SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14 a-11(c) or ss. 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 the Registrant)
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pursuant to Exchange Act Rule 0-11(Set forth the amount on which
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<PAGE>
Stanley Furniture Company, Inc.
1641 Fairystone Park Highway
Stanleytown, Virginia 24168
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held April 30, 1998
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 30, 1998, 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 approve a proposal, previously approved by the
Company's Board of Directors, to amend the Company's Certificate of
Incorporation to require unanimous written consent for stockholder
actions taken without a meeting;
(3) To approve a proposal, previously approved by the
Company's Board of Directors, to amend the Company's Certificate of
Incorporation to increase the percentage of shares of common stock
required to approve mergers and certain other corporate transactions to
two-thirds of the shares of common stock then outstanding;
(4) To ratify the selection of Coopers & Lybrand L.L.P. as the
independent public accountants for the Company for 1998; and
(5) 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 March 12, 1998 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 19, 1998
<PAGE>
Stanley Furniture Company, Inc.
1641 Fairystone Park Highway
Stanleytown, Virginia 24168
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
April 30, 1998
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 30, 1998, 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 19, 1998 to all holders of record of
the Company's common stock, $.02 par value (the "Common Stock") on March 12,
1998. 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 March 12, 1998 there were 3,437,259 shares of Common Stock
outstanding and entitled to vote.
ELECTION OF DIRECTORS
The Board of Directors of the Company presently consists of five
directors who are divided into three classes with staggered terms. The term of
Mr. Edward J. Mack expires at the time of the 1998 Annual Meeting of
Stockholders. The Company proposes the reelection of Mr. Mack for a three-year
term expiring at the time of the 2001 Annual Meeting. Before the 1998 Annual
Meeting of Stockholders, Mr. C. Hunter Boll will resign from the Board of
Directors. The Board of Directors has nominated Thomas L. Millner to serve as
director for a three-year term expiring at the time of the 2001 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,
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.
<PAGE>
Nominees for Election for Three-Year Term Ending 2001
Edward J. Mack, 82, has been a Director of the Company since January
17, 1989. From 1948 to 1981, Mr. Mack served in various capacities with
Burlington Industries, Inc., including director and Executive Vice President
with responsibility for Burlington's furniture operations. He has been an
independent consultant, primarily with Burlington Industries, Inc., and
President of Global Business Services, LTD, an international trading company,
for more than five years.
Thomas L. Millner, 44, has been President and Chief Operating Officer
of Remington Arms Company, Inc., a manufacturer of sporting good products for
the hunting, shooting sports and fishing markets, since May 1994 and a director
of Remington and RACI Holding, Inc., Remington's parent, since June 1994. From
1987 to May 1994, Mr. Millner served as Chief Executive Officer and President of
The Pilliod Cabinet Company. From 1984 to 1987, Mr. Millner served as General
Manager of the Armstrong Furniture Division of Thomasville Furniture Industries.
From 1977 to 1984, Mr. Millner served in various sales and sales management
positions with Thomasville Furniture Industries and Broyhill Furniture
Industries.
Directors Whose Terms Do Not Expire this Year
David V. Harkins, 57, has been a Director of the Company since
September 1988 and his present term will expire in 2000. 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 ML-Lee Acquisition Fund, L.P. (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 a director and Chairman of the Board of National Dentex Corporation
and also a director of First Alert, Inc. and HomeSide Lending, Inc.
T. Scott McIlhenny, Jr., 50, has been a Director of the Company since
April 1997 and his present term will expire in 1999. Mr. McIlhenny 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.
Albert L. Prillaman, 52, has been a Director of the Company since March
1986 and his present term will expire in 2000. Mr. Prillaman has been 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 and First Alert, Inc.
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<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Company has an Audit Committee, presently consisting of Messrs.
Boll, Mack and McIlhenny, which is charged with evaluating accounting and
control procedures and practices of the Company and reporting on such to the
Board of Directors. The Audit Committee also serves as direct liaison with the
Company's independent public accountants and recommends the selection or
discharge of such accountants.
The Audit Committee met twice in 1997.
The Company has a Compensation Committee, presently consisting of
Messrs. Harkins, Boll, Mack and McIlhenny, 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 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 twice during 1997.
The full Board of Directors met six times during 1997. Each incumbent
director, other than Mr. Boll, attended or acted upon at least 75% of the total
1997 board meetings and committee meetings held during periods that he was a
member of the Board or such committees.
Mr. McIlhenny and Mr. Mack each 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 1997.
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.
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<PAGE>
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
complied with such filing requirements, except that Joe G. Bost, Vice
President-Product Development and Merchandising-Upholstery until April 1997,
filed a late report with respect to one purchase transaction.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth, for the years ended December 31, 1997,
1996 and 1995, the annual and long-term compensation for services in all
capacities to the Company of those persons who at December 31, 1997 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, 1997 (collectively, the "Named Executive Officers").
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------------ ------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options (#) Compensation(1)
--------------------------- ---- ------ ----- ------------ ----------- ---------------
<S> <C>
ALBERT L. PRILLAMAN 1997 $350,040 $350,000 $298,570(2) --- $25,380
Chairman, President and Chief 1996 310,000 298,000 319,514(2) --- 25,406
Executive Officer............... 1995 310,000 94,990 169,646(2) --- 22,331
C. WILLIAM CUBBERLEY, JR. 1997 $215,016 $129,000 $1,396 --- $3,200
Senior Vice President - Sales and 1996 205,008 143,000 1,412 --- 3,000
Marketing....................... 1995 195,000 44,814 1,426 15,000 ---
BOBBY I. HODGES 1997 $175,008 $105,000 $3,995 --- $3,200
Senior Vice President - 1996 160,008 85,000 3,408 --- 3,000
Manufacturing................... 1995 149,100 19,151 2,908 15,000 ---
DOUGLAS I. PAYNE
Senior Vice President - Finance 1997 $150,012 $90,000 $122 --- $3,362
and Administration, 1996 136,008 70,000 173 10,000 2,939
Treasurer and Secretary......... 1995 126,000 13,406 218 15,000 ---
WILLIAM A. SIBBICK
Vice President - Product 1997 $136,008 $60,000 $444 --- $3,557
Development and Merchandising - 1996 136,008 57,500 479 --- 2,939
Dining Room and Occasional (3).. 1995 126,000 13,406 414 12,500 ---
- ------------
</TABLE>
(1) All Other Compensation listed for Mr. Prillaman reflects premiums paid by
the Company in connection with a split-dollar life insurance agreement and
premiums paid on a term life insurance policy. The 1997 and 1996 amounts
include employer contributions to the Company's 401(k) Plan for each of
Messrs. Prillaman, Cubberley, Hodges, 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 $283,837, $302,704 and $156,049 for 1997, 1996 and 1995,
respectively. See "Certain Relationships and Related Transactions".
(3) Mr. Sibbick became Senior Vice President-Sales in December 1997.
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<PAGE>
Option Grants In Last Fiscal Year
No individual grants of stock options were made during the year ended
December 31, 1997 to the Named Executive Officers.
Option Value Table
The following table sets forth information concerning the number and
value of unexercised options for each of the Named Executive Officers as of
December 31, 1997.
<TABLE>
1997 YEAR END OPTION VALUES
<CAPTION>
Number of Securities Underlying
Unexercised Options Value of Unexercised In-the-Money
Name at Fiscal Year End (#) Options at Fiscal Year End ($)(1)
---- ------------------------ ----------------------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C>
Albert L. Prillaman........... 197,445 42,765 $3,568,897 $764,432
C. William Cubberley, Jr...... 43,998 14,000 802,211 257,750
Bobby I. Hodges............... 43,364 13,659 791,979 251,651
Douglas I. Payne.............. 31,920 16,423 558,162 262,811
William A. Sibbick............ 22,003 8,500 403,433 158,188
- -----------
</TABLE>
(1) In-the-Money Options are those for which the December 31, 1997 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, which was
initially $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 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. If the Company gives such notice, Mr. Prillaman is
entitled to severance pay during the two years following termination in an
amount equal to his base salary plus the average of bonuses paid for the three
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 had entered into an employment agreement with
C. William Cubberley, Jr., who served as Senior Vice President-Sales and
Marketing of the Company until December 31, 1997. This agreement was on similar
terms as discussed above with respect to Mr. Prillaman, except that Mr.
Cubberley served as a Senior Vice President, his base salary was at least
$170,000, and he was entitled to receive a graduated bonus amount up to a
maximum of 60% of his base salary in effect from time to time. Mr. Cubberley is
currently serving as a sales representative for the Company pursuant to an
agreement which provides that if there is a change in control (as defined in the
agreement) and the Company elects to terminate the agreement, he is entitled to
receive a lump sum amount equal to $20,000 per month (his base commission under
the agreement) from the date of termination to December 31, 1999 (calculated on
a daily basis).
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<PAGE>
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, 1997 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.
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 that 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 individual
goals, with varying weight being given to such 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
6
<PAGE>
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 to the Company 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. The Company's
stock loan agreement with Mr. Prillaman has been structured to preserve
deductibility for compensation that may be generated under that agreement. If
these limitations should become of broader applicability to the Company, the
Committee will consider modifications to the Company's compensation practices,
to the extent practicable, to provide the maximum deductibility for compensation
payments.
The Company's compensation package for its executive officers consists
of base salary, annual performance-based incentive compensation, stock option
grants, 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 that 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.
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 that are established annually in conjunction
with adoption of the Company's budget for the next year. At that time, the
Committee sets corporate objectives for the coming year. For 1997, 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 a set percentage of either the employee's base salary or
a fixed amount. The maximum incentives were paid for 1997 based on the Company's
EBIT performance.
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 Common Stock. All
options under the Option Plans must be granted at an option exercise price of
100% of the stock's fair market value on the date of grant.
In 1997, option grants were made to officers and key employees under
the Option Plan; however, no grants were made to the Named Executive Officers.
7
<PAGE>
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 that is
described under "Compensation of Executive Officers - Employment Agreements."
For 1997, Mr. Prillaman's base salary was increased by 13%. This was the first
increase for Mr. Prillaman since 1993. The Committee determined that the
increase was appropriate given the substantial improvements in the Company's
performance over that period and the length of time since the last increase.
A major portion of Mr. Prillaman's compensation is contingent on the
Company's performance. In 1997, Mr. Prillaman participated in the Incentive Plan
with the same corporate objectives and performance measures as other corporate
officers. The Committee set Mr. Prillaman's potential bonus for 1997 at 100% of
his base salary. The Committee believes that this bonus level was appropriate
because Mr. Prillaman's leadership continues to be a key component in the
Company's performance and because his base compensation had not been increased
since 1993. For 1997, Mr. Prillaman received the same percentage of the
allowable bonus as the other corporate officers.
Mr. Prillaman participates in the Supplemental Retirement Plan. In
addition, the Company has entered into a split-dollar life 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 1997. Mr. Prillaman has also received a Company
loan to purchase Common Stock. Pursuant to this loan under the Executive Loan
Plan, the accrued interest plus one third of the principal amount is 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
CEO to have a meaningful stock interest in the Company to create additional
incentives to maximize stockholder value.
Mr. T. Scott McIlhenny, Jr. became a member of the Compensation
Committee in April 1997. Mr. McIlhenny did not take part in any decisions
regarding determination of 1997 salaries or bonuses.
The members of the Compensation Committee are:
C. Hunter Boll
David V. Harkins
Edward J. Mack
T. Scott McIlhenny, Jr.
8
<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 December 31, 1992 to December 31, 1997. 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 point for December 31, 1992
represents the average of the bid and ask prices for such day. 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, 1996 and
1997 reflect that day's closing price of the Common Stock on The Nasdaq Stock
Market.
<TABLE>
<CAPTION>
12/31/92 6/30/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
<S> <C>
Stanley Furniture 100.00 94.44 148.61 111.11 88.89 220.83 309.72
Wood Household Furniture Index (2) 100.00 104.35 128.01 88.97 111.34 141.03 202.44
Nasdaq Non-Financial Stock Index (3) 100.00 103.92 115.46 111.02 154.73 188.02 220.65
</TABLE>
(1) The graph shows the cumulative total return on $100 invested on December
31, 1992 in Common Stock or the specified index - including reinvestment of
dividends.
(2) SIC Code 2511 Wood Household Furniture Index as prepared by Media General
Financial Services, Inc. ("Media General"). At February 12, 1998, Media
General reported that SIC Code 2511 consisted of: Ameriwood Industries
International Corporation, Bassett Furniture Industries, Inc., Bush
Industries, Inc., Chromcraft Revington, Inc., DMI Furniture, Inc., Ethan
Allen Interiors Inc., Furniture Brands International, Inc., Ladd Furniture,
Inc., Masco Corporation, Meadowcraft, Inc., O'Sullivan Industrial Holdings,
Inc., Pulaski Furniture Corporation 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.
9
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was 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 were in the field of financial and
strategic corporate planning and such other management areas as the parties
mutually agreed. These services have included advice concerning strategic
corporate planning, potential acquisitions and financial planning. The term of
this Agreement began in September 1988 and terminated in November 1997. The
Company paid the Lee Company $125,000 during 1997 in consideration for the
services provided by the Lee Company under the Management Agreement. Management
did not obtain bids from third parties for similar services before the Company
entered into the Management Agreement.
During 1997, the Company purchased 1,163,201 shares of its Common Stock
from the Lee Fund and certain of its affiliates, including 1,050 and 123 shares
from Mr. Harkins (and members of his family) and Mr. Boll, respectively. The
aggregate purchase price was $25,330,025, of which $23,530 and $3,075 was
received by Mr. Harkins (and members of his family) and Mr. Boll, respectively.
See "Election of Directors-Directors Whose Terms Do Not Expire this Year," for a
description of Mr. Harkins's positions with the Lee Company and affiliated
entities, as well as their relationship with the Lee Fund. Mr. Boll is a
Managing Director of the Lee Company and a Vice President of THL Advisors and
Mezzanine II.
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 $266,667 on
January 1, 1997 and $133,334 on March 12, 1998. 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.
10
<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 March 12, 1998, by each
stockholder known by the Company to be the beneficial owner of more than 5% of
its outstanding Common Stock, by each director and director nominee, by each of
the Named Executive Officers and by all directors and executive officers as a
group:
<TABLE>
<CAPTION>
<S> <C>
Amount and Nature Percent
Name of Beneficial Ownership of Class
---- ----------------------- --------
Brinson Partners, Inc. and affiliated entities (a)................. 314,522 (a) 9.2%
Albert L. Prillaman (b)............................................ 306,342 (c) 8.3%
FMR Corp. (d)...................................................... 249,400 (d) 7.3%
J.P. Morgan & Co. Incorporated (e)................................. 210,400 (e) 6.1%
U.S. Bancorp (f)................................................... 202,507 (f) 5.9%
Bobby I. Hodges (b)................................................ 54,575 (g) 1.6%
C. William Cubberley, Jr. (b)...................................... 48,511 (h) 1.4%
Douglas I. Payne (b)............................................... 33,285 (i) 1.0%
William A. Sibbick (b)............................................. 22,003 (j) (k)
David V. Harkins (l)............................................... --- ---
C. Hunter Boll (l)................................................. --- ---
Edward J. Mack (b)................................................. 3,116 (k)
T. Scott McIlhenny (b)............................................. 1,000 (k)
Thomas L. Millner (b).............................................. 900 (k)
All directors and executive officers as a group (10 persons)....... 484,587 (m) 12.6%
- ------------------------
</TABLE>
(a) The information with respect to Brinson Partners, Inc. ("BPI") is based
upon the Schedule 13G dated February 11, 1998 filed by BPI together with
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 310,881
shares and SBCUSA and SBC share voting and dispositive power with respect
to an additional 3,641 shares. The principal business address of BPI 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 6 CH-4002, Basel, Switzerland.
(b) The business address for such persons is c/o Stanley Furniture Company,
Inc., 1641 Fairystone Park Highway, Stanleytown, Virginia 24168.
(c) Includes 247,445 shares which could be acquired through the exercise of
stock options and pursuant to the Executive Loan Plan. (d) The information
concerning the shares beneficially owned by FMR Corp. is based upon the
Schedule 13G dated February 14, 1998
filed by FMR Corp. together with Edward C. Johnson 3d, Chairman of FMR
Corp., and Abigail P. Johnson, a director of FMR Corp. Fidelity Management
& Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp., is
the beneficial owner of 249,400 shares of Common Stock as a result of
acting as investment advisor to various investment companies (the "Funds").
Edward C. Johnson 3d and FMR Corp., through its control of Fidelity, each
has sole power to dispose of the 249,400 shares owned by the Funds. Neither
Edward C. Johnson 3d nor FMR Corp. has sole power to vote or direct the
voting of the shares owned by the Funds, which power resides with the Board
of Trustees of each Fund. The principal business address of FMR Corp. is 82
Devonshire Street, Boston, Massachusetts 02109.
(e) The information with respect to J.P. Morgan & Co. Incorporated ("J.P.
Morgan") is based upon the Schedule 13G dated February 13, 1998. The
Schedule 13G indicates that J.P. Morgan has sole voting power with respect
to 176,600 shares and sole dispositive power with respect to 210,400
shares. The principal business address of J.P. Morgan is 60 Wall Street,
New York, New York 10260.
(f) The information with respect to U.S. Bancorp is based upon the Schedule 13G
dated February 9, 1998. The Schedule 13G indicates that U.S. Bancorp has
sole voting power with respect to 201,907 shares, sole dispositive power
with respect to 201,107 shares and shared dispositive power with respect to
500 shares. The principal business address of U.S. Bancorp is 601 2nd Ave.
South, Minneapolis, Minnesota 55402-4302.
(g) Includes 43,364 shares which could be acquired through the exercise of
stock options.
(h) Includes 43,998 shares which could be acquired through the exercise of
stock options.
(i) Includes 31,920 shares which could be acquired through the exercise of
stock options.
(j) Represents 22,003 shares which could be acquired through the exercise of
stock options.
(k) Less than 1%.
(l) The business address for such persons is c/o Thomas H. Lee Company, 75
State Street, Boston, Massachusetts 02109.
(m) Includes 402,856 shares which could be acquired through the exercise of
stock options and pursuant to the Executive Loan Plan.
11
<PAGE>
PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO
REQUIRE UNANIMOUS WRITTEN CONSENT OF STOCKHOLDERS
The Board has unanimously approved, and recommends to the stockholders
that they adopt, an amendment to the Company's Certificate of Incorporation to
provide that any stockholder action taken without a meeting must be signed by
all the stockholders entitled to vote thereon. The full text of the proposed
amendment is attached to this Proxy Statement as Exhibit A, which stockholders
are urged to read carefully. The proposal of this amendment, as well as the
amendment discussed below, is not the result of any specific effort of which the
Company is aware to accumulate Common Stock or to obtain control of the Company.
Delaware corporate law authorizes stockholder action without a meeting
by the written consent of the holders of outstanding stock having not less than
the minimum number of votes necessary to take action at a meeting at which all
shares entitled to vote thereon were present and voted, unless the corporation's
certificate of incorporation provides otherwise. The effect of the proposed
amendment would be that any stockholder action taken without a meeting must be
approved by the signed written consent of all of the stockholders entitled to
vote on such action. Consequently, the holders of less than all of the voting
power of the Common Stock could not use the written consent procedure to take
stockholder action without advising or consulting with all other stockholders.
Providing for unanimous written consent of the stockholders is consistent with
general corporate practice and ensures that all stockholders will have notice of
and the ability to vote upon any action required to be taken, or which may be
taken, at an annual or special meeting of stockholders.
The proposed amendment could discourage or make more difficult (i) an
acquisition of the Company, through merger, consolidation or other business
combination, even those which some stockholders may deem to be in their best
interests, or (ii) the assumption of control by a principal stockholder, and
thus to make the removal of incumbent management more difficult. However, the
requirement of unanimous stockholder action by written consent would give all
stockholders of the Company, entitled to vote on a particular matter, notice of
and the opportunity to participate in the determination of any proposed action
on such matter, and the chance to take action to protect their interests.
The affirmative vote of a majority of the outstanding shares of Common
Stock is required to adopt the proposed amendment to the Company's Certificate
of Incorporation. The Board unanimously recommends a vote "FOR" approval of this
proposed amendment.
PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO
REQUIRE TWO-THIRDS VOTE TO APPROVE CERTAIN TRANSACTIONS
The Board has unanimously approved, and recommends to the stockholders
that they adopt, an amendment to the Company's Certificate of Incorporation to
require the affirmative vote of at least 66-2/3% of the outstanding shares of
Common Stock entitled to vote to approve Fundamental Corporate Transactions (as
defined below) and to amend, alter or delete from the Certificate of
Incorporation the foregoing voting requirements. Fundamental Corporate
Transactions are proposals (i) to sell all or substantially all the Company's
property and assets; (ii) to dissolve or liquidate the Company; (iii) to merge
or consolidate the Company. The full text of the proposed amendment is attached
to this proxy statement as Exhibit B, which stockholders are urged to read
carefully.
Delaware corporate law provides that these transactions require the
approval of the holders of a majority of the outstanding shares of the
corporation entitled to vote, unless the certificate of incorporation requires
otherwise. The effect of the proposed amendment will be to make it more
difficult to engage in any Fundamental Corporate Transaction since such
transactions must be approved by at least 66-2/3% of the outstanding shares of
Common Stock entitled to vote thereon. The Board believes that Fundamental
Corporate Transactions should only be approved with broad support from the
stockholders. It should be noted that the proposed amendment will apply to every
Fundamental Corporate Transaction, whether or not
12
<PAGE>
approved and recommended to the stockholders by the Company's Board of
Directors. However, the Board of Directors believes that corporations generally
are able to obtain the affirmative vote by holders of at least two-thirds of
shares entitled to vote in situations in which such transactions are approved
and recommended by the board of directors.
The proposed amendment could discourage or make more difficult (i) an
acquisition of the Company through merger, consolidation or other business
combination, even those which some stockholders may deem to be in their best
interests, or (ii) the assumption of control by a principal stockholder, and
thus to make the removal of incumbent management more difficult. The Board of
Directors does not presently contemplate recommending the adoption of any
further amendments to the Certificate of Incorporation, other than those set
forth in this proxy statement, which would affect the ability of third parties
to acquire control of the Company.
The affirmative vote of a majority of the outstanding shares of Common
Stock is required to adopt the proposed amendment to the Company's Certificate
of Incorporation. The Board unanimously recommends a vote "FOR" approval of this
proposed amendment.
13
<PAGE>
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 1998, 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 1998.
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
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 class which term ends in 2001 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 1999 Annual Meeting. Any stockholder desiring
to present a proposal to the stockholders at the 1999 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 19, 1998. 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 19, 1998
14
<PAGE>
EXHIBIT A
Article SIXTH of the Certificate of Incorporation of the Corporation is
hereby amended by inserting the following as a new paragraph 6:
6. Any action required to be taken at any annual or special
meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by
all the stockholders entitled to vote thereon.
A-1
<PAGE>
EXHIBIT B
Article SIXTH of the Certificate of Incorporation of the Corporation is
hereby amended by inserting the following as a new paragraph 7:
7. As to the following matters, the affirmative vote of
66-2/3% of the shares entitled to vote shall be required to
approve any proposed stockholder action which otherwise
requires stockholder approval under the Delaware General
Corporation Law: (a) to sell, exchange, transfer or otherwise
dispose of all or substantially all of the Corporation's
property and assets; (b) to dissolve or liquidate the
Corporation; (c) to merge or consolidate the Corporation with
or into another corporation; or (d) to amend, alter or delete
from the Certificate of Incorporation this paragraph 7 of
Article SIXTH.
B-1
<PAGE>
REVOCABLE PROXY
STANLEY FURNITURE COMPANY, INC.
Annual Meeting of Stockholders - April 30, 1998
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 March 12, 1998, at the Annual
Meeting of Stockholders to be held April 30, 1998, and at any adjournment
thereof.
<TABLE>
(1) ELECTION OF DIRECTORS FOR THREE-YEAR TERM ENDING 2001
<S> <C>
[ ] FOR all nominees listed below (except as indicated otherwise [ ] WITHHOLD AUTHORITY to vote for all nominees listed
below) below
NOMINEES: Edward J. Mack and Thomas L. Millner
INSTRUCTIONS: To withhold authority to vote for any individual nominee, write such nominee's name in the space provided below.
---------------------------------------------------------------------------
(2) APPROVAL OF PROPOSED AMENDMENT TO REQUIRE UNANIMOUS WRITTEN CONSENT OF STOCKHOLDERS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) APPROVAL OF PROPOSED AMENDMENT TO REQUIRE TWO-THIRDS VOTE TO APPROVE CERTAIN TRANSACTIONS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) Ratification of the selection of Coopers & Lybrand L.L.P. as independent public accountants
of the Company for 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) 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 30, 1998, receipt of which is
hereby acknowledged.
(Continued and to be dated and signed on reverse side)
- -------------------------------------------------------------------------------
</TABLE>
(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), (3) AND (4), 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 ___________________________, 1998.
----------------------------------------
----------------------------------------
Please promptly mark, sign, and mail
this Proxy Card in the enclosed
envelope. No postage is required.
