UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
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(Amendment No. )
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Stanley Furniture Company, Inc.
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Stanley Furniture Company, Inc.
1641 Fairystone Park Highway
Stanleytown, Virginia 24168
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held April 24, 2002
16, 2003
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Stanley Furniture Company, Inc. (the "Company"“Company”) will be held at the Company'sCompany’s corporate headquarters, 1641 Fairystone Park Highway, Stanleytown, Virginia, on Wednesday, April 24, 2002,16, 2003, at 11:00 A.M., for the following purposes:
(1) To elect two directors to serve a three-year term on the Company's
Board of Directors; and
(2) To transact such other business as may properly be brought before
the meeting or any adjournment thereof.
| (1) | To elect two directors to serve a three-year term on the Company’s Board of Directors; and |
| (2) | To transact such other business as may properly be brought before the meeting or any adjournment thereof. |
The stockholders of record of the Company'sCompany’s common stock at the close of business on March 8, 20027, 2003 are entitled to notice of and to vote at this Annual Meeting or any adjournment thereof.
Even if you plan to attend the meeting in person, we request that you mark, date, sign and return your proxy in the enclosed self-addressed envelope as soon as possible so that your shares may be certain of being represented and voted at the meeting. Any proxy given by a stockholder may be revoked by that stockholder at any time prior to the voting of the proxy.
By Order of the Board of Directors,
Douglas I. Payne
Secretary
By Order of the Board of Directors |
Douglas I. Payne Secretary |
March 18, 2002
Stanley Furniture Company, Inc.
1641 Fairystone Park Highway
Stanleytown, Virginia 24168
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
April 24, 2002
16, 2003
The enclosed proxy is solicited by and on behalf of the Board of Directors of Stanley Furniture Company, Inc. (the "Company"“Company”) for use at the Annual Meeting of Stockholders to be held on Wednesday, April 24, 2002,16, 2003, at 11:00 A.M., at the Company'sCompany’s corporate headquarters, 1641 Fairystone Park Highway, Stanleytown, Virginia, and any adjournment thereof. The matters to be considered and acted upon at such meeting are described in the foregoing notice of the meeting and this proxy statement. This proxy statement and the related form of proxy are being mailed on or about March 18, 200214, 2003 to all holders of record of the Company'sCompany’s common stock, $.02 par value (the "Common Stock"“Common Stock”) on March 8,
2002.7, 2003. Shares of the Common Stock represented in person or by proxy will be voted as hereinafter described or as otherwise specified by the stockholder. Any proxy given by a stockholder may be revoked by such stockholder at any time prior to the voting of the proxy by delivering a written notice to the Secretary of the Company, by executing and delivering a later-dated proxy or by attending the meeting and voting in person.
The cost of preparing, assembling and mailing the proxy, this proxy statement, and other material enclosed, and all clerical and other expenses of solicitations will be borne by the Company. In addition to the solicitation of proxies by use of the mails, directors, officers and employees of the Company may solicit proxies by telephone, telegram or personal interview. The Company also will request brokerage houses and other custodians, nominees and fiduciaries to forward soliciting material to the beneficial owners of Common Stock held of record by such parties and will reimburse such parties for their expenses in forwarding soliciting material.
VOTING RIGHTS
On March 8, 2002,7, 2003, there were 6,710,4256,551,403 shares of Common Stock outstanding and entitled to vote.
ELECTION OF DIRECTORS
The Board of Directors of the Company presently consists of sixseven directors who are divided into three classes with staggered terms. The term of Messrs. Robert G. Culp, IIIAlbert L. Prillaman and T. Scott McIlhenny, Jr.David V. Harkins expires at the time of the 20022003 Annual Meeting of Stockholders. The Company proposes the reelection of Messrs. Culp and McIlhennyMr. Prillaman for a three-year term expiring at the time of the 20052006 Annual Meeting. Mr. Harkins has decided not to seek reelection to the Board of Directors. The Company proposes the election of Michael P. Haley for a three-year term expiring at the time of the 2006 Annual Meeting to fill the seat being vacated by Mr. Harkins.
The shares represented by proxies will be voted as specified by the stockholder. If the stockholder does not specify his choice, the shares will be voted in favor of the election of the nominees listed on the proxy card, except that in the event such nominees should not continue to be available for election, such proxies will be voted for the election of such other persons as the Board of Directors may recommend. As of the date of this proxy statement, the Board of Directors has no reason to believe that the nominees named below will be unable or unwilling to serve.
Nominees for Election for Three-Year Term Ending 2005
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2006
Albert L. Prillaman, 57, has been a Director of the Company since March 1986. Mr. Prillaman has been Chairman of the Board of Directors since September 1988. He also served as Chief Executive Officer of the Company from December 1985 until December 2002 and President from December 1985 until April 2001. Prior thereto, Mr. Prillaman had served as a Vice President of the Company and President of the Stanley Furniture division of the Company’s predecessor since 1983, and in various executive and other capacities with the Stanley Furniture division of the predecessors of the Company since 1969. Mr. Prillaman is a director of Culp, Inc.
Michael P. Haley, 52, has been nominated by the Board for his first term as a Director of the Company. Mr. Haley has been the President and Chief Executive Officer of MW Manufacturers, Inc., a producer and distributor of window and door products for the residential construction industry, since June 2001. From May 1994 to May 2001, Mr. Haley was President of American of Martinsville, a manufacturer of commercial contract furniture and a subsidiary of LADD Furniture, Inc. During this time, he also served as Executive Vice President of LADD Furniture, Inc.
Directors Whose Terms Do Not Expire this Year
Robert G. Culp, III 55,, 56, has been a Director of the Company since July 1999.1999 and his present term will expire in 2005. Mr. Culp has been Chief Executive Officer and Chairman of the Board of Culp, Inc., a marketer of upholstery fabrics for furniture and mattress ticking for bedding, since 1990.
T. Scott McIlhenny, Jr., 54,55, has been a Director of the Company since April 1997.1997 and his present term will expire in 2005. Mr. McIlhenny has been Chief Operating Officer of Northstar Travel Media LLC, the former travel publishing division of Cahners Publishing Company, since September 2001. Mr. McIlhenny was Group Vice President of Cahners Travel Group, a publisher of materials for the hospitality and travel industries and a division of Cahners Publishing Company ("Cahners"(“Cahners”, a subsidiary of Reed Elsevier, Inc.), from December 1999 until September 2001. From January 1999 to December 1999, Mr. McIlhenny was managing principal of Red Rock Terrace Investment Partners; a position which he also held from 1995 to October 1996. From October 1996 to January 1999, he was Executive Vice President of The Village Companies of Chapel Hill, Inc., a media and communications company. From 1988 to 1995, Mr. McIlhenny served in various capacities with Cahners, including Group Vice President and General Manager for Cahners Business Newspapers. From 1981 to 1988, Mr. McIlhenny served in various capacities with Communications/Today, LTD. (acquired by Cahners in 1988), the publisher ofFurniture/Today, including Senior Vice President, Group Publisher.
Directors Whose Terms Do Not Expire this Year
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David V. Harkins, 61, has been a Director of the Company since
September 1988 and his present term will expire in 2003. Mr. Harkins is
President of Thomas H. Lee Partners, L.P. Mr. Harkins has been associated with
the Thomas H. Lee Company, a sole proprietorship engaged in acquiring or making
controlling investments in established operating companies, since 1975. Mr.
Harkins is a director and Chairman of the Board of National Dentex Corporation
and also a director of Conseco, Inc., Cott Corporation, Fisher Scientific
International Inc., Metris Companies Inc. and Syratech Corporation.
Albert L. Prillaman, 56, has been a Director of the Company since March
1986 and his present term will expire in 2003. Mr. Prillaman has been Chief
Executive Officer of the Company since December 1985 and Chairman of the Board
of Directors since September 1988. He also served as President from December
1985 until April 2001. Prior thereto, Mr. Prillaman had served as a Vice
President of the Company and President of the Stanley Furniture division of the
Company's predecessor since 1983, and in various executive and other capacities
with the Stanley Furniture division of the predecessors of the Company since
1969. Mr. Prillaman is a director of American Woodmark Corporation.
Edward J. Mack, 86, has been a Director of the Company since January
1989 and his present term will expire in 2004. From 1948 to 1981, Mr. Mack
served in various capacities with Burlington Industries, Inc., including
director and Executive Vice President with responsibility for Burlington's
furniture operations. He has been an independent consultant, primarily with
Burlington Industries, Inc., and President of Global Business Services, LTD, an
international trading company, for more than five years.
Thomas L. Millner 48,, 49, has been a Director of the Company since April 1998 and his present term will expire in 2004. Mr. Millner has been Chief Executive Officer and President of Remington Arms Company, Inc. ("Remington"(“Remington”), a manufacturer of sporting good products for the hunting, shooting sports and fishing markets, since April 1999 and a director of Remington and RACI Holding, Inc., Remington'sRemington’s parent, since June 1994. From May 1994 to April 1999, Mr. Millner served as President and Chief Operating Officer of Remington. From 1987 to May 1994, Mr. Millner served as Chief Executive Officer and President of The Pilliod Cabinet Company. From 1984 to 1987, Mr. Millner served as General Manager of the Armstrong Furniture Division of Thomasville Furniture Industries. From 1977 to 1984, Mr. Millner served in various sales and sales management positions with Thomasville Furniture Industries and Broyhill Furniture Industries.
Jeffrey R. Scheffer, 47, has been a Director of the Company since December 2002 and his present term will expire in 2004. Mr. Scheffer has been Chief Executive Officer since December 2002 and has been President since April 2001. He also served as Chief Operating Officer from April 2001 to December 2002. Prior to his employment with the Company, Mr. Scheffer served as President of American Drew, a furniture manufacturer, for five years.
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Directors Retiring From the Board of Directors at the 2003 Annual Meeting
Edward J. Mack, 87, has been a Director of the Company since January 1989 and his present term will expire in 2004. Mr. Mack will retire from the Board at the time of the 2003 Annual Meeting. From 1948 to 1981, Mr. Mack served in various capacities with Burlington Industries, Inc., including director and Executive Vice President with responsibility for Burlington’s furniture operations. He has been an independent consultant, primarily with Burlington Industries, Inc., and President of Global Business Services, LTD, an international trading company, for more than five years.
David V. Harkins, 62, has been a Director of the Company since September 1988 and his present term will expire at the time of the 2003 Annual Meeting. Mr. Harkins will not seek re-election to the Board at that time. Mr. Harkins is President of Thomas H. Lee Partners, L.P. Mr. Harkins has been associated with the Thomas H. Lee Company, a sole proprietorship engaged in acquiring or making controlling investments in established operating companies, since 1975. Mr. Harkins is a director and Chairman of the Board of National Dentex Corporation and also a director of Conseco, Inc., Cott Corporation, Fisher Scientific International Inc., Metris Companies Inc. and Syratech Corporation.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Company has an Audit Committee, presently consisting of Messrs. Culp, Harkins, Mack, McIlhenny and Millner. The primary purpose of the Audit Committee is to assist the Board in fulfilling its responsibilities to oversee management'smanagement’s conduct of the Company'sCompany’s financial reporting process. The Audit Committee also serves as direct liaison with the Company'sCompany’s independent public accountants and recommendsis responsible for the selection or discharge of such accountants. The Audit Committee met three times in 2001.
2002.
The Company has a Compensation Committee, presently consisting of Messrs. Culp, Harkins, Mack, McIlhenny and Millner, which makes recommendations concerning salaries and incentive compensation for officers and employees of the Company. The Compensation Committee administers the Company'sCompany’s 1992 and 1994 Stock Option Plans and has authority to grant options under such plans to officers and key employees and to determine the terms of such options in accordance with such plans. The Compensation Committee also administers the Company'sCompany’s 2000 Incentive Compensation Plan and has authority to select employees to receive incentive awards and to determine for each employee the nature of the incentive award and the terms and conditions of each incentive award. The Board of Directors has the same responsibilities with regard to incentive awards for non-employee directors. The Compensation Committee met twicefour times during 2001.
2002.
The Company has a Nominating Committee, presently consisting of Messrs. Culp, Harkins, Mack, McIlhenny and Millner, which makes recommendations of nominations for directors. The Nominating Committee was established in 2001 and
met in January 2002 to make recommendations with respect to the 2002 Annual
Meeting.
twice during 2002.
The full Board of Directors met four times during 2001.2002. Each incumbent director attended at least 75% of the total 20012002 board meetings and committee meetings held during periods that he was a member of the Board or such committees, except for Mr. Millner.
committees.
Messrs. Culp, Harkins, Mack, McIlhenny and Millner each received compensation in the amount of $20,000 for serving as a director in 2001. Mr.2002. Messrs. Prillaman and Scheffer did not receive any separate compensation for serving in that capacity. During 2001,2002, each director, other than Mr.Messrs. Prillaman and Scheffer, also received options under the 2000 Incentive Compensation Plan to acquire 1,000 shares. The Board has established a policy of providing an annual grant of an option to acquire 1,000 shares to non-employee directors to be granted as of the date of the annual meeting of stockholders.
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NOMINATIONS FOR DIRECTOR
The Company'sCompany’s Bylaws provide that a stockholder entitled to vote in the election of directors may nominate one or more persons for election as a director only if advance written notice is given. Written notice of such stockholder'sstockholder’s intent to make such nomination must be received by the Secretary of the Company or deposited in the U.S. mail, postage prepaid, to the Secretary of the Company not later than 120 days in advance of the anniversary date of the Company'sCompany’s proxy statement for the previous year'syear’s Annual Meeting. Any stockholder wishing to nominate one or more persons as director must submit the following information in writing: (i) the name and address of the stockholder who intends to make the nomination; (ii) a representation that the stockholder is entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which any nomination is to be made by the stockholder; (iv) such other information regarding each nominee as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated by the Board of Directors; and (v) the consent of each proposed nominee to serve as a director of the Company if so elected. The Chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.
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By requiring advance notice of stockholder nominations, this Bylaw affords the Board of Directors the opportunity to consider the qualifications of the proposed nominees and, to the extent deemed necessary or desirable by the Board, to inform stockholders about such qualifications. The Bylaw does not give the Board of Directors any power to approve or disapprove a stockholder'sstockholder’s nomination for election of directors. However, it may have the effect of precluding a contest for the election if its procedures are not followed, and therefore may discourage or deter a stockholder from conducting a solicitation of proxies to elect such stockholder'sstockholder’s own slate of directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities Exchange Act of 1934 requires the Company'sCompany’s executive officers and directors, and any persons owning more than 10% of the Common Stock, to file certain reports of ownership and changes in ownership with the Securities and Exchange Commission. Based solely on its review of the copies of the Forms 3, 4 and 5 received by it, and written representations from certain reporting persons that no Forms 5 were required to be filed by those persons, the Company believes that all executive officers, directors and 10% stockholders complied with such filing requirements.
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COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
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The following table sets forth, for the years ended December 31, 2002, 2001 2000 and 1999,2000, the annual and long-term compensation for services in all capacities to the Company of those persons who at December 31, 2001 wereof: (i) the Company'sCompany’s Chief Executive Officer andas of December 31, 2002; (ii) the next four most highly compensated executive officers other than the Chief Executive Officer as of December 31, 2002; and (iii) an individual for whom disclosures would have been required under (ii) above, but for the fact that he was not serving as an executive officer of the Company for the year endedas of December 31, 20012002 (collectively, the "Named“Named Executive Officers"Officers”).
SUMMARY COMPENSATION TABLE
Annual Compensation | Long-Term Compensation | ||||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Other Annual Compensation | Securities Underlying Options (#) | All Other Compensation (1) | |||||||||||
ALBERT L. PRILLAMAN Chairman (2) | 2002 2001 2000 | $ | 399,996 399,996 399,996 | $ | 199,129 — 334,899 | $ | 4,661 3,978 3,395 | — 200,000 100,000 | $ | 27,316 42,796 32,166 | |||||||
JEFFREY R. SCHEFFER President and | 2002 2001 | $ | 300,000 220,770 | $ | 134,412 87,342 | (3) | — — | — 100,000 | $ | 2,980 — | |||||||
DOUGLAS I. PAYNE Executive Vice President – Finance and Administration and Secretary | 2002 2001 2000 | $ | 210,000 210,000 198,000 | $ | 83,634 — 132,285 | $ | 108 94 82 | — 50,000 50,000 | $ | 5,119 5,100 5,100 | |||||||
WILLIAM A. SIBBICK, JR. Senior Vice President – Product Manager (4) | 2002 2001 2000 | $ | 180,000 180,000 173,004 | $ | 67,206 — 108,842 | $ | 275 239 301 | — 25,000 30,000 | $ | 4,449 5,100 5,100 | |||||||
KELLY S. CAIN Senior Vice President – Product Manager | 2002 2001 2000 | $ | 168,000 168,000 168,000 | $ | 62,726 — 105,493 | $ | 199 173 150 | — 10,000 20,000 | $ | 4,149 5,100 5,100 | |||||||
ROBERT J. SMITH Senior Vice President – Operations | 2002 2001 2000 | $ | 150,000 125,004 114,996 | $ | 49,782 — 43,956 | — — — | — 25,000 20,000 | $ | 3,705 5,008 3,949 | ||||||||
| (1) | All Other Compensation listed for Mr. Prillaman reflects life insurance premiums paid by the Company ($21,316 in 2002, $37,696 in 2001 |
| (2) | Mr. Scheffer became President and Chief Operating |
| (3) | Bonus paid in lieu of bonus entitled to from former employer. |
| (4) | Mr. Sibbick served as Senior Vice President |
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Option Value Table
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The following table sets forth information concerning the year-end number and value of unexercised options for each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN 20012002 AND 20012002 YEAR-END OPTION VALUES
Name | Shares Acquired on Exercise (#) | Value Realized ($) | Number of Unexercised Options at Fiscal Year End (#) | Value of Unexercised In-the- Money Options At Fiscal Year End ($) (1) | ||||||||||
Exercisable | Unexercisable | Exercisable | Unexercisable | |||||||||||
Albert L. Prillaman | — | — | 140,000 | 160,000 | $ | — | $ | — | ||||||
Jeffrey R. Scheffer | — | — | 40,000 | 60,000 |
| — |
| — | ||||||
Douglas I. Payne | 11,750 | 261,263 | 122,250 | 50,000 |
| 1,273,563 |
| — | ||||||
William A. Sibbick, Jr. | 7,500 | 204,100 | 66,506 | 27,000 |
| 718,360 |
| — | ||||||
Kelly S. Cain | — | — | 38,400 | 14,000 |
| 412,863 |
| — | ||||||
Robert J. Smith | 10,000 | 227,800 | 26,000 | 23,000 |
| 75,500 |
| — | ||||||
| (1) | In-the-money options are those for which the December 31, 2002 fair market value of |
Employment Agreements
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Mr. Prillaman has an employment agreement with the Company that provides that he has the duties of Chief Executive Officer and Chairman of the Board of Directors of the Company at a base salary which was initially $275,000of $400,000 per year, subject to annual upward adjustment by the Board.year. Effective for 2003, Mr. Prillaman is alsonot entitled under his employment agreement to receive a graduated bonus amount up to a maximum of 80% of his then
current base salary, contingent upon the achievement of certain threshold profit
objectives to be determined by the Board at the beginning of each year.bonus. The agreement is automatically extended for an additional one yearone-year term at the end of each year unless either party to the agreement gives notice on or before November 1 of any year that the agreement will not be extended. In the event of such notice, employment terminates as of December 31 of the year in which such notice is given. If the Company gives such notice, Mr. Prillaman is entitled to severance pay during the two years following termination in an amount equal to his base salary plus the average of bonuses paid for the three fiscal years preceding the year in which employment is terminated. Mr. Prillaman is entitled to receive the total severance pay in a single payment in the event a change in control (as defined in the agreement) occurs. During the two years after such a change of control, Mr. Prillaman is entitled to terminate his employment with the Company and receive such severance pay in a single payment. The agreement provides that Mr. Prillaman will not compete 5
In connection with the employment agreement with Mr. Prillaman, the Company has entered into a split-dollar life insurance agreement under which the Company has agreed to pay premiums with respect to a life insurance policy for Mr. Prillaman until the cash surrender value of the policy and all paid up additions are sufficient to repay the Company all premiums and other amounts paid by it and to maintain the policy'spolicy’s death benefit at a level no less than the policy'spolicy’s initial face amount without further premium payments. At such time, Mr. Prillaman is obligated to repay such premiums to the Company. Mr. Prillaman has executed a collateral assignment of his policy in favor of the Company to secure repayment to the Company of the premiums paid on such policy. The initial face amount of the policy for Mr. Prillaman is $1 million. During the year ended December 31, 2001,2002, the Company paid $21,316 in premiums for the policy of Mr. Prillaman.
The Company has also entered into employment agreements with the following executives: Jeffrey R. Scheffer, Douglas I. Payne, William A. Sibbick, Jr. and John W. Johnson.Kelly S. Cain. Each of these employment agreements is on similar terms as those discussed above with respect to Mr. Prillaman, with the following exceptions: Mr. Scheffer serves as President and Chief OperatingExecutive Officer, his base salary is
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at least $300,000,$350,000, and he is entitled to receive a potential annual bonus of $270,000,$350,000, subject to upward adjustment, he received a one time grant of
an option to acquire 100,000 shares of Common Stock vesting at 20% per year
beginning on April 25, 2001, and he received a bonus payment of $87,342 in lieu
of bonus he was entitled to from his former employer;adjustment; Mr. Payne serves as Executive Vice President -– Finance and Administration and Secretary of the Company, his base salary is at least $136,000, and he is entitled to receive a potential annual bonus of $50,000, subject to upward adjustment; Mr. Sibbick serves as Senior Vice President - Sales,– Product Manager, his base salary is at least $165,000, and he is entitled to receive a potential annual bonus of $124,000, subject to upward adjustment; Mr. Johnson servedCain serves as Senior Vice President - Manufacturing
until December 31, 2001,– Product Manager, his base salary wasis at least $165,000,$160,000, and he wasis entitled to receive a potential annual bonus of $124,000,$120,000, subject to upward adjustment. In addition, during the first year after a change of control (as defined in the agreement), Messrs. Scheffer, Sibbick and SibbickCain are entitled to terminate their employment with the Company and receive severance pay for a period of one year (two years for Mr. Scheffer) only if: (i) their base salary is reduced, (ii) they are not in good faith considered for an annual bonus, (iii) they are denied certain customary fringe benefits, (iv) their place of employment is relocated further than 100 miles from their current place of employment, or (v) their duties and responsibilities are substantially reduced.
Defined Benefit Pension Plans
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The Company maintains a qualified defined benefit pension plan for all its eligible employees, The Stanley Retirement Plan, and also maintains a nonqualified, unfunded supplemental retirement plan for certain of its employees. Effective on December 31, 1995, future benefit accruals under both plans were curtailed. Although participants continue their participation in both plans, additional benefits do not accrue. The accrued monthly benefit under The Stanley Retirement Plan, assuming retirement at age 65, for the following Named Executive Officers through December 31, 1995, was: Albert L. Prillaman, $5,244; Robert J. Smith, $1,145; Douglas I. Payne, $993; Kelly S. Cain, $692; and William A. Sibbick, Jr., $515 and John W. Johnson,
$2,864.$515. The accrued monthly benefit under the Supplemental Retirement Plan, assuming retirement at age 65, for the following Named Executive Officers through December 31, 1995, was: Albert L. Prillaman, $8,838; Douglas I. Payne, $591; Robert J. Smith, $530; Kelly S. Cain, $322; and William A. Sibbick, Jr., $0 and John W. Johnson, $1,422.$0. Mr. Scheffer has no accrued benefits under either of these plans.
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has furnished the following report on executive compensation:
Executive Compensation Philosophy
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Under the supervision of the Committee, the Company has developed and implemented executive compensation policies, plans, and programs that seek to enhance the profitability and value of the Company. The primary objective is to align closely the financial interests of the Company'sCompany’s executives with those of its stockholders. The Committee believes that equity ownership by management is beneficial in conforming management and stockholder interests in the enhancement of stockholder value.
The Committee'sCommittee’s philosophy is to integrate management pay with the achievement of both annual and long-term financial performance goals. The compensation package for each officer is designed to recognize individual initiative and achievement. In establishing compensation, the Committee incorporates a number of factors to promote both long and short-term performance of the Company. These factors include earnings, market share growth, cost control efforts, balance sheet strength and organizational developments. The compensation for individual executives is based on both corporate and individual goals, with varying weight being given to such factors for particular executives.
The Committee establishes compensation for the Named Executive Officers and periodically uses executive compensation surveys prepared by outside compensation consultants. The surveys are used for general comparability purposes and a new survey was not used for setting 20012002 compensation. The Committee did not make compensation comparisons with the companies that are used for the performance graph that follows this report. In establishing compensation for the Named Executive Officers for years in which no survey is prepared including 2001,2002, the chief executive officer assists the Committee in reevaluating the compensation of each Named Executive Officer in conjunction with the
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previous comparability analysis and the performance of the Company and individual since the most recent survey.
The Committee believes that the Company'sCompany’s overall executive compensation package should enable the Company to obtain and retain the services of top executives. The Company operates with a small team of top executives who are given significant and extensive responsibilities. These executives'executives’ duties encompass both overall strategic policy of the Company and direct day-to-day activity in sales, customer communications, product development, marketing, manufacturing and other similar activities. The compensation package is intended to reflect these broad responsibilities.
The annual compensation currently paid by the Company is not subject to certain Internal Revenue Code provisions that may limit the income tax deductibility to the Company of certain forms of compensation paid to its Named Executive Officers in excess of $1 million per year. These provisions allow full deductibility of certain types of performance-based compensation, including stock-based compensation. The Company'sCompany’s 2000 Stock Incentive Plan and prior plans meet these requirements. If these limitations should become of broader applicability to the Company, the Committee will consider modifications to the Company'sCompany’s compensation practices, to the extent practicable, to provide the maximum deductibility for compensation payments.
The Company'sCompany’s compensation package for its executive officers consists of base salary, annual performance-based incentive compensation, stock option grants, retirement benefits and, for certain executive officers, other benefits.
Total Compensation
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For 2001,2002, the Committee determined that total compensation (base salary and annual incentives) of Named Executive Officers generally should not be significantly increased. The Committee had recentlypreviously determined that total compensation generally should be targeted at the 75th percentile of selected peer group companies on a trailing basis, that is compensation is compared to the latest peer group
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other high performingcomparable organizations and to enable the Company to attract, reward and retain exceptional talent. The opportunity to receive compensation at approximately the 75/th/7575/th/
75thpercentile in years when bonus targets are not met.
Base Salary
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The Committee sets base salary at the minimum level deemed sufficient to attract and retain qualified executives. By restricting the role of base salary in the compensation package, more of an executive'sexecutive’s potential compensation can be offered in the form of incentives that encourage and reward performance. The base salaries of individual executives are set in light of the responsibilities of the position held and the experience of the individual, with a recognition of the Company'sCompany’s requirements for the top executives to perform many varied tasks.
The Committee reevaluated the base salaries of the Named Executive Officers for 2001,2002, and received the recommendations of the chief executive officer. The Committee approved increases ingenerally maintained compensation of the Named Executive Officers at an average of less than 2% of their 2000 base salary,2001 levels to reflect industry conditions and the Company'sCompany’s performance, however, the Committee increased Mr. Smith’s compensation to reflect his performance and in some cases, revisedhis increased responsibilities ofwith the Named Executive Officers. Mr. Scheffer's base salary for
2001 was negotiated by Mr. Scheffer and the Company, with approval by the
Committee, in connection with Mr. Scheffer's employment agreement entered into
in April 2001, discussed above under the heading "Employment Agreements."
Company.
Annual Incentives
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The Company'sCompany’s annual incentive compensation program, the 2002 Executive Incentive Compensation Plan (the "Incentive Plan"“Incentive Plan”), is for corporate officers and key employees who can directly influence the Company'sCompany’s financial results. Awards under the Incentive Plan are based on the achievement of corporate objectives that are established annually in conjunction with adoption of the Company'sCompany’s budget for the next year. At
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that time, the Committee sets corporate objectives for the coming year. In September 2002, the Committee revised the Incentive Plan to adjust the corporate objectives downward to reflect continuing soft industry conditions. For 2001,2002, the performance measure was the Company'sCompany’s earnings before interest and taxes ("EBIT"(“EBIT”). No bonus would be paid if an EBIT threshold was not met and the bonus would be increased for performance above the threshold up to a maximum award on a per employee basis.
The amount of the maximum awards under the Incentive Plan is recommended by management of the Company subject to approval by the Committee. For each of the Named Executive Officers, the Committee may approve an award as a set percentage of either the executive'sexecutive’s base salary or a fixed amount. For
2001,The incentives were paid at 50% of the maximum incentivesfor 2002 based on the targets for the executives ranged from 75% to 100% of base
salary depending on position. For 2001, no bonuses were paid to the Named
Executive Officers under theCompany’s EBIT performance. The Incentive Plan as reflectedawards are shown on the Summary Compensation Table under the Bonus“Bonus” column.
Long-Term Incentives
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The Company believes that equity-based compensation ensures that the Company'sCompany’s officers have a continuing stake in the long-term success of the Company. The Company maintains the Stanley Furniture Company, Inc. 2000 Incentive Compensation Plan (the "2000 Plan"“2000 Plan”), the Stanley Furniture Company, Inc. 1994 Stock Option Plan, and the Stanley Furniture Company, Inc. 1992 Stock Option Plan (collectively the "Option Plans"“Option Plans”) to provide employees with options to acquire Common Stock.
The Committee made option grants to officers and key employees under the 2000 Plan. The option grants to Named Executive Officers are shown on the Summary Compensation Table under the Long-Term Compensation column. All options under the Option Plans must be granted at an option exercise price of 100% of the stock'sstock’s fair market value on the date of grant. 8
Other Compensation
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The Company also has a Supplemental Retirement Plan covering designated employees and former employees of the Company, including some executive officers. See "Compensation“Compensation of Executive Officers -– Defined Benefit Pension Plans."
”
Chief Executive Officer Compensation
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In December 2002, Mr. Scheffer was elected by the Company’s Board of Directors to replace Mr. Prillaman as chief executive officer. Mr. Prillaman will continue to serve as Chairman of the Company’s Board of Directors.
Mr. Prillaman has an employment agreement with the Company that is described under "Compensation“Compensation of Executive Officers-Employment Agreements."” Mr. Prillaman'sPrillaman’s total potential 20002001 cash compensation was significantly lower than the 75th percentile target of peer group companies established by the Committee. However, Mr. Prillaman requested that his base salary not be increased for 20012002 and the Committee agreed.
A major portion of Mr. Prillaman'sPrillaman’s compensation is contingent on the Company'sCompany’s performance. In 2001,2002, Mr. Prillaman participated in the Incentive Plan with the same corporate objectives as other corporate officers. The Committee set Mr. Prillaman'sPrillaman’s potential bonus for 20012002 at 100% of his base salary to increase his total potential annual cash compensation (which is in excess of the 80% bonus target guaranteed in his employment agreement). The Committee believes that this bonus level was appropriate because Mr. Prillaman'sPrillaman’s leadership continues to be a key component in the Company'sCompany’s performance. For 2001,2002, Mr. Prillaman received a bonus of 50% of the maximum allowable bonus. The Committee did not receive a bonus.
The Company has purchased a term life insurance policy on Mr.
Prillaman's life, to be owned by a trust established by Mr. Prillaman, with a
face value of $3,000,000. The Company will payaward any related taxes incurred by Mr.
Prillaman with respect to payment of policy premiums. A Company loan provided in
2000options to Mr. Prillaman toin 2002.
To facilitate the exercise of stock options remained
outstanding in 2001.
As part2000, a Company loan was provided to Mr. Prillaman, which was secured by the acquired shares of Company Common Stock. In April 2002, the Committee
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agreed to the early repayment of the option grantsCompany loan and agreed to key executives during 2001,release 100,000 shares of the Committee granted330,420 shares of Company Common Stock pledged as security for the Company loan, of which Mr. Prillaman an award of optionssold 70,700 shares on 200,000 shares under the 2000 Plan. This award reflects the Committee's desire to motivate executives
through stock ownership and thatopen market in May 2002. In May 2002, Mr. Prillaman had received only one grant of
options in the last six years. Also, in 2000, Mr. Prillaman had exercised all of
his then outstanding stock options to increase his stock holdings inrepaid the Company andloan by surrendering 85,914 shares of Company Common Stock to the 2001 grant was appropriateCompany. The remaining 144,506 shares pledged in lightconnection with the Company loan were released upon payment of his current option holdings.
the Company loan.
Mr. Prillaman participates in the Supplemental Retirement Plan. In addition, the Company has entered into a split-dollar life insurance agreement with Mr. Prillaman. See "Compensation“Compensation of Executive Officers -– Employment Agreements."
”
Mr. Scheffer has an employment agreement with the Company that is described under “Compensation of Executive Officers-Employment Agreements.” Mr. Scheffer’s total potential cash compensation reflected his duties as president and chief operating officer for the majority of 2002. The Committee has increased his compensation and bonus potential for 2003 to reflect his new responsibilities as chief executive officer.
As with Mr. Prillaman’s compensation, a major portion of Mr. Scheffer’s compensation is contingent on the Company’s performance. In 2002, Mr. Scheffer participated in the Incentive Plan with the same corporate objectives as other corporate officers. The Committee set Mr. Scheffer’s potential bonus for 2002 at 90% of his base salary to increase his total potential annual cash compensation. For 2003, the Committee has increased Mr. Scheffer’s potential bonus for 2003 at 100% of his base salary. The Committee believes that Mr. Scheffer’s bonus level was appropriate because Mr. Scheffer’s leadership is a key component in the Company’s performance. For 2002, Mr. Scheffer received a bonus of 50% of the maximum allowable bonus. The Committee did not award any options to Mr. Scheffer in 2002. Also see “Compensation of Executive Officers – Employment Agreements.”
The members of the Compensation Committee are:
David V. Harkins
Robert G. Culp, III
T. Scott McIlhenny, Jr.
Edward J. Mack
Thomas L. Millner
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PERFORMANCE GRAPH
The following graph compares cumulative total stockholder return for the Company with a broad performance indicator, the Nasdaq Non-Financial Stock Index, and an industry index, the Wood Household Furniture Index, for the period from December 31, 19961997 to December 31, 2001.
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Comparison of Cumulative Total Return (1)
Stanley Furniture Company, Inc.,2002.
| (1) | The graph shows the cumulative total return on $100 invested at the market close on December 31, 1997, the last trading day in 1997, in Common Stock or the specified index, including reinvestment of dividends. |
| (2) | SIC Code 2511 Wood Household Furniture Index as prepared by Media General Financial Services, Inc. (“Media General”). At February 12, 2003, Media General reported that the Wood Household Furniture Index consisted of: Bassett Furniture Industries, Inc., Bush Industries, Inc. (Class A Common Stock), Chromcraft Revington, Inc., DMI Furniture, Inc., Ethan Allen Interiors Inc., Furniture Brands International, Inc., Keller Manufacturing and Stanley Furniture Company, Inc. |
| (3) | Nasdaq Non-Financial Stock Index 11 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In April 2000, the Compensation Committee approved a loan in the amount of $2,584,983 to Mr. Prillaman for the exercise of outstanding stock options. The loan In April 2002, the Board approved the early repayment of the loan, and the loan was repaid in full by Mr. Prillaman as of May 6, 2002. Mr. Prillaman repaid the loan by surrender of 85,914 shares of Common Stock to the Company. Shares of Common Stock surrendered to repay the loan were valued at the lesser of (i) the closing price of the Common Stock on the trading day before their surrender or (ii) the average of the closing prices of the Common Stock for the 20 trading days immediately before their surrender. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information with respect to the beneficial ownership of the
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INDEPENDENT PUBLIC ACCOUNTANTS The firm of PricewaterhouseCoopers LLP served as independent public accountants for the Company for Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting. Such representatives will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions. 13 Audit Fees The aggregate fees of PricewaterhouseCoopers LLP for professional services rendered for the audit of the Financial Information Systems Design and Implementation Fees PricewaterhouseCoopers LLP did not receive any fees for services rendered to the Company during All Other Fees The fees of PricewaterhouseCoopers LLP for all other services rendered to the Company during Audit Committee Report The primary purpose of the Audit Committee is to assist the Board in fulfilling its responsibility to oversee In this context, the Committee has met and held discussions with management and the independent accountants. Management represented to the Committee that the The Committee discussed with the independent accountants matters required to be discussed by Statement on Auditing Standards No. 61 (Communications with Audit Committees). In addition, the Committee has discussed with the independent accountants the In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements be included in the The members of the Audit Committee are: Thomas L. Millner, Chairman Robert G. Culp, III David V. Harkins Edward J. Mack T. Scott McIlhenny, Jr. 14 Audit Committee Independence The Board of Directors and the Audit Committee believe that the Audit OTHER BUSINESS Management knows of no other business which will be presented for consideration at the Annual Meeting, but should any other matters be brought before the meeting, it is intended that the persons named in the accompanying proxy will vote such proxy at their discretion. ADDITIONAL INFORMATION Voting Procedures Votes will be tabulated by one or more Inspectors of Elections. Except for the election of directors, approval of other matters properly brought before the meeting will require the affirmative vote of the holders of at least a majority of the shares of outstanding Common Stock represented at the meeting. If a stockholder, present in person or by proxy, abstains on any matter, the A majority of the shares entitled to vote, represented in person or by proxy, will constitute a quorum for the transaction of business at the meeting. Shares for which the holder has elected to abstain or to withhold the Stockholder Proposals for Any stockholder desiring to present a proposal to the stockholders at the
March 14, 2003 15 Appendix A Stanley Furniture Company, Inc. Audit Committee Charter (As amended) The primary purpose of the Audit Committee (the “Committee”) is to assist the Board of Directors The Committee shall be composed of at least three directors, each of whom shall have no relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment. In addition, the members of the Committee shall satisfy the applicable requirements for audit committee membership imposed by the NASDAQ National Market and any applicable eligibility requirements of the Securities and Exchange Commission. The Board shall interpret these requirements and determine the qualifications of Committee members in its business judgment. Subject to Board approval, the Committee shall adopt, and at least annually review and reassess, an audit committee charter meeting the requirements from time to time of the NASDAQ National Market. The Committee shall provide the NASDAQ National Market periodically with such appropriate written confirmation concerning these matters as the NASDAQ National Market may from time to time require. The independent auditors shall report directly to the Committee, as the Board’s representative, on all matters pertaining to their engagement. The Committee shall encourage open communication among the Committee, independent auditors and management regarding matters within the Committee’s responsibilities. At every meeting of the Committee where the independent auditors are present, the independent auditors shall have the opportunity for at least a portion of such meeting to meet with the members of the Committee without members of management present. The Committee’s job is one of oversight and it recognizes that the Company’s management is responsible for preparing the Company’s financial statements and that the independent auditors are responsible for auditing those financial statements. Additionally, the Committee recognizes that financial management, as well as the independent auditors, have more time, knowledge and more detailed information on the Company than do Committee members; consequently, in carrying out its oversight responsibilities, the Committee is not providing any expert or special assurance as to the Company’s financial statements or any professional certification as to the independent auditor’s work. The following functions shall be the common recurring activities of the Committee in carrying out its oversight function. These functions are set forth as a guide with the understanding that the Committee may diverge from this guide as appropriate given the circumstances.
A-1
A-2 Stanley Furniture Company, Inc. REVOCABLE PROXY Annual Meeting of THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Douglas I. Payne and David W. Robertson and either of them, proxies of the undersigned, with full power of substitution, to vote all the shares of Common Stock of Stanley Furniture Company, Inc. (the
INSTRUCTIONS: To withhold authority to vote for any individual nominee, write such
All as more particularly described in the (Continued and to be dated and signed on reverse (continued from reverse side) THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED BY THE UNDERSIGNED STOCKHOLDER. IF NO CHOICE IS SPECIFIED BY THE STOCKHOLDER, THIS PROXY WILL BE VOTED The undersigned hereby revokes any proxy or proxies heretofore given to vote upon or act with respect to such stock and hereby ratifies and confirms all that said proxies, their substitutes or any of them may lawfully do by virtue hereof. Please date this Proxy Card and sign your name exactly as it appears hereon. Where there is more than one owner, each should sign. When signing as an attorney, administrator, executor, guardian or trustee, please add your title as such. If executed by a corporation, this Proxy Card should be signed by a duly authorized officer. If executed by a partnership, please sign in partnership name by authorized persons. Dated:, 2003 Please promptly mark, date, sign, and mail this Proxy Card in the enclosed envelope. No postage is required. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||