Ex-10.31 Retention and Change in Control Agreement dated October 9, 2006

EX-10.31 2 g06666exv10w31.htm EX-10.31 RETENTION AND CHANGE IN CONTROL AGREEMENT DATED OCTOBER 9, 2006 Ex-10.31

Exhibit 10.31

RETENTION AND
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 Michael G. Webb (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.

(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

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

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:

(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

(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.

(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.

(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.

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.
				1657 N. Shelby Oaks Drive, Suite 105
				Memphis, Tennessee 38134-7401
				Attention: President

		To the Executive:		Michael G. Webb

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.

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/ Lattimore M. Michael
		Name:		Lattimore M. Michael
		Title:		Chairman and Chief Executive Officer

		/s/ Michael G. Webb

		Michael G. Webb