Stanley Furniture Company DEF 14A 2005
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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Check the appropriate box:
Stanley Furniture Company, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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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 26, 2005
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Stanley Furniture Company, Inc. (the Company) will be held at the Companys corporate headquarters, 1641 Fairystone Park Highway, Stanleytown, Virginia, on Tuesday, April 26, 2005, at 11:00 A.M., for the following purposes:
The stockholders of record of the Companys common stock at the close of business on March 17, 2005 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.
March 24, 2005
Stanley Furniture Company, Inc.
1641 Fairystone Park Highway
Stanleytown, Virginia 24168
ANNUAL MEETING OF STOCKHOLDERS
April 26, 2005
The enclosed proxy is solicited by and on behalf of the Board of Directors of Stanley Furniture Company, Inc. (the Company) for use at the Annual Meeting of Stockholders to be held on Tuesday, April 26, 2005, at 11:00 A.M., at the Companys 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 24, 2005 to all holders of record of the Companys common stock, $.02 par value (the Common Stock) on March 17, 2005. 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, executing and delivering a later-dated proxy or 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.
On March 17, 2005, there were 6,525,530 shares of Common Stock outstanding and entitled to vote.
ELECTION OF DIRECTORS
The Board of Directors of the Company presently consists of six directors who are divided into three classes with staggered terms. The term of Messrs. Robert G. Culp, III and T. Scott McIlhenny, Jr. expires at the time of the 2005 Annual Meeting of Stockholders. The Company proposes the reelection of Messrs. Culp and McIlhenny for a three-year term expiring at the time of the 2008 Annual Meeting.
The shares represented by proxies will be voted as specified by the stockholder. If the stockholder does not specify his choice, the shares will be voted in favor of the election of the 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 2008
Robert G. Culp, III, 58, has been a Director of the Company since July 1999. 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., 57, has been a Director of the Company since April 1997. 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), from December 1999 until September 2001. Mr. McIlhennys previous experience included serving in various capacities with Communications/Today, LTD. (acquired by Cahners in 1988), the publisher of Furniture/Today, including Senior Vice President, Group Publisher.
Directors Whose Terms Do Not Expire this Year
Michael P. Haley, 54, has been a Director of the Company since April 2003 and his present term will expire in 2006. Mr. Haley has been Chairman of MW Manufacturers, Inc., a producer and distributor of window and door products for the residential construction industry, since January 2005. Mr. Haley had previously held the position of President and Chief Executive Officer since joining MW in 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. From 1988 to 1994, Mr. Haley was President of Loewenstein Furniture Group. Mr. Haley is also a director of Province Healthcare Company and American National Bankshares, Inc.
Albert L. Prillaman, 59, has been a Director of the Company since March 1986 and his present term will expire in 2006. 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 Companys predecessor since 1983, and in various executive and other capacities with the Stanley Furniture division of the predecessors of the Company since 1969. Mr. Prillamans son, R. Glenn Prillaman, is the Companys Senior Vice President Marketing & Sales, Young America.
Thomas L. Millner, 51, has been a Director of the Company since April 1998 and his present term will expire in 2007. Mr. Millner has been Chief Executive Officer and President of Remington Arms Company, Inc. (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., Remingtons 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, 49, has been a Director of the Company since December 2002 and his present term will expire in 2007. 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.
BOARD AND BOARD COMMITTEE INFORMATION
The Board of Directors has determined that all directors are independent directors as that term is defined in the listing standards of The NASDAQ Stock Market, with the exception of Messrs. Prillaman and Scheffer, who are both employees of the Company.
The Board welcomes communications from stockholders and has adopted a procedure for receiving and addressing them. Stockholders may send written communications to the entire Board or to individual directors, addressing them to Corporate Secretary, Stanley Furniture Company, 1641 Fairystone Park Highway, Stanleytown, Virginia 24168.
The full Board of Directors met seven times during 2004. Each incumbent director attended at least 75% of the total 2004 board meetings and committee meetings held during periods that he was a member of the Board or such committees. The Board of Directors has adopted a policy that all directors should attend the Annual Meeting of Stockholders. All current directors other than Mr. Haley attended the 2004 Annual Meeting of Stockholders.
The Board of Directors currently has three standing committees: an Audit Committee, a Compensation Committee and a Corporate Governance and Nominating Committee. Each of these committees has a written charter, copies of which can be found at the Companys website at www.stanleyfurniture.com.
Messrs. Culp, Haley, McIlhenny and Millner each received compensation in the amount of $25,000 for serving as a director in 2004. Messrs. Prillaman and Scheffer did not receive any separate compensation for serving in that capacity. During 2004, each director, other than 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.
The Audit Committee presently consists of Messrs. Millner, Culp, Haley and McIlhenny. The Board has determined that all of the members of the Audit Committee meet the current independence and experience requirements contained in the listing standards of The NASDAQ Stock Market. The Board has also determined that Messrs. Millner, Culp and Haley are audit committee financial experts as that term is defined in regulations promulgated by the Securities and Exchange Commission. The primary purpose of the Audit Committee is to assist the Board in fulfilling its responsibilities to oversee managements conduct of the Companys financial reporting process. The Audit Committee also serves as direct liaison with the Companys independent public accountants and is responsible for the selection or discharge of such accountants. The Audit Committee met six times in 2004.
The Compensation Committee, presently consisting of Messrs. McIlhenny, Culp, Haley and Millner, makes recommendations concerning salaries and incentive compensation for officers and employees of the Company. All of the members of the Compensation Committee are independent directors as that term is defined in the listing standards of The NASDAQ Stock Market. The Compensation Committee administers the Companys 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 Companys 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 three times during 2004.
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee, presently consisting of Messrs. Haley, Culp, McIlhenny and Millner, makes recommendations of nominations for directors, considers any stockholder nominations for director made in accordance with the Companys Bylaws and is responsible for recommending corporate governance policies. All of the members of the Corporate Governance and Nominating Committee are independent directors as that term is defined in the listing standards of The NASDAQ Stock Market. The Corporate Governance and Nominating Committee met three times during 2004.
NOMINATIONS FOR DIRECTOR
The Companys 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 stockholders 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 Companys proxy statement for the previous years Annual Meeting. Any stockholder wishing to nominate one or more persons as director must submit the following information in writing: (i) the name and address of the stockholder who intends to make the nomination; (ii) a representation that the stockholder is entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which any nomination is to be made by the stockholder; (iv) such other information regarding each nominee as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated by the Board of Directors; and (v) the consent of each proposed nominee to serve as a director of the Company if so elected. The Chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.
By requiring advance notice of stockholder nominations, this Bylaw affords the Corporate Governance and Nominating Committee and 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 stockholders 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 stockholders own slate of directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities Exchange Act of 1934 requires the Companys 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.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth, for the years ended December 31, 2004, 2003 and 2002, the annual and long-term compensation for services in all capacities to the Company of those persons who at December 31, 2004 were the Companys Chief Executive Officer and the next four most highly compensated executive officers of the Company (collectively, the Named Executive Officers).
SUMMARY COMPENSATION TABLE
Option Value Table
The following table sets forth information concerning the year-end number and value of unexercised options for each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN 2004 AND 2004 YEAR-END OPTION VALUES
Mr. Prillaman has an employment agreement with the Company that provides that he has the duties of Chairman of the Board of Directors of the Company at a base salary of $400,000 per year. Mr. Prillaman is not entitled under his employment agreement to receive a bonus and, with his consent, received $300,000 as base salary in 2004. The agreement is automatically extended for an additional one-year term at the end of each year unless either party to the agreement gives notice on or before November 1 of any year that the agreement will not be extended. In the event of such notice, employment terminates as of December 31 of the year in which such notice is given. If the Company gives such notice, Mr. Prillaman is entitled to severance pay during the two years following termination in an amount equal to his base salary plus the average of bonuses paid for the three fiscal years preceding the year in which 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 with the Company for two years after termination of the employment agreement, except that this non-competition covenant does not apply if: (i) Mr. Prillaman terminates his employment within two years after a change of control or (ii) Mr. Prillaman voluntarily terminates his employment and the Company does not elect to pay severance to Mr. Prillaman.
The Company has also entered into employment agreements with Jeffrey R. Scheffer, Douglas I. Payne and Philip D. Haney. 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 Executive Officer, his base salary is at least $350,000, and he is entitled to receive a potential annual bonus of $350,000, subject to upward 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. Haney serves as Executive Vice President of Marketing and Sales, his base salary is at least $225,000, subject to upward adjustment, and he was entitled to receive a bonus of $100,000 for 2002 and thereafter is entitled to receive a potential annual bonus of $150,000. In addition, during the first year after a change of control (as defined in the agreement), Messrs. Scheffer and Haney 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
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, Douglas I. Payne, $993, and Robert A. Sitler, Jr., $230. 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 and Douglas I. Payne, $591. Messrs. Scheffer and Haney have no accrued benefits under either of these plans and Mr. Sitler has no accrued benefits under the Supplemental Retirement Plan.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has furnished the following report on executive compensation:
Executive Compensation Philosophy
Under the supervision of the Committee, the Company has developed and continues to implement executive compensation policies, plans, and programs that seek to enhance the profitability and value of the Company. A primary objective of these policies, plans and programs is to align closely the financial interests of the Companys executives with those of its stockholders.
The Committee establishes compensation for the Companys executive officers. The Committee believes that the Companys overall executive compensation package should enable the Company to obtain and retain the services of highly skilled executives. The Company operates with a small team of executives who are given significant and extensive responsibilities. These executives duties encompass 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 Committees philosophy is to integrate significant portions of management pay with the achievement of annual and, in some cases, long-term financial performance goals. The compensation package for each officer is designed to recognize individual initiative and achievement. In establishing cash incentive compensation, the Committee may incorporate a number of factors to promote performance of the Company. In recent years, the Committee has focused the incentive programs on the Companys annual earnings before interest and taxes and has used this performance measure for all executives. In earlier years, performance factors have included market share growth, cost control efforts, balance sheet strength, and organizational developments. The incentive compensation for individual executives may be based on both corporate and individual goals, with varying weight being given to such factors for particular executives.
The Committee believes that equity ownership by top management is beneficial in conforming management and stockholder interests in the enhancement of stockholder value. The Committee also recognizes the effect on stockholders of equity grants and has recently focused equity grants on the top two officers of the Company and has used performance stock grants which are less dilutive than stock options to deliver the same value to an executive.
In establishing compensation for the Named Executive Officers for 2004, the Chairman of the Board of Directors assisted the Committee with recommendations on the compensation of each Named Executive Officer other than the Chairman. The Committee also looked at general information on compensation levels for companies in its industry and other companies, including some but not all of the companies that are used for the performance graph that follows this report. The Committee evaluated the performance of the Company and the individual executives.
The Internal Revenue Code 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 some stock-based compensation. Because the Companys awards under the 2000 Incentive Compensation Plan and prior stock plans are intended to meet these requirements, compensation has not been subject to these deductibility limits. If these limitations should become of broader applicability to the Company, the Committee will consider modifications to the Companys compensation practices, to the extent practicable, to provide appropriate deductibility for compensation payments.
The Companys compensation package for its executive officers consists of base salary, annual performance-based incentive compensation, equity grants in Company stock, retirement benefits and, for certain executive officers, a limited number of perks and other benefits. Each of these components is addressed below.
For 2004, the Committee determined that total compensation (base salary and annual incentives) of Named Executive Officers should be increased to reflect the performance of the Company and the individuals and improving industry conditions. The general compensation level established by the Committee is intended to be competitive with comparable organizations and to enable the Company to attract, reward and retain exceptional talent.
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 executives 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 positions held and the experience of the individuals, with recognition of the Companys requirements for the top executives to perform many varied tasks.
The Committee reevaluated the base salaries of the Named Executive Officers for 2004, and received the recommendations of the Chairman of the Board of Directors, Mr. Prillaman. The base salaries of the Named Executive Officers for 2004 are shown on the Summary Compensation Table. The Committee increased the compensation of the Named Executive Officers as shown under Compensation of Executive Officers-Summary Compensation Table to reflect the Companys and individuals performance and improving industry conditions. Mr. Prillamans base salary was decreased at his request in view of his reduced responsibilities as a result of no longer serving as chief executive officer.
The Companys annual incentive compensation program, the 2004 Executive Incentive Plan (the Incentive Plan), was for corporate officers and key employees who could directly influence the Companys 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 Companys budget for the next year. At that time, the Committee sets corporate objectives for the coming year for purposes of the Incentive Plan. For 2004, the performance measure chosen by the Committee at the recommendation of management was the Companys earnings before interest and taxes (EBIT). This same performance measure had been used for the 2003 Executive Incentive Plan. No bonus would be paid if the EBIT threshold was not met and the bonus would be larger for performance above the threshold up to a maximum award on a per employee basis.
The amount of the maximum awards under the 2004 Executive Incentive Plan was set by the Committee, taking into consideration recommendations by management of the Company. For each of the Named Executive Officers, the Committee approved an award as a set percentage of the executives base salary. Collectively, the maximum awards represented over 40% of the Named Executive Officers total cash compensation. Based on the Companys performance in 2004 substantially exceeding the Companys EBIT performance target set for the maximum awards, the Committee determined that an additional amount should be paid on the annual awards for 2004 in excess of the initially approved maximum awards. Mr. Prillaman did not participate in the 2004 Executive Incentive Plan in view of his reduced responsibilities as a result of no longer serving as chief executive officer.
The Company believes that equity-based compensation ensures that the Companys top 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), the Stanley Furniture Company, Inc. 1994 Stock Option Plan, and the Stanley Furniture Company, Inc. 1992 Stock Option Plan (collectively the Option Plans) to provide employees with opportunities to acquire Common Stock.
In January 2004, the Committee made a performance stock award of shares of Common Stock to Messrs. Scheffer and Payne. Under the award, a maximum of 3,000 shares could be issued to
Mr. Scheffer and 2,000 shares to Mr. Payne if the Companys earnings per share before nonrecurring items of restructuring and unusual charges in 2004 met the required level. The earnings per share met the target for 2004. In making the awards, the Committee reserved the discretion to limit the amount of Common Stock payable to Messrs. Scheffer and Payne under these awards in its sole discretion. Considering the Companys performance in 2004 and voluntary stock acquisitions by Messrs. Scheffer and Payne, the Committee determined to allow payment of the full Common Stock awards to both officers. The performance stock awards to Messrs. Scheffer and Payne also included a tax gross up intended to allow them to retain the full number of shares without having to sell a portion to pay income taxes. No other officers or other employees were given performance stock grants or other stock-based awards for 2004.
The Company has a Supplemental Retirement Plan covering designated employees and former employees of the Company, including some executive officers. See Compensation of Executive Officers Defined Benefit Pension Plans. The Company has a limited number of perks for executive officers that do not require disclosure on the Summary Compensation Table above. These perks principally are car allowances and reimbursement for estate and tax planning expenses. The executives also participate in the same employee benefit programs offered to other employees.
Chief Executive Officer Compensation
Mr. Scheffer has an employment agreement with the Company that is described under Compensation of Executive Officers-Employment Agreements. Mr. Scheffers total potential 2004 cash compensation was set at a level that the Committee believes reflects his efforts for the Company and the Companys performance. Mr. Scheffers base salary for 2004 was increased by less than six percent. The Committee believes that this increase was justified based on its evaluation of the competitive market.
A major portion of Mr. Scheffers compensation is contingent on the Companys performance. In 2004, Mr. Scheffer participated in the 2004 Executive Incentive Plan with the same corporate objectives as other corporate officers. The Committee set Mr. Scheffers potential bonus for 2004 at 100% of his base salary as provided in his employment agreement which put 50% of his total potential cash compensation at risk. The Committee believes that this bonus level was appropriate because Mr. Scheffers leadership continues to be a key component in the Companys performance. As discussed above, based on Company performance for 2004, the Committee determined that Mr. Scheffers bonus should be increased to 120% of his base salary and that amount was paid. In January 2004, the Committee made a performance stock award to Mr. Scheffer described above. Also see Compensation of Executive Officers Employment Agreements.
For compensation decisions which were made on or prior to April 14, 2004 which were establishing base salary for 2004, the terms of the 2004 Executive Incentive Plan and the performance share awards, the members of the Compensation Committee included Mr. T. Scott McIlhenny, Jr., Mr. Michael P. Haley and Mr. Thomas L. Millner but did not include Mr. Robert G. Culp, III. Mr. Culp became a member of the Committee on April 14, 2004 and compensation decisions after that date included the decision on increased 2004 bonuses and the final amount of the performance stock award. Messrs. McIlhenny, Haley and Millner were members of the Compensation Committee during the entire period covered by this report.
The members of the Compensation Committee are:
T. Scott McIlhenny, Jr.
Robert G. Culp, III
Michael P. Haley
Thomas L. Millner
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, 1999 to December 31, 2004.
ADOPTION OF AMENDMENT TO RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE AUTHORIZED COMMON STOCK
The Companys Board of Directors has unanimously approved, and recommends to stockholders that they approve, an amendment to Article FOURTH of the Companys restated certificate of incorporation to increase the number of authorized shares of common stock, par value $.02 per share, from 10,000,000 to 25,000,000. The Board of Directors believes that the proposed amendment to the restated certificate of incorporation is in the best interests of the Company and its stockholders. The text of the first paragraph of Article FOURTH, as it is proposed to be amended, is as follows:
FOURTH: The total number of shares of all classes of capital stock which this Corporation is authorized to issue is 26,000,000 shares which are divided into two classes as follows:
Current Use of Shares
As of March 17, 2005, there were:
Based upon the above figures, of the 10,000,000 shares of Common Stock currently authorized, approximately 2,756,868 shares of Common Stock remain available for other corporate purposes.
Purpose and Effect of the Proposed Amendment
The Board of Directors believes the increase in the number of authorized shares of Common Stock is desirable to provide the Company with the flexibility to issue shares for general corporate purposes, including stock splits effected as stock dividends. With its current authorized Common Stock, the Company could not effect a two-for-one stock split. In the event the proposed amendment is approved, the Board of Directors anticipates it will declare a two-for-one stock split effected as a 100% stock dividend absent material changes in market or economic conditions. The additional authorized shares would also be available for other purposes including, without limitation,
No additional action or authorization by stockholders would be necessary prior to the issuance of such additional shares, unless required by applicable law or the rules of any stock exchange or national securities association trading system on which the Common Stock is then listed or quoted. Examples of circumstances in which further stockholder authorization generally would be required for issuance of such additional shares include:
Other than the stock dividend discussed above, the Company has no current plans, proposals or arrangements to engage in any corporate transactions that would require the issuance of the additional shares being authorized pursuant to this proposal.
The additional authorized shares would become part of the existing class of Common Stock, and the amendment would not affect the terms of the outstanding Common Stock or the rights of the holders of the Common Stock. The Company stockholders do not have preemptive rights with respect to the Common Stock. Should the Board of Directors elect to issue additional shares of Common Stock, existing stockholders would not have any preferential rights to purchase such shares. Therefore, additional issuances of Common Stock could have a dilutive effect on the earnings per share, voting power and share holdings of current stockholders.
The Company is not introducing this proposal with the intent that it be utilized as a type of anti-takeover device. However, this action could, under certain circumstances, have an anti-takeover effect. For example, in the event of a hostile attempt to acquire control of the Company, we could seek to impede the attempt by issuing shares of Common Stock, which would effectively dilute the voting power of the other outstanding shares and increase the potential cost to acquire control of the Company. Further, we could issue additional shares in a manner that would impede the efforts of stockholders to elect directors other than those nominated by the then-current Board of Directors. These potential effects of the proposed increase in the number of authorized shares could limit the opportunity for the Company stockholders to dispose of their shares at the higher price generally available in takeover attempts or to elect directors of their choice.
The Company is not aware of any attempt to take control of the Company and is not presenting this proposal with the intent that it be utilized as a type of anti-takeover device. The proposal is being made at this time to provide the Company with greater flexibility to issue shares for general corporate purposes, including the stock dividend as discussed above.
The affirmative vote of a majority of the outstanding shares of Common Stock is required to adopt the proposed amendment to the Companys restated certificate of incorporation.
The Board unanimously recommends a vote FOR approval of this proposed amendment.
AMENDMENT REAPPROVING PERFORMANCE CRITERIA IN
STANLEY FURNITURE COMPANY, INC.
2000 INCENTIVE COMPENSATION PLAN
In order to maximize the Companys ability to deduct compensation paid to its most senior officers, IRS rules require that stockholders approve performance criteria for certain compensation programs (Performance Criteria). Once stockholders approve a set of Performance Criteria, the Company may use them for five years.
Stockholders last approved the current performance criteria in the 2000 Incentive Compensation Plan (2000 Plan) in 2000, so the Performance Criteria is being submitted for stockholders approval again this year. The Performance Criteria is the same under which the Company has operated for the last five years. The list includes various measures that the Company has used or may use to judge performance, both for short-term and long-term incentive programs. The continued use of stockholder-approved Performance Criteria will allow the Company to maximize corporate tax deductions and continue to focus on pay for performance.
If stockholders approve, the amendment will be effective on August 24, 2005. The 2000 Plan would continue to operate with the reapproved Performance Criteria for any future awards. The amendment would not extend the life of the 2000 Plan or affect any other aspect of the 2000 Plan.
Proposed Performance Criteria
If the amendment is approved, Performance Criteria would continue to mean any of the following areas of performance of the Company:
earnings before interest and taxes; cash flow; cost reduction (or limits on cost increases); debt to capitalization; debt to equity; earnings; earnings before interest, taxes, depreciation and amortization; earnings per share (including or excluding nonrecurring items); earnings per share before extraordinary items; income from operations (including or excluding nonrecurring items); income from operations to capital spending; free cash flow; net income (including or excluding nonrecurring items and/or extraordinary items); net sales; price per share of Company Stock; return on assets; return on capital employed; return on equity; return on investment; return on sales; sales volume; or total return to stockholders.
Any Performance Criteria may be used to measure the performance of the Company as a whole or any business unit of the Company. As determined by the Compensation Committee, any Performance Criteria will be calculated in accordance with the Companys public financial statements, generally accepted accounting principles, or under a methodology established by the Compensation Committee prior to the issuance of a Performance Grant which is consistently applied. The Compensation Committee will have the power and complete discretion to determine the methodology for the calculation of Performance Criteria.
The Board unanimously recommends a vote FOR amending the plan to reapprove the performance criteria.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of the Companys Common Stock as of March 17, 2005, by each stockholder known by the Company to be the beneficial owner of more than 5% of its outstanding Common Stock, by each director and director nominee, by each of the Named Executive Officers and by all directors and executive officers as a group:
INDEPENDENT PUBLIC AUDITORS
The firm of PricewaterhouseCoopers LLP served as independent public auditors for the Company for 2004 and has served in that capacity since 1979. While the Company expects PricewaterhouseCoopers LLP to be selected as its independent public auditors for 2005, the Audit Committee will not make that selection until it completes its review of the engagement terms for the current year.
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.
The following table sets forth the fees, including reimbursement of expenses, paid to PricewaterhouseCoopers LLP for services in the fiscal years ended December 31, 2003 and December 31, 2004.
Annual audit fees relate to professional services rendered for the audit of the Companys annual financial statements and reviews of the Companys Forms 10-Q.
Audit-related fees in 2003 and 2004 related to professional services for benefit plan audits and advisory services related to Section 404 of the Sarbanes-Oxley Act of 2002.
Tax fees in 2003 related to professional services rendered in connection with tax compliance services and tax consulting services, including tax return preparation, tax planning and customs and duties assistance. The fees paid in 2003 for tax compliance services were $21,788 and the fees paid in 2003 for tax consulting services were $78,205. All tax fees in 2004 related to professional services rendered in connection with tax compliance, including tax return preparation.
All Other Fees
Fees for professional services rendered in 2003 and 2004, other than for the services described above, were for actuarial and consulting applicable to retirement and post-retirement benefit plans. The Company ceased using PricewaterhouseCoopers LLP for these services in May 2004.
The Audit Committee has determined that the provision of services other than audit services resulting in these fees was compatible with maintaining PricewaterhouseCoopers LLPs independence.
The Audit Committee has established a policy to pre-approve all audit, audit-related, tax and other services proposed to be provided by the Companys independent accountants before engaging the accountants for that purpose. Consideration and approval of these services generally occur at the Audit Committees regularly scheduled meetings. In order to address situations where it is impractical to wait until the next scheduled meeting, the Audit Committee has delegated the authority to approve non-audit services to the Chairman of the Audit Committee or, in his absence, other members of the Audit Committee. Any services approved pursuant to this delegation of authority are required to be reported to the full Audit Committee at the next regularly scheduled meeting.
AUDIT COMMITTEE REPORT
The primary purpose of the Audit Committee is to assist the Board in fulfilling its responsibility to oversee managements conduct of the Companys financial reporting process. Management is responsible for preparing the Companys financial statements and the independent accountants are responsible for performing an independent audit of the Companys financial statements in accordance with generally accepted auditing standards and for issuing a report thereon. The Committee is directly responsible for the appointment, compensation and oversight of the work of the Companys independent accountants. During 2004, the Board of Directors approved changes, recommended by the Committee, to the Audit Committee Charter. The Audit Committee Charter, as amended, is attached to this proxy statement as Appendix A.
In this context, the Committee has met and held discussions with management and the independent accountants. Management represented to the Committee that the Companys financial statements were prepared in accordance with generally accepted accounting principles, and the Committee has reviewed and discussed the financial statements with management and the independent accountants.
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 accountants independence from the Company and its management, including the matters in the written disclosures required by the Independence Standard Boards Standard No. 1 (Independence Discussions with Audit Committees). The Committee has also considered whether the provision of non-audit services by the independent accountants is compatible with maintaining the independent accountants independence.
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 Companys Annual Report on Form 10-K for the year ended December 31, 2004, for filing with the Securities and Exchange Commission.
The members of the Audit Committee are:
Thomas L. Millner, Chairman
Robert G. Culp, III
Michael P. Haley
T. Scott McIlhenny, Jr.
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.
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 stockholders shares will not be voted on such matter. Thus an abstention from voting on a matter has the same legal effect as a vote against the matter, even though the stockholder may interpret such action differently. With respect to the election of directors, the two nominees in the class which term ends in 2008 receiving the greatest number of votes cast for the election of directors will be elected.
A majority of the shares entitled to vote, represented in person or by proxy, will constitute a quorum for the transaction of business at the meeting. Shares for which the holder has elected to abstain or to withhold the proxies authority to vote on a matter will count toward a quorum. Broker non-votes will not count toward a quorum and will not be voted on any matter to be considered at the meeting.
Stockholder Proposals for 2006 Annual Meeting
Any stockholder desiring to present a proposal to the stockholders at the 2006 Annual Meeting and who desires that such proposal be included in the Companys proxy statement and proxy card relating to that meeting, must transmit such to the Secretary of the Company so that it is received at the Companys principal executive offices on or before November 24, 2005. All such proposals should be in compliance with applicable Securities and Exchange Commission regulations. With respect to stockholder proposals that are not included in the proxy statement for the 2006 Annual Meeting, the persons named in the proxy solicited by the Companys Board of Directors for the 2006 Annual Meeting will be entitled to exercise the discretionary voting power conferred by such proxy under the circumstances specified in Rule 14a-4(c) under the Securities Exchange Act of 1934, as amended, including with respect to proposals received by the Company after February 7, 2006.
March 24, 2005
Stanley Furniture Company, Inc.
Audit Committee Charter
The primary purpose of the Audit Committee (the Committee) is to assist the Board of Directors (the Board) in fulfilling its responsibility to oversee managements conduct of the Companys accounting and financial reporting processes, the Companys systems of internal accounting and financial controls, the annual independent audit of the Companys financial statements, and the Companys compliance with legal and ethical requirements. The Committee reports to the full Board on all matters within the Committees responsibilities. The Committee is authorized to obtain advice and assistance as it believes necessary from corporate personnel and from external legal, accounting and other advisors and the Company shall provide funding, as determined by the Committee, for payment of compensation to the Companys independent auditors and to any advisors employed by the Committee and for the ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.
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 carrying out the responsibilities of a director. 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 SEC). Directors fees (including committee fees) and awards to directors under the Companys 2000 Incentive Compensation Plan are the only compensation members of the Committee may receive from the Company. 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 Boards 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 Committees 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, in its capacity as a committee of the Board, shall be directly responsible for the appointment, compensation, retention and oversight of the work of the firm of independent auditors employed to conduct the annual financial audit. The Committee will approve the compensation and fees paid to the independent auditors for audit and non-audit work. The Committee shall preapprove all auditing services and any non-audit services provided by the independent auditors, subject to such procedures and exceptions as may be adopted by the Committee. The Committee may obtain input from management with respect to the foregoing matters, but may not delegate its responsibilities for such matters to management. The Committee may delegate to one or more designated members of the Committee who are independent directors of the Board, the authority to grant preapprovals; provided, however, the decisions of any such member(s) to preapprove services shall be presented to the full Committee at each of its scheduled meetings.
The Committees job is one of oversight and it recognizes that the Companys management is responsible for preparing the Companys 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 Companys financial statements or any professional certification as to the independent auditors 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, except as otherwise provided by requirements of the NASDAQ National Market or the SEC, the Committee may diverge from this guide as appropriate given the circumstances.
Stanley Furniture Company, Inc.
Annual Meeting of Stockholders April 26, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Douglas I. Payne and David W. Robertson and either of them, proxies of the undersigned, with full power of substitution, to vote all the shares of Common Stock of Stanley Furniture Company, Inc. (the Company) held of record by the undersigned on March 17, 2005, at the Annual Meeting of Stockholders to be held April 26, 2005, and at any adjournment thereof.
(Continued and to be dated and signed on reverse side)
PROXY (Continued from reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED BY THE UNDERSIGNED STOCKHOLDER. IF NO CHOICE IS SPECIFIED BY THE STOCKHOLDER, THIS PROXY WILL BE VOTED FOR ALL PORTIONS OF ITEMS (1), (2) AND (3) AND IN THE PROXIES DISCRETION ON ANY OTHER MATTERS COMING BEFORE THE MEETING.
INSTRUCTIONS: To withhold authority to vote for any individual nominee, write such nominees name in the space provided below.
All as more particularly described in the Companys Proxy Statement for the Annual Meeting of Stockholders to be held on April 26, 2005, receipt of which is hereby acknowledged.
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 promptly mark, date, sign, and mail this Proxy Card in the enclosed envelope. No postage is required.
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.