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:
[Culp Logo appears here]
CULP
101 South Main Street
Post Office Box 2686
High Point, North Carolina 27261-2686
Telephone: (336) 889-5161
NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD
September 21, 1999
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 21, 1999 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 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 19, 1999
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
August 13, 1999
[Culp Logo appears here]
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 21,
1999, 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 August 13, 1999.
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 LLP as the independent
auditors of the company for the current fiscal year, and for the election of the
four (4) directors named as nominees 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 19, 1999 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
12,040,484.
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 13 persons, as of
July 26, 1999.
Title of Name and Address of Number of Shares Percent of
Class Beneficial Owner Beneficially Outstanding
----- ---------------- Owned Shares
----- ------
Common Stock, Robert G. Culp, III 3,022,283(1) 24.8%
par value, 903 Forrest Hill Drive
$.05 per share High Point, NC 27262
Winsal & Company 2,408,750(2) 20.0%
c/o First Union Corporation
401 S. Tryon Street
Fiduciary Operations NC1151
Charlotte, NC 28288-1151
Dimensional Fund Advisors Inc. 848,140(3) 7.0%
Ocean Avenue, 11th Floor
Santa Monica, CA 90401
T. Rowe Price Associates, Inc. 974,400(4) 8.1%
100 East Pratt Street
Baltimore, Maryland 21289-1009
Capital Research & Management Company 635,000(5) 5.3%
333 South Hope Street
Los Angeles, California 90071
All executive officers,
directors and nominees
as a group (13) persons 3,676,900(6) 29.7%
(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, 4,698 shares owned by Mr. Culp's wife as custodian for his
daughter, the beneficial ownership of which shares Mr. Culp disclaims, and
includes 144,500 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;
2
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.
(3) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 848,140 shares of Culp,
Inc. stock as of March 31, 1999, 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, 1999, 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) Capital Research & Management Company, an investment adviser registered
under Section 203 of the Investment Advisers Act of 1940, is deemed to be
the beneficial owner of 635,000 shares, or 5.3% of the 12,040,484 shares of
common stock outstanding, as a result of acting as investment adviser to
various investment companies registered under Section 8 of the Investment
Company Act of 1940.
(6) Includes 331,375 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 LLP to serve as the auditors for the company for the fiscal
year ending April 30, 2000. The Audit Committee recommended such appointment to
the board. KPMG LLP served as the independent auditors for the company for the
last nine 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. Two of the three directors whose terms expire at the 1999 Annual
Meeting of Shareholders (Franklin N. Saxon and Robert T. Davis) have been
nominated for re-election. In addition, Judith C. Walker has been nominated to
serve a three-year term. Dan E. Jacobs has been nominated to fill the vacancy
created by the resignation of a director whose term was to expire in 2001, and
therefore he has been nominated to serve a two-year term.
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, and the nine (9) other
directors and executive officers of the company:
Shares and Percent
Year Year Of Common Stock
Became Term Beneficially Owned
Name and Age Position with Company(1) Director Expires As of July 26, 1999 Notes
- ------------ ------------------------ -------- ------- ------------------- -----
Nominees
- --------
Robert T. Davis, 72 Director 1998 1999 120,208 (12)
1%
Dan E. Jacobs, 50 Senior Vice President and N/A N/A 13,911 (2)(11)
President of the Culp Decorative
Fabrics division
Franklin N. Saxon, 47 Senior Vice President and 1987 1999 52,476 (2)(3)
President of the Culp
Velvets/Prints
division; Director
Judith C. Walker, 56 N/A N/A N/A 5,625 (2)(13)
Directors and
- -------------
Executive Officers
- ------------------
Harry R. Culp, 47 Director 1996 1999 5,625 (2)(10)
Robert G. Culp, III, 52 Chairman of the Board and 1972 2000 3,022,283 (4)
Chief Executive Officer; 24.8%
Director
Howard L. Dunn, Jr., 61 President and Chief Operating 1972 2001 340,300 (5)
Officer; Director 2.8%
Earl M. Honeycutt, 81 Director 1983 2000 11,250 (2)(6)
Patrick H. Norton, 77 Director 1987 2000 43,791 (2)(7)
Earl N. Phillips, Jr., 59 Director 1992 2001 23,350 (2)(8)
Kenneth M. Ludwig, 46 Senior Vice President - Human N/A N/A 36,276 (2)(9)
Resources; Assistant Secretary
Rodney A. Smith, 51 Senior Vice President and
President of the Culp Yarn division N/A N/A 98 (2)(14)
Phillip W. Wilson, 43 Vice President and N/A N/A 1,707 (2)(15)
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 15, 1999.
4
(2) Less than one percent (1%).
(3) Includes 31,500 shares subject to options owned by Mr. Saxon that are
immediately exercisable and approximately 20,560 shares owned through the
company's 401(k) plan.
(4) Includes 2,408,750 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, 4,698 owned by Mr.
Culp's wife as custodian for his daughter, the beneficial ownership of
which shares Mr. Culp disclaims, and 144,500 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, 72,625
shares subject to options owned by Mr. Dunn that are immediately
exercisable, and approximately 14,053 shares owned through the company's
401(k) plan.
(6) Includes 7,500 shares subject to options owned by Mr. Honeycutt that are
immediately exercisable.
(7) Includes 5,000 shares owned by LaVerne Norton, wife of Mr. Norton, and
11,250 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
11,250 shares subject to options owned by Mr. Phillips that are
immediately exercisable.
(9) Includes 30,500 shares subject to options owned by Mr. Ludwig that are
immediately exercisable, and approximately 5,776 shares owned through the
company's 401(k) plan.
(10) Includes 5,625 shares subject to options owned by Mr. Culp that are
immediately exercisable.
(11) Includes 11,000 shares subject to options owned by Mr. Jacobs that are
immediately exercisable, and approximately 1,911 shares owned through the
company's 40l(k) plan.
(12) Includes 200 shares owned by Helen Davis, wife of Mr. Davis.
(13) Includes 5,625 shares subject to options owned by Ms. Walker that are
immediately exercisable.
(14) Approximate number of shares owned by Mr. Smith through the company's
401(k) plan.
(15) Includes approximately 207 shares owned by Mr. Wilson through the
company's 401(k) plan.
Nominees:
ROBERT T. DAVIS was chairman of Artee Industries, Incorporated ("Artee")
from 1984 when he and his family purchased the company until February 1998, when
Culp, Inc. purchased substantially all of the assets of Artee. Mr. 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. Mr. Davis is a past president of the American Yarn Spinners
Association and a former director of the American Textile Manufacturers
Institute.
5
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.
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.
JUDITH CULP WALKER was a practicing attorney with Keziah, Gates and Samet
in High Point, North Carolina from 1987 through May 1995. She is the sister of
Robert G. Culp, III. She has served previously as a director of the company from
September 28, 1993 to September 17, 1996.
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 elected to serve as a member of
the North Carolina board of First Union National Bank in 1998, and was recently
elected to serve as a member of the board of directors of Stanley Furniture
Company, Inc. Mr. Culp also serves as a trustee of High Point University. He is
the brother of Harry R. Culp and Judith C. Walker.
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 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 Incorporated, a furniture manufacturing
and marketing company located in Monroe, Michigan, in 1981 as senior vice
president of sales and marketing. Mr. Norton served in this position until 1997
when he was elected chairman of the board of La-Z-Boy Incorporated. He currently
serves as a member of the board of directors of the American Furniture
Manufacturers Association.
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.
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.
RODNEY A. SMITH joined the company in 1997 as manager of the Phillips
Weaving operation. The board elected Mr. Smith vice president and president of
the Culp Yarn division in 1998, and senior vice president and president of the
Culp Yarn division in 1999. Prior to joining the company, Mr. Smith was employed
with various manufacturers of dobby and jacquard home furnishing fabrics. He had
previously been employed with the Collins & Aikman Group from 1973 to 1993.
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.
6
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.
Messrs. Honeycutt and Worley served on the Audit Committee throughout
fiscal 1999. Mr. Worley resigned from the Board of Directors on July 23, 1999
for health reasons. 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 during fiscal 1999 were Messrs. Honeycutt and Worley. Mr. Worley
resigned from the Board of Directors on July 23, 1999 for health reasons.
The members of the Nominating Committee, which recommends nominees for
election to the Board of Directors, during fiscal 1999 were 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 2, 1999, the Board of Directors had five
(5) meetings; the Audit Committee five (5) meetings; the Compensation Committee
four (4) 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 1999, and took action on two (2) occasions 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 2,
1999, May 3, 1998, and April 27, 1997 to (i) the chief executive officer of the
company and (ii) the company's four most highly compensated executive officers.
SUMMARY COMPENSATION TABLE
========================================================================================================================
Annual Long-Term
Name and Compensation Compensation All Other
Principal Position Year Salary $ Bonus $ Option Grants # Compensation
- ------------------ ---- -------- ------- --------------- ------------
(1)(2)
------
Robert G. Culp, III 1999 284,000 -0- 30,000 80,180(3)
Chairman of the Board; 1998 265,000 195,570 15,000 93,200
Chief Executive Officer 1997 250,000 250,000 12,000 51,192
Howard L. Dunn, Jr 1999 241,000 -0- 25,000 49,480(3)
President and 1998 225,000 166,050 10,000 46,650
Chief Operating Officer 1997 210,000 210,000 8,000 43,146
Dan E. Jacobs (5) 1999 175,000 45,000 25,000 5,329
Senior Vice President and 1998 -- -- -- --
President of the Culp 1997 -- -- -- --
Decorative Fabrics division
Franklin N. Saxon 1999 161,000 20,000 25,000 40,767(4)
Senior Vice President and 1998 150,000 55,350 7,000 35,500
President of the Culp 1997 140,000 70,000 5,000 11,496
Velvets/Prints division
Kenneth M. Ludwig 1999 134,000 15,000 20,000 25,028(4)
Senior Vice President- 1998 125,000 46,125 7,000 22,145
Human Resources; 1997 117,000 58,500 5,000 3,599
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 1999, these
amounts were $13,860 for Mr. Culp; $13,270 for Mr. Dunn; $13,800 for Mr.
Saxon; $2,133 for Mr. Ludwig; and $789 for Mr. Jacobs.
(3)Includes annual premiums of $61,000 paid by the company for split-dollar
life insurance on the life of Mr. Culp, and $31,300 for split-dollar life
insurance on the life of Mr. Dunn.
(4)Includes supplemental deferred compensation payments of $22,500 to Mr.
Saxon, and $18,750 to Mr. Ludwig.
(5)Mr. Jacobs became an executive officer of the Company effective June 16,
1998.
================================================================================
8
OPTION GRANTS TABLE. The following table sets forth certain information
concerning grants of stock options to the executive officers named in the
Summary Compensation Table during the year ended May 2, 1999.
STOCK OPTION GRANTS IN FISCAL 1999
====================================================================================================================================
Potential Realizable Value at
% of Total Assumed Annual Rates of
Options Market Stock Price Appreciation
Granted to Exercise or Price on for Option Term
Options Employees in Base Price Date of Expiration ---------------------
Name Granted Fiscal Year(%) ($/Share) Grant Date 5%($) 10%($)
- ---- ------- -------------- --------- ----- ---- ----- ------
Robert G. Culp, III 30,000 15.0 7.625 7.625 9-13-08 143,860 364,568
Howard L. Dunn, Jr 25,000 12.5 7.625 7.625 9-13-08 119,883 303,807
Dan E. Jacobs 25,000 12.5 7.625 7.625 9-13-08 119,883 303,807
Franklin N. Saxon 25,000 12.5 7.625 7.625 9-13-08 119,883 303,807
Kenneth M. Ludwig 20,000 10.0 7.625 7.625 9-13-08 95,906 243,046
================================================================================
OPTION EXERCISES AND YEAR-END VALUE TABLE. The following table sets forth
certain information concerning exercises of stock options during fiscal 1999 by
the executive officers named in the Summary Compensation Table, and options held
by such officers at the end of fiscal 1999.
AGGREGATED OPTION EXERCISES IN FISCAL 1999
AND FISCAL YEAR OPTION VALUES
====================================================================================================================================
Number of Value of Unexercised
Unexercised Options In-the-Money Options
Shares Acquired Value at Fiscal Year-End(#) at Fiscal Year-End($)(1)
on Exercise (#) Realized ($) -------------------------- ------------------------
--------------- ------------ Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Robert G. Culp, III -0- -0- 144,500 55,000 416,770 200,000
Howard L. Dunn, Jr 9,750 32,224 72,625 43,000 210,685 146,125
Dan E. Jacobs -0- -0- 11,000 35,000 -0- 88,125
Franklin N. Saxon -0- -0- 31,500 35,000 55,800 88,125
Kenneth M. Ludwig -0- -0- 30,500 30,000 47,600 85,000
(1) Closing price of company stock at May 2, 1999 was $8.25.
================================================================================
9
PERFORMANCE COMPARISON
The following graph shows changes over the five-year period ended May 2,
1999 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.)
1994 1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- ----------- -----------
CULP, INC. 100.00 84.82 113.26 157.49 169.81 74.99
MG GROUP INDEX 100.00 96.83 98.13 120.21 143.61 90.08
NYSE MARKET INDEX 100.00 111.92 144.57 174.19 245.15 274.46
ASSUMES $100 INVESTED ON MAY 1, 1994
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDED MAY 2, 1999
10
SEVERANCE PROTECTION PLAN. In September 1989, the company adopted a
Severance Protection Plan, which covers certain officers ("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 2, 1999, the company's potential
obligation pursuant to the Severance Protection Plan was $1,281,100, 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. All of the
members of the Compensation Committee are non-employee directors. 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 2, 1999.
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 in the table above. 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 have been 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 has been 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 has been and remains generally
lower than comparable compensation paid to many or most 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 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
11
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 for 1997 and 1998 were
paid under this plan. Bonuses paid for 1999 are discussed below.
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. This earnings target was not
met, and thus the options under this plan did not become exercisable in 1999 and
will not become exercisable until January 1, 2006.
The base salaries for all executive officers, including the Chief
Executive Officer, were increased for fiscal 1999 at rates that were designed to
move these salaries closer to those prevailing in the industry. The company's
net income for fiscal 1999 (the measure used for the performance target for the
year) was at a level that did not trigger the payment of any bonuses under the
Management Incentive Plan. However, in order to encourage the continuing efforts
of certain key individuals to "work through" a difficult business environment
and to recognize the achievement of divisional and individual functional goals,
the committee approved the payment of discretionary bonuses to certain
individuals. These bonuses are reflected in the Summary Compensation Table for
1999. The committee did not authorize payment of any bonus compensation to the
Chief Executive Officer and the President, notwithstanding satisfaction with
their performance during a difficult period. The Compensation Committee
anticipates that executive officer salaries, including the salary of the Chief
12
Executive Officer, will be substantially higher in fiscal 2000, and that the
Management Incentive Plan financial goals and potential bonuses will be set in
such a way that it is likely that a larger portion of total compensation will be
based on salary than has been the case in recent fiscal years. 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 1999 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 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 two of the company's Senior Vice Presidents. This plan provides for
additional deferred compensation payments for the benefit of the specified
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 1999 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 or proceeds
of the insurance policy.
The foregoing report has been furnished by the members of the Compensation
Committee:
Earl M. Honeycutt, Chairman
Bland W. Worley*
*Mr. Worley served on the Compensation Committee throughout fiscal 1999. He
resigned from the Board of Directors on July 23, 1999 for health reasons.
13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LEASE TRANSACTIONS. During fiscal 1999, the company leased three (3)
industrial facilities from partnerships owned by certain of the company's
executive officers, directors, principal shareholders and members of their
immediate families. The Company terminated one of these leases in February 1999
as the result of a move to a new location and continues to lease the other two
facilities. 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 a nominee for election as a director), 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 (40,128 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 $2.32 per square foot. The
leases typically prohibit assignment or subletting without the lessor's consent
but such consent may not be unreasonably withheld. The lessor is generally
responsible for maintenance only of roof and structural portions of the leased
facilities. The industrial facilities are leased on a "triple net" basis, with
the company responsible for payment of all property taxes, insurance premiums
and maintenance, other than structural maintenance. The company believes that at
the time the leases and any lease renewals were executed the terms of all such
leases were no less favorable to the company than could have been obtained in
arms-length transactions with unaffiliated persons. The company received
independent appraisals to this effect with respect to the industrial facility
leases. 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 1999
were approximately $752,000 and $555,000, respectively.
CERTAIN BUSINESS RELATIONSHIPS. The company had sales of approximately
$34.3 million, 7.1% of the company's net sales, to La-Z-Boy Incorporated in
fiscal 1999. Patrick H. Norton, a director of Culp, Inc., serves as chairman of
the board of La-Z-Boy Incorporated.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
company's directors, its executive officers, any persons who hold more than ten
percent of the company's common stock and certain trusts (collectively,
"insiders") to report their holdings of and transactions in the company's Common
Stock to the Securities and Exchange Commission (the "SEC"). Specific due dates
for these reports have been established, and the company is required to disclose
in this proxy statement any late filings and any failures to file that have
occurred since May 3, 1998. Insiders must file three types of ownership reports
with the SEC: initial ownership reports, change-in-ownership reports and
year-end reports. Under the SEC's rules, insiders must furnish the company with
copies of all Section 16(a) reports that they file. Based solely on a review of
copies of these reports and on written representations the company has received,
the company believes that since May 3, 1998, its insiders have complied with all
applicable Section 16(a) reporting requirements, except Phillip W. Wilson
inadvertently failed to file a timely year-end report reporting shares of the
company's common stock held by the trustee of the company's 401(k) savings plan
for his benefit. This year-end report has since been filed by this insider.
================================================================================
14
YOUR DIRECTORS RECOMMEND VOTES "FOR"
o THE RATIFICATION OF KPMG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR
FISCAL 2000
o THE FOUR NOMINEES FOR DIRECTOR
================================================================================
15
SHAREHOLDER PROPOSALS FOR 2000 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 2000 Annual
Meeting, the company must receive them no later than April 30, 2000. 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 1999 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 19, 1999 at the Annual
Meeting of Shareholders to be held on September 21, 1999, or any adjournment or
adjournments thereof.
1. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR FISCAL 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. ELECTION OF DIRECTORS:
[ ] FOR the 4 nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the contrary) for 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.)
Robert T. Davis, Dan E. Jacobs, Franklin N. Saxon, and Judith C. Walker
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 KPMG 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: __________________________________, 1999 ___________________________________(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.)