SCHEDULE 14A INFORMATION
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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 23, 2003
--------------------------------------------------------
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 23, 2003, at 9:00 a.m. local time, for the purpose of
considering and acting on the following matters:
(1) To elect three (3) 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 25, 2003
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
--------------
KATHY J. HARDY
Corporate Secretary
August 20, 2003
(LOGO)
CULP, INC.
Proxy Statement
INTRODUCTION
This Proxy Statement is furnished to the shareholders of Culp, Inc.
(sometimes referred to as the "company") by the company's Board of Directors in
connection with the solicitation of proxies for use at the Annual Meeting of
Shareholders of the company to be held on Tuesday, September 23, 2003, 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 20, 2003.
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 three (3) 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.
PRINCIPAL HOLDERS OF VOTING SECURITIES
Only shareholders of record at the close of business on July 25, 2003 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
11,515,459.
The following table lists the beneficial ownership of the company's common
stock with respect to: (i) each person known by the company to be the beneficial
owner of more than five percent of such common stock, as shown on the last
public filing made by each such person, and (ii) all executive officers,
directors and nominees of the company as a group, a total of 11 persons, as of
July 25, 2003.
Number of Shares Percent of
Title of Name and Address of Beneficially Outstanding
Class Beneficial Owner Owned Shares
---------------- ----------------------- --------------- -----------
Common stock, Robert G. Culp, III 2,533,286 (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. 856,640 (3) 7.4%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
T. Rowe Price Associates, Inc. 1,459,500 (4) 12.7%
100 East Pratt Street
Baltimore, Maryland 21202
Systematic Financial Management, L.P. 966,720 (5) 8.4%
Glenpointe East, 7th Floor
300 Frank W. Burr Boulevard
Teaneck, New Jersey 07666
All executive officers, directors
and nominees as a group (11 persons) 3,293,662 (6) 27.7%
(1) These shares include all of the shares listed below that also are
beneficially owned in the name of Atlantic Trust as trustee of the Robert
G. Culp, Jr. Trust, all of which shares Robert G. Culp, III has the right
to vote and jointly (with Atlantic Trust) has the right to invest. (See
Note (2) below.) These shares also include 64,738 shares held of record by
Susan B. Culp, the wife of Mr. Culp, the beneficial ownership of which
shares Mr. Culp disclaims, approximately 22,279 shares owned by Mr. Culp
through the company's 401(k) plan, and 133,500 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 856,640 shares of Culp, Inc. stock as
of March 31, 2003. 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, 2003, including T. Rowe Price Small Cap Value
Fund, which owns 725,000 shares, representing 6.3% 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) These shares are owned by Systematic Financial Management, L.P. as of
March 31, 2003. Systematic has sole voting authority over 797,020 shares.
Systematic Financial Management, L.P. is a federal registered investment
advisor specializing in the management of value portfolios throughout the
market capitalization spectrum.
(6) Includes 389,500 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 three (3)
directors whose terms expire in 2003.
In the absence of specifications to the contrary, proxies will be voted for
the election of each of the three (3) nominees listed in the table below, and an
equal number of votes will be cast for each nominee. In no case will proxies be
voted for more than three nominees. The persons who receive the highest number
of votes for election at the Annual Meeting will be elected as directors. If, at
or before the time of the meeting, any of the nominees becomes unavailable for
any reason, the proxy holders have the discretion to vote for a substitute
nominee or nominees. The Board currently knows of no reason why any of the
nominees listed below is likely to become unavailable.
NOMINEES, DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
three (3) 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 25, 2003 Notes
--------------------- --------------------------- -------- ------- --------------------- -----
Nominees
--------
Robert G. Culp, III, 56 Chairman of the Board 1972 2003 2,533,286 (2)
and Chief Executive Officer; 21.7%
Director
Patrick B. Flavin, 56 Director 1999 2003 145,325 (3)
1.3%
Patrick H. Norton, 81 Director 1987 2003 68,591 (4)(5)
Directors and
Executive Officers
------------------
Harry R. Culp, 51 Director 2002 2005 7,500 (4)(6)
Howard L. Dunn, Jr., 65 President and Chief 1972 2004 306,934 (7)
Operating Officer; Director 2.7%
H. Bruce English, 69 Director 2000 2004 14,625 (4)(8)
Kenneth W. McAllister, 54 Director 2002 2004 16,875 (4)(9)
Albert L. Prillaman, 57 Director 2002 2005 9,875 (4)(10)
Franklin N. Saxon, 51 Executive Vice President, 1987 2005 71,478 (4)(11)
Chief Financial Officer,
Treasurer and President,
Culp Velvets/Prints division;
Director
Kenneth M. Ludwig, 50 Senior Vice President, N/A N/A 71,250 (4)(12)
Human Resources
and Assistant Secretary
Rodney A. Smith, 54 Senior Vice President N/A N/A 47,923 (4)(13)
and President, Culp Yarn
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 17, 2003.
(2) 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, 133,500 shares subject to
options owned by Mr. Culp that are immediately exercisable, and
approximately 22,279 shares owned by Mr. Culp through the company's 401(k)
plan.
(3) Includes 100,000 shares held by Flavin, Blake Investors, L.P., a
partnership in which Mr. Flavin is a partner, 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 5,625 shares subject to options owned by Mr. Flavin
that are immediately exercisable.
(4) Less than one percent (1%).
(5) Includes 18,750 shares subject to options owned by Mr. Norton that are
immediately exercisable.
(6) Includes 7,500 shares subject to options owned by Dr. Harry Culp that
are immediately exercisable.
(7) Includes 66,715 shares owned by Patricia Dunn, wife of Mr. Dunn, and
63,500 shares subject to options owned by Mr. Dunn that are immediately
exercisable.
(8) Includes 1,875 shares subject to options owned by Mr. English that are
immediately exercisable.
(9) Includes 1,875 shares subject to options owned by Mr. McAllister that
are immediately exercisable.
(10) Includes 1,875 shares subject to options owned by Mr. Prillaman that
are immediately exercisable.
(11) Includes 39,000 shares subject to options owned by Mr. Saxon that are
immediately exercisable, and approximately 32,062 shares owned by Mr. Saxon
through the company's 401(k) plan.
(12) Includes 71,250 shares subject to options owned by Mr. Ludwig that are
immediately exercisable.
(13) Includes 44,750 shares subject to options owned by Mr. Smith that are
immediately exercisable, and approximately 3,173 shares owned by Mr. Smith
through the company's 401(k) plan.
Nominees:
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 Harry R. Culp.
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 chairman of the audit
committee of the board for FastChannel Network, Inc., and Renaissance, Inc.,
both of which are private companies.
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.
Other Officers and Directors:
HARRY R. CULP has been practicing dentistry in High Point since July 1981.
He is the brother of Robert G. Culp, III. He also served as a director of the
company from 1996 to 1999.
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.
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 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.
KENNETH W. MCALLISTER was a senior executive vice president and general
counsel of Wachovia Corporation from 1997 until his retirement in 2001, and
served as general counsel since joining Wachovia in 1988. He served as United
States Attorney for the Middle District of North Carolina from 1981 to 1986. Mr.
McAllister is a director of High Point Bank Corporation, High Point Bank and
Trust Co., and Lawyers Mutual Liability Insurance Company of North Carolina.
ALBERT L. PRILLAMAN has been chairman of the board of Stanley Furniture
Company, Inc., a manufacturer of wood furniture targeted at the upper-medium
price range of the residential market, since 1988.
FRANKLIN N. SAXON has been employed by the company since 1983, serving in
various capacities, including Chief Financial Officer from 1985 to 1998. In
1998, the Board elected Mr. Saxon Senior Vice President and President of the
Culp Velvets/Prints division. In 2001, he was elected 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.
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. Prior to joining the company, Mr. Smith served in management
positions with various manufacturers of dobby and jacquard home furnishings
fabrics, including vice president of manufacturing for Elite Textiles Ltd. from
1995 to 1996, and technical director for Hoffman Mills from 1996 to 1997.
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 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. English (Chairman), Flavin,
McAllister and Norton. All members of the Audit Committee meet the current
independence requirement of the New York Stock Exchange, meaning that no member
of the committee has any business relationship or transaction with the company,
except where the company's Board of Directors has determined in its business
judgment that the relationship does not interfere with the director's exercise
of independent judgment.
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. Norton and Flavin.
The current members of the Nominating Committee are Messrs. Culp and
Norton. Because each of these directors has a term expiring at the 2003 Annual
Meeting and is a candidate for re-election to the Board of Directors, and
because the Board is currently considering a proposal to change or expand the
membership and duties of this committee, action upon nominations for election to
the Board at the 2003 Annual Meeting was considered by the entire Board of
Directors of the company. Thus, the Nominating Committee did not meet or take
any formal action during fiscal 2003, and the nominees for election to the Board
of Directors contained in this Proxy Statement have been chosen by the full
Board of Directors. Recommendations from shareholders for nominees to the Board
of Directors are considered by the Nominating Committee and the Board 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 April 27, 2003, the Board of Directors had six
meetings and one Consent to Action without Meeting; the Audit Committee nine
meetings; and the Compensation Committee two 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 2003. All significant management decisions requiring action by the Board
of Directors were considered and acted upon by the full Board.
AUDIT COMMITTEE REPORT
The Audit Committee operates under a written charter adopted by the Board
of Directors. 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 2003 was KPMG LLP, is responsible for expressing an opinion on the
conformity of the company's audited financial statements to accounting
principles generally accepted in the United States of America. The Audit
Committee has reviewed and discussed with management and KPMG the audited
financial statements as of and for the year ended April 27, 2003. 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 any information technology services or other
non-audit services to the company is compatible with the concept of auditor
independence.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the company's Annual Report on Form 10-K for the year ended April
27, 2003 for filing with the Securities and Exchange Commission.
The foregoing report has been furnished by members of the Audit Committee.
H. Bruce English, Chairman
Patrick B. Flavin
Kenneth W. McAllister
Patrick H. Norton
FEES PAID TO INDEPENDENT AUDITORS
For the fiscal year ended April 27, 2003, the aggregate fees billed to the
company by KPMG LLP are as follows:
Audit Fees $ 224,520
Financial Information Systems Design
and Implementation Fees 0
All Other Fees - Tax 71,975
---------
Total Fees $ 296,495
=========
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 2, 2004. KPMG LLP served as the
independent auditors for the company for the last thirteen 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 April 27,
2003, April 28, 2002, and April 29, 2001 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
========================================================================================================
Name and Annual Compensation Long-Term Compensation All Other
Principal Position Year Salary $ Bonus $ Option Grants # Compensation (1)
------------------ ---- ------------------- ---------------------- ----------------
Robert G. Culp, III 2003 416,000 416,000 12,000 74,487(2)
Chairman of the Board 2002 402,480 416,000 45,000 69,150
and Chief Executive Officer 2001 405,240 -0- 18,000 82,733
Howard L. Dunn, Jr. 2003 364,000 364,000 10,000 45,898(2)
President and 2002 340,340 364,000 40,000 36,090
Chief Operating Officer 2001 354,585 -0- 16,000 52,745
Franklin N. Saxon 2003 232,875 116,438 7,000 44,839(3)
Executive Vice 2002 225,307 116,438 35,000 8,630
President, Chief Financial 2001 227,122 -0- 10,000 87,871
Officer, Treasurer and
President, Culp Velvets/Prints
division
Rodney A. Smith 2003 186,824 100,000 7,000 8,578
Senior Vice President 2002 174,392 90,125 35,000 6,976
and President, Culp Yarn 2001 176,009 -0- 5,000 7,641
division
Kenneth M. Ludwig 2003 181,125 90,563 7,000 35,890(3)
Senior Vice President, 2002 175,239 90,563 35,000 7,010
Human Resources and 2001 176,651 -0- 8,000 61,576
Assistant Secretary
(1) Includes the company's matching contribution to such officers' accounts
under the company's 401(k) plan.
(2) Includes annual premiums of $61,100 paid by the company for
split-dollar life insurance on the life of Mr. Culp, and $34,341 for
split-dollar life insurance and long-term care insurance on the life of 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 $557 to Mr. Saxon and $423 to Mr. Ludwig.
========================================================================================================
Option Grants Table. The following table sets forth certain information
concerning grants of stock options to the executive officers named in the
Summary Compenstion Table during the year ended April 27, 2003.
STOCK OPTION GRANTS IN FISCAL 2003
==============================================================================================================
Potential Realizable Value at
% of Total Assumed Annual Rates of
Options Market Stock Price Appreciation
Granted to Exercise or Price on for Option Term
Options Employees in Base Price Date of Expiration -----------------------------
Granted Fiscal Year ($/Share) Grant Date 5%($) 10%($)
------- ------------ ----------- -------- ---------- ------------ ----------------
Robert G. Culp, III 12,000 14.6 13.99 13.30 6/20/07 35,787 89,090
Howard L. Dunn, Jr. 10,000 12.2 13.99 13.30 6/20/07 29,822 74,241
Franklin N. Saxon 7,000 8.5 13.99 13.30 6/20/07 20,875 51,969
Rodney A. Smith 7,000 8.5 13.99 13.30 6/20/07 20,875 51,969
Kenneth M. Ludwig 7,000 8.5 13.99 13.30 6/20/07 20,875 51,969
=============================================================================================================
Option Exercises and Year-End Value Table. The following table sets forth
certain information concerning exercises of stock options during fiscal 2003 by
the executive officers named in the Summary Compensation Table, and options held
by such officers at the end of fiscal 2003.
AGGREGATED OPTION EXERCISES IN FISCAL 2003
AND FISCAL 2003 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 25,000 110,250 113,250 85,750 27,855 148,105
Howard L. Dunn, Jr. 55,000 578,990 46,000 71,000 7,880 114,760
Franklin N. Saxon 38,250 233,461 23,500 53,250 4,925 73,475
Rodney A. Smith -0- -0- 30,250 39,750 12,800 28,550
Kenneth M. Ludwig 5,500 82,225 56,750 51,250 15,755 71,505
(1) Closing price of company stock at April 27, 2003 was $5.00.
================================================================================================================================
Securities Authorized for Issuance Under Equity Compensation Plans. The
following table sets forth information as of the end of fiscal 2003 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
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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))
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(a) (b) (c)
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Equity compensation
plans approved by
security holders 958,750 $ 7.80 906,750
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Equity compensation
plans not approved by
security holders (1) 0 0 0
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Total 958,750 $ 7.80 906,750
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(1) Does not include options that were granted to a non-employee and
non-affiliate of the company as consideration in an asset acquisition
transaction (and not as compensation) in 1997. The individual was granted
options that expired on August 4, 2003 to purchase 100,000 shares of the
company's common stock at an exercise price of $17.625 per share, in a
transaction not approved or required to be approved by the shareholders of
the company. These options expired without being exercised.
================================================================================
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 April 27, 2003, the company's
potential obligation pursuant to the Severance Protection Plan was $7,418,193,
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 Nominating Committee, respectively; and an
annual stock option grant of 1,875 shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee, both of whom are non-employee
directors, are Patrick H. Norton, Chairman, and Patrick B. Flavin. No member of
the Compensation Committee serves on the compensation committee of another
corporation that has a business relationship with the company. Mr. Norton is
chairman of the board of La-Z-Boy Incorporated, and the company had sales of
approximately $47.6 million, 14% of the company's net sales, to La-Z-Boy
Incorporated in fiscal 2003.
COMPENSATION COMMITTEE REPORT
The following is a report of the Compensation Committee on compensation of
executive officers for the fiscal year ended April 27, 2003.
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 2003.
As it has done in each of the past several years, the committee reviewed
published proxy information for firms in the company's industry, including many
of the companies included in the Performance Comparison data in the 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 prior 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. 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 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 the fair market
value of the underlying shares at the time the option is granted.
In addition to the 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 Stock Option Plan during fiscal 2003 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
President and the Chief Executive Officer each received a significantly larger
award than other officers did.
A supplemental deferred compensation plan was reinstated in fiscal 2002 for
two of the company's senior vice presidents. The 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 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 2003 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, since the
company expects to recover the cost of premium payments on the plan from the
cash value of proceeds of the life insurance policy.
The foregoing report has been furnished by the members of the Compensation
Committee.
Patrick H. Norton, Chairman
Patrick B. Flavin
PERFORMANCE COMPARISON
The following graph shows changes over the five-year period ended April 27,
2003 in the value of $100 invested in (1) the common stock of the company, (2)
the Textile Manufacturing Group Index reported by Media General Financial
Services, Richmond, Virginia, consisting of twenty (20) companies (including the
company) in the textile industry, (3) the New York Stock Exchange Composite
Index, and (4) the Standard & Poor's 500 Index. Due to recalculations of the New
York Stock Exchange Composite Index, the company has selected the Standard &
Poor's 500 Index as a broad equity market index for total return comparisons
going forward.
The graph assumes an initial investment of $100 at the end of fiscal 1998
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, THE NYSE COMPOSITE INDEX
AND THE MEDIA GENERAL TEXTILE MANUFACTURING GROUP
4/98 4/99 4/00 4/01 4/02 4/03
---- ---- ---- ---- ---- ----
CULP, INC. 100.00 44.16 31.77 26.84 50.98 29.39
S & P 500 100.00 121.82 134.16 116.76 102.02 88.44
NYSE COMPOSITE 100.00 109.86 111.57 109.95 99.45 84.06
MEDIA GENERAL TEXTILE
MANUFACTURING GROUP 100.00 61.51 45.46 50.68 79.66 64.81
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Lease Transactions. During fiscal 2003, 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 2003 was approximately $708,000.
Certain Business Relationships. The company had sales of approximately
$47.6 million, 14% of the company's net sales, to La-Z-Boy Incorporated in
fiscal 2003. 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 28, 2002. 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 28, 2002, its insiders have complied with all
applicable Section 16(a) reporting requirements, except as follows. Due to an
administrative oversight on the part of the company, Patrick B. Flavin filed a
Form 4 relating to the purchase of shares one day late in October 2002. Mr.
Robert G. Culp, III did not report on a timely basis twenty-nine transactions
over several years by his spouse because he was not aware of the transactions at
the time they took place. Five of those transactions were subsequently reported
in fiscal 2003, and twenty-four of those transactions have been reported since
the beginning of the current fiscal year. In each instance, Mr. Culp reported
these transactions shortly after he learned the details necessary to report the
transactions.
================================================================================
YOUR DIRECTORS RECOMMEND VOTES "FOR"
o THE THREE NOMINEES FOR DIRECTOR
o THE RATIFICATION OF APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR FISCAL 2004
================================================================================
SHAREHOLDER PROPOSALS FOR 2004 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. 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. For shareholder proposals and
nominations for director to be considered for inclusion in the Proxy Statement
for the 2004 Annual Meeting, the company must receive them no later than May 2,
2004. Such proposals should be directed to Culp, Inc., Attention: Franklin N.
Saxon, Executive 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 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
Executive 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 2003 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.
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.
----------------------------------------
1. ELECTION OF DIRECTORS:
Nominees: (01) Robert G. Culp, III, 2. PROPOSAL to ratify the appointment
(02) Patrick B. Flavin, of KPMG LLP as the company's
(03) Patrick H. Norton independent auditors for fiscal 2004.
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 25, 2003 at the Annual
Meeting of Shareholders to be held on September 23, 2003 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.
--------------------------------------------------------------------------------
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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