-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WuV+J9B0xgHhGFsjf3CXdKp9GZyKjFAwhrIPF94HBUSzUGl+UVE3qAG/9TktqduC IpUPsHyVTRpCTNv+zJBkzA== 0000797465-96-000016.txt : 19961111 0000797465-96-000016.hdr.sgml : 19961111 ACCESSION NUMBER: 0000797465-96-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961107 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANLEY FURNITURE CO INC/ CENTRAL INDEX KEY: 0000797465 STANDARD INDUSTRIAL CLASSIFICATION: WOOD HOUSEHOLD FURNITURE, (NO UPHOLSTERED) [2511] IRS NUMBER: 541272589 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14938 FILM NUMBER: 96656354 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-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 29, 1996 or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to . Commission file number 0-14938. STANLEY FURNITURE COMPANY, INC. (Exact name of registrant as specified in its charter) Delaware 54-1272589 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Route 57, Stanleytown, Virginia 24168 (Address of principal executive offices, Zip Code) (540) 627-2000 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock as of October 15, 1996. Class Number Common Stock, par value $.02 per share 4,729,042 Shares PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STANLEY FURNITURE COMPANY, INC. BALANCE SHEETS (In thousands, except share data) (Unaudited) September 29, December 31, 1996 1995 ASSETS Current assets: Cash................................ $ 3,705 $ 298 Accounts receivable, less allowances of $1,961 and $1,157, respectively... 28,173 22,732 Inventories: Finished goods.................... 21,527 22,391 Work-in-process................... 5,756 5,368 Raw materials..................... 11,522 12,408 38,805 40,167 Prepaid expenses and other current assets 415 435 Deferred income taxes............... 2,615 2,420 Total current assets............ 73,713 66,052 Property, plant and equipment, at cost. 80,054 78,399 Less accumulated depreciation........ 26,946 24,168 53,108 54,231 Goodwill, less accumulated amortization $2,604 and $2,352.................... 10,836 11,088 Other assets........................... 3,975 3,180 $141,632 $134,551 LIABILITIES Current liabilities: Current maturities of long-term debt. $ 725 $ 650 Accounts payable..................... 14,176 13,637 Accrued salaries, wages and benefits. 8,802 6,619 Other accrued expenses............... 3,189 2,724 Total current liabilities.......... 26,892 23,630 Long-term debt, exclusive of current maturities........................... 38,778 40,417 Deferred income taxes.................. 12,650 12,180 Other long-term liabilities............ 2,402 3,585 Total liabilities.................... 80,722 79,812 STOCKHOLDERS' EQUITY Common stock, $.02 par value, 10,000,000 shares authorized, 4,729,042 shares issued and outstanding............... 94 94 Capital in excess of par value......... 64,571 64,547 Deficit................................ (3,755) (9,902) Total stockholders' equity........... 60,910 54,739 $141,632 $134,551
The accompanying notes are an integral part of the financial statements. STANLEY FURNITURE COMPANY, INC. STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data) Three Months Nine Months Ended Ended September October September October 29, 1996 1, 1995 29, 1996 1, 1995 Net sales.................. $52,550 $44,706 $148,023 $127,858 Cost of sales.............. 39,772 35,611 113,389 101,612 Gross profit........... 12,778 9,095 34,634 26,246 Selling, general and administratie expenses... 7,619 6,347 21,973 19,402 Unusual items, net......... (136) Operating income....... 5,159 2,748 12,661 6,980 Other expense, net......... 90 109 485 306 Interest expense........... 852 1,028 2,569 2,622 Income from continuing operations before income taxes.... 4,217 1,611 9,607 4,052 Income tax provision....... 1,602 613 3,706 1,541 Income from continuing operations............. 2,615 998 5,901 2,511 Gain from discontinued operations, net of taxes. 246 246 Net income................. $ 2,861 $ 998 $ 6,147 $ 2,511 Primary earnings per share: Continuing operations.... $ .53 $ .21 $ 1.22 $ .53 Discontinued operations.. .05 .05 Net income............ $ .58 $ .21 $ 1.27 $ .53 Weighted average number of shares................... 4,954 4,728 4,848 4,728 Fully diluted earnings per share: Continuing operations.... $ .52 $ .21 $ 1.17 $ .53 Discontinued operations.. .05 .05 Net income............ $ .57 $ .21 $ 1.22 $ .53 Weighted average number of shares................... 5,051 4,728 5,052 4,728
The accompanying notes are an integral part of the financial statements. STANLEY FURNITURE COMPANY, INC. STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended September October 29, 1996 1, 1995 Cash flows from operating activities: Cash received from customers......... $141,887 $126,394 Cash paid to suppliers and employees. (127,917) (122,447) Interest paid........................ (3,169) (3,019) Income taxes paid, net............... (3,409) (932) Net cash provided (used) by operating activities............. 7,392 (4) Cash flows from investing activities: Capital expenditures................. (2,706) (12,932) Purchase of other assets............. (181) (399) Proceeds from sale of assets......... 12 25 Net cash used by investing activities....................... (2,875) (13,306) Cash flows from financing activities: Issuance of senior notes............. 10,000 (Repayment of) proceeds from revolving credit facility, net............... (914) 2,897 Repayment of senior note............. (650) Proceeds from insurance policy loans. 430 385 Proceeds from exercise of stock options............................ 24 Net cash (used) provided by financing activities....................... (1,110) 13,282 Net increase (decrease) in cash...... 3,407 (28) Cash at beginning of year............ 298 301 Cash at end of quarter............... $ 3,705 $ 273 Supplemental cash flow information: Net income........................... $ 6,147 $ 2,511 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization.... 3,865 3,529 Loss on sale of assets........... 265 44 Other............................ (246) (30) Changes in assets and liabilities: Accounts receivable............ (5,441) (1,501) Inventories.................... 1,362 (1,778) Prepaid expenses and other current assets............... (1,101) (265) Accounts payable............... 539 (3,196) Accrued salaries, wages and benefits..................... 2,183 1,458 Other accrued expenses......... 41 356 Deferred income taxes.......... 114 (193) Other assets................... (69) (54) Other long-term liabilities.... (267) (885) Net cash provided (used) by operating activities......................... $ 7,392 $ (4)
The accompanying notes are an integral part of the financial statements. STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Preparation of Interim Financial Statements The financial statements of Stanley Furniture Company, Inc. (referred to as "Stanley" or the "Company") have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of management, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles have been either condensed or omitted pursuant to SEC rules and regulations. However, management believes that the disclosures made are adequate for a fair presentation of results of operations and financial position. It is suggested that these financial statements be read in conjunction with the financial statements and accompanying notes included in Stanley's latest annual report on Form 10-K. 2. Property, Plant and Equipment (Unaudited) September 29, December 31, 1996 1995 (In thousands) Land and buildings............. $33,643 $33,594 Machinery and equipment........ 44,424 43,127 Leasehold improvements......... 153 153 Furniture, fixtures and office equipment.................... 1,382 1,387 Construction in progress....... 452 138 $80,054 $78,399 3. Long-Term Debt (Unaudited) September 29, December 31, 1996 1995 (In thousands) 7.28% senior notes due March 15, 2004..................... $30,000 $30,000 7.57% senior note due June 30, 2005......................... 9,350 10,000 Revolving credit facility...... 914 7% convertible subordinated debentures due April 1, 2012. 153 153 Total 39,503 41,067 Less current maturities........ 725 650 $38,778 $40,417
STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) 4. Discontinued Operations On July 1, 1996, the Company was released from a lease obligation resulting from the purchase and concurrent resale of certain facilities at its former Norman's of Salisbury division. This obligation was accrued as part of the 1994 charge to discontinued operations in connection with the liquidation of Norman's. Accordingly, in the third quarter of 1996, the Company recorded an after tax gain of $246,000, or $.05 per share, as a partial reversal of this accrual. 5. New Accounting Standard In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires a fair value based method of accounting for stock based compensation, and provides an option to the Company to either recognize compensation expense for employee stock based compensation or to provide proforma earnings information as if such compensation cost had been recognized. The Company has not determined which election it will make under SFAS 123, nor the various assumptions that will be used in the fair value calculations. Under either method the effect on net income for the nine-month period ended September 29, 1996 is not material, since options to purchase only 7,500 shares were granted during the period. 6. Subsequent Event On October 15, 1996, the Company filed a registration statement with the SEC for a public offering of its common stock held by a major stockholder. In connection with this offering, the Company has agreed to acquire from the selling stockholders any share of common stock not acquired at the price offered to the public, net of an amount equal to the underwriting discount that otherwise would have been paid in respect of such shares of common stock. Assuming an offering price of $19.25 and an underwriting discount of 5.5%, and that the Underwriters' overallotment option is not exercised, the Company will acquire 358,902 shares of common stock from the selling stockholders for an aggregate consideration of $6,528,876, which the Company will fund from available cash and, if necessary, borrowings under its revolving credit facility. The following pro forma information assumes that the repurchase of common stock is financed entirely by borrowings under the revolving credit facility at an assumed interest rate of 7%. The pro forma effects on the Company's financial position assume that the stock was repurchased as of September 29, 1996. The pro forma effects on the Company's operating results for the year ended December 31, 1995 and the nine-months ended September 29, 1996 assume that the stock was repurchased at the beginning of the respective twelve- and nine-month periods. As Reported Pro Forma (In thousands, except per share data) Financial position at September 29, 1996: Long-term debt including current maturities........................... $39,503 $46,032 Stockholders' equity................... 60,910 54,381 Operating results, year ended December 31, 1995: Interest expense....................... 3,534 3,991 Net income............................. 3,889 3,608 Income from continuing operations per common share - primary............... $ .82 $ .83 Income from continuing operations per common share - fully diluted......... $ .82 $ .83 Operating results, nine months ended September 29, 1996: Interest expense....................... 2,569 2,912 Net income............................. 6,147 5,937 Income from continuing operations per common share - primary............... $ 1.22 $ 1.27 Income from continuing operations per common share - fully diluted......... $ 1.17 $ 1.21
The pro forma information does not include offering expenses of approximately $300,000 payable by the Company, which will be incurred in the fourth quarter of 1996. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net sales increased $7.8 million, or 17.5%, for the three-month period ended September 29, 1996 from the comparable 1995 period. For the nine-month period, net sales increased $20.2 million, or 15.8%, from the comparable 1995 period. The increases were due principally to higher unit volume and to a lesser extent higher average selling prices. Gross profit margin for the three- and nine-month periods of 1996 increased to 24.3% and 23.4%, respectively, from 20.3% and 20.5% for the comparable 1995 periods. The higher gross profit margin was due primarily to stabilizing raw material costs, improved operating efficiencies and the leveraging of fixed costs due to increased production levels. Selling, general and administrative expenses increased for the 1996 periods due to (i) higher selling cost resulting from increased sales and increased merchandising expenses, (ii) increased compensation expense pursuant to the Company's incentive compensation plan for key employees, and (iii) increased provision for bad debts. For the three-month period, these expenses as a percentage of net sales increased to 14.5% from 14.2% for the comparable 1995 period. For the nine-month period, these expenses as a percentage of net sales decreased to 14.8% from 15.2% for the comparable 1995 period, due principally to higher net sales. During the second quarter of 1995, the Company recognized an unusual item consisting of the net effect of, (i) an accrual reversal as a result of being released from a lease obligation at its previously closed Waynesboro, Virginia facility and (ii) a charge for severance resulting from the resignation of the Company's former chief operating officer. As a result of the above, operating income for the three- and nine- month periods of 1996 increased to $5.2 million, or 9.8% of net sales, and $12.7 million, or 8.6% of net sales, respectively, from $2.7 million, or 6.1% of net sales, and $7.0 million, or 5.5% of net sales, for the comparable 1995 periods. Interest expense for both the three- and nine-month periods of 1996 decreased due to lower debt levels. The Company's effective income tax rate was 38.6% and 38.0% for the nine-month periods of 1996 and 1995, respectively. Financial Condition, Liquidity and Capital Resources At September 29, 1996, long-term debt was $38.8 million, and approximately $23.0 million of additional borrowing capacity was available under the revolving credit facility. Annual debt service requirements are $878,000 in 1997, $5.1 million in both 1998 and 1999 and $5.2 million in both 2000 and 2001. The Company expects capital expenditures for the next twelve months to range from $4 million to $5 million. The Company believes that its financial resources are adequate to support its capital needs and debt service requirements. The Company generated cash from operations of $7.4 million in the 1996 nine-month period principally as a result of higher sales. The Company used $4.0 million of the cash generated in the 1996 nine-month period primarily to fund capital expenditures and reduce borrowings. Cash provided from the Company's operations during the 1995 nine-month period was used substantially to fund its operating activities for that period. For the 1995 nine-month period, compared to the prior year period, cash was required for higher interest payments offet by lower tax payments and less cash paid to suppliers and employees due to reduced inventory levels. Net cash used by investing activities was $2.9 million in the 1996 nine-month period compared to $13.3 million in the 1995 nine-month period. In the 1995 nine-month period, proceeds from the issuance of senior notes and additional borrowings from the revolving credit facility were used to purchase two previously leased plant facilities for $10.5 million. The 1996 expenditures and the remaining expenditures for 1995 were primarily for plant and equipment and other assets in the normal course of business. Net cash used by financing activities was $1.1 million in the 1996 nine-month period compared to cash provided by financing activities of $13.3 million in the 1995 nine-month period. The 1995 borrowings provided cash for the purchase of the two previously leased plant facilities and other capital expenditures. Discontinued Operations On July 1, 1996, the Company was released from a lease obligation resulting from the purchase and concurrent resale of certain facilities at its former Norman's of Salisbury division. This obligation was accrued as part of the 1994 charge to discontinued operations in connection with the liquidation of Norman's. Accordingly, in the third quarter, the Company recorded an after tax gain of $246,000, or $.05 per share, as a partial reversal of this accrual. New Accounting Standard In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires a fair value based method of accounting for stock based compensation, and provides an option to the Company either to recognize compensation expense for employee stock based compensation or to provide pro forma earnings information as if such compensation cost had been recognized. The Company has not determined which election it will make under SFAS 123, nor the various assumptions that will be used in the fair value calculations. Under either method the effect on net income for the nine-month period ended September 29, 1996 is not material, since options to purchase only 7,500 shares were granted during the period. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 4.1 Letter Amendment dated October 14, 1996 to Note Agreements dated February 15, 1994 and June 29, 1995 between the Company and The Prudential Insurance Company of America.* Exhibit 10.1 Assignment and Transfer Agreement dated as of October 8, 1996 between National Canada Finance Corp., a Delaware corporation ("NCFC") and National Bank of Canada, a Canadian chartered bank ("NBC") relating to the Second Amended and Restated Revolving Credit Facility dated as of February 15, 1995 (the "Second Amended and Restated Revolving Credit Facility") among the Company, NCFC and NBC.* Exhibit 10.2 Second Amendment dated as of October 14, 1996 between the Company and National Bank of Canada to Second Amended and Restated Revolving Credit Facility.* Exhibit 10.3 Amendment No. 1, dated as of November 1, 1996, between the Company and the Thomas H. Lee Company to the Management Agreement dated September 29, 1988 among the Company's predecessors and the Thomas H. Lee Company.* Exhibit 10.4 Amendment No. 1 dated as of October 1, 1996 to Employment Agreement dated as of January 1, 1991 between the Company and Albert L. Prillaman.* Exhibit 11. Schedule of Computation of Earnings Per Share.* Exhibit 27. Financial Data Schedule.* (b) Reports on Form 8-K None. * Filed herewith. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STANLEY FURNITURE COMPANY, INC. Date: November 7, 1996 By: /s/ Douglas I. Payne Douglas I. Payne Vice President of Finance, Secretary and Treasurer (Principal Financial and Accounting Officer) EX-11 2 Exhibit 11 STANLEY FURNITURE COMPANY, INC. SCHEDULE OF COMPUTATION OF NET INCOME PER COMMON SHARE (Unaudited) (In thousands, except per share data) Three Months Ended Nine Months Ended September October September October 29, 1996 1, 1995 29, 1996 1, 1995 Earnings used in calculating primary and fully diluted earnings (loss) per common share: Income from continuing operations.. $2,615 $ 998 $5,901 $2,511 Gain from discontinued operations... 246 246 Net income used in calculating primary and fully diluted earnings per common share........ $2,861 $ 998 $6,147 $2,511 Primary earnings (loss) per common share: Weighted average shares outstanding during the period................ 4,728 4,727 4,727 4,727 Add shares issuable assuming exercise of stock options........ 226 1 121 1 Weighted average number of shares used in calculating primary earnings per common share........ 4,954 4,728 4,848 4,728 Income from continuing operations.. $ .53 $ .21 $ 1.22 $ .53 Gain from discontinued operations.. .05 .05 Net income......................... $ .58 $ .21 $ 1.27 $ .53 Fully diluted earnings (loss) per common share: Weighted average shares outstanding during the period................ 4,728 4,727 4,727 4,727 Add shares issuable assuming exercise of stock options......... 323 1 325 1 Weighted average number of shares used in calculating fully diluted earnings per common share..........5,051 4,728 5,052 4,728 Income from continuing operations...$ .52 $ .21 $ 1.17 $ .53 Gain from discontinued operations... .05 .05 Net income..........................$ .57 $ .21 $ 1.22 $ .53
EX-27 3
5 STANLEY FURNITURE COMPANY, INC. ARTICLE 5 FINANCIAL DATA SCHEDULE FOR PERIOD ENDING SEPTEMBER 29, 1996 9-MOS DEC-31-1996 SEP-09-1996 3705 0 30134 1961 38805 73713 53108 2706 141632 26892 0 94 0 0 60910 141632 148023 148023 113389 135362 485 768 2569 9607 3706 5901 246 0 0 6147 1.27 1.22
EX-10 4 ASSIGNMENT AND TRANSFER AGREEMENT FORM OF ASSIGNMENT AND TRANSFER AGREEMENT ASSIGNMENT AND TRANSFER AGREEMENT dated as of October 8, 1996 between National Canada Finance Corp., with offices at Two First Union Center, Suite 2020, Charlotte, NC 28282 (the "Assignor") and National Bank of Canada, (the "Assignee"). PRELIMINARY STATEMENTS 1. This ASSIGNMENT AND TRANSFER AGREEMENT (the "Agreement") relates to the Second Amended and Restated Revolving Credit Facility dated as of February 15, 1994, as amended by the letter amendment dated as of August 21, 1995 (as amended thereby and hereby, the "Financing Agreement") by and among STANLEY FURNITURE COMPANY, INC., a Delaware corporation (the "Borrower"); NATIONAL CANADA FINANCE CORP., a Delaware corporation (the "Lender"); and NATIONAL BANK OF CANADA, the owner of all outstanding capital stock of the lender ("NBC"). All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Financing Agreement. 2. Subject to the terms and conditions set forth in the Financing Agreement, the Assignor has committed to make Revolving Credit Loans from time to time to the Borrower in the aggregate principal amount outstanding at any time not to exceed Twenty Five Million and NO/100 Dollars ($25,000,000.00). 3. Revolving Credit Loans made to the Borrower by the Assignor under the Financing Agreement in the approximate aggregate principal amount of $2,502,333.17 (includes Letters of Credit) are outstanding at commencement of business on the date hereof. This Agreement shall become effective prior to any Revolving Credit Loan made on the date hereof. 4. The Assignor desires to assign irrevocably and sell to Assignee all of the rights of the Assignor under the Financing Agreement in respect of an 100% portion of its Revolving Credit Loan commitment thereunder in an amount equal to $25,000,000.00 (the "Assigned Revolving Credit Loans Commitment"), and the Assignee desires to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms. NOW THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Assignment. The Assignor hereby irrevocably assigns and sells to the Assignee without recourse to the Assignor, all of the rights of the Assignor under the Financing Agreement in and to the Assigned Revolving Loan Commitment, and the Assignee hereby irrevocably purchases and accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Financing Agreement in and to the Assigned Revolving Credit Loan commitment. Upon the execution and delivery hereof by the Assignor, the Assignee shall, as of commencement of business on the date hereof, succeed to the rights and be obligated to perform the obligations of a Lender under the Financing Agreement and the Loan Documents with a Revolving Credit Loans Commitment in an amount equal to the Assigned Revolving Credit Loans Commitment, with loans in a principal amount equal to the Revolving Credit Loans Commitment and the Loans of the Assignor shall, as of the commencement of business on the date hereof, be reduced correspondingly and the Assignor released from its obligations under the Financing Agreement and the Loan Document to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 2. Financing Agreement. Each of the Assignor and the Assignee agrees that this Assignment and Assumption Agreement is made in accordance with and subject to the terms of the Financing Agreement, which terms are hereby incorporated by reference herein. SECTION 3. Representations and Warranties of Assignee. Assignee represents and warrants that (i) Assignee is legally authorized to enter into this Agreement and (ii) Assignee has received copies of the Financing Agreement and the Loan Documents, such financial statements and such other documents and information as it has requested or deemed appropriate to make its own credit analysis and decision to enter into this Agreement. SECTION 4. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of any obligor or any other party to any Loan Document, or the validity and enforceability of the obligations of any obligor or any other party to a Loan Document in respect of any other Loan Document. The Assignee acknowledges that it has, such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business affairs and financial conditions of the Borrower and any other parties to the Loan Documents. SECTION 5. Notices. Notices hereunder shall be sent to: National Bank of Canada Two First Union Center Suite 2020 Charlotte, NC 28282 Telephone:(704)372-0783 Attn: Office Manager SECTION 6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NORTH CAROLINA. SECTION 7. Counterparts. This 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 have caused this Agreement to be executed and delivered by their authorized officers as of the date first above written. ACCEPTED AND AGREED TO: NATIONAL CANADA FINANCE CORP. STANLEY FURNITURE COMPANY, INC. Assignor By: By: Title: Title: NATIONAL BANK OF CANADA Assignee By: Title: 10QEXH10.1 EX-10 5 SECOND AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT This SECOND AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT FACILITY dated as of October 14, 1996 (the "Second Amendment") is by and between STANLEY FURNITURE COMPANY, INC., a Delaware corporation (the "Borrower"); and NATIONAL BANK OF CANADA, a Canadian chartered bank (the "Lender" or "NBC"). RECITALS A. National Canada Finance Corp., a Delaware corporation ("NCFC"), and the Lender made a certain credit facility available to the Borrower pursuant to the terms and conditions contained in that certain Second Amended and Restated Revolving Credit Agreement dated as of February 15, 1994 among the Borrower, NCFC and the Lender, as amended by a First Amendment to Second Amended and Restated Credit Agreement dated as of August 21, 1995 (as amended, the "Loan Agreement"). B. The Lender has been assigned the rights of NCFC under the Loan Agreement and the documents related thereto pursuant to the terms of an Agreement and Transfer Agreement. C. The Borrower has requested that the Lender make certain changes to the Loan Agreement. D. The Lender has agreed to make these changes to the Loan Agreement as set forth herein. NOW, THEREFORE, the Borrower and the Lender hereby agree as follows: A. The Loan Agreement is amended as follows: 1. The first sentence of Section 3.09(b) is deleted in its entirety and replaced with the following: "(b) Unused Fee. In consideration of the Lender's commitment to make the Revolving Credit Loans hereunder, the Borrower agrees to pay an unused fee of one-eighth of one percent (1/8%) per annum (computed on the basis of the actual number of days elapsed in a year of 360 days) on the excess of the Committed Amount over the aggregate average principal amount of the Revolving Credit Loans outstanding during the applicable quarterly period." 2. Section 8.01(j) is deleted in its entirety and replaced with the following: "(j) Restricted Payments. Make any Restricted Payment; provided, however, Borrower may (I) buy up to 15% of the Common Stock, $.02 par value, of the Borrower owned by the ML-Lee Acquisition Fund L.P. and certain affiliates of the Thomas H. Lee Company, in the event such shares are not purchased pursuant to the exercise of overallotment options granted to underwriters in a secondary offering of such stock; provided, however, that no more than $8,000,000.00 may be borrowed under this Loan Agreement to finance this transaction and (II) pay dividends or make payments to redeem, repurchase or otherwise acquire shares of its stock in an amount up to $3,839,000 plus (A) 50% of Borrower's net income during the period from January 1, 1996 through the end of the most recently completed fiscal quarter and (B) the total net cash proceeds received by the Borrower from the sale of its stock during such period less (C) the aggregate amount of cash dividends paid or cash payments (other than pursuant to clause (I) above) made to redeem, repurchase or otherwise acquire shares of its stock." A. The Borrower represents and warrants that, as of the date hereof, it is not in default of the terms of the Loan Agreement, as amended hereby, or any of the other documents executed between the Borrower and the Lender in connection therewith. B. This Second Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original. C. This Second Amendment and the Loan Agreement, as amended hereby, shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with the laws of the State of North Carolina. IN WITNESS WHEREOF, the parties hereto have executed or caused this instrument to be executed under seal as of the day and year first above written. STANLEY FURNITURE COMPANY, INC. ATTEST By By Title Title (CORPORATE SEAL) NATIONAL BANK OF CANADA By Title By Title 10QEXH10.2 EX-4 6 THE PRUDENTIAL INSURANCE COMPANY OF AMERICA c/o Prudential Capital Group Four Gateway Center 100 Mulberry Street Newark, New Jersey 07102 October 14, 1996 Stanley Furniture Company, Inc. Hwy. 57 West Stanleytown, Virginia 24168 Attention: Douglas I. Payne, Vice President of Finance Re: 7.28% Senior Notes due 2004 and 7.57% Series A Senior Notes due 2005 Gentlemen: Reference is made to the Note Agreements dated February 15, 1994 and June 29, 1995 (the "Note Agreements") between Stanley Furniture Company, Inc. (the "Company") and The Prudential Insurance Company of America ("Prudential"). Capitalized terms used herein without definition have the meanings ascribed to such terms in the Note Agreement. The Company has advised Prudential that ML-Lee Acquisition Fund, L.P. and certain affiliates of the Thomas H. Lee Company (collectively, "Lee") are pursuing a secondary offering to the public (the "Public Offering") to sell all of the common stock of the Company currently owned by Lee (the "Lee Stock"). The Company will not be offering any shares of its Common Stock in the Public Offering. In the event that the underwriters do not exercise their overallotment option in full, the Company intends to repurchase the remaining Lee Stock. Notwithstanding anything to the contrary contained in paragraphs 6B of each of the Note Agreements, Prudential hereby consents and agrees that, in the event that (a) the Public Offering is completed and (b) the underwriters do not exercise their overallotment option in full, the repurchase by the Company for a purchase price of up to $10,000,000 of the remaining Lee Stock after the consummation of the Public Offering shall not constitute a Restricted Payment. Very truly yours, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: Acknowledged and agreed to this Vice President 14th day of October, 1996. STANLEY FURNITURE COMPANY, INC. By: Douglas I. Payne, Vice President of Finance 10QExh4.1 EX-10 7 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT THIS AMENDMENT NO. 1 dated as of the 1st day of October, 1996 to the Employment Agreement, dated as of January 1, 1991 (the "Original Agreement") between ALBERT L. PRILLAMAN ("Employee") and STANLEY FURNITURE COMPANY, INC., a Delaware corporation (the "Company"), formerly Stanley Interiors Corporation. The parties hereto desire to amend the Original Agreement. Except as provided herein, all terms used in this Amendment have the same meaning as in the Original Agreement. NOW THEREFORE, in consideration of the foregoing and the covenants and agreement set forth herein, the parties hereto, intending to be legally bound, agree as follows: 1. Section 2 of the Employment Agreement is deleted in its entirety and the following inserted in lieu thereof: Term. The term of employment under this Agreement (the "Term") shall commence January 1, 1996 and end on December 31, 1996 and shall continue thereafter unless either party gives notice (a "Termination Notice") on or before November 1 of any year that employment under this Agreement will not continue for an additional period of one year beginning on the following January 1. 2. Section 3(b) is deleted in its entirety and the following inserted in lieu thereof: b. Bonus. In addition to base salary, the Employee shall be entitled to receive an annual bonus which shall not exceed 80% of his then current base salary. The amount of such bonus for any fiscal year shall be related to the achievement of certain profit thresholds and objectives to be set at the beginning of each fiscal year by the Board of Directors of the Company. 3. Section 4 shall be amended by deleting the words "and of Stanley Holding Corporation, a Delaware corporation ("Holding")" and replacing the words "the Company's operating subsidiaries" with "any operating subsidiaries of the Company". 4. Section 6a shall be deleted in its entirety and the following inserted in lieu thereof: a. Non-Competition Restriction. Except with the prior consent in writing of the Company or as provided in the last sentence of this Section 6(a), the Employee shall not (A) during his employment hereunder or (B) for a period of two years after termination of his employment hereunder in the event Employee receives severance payments pursuant to Section 7(b) or Section 7(e), directly or indirectly manage, operate, control, be employed by, participate in, invest in or be connected in any manner with the management, operation, ownership or control of any business or venture which is in competition in the United States with the business of the Company, provided that nothing herein shall prohibit the Employee from owning securities of the Company or up to 5% of the outstanding voting securities of any issuer which is listed on the New York or American Stock Exchange or as to which trading is reported or quoted on the NASDAQ System. The provisions of this Section 6(a) shall not be applicable in the event the Employee terminates his employment under Section 7(d). 5. Section 6b is deleted in its entirety and the following inserted in lieu thereof: b. Non-solicitation Agreement. Except with the prior consent in writing of the Company, the Employee shall not directly or indirectly hire or employ in any capacity or solicit the employment of or offer employment to or entice away or in any other manner persuade or attempt to persuade any person employed by the Company or any of its subsidiaries to leave the employ of any of them. This Agreement shall remain in full force and effect for a period of two years after the Term. 6. Section 7 is deleted in its entirety and the following inserted in lieu thereof: 7. Termination of Employment and Severance Payments. a. Termination for Cause. During the Term, the Company may terminate the Employee's employment under this Agreement at any time for Cause (as hereinafter defined) upon written notice specifying the cause and date of termination. Payments under this Agreement shall cease as of the date of termination for Cause. For this purpose, "Cause" means gross or willful neglect of duty which is not corrected after 30 days' written notice thereof; misconduct, malfeasance, fraud or dishonesty which materially and adversely affects the Company or its reputation in the industry; or the commission of a felony or a crime involving moral turpitude. b. Termination without Cause. During the Term, the Company may terminate the Employee's employment under this Agreement at any time for any reason other than Cause upon written notice specifying the date of termination and the Employee shall be entitled to the payments provided under this Section 7(b). In the event the Company terminates the Employee's employment for reasons other than Cause (which includes termination by the Company for what the Company believes to be Cause when it is ultimately determined that the Employee was terminated without cause), then the Employee shall receive severance payments as follows: (i) the Employee shall continue to receive his base salary on a monthly basis for the remainder of the calendar year in which such termination occurred, (ii) the Employee shall be paid an annual bonus for the calendar year in which such termination occurred equal to the average of the bonuses paid to the Employee for the three fiscal years preceding the year in which termination occurred (which bonus shall be payable within ninety days after the close of the fiscal year in which such termination occurs), and (iii) during the two calendar years following the year in which such termination occurs, the Employee shall receive annual severance pay equal to the base salary in effect at the termination of employment plus an amount equal to the average of the bonuses paid to the Employee for the three fiscal years preceding the year in which employment is terminated, which annual severance pay shall be paid on a monthly basis during the two years following the termination of employment. If there shall take place a Change in Control (as defined in Section 7(d)) of the Company on or before termination of Employment, the Employee shall be entitled to receive the total severance pay provided for under this Section 7(b) in a single payment on the date of such Employee's termination, or if a Change in Control occurs after the date of such Employee's termination, the Employee shall be entitled to receive the total severance pay remaining to be paid pursuant to this Section 7(b) in a single payment on the date when a Change in Control occurs. In the event the independent accountants acting as auditors for the Company on the date of a Change in Control (or another accounting firm designated by them) determine that such single payment, together with other compensation received by the Employee that is a contingent on a Change in Control, would constitute "excess parachute payments" within the meaning of Section 280G ("Section 280G") of the Internal Revenue Code of 1986, as amended and regulations thereunder, the single payment to the Employee shall be reduced to the minimum extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 280G but only if by reason of, and giving effect to such reduction, the Employees net after-tax benefit will exceed the Employees net after-tax benefit if such reduction were not made. c. Termination in Event of Death or Disability. If the Employee dies or becomes disabled during the Term, his employment under this Agreement shall terminate and payments of base salary hereunder shall cease as of the end of the month in which such event shall occur. For purposes of this Agreement, the Employee shall be deemed to be disabled if he is unable to perform his duties hereunder for any period of four consecutive months or for six months in any twelve-month period. If the Employee's employment is terminated hereunder pursuant to this Section 7(c), the Employee or Employee's estate shall be entitled to a bonus payment in an amount equal to the amount determined by multiplying the bonus which would otherwise have been payable for the full year by a fraction, the numerator of which is the number of days the Employee was employed during such fiscal year and the denominator of which is 365. Such bonus shall be payable ninety days after the close of the fiscal year in which Employee dies or becomes disabled. d. Termination on Change of Control. By delivering 15 days' written notice to the Company, Employee may terminate his employment under this Agreement at any time within two years after a Change in Control and the Employee shall be entitled to the payments provided under Section 7(e). "Change of Control" means an event described in (i), (ii), (iii), or (iv): (i) The acquisition by a Group of Beneficial Ownership of 35% or more of the Stock or the Voting Power of the Company, but excluding for this purpose: (A) any acquisition by the Company (or a subsidiary), or an employee benefit plan of the Company; (B) any acquisition of Stock of the Company by management employees of the Company; or (C) the ownership of Stock by a Group that owns 10% or more of the Stock or Voting Power of the Company on the date of this Agreement; provided, however, the acquisition of additional Stock by any such Group in an amount greater than 5% of the then outstanding Stock shall not be excluded and shall constitute a Change of Control. "Group" means any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act"), "Beneficial Ownership" has the meaning in Rule 13d-3 promulgated under the Act, "Stock" means the then outstanding shares of common stock of the Company, and "Voting Power" means the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors. (ii) Individuals who constitute the board of directors of the Company on the date of this Agreement (the "Incumbent Board") cease to constitute at least a majority of the board of directors of the Company (the "Board"), provided that any director whose nomination was approved by a majority of the Incumbent Board shall be considered a member of the Incumbent Board unless such individual's initial assumption of office is in connection with an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Act). (iii) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, in which the owners of more than 50% of the Stock or Voting Power of the Company do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50% of the Stock or Voting Power of the corporation resulting from such reorganization, merger or consolidation. (iv) A complete liquidation or dissolution of the Company or of its sale or other disposition of all or substantially all of the assets of the Company. e. Severance Payments. The Employee shall be entitled to the severance payment provided in this Section 7(e) in the event (i) the Employee terminates employment on or after the occurrence of a Change in Control pursuant to Section 7(d), (ii) the Employee's employment terminates as a result of the Company's delivery of a Termination Notice, or (iii) the Employee voluntarily terminates his employment and the Company elects to make severance payments in order to have the non-competition covenant in Section 6(a) effective. In the event the Employee is entitled to severance payment pursuant to the foregoing sentence, the Employee shall receive an annual severance pay equal to the base salary in effect at the termination of employment plus an amount equal to the average of the bonuses paid to the Employee for the three fiscal years preceding the year in which employment is terminated, which annual severance pay shall be paid on a monthly basis during the two years following termination of employment. If there shall take place a Change in Control of the Company on or before termination of Employment, the Employee shall be entitled to receive the total severance pay provided for under this Section 7(e) in a single payment on the date of such Employee's termination, or if a Change in Control occurs after the date of such Employee's termination, the Employee shall be entitled to receive the total severance pay remaining to be paid pursuant to this Section 7(e) in a single payment on the date when a Change in Control occurs. In the event the independent accountants acting as auditors for the Company on the date of a Change in Control (or another accounting firm designated by them) determine that such single payment, together with other compensation received by the Employee that is a contingent on a Change in Control, would constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended and regulations thereunder, the single payment to the Employee shall be reduced to the minimum extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 280G but only if by reason of, and giving effect to such reduction, the Employees net after-tax benefit will exceed the Employees net after-tax benefit if such reduction were not made. 7. Section 10 is amended by changing the reference to "Stanley Interiors Corporation" to "Stanley Furniture Company, Inc." 8. Section 12 is amended by deleting the words "Holding or" in the first sentence thereof. 9. This Amendment shall be governed by and construed in accordance with its laws of the Commonwealth of Virginia without regard to the conflict of laws rules thereof. 10. This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 11. The Original Agreement as amended hereby and this Amendment shall be read together to constitute one agreement. The parties hereto agree that the Original Agreement, as amended hereby, remains in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed on the day and year first above written. STANLEY FURNITURE COMPANY, INC. By: Name: Title: Albert L. Prillaman 10QExh10.4 EX-10 8 AMENDMENT NO. 1 TO MANAGEMENT AGREEMENT AMENDMENT NO. 1 (the Amendment) to the MANAGEMENT AGREEMENT, dated as of September 29, 1988 (the Agreement), made by and among the Thomas H. Lee Company, a Massachusetts sole proprietorship owned by Thomas H. Lee with its principal place of business at One Boston Place, Boston, Massachusetts (the Consultant), and Stanley Holding Corporation, a Delaware corporation (Holding), Stanley Acquisition Corporation, a Delaware corporation (Acquisition) and Interiors Acquisition Corporation, a Delaware corporation (Interiors) is entered into as of November 1, 1996 between the Consultant and Stanley Furniture Company, Inc., a Delaware corporation and successor to Holding, Acquisition and Interiors (the Company). The Fund and certain other stockholders of the Company (the Selling Stockholders) desire to sell shares of common stock, $.02 par value, of the Company (the Shares) in a registered public offering pursuant to an Underwriting Agreement (the Underwriting Agreement) to be executed among the Company, the Selling Stockholders and Dillon Read & Co. Inc., Raymond James & Associates, Inc. and Wheat First Butcher Singer (the Managing Underwriters) as representatives of the several Underwriters named therein. The Consultant and the Company desire to terminate the Agreement upon sale of the Shares pursuant to the Underwriting Agreement. The parties hereby agree to amend the Agreement as follows: 1. Section 2 of the Agreement shall be amended by inserting the following sentence to the end thereof: This Agreement shall terminate upon the completion of the sale of the Shares pursuant to the Underwriting Agreement; provided, however, (i) the Company shall reimburse Consultant for any expenses incurred pursuant to Section 5(c) of this Agreement before termination of this Agreement and not previously reimbursed and (ii) Consultant shall pay to the Company an amount equal to the Management Fee for the month of termination pro rated for the number of days in such month following termination. 2. Except as expressly set forth in this Amendment, all other terms and conditions of the Agreement shall remain in full force and effect. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to such terms in the Agreement. 3. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their duly authorized officers as of the day and year first above written. THOMAS H. LEE COMPANY By: /s/C. Hunter Boll C. Hunter Boll Managing Director STANLEY FURNITURE COMPANY, INC. By: /s/Albert L. Prillaman Albert L. Prillaman President -----END PRIVACY-ENHANCED MESSAGE-----