<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 June 30, 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 July 15, 1996.
Class Number
Common Stock, par value $.02 per share 4,726,578 Shares
<PAGE> PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE> (Unaudited)
June 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash............................................. $ 1,433 $ 298
Accounts receivable, less allowances
of $1,389 and $1,157, respectively............. 23,709 22,732
Inventories:
Finished goods................................. 25,088 22,391
Work-in-process................................ 5,060 5,368
Raw materials.................................. 12,488 12,408
42,636 40,167
Prepaid expenses and other current assets........ 807 435
Deferred income taxes............................ 2,615 2,420
Total current assets......................... 71,200 66,052
Property, plant and equipment, at cost............. 79,658 78,399
Less accumulated depreciation.................... 25,753 24,168
53,905 54,231
Goodwill, less accumulated amortization of $2,520
and $2,352....................................... 10,920 11,088
Other assets....................................... 3,096 3,180
$139,121 $134,551
LIABILITIES
Current liabilities:
Current maturities of long-term debt............. $ 1,375 $ 650
Accounts payable................................. 13,722 13,637
Accrued salaries, wages and benefits............. 8,118 6,619
Other accrued expenses........................... 3,129 2,724
Total current liabilities...................... 26,344 23,630
Long-term debt, exclusive of current maturities.... 38,778 40,417
Deferred income taxes.............................. 12,650 12,180
Other long-term liabilities........................ 3,324 3,585
Total liabilities................................ 81,096 79,812
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares
authorized, 4,726,578 shares
issued and outstanding........................... 94 94
Capital in excess of par value..................... 64,547 64,547
Deficit............................................ (6,616) (9,902)
Total stockholders' equity....................... 58,025 54,739
$139,121 $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 Six Months
Ended Ended
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales.......................... $47,282 $38,163 $95,472 $83,152
Cost of sales...................... 36,195 30,113 73,617 66,001
Gross profit................... 11,087 8,050 21,855 17,151
Selling, general and administrative
expenses......................... 7,308 6,152 14,354 13,055
Unusual items, net................. (136) (136)
Operating income............... 3,779 2,034 7,501 4,232
Other expense, net................. 145 66 393 197
Interest expense................... 838 829 1,717 1,594
Income from continuing operations
before income taxes............ 2,796 1,139 5,391 2,441
Income tax provision............... 1,092 420 2,104 928
Net income......................... $ 1,704 $ 719 $ 3,287 $ 1,513
Net income per common share........ $ .36 $ .15 $ .70 $ .32
Weighted average number of shares.. 4,727 4,727 4,727 4,727
</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> Six Months Ended
June 30, July 2,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers................. $ 94,276 $87,052
Cash paid to suppliers and employees......... (86,331) (87,866)
Interest paid................................ (1,662) (1,719)
Income taxes paid, net....................... (2,343) (591)
Net cash provided (used) by operating
activities............................... 3,940 (3,124)
Cash flows from investing activities:
Capital expenditures......................... (2,305) (12,550)
Purchase of other assets..................... (25) (139)
Proceeds from sale of assets................. 9 25
Net cash used by investing activities...... (2,321) (12,664)
Cash flows from financing activities:
Issuance of senior note...................... 10,000
(Repayment of) proceeds from revolving credit
facility................................... (914) 5,325
Proceeds from insurance policy loans......... 430 385
Net cash (used) provided by financing
activities............................... (484) 15,710
Net increase (decrease) in cash.............. 1,135 (78)
Cash at beginning of year.................... 298 301
Cash at end of quarter....................... $ 1,433 $ 223
Reconciliation of net income to net cash provided
(used) by operating activities:
Net income................................ $ 3,287 $ 1,513
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization......... 2,559 2,365
Other, net............................ - (30)
Loss on sale of assets................ 268 44
Changes in assets and liabilities:
Accounts receivable................. (977) 3,817
Inventories......................... (2,469) (8,022)
Prepaid expenses and other
current assets.................... (648) (98)
Accounts payable.................... 85 (2,250)
Accrued salaries, wages and benefits 1,499 266
Other accrued expenses.............. 405 417
Deferred income taxes............... 275 (193)
Other assets.......................... (166) (137)
Other long-term liabilities........... (178) (816)
Net cash provided (used) by operating
activities............................. $ 3,940 $(3,124)
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
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
<TABLE>
(Unaudited)
June 30, December 31,
1996 1995
<S> <C> <C>
Land and buildings............. $33,594 $33,594
Machinery and equipment........ 42,791 43,127
Leasehold improvements......... 153 153
Furniture, fixtures and office
equipment. .................. 997 1,387
Construction in progress....... 2,123 138
$79,658 $78,399
3. Long-Term Debt
(Unaudited)
June 30, December 31,
1996 1995
7.28% senior notes due March
15, 2004..................... $30,000 $30,000
7.57% senior note due June 30,
2005......................... 10,000 10,000
Revolving credit facility...... - 914
7% convertible subordinated
debentures due April 1, 2012. 153 153
Total 40,153 41,067
Less current maturities........ 1,375 650
$38,778 $40,417
</TABLE>
<PAGE>
STANLEY FURNITURE COMPANY,. INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data)
4. Subsequent Event
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, the Company expects to record a partial reversal of
this accrual approximating $250,000 net of tax, or $.05 per share,
in the third quarter of 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net sales increased $9.1 million, or 23.9%, for the three month
period ended June 30, 1996, from the comparable 1995 period. For
the six month period, net sales increased $12.3 million, or 14.8%,
from the comparable 1995 period. The increase was due primarily to
higher unit volume and to a lesser extent higher average selling
prices.
Gross profit margin for the three and six month periods of 1996
increased to 23.4% and 22.9%, respectively, from 21.1% and 20.6%
for the comparable 1995 periods. The higher gross profit margin
was due primarily to stabilizing raw material costs, improved
operating efficiencies and the favorable impact from the June 1995
purchase of the previously leased manufacturing facilities.
Selling, general and administrative expenses as a percentage of net
sales for the three and six month periods of 1996 decreased to
15.5% and 15.0%, respectively, from 16.1% and 15.7% for the
comparable 1995 periods, due to higher net sales. These expenses
increased for the 1996 periods due to higher selling cost as a
result of increased sales and increased merchandising cost.
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 six
month periods of 1996 increased to $3.8 million, or 8.0% of net
sales and $7.5 million, or 7.9% of net sales, respectively, from
$2.0 million, or 5.3% of net sales, and $4.2 million, or 5.1% of
net sales, for the comparable 1995 periods.
Interest expense for both the 1996 three and six month period
increased due principally to higher debt levels, offset by lower
interest rates.
The Company's effective income tax rate was 39.0% and 38.0% for the
six month period in 1996 and 1995, respectively.
<PAGE>
Financial Condition, Liquidity and Capital Resources
At June 30, 1996, long-term debt was $38.8 million and
approximately $23.2 million of additional borrowing capacity was
available under the revolving credit facility. 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 $3.9 million in the
1996 period compared to cash used in operations of $3.1 million
during the 1995 period. The cash generated in 1996 was
attributable to higher sales and was used to fund capital
expenditures and reduce borrowings under the revolving credit
facility. Cash was required in 1995 due to lower sales volume,
increased inventory levels and higher interest payments, partially
offset by lower tax payments.
Net cash used by investing activities was $2.3 million in the 1996
period compared to $12.7 million in the 1995 period. In the 1995
period, proceeds from a senior note issuance and additional
borrowings from the revolving credit facility, amounting to $10.5
million were used to purchase two plant facilities which were
previously leased. 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 $484,000 in the 1996
period compared to cash provided by financing activities of $15.7
million in the 1995 period. In the 1996 period, cash generated
from operations reduced borrowings under the revolving credit
facility. The 1995 borrowings provided cash for operations, the
purchase of the two previously leased plant facilities and other
capital expenditures.
Subsequent Event
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, the Company expects to record a partial reversal of
this accrual approximating $250,000 net of tax, or $.05 per share,
in the third quarter of 1996.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of the Company's shareholders was
held April 25, 1996.
(b) The shareholders of the Company elected one director for
a three-year term expiring at the Annual Meeting of
Shareholders to be held in 1999. The election was
approved by the following vote:
For Withheld
C. Hunter Boll 4,275,158 34,841
(c)(i) The shareholders approved the ratification of the
selection of Coopers & Lybrand L.L.P. as the independent
public accountants for the Company for the current
fiscal year. The ratification was approved by the
following vote:
FOR 4,305,483
AGAINST 724
ABSTAIN 3,792
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Employment agreement dated as of June 1, 1996,
between Douglas I. Payne and the Registrant.*
Exhibit 10.2 Amendment #1 to Employment Agreement between
C. William Cubberley, Jr. and the Registrant,
dated as of June 1, 1996.*
Exhibit 11. Schedule of Computation of Earnings Per Share.*
Exhibit 27. Financial Data Schedule.*
(b) Reports on Form 8-K
None.
* Filed herewith.
<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: July 16, 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 EARNINGS PER COMMON SHARE
(Unaudited)
(In thousands, except per share data)
<TABLE>
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income used in calculating pri-
mary and fully diluted earnings
per common share.................. $1,704 $ 719 $3,287 $1,513
Primary earnings per common share:
Weighted average shares outstanding. 4,727 4,727 4,727 4,727
Add shares issuable assuming excer-
cise of stock options............. 115 48
Weighted average number of shares
used in calculating primary
earnings per common share......... 4,842 4,727 4,775 4,727
Primary earnings per common share. $ .35 $ .15 $ .69 $ .32
Fully diluted earnings per common share:
Weighted average shares outstanding. 4,727 4,727 4,727 4,727
Add shares issuable assuming excer-
cise of stock options............. 115 74
Weighted average number of shares
used in calculating fully diluted
earnings per common share......... 4,842 4,727 4,801 4,727
Fully diluted earnings per common
share........................... $ .35 $ .15 $ .68 $ .32
10QEX11
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
STANLEY FURNITURE COMPANY, INC.
ARTICLE 5
FINANCIAL DATA SCHEDULE
FOR PERIOD ENDING JUNE 30, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1433
<SECURITIES> 0
<RECEIVABLES> 25098
<ALLOWANCES> 1389
<INVENTORY> 42636
<CURRENT-ASSETS> 71200
<PP&E> 53905
<DEPRECIATION> 2354
<TOTAL-ASSETS> 139121
<CURRENT-LIABILITIES> 26344
<BONDS> 0
<COMMON> 94
0
0
<OTHER-SE> 57931
<TOTAL-LIABILITY-AND-EQUITY> 139121
<SALES> 95472
<TOTAL-REVENUES> 95472
<CGS> 73617
<TOTAL-COSTS> 87971
<OTHER-EXPENSES> 393
<LOSS-PROVISION> 180
<INTEREST-EXPENSE> 1717
<INCOME-PRETAX> 5391
<INCOME-TAX> 2104
<INCOME-CONTINUING> 3287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3287
<EPS-PRIMARY> .69
<EPS-DILUTED> .68
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of June 1, 1996, between DOUGLAS I.
PAYNE ("Employee") and STANLEY FURNITURE COMPANY, INC., a
Delaware corporation (the "Company").
WHEREAS, the Company desires to assure that it will have the
benefit of the continued service and experience of the Employee,
who is a principal executive officer of the Company and an
integral part of its management, and the Employee is willing to
enter into an agreement to such end upon the terms and conditions
set forth in this Agreement. In consideration of the foregoing
and the mutual agreements herein contained, the parties agree as
follows:
1. Employment. The Company hereby employs the
Employee and the Employee hereby accepts employment upon and
agrees to the terms and conditions set forth herein.
2. 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.
3. Compensation.
a. Salary. During the Employee's employment
hereunder, the Company shall pay the Employee for all services
rendered by the Employee a base salary at an annual rate of at
least $136,000, with upward annual adjustments as the Board of
Directors of the Company shall deem appropriate. Such salary
shall be payable to the Employee in accordance with the Company's
usual paying practices, but not less frequently than monthly.
b. Bonus. In addition to base salary, the Employee
shall be entitled to receive a potential annual bonus of $50,000,
subject to upward adjustment. 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.
c. Other Benefits. The Employee shall also receive
such other customary employee "fringe" benefits as are afforded
generally by the Company to its senior personnel, including
grants of stock options and participation in the Company's
deferred compensation program.
4. Duties. The Employee shall continue to perform the
duties of Vice President, Finance; Secretary; and Treasurer of
the Company and shall, under the direction of the President,
faithfully and to the best of his ability perform such duties and
such other duties and responsibilities as may be reasonably
assigned by the President from time to time, including service as
an officer or director of any subsidiaries of the Company but not
including service as an officer or director of nonsubsidiary
affiliates not in the same business as the Company.
5. Extent of Services. During the Employee's employment
hereunder, the Employee shall devote his entire working time,
attention and energy to the business of the Company and shall not
be engaged in any other active business of any kind except as
authorized by the President.
6. Restrictive Covenants.
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).
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.
c. Confidential Information. The Employee further
agrees to keep confidential and not use for his personal benefit
or for any other person's benefit any and all proprietary
information received by the Employee relating to inventions,
products, production methods, financial matters, sources of
supply, markets, marketing methods and customers of the Company
on the date hereof or developed by or for it during the Term.
This Agreement shall remain in full force and effect after the
Term without limit in point of time, but shall cease to apply to
information that legitimately comes into the public domain.
d. Specific Enforcement. It is agreed and understood
by the parties hereto that, in view of the nature of the business
of the Company, the restrictions in subsections a., b. and c.
above are reasonable and necessary to protect the legitimate
interests of the Company, monetary damages alone are not an
adequate remedy for any breach of such provisions, and any
violation thereof would result in irreparable injuries to the
Company. The Employee therefore acknowledges that, in the event
of his violation of any of such restrictions, the Company shall
be entitled to obtain from any court of competent jurisdiction
preliminary and permanent injunctive relief as well as damages
and an equitable accounting of all earnings, profits and other
benefits arising from such violation, which rights shall be
cumulative and in addition to any other rights or remedies to
which the Company may be entitled.
e. Severability and Extension. If the period of time
or the area specified in subsection a. above is determined to be
unreasonable in any proceeding, such period shall be reduced by
such number of months or the area shall be reduced by the
elimination of such portion thereof, or both, so that such
restrictions may be enforced for such time and in such area as is
determined to be reasonable. If the Employee violates any of the
restrictions contained in subsection a. above, the restrictive
period shall not run in favor of the Employee from the time of
the commencement of any such violation until such time as such
violation shall cease.
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 of the Internal Revenue Code of 1986, as amended and
regulations thereunder, the single payment to the Employee shall
be reduced to the maximum amount which may be paid without such
payments being "excess parachute payments".
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 the 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 maximum amount
which may be paid without such payments being "excess parachute
payments".
8. Vacation. During the Term, the Employee shall be
entitled to a vacation in each calendar year in accordance with
the Company's policy during which vacation his compensation shall
be paid in full.
9. Insurance. During the Term, the Company will continue
to include the Employee and his eligible dependents as insureds
under its existing insurance policies on the same terms and
conditions and with the same benefits as those in effect on the
date hereof; provided, however, that the forgoing shall not
prohibit the Company from adopting alternative benefit packages
and programs so long as the benefits thereunder, considered in
the aggregate, are at least as favorable to the Employee and his
eligible dependents.
10. Notice. All notices, requests, demands and other
communications hereunder shall be in writing and shall be
effective upon the mailing thereof by registered or certified
mail, postage prepaid, and addressed as set forth below:
a. If to the Company:
Stanley Furniture Company, Inc.
Route 57, P.O. Box 30
Stanleytown, Virginia 24168
b. If to the Employee:
Douglas I. Payne
308 Burch Drive
Martinsville, VA 24112
Any party may change the address to which notices are to be
addressed by giving the other party written notice in the manner
herein set forth.
11. Waiver of Breach. Waiver by either party of a breach
of any provision of this Agreement by the other shall not operate
as a waiver of any subsequent breach by such other party.
12. Entire Agreement. This Agreement contains the entire
agreement of the parties in this matter and supersedes any other
agreement, oral or written, concerning the employment or
compensation of the Employee by the Company. It may be changed
only by an agreement in writing signed by both parties hereto.
13. Governing Law. This Agreement shall be governed by the
laws of the Commonwealth of Virginia.
14. Benefit. This Agreement shall be binding upon and
inure to the benefit of and shall be enforceable by and against
the Company, its successors and assigns, and the Employee, his
heirs, beneficiaries and legal representatives.
IN WITNESS WHEREOF, the Employee and the Company have
executed this Agreement as of the day and year above written.
STANLEY FURNITURE COMPANY, INC.
By:
Name:
Title:
/s/ Douglas I. Payne
Douglas I. Payne
7716U:\1031\stanley\employmt.ag4
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 dated as of the 1st day of June 1996 to
the Employment Agreement, dated as of January 1, 1991 (the
"Original Agreement") between C. William Cubberley, Jr.
("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:
2. 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 60% 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 of the
Internal Revenue Code of 1986, as amended and
regulations thereunder, the single payment to the
Employee shall be reduced to the maximum amount which
may be paid without such payments being "excess
parachute payments".
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 the 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 maximum
amount which may be paid without such payments being
"excess parachute payments".
8. Section 10 is amended by changing the reference to
"Stanley Interiors Corporation" to "Stanley Furniture Company,
Inc."
9. Section 12 is amended by deleting the words "Holding
or" in the first sentence thereof.
10. 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.
11. 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.
12. 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:
/s/C. William Cubberley, Jr.
C. William Cubberley, Jr.
7716:\1031\STANLEY\CWCAMEND.AG2
