<DOCUMENT>

<TYPE>EX-10.3

<SEQUENCE>4

<FILENAME>a5562888ex10_3.txt

<DESCRIPTION>EXHIBIT 10.3

<TEXT>

                                  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.

 

<PAGE>

 

            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;

 

                                       2

<PAGE>

 

                  (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

 

                                       3

<PAGE>

 

                 (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.

 

                                       4

<PAGE>

 

            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):

 

                                       5

<PAGE>

 

                  (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:

 

                                       6

<PAGE>

 

                  (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.

 

                                       7

<PAGE>

 

            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.

 

                                       8

<PAGE>

 

            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.

 

                                       9

<PAGE>

 

IN WITNESS WHEREOF,  the parties have duly executed this Agreement as of the day

and year first above written.

 

                                    CULP, INC.

 

 

                                    By:

                                       -----------------------------------

 

 

                                    EMPLOYEE

 

                                       -----------------------------------

 

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