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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-14938
STANLEY FURNITURE COMPANY, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 54-1272589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Route 57, Stanleytown, Virginia 24168
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 627-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.02 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports),and (2) has been subject to
such filing requirements for the past 90 days: Yes (x) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.[ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price on January 25, 1995: $16,221,328
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock as of January 25, 1995:
Common Stock, par value $.02 per share 4,726,550
(Class of Common Stock) Number of Shares
Documents incorporated by reference: Portions of the Registrant's Proxy
Statement for its Annual Meeting of Shareholders scheduled for April 20, 1995
are incorporated by reference into Part III.
TABLE OF CONTENTS
Part I Page
Item 1 Business............................. 3
Item 2 Properties........................... 9
Item 3 Legal Proceedings.................... 10
Item 4 Submission of Matters to a Vote
of Security Holders................ 10
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters.... 12
Item 6 Selected Financial Data.............. 13
Item 7 Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 15
Item 8 Financial Statements and
Supplementary Data................. 19
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure............... 19
Part III
Items 10 through 13.............................. 19
Part IV
Item 14 Exhibits, Financial Statement
Schedule and Reports on Form 8-K... 19
Signatures....................................... 24
Index to Financial Statements and Schedule....... F-1
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Stanley Furniture Company, Inc.
PART I
Item 1. Business
General
Stanley Furniture Company, Inc. ("Stanley" or the "Company")
is a leading designer and manufacturer of furniture exclusively
targeted at the upper-medium price range of the residential market.
The Company is ranked among the top 25 furniture manufacturers in
North America, based on sales, according to Furniture Today, a
trade publication. During 1994, the Company expanded it's product
line offerings to include upholstered furniture. See "Products and
Styles".
The original predecessor of the Company was founded in 1924.
The Company was incorporated in Delaware in 1984. The Company was
acquired by Stanley Holding Corporation, a Delaware corporation
("Holding"), in a leveraged buy out in January 1989. Holding was
owned 60% by the ML-Lee Acquisition Fund, L.P. (the "Lee Fund"),
20% by affiliates of the Thomas H. Lee Company (the "Lee Company")
and 20% by certain members of the Company's management. The Lee
Fund and affiliates of the Lee Company had no relationship with the
Company prior to the leveraged buy out transaction.
In November 1992, the Company completed a comprehensive
financial restructuring which included (i) the exchange of $21.4
million in outstanding principal amount of 14% subordinated notes
of the Company due 1998 and held by the Lee Fund into common stock,
$.02 par value of the Company, and (ii) a merger which resulted in
the conversion into common stock of certain preferred stock held by
the Lee Fund, affiliates of the Lee Company, certain members of the
Company's management, and certain unaffiliated stockholders. As a
result of this restructuring, the Company was the sole surviving
corporation and the only outstanding class of the Company's capital
stock was common stock. The Lee Fund, certain affiliates of the
Lee Company and members of management owned approximately 95% of
the outstanding common stock after the financial restructuring.
In July 1993, the Company completed a public offering of
1,725,000 shares of its common stock at $8.50 per share. The net
proceeds of $13.1 million were used to reduce debt. In connection
with the offering, the Company's Board of Directors authorized a
one-for-two reverse stock split, effective July 1, 1993.
Approximately 61% of the Company's common stock was owned by the
Lee Fund, certain affiliates of the Thomas H. Lee Company, and
management after the public offering.
In connection with the financial restructuring, the Company
pursued an operating restructuring consisting of (i) the closing of
the Waynesboro, Virginia facility in 1992 to eliminate excess
capacity, and (ii) the proposed sale of the Norman's of Salisbury
Division ("Norman's"). In June 1994, the Company ceased operations
at Norman's, and recorded an additional loss provision. See
"Discontinued Operations".
Strategy
The Company's marketing strategy is to penetrate all available
distribution channels compatible with its price niche and to be a
single-source provider by offering a broad range of product lines
and styles. Product lines include bedroom, dining room, youth,
occasional furniture, and the new upholstery line. The Company's
product styling mix reflects current consumer preferences and
covers all major design categories within its price niche. The
Company's operating strategy is based upon providing superior
quality, quick delivery, style and value. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the Company's sales.
The Company believes its strategy of penetrating all available
distribution channels compatible with its price niche provides it
with flexibility to adapt to market changes. The Company utilized
its distribution network to introduce occasional furniture products
(living room tables, wall units and desks) in the Fall of 1989, and
has increased sales of these products to approximately $22 million
for 1994. The Company is currently utilizing this distribution
network to introduce its new upholstery line. There can be no
assurance that the introduction of the upholstery line will result
in increased sales.
The Company believes that its operating strategy provides its
customers with a competitive advantage. In order to respond to
demand for shorter lead times and improved quality, the Company
implemented a redesigned manufacturing process in 1991 to produce
smaller, more frequent and cost effective production runs. As a
result, the Company achieved its goal of shipping customer orders
in three weeks on average during 1994, and average finished goods
inventory turns have improved to 6.6 times in 1994 from 4.5 times
in 1990. In addition, management believes this operating strategy
has helped to improve product quality. Quick delivery and high
quality reduce the retailer's inventory investment while minimizing
the retailer's re-delivery costs and price markdowns. The Company
uses the marketing theme, "We Just Look Expensive," because it
believes that the design, quality, and style of its furniture
compare favorably with more premium-priced products.
Products and Style
The Company's broad range of product lines and styles provide
retailers a single source for the purchase of upper-medium priced
wood furniture. The Company's strategy is to expand its production
of upholstered furniture products to provide retailers a single
source for the purchase of complete residential furniture
collections.
The range of product lines and number of designs for wood
products currently marketed by the Company is set forth in the
following table.
Number of Designs
Bedroom 27
Dining room 28
Youth bedroom 18
Occasional:
Living room tables 22
Wall systems 13
Home Office 3
The Company's product styling mix reflects current consumer
preferences and covers all major design categories within its
upper-medium price niche including European traditional,
contemporary/transitional, 18th century, country/nostalgia and
mission/shaker designs.
Upholstered furniture products were introduced as part of the
Saturday Evening Post/Norman Rockwell Home Furnishings Collection
in the Fall of 1994, and consist mainly of sofas, sleepers, love
seats and chairs. The Company adapted some of Norman Rockwell's
best-known illustrations to upholstery fabric and offers
approximately 55 fabric selections.
Marketing and Sales
The Company has developed a diverse and extensive nationwide
customer base which the Company believes provides it with
flexibility to adapt to market changes. The Company sells its
furniture products through approximately 60 independent sales
representatives to independent furniture retailers; national
accounts such as Sears and J.C. Penney; national and regional chain
stores such as Homestead House, Huffman-Koos, Robb & Stucky and R
C Willey; major department stores such as Dillards and Federated
Department Stores, and international customers. The Company
currently has approximately 3,700 active customers.
In marketing its products to independent retailers, the
Company utilizes a promotional incentive sales program, the
"Stanley Preferred Retailer". This program is designed to
encourage the independent retailer to commit retail floor space to
the Company's products. The program is designed to be flexible and
is adapted into the marketing plans of retailers by accommodating
geographic, style and promotional preferences. To participate, a
retailer must commit a specified amount of floor space to the
Company's products and achieve a specified sales volume.
The general marketing practice followed in the furniture
industry is to exhibit products at international and regional
furniture markets. In the Spring and Fall of each year, an eight-
day furniture market is held in High Point, North Carolina, which
is regarded by the industry as the international market, attracting
buyers from the United States and abroad. The Company maintains
showroom space at the High Point market and in the San Francisco
regional market. The Company is currently expanding the High Point
space to accommodate it's new upholstery line.
No single customer accounted for more than 10% of the
Company's sales in 1994. No material part of the Company's
business is dependent upon a single customer, the loss of which
would have a material effect on the business of the Company. The
loss of several of the Company's major customers could have a
material effect on the business of the Company. There are no
significant seasonal aspects to the Company's business.
Product Design and Development
The Company's marketing personnel begin the design process by
identifying marketing needs to be fulfilled and conceptualizing
product ideas, generally consisting of a group of related furniture
pieces. A variety of sketches is then produced, usually by Company
designers, from which prototype furniture pieces are prepared in
consultation with marketing personnel, selected dealers and sales
representatives. The Company's engineering department then further
processes the prototype in preparation for actual full-scale
manufacture. Consistent with industry practice, the Company
designs and develops new product groups each year, replacing
collections or items which are discontinued.
Manufacturing
The Company's manufacturing operations complement its
marketing strategy by emphasizing superior quality and quick
delivery. In 1991, the Company implemented a redesigned
manufacturing process to produce smaller, more frequent and cost
effective runs by identifying and eliminating manufacturing
bottlenecks and waste, employing statistical process control,
establishing cellular manufacturing and improving relationships
with suppliers. In addition, a key element of the Company's
current manufacturing process is to involve all Company personnel,
from hourly associates to management, in the improvement of the
manufacturing process by encouraging and responding to suggested
methods to improve quality and reduce manufacturing lead times.
The Company operates manufacturing facilities in North
Carolina and Virginia consisting of an aggregate of approximately
3.0 million square feet. The Company considers its present
equipment to be generally modern, adequate and well maintained.
Raw Materials
The principal materials used by the Company in manufacturing
its products include lumber, veneers, plywood, particle board,
hardware, glue, finishing materials, glass products, laminates,
fabrics, metals, frames for upholstered products, filling and
cushioning materials. The Company uses a variety of species of
lumber, including cherry, oak, ash, poplar, pine, maple, pecan, and
mahogany. The Company's five largest suppliers accounted for
approximately 24% of its purchases in 1994. The Company believes
that its sources of supply for these materials are adequate and
that it is not dependent on any one supplier. In addition, the
furniture industry has experienced increased prices for lumber
during the past several years, the most significant raw material
used by the Company. While the industry has historically increased
prices to reflect such increased costs, there can be no assurance
that, if the trend in lumber prices continues, market and
competitive pressures will permit the Company or its competitors to
increase the prices for their products.
Backlog
The Company schedules furniture production of its various
groups based upon actual or anticipated orders. The Company, and
the furniture industry, generally honor cancellation of orders
prior to shipment, although cancellations generally decrease as
demand increases. The Company's backlog of unshipped orders was
$17.4 million, $26.6 million, and $22.9 million at December 31,
1994, 1993, and 1992, respectively. The Company's manufacturing
process is intended to reduce backlog and to fill orders through
manufacturing rather than inventory. Therefore, management
believes that the size of its backlog is not necessarily indicative
of its operations.
Competition
The furniture market is highly competitive and includes a
large number of manufacturers, both domestic and foreign. The
markets in which the Company competes include a large number of
relatively small manufacturers; however, certain of the Company's
competitors have greater sales volumes and greater financial
resources than the Company. While competition occurs principally
in the areas of style, quality, service, design and price, the
Company believes that its operating strategy, its long-standing
relationships with its customers, its consistent support of
existing product lines over time and its management experience are
competitive advantages.
Associates
At December 31, 1994, the Company employed approximately 2,900
associates. None of the Company's associates are represented by a
labor union. The Company considers its relations with its
associates to be good.
Patents and Trademarks
The trade names of the Company represent many years of
continued business, and the Company believes such names are well
recognized and associated with quality in the furniture industry.
The Company owns a number of patents, trademarks, and licenses,
none of which is considered to be material to the Company.
Environmental Regulation
The Company is regulated under several federal, state and
local environmental laws and regulations concerning air emissions,
water discharges and management of solid and hazardous waste.
Management believes that the Company is in material compliance with
applicable federal, state and local environmental regulations.
Compliance with these regulations has not in the past had any
material effect on the Company's earnings, capital expenditures or
competitive position; however, the effect of such compliance in the
future cannot be determined.
Regulations currently being issued under the Clean Air Act
Amendments of 1990 may require the Company to reformulate certain
furniture finishes or institute process changes to reduce emissions
of volatile organic compounds. The furniture industry and its
suppliers are attempting to develop water-based and other forms of
compliant finishing materials to replace commonly-used organic-
based finishes which are a major source of regulated emissions.
The Company cannot at this time estimate the impact of these new
standards on the Company's operations and future capital
expenditure requirements, or the cost of compliance.
Discontinued Operations
In June 1994, the Company ceased operations at Norman's. The
Company recorded a $2.8 million ($4.5 million pretax) additional
loss provision in 1994 representing costs associated with the
closing and liquidation of the operation, which was completed by
December 31, 1994. Currently, a portion of the Norman's facilities
is being subleased on a short-term basis and a portion is being
utilized in the production of upholstered furniture products.
Item 2. Properties
Set forth below is certain information with respect to the
Company's principal properties. The Company believes that all
these properties are well maintained and in good condition. The
Company believes its manufacturing facilities are being efficiently
utilized and that it could increase production at its facilities if
required by customer demand. Each facility is focused on specific
product lines to optimize efficiency. The Company estimates that
its facilities are presently operating at approximately 90% of
capacity, principally on a one-shift basis. All Company plants are
equipped with automatic sprinkler systems and modern fire
protection equipment. Management believes that the Company's
sprinkler systems and fire protection equipment are adequate. All
facilities set forth below are active and operational.
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Approximate Owned Lease
Facility Size or Expiration
Location Primary Use (Square Feet) Leased Date
Stanleytown, VA Manufacturing 1,660,000 Leased October 14, 1999(1)
Stanleytown, VA Sales and
Executive Offices 61,000 Leased October 14, 1999(1)
West End, NC Manufacturing 470,000 Leased October 14, 1999(1)
West End, NC Lumber Yard Leased May 31, 2007
Lexington, NC Manufacturing(2) 635,000 Owned
Robbinsville, NC Manufacturing 540,000 Owned
Salisbury, NC Manufacturing(3) 16,254 Leased April 30, 2000(4)
(1) The Company has the right to renew this lease for two five-year options
through October 14, 2009 and to purchase the property at any time at
its fair market value.
(2) This facility includes approximately 350,000 square feet of warehouse
space.
(3) The Company has an additional 92,869 square feet which is currently
subleased. This was the principal facility of Norman's.
(4) The Company has the right to purchase the property at any time at its
fair market value.
The Company also leases and maintains approximately 60,000
square feet (8,000 square feet is subleased) of showroom space in
High Point, North Carolina and 7,000 square feet of showroom space
in San Francisco, California.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The executive officers of the Company are:
Name Age Position
Albert L. Prillaman 49 Chairman, President and
Chief Executive Officer
and Director
Lawrence E. Webb, Jr. 46 Executive Vice President,
Chief Operating Officer
and Director
C. William Cubberley, Jr. 54 Vice President-Sales and
Marketing
Douglas I. Payne 37 Vice President of Finance,
Treasurer and Secretary
Bobby I. Hodges 57 Vice President-
Manufacturing
William A. Sibbick 38 Vice President-Product
Development
Albert L. Prillaman has been a Director of the Company since
March 1986, President and Chief Executive Officer of the Company
since December 1985 and Chairman of the Board of Directors since
September 1988. Prior thereto, Mr. Prillaman had served as a Vice
President of the Company and President of the Stanley Furniture
division of the Company's predecessor since 1983, and in various
executive and other capacities with predecessors of the Stanley
Furniture division of the Company since 1969.
Lawrence E. Webb, Jr. has been a Director of the Company since
June 1986 and Executive Vice President of the Company and its
predecessor since July 1983 and Chief Operating Officer since
December 1990.
C. William Cubberley, Jr. has been a Vice President of the
Company since December 1990 and Senior Vice President-Sales and
Marketing of the Stanley Furniture division since October 1988.
Mr. Cubberley was Senior Vice President-Sales of the Stanley
Furniture division from January 1986 to October 1988.
Douglas I. Payne has been Vice President of Finance and
Treasurer of the Company since September 1993, was Vice President-
Treasurer of the Company from December 1989 to September 1993, was
Treasurer of the Company from June 1986 to December 1989 and was
Assistant Treasurer of the Company from August 1985 to June 1986.
Mr. Payne has been Secretary of the Company since September 1988.
Bobby I. Hodges has been Vice President since June 1993. He
was Senior Vice President-Manufacturing of the Stanley Furniture
division from January 1986 until June 1993. He was Vice President-
Manufacturing of the Stanley Furniture division from December 1983
until January 1986. Prior to that time, Mr. Hodges was employed by
the Company in various positions related to manufacturing
management.
William A. Sibbick has been Vice President-Product Development
since June 1993. He was Vice President-Senior Product Manager of
the Stanley Furniture division from January 1992 until June 1993.
Prior to that time, he had been Vice President-Product Manager
since his employment in March 1989.
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PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholders Matters
The Company's common stock is traded on the National
Association of Securities Dealers Automated Quotation (NASDAQ)
National Market under the symbol STLY. The common stock began
trading on the over-the-counter market on November 10, 1992 and
began trading on the NASDAQ National Market on July 1, 1993. The
table below sets forth the high and low bid quotations per share
until June 30, 1993, and thereafter the high and low sales prices
per share as reported by the NASDAQ National Market.
High Low
1994
First Quarter......................... 16 13
Second Quarter........................ 15 11
Third Quarter......................... 12 1/2 9
Fourth Quarter........................ 10 3/4 9 3/4
1993
First Quarter.......................... 10 8
Second Quarter......................... 10 9 1/2
Third Quarter.......................... 9 3/4 8 1/2
Fourth Quarter......................... 14 9
The quotations reflect interdealer prices, without retail
mark-up, mark-down or commissions and may not necessarily represent
actual transactions. As of January 27, 1995, there were
approximately 424 shareholders of record. The Company has not paid
any cash dividends and is prohibited from doing so under its bank
credit facility.
Item 6. Selected Financial Data
The selected financial data for the five years in the period
ended December 31, 1994 are derived from the Company's financial
statements, which have been audited by Coopers & Lybrand L.L.P.
The selected financial data should be read in conjunction with the
Financial Statements including the Notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere herein.
Stanley Furniture Company, Inc.
Selected Financial Data
(In thousands, except per share data)
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1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Operating Results:
Net sales.......................$184,342 $167,091 $166,501 $144,169 $153,050
Cost of sales:
From products sold............ 148,453 134,972 132,984 121,027 119,672
Business interruption
insurance (1)............... (5,036)
Gross profit.............. 35,889 37,155 33,517 23,142 33,378
Selling, general and admin-
istrative expenses............ 26,483 25,976 25,117 22,877 24,035
Restructuring charge
(credit)(2)................... (2,078) 14,051
Operating income (loss)..... 9,406 11,179 10,478 (13,786) 9,343
Other expense, net.............. 444 1,346 686 1,252 1,175
Gain on insurance settlement (3) (2,379) (2,186)
Interest expense................ 2,969 3,048 7,058 8,581 10,159
Income (loss) from continu-
ing operations before
income taxes................ 8,372 8,971 2,734 (23,619) (1,991)
Income tax provision (benefit).. 3,256 3,691 1,053 (9,088) (975)
Income (loss) from continu-
ing operations(4)...........$ 5,116 $ 5,280 $ 1,681 $(14,531)$ (1,016)
Income from continuing
operations per common share(4)$ 1.08 $ 1.39 $ .56
Weighted average number of
shares (5) (6)................ 4,725 3,792 2,996
Financial Position:
Inventories.....................$ 39,905 $ 37,684 $ 33,343 $ 34,355 $ 44,531
Working capital................. 42,912 40,833 34,650 25,396 41,684
Total assets.................... 124,519 124,859 114,302 113,724 133,135
Long-term debt.................. 33,395 32,022 46,543 41,221 48,723
Subordinated notes payable to
majority stockholder (5)...... 20,000 30,000
Mandatorily redeemable pre-
ferred stock (5).............. 12,662 11,359
Preferred stock (5)............. 15,023
Common stockholders' equity
(5) (6) (7)................... 50,830 47,204 29,959 (18,748) 697
</TABLE>
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Selected Financial Data (continued)
(1) In 1993, the Company recorded $5.0 million of business interruption
insurance replacing the gross profit on lost sales due to the fire which
occurred on February 12, 1993 at its Stanleytown, Virginia facility. See
Note 3 of the Notes to Financial Statements.
(2) In 1991, the Company recorded pretax charges of $14.1 million in
anticipation of the closing of the Waynesboro, Virginia facility to eliminate
excess capacity and the transfer of certain product lines to other
manufacturing facilities. Operating income for 1992 includes a restructuring
credit of $2.1 million from lower than anticipated costs of closing the
Waynesboro facility in June 1992. See Note 5 of the Notes to Financial
Statements.
(3) In 1994, the Company recorded a pretax gain of $2.4 million as part of
the final insurance settlement. Also, in 1993 a $2.2 million pretax gain was
recorded since proceeds exceeded the book value of leasehold improvements and
equipment destroyed in the fire.
(4) Income from continuing operations before insurance related gains was
$3.7 million (77 cents per share) in 1994, compared to $4.3 million (90 cents
per share) on a proforma basis in 1993.
(5) In November 1992, the Company completed a financial restructuring which
resulted in the exchange of certain long-term debt and preferred stock for
common stock. See Note 1 of the Notes to Financial Statements.
(6) In July 1993, the Company completed a public offering of 1,725,000
shares of common stock at $8.50 per share. The net proceeds of $13.1 million
were used to reduce debt. See Note 9 of the Notes to Financial Statements.
(7) No dividends have been paid on common stock during any of the years
presented.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with
the Selected Financial Data and the Financial Statements and Notes
thereto contained elsewhere herein.
General
The Company has operated under a strategy designed to focus on
customer service by providing improved quality and shorter lead
times from initial customer order until delivery of the
merchandise. This strategy was implemented through the combination
of reduced batch sizes and reduced set-up times and an improved
manufacturing logistical system. The Company believes that its
operating strategy has resulted in increased revenues due to higher
quality and customer satisfaction, and a more efficient utilization
of its manufacturing capacity. As a part of the operating
strategy, inventory levels were reduced from historical levels.
In November 1992, the Company completed a comprehensive
financial restructuring which reduced indebtedness and interest
expense in order to provide the Company with sufficient financial
flexibility to operate its business.
On February 12, 1993, a fire damaged a portion of the
Stanleytown, Virginia manufacturing complex, representing
approximately 12% of the Company's total manufacturing facilities.
Reconstruction of the damaged facility was completed in November
1993 and normal production resumed in January 1994. Because of the
Company's insurance coverage, the fire did not have a material
adverse impact on the financial condition of the Company, although
1993 net sales were adversely affected.
Results of Operations
1994 Compared to 1993
Net sales increased $17.3 million, or 10.3%, from 1993 levels
due principally to higher average selling prices and higher unit
volume. Lower unit volume in the 1993 period was due principally
to the disruption in production caused by the 1993 fire.
Gross profit margin decreased to 19.5% from 22.2% in 1993,
representing a $1.3 million decrease in gross profit. The higher
gross profit percentage for 1993 was due principally to the
recognition of $5.0 million of business interruption insurance
without the related sales revenue. This $5.0 million represented
the estimated settlement proceeds for gross profits lost and other
direct costs related to lost sales from the Stanleytown fire.
Gross profit margin for 1994 was negatively affected by startup
expenses related to the introduction of upholstered furniture.
Selling, general and administrative expenses as a percentage
of net sales was 14.4% and 15.5% for 1994 and 1993, respectively.
The lower percentage was due principally to an increase in net
sales and containment of cost. The lower percentage for 1994 was
partially offset by upholstery startup expenses.
As a result of the above, operating income decreased to $9.4
million from $11.2 million. Operating income was reduced by
upholstery startup costs of approximately $1.0 million in 1994.
Operating income as a percentage of net sales decreased to 5.1%
from 6.7% in 1993.
In 1994, the Company reached a final insurance settlement on
the 1993 fire and recorded a pretax gain of $2.4 million.
Interest expense approximated the 1993 period due principally
to lower average debt levels, which was offset by higher interest
rates.
<PAGE>
The Company's effective income tax rate decreased to 39% from
41% in 1993. The higher 1993 rate was due principally to the
effect of the 1% federal statutory rate increase on the prior
years' deferred tax balances.
1993 Compared to 1992
Net sales increased .4% from 1992 levels. Overall unit volume
declined due principally to the phase out of the hotel/motel market
segment. Sales in this product line declined from $8.0 million in
1992 to $1.3 million in 1993. Unit volume was also adversely
affected due to the disruption of production following the
Stanleytown fire. Higher average selling prices offset the lower
unit volume. Sales of residential furniture products increased
4.6% from 1992.
The gross profit margin increased to 22.2% from 20.1% in 1992,
representing a $3.6 million increase in gross profit. The increase
in the margin percentage is due principally to $5.0 million of
business interruption insurance without the related sales revenue.
Margins were also negatively affected by higher raw material
costs, principally lumber. As a result of competitive pressures,
not all of these cost increases were passed on to customers.
However, cost reductions and productivity gains diminished the
potential unfavorable impact of these raw material cost increases
on gross profit.
Selling, general and administrative expenses increased 3.4% to
$26.0 million from $25.1 million in 1992. Increases were due
primarily to higher salaries and benefits, and consulting costs
related to the fire insurance claim.
As a result of the above, operating income increased to $11.2
million from $8.4 million (before the 1992 restructuring credit),
an increase of 33%. The restructuring credit of $2.1 million in
1992 resulted from lower than anticipated costs of closing the
Waynesboro, Virginia production facility in June 1992.
In 1993, the Company recorded a $2.2 million pretax gain from
insurance since proceeds exceeded the book value of leasehold
improvements and equipment destroyed in the 1993 fire.
Other expense, net, increased to $1.3 million from $686,000 in
1992 due principally to the amortization of deferred financing fees
related to borrowing arrangements that were refinanced.
Interest expense decreased $4.0 million from 1992 due
principally to lower interest rates after the expiration of the
LIBOR-based interest rate collar agreement in January 1993; and,
lower debt levels resulting from the November 1992 restructuring
and the July 1993 public offering.
<PAGE>
The Company's effective income tax rate increased to 41.0%
compared to 38.5% in 1992. This was due principally to the effect
of the 1% federal statutory rate increase on prior years' deferred
tax balances.
Financial Condition, Liquidity and Capital Resources
In February 1994, the Company completed the private placement
of $30.0 million of 7.28% senior notes due 2004 and the refinancing
of its revolving credit facility. The proceeds from the senior
notes were used to repay the existing term note and a portion of
the revolving credit facility. Long-term debt outstanding at
December 31, 1994 was $33.4 million. Debt service requirements
will be $3.2 million in 1996, $161,000 in 1997 and $4.3 million in
each of the years 1998 through 2004. As of December 31, 1994,
approximately $17 million of additional borrowings were available
under the revolving credit facility. The Company believes that its
financial resources are adequate to support its capital needs and
debt service requirements.
During 1994, cash generated from operations of $4.1 million
and net borrowings of $1.2 million were used to fund capital
expenditures. The decrease in cash generated from operations was
due principally to higher tax payments of $4.4 million compared to
$321,000 in 1993. Tax payments were lower in 1993 due principally
to the utilization of net operating loss carryforwards.
Cash generated from operations in 1993 of $6.5 million was
used to fund capital expenditures and to reduce borrowings under
the senior credit facility.
Operating cash flows in both 1994 and 1993 include proceeds of
$4.6 and $23.2 million, respectively, received from insurance in
connection with the fire. Cash paid to suppliers in 1994 and 1993
include costs of $2.7 million and $25.2 million, respectively,
incurred in connection with the fire. Excluding the effect of the
fire, cash was required in the 1994 period to support higher
accounts receivable requirements reflecting higher sales levels,
higher payments to suppliers and employees as a result of higher
production levels and higher tax payments. These higher payments
in the 1994 period were partially offset by lower interest payments
due principally to lower debt levels. Excluding the cash flow
impact from the fire, cash provided by operating activities
improved $12.1 million in 1993 principally from higher customer
receipts, lower payments for the restructuring program and lower
interest payments. In 1992, proceeds from the revolving credit
facility were used in operating activities due primarily to paying
$3.4 million for restructuring costs incurred in 1991.
Net cash used by investing activities was $5.2 million in 1994
compared to $4.3 million and $3.1 million in 1993 and 1992,
respectively. Expenditures in the 1994 period include the purchase
of equipment and other capital expenditures for the new upholstery
operation of approximately $727,000. Except for fire related
expenditures in 1993 which were reimbursed by insurance,
expenditures in each year were primarily for plant and equipment,
and other assets in the normal course of business.
Net cash provided by financing activities was $1.2 million in
1994 compared to net cash used by financing activities of $2.7
million in 1993 and cash provided by financing activities of $7.1
million in 1992. Cash provided by financing activities in the 1994
period was used to fund capital expenditures. In 1993, cash
provided by the public offering ($13.1 million) and from operations
enabled the Company to redeem $3.1 million of outstanding senior
subordinated debentures and to reduce borrowings under the senior
credit facility by $12.8 million. In 1992, net borrowings on the
revolving credit facility increased by $7.4 million and proceeds
from insurance policy loans were $1.1 million. Repayments of long-
term debt were $990,000 and fees paid in connection with the
restructuring were $439,000.
Discontinued Operations
In June 1994, the Company ceased operations at Norman's. The
Company recorded a $2.8 million ($4.5 million pretax) additional
loss provision in 1994 representing costs associated with the
closing and liquidation of the operation, which was completed by
December 31, 1994. Currently, a portion of the Norman's
facilities is being subleased on a short-term basis and a portion
is being utilized in the production of upholstered furniture
products.
Item 8. Financial Statements and Supplementary Data
The financial statements and schedule listed in Items 14(a)(1)
and (a)(2) hereof are incorporated herein by reference and are
filed as part of this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
In accordance with general instruction G(3) of Form 10-K, the
information called for by items 10, 11, 12, and 13 of Part III is
incorporated by reference to the registrant's definitive Proxy
Statement for its Annual Meeting of Shareholders scheduled for
April 20, 1995, except for information concerning the executive
officers of the registrant which is included in Part I of this
report under the caption "Executive Officers of the Registrant."
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on
Form 8-K
(a) Documents filed as a part of this Report:
(1) The following financial statements are included in this
report on Form 10-K:
Report of Independent Accountants
Balance Sheets - as of December 31, 1994 and 1993
Statements of Income - for each of the three years in the
period ended December 31, 1994
Statement of Changes in Stockholders' Equity for each of the
three years in the period ended December 31, 1994
Statements of Cash Flows - for each of the three years in the
period ended December 31, 1994
Notes to Financial Statements
(2) Financial Statement Schedule:
Schedule VIII - Valuation of Qualifying Accounts - for each
of the three years in the period ended December 31, 1994
(b) The following reports on Form 8-K were filed by the Registrant
during the last quarter of the period covered by this report:
None.
(c) Exhibits:
2.1 Agreement and Plan of Merger dated as of July 24, 1992 by and
among the Registrant, Stanley Holding Corporation, Stanley
Acquisition Corporation, the ML-Lee Acquisition Fund
(Retirement Accounts) II, L.P., and the persons listed on
Schedules I and II thereto (incorporated by reference to
Exhibit 2.1 to the Registrant's Registration Statement on
Form S-4 No. 33-50050).
3.1 The Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1, No. 33-7300).
3.2 The By-laws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on
Form S-1, No. 33-7300).
3.3 Amendment adopted March 21, 1988 to the By-laws of the
Registrant (incorporated by reference to Exhibit 3.3 to the
Registrant's Form 10-K (Commission File No. 0-14938) for the
year ended December 31, 1987).
3.4 Amendments adopted February 8, 1993 to the By-laws of the
Registrant (incorporated by reference to Exhibit 3.4 to the
Registrant's Registration Statement on Form S-1 No. 33-
57432).
3.5 Certificate of Stock Designation dated May 1, 1991 of the
Registrant as modified by an Amendment to Certificate of
Designation dated May 31, 1991 (incorporated by reference to
Exhibit 3.6 to the Registrant's Form 10-K for the year ended
December 31, 1991).
3.6 Certificate of Merger dated as of November 9, 1992
(incorporated by reference to Exhibit 3.6 to the Registrant's
Statement on Form S-1 No. 33-57432).
3.7 Certificate of Amendment dated June 30, 1993.(1)
4.1 The Certificate of Incorporation and By-laws of the
Registrant as currently in effect incorporated by reference
as Exhibits 3.1 through 3.7 (incorporated by reference to
(1) Filed herewith
Exhibit 4.2 to the Registrant's Registration Statement on
Form S-1 No. 33-57432).
4.2 Registration Rights Agreement dated as of November 9, 1992
by and among the Registrant, ML-Lee Acquisition Fund, L.P.,
ML - Lee Acquisition Fund II, L.P., ML-Lee Acquisition Fund
(Retirement Accounts) II, L.P., Lee Stockholders (as defined
therein) and Management Stockholders (as defined therein)
(incorporated by reference to Exhibit 4.3 to the Registrant's
Statement on Form S-1 No. 33-57432).
4.3 Form of Indenture (including the Form of the Debenture)
(incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-1, No. 33-12746).
4.4 First Supplemental Indenture dated as of January 17, 1989
(incorporated by reference to Exhibit 4.2 to the Registrant's
Form 10-K for the year ended December 31, 1988).
4.5 Second Supplemental Indenture dated as of November 9, 1992
(incorporated by reference to Exhibit 4.5 to the Registrant's
Form 10-K for the year ended December 31, 1993).
4.6 Note Agreement dated February 15, 1994 between the Registrant
and the Prudential Insurance Company of America.
(incorporated by reference to Exhibit 4.6 to the Registrant's
Form 10-K for the year ended December 31, 1993).
10.1 Employment Agreement made as of January 1, 1991 between
Albert L. Prillaman and the Company (incorporated by
reference to Exhibit 10.1 to the Registrant's Form 10-K for
the year ended December 31, 1991).(2)
10.2 Employment Agreement made as of January 1, 1991 between
Lawrence E. Webb, Jr. and the Company (incorporated by
reference to Exhibit 10.2 to the Registrant's Form 10-K for
the year ended December 31, 1991).(2)
10.3 Lease dated October 15, 1979 between SIC and The Mead
Corporation ("Mead"), as amended (the "Mead Lease")
(incorporated by reference to Exhibit 10.16 to the
Registrant's Registration Statement on Form S-1, No. 33-
7300).
10.4 Lease dated May 1, 1970 between E. E. Lampert, Trustee under
the Will of R. W. Norman, as lessor, and R. W. Norman
Company, Inc., as lessee, as amended (the "Norman Lease")
(2) Management contract or compensatory plan
(incorporated by reference to Exhibit 10.18 to the
Registrant's Registration Statement on Form S-1, No. 33-
7300).
10.5 Lease dated February 23, 1987 between SIC Corporation and
Southern Furniture Exposition Building, Inc. d/b/a Southern
Furniture Market Center (incorporated by reference to Exhibit
10.10 to the Registrant's Form 10-K for the year ended
December 31, 1987).
10.6 Lease dated June 30, 1987 between A. Allan McDonald,
Virginia Cary McDonald, C. R. McDonald, Dorothy V. McDonald,
and Lillian S. McDonald, as lessor, and SIC, as lessee
(incorporated by reference to Exhibit 10.14 to the
Registrant's Form 10-K for the year ended December 31, 1987).
10.7 The Stanley Retirement Plan, as restated effective January 1,
1989, adopted December 15, 1993. (incorporated by reference
to Exhibit 10.7 to the Registrant's Form 10-K for the year
ended December 31, 1993).(2)
10.8 Supplemental Retirement Plan of Stanley Furniture Company,
Inc. as restated effective January 1, 1993. (incorporated by
reference to Exhibit 10.8 to the Registrant's Form 10-K for
the year ended December 31, 1993).(2)
10.9 Stanley Interiors Corporation Deferred Compensation Capital
Enhancement Plan effective January 1, 1986 (incorporated by
reference to Exhibit 10.12 to the Registrant's Registration
Statement on Form S-1, No. 33-7300).(2)
<PAGE>
10.10 Stanley Furniture Company, Inc. Associates' Savings and
Protection Plan, as amended and restated effective January
1, 1993. (incorporated by reference to Exhibit 10.10 to the
Registrant's Form 10-K for the year ended December 31,
1993).(2)
10.11 Management Agreement with Thomas H. Lee Company entered into
September 29, 1988 by and among the Registrant, as successor
to Interiors Acquisition Corporation, Stanley Holding
Corporation, Stanley Acquisition Corporation and Thomas H.
Lee Company (incorporated by reference to Exhibit (c)(9) to
the Registrant's Rule 13e-3 Transaction Statement filed
October 14, 1988).
10.12 Lease dated June 20, 1990 by and among Security Bank and
Trust Company, Substitute Trustee under the Will of R. W.
Norman, as lessor, and Stanley Interiors Corporation, as
(2) Management contract or compensatory plan
lessee (the "Norman Lease") (incorporated by reference to
Exhibit 10.34 to the Registrant's Form 10-K for the year
ended December 31, 1990).
10.13 Employment Agreement made as of January 1, 1991 between
William Cubberley, Jr. and the Registrant (incorporated by
reference to Exhibit 10.42 to the Registrant's Form 10-K for
the year ended December 31, 1991).(2)
10.14 Split Dollar Insurance Agreement dated as of March 21, 1991
between Albert L. Prillaman and the Registrant (incorporated
by reference to Exhibit 10.43 to the Registrant's Form 10-K
for the year ended December 31, 1991).(2)
10.15 Split Dollar Insurance Agreement dated as of March 31, 1991
between Lawrence E. Webb, Jr. and the Registrant
(incorporated by reference to Exhibit 10.44 to the
Registrant's Form 10-K for the year ended December 31,
1991).(2)
10.17 Second Amended and Restated Revolving Credit Facility and
Term Loan Agreement dated February 15, 1994 between the
Registrant, National Canada Finance Corp., and the National
Bank of Canada 10.181992 Stock Option Plan (incorporated by
reference to Registrant's Registration Statement on Form S-
8, No. 33-58396).
10.18 1994 Stock Option Plan.(1)(2)
10.19 1994 Executive Loan Plan.(1)(2)
10.20 Loan and Stock Purchase Agreement dated as of December 2,
1994 by Albert L. Prillaman.(1)(2)
<PAGE>
10.21 Loan and Stock Purchase Agreement dated as of December 2,
1994 by Lawrence E. Webb, Jr.(1)(2)
10.22 First Amendment dated July 1, 1993 to Mead Lease.(1)
11 Schedule of Computation of Earnings Per Share.(1)
21 Listing of Subsidiaries:
Charter Stanley Foreign Sales Corporation, a United States
Virgin Islands Corporation.
24 Consent of Coopers & Lybrand L.L.P.(1)
27 Financial Data Schedule.(1)
(1) Filed herewith
(2) Management contract or compensatory plan
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
STANLEY FURNITURE COMPANY, INC.
February 15, 1995 By: /s/ Albert L. Prillaman
Albert L. Prillaman
President, Chief Executive
Officer, and Chairman of the
Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Albert L. Prillaman President, Chief February 15, 1995
(Albert L. Prillaman) Executive Officer,
Chairman of the
Board, and Director
(Principal Executive
Officer)
/s/ Lawrence E. Webb, Jr. Executive Vice February 15, 1995
(Lawrence E. Webb, Jr.) President, Chief
Operating Officer,
and Director
/s/ Douglas I.Payne Vice President of February 15, 1995
(Douglas I. Payne) Finance, Treasurer
and Secretary
(Principal Financial
and Accounting
Officer)
/s/ David V. Harkins Director February 15, 1995
(David V. Harkins)
/s/ C. Hunter Boll Director February 15, 1995
(C. Hunter Boll)
/s/ Edward J. Mack Director February 15, 1995
(Edward J. Mack)
<PAGE>
STANLEY FURNITURE COMPANY, INC.
ANNUAL REPORT ON FORM 10-K
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
FOR THE YEAR ENDED DECEMBER 31, 1994
Financial Statements Page
Report of Independent Accountants......................... F- 2
Balance Sheets as of December 31, 1994 and 1993........... F- 3
Statements of Income for each of the three years
in the period ended December 31, 1994................... F- 5
Statement of Changes in Stockholders' Equity for each
of the three years in the period ended
December 31, 1994...................................... F- 6
Statements of Cash Flows for each of the three years
in the period ended December 31, 1994................... F- 7
Notes to Financial Statements............................. F- 8
Financial Statement Schedule
Schedule VIII - Valuation and Qualifying Accounts for
each of the three years in the period ended
December 31, 1994....................................... S- 1
F-1
<PAGE>
To The Board of Directors and Shareholders Of
Stanley Furniture Company, Inc.
We have audited the financial statements and financial statement
schedule of Stanley Furniture Company, Inc. as listed in the index
to financial statements and schedule on page F-1. These financial
statements are the responsibility of the management of Stanley
Furniture Company, Inc. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Stanley
Furniture Company, Inc. as of December 31, 1994 and 1993, and the
results of its operations and its cash flows for each of the three
years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information
required to be included therein.
As discussed in Note 10 of the Notes to Financial Statements,
effective as of the beginning of 1993, the Company changed its
method of accounting for postretirement benefits other than
pensions to conform with Statement of Financial Accounting
Standards No. 106.
Richmond, Virginia
January 31, 1995
F-2
<PAGE>
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands, except share data)
December 31,
1994 1993
ASSETS
Current assets:
Cash........................... $ 301 $ 200
Accounts receivable, less
allowances of $933 and $827.. 23,760 22,749
Inventories:
Finished goods............... 20,893 17,398
Work-in-process.............. 5,957 6,076
Raw materials................ 13,055 14,210
39,905 37,684
Prepaid expenses and other
current assets............... 1,446 554
Insurance claim receivable..... 1,966
Deferred income taxes.......... 2,003 3,229
Net assets of discontinued
operations................... 1,994
Total current assets....... 67,415 68,376
Property, plant and equipment, at
cost........................... 64,827 60,211
Less accumulated depreciation 20,049 16,277
44,778 43,934
Excess of cost over fair value
of net assets acquired, less
accumulated amortization of
$2,016 and $1,680.............. 11,424 11,760
Other assets..................... 902 789
$124,519 $124,859
The accompanying notes are an integral part
of the financial statements.
F-3
<PAGE>
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS (CONTINUED)
(In thousands, except share data)
December 31,
1994 1993
LIABILITIES
Current liabilities:
Current maturities of long-
term debt.................... $ 625
Accounts payable............... $ 14,659 15,411
Accrued salaries, wages and
benefits..................... 7,119 8,183
Other accrued expenses......... 2,725 3,324
Total current liabilities.... 24,503 27,543
Long-term debt, exclusive of
current maturities............. 33,395 32,022
Deferred income taxes............ 11,541 12,828
Other long-term liabilities...... 4,250 5,262
Total liabilities.............. 73,689 77,655
STOCKHOLDERS' EQUITY
Common stock, $.02 par value,
10,000,000 shares authorized,
4,726,550 and 4,721,438 shares
issued and outstanding......... 94 94
Capital in excess of par value... 64,527 64,381
Adjustment for minimum pension
liability...................... (1,122)
Deficit.......................... (13,791) (16,149)
Total stockholders' equity..... 50,830 47,204
$124,519 $124,859
The accompanying notes are an integral part
of the financial statements.
F-4
<PAGE>
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
For the Years Ended
December 31,
1994 1993 1992
<S> <C> <C> <C>
Net sales........................... $184,342 $167,091 $166,501
Cost of sales:
From products sold................ 148,453 134,972 132,984
Business interruption insurance... (5,036)
148,453 129,936 132,984
Gross profit................... 35,889 37,155 33,517
Selling, general and administrative
expenses.......................... 26,483 25,976 25,117
Restructuring credit................ (2,078)
Operating income ................. 9,406 11,179 10,478
Gain on insurance settlement........ (2,379) (2,186)
Other expense, net.................. 444 1,346 686
Interest expense.................... 2,969 3,048 7,058
Income from continuing
operations before income taxes.. 8,372 8,971 2,734
Income taxes........................ 3,256 3,691 1,053
Income from continuing operations... 5,116 5,280 1,681
Discontinued operations, including
provisions for operating losses
of $1,721 in 1994 and $1,884 in
1992, net of income taxes......... (2,758) (1,621)
Net income ..................... $ 2,358 $ 5,280 $ 60
Earnings (loss) per common share:
Continuing operations............. $ 1.08 $ 1.39 $ .56
Discontinued operations........... (.58) (.54)
Net income...................... $ .50 $ 1.39 $ .02
Weighted average number of shares... 4,725 3,792 2,996
</TABLE>
The accompanying notes are an integral part
of the financial statements.
F-5
<PAGE>
STANLEY FURNITURE COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For each of the three years in the period ended December 31, 1994
(In thousands, except share data)
<TABLE>
Adjust-
Capital ment for
in Minimum
Common Stock Excess of Pension
Shares Amount Par Value Liability Deficit
<S> <C> <C> <C> <C> <C>
Balance at December
31, 1991............. 1,935,616 $39 $ -0- $ -0- $(18,787)
Net income............. 60
Preferred stock divi-
dends and accretion.. (2,702)
Cancellation of common
stock outstanding prior
to restructuring..... (1,935,616) (39)
Issuance of common stock
in connection with
restructuring........ 2,996,438 60 51,328
Balance at December 31,
1992............... 2,996,438 60 51,328 -0- (21,429)
Public offering........ 1,725,000 34 13,053
Adjustment for minimum
pension liability.... (1,122)
Net income............. 5,280
Balance at December 31,
1993............... 4,721,438 94 64,381 (1,122) (16,149)
Exercise of stock
options.............. 5,112 66
Adjustment for minimum
pension liability.... 1,122
Compensation expense
related to executive
loan plan............ 80
Net income............. 2,358
Balance at December 31,
1994............... 4,726,550 $94 $64,527 $ -0- $(13,791)
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-6
<PAGE>
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended
December 31
<TABLE>
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers.............. $183,458 $166,706 $161,631
Cash paid to suppliers and employees...... (176,194) (179,218) (157,840)
Interest paid............................. (2,464) (3,529) (6,413)
Income taxes (paid) recovered, net........ (4,463) (321) 954
Proceeds received on insurance coverage... 4,625 23,196
Operating activities of discontinued
operations.............................. (867) ( 285) (1,954)
Net cash provided (used) by operating
activities............................ 4,095 6,549 (3,622)
Cash flows from investing activities:
Capital expenditures...................... (4,968) (6,392) (2,148)
Proceeds received on insurance coverage... 2,679
Purchase of other assets.................. (650) (591) (898)
Proceeds from sale of assets.............. 108 91 56
Investing activities of discontinued
operations.............................. 357 (47) ( 80)
Net cash used by investing activities... (5,153) (4,260) (3,070)
Cash flows from financing activities:
Proceeds from issuance of common stock.... 13,087
Issuance of senior notes.................. 30,000
Redemption of senior subordinated
debentures.............................. (3,093)
Repayment of term note.................... (16,569) (2,616) (990)
Proceeds from (repayment of) revolving
credit facility, net.................... (12,685) (10,229) 7,446
Proceeds from insurance policy loans...... 345 292 1,053
Fees paid in connection with the issuance
of common stock......................... (439)
Other, net................................ 68 (179) (17)
Net cash provided (used) by financing
activities............................ 1,159 (2,738) 7,053
Net increase (decrease) in cash............. 101 (449) 361
Cash at beginning of year................... 200 649 288
Cash at end of year....................... $ 301 $ 200 $ 649
</TABLE>
The accompanying notes are an integral part
of the financial statements.
F-7
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Financial Restructuring
Stanley Furniture Company, Inc. (formerly Stanley Interiors
Corporation) (the "Company") was acquired in a leveraged buy out
transaction through stock purchases in 1988 and a merger in 1989.
On November 9, 1992, the Company completed a comprehensive
financial restructuring which included (i) the exchange of $21.4
million in outstanding principal amount of 14% subordinated notes
of the Company due 1998 for common stock and (ii) a merger which
resulted in the conversion of certain preferred stock of the
merging corporations into common stock. As a result of this
restructuring, the Company is the sole surviving corporation.
Effective November 9, 1992, the Company's name was changed to
Stanley Furniture Company, Inc.
Prior to the November 1992 financial restructuring, the
Company was a wholly owned subsidiary of an intermediate
corporation which was a wholly owned subsidiary of Stanley Holding
Corporation ("Holding"). Accordingly, transactions of Holding and
the intermediate corporation as they related to the Company were
"pushed-down" in accordance with applicable purchase accounting
principles for periods prior to November 1992.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company operates predominantly in one business segment.
Substantially all revenues result from the sale of home
furnishings, primarily residential furniture products.
Substantially all of the Company's trade accounts receivable are
due from retailers in this market, which consist of a large number
of entities with a broad geographical dispersion.
Inventories
Inventories are valued at the lower of cost or market. Cost
for all inventories is determined using the first-in, first-out
(FIFO) method.
Property, Plant and Equipment
Depreciation of property, plant and equipment is computed
using the straight-line method based upon the estimated useful
lives of the assets and amounted to $4.0 million, $3.7 million and
$3.4 million for 1994, 1993 and 1992, respectively.
F-8
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment (continued)
Depreciable lives are as follows:
Years
Buildings................................. 40 to 50
Machinery and equipment................... 5 to 12
Leasehold improvements.................... 3 to 20
Furniture, fixtures and office equipment.. 3 to 10
Gains and losses related to dispositions and retirements are
included in income. Maintenance and repairs are charged to income
as incurred; renewals and betterments are capitalized.
Excess of Cost over Fair Value of Net Assets Acquired
The excess of cost over the fair value of net assets acquired
is being amortized on a straight-line basis over 40 years. The
Company continually evaluates the existence of impairment of the
excess cost over fair value of net assets acquired on the basis of
whether it is fully recoverable from projected, undiscounted net
cash flows of the Company.
Income Taxes
Deferred income taxes are determined based on the difference
between the financial statement and income tax bases of assets and
liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Deferred tax expense
represents the change in the deferred tax asset/liability balance.
Income tax credits are reported as a reduction of federal income
tax expense in the year in which the credits are generated.
Fair Value of Financial Instruments
The fair value of the Company's long-term debt is estimated
using discounted cash flow analysis based on the incremental
borrowing rates currently available to the Company for loans with
similar terms and maturity.
The fair value of trade receivables, the revolving credit
facility and trade payables approximate the carrying amount because
of the short maturity of these instruments.
F-9
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Summary of Significant Accounting Policies (continued)
Pension Plans
The Company's funding policy is to contribute to all qualified
plans annually an amount equal to the normal cost and a portion of
the unfunded liability but not to exceed the maximum amount that
can be deducted for federal income tax purposes.
Earnings Per Common Share
Earnings per common share are based upon the weighted average
number of shares outstanding.
The Company was a wholly owned subsidiary until the November
9, 1992 financial restructuring. As described in Note 1, this
financial restructuring resulted in a complete change in the
Company's capital structure, including the cancellation of the
previously outstanding shares of common stock and the conversion of
preferred stocks and subordinated notes payable into common stock.
For the period from January 1 to November 9, 1992, 2,996,438 shares
are considered outstanding, the number of shares issued in the
financial restructuring.
Supplementary earnings per common share for the years ended
December 31, 1994, 1993 and 1992 are presented below. Income from
continuing operations for the 1994 and 1993 periods reflect a non-
recurring gain from insurance proceeds. The 1993 period reflects
the effect of proforma adjustments for the public offering. The
1992 period reflects the effect of proforma adjustments for both
the November 9, 1992 financial restructuring and the public
offering. It is assumed that the transactions took effect at the
beginning of each year. The 1994 per share information is included
for comparison purposes.
<TABLE>
1994 1993 1992
<S> <C> <C> <C>
Supplementary earnings per common share:
Continuing operations:
Before non-recurring gain........... $ .77 $ .90 $ .68
Non-recurring gain on insurance..... .31 .29
As reported....................... 1.08 1.19 .68
Discontinued operations............... (.58) (.34)
Net income.......................... $ .50 $ 1.19 $ .34
</TABLE>
F-10
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Insurance Claim Accounting
On February 12, 1993 a fire at the Stanleytown, Virginia
facility damaged approximately 12% of the Company's total
manufacturing facilities. The Company's insurance coverage
provided for the complete replacement of the damaged building
(which is leased), equipment and inventory and reimbursement for
business interruption losses.
The Company recorded business interruption insurance in 1993
based on estimated profits attributed to lost sales since the fire.
The amount recognized represents the estimated gross profit that
would have been realized on lost sales. Accordingly, $5.0 million
of estimated income from business interruption insurance is
included in gross profit in 1993. Also, a $2.2 million pretax gain
was recorded in 1993 since proceeds from insurance exceeded the
book value of leasehold improvements and equipment destroyed in the
fire. In the first quarter of 1994, the Company reached a final
insurance settlement and recorded a gain of $2.4 million.
4. Discontinued Operations
During December 1991, the Company adopted a plan to sell its
Norman's of Salisbury fabric division ("Norman's"). Accordingly,
beginning in 1991, Norman's was reflected as a discontinued
operation. In 1992, the Company recorded additional provisions
totaling $1.6 million ($2.6 million pretax) based on revised
estimates after negotiations for the sale of the division were
terminated.
Further efforts to sell the division were unsuccessful.
Accordingly, in the first quarter of 1994, the Company decided to
cease operations at Norman's, effective in June 1994, and recorded
a $2.8 million ($4.5 million pretax) additional loss provision
representing costs associated with the closing and liquidation of
the operation, which was completed by December 31, 1994.
Currently, a portion of the Norman's facilities is being subleased
on a short-term basis and a portion is being utilized in the
production of upholstered furniture products.
Net sales applicable to Norman's were $4.1 million, $12.1
million and $13.4 million for 1994, 1993 and 1992, respectively.
At December 31, 1993, net assets of $2.0 million ($1.1 million of
net current assets and $900,000 of net noncurrent assets) were
included in net assets held for sale.
F-11
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Restructuring
In 1991, the Company recorded a $14.1 million pretax
restructuring charge in anticipation of the closing of the
Waynesboro, Virginia manufacturing facility to eliminate excess
capacity and the discontinuance of certain products. Operating
income for 1992 included a restructuring credit of $2.1 million
from lower than anticipated costs of closing the facility in June
1992.
6. Property, Plant and Equipment at December 31
<TABLE>
(in thousands)
1994 1993
<S> <C> <C>
Land and buildings.................... $17,853 $16,923
Machinery and equipment............... 41,059 37,552
Leasehold improvements................ 3,986 2,914
Furniture, fixtures and office
equipment........................... 1,289 1,026
Construction in progress.............. 640 1,796
$64,827 $60,211
7. Long-Term Debt at December 31
(in thousands)
1994 1993
7.28% Senior notes due March 15, 2004. $30,000
Revolving credit facility............. 3,234 $15,919
Term note payable..................... 16,569
7% Convertible subordinated debentures
due April 1, 2012................... 161 159
Total............................. 33,395 32,647
Less current maturities............... 625
$33,395 $32,022
</TABLE>
Revolving Credit Facility and Senior Note
In February 1994, the Company completed the private placement
of $30.0 million of 7.28% senior notes due in 2004, and the
refinancing of its revolving credit facility. The proceeds from
the senior notes were used to repay the existing term note and a
portion of the revolving credit facility. The notes are subject to
annual sinking fund payments of $4.3 million beginning March 1998.
The revolving credit facility provides for borrowings of up to
$25.0 million through February 1996, automatically renewable
thereafter for one year periods unless terminated by either party.
Interest on the revolving credit facility is payable monthly
F-12
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Long-Term Debt at December 31 (continued)
Revolving Credit Facility and Senior Note (continued)
at .25% above prime (prime was 8.5% on December 31, 1994), or at
the Company's option at a rate equal to the reserve adjusted LIBOR
rate plus 1.375% per annum. The new revolving credit facility is
subject to an unused commitment fee of .25% per annum payable
quarterly. The commitment is subject to a .5% termination penalty
through February 1996. As of December 31, 1994, approximately $17
million of additional borrowings were available under the revolving
credit facility.
Prior to refinancing, the Company was obligated under a senior
credit facility comprised of a revolving credit facility which
provided for borrowings up to $43.0 million; and, a term note in
the principal amount of $16.6 million, requiring quarterly
principal payments of $625,000. Interest on the senior credit
facility was payable monthly at 1.5% above prime, or, at the
Company's option at a rate equal to the reserve adjusted LIBOR rate
plus 3% per annum. Substantially all of the Company's assets were
pledged as collateral for the debt.
Financial Covenants and Future Maturities
Under the terms of the revolving credit facility and senior
notes, the Company is required to maintain certain financial
ratios, including debt to equity and fixed charge coverage. In
addition, the Company is prohibited from paying dividends on,
acquiring or retiring its common stock, is limited with respect to
additional debt it may incur; and, may not pledge or otherwise
encumber any of its assets. The Company has satisfied the
requirements of all debt covenants.
Future maturities of long-term debt are $3.2 million in 1996,
$161,000 in 1997 and $4.3 million in each of the years 1998 through
2004. At December 31, 1994, the carrying amount of debt exceeded
the fair value by approximately $3.0 million.
F-13
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. Income Taxes
The provision for income taxes on income from continuing
operations consists of (in thousands):
<TABLE>
<S> <C> <C> <C>
1994 1993 1992
Current:
Federal......................... $2,314 $1,123 $ 204
State........................... 669 245 114
Total current................. 2,983 1,368 318
Deferred:
Federal......................... 214 1,940 599
State........................... 59 383 136
Total deferred................ 273 2,323 735
Income taxes.................. $3,256 $3,691 $1,053
</TABLE>
A reconciliation of the difference between the federal
statutory income tax rate and the effective income tax rate on
income from continuing operations follows:
1994 1993 1992
Federal statutory rate.......... 35.0% 35.0% 34.0%
State income tax, net of federal
tax benefit................... 5.0 4.6 6.0
Amortization of excess purchase
cost.......................... 1.4 1.3 4.2
Tax credits..................... (0.8) ( 1.3) (2.7)
Other, net...................... (1.7) 1.5 (3.0)
Effective income tax rate..... 38.9% 41.1% 38.5%
F-14
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. Income Taxes (continued)
The income tax effects of temporary differences that comprise
deferred tax assets and liabilities at December 31 follow (in
thousands):
<TABLE>
Current deferred tax assets (liabilities):
1994 1993
<S> <C> <C>
Accounts receivable........................ $ 360 $ 350
Inventory.................................. (439) (337)
Employee benefits.......................... 1,305 1,584
Other accrued expenses..................... 777 1,655
Other...................................... (23)
Net current deferred tax asset........... $2,003 $3,229
Noncurrent deferred tax (assets) liabilities:
Inventory.................................. $ 966 $ 1,599
Property, plant and equipment.............. 11,302 13,219
Employee benefits.......................... (785) (903)
Restructuring costs........................ (183) (848)
Other...................................... 241 (239)
Net noncurrent deferred tax liability.... $11,541 $12,828
</TABLE>
In prior years, the Company had recognized the tax benefit of
net operating loss carryforwards of $6.0 million by offsetting
future reversals of existing temporary differences. In 1993, these
carryforwards were applied against taxable income. At December 31,
1994 the Company had alternative minimum tax credit carryforwards
of $519,000 which may be carried forward indefinitely.
The Company's federal income tax returns have been examined
and closed by the Internal Revenue Service through 1987. The
Internal Revenue Service completed their examination of tax returns
for the years 1988 through 1992, subject to review by the
Congressional Joint Committee on Taxation. The Company does not
expect any material adverse impact on financial condition or
results of operations.
9. Common Stock, Stock Options and Loan Plan
In July 1993, the Company completed a public offering of
1,725,000 shares of its common stock at $8.50 per share. The net
proceeds of $13.1 million were used to reduce debt. All share and
per share data has been restated to reflect the one-for-two reverse
stock split, effective July 1, 1993.
F-15
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. Common Stock, Stock Options and Loan Plan (continued)
In December 1994, the Company adopted the Stanley Furniture
Company, Inc., 1994 Stock Option Plan (the "1994 Plan"). The 1994
Plan and the Company's 1992 Stock Option Plan provides for the
granting of stock options for up to an aggregate of 700,000 shares
of common stock to certain key employees. Options granted may be
either nonqualified or qualified stock options and the exercise
price may not be less than 100% of the fair market value of the
Company's common stock on the date the options are granted.
Granted options vest 20% annually.
At December 31, 1994 and 1993, options to purchase 182,297 and
668,317 shares, respectively, were exercisable and 24,888 were
available for grant at December 31, 1994. Activity for 1994
follows:
Number Option Price
of shares Per share
Outstanding at December 31, 1993... 668,317 $ 8.50 to $12.86
Exercised.......................... (5,112) $ 8.50 to $12.86
Cancelled.......................... (602,834) $12.86
Granted............................ 609,629 $10.00
Outstanding at December 31, 1994. 670,000 $ 8.50 to $10.00
During 1994, the Company established the Executive Loan Plan.
Under the Executive Loan Plan, the Company has entered into
contractual agreements to issue 80,000 shares of common stock to
certain key employees at $10 per share (the market price per share
on the date of the agreement) in exchange for a nonrecourse 7.6%
note receivable from the employees, payable in five annual
installments with the balance due January 2, 1999. The Company has
also agreed to forgive interest plus one half of the contractual
purchase price over the next five years, if the employees remain
employed by the Company. Accordingly, compensation expense of
$80,000 per year plus interest is being recorded over the five year
period beginning in 1994.
F-16
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. Employee Benefit Plans
Pension Plans
Effective December 31, 1993, the Company merged its two non-
contributory defined benefit pension plans. The surviving plan
(the "Stanley Retirement Plan") covers substantially all employees.
The benefits provided by the plan are based on years of service and
the employee's average compensation.
The Company also maintains a supplemental retirement plan
covering certain key employees. A participant who retires under
any provision of the Stanley Retirement Plan will receive a
supplemental retirement allowance equal to the excess, if any, of
an eligible employee's benefit under the Stanley Retirement Plan in
effect on January 1, 1987 over his benefit actually received at
retirement. The supplemental plan is unfunded and benefit payments
are made directly out of Company assets.
The following table sets forth the plans' funded status at
December 31 (in thousands):
1994 1993
Actuarial present value of:
Accumulated benefit obligation, including
vested benefits of ($11,086) and
($14,168).................................. $(11,893) $(15,150)
Projected benefit obligation................. $(14,225) $(17,188)
Plan assets at fair value...................... 12,012 11,548
Plan assets less than projected benefit
obligation................................. (2,213) (5,640)
Adjustment for minimum pension liability....... (2,378)
Unrecognized net loss.......................... 2,116 3,867
Unrecognized prior service cost................ 547 549
Net prepaid (accrued) pension cost........... $ 450 $ (3,602)
At December 31, 1993, the Company recorded an additional
minimum pension liability of $2.4 million representing unfunded
accumulated benefit obligation in excess of previously recorded
pension cost as prescribed by SFAS No. 87. The adjustment, which
had no effect on income, was offset by recording an intangible
asset to the extent of unrecognized prior service cost in the
amount of $549,000 and by reducing equity in the amount of $1.1
million, net of deferred taxes.
F-17
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. Employee Benefit Plans (continued)
Pension Plans (continued)
Components of net periodic pension cost follow (in thousands):
<TABLE>
1994 1993 1992
<S> <C> <C> <C>
Service cost.................... $ 904 $ 799 $ 727
Interest cost................... 1,315 1,333 1,227
Actual return on plan assets.... (109) (382) ( 484)
Net amortization and deferral... (589) (444) ( 565)
Net periodic pension cost..... $1,521 $1,306 $ 905
</TABLE>
The weighted average discount rates used in determining the
actuarial present value of the projected benefit obligation were
9%, 7.75% and 8.25% for 1994, 1993 and 1992, respectively. The
rate of increase for future compensation levels used in determining
the obligation was 5%, 4% and 5% for 1994, 1993 and 1992,
respectively. The expected long-term rate of return on plan assets
in 1994, 1993 and 1992 was 8%, 8.25% and 8.5%, respectively.
Pension cost for the current year is determined using the discount
rate at the end of the prior year.
The Company also maintains a qualified defined contribution
pension plan for all of its eligible employees. The plan allows
for contributions by employees up to 20% of their salaries and also
permits discretionary contributions by the Company. No
contributions have been made to the plan by the Company.
Postretirement Benefits Other Than Pensions
The Company provides certain health care benefits to eligible
retired employees between the ages of 55 and 65 and provides
certain life insurance benefits to eligible retired employees from
age 55 until death. Prior to 1993, the Company expensed the cost
of these benefits when paid.
Effective January 1, 1993, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." This new standard requires the expected cost of retiree
benefits other than pensions to be charged to expense during the
years the employees render service rather than the Company's past
practice of recognizing these costs as claims were incurred.
The Company elected to recognize the January 1, 1993
obligation of $8.1 million through charges to earnings over 20
F-18
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. Employee Benefit Plans (continued)
Postretirement Benefits Other Than Pensions (continued)
years. On March 3, 1993 the Company also adopted plan design
changes which reduced the January 1, 1993 obligation to $2.9
million. Such reduction will also be amortized over 20 years. The
plan is unfunded and the following table sets forth its financial
status at December 31 (in thousands):
<TABLE>
1994 1993
<S> <C> <C>
Retirees.................................... $(4,769) $(1,714)
Fully eligible active plan participants..... (333) (907)
Other active plan participants.............. (634) (776)
Total accumulated postretirement
benefit obligation...................... (5,736) (3,397)
Unrecognized net loss....................... 2,927 649
Unrecognized transition obligation.......... 2,406 2,765
Net prepaid (accrued) postretirement
benefit cost............................ $ (403) $ 17
</TABLE>
Components of net periodic postretirement benefit cost were
(in thousands):
<TABLE>
1994 1993
<S> <C> <C>
Service cost................................ $ 74 $ 72
Interest cost............................... 242 239
Amortization of transition obligation,
after reduction for plan design changes... 359 146
Net amortization and deferral............... 21
$ 696 $ 457
</TABLE>
The weighted average discount rates used in determining the
actuarial present value of the projected benefit obligation were 9%
and 7.75% for 1994 and 1993, respectively. The rate of increase in
future health care benefit cost used in determining the obligation
for 1994 was 15% gradually decreasing to 7% beginning in 2005 and
for 1993 was 17% gradually decreasing to 5.75% beginning in 2007.
Increasing the assumed health care cost trend rate by one
percentage point in each future year would increase the accumulated
postretirement benefit obligation at December 31, 1994 and 1993 by
$209,000 and $112,000, respectively; and the aggregate of the
service cost and interest cost components of net periodic
postretirement benefit cost for 1994 and 1993 by $23,000 and
$20,000.
F-19
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. Employee Benefit Plans (continued)
Deferred Compensation
The Company has a deferred compensation plan which permitted
certain management employees to defer portions of their
compensation. The employees earn a fixed rate of interest on the
deferred amounts. The plan is funded through the purchase of whole
life insurance contracts on the employees and the Company borrows
against the cash surrender value of these policy loans to finance
benefit payments to employees. The accrued liability of $1.3
million and $1.2 million at December 31, 1994 and 1993,
respectively, is included in accrued salaries, wages and benefits
and other long-term liabilities. The cash surrender value, net of
policy loans, is included in other assets at December 31, 1994.
11. Leases
The Company leases a substantial portion of its facilities
under operating leases with remaining terms of 1 to 13 years. The
leases generally provide for renewal options and rents are subject
to escalation. Rental expenses charged to operations were $1.9
million, $2.0 million and $2.1 million in 1994, 1993 and 1992
respectively.
Future minimum lease payments, after December 31, 1994, are
approximately as follows: 1995 - $1.7 million, 1996 - $1.6
million, 1997 - $1.6 million, 1998 - $1.5 million and thereafter -
$1.3 million.
12. Related Party Transactions
Approximately 58% of the Company's common stock is owned by
the ML-Lee Acquisition Fund, L.P. (the "Majority Stockholder") and
certain affiliates of the Thomas H. Lee Company.
The Company paid $1.4 million in cash in 1992 to its Majority
Stockholder for interest payments on 14% subordinated notes. The
notes had been issued in connection with the Company's acquisition
in 1988.
The Company provided $1.1 million in unissued pay-in-kind
dividends on its 14% senior cumulative preferred stock in 1992.
The Company also provided $224,000 in unissued pay-in-kind
dividends on its 8% senior cumulative preferred stock in 1992.
Both issues of preferred stock were issued in 1991 to the Company's
Majority Stockholder.
F-20
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. Related Party Transactions (continued)
On November 9, 1992, as part of the financial restructuring,
$21.4 million of the 14% subordinated notes, $12.4 million of the
14% senior cumulative preferred stock and $3.9 million of the 8%
senior cumulative preferred stock held by the Company's Majority
Stockholder and its affiliates were exchanged for 2.7 million
shares of common stock.
In addition, the Company has entered into a management
agreement with an affiliate of its Majority Stockholder. Fees paid
pursuant to this agreement amounted to $250,000 annually in 1994,
1993 and 1992.
13. Commitments and Contingencies
The Company utilizes letters of credit to collateralize
certain insurance policies and inventory purchases. At December
31, 1994, the Company had outstanding letters of credit in the
amount of $1.8 million. The fair value of these letters of credit
approximates the contract values.
F-21
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. Supplemental Cash Flow Information
<TABLE>
1994 1993 1992
<S> <C> <C> <C>
Net income......................... $2,358 $ 5,280 $ 60
Adjustments to reconcile net income
to net cash provided (used)
by operating activities:
Depreciation and amortization.. 4,421 4,808 4,109
Other, net..................... 249 295 15
Restructuring.................. (2,078)
Loss on disposal of fabric
division..................... 2,758 1,621
Changes in assets and
liabilities:
Accounts receivable.......... (1,011) (289) (4,604)
Inventories.................. (2,221) (4,147) 1,345
Prepaid expenses and other
current assets............. (892) 374 912
Insurance claim receivable... 2,029 (4,152)
Operating assets of
discontinued operations.... (867) (285) (2,170)
Accounts payable............. (922) 2,082 (1,693)
Accrued salaries, wages and
benefits................... 585 (589) 834
Other accrued expenses....... (87) 526 88
Accrued restructuring costs.. (545) (560) (3,409)
Deferred income taxes........ 189 2,038 733
Other assets................... 22 57 65
Interest paid in kind.......... 1,514
Other long-term liabilities.... (1,971) 1,111 (964)
Net cash provided (used) by
operating activities....... $4,095 $ 6,549 $(3,622)
</TABLE>
F-22
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. Supplemental Cash Flow Information (continued)
Noncash investing and financing activities for the years ended
December 31 follow (in thousands):
1992
In connection with the November 1992 restructuring, $51,388 of
common stock, net of issuance costs was issued in exchange for the
following securities:
Subordinated notes payable to majority stockholder.... $21,400
10% Mandatorily redeemable preferred stock, net of
treasury shares..................................... 14,091
14% Senior cumulative preferred stock................. 12,417
8% Senior cumulative preferred stock................. 3,880
Total carrying value of securities exchanged........ 51,788
Cancellation of common stock outstanding prior to
restructuring....................................... 39
Fees paid in connection with the issuance of common
stock............................................... (439)
Carrying value of common stock issued in the
restructuring....................................... $51,388
Additional securities issued in lieu of cash payments:
Senior subordinated debentures as interest............ $ 221
Subordinated notes payable to majority stockholder
as interest......................................... 1,400
Preferred stock issued as stock dividends............. 2,161
F-23
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. Quarterly Results of Operations (Unaudited)
The Company's unaudited quarterly results of operations were
as follows (in thousands, except per share data):
<TABLE>
Fiscal 1994 Quarters
First Second Third Fourth
<S> <C> <C> <C> <C>
Net sales........... $44,737 $44,101 $43,845 $51,659
Gross profit ....... 8,677 8,544 8,865 9,803
Income from
continuing
operations...... 2,386(a) 957 863 910
Net income (loss)... (372)(b) 957 863 910
Income from
continuing operations
per share....... .49(a) .20 .18 .19
Net income (loss)
per share......... (.08)(b) .20 .18 .19
Fiscal 1993 Quarters
Net sales........... $35,636 $40,855 $42,666 $47,934
Gross profit(c)..... 7,598 8,851 9,201 11,505
Net income.......... 305 2,079(d) 1,226 1,670
Net income
per share(e)...... .10 .70 .26 .35
</TABLE>
(a) In the first quarter of 1994, the Company reached a final insurance
settlement and recorded a gain of $1.5 million ($2.4 million pretax) or 31
cents per share.
(b) In the first quarter of 1994, the Company decided to cease operations
at Norman's and recorded a loss from discontinued operations of $2.8 million
($4.5 million pretax) or 58 cents per share.
(c) Business interruption insurance of $1.6 million, $1.6 million, $1.0
million and $864,000 was recorded in each of the fiscal 1993 quarters,
respectively, as a result of the fire described in Note 3.
(d) A $1.3 million ($2.1 million pretax) gain on insurance settlement was
recognized in the second quarter of 1993.
(e) Shares outstanding for all periods prior to July 1993 amounted to
2,996,438, the shares issued in the financial restructuring.
F-24
<PAGE>
STANLEY FURNITURE COMPANY, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
For each of the Three Years in the Period Ended December 31, 1994
(In thousands)
<TABLE>
Column A Column B Column C Column D Column E
Charged
Balance at (Credited) Balance
Beginning to Costs & at End of
Descriptions of Period Expenses Deductions Period
<S> <C> <C> <C> <C>
1994
Doubtful receivables... $472 $195 $139(a) $528
Discounts, returns,
and allowances....... 355 50(b) 405
$827 $245 $139 $933
1993
Doubtful receivables... $400 $526 $454(a) $472
Discounts, returns,
and allowances....... 463 (108)(b) 355
$863 $418 $454 $827
1992
Doubtful receivables... $500 $525 $625(a) $400
Discounts, returns,
and allowances....... 387 76(b) 463
$887 $601 $625 $863
</TABLE>
(a) Uncollectible receivables written off, net of recoveries.
(b) Represents net increase (decrease) in required reserve.
S-1
<PAGE>
EXHIBIT 11
STANLEY FURNITURE COMPANY, INC.
SCHEDULE OF COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(In thousands, except per share data)
<TABLE>
1994 1993
<S> <C> <C>
Net income (loss) used in calculating
primary and fully diluted earnings
(loss) per common share:
Continuing operations................. $5,116 $5,280
Discontinued operations............... (2,758)
Net income.......................... $2,358 $5,280
Primary earnings (loss) per common
share:
Weighted average shares outstanding.... 4,725 3,792
Add shares issuable assuming excercise
of stock options..................... 19 10
Weighted average number of shares
used in calculating primary
earnings (loss) per common share. 4,744 3,802
Primary earnings (loss) per common
share:
Continuing operations.................. $ 1.08 $ 1.39
Discontinued operations................ (.58)
Primary earnings per common share.... $ .50 $ 1.39
Fully diluted earnings (loss) per
common share:
Weighted average shares outstanding.... 4,725 3,792
Add shares issuable assuming excer-
cise of stock options................ 19 51
Weighted average number of shares
used in calculating fully diluted
earnings (loss) per common share. 4,744 3,843
Fully diluted earnings (loss) per
common share:
Continuing operations................. $ 1.08 $ 1.37
Discontinued operations............... (.58)
Fully diluted earnings per common
share............................. $ .50 $ 1.37
</TABLE>
<PAGE>
EXHIBIT 24
Consent of Independent Accountants
We consent to the incorporation by reference in the registration
statements of Stanley Furniture Company, Inc. on Form S-8 (File No.
33-58396 and 33-67218) of our report dated January 31, 1995, on our
audits of the financial statements and financial statement schedule
of Stanley Furniture Company, Inc. as of December 31, 1994 and
1993, and for each of the three years in the period ended December
31, 1994, which report is included in this Annual Report on Form
10-K. We also consent to reference to our Firm under the caption
"Selected Financial Data."
Coopers & Lybrand L.L.P.
Richmond, Virginia
January 31, 1995
<PAGE>
Exhibit 10.18
STANLEY FURNITURE COMPANY, INC.
1994 STOCK OPTION PLAN
1. Purpose. The purpose of this Stanley Furniture
Company, Inc. 1994 Stock Option Plan (the "Plan") is to further
the long term stability and financial success of Stanley
Furniture Company, Inc. (the "Company") by attracting and
retaining key employees through the use of stock incentives. It
is believed that ownership of Company Stock will stimulate the
efforts of those employees upon whose judgment and interest the
Company is and will be largely dependent for the successful
conduct of its business. It is also believed that Incentive
Awards granted to such employees under this Plan will strengthen
their desire to remain with the Company and will further the
identification of those employees' interests with those of the
Company's shareholders. The Plan is intended to conform to the
provisions of Securities and Exchange Commission Rule 16b-3.
2. Definitions. As used in the Plan, the following terms
have the meanings indicated:
(a) "Act" means the Securities Exchange Act of 1934,
as amended.
(b) "Applicable Withholding Taxes" means the
aggregate amount of federal, state and local income and payroll
taxes that the Company is required to withhold in connection with
any exercise of a Nonstatutory Stock Option or Tax Offset Right.
(c) "Board" means the board of directors of the
Company.
(d) "Change of Control" means an event described in
(i), (ii), (iii), or (iv):
(i) The acquisition by a Group of Beneficial
Ownership of 35% or more of the Stock or the Voting Power of the
Company, but excluding for this purpose: (A) any acquisition by
the Company (or a subsidiary), or an employee benefit plan of
the Company; (B) any acquisition of Common Stock of the Company
by management employees of the Company; or (C) any acquisition by
a Group that owns 10% or more of the Stock or Voting Power of the
Company on the Effective Date. "Group" means any individual,
entity or group within the meaning of Section 13(d)(3) or
14(d)(2) of the Act, "Beneficial Ownership" has the meaning in
Rule 13d-3 promulgated under the Act, "Stock" means the then
outstanding shares of common stock, and "Voting Power" means the
combined voting power of the outstanding voting securities
entitled to vote generally in the election of directors.
<PAGE>
(ii) Individuals who constitute the Board on the
Effective Date (the "Incumbent Board") cease to constitute at
least a majority of the Board, provided that any director whose
nomination was approved by a majority of the Incumbent Board
shall be considered a member of the Incumbent Board unless such
individual's initial assumption of office is in connection with
an actual or threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Act).
(iii) Approval by the shareholders of the Company
of a reorganization, merger or consolidation, in each case, in
which the owners of more than 50% of the Stock or Voting Power of
the Company do not, following such reorganization, merger or
consolidation, beneficially own, directly or indirectly, more
than 50% of the Stock or Voting Power of the corporation
resulting from such reorganization, merger or consolidation.
(iv) A complete liquidation or dissolution of
the Company or of its sale or other disposition of all or
substantially all of the assets of the Company.
(e) "Code" means the Internal Revenue Code of 1986,
as amended.
(f) "Committee" means the committee appointed by the
Board as described under Section 14.
(g) "Company" means Stanley Furniture Company, Inc.,
a Delaware corporation.
(h) "Company Stock" means Common Stock, $.02 par
value, of the Company. If the par value of the Company Stock is
changed, or in the event of a change in the capital structure of
the Company (as provided in Section 13), the shares resulting
from such a change shall be deemed to be Company Stock within the
meaning of the Plan.
(i) "Covered Employee" means the Chief Executive
Officer of the Company (or an individual acting in such capacity)
as of the close of the Taxable Year or an employee whose total
compensation is required to be reported for the Taxable Year
under the disclosure rules promulgated by the Securities and
Exchange Commission under the Act.
(j) "Date of Grant" means the date on which an
Incentive Award is granted by the Committee.
(k) "Disability" or "Disabled" means, as to an
Incentive Stock Option, a Disability within the meaning of
Section 22(e)(3) of the Code. As to all other Incentive Awards,
a physical or mental condition that prevents the Participant from
performing his customary duties with the Company. The Committee
shall determine whether a Disability exists on the basis of
competent medical evidence, and such determination shall be
conclusive.
(l) "Effective Date" means December 2, 1994.
(m) "Fair Market Value" means,
(i) if the Company Stock is traded on an
exchange, the closing registered sales price of the Company Stock
on the day prior to the grant on the exchange on which it
generally has the greatest trading volume.
(ii) if (i) does not apply, the fair market value
as determined by the Committee using any reasonable method in
good faith.
(n) "Incentive Award" means, collectively, the award
of an Option or Tax Offset Right under the Plan.
(o) "Incentive Stock Option" means an Option intended
to meet the requirements of, and qualify for favorable federal
income tax treatment under, Code section 422.
(p) "Insider" means a person subject to Section 16(b)
of the Act.
(q) "Nonstatutory Stock Option" means an Option that
does not meet the requirements of Code section 422, or, even if
meeting the requirements of Code section 422, is not intended to
be an Incentive Stock Option and is so designated.
(r) "Option" means a right to purchase Company Stock
granted under the Plan, at a price determined in accordance with
the Plan. An Option may be either an Incentive Stock Option or a
Nonstatutory Stock Option.
(s) "Participant" means any employee who receives an
Incentive Award under the Plan.
(t) "Rule 16b-3" means Rule 16b-3 of the Securities
and Exchange Commission promulgated under the Act. A reference
in the Plan to Rule 16b-3 shall include a reference to any
corresponding rule (or number redesignation) of any amendments to
Rule 16b-3 enacted after the effective date of the Plan's
adoption.
(u) "Tax Offset Right" means a right to receive
amounts in cash from the Company as described in Section 10 of
the Plan.
(v) "10% Shareholder" means a person who owns,
directly or indirectly, stock possessing more than 10% of the
total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary of the Company. Indirect
ownership of stock shall be determined in accordance with Code
section 424(d).
3. General. The following types of Incentive Awards may
be granted under the Plan: Options and Tax Offset Rights.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options.
4. Stock. Subject to Section 13 of the Plan, there shall
be reserved for issuance under the Plan an aggregate of 700,000
shares of Company Stock, which shall be authorized, but unissued
shares, reduced by any options issued under the Stanley Furniture
Company, Inc. 1992 Stock Option Plan (the "1992 Plan") that are
outstanding at any time or that have been exercised prior to the
Effective Date. Shares allocable to options or portions thereof
under the 1992 Plan that expire or otherwise terminate
unexercised after the Effective Date of the Plan may be subjected
to an Incentive Award under the Plan. Shares allocable to
Options or portions thereof granted under the Plan that expire or
otherwise terminate unexercised may again be subjected to an
Option under the Plan. The Committee is expressly authorized to
make an Incentive Award to a Participant conditioned upon the
surrender for cancellation of an option granted under an existing
Incentive Award under this Plan or the 1992 Plan. For purposes
of determining the number of shares that are available for
Incentive Awards under the Plan, such number shall, to the extent
permissible under Rule 16b-3, include the number of shares
surrendered by an optionee or retained by the Company in payment
of Applicable Withholding Taxes.
5. Eligibility.
(a) All present and future employees who hold
positions with management responsibilities with the Company (or
any parent or subsidiary of the Company, whether now existing or
hereafter created or acquired) shall be eligible to receive
Incentive Awards under the Plan. The Committee shall have the
power and complete discretion, as provided in Section 14, to
select eligible employees to receive Incentive Awards and to
determine for each employee the terms and conditions, the nature
of the award and the number of shares to be allocated to each
employee as part of each Incentive Award.
(b) The grant of an Incentive Award shall not
obligate the Company or any parent or subsidiary of the Company
to pay an employee any particular amount of remuneration, to
continue the employment of the employee after the grant or to
make further grants to the employee at any time thereafter.
6. Performance Program Awards.
(a) Options may be issued pursuant to the Plan in
connection with performance programs established from time to
time by the Committee. Options awarded under a performance
program shall vest according to the performance criteria and
other terms established by the Committee as part of the
performance program.
(b) Whenever the Committee deems it appropriate, the
Committee may establish a performance program and notify
Participants of their participation in and the terms of the
performance program. More than one performance program may be
established by the Committee and they may operate concurrently or
for varied periods of time and a Participant may be permitted to
participate in more than one performance program at the same
time. Options awarded under a performance program shall be
issued subject to the Plan.
7. Stock Options.
(a) Whenever the Committee deems it appropriate to
grant Options, notice shall be given to the Participant stating
the number of shares for which Options are granted, the Option
price per share, whether the Options are Incentive Stock Options
or Nonstatutory Stock Options, and the conditions to which the
grant and exercise of the Options are subject (including, without
limitation, that the Option is awarded pursuant to a performance
program as described in Section 6). This notice, when duly
accepted in writing by the Participant, shall become a stock
option agreement between the Company and the Participant.
(b) The exercise price of shares of Company Stock
covered by an Incentive Stock Option shall be not less than 100%
of the Fair Market Value of such shares on the Date of Grant;
provided that if an Incentive Stock Option is granted to a
Participant who, at the time of the grant, is a 10% Shareholder,
then the exercise price of the shares covered by the Incentive
Stock Option shall be not less than 110% of the Fair Market Value
of such shares on the Date of Grant.
(c) The exercise price of shares of Company Stock
covered by an Nonstatutory Stock Option shall be not less than
100% of the Fair Market Value of such shares on the Date of
Grant.
(d) Options may be exercised in whole or in part at
such times as may be specified by the Committee in the
Participant's stock option agreement; provided that, the exercise
provisions for Options shall in all events not be more liberal
than the following provisions:
(i) No Option may be exercised after the first
to occur of (x) ten years (or, in the case of an Incentive Stock
Option granted to a 10% Shareholder, five years) from the Date of
Grant.
(ii) Except as otherwise provided in this
paragraph, no Option may be exercised unless the Participant is
employed by the Company or a parent or subsidiary of the Company
at the time of the exercise and has been employed by the Company
or a parent or subsidiary of the Company at all times since the
Date of Grant. If a Participant's employment is terminated other
than by reason of his Disability or death at a time when the
Participant holds an Option that is exercisable (in whole or in
part), the Participant may exercise any or all of the exercisable
portion of the Option (to the extent exercisable on the date of
termination) within three months after the Participant's
termination of employment. If a Participant's employment is
terminated by reason of his Disability at a time when the
Participant holds an Option that is exercisable (in whole or in
part), the Participant may exercise any or all of the exercisable
portion of the Option (to the extent exercisable on the date of
Disability) within one year after the Participant's termination
of employment. If a Participant's employment is terminated by
reason of his death at a time when the Participant holds an
Option that is exercisable (in whole or in part), the Option may
be exercised (to the extent exercisable on the date of death)
within one year after the Participant's death by the person to
whom the Participant's rights under the Option shall have passed
by will or by the laws of descent and distribution.
(iii) An Incentive Stock Option by its terms,
shall be exercisable in any calendar year only to the extent that
the aggregate Fair Market Value (determined at the Date of Grant)
of the Company Stock with respect to which Incentive Stock
Options are exercisable for the first time during the calendar
year does not exceed $100,000 (the "Limitation Amount").
Incentive Stock Options granted under the Plan and all other
plans of the Company and any Parent or Subsidiary of the Company
shall be aggregated for purposes of determining whether the
Limitation Amount has been exceeded. The Board may impose such
conditions as it deems appropriate on an Incentive Stock Option
to ensure that the foregoing requirement is met. If Incentive
Stock Options that first become exercisable in a calendar year
exceed the Limitation Amount, the excess Options will be treated
as Nonstatutory Stock Options to the extent permitted by law.
(e) Notwithstanding the foregoing, no Option shall be
exercisable by an Insider within the first six months after it is
granted; provided that, this restriction shall not apply if the
Participant becomes Disabled or dies during the six-month period.
(f) The Committee may, in its discretion, grant
Options that by their terms become fully exercisable upon a
Change of Control, notwithstanding other conditions on
exercisability in the stock option agreement.
8. Method of Exercise of Options.
(a) Options may be exercised by the Participant
giving written notice of the exercise to the Company, stating the
number of shares the Participant has elected to purchase under
the Option. Such notice shall be effective only if accompanied
by the exercise price in full in cash; provided that, if the
terms of an Option so permit, the Participant may (i) deliver, or
cause to be withheld from the Option shares, shares of Company
Stock (valued at their Fair Market Value on the date of exercise)
in satisfaction of all or any part of the exercise price, (ii)
deliver a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the
Company, from the sale or loan proceeds with respect to the sale
of Company Stock or a loan secured by Company Stock, the amount
necessary to pay the exercise price and, if required by the
Committee, Applicable Withholding Taxes, or (iii) deliver an
interest bearing promissory note, payable to the Company, in
payment of all or part of the exercise price together with such
collateral as may be required by the Committee at the time of
exercise. The interest rate under any such promissory note shall
be established by the Committee and shall be at least equal to
the minimum interest rate required at the time to avoid imputed
interest under the Code.
(b) The Company may place on any certificate
representing Company Stock issued upon the exercise of an Option
any legend deemed desirable by the Company's counsel to comply
with federal or state securities laws, and the Company may
require a customary written indication of the Participant's
investment intent. Until the Participant has made any required
payment, including any Applicable Withholding Taxes, and has had
issued a certificate for the shares of Company Stock acquired, he
shall possess no shareholder rights with respect to the shares.
(c) Each Participant shall agree as a condition of
the exercise of a Nonstatutory Stock Option to pay to the
Company, or make arrangements satisfactory to the Company
regarding the payment to the Company of, Applicable Withholding
Taxes. Until such amount has been paid or arrangements
satisfactory to the Company have been made, no stock certificate
shall be issued upon the exercise of an Option.
(d) As an alternative to making a cash payment to the
Company to satisfy Applicable Withholding Taxes, the Committee
may establish procedures permitting the Participant to elect to
(i) deliver shares of already owned Company Stock or (ii) have
the Company retain that number of shares of Company Stock that
would satisfy all or a specified portion of the Applicable
Withholding Taxes. Any such election be made only in accordance
with procedures established by the Committee, including any
procedures necessary to satisfy Rule 16b-3 if the Participant is
an Insider. The Committee shall have sole discretion to approve
or disapprove any such election.
(e) Notwithstanding anything herein to the contrary,
Options shall always be granted and exercised in such a manner as
to conform to the provisions of Rule 16b-3, to the extent
applicable.
<PAGE>
9. Nontransferability of Options. Options by their terms,
shall not be transferable except by will or by the laws of
descent and distribution or, if permitted by Rule 16b-3, pursuant
to a qualified domestic relations order (as defined in Code
section 414(p)) ("QDRO") and shall be exercisable, during the
Participant's lifetime, only by the Participant or, if permitted
by Rule 16b-3, an alternate payee under a QDRO, or by his
guardian, duly authorized attorney-in-fact or other legal
representative.
10. Tax Offset Rights.
(a) Whenever the Committee deems it appropriate, Tax
Offset Rights may be granted in connection with Options. Tax
Offset Rights shall be evidenced in writing as part of the stock
option agreement to which they pertain.
(b) Tax Offset Rights shall entitle the Participant,
upon exercise of all or any part of an Option or Tax Offset
Right, to receive in cash from the Company an amount equal to or
approximating the Applicable Withholding Taxes.
(c) A Participant may exercise a Tax Offset Right by
giving the Committee written notice of exercise simultaneously
with the exercise of an Option. To the extent exercised, the Tax
Offset Right shall lapse.
(d) The Committee may limit the amount the
Participant will be entitled to receive in connection with a Tax
Offset Right and may include any provisions in a Tax Offset Right
that the Committee deems appropriate to ensure that the Tax
Offset Right will not be characterized as an "equity security" or
"derivative security" for purposes of Section 16 of the Act and
the rules and regulations thereunder.
11. Effective Date of the Plan. This Plan shall be
effective on December 2, 1994 and shall be submitted to the
shareholders of the Company for approval. Until (i) the Plan has
been approved by the Company's shareholders, and (ii) the
requirements of any applicable state securities laws have been
met, no Option shall be exercisable.
12. Termination, Modification, Change. If not sooner
terminated by the Board, this Plan shall terminate at the close
of business on November 30, 2004. No Incentive Awards shall be
made under the Plan after its termination. The Board may
terminate the Plan or may amend the Plan in such respects as it
shall deem advisable; provided that, if and to the extent
required by Rule 16b-3, no change shall be made that increases
the total number of shares of Company Stock reserved for issuance
pursuant to Incentive Awards granted under the Plan (except
pursuant to Section 13), materially modifies the requirements as
to eligibility for participation in the Plan, or materially
increases the benefits accruing to Participants under the Plan,
unless such change is authorized by the shareholders of the
Company. Notwithstanding the foregoing, the Board may
unilaterally amend the Plan and Incentive Awards as it deems
appropriate to ensure compliance with Rule 16b-3. Except as
provided in the preceding sentence, a termination or amendment of
the Plan shall not, without the consent of the Participant,
adversely affect the Participant's rights under an Incentive
Award previously granted to him.
13. Change in Capital Structure.
(a) In the event of a stock dividend, stock split or
combination of shares, recapitalization or merger in which the
Company is the surviving corporation or other change in the
Company's capital stock (including, but not limited to, the
creation or issuance to shareholders generally of rights, options
or warrants for the purchase of common stock or preferred stock
of the Company), the number and kind of shares of stock or
securities of the Company to be subject to the Plan and to
Options then outstanding or to be granted thereunder, the maximum
number of shares or securities which may be delivered under the
Plan, the exercise price and other relevant provisions shall be
appropriately adjusted by the Committee, whose determination
shall be binding on all persons. If the adjustment would produce
fractional shares with respect to any unexercised Option, the
Committee may adjust appropriately the number of shares covered
by the Option so as to eliminate the fractional shares.
(b) If the Company is a party to a consolidation or a
merger in which the Company is not the surviving corporation, a
transaction that results in the acquisition of substantially all
of the Company's outstanding stock by a single person or entity,
or a sale or transfer of substantially all of the Company's
assets, the Committee may take such actions with respect to
outstanding Incentive Awards as the Committee deems appropriate.
(c) Notwithstanding anything in the Plan to the
contrary, the Committee may take the foregoing actions without
the consent of any Participant, and the Committee's determination
shall be conclusive and binding on all persons for all purposes.
14. Administration of the Plan. The Plan shall be
administered by the Committee, which shall consist of not less
than two members of the Board, who shall be appointed by the
Board. Subject to paragraph (d) below, the Committee shall be
the Compensation Committee unless the Board shall appoint another
Committee to administer the Plan. The Committee shall have
general authority to impose any limitation or condition upon an
Incentive Award the Committee deems appropriate to achieve the
objectives of the Incentive Award and the Plan and, without
limitation and in addition to powers set forth elsewhere in the
Plan, shall have the following specific authority:
<PAGE>
(a) The Committee shall have the power and complete
discretion to determine (i) which eligible employees shall
receive Incentive Awards and the nature of each Incentive Award,
(ii) the number of shares of Company Stock to be covered by each
Incentive Award, (i) whether Options shall be Incentive Stock
Options or Nonstatutory Stock Options, (iii) when, whether and to
what extent Tax Offset Rights shall be granted and the terms
thereof, (iv) the Fair Market Value of Company Stock, (v) the
time or times when an Incentive Award shall be granted, (vi)
whether an Incentive Award shall become vested over a period of
time and when it shall be fully vested, (vii) when Options may be
exercised, (viii) whether a Disability exists, (ix) the manner in
which payment will be made upon the exercise of Options, (x)
conditions relating to the length of time before disposition of
Company Stock received upon the exercise of Options is permitted,
(xi) whether to approve a Participant's elections under the Plan,
(xii) notice provisions relating to the sale of Company Stock
acquired under the Plan, (xiii) the terms of performance
programs, performance criteria and other factors relevant to the
issuance of Options that will vest subject to performance goals,
and (xiv) any additional requirements relating to Incentive
Awards that the Committee deems appropriate. Notwithstanding the
foregoing, no "tandem stock options" (where two stock options are
issued together and the exercise of one option affects the right
to exercise the other option) may be issued in connection with
Incentive Stock Options. The Committee shall have the power to
amend the terms of previously granted Incentive Awards so long as
the terms as amended are consistent with the terms of the Plan
and provided that the consent of the Participant is obtained with
respect to any amendment that would be detrimental to him, except
that such consent will not be required if such amendment is for
the purpose of complying with Rule 16b-3.
(b) The Committee may adopt rules and regulations for
carrying out the Plan. The interpretation and construction of
any provision of the Plan by the Committee shall be final and
conclusive. The Committee may consult with counsel, who may be
counsel to the Company, and shall not incur any liability for any
action taken in good faith in reliance upon the advice of
counsel.
(c) A majority of the members of the Committee shall
constitute a quorum, and all actions of the Committee shall be
taken by a majority of the members present. Any action may be
taken by a written instrument signed by all of the members, and
any action so taken shall be fully effective as if it had been
taken at a meeting.
(d) The Board from time to time may appoint members
previously appointed and may fill vacancies, however caused, in
the Committee. Insofar as it is necessary to satisfy the
requirements of Section 16(b) of the Act, no member of the
Committee shall be eligible to participate in the Plan or in any
other plan of the Company or any parent or subsidiary of the
Company that entitles participants to acquire stock, stock
options or stock appreciation rights of the Company or any parent
or subsidiary of the Company, and no person shall become a member
of the Committee if, within the preceding one-year period, the
person shall have been eligible to participate in such a plan
(other than a "safe harbor plan" permitted under Rule 16b-
3(c)(2)(i) and (ii)).
15. Notice. All notices and other communications required
or permitted to be given under this Plan shall be in writing and
shall be deemed to have been duly given if delivered personally
or mailed first class, postage prepaid, as follows (a) if to the
Company - at its principal business address to the attention of
the Treasurer; (b) if to any Participant - at the last address of
the Participant known to the sender at the time the notice or
other communication is sent.
16. Interpretation. The terms of this Plan are subject to
all present and future regulations and rulings of the Secretary
of the Treasury or his or her delegate relating to the
qualification of Incentive Stock Options under the Code. If any
provision of the Plan conflicts with any such regulation or
ruling, then that provision of the Plan shall be void and of no
effect. The terms of this Plan shall be governed by the laws of
the Commonwealth of Virginia.
IN WITNESS WHEREOF, the Company has caused this Plan to be
executed this 2nd day of December, 1994.
STANLEY FURNITURE COMPANY, INC.
By: s/ Albert L. Prillaman
<PAGE>
Exhibit 10.19
STANLEY FURNITURE COMPANY, INC.
EXECUTIVE LOAN PLAN
1. Purpose. The purpose of this Stanley Furniture
Company, Inc. Executive Loan Plan (the "Plan") is to further the
long term stability and financial success of Stanley Furniture
Company, Inc. (the "Company") by attracting and retaining key
employees through the use of loans to acquire Company stock
("Loan").
2. Number of Shares. Under the Plan, the Company may make
Loans to eligible executives to acquire up to an aggregate of
80,000 shares of Company Stock, which may be authorized, but
unissued shares or issued shares.
3. Eligibility. All present and future employees who
hold positions with management responsibilities with the Company
(or any parent or subsidiary of the Company, whether now existing
or hereafter created or acquired) shall be eligible to receive
Loans under the Plan. The Committee shall have the power and
complete discretion to select eligible employees to receive
Loans.
4. Loans. The Committee shall have the power and complete
discretion to determine for each employee the terms, conditions,
nature and amount of a Loan. All Company stock acquired with a
Loan shall be acquired at the Fair Market Value of the stock as
determined under the Stanley Furniture Company, Inc. 1994 Stock
Option Plan. The Committee may provide that all or a portion of
a Loan, including principal and interest, will be forgiven under
any circumstances determined by the Committee.
5. Effective Date of the Plan. This Plan shall be
effective on December 2, 1994.
6. Termination, Modification, Change. If not sooner
terminated by the Board, this Plan shall terminate at the close
of business on December 1, 2004. No Loans shall be made under
the Plan after its termination. The Board may terminate the Plan
or may amend the Plan in such respects as it shall deem
advisable. A termination or amendment of the Plan shall not,
without the consent of the Participant, adversely affect the
Participant's rights under a Loan previously granted to him.
7. Administration of the Plan.
(a) The Plan shall be administered by the Committee,
which shall consist of not less than two members of the Board,
who shall be appointed by the Board. The Committee shall be the
Compensation Committee unless the Board shall appoint another
Committee to administer the Plan. The Committee shall have
general authority to impose any limitation or condition upon a
Loan that the Committee deems appropriate to achieve the
objectives of the Plan. The Committee shall have the authority
to interpret the Plan and its interpretations shall be binding on
all parties. The terms of this Plan shall be governed by the
laws of the Commonwealth of Virginia.
(b) The Board from time to time may appoint members
previously appointed and may fill vacancies, however caused, in
the Committee. Insofar as it is necessary to satisfy the
requirements of Section 16(b) of the Act, no member of the
Committee shall be eligible to participate in the Plan or in any
other plan of the Company or any parent or subsidiary of the
Company that entitles participants to acquire stock, stock
options or stock appreciation rights of the Company or any parent
or subsidiary of the Company, and no person shall become a member
of the Committee if, within the preceding one-year period, the
person shall have been eligible to participate in such a plan
(other than a "safe harbor plan" permitted under Rule 16b-
3(c)(2)(i) and (ii)).
8. Nontransferability of Loans. Loans by their terms,
shall not be transferable except by will or by the laws of
descent and distribution or, if permitted by Rule 16b-3, pursuant
to a qualified domestic relations order (as defined in Code
section 414(p)) ("QDRO").
IN WITNESS WHEREOF, the Company has caused this Executive
Loan Plan to be executed this 2nd day of December, 1994.
STANLEY FURNITURE COMPANY, INC.
By: s/ Albert L. Prillaman
<PAGE>
Exhibit 10.20
LOAN AND STOCK PURCHASE AGREEMENT
THIS LOAN AND STOCK PURCHASE AGREEMENT (as amended,
supplemented or modified from time to time, this "Loan Agreement")
is dated as of December 2, 1994 and is between ALBERT L. PRILLAMAN,
(the "Borrower"), and STANLEY FURNITURE COMPANY, INC., a Delaware
corporation (the "Company").
The Borrower proposes to purchase shares of the common
stock of the Company and desires to borrow an amount to finance the
purchase of 50,000 shares. The Company is willing to lend such
amount to the Borrower on the terms and conditions set forth
herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
THE LOAN
Section 1.1. Commitment to Make Loans. The Company
agrees, on the terms and conditions set forth in this Loan
Agreement, to make a non-recourse loan (the "Loan") to the Borrower
on or prior to December 10, 1994 in an aggregate principal amount
equal to the fair market value (as determined under the Stanley
Furniture Company, Inc. Executive Loan Plan) (the "Fair Market
Value") of 50,000 shares of Company Common Stock, $.02 par value
("Common Stock"). The loan shall be evidenced by, and repayable
with interest in accordance with, a single non-recourse promissory
note substantially in the form of Exhibit A hereto and
appropriately completed (the "Note").
Section 1.2. Non-Recourse Liability. The Company shall
have no recourse against the Borrower on account of the Loan, and
the Borrower shall have no personal liability with respect to any
obligation hereunder or with respect to the representations and
warranties contained herein. The Company shall have no recourse
against the Borrower and the Borrower shall have no obligation to
make any payment on the Loan except to the extent of the Company's
rights under the Loan Agreement or as provided in the Note.
ARTICLE II
FORGIVENESS OF PRINCIPAL AND INTEREST
Section 2.1. Continuation of Employment. If the
Borrower is employed by the Company on a Payment Date (as defined
below), the Company shall forgive the payment of all accrued
principal and interest due under the terms of the Note on that
Payment Date. For purposes of this Loan Agreement, the last day of
December in 1994, 1995, 1996, 1997, and 1998 shall each be a
Payment Date. January 2, 1999 is not a Payment Date.
<PAGE>
Section 2.2. Disability.
(a) If the Borrower becomes Disabled before January 1,
1999 and is employed by the Company immediately before he becomes
Disabled, the Company shall forgive the payment of all principal
and interest due on any future Payment Date. The Borrower shall
remain liable for payment of any principal due on the Note that is
not payable on a Payment Date.
(b) For purposes of this Loan Agreement, "Disabled"
means a physical or mental condition that prevents the Borrower
from performing his customary duties with the Company. The Company
shall determine whether the Borrower is Disabled on the basis of
competent medical evidence, and such determination shall be
conclusive.
Section 2.3. Death. If the Borrower dies while
employed by the Company, the Note shall become payable in full
according to its terms.
Section 2.4. Change of Control. If the Borrower is
employed by the Company when a Change of Control occurs, the
Company shall forgive any remaining principal and interest due on
the Note and shall promptly issue to the Borrower shares of Common
Stock as provided in Article III. For purposes of this Loan
Agreement, Change of Control shall have the same meaning as in the
Stanley Furniture Company, Inc. 1994 Stock Option Plan.
Section 2.5. Termination of Employment. If the
Borrower terminates employment with the Company other than as
provided in Sections 2.2 or 2.3, the Company shall not forgive any
further amounts of principal or interest on the Loan and all
payments shall be due and payable as provided in the Note.
Section 2.6. Tax Due on Forgiveness. If the Company
forgives any principal or interest on the Loan under Sections 2.1,
2.2, or 2.4, the Company shall make an additional payment to the
Borrower to compensate the Borrower for any federal and state
income taxes that may be payable by the Borrower due to the
forgiveness of the Loan or due to the payment under this Section
2.6.
ARTICLE III
ISSUANCE OF STOCK
Section 3.1. Issuance of Stock. On January 2, 1999, or
if sooner upon forgiveness and/or payment of the Note in full, the
Company shall issue 50,000 shares of Common Stock, subject to
adjustment pursuant to Section 3.2 and Section 3.3.
Section 3.2. Adjustment for Changes in Capital
Structure. (a) In case the Company shall at any time subdivide
(by any stock split, stock dividend or otherwise) its outstanding
shares of Common Stock into a greater number of shares, the number
of shares issuable pursuant to Section 3.1 prior to such
subdivision shall be proportionately increased, and, conversely, in
case the outstanding shares of Common Stock shall be combined into
a smaller number of shares, the number of shares issuable pursuant
to Section 3.1 prior to such combination shall be proportionately
decreased.
(b) If any capital reorganization or reclassification
of the capital stock of the Company, or any partial or total
liquidation or dissolution or reduction in capital, capital surplus
or paid in capital, shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or
assets (other than cash) with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or
reclassification, lawful and adequate provisions shall be made
whereby Borrower shall have the right to receive, upon the basis
and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable
pursuant to Section 3.1, such shares of stock, securities or assets
(other than cash) as would be issued or paid with respect to or in
exchange for a number of outstanding shares of Common Stock
issuable pursuant to Section 3.1 immediately theretofore (subject
to the obligation to repay the Note pursuant to the terms hereof).
In any such case appropriate provisions shall be made with respect
to the rights and interests of Borrower to the end that the
provisions hereof shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities or assets (other
than cash) thereafter issuable pursuant to Section 3.1.
Section 3.3. Adjustment in the Event of Default. Upon
a Payment Default (as defined in Section 5.1(b)), the shares of
Common Stock to be issued pursuant to Section 3.1 shall be reduced
by the number equal to the amount of the Payment Default divided by
the Fair Market Value of a share of Common Stock on the date the
defaulted payment was due.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants as follows:
Section 4.1. Binding Effect. This Loan Agreement
constitutes a valid and binding agreement of the Borrower,
enforceable against the Borrower in accordance with its terms,
except as (i) the enforceability hereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) the availability of equitable remedies may be
limited by equitable principles of general applicability.
<PAGE>
ARTICLE V
DISTRIBUTIONS AND DEFAULT
Section 5.1. Distributions. (a) So long as no Event of
Default shall have occurred and be continuing, an amount equal to
the amount of cash dividends with respect to the number of Shares
issuable pursuant to Section 3.1 at the time of such dividend shall
be treated as a prepayment of the portion of the Loan that is due
on January 2, 1999. The following items shall be treated as a
prepayment of the Loan:
(A) an amount equal to the amount of dividends
and other distributions paid or payable in cash on the number of
Shares then issuable pursuant to Section 3.1 at the time of such
dividends in connection with a partial or total liquidation or
dissolution or with a reduction of capital, capital surplus or
paid-in-surplus, and
(B) an amount equal to the amount cash paid in
redemption of, or in exchange for, the number of Shares then
issuable pursuant to Section 3.1.
(b) For purposes of this Loan Agreement, each of the
following events shall be an Event of Default:
(i) the Borrower shall fail to pay within ten
calendar days following the date when due any principal of or
interest on the Note unless such principal or interest is forgiven
by the Company (a "Payment Default");
(ii) the Borrower shall fail to observe or perform
any covenant or agreement contained in this Loan Agreement (other
than those covered by clause (i) above) for 30 days after written
notice thereof has been given to the Borrower by the Company; or
(iii) any representation, warranty, certification or
statement made by the Borrower in this Loan Agreement shall prove
to have been incorrect in any material respect when made.
ARTICLE VI
MISCELLANEOUS
Section 6.1. Notices. All notices, requests and other
communications to a party hereunder shall be in writing and shall
be given to such party at its address set forth on the signature
page hereof or such other address as such party may hereafter
specify for that purpose by notice to the other.
Section 6.2. No Waivers. No failure or delay by the
Company in exercising any right, power or privilege under this Loan
Agreement shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
The rights and remedies provided herein shall be cumulative and not
exclusive of any rights or remedies provided by law.
Section 6.3. Amendments and Waivers. Any provision of
this Loan Agreement may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the Borrower and
the Company.
Section 6.4. Successors and Assigns. The provisions of
this Loan Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.
This Loan Agreement is for the benefit of the Company and its
successors and assigns, and in the event of an assignment of all or
any of the Obligations, the rights hereunder, to the extent
applicable to the indebtedness so assigned, may be transferred with
such indebtedness. This Loan Agreement shall not be transferable
by the Borrower except by will or by the laws of descent and
distribution or, if permitted by Rule 16b-3, pursuant to a
qualified domestic relations order (as defined in Code section
414(p)) ("QDRO").
Section 6.5. Governing Law. This Loan Agreement shall
be governed by and construed in accordance with the laws of the
Commonwealth of Virginia.
Section 6.6. Severability. If any provision hereof is
invalid and unenforceable in any jurisdiction, then, to the fullest
extent permitted by law, (i) the other provisions hereof shall
remain in full force and effect in such jurisdiction and shall be
liberally construed in favor of the Company in order to carry out
the intentions of the parties hereto as nearly as may be possible
and (ii) the invalidity or unenforceability of any provision hereof
in any jurisdiction shall not affect the validity or enforceability
of such provision in any other jurisdiction.
Section 6.7. Counterparts; Effectiveness. This Loan
Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Loan Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
ALBERT L. PRILLAMAN
s/Albert L. Prillaman
STANLEY FURNITURE COMPANY, INC.
By s/Douglas I. Payne
Title: Vice President of Finance
<PAGE>
<PAGE>
___________________________________
PROMISSORY NOTE
**************
Stanleytown, Virginia
$500,000.00 Date: December 2, 1994
FOR VALUE RECEIVED, the maker, Albert L. Prillaman, promises
to pay to the order of Stanley Furniture Company, Inc. (the
"Company"), the principal sum of $500,000.00, together with
interest from the date of this note at the rate of 7.60% per annum,
compounded semi-annually, pursuant to the Loan And Stock Purchase
Agreement dated as of December 2, 1994 between the Borrower and the
Company (as the same may be amended from time to time, the "Loan
Agreement"), in installments as hereinafter provided. The interest
shall be paid in annual installments beginning December 31, 1994
and continuing until this note is fully paid. The principal shall
be paid in five annual installments of $50,000.00 (totaling one-
half of the principal), beginning December 31, 1994 and continuing
until December 31, 1998 and one installment of $250,000.00 (equal
to one-half of the principal) paid on January 2, 1999. If not
sooner paid, the entire indebtedness shall be due and payable on
the earlier of January 2, 1999 or 90 days after the death of the
Borrower.
This Note is payable at the corporate office of the Company or
at such other place as the Company may designate in writing from
time to time.
The right of prepayment is reserved, in whole or in part, at
any time without penalty.
If any payment due hereunder is not made within ten calendar
days following the date on which such payment was due, or if the
maker is declared or adjudicated to be bankrupt by a United States
Bankruptcy Court, the maker shall be in default hereunder.
Presentment, demand, protest, and notices of dishonor and of
protest are hereby waived by the maker. The maker agrees that he
will pay, to the extent permitted by law, all expenses incurred in
collecting this obligation, including reasonable attorney's fees,
should this obligation or any part thereof not be paid as and when
due.
This Note and the obligations evidenced hereby are without
recourse to the Borrower and the Borrower shall have no personal
liability with respect hereto and no holder hereof shall have any
right to assets of the Borrower except as provided in the Loan
Agreement.
This Note is the Note referred to in the Loan Agreement.
Terms defined in the Loan Agreement are used herein with the same
meanings. Reference is made to the Loan Agreement for provisions
for the waiver of certain payments, and the acceleration of the
maturity hereof.
This note shall be governed by, and construed in accordance
with, the substantive laws of the Commonwealth of Virginia.
s/ Albert L. Prillaman
Albert L. Prillaman
<PAGE>
Exhibit 10.21
LOAN AND STOCK PURCHASE AGREEMENT
THIS LOAN AND STOCK PURCHASE AGREEMENT (as amended,
supplemented or modified from time to time, this "Loan Agreement")
is dated as of December 2, 1994 and is between LAWRENCE E. WEBB,
JR. (the "Borrower"), and STANLEY FURNITURE COMPANY, INC., a
Delaware corporation (the "Company").
The Borrower proposes to purchase shares of the common
stock of the Company and desires to borrow an amount to finance the
purchase of 30,000 shares. The Company is willing to lend such
amount to the Borrower on the terms and conditions set forth
herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
THE LOAN
Section 1.1. Commitment to Make Loans. The Company
agrees, on the terms and conditions set forth in this Loan
Agreement, to make a non-recourse loan (the "Loan") to the Borrower
on or prior to December 10, 1994 in an aggregate principal amount
equal to the fair market value (as determined under the Stanley
Furniture Company, Inc. Executive Loan Plan) (the "Fair Market
Value") of 30,000 shares of Company Common Stock, $.02 par value
("Common Stock"). The loan shall be evidenced by, and repayable
with interest in accordance with, a single non-recourse promissory
note substantially in the form of Exhibit A hereto and
appropriately completed (the "Note").
Section 1.2. Non-Recourse Liability. The Company shall
have no recourse against the Borrower on account of the Loan, and
the Borrower shall have no personal liability with respect to any
obligation hereunder or with respect to the representations and
warranties contained herein. The Company shall have no recourse
against the Borrower and the Borrower shall have no obligation to
make any payment on the Loan except to the extent of the Company's
rights under the Loan Agreement or as provided in the Note.
ARTICLE II
FORGIVENESS OF PRINCIPAL AND INTEREST
Section 2.1. Continuation of Employment. If the
Borrower is employed by the Company on a Payment Date (as defined
below), the Company shall forgive the payment of all accrued
principal and interest due under the terms of the Note on that
Payment Date. For purposes of this Loan Agreement, the last day of
December in 1994, 1995, 1996, 1997, and 1998 shall each be a
Payment Date. January 2, 1999 is not a Payment Date.
<PAGE>
Section 2.2. Disability.
(a) If the Borrower becomes Disabled before January 1,
1999 and is employed by the Company immediately before he becomes
Disabled, the Company shall forgive the payment of all principal
and interest due on any future Payment Date. The Borrower shall
remain liable for payment of any principal due on the Note that is
not payable on a Payment Date.
(b) For purposes of this Loan Agreement, "Disabled"
means a physical or mental condition that prevents the Borrower
from performing his customary duties with the Company. The Company
shall determine whether the Borrower is Disabled on the basis of
competent medical evidence, and such determination shall be
conclusive.
Section 2.3. Death. If the Borrower dies while
employed by the Company, the Note shall become payable in full
according to its terms.
Section 2.4. Change of Control. If the Borrower is
employed by the Company when a Change of Control occurs, the
Company shall forgive any remaining principal and interest due on
the Note and shall promptly issue to the Borrower shares of Common
Stock as provided in Article III. For purposes of this Loan
Agreement, Change of Control shall have the same meaning as in the
Stanley Furniture Company, Inc. 1994 Stock Option Plan.
Section 2.5. Termination of Employment. If the
Borrower terminates employment with the Company other than as
provided in Sections 2.2 or 2.3, the Company shall not forgive any
further amounts of principal or interest on the Loan and all
payments shall be due and payable as provided in the Note.
Section 2.6. Tax Due on Forgiveness. If the Company
forgives any principal or interest on the Loan under Sections 2.1,
2.2, or 2.4, the Company shall make an additional payment to the
Borrower to compensate the Borrower for any federal and state
income taxes that may be payable by the Borrower due to the
forgiveness of the Loan or due to the payment under this Section
2.6.
ARTICLE III
ISSUANCE OF STOCK
Section 3.1. Issuance of Stock. On January 2, 1999, or
if sooner upon forgiveness and/or payment of the Note in full, the
Company shall issue 30,000 shares of Common Stock, subject to
adjustment pursuant to Section 3.2 and Section 3.3.
Section 3.2. Adjustment for Changes in Capital
Structure. (a) In case the Company shall at any time subdivide
(by any stock split, stock dividend or otherwise) its outstanding
shares of Common Stock into a greater number of shares, the number
of shares issuable pursuant to Section 3.1 prior to such
subdivision shall be proportionately increased, and, conversely, in
case the outstanding shares of Common Stock shall be combined into
a smaller number of shares, the number of shares issuable pursuant
to Section 3.1 prior to such combination shall be proportionately
decreased.
(b) If any capital reorganization or reclassification
of the capital stock of the Company, or any partial or total
liquidation or dissolution or reduction in capital, capital surplus
or paid in capital, shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or
assets (other than cash) with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or
reclassification, lawful and adequate provisions shall be made
whereby Borrower shall have the right to receive, upon the basis
and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable
pursuant to Section 3.1, such shares of stock, securities or assets
(other than cash) as would be issued or paid with respect to or in
exchange for a number of outstanding shares of Common Stock
issuable pursuant to Section 3.1 immediately theretofore (subject
to the obligation to repay the Note pursuant to the terms hereof).
In any such case appropriate provisions shall be made with respect
to the rights and interests of Borrower to the end that the
provisions hereof shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities or assets (other
than cash) thereafter issuable pursuant to Section 3.1.
Section 3.3. Adjustment in the Event of Default. Upon
a Payment Default (as defined in Section 5.1(b)), the shares of
Common Stock to be issued pursuant to Section 3.1 shall be reduced
by the number equal to the amount of the Payment Default divided by
the Fair Market Value of a share of Common Stock on the date the
defaulted payment was due.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants as follows:
Section 4.1. Binding Effect. This Loan Agreement
constitutes a valid and binding agreement of the Borrower,
enforceable against the Borrower in accordance with its terms,
except as (i) the enforceability hereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) the availability of equitable remedies may be
limited by equitable principles of general applicability.
<PAGE>
ARTICLE V
DISTRIBUTIONS AND DEFAULT
Section 5.1. Distributions. (a) So long as no Event of
Default shall have occurred and be continuing, an amount equal to
the amount of cash dividends with respect to the number of Shares
issuable pursuant to Section 3.1 at the time of such dividend shall
be treated as a prepayment of the portion of the Loan that is due
on January 2, 1999. The following items shall be treated as a
prepayment of the Loan:
(A) an amount equal to the amount of dividends
and other distributions paid or payable in cash on the number of
Shares then issuable pursuant to Section 3.1 at the time of such
dividends in connection with a partial or total liquidation or
dissolution or with a reduction of capital, capital surplus or
paid-in-surplus, and
(B) an amount equal to the amount cash paid in
redemption of, or in exchange for, the number of Shares then
issuable pursuant to Section 3.1.
(b) For purposes of this Loan Agreement, each of the
following events shall be an Event of Default:
(i) the Borrower shall fail to pay within ten
calendar days following the date when due any principal of or
interest on the Note unless such principal or interest is forgiven
by the Company (a "Payment Default");
(ii) the Borrower shall fail to observe or perform
any covenant or agreement contained in this Loan Agreement (other
than those covered by clause (i) above) for 30 days after written
notice thereof has been given to the Borrower by the Company; or
(iii) any representation, warranty, certification or
statement made by the Borrower in this Loan Agreement shall prove
to have been incorrect in any material respect when made.
ARTICLE VI
MISCELLANEOUS
Section 6.1. Notices. All notices, requests and other
communications to a party hereunder shall be in writing and shall
be given to such party at its address set forth on the signature
page hereof or such other address as such party may hereafter
specify for that purpose by notice to the other.
Section 6.2. No Waivers. No failure or delay by the
Company in exercising any right, power or privilege under this Loan
Agreement shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
The rights and remedies provided herein shall be cumulative and not
exclusive of any rights or remedies provided by law.
Section 6.3. Amendments and Waivers. Any provision of
this Loan Agreement may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the Borrower and
the Company.
Section 6.4. Successors and Assigns. The provisions of
this Loan Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.
This Loan Agreement is for the benefit of the Company and its
successors and assigns, and in the event of an assignment of all or
any of the Obligations, the rights hereunder, to the extent
applicable to the indebtedness so assigned, may be transferred with
such indebtedness. This Loan Agreement shall not be transferable
by the Borrower except by will or by the laws of descent and
distribution or, if permitted by Rule 16b-3, pursuant to a
qualified domestic relations order (as defined in Code section
414(p)) ("QDRO").
Section 6.5. Governing Law. This Loan Agreement shall
be governed by and construed in accordance with the laws of the
Commonwealth of Virginia.
Section 6.6. Severability. If any provision hereof is
invalid and unenforceable in any jurisdiction, then, to the fullest
extent permitted by law, (i) the other provisions hereof shall
remain in full force and effect in such jurisdiction and shall be
liberally construed in favor of the Company in order to carry out
the intentions of the parties hereto as nearly as may be possible
and (ii) the invalidity or unenforceability of any provision hereof
in any jurisdiction shall not affect the validity or enforceability
of such provision in any other jurisdiction.
Section 6.7. Counterparts; Effectiveness. This Loan
Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Loan Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
LAWRENCE E. WEBB, JR.
s/Lawrence E. Webb, Jr.
STANLEY FURNITURE COMPANY, INC.
By s/Albert L. Prillaman
Title: President
<PAGE>
<PAGE>
___________________________________
PROMISSORY NOTE
**************
Stanleytown, Virginia
$300,000.00 Date: December 2, 1994
FOR VALUE RECEIVED, the maker, Lawrence E. Webb, Jr., promises
to pay to the order of Stanley Furniture Company, Inc. (the
"Company"), the principal sum of $300,000.00, together with
interest from the date of this note at the rate of 7.60% per annum,
compounded semi-annually, pursuant to the Loan And Stock Purchase
Agreement dated as of December 2, 1994 between the Borrower and the
Company (as the same may be amended from time to time, the "Loan
Agreement"), in installments as hereinafter provided. The interest
shall be paid in annual installments beginning December 31, 1994
and continuing until this note is fully paid. The principal shall
be paid in five annual installments of $30,000.00 (totaling one-
half of the principal), beginning December 31, 1994 and continuing
until December 31, 1998 and one installment of $150,000.00 (equal
to one-half of the principal) paid on January 2, 1999. If not
sooner paid, the entire indebtedness shall be due and payable on
the earlier of January 2, 1999 or 90 days after the death of the
Borrower.
This Note is payable at the corporate office of the Company or
at such other place as the Company may designate in writing from
time to time.
The right of prepayment is reserved, in whole or in part, at
any time without penalty.
If any payment due hereunder is not made within ten calendar
days following the date on which such payment was due, or if the
maker is declared or adjudicated to be bankrupt by a United States
Bankruptcy Court, the maker shall be in default hereunder.
Presentment, demand, protest, and notices of dishonor and of
protest are hereby waived by the maker. The maker agrees that he
will pay, to the extent permitted by law, all expenses incurred in
collecting this obligation, including reasonable attorney's fees,
should this obligation or any part thereof not be paid as and when
due.
This Note and the obligations evidenced hereby are without
recourse to the Borrower and the Borrower shall have no personal
liability with respect hereto and no holder hereof shall have any
right to assets of the Borrower except as provided in the Loan
Agreement.
This Note is the Note referred to in the Loan Agreement.
Terms defined in the Loan Agreement are used herein with the same
meanings. Reference is made to the Loan Agreement for provisions
for the waiver of certain payments, and the acceleration of the
maturity hereof.
This note shall be governed by, and construed in accordance
with, the substantive laws of the Commonwealth of Virginia.
s/Lawrence E. Webb, Jr.
Lawrence E. Webb, Jr.
<PAGE>
Exhibit 10.22
FIRST AMENDMENT TO LEASE
This FIRST AMENDMENT TO LEASE (this "Amendment") is made this
1st day of July, 1993 by and between INTERMEAD, INC. (successor in
interest to The Mead Corporation), an Ohio corporation qualified to
transact business in Virginia (the "Lessor") and STANLEY FURNITURE
COMPANY, INC. (formerly known as Stanley Interiors Corporation), a
Delaware corporation qualified to transact business in Virginia
(the "Lessee").
RECITALS
A. Pursuant to a certain Lease dated as of October 15, 1979
between The Mead Corporation, as lessor, and Stanley Interiors
Corporation, as lessee, as amended by a certain Settlement
Agreement and Amendment to Asset Purchase Agreement and Lease dated
as of March 10, 1981 (collectively, the "Lease"), the Lessee
currently leases from Lessor certain real property situated in
Henry County, Virginia; Franklin County, Virginia; City of
Waynesboro, Virginia; Moore County, North Carolina; and Rowan
County, North Carolina (collectively, the "Leased Premises").
B. Pursuant to a certain Assignment of Lease dated as of
February 1, 1982, The Mead Corporation assigned its interest in the
Lease to the Lessor. In addition, pursuant to a deed dated the
same day, The Mead Corporation conveyed the Leased Premises to the
Lessor, by deed recorded prior hereto, subject to the terms of the
Lease.
C. The Lessor and the Lessee now desire to amend the Lease as
hereinafter provided.
AGREEMENTS
NOW, THEREFORE, for and in consideration of Ten Dollars
($10.00) and other good and valuable considerations, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto do hereby covenant and agree as follows:
1. Release of a Portion of the Leased Premises from the Terms
of the Lease. Notwithstanding the provisions of Article XVIII of
the Lease, the Lessor and Lessee have agreed to sell that portion
of the Leased Premises located in the City of Waynesboro, Virginia,
as more particularly described on Exhibit A attached hereto and
incorporated herein by this reference (the "Release Parcel").
Accordingly, as of the date hereof and contemporaneous with the
sale of the Release Parcel to Shenandoah Properties, L.C., a
Virginia limited liability company ("Shenandoah"), the Release
Parcel shall be deleted from the definition of the Leased Premises
as set forth in the Lease and shall thereafter no longer be subject
to the terms and conditions contained in the Lease.
<PAGE>
2. Reaffirmation of the Provisions of Article XVIII with
respect to the Remaining Portion of the Leased Premises.
Notwithstanding the sale of the Release Parcel to Shenandoah, the
Lessee shall, provided it is not then in default in any of its
obligations under the Lease to pay money to the Lessor, have the
option during the remaining term of the Lease to purchase, subject
to the provisions of Article XVIII of the Lease, the remainder of
the Leased Premises or that portion of the remainder of the Leased
Premises used in the business of the Stanley Division or the Norman
Division (as those terms are defined in the Lease).
3. Rent. Notwithstanding the sale of the Release Parcel to
Shenandoah and the release of the Release Parcel from the terms and
conditions of the Lease, the Lessor and the Lessee hereby agree
that the rent set forth in Article II of the Lease shall continue
to be paid as set forth therein throughout the basic term and any
renewal term of the Lease.
4. Binding Effect. This Amendment shall be binding upon the
parties hereto and their respective successors and assigns.
5. Ratification and Conflict. Subject to the terms and
provisions contained herein, the Lessor and the Lessee do hereby
reaffirm and ratify the Lease. In the event of any conflict
between the Lease and this Amendment, this Amendment shall control
and prevail.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment, all pursuant to due and proper authority:
LESSOR: INTERMEAD, INC.,
an Ohio corporation
By: s/Jane B. Fisher
Title: President
LESSEE: STANLEY FURNITURE COMPANY,
INC., a Delaware corporation
By: s/Douglas I. Payne
Title: VP - Treasurer
<PAGE>
<PAGE>
STATE OF Virginia :
CITY OF Waynesboro :
The foregoing instrument was acknowledged before me this 8th
day of July, 1993, by Douglas I. Payne, as VP - Treasurer of the
STANLEY FURNITURE COMPANY, INC., a Delaware corporation, on behalf
of such corporation.
My commission expires: August 31, 1993
s/Carol P. Knicely
Notary Public
[NOTARY SEAL]
STATE OF North Carolina :
CITY/COUNTY OF Stokes :
The foregoing instrument was acknowledged before me this 1st
day of July, 1993, by Jane B. Fisher, as President of the
INTERMEAD, INC., an Ohio corporation, on behalf of such
corporation.
My commission expires: 12-10-95
s/Bonnie D. Hartsoe
Notary Public
<PAGE>
<PAGE>
EXHIBIT A
Waynesboro, Virginia Property:
The following described real estate situate in Waynesboro
City, Virginia, and being particularly described as follows:
Tract 1: Fronting on Charlotte Avenue and Fifth Street, being
more particularly described by metes and bounds, on a plat
made by W. A. Crawford, C.L.S., dated December 9, 1963,
entitled "Map of the Basic-Witz Furniture Industries Prop.,
Waynesboro, Virginia," as recorded in Plat Book 2, Page 34, in
the office of the Clerk of the Circuit Court of Waynesboro,
Virginia.
Tract 1 is subject to a lease of the Office Building from
The Mead Corporation to Crompton Company, Inc. dated October
11, 1978, to run from January 1, 1979 through December 21,
1983 with two one year renewal option periods.
Tract 2: Lots Nos. 1 through 24 and 29 through 48 in Block
23; the Lot shown on the Beltline Railroad; that portion of
Fourth Street from North Charlotte Avenue to the Beltline
Railroad; that portion of Dinwiddie Avenue from Third Street
to Fourth Street; and the alley between Third Street and
Fourth Street in Block 23, all as described on a plat made by
John McNair & Associates, dated September 25, 1968 and revised
October 30, 1968, entitled "Plat of a Portion of the Property
of Basic-Witz Furniture Industries, Inc."
Tract 3: Fronting on Fifth Street, and described on a plat
attached to a deed from the City of Waynesboro, Virginia to
Basic-Witz Corporation dated February 29, 1968, as recorded in
Book 79 page 750 in the office of the Clerk of the Circuit
Court of Waynesboro, Virginia, as parcel "A" and parcel "B".
Tract 4: Lots Nos. 28, 32, and 33 in Block 19; Lots Nos. 25
and 26 in Block 18; as described on a plat of the lands of the
Basic City Mining, Manufacturing & Land Company, as recorded
in Deed Book 109, pages 134 and 135 in the office of the Clerk
of the Circuit Court of Augusta County, Virginia.
Tract 5: BEGINNING at a point N63 degrees 24' 30"W 9.21 feet
from the intersection of the north line of Lot 1 Block 23 with
the northwest right-of-way line of Charlotte Avenue, thence
from the point of beginning N63 degrees 24' 30"W 155.79 feet
to a point, thence N26 degrees 35' 30"E 91.1 feet to a point
in the southwest right-of-way line of Bridge Avenue, thence
with the new southwest line of Bridge Avenue S33 degrees 5'
30"E 180.48 feet to the point of BEGINNING, containing 7,096
square feet.
Tract 6: Lot No. 29 in Block 19, as described in the plat of
the land of the Basic City Mining, Manufacturing & Land
Company, as recorded in Deed Book 109, pages 134 and 135 in
the office of the Clerk of the Circuit Court of August County,
Virginia.
Tract 7: BEGINNING at a point at the intersection of the
northerly margin of the Belt Line Railroad and the westerly
margin of Bridge Avenue; thence with the westerly line of
Bridge Avenue to a point in the center of the South River;
thence in a westerly direction following the thread of the
South River to a point, being the corner of the property shown
on a plat made by W. A. Crawford, C.L.S., dated December 9,
1963, entitled "Map of the Basic-Witz Furniture Industries
Prop. Waynesboro, Virginia", as recorded in Plat Book 2, page
34, in the office of the Clerk of the Circuit Court of
Waynesboro, Virginia; thence with the line of that property
S60 degrees 00'E 419.2 feet to a point in the northerly margin
of the Belt Line Railroad; thence with the northerly margin of
the railroad in an easterly direction to the point of
BEGINNING.
<PAGE>
Exhibit 3.7
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
STANLEY FURNITURE COMPANY, INC.
Albert L. Prillaman and Douglas I. Payne certify that:
1. They are the President and Secretary, respectively, of
Stanley Furniture Company, Inc., a Delaware corporation.
2. Article FOURTH of the Certificate of Incorporation of the
Company is amended to add the following at the end thereof:
"Effective on the date of the filing with the Secretary of
State of Delaware of a Certificate of Amendment to the Certificate
of Incorporation of the Company with respect hereto ("Effective
Date"), every two shares of the Company's Common Stock outstanding
immediately prior to such time shall be reclassified into one share
of Common Stock. Stockholders who, as a result of the reverse
stock split, own a fraction of a whole share of Common Stock, shall
be entitled to receive from the Company in lieu of a fractional
share, cash in the amount equal to $4.25 upon the surrender of
certificates representing Common Shares owned prior to the
Effective Date."
3. Article SIXTH of the Certificate of Incorporation of the
Company is amended by deleting paragraph 1 thereof and replacing it
with the following:
(1) The number of directors of the Corporation shall be fixed
from time to time exclusively by the Board of Directors pursuant to
a resolution adopted by the Board of Directors. Election of
directors need not be by ballot unless the by-laws so provide.
Commencing with the 1994 Annual Meeting of Stockholders, the Board
of Directors shall be divided into three classes, denominated as
Class I, Class II and Class III, each as nearly equal in number to
the other two as possible. At the 1994 Annual Meeting of
Stockholders, directors of Class I shall be elected to hold office
for a term expiring at the 1995 Annual Meeting of Stockholders;
directors of Class II shall be elected to hold office for a term
expiring at the 1996 Annual Meeting of Stockholders; and directors
of Class III shall be elected to hold office for a term expiring at
the 1997 Annual Meeting of Stockholders. At each Annual Meeting of
Stockholders after 1994, the successors to the class of directors
whose terms shall then expire shall be identified as being of the
same class of directors they succeed and shall be elected to hold
office for a term expiring at the third succeeding Annual Meeting
of Stockholders. When the number of directors is changed, any
newly-created directorships or any decrease in directorship shall
be so apportioned among the classes by the Board of Directors as to
make all classes as nearly equal in number as possible. Directors
need not be stockholders.
4. The foregoing Certificate of Amendment of the Certificate
of Incorporation has been duly approved by the Board of Directors.
5. The foregoing Certificate of Amendment of the Certificate
of Incorporation has been duly approved by written consent of the
majority of stockholders of the Company and written notice of such
consent was given to non-consenting stockholders in accordance with
Section 228(c) of the General Corporation Law of the State of
Delaware, all in accordance with the provisions of Section 242 of
the General Corporation Law of the State of Delaware.
6. The capital of the Company will not be reduced under, or
by reason of, the foregoing Amendments to the Certificate of
Incorporation of the Company.
We further declare under penalty of perjury under the laws of
the State of Delaware that the matters set forth in the foregoing
Certificate are true and correct to our knowledge.
IN WITNESS WHEREOF, this Certificate of Amendment is executed
by Albert L. Prillaman, President and Douglas I. Payne, Secretary,
this 30th day of June, 1993.
STANLEY FURNITURE COMPANY,INC.
By:s/Albert L. Prillaman
Name: Albert L. Prillaman
Title: President
By:s/Douglas I. Payne
Name: Douglas I. Payne
Title: Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
STANLEY FURNITURE COMPANY, INC.
ARTICLE 5
FINANCIAL DATA SCHEDULE
FOR PERIOD ENDING DECEMBER 31, 1994
</LEGEND>
<CIK> 0000797465
<NAME> STANLEY FURNITURE COMPANY, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 301
<SECURITIES> 0
<RECEIVABLES> 23,760
<ALLOWANCES> 933
<INVENTORY> 39,905
<CURRENT-ASSETS> 67,415
<PP&E> 64,827
<DEPRECIATION> 20,049
<TOTAL-ASSETS> 124,519
<CURRENT-LIABILITIES> 24,503
<BONDS> 0
<COMMON> 94
0
0
<OTHER-SE> 50,736
<TOTAL-LIABILITY-AND-EQUITY> 124,519
<SALES> 184,342
<TOTAL-REVENUES> 184,342
<CGS> 148,453
<TOTAL-COSTS> 148,453
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 195
<INTEREST-EXPENSE> 2,969
<INCOME-PRETAX> 8,372
<INCOME-TAX> 3,256
<INCOME-CONTINUING> 5,116
<DISCONTINUED> 2,758
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,358
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
