<PAGE>
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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 Section 240.14a-11(c) or Section 240.14a-12
DOWNEY FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
DOWNEY FINANCIAL CORP.
3501 Jamboree Road
Newport Beach, CA 92660
(949) 854-0300
March 17, 2000
Notice of Annual Meeting of Shareholders
Wednesday, April 26, 2000
10:00 a.m.
The Irvine Marriott Hotel
18000 Von Karman Avenue
Irvine, California
Dear Friend and Shareholder:
The Board of Directors and officers of Downey Financial Corp. ("Downey")
are pleased to extend to you a cordial invitation to attend Downey's Annual
Meeting of Shareholders at the time and place shown above to:
1. Elect three Class 2 Directors for terms of three years each; and
2. Transact such other business as may properly come before the Annual
Meeting and any adjournments thereof.
The Board of Directors has selected March 3, 2000 as the record date for
the Annual Meeting. Only those shareholders of record at the close of business
on that date will be entitled to notice of and to vote at the Annual Meeting
or any adjournments thereof. Information about the matters on which
shareholders will act is included in the attached Proxy Statement. Downey's
directors and executive officers will be available at the meeting to meet with
shareholders.
Your vote is important regardless of the number of shares you own. Whether
or not you expect to attend the meeting, we ask that you PLEASE SIGN AND
RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. Thank
you in advance for your cooperation.
We look forward to seeing you at the meeting.
Sincerely yours,
/s/ MAURICE L. McALISTER /s/ CHERYL E. OLSON
MAURICE L. McALISTER CHERYL E. OLSON
Chairman of the Board Vice Chairman of the Board
/s/ DANIEL D. ROSENTHAL
DANIEL D. ROSENTHAL
President and Chief Executive Officer
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Proxy Statement........................................................... 1
Record Date and Voting of Shares.......................................... 1
Voting and Revocation of Proxies.......................................... 1
Solicitation of Proxies................................................... 1
Election of Directors..................................................... 2
. Information Concerning Nominees and Directors....................... 2
. Nominees for Election at this Meeting, as Class 2 Directors, to
Terms Expiring in 2003.............................................. 2
. Continuing Directors Whose Present Terms Continue until 2001........ 3
. Continuing Directors Whose Present Terms Continue until 2002........ 3
Board Committees and Meeting Attendance................................... 4
Security Ownership of Directors and Executive Officers.................... 6
Executive Officers........................................................ 7
Compensation Committee Report............................................. 9
. Compensation Philosophy............................................. 9
. 1999 Compensation Programs.......................................... 9
Compensation.............................................................. 12
. Executive Compensation.............................................. 12
. Option Exercises and Holdings....................................... 13
. Director Compensation............................................... 13
Performance Graph......................................................... 15
Certain Relationships and Related Transactions............................ 16
. Transactions with Management and Certain Business Relationships..... 16
. Indebtedness of Management.......................................... 16
Security Ownership of Certain Beneficial Owners........................... 16
. Principal Shareholders.............................................. 17
Section 16(a) Beneficial Ownership Reporting Compliance................... 17
Proposals of Shareholders................................................. 18
Relationship with Independent Public Accountants.......................... 18
Annual Report to Shareholders............................................. 18
Other Business............................................................ 19
. Presented by Management............................................. 19
. Presented by Shareholders........................................... 19
</TABLE>
i
<PAGE>
DOWNEY FINANCIAL CORP.
3501 Jamboree Road
Newport Beach, California 92660
PROXY STATEMENT
This proxy statement ("Proxy Statement") and the accompanying proxy card
are furnished in connection with the solicitation of proxies by the Board of
Directors for use at the Annual Meeting of Shareholders of Downey Financial
Corp., a Delaware corporation ("Downey"), to be held at 10:00 a.m., local
time, on Wednesday, April 26, 2000, at The Irvine Marriott Hotel, 18000 Von
Karman Avenue, Irvine, California 92612, and any adjournments thereof (the
"Annual Meeting"). Certain of the information provided in this Proxy Statement
relates to Downey Savings and Loan Association, F.A. and any predecessor
entity (the "Bank"), a wholly owned subsidiary of Downey. This Proxy Statement
and the accompanying form of proxy are being mailed to shareholders on or
about March 17, 2000. The mailing address of the principal office of Downey is
3501 Jamboree Road, Newport Beach, California 92660. Downey's telephone number
is (949) 854-0300.
RECORD DATE AND VOTING OF SHARES
On March 3, 2000, the record date for determining the shareholders entitled
to notice of and to vote at the Annual Meeting, 28,148,409 shares of Downey's
common stock ("Common Stock") were outstanding. A majority of the shares
entitled to vote will constitute a quorum at the Annual Meeting. The three
nominees for director receiving the highest number of affirmative votes at the
Annual Meeting will be elected. Abstentions and broker non-votes are counted
for purposes of determining a quorum, but are not considered as having voted
for purposes of determining the outcome of a vote.
VOTING AND REVOCATION OF PROXIES
All shares represented by a properly executed proxy will be voted in
accordance with the directions on such proxy. If no directions are specified,
such shares will be voted FOR the election of the Board's nominees for
directors. If for any reason one or more of the nominees should be unable or
refuse to serve as a director (an event which the Board of Directors does not
anticipate), the persons named in the enclosed proxy, in their discretion,
will vote for substitute nominees of the Board of Directors unless otherwise
instructed. If any other matters are properly presented to the Annual Meeting
for action (including any proposal to adjourn the Annual Meeting), the persons
named in such proxy and acting thereunder will vote in accordance with their
best judgment on such matters.
Any shareholder may revoke his or her proxy at any time before it is voted
by filing with the Corporate Secretary of Downey a written instrument revoking
it or by filing a duly executed proxy bearing a later date. The execution of
the enclosed proxy will not affect the right of a shareholder to vote in
person if such shareholder should decide to attend the Annual Meeting and
desires to vote in person.
SOLICITATION OF PROXIES
Downey will bear the cost of soliciting proxies. Directors and officers of
Downey and directors, officers and employees of the Bank may solicit proxies
personally, by mail, telephone, telecopier or other electronic transmission.
Such directors, officers or employees will receive no compensation for their
solicitation services other than their regular salaries, but may be reimbursed
for out-of-pocket expenses. Downey will request record holders of shares
beneficially owned by others to forward this Proxy Statement and related
materials to the beneficial owners of such shares and will reimburse such
record holders for their reasonable expenses incurred in doing so.
1
<PAGE>
ELECTION OF DIRECTORS
The directors of Downey are divided into three classes, as nearly equal in
number as possible, with one class to be elected annually. The members of each
class are elected for terms of three years and until their successors are
elected and qualified, with one of the three classes of directors being
elected each year. Article III, Section 3.2 of Downey's Bylaws provides that
the Board of Directors shall be composed of not less than seven nor more than
nine members, the exact number to be fixed by the Board.
Accordingly, at this Annual Meeting, three Class 2 Directors are to be
elected to serve three-year terms and until their respective successors are
elected and qualified. The following persons have been nominated by the Board
of Directors to serve as directors, as set forth below:
For election as Class 2 Directors to hold office until the 2003 Annual
Meeting of Shareholders, and until their successors are duly elected and
qualified: Cheryl E. Olson, Lester C. Smull and Michael B. Abrahams.
The Board of Directors unanimously recommends a vote "FOR" the election of
each of the nominees for director.
Information Concerning Nominees and Directors
Certain information concerning each nominee for director and each current
director is set forth below. For information regarding ownership of Downey
Common Stock by nominees and directors of Downey, see "Security Ownership of
Directors and Executive Officers." There are no arrangements or understandings
between any director, or any nominee, or any other person pursuant to which
such director or nominee is or was nominated to serve as director.
The following table sets forth certain information concerning (i) the three
nominees standing for election to the Board of Directors at the Annual
Meeting, and (ii) all other directors whose terms as directors will continue
after the Annual Meeting.
<TABLE>
<CAPTION>
Director of Year
Age At Downey Term
Name March 3, 2000 Position(s) Currently Held Since(1) Expires
---- ------------- ----------------------------- ----------- -------
<S> <C> <C> <C> <C>
Nominees For Election
Cheryl E. Olson......... 43 Director/Vice Chairman 1994 2000
Lester C. Smull......... 67 Director 1994 2000
Michael B. Abrahams..... 47 Director 1999 2000
Continuing Directors
Dr. Paul Kouri.......... 78 Director 1994 2001
Brent McQuarrie......... 48 Director 1994 2001
Maurice L. McAlister.... 74 Director/Chairman 1994 2002
Sam Yellen.............. 69 Director 1994 2002
Daniel D. Rosenthal..... 47 Director, President and Chief 1998 2002
Executive Officer
</TABLE>
- --------
(1) Downey was organized on October 21, 1994. Prior thereto, except for Daniel
D. Rosenthal and Michael B. Abrahams, each of the directors was a director
of the Bank.
Nominees for Election at this Meeting, as Class 2 Directors, to Terms Expiring
in 2003
Cheryl E. Olson--Ms. Olson is the Vice Chairman of the Boards of Directors
of Downey and the Bank. Ms. Olson has served as a director of the Bank since
1987. Ms. Olson is actively involved in a variety of real
2
<PAGE>
estate development, management and consultant activities. Ms. Olson also
serves on the Board of Directors of Arrow Records, Inc. Ms. Olson is the
daughter of Maurice L. McAlister, Chairman of Downey's Board of Directors.
Lester C. Smull--Mr. Smull is a director of Downey and the Bank and has
served as a director since 1994. In 1970, Mr. Smull founded Business
Properties Development Company ("Business Properties"), a real estate
development company with offices in Irvine, California and Phoenix, Arizona.
Business Properties' activities consist of the development, construction and
management of commercial shopping centers, office and industrial buildings
throughout California and Arizona, in addition to land acquisition, planning,
design, property management, marketing and asset management services. Mr.
Smull is also a licensed general contractor and operates Business Properties
Construction Company.
Michael B. Abrahams--Mr. Abrahams is a director of Downey and Bank and has
served since 1999. Mr. Abrahams is a Managing Director at Hoefer & Arnett,
Inc., a San Francisco based investment banking firm specializing in financial
institutions. Mr. Abrahams was a senior research analyst for Sutro & Co. from
1996 to 1999 and a Senior Vice President, Investment Banking with Oppenheimer
& Co., Inc. from 1991 to 1996. In addition to serving as a research analyst at
Bateman Eichler, Hill Richards from 1988 to 1991 and Johnston, Lemon & Co. in
Washington, DC from 1986 to 1988, Mr. Abrahams was a policy analyst in the
Executive Office of the President, Office of Management and Budget,
Washington, DC from 1981 to 1986.
Continuing Directors Whose Present Terms Continue until 2001
Dr. Paul Kouri--Dr. Kouri is a director of Downey and the Bank. Dr. Kouri
has served as a director of the Bank since 1959. Dr. Kouri also is actively
involved in a variety of real estate development and management activities.
Dr. Kouri is a retired physician having practiced for more than 45 years.
Brent McQuarrie--Mr. McQuarrie is a director of Downey and the Bank. Mr.
McQuarrie has served as a director of the Bank since 1987. Mr. McQuarrie's
principal occupation for more than the past five years has been President and
a director of Investment Properties, a real estate development company.
Continuing Directors Whose Present Terms Continue until 2002
Maurice L. McAlister--Mr. McAlister is the Chairman of Downey's and the
Bank's Board of Directors and was a co-founder of the Bank together with the
other co-founder, the late Gerald H. McQuarrie. Since 1957, Mr. McAlister has
been actively involved in the growth and management of Downey and the Bank.
Mr. McAlister served as President of the Bank from 1957 until his retirement
in September 1991. In addition, Mr. McAlister is a director and President of
McAlister Investments, Inc., an affiliate of Downey.
Sam Yellen--Mr. Yellen is a director of Downey and the Bank. Mr. Yellen has
served as a director of the Bank since 1992. Mr. Yellen has been a consultant
since his retirement as a partner from the accounting firm of KPMG, LLP in
December 1990. Mr. Yellen served KPMG, LLP and its predecessors for 35 years
preceding his retirement from the firm. While a partner with the firm, Mr.
Yellen was also a member of its Board of Directors. Mr. Yellen is the former
President of both the California State Board of Accountancy and the National
Association of State Boards of Accountancy. Currently, in addition to his
service to Downey and the Bank, Mr. Yellen serves on the Boards of Directors
of Beverly Funding Corporation, Del Webb Corporation, LTC Properties, Inc. and
Wedbush Morgan Securities.
Daniel D. Rosenthal--Mr. Rosenthal is the President and Chief Executive
Officer of Downey and the Bank. Mr. Rosenthal joined the Bank in 1975, was
appointed a director of DSL Service Company in 1991 and was appointed as DSL
Service Company's Acting President in 1993. Mr. Rosenthal was named President
of DSL Service Company in 1994 and was Senior Vice President and Director of
Major Loans of the Bank. During 1998, Mr. Rosenthal served as the Chief
Operating Officer of the Bank and was appointed to the Boards of Directors of
Downey and the Bank and assumed his current position in November 1998.
3
<PAGE>
BOARD COMMITTEES AND MEETING ATTENDANCE
Currently, Downey has the following four Board Committees: Audit,
Compensation, Executive and Nominating. Membership in the committees, as of
the record date of March 3, 2000, is as follows:
<TABLE>
<CAPTION>
Audit Compensation Nominating
- ----- ------------ ----------
<S> <C> <C>
Sam Yellen, Chair Brent McQuarrie, Chair Cheryl E. Olson, Chair
Dr. Paul Kouri Cheryl E. Olson Maurice L. McAlister
Brent McQuarrie Lester C. Smull Sam Yellen
Executive
- ---------
Maurice L. McAlister, Chair
Cheryl E. Olson
Brent McQuarrie
</TABLE>
AUDIT COMMITTEE 5 Meetings in 1999
. Responsible for recommending to the Board the engagement of Downey's
and the Bank's independent accountants and assuring their
independence and objectivity;
. Reviews the scope of the audit plans of the independent accountants
and the internal auditors;
. Oversees Downey's and the Bank's policies pertaining to the
effectiveness of internal controls, financial reporting, compliance
and risk management;
. Reviews the objectivity, effectiveness and resources of the internal
audit and internal asset review functions which report directly to
the Audit Committee;
. Reviews non-audit services to be performed by the independent
accountants; and
. Reviews the appropriateness of fees for audit and non-audit services
performed by the independent accountants.
COMPENSATION COMMITTEE 7 Meetings in 1999
. Establishes the overall compensation and benefits policies for
Downey and the Bank;
. Reviews and recommends to the Board salary and incentive
compensation for the President and Chief Executive Officer;
. Reviews and approves the salaries and incentive compensation for all
other executive and senior officers of Downey and the Bank; and
. Reviews and approves the short-term and long-term incentive
compensation programs, including individual performance goals.
NOMINATING COMMITTEE 1 Meeting in 1999
Reviews and makes recommendations to the Board regarding:
. Oversight of Board activities related to corporate governance and
organization structure;
. Qualifications for director candidates;
. Candidates for election and re-election to the Board;
. Candidates for the position of Chairman of the Board, and President
and Chief Executive Officer; and
. The performance of the President and Chief Executive Officer, in
conjunction with the Compensation Committee.
4
<PAGE>
EXECUTIVE COMMITTEE No Meetings in 1999
. Exercises the powers of the Board of Directors when the Board of
Directors is not in session, except for the authority to approve the
declaration of dividends and except as may otherwise be limited or
restricted under applicable Delaware law or under Downey's
Certificate of Incorporation or Bylaws.
Nominations of individuals for election to the Board of Directors of Downey
at an annual meeting of shareholders may be made by any shareholder of Downey
entitled to vote for the election of directors at such annual meeting who
complies with the notice procedures set forth in Downey's Bylaws. No person
shall be elected as a director of Downey unless nominated in accordance with
the procedures set forth in this section.
To be timely, a shareholder's notice shall be delivered to or received at
the principal executive offices of Downey not less than 20 days prior to the
meeting; provided, however, that in the event that less than 30 days' notice
of the date of the meeting is given to shareholders by Downey (which notice
must be accompanied by a proxy or information statement which identifies the
nominees of the Board of Directors), notice by the shareholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the meeting was mailed.
Such shareholder's notice shall set forth as to each person whom the
shareholder proposes to nominate for election or re-election as a director (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, and (iii) such person's
written consent to serving as a director, if elected; and as to the
shareholder giving the notice (i) the name and address of such shareholder,
and (ii) the class and number of shares of Downey which are owned of record by
such shareholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a director shall furnish
to the Secretary of Downey that information required to be set forth in a
shareholder's notice of nomination which pertains to the nominee together with
the required written consents. Ballots bearing the names of all persons
nominated by the Nominating Committee and by shareholders shall be provided
for use at the annual meeting. If the Nominating Committee shall fail or
refuse to act at least 20 days prior to the annual meeting, nominations for
directors may be made at the annual meeting by any shareholder entitled to
vote and shall be voted upon.
Actions taken by any of the foregoing committees are reported to the Board,
usually at its next meeting.
During 1999, the Board of Directors met 14 times: 12 regular meetings and 2
special meetings. All directors attended at least 75% of the aggregate of
meetings held during 1999 by the Board of Directors and the committees of the
Board on which they serve. Directors meet their responsibilities not only by
attending Board and committee meetings, but also through communication with
the Chairman, Vice Chairman, President and Chief Executive Officer and other
members of management on matters affecting Downey and the Bank.
5
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of March 3, 2000, certain information
regarding the beneficial ownership of shares of Common Stock by each director,
each of the executive officers named in the Summary Compensation Table on Page
12 and by all directors and executive officers as a group.
<TABLE>
<CAPTION>
Aggregate Number of Percent of
Name of Beneficial Owner Shares Beneficially Owned(1) Outstanding Shares
- ------------------------------- --------------------------- ------------------
<S> <C> <C>
Maurice L. McAlister........... 5,674,490(2) 20.2%
Cheryl E. Olson................ 586,580(3) 2.1%
Brent McQuarrie................ 442,463(4) 1.6%
Daniel D. Rosenthal............ 101,792 *
Dr. Paul Kouri................. 15,139(5) *
Sam Yellen..................... 4,472 *
Michael B. Abrahams............ 4,000 *
Lester C. Smull................ 883(6) *
Paul G. Woollatt............... 15,589 *
Thomas E. Prince............... 15,504 *
Jane Wolfe..................... 14,520 *
John R. Gatzke................. 3,804 *
All Directors and Executive
Officers as a Group
(21 persons).................. 6,929,364(7) 24.6%
</TABLE>
- --------
(1) The shares shown include 63,780 shares of Common Stock with respect to
which executive officers acquired beneficial ownership because of vested
stock options as of December 31, 1999.
(2) Held by Mr. McAlister with his spouse, Dianne S. McAlister, as Co-trustor
and Co-trustee of the McAlister Family Trust.
(3) Includes 16,294 shares held by Ms. Olson as Custodian for Clayton Jones.
Ms. Olson holds sole voting and investment power with respect to 570,286
shares.
(4) Includes 167,769 shares held by Mr. McQuarrie as Trustee for Jared
McQuarrie, Jennifer McQuarrie, Justin McQuarrie and Jamie McQuarrie (Four
Jays, Ltd.). In addition, Mr. McQuarrie shares voting and investment
power with his spouse, Kathryn McQuarrie, as Co-trustor and Co-trustee
with respect to 165,900 shares, all of which are held in trust for the
benefit of their children. Mr. McQuarrie holds 2,967 shares in an
Individual Retirement Account, and Kathryn McQuarrie holds 827 shares in
an Individual Retirement Account. Mr. McQuarrie holds 105,000 shares
through Next Generation, Ltd., a Utah limited partnership, in which he
serves as General Partner.
(5) Dr. Kouri holds sole voting power with respect to 10,452 shares and
shares with his spouse, Bobbie Jean Kouri, voting and investment power
with respect to 4,687 shares.
(6) Mr. Smull holds sole voting and investment power with respect to 598
shares, and Mr. Smull's spouse, Jimmy Smull, holds sole voting and
investment power with respect to 285 shares.
(7) As of March 3, 2000, includes 201,337 shares held by executive officers.
* Less than 1% of outstanding Common Stock at March 3, 2000.
6
<PAGE>
EXECUTIVE OFFICERS
Executive officers are elected annually and serve at the pleasure of the
Board of Directors.
The following table sets forth the names of the current executive officers
of Downey and the Bank, along with certain other information relating to such
persons:
<TABLE>
<CAPTION>
Age At
Name March 3, 2000 Current Position
---- ------------- ----------------
<C> <C> <S>
Daniel D. Rosenthal (1).......... 47 President and Chief Executive
Officer of Downey and the
Bank
Paul G. Woollatt................. 50 Chief Operating Officer of
Downey and the Bank
Thomas E. Prince................. 53 Executive Vice President and
Chief Financial Officer of
Downey and the Bank
Donald E. Royer.................. 50 Executive Vice President,
General Counsel and
Corporate Secretary of
Downey and the Bank
Stanley M. Tarbell............... 39 Senior Vice President and Tax
Director of Downey and the
Bank
Thomas A. Fultz.................. 45 Executive Vice President and
Director of Asset-Liability
Management of the Bank
Lillian E. Gavin................. 37 Executive Vice President and
Director of Compliance and
Risk Management of the Bank
Richard D. Grout................. 44 Executive Vice President and
Director of Retail Banking
of the Bank
Jane Wolfe....................... 54 Executive Vice President and
Chief Lending Officer of the
Bank
Tawna M. Canhoto................. 33 Senior Vice President and
Director of Marketing of the
Bank
Carolyn B. DiOrio................ 43 Senior Vice President and
Controller of the Bank
John R. Gatzke................... 39 Senior Vice President and
Assistant Chief Lending
Officer of the Bank
Kevin W. Hughes.................. 38 Senior Vice President and
Director of Portfolio
Management and Secondary
Marketing of the Bank
Kendice K. Briggs................ 32 Vice President and Manager of
Human Resources of the Bank
</TABLE>
- --------
(1) See "Information Concerning Nominees and Directors--Continuing Directors
Whose Present Terms Continue until 2002", for a description of Mr.
Rosenthal's business background.
Paul G. Woollatt--Mr. Woollatt was appointed Chief Operating Officer of
Downey and the Bank in November 1998. In November 1995, Mr. Woollatt returned
to the Bank as Executive Vice President and Director of Retail Banking. From
1991 to 1995, Mr. Woollatt was Executive Vice President and Director of Retail
Banking for First Western Bank F.S.B. Prior thereto, Mr. Woollatt held
positions with the Bank from July 1979, including service as Senior Vice
President, Director of Retail Banking, from 1989 to 1991.
Thomas E. Prince--Prior to joining the Bank as Executive Vice President and
Chief Financial Officer in May 1992, Mr. Prince spent 24 years at Security
Pacific Corporation and Security Pacific National Bank in various financial
capacities, the last eight years of which as Senior Vice President and
Controller.
7
<PAGE>
Donald E. Royer--Prior to joining the Bank as Executive Vice President,
General Counsel and Corporate Secretary in December 1991, Mr. Royer was
Executive Vice President and General Counsel of American Savings Bank, F.A.,
from December 1988 to February 1991, in addition to serving as retained
counsel from March 1991 through October 1991. Mr. Royer has over 22 years of
legal experience in the financial services industry.
Stanley M. Tarbell--Mr. Tarbell has been Tax Director of the Bank since
1989 and was appointed Senior Vice President in June 1998. Mr. Tarbell joined
the Bank as Tax Manager in 1987, and prior thereto, was a practicing Certified
Public Accountant with the firm of Kenneth Leventhal and Company.
Thomas A. Fultz--Prior to joining the Bank as Executive Vice President and
Director of Asset-Liability Management in August 1999, Mr. Fultz was with
Fannie Mae from 1993 to 1999 directing the corporation's financial consulting
efforts. Prior thereto, since 1982, Mr. Fultz was with Lehman Brothers in New
York as a Vice President in both Investment Banking and Capital Markets. Mr.
Fultz previously held various financial services positions.
Lillian E. Gavin--Prior to joining the Bank as Senior Vice President,
Director of Compliance and Risk Management in 1997, Ms. Gavin was a senior
examiner with the Office of Thrift Supervision and its predecessor, the
Federal Home Loan Bank Board, since 1987, and was a bank liquidation
specialist with the Federal Deposit Insurance Corporation from 1984 to 1987.
Ms. Gavin was appointed Executive Vice President and Director of Compliance in
December 1998.
Richard D. Grout--Mr. Grout was appointed Executive Vice President,
Director of Retail Banking of the Bank on March 1, 2000. Prior to his current
position, Mr. Grout was with Union Bank of California and was responsible for
the bank's Mortgage Origination for Los Angeles County. Prior thereto, Mr.
Grout was with Home Savings of America from 1995 to 1998 and American Savings
Bank from 1984 to 1995, where he held various Retail Banking management
positions.
Jane Wolfe--Prior to re-joining the Bank as Executive Vice President and
Chief Lending Officer in April 1994, Ms. Wolfe served as Senior Vice President
and Manager of Mortgage Lending for Liberty National Bank from September 1993
to April 1994. Ms. Wolfe acted as a mortgage lending consultant to several
financial institutions from November 1992 to September 1993. Prior to such
time, Ms. Wolfe served as Executive Vice President and Chief Lending Officer
of the Bank from September 1991 to November 1992.
Tawna M. Canhoto--Ms. Canhoto was appointed Senior Vice President and
Director of Marketing of the Bank in June 1999. Prior thereto, Ms. Canhoto
managed the Marketing Department of Affinity Development Group from September
1998 to June 1999. Prior thereto, she worked on the Good Sam Club with
Affinity Group Inc. from September 1996 to September 1998 after having worked
at Advantage Plus Marketing, from November 1994 to September 1996.
Carolyn B. DiOrio--Ms. DiOrio was appointed Senior Vice President and
Controller of the Bank in April 1998. Ms. DiOrio joined DSL Service Company in
November 1985 as Assistant Controller, and was appointed a director and has
been the Chief Financial Officer of DSL Service Company since 1991. Prior
thereto, Ms. DiOrio was a Certified Public Accountant and practiced with the
accounting firm of Coopers & Lybrand.
John R. Gatzke--Mr. Gatzke was appointed Assistant Chief Lending Officer of
the Bank in June 1998. Prior thereto, Mr. Gatzke served as Regional Manager of
Wholesale and Retail Lending and in 1997 was appointed Senior Vice President
and Director of Wholesale Lending. Mr. Gatzke previously held positions with
the Bank from 1986 to 1990 and served as a loan officer. Prior to re-joining
the Bank in 1992, Mr. Gatzke was employed by Knight Ridder Newspapers from
1990 to 1991 responsible for marketing and sales of real estate advertising.
Kevin W. Hughes--Mr. Hughes was appointed Senior Vice President, Director
of Portfolio Management and Secondary Marketing in February 2000. Mr. Hughes
joined the Bank as Vice President and Director of Secondary Marketing in 1998
and prior thereto, was Vice President, Portfolio Manager for Washington Mutual
8
<PAGE>
Bank from 1997. Prior thereto, Mr. Hughes held various positions with American
Savings Bank from 1988 to 1997, with American Savings and Loan Association
from 1984 to 1988, and with State Savings and Loan Association from 1982 to
1984.
Kendice K. Briggs--Ms. Briggs was appointed Vice President, Manager of
Human Resources of the Bank in July 1998. Ms. Briggs joined the Bank in 1995
as an employment supervisor. Prior thereto, Ms. Briggs managed the Human
Resources Department for Imperial Thrift and Loan Association from 1991 to
1995 and, prior thereto, worked for the accounting firm of Coopers & Lybrand
in their Professional Personnel Department.
COMPENSATION COMMITTEE REPORT
The Compensation Committee (the "Committee") of Downey's Board of Directors
establishes the overall compensation policies and programs of Downey and its
subsidiaries. In addition, the Committee recommends the compensation of the
President and Chief Executive Officer, which recommendation is subject to the
approval by the Board of Directors. The Committee is composed of three
directors, none of whom is employed by Downey.
Compensation Philosophy
The Committee's goal is to align compensation programs with the strategic
direction of Downey and to attract, motivate and retain the best qualified
employees. In carrying out its duties, the Committee evaluates compensation
and benefits programs including both qualified and nonqualified programs, as
well as medical, dental and other benefits programs affecting all employees.
The Committee evaluates compensation and benefits programs to ensure they are
cost effective, competitive and fair.
To ensure that pay policies are competitive, the Committee periodically
compares Downey's pay policies to peer group institutions. The Committee
strives to implement benefits programs which, based upon competitive and cost
considerations, deliver the highest level of value consistent with corporate
and shareholder interests. Total compensation (including benefits) is
established in the context of overall job responsibilities, achieving
corporate and individual performance goals and objectives, as well as
competitive compensation conditions.
1999 Compensation Programs
During 1999, the components of the compensation programs included a base
salary, a bonus program ("Annual Incentive Plan"), the 1994 Long-Term
Incentive Plan, a Deferred Compensation Plan, a Section 125 Cafeteria Plan
(i.e., medical, vision, dental and life coverages) and an Employees'
Retirement and Savings Plan (401(k) Plan).
Base Salary
During 1999, the Committee reviewed base salaries of selected employees,
including executive officers. Based on such review and the Committee's
assessment of market conditions and competitive factors, the Committee
recommended adjustments to base salaries for such employees and executive
officers. This recommendation was based on salary survey data supplied by
third party nationally recognized salary surveys and salary surveys among the
Bank's competitors.
Annual Incentive Plan
During 1999, the Committee reviewed and Downey's Board of Directors
approved an Annual Incentive Plan for Downey. Individual performance
objectives were established for all eligible participants in the Annual
Incentive Plan based upon their individual responsibilities and Downey's 1999
approved corporate performance target for net income, which aligned each
participant's compensation with Downey's approved business plan.
9
<PAGE>
During 1999, bonus incentives targeted under the Annual Incentive Plan for the
President and Chief Executive Officer and Chief Operating Officer were
targeted at 120% and 50% of their base salary, respectively, and the Chief
Lending Officer was targeted at 100% of base salary. Other executive officers
and eligible participants of Downey and the Bank were targeted at 10%-100% of
their base salary. Pursuant to the Annual Incentive Plan, those targeted
amounts may be adjusted based upon individual, department, business and
corporate performance goals which provide for a potential bonus payment of up
to 168% of an individual's targeted bonus amount. However, to the extent that
actual corporate performance was 80% or below the approved corporate
performance goal, no bonus amounts were to be paid to participants pursuant to
the Annual Incentive Plan.
After obtaining the 1999 year-end results, the Committee met with the
President and Chief Executive Officer and reviewed the individual performance
contribution of each participant in the Annual Incentive Plan. During 1999,
Downey achieved 101.3% of its corporate performance target. Based upon 1999
corporate and individual participant performance, bonuses paid, relative to
the targeted amounts for all such participants, represented, on average, 117%
of the bonus target.
1994 Long-Term Incentive Plan
In 1994, the Bank's Board of Directors approved a Long-Term Incentive Plan
(the "LTIP"). The LTIP was submitted to the Bank's shareholders for approval
at a special meeting of shareholders held on December 21, 1994. Thereafter,
the LTIP was adopted and ratified by Downey and, pursuant thereto, shares of
Downey are to be issued upon the exercise of options or payments of other
awards for which payment is to be made in stock.
The LTIP was adopted to promote and advance the interests of Downey and its
shareholders by providing a means by which selected officers and employees
would be given an opportunity to acquire stock in Downey and other incentive-
based awards, to assist in attracting and retaining the services of employees
holding key positions and to provide incentives for such key employees to
exert maximum efforts toward results that are in the best interests of all
shareholders. Incentive stock options may be granted under the LTIP only to
officers and key employees, including directors if they are employees.
Currently, approximately 40 officers and key employees are eligible to receive
awards under the LTIP. The LTIP is administered by the Committee and during
1999, no stock option, grants or other awards were made under the LTIP.
Deferred Compensation Plan
During 1995, the Committee reviewed and Downey's Board of Directors
approved implementation of a Deferred Compensation Plan for key management
employees and directors. The Deferred Compensation Plan is considered to be an
essential element in a comprehensive competitive benefits package designed to
attract and retain individuals who contribute to the success of Downey.
Participants are eligible to defer compensation on a pre-tax basis, including
director fees, and earn a competitive interest rate on the amounts deferred.
During 1999, the Board terminated the 1995 Deferred Compensation Plan and a
1999 Deferred Compensation Plan was approved for key management employees and
directors. Currently, 74 management employees and 7 directors are eligible to
participate in the program. During 1999, 25 management employees and one
director elected to defer compensation pursuant to the 1999 Deferred
Compensation Plan.
Employees' Retirement and Savings Plan
The Bank offers to its employees a 401(k) plan entitled the Downey Savings
Employees' Retirement and Savings Plan. Participants are permitted to make
contributions on a pre-tax basis, a portion of which is matched by the Bank.
In addition, a discretionary contribution may be made on behalf of each
eligible participant according to a formula which takes into account the age,
years of service and compensation of the participant as well as achievement of
an annual corporate performance target but excludes commissioned loan
production and Annual Incentive Plan participants. For 1999, total
contributions consisted of the Bank's discretionary contribution ($1,493,000)
and the employer match ($359,000) to the Downey Savings Employees' Retirement
and Savings Plan.
10
<PAGE>
Employee Stock Purchase Plan
Downey offers its employees participation in Downey's Employee Stock
Purchase Plan. Downey believes that ownership of Downey's stock by employees
will foster greater employee interest in Downey's success, growth and
development and will be to the mutual benefit of the employee and Downey. The
Employee Stock Purchase Plan is designed to provide employees a continued
opportunity to purchase Downey stock through systematic payroll deductions.
Downey bears all costs of administering the Employee Stock Purchase Plan,
including broker's fees, commissions, postage and other costs incurred with
stock purchases. If an employee elects to terminate participation in the
Employee Stock Purchase Plan, or sells stock acquired through the Employee
Stock Purchase Plan, the employee is responsible for the associated costs.
President and Chief Executive Officer Compensation
During 1999, Daniel D. Rosenthal served as President and Chief Executive
Officer of Downey and the Bank. In accordance with the Annual Incentive Plan
and achievement of Downey's 1999 corporate performance target, the Committee
recommended and Downey's Board of Directors approved an incentive compensation
payment to Mr. Rosenthal of $300,000, which amount represents 100% of the
targeted incentive amount.
The Committee believes that the management team is dedicated to achieving
significant improvement in Downey's long-term financial performance. The
Committee further believes that Downey's compensation policies are designed to
align closely the financial interests of senior executive management with the
interests of Downey's shareholders and, as administered by the Committee, will
enhance management's efforts in these areas.
Respectfully submitted,
Brent McQuarrie, Chairman
Cheryl E. Olson
Lester C. Smull
11
<PAGE>
COMPENSATION
Executive Compensation
The following Summary Compensation Table sets forth all compensation paid
by Downey and its subsidiaries for services rendered during 1999, 1998 and
1997 to Downey's Chief Executive Officer, and each of Downey's four other most
highly compensated executive officers as of the end of 1999, (collectively,
the "Named Executives").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------- -----------------------------
Awards Payouts
--------------------- -------
Number of
Other Restricted Securities
Name and Principal Annual Stock Underlying LTIP All Other
Position Year Salary Bonus Compensation Award(s) Options Payouts Compensation
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel D. Rosenthal(1) 1999 $250,008 $300,000 $ 3,724 -- -- -- $ 4,808
President and Chief 1998 170,620 154,840 11,203 -- 29,484 -- 5,385
Executive Officer 1997 140,005 44,990 10,656 -- -- -- 8,077
Paul G. Woollatt(2) 1999 $200,000 $200,000 $ 5,651 -- -- -- $114,208
Chief Operating Officer 1998 163,112 110,728 13,748 -- 26,536 -- 6,252
1997 143,005 43,339 12,860 -- -- -- 2,437
Jane Wolfe(3) 1999 $225,000 $275,000 $ 4,715 -- -- -- $ 52,390
Executive Vice President 1998 190,007 305,411 17,901 -- 26,536 -- --
and Chief Lending
Officer 1997 180,007 55,435 16,478 -- -- -- 2,500
John R. Gatzke(4) 1999 $150,000 $206,768 $ 3,836 -- -- -- $ 12,981
Senior Vice President 1998 103,337 163,168 7,570 -- -- -- 2,578
and Assistant Chief 1997 62,913 72,052 5,139 -- -- -- 1,442
Lending Officer -- --
Thomas E. Prince(5) 1999 $184,007 $ 51,060 $ 4,708 -- -- -- $ 19,101
Executive Vice President 1998 184,007 59,248 15,898 -- 14,467 -- 11,574
and Chief Financial
Officer 1997 178,007 48,886 11,467 -- -- -- 15,275
</TABLE>
- --------
(1) The amounts shown for Mr. Rosenthal for 1999 include flex benefit credits
contributed by Downey ($2,124), Mr. Rosenthal's interest ($1,600) in
Downey's 1999 401(k) plan contributions, and cashed out Personal Time Off
($4,808); and for 1998 include flex benefit credits contributed by Downey
($1,942), Mr. Rosenthal's interest ($9,261) in Downey's 1998 401(k) plan
contributions, and cashed out Personal Time Off ($5,385); and for 1997
include flex benefit credits contributed by Downey ($1,833), Mr.
Rosenthal's interest ($8,823) in Downey's 1997 401(k) plan contributions,
and cashed out Personal Time Off ($8,077).
(2) The amounts shown for Mr. Woollatt for 1999 include flex benefit credits
contributed by Downey ($2,078), Mr. Woollatt's interest ($1,600) in
Downey's 1999 401(k) plan contributions, reportable interest from deferred
compensation ($1,973) and interest paid and balance of deferred
compensation ($114,208); and for 1998 include flex benefit credits
contributed by Downey ($1,969), Mr. Woollatt's interest ($10,771) in
Downey's 1998 401(k) plan contributions, reportable interest from deferred
compensation ($1,008), a service award ($1,500) and a prize award
($4,752); and for 1997 include flex benefit credits contributed by Downey
($1,869), Mr. Woollatt's interest ($10,487) in Downey's 1997 401(k) plan
contributions, reportable interest from deferred compensation ($504) and a
prize award ($2,437).
(3) The amounts shown for Ms. Wolfe for 1999 include flex benefit credits
contributed by Downey ($2,397), Ms. Wolfe's interest ($1,600) in Downey's
1999 401(k) plan contributions, reportable interest from deferred
compensation ($718) and cashed out Personal Time Off ($10,817) and
interest paid and balance of deferred compensation ($41,573); and for 1998
include flex benefit credits contributed by Downey ($2,306),
12
<PAGE>
Ms. Wolfe's interest ($15,008) in Downey's 1998 401(k) plan contributions,
and reportable interest from deferred compensation ($587); and for 1997
include flex benefit credits contributed by Downey ($2,233), Ms. Wolfe's
interest ($14,016) in Downey's 1997 401(k) plan contributions, reportable
interest from deferred compensation ($229) and a service award ($2,500).
(4) The amounts shown for Mr. Gatzke for 1999 include flex benefit credits
contributed by Downey ($1,760), Mr. Gatzke's interest ($1,600) in Downey's
1999 401(k) plan contributions, reportable interest from deferred
compensation ($476), and cashed out Personal Time Off ($12,981); and for
1998 include flex benefit credits contributed by Downey ($1,777), Mr.
Gatzke's interest ($5,547) in Downey's 1998 401(k) plan contributions,
reportable interest from deferred compensation ($246), and cashed out
Personal Time Off ($2,578); and for 1997 include flex benefit credits
contributed by Downey ($1,305), Mr. Gatzke's interest ($3,835) in Downey's
1997 401(k) plan contributions, and cashed out Personal Time Off ($1,442).
(5) The amounts shown for Mr. Prince for 1999 include flex benefit credits
contributed by Downey ($2,342), Mr. Prince's interest ($1,537) in Downey's
1999 401(k) plan contributions, reportable interest from deferred
compensation ($829), and cashed out Personal Time Off ($19,101); and for
1998 include flex benefit credits contributed by Downey ($2,288), Mr.
Prince's interest ($13,088) in Downey's 1998 401(k) plan contributions,
reportable interest from deferred compensation ($522), and cashed out
Personal Time Off ($11,574); and for 1997 include flex benefit credits
contributed by Downey ($2,288), Mr. Prince's interest ($12,240) in
Downey's 1997 401(k) plan contributions, reportable interest from deferred
compensation ($273), and cashed out Personal Time Off ($15,275).
Option Exercises and Holdings
The following table provides information with respect to the Named
Executives concerning the exercise of options during 1999 and unexercised
options held by the Named Executives as of December 31, 1999:
Aggregated Option Exercises in 1999
and Year-End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Number of Unexercised In-the-Money Options at
Shares Options at 12/31/99 12/31/99(1)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel D. Rosenthal..... -- -- 20,782 23,588 $105,233 $ --
Paul G. Woollatt........ -- -- 13,710 25,364 40,070 --
Jane Wolfe.............. -- -- 13,784 21,229 59,645 --
Thomas E. Prince........ -- -- 15,504 11,574 87,744 --
John R. Gatzke.......... -- -- -- -- -- --
</TABLE>
- --------
(1) Value of unexercised "in-the-money" options is the difference between the
market price of the Common Stock on December 31, 1999 ($21.1875 per share)
and the exercise price of the options, multiplied by the number of shares
subject to the option.
Director Compensation
Annual Compensation
Currently, directors who are not employees receive (i) an annual retainer
of $24,000 payable monthly or quarterly, at the director's option, (ii) an
attendance fee of $1,000 for each Board meeting held on a regular Board of
Directors meeting day, and (iii) an attendance fee of $1,000 for each meeting
of a Downey or Bank committee or $500 for each meeting of DSL Service
Company's Board of Directors held on a day other than a regular Board of
Directors meeting day. Nonemployee directors who review the Thrift Financial
Reports and Consolidated Maturity/Rate Reports, required to be filed quarterly
with the Office of Thrift Supervision, also
13
<PAGE>
receive a $500 fee per quarter in connection with the review and execution of
those regulatory reports. The Chairmen of Downey's Audit and Compensation
Committees each receive an additional annual retainer of $5,000 and $3,000,
respectively. The Chairman of Downey's and the Bank's Boards of Directors is
entitled to receive an additional annual retainer of $2,500, respectively.
Downey's and the Bank's Chairman has declined to accept these additional
annual retainers. Directors are reimbursed for reasonable out-of-pocket
expenses incurred in the performance of their duties. Furthermore, directors
are entitled to participate in and receive the medical benefit coverage
provided to the Bank's employees, or payment in lieu thereof.
Director Retirement Benefit
A retirement benefit (the "Director Retirement Benefit") will be paid to
each non-employee director or his or her designated beneficiary, in equal
monthly installments for a period of 60 months beginning the month following
his or her retirement. The aggregate Director Retirement Benefit for each
director will equal one-third of the number of months of service as a director
by such individual (up to a maximum of 15 years of service) multiplied by the
average monthly qualified (non-employee) director compensation paid to such
individual during the three years preceding cessation of service as a
director. Qualified director compensation includes the annual retainer plus
all meeting fees for the Boards of Directors and committees of Downey, the
Bank and their respective subsidiaries. The right of each director to begin to
receive such Director Retirement Benefit is subject to the individual director
having (i) ceased serving as a director of Downey and the Bank, and (ii)
served as a director for at least three years. If a majority interest of
Downey's outstanding stock is transferred or acquired (other than by will or
by the laws of descent and distribution), then the entire earned Director
Retirement Benefit becomes payable immediately, and the three-year minimum
service requirement described above does not apply. If a retired director so
requests, Downey, at its option, may make a single lump-sum payment of the
Director Retirement Benefit. Any such accelerated payment would be discounted
at the interest rate then in effect for the Bank's five-year certificate of
deposit.
Founder Retirement Agreement
On December 21, 1989, the Bank entered into a retirement agreement (the
"Founder Retirement Agreement") with Mr. McAlister. Under the Founder
Retirement Agreement, monthly compensation is paid to Mr. McAlister, or his
beneficiaries, for 120 months following cessation of employment. Pursuant to
the Founder Retirement Agreement, Mr. McAlister's compensation was $32,167 per
month, which payments commenced upon Mr. McAlister's retirement as President
of DSL Service Company in 1993. The Founder Retirement Agreement provides for
adjustments to compensation payments every three years, such adjustments to be
based on the Consumer Price Index, as defined under the Founder Retirement
Agreement. Pursuant to these adjustments, Mr. McAlister's compensation was
adjusted to $35,688.27 per month, effective as of July 1, 1999. If a majority
interest of Downey's Common Stock is transferred or acquired, then such
compensation shall continue as scheduled or, at Downey's option, a lump-sum
payment equal to the then present value of any remaining compensation shall be
paid. During 1999, Mr. McAlister received $417,050 under the Founder
Retirement Agreement.
14
<PAGE>
PERFORMANCE GRAPH
The table below compares the performance of Downey with that of the S&P 500
composite index and the selected peer group ("Peer Group"). In past years, the
Peer Group consisted of six California-based thrifts followed by Merrill Lynch
& Co. Given the industry consolidation which has taken place within
California, the Peer Group has changed to include financial institutions based
in western states followed by Merrill Lynch & Co. The western state companies
included in the Peer Group may change from time to time as Merrill Lynch & Co.
makes adjustments in the institutions it follows. As of the date hereof, this
Peer Group consists of the following three California-based companies: Bay
View Capital Corporation, Golden State Bancorp and Golden West Financial
Corp.; two Washington-based companies: Washington Federal and Washington
Mutual; and one Texas-based company: Bank United Corp. This Peer Group was
selected because it has a representative number of publicly held financial
institutions which are competitors in Downey's market areas. The following
table assumes $100 invested on December 31, 1994 in Downey, the S&P 500 and
equally in the companies in the Peer Group, and assumes a reinvestment of
dividends on a daily basis.
Comparison of 5-year Cumulative Total Return
Downey, S&P 500 Index and Peer Group
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------
Downey 100.00 154.77 213.72 329.72 313.33 252.85
S&P 500 100.00 137.58 169.17 225.60 290.08 351.12
Peer Group 100.00 162.24 205.35 315.42 286.53 225.07
15
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Certain Business Relationships
The Bank has entered into a commercial lease with Business Properties #18,
a California General Partnership ("BP #18"), pursuant to which the Bank leases
its Dana Point branch office. Lester C. Smull, a director of Downey and the
Bank, is the managing general partner of BP #18. The lease, which runs from
October 1, 1997 through October 1, 2002, provides that the Bank will pay rent
to BP #18 at the rate of $3,630 per month, with annual rent increases of 2.5%
during the initial five-year term. The lease provides for two consecutive
five-year options to extend, with annual rent increases of 3%. Management
believes that the terms of the lease arrangement, including the monthly rent,
are at least as favorable to the Bank as prevailing terms that could be
obtained from a nonaffiliated person.
The Bank has also entered into a commercial lease for its Mission Viejo
branch office with the Lester C. and Jimmy L. Smull Family Trust dated
December 7, 1984 (the "Trust"), wherein Mr. Smull acts as trustee. A lease was
entered into on December 14, 1996 for a one year term, with three consecutive
five-year options to extend. The Bank will pay rent of $4,835 per month for
the first year, $5,561 per month during the first option term, $6,395 per
month during the second option term and $7,354 per month during the third
option term. Management believes that the terms of the lease arrangement,
including the monthly rent, are at least as favorable to the Bank as
prevailing terms that could be obtained from a nonaffiliated person.
During 1999, employees of Downey and the Bank provided accounting and
related services to Maurice L. McAlister, Chairman of Downey's Board of
Directors, certain members of Mr. McAlister's family and certain of his
controlled affiliates. The aggregate value of these services was approximately
$62,402. Downey and the Bank have been fully reimbursed for the services
provided.
Indebtedness of Management
The Bank offers loans to directors, officers and employees of Downey, the
Bank and their respective subsidiaries. These loans are made in the ordinary
course of business and, in the judgment of management, do not involve more
than the normal risk of collectability or present other unfavorable features.
The loans are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions
involving nonaffiliated persons.
Over a period of approximately 25 years, the Bank has made various loans to
Mr. Smull, a director, in his individual capacity, to the Trust and to a
number of California partnerships as to which Mr. Smull is a general partner.
As of December 31, 1999, the Bank had loans outstanding to Mr. Smull or his
related partnerships in an aggregate amount of approximately $26.7 million.
Each of the loans to Mr. Smull or his related partnerships (i) was made in the
ordinary course of business, (ii) and on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions involving nonaffiliated persons, and (iii) did not
involve more than the normal risk of collectability or present other
unfavorable features.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
At the close of business on March 3, 2000, the record date for the Annual
Meeting, there were outstanding and entitled to vote 28,148,409 shares of
Downey's Common Stock, all of one class and each having one vote. The holders
of a majority of the shares outstanding and entitled to vote, present in
person or represented by proxy, constitute a quorum for the Annual Meeting.
16
<PAGE>
Principal Shareholders
Information concerning the owners of more than 5% of the outstanding Common
Stock as of the record date for the Annual Meeting follows:
<TABLE>
<CAPTION>
Percent of
Amount/Nature of Outstanding
Name/Address Beneficial Ownership Stock
- ------------ -------------------- -----------
<S> <C> <C>
McAlister Family Trust(1)..................... 5,674,490 20.2%
3501 Jamboree Road
Newport Beach, CA 92660
Gerald H. McQuarrie Family Trusts(2).......... 2,018,907 7.2%
34 South 300 East
Provo, UT 84606
Westport Asset Management, Inc.(3)............ 1,453,000 5.2%
253 Riverside Avenue
Westport, CT 06880
Dimensional Fund Advisors(4).................. 1,424,335 5.1%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
</TABLE>
- --------
(1) See footnote 2 on Page 8.
(2) Oneida B. McQuarrie-Gibson serves as Trustee for the Gerald H. McQuarrie
Family Trusts. Includes 39,334 shares held by the Survivor Trust of the
Gerald H. McQuarrie Trusts; 38,800 shares held by the Charitable
Remainder Unitrust; 7,184 shares held by the By-Pass Trust of the Gerald
H. McQuarrie Family Trusts; 78,850 shares held by the Exempt Marital
Trust of the Gerald H. McQuarrie Family Trusts; 1,197,835 shares held by
the Non-Exempt Marital Trust of the Gerald H. McQuarrie Family Trusts;
56,904 shares held by the Oneida B. Foundation; 200,000 shares held by
OBM-Brent, Ltd.; 200,000 shares held by OBM-Scott, Ltd.; and 200,000
shares held by OBM-Sandy, Ltd.
(3) This information is based upon Schedule 13F, dated February 14, 2000,
filed with the Securities and Exchange Commission by Westport Asset
Management, Inc.
(4) This information is based upon Schedule 13G, dated February 4, 2000,
filed with the Securities and Exchange Commission by Dimensional Fund
Advisors, Inc.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Downey's and,
as may be determined, the Bank's and their respective subsidiaries' executive
officers, directors and holders of more than 10% of the Common Stock to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of the Common Stock and other equity
securities of Downey. Such persons and holders are required to furnish Downey
with copies of all reports filed pursuant to such requirement.
Based solely on review of the copies of such forms furnished to Downey and
written representations from certain reporting persons that no Forms 5 were
required, except as noted for those persons, Downey believes that during the
period January 1, 1999 to December 31, 1999, all Section 16 filing
requirements were complied with except as follows: John R. Gatzke filed a late
Form 4 for Downey stock acquired during 1999.
17
<PAGE>
PROPOSALS OF SHAREHOLDERS
It is presently anticipated that the 2001 Annual Meeting of Shareholders
will be held in April 2001. Shareholders desiring to exercise their rights
under the proxy rules to submit shareholder proposals are advised that their
proposals must be received by Downey no later than November 22, 2000, in order
to be eligible for inclusion in Downey's proxy statement relating to that
meeting. Shareholders desiring to submit proposals pursuant to the proxy rules
should submit their proposals to the Corporate Secretary, Downey Financial
Corp., 3501 Jamboree Road, Newport Beach, California 92660.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
In 1989, the Board of Directors engaged KPMG, LLP as Downey's independent
auditors and the relationship which has existed has been the customary
relationship between an independent accountant and client. Downey's auditors
for the 2000 audit have not been engaged and Downey's Audit Committee will
make a recommendation to the Board of Directors with respect to the 2000 audit
upon the completion of its review of the accounting services rendered during
1999, the cost thereof and available alternatives.
Representatives of KPMG, LLP are scheduled to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire, and
will be available to answer questions.
ANNUAL REPORT TO SHAREHOLDERS
Downey's Annual Report to Shareholders, which includes the consolidated
financial statements and related notes thereto, accompanies this Proxy
Statement
SINGLE COPIES OF DOWNEY FINANCIAL CORP.'S ANNUAL REPORT ON FORM 10-K
(WITHOUT EXHIBITS) MAY BE OBTAINED, FREE OF CHARGE, UPON WRITTEN REQUEST TO:
DOWNEY FINANCIAL CORP., 3501 JAMBOREE ROAD, NEWPORT BEACH, CALIFORNIA, 92660,
ATTENTION: CORPORATE SECRETARY.
18
<PAGE>
OTHER BUSINESS
Presented by Management
As of the date of this Proxy Statement, the management of Downey does not
know of any other matters that are to be presented for action at the Annual
Meeting. Should any other matters come before the Annual Meeting or any
adjournment thereof, the persons named in the enclosed proxy will have
discretionary authority to vote all proxies with respect to such matters in
accordance with their judgment. Additional business may be properly brought
before the Annual Meeting by or at the direction of a majority of Downey's
Board of Directors.
Presented by Shareholders
Pursuant to Downey's Bylaws, only such business shall be conducted, and
only such proposals shall be acted upon at the Annual Meeting as is properly
brought before the Annual Meeting. For any new business proposed by management
to be properly brought before the Annual Meeting such new business shall be
approved by the Board of Directors, either directly or through its approval of
proxy solicitation materials related thereto, and shall be stated in writing
and filed with the Corporate Secretary of Downey at least 60 days before the
date of the Annual Meeting, and all business so stated, proposed and filed
shall be considered at the Annual Meeting. Any shareholder may make any other
proposal at the Annual Meeting and the same may be discussed and considered,
but unless properly brought before the Annual Meeting such proposal shall not
be acted upon at the Annual Meeting. For a proposal to be properly brought
before an annual meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the Corporate Secretary of Downey. To be
timely, a shareholder's notice must be delivered to or received at the
principal executive offices of Downey, not less than 120 calendar days in
advance of the date of Downey's proxy statement released to shareholders in
connection with the previous year's annual meeting of shareholders, except
that, if no annual meeting was held in the previous year or if the date of the
annual meeting has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, notice by the
shareholder to be timely must be so received no later than the close of
business on the 10th day following the day on which such notice of the date of
the annual meeting was mailed. A shareholder's notice to the Corporate
Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting (i) a brief description of the proposal desired to
be brought before the annual meeting, (ii) the name and address of the
shareholder proposing such business, and (iii) the class and number of shares
of Downey which are owned of record by shareholders. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in Downey's Bylaws.
/s/ DONALD E. ROYER
DONALD E. ROYER
Corporate Secretary
19
<PAGE>
REVOCABLE PROXY
DOWNEY FINANCIAL CORP.
ANNUAL MEETING OF SHAREHOLDERS - APRIL 26, 2000
This Proxy is solicited by the Board of Directors
The undersigned shareholder(s) of Downey Financial Corp. (the "Company")
hereby nominates, constitutes and appoints Maurice L. McAlister and Brent
McQuarrie, and each of them, the attorney, agent and proxy of the undersigned,
with full power of substitution, to vote all stock of the Company which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of the
Company (the "Annual Meeting") to be held at The Irvine Marriott, 18000 Von
Karman Avenue, Irvine, California, on April 26, 2000 at 10:00 a.m. local time,
and any adjournments thereof, as fully and with the same force and effect as the
undersigned might or could do if personally thereat, as follows:
Please Sign and Date On Reverse Side
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Shareholders
DOWNEY FINANCIAL CORP.
April 26, 2000
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Please mark your
A [X] votes as in this
example
<S> <C> <C> <C>
For all the Company 2. Other Business. In their discretion, the
nominees listed at right Withhold Authority Nominees: proxyholders are authorized to transact such
(except as marked to to vote for all nominees Class 2 Directors (for a other business as may properly come before the
the contrary below) listed at right three-year term of office, Annual Meeting and any adjournment or
which term shall expire adjournments thereof.
1. Election of when his successor is
Directors [_] [_] elected and qualified at This proxy will be voted "FOR" the election of all
the 2003 Annual Meeting nominees unless authority to do so is withheld for
of Shareholders); all nominees or for any individual nominee. PLEASE
SIGN, DATE AND RETURN THIS PROXY AS PROMPTLY AS
(Instructions to withhold authority to vote for any one Cheryl E. Olson POSSIBLE IN THE POSTAGE PREPAID ENVELOPE PROVIDED.
of more nominees, write that nominee's or nominee Lester C. Smull
name(s) in the space provided below) Michael B. Abrahams THE BOARD OF DIRECTORS RECOMMENDS A VOTE OF"FOR"
THE ELECTION OF EACH OF THE NOMINEES LISTED AT LEFT.
- ------------------------------------- ALL PROPOSALS TO BE ACTED UPON ARE PROPOSALS OF THE
COMPANY, IF ANY OTHER BUSINESS IS PRESENTED AT THE
MEETING THIS PROXY SHALL BE VOTED BY THE
PROXYHOLDERS IN ACCORDANCE WITH THE RECOMMENDATIONS
OF A MAJORITY OF THE BOARD OF DIRECTORS.
The undersigned herby ratifies and confirms all
that said attorneys and proxyholders, or either of
them, or their substitutes, shall lawfully do or
cause to be done by virtue hereof, and hereby
revokes any and all proxies heretofore given by the
undersigned to vote at the Meeting. The undersigned
hereby acknowledges receipt of the Notice of Annual
Meeting and the Proxy Statement accompanying said
notice.
I (we) do I (we) do
expect not expect
to stand [_] to stand [_]
the meeting the meeting
Number of Shares
--------------------------
Date
- ------------------------------ ------------------------ ----------------------------- ------------------------- -------------
Name of Shareholders, Printed Signature of Shareholder Name of Shareholders, Printed Signature of Shareholder
Note: (Please date the Proxy and sign your name as it appears on your stock certificate(s). Executors, administrator, trustees
etc., should give their full titles. All joint owners should sign.)
</TABLE>
