RETENTION AND CHANGE IN CONTROL AGREEMENT
Exhibit 10.31
RETENTION AND
CHANGE IN CONTROL AGREEMENT
CHANGE IN CONTROL AGREEMENT
This Retention and Change in Control Agreement (this “Agreement”), dated October 9, 2006, is
made by and between BACK YARD BURGERS, INC., a Delaware corporation (as hereinafter defined, the
“Corporation”), and Xxxxxxx X. Xxxx (as hereinafter defined, the “Executive”), and is intended to
supersede and replace in its entirety that certain Amended and Restated Severance Agreement dated
as of October 11, 2004 between the Corporation and the Executive (the “Amended and Restated
Severance Agreement”).
WHEREAS, the Board of Directors of the Corporation (as hereinafter defined, the “Board”)
recognizes that services of the Executive are integral to the success of the operations of the
Company, that the possibility of a Change in Control (as hereinafter defined) of the Corporation
exists, and that such possibility, and the uncertainty it may cause, may result in the departure or
distraction of key management employees of the Corporation to the detriment of the Corporation and
its stockholders; and
WHEREAS, the Executive is a key management employee of the Corporation; and
WHEREAS, the Board has determined that the Corporation should encourage the continued
employment of the Executive by the Corporation and the continued dedication of the Executive to his
assigned duties without distraction as a result of the circumstances arising from the possibility
of a Change in Control;
NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the
Corporation and the Executive hereby agree as follows:
1. Defined Terms.
For purposes of this Agreement, the following terms shall have the meanings indicated below:
(A) “Board” shall mean the Board of Directors of the Corporation, as constituted from time to
time.
(B) “Cause” for termination by the Corporation of the Executive’s employment shall mean (i)
the willful failure by the Executive substantially to perform the Executive’s duties with the
Corporation, other than any failure resulting from the Executive’s incapacity due to physical or
mental illness, that continues for at least 30 days after the Board delivers to the Executive a
written demand for performance that identifies specifically and in detail the manner in which the
Board believes that the Executive willfully has failed substantially to perform the Executive’s
duties; or (ii) the willful engaging by the Executive in misconduct that is demonstrably and
materially injurious to the Corporation, monetarily. For purposes of this definition, no act, or
failure to act, on the Executive’s part shall be deemed “willful” unless done, or omitted to be
done, by the Executive not in good faith and without reasonable belief that the Executive’s act, or
failure to act, was in the best interest of the Corporation.
(C) A “Change in Control” shall mean, if subsequent to the date of this Agreement:
(i) any “person,” as defined in Section 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), other than the Corporation, any of its subsidiaries, or any
employee benefit plan maintained by the Corporation or any of its subsidiaries, becomes the
“beneficial owner” (as defined in Rule l3d-3 under the Exchange Act) of (a) 30% or more, but no
greater than 50%, of the outstanding voting capital stock of the Corporation, unless prior thereto,
the Continuing Directors approve the transaction that results in the person becoming the beneficial
owner of 30% or more, but no greater than 50%, of the outstanding voting capital stock of the
Corporation or (b) more than 50% of the outstanding voting capital stock of the Corporation,
regardless whether the transaction or event by which the foregoing 50% level is exceeded is
approved by the Continuing Directors;
(ii) at any time Continuing Directors no longer constitute a majority of the directors of the
Corporation; or
(iii) The consummation of (a) a merger or consolidation of the Corporation, statutory share
exchange, or other similar transaction with another corporation, partnership, or other entity or
enterprise in which either the Corporation is not the surviving or continuing corporation or shares
of common stock of the Corporation are to be converted into or exchanged for cash, securities other
than common stock of the Corporation, or other property, (b) a sale or disposition of all or
substantially all of the assets of the Corporation, or (c) the dissolution of the Corporation.
(D) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
(E) “Continuing Directors” means directors who were directors of the Corporation as of the
date hereof or who are appointed, elected or nominated to the Board in accordance with the
following sentence. It is understood that any person becoming a member of the Board subsequent to
the date hereof whose appointment was approved by a vote of at least a majority of the Continuing
Directors remaining in office at the time of appointment or whose election or nomination for
election by the Corporation’s stockholders was approved by a vote of at least a majority of the
Continuing Directors remaining in office at the time of election or nomination shall be considered,
for purposes of this Agreement, as though such person were a Continuing Director on the date
hereof.
(F) “Corporation” shall mean Back Yard Burgers, Inc. and any successor to its business or
assets, by operation of law or otherwise.
(G) “Date of Termination” shall have the meaning stated in Paragraph (B) of Section 5 hereof.
(H) “Disability” shall be deemed the reason for the termination by the Corporation of the
Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental
illness, the Executive shall have been absent from the full-time performance of the Executive’s
duties with the Corporation for a period of six consecutive months, the Corporation shall have
given the Executive a Notice of Termination for Disability, and, within 20 business
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days after the Notice of Termination is given, the Executive shall not have returned to the
full-time performance of the Executive’s duties.
(I) “Executive” shall mean the individual named in the first paragraph of this Agreement.
(J) “Notice of Termination” shall have the meaning stated in Paragraph (A) of Section 5
hereof.
(K) “Payment Trigger” shall mean the earliest to occur of (i) a Change in Control while
Executive remains employed by the Corporation during the term of this Agreement, (ii) termination
of the Executive’s employment by the Corporation, without Cause, prior to the occurrence of any
other Payment Trigger described in this Paragraph (K), or (iii) the later of March 1, 2007 or the
date of filing of the Corporation’s Annual Report on Form 10-K, including exhibits and schedules,
for the fiscal year ending December 30, 2006 with the Securities and Exchange Commission.
(L) “Person” shall have the meaning given in Section 3(a)(9) of the Securities Exchange Act of
1934, as amended from time to time, as modified and used in Sections 13(d) and 14(d) thereof;
except that, a Person shall not include (i) the Corporation, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Corporation, or (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities.
2. Term of Agreement.
This Agreement shall become effective on the date hereof and shall continue in effect until
the earliest of (i) a Date of Termination in accordance with Section 5 or the death of the
Executive shall have occurred prior to a Change in Control, or (ii) if a Payment Trigger shall have
occurred during the term of this Agreement, the performance by the Corporation of all its
obligations, and the satisfaction by the Corporation of all its obligations and liabilities, under
this Agreement.
3. General Provisions.
(A) The Corporation hereby represents and warrants to the Executive that the execution and
delivery of this Agreement and the performance by the Corporation of the actions contemplated
hereby have been duly authorized by all necessary corporate action on the part of the Corporation.
This Agreement is a legal, valid and legally binding obligation of the Corporation enforceable in
accordance with its terms.
(B) No amount or benefit shall be payable under this Agreement unless there shall have
occurred a Payment Trigger during the term of this Agreement. In no event shall payments in
accordance with this Agreement be made in respect of more than one Payment Trigger.
(C) This Agreement shall not be construed as creating an express or implied contract of
employment and, except as otherwise agreed in writing between the Executive and the Corporation,
the Executive shall not have any right to be retained in the employ of the Corporation.
Notwithstanding the immediately preceding sentence or any other provision of this
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Agreement, no purported termination of the Executive’s employment that is not effected in
accordance with a Notice of Termination satisfying Paragraph (A) of Section 5 shall be effective
for purposes of this Agreement. In the absence of compliance with this Agreement by the
Corporation, the Executive’s right, following the occurrence of a Change in Control, to receive
payment under this Agreement shall not be affected by the Executive’s Disability or incapacity.
The Executive’s continued employment for any period of time after a Payment Trigger shall not
constitute a waiver of the Executive’s rights with respect to any payment obligations of the
Corporation under this Agreement.
4. Payments Due Upon a Payment Trigger.
(A) The Corporation shall pay to the Executive the payments described in this Section 4 upon
the occurrence of a Payment Trigger during the term of this Agreement.
(B) (i) Upon the occurrence of a Payment Trigger during the term of this Agreement arising by
reason of the circumstances described in Paragraph (K)(i) of Section 1:
(a) the Corporation shall pay to the Executive a lump sum payment, in cash, equal to
the sum of (1) the Executive’s annual base salary in effect immediately prior to the Payment
Trigger, plus (2) the Executive’s bonus for the fiscal year immediately preceding the year
in which such termination occurs; and
(b) any then unvested stock option awards previously granted to Executive by the
Corporation shall become immediately one-hundred percent vested – any portion of a stock
option award accelerated pursuant to this Paragraph (B)(i)(b) shall be exercisable pursuant
to the terms of the stock option plan and the stock option award agreement applicable to
such award.
(ii) Upon the occurrence of a Payment Trigger during the term of this Agreement
arising by reason of the circumstances described in Paragraph (K)(ii) of Section 1:
(a) the Corporation shall pay to the Executive a lump sum payment, in cash, equal to
the sum of (1) one-half (1/2) the Executive’s annual base salary in effect immediately prior
to the Payment Trigger, plus (2) one half (1/2) the Executive’s bonus for the fiscal year
immediately preceding the year in which such termination occurs; provided, that if a Change
in Control shall occur within ninety (90) days after the payment of the amount otherwise due
to the Executive under this Paragraph (B)(ii), the Corporation shall upon the date of such
Change in Control pay to the Executive an additional lump sum payment, in cash, equal to the
amounts specified in clauses (1) and (2) of this Paragraph (B)(ii)(a); and
(b) any then vested stock option award previously granted to Executive by the
Corporation shall continue to be exercisable pursuant to the terms of the stock option plan
and the stock option award agreement applicable to such award.
(iii) Upon the occurrence of a Payment Trigger during the term of this Agreement
arising by reason of the circumstances described in Paragraph (K)(iii) of Section 1:
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(a) the Corporation shall pay to the Executive, in periodic installments made at the
same time and at such intervals as other executives of the Corporation receive payments of
salary, a cash amount equal to the base salary the Executive was receiving immediately prior
to the occurrence of the Payment Trigger plus a pro-rated amount of the Executive’s bonus
for the fiscal year immediately preceding the year in which such Payment Trigger occurs,
until such time as the Executive shall have received an aggregate amount equal to the sum of
(1) one-half (1/2) the Executive’s annual base salary in effect immediately prior to the
Payment Trigger, plus (2) one half (1/2) the Executive’s bonus for the fiscal year
immediately preceding the year in which such termination occurs; and
(b) any then vested stock option award previously granted to Executive by the
Corporation shall continue to be exercisable pursuant to the terms of the stock option plan
and the stock option award agreement applicable to such award.
(C) Notwithstanding any provision of any incentive compensation plan, and in addition to any
payments under Paragraph (B) hereof, the Corporation shall pay to the Executive a lump sum amount,
in cash, equal to the amount of any incentive compensation that has been allocated or awarded to
the Executive for a completed fiscal year or other measuring period preceding the occurrence of a
Payment Trigger under any incentive compensation plan but has not yet been paid to the Executive.
(D) The payments provided for in clauses (i) and (ii) of Paragraph (B) and, if applicable,
Paragraph (C) of this Section 4 shall be made not later than the fifth day following the occurrence
of a Payment Trigger, unless the amounts of such payments cannot be finally determined on or before
that day, in which case, the Corporation shall pay to the Executive on that day an estimate, as
reasonably determined in good faith by the Corporation, of the minimum amount of the payments to
which the Executive is clearly entitled and shall pay the remainder of the payments within
thirty(30) days following the occurrence of a Payment Trigger.
5. Termination Procedures.
(A) During the term of this Agreement, any purported termination of the Executive’s employment
(other than by reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 11 hereof. For purposes of this
Agreement, a “Notice of Termination” shall mean a written notice that indicates the specific
termination provision in this Agreement relied upon, and, if applicable, the notice shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for termination of the
Executive’s employment under the provision so indicated. Further, a Notice of Termination for
Cause shall include a copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the entire membership of the Board at a meeting of the Board that was called and held
for the purpose of considering the termination finding that, in the informed, reasonable, good
faith judgment of the Board, the Executive was guilty of conduct set forth in the definition of
Cause in Paragraph (B) of Section 1, and specifying the particulars thereof in detail.
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(B) “Date of Termination” with respect to any purported termination of the Executive’s
employment during the term of this Agreement (other than by reason of death) shall mean (i) if the
Executive’s employment is terminated for Disability, 20 business days after Notice of Termination
is given (provided that the Executive shall not have returned to the full-time performance of the
Executive’s duties during that 20 business day period) and (ii) if the Executive’s employment is
terminated for any other reason, the date specified in the Notice of Termination, which, in the
case of a termination by the Corporation, shall not be less than ten (10) business days except in
the case of a termination for Cause, and, in the case of a termination by the Executive, shall not
be less than ten (10) business days nor more than 20 business days, respectively, after the date
such Notice of Termination is given.
6. No Mitigation.
The Executive shall not be required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Corporation pursuant to this Agreement. Further,
the amount of any payment or benefit provided for in this Agreement shall not be reduced by any
compensation earned by the Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to the Corporation, or
otherwise.
7. Disputes.
(A) If a dispute or controversy arises out of or in connection with this Agreement, the
parties shall first attempt in good faith to settle the dispute or controversy by mediation under
the Commercial Mediation Rules of the American Arbitration Association before resorting to
arbitration or litigation. Thereafter, any remaining unresolved dispute or controversy arising out
of or in connection with this Agreement shall be settled exclusively by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association in a city located
within the continental United States designated by the Executive and reasonably acceptable to the
Corporation. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.
The Executive shall, however, be entitled to seek specific performance of the Corporation’s
obligations hereunder during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
(B) Any legal action concerning this Agreement, other than a mediation or an arbitration
described in Paragraph (A) of this Section 7, whether instituted by the Corporation or the
Executive, shall be brought and resolved only in a state court of competent jurisdiction located in
the territory that encompasses the city, county, or parish in which the Executive’s principal
residence is located at the time such action is commenced. The Corporation hereby irrevocably
consents and submits to and shall take any action necessary to subject itself to the personal
jurisdiction of that court and hereby irrevocably agrees that all claims in respect of the action
shall be instituted, heard, and determined in that court. The Corporation agrees that such court
is a convenient forum, and hereby irrevocably waives, to the fullest extent it may effectively do
so, the defense of an inconvenient forum to the maintenance of the action. Any final judgment in
the action may be enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
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(C) The Corporation shall pay all costs and expenses, including attorneys’ fees and
disbursements, of the Corporation and the Executive in connection with any legal proceeding
(including arbitration), whether or not instituted by the Corporation or the Executive, relating to
the interpretation or enforcement of any provision of this Agreement, that is resolved in favor of
the Executive pursuant to a final, unappealable judgment. The Executive shall pay all costs and
expenses, including attorneys’ fees and disbursements, of the Corporation and the Executive in
connection with any legal proceeding (including arbitration), whether or not instituted by the
Corporation or the Executive, relating to the interpretation or enforcement of any provision of
this Agreement, that is resolved in favor of the Corporation pursuant to a final, unappealable
judgment. The non-prevailing party, as set forth above, shall pay prejudgment interest on any
money judgment obtained by the prevailing party as a result of such proceeding, calculated at the
rate provided in Section 1274(b)(2)(B) of the Code.
8. Successors; Binding Agreement.
(A) In addition to any obligations imposed by law upon any successor to the Corporation, the
Corporation shall require any successor (whether direct or indirect, by purchase, merger,
consolidation, or otherwise, and whether or not such a transaction constitutes a Change in Control)
to all or substantially all of the business or assets of the Corporation expressly to assume and
agree to perform this Agreement in the same manner and to the same extent that the Corporation
would be required to perform it if no such succession had taken place. Failure of the Corporation
to obtain the assumption and agreement prior to the effectiveness of any succession shall be a
breach of this Agreement for which the Employee shall have any and all of the remedies available to
him under this Agreement. The provisions of this Section 8 shall continue to apply to each
subsequent employer of Executive bound by this Agreement in the event of any merger, consolidation,
or transfer of all or substantially all of the business or assets of that subsequent employer,
whether or not that transaction constitutes a Change in Control.
(B) This Agreement shall inure to the benefit of and be enforceable by the Executive’s
personal or legal representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. If the Executive shall die while any amount would be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon the death of the
Executive) if the Executive had continued to live, the amount, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the executors, personal
representatives, or administrators of the Executive’s estate.
9. Effect on Prior Agreements.
This Agreement contains the entire understanding among the parties hereto and supersedes in
all respects any prior or other agreement or understanding among the parties or any affiliate or
predecessor of the Corporation and Executive with respect to Executive’s employment, including but
not limited to the Amended and Restated Severance Agreement. Under no circumstances shall
Executive be entitled to any other severance payments or benefits of any kind, except for the
payments and benefits described herein.
10. Exclusive Remedy.
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In the event of a Payment Trigger, the provisions of Section 4 are intended to be and are
exclusive and in lieu of any other rights or remedies to which Executive or the Corporation may
otherwise be entitled (including any contrary provisions in any written or oral employment
agreement or arrangement Executive may have with the Company), whether at law, tort or contract, in
equity, or under this Agreement. Executive shall not be entitled to any severance benefits,
compensation or other payments or rights upon a Payment Trigger other than those benefits expressly
set forth in Section 4.
11. Notices.
For the purpose of this Agreement, notices and all other communications provided for in the
Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed
by United States registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below, or to such other address as either party may have furnished
to the other in writing in accordance herewith, except that notice of change of address shall be
effective only upon actual receipt:
| To the Corporation: | Back Yard Burgers, Inc. | |||||
| 0000 X. Xxxxxx Xxxx Xxxxx, Xxxxx 000 | ||||||
| Xxxxxxx, Xxxxxxxxx 00000-0000 | ||||||
| Attention: President | ||||||
| To the Executive: | Xxxxxxx X. Xxxx | |||||
12. Miscellaneous.
No provision of this Agreement may be modified, waived, or discharged unless such waiver,
modification, or discharge is agreed to in writing and signed by the Executive and an officer of
the Corporation specifically designated by the Board. No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be governed by the laws of
the State of Tennessee. All references to sections of the Exchange Act or the Code shall be deemed
also to refer to any successor provisions to such sections. Any payments provided for hereunder
shall be paid net of any applicable withholding required under federal, state, or local law and any
additional withholding to which the Executive has agreed.
13. Validity.
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The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall remain in full
force and effect.
14. Counterparts.
This Agreement may be executed in several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have signed this Agreement as of the date set forth above.
| BACK YARD BURGERS, INC. | ||||||
| By: | /s/ Xxxxxxxxx X. Xxxxxxx | |||||
| Name: | ||||||
| Title: | Chairman and Chief Executive Officer | |||||
| /s/ Xxxxxxx X. Xxxx | ||||||
| Xxxxxxx X. Xxxx | ||||||
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