AGREEMENT
Agreement made as of the ___ day of December, 1999, by and between
QUAKER FABRIC CORPORATION, a corporation incorporated under the laws of Delaware
with its principal office at 941 Grinnell Street, Fall River, Massachusetts
02721 (the "Company") and MICHAEL E. COSTA, residing at 206 High Street,
Rochester, MA 02770 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company believes that the establishment and maintenance
of a sound and vital management of the Company and its affiliates is essential
to the protection and enhancement of the interests of the Company and its
stockholders;
WHEREAS, the Company also recognizes that the possibility of a
Change in Control of the Company (as defined in Exhibit A attached hereto), with
the attendant uncertainties and risks, might result in the departure or
distraction of key employees of the Company to the detriment of the Company; and
WHEREAS, the Company has determined that it is appropriate to take
steps to induce key employees to remain with the Company, and to reinforce and
encourage their continued attention and dedication, when faced with the
possibility of a Change in Control in the Company.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. Term. This Agreement shall commence on the date hereof and shall
expire on the earliest of: (i) three (3) years from the date hereof, subject to
the right of the Board of Directors of the Company (the "Board") and the
Executive to extend it, provided that if a Change in Control takes place prior
to three (3) years from the date hereof, this Agreement shall continue until one
(1) year after the Change in Control regardless of whether such one (1) year
period ends before or after the end of such three (3) year period; (ii) the date
of the Executive's death, retirement or termination of employment (voluntarily
or involuntarily) with the Company prior to a Change in Control other than as a
result of a termination by the Company without Cause (as defined below) or by
the Executive for Good Reason (as defined below); or (iii) ninety-one (91) days
after a termination by the Company without Cause or by the Executive for Good
Reason provided that a Change in Control has not occurred within ninety (90)
days from the date of the Executive's termination of employment. Notwithstanding
anything in this Agreement to the contrary, if the Company becomes obligated to
make any payment to the Executive pursuant to the terms hereof at or prior to
the expiration of this Agreement, then this Agreement shall remain in effect for
all purposes until all of the Company's obligations hereunder are fulfilled.
Further, the provisions of Sections 4, 9 and 15 hereunder shall survive and
remain in effect notwithstanding the termination of this Agreement, the
termination of the Executive's employment or any breach or repudiation or
alleged breach or repudiation by the Company of this Agreement or any one or
more of its terms.
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2. Termination Following Change in Control. If a Change in Control
occurs and the Executive's employment with the Company is terminated by the
Company without Cause or by the Executive for Good Reason at any time during the
period beginning on the date of the Change in Control and ending one (1) year
after the date of such Change in Control, then the Executive shall be entitled
to the amounts provided in Section 3 upon such termination. In addition,
notwithstanding the foregoing, in the event the Executive is terminated without
Cause or terminates employment for Good Reason within ninety (90) days prior to
the occurrence of a Change in Control, such termination shall, upon the
occurrence of a Change in Control, be deemed to be covered under this Agreement
and the Executive shall be entitled to the amounts provided under Section 3
hereof. The foregoing terms shall have the following meanings:
(i) Termination for Good Reason. For purposes of this Agreement,
termination for Good Reason shall mean a termination by the Executive effected
by a written notice given within sixty (60) days after the occurrence of the
Good Reason event. For purposes of this Agreement, "Good Reason" shall mean the
occurrence or failure to cause the occurrence of any of the following events
without the Executive's express written consent: (A) any material diminution in
the Executive's duties and responsibilities, authority, or title, except in each
case in connection with the termination of the Executive's employment for Cause
or as a result of the Executive's death, or temporarily as a result of the
Executive's illness or other absence, or, if after a Change in Control, the
assignment to the Executive of duties and responsibilities materially
inconsistent with the position held by the Executive immediately prior to the
Change in Control; (B) a reduction in the Executive's annual base salary; (C) a
relocation of: (i) the Executive's principal business location to an area
outside a fifty (50) mile radius of the Executive's current principal business
location, or (ii) the Executive's principal business location to a location
which is more than 70 miles from the Executive's principal residence; (D)
failure of the Company to continue in effect any health and welfare plan,
employee benefit plan, pension plan, fringe benefit plan or compensation plan in
which the Executive (and eligible dependents) are participating immediately
prior to such Change in Control, unless the Executive (and eligible dependents)
are permitted to participate in other plans providing the Executive (and
eligible dependents) with substantially comparable benefits at no greater
after-tax cost to the Executive (and eligible dependents), or the taking of any
action by the Company which would adversely affect the Executive's (and eligible
dependents) participation in or reduce Executive's (and eligible dependents)
benefits under any such plan; (E) a material breach by the Company of any other
agreement with the Executive without proper justification that remains uncured
for ten (10) days after written notice of such breach is given to the Company;
or (F) failure of any successor (as defined in Section 10 herein) to assume in
writing the obligations hereunder.
(ii) Cause. As used herein, the term "Cause" shall mean: (A) willful
insubordination to a board resolution after a written demand for substantial
performance is delivered to the Executive by the Company, which demand
specifically identifies the manner in which the Company believes that the
Executive has not substantially performed his duties or responsibilities; (B)
breach of Section 9(a) of this Agreement after a written demand for substantial
performance is delivered to the Executive by the Company, which demand
specifically identifies the manner in which the Company believes that the
Executive has breached this Agreement; (C) acts or omissions intentionally and
materially inimical to the Company after a written demand for cessation of such
conduct is delivered to the Executive by the Company, which demand specifically
identifies the
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manner in which the Company believes that the Executive has engaged in such
conduct and the injury to the Company; (D) gross negligence, after written
demand for cessation of such conduct is delivered to the Executive by the
Company, which demand specifically identifies the manner in which the Company
believes that the Executive has engaged in such conduct; or (E) conviction of a
crime involving moral turpitude. Cause shall also mean a Disability of the
Executive. Disability shall mean the Executive's disability pursuant to the
Company's Long-term Disability Plan (the "LTD Plan"), provided that the
Executive is eligible for and receiving benefits under the LTD Plan.
The Executive's continued employment for a period of up to sixty
(60) days after the occurrence of any act or failure to act constituting Good
Reason hereunder shall not constitute consent to, or a waiver of rights with
respect to, any such act or failure to act.
3. Compensation on Change in Control Termination. If pursuant to
Section 2 the Executive is entitled to amounts and benefits under this Section
3, the Company shall, subject to Section 4, pay and provide to the Executive:
(A) a lump sum amount, payable within ten (10) days after such termination (or,
if such termination occurred prior to a Change in Control, within ten (10) days
after the Change in Control) equal to (i) fifty percent (50%) of the highest
annual base salary paid by the Company to the Executive at any time prior to the
Change in Control, and (ii) fifty percent (50%) of the annual bonus paid, or
required to be paid, by the Company to the Executive for the year preceding the
year in which the Change in Control occurs; (B) a lump sum amount, payable
within ten (10) days after such termination (or if such termination occurred
prior to a Change in Control within ten (10) days after the Change in Control)
equal to (i) any incurred but unreimbursed business expenses for the period
prior to termination payable in accordance with the Company's policies, and (ii)
any base salary, bonus, vacation pay or other deferred compensation accrued or
earned under law or in accordance with the Company's policies applicable to the
Executive but not yet paid ("Accrued Benefits"); (C) any other amounts or
benefits due under the then applicable employee benefit, equity or incentive
plans of the Company applicable to the Executive as shall be determined and paid
in accordance with such plans; (D) payment by the Company of the premiums for
the Executive (except in the case of Executive's death) and Executive's
dependents' health and welfare coverage (including, without limitation, medical,
dental, life insurance and disability coverage) for six (6) months from the date
of termination of Executive's employment under the Company's health and welfare
plans which cover the senior executives of the Company or materially similar
benefits ("Continuation Coverage"), subject to Executive's payment of customary
premiums (if any) in effect prior to the Change in Control; and (E) upon the
occurrence of a Change in Control, full and immediate vesting of all stock
options held by the Executive. Payments under (D) above may, at the discretion
of the Company, be made by continuing the Executive's participation in the plan
as a terminee or by covering the Executive and the Executive's dependents under
substitute arrangements, provided that, notwithstanding anything herein to the
contrary, to the extent the Executive incurs tax that the Executive would not
have incurred as an active employee as a result of the aforementioned coverage
or the benefits provided thereunder, the Executive shall receive from the
Company an additional grossed up payment in the amount necessary so that the
Executive will have no additional cost for receiving such items or any
additional payment. Notwithstanding anything herein to the contrary, the
Executive (and his eligible dependents) shall retain all rights under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") and
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such COBRA continuation coverage shall be available to the Executive (and his
eligible dependents) at the expiration of the Continuation Coverage described
herein.
4. Limitation on Payments. (a) In the event that the Executive shall
become entitled to the payments and/or benefits provided by Section 3 or any
other amounts (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any person whose actions result
in a change of ownership covered by Section 280G(b)(2) of the Code or any person
affiliated with the Company or such person) as a result of a Change of Control
(collectively the "Company Payments"), and such Company Payments will be subject
to the tax (the "Excise Tax") imposed by Section 4999 of the Code (and any
similar tax that may hereafter be imposed) the Company shall pay to the
Executive at the time specified in subsection (d) below an additional amount
(the "Gross-up Payment") such that the net amount retained by the Executive,
after deduction of any Excise Tax on the Company Payments and any federal,
state, and local income or payroll tax upon the Gross-up Payment provided for by
this paragraph (a), but before deduction for any federal, state, and local
income or payroll tax on the Company Payments, shall be equal to the Company
Payments. Notwithstanding the foregoing provisions of this Section 4 to the
contrary, if it shall be determined that the Executive is entitled to a Gross-up
Payment, but the Company Payments do not exceed one hundred ten percent (110%)
of the greatest amount (the "Reduced Amount") that could be paid to the
Executive such that the receipt of Company Payments would not give rise to any
Excise Tax, then no Gross-up Payment shall be made to the Executive and the
Company Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) For purposes of determining whether any of the Company Payments
and Gross-up Payments (collectively the "Total Payments") will be subject to the
Excise Tax and determining the amount of such Excise Tax: (i) the Total Payments
shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "parachute payments" in excess of the "base
amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated
as subject to the Excise Tax, unless and except to the extent that, in the
opinion of the Company's independent certified public accountants appointed
prior to any change in ownership (as defined under Code Section 280G(b)(2)) or
tax counsel selected by such accountants (the "Accountants") such Total Payments
(in whole or in part), (A) do not constitute "parachute payments," (B) represent
reasonable compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code or (C) are otherwise not subject to the Excise
Tax; and (ii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with the principles
of Section 280G of the Code.
(c) For purposes of determining the amount of the Gross-up Payment,
the Executive shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-up Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of Employee's residence for
the calendar year in which the Company Payment is to be made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes if paid in such year. In the event that the Excise Tax is
subsequently determined by the Accountants to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, the Executive shall
repay to the Company, at the time that the amount of such
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reduction in Excise Tax is finally determined, the portion of the prior Gross-up
Payment attributable to such reduction (plus the portion of the Gross-up Payment
attributable to the Excise Tax and federal, state and local income tax imposed
on the portion of the Gross-up Payment being repaid by the Executive if such
repayment results in a reduction in Excise Tax or a federal, state and local
income tax deduction), plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in
the event any portion of the Gross-up Payment to be refunded to the Company has
been paid to any federal, state and local tax authority, repayment thereof (and
related amounts) shall not be required until actual refund or credit of such
portion has been made to the Executive, and interest payable to the Company
shall not exceed the interest received or credited to the Executive by such tax
authority for the period it held such portion. Executive and the Company shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expense thereof) if Executive's claim for refund or credit is
denied.
In the event that the Excise Tax is later determined by the Accountants or
the Internal Revenue Service to exceed the amount taken into account hereunder
at the time the Gross-up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-up
Payment), the Company shall make an additional Gross-up Payment in respect of
such excess (plus any interest or penalties payable with respect to such excess)
at the time that the amount of such excess is finally determined.
(d) The Gross-up Payment or portion thereof provided for in
subsection (c) above shall be paid not later than the thirtieth (30th) day
following an event occurring which subjects the Executive to the Excise Tax;
provided, however, that if the amount of such Gross-up Payment or portion
thereof cannot be finally determined on or before such day, the Company shall
pay to the Executive on such day an estimate, as determined in good faith by the
Accountants, of the minimum amount of such payments and shall pay the remainder
of such payments (together with interest at the rate provided in Code Section
1274(b)(2)(B) of the Code), subject to further payments pursuant to subsection
(c) hereof, as soon as the amount thereof can reasonably be determined, but in
no event later than the ninetieth (90th) day after the occurrence of the event
subjecting the Executive to the Excise Tax. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) day after demand by the Company (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code).
(e) In the event of any controversy with the Internal Revenue
Service (or other taxing authority) under this Section 4, the Executive shall
permit the Company to control issues related to this Section 4 (at its expense),
provided that such issues do not potentially materially adversely affect the
Executive, but the Executive shall control any other issues. In the event the
issues are interrelated, the Executive and the Company shall in good faith
cooperate so as not to jeopardize resolution of either issue, but if the parties
cannot agree, the Executive shall make the final determination with regard to
the issues. In the event of any conference with any taxing authority as to the
Excise Tax or associated income taxes, the Executive shall permit the
representative of the Company to accompany him, and the Executive and his
representative shall cooperate with the Company and its representative.
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(f) The Company shall be responsible for all charges of the
Accountants.
5. Notice of Termination. After a Change in Control, 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 13. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice provided to the
Executive not less than thirty (30) days prior to the date of termination
(except in the case of a termination for Cause, which shall be provided to the
Executive not less than fourteen (14) days prior to the date of termination, as
specified below), which shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment. Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for Cause without: (i) advance written notice provided to
the Executive not less than fourteen (14) days prior to the date of termination
setting forth the Company's intention to consider terminating the Executive
including a statement of the date of termination and the specific detailed basis
for such consideration for Cause; (ii) an opportunity of the Executive, together
with his counsel, to be heard before the Board during the fourteen (14) day
period ending on the date of termination; (iii) a duly adopted resolution of the
Board stating that in accordance with the provisions of the next to the last
sentence of this Section 5, that the actions of the Executive constituted Cause
and the basis thereof; and (iv) a written determination provided by the Board
setting forth the acts and omissions that form the basis of such termination of
employment. Any determination by the Board hereunder shall be made by the
affirmative vote of at least a two-thirds majority of the members of the Board
(other than the Executive if the Executive is a member of the Board). Any
purported termination of employment of the Executive by the Company which does
not meet each substantive and procedural requirement of this Section 5 shall be
treated for all purposes under this Agreement as a termination of employment
without Cause. Upon a termination for Cause, the Company shall pay the Executive
the Accrued Benefits.
6. Date of Termination. "Date of termination," with respect to any
purported termination of the Executive's employment after a Change in Control,
shall mean the date specified in the Notice of Termination which, in the case of
a termination by the Company, shall not be less than thirty (30) days prior to
the date of termination (except it shall not be less than fourteen (14) days in
the case of a termination for Cause, and not less than five (5) days nor more
than sixty (60) days in the case of a termination by the Executive for Good
Reason). In the event of Notice of Termination by the Company, the Executive may
treat such notice as having a date of termination at any date between the date
of the receipt of such notice and the date of termination indicated in the
Notice of Termination by the Company; provided, that the Executive must give the
Company written notice of the date of termination if he or she deems it to have
occurred prior to the date of termination indicated in the notice.
7. No Duty to Mitigate/Set-off. The Company agrees that if the
Executive's employment with the Company is terminated pursuant to this Agreement
during the term of this Agreement, 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 Company 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 or benefit provided to the Executive as the
result of
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employment by another employer or otherwise. The Company's obligations to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive.
8. Service with Subsidiaries. For purposes of this Agreement,
employment by a subsidiary of the Company shall be deemed to be employment by
the Company and references to the Company shall include all such entities and
the Company and all such entities shall be jointly and severally responsible for
the payment obligations hereunder.
9. Confidentiality; Insurance. (a) The Executive shall not at any
time during the term of this Agreement, or thereafter, directly or indirectly,
for any reason whatsoever, communicate or disclose to any unauthorized person,
firm or corporation, or use for the Executive's own account, without the prior
written consent of the Board, any proprietary processes, trade secrets or other
confidential data or information of the Company and its related and affiliated
companies concerning their businesses or affairs, accounts, products, services
or customers, it being understood, however, that the obligations of this Section
shall not apply to the extent that the aforesaid matters (i) are disclosed in
circumstances in which the Executive is legally required to do so, or (ii)
become known to and available for use by the public or generally known in the
Company's industry, other than by the Executive's wrongful act or omission.
(b) The Company shall continue to cover the Executive under any
director and officer insurance maintained for directors and officers of the
Company or any affiliate at the highest level so maintained for other officers
or directors or, if greater, at the level maintained by the Company immediately
prior to a Change in Control, with regard to action or inaction while an officer
or director.
10. Successors; Binding Agreement. In addition to any obligations
imposed by law upon any successor to the Company, the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree in writing 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 had taken place. 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 still
be payable to the Executive hereunder if the Executive had continued to live,
all such amounts, 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. This Agreement is personal to the
Executive and neither this Agreement nor any rights hereunder may be assigned by
the Executive.
11. Miscellaneous. No provisions 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 such officer as may be 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
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or provision shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. This Agreement
constitutes the entire Agreement between the parties hereto pertaining to the
subject matter hereof. 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. All references
to any law shall be deemed also to refer to any successor provisions to such
laws.
12. 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.
13. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, or sent by
registered mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, or, if mailed, five days after the date of deposit in the
United States mails:
(i) If to the Company, to:
Quaker Fabric Corporation
941 Grinnell Street
Fall River, Massachusetts 02721
Attention: General Counsel
(ii) If to the Executive, to his or her last shown
address on the books of the Company.
Any party may by notice given in accordance with this Section to the
other parties, designate another address or person for receipt of notices
hereunder.
14. Separability. If any provisions of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
15. Legal Fees. To the fullest extent permitted by law, the Company
shall promptly pay upon submission of statements all legal and other
professional fees, costs of litigation, prejudgment interest, and other expenses
incurred in connection with any dispute concerning payments, benefits and other
entitlements to which the Executive may have under this Agreement; provided,
however, the Company shall be reimbursed by the Executive for the fees and
expenses advanced in the event the Executive's claim is, in a material manner,
in bad faith or frivolous and the arbitrator or court, as applicable, determines
that the reimbursement of such fees and expenses is appropriate. The Company
shall pay to the Executive interest at the prime lending rate as announced from
time to time by Fleet National Bank (or any successor) on all or any part of any
amount to be paid to the Executive hereunder that is not paid when due. The
prime rate for each calendar quarter shall be the prime rate in effect on the
first day of the calendar quarter.
16. Non-Exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive, equity or other
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plan or program provided by the Company and for which the Executive may qualify,
nor shall anything herein limit or otherwise prejudice such rights as the
Executive may have under any other currently existing plan, agreement as to
employment or severance from employment with the Company or statutory
entitlements. Amounts that are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company, at or
subsequent to the date of termination shall be payable in accordance with such
plan or program, except as otherwise specifically provided herein.
17. Not an Agreement of Employment. This is not an agreement
assuring employment and, subject to any other agreement between the Executive
and the Company, the Company reserves the right to terminate the Executive's
employment at any time with or without cause, subject to the payment provisions
hereof if such termination is after, or within ninety (90) days prior to a
Change in Control, as defined herein. The Executive acknowledges that he is
aware that he shall have no claim against the Company hereunder or for
deprivation of the right to receive the amounts hereunder as a result of any
termination that does not specifically satisfy the requirements hereof.
18. Governing Law. This Agreement shall be construed, interpreted,
and governed in accordance with the laws of the State of Delaware without
reference to rules relating to conflicts of law.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and the Executive has hereunto set his hand as of the date first set
forth above.
QUAKER FABRIC CORPORATION
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
EXECUTIVE
Name: ____________________________________
Title: ____________________________________
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EXHIBIT A
A "Change in Control" shall mean the occurrence of any of the
following:
(i) any person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections
13(d) and 14(d) thereof), excluding the Company, any subsidiary of the Company,
any employee benefit plan sponsored or maintained by the Company or its
subsidiaries (including any trustee of any such plan acting in his capacity as
trustee), and Nortex Holdings, Inc, Larry A. Liebenow (or his estate,
beneficiaries or heirs) and any Affiliate (as such term is defined in Rule 12b-2
of the Exchange Act) of Larry A. Liebenow, becoming the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of securities of the Company
representing twenty-five percent (25%) of the total combined voting power of the
Company's then outstanding securities;
(ii) the merger, consolidation or other business combination of the
Company (a "Transaction"), other than a Transaction involving only the Company
and one or more of its subsidiaries, or a Transaction immediately following
which the stockholders of the Company immediately prior to the Transaction
continue to have a majority of the voting power in the resulting entity and no
person other than Nortex Holdings, Inc., Larry A. Liebenow (or his estate,
beneficiaries or heirs) or any Affiliate of Larry A. Liebenow is the beneficial
owner of securities of the resulting entity representing more than twenty-five
percent (25%) of the voting power in the resulting entity;
(iii) during any period of two (2) consecutive years beginning on or
after the date hereof, the persons who were members of the Board immediately
before the beginning of such period (the "Incumbent Directors") ceasing (for any
reason other than death) to constitute at least a majority of the Board or the
board of directors of any successor to the Company, provided that, any director
who was not a director as of the date hereof shall be deemed to be an Incumbent
Director if such director was elected to the board of directors by, or on the
recommendation of or with the approval of, at least a majority of the directors
who then qualified as Incumbent Directors either actually or by prior operation
of the foregoing unless such election, recommendation or approval occurs as a
result of an actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any
successor provision) or other actual or threatened solicitation of proxies or
contests by or on behalf of a person other than a member of the Board; or
(iv) the approval by the stockholders of the Company of an agreement
for the sale of all or substantially all of the Company's assets other than the
sale of all or substantially all of the assets of the Company to Nortex
Holdings, Inc., or Larry Liebenow (or his estate, beneficiaries or heirs) or to
a person or persons who beneficially own, directly or indirectly, at least fifty
percent (50%) or more of the combined voting power of the outstanding voting
securities of the Company or Nortex Holdings, Inc. at the time of such sale.
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