UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
------ Exchange Act of 1934
For the quarterly period ended March 27, 1999 or
------ Transition report pursuant to Section 13 or 15(d)of the Securities
Exchange Act of 1934
For the transition period from to .
Commission file number 0-14938.
STANLEY FURNITURE COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 54-1272589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1641 Fairystone Park Highway, Stanleytown, Virginia 24168
(Address of principal executive offices, Zip Code)
(540) 627-2000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of April 8, 1999.
Class Number
Common Stock, par value $.02 per share 7,117,742 Shares
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
(Unaudited)
March 27, December 31,
1999 1998
__________ __________
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................. $ 2,819 $ 6,791
Accounts receivable, less allowances of $2,175 and $1,906............ 34,258 29,141
Inventories:
Finished goods..................................................... 21,223 22,853
Work-in-process.................................................... 7,427 7,495
Raw materials...................................................... 17,521 16,166
__________ __________
46,171 46,514
Prepaid expenses and other current assets............................ 865 903
Deferred income taxes................................................ 2,429 1,980
__________ __________
Total current assets............................................... 86,542 85,329
Property, plant and equipment, net..................................... 53,253 52,474
Goodwill, less accumulated amortization of $3,444 and $3,360........... 9,996 10,080
Other assets........................................................... 6,427 6,491
__________ __________
$ 156,218 $ 154,374
========== ==========
LIABILITIES
Current liabilities:
Current maturities of long-term debt................................. $ 5,136 $ 5,136
Accounts payable..................................................... 20,451 21,837
Accrued salaries, wages and benefits................................. 11,722 11,939
Other accrued expenses............................................... 4,826 2,009
__________ __________
Total current liabilities.......................................... 42,135 40,921
Long-term debt, exclusive of current maturities........................ 34,118 38,403
Deferred income taxes.................................................. 11,143 10,694
Other long-term liabilities............................................ 1,988 1,988
__________ __________
Total liabilities.................................................... 89,384 92,006
__________ __________
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares authorized,
7,117,742 and 7,069,715 issued and outstanding......................... 142 141
Capital in excess of par value......................................... 37,350 37,073
Retained earnings...................................................... 29,342 25,154
__________ __________
Total stockholders' equity........................................... 66,834 62,368
__________ __________
$ 156,218 $ 154,374
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<CAPTION>
Three Months Ended
March 27, March 28,
1999 1998
__________ __________
<S> <C> <C>
Net sales.............................................................. $63,661 $57,691
Cost of sales.......................................................... 47,615 43,546
__________ __________
Gross profit......................................................... 16,046 14,145
Selling, general and administrative expenses........................... 8,241 7,752
__________ __________
Operating income..................................................... 7,805 6,393
Other expense, net..................................................... 177 34
Interest expense....................................................... 873 1,084
__________ __________
Income before income taxes........................................... 6,755 5,275
Income taxes........................................................... 2,567 2,005
__________ __________
Net income........................................................... $ 4,188 $ 3,270
========== ==========
Earnings per share:
Basic................................................................ .59 .48
Diluted.............................................................. .54 .41
Weighted average shares outstanding:
Basic................................................................ 7,089 6,874
Diluted.............................................................. 7,816 7,898
</TABLE>
The accompanying notes are an integral part of thefinancial statements.
<PAGE>
<TABLE>
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
Three Months Ended
March 27, March 28,
1999 1998
__________ __________
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers........................................... $ 58,337 $ 53,836
Cash paid to suppliers and employees................................... (55,282) (51,503)
Interest paid.......................................................... (924) (1,183)
Income taxes received (paid), net...................................... 376 (37)
__________ __________
Net cash provided by operating activities............................ 2,507 1,113
__________ __________
Cash flows from investing activities:
Capital expenditures................................................... (2,261) (1,012)
Purchase of other assets............................................... (28) (24)
__________ __________
Net cash used by investing activities................................ (2,289) (1,036)
__________ __________
Cash flows from financing activities:
Proceeds from revolving credit facility, net........................... 5,098
Repayment of senior notes.............................................. (4,285) (4,286)
Purchase and retirement of common stock................................ (183)
Proceeds from exercised stock options.................................. 278 72
__________ __________
Net cash provided (used) by financing activities..................... (4,190) 884
__________ __________
Net increase (decrease) in cash........................................ (3,972) 961
Cash at beginning of year.............................................. 6,791 756
__________ __________
Cash at end of quarter............................................... $ 2,819 $ 1,717
========== ==========
Reconciliation of net income to net cash provided
by operating activities:
Net income............................................................. $ 4,188 $ 3,270
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........................................ 1,493 1,416
Loss on sale of assets............................................... 106
Changes in assets and liabilities:
Accounts receivable................................................ (5,117) (3,868)
Inventories........................................................ 343 (2,712)
Prepaid expenses and other current assets, net..................... (34) 914
Accounts payable................................................... (1,386) 876
Accrued salaries, wages and benefits............................... (217) (14)
Other accrued expenses............................................. 3,000 1,116
Other assets....................................................... 131 115
__________ __________
Net cash provided by operating activities.............................. $ 2,507 $ 1,113
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(In thousands)
1. Preparation of Interim Financial Statements
The financial statements of Stanley Furniture Company, Inc. (referred to as
"Stanley" or the "Company") have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission ("SEC"). In the opinion of
management, these statements include all adjustments necessary for a fair
presentation of the results of all interim periods reported herein. All such
adjustments are of a normal recurring nature. Certain information and footnote
disclosures prepared in accordance with generally accepted accounting principles
have been either condensed or omitted pursuant to SEC rules and regulations.
However, management believes that the disclosures made are adequate for a fair
presentation of results of operations and financial position. It is suggested
that these financial statements be read in conjunction with the financial
statements and accompanying notes included in Stanley's latest Annual Report on
Form 10-K.
2. Property, Plant and Equipment
<TABLE>
<CAPTION>
(Unaudited)
March 27, December 31,
1999 1998
__________ __________
<S> <C> <C>
Land and buildings............................................ $34,583 $34,699
Machinery and equipment....................................... 52,342 51,728
Office fixtures and equipment................................. 1,772 1,772
Construction in progress...................................... 3,520 1,876
__________ __________
Property, plant and equipment, at cost...................... 92,217 90,075
Less accumulated depreciation................................. 38,964 37,601
__________ __________
Property, plant and equipment, net.......................... $53,253 $52,474
========== ==========
3. Long-Term Debt
(Unaudited)
March 27, December 31,
1999 1998
__________ __________
7.28% senior notes due March 15, 2004......................... $21,429 $25,714
7.57% senior note due June 30, 2005........................... 7,825 7,825
7.43% senior notes due November 18, 2007...................... 10,000 10,000
Revolving credit facility..................................... - -
__________ __________
Total....................................................... 39,254 43,539
Less current maturities....................................... 5,136 5,136
__________ __________
Long-term debt, exclusive of current maturities.............. $34,118 $38,403
========== ==========
</TABLE>
In March 1999, the revolving credit facility was amended to reduce interest on
borrowings to prime or at the Company's option at a rate equal to the reserve
adjusted LIBOR rate plus .75% per annum.
4. Earnings Per Common Share
Basic earnings per common share are based upon the weighted average shares
outstanding. Outstanding stock options are treated as common stock equivalents
for purposes of computing diluted earnings per share. Basic and diluted earnings
per share are calculated using the following share data (unaudited):
<TABLE>
<CAPTION>
March 27, March 28,
1999 1998
__________ __________
<S> <C> <C>
Weighted average shares outstanding for basic
calculation............................................... 7,089 6,874
Add: Effect of stock options................................. 727 1,024
__________ __________
Weighted average shares outstanding,
adjusted for diluted calculation....................... 7,816 7,898
========== ==========
</TABLE>
The Company effected a two-for-one stock split, distributed in the form of a
stock dividend on May 15, 1998, to stockholders of record on May 1, 1998. All
related amounts have been retroactively adjusted to reflect the stock split.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales increased $6.0 million, or 10.3%, for the three month period ended
March 27, 1999, from the comparable 1998 period. The increase was due to higher
unit volume and to a lesser extent higher average selling prices.
Gross profit margin for the three month period of 1999 increased to 25.2% from
24.5% for the comparable 1998 period. The increase resulted primarily from
improved operating efficiencies and was favorably impacted by the phase out of
upholstered products in the second half of 1998.
Selling, general and administrative expenses as a percentage of net sales
decreased to 12.9% for the 1999 period from 13.4% in the comparable 1998 period.
The lower percentage was due principally to higher net sales in the 1999 period.
The majority of the $489,000 increase in 1999 was selling expenses directly
attributable to the sales increase.
As a result of the above, operating income increased to $7.8 million, or 12.3%
of net sales, from $6.4 million, or 11.1% in the comparable 1998 period.
Interest expense for the three month period of 1999 decreased due to lower
average debt levels.
The Company's effective income tax rate was 38.0% for the 1999 three month
period and total year 1998.
Financial Condition, Liquidity and Capital Resources
At March 27, 1999, long-term debt including current maturities was $39.3
million. Debt service requirements are $850,000 remaining in 1999, $5.2 million
in 2000, $6.7 million in 2001, $6.8 million in 2002, and $6.9 million in 2003.
As of March 27, 1999, approximately $24.0 million of additional borrowings were
available under the Company's revolving credit facility. The Company believes
that its financial resources are adequate to support its capital needs and debt
service requirements.
The Company generated cash from operations of $2.5 million in the 1999 first
quarter compared to $1.1 million in the 1998 period. The increase was due
primarily to increased sales and to a lesser extent, lower tax payments. The
Company used the cash generated from operations in the 1999 period to fund
capital requirements and reduce borrowings.
Net cash used by investing activities was $2.3 million in the 1999 period
compared to $1.0 million in the 1998 period. Expenditures in each year were
primarily for plant and equipment and other assets in the normal course of
business. Capital expenditures in 1999 are anticipated to be approximately $28
million. Approximately $10 million of capital spending in 1999 will be used to
expand production capability at existing facilities to add approximately $30-$35
million of increased sales capacity on an annualized basis. This new capacity is
expected to be phased in during the second half of 1999 and will allow the
Company to increase production for its bedroom and Young AmericaTM youth bedroom
products. Approximately $15 million of capital spending in 1999 will be used to
purchase and equip a facility dedicated to the production of home office
furniture. This facility is expected to begin operation late this year or early
next year and should provide $50-$60 million of sales capacity on an annualized
basis when in full production in two to three years.
Net cash used by financing activities was $4.2 million in the 1999 period
compared to cash provided by financing activities of $884,000 in the 1998
period. In the 1999 period, available cash was used for senior debt payments. In
the 1998 period, borrowings under the revolving credit facility provided cash
for senior debt payments.
Year 2000
In early 1998, the Company initiated a cross-functional team to identify and
address internal hardware, software and equipment compliance issues arising from
the many challenges posed by the Year 2000. Key financial information and
operational systems, including equipment with embedded microprocessors, have
been inventoried and assessed. Detailed plans are in place for system
modifications or replacements, and a compliance plan for equipment with embedded
technology has been developed and is currently being implemented.
Since 1996, the Company has been upgrading its information systems technology,
with Year 2000 compliant software, to support its sales, manufacturing and
administrative functions. The cost of information and operational systems
upgrades is estimated at less than $1.0 million. Computers and peripheral
devices are approximately 85 percent compliant at this point. Final compliance
and testing for both information and operational systems is scheduled for
completion by mid-1999. The estimated cost to complete Year 2000 compliance is
less than $100,000.
In addition, the Company is communicating with key customers, suppliers,
financial institutions and others with whom it does business to determine Year
2000 compliance and is currently assessing the potential impact on operations if
third parties are not successful in converting their systems in a timely manner.
The Company believes it is taking reasonable steps to prevent major
interruptions in its business, resulting from the Year 2000 compliance issue.
However, if the Company or its key suppliers do not complete enhancements in a
timely manner or if remedial efforts are not successful, the Year 2000
compliance issue may have a material adverse impact on the operations of the
Company. Contingency plans are currently being developed to minimize the impact
of any such interruptions, such as, backup procedures, identification of
alternate suppliers and/or increasing inventory safety stocks, and such plans
are expected to be in place by the end of 1999.
Forward-Looking Statements
Certain statements made in this report are not based on historical facts, but
are forward-looking statements. These statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy. These statements
reflect the Company's reasonable judgment with respect to future events and are
subject to risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. Such risks and
uncertainties include the cyclical nature of the furniture industry,
fluctuations in the price for lumber which is the most significant raw material
used by the Company, competition in the furniture industry, capital costs,
delays in construction or obtaining necessary permits for planned expansions,
and general economic conditions.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Fifth Amendment, dated as of March 10, 1999, to the
Second Amended and Restated Revolving Credit Facility
and Term Loan Agreement dated February 15, 1994 among
the Registrant, National Canada Finance Corp., and the
National Bank of Canada. (1)
Exhibit 10.2 Employment Agreement dated as of April 1, 1999 between
John W. Johnson and the Registrant. (1) (2)
Exhibit 10.3 Employment Agreement dated as of April 1, 1999 between
William A. Sibbick, Jr. and the Registrant. (1) (2)
Exhibit 10.4 Employment Agreement dated as of April 1, 1999 between
Kelly S. Cain and the Registrant. (1) (2)
Exhibit 27. Financial Data Schedule. (1)
(b) Reports on Form 8-K
None.
(1) Filed herewith.
(2) Management contract or compensatory plan.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STANLEY FURNITURE COMPANY, INC.
Date: April 14, 1999 By: /s/ Douglas I. Payne
__________________________
Douglas I. Payne
Sr. V.P. - Finance & Administration,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
Exhibit 10.1
FIFTH AMENDMENT TO SECOND AMENDED
AND RESTATED REVOLVING CREDIT AGREEMENT
This FIFTH AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT
FACILITY dated as of March 10, 1999 (the "Fifth Amendment") is by and between
STANLEY FURNITURE COMPANY, INC., a Delaware corporation
(the "Borrower"); and
NATIONAL BANK OF CANADA, a Canadian chartered bank (the "Lender" or
"NBC").
RECITALS
A. National Canada Finance Corp., a Delaware corporation ("NCFC"), and
the Lender made a certain credit facility available to the Borrower pursuant to
the terms and conditions contained in that certain Second Amended and Restated
Revolving Credit Agreement dated as of February 15, 1994 among the Borrower,
NCFC and the Lender, as amended by a First Amendment to Second Amended and
Restated Credit Agreement dated as of August 21, 1995, a Second Amendment to
Second Amended and Restated Credit Agreement dated as of October 14, 1996, a
Third Amendment to Second Amended and Restated Credit Agreement dated as of June
24, 1997 and a Fourth Amendment to Second Amended and Restated Revolving Credit
Agreement dated as of February 24, 1998 (as amended, the "Loan Agreement").
B. The Lender has been assigned the rights of NCFC under the Loan
Agreement and the documents related thereto pursuant to the terms of an
Agreement and Transfer Agreement.
C. The Borrower has requested that the Lender make certain changes to
the Loan Agreement.
D. The Lender has agreed to make these changes to the Loan Agreement as
set forth herein.
NOW, THEREFORE, the Borrower and the Lender hereby agree as follows:
A. The Loan Agreement is amended as follows:
1. Section 2.04(b) is deleted in its entirety and replaced
with the following:
"(b) Eurodollar Loans. Subject to the provisions of Section
3.01, each Revolving Credit Loan which is a Eurodollar Loan shall bear
interest at a rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) equal to the LIBOR Rate
plus three-quarters of one percent (3/4%). The Lender shall determine
the applicable LIBOR Rate on the date when such determination is to be
made in respect of such Interest Period (or as soon thereafter as
practicable), and shall notify the Borrower of the rate so determined.
Such determination shall be conclusive absent manifest error."
2. Section 8.01(j) is deleted in its entirety and replaced
with the following:
"(j) Restricted Payments. Make any Restricted Payment;
provided, however, Borrower may pay dividends or make payments to
redeem, repurchase or otherwise acquire shares of its stock in an
amount up to $25,000,000.00 plus (A) 50% of Borrower's net income
during the period from January 1, 1999 through the end of the most
recently completed fiscal quarter and (B) the total net cash proceeds
received by the Borrower from the sale of its stock during such period
less (C) the aggregate amount of cash dividends paid or cash payments
made to redeem, repurchase or otherwise acquire shares of its stock
during such period."
B. The Borrower represents and warrants that, as of the date hereof, it
is not in default of the terms of the Loan Agreement, as amended hereby, or any
of the other documents executed between the Borrower and the Lender in
connection therewith.
C. This Fifth Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original.
D. This Fifth Amendment and the Loan Agreement, as amended hereby,
shall be deemed to be contracts made under, and for all purposes shall be
construed in accordance with the laws of the State of North Carolina.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
instrument to be executed under seal as of the day and year first above written.
STANLEY FURNITURE COMPANY, INC.
ATTEST
By By
Title Title
(CORPORATE SEAL)
NATIONAL BANK OF CANADA
By
Title
By
Title
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of April 1, 1999, between John W. Johnson
("Employee") and STANLEY FURNITURE COMPANY, INC., a Delaware corporation (the
"Company").
WHEREAS, the Company desires to assure that it will have the benefit of
the continued service and experience of the Employee, who is a principal
executive officer of the Company and an integral part of its management, and the
Employee is willing to enter into an agreement to such end upon the terms and
conditions set forth in this Agreement. In consideration of the foregoing and
the mutual agreements herein contained, the parties agree as follows:
1. Employment. The Company hereby employs the Employee and the Employee
hereby accepts employment upon and agrees to the terms and conditions set forth
herein.
2. Term. The term of employment under this Agreement (the "Term") shall
commence January 1, 1999 and end on December 31, 1999 and shall continue for
each calendar year thereafter unless either party gives notice (a "Termination
Notice") on or before November 1 of any calendar year that employment under this
Agreement will not continue for an additional period of one year beginning on
the following January 1.
3. Compensation.
a. Salary. During the Employee's employment hereunder, the
Company shall pay the Employee for all services rendered by the Employee a base
salary at an annual rate of at least $165,000, with upward annual adjustments as
the Board of Directors of the Company shall deem appropriate. Such salary shall
be payable to the Employee in accordance with the Company's usual paying
practices, but not less frequently than monthly.
b. Bonus. In addition to base salary, the Employee shall be
entitled to receive a potential annual bonus of $124,000, subject to upward
adjustment. The amount of such bonus for any fiscal year shall be related to the
achievement of certain profit thresholds and objectives to be set at the
beginning of each fiscal year by the Board of Directors of the Company.
c. Other Benefits. The Employee shall also receive such other
customary employee "fringe" benefits as are afforded generally by the Company to
its senior personnel, including grants of stock options and participation in the
Company's deferred compensation program.
4. Duties. The Employee shall continue to perform the duties of Senior
Vice President Manufacturing of the Company and shall, under the direction of
the President, faithfully and to the best of his ability perform such duties and
such other duties and responsibilities as may be reasonably assigned by the
President from time to time, including service as an officer or director of any
subsidiaries of the Company but not including service as an officer or director
of nonsubsidiary affiliates not in the same business as the Company.
5. Extent of Services. During the Employee's employment hereunder, the
Employee shall devote his entire working time, attention and energy to the
business of the Company and shall not be engaged in any other active business of
any kind except as authorized by the President.
6. Restrictive Covenants.
a. Non-competition Restriction. Except with the prior consent
in writing of the Company or as provided in the last sentence of this Section
6(a), the Employee shall not (A) during his employment hereunder or (B) for a
period of two years after termination of his employment hereunder in the event
Employee receives severance payments pursuant to Section 7(b) or Section 7(e),
directly or indirectly manage, operate, control, be employed by, participate in,
invest in or be connected in any manner with the management, operation,
ownership or control of any business or venture which is in competition in the
United States with the business of the Company, provided that nothing herein
shall prohibit the Employee from owning securities of the Company or up to 5% of
the outstanding voting securities of any issuer which is listed on the New York
or American Stock Exchange or as to which trading is reported or quoted on the
NASDAQ System. The provisions of this Section 6(a) shall not be applicable in
the event the Employee terminates his employment under Section 7(d).
b. Non-solicitation Agreement. Except with the prior consent
in writing of the Company, the Employee shall not directly or indirectly hire or
employ in any capacity or solicit the employment of or offer employment to or
entice away or in any other manner persuade or attempt to persuade any person
employed by the Company or any of its subsidiaries to leave the employ of any of
them. This Agreement shall remain in full force and effect for a period of two
years after the Term.
c. Confidential Information. The Employee further agrees to
keep confidential and not use for his personal benefit or for any other person's
benefit any and all proprietary information received by the Employee relating to
inventions, products, production methods, financial matters, sources of supply,
markets, marketing methods and customers of the Company on the date hereof or
developed by or for it during the Term. This Agreement shall remain in full
force and effect after the Term without limit in point of time, but shall cease
to apply to information that legitimately comes into the public domain.
d. Specific Enforcement. It is agreed and understood by the
parties hereto that, in view of the nature of the business of the Company, the
restrictions in subsections a., b. and c. above are reasonable and necessary to
protect the legitimate interests of the Company, monetary damages alone are not
an adequate remedy for any breach of such provisions, and any violation thereof
would result in irreparable injuries to the Company. The Employee therefore
acknowledges that, in the event of his violation of any of such restrictions,
the Company shall be entitled to obtain from any court of competent jurisdiction
preliminary and permanent injunctive relief as well as damages and an equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which the Company may be entitled.
e. Severability and Extension. If the period of time or the
area specified in subsection a. above is determined to be unreasonable in any
proceeding, such period shall be reduced by such number of months or the area
shall be reduced by the elimination of such portion thereof, or both, so that
such restrictions may be enforced for such time and in such area as is
determined to be reasonable. If the Employee violates any of the restrictions
contained in subsection a. above, the restrictive period shall not run in favor
of the Employee from the time of the commencement of any such violation until
such time as such violation shall cease.
7. Termination of Employment and Severance Payments.
a. Termination for Cause. During the Term, the Company may
terminate the Employee's employment under this Agreement at any time for Cause
(as hereinafter defined) upon written notice specifying the cause and date of
termination. Payments under this Agreement shall cease as of the date of
termination for Cause. For this purpose, "Cause" means gross or willful neglect
of duty which is not corrected after 30 days' written notice thereof;
misconduct, malfeasance, fraud or dishonesty which materially and adversely
affects the Company or its reputation in the industry; or the commission of a
felony or a crime involving moral turpitude.
b. Termination without Cause. During the Term, the Company may
terminate the Employee's employment under this Agreement at any time for any
reason other than Cause upon written notice specifying the date of termination
and the Employee shall be entitled to the payments provided under this Section
7(b). In the event the Company terminates the Employee's employment for reasons
other than Cause (which includes termination by the Company for what the Company
believes to be Cause when it is ultimately determined that the Employee was
terminated without cause), then the Employee shall receive severance payments as
follows: (i) the Employee shall continue to receive his base salary on a monthly
basis for the remainder of the calendar year in which such termination occurred,
(ii) the Employee shall be paid an annual bonus for the calendar year in which
such termination occurred equal to the average of the bonuses paid to the
Employee for the three fiscal years preceding the year in which termination
occurred (which bonus shall be payable within ninety days after the close of the
fiscal year in which such termination occurs), and (iii) during the two calendar
years following the year in which such termination occurs, the Employee shall
receive annual severance pay equal to the base salary in effect at the
termination of employment plus an amount equal to the average of the bonuses
paid to the Employee for the three fiscal years preceding the year in which
employment is terminated, which annual severance pay shall be paid on a monthly
basis during the two years following the termination of employment. If there
shall take place a Change in Control (as defined in Section 7(d)) of the Company
on or before termination of Employment, the Employee shall be entitled to
receive the total severance pay provided for under this Section 7(b) in a single
payment on the date of such Employee's termination, or if a Change in Control
occurs after the date of such Employee's termination, the Employee shall be
entitled to receive the total severance pay remaining to be paid pursuant to
this Section 7(b) in a single payment on the date when a Change in Control
occurs. In the event the independent accountants acting as auditors for the
Company on the date of a Change in Control (or another accounting firm
designated by them) determine that such single payment, together with other
compensation received by the Employee that is a contingent on a Change in
Control, would constitute "excess parachute payments" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended and regulations
thereunder, the single payment to the Employee shall be reduced to the maximum
amount which may be paid without such payments being "excess parachute
payments".
c. Termination in Event of Death or Disability. If the
Employee dies or becomes disabled during the Term, his employment under this
Agreement shall terminate and payments of base salary hereunder shall cease as
of the end of the month in which such event shall occur. For purposes of this
Agreement, the Employee shall be deemed to be disabled if he is unable to
perform his duties hereunder for any period of four consecutive months or for
six months in any twelve-month period. If the Employee's employment is
terminated hereunder pursuant to this Section 7(c), the Employee or Employee's
estate shall be entitled to a bonus payment in an amount equal to the amount
determined by multiplying the bonus which would otherwise have been payable for
the full year by a fraction, the numerator of which is the number of days the
Employee was employed during such fiscal year and the denominator of which is
365. Such bonus shall be payable ninety days after the close of the fiscal year
in which Employee dies or becomes disabled.
d. Termination on Change of Control. By delivering 15 days'
written notice to the Company, Employee may terminate his employment for Good
Reason under this Agreement at any time within one year after a Change in
Control and the Employee shall be entitled to the payments provided under
Section 7(e). "Good Reason" means a change in circumstances described in
(i),(ii),(iii),(iv) or (v):
(i) The Employee's base salary is reduced,
(ii) The Employee is not in good faith considered for a bonus
as described in Section 3b., (iii) The Company fails to
provide customary employee fringe benefits as required by
Section 3c.,
(iv) The Employee's place of employment is relocated to a
location further than 100 miles from Employee's current place of
employment, which is 1641 Fairystone Park Highway, Stanleytown,
Virginia 24168, or
(v) The Employee's working conditions or management
responsibilities are substantially diminished (other than on account of
the Employee's disability, as defined in Section 7c).
However, if the Employee consents in writing to a change in circumstance, "Good
Reason" as defined above, will not include the change in circumstance consented
to by the Employee. "Change of Control" means an event described in (i), (ii),
(iii), or (iv):
(i) The acquisition by a Group of Beneficial Ownership of 35%
or more of the Stock or the Voting Power of the Company, but excluding
for this purpose: (A) any acquisition by the Company (or a subsidiary),
or an employee benefit plan of the Company; (B) any acquisition of
Stock of the Company by management employees of the Company; or (C) the
ownership of Stock by a Group that owns 10% or more of the Stock or
Voting Power of the Company on the date of this Agreement; provided,
however, the acquisition of additional Stock by any such Group in an
amount greater than 5% of the then outstanding Stock shall not be
excluded and shall constitute a Change of Control. "Group" means any
individual, entity or group within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Act"), "Beneficial Ownership" has the meaning in Rule 13d-3
promulgated under the Act, "Stock" means the then outstanding shares of
common stock of the Company, and "Voting Power" means the combined
voting power of the outstanding voting securities entitled to vote
generally in the election of directors.
(ii) Individuals who constitute the board of directors of the
Company on the date of this Agreement (the "Incumbent Board") cease to
constitute at least a majority of the board of directors of the Company
(the "Board"), provided that any director whose nomination was approved
by a majority of the Incumbent Board shall be considered a member of
the Incumbent Board unless such individual's initial assumption of
office is in connection with an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Act).
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, in which the
owners of more than 50% of the Stock or Voting Power of the Company do
not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% of the Stock or
Voting Power of the corporation resulting from such reorganization,
merger or consolidation.
(iv) A complete liquidation or dissolution of the Company or
of its sale or other disposition of all or substantially all of the
assets of the Company.
e. Severance Payments. The Employee shall be entitled to the
severance payment provided in this Section 7(e) in the event (i) the Employee
terminates employment on or after the occurrence of a Change in Control pursuant
to Section 7(d), (ii) the Employee's employment terminates as a result of the
Company's delivery of a Termination Notice, or (iii) the Employee voluntarily
terminates his employment and the Company elects to make severance payments in
order to have the non-competition covenant in Section 6(a) effective. In the
event the Employee is entitled to severance payment pursuant to the foregoing
sentence, the Employee shall receive an annual severance pay equal to the base
salary in effect at the termination of employment plus an amount equal to the
average of the bonuses paid to the Employee for the three fiscal years preceding
the year in which employment is terminated, which annual severance pay shall be
paid on a monthly basis during the two years following the termination of
employment. If there shall take place a Change in Control of the Company on or
before termination of Employment, the Employee shall be entitled to receive the
total severance pay provided for under this Section 7(e) in a single payment on
the date of such Employee's termination, or if a Change in Control occurs after
the date of such Employee's termination, the Employee shall be entitled to
receive the total severance pay remaining to be paid pursuant to this Section
7(e) in a single payment on the date when a Change in Control occurs. In the
event the independent accountants acting as auditors for the Company on the date
of a Change in Control (or another accounting firm designated by them) determine
that such single payment, together with other compensation received by the
Employee that is a contingent on a Change in Control, would constitute "excess
parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended and regulations thereunder, the single payment to the
Employee shall be reduced to the maximum amount which may be paid without such
payments being "excess parachute payments".
8. Vacation. During the Term, the Employee shall be entitled to a
vacation in each calendar year in accordance with the Company's policy during
which vacation his compensation shall be paid in full.
9. Insurance. During the Term, the Company will continue to include the
Employee and his eligible dependents as insureds under its existing insurance
policies on the same terms and conditions and with the same benefits as those in
effect on the date hereof; provided, however, that the forgoing shall not
prohibit the Company from adopting alternative benefit packages and programs so
long as the benefits thereunder, considered in the aggregate, are comparable to
the benefits provided to similarly situated employees of the Company.
10. Notice. All notices, requests, demands and other communications
hereunder shall be in writing and shall be effective upon the mailing thereof by
registered or certified mail, postage prepaid, and addressed as set forth below:
a. If to the Company:
Stanley Furniture Company, Inc.
Route 57, P.O. Box 30
Stanleytown, Virginia 24168
Attention: President
b. If to the Employee:
John W. Johnson
70 Stephenson Street
Basset, Virginia 24055
Any party may change the address to which notices are to be addressed
by giving the other party written notice in the manner herein set forth.
11. Waiver of Breach. Waiver by either party of a breach of any
provision of this Agreement by the other shall not operate as a waiver of any
subsequent breach by such other party.
12. Entire Agreement. This Agreement contains the entire agreement of
the parties in this matter and supersedes any other agreement, oral or written,
concerning the employment or compensation of the Employee by the Company. It may
be changed only by an agreement in writing signed by both parties hereto.
13. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Virginia.
14. Benefit. This Agreement shall be binding upon and inure to the
benefit of and shall be enforceable by and against the Company, its successors
and assigns, and the Employee, his heirs, beneficiaries and legal
representatives.
IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement as of the day and year above written.
STANLEY FURNITURE COMPANY, INC.
By:
Albert L. Prillaman
President
John W. Johnson
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of April 1, 1999, between William A.Sibbick,
Jr. ("Employee") and STANLEY FURNITURE COMPANY, INC., a Delaware corporation
(the "Company").
WHEREAS, the Company desires to assure that it will have the benefit of
the continued service and experience of the Employee, who is a principal
executive officer of the Company and an integral part of its management, and the
Employee is willing to enter into an agreement to such end upon the terms and
conditions set forth in this Agreement. In consideration of the foregoing and
the mutual agreements herein contained, the parties agree as follows:
1. Employment. The Company hereby employs the Employee and the
Employee hereby accepts employment upon and agrees to the terms and conditions
set forth herein.
2. Term. The term of employment under this Agreement (the "Term") shall
commence January 1, 1999 and end on December 31, 1999 and shall continue for
each calendar year thereafter unless either party gives notice (a "Termination
Notice") on or before November 1 of any calendar year that employment under this
Agreement will not continue for an additional period of one year beginning on
the following January 1.
3. Compensation.
a. Salary. During the Employee's employment hereunder, the
Company shall pay the Employee for all services rendered by the Employee a base
salary at an annual rate of at least $165,000, with upward annual adjustments as
the Board of Directors of the Company shall deem appropriate. Such salary shall
be payable to the Employee in accordance with the Company's usual paying
practices, but not less frequently than monthly.
b. Bonus. In addition to base salary, the Employee shall be
entitled to receive a potential annual bonus of $124,000, subject to upward
adjustment. The amount of such bonus for any fiscal year shall be related to the
achievement of certain profit thresholds and objectives to be set at the
beginning of each fiscal year by the Board of Directors of the Company.
c. Other Benefits. The Employee shall also receive such other
customary employee "fringe" benefits as are afforded generally by the Company to
its senior personnel, including grants of stock options and participation in the
Company's deferred compensation program.
4. Duties. The Employee shall continue to perform the duties of Senior
Vice President - Sales of the Company and shall, under the direction of the
President, faithfully and to the best of his ability perform such duties and
such other duties and responsibilities as may be reasonably assigned by the
President from time to time, including service as an officer or director of any
subsidiaries of the Company but not including service as an officer or director
of nonsubsidiary affiliates not in the same business as the Company.
5. Extent of Services. During the Employee's employment hereunder, the
Employee shall devote his entire working time, attention and energy to the
business of the Company and shall not be engaged in any other active business of
any kind except as authorized by the President.
6. Restrictive Covenants.
a. Non-competition Restriction. Except with the prior consent
in writing of the Company or as provided in the last sentence of this Section
6(a), the Employee shall not (A) during his employment hereunder or (B) for a
period of two years after termination of his employment hereunder in the event
Employee receives severance payments pursuant to Section 7(b) or Section 7(e),
directly or indirectly manage, operate, control, be employed by, participate in,
invest in or be connected in any manner with the management, operation,
ownership or control of any business or venture which is in competition in the
United States with the business of the Company, provided that nothing herein
shall prohibit the Employee from owning securities of the Company or up to 5% of
the outstanding voting securities of any issuer which is listed on the New York
or American Stock Exchange or as to which trading is reported or quoted on the
NASDAQ System. The provisions of this Section 6(a) shall not be applicable in
the event the Employee terminates his employment under Section 7(d).
b. Non-solicitation Agreement. Except with the prior consent
in writing of the Company, the Employee shall not directly or indirectly hire or
employ in any capacity or solicit the employment of or offer employment to or
entice away or in any other manner persuade or attempt to persuade any person
employed by the Company or any of its subsidiaries to leave the employ of any of
them. This Agreement shall remain in full force and effect for a period of two
years after the Term.
c. Confidential Information. The Employee further agrees to
keep confidential and not use for his personal benefit or for any other person's
benefit any and all proprietary information received by the Employee relating to
inventions, products, production methods, financial matters, sources of supply,
markets, marketing methods and customers of the Company on the date hereof or
developed by or for it during the Term. This Agreement shall remain in full
force and effect after the Term without limit in point of time, but shall cease
to apply to information that legitimately comes into the public domain.
d. Specific Enforcement. It is agreed and understood by the
parties hereto that, in view of the nature of the business of the Company, the
restrictions in subsections a., b. and c. above are reasonable and necessary to
protect the legitimate interests of the Company, monetary damages alone are not
an adequate remedy for any breach of such provisions, and any violation thereof
would result in irreparable injuries to the Company. The Employee therefore
acknowledges that, in the event of his violation of any of such restrictions,
the Company shall be entitled to obtain from any court of competent jurisdiction
preliminary and permanent injunctive relief as well as damages and an equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which the Company may be entitled.
e. Severability and Extension. If the period of time or the
area specified in subsection a. above is determined to be unreasonable in any
proceeding, such period shall be reduced by such number of months or the area
shall be reduced by the elimination of such portion thereof, or both, so that
such restrictions may be enforced for such time and in such area as is
determined to be reasonable. If the Employee violates any of the restrictions
contained in subsection a. above, the restrictive period shall not run in favor
of the Employee from the time of the commencement of any such violation until
such time as such violation shall cease.
7. Termination of Employment and Severance Payments.
a. Termination for Cause. During the Term, the Company may
terminate the Employee's employment under this Agreement at any time for Cause
(as hereinafter defined) upon written notice specifying the cause and date of
termination. Payments under this Agreement shall cease as of the date of
termination for Cause. For this purpose, "Cause" means gross or willful neglect
of duty which is not corrected after 30 days' written notice thereof;
misconduct, malfeasance, fraud or dishonesty which materially and adversely
affects the Company or its reputation in the industry; or the commission of a
felony or a crime involving moral turpitude.
b. Termination without Cause. During the Term, the Company may
terminate the Employee's employment under this Agreement at any time for any
reason other than Cause upon written notice specifying the date of termination
and the Employee shall be entitled to the payments provided under this Section
7(b). In the event the Company terminates the Employee's employment for reasons
other than Cause (which includes termination by the Company for what the Company
believes to be Cause when it is ultimately determined that the Employee was
terminated without cause), then the Employee shall receive severance payments as
follows: (i) the Employee shall continue to receive his base salary on a monthly
basis for the remainder of the calendar year in which such termination occurred,
(ii) the Employee shall be paid an annual bonus for the calendar year in which
such termination occurred equal to the average of the bonuses paid to the
Employee for the three fiscal years preceding the year in which termination
occurred (which bonus shall be payable within ninety days after the close of the
fiscal year in which such termination occurs), and (iii) during the two calendar
years following the year in which such termination occurs, the Employee shall
receive annual severance pay equal to the base salary in effect at the
termination of employment plus an amount equal to the average of the bonuses
paid to the Employee for the three fiscal years preceding the year in which
employment is terminated, which annual severance pay shall be paid on a monthly
basis during the two years following the termination of employment. If there
shall take place a Change in Control (as defined in Section 7(d)) of the Company
on or before termination of Employment, the Employee shall be entitled to
receive the total severance pay provided for under this Section 7(b) in a single
payment on the date of such Employee's termination, or if a Change in Control
occurs after the date of such Employee's termination, the Employee shall be
entitled to receive the total severance pay remaining to be paid pursuant to
this Section 7(b) in a single payment on the date when a Change in Control
occurs. In the event the independent accountants acting as auditors for the
Company on the date of a Change in Control (or another accounting firm
designated by them) determine that such single payment, together with other
compensation received by the Employee that is a contingent on a Change in
Control, would constitute "excess parachute payments" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended and regulations
thereunder, the single payment to the Employee shall be reduced to the maximum
amount which may be paid without such payments being "excess parachute
payments".
c. Termination in Event of Death or Disability. If the
Employee dies or becomes disabled during the Term, his employment under this
Agreement shall terminate and payments of base salary hereunder shall cease as
of the end of the month in which such event shall occur. For purposes of this
Agreement, the Employee shall be deemed to be disabled if he is unable to
perform his duties hereunder for any period of four consecutive months or for
six months in any twelve-month period. If the Employee's employment is
terminated hereunder pursuant to this Section 7(c), the Employee or Employee's
estate shall be entitled to a bonus payment in an amount equal to the amount
determined by multiplying the bonus which would otherwise have been payable for
the full year by a fraction, the numerator of which is the number of days the
Employee was employed during such fiscal year and the denominator of which is
365. Such bonus shall be payable ninety days after the close of the fiscal year
in which Employee dies or becomes disabled.
d. Termination on Change of Control. By delivering 15 days'
written notice to the Company, Employee may terminate his employment for Good
Reason under this Agreement at any time within one year after a Change in
Control and the Employee shall be entitled to the payments provided under
Section 7(e). "Good Reason" means a change in circumstances described in
(i),(ii),(iii),(iv) or (v):
(i) The Employee's base salary is reduced,
(ii) The Employee is not in good faith considered for a bonus
as described in Section 3b., (iii) The Company fails to
provide customary employee fringe benefits as required by
Section 3c.,
(iv) The Employee's place of employment is relocated to a
location further than 100 miles from Employee's current place of
employment, which is 1641 Fairystone Park Highway, Stanleytown,
Virginia 24168, or
(v) The Employee's working conditions or management
responsibilities are substantially diminished (other than on account of
the Employee's disability, as defined in Section 7c).
However, if the Employee consents in writing to a change in circumstance, "Good
Reason" as defined above, will not include the change in circumstance consented
to by the Employee. "Change of Control" means an event described in (i), (ii),
(iii), or (iv):
(i) The acquisition by a Group of Beneficial Ownership of 35%
or more of the Stock or the Voting Power of the Company, but excluding
for this purpose: (A) any acquisition by the Company (or a subsidiary),
or an employee benefit plan of the Company; (B) any acquisition of
Stock of the Company by management employees of the Company; or (C) the
ownership of Stock by a Group that owns 10% or more of the Stock or
Voting Power of the Company on the date of this Agreement; provided,
however, the acquisition of additional Stock by any such Group in an
amount greater than 5% of the then outstanding Stock shall not be
excluded and shall constitute a Change of Control. "Group" means any
individual, entity or group within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Act"), "Beneficial Ownership" has the meaning in Rule 13d-3
promulgated under the Act, "Stock" means the then outstanding shares of
common stock of the Company, and "Voting Power" means the combined
voting power of the outstanding voting securities entitled to vote
generally in the election of directors.
(ii) Individuals who constitute the board of directors of the
Company on the date of this Agreement (the "Incumbent Board") cease to
constitute at least a majority of the board of directors of the Company
(the "Board"), provided that any director whose nomination was approved
by a majority of the Incumbent Board shall be considered a member of
the Incumbent Board unless such individual's initial assumption of
office is in connection with an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Act).
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, in which the
owners of more than 50% of the Stock or Voting Power of the Company do
not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% of the Stock or
Voting Power of the corporation resulting from such reorganization,
merger or consolidation.
(iv) A complete liquidation or dissolution of the Company or
of its sale or other disposition of all or substantially all of the
assets of the Company.
e. Severance Payments. The Employee shall be entitled to the
severance payment provided in this Section 7(e) in the event (i) the Employee
terminates employment on or after the occurrence of a Change in Control pursuant
to Section 7(d), (ii) the Employee's employment terminates as a result of the
Company's delivery of a Termination Notice, or (iii) the Employee voluntarily
terminates his employment and the Company elects to make severance payments in
order to have the non-competition covenant in Section 6(a) effective. In the
event the Employee is entitled to severance payment pursuant to the foregoing
sentence, the Employee shall receive an annual severance pay equal to the base
salary in effect at the termination of employment plus an amount equal to the
average of the bonuses paid to the Employee for the three fiscal years preceding
the year in which employment is terminated, which annual severance pay shall be
paid on a monthly basis during the two years following the termination of
employment. If there shall take place a Change in Control of the Company on or
before termination of Employment, the Employee shall be entitled to receive the
total severance pay provided for under this Section 7(e) in a single payment on
the date of such Employee's termination, or if a Change in Control occurs after
the date of such Employee's termination, the Employee shall be entitled to
receive the total severance pay remaining to be paid pursuant to this Section
7(e) in a single payment on the date when a Change in Control occurs. In the
event the independent accountants acting as auditors for the Company on the date
of a Change in Control (or another accounting firm designated by them) determine
that such single payment, together with other compensation received by the
Employee that is a contingent on a Change in Control, would constitute "excess
parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended and regulations thereunder, the single payment to the
Employee shall be reduced to the maximum amount which may be paid without such
payments being "excess parachute payments".
8. Vacation. During the Term, the Employee shall be entitled to a
vacation in each calendar year in accordance with the Company's policy during
which vacation his compensation shall be paid in full.
9. Insurance. During the Term, the Company will continue to include the
Employee and his eligible dependents as insureds under its existing insurance
policies on the same terms and conditions and with the same benefits as those in
effect on the date hereof; provided, however, that the forgoing shall not
prohibit the Company from adopting alternative benefit packages and programs so
long as the benefits thereunder, considered in the aggregate, are comparable to
the benefits provided to similarly situated employees of the Company.
10. Notice. All notices, requests, demands and other communications
hereunder shall be in writing and shall be effective upon the mailing thereof by
registered or certified mail, postage prepaid, and addressed as set forth below:
a. If to the Company:
Stanley Furniture Company, Inc.
Route 57, P.O. Box 30
Stanleytown, Virginia 24168
Attention: President
b. If to the Employee:
William A. Sibbick, Jr.
717 Beechnut Lane
Martinsville, Virginia 24112
Any party may change the address to which notices are to be addressed
by giving the other party written notice in the manner herein set forth.
11. Waiver of Breach. Waiver by either party of a breach of any
provision of this Agreement by the other shall not operate as a waiver of any
subsequent breach by such other party.
12. Entire Agreement. This Agreement contains the entire agreement of
the parties in this matter and supersedes any other agreement, oral or written,
concerning the employment or compensation of the Employee by the Company. It may
be changed only by an agreement in writing signed by both parties hereto.
13. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Virginia.
14. Benefit. This Agreement shall be binding upon and inure to the
benefit of and shall be enforceable by and against the Company, its successors
and assigns, and the Employee, his heirs, beneficiaries and legal
representatives.
IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement as of the day and year above written.
STANLEY FURNITURE COMPANY, INC.
By:
Albert L. Prillaman
President
William A. Sibbick, Jr.
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of April 1, 1999, between Kelly S. Cain
("Employee") and STANLEY FURNITURE COMPANY, INC., a Delaware corporation (the
"Company").
WHEREAS, the Company desires to assure that it will have the benefit of
the continued service and experience of the Employee, who is a principal
executive officer of the Company and an integral part of its management, and the
Employee is willing to enter into an agreement to such end upon the terms and
conditions set forth in this Agreement. In consideration of the foregoing and
the mutual agreements herein contained, the parties agree as follows:
1. Employment. The Company hereby employs the Employee and the Employee
hereby accepts employment upon and agrees to the terms and conditions set forth
herein.
2. Term. The term of employment under this Agreement (the "Term") shall
commence January 1, 1999 and end on December 31, 1999 and shall continue for
each calendar year thereafter unless either party gives notice (a "Termination
Notice") on or before November 1 of any calendar year that employment under this
Agreement will not continue for an additional period of one year beginning on
the following January 1.
3. Compensation.
a. Salary. During the Employee's employment hereunder, the
Company shall pay the Employee for all services rendered by the Employee a base
salary at an annual rate of at least $160,000, with upward annual adjustments as
the Board of Directors of the Company shall deem appropriate. Such salary shall
be payable to the Employee in accordance with the Company's usual paying
practices, but not less frequently than monthly.
b. Bonus. In addition to base salary, the Employee shall be
entitled to receive a potential annual bonus of $120,000, subject to upward
adjustment. The amount of such bonus for any fiscal year shall be related to the
achievement of certain profit thresholds and objectives to be set at the
beginning of each fiscal year by the Board of Directors of the Company.
c. Other Benefits. The Employee shall also receive such other
customary employee "fringe" benefits as are afforded generally by the Company to
its senior personnel, including grants of stock options and participation in the
Company's deferred compensation program.
4. Duties. The Employee shall continue to perform the duties of Senior
Vice President - Product Development and Merchandising of the Company and shall,
under the direction of the President, faithfully and to the best of his ability
perform such duties and such other duties and responsibilities as may be
reasonably assigned by the President from time to time, including service as an
officer or director of any subsidiaries of the Company but not including service
as an officer or director of nonsubsidiary affiliates not in the same business
as the Company.
5. Extent of Services. During the Employee's employment hereunder, the
Employee shall devote his entire working time, attention and energy to the
business of the Company and shall not be engaged in any other active business of
any kind except as authorized by the President.
6. Restrictive Covenants.
a. Non-competition Restriction. Except with the prior consent
in writing of the Company or as provided in the last sentence of this Section
6(a), the Employee shall not (A) during his employment hereunder or (B) for a
period of two years after termination of his employment hereunder in the event
Employee receives severance payments pursuant to Section 7(b) or Section 7(e),
directly or indirectly manage, operate, control, be employed by, participate in,
invest in or be connected in any manner with the management, operation,
ownership or control of any business or venture which is in competition in the
United States with the business of the Company, provided that nothing herein
shall prohibit the Employee from owning securities of the Company or up to 5% of
the outstanding voting securities of any issuer which is listed on the New York
or American Stock Exchange or as to which trading is reported or quoted on the
NASDAQ System. The provisions of this Section 6(a) shall not be applicable in
the event the Employee terminates his employment under Section 7(d).
b. Non-solicitation Agreement. Except with the prior consent
in writing of the Company, the Employee shall not directly or indirectly hire or
employ in any capacity or solicit the employment of or offer employment to or
entice away or in any other manner persuade or attempt to persuade any person
employed by the Company or any of its subsidiaries to leave the employ of any of
them. This Agreement shall remain in full force and effect for a period of two
years after the Term.
c. Confidential Information. The Employee further agrees to
keep confidential and not use for his personal benefit or for any other person's
benefit any and all proprietary information received by the Employee relating to
inventions, products, production methods, financial matters, sources of supply,
markets, marketing methods and customers of the Company on the date hereof or
developed by or for it during the Term. This Agreement shall remain in full
force and effect after the Term without limit in point of time, but shall cease
to apply to information that legitimately comes into the public domain.
d. Specific Enforcement. It is agreed and understood by the
parties hereto that, in view of the nature of the business of the Company, the
restrictions in subsections a., b. and c. above are reasonable and necessary to
protect the legitimate interests of the Company, monetary damages alone are not
an adequate remedy for any breach of such provisions, and any violation thereof
would result in irreparable injuries to the Company. The Employee therefore
acknowledges that, in the event of his violation of any of such restrictions,
the Company shall be entitled to obtain from any court of competent jurisdiction
preliminary and permanent injunctive relief as well as damages and an equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which the Company may be entitled.
e. Severability and Extension. If the period of time or the
area specified in subsection a. above is determined to be unreasonable in any
proceeding, such period shall be reduced by such number of months or the area
shall be reduced by the elimination of such portion thereof, or both, so that
such restrictions may be enforced for such time and in such area as is
determined to be reasonable. If the Employee violates any of the restrictions
contained in subsection a. above, the restrictive period shall not run in favor
of the Employee from the time of the commencement of any such violation until
such time as such violation shall cease.
7. Termination of Employment and Severance Payments.
a. Termination for Cause. During the Term, the Company may
terminate the Employee's employment under this Agreement at any time for Cause
(as hereinafter defined) upon written notice specifying the cause and date of
termination. Payments under this Agreement shall cease as of the date of
termination for Cause. For this purpose, "Cause" means gross or willful neglect
of duty which is not corrected after 30 days' written notice thereof;
misconduct, malfeasance, fraud or dishonesty which materially and adversely
affects the Company or its reputation in the industry; or the commission of a
felony or a crime involving moral turpitude.
b. Termination without Cause. During the Term, the Company may
terminate the Employee's employment under this Agreement at any time for any
reason other than Cause upon written notice specifying the date of termination
and the Employee shall be entitled to the payments provided under this Section
7(b). In the event the Company terminates the Employee's employment for reasons
other than Cause (which includes termination by the Company for what the Company
believes to be Cause when it is ultimately determined that the Employee was
terminated without cause), then the Employee shall receive severance payments as
follows: (i) the Employee shall continue to receive his base salary on a monthly
basis for the remainder of the calendar year in which such termination occurred,
(ii) the Employee shall be paid an annual bonus for the calendar year in which
such termination occurred equal to the average of the bonuses paid to the
Employee for the three fiscal years preceding the year in which termination
occurred (which bonus shall be payable within ninety days after the close of the
fiscal year in which such termination occurs), and (iii) during the two calendar
years following the year in which such termination occurs, the Employee shall
receive annual severance pay equal to the base salary in effect at the
termination of employment plus an amount equal to the average of the bonuses
paid to the Employee for the three fiscal years preceding the year in which
employment is terminated, which annual severance pay shall be paid on a monthly
basis during the two years following the termination of employment. If there
shall take place a Change in Control (as defined in Section 7(d)) of the Company
on or before termination of Employment, the Employee shall be entitled to
receive the total severance pay provided for under this Section 7(b) in a single
payment on the date of such Employee's termination, or if a Change in Control
occurs after the date of such Employee's termination, the Employee shall be
entitled to receive the total severance pay remaining to be paid pursuant to
this Section 7(b) in a single payment on the date when a Change in Control
occurs. In the event the independent accountants acting as auditors for the
Company on the date of a Change in Control (or another accounting firm
designated by them) determine that such single payment, together with other
compensation received by the Employee that is a contingent on a Change in
Control, would constitute "excess parachute payments" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended and regulations
thereunder, the single payment to the Employee shall be reduced to the maximum
amount which may be paid without such payments being "excess parachute
payments".
c. Termination in Event of Death or Disability. If the
Employee dies or becomes disabled during the Term, his employment under this
Agreement shall terminate and payments of base salary hereunder shall cease as
of the end of the month in which such event shall occur. For purposes of this
Agreement, the Employee shall be deemed to be disabled if he is unable to
perform his duties hereunder for any period of four consecutive months or for
six months in any twelve-month period. If the Employee's employment is
terminated hereunder pursuant to this Section 7(c), the Employee or Employee's
estate shall be entitled to a bonus payment in an amount equal to the amount
determined by multiplying the bonus which would otherwise have been payable for
the full year by a fraction, the numerator of which is the number of days the
Employee was employed during such fiscal year and the denominator of which is
365. Such bonus shall be payable ninety days after the close of the fiscal year
in which Employee dies or becomes disabled.
d. Termination on Change of Control. By delivering 15 days'
written notice to the Company, Employee may terminate his employment for Good
Reason under this Agreement at any time within one year after a Change in
Control and the Employee shall be entitled to the payments provided under
Section 7(e). "Good Reason" means a change in circumstances described in
(i),(ii),(iii),(iv) or (v):
(i) The Employee's base salary is reduced,
(ii) The Employee is not in good faith considered for a bonus
as described in Section 3b., (iii) The Company fails to
provide customary employee fringe benefits as required by
Section
3c.,
(iv) The Employee's place of employment is relocated to a
location further than 100 miles from Employee's current place of
employment, which is 1641 Fairystone Park Highway, Stanleytown,
Virginia 24168, or
(v) The Employee's working conditions or management
responsibilities are substantially diminished (other than on account of
the Employee's disability, as defined in Section 7c).
However, if the Employee consents in writing to a change in circumstance, "Good
Reason" as defined above, will not include the change in circumstance consented
to by the Employee. "Change of Control" means an event described in (i), (ii),
(iii), or (iv):
(i) The acquisition by a Group of Beneficial Ownership of 35%
or more of the Stock or the Voting Power of the Company, but excluding
for this purpose: (A) any acquisition by the Company (or a subsidiary),
or an employee benefit plan of the Company; (B) any acquisition of
Stock of the Company by management employees of the Company; or (C) the
ownership of Stock by a Group that owns 10% or more of the Stock or
Voting Power of the Company on the date of this Agreement; provided,
however, the acquisition of additional Stock by any such Group in an
amount greater than 5% of the then outstanding Stock shall not be
excluded and shall constitute a Change of Control. "Group" means any
individual, entity or group within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Act"), "Beneficial Ownership" has the meaning in Rule 13d-3
promulgated under the Act, "Stock" means the then outstanding shares of
common stock of the Company, and "Voting Power" means the combined
voting power of the outstanding voting securities entitled to vote
generally in the election of directors.
(ii) Individuals who constitute the board of directors of the
Company on the date of this Agreement (the "Incumbent Board") cease to
constitute at least a majority of the board of directors of the Company
(the "Board"), provided that any director whose nomination was approved
by a majority of the Incumbent Board shall be considered a member of
the Incumbent Board unless such individual's initial assumption of
office is in connection with an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Act).
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, in which the
owners of more than 50% of the Stock or Voting Power of the Company do
not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% of the Stock or
Voting Power of the corporation resulting from such reorganization,
merger or consolidation.
(iv) A complete liquidation or dissolution of the Company or
of its sale or other disposition of all or substantially all of the
assets of the Company.
e. Severance Payments. The Employee shall be entitled to the
severance payment provided in this Section 7(e) in the event (i) the Employee
terminates employment on or after the occurrence of a Change in Control pursuant
to Section 7(d), (ii) the Employee's employment terminates as a result of the
Company's delivery of a Termination Notice, or (iii) the Employee voluntarily
terminates his employment and the Company elects to make severance payments in
order to have the non-competition covenant in Section 6(a) effective. In the
event the Employee is entitled to severance payment pursuant to the foregoing
sentence, the Employee shall receive an annual severance pay equal to the base
salary in effect at the termination of employment plus an amount equal to the
average of the bonuses paid to the Employee for the three fiscal years preceding
the year in which employment is terminated, which annual severance pay shall be
paid on a monthly basis during the two years following the termination of
employment. If there shall take place a Change in Control of the Company on or
before termination of Employment, the Employee shall be entitled to receive the
total severance pay provided for under this Section 7(e) in a single payment on
the date of such Employee's termination, or if a Change in Control occurs after
the date of such Employee's termination, the Employee shall be entitled to
receive the total severance pay remaining to be paid pursuant to this Section
7(e) in a single payment on the date when a Change in Control occurs. In the
event the independent accountants acting as auditors for the Company on the date
of a Change in Control (or another accounting firm designated by them) determine
that such single payment, together with other compensation received by the
Employee that is a contingent on a Change in Control, would constitute "excess
parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended and regulations thereunder, the single payment to the
Employee shall be reduced to the maximum amount which may be paid without such
payments being "excess parachute payments".
8. Vacation. During the Term, the Employee shall be entitled to a
vacation in each calendar year in accordance with the Company's policy during
which vacation his compensation shall be paid in full.
9. Insurance. During the Term, the Company will continue to include the
Employee and his eligible dependents as insureds under its existing insurance
policies on the same terms and conditions and with the same benefits as those in
effect on the date hereof; provided, however, that the forgoing shall not
prohibit the Company from adopting alternative benefit packages and programs so
long as the benefits thereunder, considered in the aggregate, are comparable to
the benefits provided to similarly situated employees of the Company.
10. Notice. All notices, requests, demands and other communications
hereunder shall be in writing and shall be effective upon the mailing thereof by
registered or certified mail, postage prepaid, and addressed as set forth below:
a. If to the Company:
Stanley Furniture Company, Inc.
Route 57, P.O. Box 30
Stanleytown, Virginia 24168
Attention: President
b. If to the Employee:
Kelly S. Cain
1400 Whittler Road
Martinsville, Virginia 24112
Any party may change the address to which notices are to be addressed
by giving the other party written notice in the manner herein set forth.
11. Waiver of Breach. Waiver by either party of a breach of any
provision of this Agreement by the other shall not operate as a waiver of any
subsequent breach by such other party.
12. Entire Agreement. This Agreement contains the entire agreement of
the parties in this matter and supersedes any other agreement, oral or written,
concerning the employment or compensation of the Employee by the Company. It may
be changed only by an agreement in writing signed by both parties hereto.
13. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Virginia.
14. Benefit. This Agreement shall be binding upon and inure to the
benefit of and shall be enforceable by and against the Company, its successors
and assigns, and the Employee, his heirs, beneficiaries and legal
representatives.
IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement as of the day and year above written.
STANLEY FURNITURE COMPANY, INC.
By:
Albert L. Prillaman
President
Kelly S. Cain
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-27-1999
<CASH> 2,819
<SECURITIES> 0
<RECEIVABLES> 34,258
<ALLOWANCES> 2,175
<INVENTORY> 46,171
<CURRENT-ASSETS> 86,542
<PP&E> 92,217
<DEPRECIATION> 38,964
<TOTAL-ASSETS> 156,218
<CURRENT-LIABILITIES> 42,135
<BONDS> 0
0
0
<COMMON> 142
<OTHER-SE> 66,692
<TOTAL-LIABILITY-AND-EQUITY> 156,218
<SALES> 66,661
<TOTAL-REVENUES> 63,661
<CGS> 47,615
<TOTAL-COSTS> 55,856
<OTHER-EXPENSES> 177
<LOSS-PROVISION> 105
<INTEREST-EXPENSE> 873
<INCOME-PRETAX> 6,755
<INCOME-TAX> 2,567
<INCOME-CONTINUING> 4,188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,188
<EPS-PRIMARY> .59
<EPS-DILUTED> .54
</TABLE>
