<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 29, 1996 or
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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 No.)
Route 57, Stanleytown, Virginia 24168
(Address of principal executive offices, Zip Code)
(540) 627-2000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal
year, if changed since last report)
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 the number of shares outstanding of each of the issuer's
classes of common stock as of October 15, 1996.
Class Number
Common Stock, par value $.02 per share 4,729,042 Shares
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
(Unaudited)
September 29, December 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash................................ $ 3,705 $ 298
Accounts receivable, less allowances of
$1,961 and $1,157, respectively... 28,173 22,732
Inventories:
Finished goods.................... 21,527 22,391
Work-in-process................... 5,756 5,368
Raw materials..................... 11,522 12,408
38,805 40,167
Prepaid expenses and other current assets 415 435
Deferred income taxes............... 2,615 2,420
Total current assets............ 73,713 66,052
Property, plant and equipment, at cost. 80,054 78,399
Less accumulated depreciation........ 26,946 24,168
53,108 54,231
Goodwill, less accumulated amortization
$2,604 and $2,352.................... 10,836 11,088
Other assets........................... 3,975 3,180
$141,632 $134,551
LIABILITIES
Current liabilities:
Current maturities of long-term debt. $ 725 $ 650
Accounts payable..................... 14,176 13,637
Accrued salaries, wages and benefits. 8,802 6,619
Other accrued expenses............... 3,189 2,724
Total current liabilities.......... 26,892 23,630
Long-term debt, exclusive of current
maturities........................... 38,778 40,417
Deferred income taxes.................. 12,650 12,180
Other long-term liabilities............ 2,402 3,585
Total liabilities.................... 80,722 79,812
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000
shares authorized, 4,729,042 shares
issued and outstanding............... 94 94
Capital in excess of par value......... 64,571 64,547
Deficit................................ (3,755) (9,902)
Total stockholders' equity........... 60,910 54,739
$141,632 $134,551
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE>
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
Three Months Nine Months
Ended Ended
September October September October
29, 1996 1, 1995 29, 1996 1, 1995
<S> <C> <C> <C> <C>
Net sales.................. $52,550 $44,706 $148,023 $127,858
Cost of sales.............. 39,772 35,611 113,389 101,612
Gross profit........... 12,778 9,095 34,634 26,246
Selling, general and
administratie expenses... 7,619 6,347 21,973 19,402
Unusual items, net......... (136)
Operating income....... 5,159 2,748 12,661 6,980
Other expense, net......... 90 109 485 306
Interest expense........... 852 1,028 2,569 2,622
Income from continuing operations
before income taxes.... 4,217 1,611 9,607 4,052
Income tax provision....... 1,602 613 3,706 1,541
Income from continuing
operations............. 2,615 998 5,901 2,511
Gain from discontinued
operations, net of taxes. 246 246
Net income................. $ 2,861 $ 998 $ 6,147 $ 2,511
Primary earnings per share:
Continuing operations.... $ .53 $ .21 $ 1.22 $ .53
Discontinued operations.. .05 .05
Net income............ $ .58 $ .21 $ 1.27 $ .53
Weighted average number of
shares................... 4,954 4,728 4,848 4,728
Fully diluted earnings per share:
Continuing operations.... $ .52 $ .21 $ 1.17 $ .53
Discontinued operations.. .05 .05
Net income............ $ .57 $ .21 $ 1.22 $ .53
Weighted average number of
shares................... 5,051 4,728 5,052 4,728
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE>
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
Nine Months Ended
September October
29, 1996 1, 1995
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers......... $141,887 $126,394
Cash paid to suppliers and employees. (127,917) (122,447)
Interest paid........................ (3,169) (3,019)
Income taxes paid, net............... (3,409) (932)
Net cash provided (used) by
operating activities............. 7,392 (4)
Cash flows from investing activities:
Capital expenditures................. (2,706) (12,932)
Purchase of other assets............. (181) (399)
Proceeds from sale of assets......... 12 25
Net cash used by investing
activities....................... (2,875) (13,306)
Cash flows from financing activities:
Issuance of senior notes............. 10,000
(Repayment of) proceeds from revolving
credit facility, net............... (914) 2,897
Repayment of senior note............. (650)
Proceeds from insurance policy loans. 430 385
Proceeds from exercise of stock
options............................ 24
Net cash (used) provided by financing
activities....................... (1,110) 13,282
Net increase (decrease) in cash...... 3,407 (28)
Cash at beginning of year............ 298 301
Cash at end of quarter............... $ 3,705 $ 273
Supplemental cash flow information:
Net income........................... $ 6,147 $ 2,511
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization.... 3,865 3,529
Loss on sale of assets........... 265 44
Other............................ (246) (30)
Changes in assets and liabilities:
Accounts receivable............ (5,441) (1,501)
Inventories.................... 1,362 (1,778)
Prepaid expenses and other
current assets............... (1,101) (265)
Accounts payable............... 539 (3,196)
Accrued salaries, wages and
benefits..................... 2,183 1,458
Other accrued expenses......... 41 356
Deferred income taxes.......... 114 (193)
Other assets................... (69) (54)
Other long-term liabilities.... (267) (885)
Net cash provided (used) by operating
activities......................... $ 7,392 $ (4)
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Preparation of Interim Financial Statements
The financial statements of Stanley Furniture Company, Inc.
(referred to as "Stanley" or the "Company") have been prepared in
accordance with the rules and regulations of the Securities and
Exchange Commission ("SEC"). In the opinion of management, these
statements include all adjustments necessary for a fair
presentation of the results of all interim periods reported herein.
All such adjustments are of a normal recurring nature. Certain
information and footnote disclosures prepared in accordance with
generally accepted accounting principles have been either condensed
or omitted pursuant to SEC rules and regulations. However,
management believes that the disclosures made are adequate for a
fair presentation of results of operations and financial position.
It is suggested that these financial statements be read in
conjunction with the financial statements and accompanying notes
included in Stanley's latest annual report on Form 10-K.
2. Property, Plant and Equipment
(Unaudited)
September 29, December 31,
1996 1995
(In thousands)
<TABLE>
<S> <C> <C>
Land and buildings............. $33,643 $33,594
Machinery and equipment........ 44,424 43,127
Leasehold improvements......... 153 153
Furniture, fixtures and office
equipment.................... 1,382 1,387
Construction in progress....... 452 138
$80,054 $78,399
3. Long-Term Debt
(Unaudited)
September 29, December 31,
1996 1995
(In thousands)
7.28% senior notes due March
15, 2004..................... $30,000 $30,000
7.57% senior note due June 30,
2005......................... 9,350 10,000
Revolving credit facility...... 914
7% convertible subordinated
debentures due April 1, 2012. 153 153
Total 39,503 41,067
Less current maturities........ 725 650
$38,778 $40,417
</TABLE>
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data)
4. Discontinued Operations
On July 1, 1996, the Company was released from a lease obligation
resulting from the purchase and concurrent resale of certain
facilities at its former Norman's of Salisbury division. This
obligation was accrued as part of the 1994 charge to discontinued
operations in connection with the liquidation of Norman's.
Accordingly, in the third quarter of 1996, the Company recorded an
after tax gain of $246,000, or $.05 per share, as a partial
reversal of this accrual.
5. New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires a
fair value based method of accounting for stock based compensation,
and provides an option to the Company to either recognize
compensation expense for employee stock based compensation or to
provide proforma earnings information as if such compensation cost
had been recognized. The Company has not determined which election
it will make under SFAS 123, nor the various assumptions that will
be used in the fair value calculations. Under either method the
effect on net income for the nine-month period ended September 29,
1996 is not material, since options to purchase only 7,500 shares
were granted during the period.
6. Subsequent Event
On October 15, 1996, the Company filed a registration statement
with the SEC for a public offering of its common stock held by a
major stockholder. In connection with this offering, the Company
has agreed to acquire from the selling stockholders any share of
common stock not acquired at the price offered to the public, net
of an amount equal to the underwriting discount that otherwise
would have been paid in respect of such shares of common stock.
Assuming an offering price of $19.25 and an underwriting discount
of 5.5%,
and that the Underwriters' overallotment option is not exercised,
the Company
will acquire 358,902 shares of common stock from the selling
stockholders for
an aggregate consideration of $6,528,876, which the Company will
fund from
available cash and, if necessary, borrowings under its revolving
credit
facility. The following pro forma information assumes that the
repurchase of
common stock is financed entirely by borrowings under the revolving
credit
facility at an assumed interest rate of 7%. The pro forma effects
on the
Company's financial position assume that the stock was repurchased
as of
September 29, 1996. The pro forma effects on the Company's
operating results
for the year ended December 31, 1995 and the nine-months ended
September 29,
1996 assume that the stock was repurchased at the beginning of the
respective
twelve- and nine-month periods.
As Reported Pro Forma
(In thousands, except per
share data)
<TABLE>
<S> <C> <C>
Financial position at September 29, 1996:
Long-term debt including current
maturities........................... $39,503 $46,032
Stockholders' equity................... 60,910 54,381
Operating results, year ended December
31, 1995:
Interest expense....................... 3,534 3,991
Net income............................. 3,889 3,608
Income from continuing operations per
common share - primary............... $ .82 $ .83
Income from continuing operations per
common share - fully diluted......... $ .82 $ .83
Operating results, nine months ended
September 29, 1996:
Interest expense....................... 2,569 2,912
Net income............................. 6,147 5,937
Income from continuing operations per
common share - primary............... $ 1.22 $ 1.27
Income from continuing operations per
common share - fully diluted......... $ 1.17 $ 1.21
</TABLE>
The pro forma information does not include offering expenses of
approximately $300,000 payable by the Company, which will be
incurred in the fourth quarter of 1996.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net sales increased $7.8 million, or 17.5%, for the three-month
period ended September 29, 1996 from the comparable 1995 period.
For the nine-month period, net sales increased $20.2 million, or
15.8%, from the comparable 1995 period. The increases were due
principally to higher unit volume and to a lesser extent higher
average selling prices.
Gross profit margin for the three- and nine-month periods of 1996
increased to 24.3% and 23.4%, respectively, from 20.3% and 20.5%
for the comparable 1995 periods. The higher gross profit margin
was due primarily to stabilizing raw material costs, improved
operating efficiencies and the leveraging of fixed costs due to
increased production levels.
Selling, general and administrative expenses increased for the 1996
periods due to (i) higher selling cost resulting from increased
sales and increased merchandising expenses, (ii) increased
compensation expense pursuant to the Company's incentive
compensation plan for key employees, and (iii) increased provision
for bad debts. For the three-month period, these expenses as a
percentage of net sales increased to 14.5% from 14.2% for the
comparable 1995 period. For the nine-month period, these expenses
as a percentage of net sales decreased to 14.8% from 15.2% for the
comparable 1995 period, due principally to higher net sales.
During the second quarter of 1995, the Company recognized an
unusual item consisting of the net effect of, (i) an accrual
reversal as a result of being released from a lease obligation at
its previously closed Waynesboro, Virginia facility and (ii) a
charge for severance resulting from the resignation of the
Company's former chief operating officer.
As a result of the above, operating income for the three- and nine-
month periods of 1996 increased to $5.2 million, or 9.8% of net
sales, and $12.7 million, or 8.6% of net sales, respectively, from
$2.7 million, or 6.1% of net sales, and $7.0 million, or 5.5% of
net sales, for the comparable 1995 periods.
Interest expense for both the three- and nine-month periods of 1996
decreased due to lower debt levels.
The Company's effective income tax rate was 38.6% and 38.0% for the
nine-month periods of 1996 and 1995, respectively.
<PAGE>
Financial Condition, Liquidity and Capital Resources
At September 29, 1996, long-term debt was $38.8 million, and
approximately $23.0 million of additional borrowing capacity was
available under the revolving credit facility. Annual debt service
requirements are $878,000 in 1997, $5.1 million in both 1998 and
1999 and $5.2 million in both 2000 and 2001. The Company expects
capital expenditures for the next twelve months to range from $4
million to $5 million. The Company believes that its financial
resources are adequate to support its capital needs and debt
service requirements.
The Company generated cash from operations of $7.4 million in the
1996 nine-month period principally as a result of higher sales.
The Company used $4.0 million of the cash generated in the 1996
nine-month period primarily to fund capital expenditures and reduce
borrowings. Cash provided from the Company's operations during the
1995 nine-month period was used substantially to fund its operating
activities for that period. For the 1995 nine-month period,
compared to the prior year period, cash was required for higher
interest payments offet by lower tax payments and less cash paid to
suppliers and employees due to reduced inventory levels.
Net cash used by investing activities was $2.9 million in the 1996
nine-month period compared to $13.3 million in the 1995 nine-month
period. In the 1995 nine-month period, proceeds from the issuance
of senior notes and additional borrowings from the revolving credit
facility were used to purchase two previously leased plant
facilities for $10.5 million. The 1996 expenditures and the
remaining expenditures for 1995 were primarily for plant and
equipment and other assets in the normal course of business.
Net cash used by financing activities was $1.1 million in the 1996
nine-month period compared to cash provided by financing activities
of $13.3 million in the 1995 nine-month period. The 1995
borrowings provided cash for the purchase of the two previously
leased plant facilities and other capital expenditures.
Discontinued Operations
On July 1, 1996, the Company was released from a lease obligation
resulting from the purchase and concurrent resale of certain
facilities at its former Norman's of Salisbury division. This
obligation was accrued as part of the 1994 charge to discontinued
operations in connection with the liquidation of Norman's.
Accordingly, in the third quarter, the Company recorded an after
tax gain of $246,000, or $.05 per share, as a partial reversal of
this accrual.
<PAGE>
New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires a
fair value based method of accounting for stock based compensation,
and provides an option to the Company either to recognize
compensation expense for employee stock based compensation or to
provide pro forma earnings information as if such compensation cost
had been recognized. The Company has not determined which election
it will make under SFAS 123, nor the various assumptions that will
be used in the fair value calculations. Under either method the
effect on net income for the nine-month period ended September 29,
1996 is not material, since options to purchase only 7,500 shares
were granted during the period.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 4.1 Letter Amendment dated October 14, 1996
to Note Agreements dated February 15,
1994 and June 29, 1995 between the
Company and The Prudential Insurance
Company of America.*
Exhibit 10.1 Assignment and Transfer Agreement dated
as of October 8, 1996 between National
Canada Finance Corp., a Delaware
corporation ("NCFC") and National Bank
of Canada, a Canadian chartered bank
("NBC") relating to the Second Amended
and Restated Revolving Credit Facility
dated as of February 15, 1995 (the
"Second Amended and Restated Revolving
Credit Facility") among the Company,
NCFC and NBC.*
Exhibit 10.2 Second Amendment dated as of October 14,
1996 between the Company and National
Bank of Canada to Second Amended and
Restated Revolving Credit Facility.*
Exhibit 10.3 Amendment No. 1, dated as of November 1,
1996, between the Company and the Thomas
H. Lee Company to the Management
Agreement dated September 29, 1988 among
the Company's predecessors and the
Thomas H. Lee Company.*
Exhibit 10.4 Amendment No. 1 dated as of October 1,
1996 to Employment Agreement dated as of
January 1, 1991 between the Company and
Albert L. Prillaman.*
Exhibit 11. Schedule of Computation of Earnings Per
Share.*
Exhibit 27. Financial Data Schedule.*
(b) Reports on Form 8-K
None.
* Filed herewith. <PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
STANLEY FURNITURE COMPANY, INC.
Date: November 7, 1996 By: /s/ Douglas I. Payne
Douglas I. Payne
Vice President of Finance,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
<PAGE>
Exhibit 11
STANLEY FURNITURE COMPANY, INC.
SCHEDULE OF COMPUTATION OF NET INCOME PER COMMON SHARE
(Unaudited)
(In thousands, except per share data)
<TABLE>
Three Months Ended Nine Months Ended
September October September October
29, 1996 1, 1995 29, 1996 1, 1995
Earnings used in calculating
primary and fully diluted earnings
(loss) per common share:
<S> <C> <C> <C> <C>
Income from continuing operations.. $2,615 $ 998 $5,901 $2,511
Gain from discontinued operations... 246 246
Net income used in calculating
primary and fully diluted
earnings per common share........ $2,861 $ 998 $6,147 $2,511
Primary earnings (loss) per common
share:
Weighted average shares outstanding
during the period................ 4,728 4,727 4,727 4,727
Add shares issuable assuming
exercise of stock options........ 226 1 121 1
Weighted average number of shares
used in calculating primary
earnings per common share........ 4,954 4,728 4,848 4,728
Income from continuing operations.. $ .53 $ .21 $ 1.22 $ .53
Gain from discontinued operations.. .05 .05
Net income......................... $ .58 $ .21 $ 1.27 $ .53
Fully diluted earnings (loss) per
common share:
Weighted average shares outstanding
during the period................ 4,728 4,727 4,727 4,727
Add shares issuable assuming
exercise of stock options......... 323 1 325 1
Weighted average number of shares
used in calculating fully diluted
earnings per common share..........5,051 4,728 5,052 4,728
Income from continuing operations...$ .52 $ .21 $ 1.17 $ .53
Gain from discontinued operations... .05 .05
Net income..........................$ .57 $ .21 $ 1.22 $ .53
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
STANLEY FURNITURE COMPANY, INC.
ARTICLE 5
FINANCIAL DATA SCHEDULE
FOR PERIOD ENDING SEPTEMBER 29, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-09-1996
<CASH> 3705
<SECURITIES> 0
<RECEIVABLES> 30134
<ALLOWANCES> 1961
<INVENTORY> 38805
<CURRENT-ASSETS> 73713
<PP&E> 53108
<DEPRECIATION> 2706
<TOTAL-ASSETS> 141632
<CURRENT-LIABILITIES> 26892
<BONDS> 0
<COMMON> 94
0
0
<OTHER-SE> 60910
<TOTAL-LIABILITY-AND-EQUITY> 141632
<SALES> 148023
<TOTAL-REVENUES> 148023
<CGS> 113389
<TOTAL-COSTS> 135362
<OTHER-EXPENSES> 485
<LOSS-PROVISION> 768
<INTEREST-EXPENSE> 2569
<INCOME-PRETAX> 9607
<INCOME-TAX> 3706
<INCOME-CONTINUING> 5901
<DISCONTINUED> 246
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6147
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.22
</TABLE>
<PAGE>
ASSIGNMENT AND TRANSFER AGREEMENT
FORM OF
ASSIGNMENT AND TRANSFER AGREEMENT
ASSIGNMENT AND TRANSFER AGREEMENT dated as of October 8, 1996
between National Canada Finance Corp., with offices at Two First
Union Center, Suite 2020, Charlotte, NC 28282 (the "Assignor") and
National Bank of Canada, (the "Assignee").
PRELIMINARY STATEMENTS
1. This ASSIGNMENT AND TRANSFER AGREEMENT (the "Agreement")
relates to the Second Amended and Restated Revolving Credit
Facility dated as of February 15, 1994, as amended by the letter
amendment dated as of August 21, 1995 (as amended thereby and
hereby, the "Financing Agreement") by and among
STANLEY FURNITURE COMPANY, INC., a Delaware corporation (the
"Borrower");
NATIONAL CANADA FINANCE CORP., a Delaware corporation (the
"Lender"); and
NATIONAL BANK OF CANADA, the owner of all outstanding capital
stock of the lender ("NBC").
All capitalized terms not otherwise defined herein shall have the
respective meanings set forth in the Financing Agreement.
2. Subject to the terms and conditions set forth in the
Financing Agreement, the Assignor has committed to make Revolving
Credit Loans from time to time to the Borrower in the aggregate
principal amount outstanding at any time not to exceed Twenty Five
Million and NO/100 Dollars ($25,000,000.00).
3. Revolving Credit Loans made to the Borrower by the
Assignor under the Financing Agreement in the approximate aggregate
principal amount of $2,502,333.17 (includes Letters of Credit) are
outstanding at commencement of business on the date hereof. This
Agreement shall become effective prior to any Revolving Credit Loan
made on the date hereof.
4. The Assignor desires to assign irrevocably and sell to
Assignee all of the rights of the Assignor under the Financing
Agreement in respect of an 100% portion of its Revolving Credit
Loan commitment thereunder in an amount equal to $25,000,000.00
(the "Assigned Revolving Credit Loans Commitment"), and the
Assignee desires to accept assignment of such rights and assume the
corresponding obligations from the Assignor on such terms.
NOW THEREFORE, in consideration of the foregoing and the
mutual agreements contained herein, the parties hereto agree as
follows:
<PAGE>
SECTION 1. Assignment. The Assignor hereby irrevocably
assigns and sells to the Assignee without recourse to the Assignor,
all of the rights of the Assignor under the Financing Agreement in
and to the Assigned Revolving Loan Commitment, and the Assignee
hereby irrevocably purchases and accepts such assignment from the
Assignor and assumes all of the obligations of the Assignor under
the Financing Agreement in and to the Assigned Revolving Credit
Loan commitment. Upon the execution and delivery hereof by the
Assignor, the Assignee shall, as of commencement of business on the
date hereof, succeed to the rights and be obligated to perform the
obligations of a Lender under the Financing Agreement and the Loan
Documents with a Revolving Credit Loans Commitment in an amount
equal to the Assigned Revolving Credit Loans Commitment, with loans
in a principal amount equal to the Revolving Credit Loans
Commitment and the Loans of the Assignor shall, as of the
commencement of business on the date hereof, be reduced
correspondingly and the Assignor released from its obligations
under the Financing Agreement and the Loan Document to the extent
such obligations have been assumed by the Assignee. The assignment
provided for herein shall be without recourse to the Assignor.
SECTION 2. Financing Agreement. Each of the Assignor and the
Assignee agrees that this Assignment and Assumption Agreement is
made in accordance with and subject to the terms of the Financing
Agreement, which terms are hereby incorporated by reference herein.
SECTION 3. Representations and Warranties of Assignee.
Assignee represents and warrants that (i) Assignee is legally
authorized to enter into this Agreement and (ii) Assignee has
received copies of the Financing Agreement and the Loan Documents,
such financial statements and such other documents and information
as it has requested or deemed appropriate to make its own credit
analysis and decision to enter into this Agreement.
SECTION 4. Non-Reliance on Assignor. The Assignor makes no
representation or warranty in connection with, and shall have no
responsibility with respect to, the solvency, financial condition,
or statements of any obligor or any other party to any Loan
Document, or the validity and enforceability of the obligations of
any obligor or any other party to a Loan Document in respect of any
other Loan Document. The Assignee acknowledges that it has, such
documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement and
will continue to be responsible for making its own independent
appraisal of the business affairs and financial conditions of the
Borrower and any other parties to the Loan Documents.
<PAGE>
SECTION 5. Notices. Notices hereunder shall be sent to:
National Bank of Canada
Two First Union Center
Suite 2020
Charlotte, NC 28282
Telephone:(704)372-0783
Attn: Office Manager
SECTION 6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NORTH CAROLINA.
SECTION 7. Counterparts. This 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.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their authorized officers as of the
date first above written.
ACCEPTED AND AGREED TO:
NATIONAL CANADA FINANCE CORP. STANLEY FURNITURE COMPANY, INC.
Assignor
By: By:
Title: Title:
NATIONAL BANK OF CANADA
Assignee
By:
Title:
10QEXH10.1
<PAGE>
SECOND AMENDMENT TO SECOND AMENDED
AND RESTATED REVOLVING CREDIT AGREEMENT
This SECOND AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING
CREDIT FACILITY dated as of October 14, 1996 (the "Second
Amendment") is by and between
STANLEY FURNITURE COMPANY, INC., a Delaware corporation (the
"Borrower"); and
NATIONAL BANK OF CANADA, a Canadian chartered bank (the
"Lender" or "NBC").
RECITALS
A. National Canada Finance Corp., a Delaware corporation
("NCFC"), and the Lender made a certain credit facility available
to the Borrower pursuant to the terms and conditions contained in
that certain Second Amended and Restated Revolving Credit Agreement
dated as of February 15, 1994 among the Borrower, NCFC and the
Lender, as amended by a First Amendment to Second Amended and
Restated Credit Agreement dated as of August 21, 1995 (as amended,
the "Loan Agreement").
B. The Lender has been assigned the rights of NCFC under
the Loan Agreement and the documents related thereto pursuant to
the terms of an Agreement and Transfer Agreement.
C. The Borrower has requested that the Lender make certain
changes to the Loan Agreement.
D. The Lender has agreed to make these changes to the Loan
Agreement as set forth herein.
NOW, THEREFORE, the Borrower and the Lender hereby agree as
follows:
A. The Loan Agreement is amended as follows:
1. The first sentence of Section 3.09(b) is deleted in
its entirety and replaced with the following:
"(b) Unused Fee. In consideration of the Lender's
commitment to make the Revolving Credit Loans hereunder, the
Borrower agrees to pay an unused fee of one-eighth of one
percent (1/8%) per annum (computed on the basis of the actual
number of days elapsed in a year of 360 days) on the excess of
the Committed Amount over the aggregate average principal
amount of the Revolving Credit Loans outstanding during the
applicable quarterly period."
<PAGE>
2. Section 8.01(j) is deleted in its entirety and replaced
with the following:
"(j) Restricted Payments. Make any Restricted
Payment; provided, however, Borrower may (I) buy up to 15% of
the Common Stock, $.02 par value, of the Borrower owned by the
ML-Lee Acquisition Fund L.P. and certain affiliates of the
Thomas H. Lee Company, in the event such shares are not
purchased pursuant to the exercise of overallotment options
granted to underwriters in a secondary offering of such stock;
provided, however, that no more than $8,000,000.00 may be
borrowed under this Loan Agreement to finance this transaction
and (II) pay dividends or make payments to redeem, repurchase
or otherwise acquire shares of its stock in an amount up to
$3,839,000 plus (A) 50% of Borrower's net income during the
period from January 1, 1996 through the end of the most
recently completed fiscal quarter and (B) the total net cash
proceeds received by the Borrower from the sale of its stock
during such period less (C) the aggregate amount of cash
dividends paid or cash payments (other than pursuant to clause
(I) above) made to redeem, repurchase or otherwise acquire
shares of its stock."
A. The Borrower represents and warrants that, as of the date
hereof, it is not in default of the terms of the Loan Agreement, as
amended hereby, or any of the other documents executed between the
Borrower and the Lender in connection therewith.
B. This Second Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be
deemed an original.
C. This Second Amendment and the Loan Agreement, as amended
hereby, shall be deemed to be contracts made under, and for all
purposes shall be construed in accordance with the laws of the
State of North Carolina.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused
this instrument to be executed under seal as of the day and year
first above written.
STANLEY FURNITURE COMPANY, INC.
ATTEST
By By
Title Title
(CORPORATE SEAL)
NATIONAL BANK OF CANADA
By
Title
By
Title
10QEXH10.2
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
c/o Prudential Capital Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
October 14, 1996
Stanley Furniture Company, Inc.
Hwy. 57 West
Stanleytown, Virginia 24168
Attention: Douglas I. Payne, Vice President of Finance
Re: 7.28% Senior Notes due 2004 and 7.57% Series A Senior
Notes due 2005
Gentlemen:
Reference is made to the Note Agreements dated February 15,
1994 and June 29, 1995 (the "Note Agreements") between Stanley
Furniture Company, Inc. (the "Company") and The Prudential
Insurance Company of America ("Prudential"). Capitalized terms
used herein without definition have the meanings ascribed to such
terms in the Note Agreement.
The Company has advised Prudential that ML-Lee Acquisition
Fund, L.P. and certain affiliates of the Thomas H. Lee Company
(collectively, "Lee") are pursuing a secondary offering to the
public (the "Public Offering") to sell all of the common stock of
the Company currently owned by Lee (the "Lee Stock"). The Company
will not be offering any shares of its Common Stock in the Public
Offering. In the event that the underwriters do not exercise their
overallotment option in full, the Company intends to repurchase the
remaining Lee Stock. Notwithstanding anything to the contrary
contained in paragraphs 6B of each of the Note Agreements,
Prudential hereby consents and agrees that, in the event that (a)
the Public Offering is completed and (b) the underwriters do not
exercise their overallotment option in full, the repurchase by the
Company for a purchase price of up to $10,000,000 of the remaining
Lee Stock after the consummation of the Public Offering shall not
constitute a Restricted Payment.
Very truly yours,
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:
Acknowledged and agreed to this Vice President
14th day of October, 1996.
STANLEY FURNITURE COMPANY, INC.
By:
Douglas I. Payne, Vice President of Finance 10QExh4.1
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 dated as of the 1st day of October,
1996 to the Employment Agreement, dated as of January 1, 1991
(the "Original Agreement") between ALBERT L. PRILLAMAN
("Employee") and STANLEY FURNITURE COMPANY, INC., a Delaware
corporation (the "Company"), formerly Stanley Interiors
Corporation.
The parties hereto desire to amend the Original Agreement.
Except as provided herein, all terms used in this Amendment have
the same meaning as in the Original Agreement.
NOW THEREFORE, in consideration of the foregoing and the
covenants and agreement set forth herein, the parties hereto,
intending to be legally bound, agree as follows:
1. Section 2 of the Employment Agreement is deleted in its
entirety and the following inserted in lieu thereof:
Term. The term of employment under this Agreement (the
"Term") shall commence January 1, 1996 and end on
December 31, 1996 and shall continue thereafter unless
either party gives notice (a "Termination Notice") on
or before November 1 of any year that employment under
this Agreement will not continue for an additional
period of one year beginning on the following January
1.
2. Section 3(b) is deleted in its entirety and the
following inserted in lieu thereof:
b. Bonus. In addition to base salary, the
Employee shall be entitled to receive an annual
bonus which shall not exceed 80% of his then
current base salary. The amount of such bonus for
any fiscal year shall be related to the
achievement of certain profit thresholds and
objectives to be set at the beginning of each
fiscal year by the Board of Directors of the
Company.
3. Section 4 shall be amended by deleting the words "and
of Stanley Holding Corporation, a Delaware corporation
("Holding")" and replacing the words "the Company's operating
subsidiaries" with "any operating subsidiaries of the Company".
4. Section 6a shall be deleted in its entirety and the
following inserted in lieu thereof:
a. Non-Competition Restriction. Except with the
prior consent in writing of the Company or as
provided in the last sentence of this Section
6(a), the Employee shall not (A) during his
employment hereunder or (B) for a period of two
years after termination of his employment
hereunder in the event Employee receives severance
payments pursuant to Section 7(b) or Section 7(e),
directly or indirectly manage, operate, control,
be employed by, participate in, invest in or be
connected in any manner with the management,
operation, ownership or control of any business or
venture which is in competition in the United
States with the business of the Company, provided
that nothing herein shall prohibit the Employee
from owning securities of the Company or up to 5%
of the outstanding voting securities of any issuer
which is listed on the New York or American Stock
Exchange or as to which trading is reported or
quoted on the NASDAQ System. The provisions of
this Section 6(a) shall not be applicable in the
event the Employee terminates his employment under
Section 7(d).
5. Section 6b is deleted in its entirety and the following
inserted in lieu thereof:
b. Non-solicitation Agreement. Except with the prior
consent in writing of the Company, the Employee shall
not directly or indirectly hire or employ in any
capacity or solicit the employment of or offer
employment to or entice away or in any other manner
persuade or attempt to persuade any person employed by
the Company or any of its subsidiaries to leave the
employ of any of them. This Agreement shall remain in
full force and effect for a period of two years after
the Term.
6. Section 7 is deleted in its entirety and the following
inserted in lieu thereof:
7. Termination of Employment and Severance Payments.
a. Termination for Cause. During the Term, the
Company may terminate the Employee's employment
under this Agreement at any time for Cause (as
hereinafter defined) upon written notice
specifying the cause and date of termination.
Payments under this Agreement shall cease as of
the date of termination for Cause. For this
purpose, "Cause" means gross or willful neglect of
duty which is not corrected after 30 days' written
notice thereof; misconduct, malfeasance, fraud or
dishonesty which materially and adversely affects
the Company or its reputation in the industry; or
the commission of a felony or a crime involving
moral turpitude.
b. Termination without Cause. During the Term,
the Company may terminate the Employee's
employment under this Agreement at any time for
any reason other than Cause upon written notice
specifying the date of termination and the
Employee shall be entitled to the payments
provided under this Section 7(b). In the event
the Company terminates the Employee's employment
for reasons other than Cause (which includes
termination by the Company for what the Company
believes to be Cause when it is ultimately
determined that the Employee was terminated
without cause), then the Employee shall receive
severance payments as follows: (i) the Employee
shall continue to receive his base salary on a
monthly basis for the remainder of the calendar
year in which such termination occurred, (ii) the
Employee shall be paid an annual bonus for the
calendar year in which such termination occurred
equal to the average of the bonuses paid to the
Employee for the three fiscal years preceding the
year in which termination occurred (which bonus
shall be payable within ninety days after the
close of the fiscal year in which such termination
occurs), and (iii) during the two calendar years
following the year in which such termination
occurs, the Employee shall receive annual
severance pay equal to the base salary in effect
at the termination of employment plus an amount
equal to the average of the bonuses paid to the
Employee for the three fiscal years preceding the
year in which employment is terminated, which
annual severance pay shall be paid on a monthly
basis during the two years following the
termination of employment. If there shall take
place a Change in Control (as defined in Section
7(d)) of the Company on or before termination of
Employment, the Employee shall be entitled to
receive the total severance pay provided for under
this Section 7(b) in a single payment on the date
of such Employee's termination, or if a Change in
Control occurs after the date of such Employee's
termination, the Employee shall be entitled to
receive the total severance pay remaining to be
paid pursuant to this Section 7(b) in a single
payment on the date when a Change in Control
occurs. In the event the independent accountants
acting as auditors for the Company on the date of
a Change in Control (or another accounting firm
designated by them) determine that such single
payment, together with other compensation received
by the Employee that is a contingent on a Change
in Control, would constitute "excess parachute
payments" within the meaning of Section 280G
("Section 280G") of the Internal Revenue Code of
1986, as amended and regulations thereunder, the
single payment to the Employee shall be reduced to
the minimum extent necessary so that no portion
thereof shall be subject to the excise tax imposed
by Section 280G but only if by reason of, and
giving effect to such reduction, the Employees
net after-tax benefit will exceed the Employees
net after-tax benefit if such reduction were not
made.
c. Termination in Event of Death or Disability. If
the Employee dies or becomes disabled during the Term,
his employment under this Agreement shall terminate and
payments of base salary hereunder shall cease as of the
end of the month in which such event shall occur. For
purposes of this Agreement, the Employee shall be
deemed to be disabled if he is unable to perform his
duties hereunder for any period of four consecutive
months or for six months in any twelve-month period.
If the Employee's employment is terminated hereunder
pursuant to this Section 7(c), the Employee or
Employee's estate shall be entitled to a bonus payment
in an amount equal to the amount determined by
multiplying the bonus which would otherwise have been
payable for the full year by a fraction, the numerator
of which is the number of days the Employee was
employed during such fiscal year and the denominator of
which is 365. Such bonus shall be payable ninety days
after the close of the fiscal year in which Employee
dies or becomes disabled.
d. Termination on Change of Control. By
delivering 15 days' written notice to the Company,
Employee may terminate his employment under this
Agreement at any time within two years after a
Change in Control and the Employee shall be
entitled to the payments provided under Section
7(e). "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 Stock of the
Company by management employees of the Company; or
(C) the ownership of Stock by a Group that owns
10% or more of the Stock or Voting Power of the
Company on the date of this Agreement; provided,
however, the acquisition of additional Stock by
any such Group in an amount greater than 5% of the
then outstanding Stock shall not be excluded and
shall constitute a Change of Control. "Group"
means any individual, entity or group within the
meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the
"Act"), "Beneficial Ownership" has the meaning in
Rule 13d-3 promulgated under the Act, "Stock"
means the then outstanding shares of common stock
of the Company, and "Voting Power" means the
combined voting power of the outstanding voting
securities entitled to vote generally in the
election of directors.
(ii) Individuals who constitute the board of
directors of the Company on the date of this
Agreement (the "Incumbent Board") cease to
constitute at least a majority of the board of
directors of the Company (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. Severance Payments. The Employee shall
be entitled to the severance payment provided in
this Section 7(e) in the event (i) the Employee
terminates employment on or after the occurrence
of a Change in Control pursuant to Section 7(d),
(ii) the Employee's employment terminates as a
result of the Company's delivery of a Termination
Notice, or (iii) the Employee voluntarily
terminates his employment and the Company elects
to make severance payments in order to have the
non-competition covenant in Section 6(a)
effective. In the event the Employee is entitled
to severance payment pursuant to the foregoing
sentence, the Employee shall receive an annual
severance pay equal to the base salary in effect
at the termination of employment plus an amount
equal to the average of the bonuses paid to the
Employee for the three fiscal years preceding the
year in which employment is terminated, which
annual severance pay shall be paid on a monthly
basis during the two years following termination
of employment. If there shall take place a Change
in Control of the Company on or before termination
of Employment, the Employee shall be entitled to
receive the total severance pay provided for under
this Section 7(e) in a single payment on the date
of such Employee's termination, or if a Change in
Control occurs after the date of such Employee's
termination, the Employee shall be entitled to
receive the total severance pay remaining to be
paid pursuant to this Section 7(e) in a single
payment on the date when a Change in Control
occurs. In the event the independent accountants
acting as auditors for the Company on the date of
a Change in Control (or another accounting firm
designated by them) determine that such single
payment, together with other compensation received
by the Employee that is a contingent on a Change
in Control, would constitute "excess parachute
payments" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended and
regulations thereunder, the single payment to the
Employee shall be reduced to the minimum extent
necessary so that no portion thereof shall be
subject to the excise tax imposed by Section 280G
but only if by reason of, and giving effect to
such reduction, the Employees net after-tax
benefit will exceed the Employees net after-tax
benefit if such reduction were not made.
7. Section 10 is amended by changing the reference to
"Stanley Interiors Corporation" to "Stanley Furniture Company,
Inc."
8. Section 12 is amended by deleting the words "Holding
or" in the first sentence thereof.
9. This Amendment shall be governed by and construed in
accordance with its laws of the Commonwealth of Virginia without
regard to the conflict of laws rules thereof.
10. This Amendment may be executed in counterparts, each of
which shall be deemed an original, but all of which together
shall constitute one and the same agreement.
11. The Original Agreement as amended hereby and this
Amendment shall be read together to constitute one agreement.
The parties hereto agree that the Original Agreement, as amended
hereby, remains in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed on the day and year first above
written.
STANLEY FURNITURE COMPANY, INC.
By:
Name:
Title:
Albert L. Prillaman
10QExh10.4
<PAGE>
AMENDMENT NO. 1 TO MANAGEMENT AGREEMENT
AMENDMENT NO. 1 (the Amendment) to the MANAGEMENT
AGREEMENT, dated as of September 29, 1988 (the Agreement), made
by and among the Thomas H. Lee Company, a Massachusetts sole
proprietorship owned by Thomas H. Lee with its principal place of
business at One Boston Place, Boston, Massachusetts (the
Consultant), and Stanley Holding Corporation, a Delaware
corporation (Holding), Stanley Acquisition Corporation, a
Delaware corporation (Acquisition) and Interiors Acquisition
Corporation, a Delaware corporation (Interiors) is entered into
as of November 1, 1996 between the Consultant and Stanley
Furniture Company, Inc., a Delaware corporation and successor to
Holding, Acquisition and Interiors (the Company).
The Fund and certain other stockholders of the Company (the
Selling Stockholders) desire to sell shares of common stock,
$.02 par value, of the Company (the Shares) in a registered
public offering pursuant to an Underwriting Agreement (the
Underwriting Agreement) to be executed among the Company, the
Selling Stockholders and Dillon Read & Co. Inc., Raymond James &
Associates, Inc. and Wheat First Butcher Singer (the Managing
Underwriters) as representatives of the several Underwriters
named therein. The Consultant and the Company desire to
terminate the Agreement upon sale of the Shares pursuant to the
Underwriting Agreement.
The parties hereby agree to amend the Agreement as follows:
1. Section 2 of the Agreement shall be amended by inserting the
following sentence to the end thereof:
This Agreement shall terminate upon the
completion of the sale of the Shares pursuant
to the Underwriting Agreement; provided,
however, (i) the Company shall reimburse
Consultant for any expenses incurred pursuant
to Section 5(c) of this Agreement before
termination of this Agreement and not
previously reimbursed and (ii) Consultant
shall pay to the Company an amount equal to
the Management Fee for the month of
termination pro rated for the number of days
in such month following termination.
2. Except as expressly set forth in this Amendment, all other
terms and conditions of the Agreement shall remain in full force
and effect. Capitalized terms used herein and not otherwise
defined shall have the meaning assigned to such terms in the
Agreement.
3. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original but all
of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their duly authorized officers
as of the day and year first above written.
THOMAS H. LEE COMPANY
By: /s/C. Hunter Boll
C. Hunter Boll
Managing Director
STANLEY FURNITURE COMPANY, INC.
By: /s/Albert L. Prillaman
Albert L. Prillaman
President
