-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, I3sQt7fx1MVMqqx0vVlkcYZBQM3FYUYKadGQuCArGvLOGOFtJw4ZOcE9/+wsDlGL MWGYxwqgU/XcMLm+ZSWXVw== 0000797465-95-000010.txt : 19950518 0000797465-95-000010.hdr.sgml : 19950518 ACCESSION NUMBER: 0000797465-95-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950215 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANLEY FURNITURE CO INC/ CENTRAL INDEX KEY: 0000797465 STANDARD INDUSTRIAL CLASSIFICATION: 2510 IRS NUMBER: 541272589 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14938 FILM NUMBER: 95511524 BUSINESS ADDRESS: STREET 1: ROUTE 57 CITY: STANLEYTOWN STATE: VA ZIP: 24168 BUSINESS PHONE: 7036272000 MAIL ADDRESS: STREET 1: ROUTE 57 CITY: STANLEYTOWN STATE: VA ZIP: 24168 FORMER COMPANY: FORMER CONFORMED NAME: STANLEY INTERIORS CORP DATE OF NAME CHANGE: 19920703 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 Number) Route 57, Stanleytown, Virginia 24168 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (703) 627-2000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.02 per share (Title of Class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] Aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price on January 25, 1995: $16,221,328 Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of January 25, 1995: Common Stock, par value $.02 per share 4,726,550 (Class of Common Stock) Number of Shares Documents incorporated by reference: Portions of the Registrant's Proxy Statement for its Annual Meeting of Shareholders scheduled for April 20, 1995 are incorporated by reference into Part III. TABLE OF CONTENTS Part I Page Item 1 Business............................. 3 Item 2 Properties........................... 9 Item 3 Legal Proceedings.................... 10 Item 4 Submission of Matters to a Vote of Security Holders................ 10 Part II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters.... 12 Item 6 Selected Financial Data.............. 13 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 15 Item 8 Financial Statements and Supplementary Data................. 19 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............... 19 Part III Items 10 through 13.............................. 19 Part IV Item 14 Exhibits, Financial Statement Schedule and Reports on Form 8-K... 19 Signatures....................................... 24 Index to Financial Statements and Schedule....... F-1 Stanley Furniture Company, Inc. PART I Item 1. Business General Stanley Furniture Company, Inc. ("Stanley" or the "Company") is a leading designer and manufacturer of furniture exclusively targeted at the upper-medium price range of the residential market. The Company is ranked among the top 25 furniture manufacturers in North America, based on sales, according to Furniture Today, a trade publication. During 1994, the Company expanded it's product line offerings to include upholstered furniture. See "Products and Styles". The original predecessor of the Company was founded in 1924. The Company was incorporated in Delaware in 1984. The Company was acquired by Stanley Holding Corporation, a Delaware corporation ("Holding"), in a leveraged buy out in January 1989. Holding was owned 60% by the ML-Lee Acquisition Fund, L.P. (the "Lee Fund"), 20% by affiliates of the Thomas H. Lee Company (the "Lee Company") and 20% by certain members of the Company's management. The Lee Fund and affiliates of the Lee Company had no relationship with the Company prior to the leveraged buy out transaction. In November 1992, the Company completed a comprehensive financial restructuring which included (i) the exchange of $21.4 million in outstanding principal amount of 14% subordinated notes of the Company due 1998 and held by the Lee Fund into common stock, $.02 par value of the Company, and (ii) a merger which resulted in the conversion into common stock of certain preferred stock held by the Lee Fund, affiliates of the Lee Company, certain members of the Company's management, and certain unaffiliated stockholders. As a result of this restructuring, the Company was the sole surviving corporation and the only outstanding class of the Company's capital stock was common stock. The Lee Fund, certain affiliates of the Lee Company and members of management owned approximately 95% of the outstanding common stock after the financial restructuring. In July 1993, the Company completed a public offering of 1,725,000 shares of its common stock at $8.50 per share. The net proceeds of $13.1 million were used to reduce debt. In connection with the offering, the Company's Board of Directors authorized a one-for-two reverse stock split, effective July 1, 1993. Approximately 61% of the Company's common stock was owned by the Lee Fund, certain affiliates of the Thomas H. Lee Company, and management after the public offering. In connection with the financial restructuring, the Company pursued an operating restructuring consisting of (i) the closing of the Waynesboro, Virginia facility in 1992 to eliminate excess capacity, and (ii) the proposed sale of the Norman's of Salisbury Division ("Norman's"). In June 1994, the Company ceased operations at Norman's, and recorded an additional loss provision. See "Discontinued Operations". Strategy The Company's marketing strategy is to penetrate all available distribution channels compatible with its price niche and to be a single-source provider by offering a broad range of product lines and styles. Product lines include bedroom, dining room, youth, occasional furniture, and the new upholstery line. The Company's product styling mix reflects current consumer preferences and covers all major design categories within its price niche. The Company's operating strategy is based upon providing superior quality, quick delivery, style and value. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of the Company's sales. The Company believes its strategy of penetrating all available distribution channels compatible with its price niche provides it with flexibility to adapt to market changes. The Company utilized its distribution network to introduce occasional furniture products (living room tables, wall units and desks) in the Fall of 1989, and has increased sales of these products to approximately $22 million for 1994. The Company is currently utilizing this distribution network to introduce its new upholstery line. There can be no assurance that the introduction of the upholstery line will result in increased sales. The Company believes that its operating strategy provides its customers with a competitive advantage. In order to respond to demand for shorter lead times and improved quality, the Company implemented a redesigned manufacturing process in 1991 to produce smaller, more frequent and cost effective production runs. As a result, the Company achieved its goal of shipping customer orders in three weeks on average during 1994, and average finished goods inventory turns have improved to 6.6 times in 1994 from 4.5 times in 1990. In addition, management believes this operating strategy has helped to improve product quality. Quick delivery and high quality reduce the retailer's inventory investment while minimizing the retailer's re-delivery costs and price markdowns. The Company uses the marketing theme, "We Just Look Expensive," because it believes that the design, quality, and style of its furniture compare favorably with more premium-priced products. Products and Style The Company's broad range of product lines and styles provide retailers a single source for the purchase of upper-medium priced wood furniture. The Company's strategy is to expand its production of upholstered furniture products to provide retailers a single source for the purchase of complete residential furniture collections. The range of product lines and number of designs for wood products currently marketed by the Company is set forth in the following table. Number of Designs Bedroom 27 Dining room 28 Youth bedroom 18 Occasional: Living room tables 22 Wall systems 13 Home Office 3 The Company's product styling mix reflects current consumer preferences and covers all major design categories within its upper-medium price niche including European traditional, contemporary/transitional, 18th century, country/nostalgia and mission/shaker designs. Upholstered furniture products were introduced as part of the Saturday Evening Post/Norman Rockwell Home Furnishings Collection in the Fall of 1994, and consist mainly of sofas, sleepers, love seats and chairs. The Company adapted some of Norman Rockwell's best-known illustrations to upholstery fabric and offers approximately 55 fabric selections. Marketing and Sales The Company has developed a diverse and extensive nationwide customer base which the Company believes provides it with flexibility to adapt to market changes. The Company sells its furniture products through approximately 60 independent sales representatives to independent furniture retailers; national accounts such as Sears and J.C. Penney; national and regional chain stores such as Homestead House, Huffman-Koos, Robb & Stucky and R C Willey; major department stores such as Dillards and Federated Department Stores, and international customers. The Company currently has approximately 3,700 active customers. In marketing its products to independent retailers, the Company utilizes a promotional incentive sales program, the "Stanley Preferred Retailer". This program is designed to encourage the independent retailer to commit retail floor space to the Company's products. The program is designed to be flexible and is adapted into the marketing plans of retailers by accommodating geographic, style and promotional preferences. To participate, a retailer must commit a specified amount of floor space to the Company's products and achieve a specified sales volume. The general marketing practice followed in the furniture industry is to exhibit products at international and regional furniture markets. In the Spring and Fall of each year, an eight- day furniture market is held in High Point, North Carolina, which is regarded by the industry as the international market, attracting buyers from the United States and abroad. The Company maintains showroom space at the High Point market and in the San Francisco regional market. The Company is currently expanding the High Point space to accommodate it's new upholstery line. No single customer accounted for more than 10% of the Company's sales in 1994. No material part of the Company's business is dependent upon a single customer, the loss of which would have a material effect on the business of the Company. The loss of several of the Company's major customers could have a material effect on the business of the Company. There are no significant seasonal aspects to the Company's business. Product Design and Development The Company's marketing personnel begin the design process by identifying marketing needs to be fulfilled and conceptualizing product ideas, generally consisting of a group of related furniture pieces. A variety of sketches is then produced, usually by Company designers, from which prototype furniture pieces are prepared in consultation with marketing personnel, selected dealers and sales representatives. The Company's engineering department then further processes the prototype in preparation for actual full-scale manufacture. Consistent with industry practice, the Company designs and develops new product groups each year, replacing collections or items which are discontinued. Manufacturing The Company's manufacturing operations complement its marketing strategy by emphasizing superior quality and quick delivery. In 1991, the Company implemented a redesigned manufacturing process to produce smaller, more frequent and cost effective runs by identifying and eliminating manufacturing bottlenecks and waste, employing statistical process control, establishing cellular manufacturing and improving relationships with suppliers. In addition, a key element of the Company's current manufacturing process is to involve all Company personnel, from hourly associates to management, in the improvement of the manufacturing process by encouraging and responding to suggested methods to improve quality and reduce manufacturing lead times. The Company operates manufacturing facilities in North Carolina and Virginia consisting of an aggregate of approximately 3.0 million square feet. The Company considers its present equipment to be generally modern, adequate and well maintained. Raw Materials The principal materials used by the Company in manufacturing its products include lumber, veneers, plywood, particle board, hardware, glue, finishing materials, glass products, laminates, fabrics, metals, frames for upholstered products, filling and cushioning materials. The Company uses a variety of species of lumber, including cherry, oak, ash, poplar, pine, maple, pecan, and mahogany. The Company's five largest suppliers accounted for approximately 24% of its purchases in 1994. The Company believes that its sources of supply for these materials are adequate and that it is not dependent on any one supplier. In addition, the furniture industry has experienced increased prices for lumber during the past several years, the most significant raw material used by the Company. While the industry has historically increased prices to reflect such increased costs, there can be no assurance that, if the trend in lumber prices continues, market and competitive pressures will permit the Company or its competitors to increase the prices for their products. Backlog The Company schedules furniture production of its various groups based upon actual or anticipated orders. The Company, and the furniture industry, generally honor cancellation of orders prior to shipment, although cancellations generally decrease as demand increases. The Company's backlog of unshipped orders was $17.4 million, $26.6 million, and $22.9 million at December 31, 1994, 1993, and 1992, respectively. The Company's manufacturing process is intended to reduce backlog and to fill orders through manufacturing rather than inventory. Therefore, management believes that the size of its backlog is not necessarily indicative of its operations. Competition The furniture market is highly competitive and includes a large number of manufacturers, both domestic and foreign. The markets in which the Company competes include a large number of relatively small manufacturers; however, certain of the Company's competitors have greater sales volumes and greater financial resources than the Company. While competition occurs principally in the areas of style, quality, service, design and price, the Company believes that its operating strategy, its long-standing relationships with its customers, its consistent support of existing product lines over time and its management experience are competitive advantages. Associates At December 31, 1994, the Company employed approximately 2,900 associates. None of the Company's associates are represented by a labor union. The Company considers its relations with its associates to be good. Patents and Trademarks The trade names of the Company represent many years of continued business, and the Company believes such names are well recognized and associated with quality in the furniture industry. The Company owns a number of patents, trademarks, and licenses, none of which is considered to be material to the Company. Environmental Regulation The Company is regulated under several federal, state and local environmental laws and regulations concerning air emissions, water discharges and management of solid and hazardous waste. Management believes that the Company is in material compliance with applicable federal, state and local environmental regulations. Compliance with these regulations has not in the past had any material effect on the Company's earnings, capital expenditures or competitive position; however, the effect of such compliance in the future cannot be determined. Regulations currently being issued under the Clean Air Act Amendments of 1990 may require the Company to reformulate certain furniture finishes or institute process changes to reduce emissions of volatile organic compounds. The furniture industry and its suppliers are attempting to develop water-based and other forms of compliant finishing materials to replace commonly-used organic- based finishes which are a major source of regulated emissions. The Company cannot at this time estimate the impact of these new standards on the Company's operations and future capital expenditure requirements, or the cost of compliance. Discontinued Operations In June 1994, the Company ceased operations at Norman's. The Company recorded a $2.8 million ($4.5 million pretax) additional loss provision in 1994 representing costs associated with the closing and liquidation of the operation, which was completed by December 31, 1994. Currently, a portion of the Norman's facilities is being subleased on a short-term basis and a portion is being utilized in the production of upholstered furniture products. Item 2. Properties Set forth below is certain information with respect to the Company's principal properties. The Company believes that all these properties are well maintained and in good condition. The Company believes its manufacturing facilities are being efficiently utilized and that it could increase production at its facilities if required by customer demand. Each facility is focused on specific product lines to optimize efficiency. The Company estimates that its facilities are presently operating at approximately 90% of capacity, principally on a one-shift basis. All Company plants are equipped with automatic sprinkler systems and modern fire protection equipment. Management believes that the Company's sprinkler systems and fire protection equipment are adequate. All facilities set forth below are active and operational. Approximate Owned Lease Facility Size or Expiration Location Primary Use (Square Feet) Leased Date Stanleytown, VA Manufacturing 1,660,000 Leased October 14, 1999(1) Stanleytown, VA Sales and Executive Offices 61,000 Leased October 14, 1999(1) West End, NC Manufacturing 470,000 Leased October 14, 1999(1) West End, NC Lumber Yard Leased May 31, 2007 Lexington, NC Manufacturing(2) 635,000 Owned Robbinsville, NC Manufacturing 540,000 Owned Salisbury, NC Manufacturing(3) 16,254 Leased April 30, 2000(4) (1) The Company has the right to renew this lease for two five-year options through October 14, 2009 and to purchase the property at any time at its fair market value. (2) This facility includes approximately 350,000 square feet of warehouse space. (3) The Company has an additional 92,869 square feet which is currently subleased. This was the principal facility of Norman's. (4) The Company has the right to purchase the property at any time at its fair market value. The Company also leases and maintains approximately 60,000 square feet (8,000 square feet is subleased) of showroom space in High Point, North Carolina and 7,000 square feet of showroom space in San Francisco, California. Item 3. Legal Proceedings None. Item 4. Submission of Matters to a Vote of Security Holders None. Executive Officers of the Registrant The executive officers of the Company are: Name Age Position Albert L. Prillaman 49 Chairman, President and Chief Executive Officer and Director Lawrence E. Webb, Jr. 46 Executive Vice President, Chief Operating Officer and Director C. William Cubberley, Jr. 54 Vice President-Sales and Marketing Douglas I. Payne 37 Vice President of Finance, Treasurer and Secretary Bobby I. Hodges 57 Vice President- Manufacturing William A. Sibbick 38 Vice President-Product Development Albert L. Prillaman has been a Director of the Company since March 1986, President and Chief Executive Officer 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 predecessors of the Stanley Furniture division of the Company since 1969. Lawrence E. Webb, Jr. has been a Director of the Company since June 1986 and Executive Vice President of the Company and its predecessor since July 1983 and Chief Operating Officer since December 1990. C. William Cubberley, Jr. has been a Vice President of the Company since December 1990 and Senior Vice President-Sales and Marketing of the Stanley Furniture division since October 1988. Mr. Cubberley was Senior Vice President-Sales of the Stanley Furniture division from January 1986 to October 1988. Douglas I. Payne has been Vice President of Finance and Treasurer of the Company since September 1993, was Vice President- Treasurer of the Company from December 1989 to September 1993, was Treasurer of the Company from June 1986 to December 1989 and was Assistant Treasurer of the Company from August 1985 to June 1986. Mr. Payne has been Secretary of the Company since September 1988. Bobby I. Hodges has been Vice President since June 1993. He was Senior Vice President-Manufacturing of the Stanley Furniture division from January 1986 until June 1993. He was Vice President- Manufacturing of the Stanley Furniture division from December 1983 until January 1986. Prior to that time, Mr. Hodges was employed by the Company in various positions related to manufacturing management. William A. Sibbick has been Vice President-Product Development since June 1993. He was Vice President-Senior Product Manager of the Stanley Furniture division from January 1992 until June 1993. Prior to that time, he had been Vice President-Product Manager since his employment in March 1989. PART II Item 5. Market for Registrant's Common Equity and Related Shareholders Matters The Company's common stock is traded on the National Association of Securities Dealers Automated Quotation (NASDAQ) National Market under the symbol STLY. The common stock began trading on the over-the-counter market on November 10, 1992 and began trading on the NASDAQ National Market on July 1, 1993. The table below sets forth the high and low bid quotations per share until June 30, 1993, and thereafter the high and low sales prices per share as reported by the NASDAQ National Market. High Low 1994 First Quarter......................... 16 13 Second Quarter........................ 15 11 Third Quarter......................... 12 1/2 9 Fourth Quarter........................ 10 3/4 9 3/4 1993 First Quarter.......................... 10 8 Second Quarter......................... 10 9 1/2 Third Quarter.......................... 9 3/4 8 1/2 Fourth Quarter......................... 14 9 The quotations reflect interdealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. As of January 27, 1995, there were approximately 424 shareholders of record. The Company has not paid any cash dividends and is prohibited from doing so under its bank credit facility. Item 6. Selected Financial Data The selected financial data for the five years in the period ended December 31, 1994 are derived from the Company's financial statements, which have been audited by Coopers & Lybrand L.L.P. The selected financial data should be read in conjunction with the Financial Statements including the Notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere herein. Stanley Furniture Company, Inc. Selected Financial Data (In thousands, except per share data) 1994 1993 1992 1991 1990 Operating Results: Net sales.......................$184,342 $167,091 $166,501 $144,169 $153,050 Cost of sales: From products sold............ 148,453 134,972 132,984 121,027 119,672 Business interruption insurance (1)............... (5,036) Gross profit.............. 35,889 37,155 33,517 23,142 33,378 Selling, general and admin- istrative expenses............ 26,483 25,976 25,117 22,877 24,035 Restructuring charge (credit)(2)................... (2,078) 14,051 Operating income (loss)..... 9,406 11,179 10,478 (13,786) 9,343 Other expense, net.............. 444 1,346 686 1,252 1,175 Gain on insurance settlement (3) (2,379) (2,186) Interest expense................ 2,969 3,048 7,058 8,581 10,159 Income (loss) from continu- ing operations before income taxes................ 8,372 8,971 2,734 (23,619) (1,991) Income tax provision (benefit).. 3,256 3,691 1,053 (9,088) (975) Income (loss) from continu- ing operations(4)...........$ 5,116 $ 5,280 $ 1,681 $(14,531)$ (1,016) Income from continuing operations per common share(4)$ 1.08 $ 1.39 $ .56 Weighted average number of shares (5) (6)................ 4,725 3,792 2,996 Financial Position: Inventories.....................$ 39,905 $ 37,684 $ 33,343 $ 34,355 $ 44,531 Working capital................. 42,912 40,833 34,650 25,396 41,684 Total assets.................... 124,519 124,859 114,302 113,724 133,135 Long-term debt.................. 33,395 32,022 46,543 41,221 48,723 Subordinated notes payable to majority stockholder (5)...... 20,000 30,000 Mandatorily redeemable pre- ferred stock (5).............. 12,662 11,359 Preferred stock (5)............. 15,023 Common stockholders' equity (5) (6) (7)................... 50,830 47,204 29,959 (18,748) 697
Selected Financial Data (continued) (1) In 1993, the Company recorded $5.0 million of business interruption insurance replacing the gross profit on lost sales due to the fire which occurred on February 12, 1993 at its Stanleytown, Virginia facility. See Note 3 of the Notes to Financial Statements. (2) In 1991, the Company recorded pretax charges of $14.1 million in anticipation of the closing of the Waynesboro, Virginia facility to eliminate excess capacity and the transfer of certain product lines to other manufacturing facilities. Operating income for 1992 includes a restructuring credit of $2.1 million from lower than anticipated costs of closing the Waynesboro facility in June 1992. See Note 5 of the Notes to Financial Statements. (3) In 1994, the Company recorded a pretax gain of $2.4 million as part of the final insurance settlement. Also, in 1993 a $2.2 million pretax gain was recorded since proceeds exceeded the book value of leasehold improvements and equipment destroyed in the fire. (4) Income from continuing operations before insurance related gains was $3.7 million (77 cents per share) in 1994, compared to $4.3 million (90 cents per share) on a proforma basis in 1993. (5) In November 1992, the Company completed a financial restructuring which resulted in the exchange of certain long-term debt and preferred stock for common stock. See Note 1 of the Notes to Financial Statements. (6) In July 1993, the Company completed a public offering of 1,725,000 shares of common stock at $8.50 per share. The net proceeds of $13.1 million were used to reduce debt. See Note 9 of the Notes to Financial Statements. (7) No dividends have been paid on common stock during any of the years presented. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Selected Financial Data and the Financial Statements and Notes thereto contained elsewhere herein. General The Company has operated under a strategy designed to focus on customer service by providing improved quality and shorter lead times from initial customer order until delivery of the merchandise. This strategy was implemented through the combination of reduced batch sizes and reduced set-up times and an improved manufacturing logistical system. The Company believes that its operating strategy has resulted in increased revenues due to higher quality and customer satisfaction, and a more efficient utilization of its manufacturing capacity. As a part of the operating strategy, inventory levels were reduced from historical levels. In November 1992, the Company completed a comprehensive financial restructuring which reduced indebtedness and interest expense in order to provide the Company with sufficient financial flexibility to operate its business. On February 12, 1993, a fire damaged a portion of the Stanleytown, Virginia manufacturing complex, representing approximately 12% of the Company's total manufacturing facilities. Reconstruction of the damaged facility was completed in November 1993 and normal production resumed in January 1994. Because of the Company's insurance coverage, the fire did not have a material adverse impact on the financial condition of the Company, although 1993 net sales were adversely affected. Results of Operations 1994 Compared to 1993 Net sales increased $17.3 million, or 10.3%, from 1993 levels due principally to higher average selling prices and higher unit volume. Lower unit volume in the 1993 period was due principally to the disruption in production caused by the 1993 fire. Gross profit margin decreased to 19.5% from 22.2% in 1993, representing a $1.3 million decrease in gross profit. The higher gross profit percentage for 1993 was due principally to the recognition of $5.0 million of business interruption insurance without the related sales revenue. This $5.0 million represented the estimated settlement proceeds for gross profits lost and other direct costs related to lost sales from the Stanleytown fire. Gross profit margin for 1994 was negatively affected by startup expenses related to the introduction of upholstered furniture. Selling, general and administrative expenses as a percentage of net sales was 14.4% and 15.5% for 1994 and 1993, respectively. The lower percentage was due principally to an increase in net sales and containment of cost. The lower percentage for 1994 was partially offset by upholstery startup expenses. As a result of the above, operating income decreased to $9.4 million from $11.2 million. Operating income was reduced by upholstery startup costs of approximately $1.0 million in 1994. Operating income as a percentage of net sales decreased to 5.1% from 6.7% in 1993. In 1994, the Company reached a final insurance settlement on the 1993 fire and recorded a pretax gain of $2.4 million. Interest expense approximated the 1993 period due principally to lower average debt levels, which was offset by higher interest rates. The Company's effective income tax rate decreased to 39% from 41% in 1993. The higher 1993 rate was due principally to the effect of the 1% federal statutory rate increase on the prior years' deferred tax balances. 1993 Compared to 1992 Net sales increased .4% from 1992 levels. Overall unit volume declined due principally to the phase out of the hotel/motel market segment. Sales in this product line declined from $8.0 million in 1992 to $1.3 million in 1993. Unit volume was also adversely affected due to the disruption of production following the Stanleytown fire. Higher average selling prices offset the lower unit volume. Sales of residential furniture products increased 4.6% from 1992. The gross profit margin increased to 22.2% from 20.1% in 1992, representing a $3.6 million increase in gross profit. The increase in the margin percentage is due principally to $5.0 million of business interruption insurance without the related sales revenue. Margins were also negatively affected by higher raw material costs, principally lumber. As a result of competitive pressures, not all of these cost increases were passed on to customers. However, cost reductions and productivity gains diminished the potential unfavorable impact of these raw material cost increases on gross profit. Selling, general and administrative expenses increased 3.4% to $26.0 million from $25.1 million in 1992. Increases were due primarily to higher salaries and benefits, and consulting costs related to the fire insurance claim. As a result of the above, operating income increased to $11.2 million from $8.4 million (before the 1992 restructuring credit), an increase of 33%. The restructuring credit of $2.1 million in 1992 resulted from lower than anticipated costs of closing the Waynesboro, Virginia production facility in June 1992. In 1993, the Company recorded a $2.2 million pretax gain from insurance since proceeds exceeded the book value of leasehold improvements and equipment destroyed in the 1993 fire. Other expense, net, increased to $1.3 million from $686,000 in 1992 due principally to the amortization of deferred financing fees related to borrowing arrangements that were refinanced. Interest expense decreased $4.0 million from 1992 due principally to lower interest rates after the expiration of the LIBOR-based interest rate collar agreement in January 1993; and, lower debt levels resulting from the November 1992 restructuring and the July 1993 public offering. The Company's effective income tax rate increased to 41.0% compared to 38.5% in 1992. This was due principally to the effect of the 1% federal statutory rate increase on prior years' deferred tax balances. Financial Condition, Liquidity and Capital Resources In February 1994, the Company completed the private placement of $30.0 million of 7.28% senior notes due 2004 and the refinancing of its revolving credit facility. The proceeds from the senior notes were used to repay the existing term note and a portion of the revolving credit facility. Long-term debt outstanding at December 31, 1994 was $33.4 million. Debt service requirements will be $3.2 million in 1996, $161,000 in 1997 and $4.3 million in each of the years 1998 through 2004. As of December 31, 1994, approximately $17 million of additional borrowings were available under the revolving credit facility. The Company believes that its financial resources are adequate to support its capital needs and debt service requirements. During 1994, cash generated from operations of $4.1 million and net borrowings of $1.2 million were used to fund capital expenditures. The decrease in cash generated from operations was due principally to higher tax payments of $4.4 million compared to $321,000 in 1993. Tax payments were lower in 1993 due principally to the utilization of net operating loss carryforwards. Cash generated from operations in 1993 of $6.5 million was used to fund capital expenditures and to reduce borrowings under the senior credit facility. Operating cash flows in both 1994 and 1993 include proceeds of $4.6 and $23.2 million, respectively, received from insurance in connection with the fire. Cash paid to suppliers in 1994 and 1993 include costs of $2.7 million and $25.2 million, respectively, incurred in connection with the fire. Excluding the effect of the fire, cash was required in the 1994 period to support higher accounts receivable requirements reflecting higher sales levels, higher payments to suppliers and employees as a result of higher production levels and higher tax payments. These higher payments in the 1994 period were partially offset by lower interest payments due principally to lower debt levels. Excluding the cash flow impact from the fire, cash provided by operating activities improved $12.1 million in 1993 principally from higher customer receipts, lower payments for the restructuring program and lower interest payments. In 1992, proceeds from the revolving credit facility were used in operating activities due primarily to paying $3.4 million for restructuring costs incurred in 1991. Net cash used by investing activities was $5.2 million in 1994 compared to $4.3 million and $3.1 million in 1993 and 1992, respectively. Expenditures in the 1994 period include the purchase of equipment and other capital expenditures for the new upholstery operation of approximately $727,000. Except for fire related expenditures in 1993 which were reimbursed by insurance, expenditures in each year were primarily for plant and equipment, and other assets in the normal course of business. Net cash provided by financing activities was $1.2 million in 1994 compared to net cash used by financing activities of $2.7 million in 1993 and cash provided by financing activities of $7.1 million in 1992. Cash provided by financing activities in the 1994 period was used to fund capital expenditures. In 1993, cash provided by the public offering ($13.1 million) and from operations enabled the Company to redeem $3.1 million of outstanding senior subordinated debentures and to reduce borrowings under the senior credit facility by $12.8 million. In 1992, net borrowings on the revolving credit facility increased by $7.4 million and proceeds from insurance policy loans were $1.1 million. Repayments of long- term debt were $990,000 and fees paid in connection with the restructuring were $439,000. Discontinued Operations In June 1994, the Company ceased operations at Norman's. The Company recorded a $2.8 million ($4.5 million pretax) additional loss provision in 1994 representing costs associated with the closing and liquidation of the operation, which was completed by December 31, 1994. Currently, a portion of the Norman's facilities is being subleased on a short-term basis and a portion is being utilized in the production of upholstered furniture products. Item 8. Financial Statements and Supplementary Data The financial statements and schedule listed in Items 14(a)(1) and (a)(2) hereof are incorporated herein by reference and are filed as part of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III In accordance with general instruction G(3) of Form 10-K, the information called for by items 10, 11, 12, and 13 of Part III is incorporated by reference to the registrant's definitive Proxy Statement for its Annual Meeting of Shareholders scheduled for April 20, 1995, except for information concerning the executive officers of the registrant which is included in Part I of this report under the caption "Executive Officers of the Registrant." PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K (a) Documents filed as a part of this Report: (1) The following financial statements are included in this report on Form 10-K: Report of Independent Accountants Balance Sheets - as of December 31, 1994 and 1993 Statements of Income - for each of the three years in the period ended December 31, 1994 Statement of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1994 Statements of Cash Flows - for each of the three years in the period ended December 31, 1994 Notes to Financial Statements (2) Financial Statement Schedule: Schedule VIII - Valuation of Qualifying Accounts - for each of the three years in the period ended December 31, 1994 (b) The following reports on Form 8-K were filed by the Registrant during the last quarter of the period covered by this report: None. (c) Exhibits: 2.1 Agreement and Plan of Merger dated as of July 24, 1992 by and among the Registrant, Stanley Holding Corporation, Stanley Acquisition Corporation, the ML-Lee Acquisition Fund (Retirement Accounts) II, L.P., and the persons listed on Schedules I and II thereto (incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form S-4 No. 33-50050). 3.1 The Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-1, No. 33-7300). 3.2 The By-laws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-1, No. 33-7300). 3.3 Amendment adopted March 21, 1988 to the By-laws of the Registrant (incorporated by reference to Exhibit 3.3 to the Registrant's Form 10-K (Commission File No. 0-14938) for the year ended December 31, 1987). 3.4 Amendments adopted February 8, 1993 to the By-laws of the Registrant (incorporated by reference to Exhibit 3.4 to the Registrant's Registration Statement on Form S-1 No. 33- 57432). 3.5 Certificate of Stock Designation dated May 1, 1991 of the Registrant as modified by an Amendment to Certificate of Designation dated May 31, 1991 (incorporated by reference to Exhibit 3.6 to the Registrant's Form 10-K for the year ended December 31, 1991). 3.6 Certificate of Merger dated as of November 9, 1992 (incorporated by reference to Exhibit 3.6 to the Registrant's Statement on Form S-1 No. 33-57432). 3.7 Certificate of Amendment dated June 30, 1993.(1) 4.1 The Certificate of Incorporation and By-laws of the Registrant as currently in effect incorporated by reference as Exhibits 3.1 through 3.7 (incorporated by reference to (1) Filed herewith Exhibit 4.2 to the Registrant's Registration Statement on Form S-1 No. 33-57432). 4.2 Registration Rights Agreement dated as of November 9, 1992 by and among the Registrant, ML-Lee Acquisition Fund, L.P., ML - Lee Acquisition Fund II, L.P., ML-Lee Acquisition Fund (Retirement Accounts) II, L.P., Lee Stockholders (as defined therein) and Management Stockholders (as defined therein) (incorporated by reference to Exhibit 4.3 to the Registrant's Statement on Form S-1 No. 33-57432). 4.3 Form of Indenture (including the Form of the Debenture) (incorporated by reference to Exhibit 4 to the Registrant's Registration Statement on Form S-1, No. 33-12746). 4.4 First Supplemental Indenture dated as of January 17, 1989 (incorporated by reference to Exhibit 4.2 to the Registrant's Form 10-K for the year ended December 31, 1988). 4.5 Second Supplemental Indenture dated as of November 9, 1992 (incorporated by reference to Exhibit 4.5 to the Registrant's Form 10-K for the year ended December 31, 1993). 4.6 Note Agreement dated February 15, 1994 between the Registrant and the Prudential Insurance Company of America. (incorporated by reference to Exhibit 4.6 to the Registrant's Form 10-K for the year ended December 31, 1993). 10.1 Employment Agreement made as of January 1, 1991 between Albert L. Prillaman and the Company (incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-K for the year ended December 31, 1991).(2) 10.2 Employment Agreement made as of January 1, 1991 between Lawrence E. Webb, Jr. and the Company (incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-K for the year ended December 31, 1991).(2) 10.3 Lease dated October 15, 1979 between SIC and The Mead Corporation ("Mead"), as amended (the "Mead Lease") (incorporated by reference to Exhibit 10.16 to the Registrant's Registration Statement on Form S-1, No. 33- 7300). 10.4 Lease dated May 1, 1970 between E. E. Lampert, Trustee under the Will of R. W. Norman, as lessor, and R. W. Norman Company, Inc., as lessee, as amended (the "Norman Lease") (2) Management contract or compensatory plan (incorporated by reference to Exhibit 10.18 to the Registrant's Registration Statement on Form S-1, No. 33- 7300). 10.5 Lease dated February 23, 1987 between SIC Corporation and Southern Furniture Exposition Building, Inc. d/b/a Southern Furniture Market Center (incorporated by reference to Exhibit 10.10 to the Registrant's Form 10-K for the year ended December 31, 1987). 10.6 Lease dated June 30, 1987 between A. Allan McDonald, Virginia Cary McDonald, C. R. McDonald, Dorothy V. McDonald, and Lillian S. McDonald, as lessor, and SIC, as lessee (incorporated by reference to Exhibit 10.14 to the Registrant's Form 10-K for the year ended December 31, 1987). 10.7 The Stanley Retirement Plan, as restated effective January 1, 1989, adopted December 15, 1993. (incorporated by reference to Exhibit 10.7 to the Registrant's Form 10-K for the year ended December 31, 1993).(2) 10.8 Supplemental Retirement Plan of Stanley Furniture Company, Inc. as restated effective January 1, 1993. (incorporated by reference to Exhibit 10.8 to the Registrant's Form 10-K for the year ended December 31, 1993).(2) 10.9 Stanley Interiors Corporation Deferred Compensation Capital Enhancement Plan effective January 1, 1986 (incorporated by reference to Exhibit 10.12 to the Registrant's Registration Statement on Form S-1, No. 33-7300).(2) 10.10 Stanley Furniture Company, Inc. Associates' Savings and Protection Plan, as amended and restated effective January 1, 1993. (incorporated by reference to Exhibit 10.10 to the Registrant's Form 10-K for the year ended December 31, 1993).(2) 10.11 Management Agreement with Thomas H. Lee Company entered into September 29, 1988 by and among the Registrant, as successor to Interiors Acquisition Corporation, Stanley Holding Corporation, Stanley Acquisition Corporation and Thomas H. Lee Company (incorporated by reference to Exhibit (c)(9) to the Registrant's Rule 13e-3 Transaction Statement filed October 14, 1988). 10.12 Lease dated June 20, 1990 by and among Security Bank and Trust Company, Substitute Trustee under the Will of R. W. Norman, as lessor, and Stanley Interiors Corporation, as (2) Management contract or compensatory plan lessee (the "Norman Lease") (incorporated by reference to Exhibit 10.34 to the Registrant's Form 10-K for the year ended December 31, 1990). 10.13 Employment Agreement made as of January 1, 1991 between William Cubberley, Jr. and the Registrant (incorporated by reference to Exhibit 10.42 to the Registrant's Form 10-K for the year ended December 31, 1991).(2) 10.14 Split Dollar Insurance Agreement dated as of March 21, 1991 between Albert L. Prillaman and the Registrant (incorporated by reference to Exhibit 10.43 to the Registrant's Form 10-K for the year ended December 31, 1991).(2) 10.15 Split Dollar Insurance Agreement dated as of March 31, 1991 between Lawrence E. Webb, Jr. and the Registrant (incorporated by reference to Exhibit 10.44 to the Registrant's Form 10-K for the year ended December 31, 1991).(2) 10.17 Second Amended and Restated Revolving Credit Facility and Term Loan Agreement dated February 15, 1994 between the Registrant, National Canada Finance Corp., and the National Bank of Canada 10.181992 Stock Option Plan (incorporated by reference to Registrant's Registration Statement on Form S- 8, No. 33-58396). 10.18 1994 Stock Option Plan.(1)(2) 10.19 1994 Executive Loan Plan.(1)(2) 10.20 Loan and Stock Purchase Agreement dated as of December 2, 1994 by Albert L. Prillaman.(1)(2) 10.21 Loan and Stock Purchase Agreement dated as of December 2, 1994 by Lawrence E. Webb, Jr.(1)(2) 10.22 First Amendment dated July 1, 1993 to Mead Lease.(1) 11 Schedule of Computation of Earnings Per Share.(1) 21 Listing of Subsidiaries: Charter Stanley Foreign Sales Corporation, a United States Virgin Islands Corporation. 24 Consent of Coopers & Lybrand L.L.P.(1) 27 Financial Data Schedule.(1) (1) Filed herewith (2) Management contract or compensatory plan SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STANLEY FURNITURE COMPANY, INC. February 15, 1995 By: /s/ Albert L. Prillaman Albert L. Prillaman President, Chief Executive Officer, and Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Albert L. Prillaman President, Chief February 15, 1995 (Albert L. Prillaman) Executive Officer, Chairman of the Board, and Director (Principal Executive Officer) /s/ Lawrence E. Webb, Jr. Executive Vice February 15, 1995 (Lawrence E. Webb, Jr.) President, Chief Operating Officer, and Director /s/ Douglas I.Payne Vice President of February 15, 1995 (Douglas I. Payne) Finance, Treasurer and Secretary (Principal Financial and Accounting Officer) /s/ David V. Harkins Director February 15, 1995 (David V. Harkins) /s/ C. Hunter Boll Director February 15, 1995 (C. Hunter Boll) /s/ Edward J. Mack Director February 15, 1995 (Edward J. Mack) STANLEY FURNITURE COMPANY, INC. ANNUAL REPORT ON FORM 10-K INDEX TO FINANCIAL STATEMENTS AND SCHEDULE FOR THE YEAR ENDED DECEMBER 31, 1994 Financial Statements Page Report of Independent Accountants......................... F- 2 Balance Sheets as of December 31, 1994 and 1993........... F- 3 Statements of Income for each of the three years in the period ended December 31, 1994................... F- 5 Statement of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1994...................................... F- 6 Statements of Cash Flows for each of the three years in the period ended December 31, 1994................... F- 7 Notes to Financial Statements............................. F- 8 Financial Statement Schedule Schedule VIII - Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 1994....................................... S- 1 F-1 To The Board of Directors and Shareholders Of Stanley Furniture Company, Inc. We have audited the financial statements and financial statement schedule of Stanley Furniture Company, Inc. as listed in the index to financial statements and schedule on page F-1. These financial statements are the responsibility of the management of Stanley Furniture Company, Inc. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stanley Furniture Company, Inc. as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. As discussed in Note 10 of the Notes to Financial Statements, effective as of the beginning of 1993, the Company changed its method of accounting for postretirement benefits other than pensions to conform with Statement of Financial Accounting Standards No. 106. Richmond, Virginia January 31, 1995 F-2 STANLEY FURNITURE COMPANY, INC. BALANCE SHEETS (In thousands, except share data) December 31, 1994 1993 ASSETS Current assets: Cash........................... $ 301 $ 200 Accounts receivable, less allowances of $933 and $827.. 23,760 22,749 Inventories: Finished goods............... 20,893 17,398 Work-in-process.............. 5,957 6,076 Raw materials................ 13,055 14,210 39,905 37,684 Prepaid expenses and other current assets............... 1,446 554 Insurance claim receivable..... 1,966 Deferred income taxes.......... 2,003 3,229 Net assets of discontinued operations................... 1,994 Total current assets....... 67,415 68,376 Property, plant and equipment, at cost........................... 64,827 60,211 Less accumulated depreciation 20,049 16,277 44,778 43,934 Excess of cost over fair value of net assets acquired, less accumulated amortization of $2,016 and $1,680.............. 11,424 11,760 Other assets..................... 902 789 $124,519 $124,859 The accompanying notes are an integral part of the financial statements. F-3 STANLEY FURNITURE COMPANY, INC. BALANCE SHEETS (CONTINUED) (In thousands, except share data) December 31, 1994 1993 LIABILITIES Current liabilities: Current maturities of long- term debt.................... $ 625 Accounts payable............... $ 14,659 15,411 Accrued salaries, wages and benefits..................... 7,119 8,183 Other accrued expenses......... 2,725 3,324 Total current liabilities.... 24,503 27,543 Long-term debt, exclusive of current maturities............. 33,395 32,022 Deferred income taxes............ 11,541 12,828 Other long-term liabilities...... 4,250 5,262 Total liabilities.............. 73,689 77,655 STOCKHOLDERS' EQUITY Common stock, $.02 par value, 10,000,000 shares authorized, 4,726,550 and 4,721,438 shares issued and outstanding......... 94 94 Capital in excess of par value... 64,527 64,381 Adjustment for minimum pension liability...................... (1,122) Deficit.......................... (13,791) (16,149) Total stockholders' equity..... 50,830 47,204 $124,519 $124,859 The accompanying notes are an integral part of the financial statements. F-4 STANLEY FURNITURE COMPANY, INC. STATEMENTS OF INCOME (In thousands, except per share data) For the Years Ended December 31, 1994 1993 1992 Net sales........................... $184,342 $167,091 $166,501 Cost of sales: From products sold................ 148,453 134,972 132,984 Business interruption insurance... (5,036) 148,453 129,936 132,984 Gross profit................... 35,889 37,155 33,517 Selling, general and administrative expenses.......................... 26,483 25,976 25,117 Restructuring credit................ (2,078) Operating income ................. 9,406 11,179 10,478 Gain on insurance settlement........ (2,379) (2,186) Other expense, net.................. 444 1,346 686 Interest expense.................... 2,969 3,048 7,058 Income from continuing operations before income taxes.. 8,372 8,971 2,734 Income taxes........................ 3,256 3,691 1,053 Income from continuing operations... 5,116 5,280 1,681 Discontinued operations, including provisions for operating losses of $1,721 in 1994 and $1,884 in 1992, net of income taxes......... (2,758) (1,621) Net income ..................... $ 2,358 $ 5,280 $ 60 Earnings (loss) per common share: Continuing operations............. $ 1.08 $ 1.39 $ .56 Discontinued operations........... (.58) (.54) Net income...................... $ .50 $ 1.39 $ .02 Weighted average number of shares... 4,725 3,792 2,996
The accompanying notes are an integral part of the financial statements. F-5 STANLEY FURNITURE COMPANY, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY For each of the three years in the period ended December 31, 1994 (In thousands, except share data) Adjust- Capital ment for in Minimum Common Stock Excess of Pension Shares Amount Par Value Liability Deficit Balance at December 31, 1991............. 1,935,616 $39 $ -0- $ -0- $(18,787) Net income............. 60 Preferred stock divi- dends and accretion.. (2,702) Cancellation of common stock outstanding prior to restructuring..... (1,935,616) (39) Issuance of common stock in connection with restructuring........ 2,996,438 60 51,328 Balance at December 31, 1992............... 2,996,438 60 51,328 -0- (21,429) Public offering........ 1,725,000 34 13,053 Adjustment for minimum pension liability.... (1,122) Net income............. 5,280 Balance at December 31, 1993............... 4,721,438 94 64,381 (1,122) (16,149) Exercise of stock options.............. 5,112 66 Adjustment for minimum pension liability.... 1,122 Compensation expense related to executive loan plan............ 80 Net income............. 2,358 Balance at December 31, 1994............... 4,726,550 $94 $64,527 $ -0- $(13,791)
The accompanying notes are an integral part of the financial statements. F-6 STANLEY FURNITURE COMPANY, INC. STATEMENTS OF CASH FLOWS (In thousands) For the Years Ended December 31 1994 1993 1992 Cash flows from operating activities: Cash received from customers.............. $183,458 $166,706 $161,631 Cash paid to suppliers and employees...... (176,194) (179,218) (157,840) Interest paid............................. (2,464) (3,529) (6,413) Income taxes (paid) recovered, net........ (4,463) (321) 954 Proceeds received on insurance coverage... 4,625 23,196 Operating activities of discontinued operations.............................. (867) ( 285) (1,954) Net cash provided (used) by operating activities............................ 4,095 6,549 (3,622) Cash flows from investing activities: Capital expenditures...................... (4,968) (6,392) (2,148) Proceeds received on insurance coverage... 2,679 Purchase of other assets.................. (650) (591) (898) Proceeds from sale of assets.............. 108 91 56 Investing activities of discontinued operations.............................. 357 (47) ( 80) Net cash used by investing activities... (5,153) (4,260) (3,070) Cash flows from financing activities: Proceeds from issuance of common stock.... 13,087 Issuance of senior notes.................. 30,000 Redemption of senior subordinated debentures.............................. (3,093) Repayment of term note.................... (16,569) (2,616) (990) Proceeds from (repayment of) revolving credit facility, net.................... (12,685) (10,229) 7,446 Proceeds from insurance policy loans...... 345 292 1,053 Fees paid in connection with the issuance of common stock......................... (439) Other, net................................ 68 (179) (17) Net cash provided (used) by financing activities............................ 1,159 (2,738) 7,053 Net increase (decrease) in cash............. 101 (449) 361 Cash at beginning of year................... 200 649 288 Cash at end of year....................... $ 301 $ 200 $ 649
The accompanying notes are an integral part of the financial statements. F-7 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS 1. Organization and Financial Restructuring Stanley Furniture Company, Inc. (formerly Stanley Interiors Corporation) (the "Company") was acquired in a leveraged buy out transaction through stock purchases in 1988 and a merger in 1989. On November 9, 1992, the Company completed a comprehensive financial restructuring which included (i) the exchange of $21.4 million in outstanding principal amount of 14% subordinated notes of the Company due 1998 for common stock and (ii) a merger which resulted in the conversion of certain preferred stock of the merging corporations into common stock. As a result of this restructuring, the Company is the sole surviving corporation. Effective November 9, 1992, the Company's name was changed to Stanley Furniture Company, Inc. Prior to the November 1992 financial restructuring, the Company was a wholly owned subsidiary of an intermediate corporation which was a wholly owned subsidiary of Stanley Holding Corporation ("Holding"). Accordingly, transactions of Holding and the intermediate corporation as they related to the Company were "pushed-down" in accordance with applicable purchase accounting principles for periods prior to November 1992. 2. Summary of Significant Accounting Policies Basis of Presentation The Company operates predominantly in one business segment. Substantially all revenues result from the sale of home furnishings, primarily residential furniture products. Substantially all of the Company's trade accounts receivable are due from retailers in this market, which consist of a large number of entities with a broad geographical dispersion. Inventories Inventories are valued at the lower of cost or market. Cost for all inventories is determined using the first-in, first-out (FIFO) method. Property, Plant and Equipment Depreciation of property, plant and equipment is computed using the straight-line method based upon the estimated useful lives of the assets and amounted to $4.0 million, $3.7 million and $3.4 million for 1994, 1993 and 1992, respectively. F-8 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Property, Plant and Equipment (continued) Depreciable lives are as follows: Years Buildings................................. 40 to 50 Machinery and equipment................... 5 to 12 Leasehold improvements.................... 3 to 20 Furniture, fixtures and office equipment.. 3 to 10 Gains and losses related to dispositions and retirements are included in income. Maintenance and repairs are charged to income as incurred; renewals and betterments are capitalized. Excess of Cost over Fair Value of Net Assets Acquired The excess of cost over the fair value of net assets acquired is being amortized on a straight-line basis over 40 years. The Company continually evaluates the existence of impairment of the excess cost over fair value of net assets acquired on the basis of whether it is fully recoverable from projected, undiscounted net cash flows of the Company. Income Taxes Deferred income taxes are determined based on the difference between the financial statement and income tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax expense represents the change in the deferred tax asset/liability balance. Income tax credits are reported as a reduction of federal income tax expense in the year in which the credits are generated. Fair Value of Financial Instruments The fair value of the Company's long-term debt is estimated using discounted cash flow analysis based on the incremental borrowing rates currently available to the Company for loans with similar terms and maturity. The fair value of trade receivables, the revolving credit facility and trade payables approximate the carrying amount because of the short maturity of these instruments. F-9 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Pension Plans The Company's funding policy is to contribute to all qualified plans annually an amount equal to the normal cost and a portion of the unfunded liability but not to exceed the maximum amount that can be deducted for federal income tax purposes. Earnings Per Common Share Earnings per common share are based upon the weighted average number of shares outstanding. The Company was a wholly owned subsidiary until the November 9, 1992 financial restructuring. As described in Note 1, this financial restructuring resulted in a complete change in the Company's capital structure, including the cancellation of the previously outstanding shares of common stock and the conversion of preferred stocks and subordinated notes payable into common stock. For the period from January 1 to November 9, 1992, 2,996,438 shares are considered outstanding, the number of shares issued in the financial restructuring. Supplementary earnings per common share for the years ended December 31, 1994, 1993 and 1992 are presented below. Income from continuing operations for the 1994 and 1993 periods reflect a non- recurring gain from insurance proceeds. The 1993 period reflects the effect of proforma adjustments for the public offering. The 1992 period reflects the effect of proforma adjustments for both the November 9, 1992 financial restructuring and the public offering. It is assumed that the transactions took effect at the beginning of each year. The 1994 per share information is included for comparison purposes. 1994 1993 1992 Supplementary earnings per common share: Continuing operations: Before non-recurring gain........... $ .77 $ .90 $ .68 Non-recurring gain on insurance..... .31 .29 As reported....................... 1.08 1.19 .68 Discontinued operations............... (.58) (.34) Net income.......................... $ .50 $ 1.19 $ .34
F-10 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. Insurance Claim Accounting On February 12, 1993 a fire at the Stanleytown, Virginia facility damaged approximately 12% of the Company's total manufacturing facilities. The Company's insurance coverage provided for the complete replacement of the damaged building (which is leased), equipment and inventory and reimbursement for business interruption losses. The Company recorded business interruption insurance in 1993 based on estimated profits attributed to lost sales since the fire. The amount recognized represents the estimated gross profit that would have been realized on lost sales. Accordingly, $5.0 million of estimated income from business interruption insurance is included in gross profit in 1993. Also, a $2.2 million pretax gain was recorded in 1993 since proceeds from insurance exceeded the book value of leasehold improvements and equipment destroyed in the fire. In the first quarter of 1994, the Company reached a final insurance settlement and recorded a gain of $2.4 million. 4. Discontinued Operations During December 1991, the Company adopted a plan to sell its Norman's of Salisbury fabric division ("Norman's"). Accordingly, beginning in 1991, Norman's was reflected as a discontinued operation. In 1992, the Company recorded additional provisions totaling $1.6 million ($2.6 million pretax) based on revised estimates after negotiations for the sale of the division were terminated. Further efforts to sell the division were unsuccessful. Accordingly, in the first quarter of 1994, the Company decided to cease operations at Norman's, effective in June 1994, and recorded a $2.8 million ($4.5 million pretax) additional loss provision representing costs associated with the closing and liquidation of the operation, which was completed by December 31, 1994. Currently, a portion of the Norman's facilities is being subleased on a short-term basis and a portion is being utilized in the production of upholstered furniture products. Net sales applicable to Norman's were $4.1 million, $12.1 million and $13.4 million for 1994, 1993 and 1992, respectively. At December 31, 1993, net assets of $2.0 million ($1.1 million of net current assets and $900,000 of net noncurrent assets) were included in net assets held for sale. F-11 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. Restructuring In 1991, the Company recorded a $14.1 million pretax restructuring charge in anticipation of the closing of the Waynesboro, Virginia manufacturing facility to eliminate excess capacity and the discontinuance of certain products. Operating income for 1992 included a restructuring credit of $2.1 million from lower than anticipated costs of closing the facility in June 1992. 6. Property, Plant and Equipment at December 31 (in thousands) 1994 1993 Land and buildings.................... $17,853 $16,923 Machinery and equipment............... 41,059 37,552 Leasehold improvements................ 3,986 2,914 Furniture, fixtures and office equipment........................... 1,289 1,026 Construction in progress.............. 640 1,796 $64,827 $60,211 7. Long-Term Debt at December 31 (in thousands) 1994 1993 7.28% Senior notes due March 15, 2004. $30,000 Revolving credit facility............. 3,234 $15,919 Term note payable..................... 16,569 7% Convertible subordinated debentures due April 1, 2012................... 161 159 Total............................. 33,395 32,647 Less current maturities............... 625 $33,395 $32,022
Revolving Credit Facility and Senior Note In February 1994, the Company completed the private placement of $30.0 million of 7.28% senior notes due in 2004, and the refinancing of its revolving credit facility. The proceeds from the senior notes were used to repay the existing term note and a portion of the revolving credit facility. The notes are subject to annual sinking fund payments of $4.3 million beginning March 1998. The revolving credit facility provides for borrowings of up to $25.0 million through February 1996, automatically renewable thereafter for one year periods unless terminated by either party. Interest on the revolving credit facility is payable monthly F-12 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. Long-Term Debt at December 31 (continued) Revolving Credit Facility and Senior Note (continued) at .25% above prime (prime was 8.5% on December 31, 1994), or at the Company's option at a rate equal to the reserve adjusted LIBOR rate plus 1.375% per annum. The new revolving credit facility is subject to an unused commitment fee of .25% per annum payable quarterly. The commitment is subject to a .5% termination penalty through February 1996. As of December 31, 1994, approximately $17 million of additional borrowings were available under the revolving credit facility. Prior to refinancing, the Company was obligated under a senior credit facility comprised of a revolving credit facility which provided for borrowings up to $43.0 million; and, a term note in the principal amount of $16.6 million, requiring quarterly principal payments of $625,000. Interest on the senior credit facility was payable monthly at 1.5% above prime, or, at the Company's option at a rate equal to the reserve adjusted LIBOR rate plus 3% per annum. Substantially all of the Company's assets were pledged as collateral for the debt. Financial Covenants and Future Maturities Under the terms of the revolving credit facility and senior notes, the Company is required to maintain certain financial ratios, including debt to equity and fixed charge coverage. In addition, the Company is prohibited from paying dividends on, acquiring or retiring its common stock, is limited with respect to additional debt it may incur; and, may not pledge or otherwise encumber any of its assets. The Company has satisfied the requirements of all debt covenants. Future maturities of long-term debt are $3.2 million in 1996, $161,000 in 1997 and $4.3 million in each of the years 1998 through 2004. At December 31, 1994, the carrying amount of debt exceeded the fair value by approximately $3.0 million. F-13 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 8. Income Taxes The provision for income taxes on income from continuing operations consists of (in thousands): 1994 1993 1992 Current: Federal......................... $2,314 $1,123 $ 204 State........................... 669 245 114 Total current................. 2,983 1,368 318 Deferred: Federal......................... 214 1,940 599 State........................... 59 383 136 Total deferred................ 273 2,323 735 Income taxes.................. $3,256 $3,691 $1,053
A reconciliation of the difference between the federal statutory income tax rate and the effective income tax rate on income from continuing operations follows: 1994 1993 1992 Federal statutory rate.......... 35.0% 35.0% 34.0% State income tax, net of federal tax benefit................... 5.0 4.6 6.0 Amortization of excess purchase cost.......................... 1.4 1.3 4.2 Tax credits..................... (0.8) ( 1.3) (2.7) Other, net...................... (1.7) 1.5 (3.0) Effective income tax rate..... 38.9% 41.1% 38.5% F-14 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 8. Income Taxes (continued) The income tax effects of temporary differences that comprise deferred tax assets and liabilities at December 31 follow (in thousands): Current deferred tax assets (liabilities): 1994 1993 Accounts receivable........................ $ 360 $ 350 Inventory.................................. (439) (337) Employee benefits.......................... 1,305 1,584 Other accrued expenses..................... 777 1,655 Other...................................... (23) Net current deferred tax asset........... $2,003 $3,229 Noncurrent deferred tax (assets) liabilities: Inventory.................................. $ 966 $ 1,599 Property, plant and equipment.............. 11,302 13,219 Employee benefits.......................... (785) (903) Restructuring costs........................ (183) (848) Other...................................... 241 (239) Net noncurrent deferred tax liability.... $11,541 $12,828
In prior years, the Company had recognized the tax benefit of net operating loss carryforwards of $6.0 million by offsetting future reversals of existing temporary differences. In 1993, these carryforwards were applied against taxable income. At December 31, 1994 the Company had alternative minimum tax credit carryforwards of $519,000 which may be carried forward indefinitely. The Company's federal income tax returns have been examined and closed by the Internal Revenue Service through 1987. The Internal Revenue Service completed their examination of tax returns for the years 1988 through 1992, subject to review by the Congressional Joint Committee on Taxation. The Company does not expect any material adverse impact on financial condition or results of operations. 9. Common Stock, Stock Options and Loan Plan In July 1993, the Company completed a public offering of 1,725,000 shares of its common stock at $8.50 per share. The net proceeds of $13.1 million were used to reduce debt. All share and per share data has been restated to reflect the one-for-two reverse stock split, effective July 1, 1993. F-15 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. Common Stock, Stock Options and Loan Plan (continued) In December 1994, the Company adopted the Stanley Furniture Company, Inc., 1994 Stock Option Plan (the "1994 Plan"). The 1994 Plan and the Company's 1992 Stock Option Plan provides for the granting of stock options for up to an aggregate of 700,000 shares of common stock to certain key employees. Options granted may be either nonqualified or qualified stock options and the exercise price may not be less than 100% of the fair market value of the Company's common stock on the date the options are granted. Granted options vest 20% annually. At December 31, 1994 and 1993, options to purchase 182,297 and 668,317 shares, respectively, were exercisable and 24,888 were available for grant at December 31, 1994. Activity for 1994 follows: Number Option Price of shares Per share Outstanding at December 31, 1993... 668,317 $ 8.50 to $12.86 Exercised.......................... (5,112) $ 8.50 to $12.86 Cancelled.......................... (602,834) $12.86 Granted............................ 609,629 $10.00 Outstanding at December 31, 1994. 670,000 $ 8.50 to $10.00 During 1994, the Company established the Executive Loan Plan. Under the Executive Loan Plan, the Company has entered into contractual agreements to issue 80,000 shares of common stock to certain key employees at $10 per share (the market price per share on the date of the agreement) in exchange for a nonrecourse 7.6% note receivable from the employees, payable in five annual installments with the balance due January 2, 1999. The Company has also agreed to forgive interest plus one half of the contractual purchase price over the next five years, if the employees remain employed by the Company. Accordingly, compensation expense of $80,000 per year plus interest is being recorded over the five year period beginning in 1994. F-16 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. Employee Benefit Plans Pension Plans Effective December 31, 1993, the Company merged its two non- contributory defined benefit pension plans. The surviving plan (the "Stanley Retirement Plan") covers substantially all employees. The benefits provided by the plan are based on years of service and the employee's average compensation. The Company also maintains a supplemental retirement plan covering certain key employees. A participant who retires under any provision of the Stanley Retirement Plan will receive a supplemental retirement allowance equal to the excess, if any, of an eligible employee's benefit under the Stanley Retirement Plan in effect on January 1, 1987 over his benefit actually received at retirement. The supplemental plan is unfunded and benefit payments are made directly out of Company assets. The following table sets forth the plans' funded status at December 31 (in thousands): 1994 1993 Actuarial present value of: Accumulated benefit obligation, including vested benefits of ($11,086) and ($14,168).................................. $(11,893) $(15,150) Projected benefit obligation................. $(14,225) $(17,188) Plan assets at fair value...................... 12,012 11,548 Plan assets less than projected benefit obligation................................. (2,213) (5,640) Adjustment for minimum pension liability....... (2,378) Unrecognized net loss.......................... 2,116 3,867 Unrecognized prior service cost................ 547 549 Net prepaid (accrued) pension cost........... $ 450 $ (3,602) At December 31, 1993, the Company recorded an additional minimum pension liability of $2.4 million representing unfunded accumulated benefit obligation in excess of previously recorded pension cost as prescribed by SFAS No. 87. The adjustment, which had no effect on income, was offset by recording an intangible asset to the extent of unrecognized prior service cost in the amount of $549,000 and by reducing equity in the amount of $1.1 million, net of deferred taxes. F-17 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. Employee Benefit Plans (continued) Pension Plans (continued) Components of net periodic pension cost follow (in thousands): 1994 1993 1992 Service cost.................... $ 904 $ 799 $ 727 Interest cost................... 1,315 1,333 1,227 Actual return on plan assets.... (109) (382) ( 484) Net amortization and deferral... (589) (444) ( 565) Net periodic pension cost..... $1,521 $1,306 $ 905
The weighted average discount rates used in determining the actuarial present value of the projected benefit obligation were 9%, 7.75% and 8.25% for 1994, 1993 and 1992, respectively. The rate of increase for future compensation levels used in determining the obligation was 5%, 4% and 5% for 1994, 1993 and 1992, respectively. The expected long-term rate of return on plan assets in 1994, 1993 and 1992 was 8%, 8.25% and 8.5%, respectively. Pension cost for the current year is determined using the discount rate at the end of the prior year. The Company also maintains a qualified defined contribution pension plan for all of its eligible employees. The plan allows for contributions by employees up to 20% of their salaries and also permits discretionary contributions by the Company. No contributions have been made to the plan by the Company. Postretirement Benefits Other Than Pensions The Company provides certain health care benefits to eligible retired employees between the ages of 55 and 65 and provides certain life insurance benefits to eligible retired employees from age 55 until death. Prior to 1993, the Company expensed the cost of these benefits when paid. Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This new standard requires the expected cost of retiree benefits other than pensions to be charged to expense during the years the employees render service rather than the Company's past practice of recognizing these costs as claims were incurred. The Company elected to recognize the January 1, 1993 obligation of $8.1 million through charges to earnings over 20 F-18 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. Employee Benefit Plans (continued) Postretirement Benefits Other Than Pensions (continued) years. On March 3, 1993 the Company also adopted plan design changes which reduced the January 1, 1993 obligation to $2.9 million. Such reduction will also be amortized over 20 years. The plan is unfunded and the following table sets forth its financial status at December 31 (in thousands): 1994 1993 Retirees.................................... $(4,769) $(1,714) Fully eligible active plan participants..... (333) (907) Other active plan participants.............. (634) (776) Total accumulated postretirement benefit obligation...................... (5,736) (3,397) Unrecognized net loss....................... 2,927 649 Unrecognized transition obligation.......... 2,406 2,765 Net prepaid (accrued) postretirement benefit cost............................ $ (403) $ 17
Components of net periodic postretirement benefit cost were (in thousands): 1994 1993 Service cost................................ $ 74 $ 72 Interest cost............................... 242 239 Amortization of transition obligation, after reduction for plan design changes... 359 146 Net amortization and deferral............... 21 $ 696 $ 457
The weighted average discount rates used in determining the actuarial present value of the projected benefit obligation were 9% and 7.75% for 1994 and 1993, respectively. The rate of increase in future health care benefit cost used in determining the obligation for 1994 was 15% gradually decreasing to 7% beginning in 2005 and for 1993 was 17% gradually decreasing to 5.75% beginning in 2007. Increasing the assumed health care cost trend rate by one percentage point in each future year would increase the accumulated postretirement benefit obligation at December 31, 1994 and 1993 by $209,000 and $112,000, respectively; and the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for 1994 and 1993 by $23,000 and $20,000. F-19 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. Employee Benefit Plans (continued) Deferred Compensation The Company has a deferred compensation plan which permitted certain management employees to defer portions of their compensation. The employees earn a fixed rate of interest on the deferred amounts. The plan is funded through the purchase of whole life insurance contracts on the employees and the Company borrows against the cash surrender value of these policy loans to finance benefit payments to employees. The accrued liability of $1.3 million and $1.2 million at December 31, 1994 and 1993, respectively, is included in accrued salaries, wages and benefits and other long-term liabilities. The cash surrender value, net of policy loans, is included in other assets at December 31, 1994. 11. Leases The Company leases a substantial portion of its facilities under operating leases with remaining terms of 1 to 13 years. The leases generally provide for renewal options and rents are subject to escalation. Rental expenses charged to operations were $1.9 million, $2.0 million and $2.1 million in 1994, 1993 and 1992 respectively. Future minimum lease payments, after December 31, 1994, are approximately as follows: 1995 - $1.7 million, 1996 - $1.6 million, 1997 - $1.6 million, 1998 - $1.5 million and thereafter - $1.3 million. 12. Related Party Transactions Approximately 58% of the Company's common stock is owned by the ML-Lee Acquisition Fund, L.P. (the "Majority Stockholder") and certain affiliates of the Thomas H. Lee Company. The Company paid $1.4 million in cash in 1992 to its Majority Stockholder for interest payments on 14% subordinated notes. The notes had been issued in connection with the Company's acquisition in 1988. The Company provided $1.1 million in unissued pay-in-kind dividends on its 14% senior cumulative preferred stock in 1992. The Company also provided $224,000 in unissued pay-in-kind dividends on its 8% senior cumulative preferred stock in 1992. Both issues of preferred stock were issued in 1991 to the Company's Majority Stockholder. F-20 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 12. Related Party Transactions (continued) On November 9, 1992, as part of the financial restructuring, $21.4 million of the 14% subordinated notes, $12.4 million of the 14% senior cumulative preferred stock and $3.9 million of the 8% senior cumulative preferred stock held by the Company's Majority Stockholder and its affiliates were exchanged for 2.7 million shares of common stock. In addition, the Company has entered into a management agreement with an affiliate of its Majority Stockholder. Fees paid pursuant to this agreement amounted to $250,000 annually in 1994, 1993 and 1992. 13. Commitments and Contingencies The Company utilizes letters of credit to collateralize certain insurance policies and inventory purchases. At December 31, 1994, the Company had outstanding letters of credit in the amount of $1.8 million. The fair value of these letters of credit approximates the contract values. F-21 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 14. Supplemental Cash Flow Information 1994 1993 1992 Net income......................... $2,358 $ 5,280 $ 60 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization.. 4,421 4,808 4,109 Other, net..................... 249 295 15 Restructuring.................. (2,078) Loss on disposal of fabric division..................... 2,758 1,621 Changes in assets and liabilities: Accounts receivable.......... (1,011) (289) (4,604) Inventories.................. (2,221) (4,147) 1,345 Prepaid expenses and other current assets............. (892) 374 912 Insurance claim receivable... 2,029 (4,152) Operating assets of discontinued operations.... (867) (285) (2,170) Accounts payable............. (922) 2,082 (1,693) Accrued salaries, wages and benefits................... 585 (589) 834 Other accrued expenses....... (87) 526 88 Accrued restructuring costs.. (545) (560) (3,409) Deferred income taxes........ 189 2,038 733 Other assets................... 22 57 65 Interest paid in kind.......... 1,514 Other long-term liabilities.... (1,971) 1,111 (964) Net cash provided (used) by operating activities....... $4,095 $ 6,549 $(3,622)
F-22 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 14. Supplemental Cash Flow Information (continued) Noncash investing and financing activities for the years ended December 31 follow (in thousands): 1992 In connection with the November 1992 restructuring, $51,388 of common stock, net of issuance costs was issued in exchange for the following securities: Subordinated notes payable to majority stockholder.... $21,400 10% Mandatorily redeemable preferred stock, net of treasury shares..................................... 14,091 14% Senior cumulative preferred stock................. 12,417 8% Senior cumulative preferred stock................. 3,880 Total carrying value of securities exchanged........ 51,788 Cancellation of common stock outstanding prior to restructuring....................................... 39 Fees paid in connection with the issuance of common stock............................................... (439) Carrying value of common stock issued in the restructuring....................................... $51,388 Additional securities issued in lieu of cash payments: Senior subordinated debentures as interest............ $ 221 Subordinated notes payable to majority stockholder as interest......................................... 1,400 Preferred stock issued as stock dividends............. 2,161 F-23 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 15. Quarterly Results of Operations (Unaudited) The Company's unaudited quarterly results of operations were as follows (in thousands, except per share data): Fiscal 1994 Quarters First Second Third Fourth Net sales........... $44,737 $44,101 $43,845 $51,659 Gross profit ....... 8,677 8,544 8,865 9,803 Income from continuing operations...... 2,386(a) 957 863 910 Net income (loss)... (372)(b) 957 863 910 Income from continuing operations per share....... .49(a) .20 .18 .19 Net income (loss) per share......... (.08)(b) .20 .18 .19 Fiscal 1993 Quarters Net sales........... $35,636 $40,855 $42,666 $47,934 Gross profit(c)..... 7,598 8,851 9,201 11,505 Net income.......... 305 2,079(d) 1,226 1,670 Net income per share(e)...... .10 .70 .26 .35
(a) In the first quarter of 1994, the Company reached a final insurance settlement and recorded a gain of $1.5 million ($2.4 million pretax) or 31 cents per share. (b) In the first quarter of 1994, the Company decided to cease operations at Norman's and recorded a loss from discontinued operations of $2.8 million ($4.5 million pretax) or 58 cents per share. (c) Business interruption insurance of $1.6 million, $1.6 million, $1.0 million and $864,000 was recorded in each of the fiscal 1993 quarters, respectively, as a result of the fire described in Note 3. (d) A $1.3 million ($2.1 million pretax) gain on insurance settlement was recognized in the second quarter of 1993. (e) Shares outstanding for all periods prior to July 1993 amounted to 2,996,438, the shares issued in the financial restructuring. F-24 STANLEY FURNITURE COMPANY, INC. SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS For each of the Three Years in the Period Ended December 31, 1994 (In thousands) Column A Column B Column C Column D Column E Charged Balance at (Credited) Balance Beginning to Costs & at End of Descriptions of Period Expenses Deductions Period 1994 Doubtful receivables... $472 $195 $139(a) $528 Discounts, returns, and allowances....... 355 50(b) 405 $827 $245 $139 $933 1993 Doubtful receivables... $400 $526 $454(a) $472 Discounts, returns, and allowances....... 463 (108)(b) 355 $863 $418 $454 $827 1992 Doubtful receivables... $500 $525 $625(a) $400 Discounts, returns, and allowances....... 387 76(b) 463 $887 $601 $625 $863
(a) Uncollectible receivables written off, net of recoveries. (b) Represents net increase (decrease) in required reserve. S-1 EX-11 2 EXHIBIT 11 STANLEY FURNITURE COMPANY, INC. SCHEDULE OF COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE (In thousands, except per share data) 1994 1993 Net income (loss) used in calculating primary and fully diluted earnings (loss) per common share: Continuing operations................. $5,116 $5,280 Discontinued operations............... (2,758) Net income.......................... $2,358 $5,280 Primary earnings (loss) per common share: Weighted average shares outstanding.... 4,725 3,792 Add shares issuable assuming excercise of stock options..................... 19 10 Weighted average number of shares used in calculating primary earnings (loss) per common share. 4,744 3,802 Primary earnings (loss) per common share: Continuing operations.................. $ 1.08 $ 1.39 Discontinued operations................ (.58) Primary earnings per common share.... $ .50 $ 1.39 Fully diluted earnings (loss) per common share: Weighted average shares outstanding.... 4,725 3,792 Add shares issuable assuming excer- cise of stock options................ 19 51 Weighted average number of shares used in calculating fully diluted earnings (loss) per common share. 4,744 3,843 Fully diluted earnings (loss) per common share: Continuing operations................. $ 1.08 $ 1.37 Discontinued operations............... (.58) Fully diluted earnings per common share............................. $ .50 $ 1.37
EX-24 3 EXHIBIT 24 Consent of Independent Accountants We consent to the incorporation by reference in the registration statements of Stanley Furniture Company, Inc. on Form S-8 (File No. 33-58396 and 33-67218) of our report dated January 31, 1995, on our audits of the financial statements and financial statement schedule of Stanley Furniture Company, Inc. as of December 31, 1994 and 1993, and for each of the three years in the period ended December 31, 1994, which report is included in this Annual Report on Form 10-K. We also consent to reference to our Firm under the caption "Selected Financial Data." Coopers & Lybrand L.L.P. Richmond, Virginia January 31, 1995 EX-10.18 4 Exhibit 10.18 STANLEY FURNITURE COMPANY, INC. 1994 STOCK OPTION PLAN 1. Purpose. The purpose of this Stanley Furniture Company, Inc. 1994 Stock Option Plan (the "Plan") is to further the long term stability and financial success of Stanley Furniture Company, Inc. (the "Company") by attracting and retaining key employees through the use of stock incentives. It is believed that ownership of Company Stock will stimulate the efforts of those employees upon whose judgment and interest the Company is and will be largely dependent for the successful conduct of its business. It is also believed that Incentive Awards granted to such employees under this Plan will strengthen their desire to remain with the Company and will further the identification of those employees' interests with those of the Company's shareholders. The Plan is intended to conform to the provisions of Securities and Exchange Commission Rule 16b-3. 2. Definitions. As used in the Plan, the following terms have the meanings indicated: (a) "Act" means the Securities Exchange Act of 1934, as amended. (b) "Applicable Withholding Taxes" means the aggregate amount of federal, state and local income and payroll taxes that the Company is required to withhold in connection with any exercise of a Nonstatutory Stock Option or Tax Offset Right. (c) "Board" means the board of directors of the Company. (d) "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 Common Stock of the Company by management employees of the Company; or (C) any acquisition by a Group that owns 10% or more of the Stock or Voting Power of the Company on the Effective Date. "Group" means any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Act, "Beneficial Ownership" has the meaning in Rule 13d-3 promulgated under the Act, "Stock" means the then outstanding shares of common stock, 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 on the Effective Date (the "Incumbent Board") cease to constitute at least a majority of 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) "Code" means the Internal Revenue Code of 1986, as amended. (f) "Committee" means the committee appointed by the Board as described under Section 14. (g) "Company" means Stanley Furniture Company, Inc., a Delaware corporation. (h) "Company Stock" means Common Stock, $.02 par value, of the Company. If the par value of the Company Stock is changed, or in the event of a change in the capital structure of the Company (as provided in Section 13), the shares resulting from such a change shall be deemed to be Company Stock within the meaning of the Plan. (i) "Covered Employee" means the Chief Executive Officer of the Company (or an individual acting in such capacity) as of the close of the Taxable Year or an employee whose total compensation is required to be reported for the Taxable Year under the disclosure rules promulgated by the Securities and Exchange Commission under the Act. (j) "Date of Grant" means the date on which an Incentive Award is granted by the Committee. (k) "Disability" or "Disabled" means, as to an Incentive Stock Option, a Disability within the meaning of Section 22(e)(3) of the Code. As to all other Incentive Awards, a physical or mental condition that prevents the Participant from performing his customary duties with the Company. The Committee shall determine whether a Disability exists on the basis of competent medical evidence, and such determination shall be conclusive. (l) "Effective Date" means December 2, 1994. (m) "Fair Market Value" means, (i) if the Company Stock is traded on an exchange, the closing registered sales price of the Company Stock on the day prior to the grant on the exchange on which it generally has the greatest trading volume. (ii) if (i) does not apply, the fair market value as determined by the Committee using any reasonable method in good faith. (n) "Incentive Award" means, collectively, the award of an Option or Tax Offset Right under the Plan. (o) "Incentive Stock Option" means an Option intended to meet the requirements of, and qualify for favorable federal income tax treatment under, Code section 422. (p) "Insider" means a person subject to Section 16(b) of the Act. (q) "Nonstatutory Stock Option" means an Option that does not meet the requirements of Code section 422, or, even if meeting the requirements of Code section 422, is not intended to be an Incentive Stock Option and is so designated. (r) "Option" means a right to purchase Company Stock granted under the Plan, at a price determined in accordance with the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option. (s) "Participant" means any employee who receives an Incentive Award under the Plan. (t) "Rule 16b-3" means Rule 16b-3 of the Securities and Exchange Commission promulgated under the Act. A reference in the Plan to Rule 16b-3 shall include a reference to any corresponding rule (or number redesignation) of any amendments to Rule 16b-3 enacted after the effective date of the Plan's adoption. (u) "Tax Offset Right" means a right to receive amounts in cash from the Company as described in Section 10 of the Plan. (v) "10% Shareholder" means a person who owns, directly or indirectly, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company. Indirect ownership of stock shall be determined in accordance with Code section 424(d). 3. General. The following types of Incentive Awards may be granted under the Plan: Options and Tax Offset Rights. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options. 4. Stock. Subject to Section 13 of the Plan, there shall be reserved for issuance under the Plan an aggregate of 700,000 shares of Company Stock, which shall be authorized, but unissued shares, reduced by any options issued under the Stanley Furniture Company, Inc. 1992 Stock Option Plan (the "1992 Plan") that are outstanding at any time or that have been exercised prior to the Effective Date. Shares allocable to options or portions thereof under the 1992 Plan that expire or otherwise terminate unexercised after the Effective Date of the Plan may be subjected to an Incentive Award under the Plan. Shares allocable to Options or portions thereof granted under the Plan that expire or otherwise terminate unexercised may again be subjected to an Option under the Plan. The Committee is expressly authorized to make an Incentive Award to a Participant conditioned upon the surrender for cancellation of an option granted under an existing Incentive Award under this Plan or the 1992 Plan. For purposes of determining the number of shares that are available for Incentive Awards under the Plan, such number shall, to the extent permissible under Rule 16b-3, include the number of shares surrendered by an optionee or retained by the Company in payment of Applicable Withholding Taxes. 5. Eligibility. (a) All present and future employees who hold positions with management responsibilities with the Company (or any parent or subsidiary of the Company, whether now existing or hereafter created or acquired) shall be eligible to receive Incentive Awards under the Plan. The Committee shall have the power and complete discretion, as provided in Section 14, to select eligible employees to receive Incentive Awards and to determine for each employee the terms and conditions, the nature of the award and the number of shares to be allocated to each employee as part of each Incentive Award. (b) The grant of an Incentive Award shall not obligate the Company or any parent or subsidiary of the Company to pay an employee any particular amount of remuneration, to continue the employment of the employee after the grant or to make further grants to the employee at any time thereafter. 6. Performance Program Awards. (a) Options may be issued pursuant to the Plan in connection with performance programs established from time to time by the Committee. Options awarded under a performance program shall vest according to the performance criteria and other terms established by the Committee as part of the performance program. (b) Whenever the Committee deems it appropriate, the Committee may establish a performance program and notify Participants of their participation in and the terms of the performance program. More than one performance program may be established by the Committee and they may operate concurrently or for varied periods of time and a Participant may be permitted to participate in more than one performance program at the same time. Options awarded under a performance program shall be issued subject to the Plan. 7. Stock Options. (a) Whenever the Committee deems it appropriate to grant Options, notice shall be given to the Participant stating the number of shares for which Options are granted, the Option price per share, whether the Options are Incentive Stock Options or Nonstatutory Stock Options, and the conditions to which the grant and exercise of the Options are subject (including, without limitation, that the Option is awarded pursuant to a performance program as described in Section 6). This notice, when duly accepted in writing by the Participant, shall become a stock option agreement between the Company and the Participant. (b) The exercise price of shares of Company Stock covered by an Incentive Stock Option shall be not less than 100% of the Fair Market Value of such shares on the Date of Grant; provided that if an Incentive Stock Option is granted to a Participant who, at the time of the grant, is a 10% Shareholder, then the exercise price of the shares covered by the Incentive Stock Option shall be not less than 110% of the Fair Market Value of such shares on the Date of Grant. (c) The exercise price of shares of Company Stock covered by an Nonstatutory Stock Option shall be not less than 100% of the Fair Market Value of such shares on the Date of Grant. (d) Options may be exercised in whole or in part at such times as may be specified by the Committee in the Participant's stock option agreement; provided that, the exercise provisions for Options shall in all events not be more liberal than the following provisions: (i) No Option may be exercised after the first to occur of (x) ten years (or, in the case of an Incentive Stock Option granted to a 10% Shareholder, five years) from the Date of Grant. (ii) Except as otherwise provided in this paragraph, no Option may be exercised unless the Participant is employed by the Company or a parent or subsidiary of the Company at the time of the exercise and has been employed by the Company or a parent or subsidiary of the Company at all times since the Date of Grant. If a Participant's employment is terminated other than by reason of his Disability or death at a time when the Participant holds an Option that is exercisable (in whole or in part), the Participant may exercise any or all of the exercisable portion of the Option (to the extent exercisable on the date of termination) within three months after the Participant's termination of employment. If a Participant's employment is terminated by reason of his Disability at a time when the Participant holds an Option that is exercisable (in whole or in part), the Participant may exercise any or all of the exercisable portion of the Option (to the extent exercisable on the date of Disability) within one year after the Participant's termination of employment. If a Participant's employment is terminated by reason of his death at a time when the Participant holds an Option that is exercisable (in whole or in part), the Option may be exercised (to the extent exercisable on the date of death) within one year after the Participant's death by the person to whom the Participant's rights under the Option shall have passed by will or by the laws of descent and distribution. (iii) An Incentive Stock Option by its terms, shall be exercisable in any calendar year only to the extent that the aggregate Fair Market Value (determined at the Date of Grant) of the Company Stock with respect to which Incentive Stock Options are exercisable for the first time during the calendar year does not exceed $100,000 (the "Limitation Amount"). Incentive Stock Options granted under the Plan and all other plans of the Company and any Parent or Subsidiary of the Company shall be aggregated for purposes of determining whether the Limitation Amount has been exceeded. The Board may impose such conditions as it deems appropriate on an Incentive Stock Option to ensure that the foregoing requirement is met. If Incentive Stock Options that first become exercisable in a calendar year exceed the Limitation Amount, the excess Options will be treated as Nonstatutory Stock Options to the extent permitted by law. (e) Notwithstanding the foregoing, no Option shall be exercisable by an Insider within the first six months after it is granted; provided that, this restriction shall not apply if the Participant becomes Disabled or dies during the six-month period. (f) The Committee may, in its discretion, grant Options that by their terms become fully exercisable upon a Change of Control, notwithstanding other conditions on exercisability in the stock option agreement. 8. Method of Exercise of Options. (a) Options may be exercised by the Participant giving written notice of the exercise to the Company, stating the number of shares the Participant has elected to purchase under the Option. Such notice shall be effective only if accompanied by the exercise price in full in cash; provided that, if the terms of an Option so permit, the Participant may (i) deliver, or cause to be withheld from the Option shares, shares of Company Stock (valued at their Fair Market Value on the date of exercise) in satisfaction of all or any part of the exercise price, (ii) deliver a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company, from the sale or loan proceeds with respect to the sale of Company Stock or a loan secured by Company Stock, the amount necessary to pay the exercise price and, if required by the Committee, Applicable Withholding Taxes, or (iii) deliver an interest bearing promissory note, payable to the Company, in payment of all or part of the exercise price together with such collateral as may be required by the Committee at the time of exercise. The interest rate under any such promissory note shall be established by the Committee and shall be at least equal to the minimum interest rate required at the time to avoid imputed interest under the Code. (b) The Company may place on any certificate representing Company Stock issued upon the exercise of an Option any legend deemed desirable by the Company's counsel to comply with federal or state securities laws, and the Company may require a customary written indication of the Participant's investment intent. Until the Participant has made any required payment, including any Applicable Withholding Taxes, and has had issued a certificate for the shares of Company Stock acquired, he shall possess no shareholder rights with respect to the shares. (c) Each Participant shall agree as a condition of the exercise of a Nonstatutory Stock Option to pay to the Company, or make arrangements satisfactory to the Company regarding the payment to the Company of, Applicable Withholding Taxes. Until such amount has been paid or arrangements satisfactory to the Company have been made, no stock certificate shall be issued upon the exercise of an Option. (d) As an alternative to making a cash payment to the Company to satisfy Applicable Withholding Taxes, the Committee may establish procedures permitting the Participant to elect to (i) deliver shares of already owned Company Stock or (ii) have the Company retain that number of shares of Company Stock that would satisfy all or a specified portion of the Applicable Withholding Taxes. Any such election be made only in accordance with procedures established by the Committee, including any procedures necessary to satisfy Rule 16b-3 if the Participant is an Insider. The Committee shall have sole discretion to approve or disapprove any such election. (e) Notwithstanding anything herein to the contrary, Options shall always be granted and exercised in such a manner as to conform to the provisions of Rule 16b-3, to the extent applicable. 9. Nontransferability of Options. Options by their terms, shall not be transferable except by will or by the laws of descent and distribution or, if permitted by Rule 16b-3, pursuant to a qualified domestic relations order (as defined in Code section 414(p)) ("QDRO") and shall be exercisable, during the Participant's lifetime, only by the Participant or, if permitted by Rule 16b-3, an alternate payee under a QDRO, or by his guardian, duly authorized attorney-in-fact or other legal representative. 10. Tax Offset Rights. (a) Whenever the Committee deems it appropriate, Tax Offset Rights may be granted in connection with Options. Tax Offset Rights shall be evidenced in writing as part of the stock option agreement to which they pertain. (b) Tax Offset Rights shall entitle the Participant, upon exercise of all or any part of an Option or Tax Offset Right, to receive in cash from the Company an amount equal to or approximating the Applicable Withholding Taxes. (c) A Participant may exercise a Tax Offset Right by giving the Committee written notice of exercise simultaneously with the exercise of an Option. To the extent exercised, the Tax Offset Right shall lapse. (d) The Committee may limit the amount the Participant will be entitled to receive in connection with a Tax Offset Right and may include any provisions in a Tax Offset Right that the Committee deems appropriate to ensure that the Tax Offset Right will not be characterized as an "equity security" or "derivative security" for purposes of Section 16 of the Act and the rules and regulations thereunder. 11. Effective Date of the Plan. This Plan shall be effective on December 2, 1994 and shall be submitted to the shareholders of the Company for approval. Until (i) the Plan has been approved by the Company's shareholders, and (ii) the requirements of any applicable state securities laws have been met, no Option shall be exercisable. 12. Termination, Modification, Change. If not sooner terminated by the Board, this Plan shall terminate at the close of business on November 30, 2004. No Incentive Awards shall be made under the Plan after its termination. The Board may terminate the Plan or may amend the Plan in such respects as it shall deem advisable; provided that, if and to the extent required by Rule 16b-3, no change shall be made that increases the total number of shares of Company Stock reserved for issuance pursuant to Incentive Awards granted under the Plan (except pursuant to Section 13), materially modifies the requirements as to eligibility for participation in the Plan, or materially increases the benefits accruing to Participants under the Plan, unless such change is authorized by the shareholders of the Company. Notwithstanding the foregoing, the Board may unilaterally amend the Plan and Incentive Awards as it deems appropriate to ensure compliance with Rule 16b-3. Except as provided in the preceding sentence, a termination or amendment of the Plan shall not, without the consent of the Participant, adversely affect the Participant's rights under an Incentive Award previously granted to him. 13. Change in Capital Structure. (a) In the event of a stock dividend, stock split or combination of shares, recapitalization or merger in which the Company is the surviving corporation or other change in the Company's capital stock (including, but not limited to, the creation or issuance to shareholders generally of rights, options or warrants for the purchase of common stock or preferred stock of the Company), the number and kind of shares of stock or securities of the Company to be subject to the Plan and to Options then outstanding or to be granted thereunder, the maximum number of shares or securities which may be delivered under the Plan, the exercise price and other relevant provisions shall be appropriately adjusted by the Committee, whose determination shall be binding on all persons. If the adjustment would produce fractional shares with respect to any unexercised Option, the Committee may adjust appropriately the number of shares covered by the Option so as to eliminate the fractional shares. (b) If the Company is a party to a consolidation or a merger in which the Company is not the surviving corporation, a transaction that results in the acquisition of substantially all of the Company's outstanding stock by a single person or entity, or a sale or transfer of substantially all of the Company's assets, the Committee may take such actions with respect to outstanding Incentive Awards as the Committee deems appropriate. (c) Notwithstanding anything in the Plan to the contrary, the Committee may take the foregoing actions without the consent of any Participant, and the Committee's determination shall be conclusive and binding on all persons for all purposes. 14. Administration of the Plan. The Plan shall be administered by the Committee, which shall consist of not less than two members of the Board, who shall be appointed by the Board. Subject to paragraph (d) below, the Committee shall be the Compensation Committee unless the Board shall appoint another Committee to administer the Plan. The Committee shall have general authority to impose any limitation or condition upon an Incentive Award the Committee deems appropriate to achieve the objectives of the Incentive Award and the Plan and, without limitation and in addition to powers set forth elsewhere in the Plan, shall have the following specific authority: (a) The Committee shall have the power and complete discretion to determine (i) which eligible employees shall receive Incentive Awards and the nature of each Incentive Award, (ii) the number of shares of Company Stock to be covered by each Incentive Award, (i) whether Options shall be Incentive Stock Options or Nonstatutory Stock Options, (iii) when, whether and to what extent Tax Offset Rights shall be granted and the terms thereof, (iv) the Fair Market Value of Company Stock, (v) the time or times when an Incentive Award shall be granted, (vi) whether an Incentive Award shall become vested over a period of time and when it shall be fully vested, (vii) when Options may be exercised, (viii) whether a Disability exists, (ix) the manner in which payment will be made upon the exercise of Options, (x) conditions relating to the length of time before disposition of Company Stock received upon the exercise of Options is permitted, (xi) whether to approve a Participant's elections under the Plan, (xii) notice provisions relating to the sale of Company Stock acquired under the Plan, (xiii) the terms of performance programs, performance criteria and other factors relevant to the issuance of Options that will vest subject to performance goals, and (xiv) any additional requirements relating to Incentive Awards that the Committee deems appropriate. Notwithstanding the foregoing, no "tandem stock options" (where two stock options are issued together and the exercise of one option affects the right to exercise the other option) may be issued in connection with Incentive Stock Options. The Committee shall have the power to amend the terms of previously granted Incentive Awards so long as the terms as amended are consistent with the terms of the Plan and provided that the consent of the Participant is obtained with respect to any amendment that would be detrimental to him, except that such consent will not be required if such amendment is for the purpose of complying with Rule 16b-3. (b) The Committee may adopt rules and regulations for carrying out the Plan. The interpretation and construction of any provision of the Plan by the Committee shall be final and conclusive. The Committee may consult with counsel, who may be counsel to the Company, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel. (c) A majority of the members of the Committee shall constitute a quorum, and all actions of the Committee shall be taken by a majority of the members present. Any action may be taken by a written instrument signed by all of the members, and any action so taken shall be fully effective as if it had been taken at a meeting. (d) The Board from time to time may appoint members previously appointed and may fill vacancies, however caused, in the Committee. Insofar as it is necessary to satisfy the requirements of Section 16(b) of the Act, no member of the Committee shall be eligible to participate in the Plan or in any other plan of the Company or any parent or subsidiary of the Company that entitles participants to acquire stock, stock options or stock appreciation rights of the Company or any parent or subsidiary of the Company, and no person shall become a member of the Committee if, within the preceding one-year period, the person shall have been eligible to participate in such a plan (other than a "safe harbor plan" permitted under Rule 16b- 3(c)(2)(i) and (ii)). 15. Notice. All notices and other communications required or permitted to be given under this Plan shall be in writing and shall be deemed to have been duly given if delivered personally or mailed first class, postage prepaid, as follows (a) if to the Company - at its principal business address to the attention of the Treasurer; (b) if to any Participant - at the last address of the Participant known to the sender at the time the notice or other communication is sent. 16. Interpretation. The terms of this Plan are subject to all present and future regulations and rulings of the Secretary of the Treasury or his or her delegate relating to the qualification of Incentive Stock Options under the Code. If any provision of the Plan conflicts with any such regulation or ruling, then that provision of the Plan shall be void and of no effect. The terms of this Plan shall be governed by the laws of the Commonwealth of Virginia. IN WITNESS WHEREOF, the Company has caused this Plan to be executed this 2nd day of December, 1994. STANLEY FURNITURE COMPANY, INC. By: s/ Albert L. Prillaman EX-10.19 5 Exhibit 10.19 STANLEY FURNITURE COMPANY, INC. EXECUTIVE LOAN PLAN 1. Purpose. The purpose of this Stanley Furniture Company, Inc. Executive Loan Plan (the "Plan") is to further the long term stability and financial success of Stanley Furniture Company, Inc. (the "Company") by attracting and retaining key employees through the use of loans to acquire Company stock ("Loan"). 2. Number of Shares. Under the Plan, the Company may make Loans to eligible executives to acquire up to an aggregate of 80,000 shares of Company Stock, which may be authorized, but unissued shares or issued shares. 3. Eligibility. All present and future employees who hold positions with management responsibilities with the Company (or any parent or subsidiary of the Company, whether now existing or hereafter created or acquired) shall be eligible to receive Loans under the Plan. The Committee shall have the power and complete discretion to select eligible employees to receive Loans. 4. Loans. The Committee shall have the power and complete discretion to determine for each employee the terms, conditions, nature and amount of a Loan. All Company stock acquired with a Loan shall be acquired at the Fair Market Value of the stock as determined under the Stanley Furniture Company, Inc. 1994 Stock Option Plan. The Committee may provide that all or a portion of a Loan, including principal and interest, will be forgiven under any circumstances determined by the Committee. 5. Effective Date of the Plan. This Plan shall be effective on December 2, 1994. 6. Termination, Modification, Change. If not sooner terminated by the Board, this Plan shall terminate at the close of business on December 1, 2004. No Loans shall be made under the Plan after its termination. The Board may terminate the Plan or may amend the Plan in such respects as it shall deem advisable. A termination or amendment of the Plan shall not, without the consent of the Participant, adversely affect the Participant's rights under a Loan previously granted to him. 7. Administration of the Plan. (a) The Plan shall be administered by the Committee, which shall consist of not less than two members of the Board, who shall be appointed by the Board. The Committee shall be the Compensation Committee unless the Board shall appoint another Committee to administer the Plan. The Committee shall have general authority to impose any limitation or condition upon a Loan that the Committee deems appropriate to achieve the objectives of the Plan. The Committee shall have the authority to interpret the Plan and its interpretations shall be binding on all parties. The terms of this Plan shall be governed by the laws of the Commonwealth of Virginia. (b) The Board from time to time may appoint members previously appointed and may fill vacancies, however caused, in the Committee. Insofar as it is necessary to satisfy the requirements of Section 16(b) of the Act, no member of the Committee shall be eligible to participate in the Plan or in any other plan of the Company or any parent or subsidiary of the Company that entitles participants to acquire stock, stock options or stock appreciation rights of the Company or any parent or subsidiary of the Company, and no person shall become a member of the Committee if, within the preceding one-year period, the person shall have been eligible to participate in such a plan (other than a "safe harbor plan" permitted under Rule 16b- 3(c)(2)(i) and (ii)). 8. Nontransferability of Loans. Loans by their terms, shall not be transferable except by will or by the laws of descent and distribution or, if permitted by Rule 16b-3, pursuant to a qualified domestic relations order (as defined in Code section 414(p)) ("QDRO"). IN WITNESS WHEREOF, the Company has caused this Executive Loan Plan to be executed this 2nd day of December, 1994. STANLEY FURNITURE COMPANY, INC. By: s/ Albert L. Prillaman EX-10.20 6 Exhibit 10.20 LOAN AND STOCK PURCHASE AGREEMENT THIS LOAN AND STOCK PURCHASE AGREEMENT (as amended, supplemented or modified from time to time, this "Loan Agreement") is dated as of December 2, 1994 and is between ALBERT L. PRILLAMAN, (the "Borrower"), and STANLEY FURNITURE COMPANY, INC., a Delaware corporation (the "Company"). The Borrower proposes to purchase shares of the common stock of the Company and desires to borrow an amount to finance the purchase of 50,000 shares. The Company is willing to lend such amount to the Borrower on the terms and conditions set forth herein. Accordingly, the parties hereto agree as follows: ARTICLE I THE LOAN Section 1.1. Commitment to Make Loans. The Company agrees, on the terms and conditions set forth in this Loan Agreement, to make a non-recourse loan (the "Loan") to the Borrower on or prior to December 10, 1994 in an aggregate principal amount equal to the fair market value (as determined under the Stanley Furniture Company, Inc. Executive Loan Plan) (the "Fair Market Value") of 50,000 shares of Company Common Stock, $.02 par value ("Common Stock"). The loan shall be evidenced by, and repayable with interest in accordance with, a single non-recourse promissory note substantially in the form of Exhibit A hereto and appropriately completed (the "Note"). Section 1.2. Non-Recourse Liability. The Company shall have no recourse against the Borrower on account of the Loan, and the Borrower shall have no personal liability with respect to any obligation hereunder or with respect to the representations and warranties contained herein. The Company shall have no recourse against the Borrower and the Borrower shall have no obligation to make any payment on the Loan except to the extent of the Company's rights under the Loan Agreement or as provided in the Note. ARTICLE II FORGIVENESS OF PRINCIPAL AND INTEREST Section 2.1. Continuation of Employment. If the Borrower is employed by the Company on a Payment Date (as defined below), the Company shall forgive the payment of all accrued principal and interest due under the terms of the Note on that Payment Date. For purposes of this Loan Agreement, the last day of December in 1994, 1995, 1996, 1997, and 1998 shall each be a Payment Date. January 2, 1999 is not a Payment Date. Section 2.2. Disability. (a) If the Borrower becomes Disabled before January 1, 1999 and is employed by the Company immediately before he becomes Disabled, the Company shall forgive the payment of all principal and interest due on any future Payment Date. The Borrower shall remain liable for payment of any principal due on the Note that is not payable on a Payment Date. (b) For purposes of this Loan Agreement, "Disabled" means a physical or mental condition that prevents the Borrower from performing his customary duties with the Company. The Company shall determine whether the Borrower is Disabled on the basis of competent medical evidence, and such determination shall be conclusive. Section 2.3. Death. If the Borrower dies while employed by the Company, the Note shall become payable in full according to its terms. Section 2.4. Change of Control. If the Borrower is employed by the Company when a Change of Control occurs, the Company shall forgive any remaining principal and interest due on the Note and shall promptly issue to the Borrower shares of Common Stock as provided in Article III. For purposes of this Loan Agreement, Change of Control shall have the same meaning as in the Stanley Furniture Company, Inc. 1994 Stock Option Plan. Section 2.5. Termination of Employment. If the Borrower terminates employment with the Company other than as provided in Sections 2.2 or 2.3, the Company shall not forgive any further amounts of principal or interest on the Loan and all payments shall be due and payable as provided in the Note. Section 2.6. Tax Due on Forgiveness. If the Company forgives any principal or interest on the Loan under Sections 2.1, 2.2, or 2.4, the Company shall make an additional payment to the Borrower to compensate the Borrower for any federal and state income taxes that may be payable by the Borrower due to the forgiveness of the Loan or due to the payment under this Section 2.6. ARTICLE III ISSUANCE OF STOCK Section 3.1. Issuance of Stock. On January 2, 1999, or if sooner upon forgiveness and/or payment of the Note in full, the Company shall issue 50,000 shares of Common Stock, subject to adjustment pursuant to Section 3.2 and Section 3.3. Section 3.2. Adjustment for Changes in Capital Structure. (a) In case the Company shall at any time subdivide (by any stock split, stock dividend or otherwise) its outstanding shares of Common Stock into a greater number of shares, the number of shares issuable pursuant to Section 3.1 prior to such subdivision shall be proportionately increased, and, conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares, the number of shares issuable pursuant to Section 3.1 prior to such combination shall be proportionately decreased. (b) If any capital reorganization or reclassification of the capital stock of the Company, or any partial or total liquidation or dissolution or reduction in capital, capital surplus or paid in capital, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets (other than cash) with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby Borrower shall have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable pursuant to Section 3.1, such shares of stock, securities or assets (other than cash) as would be issued or paid with respect to or in exchange for a number of outstanding shares of Common Stock issuable pursuant to Section 3.1 immediately theretofore (subject to the obligation to repay the Note pursuant to the terms hereof). In any such case appropriate provisions shall be made with respect to the rights and interests of Borrower to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets (other than cash) thereafter issuable pursuant to Section 3.1. Section 3.3. Adjustment in the Event of Default. Upon a Payment Default (as defined in Section 5.1(b)), the shares of Common Stock to be issued pursuant to Section 3.1 shall be reduced by the number equal to the amount of the Payment Default divided by the Fair Market Value of a share of Common Stock on the date the defaulted payment was due. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants as follows: Section 4.1. Binding Effect. This Loan Agreement constitutes a valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms, except as (i) the enforceability hereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability. ARTICLE V DISTRIBUTIONS AND DEFAULT Section 5.1. Distributions. (a) So long as no Event of Default shall have occurred and be continuing, an amount equal to the amount of cash dividends with respect to the number of Shares issuable pursuant to Section 3.1 at the time of such dividend shall be treated as a prepayment of the portion of the Loan that is due on January 2, 1999. The following items shall be treated as a prepayment of the Loan: (A) an amount equal to the amount of dividends and other distributions paid or payable in cash on the number of Shares then issuable pursuant to Section 3.1 at the time of such dividends in connection with a partial or total liquidation or dissolution or with a reduction of capital, capital surplus or paid-in-surplus, and (B) an amount equal to the amount cash paid in redemption of, or in exchange for, the number of Shares then issuable pursuant to Section 3.1. (b) For purposes of this Loan Agreement, each of the following events shall be an Event of Default: (i) the Borrower shall fail to pay within ten calendar days following the date when due any principal of or interest on the Note unless such principal or interest is forgiven by the Company (a "Payment Default"); (ii) the Borrower shall fail to observe or perform any covenant or agreement contained in this Loan Agreement (other than those covered by clause (i) above) for 30 days after written notice thereof has been given to the Borrower by the Company; or (iii) any representation, warranty, certification or statement made by the Borrower in this Loan Agreement shall prove to have been incorrect in any material respect when made. ARTICLE VI MISCELLANEOUS Section 6.1. Notices. All notices, requests and other communications to a party hereunder shall be in writing and shall be given to such party at its address set forth on the signature page hereof or such other address as such party may hereafter specify for that purpose by notice to the other. Section 6.2. No Waivers. No failure or delay by the Company in exercising any right, power or privilege under this Loan Agreement shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided herein shall be cumulative and not exclusive of any rights or remedies provided by law. Section 6.3. Amendments and Waivers. Any provision of this Loan Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Company. Section 6.4. Successors and Assigns. The provisions of this Loan Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This Loan Agreement is for the benefit of the Company and its successors and assigns, and in the event of an assignment of all or any of the Obligations, the rights hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness. This Loan Agreement shall not be transferable by the Borrower except by will or by the laws of descent and distribution or, if permitted by Rule 16b-3, pursuant to a qualified domestic relations order (as defined in Code section 414(p)) ("QDRO"). Section 6.5. Governing Law. This Loan Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. Section 6.6. Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Company in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. Section 6.7. Counterparts; Effectiveness. This Loan Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly executed by their respective authorized officers as of the day and year first above written. ALBERT L. PRILLAMAN s/Albert L. Prillaman STANLEY FURNITURE COMPANY, INC. By s/Douglas I. Payne Title: Vice President of Finance ___________________________________ PROMISSORY NOTE ************** Stanleytown, Virginia $500,000.00 Date: December 2, 1994 FOR VALUE RECEIVED, the maker, Albert L. Prillaman, promises to pay to the order of Stanley Furniture Company, Inc. (the "Company"), the principal sum of $500,000.00, together with interest from the date of this note at the rate of 7.60% per annum, compounded semi-annually, pursuant to the Loan And Stock Purchase Agreement dated as of December 2, 1994 between the Borrower and the Company (as the same may be amended from time to time, the "Loan Agreement"), in installments as hereinafter provided. The interest shall be paid in annual installments beginning December 31, 1994 and continuing until this note is fully paid. The principal shall be paid in five annual installments of $50,000.00 (totaling one- half of the principal), beginning December 31, 1994 and continuing until December 31, 1998 and one installment of $250,000.00 (equal to one-half of the principal) paid on January 2, 1999. If not sooner paid, the entire indebtedness shall be due and payable on the earlier of January 2, 1999 or 90 days after the death of the Borrower. This Note is payable at the corporate office of the Company or at such other place as the Company may designate in writing from time to time. The right of prepayment is reserved, in whole or in part, at any time without penalty. If any payment due hereunder is not made within ten calendar days following the date on which such payment was due, or if the maker is declared or adjudicated to be bankrupt by a United States Bankruptcy Court, the maker shall be in default hereunder. Presentment, demand, protest, and notices of dishonor and of protest are hereby waived by the maker. The maker agrees that he will pay, to the extent permitted by law, all expenses incurred in collecting this obligation, including reasonable attorney's fees, should this obligation or any part thereof not be paid as and when due. This Note and the obligations evidenced hereby are without recourse to the Borrower and the Borrower shall have no personal liability with respect hereto and no holder hereof shall have any right to assets of the Borrower except as provided in the Loan Agreement. This Note is the Note referred to in the Loan Agreement. Terms defined in the Loan Agreement are used herein with the same meanings. Reference is made to the Loan Agreement for provisions for the waiver of certain payments, and the acceleration of the maturity hereof. This note shall be governed by, and construed in accordance with, the substantive laws of the Commonwealth of Virginia. s/ Albert L. Prillaman Albert L. Prillaman EX-10.21 7 Exhibit 10.21 LOAN AND STOCK PURCHASE AGREEMENT THIS LOAN AND STOCK PURCHASE AGREEMENT (as amended, supplemented or modified from time to time, this "Loan Agreement") is dated as of December 2, 1994 and is between LAWRENCE E. WEBB, JR. (the "Borrower"), and STANLEY FURNITURE COMPANY, INC., a Delaware corporation (the "Company"). The Borrower proposes to purchase shares of the common stock of the Company and desires to borrow an amount to finance the purchase of 30,000 shares. The Company is willing to lend such amount to the Borrower on the terms and conditions set forth herein. Accordingly, the parties hereto agree as follows: ARTICLE I THE LOAN Section 1.1. Commitment to Make Loans. The Company agrees, on the terms and conditions set forth in this Loan Agreement, to make a non-recourse loan (the "Loan") to the Borrower on or prior to December 10, 1994 in an aggregate principal amount equal to the fair market value (as determined under the Stanley Furniture Company, Inc. Executive Loan Plan) (the "Fair Market Value") of 30,000 shares of Company Common Stock, $.02 par value ("Common Stock"). The loan shall be evidenced by, and repayable with interest in accordance with, a single non-recourse promissory note substantially in the form of Exhibit A hereto and appropriately completed (the "Note"). Section 1.2. Non-Recourse Liability. The Company shall have no recourse against the Borrower on account of the Loan, and the Borrower shall have no personal liability with respect to any obligation hereunder or with respect to the representations and warranties contained herein. The Company shall have no recourse against the Borrower and the Borrower shall have no obligation to make any payment on the Loan except to the extent of the Company's rights under the Loan Agreement or as provided in the Note. ARTICLE II FORGIVENESS OF PRINCIPAL AND INTEREST Section 2.1. Continuation of Employment. If the Borrower is employed by the Company on a Payment Date (as defined below), the Company shall forgive the payment of all accrued principal and interest due under the terms of the Note on that Payment Date. For purposes of this Loan Agreement, the last day of December in 1994, 1995, 1996, 1997, and 1998 shall each be a Payment Date. January 2, 1999 is not a Payment Date. Section 2.2. Disability. (a) If the Borrower becomes Disabled before January 1, 1999 and is employed by the Company immediately before he becomes Disabled, the Company shall forgive the payment of all principal and interest due on any future Payment Date. The Borrower shall remain liable for payment of any principal due on the Note that is not payable on a Payment Date. (b) For purposes of this Loan Agreement, "Disabled" means a physical or mental condition that prevents the Borrower from performing his customary duties with the Company. The Company shall determine whether the Borrower is Disabled on the basis of competent medical evidence, and such determination shall be conclusive. Section 2.3. Death. If the Borrower dies while employed by the Company, the Note shall become payable in full according to its terms. Section 2.4. Change of Control. If the Borrower is employed by the Company when a Change of Control occurs, the Company shall forgive any remaining principal and interest due on the Note and shall promptly issue to the Borrower shares of Common Stock as provided in Article III. For purposes of this Loan Agreement, Change of Control shall have the same meaning as in the Stanley Furniture Company, Inc. 1994 Stock Option Plan. Section 2.5. Termination of Employment. If the Borrower terminates employment with the Company other than as provided in Sections 2.2 or 2.3, the Company shall not forgive any further amounts of principal or interest on the Loan and all payments shall be due and payable as provided in the Note. Section 2.6. Tax Due on Forgiveness. If the Company forgives any principal or interest on the Loan under Sections 2.1, 2.2, or 2.4, the Company shall make an additional payment to the Borrower to compensate the Borrower for any federal and state income taxes that may be payable by the Borrower due to the forgiveness of the Loan or due to the payment under this Section 2.6. ARTICLE III ISSUANCE OF STOCK Section 3.1. Issuance of Stock. On January 2, 1999, or if sooner upon forgiveness and/or payment of the Note in full, the Company shall issue 30,000 shares of Common Stock, subject to adjustment pursuant to Section 3.2 and Section 3.3. Section 3.2. Adjustment for Changes in Capital Structure. (a) In case the Company shall at any time subdivide (by any stock split, stock dividend or otherwise) its outstanding shares of Common Stock into a greater number of shares, the number of shares issuable pursuant to Section 3.1 prior to such subdivision shall be proportionately increased, and, conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares, the number of shares issuable pursuant to Section 3.1 prior to such combination shall be proportionately decreased. (b) If any capital reorganization or reclassification of the capital stock of the Company, or any partial or total liquidation or dissolution or reduction in capital, capital surplus or paid in capital, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets (other than cash) with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby Borrower shall have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable pursuant to Section 3.1, such shares of stock, securities or assets (other than cash) as would be issued or paid with respect to or in exchange for a number of outstanding shares of Common Stock issuable pursuant to Section 3.1 immediately theretofore (subject to the obligation to repay the Note pursuant to the terms hereof). In any such case appropriate provisions shall be made with respect to the rights and interests of Borrower to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets (other than cash) thereafter issuable pursuant to Section 3.1. Section 3.3. Adjustment in the Event of Default. Upon a Payment Default (as defined in Section 5.1(b)), the shares of Common Stock to be issued pursuant to Section 3.1 shall be reduced by the number equal to the amount of the Payment Default divided by the Fair Market Value of a share of Common Stock on the date the defaulted payment was due. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants as follows: Section 4.1. Binding Effect. This Loan Agreement constitutes a valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms, except as (i) the enforceability hereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability. ARTICLE V DISTRIBUTIONS AND DEFAULT Section 5.1. Distributions. (a) So long as no Event of Default shall have occurred and be continuing, an amount equal to the amount of cash dividends with respect to the number of Shares issuable pursuant to Section 3.1 at the time of such dividend shall be treated as a prepayment of the portion of the Loan that is due on January 2, 1999. The following items shall be treated as a prepayment of the Loan: (A) an amount equal to the amount of dividends and other distributions paid or payable in cash on the number of Shares then issuable pursuant to Section 3.1 at the time of such dividends in connection with a partial or total liquidation or dissolution or with a reduction of capital, capital surplus or paid-in-surplus, and (B) an amount equal to the amount cash paid in redemption of, or in exchange for, the number of Shares then issuable pursuant to Section 3.1. (b) For purposes of this Loan Agreement, each of the following events shall be an Event of Default: (i) the Borrower shall fail to pay within ten calendar days following the date when due any principal of or interest on the Note unless such principal or interest is forgiven by the Company (a "Payment Default"); (ii) the Borrower shall fail to observe or perform any covenant or agreement contained in this Loan Agreement (other than those covered by clause (i) above) for 30 days after written notice thereof has been given to the Borrower by the Company; or (iii) any representation, warranty, certification or statement made by the Borrower in this Loan Agreement shall prove to have been incorrect in any material respect when made. ARTICLE VI MISCELLANEOUS Section 6.1. Notices. All notices, requests and other communications to a party hereunder shall be in writing and shall be given to such party at its address set forth on the signature page hereof or such other address as such party may hereafter specify for that purpose by notice to the other. Section 6.2. No Waivers. No failure or delay by the Company in exercising any right, power or privilege under this Loan Agreement shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided herein shall be cumulative and not exclusive of any rights or remedies provided by law. Section 6.3. Amendments and Waivers. Any provision of this Loan Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Company. Section 6.4. Successors and Assigns. The provisions of this Loan Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This Loan Agreement is for the benefit of the Company and its successors and assigns, and in the event of an assignment of all or any of the Obligations, the rights hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness. This Loan Agreement shall not be transferable by the Borrower except by will or by the laws of descent and distribution or, if permitted by Rule 16b-3, pursuant to a qualified domestic relations order (as defined in Code section 414(p)) ("QDRO"). Section 6.5. Governing Law. This Loan Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. Section 6.6. Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Company in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. Section 6.7. Counterparts; Effectiveness. This Loan Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly executed by their respective authorized officers as of the day and year first above written. LAWRENCE E. WEBB, JR. s/Lawrence E. Webb, Jr. STANLEY FURNITURE COMPANY, INC. By s/Albert L. Prillaman Title: President ___________________________________ PROMISSORY NOTE ************** Stanleytown, Virginia $300,000.00 Date: December 2, 1994 FOR VALUE RECEIVED, the maker, Lawrence E. Webb, Jr., promises to pay to the order of Stanley Furniture Company, Inc. (the "Company"), the principal sum of $300,000.00, together with interest from the date of this note at the rate of 7.60% per annum, compounded semi-annually, pursuant to the Loan And Stock Purchase Agreement dated as of December 2, 1994 between the Borrower and the Company (as the same may be amended from time to time, the "Loan Agreement"), in installments as hereinafter provided. The interest shall be paid in annual installments beginning December 31, 1994 and continuing until this note is fully paid. The principal shall be paid in five annual installments of $30,000.00 (totaling one- half of the principal), beginning December 31, 1994 and continuing until December 31, 1998 and one installment of $150,000.00 (equal to one-half of the principal) paid on January 2, 1999. If not sooner paid, the entire indebtedness shall be due and payable on the earlier of January 2, 1999 or 90 days after the death of the Borrower. This Note is payable at the corporate office of the Company or at such other place as the Company may designate in writing from time to time. The right of prepayment is reserved, in whole or in part, at any time without penalty. If any payment due hereunder is not made within ten calendar days following the date on which such payment was due, or if the maker is declared or adjudicated to be bankrupt by a United States Bankruptcy Court, the maker shall be in default hereunder. Presentment, demand, protest, and notices of dishonor and of protest are hereby waived by the maker. The maker agrees that he will pay, to the extent permitted by law, all expenses incurred in collecting this obligation, including reasonable attorney's fees, should this obligation or any part thereof not be paid as and when due. This Note and the obligations evidenced hereby are without recourse to the Borrower and the Borrower shall have no personal liability with respect hereto and no holder hereof shall have any right to assets of the Borrower except as provided in the Loan Agreement. This Note is the Note referred to in the Loan Agreement. Terms defined in the Loan Agreement are used herein with the same meanings. Reference is made to the Loan Agreement for provisions for the waiver of certain payments, and the acceleration of the maturity hereof. This note shall be governed by, and construed in accordance with, the substantive laws of the Commonwealth of Virginia. s/Lawrence E. Webb, Jr. Lawrence E. Webb, Jr. EX-10.22 8 Exhibit 10.22 FIRST AMENDMENT TO LEASE This FIRST AMENDMENT TO LEASE (this "Amendment") is made this 1st day of July, 1993 by and between INTERMEAD, INC. (successor in interest to The Mead Corporation), an Ohio corporation qualified to transact business in Virginia (the "Lessor") and STANLEY FURNITURE COMPANY, INC. (formerly known as Stanley Interiors Corporation), a Delaware corporation qualified to transact business in Virginia (the "Lessee"). RECITALS A. Pursuant to a certain Lease dated as of October 15, 1979 between The Mead Corporation, as lessor, and Stanley Interiors Corporation, as lessee, as amended by a certain Settlement Agreement and Amendment to Asset Purchase Agreement and Lease dated as of March 10, 1981 (collectively, the "Lease"), the Lessee currently leases from Lessor certain real property situated in Henry County, Virginia; Franklin County, Virginia; City of Waynesboro, Virginia; Moore County, North Carolina; and Rowan County, North Carolina (collectively, the "Leased Premises"). B. Pursuant to a certain Assignment of Lease dated as of February 1, 1982, The Mead Corporation assigned its interest in the Lease to the Lessor. In addition, pursuant to a deed dated the same day, The Mead Corporation conveyed the Leased Premises to the Lessor, by deed recorded prior hereto, subject to the terms of the Lease. C. The Lessor and the Lessee now desire to amend the Lease as hereinafter provided. AGREEMENTS NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby covenant and agree as follows: 1. Release of a Portion of the Leased Premises from the Terms of the Lease. Notwithstanding the provisions of Article XVIII of the Lease, the Lessor and Lessee have agreed to sell that portion of the Leased Premises located in the City of Waynesboro, Virginia, as more particularly described on Exhibit A attached hereto and incorporated herein by this reference (the "Release Parcel"). Accordingly, as of the date hereof and contemporaneous with the sale of the Release Parcel to Shenandoah Properties, L.C., a Virginia limited liability company ("Shenandoah"), the Release Parcel shall be deleted from the definition of the Leased Premises as set forth in the Lease and shall thereafter no longer be subject to the terms and conditions contained in the Lease. 2. Reaffirmation of the Provisions of Article XVIII with respect to the Remaining Portion of the Leased Premises. Notwithstanding the sale of the Release Parcel to Shenandoah, the Lessee shall, provided it is not then in default in any of its obligations under the Lease to pay money to the Lessor, have the option during the remaining term of the Lease to purchase, subject to the provisions of Article XVIII of the Lease, the remainder of the Leased Premises or that portion of the remainder of the Leased Premises used in the business of the Stanley Division or the Norman Division (as those terms are defined in the Lease). 3. Rent. Notwithstanding the sale of the Release Parcel to Shenandoah and the release of the Release Parcel from the terms and conditions of the Lease, the Lessor and the Lessee hereby agree that the rent set forth in Article II of the Lease shall continue to be paid as set forth therein throughout the basic term and any renewal term of the Lease. 4. Binding Effect. This Amendment shall be binding upon the parties hereto and their respective successors and assigns. 5. Ratification and Conflict. Subject to the terms and provisions contained herein, the Lessor and the Lessee do hereby reaffirm and ratify the Lease. In the event of any conflict between the Lease and this Amendment, this Amendment shall control and prevail. IN WITNESS WHEREOF, the parties hereto have executed this Amendment, all pursuant to due and proper authority: LESSOR: INTERMEAD, INC., an Ohio corporation By: s/Jane B. Fisher Title: President LESSEE: STANLEY FURNITURE COMPANY, INC., a Delaware corporation By: s/Douglas I. Payne Title: VP - Treasurer STATE OF Virginia : CITY OF Waynesboro : The foregoing instrument was acknowledged before me this 8th day of July, 1993, by Douglas I. Payne, as VP - Treasurer of the STANLEY FURNITURE COMPANY, INC., a Delaware corporation, on behalf of such corporation. My commission expires: August 31, 1993 s/Carol P. Knicely Notary Public [NOTARY SEAL] STATE OF North Carolina : CITY/COUNTY OF Stokes : The foregoing instrument was acknowledged before me this 1st day of July, 1993, by Jane B. Fisher, as President of the INTERMEAD, INC., an Ohio corporation, on behalf of such corporation. My commission expires: 12-10-95 s/Bonnie D. Hartsoe Notary Public EXHIBIT A Waynesboro, Virginia Property: The following described real estate situate in Waynesboro City, Virginia, and being particularly described as follows: Tract 1: Fronting on Charlotte Avenue and Fifth Street, being more particularly described by metes and bounds, on a plat made by W. A. Crawford, C.L.S., dated December 9, 1963, entitled "Map of the Basic-Witz Furniture Industries Prop., Waynesboro, Virginia," as recorded in Plat Book 2, Page 34, in the office of the Clerk of the Circuit Court of Waynesboro, Virginia. Tract 1 is subject to a lease of the Office Building from The Mead Corporation to Crompton Company, Inc. dated October 11, 1978, to run from January 1, 1979 through December 21, 1983 with two one year renewal option periods. Tract 2: Lots Nos. 1 through 24 and 29 through 48 in Block 23; the Lot shown on the Beltline Railroad; that portion of Fourth Street from North Charlotte Avenue to the Beltline Railroad; that portion of Dinwiddie Avenue from Third Street to Fourth Street; and the alley between Third Street and Fourth Street in Block 23, all as described on a plat made by John McNair & Associates, dated September 25, 1968 and revised October 30, 1968, entitled "Plat of a Portion of the Property of Basic-Witz Furniture Industries, Inc." Tract 3: Fronting on Fifth Street, and described on a plat attached to a deed from the City of Waynesboro, Virginia to Basic-Witz Corporation dated February 29, 1968, as recorded in Book 79 page 750 in the office of the Clerk of the Circuit Court of Waynesboro, Virginia, as parcel "A" and parcel "B". Tract 4: Lots Nos. 28, 32, and 33 in Block 19; Lots Nos. 25 and 26 in Block 18; as described on a plat of the lands of the Basic City Mining, Manufacturing & Land Company, as recorded in Deed Book 109, pages 134 and 135 in the office of the Clerk of the Circuit Court of Augusta County, Virginia. Tract 5: BEGINNING at a point N63 degrees 24' 30"W 9.21 feet from the intersection of the north line of Lot 1 Block 23 with the northwest right-of-way line of Charlotte Avenue, thence from the point of beginning N63 degrees 24' 30"W 155.79 feet to a point, thence N26 degrees 35' 30"E 91.1 feet to a point in the southwest right-of-way line of Bridge Avenue, thence with the new southwest line of Bridge Avenue S33 degrees 5' 30"E 180.48 feet to the point of BEGINNING, containing 7,096 square feet. Tract 6: Lot No. 29 in Block 19, as described in the plat of the land of the Basic City Mining, Manufacturing & Land Company, as recorded in Deed Book 109, pages 134 and 135 in the office of the Clerk of the Circuit Court of August County, Virginia. Tract 7: BEGINNING at a point at the intersection of the northerly margin of the Belt Line Railroad and the westerly margin of Bridge Avenue; thence with the westerly line of Bridge Avenue to a point in the center of the South River; thence in a westerly direction following the thread of the South River to a point, being the corner of the property shown on a plat made by W. A. Crawford, C.L.S., dated December 9, 1963, entitled "Map of the Basic-Witz Furniture Industries Prop. Waynesboro, Virginia", as recorded in Plat Book 2, page 34, in the office of the Clerk of the Circuit Court of Waynesboro, Virginia; thence with the line of that property S60 degrees 00'E 419.2 feet to a point in the northerly margin of the Belt Line Railroad; thence with the northerly margin of the railroad in an easterly direction to the point of BEGINNING. EX-3.7 9 Exhibit 3.7 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF STANLEY FURNITURE COMPANY, INC. Albert L. Prillaman and Douglas I. Payne certify that: 1. They are the President and Secretary, respectively, of Stanley Furniture Company, Inc., a Delaware corporation. 2. Article FOURTH of the Certificate of Incorporation of the Company is amended to add the following at the end thereof: "Effective on the date of the filing with the Secretary of State of Delaware of a Certificate of Amendment to the Certificate of Incorporation of the Company with respect hereto ("Effective Date"), every two shares of the Company's Common Stock outstanding immediately prior to such time shall be reclassified into one share of Common Stock. Stockholders who, as a result of the reverse stock split, own a fraction of a whole share of Common Stock, shall be entitled to receive from the Company in lieu of a fractional share, cash in the amount equal to $4.25 upon the surrender of certificates representing Common Shares owned prior to the Effective Date." 3. Article SIXTH of the Certificate of Incorporation of the Company is amended by deleting paragraph 1 thereof and replacing it with the following: (1) The number of directors of the Corporation shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by the Board of Directors. Election of directors need not be by ballot unless the by-laws so provide. Commencing with the 1994 Annual Meeting of Stockholders, the Board of Directors shall be divided into three classes, denominated as Class I, Class II and Class III, each as nearly equal in number to the other two as possible. At the 1994 Annual Meeting of Stockholders, directors of Class I shall be elected to hold office for a term expiring at the 1995 Annual Meeting of Stockholders; directors of Class II shall be elected to hold office for a term expiring at the 1996 Annual Meeting of Stockholders; and directors of Class III shall be elected to hold office for a term expiring at the 1997 Annual Meeting of Stockholders. At each Annual Meeting of Stockholders after 1994, the successors to the class of directors whose terms shall then expire shall be identified as being of the same class of directors they succeed and shall be elected to hold office for a term expiring at the third succeeding Annual Meeting of Stockholders. When the number of directors is changed, any newly-created directorships or any decrease in directorship shall be so apportioned among the classes by the Board of Directors as to make all classes as nearly equal in number as possible. Directors need not be stockholders. 4. The foregoing Certificate of Amendment of the Certificate of Incorporation has been duly approved by the Board of Directors. 5. The foregoing Certificate of Amendment of the Certificate of Incorporation has been duly approved by written consent of the majority of stockholders of the Company and written notice of such consent was given to non-consenting stockholders in accordance with Section 228(c) of the General Corporation Law of the State of Delaware, all in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. 6. The capital of the Company will not be reduced under, or by reason of, the foregoing Amendments to the Certificate of Incorporation of the Company. We further declare under penalty of perjury under the laws of the State of Delaware that the matters set forth in the foregoing Certificate are true and correct to our knowledge. IN WITNESS WHEREOF, this Certificate of Amendment is executed by Albert L. Prillaman, President and Douglas I. Payne, Secretary, this 30th day of June, 1993. STANLEY FURNITURE COMPANY,INC. By:s/Albert L. Prillaman Name: Albert L. Prillaman Title: President By:s/Douglas I. Payne Name: Douglas I. Payne Title: Secretary EX-27 10
5 EXHIBIT 27 STANLEY FURNITURE COMPANY, INC. ARTICLE 5 FINANCIAL DATA SCHEDULE FOR PERIOD ENDING DECEMBER 31, 1994 0000797465 STANLEY FURNITURE COMPANY, INC. 1,000 12-MOS DEC-31-1994 JAN-01-1994 DEC-31-1994 301 0 23,760 933 39,905 67,415 64,827 20,049 124,519 24,503 0 94 0 0 50,736 124,519 184,342 184,342 148,453 148,453 0 195 2,969 8,372 3,256 5,116 2,758 0 0 2,358 .50 .50
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