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:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
14a-6(e)(2)) x Commission Only (as permitted
[_] Definitive Proxy Statement by Rule
[_] Definitive Additional Materials
[_] Soliciting Material under Rule 14a-12
Culp, Inc.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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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[_] 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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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 20, 2007
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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 Thursday, September 20, 2007, at 8:30 a.m. local time, for the
purpose of considering and acting on the following matters:
(1) To consider an amendment to the Company's bylaws to reduce the size of
the range in the number of directors that comprise the Board of
Directors, with the number of seats to be determined by the Board;
(2) To consider an amendment to the Company's bylaws to declassify the
Board of Directors and provide that all directors will be elected by
the shareholders annually;
(3) To elect directors;
(4) To consider approval of the 2007 Equity Incentive Plan; and
(5) 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 19, 2007
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 2007 Annual Report of the Company also accompanies this notice.
By Order of the Board of Directors,
/s/ Kenneth M. Ludwig
----------------------
KENNETH M. LUDWIG
Corporate Secretary
August ___, 2007
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 Thursday, September 20, 2007, at 8:30
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 ___, 2007.
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 approval of the bylaw amendments described
below, for the election of the director nominees named in this proxy statement,
and for approval of the 2007 Equity Incentive Plan. 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.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of common stock of the Company is necessary to constitute a
quorum at the Annual Meeting and any adjournment thereof. 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 or broker non-vote will have the
effect of a vote against the proposal in question. Shareholders do not have
dissenters' rights with respect to any of the matters to be considered.
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 19, 2007 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
12,634,526.
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 11 persons, as of
July 19, 2007.
Amount and Nature of Percent of
Title of Class Name and Address of Beneficial Owner Beneficial Ownership Outstanding Shares
- ------------------------ -------------------------------------- ------------------------ ------------------
Common stock, par value Robert G. Culp, III
$.05 per share 903 Forrest Hill Drive
High Point, NC 27262 2,255,384 (1) 17.9%
Atlantic Trust, Trustee
Robert G. Culp, Jr. Trust
100 Federal Street, 37th Floor
Boston, MA 02110 1,708,750 (2) 13.5%
R. Scott Asen and related entities
224 E. 49th St.
New York, NY 10017 1,344,800 (3) 10.6%
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202 990,100 (4) 7.8%
Dimensional Fund Advisors Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 987,627 (5) 7.8%
John B. Baum and related entities
30201 Orchard Lake Road, Suite 107
Farmington Hills, MI 48334 780,000 (6) 6.2%
Praesidium Investment Management
Company, LLC
747 Third Avenue, 35th Floor
New York, NY 10017 727,753 (7) 5.8%
All executive officers, directors and
nominees as a group (11 persons) 2,856,236 (8) 22.6%
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 21,128 shares owned by Mr. Culp
through the Company's 401(k) plan, and 91,250 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 559,375 shares
held of record by Atlantic Trust for the benefit of Judith C. Walker,
sister of Robert G. Culp, III; 355,000 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 13G filed with the
Securities and Exchange Commission by R. Scott Asen (the "Reporting
Person") on July 10, 2007. Includes 1,262,800 shares over which the
Reporting Person has sole voting and dispositive power, and 82,000 shares
held by certain Managed Accounts that receive certain advisory services
from Asen and Co., of which the Reporting Person is president. The
Reporting Person disclaims beneficial ownership of 36,800 shares owned by a
charitable foundation of which the Reporting Person is the sole trustee, as
well as the 82,000 shares held by the Managed Accounts referenced above,
except in each case to the extent of the Reporting Person's pecuriary
interest.
(4) These securities are owned by various individual and institutional
investors as of February 14, 2007, including the T. Rowe Price Small Cap
Value Fund, which owns 700,000 shares, representing 5.5% 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.
(5) 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 987,627 shares of Culp, Inc. stock as
of December 31, 2006. The Portfolios own all securities reported in this
statement, and Dimensional disclaims beneficial ownership of such
securities.
(6) Based upon information obtained from a Schedule 13G filed with the
Securities and Exchange Commission on February 16, 2007, on behalf of
Paulette R. Baum Revocable Living Trust u/a/d 7/21/98 (c/o John B. Baum,
Trustee) (the "Trust"). The Reporting Person directly owns 780,000 shares
(consisting of 705,100 shares in the Trust and 74,900 shares in related
IRAs over which the Reporting Person has direct control).
(7) 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.
(8) Includes 254,251 shares subject to options owned by certain officers,
directors and nominees that are immediately exercisable.
3
PROPOSAL 1: AMEND THE BYLAWS TO CHANGE THE RANGE OF THE BOARD SIZE,
WITH THE NUMBER OF SEATS TO BE DETERMINED BY THE BOARD
Article III, Section 2 of the Company's bylaws states that the shareholders
have the power to determine the number of directors constituting the Board of
Directors within the specified range of nine to fifteen directors. The size of
the Board is currently fixed at nine directors.
Article IX, Section 4 of the Company's bylaws provides that the Board shall
not have the power to adopt a bylaw increasing or decreasing the number of
directors.
We propose to amend the bylaws so that the number of directors constituting
the Board shall be not less than five nor more than nine, as may be fixed by an
affirmative vote of a majority of the directors then holding office at any
regular or special meeting of the Board of Directors. The Company is
significantly smaller now than it used to be, and we believe a smaller board
will serve the Company's purposes more efficiently. Further, allowing the Board
to establish its own size will provide the Company with increased flexibility to
respond to changing circumstances quickly and without waiting for an annual
meeting. If the Board has the power to increase and decrease the number of
directors within the specified range, it will also be better equipped to keep up
with industry best practices.
During the past year, the size of the Board was reduced by two members due
to the unexpected death of one director and the resignation of another director.
The Board has carried two vacancies since that time, and it has discovered that
having a smaller number of directors is sometimes advantageous in terms of
efficiency, full discussion and participation by all members, and greater
flexibility in scheduling meetings. The Board does not believe it is desirable
to continue to carry vacancies indefinitely, and this is part of the rationale
for reducing the number of seats on the Board. We believe a smaller number of
directors will allow the Board to function more effectively and efficiently,
particularly in light of the Company's smaller size.
The first sentence of Article III, Section 2 of the Company's bylaws
currently states: "The number of directors constituting the Board of Directors
shall be not less than nine (9) nor more than fifteen (15) as may be fixed by
resolution duly adopted by the shareholders at or prior to the annual meeting at
which such directors are to be elected; and, in the absence of such a
resolution, the number of directors shall be the number elected at the preceding
annual meeting."
If the shareholders approve this proposal, the first sentence of Article
III, Section 2 of the bylaws would state: "The number of directors constituting
the Board of Directors shall be not less than five (5) nor more than nine (9) as
may be fixed by resolution duly adopted by the Board of Directors at any regular
or special meeting of the Board of Directors; and, in the absence of such a
resolution, the number of directors shall be the number elected at the preceding
annual meeting."
Article IX, Section 4 currently states: "The Board of Directors shall have
no power to adopt a bylaw . . . (3) increasing or decreasing the number of
directors . . .." If the shareholders approve this proposal, the above language
would be removed from the bylaws. If this Proposal is adopted, it is expected
that the size of the Board will be initially set at five (5) members. See
"Impact of Proposals 1 and 2" below.
PROPOSAL 2: DECLASSIFY THE BOARD OF DIRECTORS
Article III, Section 2 of the Company's bylaws states that the directors
must be divided into three classes, as close to equally sized as possible, and
that each class serves a three year term.
We propose to declassify the terms of directors so that all directors are
elected annually. Any director subsequently appointed by the Board of Directors
as a result of a newly created directorship or to fill a vacancy on the Board of
Directors would hold office only until the next annual meeting.
The Board carefully considered both the advantages and disadvantages of a
classified board and believes that declassification will best serve the
Company's interests. A classified board may promote continuity and stability, as
at least 2/3 of directors have at least one year remaining on their terms at any
one time. However, because there is no limit to the number of terms an
individual may serve, the continuity and stability of the Board's membership
should not be materially affected by declassification. In addition, if Proposal
1 above is adopted, the size of the Board of Directors will be reduced, and each
of the classes in a continuing classified board would be very small, with the
shareholders having the opportunity to elect only one or two directors per year
if the Board were not declassified. For this reason, Proposal 2 will only be
submitted to the shareholders if Proposal 1 is adopted. If Proposal 1 is not
adopted by the shareholders, Proposal 2 will be withdrawn, and the Board of
Directors will remain classified into three classes as currently provided in
Article III, Section 2 of the bylaws.
4
Proponents of a classified board suggest that it may encourage director
independence, as it lessens the threat that a director who refuses to act in
conformity with the wishes of the management will not be re-nominated for
office. However, a classified board may reduce directors' accountability to
shareholders, because the directors do not face annual elections. A
non-classified board structure enables shareholders to hold all directors
accountable on an annual basis, rather than over a three year period. Annual
votes allow shareholders to register their views more frequently on the board's
collective performance, and on the performance of each director individually.
Therefore, an annually-elected board will increase the opportunity for
shareholder involvement in corporate management.
Finally, a classified board reduces the possibility of an unsolicited and
disadvantageous takeover of control of the Company, because a would-be acquiror
cannot replace the majority of the board at a single annual meeting. Similarly,
because a would-be acquiror cannot easily remove a classified board, the
directors on such a board may be better able to negotiate the best price from an
acquirer and would therefore have more time to search for superior alternatives.
Those anti-takeover mechanisms, however, might discourage takeover proposals and
proxy contests that could have the effect of increasing shareholder value.
In making this decision, we also looked to the example of other major
corporations. Many large public companies have determined that principles of
good corporate governance dictate that all directors of a corporation should be
elected annually and have declassified their boards in recent years.
The second paragraph of Article III, Section 2 of the bylaws currently
states: "The directors shall be divided into three classes, as nearly equal in
number as may be, to serve in the first instance for terms of one, two and three
years, respectively, and until their successors shall be elected and shall
qualify, and thereafter the successors in each class of directors shall be
elected to serve for terms of three years and until their successors shall be
elected and shall qualify. In the event of any increase or decrease in the
number of directors, the additional or eliminated directorships shall be so
classified or chosen that all classes of directors shall remain or become equal
in number, as nearly as may be. Directors need not be residents of the State of
North Carolina or shareholders of the corporation."
If the shareholders approve this proposal, the second paragraph of Article
III, Section 2 of the bylaws would state: "The directors shall be elected each
year to serve for terms of one year, or until their successors shall be elected
and shall qualify. Directors need not be residents of the State of North
Carolina or shareholders of the corporation."
IMPACT OF PROPOSALS 1 AND 2
The Board has agreed on certain actions that will take effect if the
shareholders approve both Proposal 1 and Proposal 2.
First, the Board will reduce the number of directors from nine to five.
Next, if the shareholders approve both proposals, incumbent director Jean L.P.
Brunel will tender his resignation from the Board. Director Howard L. Dunn,
whose term expires in 2007, will not seek re-election.
These proposals will not reduce the terms of the four remaining incumbent
directors; if the shareholders approve both proposals, those directors will
serve the balance of their terms. Kenneth R. Larson and Franklin N. Saxon each
have one year remaining on their terms, which expire at the 2008 Annual Meeting
of Shareholders. Robert G. Culp, III and Patrick B. Flavin each have two years
remaining on their terms, which expire at the 2009 Annual Meeting. Kenneth W.
McAllister will be nominated for election to a one year term that will expire
next year at the 2008 Annual Meeting of Shareholders.
If the shareholders do not approve either Proposal 1 or Proposal 2, the
Company's corporate governance structure will not change. The Board will remain
classified, with three classes of three directors each elected for a three year
term. Jean L.P. Brunel, Kenneth R. Larson, and Franklin N. Saxon will serve
until their terms expire in 2008. Robert G. Culp, III and Patrick B. Flavin will
serve until their terms expire in 2009. Kenneth W. McAllister and Howard L.
Dunn, Jr. will be nominated for election to a new three year term expiring in
2010. The shareholders may then re-elect any of the above directors upon the
expiration of their terms. The Board would also continue to carry two vacancies.
5
Summary of Impact on Existing Board of Directors
Term Expires Action
Kenneth W. McAllister 2007 Proposed for re-election
Howard L. Dunn, Jr. 2007 Term expires - not re-elected
Jean L.P. Brunel 2008 Resigns
Kenneth R. Larson 2008 Continues - expires in 2008
Franklin N. Saxon 2008 Continues - expires in 2008
Robert G. Culp, III 2009 Continues - expires in 2009
Patrick B. Flavin 2009 Continues - expires in 2009
PROPOSAL 3: ELECTION OF DIRECTORS
The number of directors constituting the Board is expected to be fixed at
five as described above, assuming the adoption of Proposal 1 set forth above. If
Proposal 1 is not approved, the number of directors constituting the entire
Board will be fixed at nine, in accordance with the Company's bylaws.
If Proposals 1 and 2 are adopted, Mr. McAllister will be nominated for
election to a one year term. If the proposals are not adopted, Mr. McAllister
and Mr. Dunn will be nominated for election to a new three year term. In the
absence of specifications to the contrary, proxies will be voted for the
election of Mr. McAllister if Proposals 1 and 2 have been adopted, and for the
election of Messrs. McAllister and Dunn if the Proposals are not adopted. 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.
6
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 19, 2007:
Shares and
Percent of
Common Stock
Beneficially
Position with Year Became Year Term Owned As of
Name and Age Company (1) Director Expires July 19, 2007 Notes
- ---------------------------- ------------------- ----------- ------------- ---------------- ------------
Nominees
- ----------------------------
Kenneth W. McAllister, 58 Director 2002 2007 24,625 (4)(9)
*Howard L. Dunn, Jr., 69 Director 225,584
1972 2007 1.8% (7)
Directors and Executive
Officers
- ----------------------------
Robert G. Culp, III, 60 Chairman of the 2,255,384
Board, Director 1972 2009 17.9% (2)
Franklin N. Saxon, 55 President and Chief
Executive Officer,
Director 1987 2008 92,905 (4)(5)
Jean L.P. Brunel, 58 Director 2004 2008 5,875 (4)(6)
Patrick B. Flavin, 60 Director 141,075
1999 2009 1.1% (3)
Kenneth R. Larson, 64 Director 2004 2008 18,875 (4)(8)
Kenneth R. Bowling, 45 Vice President and
Chief Financial
Officer and
Treasurer N/A N/A 10,452 (4)(10)
Robert G. Culp, IV, 36 President, Culp
Home Fashions
division N/A N/A 28,710 (4)(11)
Kenneth M. Ludwig, 54 Senior Vice
President, Human
Resources,
Corporate
Secretary N/A N/A 32,751 (4)(12)
Thomas B. Gallagher, Jr., 35 Corporate
Controller and
Assistant
Treasurer N/A N/A 0
* Mr. Dunn will only be nominated if Proposal 1 described above is not
adopted by the shareholders.
(1) Officers of the Company are elected by the Board of Directors in June of
each year.
(2) Includes 1,708,750 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, 91,250 shares subject to options owned by
Mr. Culp that are immediately exercisable, and approximately 21,128 shares
owned by Mr. Culp through the Company's 401(k) plan.
7
(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 13,375 shares subject to options owned by Mr. Flavin
that are immediately exercisable.
(4) Less than one percent.
(5) Includes 45,000 shares subject to options owned by Mr. Saxon that are
immediately exercisable, and approximately 30,405 shares owned by Mr. Saxon
through the Company's 401(k) plan.
(6) Includes 5,875 shares subject to options owned by Mr. Brunel that are
immediately exercisable.
(7) Includes 66,715 shares owned by Patricia Dunn, wife of Mr. Dunn and 4,000
shares subject to options owned by Mr. Dunn that are immediately
exercisable.
(8) Includes 5,875 shares subject to options owned by Mr. Larson that are
immediately exercisable.
(9) Includes 9,625 shares subject to options owned by Mr. McAllister that are
immediately exercisable.
(10) Includes 8,750 shares subject to options owned by Mr. Bowling that are
immediately exercisable and approximately 1,202 shares owned by Mr. Bowling
through the Company's 401(k) plan.
(11) Includes 17,750 shares subject to options owned by Mr. Culp, IV that are
immediately exercisable.
(12) Includes 52,751 shares subject to options owned by Mr. Ludwig that are
immediately exercisable.
8
Nominees :(1)
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.
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.
Other Current 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, and he held that position until May 1,
2007. In 1990, the Board of Directors elected Mr. Culp chairman of the Board,
and he continues to serve in that role. 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. He
is the father of Robert G. Culp, IV.
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. He was elected as president and chief
executive officer effective May 1, 2007.
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.
PATRICK B. FLAVIN co-founded Flavin, Blake & Co., Inc. in 1992 and is
president and chief investment officer of that investment management company.
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 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. Mr. Bowling become our chief
financial officer effective May 1, 2007.
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.
THOMAS B. GALLAGHER, JR. joined the Company in January 2005 as assistant
controller. He was promoted to controller in January 2006, and in June of 2007,
he was elected corporate controller, assistant treasurer and assistant
secretary. Previously he had been audit senior manager with the accounting firm
of BDO Seidman.
(1) Mr. Dunn will only be nominated if Proposal 1 described above is not
adopted by the shareholders.
9
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.
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, Compensation
Committee and Corporate Governance and Nominating Committee are also included in
the "Investor Relations/Governance" 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 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 (also available as part of
the Corporate Governance Guidelines available on the Company's website at
www.culpinc.com in the "Investor Relations/Governance" section) 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
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
10
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, applying 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.
Since the death of Mr. English and the resignation of Mr. Norton, the Board has
had seven directors, four of whom are independent, and two vacancies. As
described more fully above, the Board is proposing that the number of seats on
the Board be reduced to five (see "Proposal 1" above).
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. McAllister has served
as lead director since September 25, 2006. 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. All directors then on the Board attended
the 2006 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.
11
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. If Proposal 1 above is approved and the size of the Board is
reduced, the Corporate Governance and Nominating Committee may consider
amendments to the Corporate Governance Guidelines to reflect the smaller size of
the Board, although no specific proposals have been formulated at this time.
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.
12
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 (and
any director who served at any time during the fiscal year) 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 written charters of the Audit Committee, Compensation Committee and
Corporate Governance and Nominating Committee are available on our website at
www.culpinc.com in the "Investor Relations/Governance" section.
Executive Committee
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 2007. All significant
management decisions requiring action by the Board of Directors were considered
and acted upon by the full Board.
Audit Committee
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.
Compensation Committee
The Compensation Committee reviews the performance of the chief executive
officer and determines the chief executive officer's compensation after
consulting with the Board of Directors. The Compensation Committee performs the
same functions with regard to other executive officers after consulting with the
chief executive officer. The committee also makes recommendations to the Board
regarding incentive compensation plans and equity-based plans, and it
administers the incentive compensation and equity-based plans after they are
adopted. In performing its obligations, the Compensation Committee regularly
meets with and consults with the chief executive officer, the senior vice
president of human resources, and occasionally other executive officers, to
receive their recommendations regarding executive compensation. The committee's
charter does not address its ability to delegate its authority to others, and
although it may have such power, in practice the Compensation Committee approves
all final decisions regarding changes in the compensation of executive officers.
The members of this committee are Messrs. Brunel (Chairman), Flavin, Larson and
McAllister. Mr. English served on the compensation committee until his death on
August 3, 2006.
Corporate Governance and Nominating Committee
The current members of the Corporate Governance and Nominating Committee
are Messrs. Flavin (Chairman), Brunel, Larson and McAllister. Mr. English served
on this committee until his death on August 3, 2006. 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.
13
Attendance
During the fiscal year ended April 29, 2007, the Board of Directors had 11
meetings; the Audit Committee 9 meetings; the Compensation Committee 7 meetings;
and the Corporate Governance and Nominating Committee 4 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.
PROPOSAL 4: APPROVAL OF 2007 EQUITY INCENTIVE PLAN
The Board of Directors is submitting to the shareholders for their
approval, a new equity incentive plan entitled the "Culp, Inc. 2007 Equity
Incentive Plan" (the "2007 Plan"). The Board believes that the 2007 Plan will
promote the interests of the Company by giving eligible individuals the
opportunity to acquire an ownership interest in the Company. The Board believes
that equity compensation is an important means of attracting, retaining and
motivating directors and key employees, aligning the long-term financial
interests of eligible individuals with those of our shareholders, rewarding
eligible individuals for increasing the value of our common stock, and providing
for a direct relationship between annual performance results and executive
compensation.
The Company has historically had a stock option plan. However, the
accounting rules governing stock options have changed in recent years, and the
Compensation Committee and the Board believe that it may be appropriate to use
other types of equity incentives. The 2007 Plan will expand the types of equity
based awards available for grant by the Compensation Committee.
On July 25, 2007, the Compensation Committee approved the 2007 Plan and
recommended it to the Board for approval, and the Board adopted the 2007 Plan.
The 2007 Plan will become effective on the date it is approved by the
shareholders of the Company. Because our officers and directors may receive
awards under the 2007 Plan, the officers and directors are deemed to have an
interest in the approval of the 2007 Plan.
If the 2007 Plan is approved by the shareholders, the Company's 2002 Stock
Option Plan will be terminated (except with regard to currently outstanding
options), and no options will be granted under the 2002 Plan after the effective
date of the 2007 Plan.
The following is a summary of the material terms of the 2007 Plan, which is
qualified in its entirety by the complete terms of the 2007 Plan. The full text
of the 2007 Plan is attached hereto as Annex A.
Types of Awards
The 2007 Plan provides for the grant of stock options intended to qualify
as incentive stock options, or ISOs, under Section 422 of the Code, nonqualified
stock options, or NSOs, that are not intended to qualify as ISOs, stock
appreciation rights, or SARs, restricted stock, and restricted stock units, or
RSUs, performance units and other equity-related awards. These awards are
described in more detail below.
Shares Available for Issuance
An aggregate of 1,200,000 shares of our common stock are authorized for
issuance under the 2007 Plan. In addition, the following sublimits apply with
respect to specific types of awards that may be issued under the 2007 Plan:
o no more than 800,000 shares of common stock may be issued under the
2007 Plan pursuant to options intending to qualify as ISOs (as
described below), and the aggregate fair market value of shares of
common stock for which one or more ISOs becomes exercisable for the
first time during any calendar year may not exceed $100,000 for any
individual;
o no more than 600,000 shares of common stock may be issued under the
2007 Plan pursuant to awards of restricted stock; and
o for awards intended to be Qualifying Awards (as described below) for
purposes of exemption from the deduction limitations of Section 162(m)
of the Internal Revenue Code (the Code), no more than (1) 100,000
shares of common stock, and (2) with respect to cash and other
property other than common stock, $1,000,000 (valued at its fair
market value).
The limitations described above, as well as the number, class (if applicable)
and exercise price per share in effect with respect to each outstanding award
shall be adjusted by the Committee to preserve the value of awards in the event
of any stock splits, stock dividends, recapitalizations, share combinations or
exchanges, extraordinary distributions, split-ups or spin-offs or similar
changes. These adjustments will be binding and conclusive.
14
The Committee also may make adjustments in the terms and conditions of, and
the criteria included in, awards in recognition of unusual or nonrecurring
events affecting us or any of our affiliates, our financial statements or those
of any of our affiliates, or of changes in applicable accounting principles,
laws, rules, rulings, regulations or other requirements of any governmental body
or applicable securities exchange or trading market. These adjustments may
include, but are not limited to, the substitution or assumption of awards, the
acceleration of the exercisability of, lapse of restrictions on, or termination
of, awards, or the allowance of time to exercise awards prior to the occurrence
of such event. Such adjustments may also provide for a cash payment in
consideration for the cancellation of an award.
Share Counting
In calculating the maximum number of shares issuable under the 2007 Plan,
the following rules apply:
o shares actually delivered to a participant or beneficiary in
satisfaction of an award will count against the maximum number of
shares issuable under the 2007 Plan and any applicable sublimits on
particular types of awards;
o shares subject to an award that is terminated, forfeited or canceled
without delivery of stock to a participant will not count against the
maximum share limits under the 2007 Plan and will again be available
for issuance; and
o shares not delivered to a participant because the award is settled in
cash or because the shares are used to pay the exercise of the award
or the withholding taxes associated with the award will not be counted
against the maximum share limits and will again be available for
issuance.
Notwithstanding these share counting rules, in no event will undelivered shares
increase the maximum number of shares that may be granted under the 2007 Plan as
ISOs.
Term
Awards may be made under the 2007 Plan until the earlier of such time as no
more authorized shares of the Company's common stock are available for issuance
under the 2007 Plan or July 25, 2017.
Administration
The Compensation Committee or any other committee the Board may designate
from time to time (the Committee) will administer the 2007 Plan. Subject to the
terms of the 2007 Plan and applicable law, the Committee has sole authority and
discretion to administer the 2007 Plan. This authority includes the power to:
o select the participants to whom awards may be made under the plan;
o determine the types and amounts of awards made to participants;
o determine the terms and conditions of awards, including any exercise
price, vesting conditions, restrictions or limitations, payments,
rights or other matters to be calculated in connection with any
awards, any deferred payment arrangements regarding awards, and any
acceleration of vesting or waiver of forfeiture under any award;
o determine whether, and if so, what, performance criteria must be met
as a condition to receipt of any award, and determine and certify
whether any applicable performance criteria have been met;
o modify, amend or adjust the terms and conditions of any award,
including modifications, amendments or adjustments to take advantage
of changes in tax laws or regulations or in the event the actual tax
consequences of an award differ from originally anticipated
consequences;
o determine the circumstances and methods by which an award may be
settled in cash, common stock, or other securities or property;
o determine the circumstances under which awards may be canceled,
forfeited or suspended;
o adopt, alter and repeal the administrative rules, guidelines and
practices governing the 2007 Plan;
o interpret, administer, reconcile any inconsistency in, and correct any
default in or supply any omission in, the terms and provisions of the
2007 Plan and any award or other document or communication under the
2007 Plan; and
o otherwise oversee the administration of the 2007 Plan and take any
other action the Committee deems necessary or desirable for the
administration of the 2007 Plan.
15
Except to the extent prohibited by applicable law or any stock exchange on
which the Company's common stock is then primarily listed or traded, the Board
may exercise all powers of the Committee under the 2007 Plan from time to time,
or the Committee may delegate all or any portion of its responsibilities and
powers to any one or more of its members or to any person or persons selected by
the Committee, except for decisions about the fundamental terms of Awards
(number of shares in initial grant, exercise price, term, and vesting schedule).
All decisions made pursuant to the exercise of these powers will be final and
binding on all persons, including the Company and all participants.
Eligible Participants
Eligible participants include all employees, non-employee members of the
Board or members of the boards or similar governing body of any subsidiaries of
the Company, and consultants or other independent advisors who provide services
to the Company or any of its subsidiaries.
Types of Awards
Options. Except as otherwise established by the Committee at the time of
grant, all stock options awarded under the 2007 Plan must have an exercise price
at least equal to the fair market value of our common stock on the date the
options are granted. Options may be subject to vesting and such other terms as
determined by the Committee in its discretion and set forth in the individual
award agreements.
The exercise price of an option may be paid in such consideration as the
Committee deems appropriate, including cash, common stock or a combination
thereof.
Two types of options may be awarded under the 2007 Plan: options intended
to qualify as ISOs under Section 422 of the Internal Revenue Code, and options
not intended to qualify as ISOs. The following special rules apply to ISOs: ISOs
may be awarded only to employees; the exercise price of an ISO may not be less
than 100% of the fair market value per share of the Company's common stock on
the grant date of the ISO or, if such ISO is awarded to an owner of 10% or more
of the total combined voting power of all classes of the Company's common stock,
not less than 110% of such fair market value; the aggregate fair market value of
shares of common stock (determined as of the respective grant date(s)) for which
one or more ISOs becomes exercisable for the first time during any calendar year
may not exceed $100,000 for any individual; and the term of the ISO may not
exceed ten years, or five years for owners of 10% or more of the total combined
voting power of all classes of the Company's common stock.
Stock Appreciation Rights. A SAR entitles a participant to receive value
equal to the excess of the fair market value of a specified number of shares of
common stock over the exercise price established for the SAR, with cash payable
to the extent that any fraction of a share would be issuable. SARs may be
subject to such terms and conditions, including vesting, as determined by the
Committee and set forth in the individual award agreement. Except as otherwise
established by the Committee at the time of grant, the exercise price of a SAR
shall not be less than the fair market value of the SAR on the date of grant.
Restricted Stock and Restricted Stock Units. Restricted stock is a grant of
a specified number of shares of common stock, subject to such restrictions, risk
of forfeiture, vesting or other conditions as the Committee may determine. A
restricted stock unit is the right to receive a future grant of a specified
number of shares of common stock, subject to such restrictions, conditions, risk
of forfeiture, or vesting conditions as the Committee may determine. Unlike
holders of restricted stock units, holders of restricted stock will have all
rights of a shareholder with respect to the shares of restricted stock granted,
except as otherwise provided in the applicable award agreement.
Performance Units. Performance units entitle a participant to receive a
specified value, established by the Committee at the time of the award, based on
the extent to which specific performance goals are achieved. Performance units
are subject to such terms and conditions as determined by the Committee,
including the establishment of specified performance goals for a specified
performance period as described below under "Performance Based Compensation."
The performance unit is not earned unless and until the specified performance
goals are attained. The value of performance units may be measured by the fair
market value of our common stock or any other maximum dollar value established
by the Committee, and may be settled in either cash or common stock, as
determined by the Committee.
16
Other Discretionary Awards. The Committee may, in its sole discretion,
grant and determine the terms and conditions of other awards that are
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, the Company's common stock or factors that may
influence the value of the Company's common stock. These awards may include, but
are not limited to, convertible or exchangeable debt securities, other rights
convertible or exchangeable into the Company's common stock, common stock
purchase rights, awards with value and payment contingent upon the Company's
performance or that of specified subsidiaries, affiliates or other business
units or other factors determined by the Committee. The Committee may also, in
its sole discretion, grant cash awards, independent of, or as an element of, or
supplement to, any other award granted under the 2007 Plan. The Committee may
also, in its sole discretion, grant common stock as a bonus, or grant other
awards in lieu of obligations of the Company or its subsidiary to pay cash or
deliver other property under the 2007 Plan or under other plans or compensatory
arrangements.
Performance Based Compensation
For any awards that are intended to be "performance-based compensation"
within the meaning of Section 162(m) of the Internal Revenue Code (a Qualifying
Award), no more than (1) 100,000 shares of common stock, and (2) with respect to
cash and other property other than common stock, $1,000,000 (valued at its fair
market value) may be subject to such Qualifying Awards made to any one
individual during any one calendar year period. The right to receive or retain
any award granted as a Qualifying Award (other than an Option or SAR) will be
conditioned on the achievement of specified performance goals during a calendar
year or performance period established by the Committee. Performance goals will
be established in writing by the Committee prior to the beginning of each
performance period, or in any event no later than the time permitted for the
establishment of such goals by Section 162(m).
Performance goals may vary from participant to participant and award to
award and will be based upon the attainment of specific amounts of, or increases
in, one or more of the following: the fair market value of the Company's common
stock, revenues, operating income, cash flow, earnings before income taxes, net
income, earnings per share, shareholders' equity, return on equity, return on
investment or capital, return on assets, share price, profitability or profit
margins, market share or strategic business objectives consisting of one or more
objectives based on meeting specified cost targets, business expansion goals and
goals relating to acquisitions or divestitures, all whether applicable to us or
any relevant subsidiary or business unit or entity in which we have a
significant investment, or any combination thereof as the Committee may deem
appropriate. Each performance goal may be expressed on an absolute or relative
basis, may be based on, or otherwise employ, comparisons based on internal
targets, our past performance or the past or current performance of other
companies, and may provide for the inclusion, exclusion or averaging of
specified items in whole or in part, such as realized gains or losses on
strategic investments, discontinued operations, extraordinary items, accounting
changes, and unusual or nonrecurring items, and, in the case of earnings-based
measures, may use or employ comparisons relating to capital, shareholders'
equity or shares outstanding, assets or net assets. Prior to the payment of any
award granted as a Qualifying Award, the Committee will certify in writing that
the performance goals were satisfied. The Committee may also exercise discretion
to reduce or eliminate a Qualifying Award, even if the applicable performance
goals have been met.
Termination of Employment
The Committee will determine the consequences to awards under the 2007 Plan
of a participant's death, disability, retirement or other termination of
employment of service. These consequences will be set forth in the individual
award agreements or as the Committee may otherwise determine.
Transferability of Awards
A participant may transfer options awarded under the 2007 Plan by will or
the laws of inheritance. In addition, at the discretion of the Committee, a
participant may transfer options by gift or other transfer other than for value
to any of the following:
o the participant's immediate family;
o a trust in which either the participant or the participant's immediate
family members have more than 50% of the beneficial interest;
o an entity in which the participant or participant's immediate family
members own more than 50% of the voting interests; or
o such other transferees as permitted by the Committee.
17
Exchange and Buy Out -- Limits on Repricing
The Committee may at any time offer to exchange or buy out any previously
granted award for a payment in cash, shares of common stock, or other awards or
property. However, the repricing of outstanding options or SARs without
shareholder approval is expressly prohibited under the 2007 Plan.
Amendment and Termination of Plan and Awards
The Committee may suspend or terminate the 2007 Plan at any time. The
Committee may also amend or modify the 2007 Plan, except that it may not,
without Shareholder approval, adopt any amendment that would be prohibited by
applicable laws, regulations or Stock Exchange requirements absent Shareholder
approval. The Committee also may amend, modify, suspend, cancel, terminate,
discontinue or waive any conditions or rights under, any award, award agreement
or related documents in any manner, either prospectively or retroactively;
provided, however, that except as set forth in the 2007 Plan or otherwise
provided in the applicable award agreement, no such amendment, modification,
alternation, suspension, discontinuation, cancellation or termination that would
materially impair the rights of any participant under any outstanding award will
be effective to that extent without the consent of the impaired participant or
the representative or beneficiary of the affected participant.
Change of Control
The Committee may, in its discretion and on such terms and conditions as it
may establish, determine that prior to or in connection with the consummation of
a Change of Control (as defined in the 2007 Plan), that any or all outstanding
awards become fully, partially or conditionally exercisable or vested. The
Committee also may, in its discretion, cancel any outstanding awards in exchange
for a payment in cash or securities equal to the "in the money" value
represented by the difference between the exercise price associated with the
award and the amount offered to holders of our common stock in the change of
control transaction. Unless otherwise determined by the Committee, upon
consummation of a Change of Control in which the Company is not the surviving
entity, all outstanding options and SARs, to the extent not exercised or vested,
will terminate and cease to be outstanding, except to the extent expressly
assumed by the successor entity (or parent thereof), and all unvested restricted
stock, restricted stock units and performance units shall be forfeited and
cancelled.
Unless otherwise determined by the Committee, upon consummation of a Change
of Control in which the Company is the surviving entity, all awards will remain
outstanding in full force and effect on the same terms and conditions.
Except as otherwise provided in an applicable award agreement, the 2007
Plan defines a "change of control" as the occurrence of any of the following
events:
(i) during any period of 24 consecutive months, individuals who were
members of the Board at the beginning of such period (the "Incumbent
Directors") cease at any time during such period for any reason to
constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the beginning of such
period whose appointment or election, or nomination for election, by
the Company's shareholders was approved by a vote of at least a
majority of the Incumbent Directors (either by specific vote or by
approval of a proxy statement in which such person is named as a
nominee, without written objection to such nomination) shall be
considered as though such individual were an Incumbent Director, but
excluding, for purposes of this proviso, any such individual whose
initial assumption of office occurs as a result of an actual or
threatened proxy contest with respect to election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of any "person" (as such term is used in
Section 13(d) of the Exchange Act) (each, a "Person"), other than the
Board;
(ii) the consummation of (A) a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving (x) the
Company or (y) any of its Subsidiaries, but in the case of this clause
(y) only if Company Voting Securities (as defined below) are issued or
issuable in connection with such transaction (each of the transactions
referred to in this clause (A), being hereinafter referred to as a
"Reorganization") or (B) a sale or other disposition of all or
substantially all the assets of the Company (a "Sale"), unless,
immediately following such Reorganization or Sale, (1) all or
substantially all the individuals and entities who were the
"beneficial owners" (as such term is defined in Rule 13d-3 under the
Exchange Act (or a successor rule thereto)) of shares of the Company's
common stock or other securities eligible to vote for the election of
the Board outstanding immediately prior to the consummation of such
Reorganization or Sale (such securities, the "Company Voting
Securities") beneficially own, directly or indirectly, more than 50%
of the combined voting power of the then outstanding voting securities
of the corporation or other entity resulting from such Reorganization
or Sale (including a corporation or other entity that, as a result of
such transaction, owns the Company or all or substantially all the
Company's assets either directly or through one or more subsidiaries)
(the "Continuing Entity") in substantially the same proportions as
their ownership, immediately prior to the consummation of such
Reorganization or Sale, (2) no Person (excluding any employee benefit
plan (or related trust) sponsored or maintained by the Continuing
Entity or any corporation or other entity controlled by the Continuing
Entity) beneficially owns, directly or indirectly, 35% or more of the
combined voting power of the then outstanding voting securities of the
Continuing Entity and (3) at least a majority of the members of the
board of directors or other governing body of the Continuing Entity
were Incumbent Directors at the time of the execution of the
definitive agreement providing for such Reorganization or Sale or, in
the absence of such an agreement, at the time at which approval of the
Board was obtained for such Reorganization or Sale;
18
(iii) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company, unless such liquidation or
dissolution is part of a transaction or series of transactions
described in paragraph (ii) above that does not otherwise constitute a
Change of Control; or
(iv) any Person, corporation or other entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing a percentage of the combined voting power of the Company
Voting Securities that is equal to or greater than 35%; provided,
however, that for purposes of this subparagraph (iv) (and not for
purposes of subparagraphs (i) through (iii) above), the following
acquisitions shall not constitute a Change in Control: (A) any
acquisition by the Company or any Subsidiary, (B) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained
by the Company or any Subsidiary, (C) any acquisition by an
underwriter temporarily holding such Company Voting Securities
pursuant to an offering of such securities or (D) any acquisition
pursuant to a Reorganization or Sale that does not constitute a Change
in Control for purposes of subparagraph (ii) above.
Grants
No awards have been made under the 2007 Plan, and the Company cannot
currently determine the number of awards that will be granted to any person
during fiscal 2008. Our current compensation arrangements for non-employee
directors, which are subject to change, provide that non-employee directors
receive 2,000 options per year ("see "Compensation of Directors" below). If
Proposal 1 described above is adopted and if the shareholders elect the director
nominees proposed, the Company will have three non-employee directors who would
receive 2,000 options during fiscal 2008 under the current director compensation
arrangements, or an aggregate of 6,000 options, with a term of ten years and an
exercise price equal to the fair market value of our common stock at the time of
grant (expected to be in October 2007).
APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board is responsible for the appointment,
compensation and retention of our independent auditors. As of the date of this
proxy statement, the Audit Committee has not engaged independent auditors for
fiscal 2008 and is currently evaluating audit firms to serve in this capacity.
For this reason, the Audit Committee has not recommended an auditor for
ratification at the Annual Meeting. KPMG LLP served as the independent auditors
for the Company for fiscal 2007. Representatives of KPMG LLP 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.
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 29, 2007 and April 30, 2006.
Fiscal 2007 Fiscal 2006
------------------------------------
Audit Fees $441,695 $451,195
Audit-Related Fees (1) 19,800 7,500
Tax Fees (2) 15,490 20,700
All Other Fees (3) 175,000 0
Total $651,985 $479,395
------------------------------------
19
(1) Audit-related fees are for services related to a registration statement on
Form S-3 filed in connection with the purchase of certain assets from
International Textile Group, Inc. in fiscal 2007 and Canadian loan
compliance reports in fiscal 2007 and 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 transfer
pricing studies and other international tax services in connection with the
Company's subsidiaries in Canada and China.
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 fiscal 2007.
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 2007 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. The Audit Committee has reviewed and discussed
with management and KPMG the audited financial statements as of and for the year
ended April 29, 2007. 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
29, 2007 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
20
COMPENSATION DISCUSSION AND ANALYSIS
Objectives and Overview
- -----------------------
The primary objective of our executive compensation program is to support
the corporate goals of increasing our earnings and shareholder return. We
believe the best way to accomplish this objective is to focus the program on
four secondary objectives:
o attracting management with the skills to lead the company
successfully;
o fairly compensating management for their service to our company, which
helps retain and motivate them;
o aligning the long-term interests of management with those of our
shareholders; and
o rewarding management for achieving specific corporate goals.
Our compensation committee's policy is to base compensation for our executive
officers on three main factors:
(1) the compensation paid to executive officers at comparable companies in
our industry;
(2) each individual officer's performance and contribution to our company;
and
(3) our financial performance.
The committee relies most heavily on the first two factors in setting base
salaries for executive officers and in making decisions about non-current
compensation - for example, retirement plans and severance protection - that is
available only to top management. The committee typically links the third factor
to executive officer compensation through annual incentive cash bonuses and
periodic grants of stock options to executive officers.
Compensation Elements
- ---------------------
The following elements made up the fiscal 2007 compensation program for our
executive officers, including all of the executive officers listed in the
summary compensation table on page 28 (whom we refer to as the "named executive
officers"):
Element Form of compensation Purpose Performance criteria
- ------------------ ----------------------- ----------------------------- ----------------------
Base salary Cash Provide a competitive level Not performance-based
of fixed compensation that
attracts and retains skilled
management
Annual bonus Cash Reward officers for efforts Discretionary, awarded
in leading the company by the compensation
through restructuring committee after the
efforts and challenging end of the year based
industry environment on the factors
mentioned in the
"Purpose" column
Long-term Stock options Create a strong financial Common stock price
incentive incentive for meeting or
exceeding long-term
financial goals, rewarding
past performance, and
encouraging an equity stake
in our company
Welfare plans Eligibility to receive Providing a competitive, Not performance-based
health and other broad-based employee
welfare benefits paid benefits structure
for or subsidized by
the company, including
broad-based medical,
life insurance and
disability plans and a
severance plan
Retirement plans Eligibility to Providing competitive Not performance-based
participate in, and retirement-planning benefits
receive company to attract and retain
contributions to, our skilled management
401(k) plan and, for
two officers, a
supplemental deferred
compensation plan
Split-dollar life Company paid life Providing an additional death Not performance-based
insurance plan insurance policy for benefit in a cost-effective
the benefit of Mr. manner
Culp, III, our fiscal
2007 CEO and Chairman
Perquisites Automobile allowance or Providing a competitive Not performance-based
lease, plus business compensation package
club dues for Mr.
Culp, III
Severance Eligibility to receive Providing a competitive Not performance-based
protection plan cash severance in compensation package and
connection with ensuring continuity of
termination in management in the event of
anticipation of or for any actual or threatened
a period after a change in control of our
change of control company
Base salary
-----------
Our compensation committee sets base salaries for our named executive officers
based primarily on:
(1) base salaries paid to executive officers at comparable companies in our
industry, and
(2) each individual officer's performance and contribution to our company.
Our financial performance for the prior year can also play a role in the
committee's consideration of annual salary increases.
22
The committee's information on base salaries at comparable companies comes
from SEC filings by public companies and general knowledge about manufacturing
companies of similar size or within our industry. Given the size of our company,
we believe it is appropriate to research this information ourselves rather than
relying on a potentially more extensive, but expensive, data review by a
compensation consultant. During 2003, and in setting salaries for fiscal 2004,
we considered base salary data from the following companies:
Burlington Industries
Collins and Aikman
Cone Mills Corporation
Dan River Corporation
Delta Woodside
Galey & Lord
Guilford Mills
JP Stevens
Pillowtex
Quaker Fabric Corporation
Russell
Unifi
Westpoint Stevens
We considered these companies to be comparable because they were other
manufacturers of textile products based in the U.S. During the years that
followed, including fiscal 2007, the U.S. based textile industry continued to
undergo rapid changes, and many of the companies on the list above were
restructured, acquired, or filed for bankruptcy. Our company also was engaged in
significant restructuring activities during the same time period, with difficult
financial challenges. For these reasons, and also because limited salary
increases occurred during these years, comparable company data was not reviewed
by the compensation committee during this period in setting base salaries. None
of our executive officers received salary increases for fiscal 2007, except for
Mr. Bowling in connection with his assumption of additional duties in managing
our finance department.
Based on its review of base salary from companies in our industry and the
other considerations discussed above, the committee decided that the salaries of
our executive officers for fiscal 2007 were comparable to or below the average
level within our industry, and were at levels needed to properly reward and
retain qualified leadership for the company.
In setting base salaries for the named executive officers, the committee
also considers each officer's performance and contribution to our company in the
prior fiscal year. The committee determined that each of the named executive
officers performed satisfactorily during fiscal 2006. Nonetheless, due to the
financial difficulties faced by the company and in light of the significant cost
cutting efforts underway at the company during the year, and after consulting
with management, the committee decided not to raise executive officer salaries
for 2007 for Mr. Culp, Mr. Saxon and Mr. Ludwig.
Annual bonuses
--------------
Until fiscal 2006, we had for many years awarded annual bonuses to
management, including the named executive officers, based on our company's
achievement of pre-established financial performance goals. During the past two
years, however, fundamental changes in the fabric industry have led to dramatic
and challenging changes in our company. These changes have included significant
restructuring activities and expansion of our operations into China. The scope
of the changes made it difficult to set meaningful financial performance goals
in advance. As a result, during this period the compensation committee has not
tied bonuses for the named executive officers (with one exception, discussed
below) to our achievement of particular financial performance goals.
Instead, the committee has focused on rewarding management, where the
committee considered appropriate, for shepherding the company through this
challenging period. The committee also considered the need to retain executives
during this challenging time in the company's history. Finally, bonuses in
certain cases were awarded based upon changing roles of some of our executives
during the year. Specifically, for fiscal 2007, the committee decided to award a
bonus of $300,000 to Mr. Saxon, as he took a strong leadership role in
shepherding the company during its restructuring over the past several years and
was promoted to the role of CEO at the end of the fiscal year. A bonus of
$100,000 was awarded to Mr. Culp, in recognition of his leadership as CEO during
the year, and a bonus of $20,000 was awarded to each of Mr. Ludwig and Mr.
Bowling for their significant efforts during a difficult period for the company,
and in addition in connection with Mr. Bowling's promotion to chief financial
officer at the end of fiscal 2007. In each case, the committee considered the
individual salary of each executive to whom these awards were granted in
deciding on the bonus amount.
23
Because the performance of our home fashions division remained more stable
during this period of change, the committee established a bonus plan for that
division to award bonuses based upon financial performance goals for the home
fashions division. Mr. Culp, IV, president of the division, is the only named
executive officer who participates in this bonus plan. For fiscal 2007, Mr.
Culp, IV was awarded a bonus of $83,475 under the plan, which was 47.7% of his
base salary and 159% of his target bonus of 30% of salary. This amount was just
short of the maximum amount that Mr. Culp, IV could have qualified for under the
plan and was based upon the home fashions division reaching "stretch" maximum
performance goals for operating income and free cash flow and falling just short
of the goal for return on capital. In assessing whether the division met its
maximum goals, the committee excluded the financial effects of the acquisition
completed by the home fashions division during the third quarter of fiscal 2007,
pursuant to the provisions of the plan providing that extraordinary items and
events are to be excluded in determining performance with respect to the
numerical performance measures.
With this recent period of change largely behind us, the committee has now
decided to resume our practice of tying all named executive officers' annual
bonuses to achievement of pre-established financial performance goals, effective
for fiscal 2008. For more information about this new bonus plan, see "-Changes
for Fiscal 2008."
Long-term incentives
--------------------
The committee has long used stock options as its primary tool for aligning
executives' long-term interests with those of our shareholders, thereby giving
the officers a strong personal incentive to help us meet or exceed our long-term
financial goals. To that end, the committee periodically approves the grant of
stock options to management and other key employees, including all of the named
executive officers. Our current stock option plan, which our shareholders
approved in 2002, requires that all options be granted at exercise prices that
are at or above the fair market value of our common stock at the time of grant.
This means that option recipients will not realize any value for their options
unless our stock price increases. In addition, options have been granted with
provisions that they will only become exercisable in increments over a period of
time (typically five years), so optionees must remain employed for a significant
additional period before realizing any value for their options.
We currently have no formal system for determining the number of options we
grant each year, either in the aggregate or to any individual. In making its
grant decisions, the committee generally considers the individual's level of
responsibility and/or ability to affect stock price or other performance
measures such as earnings. The committee also sometimes grants stock options to
recognize changes in responsibilities. Options granted early in fiscal 2007 were
granted less than two weeks prior to the announcement of fiscal 2006 earnings,
due to a longer than usual delay between the end of the fiscal year and the
announcement of financial results. The compensation committee has adopted a
policy that in the future annual option grants will not be made until at least
two business days after the announcement of financial results for the prior
fiscal year.
The numbers of options granted during fiscal 2007 were based upon the
committee's assessment of an appropriate number to provide adequate incentive to
the recipients of the grants, taking into account the number of options granted
in prior years, management's recommendation, and the remainder of the
recipients' compensation package. The numbers of options granted were somewhat
larger than in recent prior years, in an effort to provide more incentive in
light of very little increases in salary and limited bonuses in recent years.
Welfare plans
-------------
Our current welfare benefit plans are open to all full-time employees.
Under each plan, the named executive officers receive either the same benefit as
all other salaried employees or a benefit that is exactly proportional, as a
percentage of salary, to the benefits that others receive. For example, the
amount of each individual's company-paid life insurance policy is based on his
or her base salary.
24
Retirement plans
----------------
401(k)
Participation in our tax-qualified 401(k) plan is available to all of our
full-time employees over the age of 21. This plan allows our employees to save
money for retirement in a tax-advantaged manner. All of our named executive
officers currently participate in this plan. For each participant for fiscal
2007, we contributed 100% of the first 3% of salary that the participant
contributed to the plan, and 50% of the next 2% contributed. This is the level
of matching contribution that the plan prescribes, and it has not been changed
in many years.
Supplemental deferred compensation plan
We provide a supplemental deferred compensation plan for two of our
executive officers, Mr. Saxon and Mr. Ludwig. Under this plan, we contribute 15%
of each officer's base salary each year to the officer's plan account. The 15%
amount was set by a past compensation committee more than ten years ago and has
been retained each year. We adopted this plan instead of providing split-dollar
life insurance plans similar to the one described below that we provide for our
former CEO, Mr. Culp, III. The plan also allows the participants to defer
additional amounts of their salary or bonus into the plan at their discretion,
up to 100% of compensation other than amounts required for withholding taxes.
Split-dollar life insurance plan
--------------------------------
We have participated in a split-dollar life insurance plan with Mr. Culp,
III, our board chairman and former CEO, for more than 20 years. Under this plan,
we pay the premiums on policies insuring Mr. Culp's life and in some cases, the
life of Mr. Culp's spouse as well. Upon the death of Mr. Culp or his spouse, as
set forth in the individual policies, the beneficiaries named under the policy
will receive the policy proceeds that remain after we have recovered an amount
equal to the total policy premiums we have paid.
Perquisites
-----------
We provide only very limited perquisites. During fiscal 2007, the only
perquisites provided to any of the named executive officers were an automobile
lease for Mr. Culp, III and an automobile allowance for the other named
executives (except for Mr. Bowling, who was added to the plan in fiscal 2008).
This benefit has been offered for many years, and we believe it is a common
element of a competitive compensation package for companies that are comparable
to the company. We also pay dues to an uptown business club in High Point for
Mr. Culp, III, for purposes of business entertainment and also because we
believe it is a common element of a competitive compensation package.
Severance protection plan
-------------------------
We have a severance protection plan that covers certain of our officers,
including Mr. Saxon, Mr. Ludwig and Mr. Culp, III. We recently took action to
add Mr. Culp, IV and Mr. Bowling to the plan. The plan operates through written
agreements we have with each officer. Under each of these agreements, the
officer will be entitled to receive payment from us in certain circumstances if
the officer's employment terminates in anticipation of, or within a particular
time period following, a change of control of our company. We recently took
action to amend the agreements covering this plan by eliminating the window
period that allows the executive to receive a change in control payment if he
terminates his employment following a change in control without demonstrating an
adverse change in his conditions of employment.
In each case, upon the officer's termination we would owe him an amount
that is approximately double his total compensation at the time of termination.
"Total compensation" means base salary plus the target annual incentive bonus
for the fiscal year in which the termination occurs. In addition, if the
termination were to occur prior to the annual bonus payout for the prior fiscal
year, the officer would be entitled to that bonus payment as well.
Each agreement also provides for an additional payment of one year's total
compensation to the officer in exchange for non-competition covenants. For
information about these covenants, the circumstances in which payments under the
agreements would be triggered and the estimated amounts of the payments to Mr.
Culp, Mr. Saxon and Mr. Ludwig, see "Executive Compensation - Potential Payments
Upon Termination or Change in Control."
25
Changes for Fiscal 2008
- -----------------------
In April 2007, the compensation committee approved significant changes to
the annual base salaries of three of our executive officers. The salary of Mr.
Culp, III, our board chairman, decreased from $416,000 to $300,000 to reflect
his retirement as our CEO. Mr. Saxon's salary increased by $50,000, to $350,000,
to reflect his promotion to CEO. Mr. Bowling's salary increased $30,000 to
$160,000, to reflect his promotion to CFO. The salary for Mr. Culp, IV was
increased by $15,000 to $190,000 based on general performance, and Mr. Ludwig's
salary was left unchanged.
Also in April, the compensation committee and the full board adopted a
management incentive plan under which certain executive officers may earn cash
bonuses based on our financial performance. Mr. Culp, III, Mr. Saxon, Mr.
Bowling and Mr. Ludwig are among the plan participants. The financial
performance measures for fiscal 2008 are operating income, free cash flow and
return on capital, in each case excluding certain extraordinary and
non-recurring items. These measures are weighted to make up the total bonus
opportunity, as follows:
Measure Weight
------- ------
Operating income 60%
Free cash flow 25%
Return on capital 15%
The compensation committee and the board have set target, threshold and maximum
performance levels for each measure, as well as target, threshold and maximum
bonuses for each participant. The bonus levels increase, as a percentage of base
salary, with the level of the participant's responsibility within our company.
For our named executive officers who are participating in the plan, the target
bonuses for fiscal 2008 range from 30% to 150% of base salary.
The compensation committee and the board also approved Mr. Culp, IV as a
participant in the management incentive plan for our home fashions division for
fiscal 2008. This plan is substantially identical to the plan in which our other
named executive officers participate, except that it provides a bonus
opportunity based solely on the financial performance of our home fashions
division. As with the other plan, the financial measures for fiscal 2008 are
operating income, free cash flow and return on capital, in each case excluding
certain extraordinary and non-recurring items. The measures' relative weights
are also the same. Mr. Culp, IV's target bonus under this plan for fiscal 2008
is 40% of his base salary.
The board is now proposing that our shareholders approve a new equity plan
(see Proposal 4 above). If our shareholders approve the new plan, it will allow
us to structure incentive awards using various types of equity based
compensation, including performance units, restricted stock, stock options, and
stock appreciation rights. Our current plan provides only for option grants,
which no longer have an advantage from an accounting perspective over other
types of equity-based compensation. We have not yet adopted a formal plan for
determining when and to whom to make grants under the new plan, except that our
current compensation arrangements for non-employee directors provide that these
directors receive 2,000 options per year (see "Compensation of Directors"
below).
Conclusions
- -----------
Our compensation committee has considered each of the elements of the named
executive officers' compensation, as described above. It also has considered the
total amounts of current compensation, retirement compensation and potential
compensation from stock option grants and severance protection that these
elements provide to the officers. The committee believes the amount of each
element, and the total amount of compensation, for each named executive officer
is reasonable and appropriate in light of the officer's experience and
individual performance, our recent operational and financial challenges and the
officer's role in leading us through those challenges, and the resulting
enhancement to shareholder value.
26
COMPENSATION COMMITTEE REPORT
Our compensation committee has reviewed and discussed with management the
Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K.
Based on its review and discussion, the committee recommended to the board that
the Compensation Discussion and Analysis be included in this proxy statement and
in our annual report on Form 10-K for filing with the SEC.
Jean L.P. Brunel, Chairman
Patrick B. Flavin
Kenneth R. Larson
Kenneth W. McAllister
27
SUMMARY COMPENSATION TABLE
The following table shows the compensation we paid for fiscal 2007 to our named
executive officers.
Name and Principal Year Salary Bonus Option Non-Equity Change in All Other Total
Position Awards Incentive Pension Value Compensation
Plan and
Compensation Nonqualified
Deferred
Compensation
Earnings
($) ($) ($) ($) ($) ($)
(a) (b) (c) (d) (f) (1) ($) (h) (i) (2) (j)
(g)
- ---------------------------------------------------------------------------------------------------------------
Robert G. Culp, III
Chairman & Chief
Executive Officer
(3) 2007 416,000 100,000 65,230 -- -- 95,795 677,025
Franklin N. Saxon 2007 300,000 300,000 49,030 -- 4,605 53,525 707,160
President & Chief
Operating Officer
(3)(4)
Robert G. Culp, IV 2007 175,000 -- 31,310 83,475 -- 7,657 297,442
President, Culp Home
Fashions Division
Kenneth M. Ludwig 2007 186,625 20,000 38,895 -- 3,106 42,392 291,018
Senior Vice
President, Human
Resources,
Corporate Secretary
Kenneth R. Bowling 2007 130,000 20,000 15,395 -- 163 6,283 171,841
Vice President,
Finance, Treasurer
and Assistant
Secretary (4)
(1) These numbers reflect the amount of expense we recognized in our
financial statements for fiscal 2007 for options granted to each
officer. For information about the relevant assumptions we made in
calculating the interest expense, please see note 14 to the financial
statements included in our fiscal 2007 annual report on Form 10-K.
28
(2) The following table shows the components of "All Other Compensation."
Contribution to
non-qualified
401(k) plan Amount paid for deferred
match life insurance compensation plan Perquisites
-------------- ----------------- ------------------ -----------
Culp, III 16,187 59,700 -- 19,908
Saxon 7,325 1,200 45,000 --
Culp, IV 6,817 840 -- --
Ludwig 13,500 898 27,994 --
Bowling 5,667 616 -- --
The amount we paid for life insurance for Mr. Culp, III consists of
$1,200 in premiums for group life insurance that is generally available
to all salaried full-time employees and $58,500 in premiums under our
split-dollar life insurance arrangement with Mr. Culp. Mr. Culp's
perquisites consisted of $18,888 in automobile lease expenses and
$1,020 in business club dues. Perquisites for the other named executive
officers were less than $10,000 per officer.
(3) Mr. Culp, III served as our chairman and CEO until April 30, 2007.
Effective May 1, 2007, Mr. Saxon became our president and CEO. Mr.
Culp, III continues to serve as chairman of our board.
(4) Mr. Saxon was our principal financial officer during fiscal 2007.
Effective May 1, 2007, the board promoted Mr. Bowling from vice
president, finance and treasurer to chief financial officer.
The option award expense reflected in column (f) of the table is for
options we granted to the officers in fiscal years 2003, 2004, 2005, 2006 and
2007. For all of these options:
o the exercise price is at least equal to the fair market value of
our common stock at the time of grant;
o the term is five years;
o 25% of each grant vests on each of the first four anniversaries
of the grant date;
o the options terminate three months after the optionee's death,
disability or termination (immediately, for termination due to
misconduct);
o no dividends are paid or accrue on unexercised options; and
o there may be no transfers except upon the optionee's death or, if
approved by the compensation committee, by gift to an immediate
family member or family trust.
Column (h) shows the amount of interest earned during the fiscal year on
the officer's account balance under our deferred compensation plan that the SEC
considers to be "above market." The compensation committee is responsible for
setting this interest rate. The current rate, which is the rate for 30-year
treasury notes plus 2.5%, has been in place since fiscal 2003. For more
information about this plan, see "-Non-Qualified Deferred Compensation" below.
29
Grants of Plan-Based Awards
The following table provides information about the option awards we made to
the named executive officers in fiscal 2007. It also provides information about
the potential bonus payable to Mr. Culp, IV under our management incentive plan
for the home fabrics division. We did not make any other awards to the named
executive officers in or for fiscal 2007 that were based on pre-established
performance criteria.
Name Grant Potential Payouts Under Non-Equity Exercise or Grant Date Fair
Date Incentive Plan Awards Base Price Value of Stock
Threshold Target Maximum All Other Option of Option and Option
---------------------------------- Awards: Number Awards Awards
of Securities
Underlying
Options ($/Sh) ($)
($) ($ ($) (#) (k) (l)
(a) (b) (c) (d) (e) (j)
Robert G. Culp,
III 6/14/06 -- -- -- 30,000 4.52 72,939
Franklin N.
Saxon 6/14/06 -- -- -- 24,000 4.52 58,351
Robert G. Culp,
IV 6/14/06 -- -- -- 12,000 4.52 19,176
5,250 52,500 84,000 -- -- --
Kenneth M.
Ludwig 6/14/06 -- -- -- 18,000 4.52 43,763
Kenneth R.
Bowling 6/14/06 -- -- -- 10,000 4.52 24,313
Option grants
- -------------
The option grants reflected in the table have a five-year term. They vest
pro rata on the first four anniversaries of the grant date, as follows:
Vesting Date % of Grant That Vests
6/14/07 25
6/14/08 25
6/14/09 25
6/14/10 25
In the event of a change of control of our company, the compensation committee
has the discretion to accelerate vesting so that all of the options vest just
prior to the change of control.
We made these grants under our 2002 stock option plan, which our shareholders
approved in 2002. Under this plan, all options must have an exercise price at
least equal to the fair market value of our common stock on the date of grant.
The plan defines "fair market value" as the 10-day-average closing price of our
stock or the closing price on the date of grant, whichever is higher.
For more information about these options, see above under "-Summary
Compensation Table."
Management incentive plan bonus
-------------------------------
Mr. Culp, IV was the only named executive officer in fiscal 2007 who
participated in a management incentive plan that paid bonuses based on
achievement of pre-established performance criteria. See "Compensation
Discussion and Analysis-Annual bonuses." Bonus awards under this plan are tied
directly to the financial performance of our home fabrics division.
30
For fiscal 2007, the compensation committee and board established objective
goals under the plan for three measures of corporate performance and
communicated them to plan participants in December 2006. We refer to these
objective goals as the "targets." For each measure, the committee and board also
assigned a specific weight, i.e., the percentage of the participants' total
bonuses that the measure would contribute. These fiscal 2007 performance goals
and weightings were:
Operating income 60%
Free cash flow 25%
Return on capital 15%
As defined under the plan, each performance measure excludes certain
extraordinary and non-recurring items, such as restructuring and related
charges, goodwill write-offs, non-recurring items, and material acquisitions. In
addition, the plan provides that bonuses will only be paid if the company as a
whole reports positive earnings, excluding restructuring and related expenses
and other extraordinary items.
The committee and the board awarded each participant a target bonus
opportunity under the plan. Mr. Culp, IV's target bonus was 30% of his salary
(column (d)). This meant he would earn 30% of his salary if the division
achieved the targeted performance level for each of the three measures. For each
measure, the committee and board also established a performance level below the
target and two performance levels above the target. The lower or "threshold"
performance level was the level below which no participant would receive a bonus
based on that measure. For performance at that threshold level, a participant
would receive 10% of his targeted bonus for that measure (column (c)). The two
higher performance levels, which we call the "maximum" and "super maximum,"
corresponded to higher bonus payments of 150% and 200% of target, respectively,
for the measure. The super maximum award for Mr. Culp appears in column (e). For
performance between any of these levels, participants would receive a
proportional payout. The four performance levels, and the percentages of target
bonus to which they corresponded, were as follows:
Threshold 10%
Target 100%
Maximum 150%
Super maximum 200%
Thus, assuming threshold performance levels under the plan, Mr. Culp, IV's bonus
opportunity ranged from 3%-60% of his salary.
At the time the board set these performance tiers, it believed performance
at the target level for each measure was reasonably likely based on our budget
and annual performance to date. It believed performance at the threshold level
was probable, that performance at the maximum level was possible but unlikely
and that performance at the super maximum level was very unlikely.
Based on the division's performance for the year, Mr. Culp, IV received a
bonus of $83,475 under the plan. This was 47.7% of his base salary and 159% of
his target bonus of 30% of salary. This amount was just short of the maximum
amount that Mr. Culp, IV could have qualified for under the plan and was based
on the home fashions division reaching the maximum performance goals for
operating income and free cash flow and falling just short of the goal for
return on capital.
31
Outstanding Equity Awards at Fiscal Year-End
The following table provides information about the equity awards our named
executive officers held as of the end of fiscal 2007. To date, we have not
granted any form of equity award other than stock options.
Name Option Awards
- ------------------ ------------------------------------------------------------------------------
Option Grant Number of Number of Option Option Expiration
Date Securities Securities Exercise Date
Underlying Underlying Price
Unexercised Unexercised
Options Options
(#) (#) ($)
(a) Exercisable Unexercisable (f)
(b) (c) (e)
Robert G. Culp,
III 12/16/1997 15,000 -- 20.25 12/15/2007
9/14/1998 30,000 -- 7.625 9/13/2008
6/28/1999 8,000 -- 9..125 6/27/2009
6/21/2002 12,000 -- 13.99 6/20/2007
6/17/2003 (1) 9,000 3,000 6.61 6/16/2008
6/15/2004 (2) 7,500 7,500 7.13 6/14/2009
10/3/2005 (3) 7,500 22,500 4.59 10/2/2010
6/14/2006 (4) 0 30,000 4.52 6/13/2011
Franklin N. Saxon 12/16/1997 7,000 -- 20.25 12/15/2007
9/14/1998 10,000 -- 7.625 9/13/2008
6/21/2002 7,000 -- 13.99 6/20/2007
6/17/2003 (1) 5,250 1,750 6.61 6/16/2008
6/15/2004 (2) 6,000 6,000 7.13 6/14/2009
10/3/2005 (3) 6,000 18,000 4.59 10/2/2010
6/14/2006 (4) 0 24,000 4.52 6/13/2011
Robert G. Culp, IV 6/21/2002 3,500 -- 13.99 6/20/2007
6/17/2003 (1) 2,625 825 6.61 6/16/2008
6/15/2004 (2) 4,500 4,500 7.13 6/14/2009
10/3/2005 (3) 4,500 13,500 4.59 10/2/2010
6/14/2006 (4) 0 12,000 4.52 6/13/2011
Kenneth M. Ludwig 12/16/1997 7,000 -- 20.25 12/15/2007
9/14/1998 20,000 -- 7.625 9/13/2008
6/28/1999 3,000 -- 9.125 6/27/2009
6/21/2002 7,000 -- 13.99 6/20/2007
6/17/2003 (1) 5,250 1,750 6.61 6/16/2008
6/15/2004 (2) 4,500 4,500 7.13 6/14/2009
10/3/2005 (3) 4,500 13,500 4.59 10/2/2010
6/14/2006 (4) 0 18,000 4.52 6/13/2011
Kenneth R. Bowling 6/21/2002 2,500 -- 13.99 6/20/2007
6/17/2003 (1) 1,875 625 6.61 6/16/2008
6/15/2004 (2) 1,500 1,500 7.13 6/14/2009
10/3/2005 (3) 1,500 4,500 4.59 10/2/2010
6/14/2006 (4) 0 10,000 4.52 6/13/2011
(1) The options in this grant vest in four equal installments on the first four
anniversaries of the grant date. As of the end of fiscal 2007, three
quarters of the options had vested.
(2) The options in this grant vest in four equal installments on the first four
anniversaries of the grant date. As of the end of fiscal 2007, one half of
the options had vested.
(3) The options in this grant vest in four equal installments on the first four
anniversaries of the grant date. As of the end of fiscal 2007, one quarter
of the options had vested.
(4) The options in this grant vest in four equal installments on the first four
anniversaries of the grant date. As of the end of fiscal 2007, none of the
options had vested.
Option Exercises
This table provides information about stock option exercises by the named
executive officers in fiscal 2007.
Name Option Awards
- -----------------------------------------------------
Number of Value
Shares Realized
Acquired on
on Exercise
Exercise
(#) ($)
(b) (c)
- -----------------------------------------------------
Robert G. Culp, III 47,500 104,500
Franklin N. Saxon 10,000 40,500
Robert G. Culp, IV 7,500 2,250
Kenneth M. Ludwig 10,000 38,500
Kenneth R. Bowling -- --
Nonqualified Deferred Compensation
We maintain a nonqualified deferred compensation plan for certain of our
management employees. Although all of the named executive officers are eligible
to participate in the plan, to date only Mr. Saxon, Mr. Ludwig and Mr. Bowling
have done so. The following table provides information about amounts we
contributed to these officers' plan accounts in fiscal 2007, and about the
officers' earnings under the plan. The last column shows each participating
officer's total account balance as of the end of the fiscal year.
Name Executive Contributions Registrant Aggregate Aggregate Aggregate
in Last FY Contributions in Last Earnings in Withdrawals/ Balance at
($) FY Last FY(1) Distributions Last FYE
(b) ($) ($) ($) ($)
(a) (c) (d) (e) (f)
Franklin N. Saxon -- 45,000 23,063 -- 325,195
Kenneth M. Ludwig -- 27,994 15,556 -- 219,307
Kenneth R. Bowling -- -- 818 -- 11,510
(1) All amounts in this column are included in column (i), "All Other
Compensation," of the summary compensation table on page 28.
(2) Of the amounts reported in this column, the following amounts are
reported as above-market earnings on deferred compensation in column (h),
"Change in Pension Value and Nonqualified Deferred Compensation Earnings," of
the summary compensation table: Mr. Saxon - $4,605; Mr. Ludwig - $3,106 and Mr.
Bowling - $163.
Under the plan, each participant may elect to defer any or all of his
annual salary or bonus into his plan account. In addition, we have the ability
to make company contributions in any amount to any participant's account. We
have agreed with both Mr. Saxon and Mr. Ludwig to contribute an amount equal to
15% the officer's annual salary to his plan account each year. We have also
agreed to pay the officer's share of social security taxes on the amount of our
contributions. Aside from these two contributions, we did not make company
contributions to the account of any plan participant in fiscal 2007.
Our compensation committee sets the rate of interest for plan accounts. The
current rate, set in fiscal 2003, is equal to the rate for 30-year treasury
notes plus 2.5%. We currently compound interest on a monthly basis.
In general, if a participant's employment terminates for any reason other
than death, he will receive his account balance in a lump sum payment within 30
days after termination. However, certain participants who are officers or
shareholders of our company, including the three named executive officers listed
above, must wait six months after termination before receiving a distribution
from the plan.
If a participant dies, we will pay his account balance to his beneficiary
in a single lump sum within 30 days.
A participant may request to receive an early distribution of all or a
portion of his account balance if he suffers a financial hardship involving
unexpected and unforeseeable emergency medical expenses that are beyond the
participant's control. A committee consisting of the board chairman, the chief
financial officer and the head human resources officer has sole discretion to
grant or deny such requests.
In addition, we have the right to terminate the plan at any time and
distribute all account balances. If we choose to do this, we must make the
distributions between the date that is 12 months after we have completed all
action necessary to terminate the plan and the date that is 24 months after the
termination.
Because this is a nonqualified plan, benefits are unsecured. This means
that a participant's claim for benefits is no greater than the claim of a
general creditor.
Potential Payments Upon Termination or Change of Control
We are party to change of control and non-competition agreements with Mr.
Culp, III, Mr. Saxon and Mr. Ludwig. In addition, in June 2007 the board
determined to enter into similar agreements with Mr. Culp, IV and Mr. Bowling.
The purpose of these agreements is to encourage the officers to carry out
their duties in the event of a possible change in the control of our company.
The agreements are not ordinary employment agreements. Unless there is a change
of control (as defined in the agreements), they do not provide any assurance of
continued employment, or any severance. Each agreement has a rolling three-year
term.
Under these agreements, any of the following events would be a "change of
control:"
o any person, entity or group acquiring, directly or indirectly, 35% or
more of our common voting stock (subject to certain exceptions);
o a merger or consolidation involving us and another entity, if we were
not the surviving entity and after the merger or consolidation the
holders of 35% or more of the voting stock of the surviving
corporation were not holders of our voting stock immediately before
the transaction;
o our liquidation or dissolution, or a sale or transfer of substantially
all of our assets; or
o a change in the majority of our directors that our directors have not
approved.
34
Each agreement provides for payment to the officer in connection with a
change of control if any of the following triggering events were to occur:
(1) the officer is terminated in anticipation of the change of control,
(2) the officer is terminated within three years after the change of
control for any reason other than death, disability or for cause, or
(3) the officer terminates his employment during that three-year period
because we (or our survivor) change his employment conditions in a
negative and material way.
Following a triggering event, the officer would be entitled to payment in
the amount of 1.99 times his total compensation. "Total compensation" means base
salary plus the target annual incentive bonus for the fiscal year in which the
termination occurs. In addition, if the termination were to occur prior to the
annual bonus payout for the prior fiscal year, the officer would be entitled to
that bonus payment as well. However, any compensation that would constitute a
parachute payment under Section 280G of the federal tax code would be reduced to
the extent necessary to avoid a federal excise tax on the officer or the loss of
our federal income tax deduction.
Each agreement currently allows the officer to choose whether to receive
his change of control payment in a single lump sum or in equal monthly
installments over the thirty-six month period following termination.
The agreements also provide for an additional payment of one year's total
compensation to each officer in exchange for non-competition covenants by the
officer that take effect only if the officer's employment terminates following a
change of control. Under these covenants , each officer has agreed not to
compete with us or solicit our customers or employees for 12 months following
termination. The officer would receive the non-competition payment in 12 equal
monthly installments beginning on the date of termination.
In addition, the agreements require us to reimburse the officers for any
fees and expenses incurred in connection with any claim or controversy arising
out of or relating to the agreements.
The following table estimates the total amounts we would owe Mr. Culp, III,
Mr. Saxon and Mr. Ludwig under these agreements if there had been a change of
control, and the officers had been terminated, on April 29, 2007, the last day
of fiscal 2007.
Estimated Payments under Change of Control and Non-competition Agreements
Name Change of Control Non-Competition Total Payment
Payment Payment ($)
($) ($)
- ----------------------------- ------------------ ---------------- --------------
Mr. Culp, III 827,840 416,000 1,243,840
Mr. Saxon 597,000 300,000 897,000
Mr. Ludwig 371,384 186,625 558,009
35
Securities Authorized for Issuance Under Equity Compensation Plans. The
following table sets forth information as of the end of fiscal 2007 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 Weighted-average Number of
securities to be exercise price of securities
issued upon outstanding options, remaining
exercise of warrants and rights available for
outstanding future issuance
options, under equity
warrants and compensation plan
rights (excluding
securities
reflected in
column (a))
- --------------------- ----------------- --------------------- ------------------
(a) (b) (c)
Equity compensation
plans approved by
security holders 926,000 7.22 254,750
- --------------------- ----------------- --------------------- ------------------
Equity compensation
plans not approved by
security holders 0 0 0
- --------------------- ----------------- --------------------- ------------------
Total 926,000 $7.22 254,750
- --------------------- ----------------- --------------------- ------------------
COMPENSATION OF DIRECTORS
Directors who are also employees of the Company do not receive additional
compensation for service as directors. In fiscal 2007, we paid each of our
non-employee directors the following compensation:
o an annual retainer of $32,500 ($37,500 for the lead director); and
o a grant under our 2002 stock option plan of 2,000 stock options, with
an exercise price equal to fair market value on the date of grant (as
defined in the plan) and a 10-year term.
The following table shows the total compensation we paid our non-employee
directors in fiscal 2007 for their service on our board.
Name Fees Earned or Option All Other Total
Paid in Cash Awards Compensation
($) ($) ($) ($)
(a) (b) (d) (1) (g) (h)
- ---------------------- -------------- ------------ --------------- ------------
Jean L. P. Brunel 32,500 7,363 -- 39,863
- ---------------------- -------------- ------------ --------------- ------------
Howard L. Dunn, Jr. 32,500 7,363 30,000 (2) 69,863
- ---------------------- -------------- ------------ --------------- ------------
H. Bruce English 8,125 (3) -- -- 8,125
- ---------------------- -------------- ------------ --------------- ------------
Patrick B. Flavin 32,500 7,363 -- 39,863
- ---------------------- -------------- ------------ --------------- ------------
Kenneth R. Larson 32,500 7,363 -- 39,863
- ---------------------- -------------- ------------ --------------- ------------
Kenneth W. McAllister 36,250(4) 7,363 -- 43,613
- ---------------------- -------------- ------------ --------------- ------------
Patrick H. Norton 9,375 (3) -- -- 9,375
- ---------------------- -------------- ------------ --------------- ------------
36
- ----------
(1) As of the end of fiscal 2007, our non-employee directors (and former
directors, in the case of Mr. English and Mr. Norton) held the
following numbers of options to purchase our common stock.
Director Number of Options
-------- -----------------
Jean L. P. Brunel 5,875
Howard L. Dunn, Jr. 4,000
H. Bruce English 7,625
Patrick B. Flavin 13,375
Kenneth R. Larson 5,875
Kenneth W. McAllister 9,625
Patrick H. Norton 17,000
(2) This is the amount we paid in premiums under a split-dollar life
insurance arrangement with Mr. Dunn that dates back to his time as
President and Chief Operating Officer.
(3) This figure represents payment for a partial year of service. Mr.
English died on August 3, 2006, and Mr. Norton resigned from the board
on August 14, 2006.
(4) Mr. McAllister did not become Lead Director until September 2006.
37
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee, all of whom are non-employee
directors and independent directors, are Mr. Brunel (Chairman), Mr. Larson, Mr.
Flavin, and Mr. McAllister. No member of the Compensation Committee serves on
the compensation committee of another corporation that has a business
relationship with the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All transactions between the Company and related parties are reviewed and
approved by our audit committee, which is made up entirely of independent
directors. Policies requiring review and approval of any transaction or
arrangement with a director or executive officer that may present a conflict of
interest are set forth in the Company's Code of Business Conduct and Ethics,
which states that such transactions will only be approved when the audit
committee finds that the transaction is in the best interests of the Company
even though it presents or appears to present a conflict of interest. The
Company is not aware of any such transaction with any shareholder owning more
than five percent of our stock who is not a director or officer, but any such
transaction would be reviewed using the same guidelines as for officers and
directors. The transactions described below were reviewed and approved by the
audit committee using the Company's policies and procedures described herein.
Lease Transactions. During part of fiscal 2007, 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). The lease was terminated during fiscal 2007 and
the Company vacated the building. 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 2007 was approximately $0.60 per square foot. The
terms of the lease included the following: 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
2007 was approximately $46,500.
Certain Business Relationships. The Company had sales of approximately
$27.6 million, which constituted 11% of the Company's net sales, to La-Z-Boy
Incorporated in fiscal 2007. 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 April 30, 2006. 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 April 29, 2007, its insiders have complied with all
applicable Section 16(a) reporting requirements.
38
SHAREHOLDER PROPOSALS FOR 2008 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 12. For shareholder proposals and
nominations for director to be considered for inclusion in the proxy statement
for the 2008 Annual Meeting, the Company must receive them no later than April
27, 2008. 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
Chief Executive 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 2007 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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ANNEX A
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CULP, INC.
2007 EQUITY INCENTIVE PLAN
ARTICLE I
GENERAL PROVISIONS
1.1 Purpose of the Plan. This Plan is intended to promote the interests of the
Company by giving Eligible Individuals the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in
the Company as an incentive to provide or continue their Service. The Plan
is also intended to align the long-term financial interests of Eligible
Individuals with those of the Company's shareholders, reward Eligible
Individuals for increasing the value of the Company's common stock, and
provide for a direct relationship between annual performance results and
executive compensation. Capitalized terms used in the Plan shall have the
meanings given to them in Appendix A attached hereto.
1.2 Administration of the Plan.
(a) The Plan shall be administered by the Committee, which shall, subject to
the terms of the Plan and applicable law, have sole and plenary power and
authority to administer the Plan, including, but not limited to, the power
and authority to:
(i) select Eligible Individuals to whom Awards may be made;
(ii) determine whether and to what extent any type of Awards, or
combination thereof, are to be awarded to Eligible Individuals;
(iii) determine the number of shares of Common Stock to be covered by an
Award and the other terms and conditions of such Award (including, but
not limited to, the exercise price, any vesting condition, restriction
or limitation, any payments, rights or other matters to be calculated
in connection with any Awards, any deferred payment arrangement and
any vesting acceleration or forfeiture waiver regarding any Award and
any securities or other rights relating thereto);
(iv) determine whether performance criteria must be met as a condition to
any rights associated with any Award, establish any such performance
criteria and certify whether, and to what extent, such performance
criteria have been attained;
(v) modify, amend or adjust the terms and conditions of any Award,
including, but not limited to, modifications, amendments, adjustments
to, or replacement grants for, Awards if the Committee determines, in
its sole discretion, that the tax consequences of an Award to the
Company or a Participant differ from the consequences expected at the
time an Award was granted or changes, clarifications or
interpretations of tax laws or regulations permit Awards to be granted
with more favorable tax consequences than originally anticipated;
(vi) determine under what circumstances, and the methods by which, an Award
may be settled in cash, Common Stock, other securities, other Awards
or other property or canceled, forfeited or suspended;
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(vii) adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan;
(viii) interpret, administer, reconcile any inconsistency in, correct any
default in and supply any omission in, the terms and provisions of the
Plan and any Award issued under the Plan (and any other agreement,
document, instrument, instruction or other communication relating
thereto); and
(ix) otherwise oversee the administration of the Plan and make any other
determination or take any other action the Committee deems necessary
or desirable for the administration of the Plan.
(b) Except to the extent prohibited by applicable law or the applicable rules
of a Stock Exchange, and except as otherwise provided herein, the Committee
may allocate all or any portion of its responsibilities and powers to any
one or more of its members and may delegate all or any part of its
responsibilities and powers to any person or persons selected by it. Any
such allocation or delegation may be revoked by the Committee at any time.
The Committee may not delegate its authority to decide on the fundamental
terms of grants of Awards (number of shares in initial grant, exercise
price, term, and vesting schedule). Except to the extent prohibited by
applicable law or the applicable rules of a Stock Exchange, the authority
of the Committee hereunder may also be exercised by the Board at any time
and from time to time.
(c) Any determination made in respect of any Award by the Committee, the Board,
or any other person pursuant to delegated authority under the provisions of
the Plan, shall be made in the sole discretion of the Committee, the Board
or such delegate at the time the Award is made or, unless in contravention
of any express term of the Plan, at any time thereafter. All decisions made
by the Committee, the Board or any delegate shall be final and binding on
all persons, including the Company and all Participants.
(d) Neither the Company nor any of its Affiliates makes any representations
with respect to the tax consequences of any Award to a Participant, and by
the acceptance of such Award, each Participant acknowledges the same and
agrees to hold the Company and its Affiliates harmless from any adverse
consequences to the Participant under the Code with respect to the Award or
any underlying Shares or other property, whether resulting from any action
or inaction or omission of the Company or its Affiliates pursuant to the
Plan or otherwise.
(e) The Committee will approve and oversee procedures to be applied with
respect to the granting of Awards (including the timing thereof) to promote
consistency in the Company's practices with respect to the granting of
Awards and compliance with applicable laws, regulations and any applicable
terms of the Plan regarding the issuance, valuation, dating and accounting
treatment of Awards.
1.3 Eligible Individuals. Only Employees are eligible to receive Awards of
Incentive Stock Options. The persons eligible to receive all other Awards
are (i) Employees, (ii) non-employee members of the Board or the board of
directors or other similar governing body of any Subsidiary, (iii)
consultants and other independent advisors who provide Services, directly
or indirectly, to the Company or any Subsidiary and (iv) to the extent
permitted by law, any person prospectively a member of categories (i), (ii)
or (iii) above.
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1.4 Stock Subject to the Plan.
(a) The capital stock of the Company with respect to which Awards may be made
under the Plan shall be either currently authorized but unissued shares of
Common Stock or shares of Common Stock held by the Company as treasury
shares, including shares acquired by purchase. Subject to adjustment as
provided in Section 1.5 hereof, the maximum number of shares of Common
Stock that may be delivered to Participants and their beneficiaries under
the Plan shall be 1,200,000 shares of Common Stock.
(b) The shares of Common Stock that may be delivered to Participants and their
beneficiaries under the Plan are subject to the following additional
restrictions:
(i) The maximum number of shares of Common Stock that may be issued in
respect of Options intending to qualify as Incentive Stock Options
shall be 800,000 shares;
(ii) The maximum number of Shares that may be issued pursuant to Awards of
Restricted Stock or otherwise as outright grants of Common Stock
pursuant to Article VI hereof shall be 600,000 shares; and
(iii) For Awards that are intended to be "performance-based compensation"
(as that term is used for purposes of Section 162(m) of the Code) (a
"Qualifying Award"), no more than the following amounts may be granted
pursuant to such Qualifying Awards to any one individual during any
one calendar year period: (1) 100,000 shares of Common Stock, subject
to adjustment as provided in Section 1.5 hereof, and (2) with respect
to cash and other property other than Common Stock, $1,000,000 (valued
at its Fair Market Value). The Committee, in its sole discretion, may
grant an Award to any Participant with the intent that such award be a
Qualifying Award. The right to receive or retain any award granted as
a Qualifying Award (other than an Option or SAR) shall be conditional
upon the achievement of specified performance goals during a calendar
year or such other period (a "Performance Period") as may be
established by the Committee. Performance goals shall be established
in writing by the Committee prior to the beginning of each Performance
Period, or at such other time no later than such time as is permitted
by the applicable provisions of the Code. Such performance goals,
which may vary from Participant to Participant and Award to Award,
shall be based upon the attainment of specific amounts of, or
increases in, one or more of the following: the Fair Market Value of
Common Stock, revenues, operating income, cash flow, earnings before
or after income taxes (including earnings before interest, taxes
depreciation and amortization), net income, net income before or after
income taxes, earnings per share, stockholders' equity, return on
equity, return on investment or capital, return on assets, share price
profitability or profit margins, market share or strategic business
objectives consisting of one or more objectives based on meeting
business expansion goals and goals relating to acquisitions or
divestitures, all whether applicable to the Company or any relevant
division, subsidiary or any combination thereof as the Committee may
deem appropriate. Each performance goal may be expressed on an
absolute and/or relative basis, may be based on, or otherwise employ,
comparisons based on internal targets, the past performance of the
Company and/or the past or current performance of other companies, may
provide for the inclusion, exclusion or averaging of specified items
in whole or in part, such as realized gains or losses on strategic
investments, discontinued operations, extraordinary items, accounting
changes, and unusual or nonrecurring items, and, in the case of
earnings-based measures, may use or employ comparisons relating to
capital, stockholders' equity and/or shares outstanding, assets or net
assets. Prior to the payment of any Award granted as a Qualifying
Award, the Committee shall certify in writing that the performance
goals were satisfied. In determining the actual size of a Qualifying
Award for a Performance Period, the Committee may, in its sole and
plenary discretion, reduce or eliminate the amount of the Award earned
in the Performance Period, even if applicable Performance Goals have
been attained.
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(c) To the extent any shares of Common Stock covered by an Award are not
delivered to a Participant or beneficiary because the Award is forfeited or
canceled, or the shares of Common Stock are not delivered because the Award
is settled in cash or such shares are used to satisfy any exercise price of
such Award or any applicable tax withholding obligation, such shares shall
not be deemed to have been delivered for purposes of determining the
maximum number of shares of Common Stock available for delivery under the
Plan; provided, however, that in no event shall such undelivered shares
increase the number of shares that may be granted under the Plan as
Incentive Stock Options.
1.5 Adjustments in Common Stock. Should any change be made to the Common Stock
by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares, extraordinary distribution, split-up or
spin-off or other similar change, the Committee shall cause appropriate
adjustments to be made to (i) the maximum number and/or class of securities
issuable under the Plan and applicable sub-limits regarding specific types
of Awards and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding Award, in order to
preserve the value of the Award. The adjustments determined by the
Committee shall be final, binding and conclusive.
1.6 Settlement of Awards. The obligation to make payments and distributions
with respect to Awards may be (i) subject to such conditions, restrictions
and contingencies as the Committee shall determine, and (ii) satisfied
through cash payments, the delivery of shares of Common Stock, the issuance
of replacement Awards, or any combination thereof as the Committee shall
determine.
1.7 Exchange and Buy Out Provisions; Limitations on Repricing. The Committee
may at any time offer to exchange or buy out any previously granted Award
for a payment in cash, shares of Common Stock, other Awards or property
based on such terms and conditions as the Committee shall determine and
communicate to a Participant at the time that such offer is made.
Notwithstanding the foregoing, a repricing (as defined for this purpose by
Stock Exchange rules and applicable interpretations thereof), of an Option
or SAR shall not be permitted except with the approval of the Company's
stockholders.
1.8 Substitute Awards. Awards may, in the discretion of the Committee, be
granted under the Plan in assumption of, or in substitution for,
outstanding awards previously granted by the Company or any of its
affiliates or a company acquired by the Company or any of its Affiliates or
with which the Company or any of its Affiliates combines ("Substitute
Awards"). The number of Shares underlying any Substitute Awards shall be
counted against the aggregate number of Shares available for Awards under
the Plan; provided, however, that Substitute Awards issued in connection
with the assumption of, or in substitution for, outstanding awards
previously granted by an entity that is acquired by the Company or any of
its Affiliates or with which the Company or any of its Affiliates combines
shall not be counted against the aggregate number of Shares available for
Awards under the Plan; provided further, however, that Substitute Awards
issued in connection with the assumption of, or in substitution for,
outstanding stock options intended to qualify for special tax treatment
under Sections 421 and 422 of the Code that were previously granted by an
entity that is acquired by the Company or any of its Affiliates or with
which the Company or any of its Affiliates combines shall be counted
against the aggregate number of Shares available for Incentive Stock
Options under the Plan.
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ARTICLE II
OPTIONS
2.1 General. The Award of an Option entitles the Participant to purchase a
specified number of shares of Common Stock at an exercise price established
by the Committee.
2.2 Award of Options. Each Option awarded under this Plan shall be subject to
such terms and conditions determined by the Committee. Each Option shall be
evidenced by one or more documents in the form approved by the Committee,
and such Award shall be effective as of the Grant Date. A Participant's
entitlement to an Award may be conditioned on the Participant's execution
of such documents as required by the Committee. 2.3 Exercise Price. Subject
to the terms and conditions set forth herein, except as otherwise
established by the Committee at the time an Option is granted and set forth
in the applicable Award Agreement, the exercise price per share associated
with each Option shall not be less than 100% of the Fair Market Value per
share of Common Stock on the Grant Date of the Award.
2.3 Exercise Price. Subject to the terms and conditions set forth herein,
except as otherwise established by the Committee at the time an option is
granted and set forth in the applicable Award Agreement, the exercise price
per share associated with each Option shall not be less than 100% of the
Fair Market Value per share of Common Stock on the Grant Date of the Award.
2.4 Exercise Procedures. An Option shall be exercisable at the times and in
accordance with the procedures set forth herein and the procedures
established by the Committee and set forth in the documents evidencing the
Award.
2.5 Payment of the Exercise Price.
(a) No Common Stock shall be delivered pursuant to any exercise of an Option
until payment in full of the aggregate exercise price therefor is received
by the Company, and the Participant has paid to the Company an amount equal
to any federal, state, local and foreign income and employment taxes
required to be withheld. Such payments may be made in cash (or its
equivalent) or, (1) by exchanging shares of Common Stock owned by the
Participant (which are not the subject of any pledge or other security
interest) or (2) if there shall be a public market for the Common Stock at
such time, subject to such rules as may be established by the Committee,
through delivery of irrevocable instructions to a broker to sell the Common
Stock otherwise deliverable upon the exercise of the Option and to deliver
promptly to the Company an amount equal to the aggregate Exercise Price, or
by a combination of the foregoing; provided that the combined value of all
cash and cash equivalents and the Fair Market Value of any such Common
Stock so tendered to the Company as of the date of such tender is at least
equal to such aggregate exercise price and the amount of any federal,
state, local or foreign income or employment taxes required to be withheld.
(b) Wherever in the Plan or any Award Agreement a Participant is permitted to
pay the exercise price of an Option or taxes relating to the exercise of an
Option by delivering shares of Common Stock, the Participant may, subject
to procedures satisfactory to the Committee, satisfy such delivery
requirement by presenting proof of beneficial ownership of such Common
Stock, in which case the Company shall treat the Option as exercised
without further payment and shall withhold such number of shares from the
Common Stock acquired by the exercise of the Option.
2.6 Termination of Service. The Committee shall determine the terms and
conditions on which a Participant may exercise an Option following the
termination of such Participant's Service, and such terms and conditions
shall be set forth in applicable Award Agreement.
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2.7 Incentive Stock Options. All Incentive Stock Options shall be subject to
the following:
(a) Incentive Stock Options may be awarded only to Employees;
(b) An Incentive Stock Option's exercise price per share of Common Stock shall
not be less than 100% of the Fair Market Value per share of Common Stock on
the Grant Date of the Award;
(c) The aggregate Fair Market Value of the shares of Common Stock (determined
as of the respective Grant Date(s)) for which one or more Incentive Stock
Options awarded to any Employee under the Plan (or any other option plan of
the Company or any parent or Subsidiary) may for the first time become
exercisable during any one calendar year shall not exceed $100,000. To the
extent an Employee holds two or more Incentive Stock Options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such Incentive Stock Options shall be
applied on the basis of the order in which such Options are awarded; and
(d) If an Employee to whom an Incentive Stock Option is awarded is a 10%
Stockholder, then the Incentive Stock Option's exercise price per share of
Common Stock shall not be less than 110% of the Fair Market Value per share
of Common Stock on the Grant Date of the Award, and the Incentive Stock
Option's term shall not exceed five years from the date of the Award.
(e) If an Option is intended to be an Incentive Stock Option, and if for any
reason such Option (or any portion thereof) shall not qualify as an
Incentive Stock Option, then to the extent of such nonqualification, such
Option (or portion thereof) shall be regarded as a Non-Qualified Stock
Option appropriately granted under the Plan; provided that such Option (or
portion thereof) otherwise complies with the Plan's requirements relating
to Non-Qualified Stock Options.
2.8 Rights as Stockholder. Except as provided in this Plan or in the applicable
Award Agreement, a Participant holding Options shall not have, with respect
to such instruments, any of the rights of a stockholder of the Company,
including, the right to vote as a stockholder of the Company or any right
to receive dividends.
ARTICLE III
STOCK APPRECIATION RIGHTS
3.1 General. The Award of a Stock Appreciation Right entitles the Participant
to receive, in Common Stock (unless otherwise provided in the applicable
Award Agreement), value equal to (or otherwise based on) the excess of: (i)
the Fair Market Value of a specified number of shares of Common Stock; over
(ii) the exercise price for such shares established by the Committee for
such Stock Appreciation Right, with cash payable for any fractional share
of Common Stock.
3.2 Award of Stock Appreciation Rights. Each Stock Appreciation Right awarded
under this Plan shall be subject to such terms and conditions determined by
the Committee. Each Stock Appreciation Right shall be evidenced by an Award
Agreement, and such Award shall be effective as of the Grant Date. A
Participant's entitlement to an Award may be conditioned on the
Participant's execution of such documents as required by the Committee.
3.3 Exercise Price. The exercise price per share associated with each Stock
Appreciation Right shall be fixed by the Committee and, subject to the
terms and conditions set forth herein, unless otherwise determined by the
Committee at the time of grant and set forth in the applicable Award
Agreement may not be less than the Fair Market Value per share of Common
Stock on the Grant Date of the Award.
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3.4 Exercise Procedures. A Stock Appreciation Right shall be exercisable at the
times and in accordance with the procedures set forth herein and the
procedures established by the Committee and set forth in the applicable
Award Agreement. Generally, a Stock Appreciation Right may be exercised by
surrendering the applicable portion of such Stock Appreciation Right and,
upon such exercise and surrender, the Participant shall be entitled to
receive the amount described in Section 3.1.
3.5 Termination of Service. The Committee shall determine the terms and
conditions on which a Participant may exercise a Stock Appreciation Right
following the termination of such Participant's Service, and such terms and
conditions shall be set forth in the documents evidencing the Award.
3.6 Rights as Stockholder. Except as provided in this Plan or in the documents
evidencing an Award of a Stock Appreciation Right, a Participant holding a
Stock Appreciation Right shall not have, with respect to such instrument,
any of the rights of a stockholder of the Company, including, the right to
vote as a stockholder of the Company or any right to receive dividends.
ARTICLE IV
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
4.1 General. An Award of Restricted Stock is a grant to a Participant of a
specified number of shares of Common Stock. An Award of Restricted Stock
Units is the right to receive a specified number of shares of Common Stock
at a future date upon satisfaction of the conditions specified in the
Award.
4.2 Awards of Restricted Stock and Restricted Stock Units. Restricted Stock and
Restricted Stock Units awarded under this Plan shall be subject to such
terms and conditions determined by the Committee. Subject to the provisions
of this Plan, Awards of Restricted Stock and Restricted Stock Units shall
be evidenced by an Award Agreement, and such Award shall be effective as of
the Grant Date.
4.3 Termination of Service. The Committee shall determine the terms and
conditions on which a Participant's Restricted Stock or Restricted Stock
Units shall be forfeited or subject to repurchase following the termination
of such Participant's Service, and such terms and conditions shall be set
forth in the documents evidencing the Award.
4.4 Rights as Stockholder. Except as provided in this Plan or in the documents
evidencing an Award of Restricted Stock, a Participant holding Restricted
Stock shall have, with respect to the shares of Restricted Stock, all of
the rights of a stockholder of the Company holding the class or series of
capital stock that is the subject of the Restricted Stock, including, if
applicable, the right to vote the shares and the right to receive any
dividends. Unless otherwise determined by the Committee, any cash dividends
paid in respect of Restricted Stock shall be deferred and reinvested in
additional Restricted Stock, with such additional shares being subject to
the same terms and conditions as the Restricted Stock in respect of which
such dividends were paid. Except as provided in this Plan or in the
documents evidencing an Award of a Restricted Stock Units, a Participant
holding Restricted Stock Units shall not have, with respect to such
instrument, any of the rights of a stockholder of the Company, including,
the right to vote as a stockholder of the Company or any right to receive
dividends.
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ARTICLE V
PERFORMANCE UNITS
5.1 General. A Performance Unit is the right to receive a specified value, as
established by the Committee at the time of the Award, based on the extent
to which specified performance goals are achieved.
5.2 Awards of Performance Units. Performance Units awarded under this Plan
shall be subject to such terms and conditions determined by the Committee.
Subject to the provisions of this Plan, Awards of Performance Units shall
be evidenced by one or more documents in the form approved by the
Committee. The performance goals applicable to a Performance Unit shall be
among those specified in, and established pursuant to, Section 1.4(b)(iii)
with respect to Qualified Awards. Performance Units shall be earned
contingent upon the attainment of such performance goals. At the time of
the Award of each Performance Unit, the Committee shall establish, with
respect to each such Award, a Performance Period during which performance
shall be measured.
5.3 Performance Unit Value. Each Performance Unit shall have a maximum dollar
value established by the Committee at the time of the Award. Performance
Units earned will be determined by the Committee in respect of a
Performance Period in relation to the degree of attainment of applicable
performance goals. The measure of a Performance Unit may, in the discretion
of the Committee, be equal to the Fair Market Value of one share of Common
Stock.
5.4 Settlement of Performance Units. Following the end of Performance Period, a
Participant holding Performance Units will be entitled to receive payment
of an amount, not exceeding the maximum value of the Performance Units,
based on the achievement of the performance goals for such Performance
Period, as determined by the Committee. Payment of Performance Units shall
be made in cash or Common Stock, as determined by the Committee.
ARTICLE VI
OTHER AWARDS
6.1 Common Stock Related Awards. The Committee may, in its sole and plenary
discretion, grant to any Participant such other awards that may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, Common Stock or factors that may
influence the value of such Common Stock, including, without limitation,
convertible or exchangeable debt securities, other rights convertible or
exchangeable into Common Stock, purchase rights for Common Stock, awards
with value and payment contingent upon the performance of the Company or
specified subsidiaries, Affiliates or other business units thereof or other
factors determined by the Committee. The Committee shall determine the
terms and conditions of such awards in its sole and plenary discretion.
6.2 Cash Awards. The Committee also may, in its sole and plenary discretion,
grant cash awards, independent of, or as an element of, or supplement to,
any other Award granted under this Plan, upon such terms and conditions as
the Committee may establish in its sole and plenary discretion.
6.3 Bonus Shares. The Committee also may, in its sole and plenary discretion,
grant Common Stock as a bonus, or may grant other awards in lieu of
obligations of the Company or a subsidiary to pay cash or deliver other
property under this Plan or under other plans or compensatory arrangements.
The Committee shall determine the terms and conditions of such awards in
its sole and plenary discretion.
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ARTICLE VII
TRANSFERABILITY
7.1 Transfer Restrictions. Except as set forth in Section 7.2 or as otherwise
determined by the Committee, Awards may be transferred only by will or the
laws of inheritance upon the death of a Participant and may not be
assigned, pledged, hypothecated or transferred in any manner. Upon any
attempt to assign, pledge, hypothecate or transfer an Option, a Stock
Appreciation Right, Restricted Stock or Restricted Stock Unit, such Award
shall immediately be cancelled and terminated.
7.2 Transfer Exceptions. The Committee, may, in its sole discretion, to the
extent permitted by applicable law, permit Awards to be assigned in whole
or in part during a Participant's lifetime as a gift or without
consideration to (i) one or more members of the Participant's immediate
family, (ii) a trust in which Participant and/or one or more of such family
members hold more than 50% of the beneficial interest, (iii) an entity in
which more than 50% of the voting interests are owned by the Participant
and/or one or more of such family members or (iv) such other transferees as
may be permitted by the Committee. The terms applicable to the assigned
Awards shall be the same as those in effect for such Award immediately
prior to the assignment.
ARTICLE VIII
CHANGE OF CONTROL TRANSACTIONS
8.1 General.
(a) The Committee may, in its sole and absolute discretion and on such terms
and conditions as it may establish, unless otherwise provided in the
documents governing the Award, determine that prior to or in connection
with the consummation of a Change of Control, (i) any or all outstanding
Awards shall become fully, partially or conditionally exercisable (if
applicable), vested (if applicable) and transferable.
(b) Unless otherwise determined by the Committee, upon consummation of a Change
of Control in which the Company is not the surviving entity, (i) all
outstanding exercisable Awards, to the extent not exercised, shall
terminate and cease to be outstanding, except to the extent expressly
assumed by the successor entity (or parent thereof), and (ii) all unvested
Awards shall be forfeited and cancelled.
(c) Unless otherwise determined by the Committee, upon consummation of a Change
of Control in which the Company is the surviving entity, all Awards shall
remain outstanding in full force and effect on the same terms and
conditions.
8.2 Settlement of Awards in Change of Control Transactions. The Committee may,
in its sole and absolute discretion in connection with a Change of Control,
cancel any outstanding Award and pay or deliver, or cause to be paid or
delivered, to the holder thereof an amount in cash or securities having a
value (as determined by the Committee) equal to the product of (i) the
number of shares of Common Stock or other amount of other property subject
to such Award, and (ii) the amount, if any, by which (A) the formula or
fixed price per share paid to holders of Common Stock pursuant to such
Change of Control, exceeds (B) any exercise price associated with such
Award.
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8.3 Termination of Consent and Purchase Rights. In connection with any Change
of Control, the Committee shall have the right to provide for the immediate
termination of any consent, repurchase or first refusal rights of the
Company in respect of any outstanding Awards.
8.4 Right to Consummate Change of Control Transactions. The issuance of Awards
under the Plan shall in no way affect the right of the Company to adjust,
reclassify, reorganize or otherwise change its capital or business
structure or to merge, enter into a share exchange, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
ARTICLE IX
MISCELLANEOUS
9.1 No Right to Company Assets. Neither a Participant nor any other person
shall, by reason of participation in the Plan, acquire any right in or
title to any assets, funds or property of the Company or any parent or
Subsidiary, including, without limitation, any specific funds, assets, or
other property which the Company or any parent or Subsidiary, in its sole
discretion, may set aside in anticipation of a liability under the Plan. A
Participant shall have only a contractual right to the Common Stock or
amounts, if any, payable under the Plan, unsecured by any assets of the
Company or any parent or Subsidiary, and nothing contained in the Plan
shall constitute a guaranty that the assets of the Company or any parent or
Subsidiary shall be sufficient to pay any benefits to any person.
9.2 No Rights to Awards. No Participant or other Person shall have any claim to
be granted any Award, and there is no obligation for uniformity of
treatment of Participants or holders or beneficiaries of Awards. The terms
and conditions of Awards and the Committee's determinations and
interpretations with respect thereto need not be the same with respect to
each Participant and may be made selectively among Participants, whether or
not such Participants are similarly situated.
9.3 No Employment Rights. The Plan does not constitute a contract of
employment, and the selection of an Eligible Individual to receive an Award
will not give a Participant the right to be retained in the employ of the
Company or any parent or Subsidiary, nor any right or claim to any benefit
under the Plan, unless such right or claim has specifically accrued under
the terms of the Plan.
9.4 Form and Time of Elections. Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other
person entitled to benefits under the Plan, and any permitted modification,
or revocation thereof, shall be in writing filed with the Committee at such
times, in such form, and subject to such restrictions and limitations, not
inconsistent with the terms of the Plan, as the Committee shall require.
9.5 Tax Withholding. All distributions under the Plan are subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any shares or other benefits under the Plan on satisfaction of
the applicable withholding obligations. The Committee, in its discretion,
and subject to such requirements as the Committee may impose prior to the
occurrence of such withholding, may permit such withholding obligations to
be satisfied through cash payment by the Participant, through the surrender
of shares of Common Stock which the Participant already owns, or through
the surrender of shares of Common Stock to which the Participant is
otherwise entitled under the Plan.
9.6 Effective Date and Term. The Plan shall become effective when adopted by
the Board, but no Award made under the Plan may be exercised, and no shares
of Common Stock shall be issued pursuant to any Award, until the Plan is
approved by the Company's stockholders. In addition, no Incentive Stock
Option shall be deemed to have been awarded unless and until this Plan is
approved by the Company's stockholders. If stockholder approval is not
obtained within 12 months after the date of the Board's adoption of the
Plan, then all Awards made previously under the Plan shall terminate and
cease to be outstanding. No further Awards may be made under the Plan upon
the earlier of (i) the expiration of the ten-year period from the date the
Plan is adopted by the Board, (ii) the date on which all shares of Common
Stock available for issuance under the Plan shall have been issued.
A-10
9.7 Amendment of the Plan. The Board shall have complete and exclusive power
and authority to amend or modify the Plan in any or all respects, except
that no such amendment or modification that is prohibited absent
stockholder approval under applicable laws, regulations, or Stock Exchange
requirements shall be effective unless such required stockholder approval
is obtained.
9.8 Amendment, Modification and Cancellation of Outstanding Awards. The
Committee may amend, modify, suspend, cancel, terminate, discontinue, waive
any conditions or rights under, any Award, Award Agreement or related
documents in any manner, prospectively or retroactively; provided, unless
otherwise provided in the applicable Award Agreement, however, except as
set forth in the Plan, that no such amendment, modification, alteration,
suspension, discontinuation, cancellation or termination that would
materially impair the rights of any Participant under any outstanding Award
shall not to that extent be effective without the consent of the impaired
Participant or such Participant's representative or beneficiary.
9.9 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring
Events. In addition to, and without limiting authority otherwise granted to
the Committee hereunder, the Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 1.5 or the occurrence of a
Change of Control) affecting the Company, any Affiliate, or the financial
statements of the Company or any Affiliate, or of changes in applicable
rules, rulings, regulations or other requirements of any governmental body
or securities exchange, accounting principles or law (i) whenever the
Committee, in its sole and plenary discretion, determines that such
adjustments are appropriate or desirable, including, without limitation,
providing for a substitution or assumption of Awards, accelerating the
exercisability of, lapse of restrictions on, or termination of, Awards or
providing for a period of time for exercise prior to the occurrence of such
event, (ii) if deemed appropriate or desirable by the Committee, in its
sole and plenary discretion, by providing for a cash payment to the holder
of an Award in consideration for the cancellation of such Award, including,
in the case of an outstanding Option or SAR, a cash payment to the holder
of such Option or SAR
9.10 Governing Law. This Plan shall be governed and construed in accordance with
the laws of the State of North Carolina, without regard to conflicts of law
principles thereof.
9.11 Severability. If any provision of this Plan or the application thereof to
any person or circumstance shall be invalid or unenforceable to any extent,
the remainder of this Plan and the application of such provision to other
persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
A-11
9.12 Indemnification. No member of the Board, the Committee or any employee of
the Company (each such person, a "Covered Person") shall be liable for any
action taken or omitted to be taken or any determination made in good faith
with respect to the Plan or any Award hereunder. Each Covered Person shall
be indemnified and held harmless by the Company against and from (i) any
loss, cost, liability or expense (including attorneys' fees) that may be
imposed upon or incurred by such Covered Person in connection with or
resulting from any action, suit or proceeding to which such Covered Person
may be a party or in which such Covered Person may be involved by reason of
any action taken or omitted to be taken under the Plan or any Award
Agreement and (ii) any and all amounts paid by such Covered Person, with
the Company's approval, in settlement thereof, or paid by such Covered
Person in satisfaction of any judgment in any such action, suit or
proceeding against such Covered Person; provided that the Company shall
have the right, at its own expense, to assume and defend any such action,
suit or proceeding, and, once the Company gives notice of its intent to
assume the defense, the Company shall have sole control over such defense
with counsel of the Company's choice. The foregoing right of
indemnification shall not be available to a Covered Person to the extent
that a court of competent jurisdiction in a final judgment or other final
adjudication, in either case not subject to further appeal, determines that
the acts or omissions of such Covered Person giving rise to the
indemnification claim resulted from such Covered Person's bad faith, fraud
or willful criminal act or omission or that such right of indemnification
is otherwise prohibited by law or by the Company's Articles of
Incorporation or Bylaws. The foregoing right of indemnification shall not
be exclusive of any other rights of indemnification to which Covered
Persons may be entitled under the Company's Articles of Incorporation or
Bylaws, as a matter of law, or otherwise, or any other power that the
Company may have to indemnify such persons or hold them harmless.
A-12
APPENDIX A
DEFINED TERMS
The following terms shall have the following meanings under the Plan:
"Affiliate" means (a) any entity that, directly or indirectly, is
controlled by, controls or is under common control with, the Company and (b) any
entity in which the Company has a significant equity interest, in either case as
determined by the Committee.
"Award" means the issuance of an Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Units, Performance Units or other awards
described in Article VI hereof.
"Award Agreement" means agreements, contracts or other instrument or
communications evidencing any Award, which may, but need not, require execution
or acknowledgement by a Participant.
"Board" means the Board of Directors of the Company.
A "Change of Control" shall (a) have the meaning set forth in an Award
Agreement or (b) if there is no definition set forth in an Award Agreement, mean
the occurrence of any of the following events:
(i) during any period of 24 consecutive months, individuals who were
members of the Board at the beginning of such period (the "Incumbent Directors")
cease at any time during such period for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the beginning of such period whose appointment or
election, or nomination for election, by the Company's stockholders was approved
by a vote of at least a majority of the Incumbent Directors (either by specific
vote or by approval of a proxy statement in which such person is named as a
nominee, without written objection to such nomination) shall be considered as
though such individual were an Incumbent Director, but excluding, for purposes
of this proviso, any such individual whose initial assumption of office occurs
as a result of an actual or threatened proxy contest with respect to election or
removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of any "person" (as such term is used in Section 13(d)
of the Exchange Act) (each, a "Person"), other than the Board;
(ii) the consummation of (A) a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving (x) the Company or
(y) any of its Subsidiaries, but in the case of this clause (y) only if Company
Voting Securities (as defined below) are issued or issuable in connection with
such transaction (each of the transactions referred to in this clause (A), being
hereinafter referred to as a "Reorganization") or (B) a sale or other
disposition of all or substantially all the assets of the Company (a "Sale"),
unless, immediately following such Reorganization or Sale, (1) all or
substantially all the individuals and entities who were the "beneficial owners"
(as such term is defined in Rule 13d-3 under the Exchange Act (or a successor
rule thereto)) of shares of the Company's common stock or other securities
eligible to vote for the election of the Board outstanding immediately prior to
the consummation of such Reorganization or Sale (such securities, the "Company
Voting Securities") beneficially own, directly or indirectly, more than 50% of
the combined voting power of the then outstanding voting securities of the
corporation or other entity resulting from such Reorganization or Sale
(including a corporation or other entity that, as a result of such transaction,
owns the Company or all or substantially all the Company's assets either
directly or through one or more subsidiaries) (the "Continuing Entity") in
substantially the same proportions as their ownership, immediately prior to the
consummation of such Reorganization or Sale, (2) no Person (excluding any
employee benefit plan (or related trust) sponsored or maintained by the
Continuing Entity or any corporation or other entity controlled by the
Continuing Entity) beneficially owns, directly or indirectly, 35% or more of the
combined voting power of the then outstanding voting securities of the
Continuing Entity and (3) at least a majority of the members of the board of
directors or other governing body of the Continuing Entity were Incumbent
Directors at the time of the execution of the definitive agreement providing for
such Reorganization or Sale or, in the absence of such an agreement, at the time
at which approval of the Board was obtained for such Reorganization or Sale;
B-1
(iii) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company, unless such liquidation or
dissolution is part of a transaction or series of transactions described in
paragraph (ii) above that does not otherwise constitute a Change of Control; or
(iv) any Person, corporation or other entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) becomes the beneficial
owner, directly or indirectly, of securities of the Company representing a
percentage of the combined voting power of the Company Voting Securities that is
equal to or greater than 35%; provided, however, that for purposes of this
subparagraph (iv) (and not for purposes of subparagraphs (i) through (iii)
above), the following acquisitions shall not constitute a Change in Control: (A)
any acquisition by the Company or any Subsidiary, (B) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any Subsidiary, (C) any acquisition by an underwriter temporarily holding
such Company Voting Securities pursuant to an offering of such securities or (D)
any acquisition pursuant to a Reorganization or Sale that does not constitute a
Change in Control for purposes of subparagraph (ii) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board or such other
committee of the Board as the Board may designate.
"Common Stock" means the common stock of the Company.
"Company" means Culp, Inc., a North Carolina corporation, and any successor
corporation to all or substantially all the assets or voting capital stock of
Culp, Inc. that shall by appropriate action adopt the Plan.
"Eligible Individuals" means the individuals described in Section 1.3.
"Employee" means an individual who is in the employ of the Company (or any
Subsidiary), subject to the control and direction of the employer entity as to
both the work to be performed and the manner and method of performance.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, (a) with respect to property other than Common
Stock on any relevant date, the fair market value of such property determined by
methods or procedures as shall be established from time to time by the Committee
and (b), with respect to any share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:
(i) If the Common Stock is at the time neither listed on any Stock
Exchange nor traded on the New York Stock Exchange, then the Fair
Market Value shall be determined by the Committee after taking into
account such factors as the Committee shall deem appropriate.
B-2
(ii) If the Common Stock is at the time traded on the New York Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the New York Stock Exchange.
(iii) If the Common Stock is at the time listed on any Stock Exchange, then
the Fair Market Value shall be the closing selling price per share of
Common Stock on date in question on the Stock Exchange determined by
the Committee to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on
such exchange.
"Grant Date" with respect to an Award means the grant date for such Award
as determined for financial statement reporting purposes pursuant to Financial
Accounting Standards Board Statement of Financial Accounting Standards No.
(revised 2004) Share-Based Payment, as modified or supplemented or interpreted).
"Incentive Stock Option" means an Option that satisfies the requirements of
Section 422 of the Code.
"Non-Qualified Stock Option" means an Option that does not satisfy the
requirements of Section 422 of the Code.
"Option" means an Incentive Stock Option or Non-Qualified Stock Option
issued under the Plan.
"Participant" means any person to whom an Award is made under the Plan.
"Plan" means the Culp, Inc. 2007 Stock Incentive Plan, as set forth herein.
"Restricted Stock" means Common Stock awarded to a Participant pursuant to
the Plan.
"Restricted Stock Units" mean the right to receive a specified number of
shares of Common Stock at a future date upon satisfaction of specified
conditions.
"Service" means the provision of services to the Company (or any
Subsidiary) by a person in the capacity of an Employee, a non-employee member of
the board of directors or a consultant or independent advisor.
"Stock Exchange" means the New York Stock Exchange, or should the Company's
Common Stock cease to be listed on the New York Stock Exchange, any other stock
exchange, automated quotation system or trading market on which the Company's
Common Stock is then primarily listed or traded.
"Subsidiary" means any corporation or limited liability company with
respect to which the Company owns, directly or indirectly, equity interests
possessing 50% or more of the total combined voting power of all classes of
equity of such entity.
"10% Stockholder" means the owner of Common Stock (as determined under
Section 424(d) of the Code) possessing more than 10% of the total combined
voting power of all classes of Common Stock of the Company (or any parent or
Subsidiary).
B-3
Using a black ink pen, mark your votes
with an X as shown in this example. Please
do not write outside the designated areas. [ X ]
================================================================================
Annual Meeting Proxy Card
================================================================================
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE
ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
[A] Proposals -- The Board of Directors recommends a vote FOR the
following proposals.
For Against Abstain For Against Abstain
1. PROPOSAL to amend [ ] [ ] [ ] 2. PROPOSAL to [ ] [ ] [ ]
the Company's amend the
bylaws to reduce Company's bylaws
the size of the to declassify
range in the the Board of
number of Directors and
directors that provide that
comprise the Board all directors
of Directors, will be elected
with the number by the
of seats to be shareholders
determined by the annually.
Board. (Submitted only if
proposal 1 is
adopted.)
3. Election of Directors:
For Withhold For Withhold
01-Kenneth W. McAllister [ ] [ ] 02-Howard L. Dunn, Jr.* [ ] [ ]
* Nominated only if proposal 1 is
not adopted.
For Against Abstain
4. PROPOSAL to approve [ ] [ ] [ ] 5. In their discretion, the proxies
the 2007 Equity are authorized to vote upon any
Incentive Plan. other business that may properly
come before the meeting.
[B] Non-Voting Items
Change of Address -- Please print new address below.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[C] Authorized Signatures -- This section must be completed for your vote to be
counted. -- Date and Sign Below
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 print date below. Please keep signature Please keep signature
within the box. within the box.
- ------------------------ ---------------------- ------------------------
/ /
/ /
- ------------------------ ---------------------- ------------------------
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN
THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
CULP
- --------------------------------------------------------------------------------
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 19, 2007, at the Annual
Meeting of Shareholders to be held on September 20, 2007, 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 3; and FOR proposals 1, 2 and
4. 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.