SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
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Culp,Inc.
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(LOGO)
CULP, INC.
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 21, 2004
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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 21, 2004, at 9:00 a.m. local time, for the purpose of
considering and acting on the following matters:
(1) To elect five directors;
(2) To ratify the appointment of KPMG LLP as the independent auditors of the
company for the current fiscal year; and
(3) To transact such other business as may properly come before the meeting, or
any adjournment or adjournments thereof.
Only shareholders of record as of the close of business on July 23, 2004
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,
/s/ Kathy J. Hardy
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KATHY J. HARDY
Corporate Secretary
August 18, 2004
(LOGO)
CULP, INC.
Proxy Statement
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INTRODUCTION
This Proxy Statement is furnished to the shareholders of Culp, Inc.
(sometimes referred to as the "company") by the company's Board of Directors in
connection with the solicitation of proxies for use at the Annual Meeting of
Shareholders of the company to be held on Tuesday, September 21, 2004, 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 items described in this Proxy Statement, and on any other
business that properly comes before the meeting.
This Proxy Statement and accompanying form of proxy are first being mailed
to shareholders on or about August 18, 2004.
Whether or not you expect to attend the Annual Meeting, please complete,
date and sign the accompanying form of proxy and return it promptly to ensure
that your shares are voted at the meeting. Any shareholder giving a proxy may
revoke it at any time before a vote is taken: (i) by duly executing a proxy
bearing a later date; (ii) by executing a notice of revocation in a written
instrument filed with the secretary of the company; or (iii) by appearing at the
meeting and notifying the secretary of the intention to vote in person. Unless a
contrary choice is specified, all shares represented by valid proxies that are
received pursuant to this solicitation, and not revoked before they are
exercised, will be voted for the election of the five directors named as
nominees in this Proxy Statement, and for the ratification of the appointment of
KPMG LLP as the independent auditors of the company for the current fiscal year.
The proxy also confers discretionary authority upon the persons named therein,
or their substitutes, with respect to any other business that may properly come
before the meeting. Unless otherwise stated herein, each matter submitted to the
shareholders will be approved if more votes are cast in favor of the proposal
than the votes cast against the proposal. A shareholder abstaining from the vote
on a proposal and any broker non-votes will be counted as present for purposes
of determining whether a quorum is present, but will be counted as not having
voted on the proposal in question. This means that in cases where a majority of
the shares represented is required to approve a proposal, an abstention will
have the effect of a vote against the proposal in question.
The company will bear the entire cost of preparing this Proxy Statement and
of soliciting proxies. Proxies may be solicited by employees of the company,
either personally, by special letter, or by telephone. The company also will
request brokers and others to send solicitation material to beneficial owners of
the company's stock and will reimburse them for this purpose upon request.
VOTING SECURITIES
Only shareholders of record at the close of business on July 23, 2004 will
be entitled to vote at the Annual Meeting or any adjournment or adjournments
thereof. The number of outstanding shares entitled to vote at the meeting is
11,547,759.
The following table lists the beneficial ownership of the company's common
stock with respect to: (i) each person known by the company to be the beneficial
owner of more than five percent of such common stock, as shown on the last
public filing made by each such person, and (ii) all executive officers,
directors and nominees of the company as a group, a total of 14 persons, as of
July 23, 2004.
Number of Shares Percent of
Title of Name and Address of Beneficially Outstanding
Class Beneficial Owner Owned Shares
- ---------------- ------------------------ ---------------- -----------
Common stock, Robert G. Culp, III 2,532,430 (1) 21.7%
par value 903 Forrest Hill Drive
$.05 per share High Point, NC 27262
Atlantic Trust, Trustee 2,008,750 (2) 17.4%
Robert G. Culp, Jr. Trust
100 Federal Street, 37th Floor
Boston, MA 02110
Dimensional Fund Advisors Inc. 919,397 (3) 8.0%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
T. Rowe Price Associates, Inc. 1,493,600 (4) 12.9%
100 East Pratt Street
Baltimore, Maryland 21202
All executive officers, directors 3,371,776 (5) 28.1%
and nominees as a group (14 persons)
(1) These shares include all of the shares listed below that also are
beneficially owned in the name of Atlantic Trust as trustee of the Robert
G. Culp, Jr. Trust, all of which shares Robert G. Culp, III has the right
to vote and jointly (with Atlantic Trust) has the right to invest. (See
Note (2) below.) These shares also include 64,738 shares held of record by
Susan B. Culp, the wife of Mr. Culp, the beneficial ownership of which
shares Mr. Culp disclaims, approximately 21,673 shares owned by Mr. Culp
through the company's 401(k) plan, and 133,250 shares subject to options
owned by Mr. Culp that are immediately exercisable. For purposes of this
Proxy Statement, "immediately exercisable" options are those that are
currently exercisable or exercisable within 60 days.
(2) All of these shares also are included in the shares listed above for
Robert G. Culp, III. (See Note (1) above.) Includes 709,375 shares held of
record by Atlantic Trust for the benefit of Judith C. Walker, sister of
Robert G. Culp, III; 505,000 shares held of record by Atlantic Trust for
the benefit of Harry R. Culp, brother of Robert G. Culp, III; and 794,375
shares held of record by Atlantic Trust for the benefit of Robert G. Culp,
III, all of which shares Robert G. Culp, III has the right to vote and
jointly (with Atlantic Trust) has the right to invest.
(3) Dimensional Fund Advisors Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of 1940, and serves as investment manager to
certain other investment vehicles, including commingled group trusts. These
investment companies and investment vehicles are the "Portfolios." In its
role as investment advisor and investment manager, Dimensional possessed
both investment and voting power over 919,397 shares of Culp, Inc. stock as
of June 30, 2004. The Portfolios own all securities reported in this
statement, and Dimensional disclaims beneficial ownership of such
securities.
(4) These securities are owned by various individual and institutional
investors as of June 30, 2004, including T. Rowe Price Small Cap Value
Fund, which owns 720,100 shares, representing 6.2% of the shares
outstanding. T. Rowe Price Associates, Inc. ("Price Associates") serves as
investment advisor with power to direct investments and/or 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 460,875 shares subject to options owned by certain officers,
directors and nominees that are immediately exercisable.
PROPOSAL 1: ELECTION OF DIRECTORS
The number of directors constituting the Board has been fixed at nine by
the company's shareholders in accordance with the company's bylaws.
The company's bylaws provide that the Board of Directors shall be divided
into three classes of directors with staggered three-year terms, so that one
class or approximately one-third of the Board of Directors will be elected every
year. At the Annual Meeting the shareholders will be asked to elect five
directors. The three directors whose terms expire at the 2004 Annual Meeting of
Shareholders (Howard L. Dunn, Jr., H. Bruce English, and Kenneth W. McAllister)
have been nominated for reelection. Dr. Harry R. Culp, whose term was to expire
in 2005, has submitted his resignation from the Board to be effective at the
time of the 2004 Annual Meeting, and another vacancy was created by the earlier
resignation of a director whose term was to expire in 2005. Jean L.P. Brunel and
Kenneth R. Larson have been nominated to fill these vacancies, and therefore
each has been nominated for election to a one-year term.
In the absence of specifications to the contrary, proxies will be voted for
the election of each of the five nominees listed in the table below, and an
equal number of votes will be cast for each nominee. In no case will proxies be
voted for more than five nominees. The persons who receive the highest number of
votes for election at the Annual Meeting will be elected as directors. If, at or
before the time of the meeting, any of the nominees becomes unavailable for any
reason, the proxy holders have the discretion to vote for a substitute nominee
or nominees. The Board currently knows of no reason why any of the nominees
listed below is likely to become unavailable.
NOMINEES, DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the five
nominees for election to the Board of Directors, and the 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 23, 2004 Notes
- ------------ --------------------- -------- ------- ------------------- -----
Nominees
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Jean L.P. Brunel, 55 N/A N/A N/A _
Howard L. Dunn, Jr., 66 Vice Chairman of the 1972 2004 311,934 (3)
Board, Director 2.7%
H. Bruce English, 70 Director 2000 2004 16,500 (2)(4)
Kenneth R. Larson, 61 N/A N/A N/A 2,000 (2)
Kenneth W. McAllister, 55 Director 2002 2004 18,750 (2)(5)
Directors and
- -------------
Executive Officers
- ------------------
Harry R. Culp, 52 Director 2002 2005 9,375 (2)(6)
Robert G. Culp, III, 57 Chairman of the Board 1972 2006 2,532,430 (7)
and Chief Executive 21.7%
Officer, Director
Patrick B. Flavin, 57 Director 1999 2006 147,200 (8)
1.3%
Patrick H. Norton, 82 Director 1987 2006 68,591 (2)(9)
Franklin N. Saxon, 52 President and Chief 1987 2005 81,356 (2)(10)
Operating Officer,
Director
Robert G. Culp, IV, 33 President, Culp Home N/A N/A 20,085 (2)(11)
Fashions division
Boyd B. Chumbley, 47 President, Culp N/A N/A 24,089 (2)(12)
Velvets/Prints division
Kenneth M. Ludwig, 51 Senior Vice President, N/A N/A 77,500 (2)(13)
Human Resources and
Assistant Secretary
Rodney A. Smith, 57 President, Culp N/A N/A 61,966 (2)(14)
Decorative Fabrics
division
(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, 2004.
(2) Less than one percent.
(3) Includes 66,715 shares owned by Patricia Dunn, wife of Mr. Dunn, and
68,500 shares subject to options owned by Mr. Dunn that are immediately
exercisable.
(4) Includes 3,750 shares subject to options owned by Mr. English that are
immediately exercisable.
(5) Includes 3,750 shares subject to options owned by Mr. McAllister that
are immediately exercisable.
(6) Includes 9,375 shares subject to options owned by Dr. Harry Culp that
are immediately exercisable.
(7) Includes 2,008,750 shares held of record by Atlantic Trust for the
benefit of Robert G. Culp, III, Judith C. Walker and Harry R. Culp, all of
which shares Robert G. Culp, III has the right to vote and jointly (with
Atlantic Trust) has the right to invest; includes 64,738 shares held of
record by Susan B. Culp, wife of Robert G. Culp, III, the beneficial
ownership of which shares Mr. Culp disclaims, 133,250 shares subject to
options owned by Mr. Culp that are immediately exercisable, and
approximately 21,673 shares owned by Mr. Culp through the company's 401(k)
plan.
(8) Includes 100,000 shares held by Flavin, Blake Investors, L.P., a
partnership in which Mr. Flavin is a partner, in an account that is managed
by Flavin, Blake & Co., L.P., an investment manager of which Mr. Flavin is
a principal, under an arrangement that provides compensation directly or
indirectly to Mr. Flavin based in whole or in part upon the performance of
the investment, as to which shares Mr. Flavin disclaims beneficial
ownership. Includes 26,400 shares held in accounts managed by Flavin, Blake
& Co., L.P., as to which shares Mr. Flavin also disclaims beneficial
ownership. Includes 7,500 shares subject to options owned by Mr. Flavin
that are immediately exercisable.
(9) Includes 18,750 shares subject to options owned by Mr. Norton that are
immediately exercisable.
(10) Includes 49,750 shares subject to options owned by Mr. Saxon that are
immediately exercisable, and approximately 31,190 shares owned by Mr. Saxon
through the company's 401(k) plan.
(11) Includes 9,125 shares subject to options owned by Mr. Culp, IV that
are immediately exercisable.
(12) Includes 21,375 shares subject to options owned by Mr. Chumbley that
are immediately exercisable, and approximately 2,714 shares owned by Mr.
Chumbley through the company's 401(k) plan.
(13) Includes 77,500 shares subject to options owned by Mr. Ludwig that are
immediately exercisable.
(14) Includes 58,250 shares subject to options owned by Mr. Smith that are
immediately exercisable, and approximately 3,716 shares owned by Mr. Smith
through the company's 401(k) plan.
Nominees:
JEAN L.P. BRUNEL is the managing principal of Brunel Associates, an
investment consulting firm offering services to ultra affluent individuals. He
spent the bulk of his career in the investment management group of J.P. Morgan,
where he worked in the U.S. and abroad until his retirement in 1999. Mr. Brunel
worked with U. S. Bancorp as a consultant and chief investment officer of
Private Asset Management from 1999 until 2001 when he founded Brunel Associates.
He is the editor of Journal of Wealth Management and a trustee of the Research
Foundation of the Association for Investment Management and Research. Mr. Brunel
was recommended as a nominee for director by an independent director of the
company.
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 and Vice Chairman of the
Board in June 2004.
H. BRUCE ENGLISH was employed by the Monsanto Company, a highly diversified
manufacturer of chemicals and other products, for forty years until his
retirement in early 1997. During his service, he worked in various divisions and
capacities. From 1975 to retirement, he was operating head of a number of
business units, including business director - Acrilan from 1989 to 1997.
KENNETH R. LARSON is owner, president and chief executive officer of
Slumberland Furniture in Little Canada, Minnesota, a home furnishings retailer
with stores in a nine-state area. Mr. Larson was recommended as a nominee for
director by the Chairman of the Board and Chief Executive Officer of the
company.
KENNETH W. MCALLISTER is a member of the law firm of McAllister & Hanks,
PLLC since January 2004. He was a senior executive vice president and general
counsel of Wachovia Corporation, a bank holding company, from 1997 until his
retirement in 2001, and served as general counsel since joining Wachovia in
1988. Mr. McAllister served as United States Attorney for the Middle District of
North Carolina from 1981 to 1986. He is a director of High Point Bank
Corporation, High Point Bank and Trust Co., and Lawyers Mutual Liability
Insurance Company of North Carolina.
Other Officers and Directors:
HARRY R. CULP has been practicing dentistry in High Point since 1981. He is
the brother of Robert G. Culp, III and uncle of Robert G. Culp, IV. He also
served as a director of the company from 1996 to 1999.
ROBERT G. CULP, III is one of the founders of the company and was Executive
Vice President and Secretary until 1981 when he was elected by the Board to
serve as President. The Board elected Mr. Culp Chief Operating Officer in 1985
and Chief Executive Officer in 1988. In 1990, the Board of Directors elected Mr.
Culp Chairman of the Board. Mr. Culp currently serves as a member of the board
of directors of Stanley Furniture Company, Inc. in Stanleytown, Virginia and Old
Dominion Freight Line, Inc. in Thomasville, North Carolina, and as a trustee of
High Point University. He is the brother of Dr. Harry R. Culp and father of
Robert G. Culp, IV.
ROBERT G. CULP, IV has been employed by the company since 1998 and has
served in various capacities. The Board elected Mr. Culp President, Culp Home
Fashions division in June 2004. He is the son of Robert G. Culp, III and nephew
of Dr. Harry R. Culp.
BOYD B. CHUMBLEY has been employed by the company since 1984 and has served
in various capacities. The Board elected Mr. Chumbley President, Culp
Velvets/Prints division in June 2004.
PATRICK B. FLAVIN co-founded Flavin, Blake & Co., Inc. in 1992 and is
president and chief investment officer of that investment management company. He
currently serves as a member of the board of directors and audit committee of
the board for FastChannel Network, Inc., a private company.
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.
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.
FRANKLIN N. SAXON has been employed by the company since 1983, serving in
various capacities, including Chief Financial Officer from 1985 to 1998. In
2001, the Board elected Mr. Saxon Executive Vice President, Chief Financial
Officer and President, Culp Velvets/Prints division. In 2002, Mr. Saxon was
elected Executive Vice President, Chief Financial Officer, Treasurer, and
President, Culp Velvets/Prints division. The Board elected Mr. Saxon President
and Chief Operating Officer in June 2004.
RODNEY A. SMITH joined the company in 1997 as manager of the Phillips
Weaving operation. The Board elected Mr. Smith Vice President and President,
Culp Yarn division in 1998, and Senior Vice President and President, Culp Yarn
division in 1999. In June 2004, the Board elected Mr. Smith President, Culp
Decorative Fabrics division.
BOARD COMMITTEES AND ATTENDANCE
There are four standing committees of the Board of Directors: Executive
Committee, Audit Committee, Compensation Committee, and Corporate Governance and
Nominating Committee. Each of the members of each of our Audit Committee,
Compensation Committee and Corporate Governance and Nominating Committee has no
material relationship with the company (either directly or as a partner,
shareholder or officer of an organization that has a relationship with the
company) and is "independent" within the meaning of the director independence
standards set forth in the regulations of the New York Stock Exchange. Also,
each of the members of our Audit Committee is "independent" for purposes of
Section 10A(m)(3) of the Securities Exchange Act of 1934. These determinations
are based primarily on a review of the responses of our directors to questions
regarding employment and compensation history, affiliations and family and other
relationships, and on discussions with the directors.
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 and electing
certain officers, and other powers that may not lawfully be delegated to Board
committees.
The Audit Committee is directly responsible for the appointment,
compensation, retention, and oversight of the independent auditors of the
company, and must pre-approve all services provided. The committee discusses and
reviews in advance the scope and the fees of the annual audit and reviews the
results thereof with the independent auditors. The auditors meet with the
committee to discuss audit and financial reporting issues. The committee reviews
the company's significant accounting policies, major internal accounting
controls, reports from the company's internal auditor, quarterly financial
information releases, the Annual Report to shareholders, and the Annual Report
on Form 10-K filed with the Securities and Exchange Commission. In addition, the
committee reviews and approves all significant transactions between the company
and any related party.
Members of the Audit Committee are Messrs. McAllister (Chairman), English
and Flavin. The Board of Directors has determined that Mr. Flavin qualifies as
an "audit committee financial expert" for purposes of the rules and regulations
of the Securities and Exchange Commission adopted pursuant to the Sarbanes-Oxley
Act of 2002.
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. English (Chairman), Flavin, and McAllister.
The current members of the Corporate Governance and Nominating Committee
are Messrs. Flavin (Chairman), English and McAllister. The committee reviews and
recommends to the Board candidates for appointment to fill vacancies on the
Board as well as candidates for selection as director nominees for election by
shareholders. The Corporate Governance and Nominating Committee also considers
and makes recommendations to the Board on other matters relating to the size and
function of the Board and its committees, to the Board's policies and
procedures, and to corporate governance policies applicable to the company.
During the fiscal year ended May 2, 2004, the Board of Directors had five
meetings; the Audit Committee ten meetings; the Compensation Committee three
meetings; and the Corporate Governance and Nominating Committee four meetings.
Each Board member attended at least 75% of the aggregate number of the meetings
of the Board of Directors and of the committees on which he served. 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 2004. All significant management decisions requiring
action by the Board of Directors were considered and acted upon by the full
Board.
CORPORATE GOVERNANCE
Corporate Governance Guidelines and Committee Charters
Our Board of Directors recently approved Corporate Governance Guidelines,
with the goal of providing effective governance of the company's business and
affairs for the benefit of shareholders. The Corporate Governance Guidelines are
available on the company's website at www.culpinc.com in the "Investor
Relations" section. In addition, the charters for our Audit Committee,
Compensation Committee and Corporate Governance and Nominating Committee are
also included in the "Investor Relations" section of the company's website.
Executive Sessions of Non-Management Directors and Independent Directors; Lead
Director
Non-management Board members meet separately from the other directors at
regularly scheduled executive sessions, without the presence of management
directors or executive officers of the company (except to the extent that the
non-management directors request the attendance of any executive officers). The
non-management directors have designated a "lead director" to preside at these
meetings, to advise management and to otherwise act as a liaison between the
non-management directors and the company's management. Mr. Norton is currently
serving as the lead director. In addition to the meetings of non-management
directors, the independent directors (as defined by New York Stock Exchange
rules and the company's Corporate Governance Guidelines) meet in a separate
executive session at least once per year.
Director Attendance at Annual Meetings
Directors are expected to attend the company's Annual Meeting of
Shareholders. All members of the company's Board of Directors attended the 2003
Annual Meeting of Shareholders.
Code of Business Conduct and Ethics
The company has adopted a written Code of Business Conduct and Ethics that
applies to all of our directors, officers and employees, including our principal
executive officer, principal financial officer, principal accounting officer and
controller. The Code is available on the company's website at www.culpinc.com
under the "Investor Relations" section. The company will disclose on its website
or by the filing of a Form 8-K any substantive amendments to the Code with
regard to executive officers and any waivers granted under the Code for
executive officers or directors.
Communications with Directors
The company and the company's Board of Directors believe it is important
that a direct and open line of communication exist between the company's Board
of Directors and its shareholders and other interested parties. Any shareholder
or other interested party who desires to contact the company's directors may
send a letter to the following address:
Culp, Inc. Board of Directors
c/o Corporate Secretary
P.O. Box 2686
High Point, North Carolina 27261-2686
Communications to directors will be handled by the office of the Corporate
Secretary and forwarded to the appropriate person as soon as practicable.
The company also has a separate policy that allows shareholders, employees
or other interested parties to communicate with the Chairman of the Audit
Committee of the Board of Directors to report complaints or concerns regarding
accounting, internal accounting controls, or audit matters. More details about
this policy are available on the company's internet website at www.culpinc.com,
in the "Investor Relations" section under the heading "Complaint Procedures for
Accounting, Internal Accounting Controls, or Auditing Matters."
Director Nomination Process
The Corporate Governance and Nominating Committee is responsible for
selecting persons to be recommended to the Board to fill vacancies on the Board,
as well as persons to be recommended to the Board to be submitted to the
shareholders as nominees for election as directors of the company. The charter
of the Corporate Governance and Nominating Committee sets forth the specific
responsibilities and duties of that committee, and a copy of the charter may be
found on the company's internet website at www.culpinc.com, in the "Investor
Relations" section. Among other things, the charter requires that the Corporate
Governance and Nominating Committee consist of not less than three directors,
each of whom is independent as determined by the Board of Directors and as
defined by New York Stock Exchange rules. All of the current members of the
Corporate Governance and Nominating Committee are independent directors.
The goal of the Corporate Governance and Nominating Committee is to create
a Board that will demonstrate competence, objectivity, and the highest degree of
integrity on an individual and collective basis. In evaluating current members
and new candidates, the Corporate Governance and Nominating Committee considers
the needs of the Board of Directors in light of the current mix of director
skills and attributes. In accordance with the Corporate Governance Guidelines
adopted by the Board, the Corporate Governance and Nominating Committee will
seek a diversity of skills and backgrounds among directors in assessing
candidates for membership on the Board. The Corporate Governance and Nominating
Committee will seek candidates who possess honesty and integrity, sound business
judgment, financial literacy, strategic and analytical insight, and the ability
to commit an adequate amount of time to make a productive contribution to the
Board and the company. In addition, the Corporate Governance and Nominating
Committee will seek to assure that one or more Board members possess each of the
following characteristics: knowledge and experience in the company's industry,
management experience, international business knowledge, expertise in accounting
or financial analysis, and regulatory compliance expertise. When the Corporate
Governance and Nominating Committee is considering current Board members for
nomination for reelection, the committee also considers prior Board
contributions and performance, as well as attendance records for Board and
committee meetings.
The Corporate Governance and Nominating Committee may seek input from other
members of the Board and management in identifying and attracting director
candidates who meet the criteria outlined above. In addition, the committee may
use the services of consultants or a search firm, although it has not done so in
the past. Recommendations from shareholders for nominees to the Board of
Directors will be considered by the Corporate Governance and Nominating
Committee if made in writing addressed to any member of the committee at the
company's main office. In order to be considered, such recommendations must be
received at least 120 days prior to the date of the meeting at which directors
are to be elected. Submissions should include information regarding a
candidate's background, qualifications, experience, and willingness to serve as
a director. Based on a preliminary assessment of a candidate's qualifications,
the Corporate Governance and Nominating Committee may conduct interviews with
the candidate and request additional information from the candidate. The
committee uses the same process for evaluating all nominees, including those
recommended by shareholders.
AUDIT COMMITTEE REPORT
The Audit Committee operates under a written charter adopted by the Board
of Directors, a copy of which is attached hereto as Appendix A. The primary
function of the Audit Committee is to assist the Board of Directors in
fulfilling its oversight responsibilities by reviewing the company's financial
reports and information, systems of internal controls, and accounting, auditing
and financial reporting processes. The Audit Committee is directly responsible
for the appointment, compensation, retention and oversight of the independent
auditors and must pre-approve all services provided by the independent auditors.
Both the independent auditors and the company's internal auditor report directly
to and meet with the Audit Committee.
Management has the primary responsibility for the financial statements and
the reporting process. The company's firm of independent auditors, which for the
fiscal year 2004 was KPMG LLP, is responsible for expressing an opinion on the
conformity of the company's audited financial statements with U. S. generally
accepted accounting principles. The Audit Committee has reviewed and discussed
with management and KPMG the audited financial statements as of and for the year
ended May 2, 2004. The Audit Committee has also discussed with KPMG the matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees). In addition, the Audit Committee has
received from KPMG the written disclosures and letter required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees)
and discussed with them their independence from the company and its management.
The Audit Committee also has considered whether KPMG's provision of non-audit
services to the company is compatible with the concept of auditor independence.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the company's Annual Report on Form 10-K for the year ended May 2,
2004 for filing with the Securities and Exchange Commission.
The foregoing report has been furnished by members of the Audit Committee.
Kenneth W. McAllister, Chairman
H. Bruce English
Patrick B. Flavin
FEES PAID TO INDEPENDENT AUDITORS
The following table sets forth the fees billed to the company by KPMG LLP
for services in the fiscal years ended April 27, 2003 and May 2, 2004.
Fiscal 2004 Fiscal 2003
--------- ---------
Audit Fees $ 259,640 $ 224,520
Audit-Related Fees (1) 177,870 0
Tax Fees (2) 68,173 71,975
All Other Fees (3) 15,394 0
--------- ---------
Total $ 521,077 $ 296,495
========= =========
(1) Audit-related fees in fiscal 2004 are for services related to Sarbanes-Oxley
Section 404 documentation assistance.
(2) Tax fees are for services rendered in connection with domestic and foreign
tax compliance and advisory services.
(3) All other fees are for services rendered in connection with customs
compliance and a foreign registered office.
The Audit Committee's policy is to pre-approve all audit fees and terms and
all non-audit services provided by the independent auditors. Under the policy,
and in accordance with the Sarbanes-Oxley Act of 2002, any member of the Audit
Committee who is an independent member of the Board of Directors may approve
proposed non-audit services that arise between committee meetings, provided that
the decision to pre-approve the service is presented at the next scheduled
committee meeting. The Audit Committee did not fail to pre-approve any of the
services provided by KPMG LLP during 2004.
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends that the shareholders ratify the Audit
Committee's appointment of KPMG LLP to serve as the independent auditors for the
company for the fiscal year ending May 1, 2005. KPMG LLP served as the
independent auditors for the company for the last fourteen fiscal years.
Representatives of the firm are expected to attend the Annual Meeting and will
have the opportunity to make any statements they consider appropriate and to
respond to shareholders' questions. If the appointment of KPMG is not ratified
by the shareholders, the Audit Committee of the Board of Directors will consider
whether to replace KPMG or retain the firm for the current year as the company's
auditors. The proposal to ratify the appointment will be approved upon the vote
of a majority of the votes cast on the proposal.
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,
2004, April 27, 2003, and April 28, 2002 to (i) the chief executive officer of
the company and (ii) the company's four most highly compensated executive
officers other than the chief executive.
SUMMARY COMPENSATION TABLE
=============================================================================================
Annual Compensation Long-Term Compensation
Name and ----------------- ---------------------- All Other
Principal Position Year Salary $ Bonus $ Option Grants # Compensation
- ------------------ ---- -------- ------- --------------- ------------
Robert G. Culp, III 2004 416,000 353,600 12,000 72,500(1)(2)
Chairman of the Board 2003 416,000 416,000 12,000 74,487
and Chief Executive Officer 2002 402,480 416,000 45,000 69,150
Howard L. Dunn, Jr. 2004 364,000 309,400 10,000 47,583(1)(2)
Vice Chairman of the Board 2003 364,000 364,000 10,000 45,898
2002 340,340 364,000 40,000 36,090
Franklin N. Saxon 2004 232,875 98,972 7,000 45,993(1)(3)
President and 2003 232,875 116,438 7,000 44,839
Chief Operating Officer 2002 225,307 116,438 35,000 8,630
Rodney A. Smith 2004 200,000 85,000 7,000 11,422(1)(3)
President, Culp Decorative 2003 186,824 100,000 7,000 8,578
Fabrics division 2002 174,392 90,125 35,000 6,976
Kenneth M. Ludwig 2004 181,125 76,978 7,000 38,279(1)(3)
Senior Vice President, 2003 181,125 90,563 7,000 35,890
Human Resources and 2002 175,239 90,563 35,000 7,010
Assistant Secretary
(1) Includes the company's matching contribution to such officers' accounts
under the company's 401(k) plan, in the amount of $14,000 for Mr. Culp,
$13,242 for Mr. Dunn, $9,477 for Mr. Saxon, $11,269 for Mr. Smith, and
$9,908 for Mr. Ludwig.
(2) Includes annual premiums of $58,500 paid by the company for
split-dollar life insurance for Mr. Culp, and $34,341 for split-dollar life
insurance and long-term care insurance for Mr. Dunn.
(3) Includes supplemental deferred compensation payments of $34,931 to Mr.
Saxon and $27,169 to Mr. Ludwig; includes reportable interest on deferred
compensation in the amount of $1,585 to Mr. Saxon, $1,202 to Mr. Ludwig,
and $153 to Mr. Smith.
================================================================================
Option Grants Table. The following table sets forth certain information
concerning grants of stock options to the executive officers named in the
Summary Compensation Table during fiscal 2004.
STOCK OPTION GRANTS IN FISCAL 2004
===========================================================================================================
Potential Realizable Value at
% of Total Assumed Annual Rates of
Options Market Stock Price Appreciation
Granted to Exercise or Price on for Option Term
Options Employees in Base Price Date of Expiration -----------------
Granted Fiscal Year ($/Share) Grant Date 5 % ($) 10 % ($)
------- ------------ ----------- -------- ----------- ------- --------
Robert G. Culp, III 12,000 15.5 6.61 6.60 6/16/08 21,762 48,232
Howard L. Dunn, Jr. 10,000 12.9 6.61 6.60 6/16/08 18,135 40,194
Franklin N. Saxon 7,000 9.0 6.61 6.60 6/16/08 12,694 28,136
Rodney A. Smith 7,000 9.0 6.61 6.60 6/16/08 12,694 28,136
Kenneth M. Ludwig 7,000 9.0 6.61 6.60 6/16/08 12,694 28,136
===========================================================================================================
Option Exercises and Year-End Value Table. The following table sets forth
certain information concerning exercises of stock options during fiscal 2004 by
the executive officers named in the Summary Compensation Table, and options held
by such officers at the end of fiscal 2004.
AGGREGATED OPTION EXERCISES IN FISCAL 2004
AND FISCAL 2004 YEAR-END 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- 128,000 73,000 207,315 340,835
Howard L. Dunn, Jr. -0- -0- 60,500 59,500 99,590 269,500
Franklin N. Saxon -0- -0- 37,500 42,250 77,213 182,975
Rodney A. Smith -0- -0- 46,000 31,000 119,500 99,900
Kenneth M. Ludwig -0- -0- 69,250 41,750 136,405 180,185
(1) Closing price of company stock at May 2, 2004 was $8.61.
=========================================================================================================
Securities Authorized for Issuance Under Equity Compensation Plans. The
following table sets forth information as of the end of fiscal 2004 regarding
shares of the company's common stock that may be issued upon the exercise of
options previously granted and currently outstanding options under the company's
stock option plans, as well as the number of shares available for the grant of
options that had not been granted as of that date.
EQUITY COMPENSATION PLAN INFORMATION
- --------------------------------------------------------------------------------
Plan Category Number of Weighted-average Number of
securities to be exercise price of securities
issued upon outstanding remaining
exercise of options, warrants available for
outstanding and rights future issuance
options, warrants under equity
and rights compensation plan
(excluding
securities reflected
in column (a))
- --------------------------------------------------------------------------------
(a) (b) (c)
- --------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders 951,450 $ 7.54 820,000
- --------------------------------------------------------------------------------
Equity compensation
plans not approved by
security holders 0 0 0
- --------------------------------------------------------------------------------
Total 951,450 $ 7.54 820,000
- --------------------------------------------------------------------------------
================================================================================
Severance Protection Plan. In fiscal 2002, the company amended its
Severance Protection Plan, which covers certain officers ("Executives") of the
company, including each of the individuals named in the Summary Compensation
Table. Pursuant to the Severance Protection Plan, the company and covered
Executives have entered into written agreements that are effective upon a change
in control (as defined in such agreements) of the company. The agreements
provide that upon a change in control, the Executive is entitled to payment in
the amount of 1.99 times the Executive's total compensation in effect at the
time of termination of employment if any of the following events occurs: (i) the
Executive is terminated in anticipation of the change in control, (ii) the
Executive is terminated within three years after the change in control for any
reason other than death, disability or for cause, (iii) the Executive terminates
his employment during such three-year period because of an adverse change in the
Executive's conditions of employment by the company, or (iv) the Executive
terminates his employment during the 30-day period beginning six months after
the change in control for any reason other than death or disability. In
addition, the agreements provide for payment of one year's total compensation to
each covered Executive in exchange for noncompetition covenants by the Executive
that do not become effective except upon termination of the Executive's
employment following a change in control. The plan does not prevent the company
from terminating the Executive for cause at any time. The purpose of the
Severance Protection Plan is to ensure the company continuity of management and
the Executive continuity of employment in the event of any actual or threatened
change in control of the company. The plan is not intended to alter materially
the compensation and benefits a covered Executive could reasonably expect in the
absence of such a change in control. As of May 2, 2004, the company's potential
obligation pursuant to the Severance Protection Plan was $6,930,671, which is
the amount that would be expended by the company under the plan if all of the
designated executives were terminated or otherwise entitled to benefits after a
change in control of the company.
COMPENSATION OF DIRECTORS
Directors who are also employees of the company do not receive additional
compensation for service as directors. Non-employee directors have historically
received $15,000 per year for participation as a member of the Board of
Directors; $5,000, $3,000, and $2,000 per year for serving on the Audit
Committee, Compensation Committee and Corporate Governance and Nominating
Committee, respectively; and an annual stock option grant of 1,875 shares. In
fiscal 2004 the Board approved compensation of $15,000 per year for serving as
lead director for the company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee, all of whom are non-employee
directors and independent directors, are H. Bruce English, Chairman, Patrick B.
Flavin, and Kenneth W. McAllister. No member of the Compensation Committee
serves on the compensation committee of another corporation that has a business
relationship with the company.
COMPENSATION COMMITTEE REPORT
The following is a report of the Compensation Committee on compensation of
executive officers for the fiscal year ended May 2, 2004.
The Compensation Committee has traditionally based compensation for the
company's executive officers on three primary factors: (1) compensation paid to
executive officers at comparable firms in the company's industry, (2) the
individual executive's performance and contribution to the company, and (3) the
financial performance of the company. In 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 incentive cash bonuses that are based on the
annual financial results of the company and periodic grants of stock options to
executive officers. These basic policies were continued during fiscal 2004.
As it has done in each of the past several years, the committee reviewed
published proxy statement and survey information for firms in the company's
industry, including many of the companies included in the Core Data Textile
Manufacturing Group Index data in the Performance Comparison table below. Based
upon this review and upon general knowledge of the industry, the committee had
concluded in recent years 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, in
recent years a larger portion of the compensation paid to the company's
executives had been based on incentive compensation (cash bonuses and stock
options) that is dependent upon the company's financial results. The committee
believes that total cash compensation paid to the company's executives has
remained generally lower than comparable compensation paid to many or most
executives in the company's industry.
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 the committee to be
relevant indicators of management and corporate performance, which was earnings
per share in fiscal 2004. 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 providing incentives for executives to
promote the creation of shareholder value, so that executive officers' long-term
interests will be aligned with those of the company's shareholders. To that end,
the committee periodically approves the grant of stock options to executive
officers under the company's stock option plans. The Compensation Committee
believes that the company's option plans have been successful in helping the
company attract and retain skilled management to focus on efforts to increase
the company's earnings and returns for its shareholders.
Periodic grants of incentive stock options are made to the executive
officers and selected other employees under the company's 2002 Stock Option
Plan, which was adopted by the company and approved by the company's
shareholders in 2002. These options are granted at exercise prices equal to or
greater than the fair market value of the underlying shares at the time the
option is granted.
In addition to the 2002 Stock Option Plan, the company adopted two
Performance-Based Option Plans under which options were granted to senior
management with exercise prices significantly below fair market value of the
underlying shares, but these options do not become exercisable unless the
company achieves certain growth rates in its earnings or until approximately
nine years after grant. The purpose of these plans is to provide incentive to
senior management to maximize the company's earnings potential and to make a
significant portion of executive compensation contingent on meeting earnings
targets. In 1994, the company adopted (and the shareholders subsequently
approved) the 1994 Performance-Based Option Plan, which provided for the
one-time grant to executives of options that could become exercisable after the
announcement of earnings for fiscal 1997 only if the company met a targeted
compound growth rate of 13% over that three-year period (otherwise these options
would not become exercisable until January 1, 2003). The company's reported
earnings for fiscal 1997 were at a level that allowed the options to become
exercisable in May of 1997, and represented a compound growth rate of 20% for
the three years ended April 27, 1997. In 1997, the company adopted (and the
shareholders approved) the 1997 Performance-Based Option Plan. This plan is
similar in concept to the 1994 Performance-Based Option Plan, in that it
provided for the one-time grant to executives of options that could have become
exercisable if the company's earnings reached a specific target by the end of
fiscal 1999. Otherwise, the options do not become exercisable until January 1,
2006. The earnings target under the 1997 Performance-Based Option Plan was not
met, and thus the options under this plan will not become exercisable until
January 1, 2006.
The Compensation Committee approved grants of stock options to certain
officers and employees under the 2002 Stock Option Plan during fiscal 2004 to
increase the opportunity of these employees to participate in the growth of the
company and the value of its stock. The specific levels of options granted
generally reflected the level of responsibility of the employees and officers
receiving the option awards and the committee's judgment about the direct link
between the employee's performance and the company's financial results.
A supplemental deferred compensation plan was reinstated in fiscal 2002 for
two of the company's executive officers. The plan provides for additional
deferred compensation payments for the benefit of the specified executive
officers in the amount of fifteen percent of such officers' base salary at the
beginning of the fiscal year. This plan was adopted by the committee in lieu of
providing split-dollar life insurance plans such as those provided for the Chief
Executive Officer and the President, as described 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 2004 and now includes a split-dollar life insurance plan and
long-term care policy for the President. The committee believes this type of
plan provides a cost-effective means of providing this benefit.
The foregoing report has been furnished by the members of the Compensation
Committee.
H. Bruce English, Chairman
Patrick B. Flavin
Kenneth W. McAllister
PERFORMANCE COMPARISON
The following graph shows changes over the five-year period ended May 2,
2004 in the value of $100 invested in (1) the common stock of the company, (2)
the Core Data Textile Manufacturing Group Index reported by Standard and Poor's,
consisting of thirty-four companies (including the company) in the textile
industry, and (3) the Standard & Poor's 500 Index. The company previously used
the Textile Manufacturing Group Index reported by Media General Financial
Services, Richmond, Virginia, and the Core Data Textile Manufacturing Group
Index incorporates and continues the calculation of the Media General Textile
Manufacturing Group Index.
The graph assumes an initial investment of $100 at the end of fiscal 1999
and the reinvestment of all dividends during the periods identified.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG CULP,INC., THE S & P 500 INDEX,
AND THE CORE DATA TEXTILE MANUFACTURING GROUP
4/99 4/00 4/01 4/02 4/03 4/04
-------- --------- --------- --------- -------- ---------
CULP, INC. 100.00 71.94 60.79 115.44 66.55 110.19
S & P 500 100.00 110.13 95.84 83.74 72.60 89.21
CORE DATA TEXTILE
MANUFACTURING GROUP 100.00 71.02 63.71 95.67 77.46 99.48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Lease Transactions. During fiscal 2004, the company leased two 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 Robert G. Culp, III,
Harry R. Culp (brother of Robert G. Culp, III and a director), and Judith C.
Walker (sister of Robert G. Culp, III). These facilities contain a total of
340,000 square feet of floor space. The initial terms of the leases described
above range from five to seven years, with one or more five-year renewal
options. Base rent per year for the leased facilities ranges from $1.98 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. All related party leases and amendments
thereto are approved by the Audit Committee and are reviewed annually by the
Audit Committee. The total amount of rent paid by the company under all related
party leases during fiscal 2004 was approximately $682,000.
Certain Business Relationships. The company had sales of approximately
$41.8 million, which constituted 13.1% of the company's net sales, to La-Z-Boy
Incorporated in fiscal 2004. Patrick H. Norton, a director of the company,
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 April 27, 2003. 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, 2003, its insiders have complied with all
applicable Section 16(a) reporting requirements, except as follows. As
previously disclosed in the 2003 Proxy Statement, Mr. Robert G. Culp, III did
not report on a timely basis twenty-four transactions over several years by his
spouse because he was not aware of the transactions at the time they took place.
These transactions were subsequently reported in fiscal 2004 after Mr. Culp
learned the details necessary to report the transactions.
================================================================================
YOUR DIRECTORS RECOMMEND VOTES "FOR"
o THE FIVE NOMINEES FOR DIRECTOR
o THE RATIFICATION OF APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR FISCAL 2005
================================================================================
SHAREHOLDER PROPOSALS FOR 2005 MEETING
Shareholders may submit proposals appropriate for shareholder action at the
company's Annual Meeting consistent with the regulations of the SEC and the
company's bylaws. The nominees named in this Proxy Statement are those chosen by
the Board of Directors, upon the recommendation of the Board's Corporate
Governance and Nominating Committee. Nominations may also be made by
shareholders in accordance with the company's bylaws. The bylaws require that
such nominations be received by the company at least 120 days prior to the
Annual Meeting, and that the nominations include certain biographical and other
information about the persons nominated as specified in the bylaws. See also
"Director Nomination Process" on page 9. For shareholder proposals and
nominations for director to be considered for inclusion in the Proxy Statement
for the 2005 Annual Meeting, the company must receive them no later than May 1,
2005. Such proposals should be directed to Culp, Inc., Attention: Corporate
Secretary, 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 named in the proxy, discretionary authority to
do so being included in the proxy.
By Order of the Board of Directors,
/s/ Franklin N. Saxon
-----------------
FRANKLIN N. SAXON
President and Chief Operating Officer
================================================================================
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 2004 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: KATHY J. HARDY, CORPORATE SECRETARY, 101 SOUTH MAIN
STREET, P. O. BOX 2686, HIGH POINT, NORTH CAROLINA 27261.
APPENDIX A
CULP, INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE
The purposes of the Audit Committee (the "Committee") are as follows:
(a) to assist the Board of Directors of Culp, Inc. (the
"Corporation") in its oversight of (1) the integrity of the
Corporation's financial statements, (2) the Corporation's
compliance with legal and regulatory requirements, (3) the
independent auditor's qualifications and independence, and (4)
the performance of the Corporation's internal audit function and
independent auditor; and
(b) to prepare a Committee report as required by the SEC to be
included in the Corporation's proxy statement for its annual
meeting of shareholders.
The Committee's primary responsibilities are to:
o Serve as an independent and objective party to monitor the
Corporation's financial reporting process and internal control
system.
o Select the Corporation's independent auditor (subject to shareholder
ratification) and set the terms of the audit engagement.
o Review and appraise the performance of the Corporation's independent
auditor and internal audit staff.
o Provide an open avenue of communication among the independent
auditor, the internal audit, financial and senior management and the
Board of Directors.
While the Committee has the responsibilities and authority set forth in
this Charter, the fundamental responsibility for the Corporation's financial
statements and disclosures rests with management and the independent
auditor.
II. COMPOSITION
The Committee shall be comprised of three or more directors appointed
by the Board, each of whom shall be an independent director under the
standards of the New York Stock Exchange, free from any relationship that
would interfere with the exercise of independent judgment as a member of the
Committee, and shall also satisfy the additional qualifications for audit
committee membership set forth in SEC and NYSE rules, all as determined by
the Board. All members of the Committee shall have a working familiarity
with basic finance and accounting practices and have the ability to read and
understand fundamental financial statements, and at least one member of the
Committee shall have accounting or related financial management expertise.
To the extent practicable, at least one member of the Committee should
qualify as an "audit committee financial expert" under SEC rules.
Unless the Board appoints a Chairman of the Committee, the members of
the Committee may designate a Chairman by majority vote of the full Committee
membership.
III. MEETINGS
The Committee shall meet as frequently as circumstances dictate. The
Committee may ask members of management or others to attend any meeting and
provide information or advice as needed. As part of its responsibility to
foster open communication, the Committee shall meet periodically with each of
management, the internal auditors and the independent auditor in separate
executive sessions to discuss any matters that the Committee or any of these
groups believes should be discussed privately.
IV. ACTIVITIES
The following shall be among the principal areas of responsibility and
recurring responsibilities of the Committee in carrying out its oversight
role. These responsibilities are set forth as a guide, with the
understanding that the Committee may supplement them as appropriate.
The Committee shall:
Review of Documents and Reports; Audit Committee Report
- -------------------------------------------------------
1. Review this Charter at least annually and recommend any proposed
changes to the Board.
2. Discuss with management and the independent auditor the Corporation's
annual audited financial statements and quarterly financial statements,
including the Corporation's disclosures under "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
3. Discuss with management and the independent auditor, as appropriate,
the Corporation's earnings press releases, as well as financial information
and earnings guidance provided to analysts and rating agencies.
These discussions may be general in nature, covering, e.g., the
types of information to be disclosed and the type of presentation
to be made, as opposed to the specific content of each release or
each piece of guidance.
4. Review the regular reports to management prepared by the internal
auditors and by the independent auditor, management's responses to those
reports, any "internal control" or management letter issued or proposed to be
issued by the independent auditor.
5. Provide a report to be included in each proxy statement of the
Corporation for its annual meeting of shareholders, which report shall
include the name of each Committee member and shall:
(i) State whether the Committee has reviewed and discussed the
audited financial statements with management;
(ii) Represent that the Committee has discussed the conduct of
the audit with the independent auditor;
(iii) Represent that the Committee has received the written
disclosures and the letter from the independent auditor
required by Standard No. 1 of the Independence Standards
Board; and
(iv) State whether, based on a review of the audited financial
statements and discussions with the independent auditor,
the Committee recommended that the Corporation's financial
statements be included in its annual report for filing with
the SEC.
Independent Auditor
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6. Select and appoint the independent auditor (subject to shareholder
ratification), considering independence and effectiveness, and review and
approve the audit plan for each fiscal year, including the scope of the
proposed audit and the fees and other compensation to be paid to the
independent auditor.
The Committee shall have the sole authority and responsibility to
appoint and if necessary replace the independent auditor, and
shall be directly responsible for the compensation, retention and
oversight of the independent auditor.
7. Establish and maintain written policies regarding pre-approval of all
audit services and permissible non-audit services to be provided to the
Corporation by the independent auditor, and monitor compliance with those
policies.
8. At least annually, obtain and review a report by the independent
auditor describing (i) the independent auditor's internal quality-control
procedures; (ii) any material issues raised by the most recent internal
quality-control review, or peer review, of the independent auditor, or by any
inquiry or investigation by governmental or professional authorities, within
the preceding five years, respecting one or more independent audits carried
out by it, and any steps taken to deal with any such issues; and (iii) all
relationships between the independent auditor and the Corporation.
9. Based on this report, evaluate the independent auditor's
qualifications, performance and independence.
10. Review any major non-audit services that have been provided by the
independent auditor and the fees therefor in order to insure that those
services have not and will not affect the independence of the independent
auditor.
11. Set clear hiring policies for employees or former employees of the
independent auditor.
Financial Reporting Processes
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12. Discuss with management and the independent auditor the adequacy and
effectiveness of the Corporation's internal control over financial reporting,
including any significant deficiencies or changes reported by management and
any special audit steps adopted in light of significant control deficiencies,
and the effectiveness of the Corporation's disclosure controls and procedures
and management reports thereon.
13. Discuss with the independent auditor and with management, as
appropriate, the quality, not just acceptability, of the Corporation's
financial reporting and accounting principles and standards, significant
changes in such standards or principles or in their application, the clarity
of the disclosures in the financial statements and key accounting judgments
affecting the Corporation's financial statements, including the rationale
for, and alternatives to, those judgments and the impact of the alternatives
on the Corporation's financial statements.
14. Consider and review with the independent auditor its significant
findings and recommendations, including proposed adjustments, together with
management's responses.
15. Consider the effect of regulatory and accounting initiatives, as well
as off-balance sheet structures, on the Corporation's financial statements.
16. Consider, and approve if appropriate, any major changes to the
Corporation's auditing and accounting principles and practices suggested by
the independent auditor or management.
Process Improvement
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17. Regularly review with each of management and the independent auditor
any problems or difficulties encountered during the course of the audit,
including any restrictions on the scope of work or access to requested
information, and management's responses.
18. Review any significant disagreement between management and the
independent auditor in connection with the preparation of the financial
statements.
19. Review with the independent auditor and management the extent to which
any changes or improvements in financial or accounting practices that have
been approved by the Committee have been implemented.
20. Establish and maintain procedures for the receipt, retention and
treatment of complaints received by the Corporation regarding accounting,
internal control over financial reporting or accounting controls, or auditing
matters.
These procedures shall include procedures for the confidential,
anonymous submission by employees of concerns regarding
accounting or auditing matters.
Internal Auditors
- -----------------
21. Review, discuss with management and the independent auditor and approve
matters related to the internal audit function, including the scope of and
changes in its purposes and the responsibilities, organizational structure,
resources (including budget and staffing) and qualifications of the internal
auditors.
22. Review, with management and the internal auditor, or such others as the
Committee deems appropriate, the Corporation's internal audit system and the
results of internal audits.
Miscellaneous
- -------------
23. At each meeting of the Board of Directors, report any Committee
activities since the last directors' meeting and make such recommendations as
the Committee deems appropriate.
24. Review and discuss with management, and with the internal audit staff
and the independent auditor, as appropriate, issues regarding the
Corporation's risk assessment and risk management policies, including the
Corporation's major financial risk exposure and the steps management has
taken to monitor and mitigate such exposure.
25. Review and discuss with management, and with the internal auditor and
the independent auditor, as appropriate, the Corporation's compliance with
legal and regulatory requirements and developments with respect to those
requirements that are of major significance to the Corporation.
26. Review, investigate and monitor other matters pertaining to the
integrity or independence of management or the Board, including conflicts of
interest, related party transactions, issues regarding adherence to standards
of business conduct and other matters involving the Corporation's compliance
programs.
27. Conduct and present to the Board an annual evaluation of the
Committee's performance.
V. RESOURCES
Both the independent auditor and the internal auditor may contact the
Committee or its Chairman directly to review sensitive items that can impact
the accuracy of financial reporting or to discuss significant issues that, in
their judgment, may warrant follow-up by the Committee.
In discharging its responsibilities, the Committee shall be empowered
to investigate any matter brought to its attention, with full access to all
books, records, facilities, and personnel of the Corporation. The Committee
shall also have the power to retain outside counsel or accounting or other
experts, in each case as and on the terms (including fees) that the Committee
deems necessary or appropriate in its sole discretion.
The Committee shall have access to such funds of the Corporation as it
may require for any of the purposes or responsibilities stated in this
Charter.
CULP, INC.
C/O EQUISERVE TRUST COMPANY N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
- ----------------------------------------
CULP, INC.
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1. ELECTION OF DIRECTORS:
Nominees:(01) Jean L.P. Brunel, 2.PROPOSAL to ratify the appointment
(02) Howard L. Dunn, Jr., of KPMG LLP as the company's
(03) H. Bruce English, independent auditors for fiscal 2005.
(04) Kenneth R. Larson and
(05) Kenneth W. McAllister
FOR AGAINST ABSTAIN
FOR WITHHELD [ ] [ ] [ ]
ALL [ ] [ ] FROM ALL
NOMINEES NOMINEES
[ ] ____________________________________
For all nominee(s) except as written
above 3.In their discretion, the proxies are
authorized to vote upon any other
business that may properly come
before the meeting.
Mark box at right if an address [ ]
change or comment has been noted on
the reverse side of this card.
Be sure to sign and date this Proxy.
Signature: ____________ Date: _________ Signature: ____________ Date: _________
PROXY CULP, INC. PROXY
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Robert G. Culp, III, Kathy J. Hardy and Franklin
N. Saxon, and each of them, attorneys and proxies with full power of
substitution, to act and vote as designated below the shares of common stock of
Culp, Inc. held of record by the undersigned on July 23, 2004 at the Annual
Meeting of Shareholders to be held on September 21, 2004 or any adjournment or
adjournments thereof.
This proxy will be voted as directed herein. If no direction is made, this proxy
will be voted for the nominees listed in proposal 1; and for the ratification of
the appointment of KPMG LLP as independent auditors in proposal 2. If, at or
before the time of the meeting, any of the nominees listed on the reverse side
has become unavailable for any reason, the proxies have the discretion to vote
for a substitute nominee or nominees.
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PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE
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(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.)
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HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
________________________________ _________________________________
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