CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement"), is made and entered
into this 26th day of August, 1996 by and between Embrex, Inc. ("Company"), a
North Carolina corporation, and Xxxx X. Xxxx ("Employee").
WHEREAS, the Board of Directors ("Board") of the Company considers the
maintenance of a vital management group to be essential in protecting and
enhancing the best interests of the Company and its shareholders;
WHEREAS, the Board recognizes that the possibility of a Change in Control
(as hereinafter defined) exists and that the threat of or the occurrence of a
Change in Control can result in significant distractions of its key management
personnel because of the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is in the best interest of the
Company and its shareholders to ensure the Employee's continued dedication and
efforts on behalf of the Company; and
WHEREAS, in order to induced the Employee to remain in the employ of the
Company, particularly in the event of a threat of or the occurrence of a Change
in Control and to dispel any concerns that the Employee may have about taking
an active part in the defense against an inappropriate attempt to bring about
a Change in Control of the Company, the Company desires to enter into this
Agreement with the Employee with certain payments and benefits in the event
that his employment with the Company is terminated as a result of, or in
connection with, a Change in Control.
NOW THEREFORE, in consideration of the mutual agreements herein set forth,
the legal sufficiency and adequacy of which are whereby acknowledged, the
parties agree as follows:
1. Employment. Employee acknowledges that he is employed with the Company
pursuant to an Employment Agreement dated August 26th, 1996 and hereby agrees
that to the extent any provision of this Agreement should be contrary to any
provision of the Employment Agreement, the terms of this Agreement shall
control.
2. Definitions. For purposes of this Agreement, the following terms have the
meanings indicated:
(A) "Acquiring Person" shall mean any Person (as such term is hereinafter
defined) who or which, together with all Affiliates (as such term is hereinafter
defined) and Associates (as such term is hereinafter defined) of such Person,
shall be the Beneficial owner (as such term is hereinafter defined) of thirty-
three percent (33%) or more of the shares of Common Stock then outstanding, but
shall not include (i) the Company, (ii) any Subsidiary of the Company,
(iii) any employee benefit plan or employee stock plan of the Company or of any
Subsidiary of the Company, (iv) any dividend reinvestment plan of the Company
or, (v) any Person or entity organized, appointed, or established by the
Company for or pursuant to the terms of such plan. Notwithstanding the
foregoing, no Person shall become an "Acquiring Person" as the result of an
acquisition of Common Stock by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to thirty-three percent (33%) or more of the Common Stock
of the Company then outstanding; provide, however, that if a Person shall become
the Beneficial Owner of thirty-three (33%) or more of the Common Stock of the
Company, then outstanding by reason of such an acquisition and shall, after
such acquisition, become the Beneficial Owner of any additional shares of
Common Stock, then such Person shall be deemed to be an "Acquiring Person." In
addition, notwithstanding the foregoing, if the Board of Directors of the
Company determines in good faith that a Person who would otherwise be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
Paragraph (A), has become such inadvertently, and such Person divests as
promptly as practicable a sufficient number of shares of Common Stock so that
such Person would no longer be an "Acquiring Person" as defined pursuant to the
foregoing provisions of this Paragraph (A), then such Person shall not be
deemed to be an "Acquiring Person" for any purposes of this Agreement.
(B) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities
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Exchange Act of 1934, as amended (the "Exchange Act").
(C) A Person shall be deemed the "Beneficial Owner" of and shall be deemed to
"beneficially own," any securities:
(i) which such Person or any of such Persons's Affiliates or Associates,
directly or indirectly, has the right or obligation to acquire (whether such
right is exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (whether or not in writing) or upon
the exercise of conversion rights, exchange rights, rights, warrants or options,
or otherwise; provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," (a) securities tendered
pursuant to a tender or exchange offer made by such Person or any of such
Person's Affiliates or Associates until such tendered securities are accepted
for purchase or exchange, or (b) at any time prior to the occurrence of a
Triggering Event, securities issuable upon exercise of the Rights ("Triggering
Event" and "Rights" shall have the respective meanings ascribed to such terms
as set forth in the Rights Agreement between Embrex, Inc. and Branch Banking
& Trust Company as Rights Agent, dated as of March 21, 1996 and as in effect on
the date hereof ("Rights Agreement")), or (c) from and after the occurrence of
a Triggering Event, securities issuable upon exercise of Rights which were
acquired by such Person or any of such Person's Affiliates or Associates prior
to the Distribution Date (as defined in the Rights Agreement) or pursuant to
Section 3(a) or Section 22 of the Rights Agreement (the "Original Rights") or
pursuant to Section 11(i) of the Rights Agreement in connection with an
adjustment made with respect to any Original Rights;
(ii) which such Person or any of such Person's Affiliates or Associates,
directly or indirectly, has the right to vote or dispose of or has "beneficial
ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and
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Regulations under the Exchange Act and any successor provision thereof), in-
cluding pursuant to any agreement, arrangement or understanding, whether or not
in writing; provided, however, that a person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," any security under this subparagraph (ii)
as a result of an agreement, arrangement or understanding to vote such security
if such agreement, arrangement or understanding: (a) arises solely from a
revocable proxy given in response to a public proxy or consent solicitation
made pursuant to, and in accordance with, the applicable provisions of the
General Rules and Regulations under the Exchange Act, and (b) is not also then
reportable by such Person on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any other
Person (or any Affiliate or Associate thereof) with which such Person (or any
of such Person's Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing), but excluding customary agreements
with and between underwriters and selling group members with respect to a bona
fide public offering of securities until the expiration of forty days after the
date of such acquisition, for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy as described in the provision to subparagraph (ii)
of this paragraph (C) or disposing of any voting securities of the Company.
D "Continuing Director" shall mean (i) any member of the Board of Directors of
the Company, while such Person is a member of the Board of Directors, who is
not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or
a representative of an Acquiring Person or of any such Affiliate or Associate,
and was a member of the Board of Directors prior to this Agreement, or (ii) any
Person who subsequently becomes a member of the Board of Directors, while such
Person is a member of the Board of Directors, who is not an Acquiring Person,
or an Affiliate or Associate of an
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Acquiring Person, or a representative of an Acquiring Person or of any such
Affiliate or Associate, if such Person's nomination for election or election
to the Board of directors is recommended or approved by a majority of the
Continuing Directors.
(E) "Person" shall mean any individual, firm, corporation, partnership,
limited liability company or other entity.
(F) "Subsidiary" shall mean, with reference to any other Person, any
corporation or other entity of which securities or other ownership interests
having ordinary voting power, in the absence of contingencies, to elect at
least a majority of the directors or other persons performing similar functions
is beneficially owned, directly or indirectly, by such Person, or which is
otherwise controlled by such Person.
(G) "Termination Date" shall mean the date on which the Employee's employment
with the Company is terminated by the Employee for Good Reason or by the
Company for reasons other than Cause, Disability, or death.
3. Change in Control. For purposes of this Agreement, a "Change in Control"
shall mean the occurrence of any one of the following events:
(A) Any Person (other than the Company, any Subsidiary of the Company, any
employee benefit plan or employee stock plan of the Company or of any Subsidiary
of the Company, any dividend reinvestment plan of the Company, or any Person or
entity organized, appointed, or established by the Company for or pursuant to
the terms of any such plan) alone or together with its Affiliates or Associates,
shall, at any time after the date hereof, become an Acquiring Person; or
(B) The Continuing Directors cease for any reason to constitute a majority
of the Board of Directors of the Company; or
(C) Directly or indirectly:
(i) the Company shall consolidate with, or merge with and into, any other
Person (other than a Subsidiary of the Company), and the Company shall not be
the continuing or surviving corporation of such consolidation or merger;
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or
(ii) any Person (other than Subsidiary of the Company) shall consolidate
with, or merge with or into, the Company, and the Company shall be the
continuing or surviving corporation of such consolidation or merger, and in
connection with such consolidation or merger, all or part of the outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property; or
(iii) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer) in one transaction or a series of
related transactions, assets or earning power aggregating more than fifty
percent (50%) of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any Person or Persons other than the Company or any
Subsidiary of the Company).
4. Termination Following Change in Control. After the occurrence of a Change
in Control, Employee shall be entitled to receive payments and benefits
pursuant to this Agreement if, within two (2) years after the occurrence of a
Change in Control, his employment with the Company is terminated under any of
the following circumstances:
(A) The Company terminates Employee's employment for reasons other than
"Cause," "Disability," or death. For purposes of this Agreement, "Cause" shall
be defined as:
(i) the willful and continued failure by Employee to perform substantially
his duties with the Company (other than any such failure resulting from his
Disability) for a significant period of time, after a demand for substantial
performance is delivered to Employee by the Board or a committee thereof, which
specifically identifies the manner in which the Board believes that Employee has
not substantially performed his duties; or
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(ii) the willful engaging by Employee in gross misconduct materially and
demonstrably injurious to the Company. No act, or failure to act, on Employee's
part shall be considered "willful" unless done, or omitted to be done, by
Employee in the absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Company.
For purposes of this Agreement, "Disability" shall mean a physical or mental
infirmity which impairs the Employee's ability substantially to perform his
employment duties for the Company and which continues for a period of at least
one hundred and eighty (180) consecutive days.
(B) The Employee terminates his employment with the Company for "Good Reason."
For purposes of this Agreement, "Good Reason" shall mean the occurrence after a
Change in Control of any of the following events or conditions:
(i) a change in the Employee's status, title, position or responsibilities
(including reporting responsibilities) which, in the Employee's reasonable
judgment, represents an adverse change from his status, title, position or
responsibilities in effect immediately prior thereto; the assignment to Employee
of any duties or responsibilities which in the Employee's reasonable judgment,
are inconsistent with his status, title, position or responsibilities; or any
removal of Employee from or failure to reappoint or reelect him to any of such
positions, status, or title except in connection with the termination of his
employment for Disability, Cause, or death, or by the Employee other than for
Good Reason;
(ii) a reduction in the Employee's base salary;
(iii) the Company's requiring the Employee to be based at any place outside
a 30 mile radius from Durham, North Carolina, except for reasonably required
travel on the Company's business which is not greater than such travel
requirements prior to the Change in Control;
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(iv) the failure by the Company to continue in effect any compensation,
welfare or benefit plan in which Employee is participating at the time of a
Change in Control without substituting plans providing Employee with sub-
stantially similar or greater benefits, or the taking of any action by the
Company which would adversely affect Employee's participation in or materially
reduce Employee's benefits under any of such plans or deprive Employee of any
material fringe benefit enjoyed by Employee at the time of the Change in
Control;
(v) any purported termination of Employee's employment for Cause or
Disability without grounds thereof;
(vi) the insolvency or the filing (by any party including the Company) of a
petition for bankruptcy of the Company;
(vii) any material breach by the Company of any provision of this
Agreement; or
(viii) the failure of the Company to obtain an agreement, satisfactory to
the Employee, from any successor or assign of the Company to assume and agree
to perform this Agreement.
5. Severance Pay and Benefits. In the event that Employee's employment with
the Company terminates under any of the circumstances described in Paragraph 4
above, Employee shall be entitled to receive all of the following:
(A) all accrued compensation and any pro-rata bonuses Employee may have
earned up to the Termination Date;
(B) a severance payment equal to two and nine-tenths (2.9) times the amount
of the Employee's most recent annual compensation, including the amount of his
most recent annual bonus. The severance payment shall be paid in thirty-four
(34) equal monthly installments without interest, commencing one month after
the Termination Date;
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(C) a continuation of benefits. The Company shall maintain in full force and
effect, for two (2) years after the Termination Date, all life insurance,
health, accidental death and dismemberment, and disability plans and other
benefit programs in which Employee is entitled to participate immediately
prior to the Termination Date provided that Employee's continued participation
is possible under the general terms and provisions of such plans and programs.
Employee's continued participation in such plans and programs shall be at no
greater cost to Employee than the cost he bore for such participation
immediately prior to the Termination Date. If Employee's participation in any
such plan or program is barred, the Company shall arrange upon comparable terms,
and at no greater cost to Employee than the cost he bore for such plans and
programs prior to the Termination Date, to provide Employee with benefits
substantially similar to, or greater than, those which he is entitled to
receive under any such plan or program; and
(D) a lump sum payment (or otherwise as specified by Employee to the extent
permitted by the applicable plan) of any and all amounts contributed to a
Company pension or retirement plan which Employee is entitled to under the
terms of any such plan.
6. No Duty to Mitigate. Employee shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise, and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
The severance pay and benefits under this Agreement shall be in lieu of any
other severance pay to which Employee may be entitled from the Company.
7. Stock Options. Upon the occurrence of a Change in Control, all stock
options shall immediately vest and, except as may be required by the nature
of the transaction constituting the Change in Control, the options shall remain
exercisable for the duration of the original option term. If plans or
agreements to which outstanding options have been issued do not provide for
immediate vesting, the Company shall use its best efforts to effect amendments
permitting the acceleration of vesting so long as no material adverse
accounting
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treatment results to the Company.
8. Fees and Expenses. The Company agrees that if Employee is entitled to any
severance pay or benefits under this Agreement, and the Company or its survivor
disputes the obligation to pay such severance pay or benefits and the Employee
prevails, in whole or in part, the Company or its survivor shall promptly pay
or reimburse Employee for all expense incurred by Employee in such dispute,
including, but not limited to, attorneys fees and associated expenses.
9. Excise Tax Payments.
(A) In the event that any payment or benefit (within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), to
the Employee or for his benefit paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise in connection with, or
arising out of, his employment with the Company or a change in ownership or
effective control of the Company or of a substantial portion of its assets (a
"Payment" or "Payments"), would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties are incurred by the Employee with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Employee will be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Employee of all taxes
(including any interest or penalties, other than the interest and penalties
imposed by reason of the Employee's failure to file timely a tax return or pay
taxes shown due on his return, imposed with respect to such taxes and the
Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment, the
Employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(B) An initial determination as to whether a Gross-Up Payment is required
pursuant to this Agreement and the amount of such Gross-Up Payment shall be
made at the Company's expense by an accounting firm selected by the Company
and reasonably
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acceptable to the Employee which is designated as one of the five largest
accounting firms in the United States (the "Accounting Firm"). The Accounting
Firm shall provide its determination (the "Determination"), together with
detailed supporting calculations and documentation to the Company and the
Employee within ten days of the Termination Date if applicable, or such other
time as requested by the Company or by the Employee (provided the Employee
reasonably believes that any of the Payments may be subject to the Excise Tax)
and if the Accounting Firm determines that no Excise Tax is payable by the
Employee with respect to a Payment or Payments, it shall furnish the Employee
with an opinion reasonably acceptable to the Employee that no Excise Tax will
be imposed with respect to any such Payment of Payments. Within ten days of
the delivery of the Determination to the Employee, the Employee shall have the
right to dispute the Determination (the "Dispute"). The Gross-Up Payment, if
any, as determined pursuant to this Paragraph 9(B) shall be paid by the Company
to the Employee within five days of the receipt of the Accounting Firm's
determination. The existence of the Dispute shall not in any way affect the
Employee's right to receive the Gross-Up Payment in accordance with the
Determination. Upon the final resolution of a Dispute, the Company shall
promptly pay to the Employee any additional amount required by such resolution.
If there is no Dispute, the Determination shall be binding, final and
conclusive upon the Company and the Employee subject to the application of
Paragraph 9(C) below.
(C) Notwithstanding anything in this Agreement to the contrary, in the
event that, according to the Determination, an Excise Tax will be imposed on
any Payment or Payments, the Company shall pay to the applicable government
taxing authorities as Excise Tax withholding, the amount of the Excise Tax that
the Company has actually withheld from the Payment or Payments.
10. Successors and Assigns.
(A) This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors, and assigns, and the Company shall require any
successor or
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assign to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession or assignment had taken place.
(B) Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Employee, his beneficiaries, or legal
representatives except by will or by the laws of dissent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Employee's
legal personal representative.
11. Notice. Notice as provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered in person or mailed by
United States Registered Mail, Return Receipt Requested, Postage Pre-Paid,
addressed to the respective addresses last given by each party to the other,
provided that all notices to the Company shall be directed to the attention
of the Board with a copy to Smith, Anderson, Blount, Dorsett, Xxxxxxxx &
Xxxxxxxx, Attn. Xxxxxx X. Xxxxx, Xxxx Xxxxxx Xxx 0000, Xxxxxxx, Xxxxx
Xxxxxxxx 00000-0000, counsel for the Company. All notices and communications
shall be deemed to have been received on the date of delivery thereof or on the
third business day of the mailing thereof, except that notice of change of
address shall be effective only upon receipt.
12. Modifications. No provision of this Agreement may be modified, waived, or
discharged unless such modification, waiver, or discharge is agreed to in
writing signed by the Employee and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with any conditional provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
of the same at any prior or subsequent time.
13. Entire Agreement. No agreement 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.
14. Governing Law. This Agreement shall be governed by and construed and
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enforce in accordance with the laws of the State of North Carolina.
15. Severability. The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceablity of any provision shall not affect the
validity or enforceability of the other provisoins hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
EMBREX, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
ATTEST: Title: /s/ President & CEO
EMPLOYEE:
/s/ Xxxxx X. Xxxxxx /s/ Xxxx Xxxx Corporate
Assistant Secretary
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