Form of restricted stock unit agreement for restricted stock units granted to executive officers pursuant to the 2015 Equity Incentive Plan

THIS RESTRICTED STOCK UNIT AGREEMENT (the “Agreement”), dated as of __________________, is between CULP, INC., a North Carolina corporation (the “Corporation”), and ____________________ (“Recipient”).

The Corporation desires to grant to Recipient Restricted Stock Units (the “Units”) pursuant to the Culp, Inc. 2015 Equity Incentive Plan (the “Plan”).  Capitalized terms used but not defined in this Agreement shall have the meanings given to them in the Plan.

NOW, THEREFORE, the parties hereby agree as follows:

For Cumulative Operating Income amounts that are between the levels shown above, a pro rata number of shares will vest, calculated on a straight line basis.

The number of Units and shares vested shall further be subject to the TSR Moderator provisions contained in this paragraph.  The number of Shares to vest as determined above shall be multiplied by the ratio of (1) the Total Shareholder Return of the Corporation’s Common Stock during the Performance Period divided by (2) the Total Shareholder Return of the Russell 2000 Index during the Performance Period; provided, however, that in no event will the provisions of this paragraph result in vesting of more than _____ shares per Unit.

Notwithstanding the foregoing, all unvested Units (and the number of shares at the Target level set forth above) shall immediately vest upon:

(a)               the termination by the Corporation of the employment of Recipient without Cause or by reason of the death or Disability of Recipient; or

 

(b)              Recipient’s employment is terminated by the Corporation in anticipation of a Change of Control, or

 

(c)               Recipient is employed by the Company or an affiliate thereof at the time a Change of Control occurs, and at any time during the three-year period following such Change of Control (provided that the Units granted hereunder and related shares have not otherwise vested),

 

(i)          Employee’s employment is terminated by the Corporation or an affiliate thereof for any reason other than for death, Disability or Cause, or

 

(ii)         Employee terminates his employment for Good Reason within one year following the initial existence of the conditions giving rise to such Good Reason.

“Cause” shall mean (i) the commission by Recipient of a felony (or crime involving moral turpitude); (ii) theft, conversion, embezzlement or misappropriation by Recipient of funds or other assets of the Corporation or its Subsidiaries or any other act of fraud with respect to the Corporation or its Subsidiaries (including without limitation the acceptance of bribes or kickbacks or other acts of self-dealing); (iii) intentional, grossly negligent or unlawful misconduct by Recipient that causes significant harm to the Corporation or its Subsidiaries; or (iv) repeated instances of intoxication with alcohol or drugs while conducting business during regular business hours.

“Change of Control” shall have the meaning given to such term in the Plan.  In addition, for an award that vests according to Cumulative Operating Income of a Division, “Change of Control” shall be deemed to have occurred upon consummation of a sale of all or substantially all of the assets of such Division by the Corporation to an unaffiliated third party.

“Cumulative Operating Income” shall mean the total Operating Income of the Corporation, excluding extraordinary and non-recurring items including restructuring and related charges, goodwill or fixed asset impairment charges, prepayment fees on debt, other extraordinary charges or credits, and the effects of acquisitions, for the three fiscal years beginning _____________ and ending _____________ (the “Performance Period”).

“Disability” shall have the meaning given to such term in the primary disability benefit plan of the Corporation in which Recipient participates.  In the absence of any such plan, “Disability” shall mean any physical or mental impairment that renders Recipient unable to perform the essential functions of his job with the Corporation and its Subsidiaries for a period of at least 120 days, either with or without reasonable accommodation.  At the Corporation’s request, Recipient shall submit to an examination by a duly licensed physician who is mutually acceptable to the Corporation and Recipient for the purpose of ascertaining the existence of a Disability, and shall authorize the physician to release the results of Recipient’s examination to the Corporation.

“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:

(a)               a material diminution in Employee’s authority, duties or responsibilities;

 

(b)              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;

 

(c)               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

 

(d)              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.

“Performance Period” shall mean the period over which Cumulative Operating Income is measured, as set forth in the definition of Cumulative Operating Income above.

“Russell 2000 Index” shall mean the stock index of that name as published by FTSE Russell and the Frank Russell Company.  If the Russell 2000 Index ceases to be published during the Performance Period or otherwise becomes unavailable, the Russell 2000 Index shall mean a similar index or measurement of small capitalization stocks, as selected by the Compensation Committee of the Corporation’s board of directors.

“Total Shareholder Return” (TSR) shall mean the total value at the end of a specified period of a hypothetical $100.00 investment, made at the beginning of the specified period, in a stock or index, including increases in trading value and all dividends paid during the specified period of time.

(a)               Recipient shall promptly pay to the Corporation all federal, state and local income, social security and payroll taxes of any kind required by law to be withheld with respect to the vesting of any Units and the issuance of shares of Common Stock in respect thereof.  Subject to the approval of the Committee, Recipient may elect to satisfy this obligation by having the Corporation withhold shares of Common Stock that would otherwise be issued to Recipient with respect to any Units that have vested, which shares of Common Stock shall have a Fair Market Value (as of the date that the amount of the withholding requirement is to be determined) equal to the amount of such withholding requirement.  If Recipient fails to make such payments as required (whether in cash or having shares of Common Stock withheld), the Corporation shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to Recipient all federal, state and local income, social security and payroll taxes of any kind required by law to be withheld with respect to the vesting of Units and the issuance of shares of Common Stock in respect thereof.

 

(b)              Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and if Recipient is entitled under any agreement or arrangement (including, without limitation, this Agreement) to receive compensation that would constitute a parachute payment (including, without limitation, the vesting of any rights) within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) but for the operation of this sentence, then the amount of all such payments shall be reduced, as determined by the Corporation, to the extent necessary to cause the aggregate present value of all payments in the nature of compensation to Recipient that are contingent on a change in the ownership or effective control of the Corporation, or in the ownership of a substantial portion of the assets of the Corporation, not to exceed 2.99 times Recipient’s “base amount,” all within the meaning of Section 280G of the Code and the regulations promulgated thereunder.  The parties intend for the immediately preceding sentence to be interpreted and applied so as to prevent Recipient from receiving, with respect to a Change of Control, an excess parachute payment within the meaning of Section 280G of the Code.

In the alternative, the Committee may require Recipient to repay or return compensation awarded hereunder pursuant to such rules as may be adopted from time to time pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, to the extent applicable.  By acceptance of any award or Units hereunder, Recipient expressly acknowledges and agrees that any and all Units or Common Stock, as well as the equivalent cash value thereof with respect to any and all such Units or Common Stock, that have become vested, exercised, free of restriction or otherwise released to and/or monetized by or for the benefit of the Recipient or any transferee or assignee thereof (collectively, the “Award-Equivalent Value”), are and will be fully subject to the terms of any policy regarding repayment, recoupment or clawback of compensation now or hereafter adopted by the Corporation in response to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, rulemaking of the Securities and Exchange Commission or otherwise.  Recipient acknowledges and agrees that any such policy will apply to any and all Units or Common Stock, and Award-Equivalent Value in accordance with its terms, whether retroactively or prospectively, and agrees to cooperate fully with the Corporation to facilitate the recovery of any Units or Common Stock and/or Award-Equivalent Value that the Committee determines in its sole discretion is required to be recovered pursuant to the terms of such policy.

The obligations of Recipient to make payments or return Common Stock under this Section are independent of any involvement by such Recipient in events that led to the restatement.  The provisions of this Section are in addition to, not in lieu of, any remedies that the Corporation may have against any persons whose misconduct caused or contributed to a need to restate the Corporation’s reported results.

(a)               Governing Law.  This Agreement shall be construed, administered and governed in all respects under and by the applicable internal laws of the State of North Carolina, without giving effect to the principles of conflicts of laws thereof.

 

(b)              Entire Agreement; Amendment and Waiver.  This Agreement and the Units granted hereunder shall be subject to the terms of the Plan, which hereby is incorporated into this Agreement as though set forth in full herein.  Recipient hereby acknowledges receipt of a copy of the Plan.  This Agreement and the Plan reflect the entire agreement between the parties hereto and supersede any prior or contemporaneous written or oral understanding or agreement regarding the subject matter hereof.  This Agreement may not be modified, amended, supplemented or waived except by a writing signed by the parties hereto, and such writing must refer specifically to this Agreement.

 

(c)              Assignment; Binding Effect.  This Agreement, as amended from time to time, shall be binding upon, inure to the benefit of and be enforceable by the heirs, successors and assigns of the parties hereto; provided, however, that this provision shall not permit any assignment in contravention of the terms contained elsewhere herein.

 

(d)              No Right to Employment.  Nothing in this Agreement shall confer on Recipient any right to continue in the employ of the Corporation or any of its Subsidiaries.

(e)               Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  Delivery of an executed counterpart of this Agreement by facsimile or other electronic device shall be equally as effective as delivery of an original executed counterpart of this Agreement.  Any party delivering an executed counterpart of this Agreement by facsimile or other electronic device shall also deliver an original executed counterpart of this Agreement, but the failure to deliver an original executed counterpart of this Agreement shall not affect the validity, enforceability and binding effect of this Agreement.

 

(f)               Notices.  Any notice hereunder to the Corporation shall be addressed to the Corporation’s principal executive office, Attention: Compensation Committee, and any notice hereunder to Recipient shall be addressed to Recipient at his last address in the records of the Corporation, subject to the right of either party to designate at any time hereafter in writing a different address.  Any notice shall be deemed to have been given when delivered personally, one (1) day after dispatch if sent by reputable overnight courier, fees prepaid, or three (3) days following mailing if sent by registered mail, return receipt requested, postage prepaid and addressed as set forth above.

IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above.

 

	CULP, INC.,
	a North Carolina corporation
	By:
		Name:
		Title:
	RECIPIENT