[Face of Security]
DOWNEY FINANCIAL CORP.
10% JUNIOR SUBORDINATED DEBENTURE DUE SEPTEMBER 15, 2029
CUSIP NO. 261018 AA 3
REGISTERED NO. 1 PRINCIPAL AMOUNT: $123,711,350
Downey Financial Corp., a corporation organized and existing under the laws
of Delaware (hereinafter called the "Company", which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to Wilmington Trust Company, as Property Trustee of
Downey Financial Capital Trust I, the principal sum of $123,711,350 on September
15, 2029; provided that the Company may shorten the Stated Maturity of the
principal of this Debenture to a date not earlier than July 23, 2004. The
Company further promises to pay interest on said principal sum from the date of
original issuance or from the most recent interest payment date (each such date,
an "Interest Payment Date") on which interest has been paid or duly provided
for, quarterly (subject to deferral as set forth herein) in arrears on the 15th
day of March, June, September and December of each year commencing September 15,
1999 at the rate of 10% per annum, until the principal hereof is paid or duly
provided for or made available for payment plus Additional Interest, if any,
(without duplication and to the extent that payment of such interest is
enforceable under applicable law), at the rate of 10% per annum, compounded
quarterly. The amount of interest payable for any period shall be computed on
the basis of twelve 30-day months and a 360-day year. The amount of interest
payable for any partial period shall be computed on the basis of the actual
number of days elapsed in a 30-day month. In the event that any date on which
interest is payable on this Debenture is not a Business Day, then a payment of
the interest payable on such date will be made on the next succeeding day which
is a Business Day (and without any interest or other payment in respect of any
such delay), with the same force and effect as if made on the date the payment
was originally payable. A "Business Day" shall mean any day other than a
Saturday or Sunday or a day on which banking institutions in the City of New
York are authorized or required by law or executive order to remain closed. The
interest installment so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Debenture (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
installment, which shall be the 15th day, whether or not a Business Day,
immediately preceding such Interest Payment Date. Any such interest installment
not so punctually paid or duly provided for shall forthwith cease to be payable
to the Holder on such Regular Record Date and may either be paid to the Person
in whose name this Debenture (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Debentures not less than 10 days prior to such Special
Record Date, or be paid at any time in any
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other lawful manner not inconsistent with the requirements of any securities
exchange on which the Debentures may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right at any time during the term of this Debenture to defer
payment of interest on this Debenture, at any time or from time to time, for up
to 20 consecutive quarterly interest payment periods with respect to each
deferral period (each an "Extension Period") (at the end of which the Company
shall pay all interest then accrued and unpaid (together with Additional
Interest thereon at the rate of 10% per annum, compounded quarterly, to the
extent permitted by applicable law)); provided, however, that no Extension
Period shall end on a date other than an Interest Payment Date and all interest
then accrued and unpaid will be payable to the Person in whose name this
Debenture is registered at the close of business on the immediately preceding
Regular Record Date; provided, further, that no Extension Period shall extend
beyond the Stated Maturity of the principal of this Debenture; provided,
further, that at any time while an Extension Period is in effect and the Company
shortens the Stated Maturity of the principal of this Debenture to end before
the last day of the such Extension Period, then the Extension Period will be
deemed to end on the Stated Maturity; provided further, that at any time while
an Extension Period is effect and the Company elects to redeem all Outstanding
Debentures before the last day of such Extension Period, then the Extension
Period will be deemed to end on such Redemption Date; provided, further, that
during any such Extension Period, the Company shall not, and shall not permit
any Subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock (which includes common and
preferred stock), (ii) make any payment of principal of or interest or premium,
if any, on or repay, repurchase or redeem any debt securities of the Company
that rank on a parity with or junior in right of payment to this Debenture,
(iii) make any guarantee payments with respect to any guarantee by the Company
of the debt securities of any Subsidiary of the Company (if such guarantee ranks
on a parity with or junior in right of payment to this Debenture) (other than
(a) any dividend in a form of stock, warrants, options or other rights where the
dividend or the stock issuable upon the exercise of the warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks on parity with or junior in right of payment to such stock, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Downey Trust Guarantee related to the 10% Capital Securities
issued by Downey Financial Capital Trust I (the "Capital Securities"), and (d)
purchases of Common Stock related to the issuance of Common Stock or rights
under any of the Company's benefit plans for its directors, officers or
employees) or (iv) redeem, purchase or acquire less than all of the Debentures
or the Capital Securities. Prior to the termination of any such Extension
Period, the Company may further extend such Extension Period, provided that such
extension does not cause such Extension Period to exceed 20 consecutive interest
payment periods or to extend beyond the Stated Maturity of this Debenture. Upon
the termination of any such Extension Period and upon the payment of all amounts
then due on any Interest Payment Date, and subject to the foregoing limitation,
the Company may elect to begin a new Extension Period. No interest shall be due
and payable during an Extension Period except at the end thereof. The Company
shall give the Trustee, the Property Trustee and the Administrative Trustees of
Downey Financial Capital Trust I notice of its election to begin or extend any
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Extension Period at least one Business Day prior to the earlier of (i) the date
on which Distributions on the Capital Securities or interest on this Debenture
would be payable except for the election to begin or extend such Extension
Period, (ii) the date the Administrative Trustees are or Indenture Trustee is
required to give notice to the New York Stock Exchange or any applicable stock
exchange or automated quotation system on which the Capital Securities are or
this Debenture is then listed or quoted or to holders of such Capital Securities
or of this Debenture of the record date, or (iii) the date the interest is
payable, but in any event not less than one Business Day prior to such record
date. The Trustee shall give notice of the Company's election to begin or extend
an Extension Period to the Holder of this Debenture. There is no limitation on
the number of times that the Company may elect to begin an Extension Period.
Payment of the principal of (and premium, if any) and interest on this
Debenture will be made at the office or agency of the Trustee or at the office
of such paying agent or paying agents as the Company may designate from time to
time, maintained for that purpose in the United States, in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts; provided, however, that at the option of
the Company payment of interest may be made (i) by check mailed to the address
of the person entitled thereto as such address shall appear in the Securities
Register of (ii) by transfer to an account maintained by the person entitled
thereto, in immediately available funds, at such place and to such account as
may be designated by the Person entitled thereto as specified in the Securities
Register.
The indebtedness evidenced by this Debenture is, to the extent provided in
the Indenture, unsecured and will rank junior and subordinate and subject in
right of payment to the prior payment in full of all Senior and Subordinated
Debt, and this Debenture is issued subject to the provisions of the Indenture
with respect thereto. Each Holder of this Debenture, by accepting the same, (a)
agrees to and shall be bound by such provisions, (b) authorizes and directs the
Trustee on his behalf to take such actions as may be necessary or appropriate to
effectuate the subordination so provided, and (c) appoints the Trustee his
attorney-in-fact for any and all such purposes. Each Holder hereof, by his
acceptance hereof, waives all notice of the acceptance of the subordination
provisions contained herein and in the Indenture by each holder of Senior and
Subordinated Debt, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Debenture set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Debenture
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
DOWNEY FINANCIAL CORP.
By: /s/ Daniel D. Rosenthal
-----------------------------------
Daniel D. Rosenthal
President & Chief Executive Officer
Attest:
By: /s/ Donald E. Royer
--------------------------
Donald E. Royer
Corporate Secretary
This is one of the Debentures referred to in the within mentioned Indenture.
Dated: July 23, 1999
WILMINGTON TRUST COMPANY
as Trustee
By: /s/ Joseph B. Feil
-------------------------------
Authorized Officer
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[Reverse of Security]
This Debenture is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under a Junior Subordinated Indenture, dated as of July 23, 1999 (herein
called the "Indenture"), between the Company and Wilmington Trust Company, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Trustee, the Company and the
Holders of the Debentures, and of the terms upon which the Debentures are, and
are to be, authenticated and delivered. This Debenture is one of the series
designated on the face hereof, limited in aggregate principal amount to
$123,711,350. The Indenture does not limit the aggregate principal amount of
other Securities which may be issued thereunder.
All terms used in this Debenture that are defined in the Indenture and in
the Amended and Restated Trust Agreement, dated as of July 23, 1999, as amended
(the "Trust Agreement"), for Downey Financial Capital Trust I among Downey
Financial Corp., as Depositor, and the Trustees named therein, shall have the
meanings assigned to them in the Indenture or the Trust Agreement, as the case
may be.
The Company may at any time, at its option, on or after July 23, 2004, and
subject to the terms and conditions of Article XI of the Indenture, and subject
to the Company having received any necessary regulatory approval to do so if
then required under applicable capital guidelines or policies, redeem this
Debenture in whole at any time or in part from time to time, without premium or
penalty, at a redemption price equal to the accrued and unpaid interest on the
Debenture so redeemed to the Redemption Date, plus 100% of the principal amount
thereof; provided, however, that the Company may not redeem less than all of the
Debentures then Outstanding unless the Company has paid or pays on or prior to
such Redemption Date all interest then accrued on the Debentures (together with
Additional Interest thereon, if any, at the rate specified herein for the
Debentures to the extent permitted by applicable law).
Upon the occurrence and during the continuation of a Tax Event, Investment
Company Event or Capital Treatment Event, the Company may, at its option, at any
time within 90 days of the occurrence of such Tax Event, Investment Company
Event or Capital Treatment Event redeem the Debentures, in whole but not in
part, subject to the provisions of Section 11.7 and the other provisions of
Article XI of the Indenture, at a redemption price equal to the accrued and
unpaid interest on the Debentures to the Redemption Date, plus 100% of the
principal amount thereof; provided, however, that the Company will not have the
option to redeem the Debentures upon the occurrence of a Tax Event, Investment
Company Event or Capital Treatment Event if there is available to the Company or
Downey Financial Capital Trust I the opportunity to eliminate, within the 90-day
period, the Tax Event, Investment Company Event or Capital Treatment Event, as
the case may be, by taking some ministerial action, such as filing a form or
making an election or pursuing some other reasonable measure that will have no
adverse effect on the Company, Downey Financial Capital Trust I, or the holders
of the Capital Securities and will involve no material cost, and, in that case,
the Company will pursue such measure instead of redemption.
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In the event of redemption of this Debenture in part only, a new Debenture
for the portion hereof not redeemed will be issued in the name of the Holder
hereof upon the cancellation hereof.
The Indenture contains provisions for satisfaction and discharge of the
entire indebtedness of this Debenture upon compliance by the Company with
certain conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and obligations
of the Company and of the Holders of the Securities, with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities of each series to be affected by such supplemental indenture. The
Indenture also contains provisions permitting Holders of specified percentages
in principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Debenture shall be conclusive and binding upon such Holder and
upon all future Holders of this Debenture and of any Debenture issued upon the
registration of transfer hereof or in exchange therefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Debenture.
As provided in and subject to the provisions of the Indenture, if an Event
of Default with respect to the Debentures at the time Outstanding occurs and is
continuing, then and in every such case the Trustee or the Holders of not less
than 25% in principal amount of the Outstanding Debentures may declare the
principal amount of all the Debentures to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by Holders),
provided that, in the case of the Debentures issued to Downey Financial Capital
Trust I, if upon an Event of Default, the Trustee or the Holders of not less
than 25% in principal amount of the Outstanding Debentures fails to declare the
principal of all the Debentures to be immediately due and payable, the holders
of at least 25% in aggregate Liquidation Amount of the Capital Securities then
outstanding shall have such right by a notice in writing to the Company and the
Trustee; and upon any such declaration the principal amount of and the accrued
interest (including any Additional Interest) on all the Debentures shall become
immediately due and payable, provided that the payment of principal and interest
(including any Additional Interest) on such Debentures shall remain subordinated
to the extent provided in Article XIII of the Indenture.
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Debenture at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Debenture is registrable in the Securities Register,
upon surrender of this Debenture for registration of transfer at the office or
agency of the Company maintained under Section 10.2 of the Indenture duly
endorsed by, or accompanied by a written instrument of
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transfer in form satisfactory to the Company and the Securities Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing and
thereupon one or more new Securities of this series, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees. No service charge shall be made for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Debenture for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Debenture is registered as the owner hereof for
all purposes, whether or not this Debenture be overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the contrary.
The Debentures are issuable only in registered form without coupons in
minimum denominations of $25 and any integral multiples of $25 in excess
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, Debentures are exchangeable for a like aggregate principal amount of
Debentures of a different authorized denomination, as requested by the Holder
surrendering the same.
The Company and, by its acceptance of this Debenture, the Holder of, and
any Person that acquires a beneficial interest in, this Debenture agree that for
United States Federal, state and local tax purposes it is intended that this
Debenture constitute indebtedness.
THE INDENTURE AND THIS DEBENTURE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF
LAWS PRINCIPLES THEREOF.
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