SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
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-12
DOWNEY FINANCIAL CORP.
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(Name of Registrant as Specified In Its Charter)
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(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)(1)
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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(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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(4) Date Filed:
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DOWNEY FINANCIAL CORP.
3501 Jamboree Road
Newport Beach, CA 92660
(949) 854-0300
March 16, 2001
Notice of Annual Meeting of Shareholders
Wednesday, April 25, 2001
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 two Class 3 Directors for terms of three years each;
2. Ratify the appointment of KPMG LLP as auditors for the year
2001; and
3. Transact such other business as may properly come before the
Annual Meeting and any adjournments thereof.
The Board of Directors has selected March 2, 2001 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
Table of Contents
PAGE
----
Proxy Statement............................................................1
Record Date and Voting of Shares...........................................1
Voting and Revocation of Proxies...........................................1
Solicitation of Proxies....................................................2
Election of Directors......................................................2
- Information Concerning Nominees and Directors.....................2
- Nominees for Election at this Meeting, as Class 3 Directors,
to Terms Expiring in 2004....................................3
- Continuing Directors Whose Present Terms Continue until 2002......3
- Continuing Directors Whose Present Terms Continue until 2003......4
Board Committees and Meeting Attendance....................................5
Security Ownership of Directors and Executive Officers.....................8
Executive Officers.........................................................9
Audit Committee Report.....................................................12
- Audit Philosophy..................................................12
- Fees..............................................................13
Ratify the Appointment of KPMG LLP as Auditors for the Year 2001...........13
Compensation Committee Report..............................................14
- Compensation Philosophy...........................................14
- 2000 Compensation Programs........................................14-17
Compensation ..............................................................18
- Executive Compensation............................................18
- Option Exercises and Holdings.....................................20
- Director Compensation.............................................20
Performance Graph..........................................................22
Certain Relationships and Related Transactions.............................23
- Transactions with Management and Certain Business Relationships...23
- Compensation Committee Interlocks and Insider Participation.......23
- Indebtedness of Management........................................23
Security Ownership of Certain Beneficial Owners............................24
- Principal Shareholders............................................24
Section 16(a) Beneficial Ownership Reporting Compliance....................25
Proposals of Shareholders..................................................25
Annual Report to Shareholders..............................................26
Other Business.............................................................26
- Presented by Management...........................................26
- Presented by Shareholders.........................................26
Appendix A - Downey Financial Corp. Audit Committee Charter................28
i
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 25, 2001, 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
16, 2001. 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 2, 2001, the record date for determining the shareholders
entitled to notice of and to vote at the Annual Meeting, 28,211,048 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 two
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
presented under Proposal 1; and FOR the ratification of KPMG LLP as auditors for
the year 2001 presented under Proposal 2. 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.
1
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.
PROPOSAL 1. 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, two Class 3 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 3 Directors to hold office until the 2004 Annual
Meeting of Shareholders, and until their successors are duly elected
and qualified: Dr. Paul Kouri and Brent McQuarrie.
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
two 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.
2
DIRECTOR OF YEAR
AGE AT DOWNEY TERM
NAME MARCH 2, 2001 POSITION(S) CURRENTLY HELD SINCE (1) EXPIRES
---- ------------- -------------------------- --------- -------
NOMINEES FOR ELECTION
Dr. Paul Kouri 79 Director 1994 2001
Brent McQuarrie 49 Director 1994 2001
CONTINUING DIRECTORS
Maurice L. McAlister 75 Director/Chairman 1994 2002
Sam Yellen 70 Director 1994 2002
Daniel D. Rosenthal 48 Director, President and 1998 2002
Chief Executive Officer
Cheryl E. Olson 44 Director/Vice Chairman 1994 2003
Lester C. Smull 68 Director 1994 2003
Michael B. Abrahams 48 Director 1999 2003
----------------
(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 3 DIRECTORS, TO TERMS EXPIRING
IN 2004
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
director of Legacy Realty and Investment Corp., a Utah real estate and
development company, formerly known as Seven Peaks Development.
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.
3
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.
CONTINUING DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL 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 estate
development, management and consultant activities. Ms. Olson also serves on the
Board of Directors of Arrow Records, Inc. In addition, Ms. Olson is a director
of McAlister Investments, Inc., an affiliate of Downey. 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 has served as a director of Downey
and the Bank 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.
4
BOARD COMMITTEES AND MEETING ATTENDANCE
Currently, Downey has the following four standing Board Committees:
Audit, Compensation, Executive and Nominating. Membership in the committees, as
of the record date of March 2, 2001, is as follows:
AUDIT COMPENSATION NOMINATING
----- ------------ ----------
Sam Yellen, Chair Brent McQuarrie, Chair Cheryl E. Olson, Chair
Michael B. Abrahams Michael B. Abrahams Maurice L. McAlister
Dr. Paul Kouri Cheryl E. Olson Sam Yellen
Brent McQuarrie Lester C. Smull
EXECUTIVE
---------
Maurice L. McAlister, Chair
Cheryl E. Olson
Brent McQuarrie
AUDIT COMMITTEE 5 MEETINGS IN 2000
- 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;
- Reviews the appropriateness of fees for audit and non-audit
services performed by the independent accountants; and
- Composed of "independent" members as defined in the New York
Stock Exchange ("NYSE") listing standards.
5
COMPENSATION COMMITTEE 3 MEETINGS IN 2000
- 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 2000
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.
EXECUTIVE COMMITTEE NO MEETINGS IN 2000
- 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.
6
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 2000, the Board of Directors met 13 times: 12 regular meetings
and 1 special meeting. All directors attended at least 75% of the aggregate of
meetings held during 2000 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.
7
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of March 2, 2001, 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 18 and by all directors and executive officers as a group. Unless
otherwise stated, the beneficial owner exercises sole voting and investment
power over their shares.
AGGREGATE NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED OUTSTANDING SHARES
------------------------ ------------------------- ------------------
Maurice L. McAlister 5,649,005 (1) 20.0
Cheryl E. Olson 566,580 (2) 2.0
Brent McQuarrie 432,904 (3) 1.5
Daniel D. Rosenthal 101,841 (4) *
Dr. Paul Kouri 13,639 (5) *
Sam Yellen 4,472 *
Michael B. Abrahams 4,000 *
Lester C. Smull 883 (6) *
Jane Wolfe 12,187 (7) *
Thomas E. Prince 10,128 (8) *
Paul G. Woollatt 5,307 (9) *
John R. Gatzke 3,895 *
All Directors and Executive Officers
as a Group (17 persons) 6,834,647 (10) 24.2%
--------
(1) Mr. McAlister with his spouse, Dianne S. McAlister, as Co-trustor and
Co-trustee of the McAlister Family Trust, exercise shared voting and
investment power over all shares.
(2) Includes 16,294 shares over which Mrs. Olson shares voting and investment
power.
(3) Includes 167,100 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 60,900 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 sole voting and investment power
with respect to 450 shares and Mr. McQuarrie's spouse, Kathryn McQuarrie,
holds sole voting and investment power with respect to 660 shares. Mr.
McQuarrie holds 200,000 shares through Next Generation, Ltd., a Utah
limited partnership, in which he serves as General Partner.
(4) Includes options covering 20,476 shares that are exercisable within 60
days.
(5) Dr. Kouri shares voting and investment power with respect to 4,687 shares.
(6) Mr. Smull shares voting and investment power with respect to 285 shares.
(7) Includes options covering 10,614 shares that are exercisable within 60
days.
(8) Includes options covering 10,128 shares that are exercisable within 60
days.
(9) Includes options covering 5,307 shares that are exercisable within 60 days.
(10) Includes shared voting and investment power over 5,945,137 shares. Includes
options covering 71,214 shares that are exercisable within 60 days.
* Less than 1% of outstanding Common Stock at March 2, 2001
8
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:
AGE AT
NAME MARCH 2, 2001 CURRENT POSITION
---- ------------- ----------------
Daniel D. Rosenthal (1) 48 President and Chief Executive Officer of
Downey and the Bank
Thomas E. Prince 54 Executive Vice President and Chief Financial
Officer of Downey and the Bank
Donald E. Royer 51 Executive Vice President, General Counsel and
Corporate Secretary of Downey and the Bank
Stanley M. Tarbell 40 Senior Vice President and Tax Director of
Downey and the Bank
Jane Wolfe 55 Executive Vice President and Chief
Administrative Officer of Downey and the Bank
Lillian E. Gavin 38 Executive Vice President and Director of
Compliance and Risk Management of the Bank
Richard D. Grout 45 Executive Vice President and Director of Retail
Banking of the Bank
John R. Gatzke 40 Executive Vice President and Chief
Lending Officer of the Bank
Kendice K. Briggs 33 Senior Vice President and Director of
Human Resources of the Bank
------------
(1) See "Information Concerning Nominees and Directors - Continuing Directors
Whose Present Terms Continue until 2002," for a description of Mr.
Rosenthal's business background.
9
Kevin W. Hughes 39 Senior Vice President and Director of Portfolio
Management and Secondary Marketing of the Bank
Cliff J. Piscitelli 51 Senior Vice President and Director of Mortgage
Banking of the Bank
Kent J. Smith 39 Senior Vice President and Controller of the Bank
Charles Symmonds 44 Senior Vice President and Chief Information
Officer of the Bank
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.
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 23 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.
Jane Wolfe - Ms. Wolfe was appointed Executive Vice President and Chief
Administrative Officer of the Bank on January 24, 2001. 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.
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.
10
John R. Gatzke - Mr. Gatzke was appointed Executive Vice President and
Chief Lending Officer of the Bank in January 2001. Prior thereto, Mr. Gatzke
served as Senior Vice President and Assistant Chief Lending Officer of the Bank
from June 1998 to January 2001. 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.
Kendice K. Briggs - Ms. Briggs was appointed Senior Vice President,
Director of Human Resources of the Bank in November 2000. Ms. Briggs joined the
Bank in 1995 as an employment supervisor and was appointed Vice President and
Manager of Human Resources in July 1998. 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.
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 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.
Cliff J. Piscitelli - Mr. Piscitelli was appointed Senior Vice
President, Director of Mortgage Banking in October 2000. Prior thereto, Mr.
Piscitelli served as Chief Executive Officer of KATL Properties from April 1995
to April 2000. Prior thereto, Mr. Piscitelli served as Chief Executive Officer
and co-owner of Frontline Mortgage Company from December 1989 to January 1995.
Kent J. Smith - Mr. Smith was appointed Senior Vice President and
Controller of the Bank in January 2001. Prior thereto, Mr. Smith served as Vice
President, Acting Controller of the Bank from August 2000 and Vice President,
Assistant Controller of the Bank from June 1998 to July 2000. Mr. Smith joined
the Bank in October 1992 as a Senior Internal Auditor and was appointed
Financial Reporting Manager in February 1996.
Charles Symmonds - Mr. Symmonds was appointed Senior Vice President,
Chief Information Officer of the Bank in August 2000. Prior thereto, Mr.
Symmonds served as Acting Chief Information Officer of the Bank from April 2000
to August 2000. Prior thereto, Mr. Symmonds was Director of PC Operations of the
Bank from August 1999 to April 2000. Mr. Symmonds joined the Bank in May 1989 as
Senior Technical/LAN Analyst and was subsequently appointed Manager PC/LAN
Support and Manager of PC Programming between 1991 and August 1999.
11
AUDIT COMMITTEE REPORT
The Audit Committee of Downey's Board of Directors is responsible for
monitoring the integrity of Downey's financial reporting process and systems of
internal controls regarding financial reporting, accounting, and legal
compliance. In addition, the Audit Committee is responsible for monitoring the
independence and performance of Downey's independent auditors, the internal
auditing department, and the internal asset review function. The Audit Committee
also facilitates communication among the independent auditors, management, the
internal auditing department, the internal asset review department, and the
Board of Directors. The Audit Committee is currently composed of four directors,
none of whom is employed by Downey.
AUDIT PHILOSOPHY
During 2000, the Audit Committee revised its written charter to comply
with new rules relating to the functioning of corporate audit committees
promulgated by the Securities Exchange Commission ("SEC") and NYSE. The Audit
Committee's charter was approved by Downey's Board of Directors and is attached
to this proxy statement as Appendix A.
During 2000, the Audit Committee met 5 times. The Audit Committee
reviewed and discussed the quarterly and annual audited financial statements for
Downey with management. The Audit Committee discussed with the independent
auditors the matters required to be discussed by Statement on Auditing Standards
No. 61.
COMMUNICATIONS WITH AUDIT COMMITTEES
The Audit Committee discussed with the independent auditors changes in
significant accounting policies in controversial or emerging areas, the process
used by management in formulating material accounting estimates and the
independent auditor's conclusions regarding the reasonableness of such
estimates, adjustments arising from the audit, if any, and any disagreements
with management over the application of accounting principles.
The Audit Committee received, reviewed and discussed with the
independent auditors, the auditor's written disclosures regarding independence
and the letter from the auditor required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees. Based on the
review of such disclosures and giving consideration to the non-audit services
provided by KPMG LLP during 2000, the Audit Committee has concluded that
independence has not been impaired or compromised.
Based on the Audit Committee's review and discussions described above,
the Audit Committee recommended to the Board of Directors that the audited
financial statements be included in Downey's Form 10-K filed with the SEC.
Respectfully submitted,
Sam Yellen, Chairman
Michael B. Abrahams
Dr. Paul Kouri
Brent McQuarrie
12
FEES
During 2000, the Company paid the following amounts to KPMG LLP for the
services as described below:
AUDIT FEES
Downey paid a total of $200,000 for the audit and review of Downey's
2000 financial statements.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION
None.
ALL OTHER FEES
Downey paid a total of $351,648 for all other services performed by
KPMG LLP, the majority of which were related to tax projects.
PROPOSAL 2. RATIFY THE APPOINTMENT OF AUDITORS
The accounting firm of KPMG LLP has been appointed as our auditors for
the year 2001 and such appointment is being submitted to the shareholders for
ratification. In the event the appointment is not ratified by a majority of
votes cast, in person or by proxy, it is anticipated that no change in auditors
would be made for the current year because of the difficulty and expense of
making any change so long after the beginning of the current year, but such vote
would be considered in connection with the appointment of auditors for 2002.
KPMG LLP was our auditor for the year ended December 31, 2000, and a
representative of such firm is expected to attend the meeting, respond to
appropriate questions and if such representative desires, which is not now
anticipated, make a statement.
In 1989, the Board of Directors engaged KPMG LLP as Downey's
independent auditor and the relationship which has existed has been the
customary relationship between an independent accountant and client.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THIS PROPOSAL.
PROXIES, UNLESS INDICATED TO THE CONTRARY, WILL BE VOTED "FOR" THIS PROPOSAL.
13
COMPENSATION COMMITTEE REPORT
The Compensation Committee (the "Compensation Committee") of Downey's
Board of Directors establishes the overall compensation policies and programs of
Downey and its subsidiaries. In addition, the Compensation Committee recommends
the compensation of the President and Chief Executive Officer, which
recommendation is subject to the approval by the Board of Directors. The
Compensation Committee is composed of four directors, none of whom is employed
by Downey.
COMPENSATION PHILOSOPHY
The Compensation 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 Compensation 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 Compensation Committee evaluates compensation and
benefits programs to ensure they are cost effective, competitive and fair.
To ensure that pay policies are competitive, the Compensation Committee
periodically compares Downey's pay policies to peer group institutions. The
Compensation 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.
2000 COMPENSATION PROGRAMS
During 2000, 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).
14
BASE SALARY
During 2000, the Compensation Committee reviewed base salaries of
selected employees, including executive officers. Based on such review and the
Compensation Committee's assessment of market conditions and competitive
factors, the Compensation 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 2000, the Compensation 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 2000
approved corporate performance target for net income, which aligned each
participant's compensation with Downey's approved business plan. During 2000,
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 Administrative 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 2000 year-end results, the Compensation Committee
met with the President and Chief Executive Officer and reviewed the individual
performance contribution of each participant in the Annual Incentive Plan.
During 2000, Downey achieved 112.2% of its corporate performance target. Based
upon 2000 corporate and individual participant performance, bonuses paid,
relative to the targeted amounts for all such participants, represented, on
average, 130% of the bonus target.
15
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 66 officers and key employees are eligible to receive
awards under the LTIP. The LTIP is administered by the Compensation Committee
and, during 2000, no stock option grants or other awards were made under the
LTIP.
DEFERRED COMPENSATION PROGRAM
During 1995, the Compensation 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 Program was approved for key management
employees and directors. Currently, 66 management employees and 7 directors are
eligible to participate in the program. During 2000, 23 management employees and
one director elected to defer compensation pursuant to the 1999 Deferred
Compensation Program.
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 2000, total contributions consisted
of the Bank's discretionary contribution ($1,603,035) and the employer match
($388,365) to the Downey Savings Employees' Retirement and Savings Plan.
16
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 2000, 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 2000 corporate performance target,
the Compensation Committee recommended and Downey's Board of Directors approved
an incentive compensation payment to Mr. Rosenthal of $492,624, which amount
represents 136.8% of the targeted incentive amount.
The Compensation Committee believes that the management team is
dedicated to achieving significant improvement in Downey's long-term financial
performance. The Compensation 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 Compensation Committee, will enhance management's efforts in
these areas.
Respectfully submitted,
Brent McQuarrie, Chairman
Michael B. Abrahams
Cheryl E. Olson
Lester C. Smull
17
COMPENSATION
Executive Compensation
The following Summary Compensation Table sets forth all compensation
paid by Downey and its subsidiaries for services rendered during 2000, 1999
and 1998 to Downey's Chief Executive Officer, and each of Downey's four other
most highly compensated executive officers as of the end of 2000,
(collectively, the "Named Executives").
SUMMARY COMPENSATION TABLE
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 AWARDS OPTIONS PAYOUTS COMPENSATION
-------------------------------------------------------------------------------------------------------------------------------
Daniel Rosenthal 2000 $300,000 $492,624 $4,643 (1) --- --- --- $ 3,000 (1)
President and Chief 1999 250,008 300,000 3,724 (1) --- --- --- 4,808 (1)
Executive Officer 1998 170,620 154,840 11,203 (1) --- 29,484 --- 5,385 (1)
Paul Woollatt 2000 $263,663 $146,699 $4,302 (2) --- --- --- $ 0 (2)
Chief Operating Officer 1999 221,903 200,000 5,651 (2) --- --- --- 114,208 (2)
1998 163,112 110,728 13,748 (2) --- 26,536 --- 6,252 (2)
Jane Wolfe 2000 $250,008 $373,200 $4,416 (3) --- --- --- $ 0 (3)
Executive Vice President 1999 225,000 275,000 4,715 (3) --- --- --- 52,390 (3)
and Chief Administrative 1998 190,007 305,411 17,901 (3) --- 26,536 --- 0 (3)
Officer
John Gatzke 2000 $180,006 $268,704 $3,733 (4) --- --- --- $ 0 (4)
Executive Vice President 1999 150,006 206,768 3,836 (4) --- --- --- 12,981 (4)
and Chief Lending Officer 1998 103,337 163,168 7,570 (4) --- --- --- 2,578 (4)
Thomas E. Prince 2000 $194,007 $53,350 $4,042 (5) --- --- --- $ 0 (5)
Executive Vice President 1999 184,007 51,060 4,708 (5) --- --- --- 19,101 (5)
and Chief Financial Officer 1998 184,007 59,248 15,898 (5) --- 14,467 --- 11,574 (5)
-------------------
(1) The amounts shown for Mr. Rosenthal for 2000 include flex benefit credits
contributed by Downey ($2,943), Mr. Rosenthal's interest ($1,700) in
Downey's 2000 401(k) plan contributions, and a service award ($3,000); and
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).
18
(2) The amounts shown for Mr. Woollatt for 2000 include flex benefit credits
contributed by Downey ($2,602), and Mr. Woollatt's interest ($1,700) in
Downey's 2000 401(k) plan contributions; and 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).
In a news release dated January 26, 2001, Downey announced that Paul G.
Woollatt had resigned his position of Chief Operating Officer of Downey and
the Bank.
(3) The amounts shown for Ms. Wolfe for 2000 include flex benefit credits
contributed by Downey ($2,716), and Ms. Wolfe's interest ($1,700) in
Downey's 2000 401(k) plan contributions; and 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), Ms. Wolfe's interest
($15,008) in Downey's 1998 401(k) plan contributions, and reportable
interest from deferred compensation ($587).
(4) The amounts shown for Mr. Gatzke for 2000 include flex benefit credits
contributed by Downey ($2,033), and Mr. Gatzke's interest ($1,700) in
Downey's 2000 401(k) plan contributions; and 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).
(5) The amounts shown for Mr. Prince for 2000 include flex benefit credits
contributed by Downey ($2,342), and Mr. Prince's interest ($1,700) in
Downey's 2000 401(k) plan contributions; and 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).
19
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named
Executives concerning the exercise of options during 2000 and unexercised
options held by the Named Executives as of December 31, 2000:
AGGREGATED OPTION EXERCISES IN 2000
AND YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
NUMBER OF NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT 12/31/00 12/31/00(1)
ACQUIRED VALUE ------------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------- ----------- -------- ----------- ------------- ----------- -------------
Daniel D. Rosenthal 6,203 $130,170 20,476 17,691 $713,978 $522,990
Paul G. Woollatt 17,845 244,469 5,307 15,922 156,888 470,694
Jane Wolfe 8,477 178,897 10,614 15,922 313,776 470,694
Thomas E. Prince 8,269 162,155 10,128 8,681 353,743 256,632
(1) Value of unexercised "in-the-money" options is the difference between the
market price of the Common Stock on December 31, 2000 ($55.00 per share)
and the exercise price of the options, multiplied by the number of shares
subject to the option. The number of options and the exercise price per
share have been adjusted for a 5% stock dividend paid in December 1995, a
three-for-two stock split effected in the form of a stock dividend paid in
December 1996, a 5% stock dividend paid in May 1997 and a 5% stock dividend
paid in May 1998.
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 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.
20
DIRECTOR RETIREMENT BENEFITS
A retirement benefit (the "Director Retirement Benefits") 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 Benefits 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 Benefits 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 Benefits 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 Benefits. 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. 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.
During 2000, in consideration and in recognition of Mr. McAlister
having completed more than thirty years of service and his continuing
involvement with the growth of Downey and the Bank, the Bank agreed to amend the
Founder Retirement Agreement pursuant to which Mr. McAlister and the Bank agreed
Mr. McAlister would be entitled to receive monthly compensation for so long as
Mr. McAlister lives but not less than 120 months from June 28, 2000. During
2000, Mr. McAlister received $428,259 under the Founder Retirement Agreement. 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.
21
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"). The Peer Group
consists of those thrifts based in western states followed by Merrill Lynch &
Co. The western state companies included in the Peer Group 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 two
California-based companies: Golden State Bancorp and Golden West Financial
Corp.; and one Washington-based company: Washington Mutual. 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, 1995 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
1995 1996 1997 1998 1999 2000
Downey 100.00 138.09 213.04 202.45 163.38 450.58
S&P 500 100.00 122.96 163.98 210.84 255.22 231.98
Peer Group 100.00 122.25 175.60 158.34 127.75 251.97
22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND CERTAIN BUSINESS RELATIONSHIPS
During 2000, 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
$68,997. Downey and the Bank have been fully reimbursed for the services
provided.
Mr. Smull, a director of Downey and the Bank, has a business
relationship that is discussed in the following paragraph.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Bank entered into a commercial lease with Business Properties #27,
a California General Partnership ("BP #27"), pursuant to which the Bank leases
its Chino branch office. Lester C. Smull, a director of Downey and the Bank, and
one of the four members of Downey's Compensation Committee, is the managing
general partner of BP #27. The lease, which runs from October 1, 2000 through
October 1, 2005, provides that the Bank will pay rent to BP #27 at the rate of
$6,135 per month, with annual rent increases of 3%. The lease provides for two
consecutive two-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.
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 Lester C. Smull, a director, in his individual capacity, to the Trust
and to a number of California partnerships as to which Mr. Smull is a managing
general partner. As of December 31, 2000, the Bank had loans outstanding to Mr.
Smull or his related partnerships in an aggregate amount of approximately $22.8
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.
23
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
At the close of business on March 2, 2001, the record date for the
Annual Meeting, there were outstanding and entitled to vote 28,211,048 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.
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:
PERCENT OF
AMOUNT/NATURE OF OUTSTANDING
NAME/ADDRESS BENEFICIAL OWNERSHIP STOCK
------------ -------------------- -----------
McAlister Family Trust (1) 5,649,005 20.2%
3501 Jamboree Road
Newport Beach, CA 92660
Gerald H. McQuarrie
Family Trusts (2) 1,585,085 5.6%
Hawkins, Cloward & Simster
1095 S. 800 E., Suite 1
Orem, UT 84097
T. Rowe Price Associates, Inc. (3) 1,564,600 5.5%
100 E. Pratt Street
Baltimore, MD 21202
-----------------------
(1) See footnote (1) on page 8.
(2) Oneida B. McQuarrie-Gibson serves as Trustee for the Gerald H. McQuarrie
Family Trusts. Includes 38,496 shares held by the Survivor Trust of the
Gerald H. McQuarrie Trusts; 7,184 shares held by the By-Pass Trust of the
Gerald H. McQuarrie Family Trusts; 76,150 shares held by the Exempt Marital
Trust of the Gerald H. McQuarrie Family Trusts; 1,088,255 shares held by
the Non-Exempt Marital Trust of the Gerald H. McQuarrie Family Trusts;
125,000 shares held by OBM-Brent, Ltd.; 125,000 shares held by OBM-Scott,
Ltd.; and 125,000 shares held by OBM-Sandy, Ltd.
(3) This information is based upon Schedule 13G, filed on February 6, 2001 with
the Securities and Exchange Commission by T. Rowe Price Associates, Inc.
These securities are owned by various individual and institutional
investors which T. Rowe Price Associates, Inc. (Price Associates) serves as
investment advisor with power to direct investments and/or sole power to
vote the securities. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, Price Associates is deemed to be a
beneficial owner of such securities; however, Price Associates expressly
disclaims that it is, in fact, the beneficial owner of such securities.
24
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, 2000 to December 31, 2000, all Section 16 filing requirements
were complied with except as follows: Jane Wolfe filed a late Form 4 in March
for Downey stock purchased in February; John R. Gatzke filed a late Form 4 in
December for Downey stock sold in October; and Dr. Paul Kouri filed a late Form
4 in November for Downey stock sold in October.
PROPOSALS OF SHAREHOLDERS
It is presently anticipated that the 2002 Annual Meeting of
Shareholders will be held in April 2002. 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 16, 2001, 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.
25
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.
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 are 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.
26
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
27
APPENDIX A
DOWNEY FINANCIAL CORP.
AUDIT COMMITTEE CHARTER
AUDIT COMMITTEE PURPOSE
The Audit Committee is appointed by the Board of Directors to assist
the Board of Directors in fulfilling its oversight responsibilities. The Audit
Committee's primary duties and responsibilities are to:
- Monitor the integrity of Downey's financial reporting
process and systems of internal controls regarding finance,
accounting, and legal compliance.
- Monitor the independence and performance of Downey's
independent auditors, the internal auditing department, and
the internal asset review department.
- Facilitate communication among the independent auditors,
management, the internal auditing department, the internal
asset review department, and the Board of Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to the
independent auditors as well as anyone in the organization. The Audit Committee
has the ability to retain, at Downey's expense, special legal, accounting, or
other consultants or experts it deems necessary in the performance of its
duties.
AUDIT COMMITTEE COMPOSITION AND MEETINGS
Audit Committee members shall meet the requirements for independence
and expertise established by the NYSE. The Audit Committee shall be comprised of
at least three directors, each of whom shall be independent non-executive
directors, free from any relationship that would interfere with the exercise of
his or her independent judgement. Each member of the Audit Committee shall be
financially literate, as such qualification is interpreted by Downey's Board of
Directors in its business judgement. At least one member of the Audit Committee
shall have accounting or related financial management expertise.
Audit Committee members and the Audit Committee Chair shall be
appointed by the Board of Directors.
The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate. The Audit Committee Chair shall prepare
and/or approve an agenda in advance of each meeting. The Audit Committee should
meet privately in executive session at least annually with management, the
Director of Internal Audit, the Director of Internal Asset Review, the
independent auditors, and as a committee to discuss any matters that the Audit
Committee or each of those groups believe should be discussed. In addition, the
Audit Committee, or at least its Chair, should communicate with management and
the independent auditors quarterly to review Downey's financial statements and
significant findings based upon the auditor's limited review procedures.
28
AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
REVIEW PROCEDURES
1. Review and reassess the adequacy of this Charter at least annually.
Submit the Charter to the Board of Directors for approval and have the
document published at least every three years in accordance with
Securities and Exchange Commission regulations.
2. Review Downey's annual audited financial statements prior to filing or
distribution. Review should include discussion with management and
independent auditors of significant issues regarding accounting
principles, practices, and judgements.
3. In consultation with the management, the independent auditors, and the
internal auditors, consider the integrity of Downey's financial
reporting processes and controls. Discuss significant financial risk
exposures and the steps management has taken to monitor, control, and
report such exposures. Review significant findings prepared by the
independent auditors and the Internal Audit Department together with
management's responses.
4. Review with financial management and the independent auditors Downey's
quarterly financial results prior to the release of earnings and/or
Downey's quarterly financial statements prior to filing or
distribution. Discuss any significant changes to Downey's accounting
principles and any items required to be communicated by the independent
auditors in accordance with SAS 61 (see item 9 below). The Chair of the
Audit Committee may represent the entire Audit Committee for purposes
of this review.
5. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall review
the independence and performance of the auditors and annually recommend
to the Board of Directors the appointment of the independent auditors
or approve any discharge of auditors when circumstances warrant.
INDEPENDENT AUDITORS
6. Approve the fees and other significant compensation to be paid to the
independent auditors.
7. On an annual basis, the Audit Committee should obtain a written
statement from the outside auditors delineating all relationships
between the auditor and Downey. The Audit Committee is responsible for
actively engaging in a dialogue with the outside auditor with respect
to any disclosed relationships or services that may impact the
objectivity and independence of the outside auditor, and for
recommending that the Board of Directors take appropriate action in
response to the outside auditor's report to satisfy itself of the
outside auditor's independence.
8. Review the independent auditors' audit plan - discuss scope, staffing,
locations, reliance upon management, and internal audit and general
audit approach.
29
9. Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Review any problems or
difficulties the independent auditor may have encountered in the course
of the audit work, including any restrictions on the scope of
activities or access to required information. Discuss certain matters
required to be communicated to audit committees in accordance with
AICPA SAS 61.(1) The Chair of the Audit Committee may represent the
entire Audit Committee for purposes of this review.
10. Consider the independent auditors' judgments about the quality and
appropriateness of Downey's accounting principles as applied in its
financial reporting.
11. Consider and approve all non-audit related services provided by the
independent auditor to ensure maintenance of auditors' independence and
comply with the Securities & Exchange Commission independence rules.
INTERNAL AUDIT, INTERNAL ASSET REVIEW AND LEGAL COMPLIANCE
12. Review the budget, audit plan, changes in the audit plan, activities,
organizational structure, and qualifications of the internal audit
department, as needed.
13. Review the appointment, performance, and replacement of the Director of
Internal Audit, and the Director of Internal Asset Review, both of whom
shall report directly to the Audit Committee. For Administrative
purposes, the Director of Internal Audit and the Director of Internal
Asset Review shall report to the Director of Compliance and Risk
Management and the Chief Executive Officer.
14. Review significant reports prepared by the Internal Audit and Internal
Asset Review Departments together with management's response and
follow-up to these reports.
15. On at least an annual basis, review with Downey's counsel, any legal
matters that could have a significant impact on the organization's
financial statements, Downey's compliance with applicable laws and
regulations, and inquiries received from regulators or governmental
agencies.
--------------------------
(1) Statement of Auditing Standards (SAS) No. 61 requires that auditors discuss
certain matters with audi ommittees of all SEC engagements. The
communication may be in writing or oral and may take place before or after
the financial statements are issued. Items to be communicated include:
- The auditor's responsibility under Generally Accepted Auditing Standards
(GAAS);
- Significant accounting policies;
- Management judgments and accounting estimates;
- Significant audit adjustments;
- Other information in documents containing audited financial statements;
- Disagreements with management - including accounting principles, scope of
audit, disclosures;
- Consultation with other accountants by management;
- Major issues discussed with management prior to retention, and
- Difficulties encountered in performing the audit.
30
OTHER AUDIT COMMITTEE RESPONSIBILITIES
16. Annually prepare a report to shareholders as required by the Securities
and Exchange Commission. The report should be included in Downey's
annual proxy statement and state whether the Audit Committee has:
- Reviewed and discussed the audited financial statements with
management;
- Discussed with the independent auditors the matters required
to be discussed by SAS 61; and
- Received certain disclosures from the auditors regarding
their independence. Then include a statement, if based on
this review, the Audit Committee recommended to the Board of
Directors to include the audited financial statements in the
annual report filed with the SEC.
17. Perform any other activities consistent with this Charter, Downey's
by-laws, and governing law, as the Audit Committee or the Board of
Directors deems necessary or appropriate.
18. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to plan or
conduct audits or to determine that Downey's financial statements are
complete and accurate and are in accordance with generally accepted
accounting principles. This is the responsibility of management and the
independent auditor. Nor is it the duty of the Audit Committee to
conduct investigations, to resolve disagreements, if any, between
management and the independent auditor or to assure compliance with
laws and regulations and Downey's Code of Conduct.
31
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REVOCABLE PROXY
DOWNEY FINANCIAL CORP.
ANNUAL MEETING OF SHAREHOLDERS - APRIL 25, 2001
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 Cheryl E.
Olson, 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 25, 2001 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:
THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF ALL NOMINEES AND "FOR" THE
RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS AUDITOR FOR THE YEAR 2001
UNLESS AUTHORITY TO DO SO IS WITHHELD.
Please Sign and Date On Reverse Side
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PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
DOWNEY FINANCIAL CORP.
APRIL 25, 2001
Please Detach and Mail in the Envelope Provided
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PLEASE SIGN, DATE AND RETURN THIS PROXY AS PROMPTLY AS POSSIBLE
IN THE POSTAGE PREPAID ENVELOPE PROVIDED.
PLEASE MARK YOUR
A /X/ VOTES AS IN THIS
EXAMPLE.
For all the Company Withold
nominees listed at right Authority to vote
(except as marked to for all nominees
the contrary below) listed at the right
1. Elect two / / / / NOMINEES:
Class 3 Dr. Paul Kouri
Directors for terms of three years each: Brent McQuarrie
(Instructions: To withhold authority to vote for any one or more nominees, write
that nominee's or nominees' name(s) in the space provided below)
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FOR AGAINST ABSTAIN
2. Ratify the appointment of KPMG LLP as / / / / / /
auditors for the year 2001; and
3. Other Business. In their discretion, the proxyholders are authorized to
transact such other business as may properly come before the Annual Meeting
and any adjournment or adjournments thereof.
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 hereby 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.
Number of Shares_____________________
I (We) do I (We) do
expect / / not expect / /
to attend to attend
the meeting the meeting
________________________________ ______________________________
Name of Shareholder, Printed Signature of Shareholder
________________________________ ______________________________ Date________
Name of Shareholder, Printed Signature of Shareholder
Note: (Please date this Proxy and sign your name as it appears on your stock
certificate(s). Executors, administrators, trustees etc., should give
their full titles. All joint owners should sign.)
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