CULP INC

For fiscal 2026, the Committee again worked with Pearl Meyer to evaluate our executive compensation program. Based on this review, our executive compensation program for fiscal 2026 will consist of the following elements:

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With respect to NEO salaries, in response to continuing challenges in the home furnishings industry demand and market environments and the associated need for the Company to manage costs, no salary increases for NEOs are currently anticipated for fiscal 2026; provided, however, the Committee may re-evaluate executive officer salaries later in fiscal 2026 if there is significant improvement in Company performance and market conditions.. As a result, the Committee believes NEO base salary levels will remain well below the 50th percentile market level, even as compared to the Company’s 2025 peer group (as describe above).

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The annual cash incentive bonus program will continue for fiscal 2026; however, as a result of the above-referenced integration initiative involving the combination of the Company's two operating divisions, upholstery fabrics and mattress fabrics, into one unified business, the Company's fiscal 2026 annual cash incentive bonus program will be based solely upon the Company's consolidated performance, rather than the multiple separate reporting units comprising the fiscal 2025 annual cash incentive bonus program. The fiscal 2026 program will be tied to consolidated adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA") goals, with any potential awards capped at 50% of historical target award levels. In addition, any earned awards are subject to reduction by 40% if the Company’s net debt exceeds a predetermined threshold as of the end of fiscal 2026. Annual incentive plan metrics were selected to reinforce the Company’s current strategic priorities for fiscal 2026, including returning to profitability, margin improvement, and ongoing balance sheet management.

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The fiscal 2026 program consists of two measurement levels for consolidated adjusted EBITDA - threshold and target – for performance goals and corresponding award funding opportunities. The bonus opportunities under the program are capped at 50% of historical target award levels and threshold bonus opportunities under the program are set at 20% of historical target bonus levels (and 40% of the reduced target award levels for fiscal 2026). Annual adjusted EBITDA goals have been established by the Committee, and target award opportunities for all NEOs have been established, ranging from 35% to 50% of annual salary (i.e., 50% lower as compared to the goals established for fiscal 2025). The annual incentive bonuses under the plan, if any, will be paid in cash.

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In developing the performance targets for the fiscal 2026 annual cash incentive program, the Committee carefully evaluated then-current and expected business conditions, as well as historical consolidated performance. Critical factors, such as the potential for continued macro-economic headwinds, inflationary trends affecting consumer discretionary spending, current demand levels for furniture and bedding, and pressure from ongoing global trade negotiations and related tariff and other measures, were also considered in setting the performance levels. Consistent with the approach used in fiscal 2025, the target adjusted EBITDA goal for fiscal 2026 was set well above the internal operating budget and requires significant improvement compared to performance in fiscal 2025.

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The practice of granting long-term incentive equity awards was continued for fiscal 2026 and, consistent with fiscal 2025, NEOs were granted only performance-based restricted stock units along with a performance-based long-term incentive cash component for above-target award opportunities. The Committee implemented this structure to continue to align NEO pay with performance.

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Grants of performance-based restricted stock units are based on adjusted EBITDA goals in fiscal 2028 (i.e., in the third year from grant), with the number of units that can be earned ranging from 0% to 100% of target award levels. Similar to prior performance-based RSU grants, 20% of target RSUs can be earned at the threshold level, with award funding for results in between threshold and target levels determined using straight-line interpolation, with any earned awards payable in stock. Maximum equity-based RSU award opportunities are capped at 100% of target to help manage equity plan dilution and share usage. Threshold and target performance hurdles for fiscal 2028 require significant improvement over current levels. Consistent with our historical practice, NEOs and other participants will be able to earn total long-term incentive awards of up to 200% of target award opportunities. However, for the fiscal 2026 grant, the above-target portion will be denominated in and payable in cash to help manage equity plan dilution and share usage, with the maximum adjusted EBITDA goal set meaningfully above the target hurdle associated with RSU grants. Award funding for results in between target and maximum levels will be determined using straight-line interpolation and payable in cash. The Committee believes the fiscal 2026 long-term incentive program will further reinforce the Company’s strategic transformation initiatives in support of long-term value creation while demonstrating responsible equity grant usage given the current stock price level. Compared with fiscal 2025, target and maximum long-term incentive award opportunities for NEOs remained unchanged while total incentive award opportunities are lower due to the above-referenced cap (50% of target) under the annual short-term incentive plan.

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The supplemental non-qualified deferred compensation plan was also continued for fiscal 2026, with Company contributions to the account of Mr. Culp, Mr. Bowling, and Mr. Bruno expected to be similar to fiscal 2025.