SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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 Section 240.14a-11(c) or Section 240.14a-12
CULP, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
(LOGO)
CULP
101 South Main Street
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 15, 1998
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TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders of Culp, Inc. (the "company") will be held at
the Radisson Hotel, 135 South Main Street, High Point, North Carolina on
Tuesday, September 15, 1998 at 9:00 a.m. local time, for the purpose of
considering and acting on the following matters:
(1) To ratify the appointment of KPMG Peat Marwick LLP as the
independent auditors of the company for the current fiscal year; and
(2) To elect four (4) directors, 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 22, 1998
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 Annual Report of the company also accompanies this notice.
BY ORDER OF THE BOARD OF DIRECTORS.
By: /s/ Kathy J. Hardy
--------------------------
KATHY J. HARDY
Corporate Secretary
July 31, 1998
(LOGO)
CULP
PROXY STATEMENT
---------------
INTRODUCTION
This Proxy Statement is furnished to the shareholders of Culp, Inc.
(hereinafter 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 15,
1998, at 9:00 a.m. at the Radisson Hotel, 135 South Main Street, High Point,
North Carolina, and at any adjournment or adjournments thereof. Action will be
taken at the Annual Meeting on the ratification of the appointment of
independent auditors, the election of certain directors, and any other business
that properly comes before the meeting.
This Proxy Statement and accompanying form of proxy are first being mailed
to shareholders on or about July 31, 1998.
Whether or not you expect to attend the Annual Meeting, please complete,
date and sign the accompanying form of proxy and return it promptly to ensure
that your shares are voted at the meeting. Any shareholder giving a proxy may
revoke it at any time before a vote is taken: (i) by duly executing a proxy
bearing a later date; (ii) by executing a notice of revocation in a written
instrument filed with the secretary of the company; or (iii) by appearing at the
meeting and notifying the secretary of the intention to vote in person. Unless a
contrary choice is specified, all shares represented by valid proxies received
pursuant to this solicitation, and not revoked before they are exercised, will
be voted for the ratification of the appointment of KPMG Peat Marwick LLP as the
independent auditors of the company for the current fiscal year, and for the
election of the four (4) directors named in this Proxy Statement. The proxy also
confers discretionary authority upon the persons named therein, or their
substitutes, with respect to any other business that may properly come before
the meeting. Unless otherwise stated herein, each matter submitted to the
shareholders requires the affirmative vote of a majority of the votes cast at
the Annual Meeting for approval. A shareholder abstaining from the vote on a
proposal will be counted as present for purposes of determining whether a quorum
is present, but will be counted as not having voted on the proposal in question.
This means that in cases where a majority of the shares represented is required
to approve a proposal, an abstention will have the effect of a vote against the
proposal in question.
The company will bear the entire cost of preparing this Proxy Statement
and of soliciting proxies. Proxies may be solicited by employees of the company,
either personally, by special letter, or by telephone. The company also will
request brokers and others to send solicitation material to beneficial owners of
the company's stock and will reimburse them for this purpose upon request.
1
VOTING SECURITIES
Only shareholders of record at the close of business on July 22, 1998 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
12,995,021.
The following table lists the beneficial ownership of the company's common stock
("Common Stock") with respect to: (i) each person known by the company to be the
beneficial owner of more than five percent of such Common Stock; as shown on the
last public filing made by each such person, and (ii) all executive officers,
directors and nominees of the company as a group, a total of 12 persons, as of
July 22, 1998.
Number of Shares Percent of
Title of Name and Address of Beneficially Outstanding
Class Beneficial Owner Owned Shares
----- ---------------- ----- ------
Common Stock, Robert G. Culp, III 3,014,723 (1) 23.0%
par value, 903 Forrest Hill Drive
$.05 per share High Point, NC 27262
Winsal & Company 2,408,750(2) 18.5%
c/o First Union Corporation
401 S. Tryon Street
Fiduciary Operations NC1151
Charlotte, NC 28288-1151
Dimensional Fund Advisors, Inc. 702,640(3) 5.4%
Ocean Avenue, 11th Floor
Santa Monica, CA 90401
T. Rowe Price Associates, Inc. 909,200(4) 7.0%
100 East Pratt Street
Baltimore, Maryland 21289-1009
All executive officers, 3,613,825(5) 27.2%
directors and nominees
as a group (12) persons
(1) These shares include all of the shares listed below that also are
beneficially owned in the name of Winsal & Company as trustee of the Robert
G. Culp, Jr. Family Trust, all of which shares Robert G. Culp, III has the
right to vote and jointly (with Winsal & Company) has the right to invest.
(SEE NOTE (2) BELOW); also includes 63,338 shares held of record by Susan
B. Culp, the wife of Mr. Culp, the beneficial ownership of which shares Mr.
Culp disclaims, 2,218 shares owned by Mr. Culp's wife as custodian for his
daughter, the beneficial ownership of which shares Mr. Culp disclaims, and
includes 129,500 shares subject to options owned by Mr. Culp that are
immediately exercisable.
(2) All of these shares also are included in the shares listed above for Robert
G. Culp, III (SEE NOTE (1) ABOVE). Includes 709,375 shares held of record
by Winsal & Company for the benefit of Judith C. Walker, sister of Robert
G. Culp, III; 505,000 shares held of record by Winsal & Company for the
benefit of Harry R. Culp, brother of Robert G. Culp, III, and 1,194,375
shares held of record by Winsal & Company for the benefit of Robert G.
Culp, III, all of which shares Robert G. Culp, III has the right to vote
and jointly (with Winsal & Company) has the right to invest.
2
(3) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 702,640 shares of Culp,
Inc. stock as of March 31, 1998, all of which shares are held in portfolios
of DFA Investment Dimensions Group Inc., a registered open-end investment
company, or in series of the DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and DFA Participation Group Trust,
investment vehicles for qualified employee benefit plans, all of which
Dimensional Fund Advisors Inc. serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.
(4) These securities are owned by various individual and institutional
investors as of March 31, 1998, which T. Rowe Price Associates, Inc. (Price
Associates) serves as investment adviser 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) Includes 283,875 shares subject to options owned by certain officers and
directors that are immediately exercisable.
PROPOSAL 1: INDEPENDENT AUDITORS
The Board of Directors recommends that the shareholders ratify the board's
appointment of KPMG Peat Marwick LLP to serve as the auditors for the company
for the fiscal year ending May 2, 1999. The Audit Committee recommended such
appointment to the board. KPMG Peat Marwick LLP served as the independent
auditors for the company for the last eight fiscal years. Representatives of the
firm are expected to attend the Annual Meeting and will have the opportunity to
make any statements they consider appropriate and to respond to shareholders'
questions. The proposal to ratify the appointment will be approved upon the vote
of a majority of the votes cast on the proposal.
PROPOSAL 2: ELECTION OF DIRECTORS
The number of directors constituting the board has been fixed at ten by the
company's shareholders in accordance with the company's bylaws.
The company's bylaws provide that the Board of Directors shall be divided
into three classes of directors with staggered three-year terms, so that one
class or approximately one-third of the Board of Directors will be elected every
year. At the Annual Meeting the shareholders will be asked to elect four (4)
directors. Three of the directors elected will serve for a term of three years
(until the 2001 Annual Meeting of Shareholders) or until his successor shall be
elected and shall qualify, and one will be elected to serve until the 1999
Annual Meeting or until his successor shall be elected and shall qualify. The
four directors whose terms expire at the 1998 Annual Meeting (Howard L. Dunn,
Jr., Earl N. Phillips, Jr., Bland W. Worley, and Robert T. Davis) have been
nominated for re-election. Messrs. Dunn, Phillips and Worley were elected to a
three-year term at the 1995 Annual Meeting, and Mr. Davis was appointed to the
Board in March 1998 to serve until the next Annual Meeting. In accordance with
the company's bylaws, Mr. Davis will be placed into the class of directors with
terms expiring in 1999.
In the absence of specifications to the contrary, proxies will be voted for
the election of each of the four (4) nominees listed in the table below. An
equal number of votes will be cast for each nominee and 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.
3
Nominees, Directors and Executive Officers
The following table sets forth certain information with respect to the four (4)
nominees for election to the Board of Directors, the five (5) other directors
and the executive officers of the company:
SHARES AND PERCENT
YEAR YEAR OF COMMON STOCK
BECAME TERM BENEFICIALLY OWNED
NAME AND AGE POSITION WITH COMPANY (1) DIRECTOR EXPIRES AS OF JULY 22, 1998 NOTES
- ------------ ------------------------- -------- ------- ------------------- -----
NOMINEES
- --------
Robert T. Davis, 71 Director 1998 1998 132,308
1.0%
Howard L. Dunn, Jr., 60 President and Chief 1972 1998 316,247 (5)
Operating Officer; Director 2.4%
Earl N. Phillips, Jr., 58 Director 1992 1998 14,450 (2)(8)
Bland W. Worley, 80 Director 1983 1998 13,312 (2)(9)
DIRECTORS AND
- -------------
EXECUTIVE OFFICERS
- ------------------
Harry R. Culp, 46 Director 1996 1999 3,750 (2)(11)
Robert G. Culp, III, 51 Chairman of the Board and 1972 2000 3,014,723 (4)
Chief Executive Officer; 23.0%
Director
Earl M. Honeycutt, 80 Director 1983 2000 9,375 (2)(6)
Patrick H. Norton, 76 Director 1987 2000 36,916 (2)(7)
Franklin N. Saxon, 45 Senior Vice President and 1987 1999 43,744 (2)(3)
President of the Culp
Velvets/Prints division;
Director
Dan E. Jacobs, 49 Senior Vice President and N/A N/A 5,000 (2)(12)
President of the Culp
Decorative Fabrics division
Kenneth M. Ludwig, 45 Senior Vice President-Human N/A N/A 23,500 (2)(10)
Resources; Assistant Secretary
Phillip W. Wilson, 42 Vice President and N/A N/A 500 (2)
Chief Financial Officer
(1) Officers of the company are elected by the Board of Directors each year.
The present officers were elected by the board on June 16, 1998.
4
(2) Less than one percent (1%)
(3) Includes 24,500 shares subject to options owned by Mr. Saxon that are
immediately exercisable and approximately 18,828 shares owned through the
company's 401(k) plan.
(4) Includes 2,048,750 shares held of record by Winsal & Company 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
Winsal & Company) has the right to invest; includes 63,338 shares held of
record by Susan B. Culp, wife of Robert G. Culp, III, the beneficial
ownership of which shares Mr. Culp, III disclaims, 2,218 owned by Mr.
Culp's wife as custodian for his daughter, the beneficial ownership of
which shares Mr. Culp disclaims, and 129,500 shares subject to options
owned by Mr. Culp that are immediately exercisable.
(5) Includes 66,715 shares owned by Patricia Dunn, wife of Mr. Dunn, and
72,375 shares subject to options owned by Mr. Dunn that are immediately
exercisable.
(6) Includes 5,625 shares subject to options owned by Mr. Honeycutt that are
immediately exercisable.
(7) Includes 9,375 shares subject to options owned by Mr. Norton that are
immediately exercisable.
(8) Includes 100 shares owned by Sally Phillips, wife of Mr. Phillips, and
9,375 shares subject to options owned by Mr. Phillips that are immediately
exercisable.
(9) Includes 500 shares owned by Ada Worley, wife of Mr. Worley, the
beneficial ownership of which shares Mr. Worley disclaims, and 1,875
shares subject to options owned by Mr. Worley that are immediately
exercisable.
(10) Includes 23,500 shares subject to options owned by Mr. Ludwig that are
immediately exercisable.
(11) Includes 3,750 shares subject to options owned by Mr. Culp that are
immediately exercisable.
(12) Includes 4,000 shares subject to options owned by Mr. Jacobs that are
immediately exercisable.
NOMINEES
ROBERT T. DAVIS has served as chairman of Artee Industries, Incorporated
("Artee") since 1984 when he and his family purchased the company. Culp, Inc.
purchased substantially all of the assets of Artee in February 1998. Davis and a
group of investors started Wrap Spun Yarns, Inc. in 1985, and in 1990 merged
that company into Artee. He had previously been associated with Collins & Aikman
and Dixie Yarns. Davis is a past president of the American Yarns Spinners
Association and is currently a director of the American Textile Manufacturers
Institute.
HOWARD L. DUNN, JR. is one of the founders of the company and served as
vice president of manufacturing and product development from 1972 until 1988,
when the board elected Mr. Dunn executive vice president. The board elected Mr.
Dunn president and chief operating officer in 1993.
EARL N. PHILLIPS, JR. is a co-founder of First Factors Corporation, an
asset-based lending firm located in High Point, North Carolina. First Factors
Corporation was acquired by GE Capital in February 1998, and Mr. Phillips
currently serves as chairman and chief executive officer of GE Capital First
Factors.
5
BLAND W. WORLEY served as chief executive officer of
BarclaysAmericanCorporation, Charlotte, North Carolina from 1975 until 1982 and
as chairman of the board of that corporation until his retirement in 1985.
BarclaysAmericanCorporation is a financial services company.
OTHER OFFICERS AND DIRECTORS:
ROBERT G. CULP, III is one of the founders of the company and was
executive vice president and secretary until 1981 when he was elected by the
board to serve as president. The board elected Mr. Culp chief operating officer
in 1985, and chief executive officer in 1988. In 1990, the Board of Directors
elected Mr. Culp chairman of the board. He was recently elected to serve as a
member of the North Carolina board of First Union National Bank. He also serves
as a trustee of High Point University. He is the brother of Harry R. Culp.
HARRY R. CULP has been practicing dentistry in High Point since July 1981.
He is the brother of Robert G. Culp, III. He has served previously as a director
of the company from September 1990 to September 1993.
EARL M. HONEYCUTT served as president of Amoco Fabrics and Fibers Company,
a textile manufacturing subsidiary of Amoco Chemical Corporation, Atlanta,
Georgia, for 15 years until his retirement in 1983.
PATRICK H. NORTON joined La-Z-Boy, Inc. in 1981 as senior vice president
of sales and marketing. Mr. Norton served in this position until 1997 when he
was elected Chairman of the Board of La-Z-Boy, Inc. He currently serves as a
member of the board of directors of the American Furniture Manufacturers
Association.
FRANKLIN N. SAXON has been employed by the company since 1981, serving in
various capacities, including chief financial officer from 1985 to 1998. At the
June 16, 1998 board meeting, he was elected senior vice president and president
of the Culp Velvets/Prints division.
KENNETH M. LUDWIG joined the company in 1985 as director of personnel. The
board elected Mr. Ludwig vice president-human resources in 1986 and senior vice
president-human resources in 1996.
DAN E. JACOBS has been employed by the company and has managed the
Rossville/Chromatex unit since its acquisition in 1993. Before that time, he was
employed by the former owners of Rossville/Chromatex. The board elected Mr.
Jacobs senior vice president and president of the Culp Decorative Fabrics
division in June 1998.
PHILLIP W. WILSON joined the company in October 1997 as director of
logistics. Prior to joining the company, Mr. Wilson was a partner in a CPA firm
since 1987. Through his partnership, Mr. Wilson provided consulting services to
the company. Additionally, he was the company's internal auditor from March 1993
until he was elected to the position of vice president and chief financial
officer by the board in June 1998.
BOARD COMMITTEES AND ATTENDANCE
There are four standing committees of the Board of Directors: Executive
Committee, Audit Committee, Compensation Committee, and Nominating Committee.
The Executive Committee, the members of which are Messrs. Culp, Dunn, and
Saxon, may exercise the full authority of the Board of Directors when the board
is not in session, except for certain powers related to borrowing, electing
certain officers, and other powers that may not lawfully be delegated to board
committees.
6
Messrs. Honeycutt and Worley serve on the Audit Committee. The function of
the Audit Committee is to review the scope of the audits and the findings of the
independent auditors. The auditors meet with the Audit Committee to discuss
audit and financial reporting issues. The committee also reviews the company's
significant accounting policies, major internal accounting controls, reports
from the company's internal auditors, the Annual Report to shareholders, and the
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
The Compensation Committee approves matters relating to compensation,
including fringe benefits and benefit plans for management and directors of the
company, and reports to the Board of Directors from time to time as to its
recommendation on compensation and policies for both management and directors.
The committee also administers the company's stock option plans. The members of
this committee are Messrs. Honeycutt and Worley.
The members of the Nominating Committee, which recommends nominees for
election to the Board of Directors, are Messrs. Culp, Norton, and Worley. The
nominees for election to the Board of Directors contained in this Proxy
Statement have been chosen by the Nominating Committee. Recommendations from
shareholders for nominees to the Board of Directors will be considered by the
Nominating Committee if made in writing addressed to any member of the
Nominating 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.
During the fiscal year ended May 3, 1998, the Board of Directors had nine
(9) meetings; the Audit Committee, six (6) meetings; the Compensation Committee
three (3) meetings, and the Nominating Committee, one (1) meeting. 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. 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 1998, and took action on one (1) occasion by written
consent. All significant management decisions requiring action by the Board of
Directors were considered and acted upon by the full board.
7
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth compensation
paid by the company in the forms specified therein for the years ended May 3,
1998, April 27, 1997, and April 28, 1996 to (i) the chief executive officer of
the company and (ii) the company's three other executive officers.
SUMMARY COMPENSATION TABLE
=========================================================================================
Annual Compensation Long-Term Compensation All Other
Name and ------------------- ---------------------- ---------
Principal Position Year Salary $ Bonus $ Option Grants # Compensation
- ------------------ ---- -------- ------- --------------- ------------
(1)(2)
------
Robert G. Culp, III 1998 265,000 195,570 15,000 93,200(3)
Chairman of the Board; 1997 250,000 250,000 12,000 51,192
Chief Executive Officer 1996 210,000 210,000 12,000 16,920
Howard L. Dunn, Jr. 1998 225,000 166,050 10,000 46,650(3)
President and 1997 210,000 210,000 8,000 43,146
Chief Operating Officer 1996 175,000 175,000 8,000 22,640
Franklin N. Saxon 1998 150,000 55,350 7,000 35,500(4)
Senior Vice President and 1997 140,000 70,000 5,000 11,496
President of the Culp 1996 111,000 66,600 5,000 10,383
Velvets/Prints division
Kenneth M. Ludwig 1998 125,000 46,125 7,000 22,145(4)
Senior Vice President- 1997 117,000 58,500 5,000 3,599
Human Resources; 1996 96,800 58,080 5,000 3,448
Assistant Secretary
(1)Includes the company's matching contribution to such officers' accounts
under the Employee Retirement Builder 401(k) Plan.
(2)Includes reportable interest on deferred compensation. In 1998, these
amounts were $11,500 for Mr. Culp; $12,250 for Mr. Dunn; $11,300 for Mr.
Saxon; and $1,395 for Mr. Ludwig.
(3)Includes annual premiums of $78,500 paid by the company for split-dollar
life insurance on the life of Mr. Culp, and $31,200 for split-dollar life
insurance on the life of Mr. Dunn.
(4)Includes supplemental deferred compensation payments of $21,000 to Mr.
Saxon, and $17,550 to Mr. Ludwig.
================================================================================
8
OPTION GRANTS TABLE. The following table sets forth certain information
concerning grants of stock options to the executive officers named in the
Summary Compensation Table during the year ended May 3, 1998.
STOCK OPTION GRANTS IN FISCAL 1998
================================================================================
Potential Realizable Value at
% of Total Assumed Annual Rates of
Options Market Stock Price Appreciation
Granted to Exercise or Price on for Option Term
Options Employees in BasePrice Date of Expiration -------------------------
Granted Fiscal Year(%) $/Share) Grant Date 5%($) 10%($)
------- -------------- -------- ----- ---- ------- -------
Robert G. Culp, III 15,000 19.7 20.25 20.25 12-15-07 190,961 483,893
Howard L. Dunn, Jr. 10,000 13.2 20.25 20.25 12-15-07 127,307 322,596
Franklin N. Saxon 7,000 9.2 20.25 20.25 12-15-07 89,114 225,817
Kenneth M. Ludwig 7,000 9.2 20.25 20.25 12-15-07 89,114 225,817
================================================================================
OPTION EXERCISES AND YEAR-END VALUE TABLE. The following table sets forth
certain information concerning exercises of stock options during fiscal 1998 by
the executive officers named in the Summary Compensation Table, and options held
by such officers at the end of fiscal 1998.
AGGREGATED OPTION EXERCISES IN FISCAL 1998
AND FISCAL YEAR OPTION VALUES
================================================================================
Number of Value of Unexercised
Unexercised Options In-the-Money Options
at Fiscal Year-End(#) at Fiscal Year-End($)(1)
Shares Acquired Value ---------------------------- ---------------------------
on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
--------------- ------------ ----------- ------------- ----------- -------------
Robert G. Culp, III -0- -0- 129,500 40,000 1,650,667 446,875
Howard L. Dunn, Jr. -0- -0- 72,375 28,000 964,822 321,750
Franklin N. Saxon 2,500 48,531 24,500 17,000 275,712 178,750
Kenneth M. Ludwig 3,500 70,762 23,500 17,000 256,887 178,750
(1) Closing price of company stock at May 3, 1998 was $18.875.
================================================================================
9
PERFORMANCE COMPARISON
The following graph shows changes over the five-year period ending May 3,
1998 in the value of $100 invested in (1) the Common Stock of the company, (2)
the New York Stock Exchange Market Index, and (3) the Textile Manufacturing
Index reported by Media General Financial Services, Richmond, Virginia,
consisting of twenty-three (23) companies (including the company) in the textile
industry. The graph shows year-end values for an investment in each of the three
investments described, assuming the reinvestment of dividends and excluding any
trading commissions or taxes.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG CULP, INC.,
NYSE MARKET INDEX AND MG GROUP INDEX
(Performance Graph appears here. See table below for plot points.)
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
CULP, INC. 100 162.69 137.99 184.25 256.21 276.26
MG GROUP INDEX 100 91.72 88.82 90.00 110.26 131.72
NYSE MARKET INDEX 100 107.26 120.04 155.06 186.83 262.94
ASSUMES $100 INVESTED ON MAY 1, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING May 3,1998
10
SEVERANCE PROTECTION PLAN. In September 1989, the company adopted a
Severance Protection Plan, which covers officers and key management associates
("Executives") of the company. The Severance Protection Plan provides for the
company and covered Executives to enter into written agreements that do not
become effective except upon a change in control (as defined in such agreements)
of the company. If a change in control occurs, the agreements provide that the
Executive will be entitled to continued employment with the company with the
same basic responsibilities and compensation as before the change in control for
a period of one year. If the Executive is terminated, demoted or has his pay or
benefits reduced for reasons other than good cause, or if the Executive
terminates his employment voluntarily after serving nine months of the one-year
employment period, the Executive is entitled to a lump sum payment equal to the
Executive's base salary plus bonus during the twelve months immediately
preceding the termination of employment. The plan does not prevent the company
from terminating the Executive for cause at any time. The purpose of the
Severance Protection Plan is to ensure the company continuity of management and
the Executive continuity of employment in the event of any actual or threatened
change in control of the company. The plan is not intended to alter materially
the compensation and benefits a covered Executive could reasonably expect in the
absence of such a change in control. As of May 3, 1998, the company's potential
obligation pursuant to the Severance Protection Plan was $1,353,500, which is
the amount that would be expended by the company under the Plan if all of the
designated executives were terminated or otherwise entitled to benefits after a
change in control of the company.
COMPENSATION OF DIRECTORS. Directors who are also officers of the company
do not receive additional compensation for service as directors. Non-employee
directors receive $10,000 per year for participation as a member of the Board of
Directors, $2,000 per year for each committee on which they serve, and an annual
stock option grant of 1,875 shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The members
of the Compensation Committee, both of whom are non-employee directors, are Earl
M. Honeycutt and Bland W. Worley. No member of the committee serves on the
Compensation Committee of another corporation that has a business relationship
with the company.
COMPENSATION COMMITTEE REPORT. The following is a report of the
Compensation Committee on compensation of executive officers for the fiscal year
ended May 3, 1998.
The Compensation Committee has based compensation for the company's
executive officers on three primary factors: (1) compensation paid to executive
officers at comparable firms in the company's industry, (2) the individual
executive's performance and contribution to the company, and (3) the financial
performance of the company. In general, the committee has set base salaries for
executives relying most heavily on the first two factors mentioned above, and
has linked executive compensation to the third factor, the company's financial
performance, through (a) incentive cash bonuses that are based on the annual
financial results of the company and (b) periodic grants of stock options to
executive officers.
As it has done for each of the past several years, the committee reviewed
published compensation surveys and proxy information from firms in the company's
industry, including many of the companies included in the Performance Comparison
data. Based upon this review and based on general knowledge of the industry, the
committee believes that the base salaries paid to the company's executive
officers are at or below those generally prevailing in the company's industry
and for other manufacturing companies of similar size. For this reason, a larger
portion of the compensation paid to the company's executives is based on
incentive compensation (cash bonuses and stock options) that is dependent upon
the company's financial results. Even after including incentive compensation,
the committee believes that total cash compensation paid to the company's
executives is generally lower than comparable compensation paid to executives in
the company's industry. This is especially true of the company's Chief Executive
Officer.
Under the company's Management Incentive Plan, certain executives and key
associates (including those in the Summary Compensation Table) are selected by
the Compensation Committee (based on management recommendations) to
11
receive annual cash bonuses based on the company's financial results. The
Compensation Committee (based on the recommendations of management) sets
performance targets for the company in terms of financial measurements judged by
the committee to be relevant indicators of management and corporate performance.
Cash bonuses are then awarded to the executives participating in the plan
pursuant to a formula that pays a percentage of the maximum bonus award
established by the committee for each participating executive based upon the
percentages of the performance targets the company achieves in a fiscal year.
The cash bonuses shown in the Summary Compensation Table were paid under this
plan.
The committee maintains a policy of encouraging executives to make
significant investments in the company's stock, so that executive officers'
long-term interests will be aligned with those of the company's shareholders. To
that end, the committee periodically approves the grant of stock options to
executive officers under the company's stock option plans. The Compensation
Committee believes that the company's option plans have been successful in
helping the company attract and retain skilled management to focus on efforts to
increase the company's earnings and returns for its shareholders.
Periodic grants of incentive stock options are made to the executive
officers and selected other employees under the company's Incentive Stock Option
Plan, which was adopted by the company and approved by the company's
shareholders in 1993. These options are granted at exercise prices equal to the
fair market value of the underlying shares at the time the option is granted.
In addition to the Incentive Stock Option Plan, the company has adopted
two Performance-Based Option plans under which options are granted to senior
management with exercise prices significantly below fair market value of the
underlying shares, but which do not become exercisable unless the company
achieves certain growth rates in its earnings or for a period of nine to ten
years after grant. The purpose of these plans is to provide incentive to senior
management to maximize the company's earnings potential and to make a
significant portion of executive compensation contingent on meeting earnings
targets.
In 1994, the company adopted (and the shareholders subsequently approved)
the 1994 Performance-Based Option Plan, which provided for the one-time grant to
executives of options that could become exercisable after the announcement of
earnings for fiscal 1997 only if the company met a targeted compound growth rate
of 13% over that three-year period (otherwise these options would not become
exercisable until January 1, 2003). The company's reported earnings for fiscal
1997 were at a level that allowed the options to become exercisable in May of
1997, and represented a compound growth rate of 20% for the three years which
ended April 27, 1997.
In 1997, the company adopted (and the shareholders approved) the 1997
Performance-Based Option Plan. This plan is similar in concept to the 1994
Performance-Based Option Plan, in that it provides for the one-time grant to
executives of options that could become exercisable if the company's earnings
reach a specified target by the end of fiscal 1999. Otherwise, the options do
not become exercisable until January 1, 2006. The earnings target under the 1997
Performance-Based Option Plan is $1.50 per share, representing a 12.7% compound
annual growth rate from fiscal 1997 to fiscal 1999.
The base salaries for all executive officers, including the Chief
Executive Officer, were increased for fiscal 1998 at rates that were designed to
move these salaries closer to those prevailing in the industry. The company's
net income for fiscal 1998 (the measure used for the performance target for the
year) was at a level that allowed bonus awards of 73.8% of the maximum level to
be paid pursuant to the Management Incentive Plan. While the committee expects
that total cash compensation for the company's executives will remain at or
below industry averages, the committee also recognizes that compensation will
need to be increased in future years for the company to attract and retain
quality management.
The Compensation Committee approved grants of stock options to certain
officers and employees during fiscal 1998 to increase the opportunity of these
employees to participate in the growth of the company and the value of its
stock. The specific levels of options granted generally reflected the level of
responsibility of the employees and officers receiving the option awards and the
committee's judgment about the direct link between the employee's performance
and decisions and
12
the company's financial results. For that reason, more senior officers received
larger awards, and the Chief Executive Officer received a significantly larger
award than other officers did. A significant portion of the total compensation
of executive officers and other senior management is linked directly to the
company's financial performance through options granted under the
performance-based option plans.
A supplemental deferred compensation plan was adopted during fiscal 1998
for the company's two Senior Vice Presidents. This plan provides for additional
deferred compensation payments for the benefit of each of the Senior Vice
Presidents in the amount of fifteen percent of such officers' base salary for
the fiscal year. The committee adopted this plan for the specified officers in
lieu of providing split dollar life insurance plans such as those provided for
the Chief Executive Officer and the President, as discussed below.
The compensation for the Chief Executive Officer is determined under the
same policies and practices used for all of the company's executive officers, as
discussed above. In addition, the company has provided a split-dollar life
insurance plan for the Chief Executive Officer for many years; this program was
continued in fiscal 1998 and now includes a split-dollar life insurance plan for
the President. The committee believes this type of plan provides a cost
effective means of providing this benefit, since the company expects to recover
the cost of premium payments on the plan from the cash value of the insurance
policy.
The foregoing report has been furnished by the members of the Compensation
Committee:
Earl M. Honeycutt, Chairman
Bland W. Worley
13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LEASE TRANSACTIONS. The company leases three (3) industrial facilities
from partnerships owned by certain of the company's executive officers,
directors, principal shareholders and members of their immediate families.
Principals of these related entities include Esther R. Culp (mother of Robert G.
Culp, III), Robert G. Culp, III, Judith C. Walker (sister of Robert G. Culp,
III), and Harry R. Culp (brother of Robert G. Culp, III and director). These
facilities contain a total of 375,000 square feet of floor space. The company
also leases its headquarters office space (37,016 square feet) from Phillips
Interests, Inc. Earl N. Phillips, Jr. is the president and a director of
Phillips Interests, Inc. and a director of the company. (See "Certain Business
Relationships").
The initial terms of the leases described above generally range from five
to ten years, with one or more five-year renewal options. Base rent per year for
the leased industrial facilities ranges from $1.95 to $2.05 per square foot. The
leases typically prohibit assignment or subletting without the lessor's consent
but such consent may not be unreasonably withheld. The lessor is generally
responsible for maintenance only of roof and structural portions of the leased
facilities. The industrial facilities are leased on a "triple net" basis, with
the company responsible for payment of all property taxes, insurance premiums
and maintenance, other than structural maintenance. The company believes that at
the time the leases and any lease renewals were executed the terms of all such
leases were no less favorable to the company than could have been obtained in
arms-length transactions with unaffiliated persons. The company received
independent appraisals to this effect with respect to the industrial facility
leases. At the time the company entered into the lease with Phillips Interests,
Inc. (January 19, 1990), Mr. Phillips was not a director of the company. Related
party leases and amendments thereto are approved by the Audit Committee and are
reviewed annually by the Audit Committee. The total amounts of rent paid by the
company under the industrial facilities and office leases during fiscal 1998
were approximately $724,000 and $482,000, respectively.
CERTAIN BUSINESS RELATIONSHIPS. The company had sales of approximately
$30.5 million, 6.4% of the company's net sales, to La-Z-Boy, Inc. in fiscal
1998. Patrick H. Norton, a director of Culp, Inc., serves as chairman of the
board of La-Z-Boy, Inc.
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 27, 1997. 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
27, 1997, its insiders have complied with all applicable Section 16(a) reporting
requirements.
================================================================================
14
YOUR DIRECTORS RECOMMEND VOTES "FOR"
O THE RATIFICATION OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR FISCAL 1999
O THE FOUR NOMINEES FOR DIRECTOR
================================================================================
15
SHAREHOLDER PROPOSALS FOR 1999 MEETING
Shareholders may submit proposals appropriate for shareholder action at
the company's Annual Meeting consistent with the regulations of the Securities
and Exchange Commission and the company's bylaws. The nominees named in this
Proxy Statement are those chosen by the Nominating Committee of the Board of
Directors. Nominations may also be made by shareholders in accordance with the
company's bylaws. The bylaws require that such nominations must be received by
the company at least 120 days prior to the Annual Meeting and shall include
certain biographical and other information about the persons nominated as
specified in the bylaws. For shareholder proposals and nominations for director
to be considered for inclusion in the Proxy Statement for the 1999 Annual
Meeting, the company must receive them no later than May 2, 1999. Such proposals
should be directed to Culp, Inc., Attention: Phillip W. Wilson, Vice President
and Chief Financial Officer, 101 South Main Street, Post Office Box 2686, High
Point, North Carolina 27261.
OTHER MATTERS
The company's management is not aware of any matter that may be
presented for action at the Annual Meeting other than the matters set forth
herein. Should any matters requiring a vote of the shareholders arise, it is
intended that the accompanying proxy will be voted in respect thereof in
accordance with the best judgment of the person or persons voting the proxy,
discretionary authority to do so being included in the proxy.
By Order of the Board of Directors,
By: /s/ Phillip W. Wilson
-------------------------
PHILLIP W. WILSON
VICE PRESIDENT AND CHIEF FINANCIAL 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 1998 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: PHILLIP W. WILSON, VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER, 101 SOUTH MAIN STREET, P. O. BOX 2686, HIGH POINT, NORTH CAROLINA
27261.
16
********************************************************************************
APPENDIX
P R O X Y CULP, INC.
This Proxy Is Solicited On Behalf Of The Board Of Directors
The undersigned hereby appoints Robert G. Culp, III, Kathy J. Hardy and
Phillip W. Wilson, and each of them, attorneys and proxies with full power of
substitution, to act and vote as designated below the shares of common stock of
Culp, Inc. held of record by the undersigned on July 22, 1998, at the Annual
Meeting of Shareholders to be held on September 15, 1998, or any adjournment or
adjournments thereof.
1. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE
COMPANY'S INDEPENDENT AUDITORS FOR FISCAL 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. ELECTION OF DIRECTORS:
[ ] FOR the 4 nominees listed below [ ] WITHHOLD AUTHORITY to vote for
(except as marked in the contrary) the 4 nominees listed below.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Howard L. Dunn, Jr., Earl N. Phillips, Jr.,
Bland W. Worley, and Robert T. Davis
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON ANY OTHER
BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING.
(Continued on other side)
(Continued from other side)
THIS PROXY WILL BE VOTED AS DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR THE RATIFICATION OF KPMG PEAT MARWICK LLP AS INDEPENDENT
AUDITORS IN PROPOSAL 1, AND FOR THE NOMINEES LISTED IN PROPOSAL 2. IF, AT OR
BEFORE THE TIME OF THE MEETING, ANY OF THE NOMINEES LISTED ABOVE HAS BECOME
UNAVAILABLE FOR ANY REASON, THE PROXIES HAVE THE DISCRETION TO VOTE FOR A
SUBSTITUTE NOMINEE OR NOMINEES.
Dated: _______________, 1998 ________________________________(SEAL)
Signature
________________________________(SEAL)
Signature
(PLEASE SIGN EXACTLY AS NAME APPEARS
ON THIS CARD. IF SIGNING AS ATTORNEY,
ADMINISTRATOR, EXECUTOR, GUARDIAN, OR
TRUSTEE, PLEASE GIVE SUCH TITLE. IF
SIGNING ON BEHALF OF A CORPORATION,
PLEASE GIVE NAME AND TITLE OF
AUTHORIZED OFFICER SIGNING.)
