AMENDMENT TO
EMPLOYMENT AGREEMENT
AMENDMENT NO. 2, dated as of December , 1999, to the Employment Agreement
dated as of March 12, 1993, between QUAKER FABRIC CORPORATION, a Delaware
corporation with its principal office at 000 Xxxxxxxx Xxxxxx, Xxxx Xxxxx,
Xxxxxxxxxxxxx 00000 (the "Company"), and XXXXX XXXXXXXX, residing at 00 Xxxxx
Xxxxxx, Xxxxxxxxxx, Xxxxx Xxxxxx 00000 ("Employee").
W I T N E S S E T H:
WHEREAS, Employee has been employed by the Company as its President and
Chief Executive Officer pursuant to an Employment Agreement, dated as of March
12, 1993 (the "Employment Agreement");
WHEREAS, the Company wishes to continue the employment of Employee as
President and Chief Executive Officer of the Company and Employee desires to
continue such employment; and
WHEREAS, the parties wish to amend certain of the terms of the Employment
Agreement as set forth in this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and mutual
promises herein contained, and other good and valuable consideration, it is
hereby covenanted and agreed by and between the parties hereto as follows:
1. Section 6(a) of the Employment Agreement is hereby amended by adding
the following language to the end thereof:
"In addition, the Company shall pay or provide to Employee any
incurred but unreimbursed business expenses for the period prior to
termination payable in accordance with the Company's policies, 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 Employee but not yet paid and any other
amounts or benefits due under any applicable employee benefit,
equity or incentive plans (the "Accrued Benefits")."
2. Section 6(b) of the Employment Agreement is hereby amended by adding
the following language to the end thereof:
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"In addition, the Company shall pay or provide to Employee the
Accrued Benefits."
3. Section 6(c) of the Employment Agreement is hereby amended in its
entirety to read as follows:
"Upon termination of employment of Employee for any other reason
including, without limitation, a termination of employment without
cause (other than pursuant to Section 2(b)(v)), Employee shall be
entitled to receive: (i) a lump sum payment equal to three (3) times
the highest annual Base Salary paid by the Company to Employee at
any time prior to the Change in Control and three (3) times the
annual bonus paid, or required to be paid, by the Company to the
Employee for the year preceding the year in which the termination
occurs; (ii) any Accrued Benefits; (iii) payment by the Company of
the premiums for Employee (except in the case of Employee's death)
and Employee's dependents' health and welfare coverage (including,
without limitation, medical, dental, life insurance and disability
coverage) for twelve (12) months from the date of termination of
Employee's employment under the Company's health and welfare plans
which cover the Employee or materially similar benefits
("Continuation Coverage"), subject to Employee's payment of
customary premiums in effect prior to the Change in Control.
Payments under (iii) above may, at the discretion of the Company, be
made by continuing Employee's participation in the plan as a
terminee or by covering Employee and Employee's dependents under
substitute arrangements, provided that, notwithstanding anything
herein to the contrary, to the extent Employee incurs tax that
Employee would not have incurred as an active employee as a result
of the aforementioned coverage or the benefits provided thereunder,
Employee shall receive from the Company an additional grossed up
payment in the amount necessary so that Employee will have no
additional cost for receiving such items or any additional payment.
Notwithstanding anything herein to the contrary, Employee (and his
eligible dependents) shall retain all rights under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") and
such COBRA continuation coverage shall be available to Employee (and
his eligible dependents) at the expiration of the Continuation
Coverage described herein."
4. Section 6(d) of the Employment Agreement is hereby amended by deleting
the phrase "(or in the case of installment payments, shall commence)."
5. A new subsection 6(e) and (f) is hereby added to the Employment
Agreement to read as follows:
"(e) Upon termination of employment by the Company without cause or
by Employee for Good Reason (as defined in Exhibit A), during the
period beginning on the date of the Change in Control (as defined in
Exhibit A) and ending one (1)
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year after the date of such Change in Control, then Employee shall
be entitled to receive: (i) a lump sum payment equal to three times
the highest annual Base Salary paid by the Company to Employee at
any time prior to the Change in Control and three (3) times the
annual bonus paid, or required to be paid, by the Company to
Employee for the year preceding the year in which the Change in
Control occurs; (ii) any Accrued Benefits; (iii) Continuation
Coverage for a period of three (3) years, subject to Employee's
payment of customary premiums in effect prior to the Change in
Control; (iv) upon the occurrence of a Change in Control, full and
immediate vesting of all stock options held by Employee; and (v) job
outplacement at a level and of a type appropriate for senior-level
executives in an amount not to exceed $20,000. Payments under (iii)
above may, at the discretion of the Company, be made by continuing
Employee's participation in the plan as a terminee or by covering
Employee and Employee's dependents under substitute arrangements,
provided that, notwithstanding anything herein to the contrary, to
the extent Employee incurs tax that Employee would not have incurred
as an active employee as a result of the aforementioned coverage or
the benefits provided thereunder, Employee shall receive from the
Company an additional grossed up payment in the amount necessary so
that Employee will have no additional cost for receiving such items
or any additional payment. Notwithstanding anything herein to the
contrary, Employee (and his eligible dependents) shall retain all
rights under COBRA and such COBRA continuation coverage shall be
available to Employee (and his eligible dependents) at the
expiration of the Continuation Coverage described herein. In
addition, notwithstanding the foregoing, in the event Employee is
terminated without cause or terminates employment for Good Reason
within ninety (90) days prior to the occurrence of a Change of
Control, such termination shall, upon the occurrence of a Change in
Control, be deemed to be covered under this section of the
Employment Agreement and Employee shall be entitled to all payments
and benefits provided hereunder reduced by any amounts otherwise
received by the Executive in connection with his termination of
employment.
"(f) Notwithstanding anything herein to the contrary, all payments
payable upon any termination shall be made as soon as practicable
following such termination, but in no event later than ten (10) days
after such termination (or, if such termination occurred within
ninety (90) days prior to a Change in Control, all payments shall be
made as soon as practicable following the Change in Control, but in
no event later than ten (10) days after the Change in Control)."
6. A new Section 9 is hereby added to the Employment Agreement to read as
follows:
"9. (a) In the event that the Employee shall become entitled to the
payments and/or benefits provided by Section 6 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
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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 Employee at the time specified in
subsection (d) below an additional amount (the "Gross-up Payment")
such that the net amount retained by Employee, 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.
(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,
Employee 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, Employee shall repay to the Company, at
the time that the amount of such 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
Employee if such repayment results in a reduction in Excise Tax or a
federal, state and local income tax deduction), plus interest on the
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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 Employee,
and interest payable to the Company shall not exceed the interest
received or credited to Employee by such tax authority for the
period it held such portion. Employee and the Company shall mutually
agree upon the course of action to be pursued (and the method of
allocating the expense thereof) if Employee'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 Employee 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 Employee 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 Employee 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 Employee,
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 9, Employee
shall permit the Company to control issues related to this Section 9
(at its expense), provided that such issues do not potentially
materially adversely affect Employee, but Employee shall control any
other issues. In the event the issues are interrelated, Employee and
the Company shall in good faith cooperate so as not to jeopardize
resolution of either issue, but if the parties cannot agree,
Employee 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, Employee shall
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permit the representative of the Company to accompany him, and
Employee and his representative shall cooperate with the Company and
its representative.
(f) The Company shall be responsible for all charges of the
Accountants."
7. A new Section 10 is hereby added to the Employment Agreement to read as
follows:
"10. 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 Employee may have
under this Agreement; provided, however, the Company shall be
reimbursed by Employee for the fees and expenses advanced in the
event Employee'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 Employee 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 Employee
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."
8. A new Section 11 is hereby added to the Employment Agreement to read as
follows:
"11. The Company agrees that if Employee's employment with the
Company is terminated pursuant to this Agreement during the term of
this Agreement, Employee shall not be required to seek other
employment or to attempt in any way to reduce any amounts payable to
Employee 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 Employee or
benefit provided to Employee as the result of 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 Employee."
9. A new Section 12 is hereby added to the Employment Agreement to read as
follows:
"12. The Company shall continue to cover Employee 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
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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."
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the day and year first written above.
QUAKER FABRIC CORPORATION
By: __________________________________
Name: ________________________________
Title: _______________________________
Employee: ____________________________
Address: _____________________________
______________________________________
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EXHIBIT A
(a) Termination for Good Reason. For purposes of this Employment
Agreement, termination for Good Reason shall mean a termination by
Employee 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
Employee's express written consent: (A) any diminution in Employee's
duties and responsibilities, authority, or title, except in each
case in connection with the termination of Employee's employment for
Cause or as a result of Employee's death, or temporarily as a result
of Employee's illness or other absence, or, if it occurs after a
Change of Control, the assignment to Employee of duties and
responsibilities inconsistent with the position held by Employee
immediately prior to the Change of Control; (B) a reduction in
Employee's annual Base Salary; (C) a relocation of: (x) Employee's
principal business location to an area outside a fifty (50) mile
radius of Employee's current principal business location, (y)
Employee's principal business location to a location which is more
than seventy (70) miles from Employee's principal residence, or (z)
the Company's headquarters to a location that is not substantially
the same as Employee's current principal business location; (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 Employee (and eligible dependents) are
participating immediately prior to such Change in Control, unless
Employee (and eligible dependents) are permitted to participate in
other plans providing Employee with substantially comparable
benefits at no greater after-tax cost to Employee, or the taking of
any action by the Company which would adversely affect Employee's
participation in or reduce Executive's benefits under any such plan;
(E) breach by the Company of any other agreement with Employee
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 to the Company (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 in writing the obligations hereunder.
(b) 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 Section
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, Xxxxx X. Xxxxxxxx (or his estate,
beneficiaries or heirs) and any Affiliate (as such term is defined in Rule 12b-2
of the Exchange Act) of Xxxxx X. Xxxxxxxx, 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;
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(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 Holding, Inc., Xxxxx X. Xxxxxxxx (or his estate,
beneficiaries or heirs) or any Affiliate of Xxxxx X. Xxxxxxxx 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 Xxxxx Xxxxxxxx (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 Holding, Inc. at the time of such sale.
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