SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
STANLEY FURNITURE COMPANY, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
( ) $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
STANLEY FURNITURE COMPANY, INC.
ROUTE 57 WEST
STANLEYTOWN, VIRGINIA 24168
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 25, 1996
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Stanley Furniture Company, Inc. (the "Company") will be held at the Company's
showroom, International Home Furnishings Center, 1158 Commerce Building, High
Point, North Carolina, on Thursday, April 25, 1996, at 11:00 A.M., for the
following purposes:
(1) To elect one director to serve a three-year term on the
Company's Board of Directors;
(2) To ratify the selection of Coopers & Lybrand L.L.P. as
the independent public accountants for the Company for 1996; and
(3) To transact such other business as may properly be brought
before the meeting or any adjournment thereof.
The shareholders of record of the Company's common stock at the close
of business on February 29, 1996 are entitled to notice of and to vote at this
Annual Meeting or any adjournment thereof.
Even if you plan to attend the meeting in person, we request that you
mark, date, sign and return your proxy in the enclosed self-addressed envelope
as soon as possible so that your shares may be certain of being represented and
voted at the meeting. Any proxy given by a shareholder may be revoked by that
shareholder at any time prior to the voting of the proxy.
By Order of the Board of Directors,
Douglas I. Payne
Secretary
March 8, 1996
<PAGE>
STANLEY FURNITURE COMPANY, INC.
ROUTE 57 WEST
STANLEYTOWN, VIRGINIA 24168
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 25, 1996
The enclosed proxy is solicited by and on behalf of the Board of
Directors of Stanley Furniture Company, Inc. (the "Company") for use at the
Annual Meeting of Shareholders to be held on Thursday, April 25, 1996, at 11:00
A.M., at the Company's showroom, International Home Furnishings Center, 1158
Commerce Building, High Point, North Carolina, and any adjournment thereof. The
matters to be considered and acted upon at such meeting are described in the
foregoing notice of the meeting and this proxy statement. This proxy statement
and the related form of proxy are being mailed on or about March 8, 1996 to all
holders of record of the Company's common stock, $.02 par value (the "Common
Stock") on February 29, 1996. Shares of the Common Stock represented in person
or by proxy will be voted as hereinafter described or as otherwise specified by
the shareholder. Any proxy given by a shareholder may be revoked by the
shareholder at any time prior to the voting of the proxy by delivering a written
notice to the Secretary of the Company, by executing and delivering a
later-dated proxy or by attending the meeting and voting in person.
The cost of preparing, assembling and mailing the proxy, this proxy
statement, and other material enclosed, and all clerical and other expenses of
solicitations will be borne by the Company. In addition to the solicitation of
proxies by use of the mails, directors, officers and employees of the Company
may solicit proxies by telephone, telegram or personal interview. The Company
also will request brokerage houses and other custodians, nominees and
fiduciaries to forward soliciting material to the beneficial owners of Common
Stock held of record by such parties and will reimburse such parties for their
expenses in forwarding soliciting material.
VOTING RIGHTS
On February 29, 1996 there were 4,724,764 shares of Common Stock
outstanding and entitled to vote. Voting rights of the Common Stock are
noncumulative, so that holders of a majority of the outstanding shares
represented at the meeting can elect all of the directors to be elected at the
meeting. The ML-Lee Acquisition Fund, L.P., a Delaware limited partnership (the
"Lee Fund") owns approximately 57% of the outstanding Common Stock and can elect
the entire Board of Directors, and approve the other matters to be considered at
the Annual Meeting, without the vote of any other shareholder. See "Security
Ownership of Certain Beneficial Owners and Management."
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors of the Company presently consists of four
directors who are divided into three classes with staggered terms. The term of
Mr. C. Hunter Boll expires at the time of the 1996 Annual Meeting of
Shareholders. The Company proposes the reelection of Mr. Boll for a three-year
term expiring at the time of the 1999 Annual Meeting.
The shares represented by proxies will be voted as specified by the
shareholder. If the shareholder does not specify his choice, the shares will be
voted in favor of the election of the nominee listed on the proxy card, except
that in the event the nominee should not continue to be available for election,
such proxies will be voted for the election of such other person as the Board of
Directors may recommend. As of the date of this Proxy Statement, the Board of
Directors has no reason to believe that the nominee named below will be unable
or unwilling to serve.
NOMINEE FOR ELECTION FOR THREE-YEAR TERM ENDING 1999
C. Hunter Boll, 40, has been a Director of the Company since September
1988. Mr. Boll is a Managing Director of the Thomas H. Lee Company (the "Lee
Company"), a sole proprietorship engaged in acquiring or making controlling
investments in established operating companies. Mr. Boll is also Vice President
of Thomas H. Lee Advisors I, Inc., a Massachusetts business trust ("THL Advisors
I") which is responsible for the identification of investments made by the Lee
Fund. Mr. Boll is also a Vice President of T. H. Lee Mezzanine II ("Mezzanine
II"), which is the general partner of Thomas H. Lee Advisors II, L.P., a
Delaware limited partnership ("THL Advisors II"), which is responsible for the
identification of investments made by the ML-Lee Acquisition Fund II, L.P. and
the ML-Lee Acquisition Fund II (Retirement Accounts), L.P., both Delaware
limited partnerships (together the "Lee Fund II"). THL Advisors I and THL
Advisors II also perform managerial functions for the Lee Fund and Lee Fund II,
respectively, of the type usually carried out by an investment advisor to a
business development company. From 1984 to 1986, Mr. Boll was a consultant with
The Boston Consulting Group, which renders general business consulting services.
DIRECTORS WHOSE TERMS DO NOT EXPIRE THIS YEAR
David V. Harkins, 55, has been a Director of the Company since
September 1988. He is a Senior Managing Director of the Lee Company. Mr.
Harkins is also Senior Vice President and a Trustee of THL Advisors I. Mr.
Harkins is also Senior Vice President of Mezzanine II. Mr. Harkins is chairman
of National Dentex Corporation and also a director of First Alert, Inc. and
Petco Holding Corp. His present term will expire in 1997.
Albert L. Prillaman, 50, 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. Mr. Prillaman is a director of
Mainstreet Bankgroup Incorporated. His present term will expire in 1997.
2
<PAGE>
Edward J. Mack, 80, has been a Director of the Company since January
17, 1989. From 1948 to 1981 Mr. Mack served in various capacities with
Burlington Industries, Inc., including director and Executive Vice President
with responsibility for Burlington's furniture operations. He has been an
independent consultant, primarily with Burlington Industries, Inc., and
President of Global Business Services, LTD, an international trading company for
more than five years. His present term will expire in 1998.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Company has an Audit Committee, presently consisting of Messrs.
Harkins, Boll and Mack, which is charged with evaluating accounting and control
procedures and practices of the Company and reporting on such to the Board of
Directors. The Audit Committee also serves as direct liaison with the Company's
independent public accountants and recommends the selection or discharge of such
accountants. The Audit Committee met once in 1995.
The Company has a Compensation Committee, presently consisting of
Messrs. Harkins, Boll and Mack, which makes recommendations concerning salaries
and incentive compensation for officers and employees of the Company. The
Compensation Committee also administers the Company's 1992 and 1994 Stock Option
Plan and has authority to grant options under such plans to officers and key
employees, as designated by the Compensation Committee, and to determine the
terms of such options in accordance with such plans. The Compensation Committee
also administers the Company's Executive Loan Plan. The Compensation Committee
met four times during 1995.
The full Board of Directors met four times during 1995. Each incumbent
director, attended or acted upon at least 75% of the total 1995 board meetings
and committee meetings held during periods that he was a member of the Board or
such committees.
Mr. Mack receives compensation for serving as a Director at the rate of
$15,000 per year. None of the other directors receive any separate compensation
for serving in that capacity.
NOMINATIONS FOR DIRECTOR
The Company's Bylaws provide that a shareholder entitled to vote in the
election of directors may nominate one or more persons for election as a
director only if advance written notice is given. Written notice of such
shareholders' intent to make such nomination must be received by the Secretary
of the Company or deposited in the U.S. mail, postage prepaid, to the Secretary
of the Company not later than 120 days in advance of the anniversary date of the
Company's proxy statement for the previous year's Annual Meeting. Any
shareholder wishing to nominate one or more persons as director must submit the
following information in writing: (i) the name and address of the shareholder
who intends to make the nomination; (ii) a representation that the shareholder
is entitled to vote at such meeting and intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in the notice; (iii)
a description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which any nomination is to be made by the shareholder; (iv) such
other information regarding each nominee as would be required to be included in
a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission, had the nominee been nominated by the Board of Directors;
and (v) the consent of each
3
<PAGE>
proposed nominee to serve as a director of the Company if so elected. The
Chairman of the meeting may refuse to acknowledge the nomination of any person
not made in compliance with the foregoing procedure.
By requiring advance notice of shareholder nominations, this Bylaw
affords the Board of Directors the opportunity to consider the qualifications of
the proposed nominees and, to the extent deemed necessary or desirable by the
Board, to inform shareholders about such qualifications. The Bylaw does not give
the Board of Directors any power to approve or disapprove a shareholder's
nomination for election of directors. However, it may have the effect of
precluding a contest for the election if its procedures are not followed, and
therefore may discourage or deter a shareholder from conducting a solicitation
of proxies to elect his own slate of directors.
COMPLIANCE WITH EXCHANGE ACT FILING REQUIREMENTS
The Securities Exchange Act of 1934 requires the Company's executive
officers and directors, and any persons owning more than 10% of the Common
Stock, to file certain reports of ownership and changes in ownership with the
Securities and Exchange Commission. Based solely on its review of the copies of
the Forms 3, 4 and 5 received by it, and written representations from certain
reporting persons that no Forms 5 were required to be filed by those persons,
the Company believes that all executive officers, directors and 10% shareholders
complied with such filing requirements, except that (i) Joe G. Bost, who was
elected Vice President-Upholstery in April 1995, filed his Form 3 reporting
ownership of Common Stock in May 1995 and (ii) C. William Cubberley, Jr., Bobby
I. Hodges, Douglas I. Payne, William A. Sibbick and Joe G. Bost each reported in
March 1996 a stock option award granted in 1995 under the Company's 1994 Stock
Option Plan.
4
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth, for the years ended December 31, 1995,
1994 and 1993, the annual and long-term compensation for services in all
capacities to the Company of those persons who at December 31, 1995 were the
Company's Chief Executive Officer and the next four most highly compensated
executive officers of the Company whose salary and bonus exceeded $100,000 for
the year ended December 31, 1995 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Name and Annual Compensation Compensation
Principal
Position Other Annual Options All Other
Year Salary Bonus Compensation Granted Compensation(1)
<S> <C> <C> <C> <C> <C> <C>
ALBERT L. PRILLAMAN 1995 $310,000 $ 94,990 $169,646(2) -- $22,331
Chairman of the Board, 1994 310,000 190,558 110,887(2) 213,827 22,261
President and Chief Executive 1993 310,000 217,000 4,775 26,383 21,316
Officer........................
C. WILLIAM CUBBERLEY, JR. 1995 $195,000 $ 44,814 $ 1,426 15,000
Senior Vice President-Sales 1994 195,000 85,619 1,437 40,000
and Marketing.................. 1993 195,000 97,500 2,519 2,998
BOBBY I. HODGES 1995 $149,100 $ 19,151 $ 2,908 15,000
Senior Vice President- 1994 142,680 43,907 2,480 38,294
Manufacturing.................. 1993 134,004 50,000 3,622 3,729
DOUGLAS I. PAYNE 1995 $126,000 $ 13,406 $ 218 15,000
Vice President of Finance, 1994 120,000 30,735 257 22,115
Treasurer and Secretary........ 1993 112,008 30,000 374 1,228
WILLIAM A. SIBBICK 1995 $126,000 $ 13,406 $ 414 12,500
Vice President-Product 1994 110,004 30,735 359 17,500
Development and 1993 94,000 30,000 311
Merchandising..................
</TABLE>
- ------------
(1) All Other Compensation listed for Mr. Prillaman reflects premiums paid
by the Company in connection with the split-dollar life insurance
agreement maintained with Mr. Prillaman. The 1995 and 1994 amounts
also include premiums paid on a term life insurance policy for Mr.
Prillaman.
(2) Includes forgiveness of interest and principal, and payroll taxes paid
by the Company, with respect to the loan under the Executive Loan Plan
for Mr. Prillaman of $156,049 and $98,517 for 1995 and 1994,
respectively. See "Certain Relationships and Related Transactions".
5
<PAGE>
OPTION GRANT TABLE
The following table sets forth information concerning individual grants
of stock options made during the year ended December 31, 1995 to the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants For Option Term
% of Total
Options Granted Exercise
Options to Employees in Price per Expiration
Name Granted(1) Fiscal Year Share(1) Date 5% ($) 10% ($)
---- ---------- ----------- -------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Albert L. Prillaman........ -- -- -- -- -- --
C. William Cubberley, Jr... 15,000 8.8% $ 8.75 9/27/05 $82,500 $209,250
Bobby I. Hodges............ 15,000 8.8% $ 8.75 9/27/05 $82,500 $209,250
Douglas I. Payne........... 15,000 8.8% $ 8.75 9/27/95 $82,500 $209,250
William A. Sibbick......... 12,500 7.4% $ 8.75 9/27/05 $68,750 $174,375
</TABLE>
- ------------
(1) All grants vest and become exercisable to the extent of 20% of the
shares granted as of December 31 of each year from 1995 through 1999;
and, in the case of these named officers, March 28, 1996 unless the
participant dies or becomes disabled.
OPTION VALUE TABLE
The following table sets forth information concerning the year-end
number and value of unexercised options for each of the Named Executive
Officers.
1995 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Options Value of Unexercised In-the-Money
Name at Fiscal Year End (#) Options at Fiscal Year End ($)(1)
---- ------------------------------------ -----------------------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Albert L. Prillaman........... 111,913 128,297
C. William Cubberley, Jr...... 18, 998 39,000 At December 31, 1995, there were
Bobby I. Hodges............... 19,046 37,977 no In-the-Money Options.
Douglas I. Payne.............. 10,074 28,269
William A. Sibbick............ 7,503 23,000
- -----------
</TABLE>
(1) In-the-Money Options are those where the 1995 year-end fair market value
of the underlying shares of Common Stock (as determined by the closing
price on the Nasdaq National Market) exceeds the exercise price of the
option.
6
<PAGE>
EMPLOYMENT AGREEMENTS. Mr. Prillaman has an employment agreement with the
Company which provides that he has the duties of President, Chief Executive
Officer and Chairman of the Board of Directors of the Company at a base salary
of at least $275,000 per year, subject to annual upward adjustment by the Board.
Mr. Prillaman is also entitled to a graduated bonus amount up to a maximum of
70% (which has been increased to 80% for 1995 and 1996 by the Compensation
Committee) of his base salary in effect from time to time, contingent upon the
achievement of certain threshold profit objectives to be determined by the Board
at the beginning of each year. The agreement had an initial term ending December
31, 1993, and is automatically extended for an additional three year term
thereafter at the end of each year unless either party to the agreement gives
notice on or before December 31 of any year that the agreement will not be
extended. In the event of such notice, employment terminates as of December 31
of the year in which such notice is given and Mr. Prillaman is entitled to
severance pay during the two years following termination in an amount equal to
his base salary plus the average of bonuses paid for the three years preceding
the year in which notice of termination is given. Mr. Prillaman is entitled to
receive the total severance pay in a single payment in the event a change in
control (as defined in the agreement) occurs. Upon termination of the employment
agreement, the agreement provides that Mr. Prillaman will not compete with the
Company for the greater of two years or the remainder of the contract term.
In addition, the Company has entered into an employment agreement with C.
William Cubberley, Jr., Senior Vice President-Sales and Marketing of the
Company, on similar terms as discussed above with respect to Mr. Prillaman,
except that Mr. Cubberley serves as a Vice President, his base salary is at
least $170,000 and he is entitled to receive a graduated bonus amount up to a
maximum of 50% (which has been increased to 60% for 1995 and 1996 by the
Compensation Committee) of his base salary in effect from time to time.
In connection with the employment agreement with Mr. Prillaman, the
Company has entered into a split-dollar life insurance agreement under which the
Company has agreed to pay premiums with respect to a life insurance policy for
Mr. Prillaman until the cash surrender value of the policy and all paid up
additions are sufficient to repay the Company all premiums and other amounts
paid by it and to maintain the policy's death benefit at a level no less than
the policy's initial face amount without further premium payments. At such time,
Mr. Prillaman is obligated to repay such premiums to the Company. Mr. Prillaman
has executed a collateral assignment of his policy in favor of the Company to
secure repayment to the Company of the premiums paid on such policies. The
initial face amount of the policy for Mr. Prillaman is $1 million. During the
year ended December 31, 1995 the Company paid $21,316, in premiums for the
policy of Mr. Prillaman.
7
<PAGE>
DEFINED BENEFIT PENSION PLANS. The Company maintains a qualified defined
benefit pension plan for all its eligible employees, The Stanley Retirement Plan
(the "Stanley Retirement Plan"). The Company also maintains a nonqualified,
unfunded supplemental retirement plan (described below) for certain of its
employees.
The following table shows estimated annual benefits payable in the form of
a straight life annuity upon retirement to employees at the specified
remuneration and in various years of service classifications, assuming
retirement at age 65 on December 31, 1988 before reduction for social security
benefits. Internal Revenue Code Section 415 limits are not considered.
<TABLE>
<CAPTION>
Years of Credited Service
(as defined)
Average Annual
Compensation 10 15 20 25 30 35
------------ -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$125,000....... $ 18,750 $ 28,125 $ 37,500 $ 46,875 $ 56,250 $ 65,625
150,000....... 22,500 33,750 45,000 56,250 67,500 78,750
175,000....... 26,250 39,375 52,500 65,625 78,750 91,875
200,000....... 30,000 45,000 60,000 75,000 90,000 105,000
250,000....... 37,500 56,250 75,000 93,750 112,500 131,250
300,000....... 45,000 65,300 90,000 112,500 135,000 157,500
350,000....... 52,500 78,750 105,000 131,250 157,500 183,750
400,000....... 60,000 90,000 120,000 150,000 180,000 210,000
450,000....... 67,500 101,250 135,000 168,750 202,500 236,250
500,000....... 75,000 112,500 150,000 187,500 225,000 262,500
600,000....... 90,000 135,000 180,000 225,000 270,000 315,000
700,000....... 105,000 157,500 210,000 262,500 315,000 367,500
</TABLE>
Through 1988, the annual retirement benefit is the larger of (a) 1-1/2% of
a participant's Final Average Old Formula Earnings multiplied by the
participant's years of credited service (as defined) up to a maximum of 37
years, reduced by 2% of the annual primary Social Security benefit multiplied by
the years of credited service up to a maximum of 37 years and (b) $30 multiplied
by the years of credited service (the "Old Formula"). "Final Average Old Formula
Earnings" are the average earnings, excluding gifts and credit awards except as
otherwise determined by the administrative committee, deferred compensation
(other than amounts deferred by the participant in a 401(k) Plan), and special
payments authorized by the Company Board, for the five highest-paid years during
the preceding 10 years. Such remuneration is generally equal to the salary and
bonuses reported in the compensation table.
Effective in 1989, the annual retirement benefit is the sum of (a) 75/100
of 1% of Final Average Earnings during each year of service multiplied by years
of credited service up to a maximum of 37 years and (b) 1/2 of 1% of Final
Average Earnings during each year of service in excess of Covered Compensation
multiplied by years of credited service up to a maximum of 35 years (the "New
Formula"). Effective January 1, 1994, the maximum of 37 years was eliminated
from part (a) of the formula. "Final Average Earnings" are the average of the
calendar years of compensation paid excluding gifts and credit awards except as
otherwise determined by the administrative committee, deferred compensation
(other than amounts deferred by the participant in a 401 (k) Plan), and special
payments authorized by the Company Board, from January 1, 1987 through actual
retirement age, but not greater than the average of the final five calendar
years. Such remuneration is generally equal to the salary and bonuses reported
in the compensation table. "Covered Compensation" is the average of the social
security taxable wage bases for each calendar year during the thirty-five year
period ending with the last day of the calendar year in which a participant
attains his social security retirement age.
8
<PAGE>
Effective on December 31, 1995, future benefit accruals under the Stanley
Retirement Plan were curtailed.
The following table shows estimated annual benefits payable in the form of
a straight life annuity upon retirement to employees at the specified
remuneration and in various years of service classifications, assuming
retirement at age 65 on December 31, 1995 using the New Formula. Internal
Revenue Code Section 415 limits are not considered.
<TABLE>
<CAPTION>
Years of Credited Service
(as defined)
Average Annual
Compensation 10 15 20 25 30 35
------------ -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$125,000 ......... $14,329 $21,494 $28,658 $35,823 $42,987 $50,152
150,000......... 17,454 26,181 34,908 43,635 52,362 61,089
175,000......... 20,579 30,869 41,158 51,448 61,737 72,027
200,000......... 23,704 35,556 47,408 59,260 71,112 82,964
250,000......... 29,954 44,931 59,908 74,885 89,862 104,839
300,000......... 36,204 54,306 72,408 90,510 108,612 126,714
350,000......... 42,454 63,681 84,908 106,135 127,362 148,589
400,000......... 48,704 73,056 97,408 121,760 146,112 170,464
450,000......... 54,954 82,431 109,908 137,385 164,862 192,339
500,000......... 61,204 91,806 122,408 153,010 183,612 214,214
600,000......... 73,704 110,556 147,408 184,260 221,112 257,964
700,000......... 86,204 129,306 172,408 215,510 258,612 301,714
</TABLE>
The Supplemental Retirement Plan of the Company (the "Supplemental Plan")
covers 26 employees and former employees of the Stanley Furniture division. A
participant who retires under any provision of the Stanley Furniture Plan will
receive a supplemental retirement allowance equal to the excess, if any, of (a)
the amount of benefit the participant would have received under the Old Formula
over (b) the amount the participant received under the New Formula. The years of
credited service for Named Executive Officers as of February 28, 1996 are:
Albert L. Prillaman, 26 years; C. William Cubberley, Jr., 10 years; Bobby I.
Hodges, 28 years; and Douglas I. Payne, 12 years; William A. Sibbick, 6 years.
Effective on December 31, 1995, future benefit accruals under the Supplemental
Plan were curtailed.
9
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation:
Executive Compensation Philosophy
Under the supervision of the Committee, the Company has developed and
implemented executive compensation policies, plans, and programs which seek to
enhance the profitability and value of the Company. The primary objective is to
align closely the financial interests of the Company's executives with those of
its shareholders. The Committee believes that equity ownership by management is
beneficial in conforming management and shareholder interests in the enhancement
of shareholder value.
The Committee's philosophy is to integrate management pay with the
achievement of both annual and long-term financial performance goals. The
compensation package for each officer is designed to recognize individual
initiative and achievement. In establishing compensation, the Committee
incorporates a number of factors to promote both long and short-term performance
of the Company. These factors include earnings, market share growth, cost
control efforts, balance sheet strength and organizational developments. The
compensation for individual executives is based on both corporate and personal
goals, with varying weight being given to individual factors for particular
executives. The Committee does not make compensation comparisons with the
companies that are used for the performance graph that follows this report.
The Committee believes that the Company's overall executive compensation
package should enable the Company to obtain and retain the services of top
executives. The Company operates with a small team of top executives who are
given significant and extensive responsibilities. These executives' duties
encompass both overall strategic policy of the Company and direct, day-to-day
activity in sales, customer communications, product development, marketing,
manufacturing and other similar activities. The compensation package is intended
to reflect these broad responsibilities.
The compensation currently paid by the Company is not subject to certain
Internal Revenue Code provisions that may limit the income tax deductibility of
certain forms of compensation paid to its named executive officers in excess of
$1 million per year. These provisions allow full deductibility of certain types
of performance-based compensation. If these limitations should become applicable
to the Company in the future, the Committee will consider modifications to the
Company's compensation practices, to the extent practicable, to provide the
maximum deductibility for compensation payments.
The Company's compensation package for its executive officers consists of
base salary, annual performance-based incentive compensation, stock option
grants, supplemental retirement benefits and, for certain executive officers,
other benefits.
Base Salary
The Committee sets base salary at the minimum level deemed sufficient to
attract and retain qualified executives. By restricting the role of base salary
in the compensation package, more of an executive's compensation can be paid in
the form of incentives which encourage and reward performance. The base salaries
of individual executives are set in light of the responsibilities of the
position held and the experience of the individual, with a recognition of the
Company's requirements for the top executives to perform many varied tasks.
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<PAGE>
Annual Incentives
The Company's annual incentive compensation program, the Executive
Incentive Compensation Plan (the "Incentive Plan"), is for corporate officers
and key employees who can directly influence the Company's financial results.
The employees who participate in the Incentive Plan are selected at the
beginning of each fiscal year. Awards under the Incentive Plan are based on the
achievement of individual performance and corporate objectives which are
established annually in conjunction with adoption of the Company's budget for
the next fiscal year. At that time, the Committee sets corporate objectives for
the coming fiscal year. For 1995, the performance targets consisted of two
elements. The first element was the Company's earnings before interest and taxes
("EBIT"). The EBIT performance of the Company was 60% of the total target. If
the Company reached the EBIT target, 60% of the bonus was paid. No bonus is paid
if certain EBIT thresholds were not met. The second element representing 40% of
the bonus was a mixture of individual targets that reflect the responsibilities
of the individual employee. The targets were based on such factors as sales
growth, control of costs, quality performance measured by returns and
allowances, inventory management and organizational improvements. If the
objectives were not achieved, cash bonuses could be paid due to individual
achievements at the discretion of the Committee.
The Committee approved changes to the Incentive Plan for 1996 and future
years. Under the revised Incentive Plan, the only performance target is a EBIT
goal.
The performance targets for awards to participating employees under the
Incentive Plan are recommended by management of the Company subject to approval
by the Committee. An award is set at a percentage of either an employee's base
salary or his salary grade compensation midpoint for the fiscal year prior to
the year to which the award applies.
Long-Term Incentives
The Company maintains the Stanley Furniture Company, Inc. 1994 Stock
Option Plan and the Stanley Furniture Company, Inc. 1992 Stock Option Plan (the
"Option Plans") to provide employees with options to acquire Company stock. All
options under the Option Plans must be granted at an option exercise price of
100% of the stock's fair market value on the date of grant.
In 1995, option grants were made to officers and key employees under the
Option Plan. Most option grants were made to key employees below the level of
executive officer.
Other Compensation
The Company also has a Supplemental Retirement Plan covering designated
employees and former employees of the Company, including some executive
officers. See "Compensation of Executive Officers -Defined Benefit Pension
Plans." In addition, the Company has entered into a split-dollar insurance
agreement with Mr. Prillaman. See "Compensation of Executive Officers -
Employment Agreements." Mr. Prillaman also participates in a stock loan plan.
Chief Executive Officer Compensation
Mr. Prillaman has an employment agreement with the Company which was
primarily negotiated between Mr. Prillaman and the Company's majority
shareholder. See "Compensation of Executive Officers -- Employment Agreements."
For 1995, Mr. Prillaman's base salary was maintained at the same level as in
1994. Mr. Prillaman's base salary has not increased since 1993. Also, during
1995, Mr. Prillaman did not receive any additional stock option grants.
11
<PAGE>
A major portion of Mr. Prillaman's compensation is contingent on the
Company's performance. Under his employment contract, Mr. Prillaman is entitled
to a graduated bonus amount of his base salary in effect from time to time,
contingent upon the achievement of EBIT targets and individual goals established
by the Committee at the beginning of each year. Mr. Prillaman's potential bonus
for 1995 was increased to 80% of base salary from 70% for 1994. For 1995, Mr.
Prillaman received 38% of the allowable bonus.
Mr. Prillaman has received stock option awards under the Option Plans. Mr.
Prillaman has also received a Company loan to purchase Company stock. Pursuant
to these loans under the Executive Loan Plan, the accrued interest plus one
tenth of the principal amount is forgiven by the Company each December 31 if Mr.
Prillaman is still employed by the Company. The Committee believes that it is
important for Mr. Prillaman as CEO to have a meaningful stock interest in the
Company to create additional incentives to maximize shareholder value. Mr.
Prillaman also participates in the Supplemental Retirement Plan and has
split-dollar insurance pursuant to the terms of his employment contract.
The members of the Compensation Committee are:
David V. Harkins
C. Hunter Boll
Edward J. Mack
12
<PAGE>
PERFORMANCE GRAPH
The following graph compares cumulative total shareholder return for the
Company with a broad performance indicator, the Nasdaq Non-Financial Stock
Index, and an industry index, the Wood Household Furniture Index, for the period
from November 10, 1992 to December 31, 1995. The Common Stock began trading on
the Nasdaq Small-Cap Market on November 10, 1992. In conjunction with a public
offering, the Common Stock began trading on the Nasdaq National Market on July
1, 1993. In the graph below, the Company's data points for November 10, 1992 and
December 31, 1992 represent the average of the bid and ask prices for such days.
The Company's data point for June 30, 1993 reflects the public offering price of
$8.50 per share. The Company's data points for December 31, 1993, June 30, 1994,
December 31, 1994, June 30, 1995 and December 31, 1995 reflect that day's
closing price of the Common Stock on the Nasdaq National Market.
[insert graph here]
<TABLE>
<CAPTION>
11/10/92 12/31/92 6/30/93 12/31/93 6/30/94 12/31/94 6/30/95 12/31/05
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stanley Furniture 100.00 100.00 94.44 148.61 138.89 111.11 84.72 88.89
Wood Household Furniture Index (2) 100.00 120.07 125.29 153.70 120.32 106.82 114.69 133.68
NASDAQ Non-financial Stock Index (3) 100.00 107.13 111.34 123.69 108.59 118.54 147.40 162.99
</TABLE>
(1) The graph shows the cumulative total return on $100 invested on November
10, 1992 in Common Stock or specified index - including reinvestment of
dividends.
(2) SIC Code 2511 Wood household Furniture Index as prepared by Media General
Financial Services, Inc. ("Media General"). At February 12, 1996, Media
General reported that SIC Code 2511 consisted of: Ameriwood Industries
International Corp., Bassett Furniture Industries, Inc., Bush Industries
Inc., Chromcraft Revington Inc., DMI Furniture, Inc., Ethan Allen
Interiors, Interco Incorporated, Ladd Furniture Inc., Masco Corp.,
O'Sullivan Industrial Holdings, Inc., Pulaski Furniture Corp., Stanley
Furniture Company, Inc. and Wellington Hall, Ltd.
(3) Nasdaq Non-Financial Stock Index prepared for the Nasdaq Stock Market by
the Center for Research in Securities Prices at the University of Chicago.
13
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a party to a Management Agreement, pursuant to which the
Company's predecessors engaged the Lee Company for the purposes of providing
them with substantial consulting services and management advisory services.
These services have been and will be in the field of financial and strategic
corporate planning and such other management areas as the parties mutually
agree. These services have included advice concerning strategic corporate
planning, potential acquisitions and financial planning. The term of this
Agreement began on September 29, 1988 and will expire on September 30, 1998. In
consideration for the services provided by the Lee Company under the Management
Agreement, the Company pays the Lee Company $250,000 annually. Management did
not obtain bids from third parties for similar services before the Company
entered into the Management Agreement.
On December 2, 1994, the Compensation Committee awarded Albert L.
Prillaman a loan to acquire 50,000 shares under the Company's Executive Loan
Plan, and Mr. Prillaman delivered a non-recourse promissory note payable to the
Company. The promissory note bears interest at the rate of 7.6% per annum. One
tenth of the principal amount plus accrued interest is due each December 31
until 1998 and the remaining principal is due January 2, 1999. Pursuant to this
loan under the Executive Loan Plan, the accrued interest plus one tenth of the
initial principal amount will be forgiven by the Company each December 31 if Mr.
Prillaman is still employed by the Company. The principal amount outstanding
under the note delivered by Mr. Prillaman was $450,000 on January 1, 1995 and
$400,000 on February 29, 1996. Upon a "change of control" (as defined in the
Executive Loan Plan) the entire principal amount plus accrued interest is
forgiven. The Company has agreed to reimburse Mr. Prillaman for income taxes
payable as a result of the forgiveness of interest and principal on the loan
amount.
14
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of February 29, 1996, by
each shareholder known by the Company to be the beneficial owner of more than 5%
of its outstanding Common Stock, by each director, by each of the Named
Executive Officers and by all directors and executive officers as a group:
<TABLE>
<CAPTION>
Amount and Nature Percent of
Name of Beneficial Ownership Class
<S> <C> <C>
ML-Lee Acquisition Fund, L.P.(a)........................... 2,675,552(b) 56.6%
Brinson Partners, Inc. (c)................................. 479,545(c) 10.1%
Piedmont Capital Management Corporation(d)................. 238,200 5.0%
Albert L. Prillaman(e)..................................... 220,810(f) 4.5%
Bobby I. Hodges(e)......................................... 33,257(g) (h)
C. William Cubberley, Jr.(e)............................... 26,511(i) (h)
Douglas I. Payne(e)........................................ 13,939(j) (h)
William A. Sibbick(e)...................................... 10,003(l) (h)
David V. Harkins(k)........................................ 2,581(b)(m) (h)
C. Hunter Boll(k).......................................... 1,548(b)(n) (h)
Edward J. Mack(e).......................................... 1,162 (h)
All directors and executive officers
as a group (9 persons).................................. 316,837(b)(o) 6.4%
</TABLE>
- ------------------------
(a) The business address for such beneficial owner is c/o Merrill Lynch
Investment Banking Group, World Financial Center, South Tower, New
York, New York 10080-6123.
(b) In addition, the Lee Fund II owns an aggregate of 41,616 shares (0.88%)
of the Common Stock. Each of THL Advisors I (with respect to the Lee
Fund), THL Advisors II (with respect to the Lee Fund II), Thomas H.
Lee, as Trustee of THL Advisors I and THL Advisors II and an individual
general partner of the Lee Fund and the Lee Fund II, David V. Harkins,
as Senior Vice President and Trustee of THL Advisors I and Senior Vice
President of Mezzanine II, and C. Hunter Boll, as Vice President of THL
Advisors I and Mezzanine II, may be deemed to be beneficial owners of
the 2,675,552 and 41,616 shares held by the Lee Fund and the Lee Fund
II, respectively. Each of THL Advisors I, THL Advisors II, Mr. Lee,
Mr. Harkins and Mr. Boll disclaim beneficial ownership of such shares.
Thomas H. Lee is also the sole beneficiary of the 1989 Thomas H. Lee
Nominee Trust (the "Trust") which holds 30,409 (0.64%) shares of the
Common Stock.
(c) The information with respect to Brinson Partners, Inc. ("BPI") is based
upon the Schedule 13G dated February 9, 1996 filed by BPI together with
Brinson Trust Company ("BTC"), Brinson Holdings, Inc. ("BHI"), SBC
Holding (USA), Inc. ("SBCUSA") and Swiss Bank Corporation ("SBC"). The
Schedule 13G indicates that BPI, BHI, SBCUSA and SBC share voting and
dispositive power with respect to the reported shares and that BTC, a
wholly-owned subsidiary of BPI, shares voting and dispositive power
with respect to 127,309 of such shares. BPI is a wholly-owned
subsidiary of BHI. BHI is a wholly-owned subsidiary of SBCUSA, which
is a wholly-owned subsidiary of SBC. The business principal address of
BPI, BTC and BHI is 209 South LaSalle, Chicago, Illinois 60604. The
principal business address of SBCUSA is 222 Broadway, New York, New
York 10038. The principal business address of SBC is Aeschenplatz
6CH-4002, Basel, Switzerland.
(d) The information with respect to Piedmont Capital Management Corporation
("Piedmont") is based upon the Schedule 13G dated January 22, 1996
filed by Piedmont, whose principal business address is One James
Center, Suite 1400, Richmond, Virginia 23219.
(e) The business address for such persons is c/o Stanley Furniture Company,
Inc., Route 57 West, Stanleytown, Virginia 24168.
(f) Includes 161,913 shares which could be acquired through exercise of
stock options and pursuant to Executive Loan Plan.
(g) Includes 22,046 shares which could be acquired through exercise of
stock options.
15
<PAGE>
(h) Less than 1%.
(i) Includes 21,998 shares which could be acquired through exercise of
stock options.
(j) Includes 13,074 shares which could be acquired through exercise of
stock options.
(k) The business address for such persons is c/o Thomas H. Lee Company, 75
State Street, Boston, Massachusetts 02109.
(l) Represents 10,003 shares which could be acquired through exercise of
stock options.
(m) Includes 1,290 shares Mr. Harkins may receive in respect of shares of
Common Stock he presently has a right to purchase from the Trust.
(n) Includes 774 shares Mr. Boll may receive in respect of shares of Common
Stock he presently has a right to purchase from the Trust.
(o) Includes 234,660 shares which could be acquired through exercise of
stock options and pursuant to Executive Loan Plan and includes 1,400
held by a pension fund for the benefit of an executive officer,
beneficial ownership of which is disclaimed by such officer.
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors selected the firm of Coopers & Lybrand L.L.P. as
independent public accountants for the Company for 1996, subject to ratification
by the shareholders. Action by shareholders is not required by law in the
selection of independent public accountants, but their selection is submitted by
the Board in order to give the shareholders an opportunity to ratify the Board's
selection. If the shareholders do not ratify the selection of Coopers & Lybrand
L.L.P., the Board of Directors will reconsider the selection of independent
public accountants. Unless otherwise specified, shares represented by proxies
will be voted for the ratification of the selection of Coopers & Lybrand L.L.P.,
as independent public accountants for 1996.
Representatives of Coopers & Lybrand L.L.P. are expected to be present
at the Annual Meeting. Such representatives will have the opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions.
OTHER BUSINESS
Management knows of no other business which will be presented for
consideration at the Annual Meeting, but should any other matters be brought
before the meeting, it is intended that the persons named in the accompanying
proxy will vote such proxy at their discretion.
ADDITIONAL INFORMATION
VOTING PROCEDURES. Votes will be tabulated by one or more Inspectors of
Elections. Except for the election of directors, approval of the matters to be
considered at the meeting will require the affirmative vote of the holders of at
least a majority of the shares of outstanding Common Stock represented at the
meeting, unless otherwise indicated. If a shareholder, present in person or by
proxy, abstains on any matter, the shareholder's shares will not be voted on
such matter. Thus an abstention from voting on a matter has the same legal
effect as a vote "against" the matter, even though the shareholder may interpret
such action differently. With respect to the election of directors, the nominee
receiving the greatest number of votes cast for the election of directors will
be elected.
16
<PAGE>
A majority of the shares entitled to vote, represented in person or by
proxy, will constitute a quorum for the transaction of business at the meeting.
Shares for which the holder has elected to abstain or to withhold the proxies'
authority to vote on a matter will count toward a quorum. "Broker non-votes"
will not count toward a quorum and will not be voted on any matter to be
considered at the meeting.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING. Any shareholder desiring
to present a proposal to the shareholders at the 1997 Annual Meeting and who
desires that such proposal be included in the Company's proxy statement and
proxy card relating to that meeting, must transmit such to the Secretary of the
Company so that it is received at the Company's principal executive offices on
or before November 8, 1996. All such proposals should be in compliance with
applicable Securities and Exchange Commission regulations.
By Order of the Board of Directors,
Douglas I. Payne
Secretary
March 8, 1996
17
<PAGE>
REVOCABLE PROXY
STANLEY FURNITURE COMPANY, INC.
Annual Meeting of Shareholders - April 25, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Douglas I. Payne and David W. Robertson
and either of them, proxies of the undersigned, with full power of substitution,
to vote all the shares of Common Stock of Stanley Furniture Company, Inc. (the
"Company") held of record by the undersigned on February 29, 1996, at the Annual
Meeting of Shareholders to be held April 25, 1996, and at any adjournment
thereof.
(1) ELECTION OF DIRECTORS
( ) FOR nominee listed below ( ) WITHHOLD AUTHORITY to vote for nominee
listed below
NOMINEE: C. Hunter Boll
(2) Ratification of the selection of Coopers & Lybrand L.L.P. as independent
public accountants of the Company for 1996.
( ) FOR ( ) AGAINST ( ) ABSTAIN
(3) In their discretion the proxies are authorized to vote upon such other
matters as may come before the meeting or any adjournment thereof.
All as more particularly described in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on April 25, 1996, receipt of which is
hereby acknowledged.
(Continued and to be dated and signed on reverse side)
<PAGE>
(continued from reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED BY THE
UNDERSIGNED SHAREHOLDER. IF NO CHOICE IS SPECIFIED BY THE SHAREHOLDER, THIS
PROXY WILL BE VOTED "FOR" ALL PORTIONS OF ITEMS (1) AND (2), AND IN THE PROXIES'
DISCRETION ON ANY OTHER MATTERS COMING BEFORE THE MEETING.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
upon or act with respect to such stock and hereby ratifies and confirms all that
said proxies, their substitutes or any of them may lawfully do by virtue hereof.
Please date this Proxy Card and sign
your name exactly as it appears hereon.
Where there is more than one owner,
each should sign. When signing as
an attorney, administrator, executor,
guardian or trustee, please add your
title as such. If executed by a
corporation, this Proxy Card should be
signed by a duly authorized officer. If
executed by a partnership, please sign
in partnership name by authorized
persons.
Dated ___________________________, 1996.
---------------------------------------
---------------------------------------
Please promptly mark, sign, and mail
this Proxy Card in the enclosed
envelope. No postage is required.
