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Exhibit
10.3
TREX COMPANY,
INC.
CHANGE IN CONTROL
SEVERANCE AGREEMENT
THIS AGREEMENT (the “
Agreement ”) is entered into as of April 2, 2007
(the “ Effective Date ”) by and between TREX
COMPANY, INC., a Delaware corporation (the “
Company ”), and ANTHONY J. CAVANNA , a key
employee of the Company (the “ Eligible Employee
”).
RECITALS:
WHEREAS, the Eligible
Employee has been important in developing and expanding the
business and operations of the Company and possesses valuable
knowledge and skills with respect to such business;
WHEREAS, the Compensation
Committee of the Board of Directors of the Company (the “
Committee ”) believes that it is in the best interests
of the Company to encourage the Eligible Employee’s continued
employment with and dedication to the Company and has authorized
the Company to enter into this Agreement;
WHEREAS, the parties desire
to enter into this Agreement setting forth the terms and conditions
for the payment of compensation to the Eligible Employee in the
event of a termination of the Eligible Employee’s employment
in connection with a Change in Control (as defined herein) during
the term of this Agreement;
NOW, THEREFORE, in
consideration of the foregoing, the agreements and covenants set
forth herein, and other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. Definitions . Except as
otherwise provided in this Agreement, capitalized terms in this
Agreement shall have the meanings set forth in this
Section 1.
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(a) |
“ Administrator ” means the Committee or
such other person or persons appointed from time to time by the
Committee. |
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(b) |
“ Affiliate ” means any “parent
corporation” and any “subsidiary corporation” of
the Company, as such terms are defined in Section 424 of the
Code. |
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(c) |
“ Board ” means the Board of Directors of
the Company. |
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(d) |
“ Cause ” means one of the following reasons
for which the Eligible Employee’s employment with the
Employer is terminated: (1) willful or grossly negligent
misconduct that is materially injurious to the Employer;
(2) embezzlement or misappropriation of funds or property of
the Employer; (3) conviction of a felony or the entrance of a
plea of guilty or nolo contendere to a felony; (4) conviction
of any crime involving fraud, dishonesty, moral turpitude or breach
of trust or the entrance of a plea of guilty or nolo contendere to
such a crime; or (5) failure or refusal by the Eligible
Employee to devote full business time and attention to the
performance of his duties and responsibilities if such breach has
not been cured within 15 days after notice thereof is given to the
Eligible Employee. |
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(e) |
“ Change in Control ” means the first of the
following events to occur after the Effective Date: |
(1) The consummation of a
transaction in which any “person” (as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended) becomes, within the 12-month period ending on the date
of such person’s most recent acquisition, a “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities representing more than 35% of
the voting power of the then outstanding securities of the Company;
provided that a Change of Control shall not be deemed to occur as a
result of a transaction in which the Company becomes a subsidiary
of another corporation and in which the stockholders of the
Company, immediately prior to the transaction, will beneficially
own, immediately after the transaction, shares entitling such
stockholders to more than 50% of all votes to which all
stockholders of the other corporation would be entitled in the
election of directors (without consideration of the rights of any
class of stock to elect directors by a separate class
vote);
(2) The consummation of
(a) a merger, consolidation, or similar extraordinary event
involving the Company and another entity where the stockholders of
the Company, immediately prior to the merger, consolidation or
similar extraordinary event, will not beneficially own, immediately
after the merger, consolidation or similar extraordinary event,
securities entitling such stockholders to more than 50% of all
votes to which all stockholders of the surviving corporation would
be entitled in the election of directors (without consideration of
the rights of any class of stock to elect directors by a separate
class vote), or (b) a sale or other disposition of all or
substantially all of the assets of the Company; or
(3) During any 24-month
period, individuals who at the beginning of any such period
constitute the Board cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for
election by the Company’s stockholders, of each director of
the Company first elected during such period was approved by a vote
of at least two-thirds of the directors of the Company then still
in office who were directors of the Company at the beginning of
such 24-month period.
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(f) |
“ Change in Control Severance Benefits ”
means the benefits payable pursuant to Section 3 of this
Agreement. |
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(g) |
“ Change in Control Protection Period ”
means the period commencing on the later of (1) the date that
is 90 days before the date a Change in Control occurs or
(2) the Effective Date, and ending on the second anniversary
of the date the Change in Control occurs. |
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(h) |
“ Code ” means the Internal Revenue Code of
1986, as amended. |
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(i) |
“ Disability ” shall have the meaning given
that term under the Trex Company, Inc. Disability Plan, as in
effect at the time a determination of Disability is to be
made. |
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(j) |
“ Employer ” means the Company or an
Affiliate. |
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(k) |
“ ERISA ” means the Employee Retirement
Income Security Act of 1974, as amended. |
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(l) |
“ Final Pay ” means the sum of (1) the
greater of (A) the Eligible Employee’s annual base
salary in effect immediately prior to the Change of Control, or
(B) the Eligible Employee’s annual base salary in effect
at the time employment terminates, and (2) the greater of
(A) the Eligible Employee’s targeted cash bonus for the
year in which the Change of Control occurs, (B) the Eligible
Employee’s targeted cash bonus for the year in which
employment terminates or (C) the actual cash bonus earned by
the Eligible Employee for the year immediately prior to the year in
which employment terminates. |
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(m) |
“ Good Reason ” means, without the specific
written consent of the Eligible Employee, any of the
following: |
(1) A material and adverse
change in the Eligible Employee’s status or position(s) as an
officer or management employee of the Employer as in effect
immediately prior to the Change in Control, including, without
limitation, any adverse change in his status or position as an
employee of the Employer as a result of a material diminution in
his duties or responsibilities (other than, if applicable, any such
change directly attributable to the fact that the Employer is no
longer publicly owned) or the assignment to him of any duties or
responsibilities which are materially inconsistent with such status
or position(s) (other than any isolated and inadvertent failure by
the Employer that is cured promptly upon his giving notice), or any
removal of the Eligible Employee from or any failure to reappoint
or reelect him to such position(s) (except in connection with the
Eligible Employee’s Severance other than for Good
Reason).
(2) A 10% or greater
reduction in the Eligible Employee’s base salary and targeted
bonus from the base salary and targeted bonus that was in effective
immediately prior to the occurrence of a Change of Control, but
disregarding any reduction in targeted bonus which occurs in
accordance with the terms of any written bonus program as it reads
immediately prior to the occurrence of a Change of
Control.
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(3) The failure by the
Employer or any successor to continue in effect any employee
benefit plan (excluding any equity compensation plan) in which the
Eligible Employee is participating at the time of the Change in
Control (or plans providing the Eligible Employee with similar
benefits that are not materially reduced in the aggregate) other
than as a result of the normal expiration of any such plan in
accordance with its terms as in effect at the time of the Change in
Control; or the taking of any action, or the failure to act, by the
Employer or any successor which would adversely affect the Eligible
Employee’s continued participation in any of such plans on at
least as favorable a basis to him as is the case on the date of the
Change in Control or which would materially reduce his benefits
under any of such plans.
(4) The Employer’s
requiring the Eligible Employee to be based at an office that is
both more than 50 miles from where his office is located
immediately prior to the Change in Control and further from his
then current residence, except for required travel on the
Employer’s business to an extent substantially consistent
with the business travel obligations which the Eligible Employee
undertook on behalf of the Employer prior to the Change in
Control.
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(n) |
“ Incentive Plan ” means the Trex Company,
Inc. 2005 Stock Incentive Plan (or a successor plan). |
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(o) |
“ Severance ” means (1) the involuntary
termination of the Eligible Employee’s employment by the
Employer, other than for Cause, death or Disability or (2) a
termination of the Eligible Employee’s employment by the
Eligible Employee for Good Reason, in each case, during the Change
in Control Protection Period; provided, however, that in each case
the termination constitutes a “separation from service”
within the meaning of Section 409A(a)(2)(A)(i) of the Code and
Treasury Regulations thereunder. |
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(p) |
“ Severance Date ” means the date on which
the Eligible Employee incurs a Severance. |
2. Term of Agreement . This
Agreement shall remain in effect from the Effective Date through
December 31, 2007; provided, however, that (a) the
Agreement shall automatically extend for additional one-year terms
unless the Company provides written notice to the Eligible Employee
not less than six months before the end of the then-current term;
and (b) the Agreement shall automatically extend until the end
of the Change in Control Protection Period if a Change in Control
occurs during the term of the Agreement.
3. Change in Control Severance
Benefits .
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(a) |
Generally . Subject to subsections (h) and
(i) below and Section 4, the Eligible Employee shall be
entitled to the Change in Control Severance Benefits provided in
this Section 3 if he or she incurs a Severance during the
Change in Control Protection Period. If the Eligible Employee
becomes entitled to receive
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compensation or benefits
under the terms of this Section 3, such compensation or
benefits will be reduced by other severance benefits payable under
any plan, program, policy or practice of or agreement or other
arrangement between the Eligible Employee and the Company. It is
intended that the net effect to the Eligible Employee of
entitlement to any similar benefits that are contained both in this
Agreement and in any other existing plan, program, policy or
practice of or agreement or arrangement between the Eligible
Employee and the Company will be to provide the Eligible Employee
with the greater of the benefits under this Agreement or under such
other plan, program, policy, practice, or agreement or
arrangement.
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(b) |
Payment of Accrued Obligations . If the Eligible
Employee incurs a Severance during the Change in Control Protection
Period, the Company shall pay to him a lump sum payment in cash, no
later than 10 days after the Severance Date (or the date of the
Change in Control, if later), equal to the sum of (1) the
Eligible Employee’s accrued annual base salary and any
accrued vacation pay through the Severance Date, (2) the
Eligible Employee’s annual bonus earned for the fiscal year
immediately preceding the fiscal year in which the Severance Date
occurs if such bonus has not been paid as of the Severance Date,
and (3) the Eligible Employee’s targeted cash bonus for
the year in which the Severance occurs, pro-rated based upon the
number of days the Eligible Employee was employed during such
year. |
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(c)
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Payment of Severance
. Subject to subsections (h) and (i) below, if the
Eligible Employee incurs a Severance during the Change in Control
Protection Period, the Company shall pay to him a lump sum cash
payment, no later than 10 days after the Severance Date (or the
date of the Change in Control, if later), equal to two and one-half
(2 1 /
2 ) times the Eligible Employee’s Final
Pay.
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(d) |
[Intentionally Omitted]. |
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(e) |
Immediate
Vesting of Equity-Based Compensation Awards upon a Change in
Control . Subject to subsections (h) and (i) below
and any other limitations imposed by law, if the Eligible Employee
incurs a Severance during the Change in Control Protection Period,
(1) the unexercised portions of all Options and SARs (as
defined in the Incentive Plan) granted to the Eligible Employee
under the Incentive Plan that have not expired or been forfeited
pursuant to their terms shall automatically accelerate and become
fully exercisable, (2) the restrictions and conditions on all
outstanding Restricted Stock (as defined in the Incentive Plan)
granted to the Eligible Employee that have not expired or been
forfeited pursuant to their terms shall immediately lapse, and
(3) all outstanding Restricted Stock Units and Restricted
Stock (as defined in the Incentive Plan) granted to the Eligible
Employee that are based upon performance of the Company over a
certain period of time shall become payable at the Eligible
Employee’s target payment for the relevant performance period
(regardless of the amount of the relevant performance period that
precedes the Change in Control and Severance);
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provided, however, that,
where a Severance precedes the Change in Control (i.e., by
operation of clause (1) of Section 1(g)) and the terms of
any award granted to the Eligible Employee under the Incentive Plan
would otherwise call for the forfeiture of such award upon the
termination of the Eligible Employee’s employment with the
Company, suc
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