UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-12
CULP, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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previously. Identify the previous filing by registration statement number, or
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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 23, 2008
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TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders of Culp, Inc. (the "Company") will be held at
the Company's corporate offices, 1823 Eastchester Drive, High Point, North
Carolina, on Tuesday, September 23, 2008, at 8:30 a.m. local time, for the
purpose of considering and acting on the following matters:
(1) To elect three directors to serve until their successors are duly
elected and qualified;
(2) To ratify the appointment of Grant Thornton LLP as the Company's
auditors for the current fiscal year; and
(3) To transact such other business as may properly come before the
meeting, or any adjournment or adjournments thereof.
Only shareholders of record as of the close of business on July 17, 2008
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 2008 Annual Report of the Company also accompanies this notice.
By Order of the Board of Directors,
/s/ Kenneth R. Bowling
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KENNETH R. BOWLING
Corporate Secretary
August 26, 2008
CULP
Proxy Statement
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INTRODUCTION
This proxy statement is furnished to the shareholders of Culp, Inc.
(sometimes referred to as the "Company") by the Company's Board of Directors in
connection with the solicitation of proxies for use at the Annual Meeting of
Shareholders of the Company to be held on Tuesday, September 23, 2008, 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 , the accompanying form of proxy and the Company's
2008 Annual Report to Shareholders are first being mailed to shareholders on or
about August 26, 2008. The Annual Report does not constitute "soliciting
material" and is not to be deemed "filed" with the Securities and Exchange
Commission.
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 by:
o duly executing a proxy bearing a later date;
o executing a notice of revocation in a written instrument
filed with the secretary of the Company; or
o appearing at the meeting and notifying the secretary of the
intention to vote in person.
Unless a contrary choice is specified, all shares represented by valid
proxies that are received pursuant to this solicitation, and not revoked before
they are exercised, will be voted for the election of all the director nominees
named in this proxy statement, and for ratification of the appointment of Grant
Thornton LLP as the independent auditors of the Company for the current fiscal
year. The proxy also confers discretionary authority upon the persons named
therein, or their substitutes, with respect to any other business that may
properly come before the meeting.
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. Directors will be
elected by a plurality of the votes cast. Cumulative voting is not permitted.
Accordingly, abstentions and broker non-votes will not affect the outcome of the
election of directors. The ratification of independent auditors and any other
business coming before the meeting 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 and thus will have no
effect on votes on these matters.
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. However, Company
employees will not be specifically compensated for these services. The Company
also will request brokers and others to send solicitation material to beneficial
owners of the Company's stock and will, upon request, reimburse their
out-of-pocket costs.
VOTING SECURITIES
Only shareholders of record at the close of business on July 17, 2008
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 12,648,027.
The following table lists the beneficial ownership of the Company's
common stock with respect to each person known by the Company to be the
beneficial owner of more than five percent of such common stock.
Amount and Nature Percent of
of Beneficial Outstanding
Title of Class Name and Address of Beneficial Owner Ownership Shares
- ---------------------------- ---------------------------------------- ------------------- -----------------
Common stock, par value Robert G. Culp, III 2,250,311 (1) 17.8%
$.05 per share 903 Forrest Hill Drive
High Point, NC 27262
Atlantic Trust, Trustee 1,708,750 (2) 13.5%
Robert G. Culp, Jr. Trust
100 Federal Street, 37th Floor
Boston, MA 02110
NOTE: All of the shares listed for Atlantic Trust are also listed for Robert G.
Culp, III above. See footnotes (1) and (2) below for information about the
overlap between the ownership shown for these two beneficial owners.
R. Scott Asen and related entities 1,344,800 (3) 10.6%
224 E. 49th St.
New York, NY 10017
T. Rowe Price Associates, Inc. 1,262,100 (4) 9.9%
100 East Pratt Street
Baltimore, Maryland 21202
Dimensional Fund Advisors Inc. 1,049,294 (5) 8.3%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
John B. Baum and related entities 830,000 (6) 6.6%
30201 Orchard Lake Road, Suite 107
Farmington Hills, MI 48334
Praesidium Investment Management 813,855 (7) 6.4%
Company, LLC
747 Third Avenue, 35th Floor
New York, NY 10017
2
(1) These shares include all of the shares listed below that also are
beneficially owned in the name of Atlantic Trust as trustee of the Robert
G. Culp, Jr. Trust, all of which shares Robert G. Culp, III has the right
to vote and jointly (with Atlantic Trust) has the right to invest. (See
Note (2) below.) These shares also include 64,738 shares held of record
by Susan B. Culp, the wife of Mr. Culp, the beneficial ownership of which
shares Mr. Culp disclaims, approximately 22,304 shares owned by Mr. Culp
through the Company's 401(k) plan, and 85,000 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 pecuniary interest.
(4) Based upon information obtained from Schedule 13G/A filed with the
Securities and Exchange Commission on February 13, 2008, and includes
shares held by the T. Rowe Price Small Cap Value Fund, which owns 860,100
shares, representing 6.8% 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 1,049,294 shares of Culp,
Inc. stock as of December 31, 2007. 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/A filed with the
Securities and Exchange Commission on September 5, 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 830,000 shares
(consisting of 755,100 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 August 14, 2008. 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 813,855 shares owned by the Funds. Praesidium Investment Management
Company, LLC disclaims beneficial ownership of such shares.
3
PROPOSAL 1: ELECTION OF DIRECTORS
The number of directors constituting the Board has been fixed at five in
accordance with the Company's bylaws. Under the Company's amended and restated
bylaws, which were adopted in 2007, directors are elected at each annual meeting
and hold office for a one year term or until their respective successors are
elected and have qualified. However, the terms of Mr. Culp, III and Mr. Flavin
do not expire until the 2009 Annual Meeting because they were elected to three
year terms in 2006, before the Company's bylaws were changed to provide for the
annual election of directors. Thus, three directors will be elected for a one
year term at the 2008 Annual Meeting.
In the absence of specifications to the contrary, proxies will be voted
for the election of each of the three nominees listed in the table below, and an
equal number of votes will be cast for each nominee. In no case will proxies be
voted for more than three nominees. The persons who receive the highest number
of votes for election at the Annual Meeting will be elected as directors. If, at
or before the time of the meeting, any of the nominees becomes unavailable for
any reason, the proxy holders have the discretion to vote for a substitute
nominee or nominees. The Board currently knows of no reason why any of the
nominees listed below is likely to become unavailable.
Nominees :
KENNETH R. LARSON is owner, president and chief executive officer of
Slumberland Furniture in Little Canada, Minnesota, a home furnishings retailer
with stores in a ten-state area.
KENNETH W. MCALLISTER has been member/manager of The McAllister Firm,
PLLC, a law firm, since January 2004. He was a senior executive vice president
and general counsel of Wachovia Corporation, a bank holding company, from 1997
until his retirement in 2001, and served as general counsel since joining
Wachovia in 1988. Mr. McAllister served as United States Attorney for the Middle
District of North Carolina from 1981 to 1986. He is a director of High Point
Bank Corporation, High Point Bank and Trust Co., and Lawyers Mutual Liability
Insurance Company of North Carolina.
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.
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.
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. 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 became our chief
financial officer effective in May of 2007.
ROBERT G. CULP, IV has been employed by the Company since 1998 and has
served in various capacities. The Board elected Mr. Culp as president of the
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 senior audit manager with the accounting firm
of BDO Seidman, LLP.
4
NOMINEES, DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
three nominees for election to the Board of Directors, persons who were
directors and executive officers of the Company as of July 17, 2008 and all
executive officers, directors and nominees of the Company as a group, a total of
8 persons, as of July 17, 2008:
Shares and Percent
Year Year of Common Stock
Position with Became Term Beneficially Owned
Name and Age Company (1) Director Expires As of July 17, 2008 Notes
- -------------------------------- ------------------- --------- --------- ------------------- ---------
Nominees
--------
Kenneth R. Larson, 65 Director 2004 2008 20,875* (5)
Kenneth W. McAllister, 59 Director 2002 2008 26,625* (6)
Franklin N. Saxon, 56 President and Chief 1987 2008 105,598* (4)
Executive Officer,
Director
Directors and Executive
-----------------------
Officers
--------
Robert G. Culp, III, 61 Chairman of the 1972 2009 2,250,311 (2)
Board, Director 17.8%
Patrick B. Flavin, 61 Director 1999 2009 143,075 (3)
1.1%
Kenneth R. Bowling, 46 Vice President and N/A N/A 14,269* (7)
Chief Financial
Officer, Treasurer
and Corporate
Secretary
Robert G. Culp, IV, 37 President, Culp Home N/A N/A 36,460* (8)
Fashions division
Thomas B. Gallagher, Jr., 36 Corporate Controller N/A N/A 1,600* (9)
and Assistant
Treasurer
All executive officers, N/A N/A N/A 2,598,813 (10)
directors and nominees as a
group (8 persons) 20.5%
* Less than one percent.
(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, 85,000 shares
subject to options owned by Mr. Culp that are immediately exercisable,
and approximately 22,304 shares owned by Mr. Culp through the Company's
401(k) plan.
5
(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 15,375 shares subject to options owned by
Mr. Flavin that are immediately exercisable.
(4) Includes 56,000 shares subject to options owned by Mr. Saxon that are
immediately exercisable, and approximately 32,098 shares owned by Mr.
Saxon through the Company's 401(k) plan.
(5) Includes 7,875 shares subject to options owned by Mr. Larson that are
immediately exercisable.
(6) Includes 11,625 shares subject to options owned by Mr. McAllister that
are immediately exercisable.
(7) Includes 12,500 shares subject to options owned by Mr. Bowling that are
immediately exercisable and approximately 1,269 shares owned by Mr.
Bowling through the Company's 401(k) plan.
(8) Includes 25,500 shares subject to options owned by Mr. Culp, IV that are
immediately exercisable.
(9) Includes 1,600 shares subject to options owned by Mr. Gallagher that are
immediately exercisable.
(10) Includes 215,475 shares subject to options owned by certain officers,
directors and nominees that are immediately exercisable.
6
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 are 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, which are included in the
Company's Corporate Governance Guidelines, to assist in the determination of
director independence. These categorical standards 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
7
o the director or the director's immediate family member is
an executive officer of another company that is indebted to
the Company, or to which the Company is indebted, and the
total amount of either company's indebtedness to the other
is less than one percent of the total consolidated assets
of the company he or she serves as an executive officer
(iii) Charitable Relationships - The following charitable relationship
will not be considered to be a material relationship that would
impair a director's independence: if a director of the Company, or
a member of a director's immediate family, serves as an executive
officer of a charitable or other not for profit organization, and
the Company's charitable contributions to the organization, in the
aggregate, are less than two percent of that organization's total
revenues during its most recent fiscal year.
(iv) Stock Ownership - Ownership of a significant amount of the
Company's stock does not necessarily preclude a determination of
independence.
Applying the independence standards described above, the Board has
determined that the following current directors and/or nominees are independent
within the meaning of the listing standards of the New York Stock Exchange and
the Company's categorical standards of independence: Messrs. 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 Independent Directors; Lead Director
Independent 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).
These meetings normally occur quarterly. The independent directors have
designated a "lead director" to preside at these meetings, to advise management
and to otherwise act as a liaison between the independent directors and the
Company's management. Mr. McAllister has served as lead director since September
25, 2006.
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 2007 Annual Meeting of Shareholders.
Code of Business Conduct and Ethics
The Company has adopted a written Code of Business Conduct and Ethics
that applies to all of our directors, officers and employees, including our
principal executive officer, principal financial officer, principal accounting
officer and controller. The Code is available on the Company's website at
www.culpinc.com under the "Investor Relations/Governance" section and is
available in print to any shareholder who requests it. The Company will disclose
on its website or by the filing of a Form 8-K any substantive amendments to the
Code with regard to executive officers and any waivers granted under the Code
for executive officers or directors.
Communications with Directors
The Company and the Company's Board of Directors believe it is important
that a direct and open line of communication exist between the Company's Board
of Directors and its shareholders and other interested parties. Any shareholder
or other interested party who desires to contact the Company's directors may
send a letter to the following address:
Culp, Inc. Board of Directors
c/o Corporate Secretary
P.O. Box 2686
High Point, North Carolina 27261-2686
Communications to directors will be handled by the office of the
Corporate Secretary and forwarded as soon as practicable to the lead director
designated by the non-management directors.
8
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 must be independent as determined by the Board of
Directors and as defined by New York Stock Exchange rules. All of the current
members of the Corporate Governance and Nominating Committee are independent
directors.
The goal of the Corporate Governance and Nominating Committee is to
create a Board that will demonstrate competence, objectivity, and the highest
degree of integrity on an individual and collective basis. In evaluating current
members and new candidates, the Corporate Governance and Nominating Committee
considers the needs of the Board of Directors in light of the current mix of
director skills and attributes. In accordance with the Corporate Governance
Guidelines adopted by the Board, the Corporate Governance and Nominating
Committee will seek a diversity of skills and backgrounds among directors in
assessing candidates for membership on the Board. The Corporate Governance and
Nominating Committee will seek candidates who possess honesty and integrity,
sound business judgment, financial literacy, strategic and analytical insight,
and the ability to commit an adequate amount of time to make a productive
contribution to the Board and the Company. In addition, the Corporate Governance
and Nominating Committee will seek to assure that one or more Board members
possess each of the following characteristics: knowledge and experience in the
Company's industry, management experience, international business knowledge,
expertise in accounting or financial analysis, and regulatory compliance
expertise. When the Corporate Governance and Nominating Committee is considering
current Board members for nomination for reelection, the committee also
considers prior Board contributions and performance, as well as attendance
records for Board and committee meetings.
The Corporate Governance and Nominating Committee may seek input from
other members of the Board and management in identifying and attracting director
candidates who meet the criteria outlined above. In addition, the committee may
use the services of consultants or a search firm, although it has not done so in
the past. Recommendations from shareholders for nominees to the Board of
Directors will be considered by the Corporate Governance and Nominating
Committee if made in writing addressed to any member of the committee at the
Company's main office. In order to be considered, such recommendations must be
received at least 120 days prior to the date of the meeting at which directors
are to be elected. Submissions should include information regarding a
candidate's background, qualifications, experience, and willingness to serve as
a director. Based on a preliminary assessment of a candidate's qualifications,
the Corporate Governance and Nominating Committee may conduct interviews with
the candidate and request additional information from the candidate. The
committee uses the same process for evaluating all nominees, including those
recommended by shareholders.
BOARD COMMITTEES AND ATTENDANCE
There are four standing committees of the Board of Directors: Executive
Committee, Audit Committee, Compensation Committee, and Corporate Governance and
Nominating Committee. Each of the members of each of our Audit Committee,
Compensation Committee and Corporate Governance and Nominating Committee (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.
9
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 2008. 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), 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, 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.
Flavin (Chairman), Larson and McAllister.
Corporate Governance and Nominating Committee
The current members of the Corporate Governance and Nominating Committee
are Messrs. Flavin (Chairman), Larson and McAllister. The committee reviews and
recommends to the Board candidates for appointment to fill vacancies on the
Board as well as candidates for selection as director nominees for election by
shareholders. The Corporate Governance and Nominating Committee also considers
and makes recommendations to the Board on other matters relating to the size and
function of the Board and its committees, to the Board's policies and
procedures, and to corporate governance policies applicable to the Company.
Attendance
During the fiscal year ended April 27, 2008, the Board of Directors had 8
meetings; the Audit Committee 10 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.
10
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, return on capital 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 2008 compensation program for
our executive officers, including all of the executive officers listed in the
summary compensation table on page 17 (whom we refer to as the "named executive
officers"):
Element Form of compensation Purpose Performance criteria
- ----------------------- ---------------------------- ------------------------------------ ------------------------
Base salary Cash Provide a competitive level of Not performance-based
fixed compensation that attracts
and retains skilled management
Annual incentive bonus Cash Create incentive for executive Specific financial
officers to direct their efforts performance measures
toward achieving specified selected by the
financial goals for the company compensation committee
Long-term incentive Stock options Create a strong financial incentive Common stock price
for meeting or exceeding long-term
financial goals, rewarding past
performance, and encouraging an
equity stake in our company
11
Element Form of compensation Purpose Performance criteria
- ----------------------- ---------------------------- ------------------------------------ ------------------------
Health and welfare Eligibility to receive Providing a competitive, broad- Not performance-based
plans health and other welfare based employee benefits structure
benefits paid for, in whole
or in part, by the company,
including broad-based
medical, life insurance and
disability plans and a
severance plan
Retirement plans Eligibility to participate Providing competitive retirement- Not performance-based
in, and receive company planning benefits to attract and
contributions to, our retain skilled management
401(k) plan and, for
certain officers, a
supplemental deferred
compensation plan
Split-dollar life Company paid life Providing an additional death Not performance-based
insurance plan insurance policy for the benefit in a cost-effective manner
benefit of Mr. Culp, III,
our Chairman
Perquisites Automobile allowance or Providing a competitive Not performance-based
lease, plus business club compensation package
dues for Mr. Culp, III
Severance protection Eligibility to receive Providing a competitive Not performance-based
plan cash severance in compensation package and ensuring
connection with continuity of management in the
termination in event of any actual or threatened
anticipation of or for a change in control of our company
period after a change of
control
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.
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 2007, and in setting salaries
for fiscal 2008, we considered base salary data from the following companies:
Burke Mills, Inc.
Crown Crafts, Inc.
Decorator Industries, Inc.
12
The Dixie Group
The Hallwood Group Incorporated
Innovo Group, Inc.
International Textile Group, Inc.
JPS Textile Group, Inc.
Mohawk Industries, Inc.
Polymer Group, Inc.
Quaker Fabric Corporation
Unifi, Inc.
We considered these companies to be comparable because they were other
manufacturers of textile products based in the U.S. 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 2008 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 2007. In light of the fact that
little or no raises in executive salaries had occurred for fiscal 2007 and in
light of the performance of the management group in fiscal 2007, officer
salaries were increased at the beginning of fiscal 2008 (except in the case of
Mr. Culp, III, as explained below). In the case of Mr. Saxon and Mr. Culp, III,
more significant changes in salary occurred in connection with Mr. Saxon
assuming the CEO position at the beginning of fiscal 2008, and Mr. Culp, III's
salary decreased as he stepped down from the CEO role. Mr. Saxon's salary
increased from $300,000 to $350,000, and Mr. Culp, III's salary decreased from
$416,000 to $300,000. In November of 2007, as part of the company's overall cost
reduction efforts and upon the recommendation of Mr. Saxon and Mr. Culp, III,
Mr. Saxon's salary was reduced by $25,000 and Mr. Culp, III's salary was reduced
by $50,000. The base salary for Mr. Bowling was increased by $30,000 to $160,000
for fiscal 2008, in recognition of his assuming the Chief Financial Officer post
at the beginning of fiscal 2008. Base salaries for certain other named
executives were also adjusted early in fiscal 2008, with Mr. Culp, IV's salary
increasing from $175,000 to $190,000 and Mr. Gallagher's salary increasing from
$115,000 to $122,000, in recognition of strong performance during the preceding
year.
Annual incentive bonus
----------------------
For fiscal 2008, we returned to our former practice of awarding annual
bonuses to management, including the named executive officers, based on our
company's achievement of pre-established financial performance goals. During the
prior two years, rapid changes in our company made it difficult to set
meaningful financial performance goals in advance. As a result, during this
period the compensation committee had not tied bonuses for most executive
officers to achievement of particular financial performance goals.
At the beginning of fiscal 2008, the compensation committee and the full
board adopted a management incentive plan under which certain executive officers
could earn cash bonuses based on our financial performance. Mr. Culp, III, Mr.
Saxon, Mr. Bowling, Mr. Ludwig and Mr. Gallagher were among the plan
participants. The financial performance measures for fiscal 2008 were 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 set threshold, target, maximum
and super maximum performance levels for each measure. 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
participated in the plan, the target bonuses for fiscal 2008 ranged from 20% to
150% of base salary. The levels of performance targets chosen by the committee
were set at levels that we believed would be likely to be met for threshold
levels, achievable for target levels assuming satisfactory corporate
performance, difficult to achieve for maximum levels and unlikely to achieve for
super maximum levels.
13
In fiscal 2008, Mr. Culp, IV continued to participate in a separate
incentive bonus plan that pays bonuses to management of the Culp Home Fashions
(CHF) division, which Mr. Culp, IV serves as President. Bonuses were based on
the performance of the CHF division against pre-established financial
performance measures for the division. Like the corporate incentive plan, the
CHF incentive plan sets performance measures on the basis of operating income,
free cash flow and return on capital, in each case excluding extraordinary and
non-recurring items. Threshold, target, maximum and super maximum bonus levels
were set on the same basis as for the corporate incentive plan. In addition to
the incentive bonus under the regular CHF incentive plan, we also paid an
additional discretionary bonus of $10,000 to Mr. Culp, IV based on the CHF
division achieving a significant level of improvement in inventory turns. We
expect to continue to pay incentive bonuses for inventory management for Mr.
Culp, IV (and other CHF division management) during fiscal 2009.
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 plans require 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. The numbers of options granted during
fiscal 2008 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.
Health and welfare plans
------------------------
Our current health and 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.
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
2008, 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 provided a supplemental deferred compensation plan during fiscal 2008
for Mr. Saxon and for former executive 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 originally 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. In fiscal 2009, additional executives are being
added to this plan, but at different contribution amounts.
14
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 2008, the only
perquisites provided to any of the named executive officers were an automobile
lease and reimbursement of automobile expenses for Mr. Culp, III and an
automobile allowance for the other named executives (except for Mr. Gallagher).
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 maintained a severance protection plan for many years that covers
certain of our officers, including Mr. Saxon and Mr. Culp, III. We took action
in fiscal 2009 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 took action in fiscal 2008 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 our
executive officers, see "Executive Compensation - Potential Payments Upon
Termination or Change in Control."
Changes for Fiscal 2009
- -----------------------
In June 2008, the compensation committee took action to adjust the
salaries of the executive officers. The salary of Mr. Culp, III was reduced by
$50,000 to $200,000, in recognition of his reduced responsibilities since
leaving the CEO role, and also at Mr. Culp, III's suggestion as part of our
overall cost savings initiatives. Mr. Saxon's salary was reduced by $25,000 to
$300,000, partly as a cost savings measure at Mr. Saxon's suggestion, and partly
because of anticipated changes in performance-based compensation for Mr. Saxon
(which have not been finalized as of the date of this proxy statement). The
other named executive officers received increases in salary that ranged from
five to nine percent.
The compensation committee also added Mr. Culp, IV and Mr. Bowling to the
group who receives company contributions to the deferred compensation plan, with
an initial contribution equal to 5% of their annual salaries.
Finally, the compensation committee approved the participation by Mr.
Culp, IV in an additional incentive bonus plan within the CHF division, which
rewards senior managers within that division for achieving certain levels of
inventory turns in each quarter. Mr. Culp, IV could earn an additional bonus of
up to $10,000 per quarter under the terms of this plan.
15
Conclusions
- -----------
Our compensation committee has considered each of the elements of the
named executive officers' compensation, as described above. It also has
considered the total amounts of current compensation, retirement compensation
and potential compensation from stock option grants and severance protection
that these elements provide to the officers. The committee believes the amount
of each element, and the total amount of compensation, for each named executive
officer is reasonable and appropriate in light of the officer's experience and
individual performance, our recent operational and financial challenges and the
officer's role in leading us through those challenges, and the resulting
enhancement to shareholder value.
COMPENSATION COMMITTEE REPORT
Our compensation committee has reviewed and discussed with management the
Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K.
Based on its review and discussion, the committee recommended to the board that
the Compensation Discussion and Analysis be included in this proxy statement and
in our annual report on Form 10-K for filing with the SEC.
The foregoing report has been furnished by members of the Compensation
Committee.
Patrick B. Flavin, Chairman
Kenneth R. Larson
Kenneth W. McAllister
16
SUMMARY COMPENSATION TABLE
The following table shows the compensation we paid for fiscal 2007 and
2008 to our named executive officers.
- -------------------------- ------ ---------- --------- ---------- -------------- -------------- -------------- --------------
Name and Principal Year Salary Bonus Option Non-Equity Change in All Other Total
Position Awards Incentive Plan Pension Value Compensation
Compensation and
Nonqualified
Deferred
Compensation
Earnings
($) ($) ($) ($) ($) ($) ($)
(a) (b) (c) (d) (f)(1) (g) (h) (i)(2) (j)
- -------------------------- ------ ---------- --------- ---------- -------------- -------------- -------------- --------------
Robert G. Culp, III 2008 279,167 -- 62,784 294,000 -- 93,756 729,707
Chairman (3) 2007 416,000 100,000 65,230 -- -- 95,795 677,025
Franklin N. Saxon 2008 339,583 -- 134,631 514,500 6,235 65,981 1,060,930
President and Chief 2007 300,000 300,000 49,030 -- 4,605 53,525 707,160
Executive Officer
(3)(4)
Robert G. Culp, IV 2008 190,000 -- 41,697 142,301 -- 8,045 382,043
President, Culp Home 2007 175,000 -- 31,310 83,475 -- 7,657 297,442
Fashions Division
Kenneth M. Ludwig 2008 124,417 -- 56,544 60,903 4,093 98,518 344,475
Former Senior Vice 2007 186,625 20,000 38,895 -- 3,106 42,392 291,018
President, Human
Resources and
Corporate Secretary
(5)
Kenneth R. Bowling 2008 160,000 -- 28,049 47,040 193 7,956 243,238
Chief Financial 2007 130,000 20,000 15,395 -- 163 6,283 171,841
Officer, Treasurer
and Corporate
Secretary
Thomas B. Gallagher, Jr. 2008 121,417 -- 4,946 23,912 2 5,689 155,966
Corporate Controller 2007 114,583 6,250 2,229 -- -- 4,531 127,593
and Assistant
Treasurer
- -------------------------- ------ ---------- --------- ---------- -------------- -------------- -------------- --------------
(1) These numbers reflect the amount of expense we recognized in our
financial statements for fiscal 2007 and 2008 for options granted to each
officer. For information about the relevant assumptions we made in
calculating the expense, please see note 14 to the financial statements
included in our fiscal 2008 annual report on Form 10-K.
17
(2) The following table shows the components of "All Other Compensation."
Contribution to non-
401(k) plan Amount paid for qualified deferred
match life insurance compensation plan Perquisites Severance
----- -------------- ----------------- ----------- ---------
Culp, III 14,371 59,700 -- 19,685 --
Saxon 12,281 1,200 52,500 -- --
Culp, IV 7,139 906 -- -- --
Ludwig 7,643 673 27,994 -- 62,208
Bowling 7,200 756 -- -- --
Gallagher 5,107 582 -- -- --
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, III. Mr. Culp,
III's perquisites consisted of $16,464 in automobile expenses and $3,221
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.
(5) Mr. Ludwig served in these positions until December 31, 2007.
The option award expense reflected in column (f) of the table is for
options we granted to the officers in fiscal years 2004, 2005, 2006, 2007 and
2008. 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 for fiscal 2004 through fiscal 2007 and ten
years for fiscal 2008;
o 25% of each grant vests on each of the first four anniversaries of
the grant date for fiscal 2004 through fiscal 2007 and 20% per
year on each of the first five anniversaries of the grant date for
fiscal 2008;
o the options terminate three months after the optionee's death,
disability or termination (immediately, for termination due to
misconduct), except in the case of Mr. Ludwig, whose options
terminate on September 28, 2009;
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.
18
Grants of Plan-Based Awards
The following table provides information about the option awards we made
to the named executive officers in fiscal 2008. It also provides information
about the potential bonus payable to executive officers under our management
incentive plans.
- -------------------------- --------- ---------------------------------------- ------------- ------------- --------------
Name Grant Potential Payouts Under Non-Equity All Other Exercise or Grant Date
Date Incentive Plan Awards Option Base Price of Fair Value
Awards: Option of Stock and
Number of Awards Option Awards
Securities
Underlying
Options
(#) ($/Sh) ($)
(a) (b) (j) (k) (l)
- -------------------------- --------- ---------------------------------------- ------------- ------------- --------------
Threshold Target Maximum Super
Maximum
($) ($) ($) ($)
(c) (d) (dd) (e)
Robert G. Culp, III 6/25/07 30,000 300,000 300,000 300,000 10,000 8.75 62,498
Franklin N. Saxon 6/25/07 52,500 525,000 525,000 525,000 50,000 8.75 312,490
Robert G. Culp, IV 6/25/07 7,600 76,000 121,600 152,000 7,500 8.75 46,874
Kenneth M. Ludwig 6/25/07 6,215 62,146 62,146 62,146 7,500 8.75 46,874
Kenneth R. Bowling 6/25/07 4,800 48,000 76,800 96,000 7,500 8.75 46,874
Thomas B. Gallagher, Jr. 6/25/07 2,440 24,400 39,040 48,800 3,000 8.75 7,689
- -------------------------- --------- ---------- --------- --------- --------- ------------- ------------- --------------
Option grants
- -------------
The option grants reflected in the table have a ten-year term. They vest
pro rata on the first five anniversaries of the grant date, as follows:
Vesting Date % of Grant That Vests
------------ ---------------------
6/25/08 20
6/25/09 20
6/25/10 20
6/25/11 20
6/25/12 20
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."
19
Management incentive plan bonus
-------------------------------
For fiscal 2008, we returned to our former practice of awarding annual
bonuses to management, including the named executive officers, based on our
company's achievement of pre-established financial performance goals. During the
prior two years, rapid changes in our company made it difficult to set
meaningful financial performance goals in advance. As a result, during this
period the compensation committee did not tie bonuses for most executive
officers to achievement of particular financial performance goals.
At the beginning of fiscal 2008, 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, Mr. Ludwig and Mr. Gallagher were among the plan
participants. The financial performance measures for fiscal 2008 were 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 set threshold, target, maximum
and super maximum performance levels for each measure.
The committee and the board awarded each participant a target bonus
opportunity under the plan. 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. 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. 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%
The maximum bonus payment to Messrs. Saxon, Culp, III and Ludwig was capped at
the target bonus even if the Company met the maximum or super maximum
performance levels.
For fiscal 2008, Mr. Saxon's bonus opportunity was 150% of his salary.
This meant he would earn 150% of his salary if the Company achieved the targeted
performance level for each of the three measures. Thus, assuming the Company met
at least the threshold performance levels under the plan, Mr. Saxon's bonus
opportunity ranged from 15%-150% of his salary. The potential bonuses for the
other named executive officers ranged from 2% to 100% of 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 difficult and
that performance at the super maximum level was unlikely.
For fiscal 2008, the company achieved operating income that was between
the threshold and target level, free cash flow at the super maximum level, and
return on capital between the threshold and target level. This resulted in the
named executive officers covered by the plan (Mr. Culp, III, Mr. Saxon, Mr.
Ludwig, Mr. Bowling and Mr. Gallagher) receiving bonuses that were 98% of their
target bonus opportunities, as reflected in column (g) of the Summary
Compensation Table (except that Mr. Ludwig's bonus was prorated because he only
worked at the company for part of fiscal 2008).
20
In fiscal 2008, Mr. Culp, IV continued to participate in a separate
incentive bonus plan that provides for bonuses to senior management of the Culp
Home Fashions (CHF) division, which Mr. Culp, IV serves as President. Bonuses
were based on the performance of the CHF division against pre-established
financial performance measures for the division. Like the corporate incentive
plan, the CHF incentive plan sets performance measures on the basis of operating
income, free cash flow and return on capital, in each case excluding
extraordinary and non-recurring items. Threshold, target, maximum and super
maximum bonus levels were set on the same basis as for the corporate incentive
plan. This incentive bonus plan resulted in Mr. Culp, IV being paid a bonus of
approximately 174% of his target bonus opportunity, based upon the CHF division
achieving operating income between the target and maximum levels, and reaching
the super maximum level for free cash flow and return on capital under the terms
of the plan. In addition to the incentive bonus under the regular CHF incentive
plan, we also paid an additional discretionary bonus of $10,000 to Mr. Culp, IV
based on the CHF Division achieving a significant level of improvement in
inventory turns. We expect to continue to pay incentive bonuses for inventory
management improvement for Mr. Culp, IV (and other CHF division management)
during fiscal 2009.
21
Outstanding Equity Awards at Fiscal Year-End
The following table provides information about the equity awards our
named executive officers held as of the end of fiscal 2008. To date, we have not
granted any form of equity award other than stock options.
- ---------------------------- ------------------------------------------------------------------------------
Name Option Awards
- ---------------------------- ------------------------------------------------------------------------------
Option Grant Number of Number of Option Option
Date Securities Securities Exercise Expiration
Underlying Underlying Price Date
Unexercised Unexercised
Options Options
(#) (#) ($)
Exercisable Unexercisable
(a) (b) (c) (e) (f)
Robert G. Culp, III 9/14/1998 30,000 -- 7.625 9/13/2008
6/28/1999 8,000 -- 9.125 6/27/2009
6/17/2003 (1) 12,000 -- 6.61 6/16/2008
6/15/2004 (2) 11,250 3,750 7.13 6/14/2009
10/3/2005 (3) 15,000 15,000 4.59 10/2/2010
6/14/2006 (4) 7,500 22,500 4.52 6/13/2011
6/25/2007 (5) -- 10,000 8.75 6/25/2017
Franklin N. Saxon 9/14/1998 10,000 -- 7.625 9/13/2008
6/17/2003 (1) 7,000 -- 6.61 6/16/2008
6/15/2004 (2) 9,000 3,000 7.13 6/14/2009
10/3/2005 (3) 12,000 12,000 4.59 10/2/2010
6/14/2006 (4) 6,000 18,000 4.52 6/13/2011
6/25/2007 (5) -- 50,000 8.75 6/25/2017
Robert G. Culp, IV 6/17/2003 (1) 3,500 -- 6.61 6/16/2008
6/15/2004 (2) 6,750 2,250 7.13 6/14/2009
10/3/2005 (3) 9,000 9,000 4.59 10/2/2010
6/14/2006 (4) 3,000 9,000 4.52 6/13/2011
6/25/2007 (5) -- 7,500 8.75 6/25/2017
Kenneth M. Ludwig 9/14/1998 20,000 -- 7.625 9/13/2008
6/28/1999 3,000 -- 9.125 6/27/2009
6/17/2003 (1) 7,000 -- 6.61 6/16/2008
6/15/2004 (2) 6,750 2,250 7.13 6/14/2009
Kenneth R. Bowling 6/17/2003 (1) 2,500 -- 6.61 6/16/2008
6/15/2004 (2) 2,250 750 7.13 6/14/2009
10/3/2005 (3) 3,000 3,000 4.59 10/2/2010
6/14/2006 (4) 2,500 7,500 4.52 6/13/2011
6/25/2007 (5) -- 7,500 8.75 6/25/2017
Thomas B. Gallagher, Jr. 6/14/2006 (4) -- 3,000 4.52 6/13/2011
6/25/2007 (5) -- 3,000 8.75 6/25/2017
- --------------------------- ---------------- -------------- ------------------- ------------ --------------
- ----------
(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 2008, these
options were fully 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 2008, three
quarters of the options had vested.
22
(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 2008, one
half 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 2008, one
quarter of the options had vested.
(5) The options in this grant vest in five equal installments on the
first five anniversaries of the grant date. As of the end of fiscal 2008, none
of the options had vested.
Option Exercises
This table provides information about stock option exercises by the named
executive officers in fiscal 2008.
--------------------------------- -------------------------------
Name Option Awards
--------------------------------- -------------------------------
Number of Value
Shares Realized
Acquired on
on Exercise
Exercise
(#) ($)
(a) (b) (c)
--------------------------------- --------------- ---------------
Robert G. Culp, III -- --
Franklin N. Saxon -- --
Robert G. Culp, IV -- --
Kenneth M. Ludwig 13,501 35,108
Kenneth R. Bowling -- --
Thomas B. Gallagher, Jr. 1,000 4,450
--------------------------------- --------------- ---------------
Nonqualified Deferred Compensation
We maintain a nonqualified deferred compensation plan for certain of our
management employees. Although all of the named executive officers are eligible
to participate in the plan, to date only Mr. Saxon, Mr. Ludwig, Mr. Bowling and
Mr. Gallagher have done so. The following table provides information about
amounts we contributed to these officers' plan accounts in fiscal 2008, and
about the officers' earnings under the plan. The last column shows each
participating officer's total account balance as of the end of the fiscal year.
- -------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Name Executive Registrant Aggregate Aggregate Aggregate
Contributions Contributions Earnings in Withdrawals/ Balance at
in Last FY in Last FY Last FY Distributions Last FYE
($) ($) ($) ($) ($)
(a) (b) (c)(1) (d)(2) (e) (f)
- -------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Franklin N. Saxon -- 52,500 27,910 -- 405,605
- -------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Kenneth M. Ludwig -- 27,994 18,322 -- 265,623
- -------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Kenneth R. Bowling -- -- 863 -- 12,372
- -------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Thomas B. Gallagher, Jr. 800 -- 6 -- 806
- -------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ----------
(1) All amounts in this column are included in column (i), "All Other
Compensation," of the summary compensation table on page 17.
23
(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 - $6,235; Mr. Ludwig - $4,093; Mr.
Bowling - $193 and Mr. Gallagher - $2.
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 2008.
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 four 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
During fiscal 2008 we were party to change of control and non-competition
agreements with Mr. Culp, III and Mr. Saxon. In addition, in June 2008 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
24
o a change in the majority of our directors that our directors have
not approved.
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, Mr. Culp, IV and Mr. Bowling under these agreements if there had
been a change of control (and all agreements had been in effect at that time),
and the officers had been terminated, on April 27, 2008, the last day of fiscal
2008.
Estimated Payments under Change of Control and Non-competition Agreements
- ----------------------- ------------------------------- ----------------------------- -------------------
Name Change of Control Payment Non-Competition Payment Total Payment
---- ------------------------- ----------------------- -------------
($) ($) ($)
--- --- ---
- ----------------------- ------------------------------- ----------------------------- -------------------
Mr. Culp, III 1,140,602 573,167 1,713,769
Mr. Saxon 1,699,625 854,083 2,553,708
Mr. Culp, IV 661,279 332,301 993,580
Mr. Bowling 412,010 207,040 619,050
- ----------------------- ------------------------------- ----------------------------- -------------------
25
Securities Authorized for Issuance Under Equity Compensation Plans. The
following table sets forth information as of the end of fiscal 2008 regarding
shares of the Company's common stock that may be issued upon the exercise of
options previously granted and currently outstanding options under the Company's
stock option plans, as well as the number of shares available for the grant of
options that had not been granted as of that date.
EQUITY COMPENSATION PLAN INFORMATION
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Plan Category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and future issuance under
warrants and rights rights equity compensation plan
(excluding securities
reflected in column (a))
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
(a) (b) (c)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation 792,765 6.19 1,194,000
plans approved by security
holders
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation 0 0 0
plans not approved by
security holders
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Total 792,765 $6.19 1,194,000
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
COMPENSATION OF DIRECTORS
Directors who are also employees of the Company do not receive additional
compensation for service as directors. In fiscal 2008, we paid each of our
non-employee directors the following compensation:
o an annual retainer of $32,500 ($37,500 for the lead director); and
o a grant under our 2007 equity incentive plan of 2,000 stock options, with
an exercise price equal to fair market value on the date of grant (as
defined in the plan) and a 10-year term.
The following table shows the total compensation we paid our non-employee
directors in fiscal 2008 for their service on our board.
----------------------------- ---------------- ---------------- ---------------- ----------------
Name Fees Earned or Option All Other Total
Paid in Cash Awards Compensation
($) ($) ($) ($)
(a) (b) (d)(1) (g) (h)
----------------------------- ---------------- ---------------- ---------------- ----------------
Jean L. P. Brunel 8,125 (3) -- -- 8,125
----------------------------- ---------------- ---------------- ---------------- ----------------
Howard L. Dunn, Jr. 8,125 (3) -- 30,000 (2) 38,125
----------------------------- ---------------- ---------------- ---------------- ----------------
Patrick B. Flavin 32,500 14,377 -- 46,877
----------------------------- ---------------- ---------------- ---------------- ----------------
Kenneth R. Larson 32,500 14,377 -- 46,877
----------------------------- ---------------- ---------------- ---------------- ----------------
Kenneth W. McAllister 37,500 14,377 -- 51,877
----------------------------- ---------------- ---------------- ---------------- ----------------
26
- ----------
(1) As of the end of fiscal 2008, our non-employee directors (and
former directors, in the case of Mr. Brunel and Mr. Dunn) 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
Patrick B. Flavin 15,375
Kenneth R. Larson 7,875
Kenneth W. McAllister 11,625
(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.
Brunel and Mr. Dunn left the board effective with the 2007 Annual
Meeting of Shareholders.
27
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee, all of whom are non-employee
directors and independent directors, are Mr. Flavin (Chairman), Mr. Larson, 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.
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 29, 2007. 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.
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
fiscal year 2008 was Grant Thornton 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 Grant Thornton the audited financial
statements as of and for the year ended April 27, 2008. The Audit Committee has
also discussed with Grant Thornton the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended (Communication with Audit
Committees), as adopted by the Public Company Accounting Oversight Board in Rule
3200T. In addition, the Audit Committee has received from Grant Thornton the
written disclosures and letter required by Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committees), as adopted by the Public
Company Accounting Oversight Board in Rule 3600T, and discussed with them their
independence from the Company and its management. The Audit Committee also has
considered whether Grant Thornton's provision of non-audit services to the
Company is compatible with the concept of auditor independence.
28
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 27, 2008 for filing with the Securities and Exchange Commission.
On September 21, 2007, the Audit Committee dismissed KPMG LLP as the
Company's principal accountants, as reported on a Form 8-K filed with the SEC on
September 27, 2007. KPMG performed the audit of the Company's consolidated
financial statements for the years ended April 29, 2007 and April 30, 2006.
During the two fiscal years ended April 29, 2007, and the subsequent interim
period through September 21, 2007, the Company had no disagreements with KPMG on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure, which disagreements, if not resolved to KPMG's
satisfaction, would have caused KPMG to reference the subject matter of the
disagreements in connection with its opinion. Nor were there any "reportable
events," as such term is defined in Item 304(a)(1)(v) of Regulation S-K,
promulgated under the Securities Exchange Act of 1934, as amended.
The audit reports of KPMG on the consolidated financial statements of the
Company as of and for the fiscal years ended April 29, 2007 and April 30, 2006,
did not contain any adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope, or accounting principles,
except as follows: KPMG's report on the consolidated financial statements of the
Company as of and for the year ended April 29, 2007 contained a separate
paragraph stating that "As discussed in the Summary of Significant Accounting
Policies, the Company adopted Statement of Financial Accounting Standards No.
123 (revised 2004), "Share-Based Payment" effective May 1, 2006." The audit
report of KPMG on management's assessment of the effectiveness of internal
control over financial reporting and the effectiveness of internal controls over
financial reporting as of April 30, 2006 did not contain any adverse opinion or
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principles (there was no such report for the year
ended April 29, 2007, because the company was not an accelerated filer in that
year).
On September 26, 2007, the Audit Committee appointed Grant Thornton LLP
as the Company's new independent accountant.
The Company did not consult with Grant Thornton LLP during the fiscal
years ended April 29, 2007 and April 30, 2006 or during any subsequent interim
period through and including September 26, 2007, on either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company's
consolidated financial statements.
The foregoing report has been furnished by members of the Audit
Committee.
Kenneth R. Larson, Chairman
Patrick B. Flavin
Kenneth W. McAllister
FEES PAID TO INDEPENDENT AUDITORS
The following table sets forth the fees billed to the Company by Grant
Thornton LLP for services in the fiscal year ended April 27, 2008. Grant
Thornton did not provide services to the Company for the fiscal year ended April
29, 2007.
Fiscal 2008
-----------
-------------------------- ---------------
Audit Fees $305,004
-------------------------- ---------------
Audit-Related Fees (1) 3,563
-------------------------- ---------------
Tax Fees (2) 12,575
-------------------------- ---------------
Total $321,142
-------------------------- ---------------
(1) Audit-related fees are for services related to consultation on the
accounting for a potential sale-leaseback transaction for the Company's
headquarters building.
29
(2) Tax fees are for services rendered in connection with domestic and
foreign tax compliance and advisory services.
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 Grant Thornton during fiscal 2008.
PROPOSAL 2: RATIFICATION OF INDEPENDENT AUDITORS
The Audit Committee of the Board is responsible for the appointment,
compensation and retention of our independent auditors. Grant Thornton LLP
served as the independent auditors for the Company for fiscal year 2008. The
Board of Directors recommends that the shareholders ratify the appointment of
Grant Thornton LLP to serve as the independent auditors for the Company for
fiscal year 2009. If the shareholders do not ratify this appointment, the Audit
Committee will consider other independent auditors.
Grant Thornton LLP has served as the independent auditor for the Company
since September 26, 2007. Representatives of Grant Thornton 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.
The Board of Directors recommends a vote "FOR" the proposal to ratify the
selection of Grant Thornton LLP as independent auditors for fiscal year 2009.
SHAREHOLDER PROPOSALS FOR 2009 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 9. For shareholder proposals and
nominations for director to be considered for inclusion in the proxy statement
for the 2009 Annual Meeting, the Company must receive them no later than April
28, 2009. Such proposals should be directed to Culp, Inc., Attention: Corporate
Secretary, 1823 Eastchester Drive, Post Office Box 2686, High Point, North
Carolina 27261.
DELIVERY OF ADDITIONAL COPIES OF PROXY STATEMENTS
As permitted by the Securities Exchange Act of 1934, as amended, only one
copy of the proxy statement and Annual report is being delivered to shareholders
residing at the same address, unless such shareholders have notified the Company
of their desire to receive multiple copies of the proxy statement. The Company
will promptly deliver, upon oral or written request, a separate copy of the
proxy statement and Annual Report to any shareholder residing at an address to
which only one copy was mailed. Requests for additional copies and/or requests
for multiple copies of the proxy statement and Annual Report in the future
should be directed to Culp Inc., Attn. Kenneth R. Bowling, 1823 Eastchester
Drive, Post Office Box 2686, High Point, North Carolina 27261-2686, or by
calling (336) 889-5161 and asking to speak to Mr. Bowling.
Shareholders residing at the same address and currently receiving
multiple copies of the proxy statement and Annual Report may contact the Company
as noted above to request that only a single copy of the proxy statement and
Annual Report be mailed in the future.
30
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 2008 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 R. BOWLING, CORPORATE SECRETARY, 1823 EASTCHESTER
DRIVE, P. O. BOX 2686, HIGH POINT, NORTH CAROLINA 27261
31