SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
STANLEY FURNITURE COMPANY, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
STANLEY FURNITURE COMPANY, INC.
1641 FAIRYSTONE PARK HIGHWAY
STANLEYTOWN, VIRGINIA 24168
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 29, 1999
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 29, 1999, at 11:00 A.M., for the following purposes:
(1) To elect one director to serve a three-year term on the Company's Board
of Directors;
(2) To ratify the selection of PricewaterhouseCoopers LLP as the
independent public accountants for the Company for 1999; and
(3) 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, 1999 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, 1999
<PAGE>
STANLEY FURNITURE COMPANY, INC.
1641 FAIRYSTONE PARK HIGHWAY
STANLEYTOWN, VIRGINIA 24168
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
APRIL 29, 1999
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 29, 1999, 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, 1999 to all holders of record of
the Company's common stock, $.02 par value (the "Common Stock") on March 12,
1999. 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 such 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, 1999 there were 7,094,888 shares of Common Stock
outstanding and entitled to vote. Each such share of Common Stock entitles the
holder thereof to one 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. T. Scott McIlhenny, Jr. expires at the time of the 1999 Annual Meeting of
Stockholders. The Company proposes the reelection of Mr. McIlhenny for a
three-year term expiring at the time of the 2002 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 nominee listed on the proxy card, except
that in the event such 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 the nominee named below will be unable
or unwilling to serve.
<PAGE>
NOMINEE FOR ELECTION FOR THREE-YEAR TERM ENDING 2002
T. SCOTT MCILHENNY, JR., 51, has been a Director of the Company since
April 1997. Mr. McIlhenny has been managing principal of Red Rock Terrace
Investment Partners since January 1999; a position which he also held from 1995
to October 1996. From October 1996 to January 1999, he was Executive Vice
President of The Village Companies of Chapel Hill, Inc., a media and
communications company. From 1988 to 1995, Mr. McIlhenny served in various
capacities with Cahners Publishing Company ("Cahners"), including Group Vice
President and General Manager for Cahners Business Newspapers. From 1981 to
1988, Mr. McIlhenny served in various capacities with Communications/Today, LTD.
(acquired by Cahners in 1988), the publisher of FURNITURE/TODAY, including
Senior Vice President, Group Publisher.
DIRECTORS WHOSE TERMS DO NOT EXPIRE THIS YEAR
DAVID V. HARKINS, 58, 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 Cott Corporation, Fisher Scientific International Inc., Freedom
Securities Corporation, Metris Companies Inc. and Syratech Corporation.
EDWARD J. MACK, 83 has been a Director of the Company since January 17,
1989 and his present term will expire in 2001. 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, 45, has been a Director of the Company since April
1998 and his present term will expire in 2001. Mr. Millner 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.
ALBERT L. PRILLAMAN, 53, 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.
2
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Company has an Audit Committee, presently consisting of Messrs.
Harkins, McIlhnenny, Mack and Millner, 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
1998.
The Company has a Compensation Committee, presently consisting of
Messrs. Harkins, McIlhenny, Mack and Millner, 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 three times during
1998.
The full Board of Directors met six times during 1998. Each incumbent
director attended or acted upon at least 75% of the total 1998 board meetings
and committee meetings held during periods that he was a member of the Board or
such committees.
Messrs. Harkins, McIlhenny, Mack and Millner each receives compensation
for serving as a director at the rate of $15,000 per year. Mr. Prillaman did not
receive any separate compensation for serving in that capacity during 1998.
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.
3
<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 Edward J. Mack, Director,
filed a late report with respect to one purchase transaction. A corrective
filing has been made by Mr. Mack.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth, for the years ended December 31, 1998,
1997 and 1996, the annual and long-term compensation for services in all
capacities to the Company of those persons who at December 31, 1998 were the
Company's Chief Executive Officer and the next four most highly compensated
executive officers of the Company for the year ended December 31, 1998
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
-------------------------------------- Compensation
------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options (#)(1) Compensation (2)
- --------------------------- ---- ------ ----- ------------ -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
ALBERT L. PRILLAMAN 1998 $350,040 $350,000 $ 280,610 (3) - $ 26,116
Chairman, President and 1997 350,040 350,000 298,570 (3) - 25,380
Chief Executive Officer......... 1996 310,000 298,000 319,514 (3) - 25,406
BOBBY I. HODGES 1998 $185,004 $257,500 $ 8,684 - $ 20,217
Senior Vice President - 1997 175,008 105,000 3,995 - 3,200
Manufacturing................... 1996 160,008 85,000 3,408 - 3,000
DOUGLAS I. PAYNE 1998 $160,008 $135,000 $ 63 - $ 4,800
Senior Vice President - 1997 150,012 90,000 122 - 3,362
Finance and 1996 136,008 70,000 173 20,000 2,939
Administration,
Secretary and Treasurer.........
WILLIAM A. SIBBICK, JR. 1998 $148,008 $105,000 $ 403 - $ 4,800
Senior Vice President - 1997 136,008 60,000 444 - 3,557
Sales........................... 1996 136,008 57,500 479 - 2,939
JOHN W. JOHNSON 1998 $144,000 $105,000 $ 1,533 10,000 $ 4,800
Senior Vice President - 1997 132,000 60,000 1,675 - 3,200
Manufacturing (4)............... 1996 126,000 55,000 1,796 - 2,544
</TABLE>
- ------------
(1) All share and per share information in this proxy statement reflect a
two-for-one stock split effective May 15, 1998.
(2) All Other Compensation listed for Mr. Prillaman reflects premiums paid by
the Company in connection with a split-dollar life insurance agreement
($21,316 in 1998), premiums paid on a term life insurance policy and
employer contributions to the Company's 401(k) Plan ($4,800 in 1998). The
amounts for each of Messrs. Payne, Johnson and Sibbick reflect employer
contributions to the Company's 401(k) Plan. The amounts for Mr. Hodges
includes $15,417 for accrued 1999 vacation paid in 1998 in connection with
his retirement and employer contributions to the Company's 401(k) Plan.
(3) 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 $270,512 for 1998, $283,837 for 1997 and $302,704 for 1996. See
"Certain Relationships and Related Transactions".
(4) Mr. Johnson became Senior Vice President-Manufacturing in December 1998.
4
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning all of the
individual grants of stock options made during the year ended December 31, 1998
to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation
Individual Grants For Option Term
------------------------------------------ -----------------
Number of
Securities % of Total Options
Underlying Granted to Exercise
Options Employees in Price per Expiration
Name Granted (1) Fiscal Year Share (1) Date 5%($) 10%($)
---- -------- ----------------- ---------- ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
John W. Johnson...... 10,000 23.3% $18.75 12/31/08 $117,900 $298,800
</TABLE>
- ----------
(1) Grant vests and becomes exercisable to the extent of 20% of the shares
granted as of June 11, 1999 and as of December 31 of each year from 1999
through 2002.
OPTION VALUE TABLE
The following table sets forth information concerning the year-end
number and value of unexercised options for each of the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN 1998 AND 1998 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised In-the-
Acquired Underlying Unexercised Money Options
on Value Options at Fiscal Year End (#) At Fiscal Year End ($) (1)
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------ --------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Albert L. Prillaman........ 80,000 $1,495,000 400,420 - $5,345,140 $ -
Bobby I. Hodges............ 79,270 1,631,331 34,776 - 473,876 -
Douglas I. Payne........... - - 82,686 14,000 1,074,182 163,750
William A. Sibbick, Jr..... - - 56,006 5,000 755,334 69,375
John W. Johnson............ 2,334 29,759 52,000 13,000 675,000 69,375
</TABLE>
- ----------
(1) In-the-Money Options are those for which the December 31, 1998 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.
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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, 1998 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;
Bobby I. Hodges, $3,787; Douglas I. Payne, $993; John W. Johnson, $2,864; and
William A. Sibbick, Jr., $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; Bobby I. Hodges, $1,857; Douglas I. Payne, $591; John W.
Johnson, $1,422; and William A. Sibbick, Jr., $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.
6
<PAGE>
The Committee believes that the Company's overall executive compensation
package should enable the Company to obtain and retain the services of top
executives. The Company operates with a small team of top executives who are
given significant and extensive responsibilities. These executives' duties
encompass both overall strategic policy of the Company and direct day-to-day
activity in sales, customer communications, product development, marketing,
manufacturing and other similar activities. The compensation package is intended
to reflect these broad responsibilities.
The compensation currently paid by the Company is not subject to certain
Internal Revenue Code provisions that may limit the income tax deductibility 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. 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 1998, 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. During the 1998 year, the Committee increased the performance
targets and also increased the maximum bonus opportunity for certain officers.
The maximum incentives were paid for 1998 based on the higher targets for 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 1998, option
grants were made to officers and key employees under the Option Plan; however,
the only grant to a Named Executive Officer was to Mr. Johnson.
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 1998, Mr. Prillaman's base salary was maintained at the same level as for
1997. When Mr. Prillaman's salary was increased in 1997, the Committee
determined that Mr. Prillaman would receive the same base salary for at least
two years.
A major portion of Mr. Prillaman's compensation is contingent on the
Company's performance. In 1998, Mr. Prillaman participated in the Incentive Plan
with the same corporate objectives as other corporate officers. The Committee
set Mr. Prillaman's potential bonus for 1998 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. During
1998, the Committee increased the EBIT targets necessary for Mr. Prillaman to
receive a bonus but did not increase the amount of his potential bonus.
For 1998, Mr. Prillaman received the maximum allowable bonus.
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 1998. 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. The final forgiveness on the existing
loan was made in 1998.
Mr. Millner became a member of the Committee during the 1998 year and
did not participate in the decisions on establishing base salaries for 1998.
The members of the Compensation Committee are:
David V. Harkins
T. Scott McIlhenny, Jr.
Edward J. Mack
Thomas L. Millner
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, 1993 to December 31, 1998.
[GRAPH](1)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Stanley Furniture 100.00 74.77 59.81 148.60 208.41 272.90
Wood Household Furniture Index (2) 100.00 66.86 83.69 105.68 151.10 163.01
Nasdaq Non-Financial Stock Index (3) 100.00 96.16 134.03 162.84 190.66 279.82
</TABLE>
(1) The graph shows the cumulative total return on $100 invested at the market
close on December 31, 1993, 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 2, 1999, Media
General reported that SIC Code 2511 consisted of: Bassett Furniture
Industries, Inc., Bush Industries, Inc. (Class A Common Stock), Chromcraft
Revington, Inc., DMI Furniture, Inc., Ethan Allen Interiors Inc., Furniture
Brands International, Inc., Ladd Furniture, Inc., 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 2, 1994, the Compensation Committee awarded Albert L.
Prillaman a loan to acquire 100,000 shares of Common Stock under the Company's
Executive Loan Plan, and Mr. Prillaman delivered a non-recourse promissory note
payable to the Company. The promissory note bore interest at the rate of 7.6%
per annum. One tenth of the principal amount plus accrued interest was due each
December 31 until 1998 and the remaining principal was due January 2, 1999.
Pursuant to this loan under the Executive Loan Plan, the accrued interest plus
one tenth of the initial principal amount was forgiven by the Company each
December 31 if Mr. Prillaman was 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 would be forgiven by the Company on
December 31 in 1996 through 1998 if Mr. Prillaman was still employed by the
Company. The Company also agreed to reimburse Mr. Prillaman for income taxes
payable as a result of the forgiveness of interest and principal on the loan
amount. On December 31, 1998, the remaining principal amount outstanding under
the note of $133,334 plus accrued interest was forgiven and 100,000 shares of
Common Stock were issued to Mr. Prillaman.
9
<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, 1999, 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>
Amount and Nature Percent
Name of Beneficial Ownership of Class
--------- ------------------------- ----------
<S> <C> <C>
FMR Corp. (a)............................................... 652,200 (a) 9.2%
Albert L. Prillaman (b)..................................... 618,214 (c) 8.2%
Dimensional Fund Advisors Inc.(d)........................... 521,700 (d) 7.4%
Brinson Partners, Inc. and affiliated entities (e).......... 516,254 (e) 7.3%
Muhlenkamp & Company, Inc. and affiliated entities (f)...... 505,800 (f) 7.1%
J.P. Morgan & Co. Incorporated (g).......................... 488,800 (g) 6.9%
T. Rowe Price Associates, Inc.(h)........................... 392,000 (h) 5.5%
Bobby I. Hodges (b)......................................... 131,568 (i) 1.8%
Douglas I. Payne (b)........................................ 85,416 (j) 1.2%
John W. Johnson (b)......................................... 56,097 (k) (l)
William A. Sibbick, Jr. (b)................................. 56,006 (m) (l)
David V. Harkins (n)........................................ -- --
Edward J. Mack (b).......................................... 8,232 (l)
T. Scott McIlhenny (b)...................................... 2,600 (l)
Thomas L. Millner (b)....................................... 1,800 (l)
All directors and executive officers as a group
(11 persons)............................................... 1,003,343 (o) 12.9%
</TABLE>
- ------------------------
(a) The information concerning the shares beneficially owned by FMR Corp. is
based upon the Schedule 13G/A dated February 1, 1999 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 652,200 shares of Common Stock as a result of acting as investment
advisor to various investment companies (the "Funds"). The ownership of one
investment company, Fidelity Low-Priced Stock Fund, amounted to 630,200
shares. Edward C. Johnson 3d, FMR Corp., through its control of Fidelity,
and the Funds each has sole power to dispose of the 652,200 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 directly by the Funds, which power
resides with the Board of Trustees of each Fund. The principal business
address of FMR Corp., Fidelity and Fidelity Low-Priced Stock Fund is 82
Devonshire Street, Boston, Massachusetts 02109.
(b) The business address for such persons is c/o Stanley Furniture Company,
Inc., 1641 Fairystone Park Highway, Stanleytown, Virginia 24168.
(c) Includes 400,420 shares which could be acquired through the exercise of
stock options.
(d) The information with respect to Dimensional Fund Advisors Inc.
("Dimensional") is based upon its Schedule 13G, dated February 12, 1999.
Dimensional has sole voting and dispositive power with respect to 521,700
shares in its capacities as investment advisor to four investment companies
and investment manager to certain other investment vehicles (the
"Portfolios"). Such shares are owned by the Portfolios and Dimensional
disclaims beneficial ownership of such shares. The principal business
address of Dimensional is 1299 Ocean Avenue, 11th Floor, Santa Monica,
California 90401.
(e) The information with respect to Brinson Partners, Inc. ("BPI") is based upon
the Schedule 13G/A, dated February 3, 1999, filed by BPI together with UBS
AG ("UBS AG"). BPI is an indirect, wholly-owned subsidiary of UBS AG. The
Schedule 13G/A indicates that BPI and UBS AG, through its ownership of BPI,
share voting and dispositive power with respect to 516,254 shares. BPI and
UBS AG disclaim beneficial ownership of such shares. The principal business
address of BPI is 209 South LaSalle, Chicago, Illinois 60604. The principal
business address of UBS AG is Bahnhofstrasse 45, Zurich, Switzerland.
(f) The information with respect to Muhlenkamp & Company, Inc. ("Muhlenkamp &
Co.") is based upon the Schedule 13G dated March 4, 1999 filed by Muhlenkamp
& Co., together with Muhlenkamp & Company Profit Sharing Plan ("Muhlenkamp
Profit Sharing Plan") and Muhlenkamp Fund ("Muhlenkamp Fund"). The Schedule
13G indicates that Muhlenkamp & Co. has shared voting and dispositive power
with respect to 505,800 shares; Muhlenkamp Fund has shared voting and
dispositive power with respect to 305,500 shares; and Muhlenkamp Profit
Sharing Plan has sole voting and dispositive power with respect to 1,200
shares. The principal business address of Muhlenkamp & Co. and Muhlenkamp
Profit Sharing Plan is 12300 Perry Highway, Wexford, Pennsylvania 15090. The
address of Muhlenkamp Fund is P.O. Box 598, Wexford, Pennsylvania 15090.
10
<PAGE>
(g) The information with respect to J.P. Morgan & Co. Incorporated ("J.P.
Morgan") is based upon its Schedule 13G/A, dated February 23, 1999. The
Schedule 13G/A indicates that J.P. Morgan has sole voting power with respect
to 404,000 shares and sole dispositive power with respect to 488,800 shares.
The principal business address of J.P. Morgan is 60 Wall Street, New York,
New York 10260.
(h) The information for T. Rowe Price Associates, Inc. ("TRP Associates") is
based upon the Schedule 13G, dated February 12, 1999, filed by TRP
Associates together with T. Rowe Price Small-Cap Value Fund, Inc. ("TRP
Small-Cap"). TRP Associates has sole dispositive power with respect to
392,000 shares. Such shares are owned by various individual and
institutional investors, including TRP Small-Cap (which has sole dispositive
power with respect to 375,000 of such shares, representing 5.3% of the
shares outstanding) which TRP Associates serves as investment advisor. TRP
Associates disclaims beneficial ownership of such shares. The principal
business address of TRP Associates and TRP Small-Cap is 100 E.
Pratt Street, Baltimore, Maryland 21202.
(i) Includes 34,776 shares which could be acquired through the exercise of stock
options.
(j) Includes 82,686 shares which could be acquired through the exercise of stock
options.
(k) Includes 52,000 shares which could be acquired through the exercise
of stock options.
(l) Less than 1%.
(m) Represents 56,006 shares which could be acquired through the exercise of
stock options.
(n) The business address for such person is c/o Thomas H. Lee Company, 75 State
Street, Boston, Massachusetts 02109.
(o) Includes 667,140 shares which could be acquired through the exercise of
stock options.
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors selected the firm of PricewaterhouseCoopers LLP
as independent public accountants for the Company for 1999, 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
PricewaterhouseCoopers LLP, 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
PricewaterhouseCoopers LLP, as independent public accountants for 1999.
Representatives of PricewaterhouseCoopers LLP 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 nominee
in the class which term ends in 2002 receiving the greatest number of votes cast
for the election of directors will be elected.
11
<PAGE>
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 2000 ANNUAL MEETING. Any stockholder desiring
to present a proposal to the stockholders at the 2000 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 20, 1999. All such proposals should be in compliance with
applicable Securities and Exchange Commission regulations. With respect to
stockholder proposals that are not included in the proxy statement for the 2000
Annual Meeting, the persons named in the proxy solicited by the Company's Board
of Directors for the 2000 Annual Meeting will be entitled to exercise the
discretionary voting power conferred by such proxy under the circumstances
specified in Rule 14a-4(c) under the Securities Exchange Act of 1934, as
amended, including with respect to proposals received by the Company after
February 3, 2000.
By Order of the Board of Directors,
Douglas I. Payne
Secretary
March 19, 1999
12
<PAGE>
REVOCABLE PROXY
STANLEY FURNITURE COMPANY, INC.
Annual Meeting of Stockholders - April 29, 1999
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, 1999, at the Annual
Meeting of Stockholders to be held April 29, 1999, and at any adjournment
thereof.
(1) Election of director for three-year term ending 2002.
[ ] FOR the nominee listed below [ ] WITHHOLD AUTHORITY to vote for the
nominee listed below
NOMINEE:T. Scott McIlhenny, Jr.
(2) Ratification of the selection of PricewaterhouseCoopers LLP as independent
public accountants of the Company for 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) 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 29, 1999, receipt of which is
hereby acknowledged.
(Continued and to be dated and signed on reverse side)
(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) AND (2), 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 ___________________________________, 1999.
- ---------------------------------------------
- ---------------------------------------------
Please promptly mark, sign, and mail this Proxy Card in the enclosed envelope.
No postage is required.
