8-K Cover
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This
Employment Agreement (the “Agreement”) is entered into
as of this 26th day of September, 2008 (“Effective
Date”) by and between DOWNEY SAVINGS AND LOAN ASSOCIATION,
F.A. (“Downey Savings”) and CHARLES R. RINEHART
(“Executive”) (collectively, the “parties”)
subject to the terms below.
I. POSITION
AND RESPONSIBILITIES
A.
Position. Downey Savings shall employ Executive to render
services in the position of Chief Executive Officer of Downey
Savings. Without any additional compensation, Executive shall also
serve as Chief Executive Officer of Downey Savings’ holding
company, Downey Financial Corp. (“DFC”), and as a
Director of Downey Savings and DFC, and, if requested by Downey
Savings, as an officer of any other affiliated entity of Downey
Savings. Executive shall perform such duties and responsibilities
as are normally related to each such position in accordance with
the standards of the industry and any additional duties consistent
therewith now or hereafter assigned to Executive by the Boards of
Directors of Downey Savings and DFC. Executive shall abide by the
rules, regulations, and practices as adopted or modified from time
to time by the Boards of Directors of Downey Savings and DFC.
Notwithstanding anything to the contrary in this Agreement, this
Agreement shall not be effective unless Executive successfully
completes the background checks on him conducted by Downey Savings
on all new employees in accordance with its policies and
practices.
B.
Other Activities. By executing this Agreement, Executive
agrees to serve in the position of Chief Executive Officer of
Downey Savings and DFC, and to devote appropriate time, attention,
loyalty and efforts to the performance of Executive’s duties.
Except upon the prior written consent of Downey Savings, Executive
will not, during the term of this Agreement, (i) accept any
other employment or (ii) engage, directly or indirectly, in
any other business activity (whether or not pursued for pecuniary
advantage) that is reasonably likely to interfere with
Executive’s duties and responsibilities hereunder or create a
conflict of interest with Downey Savings or DFC; provided that
during the period of employment hereunder, Executive shall be
entitled to (A) continue to serve on the boards of directors of
those public companies on the boards of which Executive currently
serves, (B) serve, after appropriate consultation with the Boards
of Directors of Downey Savings and DFC, on other corporate, civic
or charitable boards or committees and (C) manage personal
investments, so long as such activities do not interfere with the
performance of the Executive’s responsibilities to Downey
Savings under this Agreement.
C.
No
Conflict. Executive represents and warrants that
Executive’s execution of this Agreement, Executive’s
employment with Downey Savings, and the performance of
Executive’s proposed duties under this Agreement shall not
violate any obligations Executive may have to any prior employer,
or other person or entity, including any obligations with respect
to proprietary or confidential information of any person or
entity.
D.
Employment Start Date. Executive’s employment with
Downey Savings commenced on September 23, 2008.
II. COMPENSATION
AND BENEFITS
A.
Signing Bonus. Downey Savings will pay Executive a Two
Million Five Hundred Thousand and 00/100 Dollar ($2,500,000.00)
signing bonus upon execution of this Agreement, subject to a
pro-rated reimbursement to Downey Savings if during the first
twelve (12) months of Executive’s employment, Executive
voluntarily terminates his employment or is terminated by Downey
Savings for Cause. Any such reimbursement to Downey Savings under
this Section II.A. shall be due within ten (10) business days
following such a termination of employment.
B.
Base Salary. In consideration of the services to be rendered
under this Agreement, Downey Savings shall pay Executive a salary
at the rate of One Million and 00/100 Dollars ($1,000,000.00) per
annum (“Base Salary”). Base Salary shall be paid in
accordance with Downey Savings’ regularly established payroll
practice.
C.
Annual Incentive Compensation. As a member of the executive
management team, Executive shall be eligible to participate in
Downey Savings’ Annual Incentive Plan (“Annual
Incentive Plan”) beginning with the 2009 calendar year.
Executive acknowledges that the Annual Incentive Plan for such year
and all other years is established by the Board of Directors of
Downey Savings and subject to whatever criteria, thresholds and
other terms and conditions as that Board may determine to be
appropriate in its sole and subjective discretion. The Annual
Incentive Plan may contain operating metrics, including, but not
limited to the following, (i) core earnings, (ii) operating
efficiency ratio, (iii) loss mitigation measures or (iv) other
non-financial measures. Executive acknowledges that, once he
becomes eligible to participate under the Annual Incentive Plan,
all criteria, thresholds, and other terms and conditions put in
place by the Board for the Annual Incentive Plan shall apply to
Executive’s participation under the Annual Incentive Plan and
may result, among other things, in Executive not being entitled to
any bonus payment under the Annual Incentive Plan. Under the Annual
Incentive Plan, Executive’s annual bonus will be targeted at
one hundred fifty percent (150%) of Executive’s then-current
annual Base Salary (the “Target Bonus”). For 2009 only,
Executive’s Target Bonus shall be equal to 15/12 of the bonus
otherwise payable to Executive under the terms of the Annual
Incentive Plan. Downey Savings reserves the right to amend or
eliminate the Annual Incentive Plan and participation levels at any
time, in its sole and subjective discretion. If the Annual
Incentive Plan is eliminated, then Executive shall be entitled to
participate in such replacement or successor incentive plan as
Downey Savings may put in place for members of the executive
management team. Executive must be employed on the date payments
are made under the Annual Incentive Plan in order for any such
payments to be earned.
D.
Long Term Incentive Compensation. As of the first day of
Executive’s employment under this Agreement, Downey Savings
shall cause Executive to be granted 1,226,994 shares of restricted
stock in DFC. As of the date of the grant of such restricted stock,
it shall be unvested. Subject to Executive’s continued
employment on the relevant dates, Executive shall vest in such
restricted stock at a rate of 25% on each anniversary date of
Executive’s commencement of employment, and Executive shall
be fully vested in such restricted stock upon the fourth
anniversary of this employment. Provided that Executive first
signs a separation agreement and general release of claims
substantially in the form attached as Exhibit “A”
hereto and with terms mutually agreed to by the parties, Executive
shall become fully vested in such restricted stock in the event
Executive is otherwise entitled to payment pursuant to Section 3 of
the Change in Control Agreement between Downey Savings and
Executive entered into of even date herewith, or in the event of
Executive’s (i) involuntary termination of employment other
than for Cause (as defined below) or (ii) termination of employment
for Good Reason. Other than as set forth in the immediately
preceding sentence, Executive shall forfeit any restricted stock
that is not vested upon termination of employment. The award
agreement for such restricted stock granted to Executive shall
provide that in the event of any change in the outstanding shares
of DFC by stock split, reverse stock split or otherwise, the
restricted shares in DFC held by Executive shall be subject to the
same adjustment (if any) in the number and kind of shares as the
other shares of DFC stock held prior to such change in the
outstanding shares of DFC stock, except that any resulting shares
received by Executive shall be subject to the same vesting
provisions of this Section II.D. that applied to the restricted
shares in DFC held by Executive prior to such adjustment.
Notwithstanding any other provision of this Agreement to the
contrary, Executive acknowledges and agrees that (i) any additional
equity award (including any further grant of restricted stock) to
Executive shall be determined in the sole and subjective discretion
of the Board of Directors of Downey Savings, (ii) the Board of
Directors of Downey Savings may decide in its sole and subjective
discretion not to grant any additional equity award to Executive,
(iii) if the Board of Directors of Downey Savings does decide to
grant any additional equity award to Executive, the Board shall not
be required to consider the amount of the grant under this Section
II.D. in determining the number of shares under any additional
grant and (iv) any subsequent grants of restricted stock in
subsequent years of Executive’s employment may be subject to
such performance measures as may be established by the Board of
Directors of Downey Savings in its sole and subjective
discretion.
E.
Benefits. Executive shall be eligible to participate in the
employee benefit plans and programs made generally available by
Downey Savings to other employees of Downey Savings as the same are
established, modified and/or re-established from time to time, in
accordance with terms and subject to the conditions and eligibility
requirements of such plans and programs. Downey Savings’s
employee benefit plans and programs are subject to change and may
be amended and/or eliminated from time to time in Downey
Savings’ sole and subjective discretion
F.
Change in Control. Concurrent with the execution of this
Agreement by the parties, Downey Savings and Executive shall enter
into a Change in Control Agreement in form and substance as that
attached hereto as Exhibit B.
G.
Expenses. Downey Savings shall reimburse Executive for (i)
reasonable business expenses incurred in the performance of
Executive’s duties hereunder in accordance with Downey
Savings’ expense reimbursement policies and procedures and
(ii) the reasonable fees and expenses of Executive’s counsel
arising in connection with the negotiation and execution of this
Agreement.
III. AT-WILL
EMPLOYMENT; TERMINATION BY DOWNEY SAVINGS
A.
At-Will Employment. Executive’s employment shall be
“at-will” at all times. Downey Savings may terminate
Executive’s employment at any time, without advance notice,
for any reason or no reason at all, notwithstanding anything to the
contrary contained in or arising from any statements, policies or
practices of Downey Savings relating to the employment, discipline
or termination of its employees. Upon and after such termination,
all obligations of Downey Savings under this Agreement shall cease,
except as otherwise expressly provided in this Agreement.
B.
Severance. Except in situations where the employment of
Executive is terminated by Downey Savings for Cause or by death or
disability (as described in Section IV below) or by Executive,
in the event that Executive’s employment is involuntarily
terminated, and except where there is a “Change in
Control” as defined in the attached Change in Control
Agreement, Executive will be eligible to receive a lump sum
severance payment equal to one (1) year of Executive’s
annual Base Salary then in effect. Accordingly, for the twenty-four
(24) month period following a Change in Control, whether Executive
is eligible to receive severance payment shall be governed by the
Change in Control Agreement, and Executive shall not be eligible to
receive a severance payment under this Agreement with respect to
any termination of employment occurring within such period.
For purposes of this Agreement, “Good Reason” shall
mean the occurrence of one or more of the following events if
Executive provides written notice to the Board of Directors of
Downey Savings of Executive’s intent to terminate employment
for Good Reason no later than forty-five (45) days following the
occurrence of any such event and if Downey Savings does not remedy
such condition within thirty (30) days following written
notification of such event by Executive (i) a material reduction,
without Executive’s consent, in Executive’s Base Salary
then in effect, other than a reduction similar in percentage to a
reduction generally applicable to all similarly-situated employees
of Downey Savings, (ii) removal of Executive from the Chief
Executive Officer position of Downey Savings, except for Cause or
(iii) a relocation of Executive’s principal place of work to
a facility or location more than twenty-five (25) miles away from
Downey Savings’ current executive offices in Newport Beach,
California.
Executive’s eligibility for the severance payment under
this Agreement is conditioned on (a) Executive having first
signed a separation agreement and general release of claims
substantially in the form attached as Exhibit “A”
hereto with terms mutually agreed to by the parties and
(b) Executive’s continued adherence to the provisions of
this Agreement that continue beyond Executive’s employment
with Downey Savings, in particular, Sections VI (Termination
Obligations) and VII (Confidential Information; Non-Solicitation;
Non-Disparagement). If Executive fails to comply with any of
Executive’s obligations under subsections (a) and (b) above,
Executive’s eligibility for and receipt of the severance
payment shall immediately cease.
IV. OTHER
TERMINATION BY DOWNEY SAVINGS
A.
Termination for Cause. For purposes of this Agreement,
Downey Savings may terminate Executive’s employment for
“Cause” if: (i) Executive commits a felony or any
other crime involving dishonesty or breach of trust, or Executive
commits any other crime involving moral turpitude with respect to
Downey Savings or that negatively impacts Downey Savings or
involving physical harm to any person (not arising to a felony)
that negatively impacts Downey Savings; (ii) Executive engages
in conduct that is in bad faith and materially injurious to Downey
Savings, including but not limited to misappropriation of any
Downey Savings property, misappropriation of trade secrets, fraud
or embezzlement; (iii) Executive commits a material breach of
this Agreement which breach is not cured within thirty (30) days
after written notice to Executive from Downey Savings, unless such
breach is not curable, in which case there shall be no cure period;
(iv) Executive willfully refuses to implement or follow a
lawful policy or directive of the Board of Directors of Downey
Savings, which breach is not cured within thirty (30) days after
written notice to Executive from Downey Savings, unless such breach
is not curable, in which case there shall be no cure period or
(v) Executive engages in misfeasance or malfeasance
demonstrated by a pattern of failure to perform job duties
diligently and professionally. Upon termination for Cause, Downey
Savings shall pay to Executive all compensation to which Executive
is entitled up through the date of termination, subject to all
rights, remedies and defenses of Downey Savings; and thereafter all
obligations of Downey Savings under this Agreement shall cease. For
purposes of this Cause definition, an act or omission based upon a
resolution duly adopted by the Board of Directors of either Downey
Savings or DFC or advice of counsel for Downey Savings or DFC shall
be conclusively presumed to have been done or omitted in good faith
and in the best interests of Downey Savings or an affiliate.
B.
By
Death. Executive’s employment shall terminate
automatically upon Executive’s death. Downey Savings shall
pay to Executive’s beneficiaries or estate, as appropriate,
any compensation to which Executive is entitled up through the date
of termination and provide all benefits due Executive under any
benefit plans in which Executive participates in accordance with
the terms of such plans. Thereafter all obligations of Downey
Savings under this Agreement shall cease. Nothing in this Section
shall affect any entitlement of Executive’s heirs or devisees
to the benefits of any life insurance plan or other applicable
benefits.
C.
By
Disability. If Executive becomes eligible for long term
disability benefits or if, in the sole opinion of Downey Savings,
Executive is unable to carry out the responsibilities and functions
of the position held by Executive by reason of any illness or
physical or mental impairment for more than ninety (90) consecutive
days or more than one hundred and twenty (120) days in any twelve
(12) month period, then, to the extent permitted by law, Downey
Savings may terminate Executive’s employment, subject to the
provisions of Section III(A) above. Upon such termination, Downey
Savings shall pay to Executive all compensation to which Executive
is entitled up through the date of termination and provide all
benefits due Executive under any benefit plans in which Executive
participates in accordance with the terms of such plans. Nothing in
this Section shall affect Executive’s rights under any
disability plan in which Executive is a participant.
Any
termination by Downey Savings shall be communicated by Notice of
Termination to Executive hereto given in accordance with Article
XI. For purposes of this Agreement, a “Notice of
Termination” means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of
Executive’s employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other than
the date of receipt of such notice, specifies the Date of
Termination.
V. TERMINATION
BY EXECUTIVE
A.
At-Will by Executive. Executive may terminate employment
with Downey Savings at any time for any reason or no reason at all.
Upon such termination, Downey Savings shall pay to Executive all
compensation to which Executive is entitled up through the date of
termination and provide all benefits due Executive under any
benefit plans in which Executive participates in accordance with
the terms of such plans and this Agreement. Thereafter, all
obligations of Downey Savings shall cease.
VI. TERMINATON
OBLIGATIONS
A.
Return of Property. Executive agrees that all property
(including without limitation all equipment, tangible proprietary
information, documents, records, notes, contracts and
computer-generated materials) furnished to or created or prepared
by Executive incident to Executive’s employment belongs to
Downey Savings and shall be promptly returned to Downey Savings
upon termination of Executive’s employment or at any other
time upon request by Downey Savings.
B.
Post-Termination Cooperation. Following any termination of
employment, Executive shall provide reasonable cooperation with
Downey Savings in the winding up of pending work on behalf of
Downey Savings and the orderly transfer of work to other employees.
Executive shall also provide reasonable and necessary cooperation
with Downey Savings in the defense of any action brought by any
third party against Downey Savings that relates to
Executive’s employment by Downey Savings or relates to any
matter that occurred during Executive’s employment with
Downey Savings. Downey Savings shall reimburse Executive for any
and all reasonable out-of-pocket expenses incurred in providing the
cooperation in connection with any third party action as
contemplated above. Upon termination of employment for any reason,
Executive shall, at Downey Savings’ request, immediately
resign from any and all offices, directorships, and other positions
held by him in or on behalf of Downey Savings and each of its
affiliated entities effective the date of Executive’s
termination from Downey Savings.
C.
Continuing Obligations. Executive understands and agrees
that Executive’s obligations under Sections VI, VII, and
X herein shall survive the termination of Executive’s
employment for any reason and the termination of this
Agreement.
VII. PROPRIETARY
INFORMATION; NON-SOLICIATION; NON-DISPARGEMENT
A.
Confidentiality. Executive agrees to treat all Proprietary
Information (as defined below) as private, privileged, and
confidential, and not to use, disclose or release any Proprietary
Information in any manner to any person, firm or institution at any
time, even after termination of Executive’s employment,
except to the extent necessary to carry out Executive’s
duties as an employee of Downey Savings and except as otherwise
required by applicable law. Executive further understands and
agrees that the publication or other disclosure of Proprietary
Information at any time through literature or speeches or other
communication to the public must be approved in advance in writing
by the Board of Directors of Downey Savings. “Proprietary
Information” means all confidential, proprietary or trade
secret information and ideas in whatever form or state of
development, tangible or intangible, whether disclosed to or
learned or developed by Executive alone or with others, and whether
or not marked confidential or proprietary, pertaining in any manner
to the business of Downey Savings or to Downey Savings’
employees, independent contractors, customers, vendors, suppliers,
consultants or business associates.
B.
Non-Solicitation. Executive acknowledges that engaging in
any of the conduct described below would involve the use or
disclosure of Downey Savings’ trade secrets and agrees that
for a period of one (1) year after the termination of
Executive’s employment, Executive will not, directly or
indirectly, encourage or solicit any officer, employee or
consultant of Downey Savings or any of its affiliates to leave
their employment for any reason, nor will Executive ask, encourage
or suggest to any third-party, including any future employer, to
encourage or solicit any officer, employee or consultant of
employer to leave Downey Savings or any of its affiliates. Further,
Executive agrees that for a period of one (1) year after the
termination of Executive’s employment, Executive will not
solicit, encourage or influence any person or entity who is a
customer, client or supplier of Downey Savings or any of its
affiliates to cease doing business with Downey Savings or any of
its affiliates, or encourage any customer, client or supplier to
use the services of any competitor of Downey Savings or any of its
affiliates.
C.
Non-Disparagement. Executive shall not, during any period of
employment for Downey Savings or thereafter, regardless of the
reason for termination, directly or indirectly, take any action or
make any statements, written or oral or via any other medium, which
may disparage or defame the goodwill or reputation of Downey
Savings, any of its affiliated entities, or its or their current or
former directors, officers, employees (“Protected
Group”) or cause any member of the Protected Group
embarrassment or humiliation or otherwise cause or contribute to
such Protected Group member being held in disrepute by the public,
shareholders, clients, customers, employees, competitors, or other
business relations of Downey Savings.
Executive
agrees to direct all inquiries from prospective employers to Downey
Savings’ Human Resources Director, who will respond by
stating only Executive’s inclusive dates of employment and
job title.
Nothing
in this Section VII.C shall in any way limit the ability of
Executive or Downey Savings or its officers, directors and
employees to respond truthfully to or cooperate with any
governmental or regulatory inquiry or investigation or to give
truthful testimony as required by law or legal process.
VIII. INDEMNIFICATION
Executive
shall be covered by Downey Savings’ insurance policies
providing liability insurance for directors, officers, employees,
agents or fiduciaries of Downey Savings in accordance with their
terms to the maximum extent of the coverage available for any
director, officer, employee, agent or fiduciary under such
policies, subject to the terms and conditions of such policies.
Executive shall also be covered by Downey Savings’ and
DFC’s standard individual indemnification agreements.
IX. AMENDMENTS;
WAIVERS; REMEDIES
This
Agreement may not be amended or waived except by a writing signed
by Executive and by a duly authorized officer of Downey Savings. No
right of any party hereto shall be deemed waived unless waived in
writing by the party benefited thereby. All rights or remedies
specified for a party herein shall be cumulative and in addition to
all other rights and remedies of the party hereunder or under
applicable law.
X. ASSIGNMENT;
BINDING EFFECT
A.
Assignment. The performance of Executive is personal
hereunder, and Executive agrees that Executive shall have no right
to assign and shall not assign or purport to assign any rights or
obligations under this Agreement. This Agreement may be assigned or
transferred by Downey Savings; and nothing in this Agreement shall
prevent the consolidation, merger or sale of Downey Savings or a
sale of any or all or substantially all of its assets. Executive
expressly acknowledges and agrees that Downey Savings itself shall
have the right to enforce any and all of Executive’s
obligations hereunder, either together with or separately from
Downey Savings, provided, however, that Downey Savings shall not be
considered as Executive’s employer as a result of such status
or in any other respect.
B.
Binding Effect. Subject to the foregoing restriction on
assignment by Executive, this Agreement shall inure to the benefit
of and be binding upon each of the parties; the affiliates,
officers, directors, agents, successors and assigns of Downey
Savings; and the heirs, devisees, spouses, legal representatives
and successors of Executive.
XI. NOTICES
All notices or other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been
duly given if delivered: (a) by hand; (b) by a nationally
recognized overnight courier service; or (c) by United States
first class registered or certified mail, return receipt requested,
to the principal address of the other party, as set forth below.
The date of notice shall be deemed to be the earlier of
(i) actual receipt of notice by any permitted means, or
(ii) five business days following dispatch by overnight
delivery service or the United States Mail. Executive shall be
obligated to notify Downey Savings in writing of any
change in Executive’s address. Notice of change of address
shall be effective only when done in accordance with this
paragraph.
Downey Savings’ Notice Address:
c/o
Downey Savings and Loan Association, F.A.
3501
Jamboree Road
Newport
Beach, CA 92660
Attention:
General Counsel
Executive’s Notice Address:
1811
La Cuesta Drive
Santa
Ana, CA 92705
XII. SEVERABILITY
If
any provision of this Agreement shall be held by a court to be
invalid, unenforceable or void, such provision shall be enforced to
the fullest extent permitted by law, and the remainder of this
Agreement shall remain in full force and effect. In the event that
the time period or scope of any provision is declared by a court or
arbitrator of competent jurisdiction to exceed the maximum time
period or scope that such court or arbitrator deems enforceable,
then such court or arbitrator shall reduce
