful consideration,
believes that it is in the best interests of the Company and its stockholders to
accept Executive's resignation, such resignation to be effective as of the
Effective Date, to terminate the Employment Agreement as of the Effective Date
and to provide Executive with certain severance benefits, all as set forth
herein;
D. As part of this Agreement and in consideration of certain accommodations
provided to Executive by the Company hereunder, Executive has agreed to release
the Company and its respective directors, officers, employees, agents and
assigns from all claims and causes of action that Executive may now or hereafter
have, whether known or unknown.
NOW, THEREFORE, IN CONSIDERATION OF the foregoing recitals, which are
incorporated as an integral part of this Agreement, the mutual promises of the
parties and other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. RESIGNATION OF EXECUTIVE. Executive hereby irrevocably resigns his
positions as director and officer of the Company, effective as of the close of
the Company's business on the Effective Date.
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2. SEVERANCE PAYMENT. In consideration for the Executive entering into this
Agreement, in addition to paying Executive's regular salary through November 30,
1998, the Company will continue to pay Executive's regular salary in the gross
amount of $25,000 per month, less any amounts required to be deducted by the
Company for federal and state taxes or other applicable requirements, for a
period of six (6) months (the "Severance Payment").
3. PRO-RATED 1998 ANNUAL INCENTIVE PLAN PAYMENT. On January 4, 1999, the
Company shall pay or shall cause to be paid to Executive, in cash or other
readily available funds, the pro-rated gross sum of One Hundred Thirty Seven
Thousand Five Hundred Dollars ($137,500) less any amounts required to be
deducted by the Company for federal and state taxes or other applicable
requirements ("1998 Annual Incentive Plan Payment"). The parties acknowledge and
agree that upon payment of the 1998 Annual Incentive Plan Payment, Executive has
received the full amount of incentive compensation owed to him for 1998 under
the Company's incentive compensation program and the Employment Agreement, and
that Executive is not entitled to any additional incentive compensation
hereunder or thereunder.
4. DEFERRED COMPENSATION PAYMENT. On January 4, 1999, the Company shall pay
or cause to be paid to Executive, in cash or other readily available funds, the
sum of Eighty Three Thousand Seven Hundred Twenty Eight Dollars and Sixty Four
Cents ($83,728.64), less any amounts required to be deducted by the Company for
federal and state taxes or other applicable requirements, which amount
represents the full amount of deferred compensation, inclusive of all accrued
interest that Executive is entitled to receive under the terms of the Company's
Deferred Compensation Plan, as calculated pursuant to the crediting rate
methodology.
5. HEALTH/OTHER BENEFITS. Executive shall be entitled to continued
participation in all Company health and other benefit programs to which he is
currently entitled from the date hereof through May 31, 1999. Thereafter,
Executive shall be entitled to receive the benefits to which he is entitled
pursuant to the Consolidated Budget Reconciliation Act of 1985, as amended
("COBRA"), which shall be provided in accordance with the terms of the Company's
health benefit plans. No health or post employment benefits, other than those
provided for under COBRA and the Employment Agreement, shall be provided to
Executive hereunder.
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6. ACCRUED VACATION PAY. On January 4, 1999, the Company shall pay or cause
to be paid to Executive, in cash or other readily available funds, the sum of
Twenty Three Thousand Five Hundred and Nine Dollars and sixty one cents
($23,509.61), less any amounts required to be deducted by the Company for
federal and state taxes or other applicable requirements, which amount
represents the full amount of accrued but unused vacation pay owed by the
Company to Executive through November 30, 1998.
7. MUTUAL GENERAL RELEASE. In further consideration of the promises and
agreements made hereunder, Executive agrees unconditionally and forever, except
for any rights under this Agreement, to release and discharge the Company and
its respective subsidiaries, affiliates, officers, directors, employees,
representatives, attorneys and agents, and the Company agrees unconditionally
and forever to release and discharge Executive and his representatives,
attorneys, agents and assigns, from any and all claims, actions, causes of
action, demands, liabilities, rights or damages of any kind or nature which any
of them may now have, or ever have, whether known or unknown, against the other,
including any claims, causes of action or demands of any nature arising out of
or in any way relating to Executive's employment with, or separation from the
Company.
This release specifically includes any claims for discrimination and/or
violation of any statutes, rules, regulations or ordinances, whether federal,
state or local, including, but not limited to, Title VII of the Civil Rights Act
of 1964, as amended, age claims under the Age Discrimination in Employment Act
of 1967, as amended by the Older Workers Benefits Protection Act of 1990,
Section 1981 of Title 42 of the United States Code, and the California Fair
Employment and Housing Act.
The parties further agree knowingly to waive the provisions and protections
of Section 1542 of the California Civil Code, which reads:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him, must have
materially affected his settlement with the debtor.
Executive represents and agrees that, prior to the execution of this
Agreement, Executive has had the opportunity to discuss the terms of this
Agreement with legal counsel of his choosing. Executive affirms that no promise
or inducement was made to cause him to enter into this Agreement, other than the
severance benefits described herein. Executive further confirms that he has not
relied upon any other statement or representation by anyone other than what is
in this Agreement as a basis for his agreement.
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8. TRADE SECRETS/CONFIDENTIALITY/SURRENDER OF COMPANY PROPERTY. Except as
may be required by law, regulation or court order, for a period of one (1) year
after the Effective Date, Executive shall not divulge any proprietary
information or trade secrets of the Company and shall otherwise thereafter
respect the confidential nature of such proprietary information and trade
secrets. Executive shall surrender all Company property on or prior to the
Effective Date.
9. NEWS RELEASE. The parties shall cooperate in the preparation of a news
release relating to the Executive's resignation from the Company for
dissemination on or prior to the Effective Date.
10. REIMBURSEMENT OF BUSINESS EXPENSES. Executive shall be entitled to
reimbursement of properly submitted claims for business expenses in accordance
with the Company's policies and practices through the Effective Date.
11. INDEMNIFICATION. The Company shall indemnify Executive in accordance
with the indemnification obligations under the Company's charter documents,
including the respective certificate of incorporation, federal stock charter and
bylaws of DFC, DSLA or their respective subsidiaries or affiliates, as the case
may be, and otherwise as is consistent with applicable law, in connection with
claims or causes of action relating to or otherwise arising in connection with
Executive's service to the Company. Upon reasonable notice from the Company,
Executive shall make himself reasonably available to assist and otherwise
cooperate with the Company in connection with any litigation matters involving
the Company.
12. NON-DISPARAGEMENT. The parties hereby agree that none of them shall
disparage the other in any future statements or communications concerning
Executive and his employment with the Company or otherwise.
13. INQUIRIES BY THIRD PARTIES. The parties hereby agree that they will
consult with one another with respect to appropriate responses to inquiries from
stock exchanges, analysts, the press, customers, governmental authorities and
other third parties regarding Executive's resignation from the Company. The
parties further agree that, except as required by law or regulation, none of
them will respond to such inquiries or make other public statements regarding
these matters (other than the news release referred to in Section 11 hereof)
until such consultation has occurred.
14. ARBITRATION. Any and all disputes or claims arising out of or in any
way related to Executive's employment with, or separation from the Company, as
well as any and all disputes or claims arising out of or in any way related to
this Agreement, including without limitation, fraud in the inducement of this
Agreement, or relating to the general validity or enforceability of this
Agreement, shall be submitted to final and binding arbitration before an
arbitrator of the American Arbitration Association in Orange County, California
in accordance with the rules of that body governing
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commercial disputes, and the prevailing party shall be entitled to reasonable
costs and attorneys' fees. Judgment on the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof.
15. GOVERNING LAW. This Agreement shall be construed under the laws of the
State of California, both procedural and substantive, except as may be required
under federal laws and regulations applicable to federally chartered savings
associations or their subsidiaries or affiliates.
16. REVOCATION RIGHT. Executive acknowledges that he has been advised that
he has twenty-one (21) days to consider this Agreement and that he was informed
that he has the right to consult with counsel regarding this agreement. To the
extent that Executive has taken less than twenty-one (21) days to consider this
Agreement, Executive acknowledges that he has had sufficient time to consider
the Agreement and to consult with counsel and that he does not desire additional
time. This Agreement is revocable by Executive for a period of seven (7) days
following Executive's execution of this Agreement. The revocation by Executive
of this Agreement must be in writing, must specifically revoke this Agreement,
and must be received by the Company prior to the eighth (8th) day following the
execution of this Agreement by Executive. This Agreement becomes effective,
enforceable and irrevocable on the eighth (8th) day following Executive's
execution of the Agreement.
17. MISCELLANEOUS. This Agreement sets forth the entire agreement between
Executive and the Company relating to the subject matter hereof and supersedes
all prior oral or written agreements relating thereto, including, without
limitation, the Employment Agreement. This Agreement shall be binding upon all
parties' respective heirs, representatives, successors and assigns. If any
portion of this Agreement is found to be illegal or unenforceable, such action
shall not affect the validity or enforceability of the remaining paragraphs or
subparagraphs of this Agreement. No amendments to this Agreement will be valid
unless written and signed by Executive and an authorized representative of the
Company. This Agreement may be executed in one or more counterparts, all of
which, taken together, shall constitute one original document. The undersigned
agree to the terms of this Agreement and voluntarily enter into it with the
intent to be bound thereby.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
EXECUTIVE: DOWNEY FINANCIAL CORP.
/s/ James W. Lokey By: /s/ Donald E. Royer
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James W. Lokey Donald E. Royer
Executive Vice President and General Counsel
DOWNEY SAVINGS AND LOAN
ASSOCIATION, F.A.
By: /s/ Donald E. Royer
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Donald E. Royer
Executive Vice President and General Counsel
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