SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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Culp, Inc.
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CULP
1823 Eastchester Drive
Post Office Box 2686
High Point, North Carolina 27261-2686
Telephone: (336) 889-5161
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
September 27, 2005
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TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders of Culp, Inc. (the "Company") will be held at
the Company's corporate offices, 1823 Eastchester Drive, High Point, North
Carolina, on Tuesday, September 27, 2005, at 9:00 a.m. local time, for the
purpose of considering and acting on the following matters:
(1) To elect three directors;
(2) To ratify the appointment of KPMG LLP as the independent auditors of
the Company for the current fiscal year; and
(3) To transact such other business as may properly come before the
meeting, or any adjournment or adjournments thereof.
Only shareholders of record as of the close of business on July 28, 2005
are entitled to notice of and to vote at the Annual Meeting and any adjournment
or adjournments thereof.
Whether or not you expect to be present at the Annual Meeting, please
complete, date and sign the enclosed form of proxy and return it promptly in the
enclosed envelope. If you attend the meeting, your proxy will be returned to you
upon request.
The proxy statement accompanying this notice sets forth further information
concerning the items listed above and the use of the enclosed proxy. You are
urged to study this information carefully.
The 2005 Annual Report of the Company also accompanies this notice.
By Order of the Board of Directors,
/s/Kathy J. Hardy
--------------------------------
KATHY J. HARDY
Corporate Secretary
August 25, 2005
CULP
Proxy Statement
---------------
INTRODUCTION
This proxy statement is furnished to the shareholders of Culp, Inc.
(sometimes referred to as the "Company") by the Company's Board of Directors in
connection with the solicitation of proxies for use at the Annual Meeting of
Shareholders of the Company to be held on Tuesday, September 27, 2005, at 9:00
a.m. at the Company's corporate offices, 1823 Eastchester Drive, High Point,
North Carolina, and at any adjournment or adjournments thereof. Action will be
taken at the Annual Meeting on the items described in this proxy statement, and
on any other business that properly comes before the meeting.
This proxy statement and accompanying form of proxy are first being mailed
to shareholders on or about August 25, 2005.
Whether or not you expect to attend the Annual Meeting, please complete,
date and sign the accompanying form of proxy and return it promptly to ensure
that your shares are voted at the meeting. Any shareholder giving a proxy may
revoke it at any time before a vote is taken: (i) by duly executing a proxy
bearing a later date; (ii) by executing a notice of revocation in a written
instrument filed with the secretary of the Company; or (iii) by appearing at the
meeting and notifying the secretary of the intention to vote in person. Unless a
contrary choice is specified, all shares represented by valid proxies that are
received pursuant to this solicitation, and not revoked before they are
exercised, will be voted for the election of the three directors named as
nominees in this proxy statement, and for the ratification of the appointment of
KPMG LLP as the independent auditors of the Company for the current fiscal year.
The proxy also confers discretionary authority upon the persons named therein,
or their substitutes, with respect to any other business that may properly come
before the meeting. Unless otherwise stated herein, each matter submitted to the
shareholders will be approved if more votes are cast in favor of the proposal
than the votes cast against the proposal. A shareholder abstaining from the vote
on a proposal and any broker non-votes will be counted as present for purposes
of determining whether a quorum is present, but will be counted as not having
voted on the proposal in question. This means that in cases where a majority of
the shares represented is required to approve a proposal, an abstention will
have the effect of a vote against the proposal in question.
The Company will bear the entire cost of preparing this proxy statement and
of soliciting proxies. Proxies may be solicited by employees of the Company,
either personally, by special letter, or by telephone. The Company also will
request brokers and others to send solicitation material to beneficial owners of
the Company's stock and will reimburse them for this purpose upon request.
1
VOTING SECURITIES
Only shareholders of record at the close of business on July 28, 2005 will
be entitled to vote at the Annual Meeting or any adjournment or adjournments
thereof. The number of outstanding shares entitled to vote at the meeting is
11,551,509.
The following table lists the beneficial ownership of the Company's common
stock with respect to: (i) each person known by the Company to be the beneficial
owner of more than five percent of such common stock, as shown on the last
public filing made by each such person, and (ii) all executive officers,
directors and nominees of the Company as a group, a total of 12 persons, as of
July 28, 2005.
Number of
Shares Percent of
Title of Name and Address of Beneficially Outstanding
Class Beneficial Owner Owned Shares
----- ---------------- ----- -------------
Common stock, Robert G. Culp, III 2,546,469 (1) 21.8%
par value 903 Forrest Hill Drive
$.05 per share High Point, NC 27262
Atlantic Trust, Trustee 2,008,750 (2) 17.4%
Robert G. Culp, Jr. Trust
100 Federal Street, 37th Floor
Boston, MA 02110
T. Rowe Price Associates, Inc. 1,460,500 (3) 12.6%
100 East Pratt Street
Baltimore, Maryland 21202
Dimensional Fund Advisors Inc. 989,597 (4) 8.6%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
John B. Baum and related entities 691,900 (5) 6.0%
30201 Orchard Lake Road, Suite 107
Farmington Hills, MI 48334
Fountainhead Partners, L.P. 650,000 (6) 5.6%
2201 E. Lamar, Suite 260
Arlington, TX 76006
Praesidium Investment Management 607,053 (7) 5.3%
Company, LLC
747 Third Avenue, 35th Floor
New York, NY 10017
All executive officers, directors and 3,303,715 (8) 27.7%
nominees as a group (12 persons)
2
(1) These shares include all of the shares listed below that also are
beneficially owned in the name of Atlantic Trust as trustee of the Robert
G. Culp, Jr. Trust, all of which shares Robert G. Culp, III has the right
to vote and jointly (with Atlantic Trust) has the right to invest. (See
Note (2) below.) These shares also include 64,738 shares held of record by
Susan B. Culp, the wife of Mr. Culp, the beneficial ownership of which
shares Mr. Culp disclaims, approximately 22,212 shares owned by Mr. Culp
through the Company's 401(k) plan, and 146,750 shares subject to options
owned by Mr. Culp that are immediately exercisable. For purposes of this
proxy statement, "immediately exercisable" options are those that are
currently exercisable or exercisable within 60 days.
(2) All of these shares also are included in the shares listed above for Robert
G. Culp, III. (See Note (1) above.) These shares include 709,375 shares
held of record by Atlantic Trust for the benefit of Judith C. Walker,
sister of Robert G. Culp, III; 505,000 shares held of record by Atlantic
Trust for the benefit of Harry R. Culp, brother of Robert G. Culp, III; and
794,375 shares held of record by Atlantic Trust for the benefit of Robert
G. Culp, III, all of which shares Robert G. Culp, III has the right to vote
and jointly (with Atlantic Trust) has the right to invest.
(3) These securities are owned by various individual and institutional
investors as of June 30, 2005, including the T. Rowe Price Small Cap Value
Fund, which owns 720,100 shares, representing 6.2% of the shares
outstanding. T. Rowe Price Associates, Inc. ("Price Associates") serves as
investment advisor with power to direct investments and/or power to vote
the securities. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, Price Associates is deemed to be a
beneficial owner of such securities; however, Price Associates expressly
disclaims that it is, in fact, the beneficial owner of such securities.
(4) Dimensional Fund Advisors Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of 1940, and serves as investment manager to
certain other investment vehicles, including commingled group trusts. These
investment companies and investment vehicles are the "Portfolios." In its
role as investment advisor and investment manager, Dimensional possessed
both investment and voting power over 989,597 shares of Culp, Inc. stock as
of June 30, 2005. The Portfolios own all securities reported in this
statement, and Dimensional disclaims beneficial ownership of such
securities.
(5) Based upon information obtained from a Schedule 13D filed with the
Securities and Exchange Commission on June 28, 2005, on behalf of John B.
Baum, Investment Manager, and the Reporting Persons. The Investment Manager
is investment manager to each Reporting Person and has sole power to vote
and dispose of the shares owned by the Reporting Persons. The entities
referred to as the Reporting Persons, deemed to be beneficial owner of an
aggregate of 691,900 shares, are Paulette R. Baum Revocable Living Trust
u/a/d 7/21/98 c/o John B. Baum, Trustee; John B. Baum Traditional IRA &
Roth IRA; Paulette R. Baum Traditional IRA & Roth IRA; and Baum Family
Investments, LLC.
(6) Based upon information obtained from a Schedule 13G filed with the
Securities and Exchange Commission on March 16, 2005. Fountainhead
Partners, L.P. acts as investment manager to Durango Investments, L.P. and
Phoenix-Durango Investments, L.P. (the "Funds"), with voting and investment
power over 650,000 shares held by the Funds.
(7) Based upon information obtained from a Schedule 13D filed with the
Securities and Exchange Commission on May 23, 2005. Praesidium Investment
Management Company, LLC is investment manager to Praesidium Partners Fund,
LP, Praesidium Partners QP Fund, LP, and Praesidium Offshore Master Fund,
Ltd. (the "Funds"), with power to vote and dispose of 607,053 shares owned
by the Funds. Praesidium Investment Management Company, LLC disclaims
beneficial ownership of such shares.
(8) Includes 388,375 shares subject to options owned by certain officers,
directors and nominees that are immediately exercisable.
3
PROPOSAL 1: ELECTION OF DIRECTORS
The number of directors constituting the Board has been fixed at nine by
the Company's shareholders in accordance with the Company's bylaws.
The Company's bylaws provide that the Board of Directors shall be divided
into three classes of directors with staggered three-year terms, so that one
class or approximately one-third of the Board of Directors will be elected every
year. The term of Jean L.P. Brunel, Kenneth R. Larson, and Franklin N. Saxon
expires at the time of the 2005 Annual Meeting of Shareholders. The Company
proposes the reelection of Messrs. Brunel, Larson and Saxon for a three-year
term expiring at the time of the 2008 Annual Meeting.
In the absence of specifications to the contrary, proxies will be voted for
the election of each of the three nominees listed in the table below, and an
equal number of votes will be cast for each nominee. In no case will proxies be
voted for more than three nominees. The persons who receive the highest number
of votes for election at the Annual Meeting will be elected as directors. If, at
or before the time of the meeting, any of the nominees becomes unavailable for
any reason, the proxy holders have the discretion to vote for a substitute
nominee or nominees. The Board currently knows of no reason why any of the
nominees listed below is likely to become unavailable.
4
NOMINEES, DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the three
nominees for election to the Board of Directors, and the other directors and
executive officers of the Company:
Shares and Percent
Year Year of Common Stock
Became Term Beneficially Owned
Name and Age Position with Company (1) Director Expires As of July 28, 2005 Notes
------------ ------------------------- -------- ------- --------------------- -----
Nominees
--------
Jean L.P. Brunel, 56 Director 2004 2005 1,875 (2)(3)
Kenneth R. Larson, 62 Director 2004 2005 14,875 (2)(4)
Franklin N. Saxon, 53 President and Chief Operating 1987 2005 99,881 (2)(5)
Officer,
Director
Directors and
-------------
Executive Officers
------------------
Robert G. Culp, III, 58 Chairman of the Board and 1972 2006 2,546,469 (6)
Chief Executive Officer, 21.8%
Director
Howard L. Dunn, Jr., 67 Director 1972 2007 243,434 (7)
2.1%
H. Bruce English, 71 Director 2000 2007 18,375 (2)(8)
Patrick B. Flavin, 58 Director 1999 2006 144,175 (9)
1.2%
Kenneth W. McAllister, 56 Director 2002 2007 20,625 (2)(10)
Patrick H. Norton, 83 Director 1987 2006 68,591 (2)(11)
Boyd B. Chumbley, 48 President, Culp Velvets/Prints N/A N/A 29,080 (2)(12)
division
Robert G. Culp, IV, 34 President, Culp Home N/A N/A 27,335 (2)(13)
Fashions division
Kenneth M. Ludwig, 52 Senior Vice President, N/A N/A 89,000 (2)(14)
Human Resources
and Assistant Secretary
5
(1) Officers of the Company are elected by the Board of Directors each year.
The present officers were elected by the Board on June 16, 2005.
(2) Less than one percent.
(3) Includes 1,875 shares subject to options owned by Mr. Brunel that are
immediately exercisable
(4) Includes 1,875 shares subject to options owned by Mr. Larson that are
immediately exercisable.
(5) Includes 67,500 shares subject to options owned by Mr. Saxon that are
immediately exercisable, and approximately 31,965 shares owned by Mr. Saxon
through the Company's 401(k) plan.
(6) Includes 2,008,750 shares held of record by Atlantic Trust for the benefit
of Robert G. Culp, III, Judith C. Walker and Harry R. Culp, all of which
shares Robert G. Culp, III has the right to vote and jointly (with Atlantic
Trust) has the right to invest; includes 64,738 shares held of record by
Susan B. Culp, wife of Robert G. Culp, III, the beneficial ownership of
which shares Mr. Culp disclaims, 146,750 shares subject to options owned by
Mr. Culp that are immediately exercisable, and approximately 22,212 shares
owned by Mr. Culp through the Company's 401(k) plan.
(7) Includes 66,715 shares owned by Patricia Dunn, wife of Mr. Dunn.
(8) Includes 5,625 shares subject to options owned by Mr. English that are
immediately exercisable.
(9) Includes 100,000 shares held by Flavin, Blake Investors, L.P., a
partnership in which Mr. Flavin is a partner, in an account that is managed
by Flavin, Blake & Co., L.P., an investment manager of which Mr. Flavin is
a principal, under an arrangement that provides compensation directly or
indirectly to Mr. Flavin based in whole or in part upon the performance of
the investment, as to which shares Mr. Flavin disclaims beneficial
ownership. Includes 21,500 shares held in accounts managed by Flavin, Blake
& Co., L.P., as to which shares Mr. Flavin also disclaims beneficial
ownership. Includes 9,375 shares subject to options owned by Mr. Flavin
that are immediately exercisable.
(10) Includes 5,625 shares subject to options owned by Mr. McAllister that are
immediately exercisable.
(11) Includes 18,750 shares subject to options owned by Mr. Norton that are
immediately exercisable.
(12) Includes 25,625 shares subject to options owned by Mr. Chumbley that are
immediately exercisable, and approximately 3,455 shares owned by Mr.
Chumbley through the Company's 401(k) plan.
(13) Includes 16,375 shares subject to options owned by Mr. Culp, IV that are
immediately exercisable.
(14) Includes 89,000 shares subject to options owned by Mr. Ludwig that are
immediately exercisable.
6
Nominees:
JEAN L.P. BRUNEL is the managing principal of Brunel Associates, an
investment consulting firm offering services to ultra affluent individuals. He
spent the bulk of his career in the investment management group of J.P. Morgan,
where he worked in the U.S. and abroad until his retirement in 1999. Mr. Brunel
worked with U. S. Bancorp as a consultant and chief investment officer of
Private Asset Management from 1999 until 2001 when he founded Brunel Associates.
He is the editor of Journal of Wealth Management and a trustee of the Research
Foundation of the Association for Investment Management and Research.
KENNETH R. LARSON is owner, president and chief executive officer of
Slumberland Furniture in Little Canada, Minnesota, a home furnishings retailer
with stores in a ten-state area.
FRANKLIN N. SAXON has been employed by the Company since 1983, serving in
various capacities, including chief financial officer from 1985 to 1998. In
2001, the Board elected Mr. Saxon executive vice president, chief financial
officer and president, Culp Velvets/Prints division. In 2002, Mr. Saxon was
elected executive vice president, chief financial officer, treasurer, and
president, Culp Velvets/Prints division. The Board elected Mr. Saxon president
and chief operating officer in June 2004.
Other Directors and Officers:
ROBERT G. CULP, III is one of the founders of the Company and was executive
vice president and secretary until 1981 when he was elected by the Board to
serve as president. The Board elected Mr. Culp chief operating officer in 1985
and chief executive officer in 1988. In 1990, the Board of Directors elected Mr.
Culp chairman of the Board. Mr. Culp currently serves as a member of the board
of directors of Stanley Furniture Company, Inc. in Stanleytown, Virginia and Old
Dominion Freight Line, Inc. in Thomasville, North Carolina, and as a trustee of
High Point University. He is the father of Robert G. Culp, IV.
HOWARD L. DUNN, JR. is one of the founders of the Company and served as
vice president of manufacturing and product development from 1972 until 1988,
when the Board elected Mr. Dunn executive vice president. The Board elected Mr.
Dunn president and chief operating officer in 1993. He served as vice chairman
of the Board from June 2004 until his retirement from the Company effective
December 31, 2004.
H. BRUCE ENGLISH was employed by the Monsanto Company, a highly diversified
manufacturer of chemicals and other products, for forty years until his
retirement in early 1997. During his service, he worked in various divisions and
capacities. From 1975 to retirement, he was operating head of a number of
business units, including business director - Acrilan from 1989 to 1997.
PATRICK B. FLAVIN co-founded Flavin, Blake & Co., Inc. in 1992 and is
president and chief investment officer of that investment management company.
KENNETH W. MCALLISTER is a member of The McAllister Firm, PLLC, a law firm,
since January 2004. He was a senior executive vice president and general counsel
of Wachovia Corporation, a bank holding company, from 1997 until his retirement
in 2001, and served as general counsel since joining Wachovia in 1988. Mr.
McAllister served as United States Attorney for the Middle District of North
Carolina from 1981 to 1986. He is a director of High Point Bank Corporation,
High Point Bank and Trust Co., and Lawyers Mutual Liability Insurance Company of
North Carolina.
PATRICK H. NORTON joined La-Z-Boy Incorporated, a furniture manufacturing
and marketing company located in Monroe, Michigan, in 1981 as senior vice
president of sales and marketing. Mr. Norton served in this position until 1997
when he was elected chairman of the board of La-Z-Boy Incorporated.
7
BOYD B. CHUMBLEY has been employed by the Company since 1984 and has served
in various capacities. The Board elected Mr. Chumbley president, Culp
Velvets/Prints division in June 2004.
ROBERT G. CULP, IV has been employed by the Company since 1998 and has
served in various capacities. The Board elected Mr. Culp president, Culp Home
Fashions division in June 2004. He is the son of Robert G. Culp, III.
KENNETH M. LUDWIG joined the Company in 1985 as director of personnel. The
Board elected Mr. Ludwig vice president, human resources in 1986 and senior vice
president, human resources in 1996.
CORPORATE GOVERNANCE
Corporate Governance Guidelines and Committee Charters
Our Board of Directors has approved Corporate Governance Guidelines, with
the goal of providing effective governance of the Company's business and affairs
for the benefit of shareholders. The Corporate Governance Guidelines are
available on the Company's website at www.culpinc.com in the "Investor
Relations/Governance" section and are available in print to any shareholder upon
request. In addition, the charters for our Audit Committee, Compensation
Committee and Corporate Governance and Nominating Committee are also included in
the "Investor Relations" section of the Company's website and are available in
print to any shareholder upon request.
Director Independence
The Board believes that independent directors should comprise at least a
majority of the Board. To be considered independent, a director must be
determined, by resolution of the Board as a whole, to have no material
relationship with the Company other than as a director. These determinations
will be made annually. In each case, the Board will consider all relevant facts
and circumstances and will apply the independence standards of the New York
Stock Exchange. In addition, the Board has adopted the following categorical
standards to assist in the determination of director independence, which conform
to, or are more exacting than the independence requirements in the New York
Stock Exchange listing standards:
(i) Disqualifying Relationships - A director will not be considered
independent if any of the following has occurred within the preceding
three years:
o the director was employed by the Company
o the director's immediate family member was employed by the Company as
an executive officer
o the director or the director's immediate family member received more
than $25,000 per year in direct compensation from the Company (other
than director's fees and pension or other forms of deferred
compensation for prior service with the Company)
o the director was affiliated with or employed by the Company's
independent auditor
o the director's immediate family member was affiliated with or employed
by the Company's independent auditor as a partner, principal, manager,
or in any other professional capacity
o an executive officer of the Company was on the compensation committee
of the board of directors of a company that employed either the
director or the director's immediate family member as an executive
officer
(ii) Commercial Relationships - The following commercial relationships will
not be considered to be material relationships that would impair a
director's status as being independent:
o the director is an executive officer or employee or director of one of
the Company's suppliers or customers whose annual sales to, or
purchases from, the Company are less than one percent of the annual
revenues of the customer or supplier
8
o the director's immediate family member is an executive officer or
director of one of the Company's suppliers or customers whose annual
sales to, or purchases from, the Company are less than one percent of
the annual revenues of the customer or supplier
o the director or the director's immediate family member is an executive
officer of another company that is indebted to the Company, or to
which the Company is indebted, and the total amount of either
company's indebtedness to the other is less than one percent of the
total consolidated assets of the company he or she serves as an
executive officer
(iii) Charitable Relationships - The following charitable relationship will
not be considered to be a material relationship that would impair a
director's independence: if a director of the Company, or a member of
a director's immediate family, serves as an executive officer of a
charitable or other not for profit organization, and the Company's
charitable contributions to the organization, in the aggregate, are
less than two percent of that organization's total revenues during its
most recent fiscal year.
(iv) Stock Ownership - Ownership of a significant amount of the Company's
stock does not necessarily preclude a determination of independence.
Applying these standards, the Board has determined that the following
current directors are independent within the meaning of the listing standards of
the New York Stock Exchange and the Company's categorical standards of
independence: Messrs. Brunel, English, Flavin, Larson and McAllister. These
determinations are based primarily on a review of the responses of our directors
to questions regarding employment and compensation history, affiliations and
family and other relationships, and on discussions with directors.
Executive Sessions of Non-Management Directors and Independent Directors; Lead
Director
Non-management Board members meet separately from the other directors at
regularly scheduled executive sessions, without the presence of management
directors or executive officers of the Company (except to the extent that the
non-management directors request the attendance of any executive officers). The
non-management directors have designated a "lead director" to preside at these
meetings, to advise management and to otherwise act as a liaison between the
non-management directors and the Company's management. Mr. Norton is currently
serving as the lead director. In addition to the meetings of non-management
directors, the independent directors (as defined by New York Stock Exchange
rules and the Company's categorical standards of independence) meet in a
separate executive session at least once per year.
Director Attendance at Annual Meetings
Directors are expected to attend the Company's Annual Meeting of
Shareholders absent exceptional cause. Six of the eight directors then on the
Board attended the 2004 Annual Meeting of Shareholders.
Code of Business Conduct and Ethics
The Company has adopted a written Code of Business Conduct and Ethics that
applies to all of our directors, officers and employees, including our principal
executive officer, principal financial officer, principal accounting officer and
controller. The Code is available on the Company's website at www.culpinc.com
under the "Investor Relations/Governance" section and is available in print to
any shareholder who requests it. The Company will disclose on its website or by
the filing of a Form 8-K any substantive amendments to the Code with regard to
executive officers and any waivers granted under the Code for executive officers
or directors.
9
Communications with Directors
The Company and the Company's Board of Directors believe it is important
that a direct and open line of communication exist between the Company's Board
of Directors and its shareholders and other interested parties. Any shareholder
or other interested party who desires to contact the Company's directors may
send a letter to the following address:
Culp, Inc. Board of Directors
c/o Corporate Secretary
P.O. Box 2686
High Point, North Carolina 27261-2686
Communications to directors will be handled by the office of the Corporate
Secretary and forwarded as soon as practicable to the lead director designated
by the non-management directors.
The Company also has a separate policy that allows shareholders, employees
or other interested parties to communicate with the Chairman of the Audit
Committee of the Board of Directors to report complaints or concerns regarding
accounting, internal accounting controls, or audit matters. More details about
this policy are available on the Company's internet website at www.culpinc.com,
in the "Investor Relations/Governance" section under the heading "Complaint
Procedures for Accounting, Internal Accounting Controls, or Auditing Matters."
Director Nomination Process
The Corporate Governance and Nominating Committee is responsible for
selecting persons to be recommended to the Board to fill vacancies on the Board,
as well as persons to be recommended to the Board to be submitted to the
shareholders as nominees for election as directors of the Company. The charter
of the Corporate Governance and Nominating Committee sets forth the specific
responsibilities and duties of that committee, and a copy of the charter may be
found on the Company's internet website at www.culpinc.com, in the "Investor
Relations/Governance" section. Among other things, the charter requires that the
Corporate Governance and Nominating Committee consist of not less than three
directors, each of whom is independent as determined by the Board of Directors
and as defined by New York Stock Exchange rules. All of the current members of
the Corporate Governance and Nominating Committee are independent directors.
The goal of the Corporate Governance and Nominating Committee is to create
a Board that will demonstrate competence, objectivity, and the highest degree of
integrity on an individual and collective basis. In evaluating current members
and new candidates, the Corporate Governance and Nominating Committee considers
the needs of the Board of Directors in light of the current mix of director
skills and attributes. In accordance with the Corporate Governance Guidelines
adopted by the Board, the Corporate Governance and Nominating Committee will
seek a diversity of skills and backgrounds among directors in assessing
candidates for membership on the Board. The Corporate Governance and Nominating
Committee will seek candidates who possess honesty and integrity, sound business
judgment, financial literacy, strategic and analytical insight, and the ability
to commit an adequate amount of time to make a productive contribution to the
Board and the Company. In addition, the Corporate Governance and Nominating
Committee will seek to assure that one or more Board members possess each of the
following characteristics: knowledge and experience in the Company's industry,
management experience, international business knowledge, expertise in accounting
or financial analysis, and regulatory compliance expertise. When the Corporate
Governance and Nominating Committee is considering current Board members for
nomination for reelection, the committee also considers prior Board
contributions and performance, as well as attendance records for Board and
committee meetings.
The Corporate Governance and Nominating Committee may seek input from other
members of the Board and management in identifying and attracting director
candidates who meet the criteria outlined above. In addition, the committee may
use the services of consultants or a search firm, although it has not done so in
the past. Recommendations from shareholders for nominees to the Board of
Directors will be considered by the Corporate Governance and Nominating
Committee if made in writing addressed to any member of the committee at the
Company's main office. In order to be considered, such recommendations must be
received at least 120 days prior to the date of the meeting at which directors
are to be elected. Submissions should include information regarding a
candidate's background, qualifications, experience, and willingness to serve as
10
a director. Based on a preliminary assessment of a candidate's qualifications,
the Corporate Governance and Nominating Committee may conduct interviews with
the candidate and request additional information from the candidate. The
committee uses the same process for evaluating all nominees, including those
recommended by shareholders.
BOARD COMMITTEES AND ATTENDANCE
There are four standing committees of the Board of Directors: Executive
Committee, Audit Committee, Compensation Committee, and Corporate Governance and
Nominating Committee. Each of the members of each of our Audit Committee,
Compensation Committee and Corporate Governance and Nominating Committee has no
material relationship with the Company (either directly or as a partner,
shareholder or officer of an organization that has a relationship with the
Company) and is independent within the meaning of the director independence
standards set forth in the regulations of the New York Stock Exchange and the
Company's categorical standards of independence. Also, each of the members of
our Audit Committee is "independent" for purposes of Section 10A(m)(3) of the
Securities Exchange Act of 1934.
The Executive Committee, the members of which are Messrs. Culp and Saxon,
may exercise the full authority of the Board of Directors when the Board is not
in session, except for certain powers related to borrowing and electing certain
officers, and other powers that may not lawfully be delegated to Board
committees. Under current management practices, the Executive Committee exists
mainly to act in place of the Board in cases where time constraints or other
considerations make it impractical to convene a meeting of the entire Board or
to obtain written consents from all Board members. The Executive Committee held
several informal meetings during fiscal 2005. All significant management
decisions requiring action by the Board of Directors were considered and acted
upon by the full Board.
The Audit Committee is directly responsible for the appointment,
compensation, retention, and oversight of the independent auditors of the
Company, and must pre-approve all services provided. The committee discusses and
reviews in advance the scope and the fees of the annual audit and reviews the
results thereof with the independent auditors. The auditors meet with the
committee to discuss audit and financial reporting issues. The committee reviews
the Company's significant accounting policies, internal accounting controls,
reports from the Company's internal auditor, quarterly financial information
releases, the Annual Report to shareholders, and the Annual Report on Form 10-K
filed with the Securities and Exchange Commission. In addition, the committee
reviews and approves all significant transactions between the Company and any
related party.
Members of the Audit Committee are Messrs. McAllister (Chairman), Brunel,
English, Flavin and Larson. The Board of Directors has determined that all
members of the Audit Committee are financially literate as defined by the rules
of the New York Stock Exchange. In addition, the Board has determined that Mr.
Flavin qualifies as an "audit committee financial expert" for purposes of the
rules and regulations of the Securities and Exchange Commission adopted pursuant
to the Sarbanes-Oxley Act of 2002.
The Compensation Committee approves matters relating to compensation,
including fringe benefits and benefit plans for management and directors of the
Company, and reports to the Board of Directors from time to time as to its
recommendation on compensation and policies for both management and directors.
The committee also administers the Company's stock option plans. The members of
this committee are Messrs. English (Chairman), Brunel, Flavin, Larson and
McAllister.
The current members of the Corporate Governance and Nominating Committee
are Messrs. Flavin (Chairman), Brunel, English, Larson and McAllister. The
committee reviews and recommends to the Board candidates for appointment to fill
vacancies on the Board as well as candidates for selection as director nominees
for election by shareholders. The Corporate Governance and Nominating Committee
also considers and makes recommendations to the Board on other matters relating
to the size and function of the Board and its committees, to the Board's
policies and procedures, and to corporate governance policies applicable to the
Company.
11
During the fiscal year ended May 1, 2005, the Board of Directors had six
meetings; the Audit Committee ten meetings; the Compensation Committee five
meetings; and the Corporate Governance and Nominating Committee five meetings.
Each Board member attended at least 75% of the aggregate number of the meetings
of the Board of Directors and of the committees on which he served.
AUDIT COMMITTEE REPORT
The Audit Committee operates under a written charter adopted by the Board
of Directors, a copy of which is available on the Company's website at
www.culpinc.com under the "Investor Relations/Governance" section. The primary
function of the Audit Committee is to assist the Board of Directors in
fulfilling its oversight responsibilities by reviewing the Company's financial
reports and information, systems of internal controls, and accounting, auditing
and financial reporting processes. The Audit Committee is directly responsible
for the appointment, compensation, retention and oversight of the independent
auditors and must pre-approve all services provided by the independent auditors.
Both the independent auditors and the Company's internal auditor report directly
to and meet with the Audit Committee.
Management has the primary responsibility for financial statements and the
reporting process. The Company's firm of independent auditors, which for the
fiscal year 2005 was KPMG LLP, is responsible for expressing an opinion on the
conformity of the Company's audited financial statements with U. S. generally
accepted accounting principles, and expressing opinions on management's
assessment of the effectiveness of the Company's internal control over financial
reporting and the effectiveness of the Company's internal control over financial
reporting. The Audit Committee has reviewed and discussed with management and
KPMG the audited financial statements as of and for the year ended May 1, 2005.
The Audit Committee has also discussed with KPMG the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees). In addition, the Audit Committee has received from KPMG the written
disclosures and letter required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and discussed with them their
independence from the Company and its management. The Audit Committee also has
considered whether KPMG's provision of non-audit services to the Company is
compatible with the concept of auditor independence.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the year ended May 1,
2005 for filing with the Securities and Exchange Commission.
The foregoing report has been furnished by members of the Audit Committee.
Kenneth W. McAllister, Chairman
Jean L.P. Brunel
H. Bruce English
Patrick B. Flavin
Kenneth R. Larson
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends that the shareholders ratify the Audit
Committee's appointment of KPMG LLP to serve as the independent auditors for the
Company for the fiscal year ending April 30, 2006. The firm is a registered
public accounting firm. KPMG LLP served as the independent auditors for the
Company for the last fifteen fiscal years. Representatives of the firm are
expected to attend the Annual Meeting and will have the opportunity to make any
statements they consider appropriate and to respond to shareholders' questions.
If the appointment of KPMG is not ratified by the shareholders, the Audit
Committee of the Board of Directors will consider whether to replace KPMG or
retain the firm for the current year as the Company's auditors. The proposal to
ratify the appointment will be approved upon the vote of a majority of the votes
cast on the proposal.
12
FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The following table sets forth the fees billed to the Company by KPMG LLP
for services in the fiscal years ended May l, 2005 and May 2, 2004.
Fiscal 2005 Fiscal 2004
----------- -----------
Audit Fees $ 536,250 $ 259,640
Audit-Related Fees (1) 74,650 177,870
Tax Fees (2) 33,067 68,173
All Other Fees (3) 15,000 15,394
----------- -----------
Total $ 658,967 $ 521,077
=========== ===========
(1) Audit-related fees are for services related to Sarbanes-Oxley Section 404
documentation assistance.
(2) Tax fees are for services rendered in connection with domestic and foreign
tax compliance and advisory services.
(3) All other fees are for services rendered in connection with customs
compliance and a foreign registered office.
The Audit Committee's policy is to pre-approve all audit fees and terms and
all non-audit services provided by the independent auditors. Under the policy,
and in accordance with the Sarbanes-Oxley Act of 2002, any member of the Audit
Committee who is an independent member of the Board of Directors may approve
proposed non-audit services that arise between committee meetings, provided that
the decision to pre-approve the service is presented at the next scheduled
committee meeting. The Audit Committee did not fail to pre-approve any of the
services provided by KPMG LLP during 2005.
13
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth compensation
paid by the Company in the forms specified therein for the years ended May 1,
2005, May 2, 2004, and April 27, 2003 to (i) the chief executive officer of the
Company and (ii) the Company's four most highly compensated executive officers
other than the chief executive.
SUMMARY COMPENSATION TABLE
================================================================================
Annual Compensation Long-Term Compensation
Name and --------------------- ---------------------- All Other
Principal Position Year Salary $ Bonus $ Option Grants # Compensation
------------------ ---- -------- ------- --------------- ------------
Robert G. Culp, III 2005 416,000 -0- 15,000 74,500 (1) (2)
Chairman of the Board and 2004 416,000 353,600 12,000 72,500
Chief Executive Officer 2003 416,000 416,000 12,000 74,487
Howard L. Dunn, Jr. 2005 242,667 -0- 10,000 221,074 (1)(2)(3)(4)
Former Vice Chairman of the 2004 364,000 309,400 10,000 47,583
Board 2003 364,000 364,000 10,000 45,898
Franklin N. Saxon 2005 300,000 -0- 12,000 52,165 (1) (4)
President and 2004 232,875 98,972 7,000 45,993
Chief Operating Officer 2003 232,875 116,438 7,000 44,839
Rodney A. Smith (5) 2005 230,000 -0- 10,000 11,560 (1) (4)
Former President, Culp 2004 200,000 85,000 7,000 11,422
Decorative Fabrics division 2003 186,824 100,000 7,000 8,578
Kenneth M. Ludwig 2005 186,625 -0- 9,000 39,176 (1) (4)
Senior Vice President, 2004 181,125 76,978 7,000 38,279
Human Resources and 2003 181,125 90,563 7,000 35,890
Assistant Secretary
Robert G. Culp, IV 2005 175,000 -0- 9,000 6,948 (1)
President, Culp Home 2004 150,000 31,875 3,500 6,400
Fashions division 2003 125,000 37,500 3,500 5,667
Boyd B. Chumbley 2005 150,000 -0- 9,000 7,016 (1)
President, Culp Velvets/Prints 2004 112,000 28,560 3,500 5,778
division 2003 108,150 32,445 3,500 5,492
(1) Includes the Company's matching contribution to such officers' accounts
under the Company's 401(k) plan, in the amount of $16,000 for Mr. Culp,
III, $8,493 for Mr. Dunn, $14,135 for Mr. Saxon, $11,218 for Mr. Smith,
$9,889 for Mr. Ludwig, $6,948 for Mr. Culp, IV, and $7,016 for Mr.
Chumbley.
(2) Includes annual premiums of $58,500 paid by the Company for split-dollar
life insurance for Mr. Culp, and $34,341 for split-dollar life insurance
and long-term care insurance for Mr. Dunn.
(3) Includes $175,000 paid to Mr. Dunn as a special service award, which was
approved by the Compensation Committee of the Board of Directors after Mr.
Dunn's retirement from the Company, which was effective December 31, 2004.
14
(4) Includes supplemental deferred compensation payments of $34,931 to Mr.
Saxon and $27,169 to Mr. Ludwig; includes reportable interest on deferred
compensation in the amount of $3,240 to Mr. Dunn, $3,099 to Mr. Saxon,
$2,118 to Mr. Ludwig, and $342 to Mr. Smith.
(5) Mr. Smith resigned from the Company effective April 19, 2005.
================================================================================
Option Grants Table. The following table sets forth certain information
concerning grants of stock options to the executive officers named in the
Summary Compensation Table during fiscal 2005.
STOCK OPTION GRANTS IN FISCAL 2005
Potential Realizable Value at
% of Total Assumed Annual Rates of
Options Stock Price Appreciation
Granted to Exercise or Expiration for Option Term
Options Employees in Base Price ---------- ---------------
Name Granted Fiscal Year ($/Share) (1) Date 5 % ($) 10 % ($)
---- ------- ------------ ------------- ---- ------- --------
Robert G. Culp, III 15,000 12.8 7.13 6/14/09 29,530 65,249
Howard L. Dunn, Jr. 10,000 8.5 7.13 6/14/09 19,687 43,499
Franklin N. Saxon 12,000 10.2 7.13 6/14/09 23,624 52,199
Rodney A. Smith 10,000 8.5 7.13 6/14/09 19,687 43,499
Kenneth M. Ludwig 9,000 7.7 7.13 6/14/09 17,718 39,149
Robert G. Culp, IV 9,000 7.7 7.13 6/14/09 17,718 39,149
Boyd B. Chumbley 9,000 7.7 7.13 6/14/09 17,718 39,149
(1) The exercise price is based on the fair market value of the Company's stock
as defined in the 2002 Stock Option Plan, which is the average closing
price for such stock for the ten business days prior to the date of grant.
================================================================================
Option Exercises and Year-End Value Table. The following table sets forth
certain information concerning exercises of stock options during fiscal 2005 by
the executive officers named in the Summary Compensation Table, and options held
by such officers at the end of fiscal 2005.
AGGREGATED OPTION EXERCISES IN FISCAL 2005
AND FISCAL 2005 YEAR-END OPTION VALUES (1)
Number of Value of Unexercised
Unexercised Options In-the-Money Options
at Fiscal Year-End (#) at Fiscal Year-End ($) (2)
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Robert G. Culp, III 137,750 66,250 50,310 99,250
Howard L. Dunn, Jr. -0- -0- -0- -0-
Franklin N. Saxon 52,250 39,500 23,025 42,250
Rodney A. Smith 59,500 27,500 24,100 5,250
Kenneth M. Ludwig 79,500 36,500 29,110 42,250
Robert G. Culp, IV 9,875 15,875 6,758 1,500
Boyd B. Chumbley 22,125 22,875 9,510 27,400
(1) No options were exercised in fiscal 2005.
(2) Closing price of Company stock at May 1, 2005 was $4.70.
================================================================================
15
Securities Authorized for Issuance Under Equity Compensation Plans. The
following table sets forth information as of the end of fiscal 2005 regarding
shares of the Company's common stock that may be issued upon the exercise of
options previously granted and currently outstanding options under the Company's
stock option plans, as well as the number of shares available for the grant of
options that had not been granted as of that date.
EQUITY COMPENSATION PLAN INFORMATION
----------------------------------------------------------------------------------------------------------------------
Plan Category Number of securities to Weighted-average exercise Number of securities
be issued upon exercise price of outstanding remaining available for
of outstanding options, options, warrants and future issuance under
warrants and rights rights equity compensation plan
(excluding securities
reflected in column (a))
----------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
----------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security
holders 903,575 $ 7.47 723,000
----------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders 0 0 0
----------------------------------------------------------------------------------------------------------------------
Total 903,575 $ 7.47 723,000
----------------------------------------------------------------------------------------------------------------------
================================================================================
Severance Protection Plan. In fiscal 2002, the Company amended its
Severance Protection Plan, which covers certain officers ("Executives") of the
Company, including Mr. Culp, III, Mr. Saxon and Mr. Ludwig. Pursuant to the
Severance Protection Plan, the Company and covered Executives have entered into
written agreements that are effective upon a change in control (as defined in
such agreements) of the Company. The agreements provide that upon a change in
control, the Executive is entitled to payment in the amount of 1.99 times the
Executive's total compensation in effect at the time of termination of
employment if any of the following events occurs: (i) the Executive is
terminated in anticipation of the change in control, (ii) the Executive is
terminated within three years after the change in control for any reason other
than death, disability or for cause, (iii) the Executive terminates his
employment during such three-year period because of an adverse change in the
Executive's conditions of employment by the Company, or (iv) the Executive
terminates his employment during the 30-day period beginning six months after
the change in control for any reason other than death or disability. In
addition, the agreements provide for payment of one year's total compensation to
each covered Executive in exchange for noncompetition covenants by the Executive
that do not become effective except upon termination of the Executive's
employment following a change in control. The plan does not prevent the Company
from terminating the Executive for cause at any time. The purpose of the
Severance Protection Plan is to ensure the Company continuity of management and
the Executive continuity of employment in the event of any actual or threatened
change in control of the Company. The plan is not intended to alter materially
the compensation and benefits a covered Executive could reasonably expect in the
absence of such a change in control. As of May 1, 2005, the Company's potential
obligation pursuant to the Severance Protection Plan was $2,698,849, which is
the amount that would be expended by the Company under the plan if all of the
designated executives were terminated or otherwise entitled to benefits after a
change in control of the Company.
COMPENSATION OF DIRECTORS
Directors who are also employees of the Company do not receive additional
compensation for service as directors. Non-employee directors have historically
received $15,000 per year for participation as a member of the Board of
Directors; $5,000, $3,000, and $2,000 per year for serving on the Audit
Committee, Compensation Committee and Corporate Governance and Nominating
Committee, respectively; and an annual stock option grant of 1,875 shares. In
fiscal 2004 the Board approved compensation of $15,000 per year for serving as
lead director for the Company.
16
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee, all of whom are non-employee
directors and independent directors, are H. Bruce English, Chairman, Jean L.P.
Brunel, Patrick B. Flavin, Kenneth R. Larson and Kenneth W. McAllister. No
member of the Compensation Committee serves on the compensation committee of
another corporation that has a business relationship with the Company.
COMPENSATION COMMITTEE REPORT
The following is a report of the Compensation Committee on compensation of
executive officers for the fiscal year ended May 1, 2005.
The Compensation Committee has traditionally based compensation for the
Company's executive officers on three primary factors: (1) compensation paid to
executive officers at comparable firms in the Company's industry, (2) the
individual executive's performance and contribution to the Company, and (3) the
financial performance of the Company. In general, the committee has set base
salaries for executives relying most heavily on the first two factors mentioned
above, and has linked executive compensation to the third factor, the Company's
financial performance, through incentive cash bonuses that are based on the
annual financial results of the Company and periodic grants of stock options to
executive officers. These basic policies were continued during fiscal 2005.
Under the Company's Management Incentive Plan, certain executives and key
associates (including those in the Summary Compensation Table) are selected by
the Compensation Committee (based on management recommendations) to receive
annual cash bonuses based on the Company's financial results. The Compensation
Committee (based on the recommendations of management) sets performance targets
for the Company in terms of financial measurements judged by the committee to be
relevant indicators of management and corporate performance. For fiscal 2005,
these financial measurements were earnings per share, free cash flow and return
on capital, measured at the corporate level, and operating income, free cash
flow and return on capital, measured at the divisional level. Cash bonuses are
then awarded to the executives participating in the plan pursuant to a formula
that pays a percentage of the maximum bonus award established by the committee
for each participating executive based upon the percentages of the performance
targets the Company achieves in a fiscal year. The cash bonuses shown in the
Summary Compensation Table were paid under this plan. No bonuses were paid
during fiscal 2005.
The committee maintains a policy of providing incentives for executives to
promote the creation of shareholder value, so that executive officers' long-term
interests will be aligned with those of the Company's shareholders. To that end,
the committee periodically approves the grant of stock options to executive
officers under the Company's stock option plans. The Compensation Committee
believes that the Company's option plans have been successful in helping the
Company attract and retain skilled management to focus on efforts to increase
the Company's earnings and returns for its shareholders.
Periodic grants of incentive stock options are made to the executive
officers and selected other employees under the Company's 2002 Stock Option
Plan, which was adopted by the Company and approved by the Company's
shareholders in 2002. These options are granted at exercise prices equal to or
greater than the fair market value of the underlying shares at the time the
option is granted, which is defined in the 2002 Stock Option Plan as the average
closing price for such stock for the ten business days prior to the date of the
grant.
In addition to the 2002 Stock Option Plan, the Company adopted two
Performance-Based Option Plans under which options were granted to senior
management with exercise prices significantly below fair market value of the
underlying shares, but these options do not become exercisable unless the
Company achieves certain growth rates in its earnings or until approximately
nine years after grant. The purpose of these plans is to provide incentive to
senior management to maximize the Company's earnings potential and to make a
significant portion of executive compensation contingent on meeting earnings
targets. In 1994, the Company adopted (and the shareholders subsequently
approved) the 1994 Performance-Based Option Plan, which provided for the
one-time grant to executives of options that could become exercisable after the
announcement of earnings for fiscal 1997 only if the Company met a targeted
compound growth rate of 13% over that three-year period (otherwise these options
would not become exercisable until January 1, 2003). The Company's reported
earnings for fiscal 1997 were at a level that allowed the options to become
17
exercisable in May of 1997, and represented a compound growth rate of 20% for
the three years ended April 27, 1997. In 1997, the Company adopted (and the
shareholders approved) the 1997 Performance-Based Option Plan. This plan is
similar in concept to the 1994 Performance-Based Option Plan, in that it
provided for the one-time grant to executives of options that could have become
exercisable if the Company's earnings reached a specific target by the end of
fiscal 1999. Otherwise, the options do not become exercisable until January 1,
2006. The earnings target under the 1997 Performance-Based Option Plan was not
met, and thus the options under this plan will not become exercisable until
January 1, 2006.
The Compensation Committee approved grants of stock options to certain
officers and employees under the 2002 Stock Option Plan during fiscal 2005 to
increase the opportunity of these employees to participate in the growth of the
Company and the value of its stock. The specific levels of options granted
generally reflected the level of responsibility of the employees and officers
receiving the option awards and the committee's judgment about the direct link
between the employee's performance and the Company's financial results.
A supplemental deferred compensation plan was reinstated in fiscal 2002 for
two of the Company's executive officers. The plan provides for additional
deferred compensation payments for the benefit of the specified executive
officers in the amount of fifteen percent of such officers' base salary at the
beginning of the fiscal year. This plan was adopted by the committee in lieu of
providing split-dollar life insurance plans such as those provided for the chief
executive officer and the former vice chairman of the Board, as described below.
The compensation for the chief executive officer is determined under the
same policies and practices used for all of the Company's executive officers, as
discussed above. In addition, the Company has provided a split-dollar life
insurance plan for the chief executive officer for many years; this program has
been continued in fiscal 2005 and includes a split-dollar life insurance plan
and long-term care policy for the former vice chairman of the Board. The
committee believes this type of plan provides a cost-effective means of
providing this benefit.
In March 2005 the Committee approved a special service award to Mr. Howard
Dunn, former president and chief operating officer of the Company and former
vice chairman of the Board, including a payment to Mr. Dunn of $175,000. Mr.
Dunn retired from the Company effective December 31, 2004, but remained as a
member of the Board of Directors. In approving the payment, the Compensation
Committee noted Mr. Dunn's longtime service of more than 30 years to the Company
and his role as one of the Company's founders, and also considered the fact that
legal and regulatory restrictions made it difficult or burdensome for Mr. Dunn
to realize the inherent value in certain options to purchase the Company's
securities that had been previously granted to Mr. Dunn. The payment was not
made pursuant to any plan or pre-existing arrangement with Mr. Dunn and was not
conditioned upon any future services or actions by Mr. Dunn.
The foregoing report has been furnished by the members of the Compensation
Committee.
H. Bruce English, Chairman
Jean L.P. Brunel
Patrick B. Flavin
Kenneth R. Larson
Kenneth W. McAllister
18
PERFORMANCE COMPARISON
The following graph shows changes over the five-year period ended May 1,
2005 in the value of $100 invested in (1) the common stock of the Company, (2)
the Hemscott Textile Manufacturing Group Index (formerly named Core Data Textile
Manufacturing Group Index) reported by Standard and Poor's, consisting of
twenty-nine companies (including the Company) in the textile industry, and (3)
the Standard & Poor's 500 Index.
The graph assumes an initial investment of $100 at the end of fiscal 2000
and the reinvestment of all dividends during the periods identified.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG CULP, INC., THE S&P 500 INDEX
AND THE HEMSCOTT TEXTILE MANUFACTURING GROUP
------------------------------------------------
4/00 4/01 4/02 4/03 4/04 4/05
------------------------------------------------
CULP, INC. 100.00 84.50 160.46 92.51 153.17 83.61
S & P 500 100.00 87.03 76.04 65.92 81.00 86.14
HEMSCOTT TEXTILE
MANUFACTURING GROUP 100.00 102.86 152.96 121.32 156.00 167.14
19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Lease Transactions. During fiscal 2005, the Company leased two industrial
facilities from partnerships owned by certain of the Company's executive
officers, directors, principal shareholders and members of their immediate
families. Principals of these related entities include Robert G. Culp, III,
Harry R. Culp (brother of Robert G. Culp, III), and Judith C. Walker (sister of
Robert G. Culp, III). These facilities contain a total of 305,000 square feet of
floor space. The initial terms of the leases described above range from five to
seven years, with one or more five-year renewal options. Base rent per year for
the leased facilities ranges from $1.98 to $2.32 per square foot. The leases
typically prohibit assignment or subletting without the lessor's consent, but
such consent may not be unreasonably withheld. The lessor is generally
responsible for maintenance only of roof and structural portions of the leased
facilities. The industrial facilities are leased on a "triple net" basis, with
the Company responsible for payment of all property taxes, insurance premiums
and maintenance, other than structural maintenance. The Company believes that at
the time the leases and any lease renewals were executed, the terms of all such
leases were no less favorable to the Company than could have been obtained in
arms-length transactions with unaffiliated persons. The Company received
independent appraisals to this effect with respect to the industrial facility
leases. All related party leases and amendments thereto are approved by the
Audit Committee and are reviewed annually by the Audit Committee. The total
amount of rent paid by the Company under all related party leases during fiscal
2005 was approximately $622,000.
Certain Business Relationships. The Company had sales of approximately
$42.3 million, which constituted 14.8% of the Company's net sales, to La-Z-Boy
Incorporated in fiscal 2005. Patrick H. Norton, a director of the Company,
serves as chairman of the board of La-Z-Boy Incorporated.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, its executive officers, any persons who hold more than ten percent of
the Company's common stock and certain trusts (collectively, "insiders") to
report their holdings of and transactions in the Company's common stock to the
Securities and Exchange Commission (the "SEC"). Specific due dates for these
reports have been established, and the Company is required to disclose in this
proxy statement any late filings and any failures to file that have occurred
since May 2, 2004. Insiders must file three types of ownership reports with the
SEC: initial ownership reports, change-in-ownership reports and year-end
reports. Under the SEC's rules, insiders must furnish the Company with copies of
all Section 16(a) reports that they file. Based solely on a review of copies of
these reports and on written representations the Company has received, the
Company believes that since May 2, 2004, its insiders have complied with all
applicable Section 16(a) reporting requirements.
================================================================================
YOUR DIRECTORS RECOMMEND VOTES "FOR"
o THE THREE NOMINEES FOR DIRECTOR
o THE RATIFICATION OF APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR FISCAL 2006
================================================================================
20
SHAREHOLDER PROPOSALS FOR 2006 MEETING
Shareholders may submit proposals appropriate for shareholder action at the
Company's Annual Meeting consistent with the regulations of the SEC and the
Company's bylaws. The nominees named in this proxy statement are those chosen by
the Board of Directors, upon the recommendation of the Board's Corporate
Governance and Nominating Committee. Nominations may also be made by
shareholders in accordance with the Company's bylaws. The bylaws require that
such nominations be received by the Company at least 120 days prior to the
Annual Meeting, and that the nominations include certain biographical and other
information about the persons nominated as specified in the bylaws. See also
"Director Nomination Process" on page 10. For shareholder proposals and
nominations for director to be considered for inclusion in the proxy statement
for the 2006 Annual Meeting, the Company must receive them no later than April
30, 2006. Such proposals should be directed to Culp, Inc., Attention: Corporate
Secretary, 1823 Eastchester Drive, Post Office Box 2686, High Point, North
Carolina 27261.
OTHER MATTERS
The Company's management is not aware of any matter that may be presented
for action at the Annual Meeting other than the matters set forth herein. Should
any matters requiring a vote of the shareholders arise, it is intended that the
accompanying proxy will be voted in respect thereof in accordance with the best
judgment of the person or persons named in the proxy, discretionary authority to
do so being included in the proxy.
By Order of the Board of Directors,
/s/ Franklin N. Saxon
------------------------------------
FRANKLIN N. SAXON
President and Chief Operating Officer
================================================================================
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS
SOLICITED, AND TO EACH PERSON REPRESENTING THAT AS OF THE RECORD DATE FOR THE
ANNUAL MEETING HE OR SHE WAS A BENEFICIAL OWNER OF SHARES OF THE COMPANY, ON
WRITTEN REQUEST, A COPY OF THE COMPANY'S 2005 ANNUAL REPORT ON FORM 10-K TO THE
SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE CONSOLIDATED FINANCIAL
STATEMENTS AND SCHEDULES THERETO. SUCH WRITTEN REQUEST SHOULD BE DIRECTED TO
CULP, INC., ATTENTION: KATHY J. HARDY, CORPORATE SECRETARY, 1823 EASTCHESTER
DRIVE, P. O. BOX 2686, HIGH POINT, NORTH CAROLINA 27261.
21
DETACH HERE
PROXY CULP, INC. PROXY
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Robert G. Culp, III, Kathy J. Hardy and Franklin
N. Saxon, and each of them, attorneys and proxies with full power of
substitution, to act and vote as designated below the shares of common stock of
Culp, Inc. held of record by the undersigned on July 28, 2005, at the Annual
Meeting of Shareholders to be held on September 27, 2005, or any adjournment or
adjournments thereof.
This proxy will be voted as directed herein. If no direction is made, this proxy
will be voted for the nominees listed in proposal 1; and for the ratification of
the appointment of KPMG LLP as independent auditors in proposal 2. If, at or
before the time of the meeting, any of the nominees listed on the reverse side
has become unavailable for any reason, the proxies have the discretion to vote
for a substitute nominee or nominees.
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PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
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(Please sign exactly as name appears on this card. If signing as attorney,
administrator, executor, guardian, or trustee, please give such title. If
signing on behalf of a corporation, please give name and title of authorized
officer signing.)
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HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
------------------------------ -----------------------------
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CULP
C/O COMPUTERSHARE
P.O. BOX 8694
EDISON, NJ 08818-8694
DETACH HERE
[X] Please mark votes as in this example
CULP, INC.
FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS: 2. PROPOSAL to ratify the appointment of [ ] [ ] [ ]
Nominees: (01) Jean L.P. Brunel, (02) Kenneth R. Larson KPMG LLP as the Company's independent
and (03) Franklin N. Saxon auditors for fiscal 2006.
FOR WITHHELD
ALL [ ] [ ] FROM ALL 3. In their discretion, the proxies are authorized to vote upon
NOMINEES NOMINEES any other business that may properly come before the meeting.
[ ] ----------------------------------
For all nominee(s) except as written above
Mark box at right if an address change or comment has been [ ]
noted on the reverse side of this card.
Be sure to sign and date this Proxy.
Signature: Date: Signature: Date:
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