SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
Culp, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Annual Meeting Proxy Card
A Election of Directors
The Board of Directors recommends a vote FOR the listed nominees.
1. Election of Directors
Nominees: (01) Robert G. Culp, III and (2) Patrick B. Flavin
|_| To Vote FOR All Nominees |_| To WITHHOLD Vote From All Nominees
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|_| For All Except - To withhold a vote for a (01) Robert G. Culp, III |_|
specific nominee, mark
this box with an X and
the appropriately
numbered box at right
from the list above. (02) Patrick B. Flavin |_|
B Issues
The Board of Directors recommends a vote FOR the following proposal:
2. PROPOSAL to ratify the appointment of KPMG LLP as the Company's
independent auditors for fiscal 2007.
|_| FOR |_| AGAINST |_| ABSTAIN
3. In their discretion, the proxies are authorized to vote upon any
other business that may properly come before the meeting.
C Authorized Signatures - Signe Here - This section must be completed for
your instructions to be executed.
Be sure to sign and date this Proxy.
(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.)
Date (mm/dd/yyyy) Signature 1 - Signature 2 -
Please keep signature Please keep signature
within this box within this box
----------------- --------------------------- ----------------------------
Proxy - Culp, Inc.
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Robert G. Culp, III, Kenneth M. Ludwig 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 27, 2006, at the Annual
Meeting of Shareholders to be held on September 26, 2006, 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.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
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 26, 2006
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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 26, 2006, at 9:00 a.m. local time, for the
purpose of considering and acting on the following matters:
(1) To elect two 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 27, 2006
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 2006 Annual Report of the Company also accompanies this notice.
By Order of the Board of Directors,
/s/ Kenneth M. Ludwig
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KENNETH M. LUDWIG
Corporate Secretary
August 25, 2006
CULP
Proxy Statement
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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 26, 2006, 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, 2006.
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 two 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.
VOTING SECURITIES
Only shareholders of record at the close of business on July 27, 2006
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 11,684,959.
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 27, 2006.
Percent of
Name and Address of Beneficial Number of Shares Outstanding
Title of Class Owner Beneficially Owned Shares
-------------------------------- -------------------------------------- -------------------- ---------------
Common stock, par value $.05 Robert G. Culp, III 2,546,469 (1) 21.8%
per share 903 Forrest Hill Drive
High Point, NC 27262
Atlantic Trust, Trustee 2,008,750 (2) 17.2%
Robert G. Culp, Jr. Trust
100 Federal Street, 37th Floor
Boston, MA 02110
Fountainhead Partners, L.P. 1,144,000 (3) 9.8%
2201 E. Lamar, Suite 260
Arlington, TX 76006
Dimensional Fund Advisors Inc. 979,867 (4) 8.4%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
T. Rowe Price Associates, Inc. 932,700 (5) 8.0%
100 East Pratt Street
Baltimore, Maryland 21202
Praesidium Investment Management 727,753 (6) 6.2%
Company, LLC
747 Third Avenue, 35th Floor
New York, NY 10017
John B. Baum and related entities 691,900 (7) 6.0%
30201 Orchard Lake Road, Suite 107
Farmington Hills, MI 48334
All executive officers, directors 3,279,589 (8) (9) 28.1%
and 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 67,356 shares
held of record by Susan B. Culp, the wife of Mr. Culp, the beneficial
ownership of which shares Mr. Culp disclaims, approximately 21,662
shares owned by Mr. Culp through the Company's 401(k) plan, and
106,500 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) Based upon information obtained from a Schedule 13F filed with the
Securities and Exchange Commission on May 9, 2006. 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 1,144,000 shares held by the Funds.
(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
979,867 shares of Culp, Inc. stock as of June 30, 2006. The Portfolios
own all securities reported in this statement, and Dimensional
disclaims beneficial ownership of such securities.
(5) These securities are owned by various individual and institutional
investors as of June 30, 2006, including the T. Rowe Price Small Cap
Value Fund, which owns 717,800 shares, representing 6.1% of the shares
outstanding. T. Rowe Price Associates, Inc. ("Price Associates")
serves as investment advisor with power to direct investments and/or
sole 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.
(6) Based upon information obtained from a Schedule 13F filed with the
Securities and Exchange Commission on March 30, 2006. 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 727,753 shares owned by the Funds. Praesidium Investment
Management Company, LLC disclaims beneficial ownership of such shares.
(7) 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.
(8) Includes 301,875 shares subject to options owned by certain officers,
directors and nominees that are immediately exercisable.
3
(9) Includes 7,607 shares owned by an executive officer who did not become
an executive officer until after the end of fiscal 2006. Also includes
20,375 shares held by the estate of H. Bruce English, who was a
director of the Company on July 27, 2006 and who died on August 3,
2006. Also includes 68,716 shares held by Patrick H. Norton, who was a
director on July 27, 2006 but who resigned as a director effective
August 14, 2006. If these two former directors are excluded, the
number of shares owned by all executive officers, directors and
nominees as a group (10 persons) as of July 27, 2006 is 3,190,498
shares, or 27.3% of the outstanding shares.
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 terms of Robert G. Culp, III and Patrick B. Flavin expire at the
time of the 2006 Annual Meeting of Shareholders. The Company proposes the
reelection of Messrs. Culp and Flavin for a three-year term expiring at the time
of the 2009 Annual Meeting. The term of Patrick H. Norton was to expire at the
2006 Annual Meeting, but Mr. Norton resigned from the board effective August 14,
2006. In addition, H. Bruce English, a director whose term was to run until the
2007 Annual Meeting, died unexpectedly on August 3, 2006. The seats previously
held by Mr. English and Mr. Norton will not be filled at the 2006 Annual
Meeting. The Board has not identified any candidates to fill these recently
created vacancies. Vacancies on the Board may be filled by the remaining
directors until the next annual meeting.
In the absence of specifications to the contrary, proxies will be
voted for the election of each of the two 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 two 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 two
nominees for election to the Board of Directors, and the persons who were
directors and executive officers of the Company as of July 27, 2006:
Shares and Percent
of Common Stock
Year Year Beneficially Owned
Position with Became Term As of July 27,
Name and Age Company (1) Director Expires 2006 Notes
----------------------------- ------------------------ ---------- ----------- --------------------- ---------
Nominees
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Robert G. Culp, III, 59 Chairman of the Board 1972 2006 2,546,169 (2)
and Chief Executive 20.9%
Officer, Director
Patrick B. Flavin, 59 Director 1999 2006 139,075 (3)
1.1%
Directors and Executive
-----------------------
Officers
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Franklin N. Saxon, 54 President and Chief 1987 2008 83,924 (4)(6)
Operating Officer,
Director
Jean L.P. Brunel, 57 Director 2004 2008 3,875 (4)(7)
Howard L. Dunn, Jr., 68 Director 1972 2007 245,434 (8)
2.0%
H. Bruce English, 72 Director* 2000 N/A 20,375 (4)(9)
Kenneth R. Larson, 63 Director 2004 2008 16,875 (4)(10)
Kenneth W. McAllister, 57 Director 2002 2007 22,625 (4)(11)
Patrick H. Norton, 84 Director** 1987 N/A 68,716 (4)(5)
Kenneth R. Bowling, 44 Vice President, N/A N/A 7,607 (4)(12)
Finance, Treasurer
(beginning June 15,
2006)
Boyd B. Chumbley, 49 President, Culp N/A N/A 28,829 (4)(13)
Velvets/Prints
Division (through
June 15, 2006)
Robert G. Culp, IV, 35 President, Culp Home N/A N/A 31,335 (4)(14)
Fashions division
Kenneth M. Ludwig, 53 Senior Vice N/A N/A 64,750 (4)(15)
President, Human
Resources, Corporate
Secretary
* Mr. English was a director on July 27, 2006. He died on August 3, 2006.
** Mr. Norton was a director on July 27, 2006. He resigned as a director effective August 14, 2006.
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(1) Officers of the Company are elected by the Board of Directors each
year. The present officers were elected by the Board on June 15, 2006.
(2) 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 67,356
shares held of record by Susan B. Culp, wife of Robert G. Culp, III,
the beneficial ownership of which shares Mr. Culp disclaims, 106,500
shares subject to options owned by Mr. Culp that are immediately
exercisable, and approximately 21,662 shares owned by Mr. Culp through
the Company's 401(k) plan.
(3) 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 14,400 shares held in
accounts managed by Flavin, Blake & Co., L.P., as to which shares Mr.
Flavin also disclaims beneficial ownership. Includes 11,375 shares
subject to options owned by Mr. Flavin that are immediately
exercisable.
(4) Less than one percent.
(5) Mr. Norton resigned as a director effective August 14, 2006. Includes
18,875 shares subject to options owned by Mr. Norton that are
immediately exercisable.
(6) Includes 45,250 shares subject to options owned by Mr. Saxon that are
immediately exercisable, and approximately 31,174 shares owned by Mr.
Saxon through the Company's 401(k) plan.
(7) Includes 3,875 shares subject to options owned by Mr. Brunel that are
immediately exercisable.
(8) Includes 66,715 shares owned by Patricia Dunn, wife of Mr. Dunn and
2,000 shares subject to options owned by Mr. Dunn that are immediately
exercisable.
(9) Mr. English died on August 3, 2006. This information includes 7,625
shares subject to options owned by the estate of Mr. English that are
immediately exercisable.
(10) Includes 3,875 shares subject to options owned by Mr. Larson that are
immediately exercisable.
(11) Includes 7,625 shares subject to options owned by Mr. McAllister that
are immediately exercisable.
(12) Includes 5,875 shares subject to options owned by Mr. Bowling that are
immediately exercisable and approximately 1,232 shares owned by Mr.
Bowling through the Company's 401(k) plan.
(13) Includes 21,625 shares subject to options owned by Mr. Chumbley that
are immediately exercisable, and approximately 4,204 shares owned by
Mr. Chumbley through the Company's 401(k) plan.
(14) Includes 10,625 shares subject to options owned by Mr. Culp, IV that
are immediately exercisable.
(15) Includes 56,750 shares subject to options owned by Mr. Ludwig that are
immediately exercisable.
6
Nominees:
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.
PATRICK B. FLAVIN co-founded Flavin, Blake & Co., Inc. in 1992 and is
president and chief investment officer of that investment management company.
Other Current Directors and Officers:
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.
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.
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.
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.
KENNETH W. MCALLISTER has been member/manager 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.
KENNETH R. BOWLING joined the Company in 1997 as controller for the
velvets/prints division. He was promoted to corporate controller in 2001 and was
named corporate controller and assistant treasurer in 2002. In 2004, he was
promoted to vice president, finance and treasurer.
BOYD B. CHUMBLEY has been employed by the Company since 1984 and has
served in various capacities. Mr. Chumbley was president, Culp Velvets/Prints
division from June 2004 through June 15, 2006.
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.
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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. In 2006, Mr. Ludwig was elected
corporate secretary.
Former Directors:
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. Mr.
English died on August 3, 2006.
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 was elected chairman of
the board of La-Z-Boy Incorporated in 1997. He has announced his retirement from
La-Z-Boy to be effective August 16, 2006. Mr. Norton resigned as a director of
the Company effective August 14, 2006.
CORPORATE GOVERNANCE
Corporate Governance Guidelines and Committee Charters
The 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 the Audit Committee/Governance,
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, and the Company's Corporate Governance Guidelines (as
well as New York Stock Exchange rules) require that a majority of the Company's
Board be independent. 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 considers all relevant facts and
circumstances and applies 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
8
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
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.
Until August 3, 2006, the Company had five independent directors and
four non-independent directors, using the standards set forth above. On August
3, 2006, H. Bruce English died unexpectedly, and thus the Board did not have a
majority of independent directors. The Company informed the New York Stock
Exchange of this situation and stated the Board's intention to make changes to
its membership to address the lack of a majority of independent directors
created by the death of Mr. English. Effective August 14, 2006, Patrick H.
Norton, a director who is not independent under the Company's independence
standards and New York Stock Exchange rules, resigned from the Company's Board.
After the death of Mr. English and the resignation of Mr. Norton, the Board
currently has seven directors, four of whom are independent, and two vacancies.
The Board does not expect to identify candidates to fill the vacancies created
by the death of Mr. English and the resignation of Mr. Norton before the 2006
Annual Meeting of Shareholders. Under the Company's bylaws, vacancies on the
Board may be filled by the remaining directors until the next annual meeting of
shareholders.
Applying the independence standards described above, 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, 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 served as the
lead director until his resignation on August 14, 2006. A successor lead
director has not been selected as of the date of this proxy statement. 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.
9
Director Attendance at Annual Meetings
Directors are expected to attend the Company's Annual Meeting of
Shareholders absent exceptional cause. All nine directors then on the Board
attended the 2005 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.
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
10
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
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, Saxon
and McAllister, 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 2006. 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. Larson (Chairman), Brunel,
Flavin and McAllister. 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.
11
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. Brunel (Chairman), Flavin and McAllister.
The current members of the Corporate Governance and Nominating
Committee are Messrs. Flavin, 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.
During the fiscal year ended April 30, 2006, the Board of Directors
had six meetings; the Audit Committee ten meetings; the Compensation Committee
six meetings; and the Corporate Governance and Nominating Committee four
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 Web site 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 2006 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 April 30,
2006. 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 April 30, 2006 for filing with the Securities and Exchange Commission.
The foregoing report has been furnished by members of the Audit
Committee.
Kenneth R. Larson, Chairman
Jean L.P. Brunel
Patrick B. Flavin
Kenneth W. McAllister
12
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 29, 2007. The firm is a
registered public accounting firm. KPMG LLP served as the independent auditors
for the Company for the last sixteen 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.
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 April 30, 2006 and May 1, 2005.
Fiscal 2006 Fiscal 2005
----------- -----------
Audit Fees $451,195 $536,250
Audit-Related Fees (1) 7,500 74,650
Tax Fees (2) 20,700 33,067
All Other Fees (3) 0 15,000
Total $479,395 $658,967
-------- --------
(1) Audit-related fees are for services related to Sarbanes-Oxley Section 404
documentation assistance in fiscal 2005, and Canadian loan compliance
reports in fiscal 2006.
(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 approve in advance 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 2006.
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 April 30, 2006, May 1, 2005 and May 2, 2004 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
===========================================================================================================
Name and Annual Compensation Long-Term Compensation All Other
Principal Position Year Salary $ Bonus $ Option Grants # Compensation
---------------------------- -------- -------- -------- -------------------------- --------------
Robert G. Culp, III 2006 416,000 -0- 30,000 72,367 (1) (2)
Chairman of the Board and 2005 416,000 -0- 15,000 74,500
Chief Executive Officer 2004 416,000 353,600 12,000 72,500
Franklin N. Saxon 2006 300,000 50,000 24,000 60,694 (1) (3)
President and Chief 2005 300,000 -0- 12,000 52,165
Operating Officer 2004 232,875 98,972 7,000 45,993
Kenneth M. Ludwig 2006 186,625 10,000 18,000 37,791 (1) (3)
Senior Vice President, 2005 186,625 -0- 9,000 39,176
Human Resources and 2004 181,125 76,978 7,000 38,279
Assistant Secretary
Robert G. Culp, IV 2006 175,000 10,000 18,000 7,000 (1)
President, Culp Home 2005 175,000 -0- 9,000 6,948
Fashions division 2004 150,000 31,875 3,500 6,400
Boyd B. Chumbley 2006 150,000 10,000 15,000 6,000 (1)
President, Culp 2005 150,000 -0- 9,000 7,016
Velvets/Prints (through 2004 112,000 28,560 3,500 5,778
June 15, 2006)
(1) Includes the Company's matching contribution to such officers' accounts
under the Company's 401(k) plan, in the amount of $13,867 for Mr. Culp,
III, $12,000 for Mr. Saxon, $7,296 for Mr. Ludwig, $7,000 for Mr. Culp, IV,
and $6,000 for Mr. Chumbley.
(2) Includes annual premiums of $58,500 paid by the Company for split-dollar
life insurance for Mr. Culp.
(3) Includes supplemental deferred compensation payments of $45,000 to Mr.
Saxon and $27,994 to Mr. Ludwig; includes reportable interest on deferred
compensation in the amount of $3,694 to Mr. Saxon and $2,501 to Mr. Ludwig.
14
Option Grants Table. The following table sets forth certain
information concerning grants of stock options to the executive officers named
in the Summary Compensation Table during fiscal 2006.
STOCK OPTION GRANTS IN FISCAL 2006
Potential Realizable
% of Total Value at Assumed
Options Granted Exercise or Annual Rates of Stock
Options to Employees in Base Price Expiration Price Appreciation for
Name Granted Fiscal Year ($/Share) (1) Date Option Term
---- ------- ----------- ------------- ---- ----------------------
5% ($) 10% ($)
--------- ----------
Robert G. Culp, III 30,000 12.3 4.59 10/2/10 38,100 84,000
Franklin N. Saxon 24,000 9.9 4.59 10/2/10 30,480 67,200
Kenneth M. Ludwig 18,000 7.4 4.59 10/2/10 22,860 50,400
Robert G. Culp, IV 18,000 7.4 4.59 10/2/10 22,860 50,400
Boyd B. Chumbley 15,000 6.2 4.59 10/2/10 19,050 42,000
-------------------------------------------------------------------------------------------------------------------
(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
or the closing price on the date of the grant, whichever is higher.
--------------------------------------------------------------------------------
Option Exercises and Year-End Value Table. The following table sets
forth certain information concerning exercises of stock options during fiscal
2006 by the executive officers named in the Summary Compensation Table, and
options held by such officers at the end of fiscal 2006.
AGGREGATED OPTION EXERCISES IN FISCAL 2006
AND FISCAL 2006 YEAR-END OPTION VALUES
Value of Unexercised
Shares Number of Unexercised In-the-Money Options at
Acquired On Value Options at Fiscal Year-End (#) Fiscal Year-End ($) (1)
Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------ ------------ ------------ ------------- ------------ -------------
Robert G. Culp, III 18,000 32,760 153,750 50,250 115,300 1,500
Franklin N. Saxon 7,500 13,650 70,000 38,250 50,575 1,200
Kenneth M. Ludwig 8,000 14,560 91,000 30,000 55,300 900
Robert G. Culp, IV 2,250 4,095 14,125 27,375 4,050 900
Boyd B. Chumbley 3,000 5,460 29,625 24,375 30,880 750
(1) Closing price of Company stock at April 30, 2006 was $4.64.
--------------------------------------------------------------------------------
Securities Authorized for Issuance Under Equity Compensation Plans.
The following table sets forth information as of the end of fiscal 2006
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.
15
EQUITY COMPENSATION PLAN INFORMATION
------------------------------- ---------------------------- ---------------------------- ----------------------------
Plan Category Number of securities to be Weighted-average Number of securities
issued upon exercise of exercise price of remaining available for
outstanding options, outstanding options, future issuance under
warrants and rights warrants and rights equity compensation plan
(excluding securities
reflected in column (a))
------------------------------- ---------------------------- ---------------------------- ----------------------------
(a) (b) (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans 993,875 7.11 492,750
approved by security holders
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not 0 0 0
approved by security holders
------------------------------- ---------------------------- ---------------------------- ----------------------------
Total 993,875 $7.11 492,750
------------------------------- ---------------------------- ---------------------------- ----------------------------
======================================================================================================================
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 April 30, 2006, the Company's
potential obligation pursuant to the Severance Protection Plan was $2,878,249,
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
received $32,500 during fiscal 2006 for Board and Committee service, with the
lead director receiving $40,000. Additionally, non-employee directors received a
stock option grant of 2,000 shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee, all of whom are
non-employee directors and independent directors, are Jean L.P. Brunel
(Chairman), Patrick B. Flavin, 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.
16
COMPENSATION COMMITTEE REPORT
The following is a report of the Compensation Committee on
compensation of executive officers for the fiscal year ended April 30, 2006.
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 prior years, 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.
The basic policies described above were continued in fiscal 2006,
except that the Compensation Committee did not establish financial performance
targets under the Company's Management Incentive Plan because the Company's
operations were undergoing fundamental changes during the year, and the
Committee believed it would have been difficult to establish meaningful targets
under the plan. For that reason, no bonuses were paid under the Management
Incentive Plan for fiscal 2006. The Committee did decide at the end of the year
to pay discretionary merit bonuses to certain key personnel, and the bonuses
reflected in the Summary Compensation Table for fiscal 2006 were paid as a
result of this decision. At the recommendation of the chief executive officer,
no bonus was paid for fiscal 2006 to the chief executive officer, and the chief
executive officer and the president did not receive salary increases for the
year.
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 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
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
exercisable in May of 1997, and represented a compound growth rate of 20% for
the three years that 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 would not become exercisable until January
1, 2006. The earnings target under the 1997 Performance-Based Option Plan was
not met, and thus the options became exercisable on January 1, 2006.
17
The Compensation Committee approved grants of stock options to certain
officers and employees under the 2002 Stock Option Plan during fiscal 2006 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 that
provided for the chief executive officer.
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 2006. The committee believes this type
of plan provides a cost-effective means of providing this benefit.
The foregoing report has been furnished by the members of the
Compensation Committee.
Jean L.P. Brunel, Chairman
Patrick B. Flavin
Kenneth W. McAllister
18
PERFORMANCE COMPARISON
The following graph shows changes over the five-year period ended
April 30, 2006 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
2001 and the reinvestment of all dividends during the periods identified.
PLEASE SEE PDF ATTACHED TO THIS FILING FOR GRAPH
19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Lease Transactions. During fiscal 2006, the Company leased an
industrial facility from a partnership owned by certain of the Company's
executive officers, directors, principal shareholders and members of their
immediate families. Principals of this related entity include Robert G. Culp,
III, Harry R. Culp (brother of Robert G. Culp, III), and Judith C. Walker
(sister of Robert G. Culp, III). This facility contains approximately 300,000
square feet of floor space. The initial term of the lease was for a period of
seven years, with several five-year renewal options. Base rent per year for the
leased facility during fiscal 2006 was approximately $0.60 per square foot. The
lease prohibits 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 facility. The
industrial facility is 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 lease and any lease renewals were executed, the terms of this lease
were no less favorable to the Company than could have been obtained in arms
length transactions with unaffiliated persons. The Company received an
independent appraisal to this effect. 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 2006 was approximately $158,000.
Certain Business Relationships. The Company had sales of approximately
$33.3 million, which constituted 13% of the Company's net sales, to La-Z-Boy
Incorporated in fiscal 2006. Patrick H. Norton, who served as Chairman of
La-Z-Boy until his retirement on August 16, 2006, served on our board of
directors until his resignation on August 14, 2006.
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 1, 2005 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 1, 2005, its insiders have complied with all
applicable Section 16(a) reporting requirements, except that a Form 3 Initial
Statement of Beneficial Ownership for Kenneth R. Bowling, Vice President -
Finance and Treasurer of the Company, was filed after the required filing date,
and a Form 4 Statement of Changes in Beneficial Ownership relating to one grant
of stock options to Mr. Bowling was also filed after the required filing date.
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YOUR DIRECTORS RECOMMEND VOTES "FOR"
o THE TWO NOMINEES FOR DIRECTOR
o THE RATIFICATION OF APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR FISCAL 2007
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SHAREHOLDER PROPOSALS FOR 2007 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 2007 Annual Meeting, the Company must receive them no later than April
29, 2007. 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
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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 2006 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: KENNETH M. LUDWIG, CORPORATE SECRETARY, 1823 EASTCHESTER
DRIVE, P. O. BOX 2686, HIGH POINT, NORTH CAROLINA 27261.
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