Exhibit 10.3
CHANGE OF CONTROL AND NONCOMPETITION AGREEMENT
THIS CHANGE OF CONTROL AND NONCOMPETITION AGREEMENT (the "Agreement") is made
and entered into as of _______________, 2007 by and between CULP, INC., a North
Carolina corporation headquartered in High Point, North Carolina (the "Company")
and the employee ("Employee").
Background Statement
Culp, Inc. (the "Company") has determined that it is in its best interests to
have the continued dedication and services of certain employees, notwithstanding
the possibility, threat, or occurrence of a Change of Control (as hereinafter
defined) of the Company. It is imperative to diminish the inevitable distraction
of senior management because of the personal uncertainties and risks created by
any pending or threatened Change of Control, to encourage senior management's
full attention and dedication to the Company in the event of any threatened or
pending change of control, to provide an incentive for certain senior management
members to continue in the employ of the Company following a Change of Control
in order to assure continuity in the management of the Company, and to provide
certain senior management members with compensation arrangements upon a Change
of Control which ensure that the compensation expectations of certain senior
management members will be satisfied and that such compensation will be
competitive with the compensation of corporations similarly situated. The
Company has also determined that it is in its best interests to restrict
competition with the Company by certain key management personnel upon
termination of their employment with the Company following a Change of Control.
The purpose of this Agreement is to memorialize the compensation Employee will
receive upon termination of his employment in certain circumstances following a
Change of Control.
In consideration of the foregoing and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and Employee agree as follows:
A. For purposes of this Agreement, the following definitions and related
provisions shall apply:
1. Total Compensation. "Total Compensation" shall mean Employee's
annual salary in effect at the time of termination of employment ("Base
Salary"), plus with respect to the Company's annual incentive plan, the annual
targeted amount for the current year in which Employee's employment is
terminated. If Employee is not participating in an annual incentive plan for the
year in which his employment is terminated, then "Total Compensation" shall mean
Employee's Base Salary plus the annual targeted amount for the most recent year
in which Employee participated in an annual incentive plan.
2. Cause. "Cause" means (i) Employee's willful and continued failure
to substantially perform his duties with the Company (other than any such
failure resulting from Disability (as hereinafter defined) or occurring after
issuance by Employee of a notice of termination for Good Reason (as hereinafter
defined)), after a written demand for substantial performance is delivered to
Employee that specifically identifies the manner in which the Company believes
that Employee willfully failed to substantially perform his duties, and after
Employee has failed to resume substantial performance of his duties on a
continuous basis within thirty calendar days of receiving such demand; or (ii)
Employee has committed an act which seriously and substantially damages or
embarrasses the Company for which there is no cure (for example, and without
limitation, sexual harassment). If Employee is charged with a felony, in the
discretion of the board of directors, Employee may be placed on a paid leave of
absence for six months pending a trial of such charge. If the charge is not
brought on for trial within this six month period, in the discretion of the
board of directors, Employee may be placed on an unpaid leave of absence until
the charge is tried. If Employee is convicted of the felony, he may, in the
discretion of the board of directors, be terminated for Cause. If Employee is
acquitted of the felony, he shall be reinstated to active status to the position
held at the beginning of the paid leave of absence and reimbursed for
compensation and benefits he would have received during the unpaid leave of
absence. For purposes of this definition, actions or failures to act will be
deemed "willful" only if done or omitted in bad faith and without reasonable
belief that the action or omission was in the best interests of the Company.
3. Disability. "Disability" shall have the same meaning as it does
under the Company's Long-Term Disability policy, as maintained for employees.
Employee shall be deemed to be disabled when Employee becomes eligible to
commence benefits under the Company's Long-Term Disability policy.
4. Good Reason. "Good Reason" shall mean, without Employee's express
written consent, the existence of any of the following conditions unless such
conditions are fully corrected within thirty days after Employee notifies the
Company of the existence of such conditions as hereinafter provided:
(i) a material diminution in Employee's authority, duties or
responsibilities;
(ii) a material diminution in the authority, duties or
responsibilities of the supervisor to whom Employee is required to
report, including a requirement that Employee report to a Company
officer or employee instead of reporting directly to the Company's
board of directors;
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(iii) a material diminution in Employee's Base Salary, other
than as a result of across-the-board salary reductions similarly
affecting all management personnel of the Company; or
(iv) a material change in the geographic location at which
Employee must regularly perform services for the Company.
Employee shall notify the Company that he believes that one or more of the
conditions described above exists, and of his intention to terminate employment
for Good Reason as a result thereof, within sixty days after the time that he
gains knowledge of such conditions. Employee shall not deliver a notice of
termination of employment for Good Reason until thirty days after he delivers
the notice described in the preceding sentence, and Employee may do so only if
the conditions described in such notice have not been fully corrected by the
Company.
5. Change of Control. "Change of Control" means the occurrence of
one of the following:
(i) any "person" (as that term is used in Sections
13(d)(3) of the Securities Exchange Act of 1934, as amended), other
than (A) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or (B) Employee or a group of
persons including Employee, is or becomes the beneficial owner (as
determined pursuant to the provisions of Section 13(d) of the
Securities Exchange Act of 1934, without regard to the
requirements set forth in Section 13(d)(1) in regard to
registration and also without regard to Section 13(d)(b)(3)),
directly or indirectly, of 35% or more of the common voting stock
of the Company or its successors, other than an underwriter or
group of underwriters owning shares of common voting stock in
connection with a bona fide public offering of such shares and
the sale of such shares to the public;
(ii) there shall be any consolidation or merger of the
Company in which the Company is not the continuing or surviving
corporation or as a result of which the holders of 35% or more of
the voting capital stock (if any) of the surviving corporation
were not holders of voting capital stock of the Company
immediately prior to the transaction;
(iii) there occurs the sale or transfer of all or substantially
all of the assets of the Company or the liquidation or dissolution
of the Company; or
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(iv) individuals who constitute the Board as of the effective
date of this Agreement (the "Incumbent Board"), cease for any reason
(including but not limited to a change mandated by any statute or
regulation) to constitute a majority of the Board; provided,
however, that any individual becoming a director subsequent to the
date of this Agreement whose election or nomination for election was
approved by a vote of at least a majority of the Incumbent Board
shall be a member of the Incumbent Board; except that any individual
whose initial assumption of office occurs as a result of any actual
or threatened election contest that is subject to the provisions of
Rule 14a-11 of the General Rules and Regulations under the
Securities Exchange Act of 1934, shall not be deemed to be a member
of the Incumbent Board.
B. Payments upon Change of Control.
1. Payment Circumstances. If:
(i) a Change of Control occurs while this Agreement is in
effect; and
(ii) (A) Employee's employment is terminated in anticipation
of a Change of Control, or (B) Employee is employed by the Company
or an affiliate thereof at the time such Change of Control occurs,
and at any time during the three-year period following such Change
of Control,
(1) Employee's employment is terminated by the Company
or an affiliate thereof for any reason other than for death,
Disability or Cause, or
(2) Employee terminates his employment for Good Reason
within one year following the initial existence of the
conditions giving rise to such Good Reason,
the Company (or its successors) shall pay Employee, or his beneficiary in the
event of his subsequent death, subject to applicable federal and state income,
social security and other employment tax withholdings, an amount (the "Change of
Control Payment") equal to 1.99 times Employee's Total Compensation in effect at
the date of termination of employment. The Change of Control Payment is in
addition to the payment for the covenant not to compete provided for under
Section D of this Agreement.
2. Timing of Payment. The Change of Control Payment shall be paid in
a single lump sum within 60 days after Employee's termination of employment.
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3. Reduction in Parachute Payment. Notwithstanding anything in this
Agreement to the contrary, if a Change of Control occurs and if Employee is
entitled under any agreement or arrangement to receive compensation that would
constitute a parachute payment (including, without limitation, the vesting of
any rights) within the meaning of ss. 280G of the Internal Revenue Code (the
"Code") but for the operation of this sentence, the Change of Control Payment
shall be reduced to the extent necessary to cause the aggregate present value of
all payments in the nature of compensation to Employee that are contingent on a
change in the ownership or effective control of the Company or in the ownership
of a substantial portion of the assets of the Company, not to exceed 2.99 times
the Base Amount, all within the meaning of Code ss. 280G. The parties intend for
the preceding sentence to be interpreted and applied to prevent Employee from
receiving, with respect to a Change of Control, an excess parachute payment
within the meaning of Code ss. 280G.
C. Confidential Information. Employee acknowledges that during, and as a
result of, his employment with the Company, he will acquire, be exposed to and
have access to, material, data and information of the Company and/or its
customers or suppliers that is confidential or proprietary. At all times, both
during and after the period of Employee's employment hereunder, Employee shall
keep and retain in confidence and shall not disclose, except as required in the
course of his employment with the Company, to any person or entity, or use for
his own purposes, any of this proprietary or confidential information. For
purposes of this Section C, such information shall include, but shall not be
limited to: (i) the Company's standard operating procedures, processes, know-how
and technical and product information, any of which is of value to the Company
and not generally known by the Company's competitors or the public; (ii) all
confidential information obtained from third parties and customers concerning
the business of the Company, including any customer lists or data; and (iii)
confidential business information of the Company, including marketing and
business plans, strategies, projections, business opportunities, customer lists,
sales and cost information and financial results and performance. Such
information shall not include information that is disclosed pursuant to issuance
of legal process or regulatory action. Employee acknowledges that the
obligations pertaining to the confidentiality and non-disclosure of information
shall remain in effect indefinitely, or until the Company has released any such
information into the public domain, in which case Employee's obligation
hereunder shall cease with respect only to such information so released.
D. Noncompetition.
1. Noncompetition. Employee shall not take any of the following
actions during the applicable Noncompetition Period (as defined below):
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(i) Become employed by (as an officer, director, employee,
consultant or otherwise), involved or engaged in, or otherwise
commercially interested in or affiliated with (other than as a less
than 5% equity owner of any corporation traded on any national,
international or regional stock exchange or in the over-the-counter
market) any person or entity that competes with the Company or an
affiliate thereof in the business of designing, manufacturing,
marketing and selling upholstery fabrics and mattress ticking
primarily for use in the furniture (residential, commercial and
juvenile) and bedding industries.
(ii) Solicit or attempt to solicit, for competitive purposes,
the business of any of the clients or customers of the Company or an
affiliate thereof, or otherwise induce such customers or clients or
prospective customers or clients to reduce, terminate, restrict or
alter their business relationship with the Company or an affiliate
thereof in any fashion; or
(iii) Induce or attempt to induce any employee of any Company
or an affiliate thereof to leave the Company for the purpose of
engaging in a business operation that is competitive with the
Company.
2. Noncompetition Period. For purposes of this Section D
"Noncompetition Period" shall mean the period commencing on the date of
termination of employment (but only following a Change of Control) and ending
twelve months thereafter.
3. Geographic Scope. The restrictions on competition and
solicitation set forth in this Section D shall apply to the forty-eight
contiguous states of the United States of America.
4. Providing Copy of Agreement. Employee agrees to provide a copy of
this Agreement to any person or entity with whom he interviews that is in
competition with the Company during the Noncompetition Period.
5. Obligations Survive. Employee's obligations under this Section D
shall survive any termination of employment with the Company.
6. Payment for Noncompetition. In addition to the payments to
Employee provided by Section B, Employee shall be paid for not competing with
the Company, as provided above, an amount (the "Noncompetition Payment") equal
to 1.0 times his Total Compensation in effect at the time of termination of
employment. The Noncompetition Payment shall be made in 12 equal, consecutive
monthly installments, each of which shall constitute a separate payment
obligation, beginning with the first month following Employee's termination.
Notwithstanding the foregoing, the first six installments of the Noncompetition
Payment shall be delayed and paid in a single lump sum on the first day of the
seventh month following termination to the extent necessary to comply with Code
Regulation ss.1.409A-(3)(i)(2) if:
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(i) Employee is at the time of termination a "specified
employee" under Code Regulation ss.1.409A-1(i), and
(ii) the amount of the Noncompetition Payment exceeds two
times the lesser of (A) Employee's annual rate of pay for the year
preceding the year in which the termination occurred (the "Year of
Termination") (adjusted for any increase during the Year of
Termination that was expected to continue indefinitely if the
termination had not occurred), within the meaning of Code Regulation
ss.1.409A-1(b)(9)(iii)(A)(1), and (B) the maximum amount that may be
taken into account under a qualified plan pursuant to Code ss.
401(a)(17) for the Year of Termination.
7. Company's Right to Obtain an Injunction; Other Remedies. Employee
acknowledges that the Company will have no adequate means of protecting its
rights under Sections C and D of this Agreement other than by securing an
injunction. Accordingly, Employee agrees that the Company is entitled to enforce
this Agreement by obtaining a preliminary and permanent injunction and any other
appropriate equitable relief in any court of competent jurisdiction. Employee
acknowledges that the Company's recovery of damages will not be an adequate
means to redress a breach of this Agreement. Nothing contained in this Section D
shall prohibit the Company from obtaining any appropriate remedies in addition
to injunctive relief, including recovery of damages. All benefits and payments
under Sections B and D of this Agreement shall be forfeitable and shall be
discontinued in the event Employee breaches or fails to perform his obligations
under Sections C and D of this Agreement, and all benefits and payments under
this Agreement shall immediately cease from and after the date of such breach or
failure of performance.
E. Term of Agreement. The term of this Agreement shall commence
immediately upon the date hereof and shall continue until the third anniversary
of the date hereof, unless terminated earlier (the "Term"); provided, however,
that on each anniversary date of this Agreement, the Term shall be extended for
one year (so that on each anniversary date the Term will be three years) unless
at least 60 days prior to any such anniversary date either party gives to the
other notice in writing of non-renewal.
F. General Provisions.
1. Entire Agreement. This Agreement contains the entire
understanding between the parties relating to the subject matter hereof and
supersedes any and all prior agreements and discussions between the Company and
Employee relating to the subject matter hereof.
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2. Assignability. Neither this Agreement nor any right or interest
hereunder may be pledged, encumbered, assigned or otherwise transferred by
Employee, his beneficiaries or legal representatives; provided, however, that
nothing shall preclude (i) Employee from designating a beneficiary to receive
any benefit payable hereunder upon his death, or (ii) the executors,
administrators or other legal representatives of Employee or his estate from
assigning any rights hereunder to the person or persons entitled thereunto.
3. Binding Agreement. This Agreement shall be binding upon, and
inure to the benefit of, Employee and the Company and permitted successors and
assigns.
4. Amendment of Agreement. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto.
5. Insurance. The Company, at its discretion, may apply for and
procure in its own name and for its own benefit, life insurance on Employee in
any amount or amounts considered advisable; and Employee shall have no right,
title or interest therein. Employee agrees to submit to any medical or other
examination and execute and deliver any applications or other instruments in
writing as may be reasonably necessary to obtain such insurance.
6. Severability. If any provision contained in this Agreement shall
for any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein. If a court
determines that this Agreement or any covenant contained herein is unreasonable,
void or unenforceable, for any reason whatsoever, then in such event the parties
hereto agree that the duration, geographical or other limitation imposed herein
should be such as the court, or jury, as the case may be, determines to be fair
and reasonable, it being the intent of each of the parties hereto to be subject
to an agreement that is necessary for the protection of the legitimate interest
of the Company and its successors or assigns and that is not unduly harsh in
curtailing Employee's legitimate rights.
7. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of North Carolina.
8. Expenses in Enforcing Agreement. If there is a dispute concerning
this Agreement, all reasonable expenses (including, without limitation, legal
fees and expenses) incurred by Employee in connection with, or in prosecuting or
defending, any claim or controversy arising out of or related to this Agreement
shall be paid by the Company.
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9. Dispute Concerning Termination. If, following a Change of Control
and termination of Employee's employment, there is a dispute between the Company
and Employee regarding the circumstances of termination as a result of which the
Company does not timely make the Change of Control Payment or the Noncompetition
Payment, then the Company shall continue to pay to Employee, until the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected), his
Total Compensation in effect at the date of termination. The Company shall pay
such Total Compensation at the times at which it would have been paid had
Employee not been terminated. Each such payment shall be considered a separate
payment obligation of the Company. Notwithstanding the foregoing, if Employee is
at the time of termination a "specified employee" under Code Regulation
ss.1.409A-1(i), all such payments that would otherwise become due during the
first six months after termination shall be delayed and paid in a single lump
sum on the first day of the seventh month following termination to the extent
necessary to comply with Code Regulation ss.1.409A-(3)(i)(2).
Amounts paid under this section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
10. Mitigation. The Company agrees that upon termination of
Employee's employment following or in contemplation of a Change of Control,
Employee is not required to seek other employment or to attempt in any way to
reduce any amounts payable pursuant to this Agreement, and the amount of any
payment or benefit provided for in this Agreement shall not be reduced by any
compensation earned by Employee as the result of employment by another employer,
by retirement benefits, be offset against any amount claimed to be owed by
Employee to the Company, or otherwise, except as expressly provided to the
contrary herein.
11. Arbitration. Any controversy or claim arising out of or relating
to this Agreement or the validity, interpretation, enforceability or breach
thereof, which is not settled by agreement among the parties, shall be settled
by arbitration in Greensboro, North Carolina, in accordance with the Rules of
the American Arbitration Association, and judgment upon the award rendered in
such arbitration may be entered in any court having jurisdiction. All expenses
(including, without limitation, legal fees and expenses) incurred by Employee in
connection with, or in prosecuting or defending, any claim or controversy
arising out of or relating to this Agreement following a Change of Control shall
be paid by the Company.
12. No Acceleration or Further Deferral. Amounts payable to Employee
under this Agreement may not be accelerated or further deferred.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day
and year first above written.
CULP, INC.
By:
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EMPLOYEE
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