SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
STANLEY FURNITURE COMPANY, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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Stanley Furniture Company, Inc.
1641 Fairystone Park Highway
Stanleytown, Virginia 24168
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held April 24, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Stanley Furniture Company, Inc. (the "Company") will be held at the Company's
corporate headquarters, 1641 Fairystone Park Highway, Stanleytown, Virginia, on
Thursday, April 24, 1997, at 11:00 A.M., for the following purposes:
1. To elect two directors to serve a three-year term on the Company's
Board of Directors;
2. To elect one director to serve a two-year term on the Company's Board
of Directors;
3. To ratify the selection of Coopers & Lybrand L.L.P. as the independent
public accountants for the Company for 1997; and
4. To transact such other business as may properly be brought before the
meeting or any adjournment thereof.
The stockholders of record of the Company's common stock at the close
of business on February 28, 1997 are entitled to notice of and to vote at this
Annual Meeting or any adjournment thereof.
Even if you plan to attend the meeting in person, we request that you
mark, date, sign and return your proxy in the enclosed self-addressed envelope
as soon as possible so that your shares may be certain of being represented and
voted at the meeting. Any proxy given by a stockholder may be revoked by that
stockholder at any time prior to the voting of the proxy.
By Order of the Board of Directors,
Douglas I. Payne
Secretary
March 11, 1997
<PAGE>
Stanley Furniture Company, Inc.
1641 Fairystone Park Highway
Stanleytown, Virginia 24168
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
April 24, 1997
The enclosed proxy is solicited by and on behalf of the Board of
Directors of Stanley Furniture Company, Inc. (the "Company") for use at the
Annual Meeting of Stockholders to be held on Thursday, April 24, 1997, at 11:00
A.M., at the Company's corporate headquarters, 1641 Fairystone Park Highway,
Stanleytown, Virginia, and any adjournment thereof. The matters to be considered
and acted upon at such meeting are described in the foregoing notice of the
meeting and this proxy statement. This proxy statement and the related form of
proxy are being mailed on or about March 11, 1997 to all holders of record of
the Company's common stock, $.02 par value (the "Common Stock") on February
28, 1997. Shares of the Common Stock represented in person or by proxy will be
voted as hereinafter described or as otherwise specified by the stockholder. Any
proxy given by a stockholder may be revoked by the stockholder at any time
prior to the voting of the proxy by delivering a written notice to the
Secretary of the Company, by executing and delivering a later-dated proxy or
by attending the meeting and voting in person.
The cost of preparing, assembling and mailing the proxy, this proxy
statement, and other material enclosed, and all clerical and other expenses of
solicitations will be borne by the Company. In addition to the solicitation of
proxies by use of the mails, directors, officers and employees of the Company
may solicit proxies by telephone, telegram or personal interview. The Company
also will request brokerage houses and other custodians, nominees and
fiduciaries to forward soliciting material to the beneficial owners of Common
Stock held of record by such parties and will reimburse such parties for their
expenses in forwarding soliciting material.
VOTING RIGHTS
On February 28, 1997 there were 4,586,818 shares of Common Stock
outstanding and entitled to vote. Voting rights of the Common Stock are
noncumulative, so that holders of a majority of the outstanding shares
represented at the meeting can elect all of the directors to be elected at the
meeting.
ELECTION OF DIRECTORS
The Board of Directors of the Company presently consists of four
directors who are divided into three classes with staggered terms. The term of
Messrs. David V. Harkins and Albert L. Prillaman expires at the time of the 1997
Annual Meeting of Stockholders. The Company proposes the reelection of Messrs.
Harkins and Prillaman for a three-year term expiring at the time of the 2000
Annual Meeting.
The Board of Directors has expanded the Board to include one new
directorship and proposes that T. Scott McIlhenny, Jr. be elected to fill this
position to serve as director for a two-year term expiring at the time of the
1999 Annual Meeting.
The shares represented by proxies will be voted as specified by the
stockholder. If the stockholder does not specify his choice, the shares will be
voted in favor of the election of the nominees listed on the proxy card, except
that in the event any nominee should not continue to be available for election,
<PAGE>
such proxies will be voted for the election of such other person as the Board of
Directors may recommend. As of the date of this Proxy Statement, the Board of
Directors has no reason to believe that any nominee named below will be unable
or unwilling to serve.
Nominee for Election for Three-Year Term Ending 2000
David V. Harkins, 56, has been a Director of the Company since
September 1988. Mr. Harkins is a Senior Managing Director of the Thomas H. Lee
Company (the "Lee Company"), a sole proprietorship engaged in acquiring or
making controlling investments in established operating companies. Mr. Harkins
is also Senior Vice President and a Trustee of Thomas H. Lee Advisors I, Inc., a
Massachusetts business trust ("THL Advisors I") which is responsible for the
identification of investments made by the Lee Fund. Mr. Harkins is also a Senior
Vice President of T. H. Lee Mezzanine II ("Mezzanine II"), which is the general
partner of Thomas H. Lee Advisors II, L.P., a Delaware limited partnership ("THL
Advisors II"), which is responsible for the identification of investments made
by the ML-Lee Acquisition Fund II, L.P. and the ML-Lee Acquisition Fund II
(Retirement Accounts), L.P., both Delaware limited partnerships (together the
"Lee Fund II"). THL Advisors I and THL Advisors II also perform managerial
functions for the Lee Fund and Lee Fund II, respectively, of the type usually
carried out by an investment advisor to a business development company. Mr.
Harkins is chairman of National Dentex Corporation and also a director of First
Alert, Inc. and Homeside, Inc.
Albert L. Prillaman, 51, has been a Director of the Company since March
1986, Chief Executive Officer and President of the Company since December 1985
and Chairman of the Board of Directors since September 1988. Prior thereto, Mr.
Prillaman had served as a Vice President of the Company and President of the
Stanley Furniture division of the Company's predecessor since 1983, and in
various executive and other capacities with the Stanley Furniture division of
the predecessors of the Company since 1969. Mr. Prillaman is a director of
MainStreet BankGroup Incorporated.
Nominee for Election for Two-Year Term Ending 1999
T. Scott McIlhenny, Jr., 49, has been Executive Vice President of The
Village Companies of Chapel Hill, Inc., a media and communications company,
since October 1996. From 1995 to October 1996 Mr. McIlhenny served as managing
principal of Red Rock Terrace Investment Partners. From 1988 to 1995, Mr.
McIlhenny served in various capacities with Cahners Publishing Company
("Cahners"), including Group Vice President and General Manager for Cahners
Business Newspapers. From 1981 to 1988, Mr. McIlhenny served in various
capacities with Communications/Today, LTD. (acquired by Cahners in 1988), the
publisher of Furniture/Today, including Senior Vice President, Group Publisher.
Directors whose terms do not expire this year
C. Hunter Boll, 41, has been a Director of the Company since September
1988, and his present term will expire in 1999. Mr. Boll is a Managing Director
of the Lee Company. Mr. Boll is also Vice President of THL Advisors I and
Mezzanine II. From 1984 to 1986, Mr. Boll was a consultant with The Boston
Consulting Group, which renders general business consulting services. Mr. Boll
is a director of Petco Animal Supplies, Inc.
Edward J. Mack, 81, has been a Director of the Company since January
17, 1989, and his present term will expire in 1998. From 1948 to 1981 Mr. Mack
served in various capacities with Burlington Industries, Inc., including
director and Executive Vice President with responsibility for Burlington's
furniture operations. He has been an independent consultant, primarily with
Burlington Industries, Inc., and President of Global Business Services, LTD, an
international trading company, for more than five years.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Company has an Audit Committee, presently consisting of Messrs.
Harkins, Boll and Mack, which is charged with evaluating accounting and control
procedures and practices of the Company and reporting on such to the Board of
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Directors. The Audit Committee also serves as direct liaison with the Company's
independent public accountants and recommends the selection or discharge of such
accountants. The Audit Committee met once in 1996.
The Company has a Compensation Committee, presently consisting of
Messrs. Harkins, Boll and Mack, which makes recommendations concerning salaries
and incentive compensation for officers and employees of the Company. The
Compensation Committee also administers the Company's 1992 and 1994 Stock Option
Plans and has authority to grant options under such plans to officers and key
employees, as designated by the Compensation Committee, and to determine the
terms of such options in accordance with such plans. The Compensation Committee
also administers the Company's Executive Loan Plan. The Compensation Committee
met three times during 1996.
The full Board of Directors met five times during 1996. Each incumbent
director, attended or acted upon at least 75% of the total 1996 board meetings
and committee meetings held during periods that he was a member of the Board or
such committees.
Mr. Mack receives compensation for serving as a Director at the rate of
$15,000 per year. None of the other directors received any separate compensation
for serving in that capacity during 1996.
NOMINATIONS FOR DIRECTOR
The Company's Bylaws provide that a stockholder entitled to vote in the
election of directors may nominate one or more persons for election as a
director only if advance written notice is given. Written notice of such
stockholder's intent to make such nomination must be received by the Secretary
of the Company or deposited in the U.S. mail, postage prepaid, to the Secretary
of the Company not later than 120 days in advance of the anniversary date of the
Company's proxy statement for the previous year's Annual Meeting. Any
stockholder wishing to nominate one or more persons as director must submit the
following information in writing: (i) the name and address of the stockholder
who intends to make the nomination; (ii) a representation that the stockholder
is entitled to vote at such meeting and intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in the notice; (iii)
a description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which any nomination is to be made by the stockholder; (iv) such
other information regarding each nominee as would be required to be included in
a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission, had the nominee been nominated by the Board of Directors;
and (v) the consent of each proposed nominee to serve as a director of the
Company if so elected. The Chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
By requiring advance notice of stockholder nominations, this Bylaw
affords the Board of Directors the opportunity to consider the qualifications of
the proposed nominees and, to the extent deemed necessary or desirable by the
Board, to inform stockholders about such qualifications. The Bylaw does not give
the Board of Directors any power to approve or disapprove a stockholder's
nomination for election of directors. However, it may have the effect of
precluding a contest for the election if its procedures are not followed, and
therefore may discourage or deter a stockholder from conducting a solicitation
of proxies to elect such stockholder's own slate of directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities Exchange Act of 1934 requires the Company's executive
officers and directors, and any persons owning more than 10% of the Common
Stock, to file certain reports of ownership and changes in ownership with the
Securities and Exchange Commission. Based solely on its review of the copies of
the Forms 3, 4 and 5 received by it, and written representations from certain
reporting persons that no Forms 5 were required to be filed by those persons,
the Company believes that all executive officers, directors and 10% stockholders
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complied with such filing requirements, except that (i) Joe G. Bost, Vice
President - Product Development and Merchandising - Upholstery, filed a late
report with respect to one sale transaction and (ii) Edward J. Mack, Director,
failed to file a Form 4 with respect to two purchase transactions occurring
during one month. A corrective filing has been made by Mr. Mack.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth, for the years ended December 31, 1996,
1995 and 1994, the annual and long-term compensation for services in all
capacities to the Company of those persons who at December 31, 1996 were the
Company's Chief Executive Officer and the next four most highly compensated
executive officers of the Company whose salary and bonus exceeded $100,000 for
the year ended December 31, 1996 (collectively, the "Named Executive Officers").
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation
------------------------------------------------ Long-Term
Compensation
------------
Name and Securities
Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options (#) Compensation(1)
-------- ---- ------ ----- ------------ ----------- ---------------
<S> <C>
ALBERT L. PRILLAMAN 1996 $310,000 $298,000 $319,514(2) --- $25,406
Chairman, Chief Executive 1995 310,000 94,990 169,646(2) --- 22,331
Officer and President 1994 310,000 190,558 110,887(2) 213,827 22,261
C. WILLIAM CUBBERLEY, JR. 1996 $205,008 $143,000 $1,412 --- 3,000
Senior Vice President - 1995 195,000 44,814 1,426 15,000 ---
Sales and Marketing 1994 195,000 85,619 1,437 40,000 ---
BOBBY I. HODGES 1996 $160,008 $85,000 $3,408 --- 3,000
Senior Vice President - 1995 149,100 19,151 2,908 15,000 ---
Manufacturing 1994 142,680 43,907 2,480 38,294 ---
DOUGLAS I. PAYNE
Senior Vice President - 1996 $136,008 $70,000 $173 10,000 2,939
Finance and Administration, 1995 126,000 13,406 218 15,000 ---
Treasurer and Secretary 1994 120,000 30,735 257 22,115 ---
WILLIAM A. SIBBICK
Vice President - Product
Development and 1996 $136,008 $57,500 $479 --- 2,939
Merchandising - Dining Room 1995 126,000 13,406 414 12,500 ---
and Occasional 1994 110,004 30,735 359 17,500 ---
</TABLE>
- ------------
(1) All Other Compensation listed for Mr. Prillaman reflects premiums paid
by the Company in connection with the split-dollar life insurance
agreement maintained with Mr. Prillaman. The 1995 and 1994 amounts also
include premiums paid on a term life insurance policy for Mr.
Prillaman. The 1996 amounts include employer contributions to the
Company's 401(k) Plan of $3,000 for each of Messrs. Prillaman,
Cubberley and Hodges and $2,939 for each of Messrs. Payne and Sibbick.
(2) Includes forgiveness of interest and principal, and payroll taxes paid
by the Company, with respect to the loan under the Executive Loan Plan
for Mr. Prillaman of $302,704, $156,049 and $98,517 for 1996, 1995 and
1994, respectively. See "Certain Relationships and Related
Transactions".
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Option Grant Table
The following table sets forth information concerning all of the
individual grants of stock options made during the year ended December 31, 1996
to the Named Executive Officers.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants Potential Realizable
- ------------------------------------------------------------------------------------- Value at Assumed Annual
Rates of Stock Price
Appreciation
For Option Term
Number of % of Total ---------------
Securities Options Granted Exercise
Underlying Options to Employees in Price per Expiration
Name Granted(1) Fiscal Year Share(1) Date 5% ($) 10% ($)
---- ---------- ----------- -------- ---------- ------ -------
<S> <C>
Douglas I. Payne 10,000 50.0% $16.38 12/11/06 $102,900 $260,900
</TABLE>
- ------------
(1) Grant vests and becomes exercisable to the extent of 20% of the shares
granted as of June 12, 1997 and as of December 31 of each year from
1997 through 2000.
Option Value Table
The following table sets forth information concerning the year-end
number and value of unexercised options for each of the Named Executive
Officers.
<TABLE>
1996 YEAR END OPTION VALUES
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options Options at Fiscal Year End ($)(1)
at Fiscal Year End (#)
---------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C>
Albert L. Prillaman 154,679 85,531 $1,567,032 $844,619
C. William Cubberley, Jr. 32,998 25,000 337,852 258,125
Bobby I. Hodges 32,705 24,318 336,059 251,390
Douglas I. Payne 20,497 27,846 211,750 222,479
William A. Sibbick 16,003 14,500 165,034 152,563
</TABLE>
- -----------
(1) In-the-Money Options are those for which the 1996 year-end fair market
value of the underlying shares of Common Stock (as determined by the
closing price on The Nasdaq Stock Market) exceeds the exercise price of
the option.
Employment Agreements. Mr. Prillaman has an employment agreement with the
Company that provides that he has the duties of President, Chief Executive
Officer and Chairman of the Board of Directors of the Company at a base salary
of at least $275,000 per year, subject to annual upward adjustment by the Board.
Mr. Prillaman is also entitled to a graduated bonus amount up to a maximum of
80% of his then current base salary, contingent upon the achievement of certain
threshold profit objectives to be determined by the Board at the beginning of
each fiscal year. The agreement is automatically extended for an additional one
year term at the end of each year unless either party to the agreement gives
notice on or before November 1 of any year that the agreement will not be
extended. In the event of such notice, employment terminates as of December 31
of the year in which such notice is given and Mr. Prillaman is entitled to
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severance pay during the two years following termination in an amount equal to
his base salary plus the average of bonuses paid for the three fiscal years
preceding the year in which notice of termination is given. Mr. Prillaman is
entitled to receive the total severance pay in a single payment in the event a
change in control (as defined in the agreement) occurs. During the two years
after such a change of control, Mr. Prillaman is entitled to terminate his
employment with the Company and receive such severance pay in a single payment.
The agreement provides that Mr. Prillaman will not compete with the Company for
two years after termination of the employment agreement, except that this
non-competition covenant does not apply if: (i) Mr. Prillaman terminates his
employment within two years after a change of control or (ii) Mr. Prillaman
voluntarily terminates his employment and the Company does not elect to pay
severance to Mr. Prillaman.
In addition, the Company has entered into an employment agreement with C.
William Cubberley, Jr., Senior Vice President-Sales and Marketing of the
Company, on similar terms as discussed above with respect to Mr. Prillaman,
except that Mr. Cubberley serves as a Senior Vice President, his base salary is
at least $170,000, and he is entitled to receive a graduated bonus amount up to
a maximum of 60% of his base salary in effect from time to time.
In addition, the Company has entered into an employment agreement with
Douglas I. Payne, Senior Vice President Finance and Administration, Treasurer
and Secretary of the Company, on similar terms as those discussed above with
respect to Mr. Prillaman, except that Mr. Payne serves as Senior Vice President
- - Finance and Administration, Treasurer and Secretary, his base salary is at
least $136,000, and he is entitled to receive a potential annual bonus of
$50,000, subject to upward adjustment.
In connection with the employment agreement with Mr. Prillaman, the
Company has entered into a split-dollar life insurance agreement under which the
Company has agreed to pay premiums with respect to a life insurance policy for
Mr. Prillaman until the cash surrender value of the policy and all paid up
additions are sufficient to repay the Company all premiums and other amounts
paid by it and to maintain the policy's death benefit at a level no less than
the policy's initial face amount without further premium payments. At such time,
Mr. Prillaman is obligated to repay such premiums to the Company. Mr. Prillaman
has executed a collateral assignment of his policy in favor of the Company to
secure repayment to the Company of the premiums paid on such policy. The initial
face amount of the policy for Mr. Prillaman is $1 million. During the year ended
December 31, 1996 the Company paid $21,316, in premiums for the policy of Mr.
Prillaman.
Defined Benefit Pension Plans. The Company maintains a qualified defined
benefit pension plan for all its eligible employees, The Stanley Retirement
Plan, and also maintains a nonqualified, unfunded supplemental retirement plan
for certain of its employees. Effective on December 31, 1995, future benefit
accruals under both plans were curtailed. Although participants continue their
participation in both plans, additional benefits do not accrue. The accrued
monthly benefit under The Stanley Retirement Plan, assuming retirement at age
65, for each of the Named Executive Officers through December 31, 1995, was:
Albert L. Prillaman, $5,244; C. William Cubberley, Jr., $1,598; Bobby I. Hodges,
$3,787; Douglas I. Payne, $993; and William A. Sibbick, $515. The accrued
monthly benefit under the supplemental retirement plan, assuming retirement at
age 65, for each of the Named Executive Officers through December 31, 1995, was:
Albert L. Prillaman, $8,838; C. William Cubberley, Jr., $1,145; Bobby I. Hodges,
$1,857; Douglas I. Payne, $591; and William A.
Sibbick, $0.
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation:
Executive Compensation Philosophy
Under the supervision of the Committee, the Company has developed and
implemented executive compensation policies, plans, and programs which seek to
enhance the profitability and value of the Company. The primary objective is to
align closely the financial interests of the Company's executives with those of
its stockholders. The Committee believes that equity ownership by management is
beneficial in conforming management and stockholder interests in the enhancement
of stockholder value.
The Committee's philosophy is to integrate management pay with the
achievement of both annual and long-term financial performance goals. The
compensation package for each officer is designed to recognize individual
initiative and achievement. In establishing compensation, the Committee
incorporates a number of factors to promote both long and short-term performance
of the Company. These factors include earnings, market share growth, cost
control efforts, balance sheet strength and organizational developments. The
compensation for individual executives is based on both corporate and personal
goals, with varying weight being given to individual factors for particular
executives. The Committee does not make compensation comparisons with the
companies that are used for the performance graph that follows this report.
The Committee believes that the Company's overall executive compensation
package should enable the Company to obtain and retain the services of top
executives. The Company operates with a small team of top executives who are
given significant and extensive responsibilities. These executives' duties
encompass both overall strategic policy of the Company and direct, day-to-day
activity in sales, customer communications, product development, marketing,
manufacturing and other similar activities. The compensation package is intended
to reflect these broad responsibilities.
The compensation currently paid by the Company is not subject to certain
Internal Revenue Code provisions that may limit the income tax deductibility of
certain forms of compensation paid to its Named Executive Officers in excess of
$1 million per year. These provisions allow full deductibility of certain types
of performance-based compensation. In connection with changes in 1996 to the
Company's stock loan agreement with Mr. Prillaman, the agreement was modified to
preserve the Company's tax deduction in relation to compensation that may be
generated under that agreement. If these limitations should become of broader
applicability to the Company in the future, the Committee will consider other
modifications to the Company's compensation practices, to the extent
practicable, to provide the maximum deductibility for compensation payments.
The Company's compensation package for its executive officers consists of
base salary, annual performance-based incentive compensation, stock option
grants, supplemental retirement benefits and, for certain executive officers,
other benefits.
Base Salary
The Committee sets base salary at the minimum level deemed sufficient to
attract and retain qualified executives. By restricting the role of base salary
in the compensation package, more of an executive's compensation can be paid in
the form of incentives which encourage and reward performance. The base salaries
of individual executives are set in light of the responsibilities of the
position held and the experience of the individual, with a recognition of the
Company's requirements for the top executives to perform many varied tasks.
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Annual Incentives
The Company's annual incentive compensation program, the Executive
Incentive Compensation Plan (the "Incentive Plan"), is for corporate officers
and key employees who can directly influence the Company's financial results.
The employees who participate in the Incentive Plan are selected at the
beginning of each fiscal year. Awards under the Incentive Plan are based on the
achievement of corporate objectives which are established annually in
conjunction with adoption of the Company's budget for the next fiscal year. At
that time, the Committee sets corporate objectives for the coming fiscal year.
For 1996, the performance measure was the Company's earnings before interest and
taxes ("EBIT"). No bonus would be paid if an EBIT threshold was not met and the
bonus would be increased for performance above the threshold up to a maximum
award on a per employee basis.
The maximum awards for participating employees under the Incentive Plan
are recommended by management of the Company subject to approval by the
Committee. An award is set at a percentage of either an employee's base salary
or a fixed amount. The maximum incentives were paid for 1996 based on the
Company's EBIT performance.
During 1996, the Committee also authorized special incentive payments for
certain employees, including the executive officers. These payments were
significantly smaller than payments under the Incentive Plan and were to reward
management for the Company's strong performance that enhanced stockholder value
during 1996.
Long-Term Incentives
The Company maintains the Stanley Furniture Company, Inc. 1994 Stock
Option Plan and the Stanley Furniture Company, Inc. 1992 Stock Option Plan (the
"Option Plans") to provide employees with options to acquire Company stock. All
options under the Option Plans must be granted at an option exercise price of
100% of the stock's fair market value on the date of a grant.
In 1996, option grants were made to officers and key employees under the
1994 Option Plan. The grants for the Named Executive Officers are shown above.
See "Compensation of Executive Officers - Option Grant Table." In 1996, the
Securities and Exchange Commission issued new rules concerning the requirement
for exemption of transactions between companies and their insiders from the
insider trading liability provisions of federal law. The Committee took the
necessary actions to maintain the status of prior grants issued under the Option
Plans as qualifying for this exemption.
Other Compensation
The Company also has a Supplemental Retirement Plan covering designated
employees and former employees of the Company, including some executive
officers. See "Compensation of Executive Officers -Defined Benefit Pension
Plans."
Chief Executive Officer Compensation
Mr. Prillaman has an employment agreement with the Company which was
primarily negotiated between Mr. Prillaman and the Company's majority
stockholder. See "Compensation of Executive Officers --Employment Agreements."
For 1996, Mr. Prillaman's base salary was maintained at the same level as in the
years 1993 to 1995.
A major portion of Mr. Prillaman's compensation is contingent on the
Company's performance. Under his employment contract, Mr. Prillaman is entitled
to a graduated bonus amount of his base salary in effect from time to time,
contingent upon the achievement of threshold profit objectives established by
the Committee at the beginning of each year. Mr. Prillaman's potential bonus
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for 1996 was maintained at 80% of his base salary. For 1996, Mr. Prillaman
received 100% of the allowable bonus. In addition, Mr. Prillaman received a
special incentive award of $50,000 based on the strong performance by the
Company during 1996. The Committee believes that the incentive payments were
justified based on the Company's performance during 1996 and its positioning
for future growth. Among other performance indicators, the Company reported
record sales and earnings for 1996. Net income increased 131% with a net
sales increase of 15.9%. Mr. Prillaman's leadership was a key component
in the Company's 1996 sales and earnings performance.
Mr. Prillaman participates in the Supplemental Retirement Plan and
receives estate planning assistance paid by the Company. In addition, the
Company has entered into a split-dollar insurance agreement with Mr. Prillaman.
See "Compensation of Executive Officers - Employment Agreements."
Mr. Prillaman has received stock option awards under the Option Plans but
did not receive an award in 1996. In 1994, Mr. Prillaman received a Company loan
to purchase 50,000 shares of Company stock. In 1996, the Committee approved an
amendment to Mr. Prillaman's loan agreement with the Company to forgive the
remaining principal amount of this loan over the Company's 1996 through 1998
fiscal years. As amended, the accrued interest plus one-third of the remaining
principal amount will be forgiven by the Company each December 31 if Mr.
Prillaman is still employed by the Company on that date. The Committee believes
that it is important for Mr. Prillaman as Chief Executive Officer to have a
meaningful stock interest in the Company to create additional incentives to
maximize stockholder value.
The members of the Compensation Committee are:
David V. Harkins
C. Hunter Boll
Edward J. Mack
9
<PAGE>
PERFORMANCE GRAPH
The following graph compares cumulative total stockholder return for the
Company with a broad performance indicator, the Nasdaq Non-Financial Stock
Index, and an industry index, the Wood Household Furniture Index, for the period
from November 10, 1992 to December 31, 1996. The Common Stock began trading on
the Nasdaq Small-Cap Market on November 10, 1992. In conjunction with a public
offering, the Common Stock began trading on The Nasdaq Stock Market on July 1,
1993. In the graph below, the Company's data points for November 10, 1992 and
December 31, 1992 represent the average of the bid and ask prices for such days.
The Company's data point for June 30, 1993 reflects the public offering price of
$8.50 per share. The Company's data points for December 31, 1993, 1994, 1995 and
1996 reflect that day's closing price of the Common Stock on The Nasdaq Stock
Market.
COMPARISON OF CUMULATIVE TOTAL RETURN (1)
STANLEY FURNITURE COMPANY, INC., WOOD HOUSEHOLD FURNITURE INDEX,
NASDAQ NON-FINANCIAL STOCK INDEX
<TABLE>
<S> <C>
11/10/92 12/31/92 6/30/93 12/31/93 12/31/94 12/31/95 12/31/96
-------- -------- ------- -------- -------- -------- --------
Stanley Furniture 100.00 100.00 94.44 148.67 111.11 88.89 220.89
Wood Household Furniture Index (2) 100.00 120.07 125.29 153.70 106.82 133.68 169.33
Nasdaq Non-Financial Stock Index (3) 100.00 111.68 116.06 128.94 123.98 172.78 209.92
</TABLE>
(1) The graph shows the cumulative total return on $100 invested on November
10, 1992 in Common Stock or specified index -including reinvestment of
dividends.
(2) SIC Code 2511 Wood Household Furniture Index as prepared by Media General
Financial Services, Inc. ("Media General"). At February 10, 1997, Media
General reported that SIC Code 2511 consisted of: Ameriwood Industries
International Corp., Bassett Furniture Industries, Inc., Bush Industries
Inc., Chromcraft Revington Inc., DMI Furniture, Inc., Ethan Allen
Interiors, Furniture Brands International, Ladd Furniture Inc., Masco
Corp., O'Sullivan Industrial Holdings, Inc., Pulaski Furniture Corp. and
Stanley Furniture Company, Inc.
(3) Nasdaq Non-Financial Stock Index prepared for The Nasdaq Stock Market by
the Center for Research in Securities Prices at the University of Chicago.
10
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a party to a Management Agreement, pursuant to which the
Company's predecessors engaged the Lee Company for the purposes of providing
them with substantial consulting services and management advisory services. The
services under this Management Agreement have been and will be in the field of
financial and strategic corporate planning and such other management areas as
the parties mutually agree. These services have included advice concerning
strategic corporate planning, potential acquisitions and financial planning. The
term of this Agreement began on September 29, 1988 and will expire upon the
earlier to occur of (i) the sale of all of the shares of Common Stock
beneficially owned by the Lee Company and certain affiliates of the Lee Company
or (ii) September 30, 1998. Effective November 18, 1996, the Company pays the
Lee Company $180,000 annually in consideration for the services provided by the
Lee Company under the Management Agreement. Prior to November 18, 1996, the
Company paid an annual fee in the amount of $250,000. Management did not obtain
bids from third parties for similar services before the Company entered into the
Management Agreement.
On December 2, 1994, the Compensation Committee awarded Albert L.
Prillaman a loan to acquire 50,000 shares under the Company's Executive Loan
Plan, and Mr. Prillaman delivered a non-recourse promissory note payable to the
Company. The promissory note bears interest at the rate of 7.6% per annum. One
tenth of the principal amount plus accrued interest is due each December 31
until 1998 and the remaining principal is due January 2, 1999. Pursuant to this
loan under the Executive Loan Plan, the accrued interest plus one tenth of the
initial principal amount will be forgiven by the Company each December 31 if Mr.
Prillaman is still employed by the Company. In December 1996, the Company
amended this loan to provide that one third of the remaining principal amount
plus the accrued interest will be forgiven by the Company on December 31 in 1996
through 1998 if Mr. Prillaman is still employed by the Company. The principal
amount outstanding under the note delivered by Mr. Prillaman was $400,000 on
January 1, 1996 and $266,667 on February 28, 1997. Upon a "change of control"
(as defined in the Executive Loan Plan) the entire principal amount plus accrued
interest is forgiven. The Company has agreed to reimburse Mr. Prillaman for
income taxes payable as a result of the forgiveness of interest and principal on
the loan amount.
11
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of February 28, 1997, by
each stockholder known by the Company to be the beneficial owner of more than 5%
of its outstanding Common Stock, by each director, by each of the Named
Executive Officers and by all directors and executive officers as a group:
<TABLE>
Amount and Nature Percent of
Name of Beneficial Ownership Class
---- ----------------------- -----
<S> <C>
ML-Lee Acquisition Fund, L.P.(a) 1,528,781(b) 33.3%
Brinson Partners, Inc. (c) 476,381(c) 10.4%
FMR Corp. (d) 433,300(d) 9.4%
Albert L. Prillaman(e) 263,576(f) 5.5%
Bobby I. Hodges(e) 43,916(g) (h)
C. William Cubberley, Jr.(e) 37,511(i) (h)
Douglas I. Payne(e) 23,862(j) (h)
William A. Sibbick(e) 16,003(l) (h)
David V. Harkins(k) 2,028(b)(m) (h)
C. Hunter Boll(k) 1,215(b)(n) (h)
Edward J. Mack(e) 3,116 (h)
All directors and executive officers as a group
(10 persons) 413,108(b)(o) 8.4%
</TABLE>
- ------------------------
(a) The business address for such beneficial owner is c/o Merrill Lynch
Investment Banking Group, World Financial Center, South Tower, New
York, New York 10080-6123.
(b) In addition, the Lee Fund II owns an aggregate of 23,779 shares (0.52%)
of the Common Stock. Each of THL Advisors I (with respect to the Lee
Fund), THL Advisors II (with respect to the Lee Fund II), Thomas H.
Lee, as Trustee of THL Advisors I and THL Advisors II and an individual
general partner of the Lee Fund and the Lee Fund II, David V. Harkins,
as Senior Vice President and Trustee of THL Advisors I and Senior Vice
President of Mezzanine II, and C. Hunter Boll, as Vice President of THL
Advisors I and Mezzanine II, may be deemed to be beneficial owners of
the 1,528,781 and 23,779 shares held by the Lee Fund and the Lee Fund
II, respectively. Each of THL Advisors I, THL Advisors II, Mr. Lee, Mr.
Harkins and Mr. Boll disclaim beneficial ownership of such shares. A
limited partnership controlled by Thomas H. Lee is also the sole
beneficiary of the 1989 Thomas H. Lee Nominee Trust (the "Trust") which
holds 17,376 (0.38%) shares of the Common Stock.
(c) The information with respect to Brinson Partners, Inc. ("BPI") is based
upon the Schedule 13G dated February 14, 1997 filed by BPI together
with Brinson Trust Company ("BTC"), Brinson Holdings, Inc. ("BHI"), SBC
Holding (USA), Inc. ("SBCUSA") and Swiss Bank Corporation ("SBC"). The
Schedule 13G indicates that BPI, BHI, SBCUSA and SBC share voting and
dispositive power with respect to the reported shares and that BTC, a
wholly-owned subsidiary of BPI, shares voting and dispositive power
with respect to 132,080 of such shares. BPI is a wholly-owned
subsidiary of BHI. BHI is a wholly-owned subsidiary of SBCUSA, which is
a wholly-owned subsidiary of SBC. The principal business address of
BPI, BTC and BHI is 209 South LaSalle, Chicago, Illinois 60604. The
principal business address of SBCUSA is 222 Broadway, New York, New
York 10038. The principal business address of SBC is Aeschenplatz
6CH-4002, Basel, Switzerland.
(d) The information concerning the shares beneficially owned by FMR Corp.
is based upon the Schedule 13G dated February 14, 1997 filed by FMR
Corp. together with Edward C. Johnson 3d, Chairman of FMR Corp.,
Abigail P. Johnson, a Director of FMR Corp., Fidelity Management &
Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp.,
Fidelity Management Trust Company, a wholly-owned subsidiary of FMR
Corp., and Fidelity Low-Priced Stock Fund (the "Fund"). Fidelity is the
beneficial owner of 250,000 shares of Common Stock as a result of
acting as investment advisor to the Fund. Edward C. Johnson 3d, FMR
Corp., through its control of Fidelity, and the Fund each has sole
power to dispose of the 250,000 shares owned by the Fund. Neither
12
<PAGE>
Edward C. Johnson 3d nor FMR Corp. has sole power to vote or direct the
voting of the shares owned by the Fund, which power resides with the
Board of Trustees of the Fund. Fidelity Management Trust Company is the
beneficial owner of 183,300 shares of Common Stock as a result of
serving as investment advisor of the institutional account(s). Edward
C. Johnson 3d and FMR Corp., through its control of Fidelity, each has
sole power to dispose of, but no power to vote or direct the voting of,
the 183,300 shares owned by the institutional account(s). The principal
business address of FMR Corp. is 82 Devonshire Street, Boston,
Massachusetts 02109.
(e) The business address for such persons is c/o Stanley Furniture Company,
Inc., 1641 Fairystone Park Highway, Stanleytown, Virginia 24168.
(f) Includes 204,679 shares which could be acquired through exercise of
stock options and pursuant to Executive Loan Plan.
(g) Includes 32,705 shares which could be acquired through exercise of
stock options.
(h) Less than 1%.
(i) Includes 32,998 shares which could be acquired through exercise of
stock options.
(j) Includes 22,497 shares which could be acquired through exercise of
stock options.
(k) The business address for such persons is c/o Thomas H. Lee Company, 75
State Street, Boston, Massachusetts 02109.
(l) Represents 16,003 shares which could be acquired through exercise of
stock options.
(m) Includes 1,290 shares Mr. Harkins may receive in respect of shares of
Common Stock he presently has a right to purchase from the Trust.
(n) Includes 774 shares Mr. Boll may receive in respect of shares of Common
Stock he presently has a right to purchase from the Trust.
(o) Includes 328,134 shares which could be acquired through exercise of
stock options and pursuant to Executive Loan Plan.
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors selected the firm of Coopers & Lybrand L.L.P. as
independent public accountants for the Company for 1997, subject to ratification
by the stockholders. Action by stockholders is not required by law in the
selection of independent public accountants, but their selection is submitted by
the Board in order to give the stockholders an opportunity to ratify the Board's
selection. If the stockholders do not ratify the selection of Coopers & Lybrand
L.L.P., the Board of Directors will reconsider the selection of independent
public accountants. Unless otherwise specified, shares represented by proxies
will be voted for the ratification of the selection of Coopers & Lybrand L.L.P.,
as independent public accountants for 1997.
Representatives of Coopers & Lybrand L.L.P. are expected to be present
at the Annual Meeting. Such representatives will have the opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions.
OTHER BUSINESS
Management knows of no other business which will be presented for
consideration at the Annual Meeting, but should any other matters be brought
before the meeting, it is intended that the persons named in the accompanying
proxy will vote such proxy at their discretion.
ADDITIONAL INFORMATION
Voting Procedures. Votes will be tabulated by one or more Inspectors of
Elections. Except for the election of directors, approval of the matters to be
considered at the meeting will require the affirmative vote of the holders of at
least a majority of the shares of outstanding Common Stock represented at the
meeting, unless otherwise indicated. If a stockholder, present in person or by
proxy, abstains on any matter, the stockholder's shares will not be voted on
such matter. Thus an abstention from voting on a matter has the same legal
13
<PAGE>
effect as a vote "against" the matter, even though the stockholder may interpret
such action differently. With respect to the election of directors, the two
nominees in the case of the class which term ends in 2000 and the one nominee in
the case of the class which term ends in 1999 receiving the greatest number of
votes cast for the election of directors will be elected.
A majority of the shares entitled to vote, represented in person or by
proxy, will constitute a quorum for the transaction of business at the meeting.
Shares for which the holder has elected to abstain or to withhold the proxies'
authority to vote on a matter will count toward a quorum. "Broker non-votes"
will not count toward a quorum and will not be voted on any matter to be
considered at the meeting.
Stockholder Proposals for 1998 Annual Meeting. Any stockholder desiring
to present a proposal to the stockholders at the 1998 Annual Meeting and who
desires that such proposal be included in the Company's proxy statement and
proxy card relating to that meeting, must transmit such to the Secretary of the
Company so that it is received at the Company's principal executive offices on
or before November 11, 1997. All such proposals should be in compliance with
applicable Securities and Exchange Commission regulations.
By Order of the Board of Directors,
Douglas I. Payne
Secretary
March 11, 1997
14
<PAGE>
REVOCABLE PROXY
STANLEY FURNITURE COMPANY, INC.
Annual Meeting of Stockholders - April 24, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Douglas I. Payne and David W. Robertson
and either of them, proxies of the undersigned, with full power of substitution,
to vote all the shares of Common Stock of Stanley Furniture Company, Inc. (the
"Company") held of record by the undersigned on February 28, 1997, at the Annual
Meeting of Stockholders to be held April 24, 1997, and at any adjournment
thereof.
(1) ELECTION OF DIRECTORS FOR THREE-YEAR TERM ENDING 2000
<TABLE>
<S> <C>
( ) FOR all nominees listed below (except as indicated ( ) WITHHOLD AUTHORITY to vote for all nominees listed below
otherwise below)
</TABLE>
NOMINEES: David V. Harkins and Albert L. Prillaman
INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
such nominee's name in the space provided below.
- -------------------------------------------------------------------------------
(2) ELECTION OF DIRECTOR FOR TWO-YEAR TERM ENDING 1999
<TABLE>
<S> <C>
( ) FOR nominee listed below ( ) WITHHOLD AUTHORITY to vote for nominee listed below
</TABLE>
NOMINEE: T. Scott McIlhenny, Jr.
(3) Ratification of the selection of Coopers & Lybrand L.L.P. as independent
public accountants of the Company for 1997.
( ) FOR ( ) AGAINST ( ) ABSTAIN
(4) In their discretion the proxies are authorized to vote upon such other
matters as may come before the meeting or any adjournment thereof.
All as more particularly described in the Company's Proxy Statement for the
Annual Meeting of Stockholders to be held on April 24, 1997, receipt of which is
hereby acknowledged.
(Continued and to be dated and signed on reverse side)
<PAGE>
(continued from reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED BY THE
UNDERSIGNED STOCKHOLDER. IF NO CHOICE IS SPECIFIED BY THE STOCKHOLDER, THIS
PROXY WILL BE VOTED "FOR" ALL PORTIONS OF ITEMS (1), (2), AND (3), AND IN THE
PROXIES' DISCRETION ON ANY OTHER MATTERS COMING BEFORE THE MEETING.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
upon or act with respect to such stock and hereby ratifies and confirms all that
said proxies, their substitutes or any of them may lawfully do by virtue hereof.
Please date this Proxy Card and sign
your name exactly as it appears hereon.
Where there is more than one owner, each
should sign. When signing as an
attorney, administrator, executor,
guardian or trustee, please add your
title as such. If executed by a
corporation, this Proxy Card should be
signed by a duly authorized officer. If
executed by a partnership, please sign
in partnership name by authorized
persons.
Dated ___________________________, 1997.
----------------------------------------
----------------------------------------
Please promptly mark, sign, and mail
this Proxy Card in the enclosed
envelope. No postage is required.
