Document:

Exhibit 10.6

EMPLOYMENT AGREEMENT

          This
Agreement (“Agreement”) is made effective as of the _______ day of
_______________, 2007, by and among KAISER FEDERAL BANK (the “Bank”), a
federally chartered stock savings bank, with its principal administrative
office at 1359 N. Grand Ave., Covina, California 91724 and DUSTIN LUTON
(“Executive”). Any reference to the “Company” herein shall mean KAISER FEDERAL
FINANCIAL GROUP, INC., the holding company of the Bank. The Company is a party
to this Agreement for the sole purpose of guaranteeing the payments required
hereunder, except as otherwise provided herein.

          WHEREAS,
Executive is currently employed as the Chief Financial Officer of the Bank; and

          WHEREAS,
the Bank desires to assure itself of the continued services of Executive
pursuant to the terms of this Agreement.

          NOW,
THEREFORE, in consideration of the mutual covenants
herein contained, and upon the other terms and conditions hereinafter provided,
the parties hereby agree as follows:

	
  

 	
  

 
	
 1.

 	
 POSITION AND RESPONSIBILITIES

 

          During
the period of his/her employment hereunder, Executive agrees to serve as Chief
Financial Officer of the Bank. During said period, Executive also agrees to
serve, if elected, as an officer and director of any subsidiary or affiliate of
the Bank or the Company.

	
  

 	
  

 
	
 2.

 	
 TERMS AND DUTIES

 

          (a)
The term of this Agreement and the period of Executive’s employment hereunder shall
begin as of the date first above written and shall continue for twenty-four
(24) full calendar months thereafter. Commencing July 1, 2008 and continuing on
the first day of July of each year thereafter (the “Anniversary Date”), this
Agreement shall renew for an additional year such that the remaining term shall
be twenty-four (24) months, provided, however, that in order for the Agreement
to renew, the disinterested members of the Board of Directors of the Bank (the
“Board”) must take the following actions prior to each non-renewal notice
period (as described in the next sentence): (i) at least sixty (60) days prior
to the Anniversary Date, conduct a comprehensive performance evaluation and
review of Executive for purposes of determining whether to extend the
Agreement; and (ii) affirmatively approve the renewal or non-renewal of the
Agreement, which decision shall be included in the minutes of the Board’s
meeting. If the decision of such disinterested members of the Board is not to
renew the Agreement, then the Board shall provide the Executive with a written
notice of non-renewal (“Non-Renewal Notice”) at least thirty (30) days and not
more than sixty (60) days prior to any Anniversary Date, such that this
Agreement shall terminate at the end of twenty-four (24) months following such
Anniversary Date. 

          (b)
During the period of his/her employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive 

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shall
faithfully perform his/her duties hereunder including activities and services
related to the organization, operation and management of the Bank.

	
  

 	
  

 
	
 3.

 	
 COMPENSATION AND REIMBURSEMENT

 

          (a)
The compensation specified under this Agreement shall constitute the salary and
benefits paid for the duties described in Section 2(b). The Bank shall pay
Executive as compensation a salary of not less than $226,600 per year (“Base
Salary”). Such Base Salary shall be payable in accordance with the customary
payroll practices of the Bank. During the period of this Agreement, Executive’s
Base Salary shall be reviewed at least annually; the first such review will be
made no later than July 1 of each year during the term of this Agreement and
shall be effective from that date through the end of the next succeeding June.
Such review shall be conducted by the President and Chief Executive Officer,
and he/she may increase, but not decrease, Executive’s Base Salary (any
increase in Base Salary shall become the “Base Salary” for purposes of this
Agreement). In addition to the Base Salary provided in this Section 3(a),
the Bank shall provide Executive at no cost to Executive with all such other
benefits as are provided uniformly to permanent full-time employees of the
Bank.

          (b)
The Bank will provide Executive with employee benefit plans, arrangements and
perquisites substantially equivalent to those in which Executive was
participating or otherwise deriving benefit from immediately prior to the
beginning of the term of this Agreement, and the Bank will not, without
Executive’s prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive’s rights or benefits
thereunder, except for amendments that are generally applicable to all
employees. Without limiting the generality of the foregoing provisions of this
Section 3(b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans including but not limited to,
retirement plans, supplemental retirement plans, pension plans, profit-sharing
plans, health-and-accident plans, medical coverage or any other employee
benefit plan or arrangement made available by the Bank in the future to its
senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Executive will be entitled to incentive compensation and
bonuses as provided in any plan of the Bank in which Executive is eligible to
participate (and he/she shall be entitled to a pro rata distribution under any
incentive compensation or bonus plan as to any year in which a termination of
employment occurs, other than Termination for Cause). Nothing paid to Executive
under any such plan or arrangement will be deemed to be in lieu of other compensation
to which Executive is entitled under this Agreement.

          (c)
In addition to the Base Salary provided for by Section 3(a), the Bank
shall pay or reimburse Executive for all reasonable travel and other reasonable
expenses incurred by Executive in performing his/her obligations under this
Agreement and may provide such additional compensation in such form and such
amounts as may from time to time be determine.

	
  

 	
  

 
	
 4.

 	
 OUTSIDE ACTIVITIES

 

          Executive
may serve as a member of the board of directors of business, community and
charitable organizations subject to the approval of the President and Chief
Executive Officer, provided that in each case such service shall not materially
interfere with the performance of 

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his/her duties
under this Agreement or present any conflict of interest. Such service to and
participation in outside organizations shall be presumed for these purposes to
be for the benefit of the Bank, and the Bank shall reimburse Executive his/her
reasonable expenses associated therewith.

	
  

 	
  

 
	
 5.

 	
 WORKING FACILITIES AND EXPENSES

 

          Executive’s
principal place of employment shall be at the Bank’s principal executive
offices. The Bank shall provide Executive, at his/her principal place of
employment, with a private office, stenographic services and other support
services and facilities suitable to his/her position with the Bank and
necessary or appropriate in connection with the performance of his/her duties
under this Agreement. The Bank shall reimburse Executive for his/her ordinary
and necessary business expenses incurred in connection with the performance of
his/her duties under this Agreement, including, without limitation, fees for
memberships in such clubs and organizations that Executive and the President
and Chief Executive Officer mutually agree are necessary and appropriate to
further the business of the Bank, and travel and reasonable entertainment
expenses. Reimbursement of such expenses shall be made upon presentation to the
Bank of an itemized account of the expenses in such form as the Bank may
reasonably require. 

	
  

 	
  

 
	
 6.

 	
 PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION

 

          (a)
The provisions of this Section 6 shall apply upon the occurrence of an
Event of Termination (as herein defined) during Executive’s term of employment
under this Agreement. As used in this Agreement, an “Event of Termination”
shall mean and include any one or more of the following:

          (i)          the
involuntary termination by the Bank of Executive’s full-time employment hereunder
for any reason other than (A) Retirement, Death or Disability, as defined in
Section 7 below, or (B) Termination for Cause as defined in Section 8
hereof; or

          (ii)         Executive’s
voluntary resignation from the Bank’s employ, upon 

	
  

 	
  

 
	
  

 	
               (A)          a
 material diminution in Executive’s base compensation;

 
	
  

 	
  

 
	
  

 	
               (B)          a
 material diminution in Executive’s authority duties or responsibilities; 

 
	
  

 	
  

 
	
  

 	
               (C)          a
 requirement that Executive must report to a corporate officer or employee
 instead of reporting directly to the President and Chief Executive Officer;

 
	
  

 	
  

 
	
  

 	
               (D)          a
 material diminution in the budget over which Executive retains authority;

 
	
  

 	
  

 
	
  

 	
               (E)          a
 change in the geographic location at which Executive must perform his/her
 duties that is more than twenty-five (25) miles from the location of
 Executive’s principal workplace on the date of this Agreement; or

 

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               (F)          any
 other action or inaction that constitutes a material breach by the Bank of
 this Agreement. 

 

Upon the
occurrence of any event described in clauses (ii) (A), (B), (C), (D), (E)
or (F), above, Executive shall have the right to elect to terminate his/her
employment under this Agreement by resignation upon sixty (60) days prior
written notice given within a reasonable period of time not to exceed ninety
(90) days after the initial event giving rise to said right to elect; provided,
however that the Bank shall have at least thirty (30) days to cure such
condition and provided that Executive actually terminates employment within two
years after the initial occurrence of such event. Notwithstanding the preceding
sentence, in the event of a continuing breach of this Agreement by the Bank,
Executive, after giving due notice within the prescribed time frame of an
initial event specified above, shall not waive any of his/her rights solely
under this Agreement and this Section 6 by virtue of the fact that
Executive has submitted his/her resignation but has remained in the employment
of the Bank and is engaged in good faith discussions to resolve any occurrence
of an event described in clauses (A), (B), (C), (D), (E) or (F) above. 

          (iii)          (A)
Executive’s involuntary termination by the Bank (other than Termination for
Cause) on the effective date of, or at any time following, a Change in Control,
or (B) Executive’s resignation from employment with the Bank or the Company (or
any successor thereto) following a Change in Control as a result of any event
described in Section 6(a)(ii)(A), (B), (C), (D), (E) or (F) above. For these
purposes, a Change in Control of the Bank or the Company shall mean a change in
control of a nature that: (i) would be required to be reported in response to
Item 5.01 of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the “Exchange Act”); or (ii) results in a Change in Control of the Bank or the
Company within the meaning of the Home Owners’ Loan Act, as amended, and
applicable rules and regulations promulgated thereunder (collectively, the
“HOLA”) as in effect at the time of the Change in Control; or (iii) without
limitation such a Change in Control shall be deemed to have occurred at such
time as (a) any “person” (as the term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of Company’s
outstanding securities, except for any securities purchased by the Bank’s
employee stock ownership plan or trust; or (b) individuals who constitute the
Board on the date hereof (the “Incumbent Board”) cease for any reason to
constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose
election was approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board, or whose nomination for election by the
Company’s stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (b),
considered as though he or she were a member of the Incumbent Board; or (c) a
plan of reorganization, merger, consolidation, sale of all or substantially all
the assets of the Bank or the Company or similar transaction in which the Bank
or Company is not the surviving institution occurs or is effected; or
(d) a proxy statement soliciting proxies from stockholders of the Company,
by someone other than the current management of the Company is distributed,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the plan are exchanged for or converted into cash or
property or securities not issued by the Company; or (e) a tender offer is

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made for 25%
or more of the voting securities of the Company and the shareholders owning
beneficially or of record 25% or more of the outstanding securities of the
Company have tendered or offered to sell their shares pursuant to such tender
offer and such tendered shares have been accepted by the tender offeror. 

          (b)
Upon the occurrence of an Event of Termination within thirty (30) days after
the Date of Termination, as defined in Section 9(b), the Bank shall pay
Executive, or, in the event of his/her subsequent death, his/her beneficiary or
beneficiaries, or his/her estate, as the case may be, as severance pay or
liquidated damages, or both, a sum equal to (i) the Executive’s earned but
unpaid Base Salary and benefits, plus (ii) two (2) times the sum of
(A) Base Salary and (B) the highest rate of bonus awarded to Executive
during the prior two (2) years; provided, however, that such Event of
Termination must qualify as a “Separation from Service” as defined in Internal
Revenue Code (“Code”) Section 409A and the regulations thereunder.
Notwithstanding the foregoing, to the extent Executive is a “Specified
Employee” as defined in Code Section 409A, and such earlier payment would
trigger penalties under Code Section 409A, then such payment shall be made on
the first day of the seventh month following Executive’s Separation from
Service. Such payment shall not be reduced in the event Executive obtains other
employment following Separation from Service.

          (c)
Upon the occurrence of an Event of Termination, the Bank will cause to be
continued, at the Bank’s expense, life insurance coverage and non-taxable
medical and dental insurance coverage, if any, substantially identical to the
coverage maintained by the Bank for Executive prior to his/her termination,
provided, however, such medical coverage shall cease upon the earlier of (i)
twenty-four (24) months from the Date of Termination or (ii) the date
Executive becomes eligible for Medicare coverage, provided further, that if Executive
is covered by family coverage or coverage for herself and a spouse, then the
Executive’s family or spouse shall continue to be covered for the remainder of
the twenty-four (24) month period or, in the case of the spouse, until the
spouse becomes eligible for Medicare coverage or obtains healthcare coverage
elsewhere, whichever period is less.

          (d)
Within thirty (30) days of Executive’s Separation from Service in connection
with an Event of Termination (provided, however, that, to the extent Executive
is a “Specified Employee” as defined in Code Section 409A, and such earlier
payment would trigger penalties under Code Section 409A, then such payment
shall be made on the first day of the seventh month following Executive’s
Separation from Service), the Bank shall pay Executive a lump sum equal to the
present value of the Bank’s contributions that would have been made on his/her
behalf under each of the Bank’s 401(k) Plan and Employee Stock Ownership Plan
(and any other defined contribution plan maintained by the Bank in which
Executive participates) as if she had continued working for the Bank for a
twenty-four (24) month period following his/her Separation from Service
earning his/her actual final rate of Base Salary as of the Date of Termination
and as if she had made the maximum amount of employee contributions permitted,
if any, under such plan or plans. Such present values are to be determined
using a discount rate equal to the short-term Internal Revenue Service’s
“applicable federal rate” for the month before the date of the Separation from
Service, compounded annually.

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          (e)
Notwithstanding anything to the contrary herein, Executive’s resignation for
any reason other than those set forth in clauses 6(a)(ii)(A), (B), (C), (D),(E)
or (F) shall not entitle Executive to any payments under Section 6 of this
agreement.

	
  

 	
  

 
	
 7.

 	
 TERMINATION UPON RETIREMENT, DISABILITY OR DEATH

 

          For
purposes of this Agreement, termination by the Bank of Executive’s employment
based on “Retirement” shall mean termination of Executive’s employment by the
President and Chief Executive Officer upon Executive’s attainment of age 62, or
such later date as determined by the President and Chief Executive Officer.
Upon termination of Executive’s employment because of Retirement, Executive
shall be entitled to all benefits under any retirement plan of the Bank and
other plans to which Executive is a party, but Executive shall not be entitled
to the Termination Benefits specified in Section 6. 

          In
the event Executive is unable to perform his/her duties under this Agreement on
a full-time basis for a period of six (6) consecutive months by reason of
“Disability” within the meaning of Code Section 409A, the Bank may terminate
this Agreement, provided that the Bank shall continue to be obligated to pay
Executive his/her Base Salary at the rate in effect at the Date of Termination
for the remaining term of the Agreement, or one year, whichever is the longer
period of time, and provided further that any amounts actually paid to
Executive pursuant to any disability insurance or other similar such program
which the Bank has provided or may provide on behalf of its employees or
pursuant to any workman’s or Social Security disability program shall reduce
the Base Salary to be paid to Executive pursuant to this paragraph. 

          In
the event of Executive’s death during the term of the Agreement, his/her
estate, legal representatives or named beneficiaries (as directed by Executive
in writing) shall be paid Executive’s Base Salary at the rate in effect at the
time Executive’s death for a period of one (1) year from the date of
Executive’s death, and the Bank will continue to provide non-taxable medical
and dental and other benefits normally provided for an Executive’s family for
one (1) year after Executive’s death.

	
  

 	
  

 
	
 8.

 	
 TERMINATION FOR CAUSE

 

          The
term “Termination for Cause” shall mean termination because of Executive’s
personal dishonesty, incompetence, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than minor traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. In determining incompetence, the
acts or omissions shall be measured against standards generally prevailing in
the savings institutions industry. Executive shall not have the right to
receive Base Salary or other compensation for any period after Termination for
Cause. Any stock options or other incentives granted to Executive under any
plan of the Bank, the Company or any subsidiary or affiliate thereof (whether
vested or unvested), shall become null and void effective upon Executive’s
receipt of Notice of Termination for Cause pursuant to Section 9 hereof. 

6

	
  

 	
  

 
	
 9.

 	
 NOTICE

 

          (a)
Any purported termination by the Bank or by Executive shall be communicated by
Notice of Termination to the other party hereto. For purposes of this
Agreement, a “Notice of Termination” shall mean a written notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive’s employment under the provision
so indicated.

          (b)
“Date of Termination” shall mean (A) if Executive’s employment is terminated
for Disability, thirty (30) days after a Notice of Termination is given
(provided that he/she shall not have returned to the performance of his/her
duties on a full-time basis during such thirty (30) day period), and (B) if
his/her employment is terminated for any other reason, the date specified in
the Notice of Termination.

          (c)
If the party receiving a Notice of Termination desires to dispute or contest
the basis or reasons for termination, the party receiving the Notice of
Termination must notify the other party within thirty (30) days after receiving
the Notice of Termination that such a dispute exists, and shall pursue the
resolution of such dispute in good faith and with reasonable diligence pursuant
to Section 20 of this Agreement. During the pendency of any such dispute,
neither the Company nor the Bank shall be obligated to pay Executive Base Salary
or other compensation beyond the Date of Termination. Any amounts paid to
Executive upon resolution of such dispute under this Section shall be offset
against or reduce any other amounts due under this Agreement.

	
  

 	
  

 
	
 10.

 	
 POST-TERMINATION OBLIGATIONS

 

          (a)
All payments and benefits to Executive under this Agreement shall be subject to
Executive’s compliance with paragraph (b) of this Section and Section 11 during
the term of this Agreement and for one (1) full year after the expiration or
termination hereof.

          (b)
Executive shall, upon reasonable notice, furnish such information and
assistance to the Bank as may reasonably be required by the Bank in connection
with any litigation in which it or any of its subsidiaries or affiliates is, or
may become, a party.

	
  

 	
  

 
	
 11.

 	
 NON-COMPETITION

 

          (a)
Upon any termination of Executive’s employment hereunder, other than a
termination, (whether voluntary or involuntary) in connection with a Change in
Control, as a result of which the Bank is paying Executive benefits under
Section 6 of this Agreement, Executive agrees not to compete with the Bank
and/or the Company for a period of one (1) year following such termination
within twenty-five (25) miles of any existing branch of the Bank or any
subsidiary of the Company or within twenty-five (25) miles of any office for
which the Bank, the Company or a Bank subsidiary of the Company has filed an
application for regulatory approval to establish an office, determined as of
the effective date of such termination, except as agreed to pursuant to a
resolution duly adopted by the Board. Executive agrees that during such period
and within said area, cities, towns and counties, Executive shall not work for
or advise, consult or otherwise serve with, directly or indirectly, any entity
whose business materially competes with the depository, lending or other
business activities of the Bank and/or the 

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Company. The
parties hereto, recognizing that irreparable injury will result to the Bank
and/or the Company, its business and property in the event of Executive’s
breach of this Subsection 11(a) agree that in the event of any such breach
by Executive, the Bank and/or the Company will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the
violation hereof by Executive, Executive’s partners, agents, servants,
employers, employees and all persons acting for or with Executive. Executive
represents and admits that Executive’s experience and capabilities are such
that Executive can obtain employment in a business engaged in other lines
and/or of a different nature than the Bank and/or the Company, and that the
enforcement of a remedy by way of injunction will not prevent Executive from
earning a livelihood. Nothing herein will be construed as prohibiting the Bank
and/or the Company from pursuing any other remedies available to the Bank
and/or the Company for such breach or threatened breach, including the recovery
of damages from Executive. 

          (b)
Executive recognizes and acknowledges that the knowledge of the business
activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his/her employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever (except
for such disclosure as may be required to be provided to any federal banking
agency with jurisdiction over the Bank or Executive). Notwithstanding the
foregoing, Executive may disclose any knowledge of banking, financial and/or
economic principles, concepts or ideas which are not solely and exclusively
derived from the business plans and activities of the Bank, and Executive may
disclose any information regarding the Bank or the Company which is otherwise
publicly available. In the event of a breach or threatened breach by Executive
of the provisions of this Section, the Bank will be entitled to an injunction
restraining Executive from disclosing, in whole or in part, the knowledge of
the past, present, planned or considered business activities of the Bank or
affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.

	
  

 	
  

 
	
 12.

 	
 SOURCE OF PAYMENTS

 

          All
payments provided in this Agreement shall be timely paid in cash or check from
the general funds of the Bank. The Company, however, guarantees payment and
provision of all amounts and benefits due hereunder to Executive and, if such
amounts and benefits due from the Bank are not timely paid or provided by the
Bank, such amounts and benefits shall be paid or provided by the Company.

	
  

 	
  

 
	
 13.

 	
 NO EFFECT ON EMPLOYEE BENEFITS PLANS OR PROGRAMS

 

          The
Board may terminate Executive’s employment at any time, but, any termination of
Executive’s employment, other than Termination for Cause shall have no effect
on or prejudice 

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the vested
rights of Executive under the Company’s or the Bank’s qualified or
non-qualified retirement, pension, savings, thrift, profit-sharing or stock
bonus plans, group life, health (including hospitalization, medical and major
medical), dental, accident and long term disability insurance plans or other
employee benefit plans or programs, or compensation plans or programs in which
Executive was a participant. Executive shall not have the right to receive any
Base Salary or other compensation for any period after Termination for Cause as
defined in Section 8, except as otherwise required by applicable law.

	
  

 	
  

 
	
 14.

 	
 REQUIRED REGULATORY PROVISIONS

 

          (a)
If Executive is suspended from office and/or temporarily prohibited from
participating in the conduct of the Bank’s affairs by a notice served under
Section 8(e)(3) (12 USC §1818(e)(3)) or 8(g)(1) (12 USC §1818(g)(1))
of the Federal Deposit Insurance Act (“FDIA”), as amended by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, the Bank’s obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Bank
may in its discretion (i) pay Executive all or part of the Base Salary or other
compensation withheld while its contract obligations were suspended and (ii)
reinstate (in whole or in part) any of its obligations which were suspended.

          (b)
If Executive is removed and/or permanently prohibited from participating in the
conduct of the Bank’s affairs by an order issued under Section 8(e)(4) (12
U.S.C. §1818(e)(4)) or 8(g)(1) (12 U.S.C. §1818(g)(1)) of the FDIA, all
obligations of the Bank under this Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties shall
not be affected.

          (c)
If the Bank is in default as defined in Section 3(x)(1) (12 U.S.C. §1813(x)(1))
of the FDIA, all obligations under this Agreement shall terminate as of the
date of default, but this paragraph shall not affect any vested rights of the
contracting parties.

          (d)
All obligations under this Agreement shall be terminated, except to the extent
determined that continuation of this Agreement is necessary for the continued
operation of the Bank, (i) by the Director of OTS or a designee, at the time
the FDIC enters into an agreement to provide assistance to or on behalf of the
Bank under the authority contained in Section 13(c) (12 U.S.C. §1823(c)) of the
FDIA; or (ii) by the Director of OTS or his/her or his/her designee at the
time the Director of OTS or a designee approves a supervisory merger to resolve
problems related to operations of the Bank or when the Bank is determined by the
Director of OTS or a designee to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be affected
by such action.

          (e)
Notwithstanding anything herein contained to the contrary, any payments to
Executive by the Company, whether pursuant to this Agreement or otherwise, are
subject to and conditioned upon their compliance with Section 18(k) of the
FDIA, 12 U.S.C. § 1828(k), and the regulations promulgated thereunder in
12 C.F.R. Part 359.

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 15.

 	
 NO ATTACHMENT

 

          (a)
Except as required by law, no right to receive payments under this Agreement
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation, or to execution, attachment,
levy, or similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to affect any such action shall be null, void, and of
no effect.

          (b)
This Agreement shall be binding upon, and inure to the benefit of, Executive,
the Bank and the Company and their respective successors and assigns.

	
  

 	
  

 
	
 16.

 	
 ENTIRE AGREEMENT; MODIFICATION AND WAIVER

 

          (a)
This instrument contains the entire agreement of the parties relating to the
subject matter hereof, and supercedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof, except that the parties acknowledge that this Agreement shall not
affect any of the rights and obligations of the parties under any agreement or
plan entered into with or by the Bank or the Company pursuant to which the
Executive may receive Base Salary or other compensation except as set forth in
Section 12 hereof. No modifications of this Agreement shall be valid unless
made in writing and signed by the parties hereto. 

          (b)
This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto.

          (c)
No term or condition of this Agreement shall be deemed to have been waived, nor
shall there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument of the party charged with such waiver
or estoppel. No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such
term or condition for the future as to any act other than that specifically
waived.

	
  

 	
  

 
	
 17.

 	
 SEVERABILITY

 

          If,
for any reason, any provision of this Agreement, or any part of any provision,
is held invalid, such invalidity shall not affect any other provision of this
Agreement or any part of such provision not held so invalid, and each such
other provision and part thereof shall to the full extent consistent with law
continue in full force and effect.

	
  

 	
  

 
	
 18.

 	
 HEADINGS FOR REFERENCE ONLY

 

          The
headings of sections and paragraphs herein are included solely for convenience
of reference and shall not control the meaning or interpretation of any of the
provisions of this Agreement.

10

	
  

 	
  

 
	
 19.

 	
 GOVERNING LAW

 

          This
Agreement shall be governed by the laws of the State of California but only to
the extent not superseded by federal law.

	
  

 	
  

 
	
 20.

 	
 ARBITRATION

 

          Any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three
arbitrators, one of whom shall be selected by the Bank, one of whom shall be
selected by Executive and the third of whom shall be selected by the other two
arbitrators. The panel shall sit in a location within fifty (50) miles from the
location of the Bank, in accordance with the rules of the Judicial Mediation
and Arbitration Systems (JAMS) then in effect. Judgment may be entered on the
arbitrators award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his/her right to be
paid Base Salary and other compensation until the Date of Termination during
the pendency of any dispute or controversy arising under or in connection with
this Agreement.

	
  

 	
  

 
	
 21.

 	
 PAYMENT OF LEGAL FEES

 

          All
reasonable legal fees paid or incurred by Executive pursuant to any dispute or
question of interpretation relating to this Agreement shall be paid or
reimbursed by the Bank, provided that the dispute or interpretation has been
settled by Executive and the Bank or resolved in Executive’s favor and provided
that such payment or reimbursement shall be made not later than two and
one-half (2 1⁄2) months after the end of the taxable year in which such fees were
incurred.

	
  

 	
  

 
	
 22.

 	
 INDEMNIFICATION

 

          The
Bank shall provide Executive (including his/her heirs, executors and
administrators) with coverage under a standard directors and officers liability
insurance policy at its expense. Subject to 12 C.F.R. §545.121, the Bank or the
Company, shall indemnify Executive (and his/her heirs, executors and
administrators) to the fullest extent permitted under federal law against all
expenses and liabilities reasonably incurred by herein connection with or
arising out of any action, suit or proceeding in which he/she may be involved
by reason of having been a director or officer of the Bank or the Company
(whether or not he/she continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys fees and
the cost of reasonable settlements (such settlements must be approved by the
Board of Directors of the Bank or the Company). If such action, suit or
proceeding is brought against Executive in his/her capacity as an officer or
director of the Bank, however, such indemnification shall not extend to matters
as to which Executive is finally adjudged to be liable for willful misconduct
in the performance of her duties.

	
  

 	
  

 
	
 23.

 	
 SUCCESSORS AND ASSIGNS

 

          The
Bank and/or the Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to 

11

perform the
Bank’s and the Company’s obligations under this Agreement, in the same manner
and to the same extent that the Bank and/or the Company would be required to
perform if no such succession or assignment had taken place.

[Signature Page Follows]

12

SIGNATURES

          IN
WITNESS WHEREOF, the Bank and the Company have caused this Agreement to be
executed and their seals to be affixed hereunto by their duly authorized
officers, and Executive has signed this Agreement, as of the day and date first
above written.

	
  

 	
  

 	
  

 	
  

 
	
 ATTEST:

 	
  

 	
 KAISER FEDERAL BANK

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 By:

 	
  

 
	
 

 	
  

 	
  

 	
 

 
	
  

 	
  

 	
  

 
	
 ATTEST:

 	
  

 	
 KAISER FEDERAL FINANCIAL GROUP, INC.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 By:

 
	
 

 	
  

 	
  

 	
 

 
	
  

 	
  

 	
  

 
	
 WITNESS:

 	
  

 	
 EXECUTIVE

 
	
  

 	
  

 	
  

 
	
 

 	
  

 	
 

 
	
  

 	
  

 	
 Dustin Luton

 

13Exhibit 10.7

EMPLOYMENT AGREEMENT

          This
Agreement (“Agreement”) is made effective as of the _______ day of
_______________, 2007, by and among KAISER FEDERAL BANK (the “Bank”), a
federally chartered stock savings bank, with its principal administrative
office at 1359 N. Grand Ave., Covina, California 91724 and NANCY J. HUBER
(“Executive”). Any reference to the “Company” herein shall mean KAISER FEDERAL
FINANCIAL GROUP, INC., the holding company of the Bank. The Company is a party
to this Agreement for the sole purpose of guaranteeing the payments required
hereunder, except as otherwise provided herein.

          WHEREAS,
Executive is currently employed as the Chief Credit Officer of the Bank; and 

          WHEREAS,
the Bank desires to assure itself of the continued services of Executive
pursuant to the terms of this Agreement.

          NOW,
THEREFORE, in consideration of the mutual covenants
herein contained, and upon the other terms and conditions hereinafter provided,
the parties hereby agree as follows:

	
 

	
 

	
1.

	
POSITION AND RESPONSIBILITIES

          During
the period of his/her employment hereunder, Executive agrees to serve as Chief
Credit Officer of the Bank. During said period, Executive also agrees to serve,
if elected, as an officer and director of any subsidiary or affiliate of the
Bank or the Company.

	
 

	
 

	
2.

	
TERMS AND DUTIES

           (a)
The term of this Agreement and the period of Executive’s employment hereunder
shall begin as of the date first above written and shall continue for twenty-four
(24) full calendar months thereafter. Commencing July 1, 2008 and continuing on
the first day of July of each year thereafter (the “Anniversary Date”), this
Agreement shall renew for an additional year such that the remaining term shall
be twenty-four (24) months, provided, however, that in order for the Agreement
to renew, the disinterested members of the Board of Directors of the Bank (the
“Board”) must take the following actions prior to each non-renewal notice
period (as described in the next sentence): (i) at least sixty (60) days prior
to the Anniversary Date, conduct a comprehensive performance evaluation and
review of Executive for purposes of determining whether to extend the
Agreement; and (ii) affirmatively approve the renewal or non-renewal of the
Agreement, which decision shall be included in the minutes of the Board’s
meeting. If the decision of such disinterested members of the Board is not to
renew the Agreement, then the Board shall provide the Executive with a written
notice of non-renewal (“Non-Renewal Notice”) at least thirty (30) days and not
more than sixty (60) days prior to any Anniversary Date, such that this
Agreement shall terminate at the end of twenty-four (24) months following such
Anniversary Date. 

          (b)
During the period of his/her employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive 

1

shall
faithfully perform his/her duties hereunder including activities and services
related to the organization, operation and management of the Bank.

	
 

	
 

	
3.

	
COMPENSATION AND REIMBURSEMENT

          (a)
The compensation specified under this Agreement shall constitute the salary and
benefits paid for the duties described in Section 2(b). The Bank shall pay
Executive as compensation a salary of not less than $156,000 per year (“Base
Salary”). Such Base Salary shall be payable in accordance with the customary
payroll practices of the Bank. During the period of this Agreement, Executive’s
Base Salary shall be reviewed at least annually; the first such review will be
made no later than July 1 of each year during the term of this Agreement and
shall be effective from that date through the end of the next succeeding June.
Such review shall be conducted by the President and Chief Executive Officer,
and he/she may increase, but not decrease, Executive’s Base Salary (any
increase in Base Salary shall become the “Base Salary” for purposes of this
Agreement). In addition to the Base Salary provided in this Section 3(a),
the Bank shall provide Executive at no cost to Executive with all such other
benefits as are provided uniformly to permanent full-time employees of the
Bank.

          (b)
The Bank will provide Executive with employee benefit plans, arrangements and
perquisites substantially equivalent to those in which Executive was
participating or otherwise deriving benefit from immediately prior to the
beginning of the term of this Agreement, and the Bank will not, without
Executive’s prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive’s rights or benefits
thereunder, except for amendments that are generally applicable to all
employees. Without limiting the generality of the foregoing provisions of this
Section 3(b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans including but not limited to,
retirement plans, supplemental retirement plans, pension plans, profit-sharing
plans, health-and-accident plans, medical coverage or any other employee
benefit plan or arrangement made available by the Bank in the future to its
senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Executive will be entitled to incentive compensation and
bonuses as provided in any plan of the Bank in which Executive is eligible to
participate (and he/she shall be entitled to a pro rata distribution under any
incentive compensation or bonus plan as to any year in which a termination of
employment occurs, other than Termination for Cause). Nothing paid to Executive
under any such plan or arrangement will be deemed to be in lieu of other
compensation to which Executive is entitled under this Agreement.

          (c)
In addition to the Base Salary provided for by Section 3(a), the Bank
shall pay or reimburse Executive for all reasonable travel and other reasonable
expenses incurred by Executive in performing his/her obligations under this
Agreement and may provide such additional compensation in such form and such
amounts as may from time to time be determine.

	
 

	
 

	
4.

	
OUTSIDE ACTIVITIES

          Executive may
serve as a member of the board of directors of business, community and
charitable organizations subject to the approval of the President and Chief
Executive Officer, provided that in each case such service shall not materially
interfere with the performance of 

2

his/her duties
under this Agreement or present any conflict of interest. Such service to and
participation in outside organizations shall be presumed for these purposes to
be for the benefit of the Bank, and the Bank shall reimburse Executive his/her
reasonable expenses associated therewith.

	
 

	
 

	
5.

	
WORKING FACILITIES AND EXPENSES

          Executive’s
principal place of employment shall be at the Bank’s principal executive
offices. The Bank shall provide Executive, at his/her principal place of
employment, with a private office, stenographic services and other support
services and facilities suitable to his/her position with the Bank and
necessary or appropriate in connection with the performance of his/her duties
under this Agreement. The Bank shall reimburse Executive for his/her ordinary
and necessary business expenses incurred in connection with the performance of
his/her duties under this Agreement, including, without limitation, fees for
memberships in such clubs and organizations that Executive and the President
and Chief Executive Officer mutually agree are necessary and appropriate to
further the business of the Bank, and travel and reasonable entertainment
expenses. Reimbursement of such expenses shall be made upon presentation to the
Bank of an itemized account of the expenses in such form as the Bank may
reasonably require. 

	
 

	
 

	
6.

	
PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION

          (a)
The provisions of this Section 6 shall apply upon the occurrence of an
Event of Termination (as herein defined) during Executive’s term of employment
under this Agreement. As used in this Agreement, an “Event of Termination”
shall mean and include any one or more of the following:

          (i)      the
involuntary termination by the Bank of Executive’s full-time employment
hereunder for any reason other than (A) Retirement, Death or Disability, as
defined in Section 7 below, or (B) Termination for Cause as defined in
Section 8 hereof; or

	
 

	
 

	
 

	
 

	
(ii)

	
Executive’s
 voluntary resignation from the Bank’s employ, upon 

	
 

	
 

	
 

	
 

	
 

	
(A)     a
 material diminution in Executive’s base compensation;

	
 

	
 

	
 

	
 

	
 

	
(B)     a
 material diminution in Executive’s authority duties or responsibilities; 

	
 

	
 

	
 

	
 

	
          (C)     a
 requirement that Executive must report to a corporate officer or employee
 instead of reporting directly to the President and Chief Executive Officer;

	
 

	
 

	
 

	
 

	
 

	
(D)     a
 material diminution in the budget over which Executive retains authority;

	
 

	
 

	
 

	
 

	
          (E)     a
 change in the geographic location at which Executive must perform his/her
 duties that is more than twenty-five (25) miles from the location of
 Executive’s principal workplace on the date of this Agreement; or

3

	
 

	
 

	
 

	
 

	
 

	
(F)     any
 other action or inaction that constitutes a material breach by the Bank of
 this Agreement. 

Upon the
occurrence of any event described in clauses (ii) (A), (B), (C), (D), (E)
or (F), above, Executive shall have the right to elect to terminate his/her
employment under this Agreement by resignation upon sixty (60) days prior
written notice given within a reasonable period of time not to exceed ninety
(90) days after the initial event giving rise to said right to elect; provided,
however that the Bank shall have at least thirty (30) days to cure such
condition and provided that Executive actually terminates employment within two
years after the initial occurrence of such event. Notwithstanding the preceding
sentence, in the event of a continuing breach of this Agreement by the Bank,
Executive, after giving due notice within the prescribed time frame of an
initial event specified above, shall not waive any of his/her rights solely
under this Agreement and this Section 6 by virtue of the fact that
Executive has submitted his/her resignation but has remained in the employment
of the Bank and is engaged in good faith discussions to resolve any occurrence
of an event described in clauses (A), (B), (C), (D), (E) or (F) above. 

          (iii)    (A)
Executive’s involuntary termination by the Bank (other than Termination for
Cause) on the effective date of, or at any time following, a Change in Control,
or (B) Executive’s resignation from employment with the Bank or the Company (or
any successor thereto) following a Change in Control as a result of any event
described in Section 6(a)(ii)(A), (B), (C), (D), (E) or (F) above. For these purposes,
a Change in Control of the Bank or the Company shall mean a change in control
of a nature that: (i) would be required to be reported in response to Item 5.01
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange
Act”); or (ii) results in a Change in Control of the Bank or the Company within
the meaning of the Home Owners’ Loan Act, as amended, and applicable rules and
regulations promulgated thereunder (collectively, the “HOLA”) as in effect at
the time of the Change in Control; or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (a) any “person” (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or more
of the combined voting power of Company’s outstanding securities, except for any
securities purchased by the Bank’s employee stock ownership plan or trust; or
(b) individuals who constitute the Board on the date hereof (the “Incumbent
Board”) cease for any reason to constitute at least a majority thereof, provided that any person
becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Company’s stockholders was approved by the
same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as though he or she were a member
of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Company or
similar transaction in which the Bank or Company is not the surviving
institution occurs or is effected; or (d) a proxy statement soliciting
proxies from stockholders of the Company, by someone other than the current
management of the Company is distributed, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Company or similar
transaction with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to the plan are exchanged for or
converted into cash or property or securities not issued by the Company; or
(e) a tender offer is 

4

made for 25%
or more of the voting securities of the Company and the shareholders owning
beneficially or of record 25% or more of the outstanding securities of the
Company have tendered or offered to sell their shares pursuant to such tender
offer and such tendered shares have been accepted by the tender offeror. 

          (b)
Upon the occurrence of an Event of Termination within thirty (30) days after
the Date of Termination, as defined in Section 9(b), the Bank shall pay
Executive, or, in the event of his/her subsequent death, his/her beneficiary or
beneficiaries, or his/her estate, as the case may be, as severance pay or
liquidated damages, or both, a sum equal to (i) the Executive’s earned but
unpaid Base Salary and benefits, plus (ii) two (2) times the sum of
(A) Base Salary and (B) the highest rate of bonus awarded to Executive
during the prior two (2) years; provided, however, that such Event of
Termination must qualify as a “Separation from Service” as defined in Internal
Revenue Code (“Code”) Section 409A and the regulations thereunder.
Notwithstanding the foregoing, to the extent Executive is a “Specified
Employee” as defined in Code Section 409A, and such earlier payment would
trigger penalties under Code Section 409A, then such payment shall be made on
the first day of the seventh month following Executive’s Separation from
Service. Such payment shall not be reduced in the event Executive obtains other
employment following Separation from Service.

          (c)
Upon the occurrence of an Event of Termination, the Bank will cause to be
continued, at the Bank’s expense, life insurance coverage and non-taxable
medical and dental insurance coverage, if any, substantially identical to the
coverage maintained by the Bank for Executive prior to his/her termination,
provided, however, such medical coverage shall cease upon the earlier of (i)
twenty-four (24) months from the Date of Termination or (ii) the date
Executive becomes eligible for Medicare coverage, provided further, that if
Executive is covered by family coverage or coverage for herself and a spouse,
then the Executive’s family or spouse shall continue to be covered for the
remainder of the twenty-four (24) month period or, in the case of the spouse,
until the spouse becomes eligible for Medicare coverage or obtains healthcare
coverage elsewhere, whichever period is less.

          (d)
Within thirty (30) days of Executive’s Separation from Service in connection
with an Event of Termination (provided, however, that, to the extent Executive
is a “Specified Employee” as defined in Code Section 409A, and such earlier
payment would trigger penalties under Code Section 409A, then such payment
shall be made on the first day of the seventh month following Executive’s
Separation from Service), the Bank shall pay Executive a lump sum equal to the
present value of the Bank’s contributions that would have been made on his/her
behalf under each of the Bank’s 401(k) Plan and Employee Stock Ownership Plan
(and any other defined contribution plan maintained by the Bank in which
Executive participates) as if she had continued working for the Bank for a
twenty-four (24) month period following his/her Separation from Service
earning his/her actual final rate of Base Salary as of the Date of Termination
and as if she had made the maximum amount of employee contributions permitted,
if any, under such plan or plans. Such present values are to be determined
using a discount rate equal to the short-term Internal Revenue Service’s
“applicable federal rate” for the month before the date of the Separation from
Service, compounded annually.

5

          (e)
Notwithstanding anything to the contrary herein, Executive’s resignation for
any reason other than those set forth in clauses 6(a)(ii)(A), (B), (C), (D),(E)
or (F) shall not entitle Executive to any payments under Section 6 of this
agreement.

	
 

	
 

	
7.

	
TERMINATION UPON RETIREMENT, DISABILITY OR DEATH

          For
purposes of this Agreement, termination by the Bank of Executive’s employment
based on “Retirement” shall mean termination of Executive’s employment by the
President and Chief Executive Officer upon Executive’s attainment of age 62, or
such later date as determined by the President and Chief Executive Officer.
Upon termination of Executive’s employment because of Retirement, Executive
shall be entitled to all benefits under any retirement plan of the Bank and
other plans to which Executive is a party, but Executive shall not be entitled
to the Termination Benefits specified in Section 6. 

          In
the event Executive is unable to perform his/her duties under this Agreement on
a full-time basis for a period of six (6) consecutive months by reason of
“Disability” within the meaning of Code Section 409A, the Bank may terminate
this Agreement, provided that the Bank shall continue to be obligated to pay
Executive his/her Base Salary at the rate in effect at the Date of Termination
for the remaining term of the Agreement, or one year, whichever is the longer
period of time, and provided further that any amounts actually paid to
Executive pursuant to any disability insurance or other similar such program
which the Bank has provided or may provide on behalf of its employees or
pursuant to any workman’s or Social Security disability program shall reduce
the Base Salary to be paid to Executive pursuant to this paragraph. 

          In
the event of Executive’s death during the term of the Agreement, his/her
estate, legal representatives or named beneficiaries (as directed by Executive
in writing) shall be paid Executive’s Base Salary at the rate in effect at the
time Executive’s death for a period of one (1) year from the date of Executive’s
death, and the Bank will continue to provide non-taxable medical and dental and
other benefits normally provided for an Executive’s family for one (1) year
after Executive’s death.

	
 

	
 

	
8.

	
TERMINATION FOR CAUSE

          The
term “Termination for Cause” shall mean termination because of Executive’s
personal dishonesty, incompetence, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than minor traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. In determining incompetence, the
acts or omissions shall be measured against standards generally prevailing in
the savings institutions industry. Executive shall not have the right to
receive Base Salary or other compensation for any period after Termination for
Cause. Any stock options or other incentives granted to Executive under any
plan of the Bank, the Company or any subsidiary or affiliate thereof (whether
vested or unvested), shall become null and void effective upon Executive’s
receipt of Notice of Termination for Cause pursuant to Section 9 hereof. 

6

	
 

	
 

	
9.

	
NOTICE

          (a)
Any purported termination by the Bank or by Executive shall be communicated by
Notice of Termination to the other party hereto. For purposes of this
Agreement, a “Notice of Termination” shall mean a written notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive’s employment under the provision
so indicated.

          (b)
“Date of Termination” shall mean (A) if Executive’s employment is terminated
for Disability, thirty (30) days after a Notice of Termination is given
(provided that he/she shall not have returned to the performance of his/her
duties on a full-time basis during such thirty (30) day period), and (B) if his/her
employment is terminated for any other reason, the date specified in the Notice
of Termination.

          (c)
If the party receiving a Notice of Termination desires to dispute or contest
the basis or reasons for termination, the party receiving the Notice of
Termination must notify the other party within thirty (30) days after receiving
the Notice of Termination that such a dispute exists, and shall pursue the
resolution of such dispute in good faith and with reasonable diligence pursuant
to Section 20 of this Agreement. During the pendency of any such dispute,
neither the Company nor the Bank shall be obligated to pay Executive Base
Salary or other compensation beyond the Date of Termination. Any amounts paid
to Executive upon resolution of such dispute under this Section shall be offset
against or reduce any other amounts due under this Agreement.

	
 

	
 

	
10.

	
POST-TERMINATION OBLIGATIONS

          (a)
All payments and benefits to Executive under this Agreement shall be subject to
Executive’s compliance with paragraph (b) of this Section and Section 11 during
the term of this Agreement and for one (1) full year after the expiration or
termination hereof.

          (b)
Executive shall, upon reasonable notice, furnish such information and
assistance to the Bank as may reasonably be required by the Bank in connection
with any litigation in which it or any of its subsidiaries or affiliates is, or
may become, a party.

	
 

	
 

	
11.

	
NON-COMPETITION

          (a)
Upon any termination of Executive’s employment hereunder, other than a
termination, (whether voluntary or involuntary) in connection with a Change in
Control, as a result of which the Bank is paying Executive benefits under
Section 6 of this Agreement, Executive agrees not to compete with the Bank
and/or the Company for a period of one (1) year following such termination
within twenty-five (25) miles of any existing branch of the Bank or any
subsidiary of the Company or within twenty-five (25) miles of any office for
which the Bank, the Company or a Bank subsidiary of the Company has filed an
application for regulatory approval to establish an office, determined as of
the effective date of such termination, except as agreed to pursuant to a
resolution duly adopted by the Board. Executive agrees that during such period
and within said area, cities, towns and counties, Executive shall not work for
or advise, consult or otherwise serve with, directly or indirectly, any entity
whose business materially competes with the depository, lending or other
business activities of the Bank and/or the 

7

Company. The
parties hereto, recognizing that irreparable injury will result to the Bank
and/or the Company, its business and property in the event of Executive’s
breach of this Subsection 11(a) agree that in the event of any such breach
by Executive, the Bank and/or the Company will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the
violation hereof by Executive, Executive’s partners, agents, servants,
employers, employees and all persons acting for or with Executive. Executive
represents and admits that Executive’s experience and capabilities are such
that Executive can obtain employment in a business engaged in other lines
and/or of a different nature than the Bank and/or the Company, and that the
enforcement of a remedy by way of injunction will not prevent Executive from
earning a livelihood. Nothing herein will be construed as prohibiting the Bank
and/or the Company from pursuing any other remedies available to the Bank
and/or the Company for such breach or threatened breach, including the recovery
of damages from Executive. 

          (b)
Executive recognizes and acknowledges that the knowledge of the business
activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his/her employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever (except
for such disclosure as may be required to be provided to any federal banking
agency with jurisdiction over the Bank or Executive). Notwithstanding the
foregoing, Executive may disclose any knowledge of banking, financial and/or
economic principles, concepts or ideas which are not solely and exclusively
derived from the business plans and activities of the Bank, and Executive may
disclose any information regarding the Bank or the Company which is otherwise
publicly available. In the event of a breach or threatened breach by Executive
of the provisions of this Section, the Bank will be entitled to an injunction
restraining Executive from disclosing, in whole or in part, the knowledge of
the past, present, planned or considered business activities of the Bank or
affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.

	
 

	
 

	
12.

	
SOURCE OF PAYMENTS

          All
payments provided in this Agreement shall be timely paid in cash or check from
the general funds of the Bank. The Company, however, guarantees payment and
provision of all amounts and benefits due hereunder to Executive and, if such
amounts and benefits due from the Bank are not timely paid or provided by the
Bank, such amounts and benefits shall be paid or provided by the Company.

	
 

	
 

	
13.

	
NO EFFECT ON EMPLOYEE BENEFITS PLANS OR PROGRAMS

          The
Board may terminate Executive’s employment at any time, but, any termination of
Executive’s employment, other than Termination for Cause shall have no effect
on or prejudice 

8

the vested
rights of Executive under the Company’s or the Bank’s qualified or
non-qualified retirement, pension, savings, thrift, profit-sharing or stock
bonus plans, group life, health (including hospitalization, medical and major
medical), dental, accident and long term disability insurance plans or other
employee benefit plans or programs, or compensation plans or programs in which
Executive was a participant. Executive shall not have the right to receive any
Base Salary or other compensation for any period after Termination for Cause as
defined in Section 8, except as otherwise required by applicable law.

	
 

	
 

	
14.

	
REQUIRED REGULATORY PROVISIONS

          (a)
If Executive is suspended from office and/or temporarily prohibited from
participating in the conduct of the Bank’s affairs by a notice served under
Section 8(e)(3) (12 USC §1818(e)(3)) or 8(g)(1) (12 USC §1818(g)(1))
of the Federal Deposit Insurance Act (“FDIA”), as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, the Bank’s
obligations under this Agreement shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Bank may in its discretion (i) pay Executive all or part of the
Base Salary or other compensation withheld while its contract obligations were
suspended and (ii) reinstate (in whole or in part) any of its obligations which
were suspended.

          (b)
If Executive is removed and/or permanently prohibited from participating in the
conduct of the Bank’s affairs by an order issued under Section 8(e)(4) (12
U.S.C. §1818(e)(4)) or 8(g)(1) (12 U.S.C. §1818(g)(1)) of the FDIA, all
obligations of the Bank under this Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties shall
not be affected.

          (c)
If the Bank is in default as defined in Section 3(x)(1) (12 U.S.C. §1813(x)(1))
of the FDIA, all obligations under this Agreement shall terminate as of the
date of default, but this paragraph shall not affect any vested rights of the
contracting parties.

          (d)
All obligations under this Agreement shall be terminated, except to the extent
determined that continuation of this Agreement is necessary for the continued
operation of the Bank, (i) by the Director of OTS or a designee, at the time
the FDIC enters into an agreement to provide assistance to or on behalf of the
Bank under the authority contained in Section 13(c) (12 U.S.C. §1823(c)) of the
FDIA; or (ii) by the Director of OTS or his/her or his/her designee at the
time the Director of OTS or a designee approves a supervisory merger to resolve
problems related to operations of the Bank or when the Bank is determined by
the Director of OTS or a designee to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be affected
by such action.

          (e)
Notwithstanding anything herein contained to the contrary, any payments to
Executive by the Company, whether pursuant to this Agreement or otherwise, are
subject to and conditioned upon their compliance with Section 18(k) of the
FDIA, 12 U.S.C. § 1828(k), and the regulations promulgated thereunder in
12 C.F.R. Part 359.

9

	
 

	
 

	
15.

	
NO ATTACHMENT 

          (a)
Except as required by law, no right to receive payments under this Agreement
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation, or to execution, attachment,
levy, or similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to affect any such action shall be null, void, and of
no effect. 

          (b)
This Agreement shall be binding upon, and inure to the benefit of, Executive,
the Bank and the Company and their respective successors and assigns. 

	
 

	
 

	
16.

	
ENTIRE AGREEMENT; MODIFICATION AND WAIVER 

          (a)
This instrument contains the entire agreement of the parties relating to the
subject matter hereof, and supercedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof, except that the parties acknowledge that this Agreement shall not
affect any of the rights and obligations of the parties under any agreement or
plan entered into with or by the Bank or the Company pursuant to which the
Executive may receive Base Salary or other compensation except as set forth in
Section 12 hereof. No modifications of this Agreement shall be valid unless
made in writing and signed by the parties hereto. 

          (b)
This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto. 

          (c)
No term or condition of this Agreement shall be deemed to have been waived, nor
shall there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument of the party charged with such waiver
or estoppel. No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such
term or condition for the future as to any act other than that specifically
waived. 

	
 

	
 

	
17.

	
SEVERABILITY 

          If,
for any reason, any provision of this Agreement, or any part of any provision,
is held invalid, such invalidity shall not affect any other provision of this
Agreement or any part of such provision not held so invalid, and each such
other provision and part thereof shall to the full extent consistent with law
continue in full force and effect. 

	
 

	
 

	
18.

	
HEADINGS FOR REFERENCE ONLY 

          The
headings of sections and paragraphs herein are included solely for convenience
of reference and shall not control the meaning or interpretation of any of the
provisions of this Agreement. 

10

	
 

	
 

	
19.

	
GOVERNING LAW 

          This
Agreement shall be governed by the laws of the State of California but only to
the extent not superseded by federal law. 

	
 

	
 

	
20.

	
ARBITRATION 

          Any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three
arbitrators, one of whom shall be selected by the Bank, one of whom shall be selected
by Executive and the third of whom shall be selected by the other two
arbitrators. The panel shall sit in a location within fifty (50) miles from the
location of the Bank, in accordance with the rules of the Judicial Mediation
and Arbitration Systems (JAMS) then in effect. Judgment may be entered on the
arbitrators award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his/her right to be
paid Base Salary and other compensation until the Date of Termination during
the pendency of any dispute or controversy arising under or in connection with
this Agreement. 

	
 

	
 

	
21.

	
PAYMENT OF LEGAL FEES 

          All
reasonable legal fees paid or incurred by Executive pursuant to any dispute or
question of interpretation relating to this Agreement shall be paid or
reimbursed by the Bank, provided that the dispute or interpretation has been
settled by Executive and the Bank or resolved in Executive’s favor and provided
that such payment or reimbursement shall be made not later than two and
one-half (2 1⁄2) months after the end of the taxable year in which such fees were
incurred. 

	
 

	
 

	
22.

	
INDEMNIFICATION 

          The
Bank shall provide Executive (including his/her heirs, executors and
administrators) with coverage under a standard directors and officers liability
insurance policy at its expense. Subject to 12 C.F.R. §545.121, the Bank or the
Company, shall indemnify Executive (and his/her heirs, executors and
administrators) to the fullest extent permitted under federal law against all
expenses and liabilities reasonably incurred by herein connection with or
arising out of any action, suit or proceeding in which he/she may be involved
by reason of having been a director or officer of the Bank or the Company
(whether or not he/she continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys fees and
the cost of reasonable settlements (such settlements must be approved by the
Board of Directors of the Bank or the Company). If such action, suit or
proceeding is brought against Executive in his/her capacity as an officer or
director of the Bank, however, such indemnification shall not extend to matters
as to which Executive is finally adjudged to be liable for willful misconduct
in the performance of her duties. 

	
 

	
 

	
23.

	
SUCCESSORS AND ASSIGNS 

          The
Bank and/or the Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to 

11

perform the
Bank’s and the Company’s obligations under this Agreement, in the same manner
and to the same extent that the Bank and/or the Company would be required to
perform if no such succession or assignment had taken place. 

[Signature Page Follows]

12

SIGNATURES

          IN
WITNESS WHEREOF, the Bank and the Company have caused this Agreement to be
executed and their seals to be affixed hereunto by their duly authorized
officers, and Executive has signed this Agreement, as of the day and date first
above written. 

	
 

	
 

	
 

	
 

	
ATTEST:

	
 

	
KAISER FEDERAL BANK 

	
 

	
 

	
 

	
 

	
 

	
 

	
By:

	
 

	

	
 

	
 

	

	
 

	
 

	
 

	
 

	
ATTEST:

	
 

	
KAISER FEDERAL FINANCIAL GROUP, INC. 

	
 

	
 

	
 

	
 

	
 

	
 

	
By:

	
 

	

	
 

	
 

	

	
 

	
 

	
 

	
 

	
WITNESS:

	
 

	
EXECUTIVE

	
 

	
 

	
 

	
 

	

	
 

	

	
 

	
 

	
Nancy J.
 Huber 

13

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