**EXHIBIT 10.3**
**EMPLOYMENT AGREEMENT**
     This Employment Agreement (the “Agreement”) is entered into effective July 1, 2005, by andbetween IndyMac Bank F.S.B. (“Employer”) and Terrence O. Hughes (“Officer”).
     1. **Term**. Employer agrees to employ Officer and Officer agrees to serve Employer and itsaffiliates, in accordance with the terms and conditions of this Agreement, for a period of three(3) years, commencing on the date first set forth above, unless Officer’s employment is earlierterminated as herein provided.
     2. **Position, Duties and Responsibilities**. Officer shall serve as an Executive Vice Presidentof Employer, or of one of Employer’s affiliated companies, as determined by Employer. Officeragrees to devote Officer’s full-time best efforts to the business and affairs of Employer and itsaffiliates, to perform such executive and managerial duties as may be assigned to Officer, and todiligently promote the business, affairs and interests of Employer and its affiliates. If sorequested by Employer, Officer agrees to serve concurrently, and without additional compensation,as an officer of both Employer and of one or more of Employer’s affiliates, including itssubsidiaries.
     3. **Outside Affiliations**. During the term of this Agreement, Officer shall not compete, eitherdirectly or indirectly, with the business of Employer or its affiliates. Except as otherwiseprovided in this Agreement, Officer may make and manage personal business investments of Officer’schoice and may serve in any capacity with any civic, educational or charitable organization, orwith any governmental entity or trade association, provided that such activities do not interferewith or conflict with Officer’s duties under this Agreement. Officer may not sit on the board ofdirectors of any civic, educational or charitable organization without first obtaining Employer’swritten consent.
     4. **Compensation and Benefits**. In consideration of the performance of Officer’s duties underthis Agreement, Employer or its affiliates shall provide to Officer the compensation set forthbelow. All compensation paid to Officer by Employer or by any of its affiliates shall beaggregated in determining whether Officer has received the benefits described herein, but withoutprejudice to the allocation of costs among the entities to which Officer renders services underthis Agreement.
          4.1 **Base Salary**. Employer shall pay to Officer a base salary at the annual rate set forth inAppendix A. Officer’s base salary shall be payable in equal installments no less frequently thanevery month. Employer may, in its sole discretion, increase Officer’s base salary during the termof this Agreement, but Employer will not decrease Officer’s base salary below the amount set forthin Appendix A.
          4.2 **Incentive Compensation**. For each calendar year during the term of this Agreement,Employer shall pay to Officer an incentive compensation award in an amount to be determinedpursuant to the then-applicable Incentive Plan set forth in Appendix A. The terms of the IncentivePlan shall be agreed upon by Employer and Officer during the first quarter of each
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new calendar year during the term of this Agreement. Any incentive compensation award payableto Officer pursuant to the Incentive Plan shall be paid no later than thirty (30) days aftercompletion and publication of the applicable audited financial statements for the relevant calendaryear or calendar quarter. Except as otherwise provided herein, any incentive compensation awarddescribed in the Incentive Plan, and Officer’s base salary to the extent that the incentivecompensation award is a percentage of Officer’s base salary, shall be prorated to the extent thatOfficer is employed for less than twelve (12) full months during the relevant calendar year.
          4.3 **Stock Options and Restricted Stock**. During the term of this Agreement, Employer’s publiccompany affiliate, IndyMac Bancorp, Inc., or any successor public company (“Public Company”), maygrant to Officer stock options and/or restricted stock for such number of shares of the PublicCompany’s common stock as the Compensation Committee of the Board of Directors of the PublicCompany (“Compensation Committee”) in its sole discretion determines, taking into account Officer’sand the Public Company’s performance and the competitive practices then prevailing regarding thegranting of stock options. Subject to the foregoing, it is anticipated that the number of sharesin respect of each annual stock option and/or restricted stock grant, if any, shall be grantedaccording to the Public Company’s annual equity incentive plan and the management of the plan forOfficer’s of a similar level, as of the time of the grant. The stock options and/or restrictedstock herein described shall be granted at the same time as the Public Company grants stock optionsand/or restricted stock to its other officers.
          All stock options and restricted stock granted herein: (i) shall be granted pursuant to thePublic Company’s current stock option plan, or such other stock option plan or plans as may comeinto effect during the term of this Agreement, (ii) shall be priced and shall vest in accordancewith the terms set by the Compensation Committee or as otherwise set forth in this Agreement, and(iii) shall be subject to such other reasonable terms and conditions as may be determined by theCompensation Committee and set forth in the agreement or other document evidencing the award.
          The effect of Officer’s termination on the vesting of any stock options or restricted stockgranted under this Agreement is described in Section 5.2. In the event that vested options held byOfficer immediately after such termination represent shares of common stock in an amount equal toor greater than 500,000, then the maximum period for the exercise of any options shall be twelve(12) months. In the event that vested options held by Officer immediately after such terminationrepresent shares of common stock in an amount equal to or greater than 100,000 but less than500,000, then the maximum period for the exercise of any options shall be six (6) months. In theevent that vested options held by Officer immediately after such termination represent shares ofcommon stock in an amount less than 100,000, then the maximum period for their exercise shall bethree (3) months.
          4.4 **Additional Benefits**. Officer shall be entitled to paid vacation, subject to Employer’svacation policies in effect from time to time. Officer shall also be entitled to participate inEmployer’s life and medical insurance plans, and in any stock purchase, executive compensation,pension, profit-sharing, deferred compensation, or other benefit or bonus plans that are offered toEmployer’s employees generally, or to officers of Employer at a level similar
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to Officer’s level, subject to the terms and conditions, including any applicable eligibilityrequirements, of any such plan. This Agreement shall not affect or otherwise modify the provisionsof any other compensation, retirement or other benefit program or plan of Employer.
     5. **Termination of Employment**. This Agreement, the compensation and benefits provided underthis Agreement, and Officer’s employment with Employer, are terminable as herein provided.
          5.1 **Grounds for Termination**. Employer may, in its sole and absolute discretion, terminatethis Agreement and Officer’s employment on the following grounds:
                    5.1.1 **Disability**. In the event of Officer’s inability to perform his or her duties (with orwithout reasonable accommodation) because of illness, injury or similar incapacity for four (4)consecutive calendar months, or for shorter periods aggregating eighty (80) or more business daysin any twelve (12)-month period and upon a finding by Employer, in its sole discretion, thatallowing Officer to remain on a leave status beyond that period of time will result in an unduehardship to the Employer (“Disability”), this Agreement and Officer’s employment may be terminatedby Employer by giving Notice of Termination as provided in Section 9.1.
                    5.1.2 **Death**. In the event of Officer’s death during the term of this Agreement (“Death”),this Agreement and Officer’s employment shall immediately and automatically terminate.
                    5.1.3 **Cause**. Employer may terminate this Agreement and Officer’s employment by giving Noticeof Termination at any time for cause. “Cause” means any act or omission to act by Officer whichconstitutes, in the sole discretion of Employer, (i) a material breach of this Agreement that iscommitted in bad faith or without reasonable belief that such act or omission is in the bestinterests of Employer, (ii) negligence or misconduct resulting in a material loss to Employer,(iii) gross negligence, (iv) an intentional and material failure to perform Officer’s assignedduties, (v) fraud, theft or dishonesty, (vi) willful violation of any law, rule or regulation of agovernmental authority, other than traffic violations, (vii) regular alcohol or drug abuse, (viii)violation of the Company’s Code of Conduct, (ix) such other conduct as is reasonably likely tocause Employer public disgrace or disrepute, or (x) entry of an order by any state or federalregulatory agency either removing Officer from Officer’s position with Employer or its affiliatesor prohibiting Officer from participating in the conduct of the affairs of Employer or any of itsaffiliates.
                    5.1.4 **Poor Performance**. Employer may terminate this Agreement and Officer’s employment bygiving Notice of Termination at any time for poor performance. “Poor Performance” means a failureof Officer to properly meet, in the sole discretion of Employer, the duties and responsibilities ofOfficer’s position in a competent fashion.
                    5.1.5 **No Cause**. Employer may, in its sole and absolute discretion, terminate this Agreementand Officer’s employment by giving Notice of Termination at any time for no reason, or for anyreason whatsoever other than Death, Disability, Cause or Poor Performance (“No Cause”).
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                    5.1.6 **Resignation**. Should Officer voluntarily resign Officer’s employment, either by givingNotice of Termination during the term of this Agreement or otherwise (“Resignation”), Officer’semployment shall terminate immediately, unless Officer and Employer mutually agree on a latereffective date of termination.
     5.2 **Benefits Upon Termination**. Notwithstanding any other agreements to the contrary, thefollowing benefits shall be the only termination benefits Officer is entitled to from Employer.
                    5.2.1 **Disability**. Regardless of Officer’s position or years of service with Employer or itsaffiliates, in the event that Officer’s employment terminates by reason of Disability, as definedin Section 5.1.1, Officer shall be entitled to receive (i) all accrued but unpaid vacation benefitsas of the Termination Date, as defined in Section 9.1, (ii) any other benefits already vested as ofthe Termination Date under any of Employer’s applicable stock option, pension, bonus or othersimilar plans in which Officer participated immediately prior to termination (“Vested Benefits”),(iii) the immediate vesting, to the extent not otherwise vested, of all outstanding stock optionsor similar awards previously granted to Officer under Section 4.3, and (iv) Officer’s incentivecompensation award for the year in which Officer became disabled, prorated to the Termination Date.Officer shall also be entitled to receive the following benefits for a period of time commencingfrom the Termination Date and continuing for the number of months remaining in the term of thisAgreement, or until Officer’s death, whichever first occurs: (v) continuation of Officer’s basesalary, reduced by 50%, minus the amount of any cash payments due to Officer under the terms ofEmployer’s disability insurance or other disability benefit plan funded by Employer or Employer’stax-qualified Defined Benefit Pension Plan, all subject to Section 5.2.8, and (vi) continuation ofbenefits substantially equivalent to the life, disability and medical insurance policies maintainedby Employer on behalf of Officer and Officer’s spouse and dependents, if any, immediately prior tothe Notice of Termination, but then only to the extent that Officer is not entitled to comparablebenefits from other employment.
                    5.2.2 **Death**. Regardless of Officer’s position or years of service with Employer or itsaffiliates, in the event of Officer’s Death, as defined in Section 5.1.2, Employer shall pay tosuch person or persons as Officer shall have designated in writing or, in the absence of such adesignation, to Officer’s estate, (i) all accrued but unpaid vacation benefits as of the date ofDeath, (ii) any Vested Benefits, (iii) to the extent not otherwise vested, all outstanding stockoptions or similar awards previously granted to Officer, which will vest immediately upon Officer’sDeath, and (iv) Officer’s incentive compensation award for the year in which Death occurs, proratedto date of Death. Employer shall also, within forty-five (45) days following Officer’s Death, payto Officer’s designee or to Officer’s estate an amount equal to two times Officer’s last annualbase salary. Employer shall also, for a period of twelve (12) months following the date ofOfficer’s Death, pay the cost of any continued coverage under Employer’s group medical insuranceplan for the benefit of Officer’s spouse and dependents, if any, should they elect continuedcoverage under COBRA, provided they were covered under the plan immediately prior to Officer’sDeath.
                    5.2.3 **Cause**. Regardless of Officer’s position or years of service with Employer or itsaffiliates, in the event of Officer’s termination for Cause, as defined in Section 5.1.3, Officershall be entitled to payment of Officer’s base salary through the
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Termination Date, to any accrued but unpaid vacation benefits, and to any other VestedBenefits, but to no other payments or benefits whatsoever.
                    5.2.4 **Poor Performance**. In the event of Officer’s termination for Poor Performance, asdefined in Section 5.1.4, the benefits payable to Officer shall depend upon Officer’s position andyears of continuous service to Employer or its affiliates. If Officer had five (5) or fewer yearsof continuous service as of the Termination Date, Officer shall be entitled to payment of Officer’sbase salary through the Termination Date, and to continuation of Officer’s base salary, reduced by50%, for the lesser of one year or the number of months remaining in the term of this Agreement asof the Termination Date, subject to Section 5.2.8.
                    If Officer had more than five (5) years of continuous service as of the Termination Date, orif Officer is a director, officer or principal stockholder of Employer or of any of its affiliatesas described in Section 16(a) of the Exchange Act (“Section 16 Employee”), Officer shall beentitled to payment of Officer’s base salary through the Termination Date, and to continuation ofOfficer’s base salary for the lesser of one year or the number of months remaining in the term ofthis Agreement as of the Termination Date, subject to Section 5.2.8, and to the additional benefitdescribed in Section 5.2.9, if allowed by law.
                    Regardless of Officer’s position or years of service, Officer shall also be entitled to anyaccrued but unpaid vacation benefits, to any other Vested Benefits, and to Officer’s incentivecompensation award for the year in which Officer was terminated, prorated to the Termination Date,but to no other payments or benefits whatsoever.
                    5.2.5 **No Cause**. In the event Officer’s employment is terminated for No Cause, as defined inSection 5.1.5, Officer shall be entitled to (a) payment of Officer’s base salary through theTermination Date, (b) to continuation of Officer’s base salary, increased by 100%, for six monthsand then continuation of Officer’s base salary for an additional six months, provided however thatin the event that termination under this Section 5.2.5 occurs within the last twelve months of theterm of this Agreement, the Officer’s salary continuation benefits shall be reduced prorate by thenumber of months remaining in the term of this Agreement as of the Termination Date. All paymentsunder this section 5.2.5 shall be subject to Section 5.2.8, and to the additional benefit describedin Section 5.2.9, if allowed by law and by this Agreement.
                    Regardless of Officer’s position or years of service, Officer shall also be entitled to anyaccrued but unpaid vacation benefits, to any other Vested Benefits, to Officer’s incentivecompensation award for the year in which Officer was terminated, prorated to the Termination Date,and to the immediate vesting, to the extent not otherwise vested, of all outstanding stock optionsor similar awards previously granted to Officer under Section 4.3, but only to the extent that anysuch outstanding stock options or similar awards would, by their terms, vest within one (1) year ofthe Termination Date. In addition, Officer shall be entitled, for a period of twelve (12) monthsfollowing the Termination Date, to continuation of benefits substantially equivalent to the life,disability and medical insurance policies maintained by Employer on behalf of Officer and Officer’sspouse, or domestic partner, and dependents, if any, immediately prior to the Notice ofTermination, but only to the extent that Officer is not entitled to comparable benefits from otheremployment.
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                    5.2.6 **Resignation**. In the event of Officer’s Resignation, as defined in Section 5.1.6,Officer shall be entitled to payment of Officer’s base salary through the Termination Date, to anyaccrued but unpaid vacation benefits, and to any other Vested Benefits, but to no other payments orbenefits whatsoever.
                    **5.2.7 Change in Control**.
                    **5.2.7.1 Determination of Change in Control.**For purposes of this section 5.2.7, “Company”shall mean any of the Employer, IndyMac Resources, Inc., IndyMac Intermediate Holdings, Inc. orIndyMac Bancorp, Inc. Subject to Section 5.2.7.2, a “Change in Control” shall be deemed to occurfor purposes of this Agreement upon the occurrence of any one of the following events:
(A) An acquisition of any common stock or other“Voting Securities” (as hereinafter defined) of theCompany by any “Person” (as the term person is used forpurposes of Section 13(d) or 14(d) of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”)),immediately after which such Person has “BeneficialOwnership” (within the meaning of Rule 13d-3 promulgatedunder the Exchange Act) of twenty five percent (25%) ormore of the then outstanding shares of the Company’scommon stock or the combined voting power of theCompany’s then outstanding Voting Securities; provided,however, in determining whether a Change in Control hasoccurred, Voting Securities which are acquired in a“Non-Control Acquisition” (as hereinafter defined) shallnot constitute an acquisition which would cause a Changein Control. For purposes of this Plan, (1) “VotingSecurities” shall mean the Company’s outstanding votingsecurities entitled to vote generally in the election ofdirectors and (2) a “Non-Control Acquisition” shall meanan acquisition by (a) the Company or any of itsSubsidiaries, (b) an employee benefit plan (or a trustforming a part thereof) maintained by (x) the Company, or(y) any corporation or other Person of which a majorityof its voting power or its voting equity securities orequity interest is owned, directly or indirectly, by theCompany (for purposes of the definition in thissubsection 5.2.7.1, a “Subsidiary”), or (c) any Person inconnection with a “Non-Control Transaction” (ashereinafter defined).
(B) The individuals who, as of the EffectiveDate, were members of the Board of Directors of IndyMacBancorp, Inc. (the “Incumbent Board”), cease for anyreason to constitute at least a majority of the membersof the Board; provided, however, that if the election, ornomination for election by the Company’s commonstockholders, of any new director was approved by a voteof at least two-thirds of the Incumbent Board, such newdirector shall, for purposes of this Agreement beconsidered as a member of the Incumbent Board; providedfurther, however, that no individual shall be considereda member of the Incumbent Board if such individualinitially assumed office as a result of either an actualor threatened “Election Contest” (as described in Rule14a-11 promulgated under the Exchange Act) or otheractual or threatened solicitation of proxies or consentsby or on behalf of a Person otherthan the Board (a “Proxy Contest”) including by reason ofany agreement intended to avoid or settle any ElectionContest or Proxy Contest; or
(C) The consummation of:
 (1) A merger, consolidation, orreorganization involving the Company or the saleor other disposition of all or substantially allof the assets of the Company to any Person orPersons other than a transfer to a Subsidiary,(a “Business Transaction”), unless such BusinessTransaction is a “Non-Control Transaction.” A“Non Control Transaction” shall mean a BusinessTransaction where:
 (a) the stockholders of the Company,immediately before such BusinessTransaction, own directly or indirectlyimmediately following such BusinessTransaction more than sixty percent (60%)of the combined voting power of theoutstanding Voting Securities of thecorporation resulting from such merger,consolidation or reorganization orpurchasing
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   such assets or stock (the“Surviving Corporation”) in substantiallythe same proportion as their ownership ofthe Voting Securities immediately beforesuch Business Transaction;  (b) the individuals who were membersof the Incumbent Board immediately priorto the execution of the agreementproviding for such Business Transactionconstitute at least a majority of themembers of the board of directors of theSurviving Corporation, or in the eventthat, immediately following theconsummation of such BusinessTransaction, a corporation beneficiallyowns, directly or indirectly, a majorityof the Voting Securities of the SurvivingCorporation, the board of directors ofsuch corporation; and  (c) no Person other than (i) theCompany, (ii) any Subsidiary, (iii) anyemployee benefit plan (or any trustforming a part thereof) maintained by theCompany, the Surviving Corporation or anySubsidiary, or (iv) any Person who,immediately prior to such BusinessTransaction had Beneficial Ownership oftwenty-five percent (25%) or more of thethen outstanding Voting Securities orcommon stock of the Company, hasBeneficial Ownership of twenty-fivepercent (25%) or more of the combinedvoting power of the SurvivingCorporation’s then outstanding VotingSecurities or its common stock; or
 (D) The Company’s stockholders approve a complete liquidation or dissolution of the Company.
                    Notwithstanding the foregoing provisions of this subsection 5.2.7.1, a Change in Controlshall not be deemed to occur solely because any Person (the “Subject Person”) acquired BeneficialOwnership of more than the permitted amount of the then outstanding common stock or VotingSecurities as a result of the acquisition of common stock or Voting Securities by the Companywhich, by reducing the number of shares of common stock or Voting Securities then outstanding,increases the proportional number of shares Beneficially Owned by the Subject Person; provided,however, that if a Change in Control would occur (but for the operation of this sentence) as aresult of the acquisition of common stock or Voting Securities by the Company, and after such shareacquisition by the Company, the Subject Person becomes the Beneficial Owner of any additionalcommon stock or Voting Securities which increases the percentage of the then outstanding commonstock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shalloccur.
                    5.2.7.2 Notwithstanding the provisions of this section 5.2.7.2, the Board, in the exercise ofits reasonable discretion, may, but need not, make an affirmative determination prior to theconsummation of a Business Transaction (as defined in subsection 5.2.7.1 (C)) that, in light of allcircumstances, such Business Transaction will be not be treated as a Change in Control for purposesof this Agreement, by reason of it being in essence a “combination of equals” or for any otherreason. In making any such determination, the Board shall give due consideration, withoutlimitation, to the likely effect of such transaction(s) on the makeup of the stockholder base, theBoard and the senior management of the Company.
                    5.2.7.3 **Effect of Change of Control.**As used herein, a “Change in Control” shall be deemedto have occurred if any person or entity other than IndyMac Bank Corp., Inc. becomes the beneficialowner, as defined in Rule 13d-3 under the Exchange Act, of more than 50% of the combined votingpower of the outstanding stock of Employer, or acquires all or substantially all of the assets ofEmployer.
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                    If a Change in Control should occur during the term of this Agreement, and should Officer’semployment be terminated within one (1) year following the Change in Control (i) by reason ofOfficer’s Disability or Death, or (ii) either for No Cause or because this Agreement expires and isnot renewed by Employer or its successor on terms that are substantially comparable to the terms ofthis Agreement, then all outstanding stock options or similar awards previously granted to Officerunder Section 4.3 that have not already vested shall vest on the Termination Date.
                    If a Change in Control should occur during the term of this Agreement, and should Officer’semployment continue without termination beyond the first anniversary of the Change in Control, thenall outstanding stock options or similar awards previously granted to Officer under Section 4.3that have not already vested shall vest upon the first anniversary of the Change in Control.
                    If a Change in Control should occur during the term of this Agreement, and should Officer’semployment be terminated within two (2) years following the Change inControl either for No Cause or because this Agreement expires and is not renewed by Employeror its successor on terms that are substantially comparable to the terms of this Agreement, thenOfficer shall be entitled, in addition to the foregoing and in lieu of any other benefits describedelsewhere in this Agreement, to (i) any accrued but unpaid vacation benefits, (ii) any other VestedBenefits, (iii) payment of Officer’s base salary through the Termination Date, (iv) continuation ofOfficer’s base salary, increased by 100%, for a period of twelve (12) months following theTermination Date, (v) payment of Officer’s incentive compensation award, without proration, for theyear in which Officer was terminated, also increased by 100%, within fifteen (15) days of Officer’sTermination Date, (vi) the additional benefit described in Section 5.2.9, if allowed by law, and(vii) continuation, for a period of twelve (12) months following the Termination Date, of benefitssubstantially equivalent to the life, disability and medical insurance policies maintained byEmployer on behalf of Officer and Officer’s spouse and dependents, if any, immediately prior to theNotice of Termination, but only to the extent that Officer is not entitled to comparable benefitsfrom other employment.
                    5.2.8 **Other Employment.**Employer’s obligation to pay salary continuation benefits to Officerin the event of Officer’s termination for Disability, Poor Performance or No Cause shallimmediately cease in the event that Officer obtains employment for compensation (whether as anemployee, independent contractor, consultant or otherwise) with any person or entity.
                    5.2.9 **Excise Tax.**In the event it should be determined that any payment or distribution byEmployer as the result of Officer’s termination due to Poor Performance or No Cause would besubject to the excise tax imposed by Section 4999 of the Internal Revenue Code, the affectedpayments or distributions shall include gross-up for any excise taxes due under Section 280G of theCode or similar “golden parachute” provisions, plus any excise, income, or payroll taxes owed onthe excise payment amount. In order to be eligible for this benefit, Officer must have had morethan five (5) years of continuous service to Employer or its affiliates as of the Termination Date,or must be a Section 16 Employee. If the law prohibits any form of the foregoing benefit, thenEmployer and Officer understand and agree that this Section 5.2.9 is of no effect.
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                    5.2.10 **Release of Claims**. Employer’s obligation to pay any salary continuation, benefitscontinuation or other non-vested benefits in the event of the termination of Officer’s employmentdue to Disability, Poor Performance or No Cause, as defined in Sections 5.1.1, 5.1.4 and 5.1.5, isexpressly conditional upon Officer first executing a general release of all claims or causes ofaction, whether known or unknown, that Officer may have or hold against Employer including, but notlimited to, any claims for breach of contract, for employment discrimination or harassment, forwrongful termination or for other tortious conduct in connection with Officer’s employment or itstermination. Such release agreement shall be prepared by Employer, and shall include an expresswaiver by Officer of California Civil Code section 1542.
     6. **No Solicitation, Non-Competition and Confidentiality**. In order to receive and retain thesalary continuation, benefits continuation or other non-vested benefits payable to Officer in theevent of termination by reason of Disability, Poor Performance or No Cause, as defined in Sections5.1.1, 5.1.4 and 5.1.5, Officer agrees to the following:
          6.1 **Non-Competition.**During employment and (a) if the termination is by reason of Disabilityor Poor Performance, for a period of three (3) months after termination of employment, or (b) ifthe termination is by reason of No Cause, for a period of six (6) months after termination ofemployment, Officer shall not engage in any business, whether as an employee, consultant, partner,principal, agent, representative or stock holder (other than as a holder of less than one percent(1%) equity interest), or in any other corporate or representative capacity, with any otherbusiness that is engaged in any activity that competes with the business of Employer or itsaffiliates, as conducted as of the date of the termination of Officer’s employment.
          6.2 **No Solicitation.**During employment and for a period of one (1) year after termination ofemployment, Officer shall not:
                    6.2.1 Solicit, or cause to be solicited, any customers of Employer or its affiliates forpurposes of promoting or selling any products or services competitive with those of Employer or itsaffiliates;
                    6.2.2 Solicit business from, or perform services for, any company or other business entitywhich at any time during the two (2) year period immediately preceding Officer’s termination ofemployment with Employer was a client of Employer or its affiliates; or
                    6.2.3 Solicit for employment, offer, or cause to be offered employment, either on a full time,part-time or consulting basis, to any person who was employed by Employer or its affiliates on thedate Officer’s employment terminated, unless Officer shall have received the prior written consentof Employer.
     **6.3 Basis for Non-Competition and Non-Solicitation Agreements**. Officer understands and agreesthat the non-competition and non-solicitation agreements contained in sections 6.1 and 6.2 aboveare necessary to Employer because Officer has access to, and in order to protect theconfidentiality of, Employer’s “Confidential Information” (as that term is defined in section 6.4below) from intentional and/or inadvertent disclosure or use upon or after the
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termination ofOfficer’s employment with Employer.
          **6.4 Confidentiality.**Officer hereby acknowledges and agrees that Employer and its affiliateshave developed and own valuable information related to their business, personnel and customersincluding, but not limited to, concepts, ideas, customer lists, business lists, business andstrategic plans, financial data, accounting procedures, secondary marketing and hedging models,trade secrets, computer programs and plans, and information related to officers, directors,employees and agents. Officer hereby agrees that all such information, and all codes, concepts,copies and forms relating to such information, Employer’s plans and intentions with respectthereto, and any information provided by Employer or its affiliates to Officer with respect to anyof the foregoing, shall be considered “Confidential Information” for the purpose of this Agreement.Officer acknowledges and agrees that all such Confidential Information is a valuable asset ofEmployer, and if developed by Officer, is developed by Officer in the course of Officer’semployment with Employer, and is the sole property of Employer. Officer agrees that Officer willnot divulge or otherwise disclose, directly or indirectly, any ConfidentialInformation concerning the business or policies of Employer or any of its affiliates whichOfficer may have learned as a result of Officer’s employment during the term of this Agreement orprior thereto as an employee, officer or director of or consultant to Employer or any of itsaffiliates, except to the extent such use or disclosure is (i) necessary or appropriate to theperformance of this Agreement and in furtherance of Employer’s best interests, (ii) required byapplicable law or in response to a lawful inquiry from a governmental or regulatory authority,(iii) lawfully obtainable from other sources, or (iv) authorized by Employer.
          6.5 **Reimbursement.**If any part of this Section 6 is determined to be invalid or unenforceablefor any reason by a court of competent jurisdiction, then Officer and Employer agree that thesecovenants shall be of no effect, that Officer shall immediately return to Employer the salarycontinuation, benefits continuation or other non-vested compensation described in Section 5.2 thathas been paid to Officer after termination of Officer’s employment, and that Officer shall not beentitled to any further sums from Employer.
     7. **Reimbursement of Business Expenses**. During the term of this Agreement, Employer shallpromptly reimburse to Officer all business expenses reasonably incurred by Officer in theperformance of Officer’s duties under this Agreement to the extent that such expenditures meetInternal Revenue Code requirements for deductibility by Employer for federal income tax purposes,or are otherwise in compliance with the rules and policies of Employer and are substantiated byOfficer in accordance with applicable requirements of the Code and Treasury Regulations, and theapplicable rules and policies of Employer.
     8. **Indemnity**. To the extent permitted by applicable law and by Employer’s articles, bylaws orother governing instruments, Employer shall defend and indemnify Officer and hold Officer harmlessfor any acts or decisions made by Officer in good faith and while performing approved services forEmployer or its affiliates, and Employer shall use reasonable efforts to obtain coverage forOfficer under liability insurance policies then in effect which cover the other officers ordirectors of Employer.
     9. **Miscellaneous**.
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          9.1 **Notice of Termination and Termination Date.**Any termination of this Agreement by Employeror by Officer (including any Resignation) shall be communicated by a written Notice of Terminationto the other party, stating the specific termination provision in this Agreement relied upon, ifany, and setting forth in reasonable detail the facts and circumstances, if applicable, claimed toprovide a basis for termination. The effective date of termination (“Termination Date”) shall be(i) the date specified in the Notice of Termination, or (ii) in the event of Officer’s Death, thedate of Death, or (iii) in the event of Officer’s resignation without providing Notice ofTermination, Officer’s last day of employment, or (iv) in the event of a Change in Control, eitherthe date specified in the Notice of Termination or the last day of the term of this Agreementshould same not be renewed on substantially comparable terms within two (2) years following theChange in Control.
          9.2 **Successorship.**This Agreement shall inure to the benefit of and shall be binding uponEmployer, its successors and assigns. This Agreement may not be assigned without the prior writtenconsent of the parties, other than in connection with a merger or sale ofEmployer or the sale of substantially all the assets of Employer, or similar transaction.Notwithstanding the foregoing, Employer may, without Officer’s consent, assign, whether byassignment agreement, merger, operation of law or otherwise, this Agreement to the Public Companyor to any successor or affiliate of Employer or the Public Company, subject to such assignee’sexpress assumption of all obligations of Employer hereunder. The failure of any successor to orassignee of the Employer’s business and/or assets in such transaction to expressly assume allobligations of Employer hereunder shall be deemed a termination for No Cause, pursuant to Section5.1.5.
          9.3 **Notices.**Any notices provided for in this Agreement shall be sent to Employer at itscorporate headquarters, Attention: General Counsel, with a copy to the Human Resources departmentat the same address, or to such other address as Employer may from time to time in writingdesignate, and to Officer at such address as Officer may from time to time in writing designate (orOfficer’s business address of record in the absence of such designation). All notices shall bedeemed to have been given two (2) business days after they have been deposited as certified mail,return receipt requested, postage paid and properly addressed to the designated address of theparty to receive the notices.
          9.4 **Entire Agreement.**This instrument contains the entire agreement of the parties relatingto the subject matter hereof, and it replaces and supersedes any prior agreements between theparties relating to said subject matter; provided, however, that all provisions of Employer’sEmployee Handbook and any other written personnel policies of Employer shall be incorporated hereinby this reference, and Officer hereby expressly acknowledges that all provisions of the EmployeeHandbook and other written policies are applicable to Officer’s employment relationship withEmployer, except to the extent that any such provisions directly conflict with any term containedin this Agreement; PROVIDED, FURTHER, THAT OFFICER HEREBY EXPRESSLY ACKNOWLEDGES THAT OFFICERHAS EXECUTED EMPLOYER’S STANDARD MUTUAL AGREEMENT TO ARBITRATE CLAIMS CONCURRENTLY HEREWITH, WHICHREQUIRES THAT ANY DISPUTE UNDER THIS AGREEMENT WILL BE ARBITRATED. No modifications oramendments of this Agreement shall be valid unless made in writing and signed by the partieshereto.
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          9.5 **Waiver.**The waiver of the breach of any term or of any condition of this Agreement shallnot be deemed to constitute the waiver of any other breach of the same or any other term orcondition.
          9.6 **California Law.**This Agreement shall be construed and interpreted in accordance with thelaws of California, without reference to its conflict of laws principles.
          9.7 **Injunctive Relief.**Employer and Officer acknowledge that the services Officer isobligated to render under the provisions of this Agreement are of a special, unique, unusual,extraordinary and intellectual character, which gives this Agreement peculiar value to Employer.The loss of these services cannot be reasonably or adequately compensated in damages in an actionat law and it would be difficult (if not impossible) to replace these services. By reason thereof,if either party violates any of the material provisions of this Agreement, the parties shall, inaddition to any other rights and remedies available under this Agreement, or under applicable lawor the Mutual Agreement to Arbitrate Claims, be entitled to seek injunctiverelief, as permitted by law, from a court or tribunal of competent jurisdiction, restrainingthe other from committing or continuing any violation of this Agreement. The provisions hereofshall survive the expiration, suspension or termination, for any reason, of this Agreement.
          9.8 **Severability.**If any provision of this Agreement is held invalid or unenforceable, theremainder of this Agreement shall nevertheless remain in full force and effect, and if anyprovision is held invalid or unenforceable with respect to particular circumstances, it shallnevertheless remain in full force and effect in all other circumstances.
          9.9 **Regulatory Intervention.**Notwithstanding anything in this Agreement to the contrary, thisAgreement is subject to the following terms and conditions:
                    9.9.1 If Officer is suspended and/or temporarily prohibited from participating in the conductof Employer’s affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal DepositInsurance Act (12 U.S.C. 1818 (e)(3) and (g)(1)), Employer’s obligations hereunder shall besuspended as of the date of service unless stayed by appropriate proceedings. If the charges inthe notice are dismissed, Employer shall (i) pay Officer all or part of the compensation withheldwhile Employer’s contract obligations were suspended, and (ii) reinstate any of Employer’sobligations which were suspended.
                    9.9.2 If Officer is removed and/or permanently prohibited from participating in the conduct ofEmployer’s affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal DepositInsurance Act (12 U.S.C. 1818 (e)(4) and (g)(1)), all obligations of Employer under this Agreementshall terminate as of the effective date of the order, but Officer’s vested rights shall not beaffected.
                    9.9.3 If Employer is in default (as defined in Section 3(x)(1) of the Federal DepositInsurance Act (12 U.S.C. 1813 (x)(1)), all obligations under this Agreement shall terminate as ofthe date of default, but Officer’s vested rights shall not be affected.
                    9.9.4 All obligations under this Agreement shall be terminated, except to the extentdetermined that continuation of the contract is necessary for the continued operation of Employer,(i) by the Office of Thrift Supervision (“OTS”) at the time the Federal Deposit
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InsuranceCorporation (“FDIC”) enters into an agreement to provide assistance to or on behalf of Employerunder the authority contained in Section 13(c) of the Federal Deposit Insurance Act (12 U.S.C. 1823(c)); or (ii) by the OTS at the time the OTS approves a supervisory merger to resolve problemsrelated to operation of Employer or when Employer is determined by the OTS to be in an unsafe orunsound condition. Any rights of Officer that shall have vested under this Agreement shall not beaffected by such action.
                    9.9.5 With regard to the provisions of this Section 9.9:
                         (i) Employer agrees to use its best efforts to oppose any such notice of charges as to whichthere are reasonable defenses;
                         (ii) In the event the notice of charges is dismissed or otherwise resolved in a manner thatwill permit Employer to resume its obligations to pay compensation hereunder, Employer willpromptly make such payment hereunder; and
                         (iii) During the period of suspension, the vested rights of the contracting parties shall notbe affected except to the extent precluded by such notice.
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                    9.9.6 Any payments made to Officer by Employer pursuant to this Agreement, or otherwise, aresubject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any regulationspromulgated thereunder.
EMPLOYER:         By:     Dated:                       Michael W. Perry                  Chairman and Chief Executive Officer      
OFFICER:               Dated:         Name: Terrence O. Hughes      
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**APPENDIX A**
ANNUAL INCENTIVE PLAN     Officer Name: Terrence O. HughesAnnual Base Rate for 2005: $400,000 Target Bonus for 2005: $250,000 
Annual Incentive Awards:
1. Officer shall be eligible for an Annual Incentive Award based on the applicableyear’s compensation plan to be agreed upon between Officer and Officer’s SeniorManager.
Other Terms Applicable to Compensation and Benefits for Calendar Year 2005.
1. For 2005, Officer’sActual Target Bonus shall be $125,000, as a result of Officer’s July 1, 2005start date.
2. For purposes of determining Officer’s equity incentive grants for 2005, expected to be grantedin March 2006, Officer’s base salary and actual bonus for 2005 shall be annualized.
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