-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vbw1JqoAOP/kCwy54/+1OJAcjC1nE38zbQThESgoKxs/yrKOfrojj6+Pk2oXIZVc A+Uz9NaHfbfpJls9jnWsQw== 0000950168-96-000523.txt : 19960329 0000950168-96-000523.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950168-96-000523 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LADD FURNITURE INC CENTRAL INDEX KEY: 0000721669 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD FURNITURE [2510] IRS NUMBER: 561311320 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-11577 FILM NUMBER: 96540091 BUSINESS ADDRESS: STREET 1: ONE PLZ CTR STREET 2: POST OFFICE BOX HP 3 CITY: HIGH POINT STATE: NC ZIP: 27261-1500 BUSINESS PHONE: 9198890333 10-K405 1 LADD FURNITURE, INC. 10-K405 #42628.1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [(check mark)] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 1995 COMMISSION FILE NUMBER 0-11577 LADD FURNITURE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) North Carolina 56-1311320 (STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) One Plaza Center, Box HP-3, High Point, North Carolina 27261-1500 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: 910-889-0333 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock -- $.30 par value (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (check mark) No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [(check mark)] Market value of 6,278,354 shares held by nonaffiliates as of March 5, 1996, was $75,340,248. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 7,724,259 shares outstanding as of March 5, 1996 DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement for the 1995 Annual Shareholders Meeting are incorporated by reference into Part III hereof. 1 PART I ITEM 1. BUSINESS GENERAL LADD Furniture, Inc., incorporated in 1981 under the laws of the State of North Carolina, is a leading residential furniture manufacturer which sells its products through diverse retail distribution channels as well as to the hospitality and health care industries. The Company produces a wide range of furniture designed to appeal to a spectrum of customers seeking quality, style, and value. The Company markets its furniture under various brand names, including American Drew, American of Martinsville, Barclay, Clayton Marcus, Lea, Pennsylvania House and Pilliod. Based upon industry data published in the trade publication FURNITURE/TODAY, LADD is currently the fifth largest U.S. manufacturer of residential furniture. Unless the context otherwise indicates, "LADD" and "Company" refer to LADD Furniture, Inc., its divisions, and consolidated subsidiaries. The executive offices of LADD are located in High Point, North Carolina. INDUSTRY SEGMENTS In accordance with the instructions for this item, LADD is deemed to have been engaged in only one business segment, manufacture and sale of furniture, for the three years ended December 30, 1995. SIGNIFICANT DEVELOPMENTS IN 1995 DIVESTITURE OF FOUR OPERATING UNITS -- In order to concentrate on its core residential casegoods (wood furniture), residential upholstery and contract sales businesses, the Company recently divested three non-strategic and/or nonperforming businesses: (i) Brown Jordan, a manufacturer of leisure and outdoor furniture, which was sold in December 1995 for $26.2 million, (ii) Lea Lumber & Plywood, a provider of wood materials, which was sold in December 1995 for $5 million, and (iii) Fournier Furniture, a manufacturer of ready-to-assemble furniture, which was sold in February 1996 for $12 million. The Company used the net cash proceeds from these sales to reduce debt. In addition, the Company has entered into a contract to sell Daystrom Furniture, a kitchen and dinette furniture manufacturer, for $4 million. The transaction is scheduled to close by the end of March 1996, subject to the purchaser finalizing financing. Should the sale transaction not close and another purchaser not be identified, the Company intends to liquidate the Daystrom business. Collectively, these four businesses, while representing approximately $110 million of sales in 1995 (approximately 18% of 1995 net sales), generated a loss before interest and income taxes of approximately $2.2 million in 1995. MANAGEMENT RESTRUCTURING -- In December 1995, the Company completed the second phase of its restructuring plan by realigning its senior management team effective January 1, 1996 into three groups consistent with its product and customer base -- casegoods, upholstery and contract sales. At the same time, Richard R. Allen, one of LADD's founders and Chairman and Chief Executive Officer, announced his retirement as Chief Executive Officer. Fred L. Schuermann, Jr., formerly President and Chief Operating Officer, assumed the duties of President and Chief Executive Officer, effective January 1, 1996. At the same time, Kenneth E. Church, president of the Company's Clayton-Marcus subsidiary, was appointed president of the LADD Upholstery Group; Donald L. Mitchell, formerly president of a competitor company, was hired to become the president of the LADD Casegoods Group; and Michael P. Haley continued in his role as president of LADD Contract Sales. William S. Creekmuir, LADD's Chief Financial Officer, was promoted to Executive Vice President and assumed responsibility for the Company's international, corporate marketing and transportation business. Following the management realignment, the Company intends to continue to market its products under individually distinct brand names, but to reduce its administrative overhead structure through better utilization of existing synergies among its operating companies. LADD'S BUSINESS GROUPS The Company has three primary operating groups: (i) residential casegoods, consisting primarily of bedroom, dining room and living room furniture, wall units and occasional tables, (ii) residential upholstery, consisting primarily of sofas, loveseats, recliners and chairs, and (iii) contract sales, consisting of casegoods and upholstery sold to the hospitality and health care industries, the U.S. government and educational institutions (collectively, contract sales). The Company distributes its casegoods and upholstery products directly and through approximately 300 independent sales representatives to more than 8,000 customers, including leading department stores, furniture retailers, mass merchandisers, catalog merchandisers, major hotel chains, and various specialty stores and retail companies. The Company also markets its furniture internationally to buyers in over 50 countries. 2 LADD'S CASEGOODS GROUP American Drew manufactures and sells medium priced wood residential furniture. The products include various types of bedroom furniture (beds, dressers, night stands, mirrors, armoires, and dressing tables), dining room furniture (tables, chairs, buffets, chinas, and serving pieces), and living room occasional pieces (desks, end tables, coffee tables, entertainment units, wall units, and secretaries). American Drew products are manufactured in three plants located in North Wilkesboro, NC and are sold primarily to major independent furniture retailers, department stores, and regional furniture chains. Lea Industries manufactures and sells wood furniture for the youth and adult bedroom markets. Lea Industries' products include beds, dressers, night stands, mirrors, desks, bookshelves, hutches, armoires, and correlated modular furniture in a variety of styles, including traditional, contemporary and colonial. The products are priced in the medium to low-medium price ranges and are considered high volume, promotional products to major furniture retailers. The products are marketed under the "Lea Industries," "Charter House," and "Design Horizons" brand names primarily to national and regional chains, independent furniture retailers, national general retailers and department stores. Lea Industries' products are manufactured in four plants located in Waynesville, NC, Marion, VA, and Morristown, TN. Pennsylvania House manufactures solid wood residential furniture in American traditional, country and transitional styles. The Pennsylvania House product line is priced in the upper-medium price range. Pennsylvania House created and introduced the in-store gallery concept to the furniture retailing industry in 1975, and currently has established galleries with approximately 230 independent furniture retailers in the U.S., Japan and Mexico. Pennsylvania House-Casegoods operates two manufacturing plants located in Lewisburg and White Deer, PA. Pilliod Furniture, acquired by LADD on January 31, 1994, manufactures and markets a wide range of promotionally priced contemporary and traditional wood residential furniture, including master bedroom products, occasional tables, entertainment centers, wall systems, and dining room chinas. Pilliod Furniture's products are marketed under the Pilliod and Symmetry brand names. The Company's products are sold throughout the United States through large volume customers, mainly large furniture chains and outlets. Pilliod Furniture operates three manufacturing facilities in Nichols, SC, Selma, AL, and Swanton, OH. LADD UPHOLSTERY GROUP Barclay Furniture manufactures and sells moderately priced upholstered residential furniture, including sofas, loveseats, chairs, sleepers, and motion furniture styled in contemporary and traditional patterns. The products are considered high volume, promotional items and are sold under the Barclay Furniture name and various private label names. Barclay sells its products primarily to retail furniture chains, department stores, membership clubs, rent-to-own stores, catalog retailers, and national general merchandisers. Barclay operates two manufacturing plants located in Sherman and Myrtle, MS. Clayton-Marcus manufactures and sells a full line of upholstered household furniture, including sofas, loveseats, chairs, sleepers, rockers, and other upholstered living room furniture, which sells in the medium and upper-medium price ranges. The products are marketed under the "Clayton-Marcus," "HickoryMark," "American of Martinsville," and "Clayton House," brand names primarily to retail furniture chains, independent furniture retailers and department stores. Clayton-Marcus currently has established galleries with approximately 150 independent furniture stores in the United States, Canada, and Mexico. Clayton-Marcus operates three manufacturing plants in Hickory, NC. Kenbridge Furniture, formed in 1995, manufactures and sells promotionally priced upholstered residential furniture, including sofas, loveseats, chairs in leather and leather/vinyl covers. The company's products are sold under the Kenbridge Furniture brandname throughout the United States through large volume customers, mainly large retail furniture chains. Kenbridge Furniture's products are manufactured in one facility in Mississippi. Pennsylvania House also manufactures a full line of upholstered residential furniture which sells in the upper-medium price range. Pennsylvania House-Upholstery operates one manufacturing plant located in Monroe, NC. LADD CONTRACT SALES American of Martinsville is a manufacturer of wood and upholstered commercial furniture which is marketed worldwide to the guest room (hotel/motel) industry through LADD Contract Sales Corporation. The Contract Sales Group also sells to the health care furniture market for retirement homes and extended care facilities, certain agencies of the U.S. government, and university and college markets. American of Martinsville operates two manufacturing plants located in Chilhowie and Martinsville, VA and utilizes other LADD manufacturing facilities to meet capacity constraints. 3 OTHER LADD Transportation, Inc. operates a modern fleet of over-the-road tractors and trailers that are used to provide transportation services to LADD operating companies to meet the special needs of LADD's customers. Together with fleets operated by other LADD operating companies, LADD Transportation provides approximately 19% of LADD's out-bound shipping requirements for finished products and also hauls a portion of the Company's in-bound raw materials and supplies. LADD Transportation has received certain contract carrier rights from the Interstate Commerce Commission and markets its transportation services to independent customers. MARKETING AND MAJOR CUSTOMERS The Company's operating entities generally market under their own trade names. The general marketing practice followed in the furniture industry and by the Company is to exhibit products at national and regional furniture markets. Internationally, the Company markets its products primarily through LADD International, a corporate marketing unit formed to coordinate the worldwide marketing efforts of LADD's operating companies. The Company also sells its furniture products directly and through approximately 300 independent sales representatives to a broad variety of customers, including department stores, furniture retailers, mass merchandisers, catalog merchandisers, major hotel chains, and various specialty stores and rental companies. The Company currently sells to more than 8,000 furniture customers. No single customer accounted for more than 5% of net sales in 1995. The Company's business is not dependent upon a single customer, the loss of which would have a material effect on the Company. PRODUCT DESIGN AND DEVELOPMENT Each operating entity develops and manages its own product lines. New product groups are introduced at the national or regional furniture markets, and, based upon their acceptance at the markets, the products are either placed into production or withdrawn from the market. Consistent with industry practice, the Company designs and develops new product groups each year, replacing collections or items that are discontinued. RAW MATERIALS The most important raw materials used by the Company are hardwood lumber, veneers, upholstery fabrics, leather, plywood, particle board, hardware, finishing materials, glass, steel, steel springs, and high pressure laminates. The wood species include cherry, oak, maple, white pine, poplar, and other American species, and imports such as rubberwood, guatambue and mahogany. The Company believes that its sources of supply for these materials are adequate and that it is not dependent on any one supplier. The Company's plants are heated by furnaces using gas, fuel oil, wood waste, and other scrap material as energy sources. The furnaces located at casegoods manufacturing plants have been adapted so that they use alternate energy sources, and the Company has been able to fuel these furnaces principally by wood wastes. The Company's plants use electrical energy purchased from local utilities. The Company has not experienced a shortage of energy sources and believes that adequate energy supplies will be available for the foreseeable future. PATENTS AND TRADE NAMES The trade names of the Company's divisions and subsidiaries represent many years of continued business, and the Company believes such names are well recognized and associated with quality in the industry. The Company owns intellectual properties which are considered to be important to the business and which do not have a limited duration. INVENTORY PRACTICES, ORDER BACKLOG AND CREDIT PRACTICES The Company generally schedules production of its various groups based upon orders on hand. Manufacturing efficiencies and investment in inventories are, therefore, directly related to the current volume of orders. The Company, and the industry generally, honors cancellation of orders made prior to shipment. The Company's backlog of unshipped orders believed to be firm at 1995 fiscal year end was approximately $83.1 million, as compared to $85.2 million at 1994 fiscal year end. Generally, orders in the backlog are shipped during the following 12 months. The Company's businesses as a whole are not subject to significant seasonal variations. The business of Brown Jordan, the Company's subsidiary sold in December 1995, however, was heavily seasonal with inventories being built in the winter months and sales concentrated in the March-June time frame. 4 COMPETITION The residential furniture market is highly competitive and includes a large number of manufacturers, none of which dominate the market. Industry estimates indicate that there are over 600 manufacturers of residential furniture in the United States. Competition within the market for wood, upholstered and metal furniture occurs principally in the areas of style or design, quality, price, and service. Some of these include manufacturers of furniture types not manufactured by the Company. In recent years, foreign imports of finished furniture and component parts have increased. Although some of the imported products compete with products manufactured and marketed by the Company, the Company's Daystrom Furniture operating division, which is being held for sale, and its Pilliod Furniture subsidiary are the only operations to have experienced any significant negative impact. Where appropriate, the Company has capitalized upon the cost advantages of importing selected component parts and a limited number of finished products but is not dependent upon any foreign sources. The Company in 1995 imported approximately $18.4 million of finished furniture and unfinished furniture parts. Following the above discussed divestitures, the Company anticipates its import business to decline by approximately 38%. Following the sale of its Brown Jordan and Fournier subsidiaries, the Company has no facilities located outside the continental United States. GOVERNMENTAL REGULATIONS The Company is subject to a wide-range of federal, state and local laws and regulations relating to protection of the environment, worker health and safety and the emission, discharge, storage, treatment and disposal of hazardous materials. These laws include the Clean Air Act of 1970, as amended, the Resource Conservation and Recovery Act, the Federal Water Pollution Control Act and the Comprehensive Environmental, Response, Compensation and Liability Act. Certain of the Company's operations use glues and coating materials that contain chemicals that are considered hazardous under various environmental laws. Accordingly, management closely monitors the Company's environmental performance at all of its facilities. Management believes that the Company is in substantial compliance with all environmental laws. Under the provisions of the Clean Air Act Amendments of 1990, in December 1995, the Environmental Protection Agency (the "EPA") promulgated air emission standards for the wood furniture industry. These regulations, known as National Emission Standards for Hazardous Air Pollutants ("NESHAPs"), govern the levels of emission of certain designated chemicals into the air and will require that the Company reduce emissions of certain volatile hazardous air pollutants ("VHAPs") by November 1997. Management is investigating and evaluating techniques to meet these standards at all facilities to which the NESHAPs standards will apply. While the Company may be required to make capital investments at some of its facilities to ensure compliance, the Company believes that it will meet all applicable requirements in a timely fashion and that the amount of money required to meet the NESHAP requirements will not materially affect its financial condition or its results of operations. See "Legal Proceedings" regarding the status of environmental proceedings in which the Company is involved. EMPLOYEES The Company employed approximately 6,600 persons as of March 1, 1996, of which approximately 300 are employed at the Daystrom Furniture operating division which is being held for sale. Substantially all of the employees were employed on a full-time basis. Employees at five Company plants are represented by various labor unions. The Company considers its relations with its employees to be good. The union contract at Daystrom Furniture's South Boston, VA facility expires in April 1996. EXPORT SALES In 1995, the Company's export sales decreased to $28.4 million (approximately 4.6% of 1995 net sales), a decrease of approximately 16.0% from export sales in 1994 of $33.8 million (approximately 5.7% of 1994 net sales). The Company's export sales in 1993 were $40.6 million, or approximately 7.8% of 1993 net sales. Excluding the operating companies sold or being held for sale, 1995 export sales would have been 3.7% of net sales. None of the Company's assets are dedicated solely to export sales. 5 ITEM 2. PROPERTIES The following table summarizes the real estate, both owned and leased, used in the primary business operations of the Company as of March 1, 1996. LADD FACILITIES
APPROX. OWNED LEASE FACILITY SIZE OR EXPIRATION OPERATING GROUP LOCATION USE (SQUARE FEET) LEASED DATE Casegoods...................... N. Wilkesboro, NC Manufacturing 335,300 Owned N. Wilkesboro, NC Manufacturing 398,500 Owned N. Wilkesboro, NC Manufacturing 122,500 Owned N. Wilkesboro, NC Warehouse/Office 109,500 Owned Morristown, TN Warehouse 108,000 Leased 10/31/97 Morristown, TN Manufacturing 285,380 Owned Morristown, TN Manufacturing/Office 139,200 Owned Waynesville, NC Manufacturing/Office 448,400 Owned Morristown, TN Distribution 160,000 Leased 04/01/99 Morristown, TN Distribution 97,500 Leased 10/31/96 Marion, VA Manufacturing 204,900 Owned Lewisburg, PA Manufacturing/Office/Dist. 676,800 Owned White Deer, PA Manufacturing 128,000 Owned Milton, PA Warehouse 120,000 Leased Mo. to Mo. Selma, AL Manufacturing 277,000 Owned Nichols, SC Manufacturing 344,000 Owned Swanton, OH Manufacturing 289,000 Owned Dillon, SC Warehouse 45,000 Leased Mo. to Mo. High Point, NC Office 11,100 Leased 04/30/98 Upholstery..................... Sherman, MS Manufacturing/Office 302,650 Owned Myrtle, MS Manufacturing 81,250 Owned Pontotoc, MS Warehouse 12,400 Leased 09/15/96 Hickory, NC Manufacturing/Office/Dist. 369,600 Owned Hickory, NC Manufacturing 121,800 Owned Hickory, NC Manufacturing 152,900 Owned Monroe, NC Manufacturing 258,000 Owned Contract Sales................. Chilhowie, VA Manufacturing/Office 493,625 Owned Martinsville, VA Manufacturing 801,885 Owned Martinsville, VA Office 50,000 Leased 05/31/02 Martinsville, VA Warehouse 135,000 Leased 09/30/98 Corporate...................... High Point, NC Office 38,000 Leased 08/31/97 Daystrom Furniture South Boston, VA Manufacturing/Office 463,980 Owned (held for sale).............. South Boston, VA Warehouse 33,520 Leased Mo. to Mo.
The Company believes that its manufacturing, warehouse and office space is well maintained for its intended purposes and adequately insured. Although the closure of any particular Company facility may be disruptive to that particular operating entity's business, it would not be materially adverse to the Company's operations. The Company normally operates all of its furniture manufacturing facilities on a one shift per day, five-day week basis. Increasingly, certain departments and facilities are operated on a multi-shift basis. The Company also currently maintains showrooms, the majority of which are leased, in High Point, NC, San Francisco, CA, Sherman and Tupelo, MS, Minneapolis, MN, Martinsville, VA, and Lewisburg, PA. The Company owns and leases substantial quantities of woodworking, sewing and metalworking equipment located in its various plants. The Company considers its present equipment to be adequate, well-maintained, generally modern, and adequately insured. The Company currently owns and leases approximately 130 tractors and 320 trailers. 6 ITEM 3. LEGAL PROCEEDINGS The Company is involved in routine litigation from time to time in the regular course of its business. In the opinion of the Company, there are no material legal proceedings pending or known to be contemplated to which the Company is a party or of which any of its property is subject. The Company presently is involved in the following environmental proceedings: 1. The California manufacturing facility of Brown Jordan Company ("Brown Jordan"), a former subsidiary of the Company, is located in El Monte, California in the San Gabriel Valley Groundwater Basin. The Basin has been designated by the United States Environmental Protection Agency ("EPA") and the State of California as a Superfund site. Although no administrative or judicial enforcement action has been taken by the EPA or applicable California authorities, the State of California is seeking to identify potentially responsible parties ("PRPs") and has ordered certain tests to be conducted by Brown Jordan in connection with their investigation. In May 1994, the Company joined the Northwest El Monte Community Task Force, a PRP Group formed to respond to the EPA. In March 1995, the Task Force and the EPA finalized an Administrative Consent Order pursuant to which the Task Force has begun a remedial investigation and feasibility study at an approximate cost of $1.3 million. Pursuant to an interim allocation agreement, Brown Jordan is responsible for 4.86% of all shared assets of the Task Force. 2. In September 1995, Brown Jordan received a request from the California Regional Water Quality Board with respect to further assessment of two areas at the El Monte facility, the Leach Pit Area and the Clarifier Area. Both of these areas have been the subject of significant previous investigations (undertaken 1988-1993) which had concluded that it was unlikely that Brown Jordan was contributing significantly to groundwater contamination in the area. The Board's investigation program is separate from the El Monte Superfund group, although both are concerned with whether Brown Jordan is a source of groundwater contamination. There is some basis at this time for believing that the Leach Pit and Clarifier Area problems are limited to soil contamination. Under the terms of the Asset Purchase Agreement with Maytag Corporation ("Maytag") dated June 1, 1989 ("the Maytag Agreement") under which the Company acquired Brown Jordan, the Company's liabilities in El Monte matters are limited to the first $200,000 of costs for off-site liabilities and $1,000,000 of costs for on-site liabilities. Pursuant to the terms of the Stock Purchase Agreement between the Company and BJCL, Inc. ("BJCL") dated as of November 7, 1995 under which BJCL acquired Brown Jordan from the Company, BJCL may assume up to $400,000 of certain post closing costs relating to Brown Jordan, including environmental costs relating to the El Monte site. Through fiscal 1995, approximately $300,000 had been expended by the Company on the El Monte site. Accordingly, if no other claims are made by BJCL under the Brown Jordan Agreement, the next $400,000 of costs associated with Brown Jordan environmental claims will be paid by BJCL. The Company has also been named as a PRP, along with numerous parties, at various hazardous waste sites undergoing cleanup or investigation for cleanup. The Company believes that at each of these sites, it has been improperly named or will be considered a "de minimis" party. Although the Company believes adequate accruals have been provided for environmental contingencies, it is possible, due to uncertainties previously noted, that additional accruals could be required in the future. However, the ultimate resolution of these contingencies, to the extent not previously provided for, should not have a material adverse effect on the Company's financial position. The Company is cooperating fully with government authorities in each of these matters. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No such matters were submitted to security holders of the Company in the fourth quarter of fiscal year 1995. 7 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS STOCK TRANSFER AGENT: Wachovia Bank & Trust Company, N.A. Winston-Salem, NC Shareholder Account Information: 1-800-635-4236 STOCK LISTING: The Company's common stock is traded on the Nasdaq Stock Market under the Nasdaq symbol: LADF. At year end 1995, the Company had approximately 5,000 shareholders based upon approximately 700 shareholders of record at that date and an estimate of the number of individual shareholders represented by broker and nominee position listings. MAJOR MARKET MAKERS: Dillon, Read & Co. Nash Weiss Herzog, Heine, Geduld Raymond, James & Associates Huntleigh Securities Corp. Robinson Humphrey Interstate/Johnson Lane Sherwood Securities Corp. Jefferies & Company Scott & Stringfellow Kirkpatrick, Pettis, Smith Southeast Research Partners Legg Mason Wood Walker Southwest Securities Mayer & Schweitzer Troster Singer Corp. Merrill Lynch Wheat First Butcher Singer
See Item 6, Selected Financial Data, for market and dividend information regarding the Company's Common Stock. 8 ITEM 6. SELECTED FINANCIAL DATA LADD FURNITURE, INC. AND SUBSIDIARIES SELECTED ANNUAL DATA DOLLAR AND SHARE DATA IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
FIVE-YEAR FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL COMPOUND 1990 1991 1992 1993 1994 1995 GROWTH RATES OPERATING STATEMENT DATA Net sales...................... $511,911 429,110 496,679 521,200 591,575 614,502 3.7% Cost of sales.................. 406,039 356,025 401,250 426,921 481,994 515,980 4.9 Gross profit................. 105,872 73,085 95,429 94,279 109,581 98,522 (1.4) Selling, general and administrative expenses...... 80,617 79,322 78,493 81,953 93,911 101,345 4.7 Restructuring expense.......... 8,268 -- -- -- -- 25,120 N/M Operating income (loss)........ 16,987 (6,237) 16,936 12,326 15,670 (27,943) N/M Other deductions: Interest expense............. 14,799 10,413 7,502 5,542 8,939 11,798 (4.4) Other (net).................. 1,584 2,594 1,164 377 1,714 3,685 18.4 Earnings (loss) before income taxes........................ 604 (19,244) 8,270 6,407 5,017 (43,426) N/M Income tax expense (benefit)... (426) (6,041) 3,725 2,561 709 (18,236) 112.0 Net earnings (loss)............ $ 1,030 (13,203) 4,545 3,846 4,308 (25,190) N/M Depreciation................... $ 9,138 8,783 9,151 10,508 14,143 12,671 6.8 Amortization................... 2,952 5,081 2,848 2,554 3,669 3,758 5.0 Cash dividends paid............ 5,274 4,545 -- 2,767 2,771 2,086 (16.9) Weighted average shares outstanding.................. 6,279 6,316 7,148 7,686 7,697 7,721 4.2 PER SHARE DATA Net sales...................... $ 81.53 67.94 69.49 67.81 76.86 79.59 (0.5) Net earnings (loss)............ 0.16 (2.09) 0.64 0.50 0.56 (3.26) N/M Cash dividends................. 0.84 0.72 -- 0.36 0.36 0.27 (20.3) Year-end book value............ 20.28 17.37 19.38 19.52 19.73 16.20 (4.4) BALANCE SHEET DATA Net working capital............ $115,960 111,583 117,693 123,004 123,685 79,528 (7.3) Net property, plant and equipment.................... 82,758 81,660 83,609 97,497 109,522 82,586 0.0 Total assets................... 320,539 308,980 315,649 335,737 378,816 312,986 (0.5) Long-term debt................. 124,462 125,304 91,503 105,257 143,584 112,598 (2.0) Shareholders' equity........... 127,331 110,001 148,724 150,103 151,906 125,197 (0.3) RATIOS, OTHER Gross profit margin............ 20.7% 17.0 19.2 18.1 18.5 16.0 Operating profit (loss) margin....................... 3.3 (1.5) 3.4 2.4 2.6 (4.6) Return (loss) on sales......... 0.2 (3.1) 0.9 0.7 0.7 (4.1) Effective income tax rate...... N/M 31.4 45.0 40.0 14.1 42.0 Dividend payout ratio.......... N/M N/M -- 71.9 64.3 N/M Return (loss) on beginning assets....................... 0.3 (4.1) 1.5 1.2 1.3 (6.6) Return (loss) on beginning equity....................... 0.8 (10.4) 4.1 2.6 2.9 (16.6) Current ratio.................. 3.2x 3.1 3.1 3.1 3.0 2.3 Inventory turnover............. 4.2 4.0 4.4 4.4 4.3 4.9 Asset turnover................. 1.4 1.4 1.6 1.6 1.7 1.8 Long-term debt to capitalization............... 46.3% 49.1 35.2 37.9 45.3 45.1 Year-end employees (actual number)...................... 6,880 6,340 6,940 6,670 7,860 6,880 Sales per employee (000's)..... $ 67.7 66.1 75.4 77.0 77.9 79.0 STOCK DATA High......................... $ 39.00 38.25 36.00 44.25 35.25 19.88 Low.......................... 12.75 17.25 18.75 22.50 14.63 12.25 Close........................ 18.75 22.50 31.50 30.00 19.50 13.13 P/E ratios: High...................... N/M N/M 56.3 88.5 62.9 N/M Low....................... N/M N/M 29.3 45.0 26.1 N/M Trading volume (shares)...... 4,080 3,873 6,586 8,260 6,473 9,599 ONE-YEAR CHANGES 1995 VS. 1994 OPERATING STATEMENT DATA Net sales...................... 3.9% Cost of sales.................. 7.1 Gross profit................. (10.1) Selling, general and administrative expenses...... 7.9 Restructuring expense.......... N/M Operating income (loss)........ N/M Other deductions: Interest expense............. 32.0 Other (net).................. 115.0 Earnings (loss) before income taxes........................ N/M Income tax expense (benefit)... N/M Net earnings (loss)............ N/M Depreciation................... (10.4) Amortization................... 2.4 Cash dividends paid............ (24.7) Weighted average shares outstanding.................. 0.3 PER SHARE DATA Net sales...................... 3.6 Net earnings (loss)............ N/M Cash dividends................. (25.0) Year-end book value............ (17.9) BALANCE SHEET DATA Net working capital............ (35.7) Net property, plant and equipment.................... (24.6) Total assets................... (17.4) Long-term debt................. (21.6) Shareholders' equity........... (17.6)
NOTES: Long-term debt excludes current installments. Capitalization defined as net working capital plus noncurrent assets. Fiscal year 1992 comprised 53 weeks; all other years comprised 52 weeks. P/E ratios based on yearly net earnings per share. Stock price data for calendar years. N/M = Not meaningful. Sales per employee based on monthly employee average. All stock data has been adjusted to reflect the 1 for 3 reverse stock split effective May 16, 1995. Fournier Furniture is included in consolidated results from its acquisition date of July 2, 1992, and Pilliod Furniture from its acquisition date of January 31, 1994. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto. RESULTS OF OPERATIONS The table below sets forth the percentage relationship of net sales to certain items included in the consolidated statements of operations in each of the last three fiscal years.
1993 1994 1995 Net sales............................................................................................ 100.0% 100.0% 100.0% Cost of sales........................................................................................ 81.9 81.5 84.0 Gross profit....................................................................................... 18.1 18.5 16.0 Selling, general and administrative expenses......................................................... 15.7 15.9 16.5 Restructuring expense................................................................................ -- -- 4.1 Operating income (loss)............................................................................ 2.4 2.6 (4.6) Other deductions, net................................................................................ 1.2 1.8 2.5 Earnings (loss) before income taxes................................................................ 1.2 0.8 (7.1) Income tax expense (benefit)......................................................................... 0.5 0.1 (3.0) Net earnings (loss)................................................................................ 0.7% 0.7% (4.1)%
The following paragraphs provide an analysis of the changes in net sales, selected cost and expense items, and net earnings (loss) over the three-year period ended December 30, 1995. FISCAL 1995 RESTRUCTURING OF THE COMPANY During the second quarter of 1995, the Company recorded a $25,696,000 non-cash restructuring charge as a result of the Company's plan to divest four operating companies (Brown Jordan Company, Fournier Furniture, Daystrom Furniture and Lea Lumber & Plywood), close four company-owned retail stores, and reorganize the remaining companies to improve operating performance. During the fourth quarter of 1995, the Company recorded a $2,121,000 net decrease in restructuring expense as a result of finalizing sales of two of the operating companies and the revision of the fair value of the remaining two operating companies. Also, during the fourth quarter of 1995, the Company recorded additional charges of $1,264,000 for executive severance resulting from the Company's decision to realign management for its casegoods, upholstery and contract operations and $281,000 of other miscellaneous expenses. As part of the 1995 restructuring, the Company was reorganized along its three principal product lines: (i) the Casegoods Group; (ii) the Upholstery Group; and (iii) the Contract Sales Group. The net restructuring charge of $25,120,000 for the year ended December 30, 1995 consisted of: (a) $17,379,000 to write-down businesses sold or held for sale to the estimated fair value, net of disposition expenses; (b) $3,699,000 to increase reserves for costs associated with closing four retail stores; (c) $2,614,000 to provide for severance expense and other costs; and (d) $1,428,000 to write-down selected machinery to estimated fair value because of changes in manufacturing processes. On December 29, 1995, the Company sold its wholly-owned subsidiary Brown Jordan Company (Brown Jordan) and certain related intellectual property rights for $24,000,000 in cash and a 12% interest, on a fully diluted basis, in the purchaser. The 12% interest in the purchaser is valued at $2,200,000. On December 29, 1995, the Company also sold substantially all of the assets of its Lea Lumber & Plywood (LL&P) division for cash of approximately $4,004,000 and a $1,000,000 subordinated note. The Company used the net cash proceeds from the above divestitures to pay down its long-term debt. For the businesses held for sale at December 30, 1995, the estimated fair value of their aggregate net assets was reported as a separate line item in the Company's consolidated balance sheet, while their 1995 operating results were consolidated with those of the Company in the consolidated statement of operations. During January 1996, definitive sale agreements were signed for Fournier Furniture and Daystrom Furniture. On February 26, 1996, the Company completed the sale of Fournier Furniture for cash and a subordinated note totalling approximately $10.0 million and the purchaser's assumption of approximately $1.9 million of Industrial Revenue Bonds. The amount of the subordinated note is subject to finalization of a post-closing working capital adjustment. 10 In addition to the restructuring charge, the Company also recorded a $10.2 million non-cash charge during 1995's second quarter. This charge was incurred to write off unamortized bank financing fees and, in light of furniture industry conditions, to increase reserves for slow-moving and discontinued inventories, provide for potential bad debts and recognize other liabilities. These 1995 pretax non-cash charges resulted in a substantial loss for the entire year, on both a pretax and an after-tax basis. Management believes the actions represented by these charges will reposition the Company to achieve improved long-term operating performance within the U.S. residential furniture manufacturing industry. FISCAL 1995 COMPARED TO 1994 Consolidated net sales for fiscal 1995 rose $22.9 million, or 3.9%, to a record $614.5 million. On a pro forma basis, assuming Pilliod Furniture had been acquired at the beginning of fiscal 1994, the fiscal 1995 consolidated net sales increase would have been 2.5%. The reported increase of $22.9 million consisted of a $25.5 million, or 5.3%, increase in net sales of the ongoing businesses, partially offset by a cumulative decline of $2.6 million, or 2.4%, in net sales of the businesses sold or being held for sale. Of the $498.7 million in net sales recorded during fiscal 1995 by the ongoing businesses, approximately $284.4 million represented residential casegoods volume, approximately $124.5 million represented residential upholstery volume, and contract volume represented approximately $68.5 million. The balance of 1995 sales, totalling approximately $21.3 million, represented "other" business, primarily revenues from the Company's trucking operations and from the sale of home furnishings accessories. The Company's 1995 sales trends were in line with the general industry pattern of stronger upholstery sales than casegoods sales. The Company's total residential upholstery sales for fiscal 1995 rose by $18.1 million, or 17.0%, while total residential casegoods sales for the year decreased $14.1 million, or 4.7%, from fiscal 1994's level. Total fiscal 1995 net sales of the Company's contract business, including the sale of accessories, rose by $13.0 million, or 23.4%, compared to the prior year. Aggregate international net sales fell by $5.4 million, or 16.0%, from fiscal 1994 levels, primarily due to reduced 1995 exports to Canada and, following the devaluation of the peso in late 1994, Mexico. Cost of goods sold increased by $34.0 million, or 7.1%, in fiscal 1995 and represented 84.0% of net sales in the most recent year, up from 81.5% in fiscal 1994. Materials, labor and overhead costs all increased as a percentage of net sales in 1995, with the labor component showing the largest year-over-year growth. The labor increase resulted largely from the casegoods companies manufacturing parts they had previously purchased and machine setup times not being fully absorbed due to smaller cut quantities. Materials price increases, which had been a major negative factor in 1994, moderated to a degree during 1995, particularly in the areas of hardwood lumber and particleboard, although these costs remain at fairly high levels on a historical basis. Further negatively impacting 1995 margins was a 7.5% decrease in production to reduce inventory levels of the casegoods group resulting in unusually high amounts of unabsorbed fixed overhead costs. An additional depressant on the 1995 gross margin was the non-cash charge (totalling $5.3 million) taken in the second quarter to increase reserves for slow-moving and discontinued inventories. As a result of these factors, the Company's fiscal 1995 gross margin declined to a historical yearly low of 16.0%, compared to fiscal 1994's 18.5% gross margin. Selling, general and administrative (SG&A) expenses rose to 16.5% of net sales, compared to 15.9% in fiscal 1994. This increase was primarily attributable to the second quarter non-cash charge (totalling $2.3 million) to increase the Company's bad debt reserves and provide for other miscellaneous expenses, as well as higher costs associated with the Company's accounts receivables securitization program, which was in place for all of 1995 and carried larger average balances and discount rates than in fiscal 1994. Other deductions increased in the aggregate to 2.5% of fiscal 1995's net sales from 1.8% of prior year's net sales. Interest expense rose $2.9 million, despite average outstanding borrowings for fiscal 1995 remaining approximately the same as in the prior year, due to increases in short-term interest rates and an amendment to the Company's long-term credit facility (discussed below), which resulted in a significantly higher borrowing rate for the Company beginning in August 1995. All other deductions rose to 0.6% of net sales from 0.3% in fiscal 1994, primarily due to establishment of a reserve for a note receivable relating to a prior divestiture and the write-off of unamortized bank fees. The principal reasons for the increase in the Company's fiscal 1995 effective tax rate to 42.0% from 14.1% in the previous year were tax benefits realized from the utilization of capital loss carryforwards during the year (see note 13) and various beneficial tax credits. The Company's effective income tax rate for 1996 is expected to approximate the Federal tax rate of 34.0%. 11 FOURTH QUARTER 1995 RESULTS Net sales for the fourth quarter of 1995 rose in the aggregate by 4.7% from 1994's fourth quarter level. This overall increase consisted of a 3.8% rise in net sales of the "ongoing" LADD business units and an 8.5% increase in combined net sales of the four businesses sold or being held for sale. The fourth quarter gross profit margin rose to 18.0% in 1995, from 16.4% in 1994. This increase was primary due to the fact that the 1994 quarter gross margin was depressed by high materials costs and unabsorbed overhead, and a favorable LIFO adjustment in the 1995 quarter resulting from a lower-than-anticipated rate of inflation and a significant decrease in 1995 year-end inventory quantities. SG&A expenses represented 16.9% of 1995's fourth quarter net sales, as compared to 17.0% a year earlier. Management continues to closely monitor and control the Company's SG&A expense. A restructuring credit amounting to 0.4% of 1995 net sales was recorded in 1995's final three months relating to the sale at quarter-end of two of the four businesses held for sale and the adjustment to fair value of the net assets of the remaining two businesses, on which definitive sale agreements were executed during January 1996. This adjustment was offset by expenses representing 0.3% of net sales, attributable primarily to severance expenses accrued in conjunction with the further restructuring of the Company's ongoing business units, which was announced in June 1995 and continued into the year's final quarter. Total other deductions represented 2.5% of net sales in the fiscal 1995 fourth quarter, compared to 2.4% in the same quarter a year earlier. The increase was entirely due to higher interest expense incurred in the 1995 period resulting from an increased bank borrowing rate. These factors produced a pretax loss of $1.4 million, or 0.9%, of net sales in 1995's final three months, compared to a $4.4 million pretax net loss (3.0% of net sales) in the year-earlier quarter. Both periods were adversely affected by relatively low gross margins, generally weak furniture industry conditions, competitive pricing pressures and, in the case of the 1994 quarter, the write-off of unamortized bank fees. The high 1995 fourth quarter effective tax rate resulted primarily from the utilization during the quarter of capital loss carryforwards. FISCAL 1994 COMPARED TO 1993 Net sales increased $70.4 million, or 13.5%, to a record $591.6 million in 1994, compared to $521.2 million in 1993, largely as a result of the January 31, 1994 acquisition of Pilliod Furniture. On a pro forma basis, assuming the acquisition of Pilliod Furniture had occurred at the beginning of fiscal year 1993, 1994 net sales decreased from prior year levels by 1.4%. The decrease in the pro forma 1994 net sales was primarily due to the discontinuance of certain American of Martinsville residential casegoods product lines, a reduction in export shipments, and a decline in sales of lower-priced upholstery and higher-priced casegoods products compared to 1993. Cost of sales as a percentage of net sales decreased to 81.5% in 1994, from 81.9% in 1993, resulting in an increase in the 1994 gross profit margin to 18.5% from 18.1% in 1993. The 1994 gross margin was positively impacted by Pilliod Furniture's gross margin and operating efficiencies generated by the Company's capital investment program, and negatively affected by higher raw material costs, including particleboard, medium-density fiberboard, cartons and aluminum. Additionally, 1994's gross margin was reduced by manufacturing disruptions associated with the Company's Virginia manufacturing realignment started in 1993's second half and plant disruptions resulting from other capital projects initiated during 1994. Further, selected plant downtime taken in the fourth quarter to control inventory levels increased 1994's fourth quarter cost of sales, negatively impacting gross margins. Selling, general and administrative (SG&A) expenses were 15.9% of net sales in 1994, compared to 15.7% in 1993. The increase was due to the costs associated with the Company's accounts receivable securitization program which was initiated in February 1994. Other deductions totaled 1.8% of net sales in 1994, compared with 1.2% in 1993. The increase was primarily attributable to higher interest expense reflecting the use of long-term debt to partially fund the Company's $31.8 million capital spending program and its $54.4 million Pilliod Furniture acquisition (see note 3) coupled with rising interest rates. Additionally, amortization expense increased in 1994 as a result of the Pilliod Furniture acquisition. The decrease in the Company's effective income tax rate from 40.0% in 1993 to 14.1% in 1994 resulted principally from reductions in income taxes derived from state tax planning strategies and the utilization of capital loss carryforwards. 12 LIQUIDITY AND CAPITAL RESOURCES Effective August 14, 1995, the Company's $190.0 million long-term credit facility with a syndicate of banks was amended (the Amended Facility - see note 9). At December 30, 1995, the Company had $110.1 million outstanding under the Amended Facility, comprised of a $48.1 million term loan, and short-term and long-term borrowings totalling $62.0 million under a $115.0 million revolving credit line. Additionally, the Company had other long-term indebtedness outstanding at the same date, primarily fixed-rate industrial revenue bonds, aggregating $5.8 million. In total, long-term and short-term debt (funded debt) represented 45.8% of the Company's total capitalization at the end of 1995, compared to 46.3% a year earlier. On December 30, 1995, net working capital totaled $79.5 million and the current ratio was 2.3:1. Both of these financial measures were significantly below their year-earlier levels, due to the current assets and liabilities of the two remaining businesses held for sale being reported as a noncurrent asset in the December 30, 1995 consolidated balance sheet (see note 2), and the sale of Brown Jordan Company and Lea Lumber & Plywood effective December 29, 1995, which generated cash in excess of $28.0 million that was used to repay debt. The Company's Amended Facility provides for the payment of a higher rate of interest than the original facility and, based on current borrowing levels and interest rates, would increase the Company's interest cost by approximately $700,000 in 1996 compared to 1995 borrowing rates. In connection with the amendment of the credit facility, the Company expensed approximately $525,000 of unamortized fees from its original bank facility. Borrowings on the Amended Facility are currently unsecured but will become subject to a lien on substantially all the personal property assets of the Company effective March 31, 1996. At December 30, 1995, $36.0 million of cash had been generated through the Company's trade accounts receivable securitization program (see note 4). The existing trade accounts receivable securitization program expires on March 30, 1996 and will not be renewed. The cash currently provided by this program will be replaced by borrowings under the revolving credit line of the Company's long-term credit facility. Management believes the Company's existing borrowing capacity under its revolving credit facility ($53.0 million at December 30, 1995) is sufficient to refinance the additional working capital requirement. During fiscal 1995, the Company generated net cash from operating activities of $11.1 million, an increase of $8.3 million compared to the prior year. The $11.1 million net cash from operating activities was generated partially by cash flows from earnings after adding back depreciation, amortization and restructuring expense, offset by a decrease in the net deferred tax liability, which in the aggregate totalled $2.9 million. Additionally, a decrease in working capital of $4.3 million positively impacted cash flows. During fiscal 1995, capital spending totaled $11.6 million, down sharply from the prior year's $31.8 million, as the major capital projects initiated during fiscal years 1993 and 1994 were completed in early 1995 and a reduced capital spending program was initiated by management. Capital expenditures during 1995 and 1994 were funded largely from the operations of the Company and borrowings under the Company's existing long-term credit facility. The Company anticipates spending less than $12.0 million for capital improvements during 1996, and believes that the unused long-term credit lines available under its banking arrangements, as well as cash generated from operations, will be adequate to fund these planned investments. Because of the Company's recent operating performance and in light of current short-term and medium-term interest rates, the Company plans to refinance its long-term and short-term bank credit facilities and its accounts receivable securitization program. The Company anticipates that the refinancing will be in the form of a term loan and revolving credit facility secured by substantially all of the Company's assets. Borrowings under such a facility will likely bear interest at rates above the Company's borrowing rate at December 30, 1995. In anticipation of such a refinancing, approximately $750,000 of unamortized fees will be charged to operations during 1996's first quarter. The Company anticipates the planned refinancing will be finalized during the second quarter of 1996. IMPACT OF INFLATION Although the effects of inflation on the Company cannot be accurately determined, in 1995 the impact of inflation affected the Company's manufacturing costs in the areas of manufacturing overhead and raw materials other than lumber. The price of lumber, like the prices of other commodities, is affected more by the interaction of supply and demand than by inflation. Although 1995 margins were impacted by inflation, the Company's gross profit margins during the past several years have, in general, been impacted more by promotional selling discounts and plant downtime taken to curtail production 13 than by inflation. The Company believes it will be able to largely offset the effects of inflation by improving its manufacturing efficiency, increasing employee productivity, substituting raw materials, and increasing the selling prices of its products. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MANAGEMENT'S STATEMENT OF RESPONSIBILITY The management of LADD Furniture, Inc. is responsible for the integrity of the financial statements of the Company and for ascertaining that the financial statements accurately reflect the financial position and results of operations of the Company. The financial statements were prepared in conformity with generally accepted accounting principles, applying estimates and management's best judgment, as required. Information presented elsewhere in the Company's Annual Report on Form 10-K is consistent with the financial statements. LADD has established and maintains a system of internal controls designed to provide reasonable assurance, at an appropriate cost, that the Company's assets are adequately safeguarded and that the accounting records reflect the transactions of the Company accurately, fairly and in reasonable detail. The internal control system provides for careful selection and training of personnel, the delegation of management authority and responsibility, the dissemination of management control policies and procedures and an internal audit program. The board of directors, through its Audit Committee consisting of two directors who are not officers or employees of the Company, is responsible for reviewing and monitoring the financial statements and accounting practices of the Company. The Audit Committee meets periodically, either separately or jointly, with the independent auditors, representatives of management and the Company's internal auditors to discuss auditing, accounting and financial statement matters. To ensure complete independence, representatives of KPMG Peat Marwick LLP, certified public accountants retained by the Company to audit the financial statements, have full and free access to meet with the Audit Committee with or without the presence of management representatives. Fred L. Schuermann, Jr. William S. Creekmuir President & Chief Executive Officer Executive Vice President & CFO February 16, 1996 February 16, 1996
14 INDEPENDENT AUDITORS' REPORT THE BOARD OF DIRECTORS AND SHAREHOLDERS LADD FURNITURE, INC.: We have audited the accompanying consolidated balance sheets of LADD Furniture, Inc. and subsidiaries as of December 31, 1994 and December 30, 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 30, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LADD Furniture, Inc. and subsidiaries as of December 31, 1994 and December 30, 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 30, 1995 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Greensboro, North Carolina February 16, 1996, except for paragraph 4 of Note 2, which is as of February 26, 1996 15 LADD FURNITURE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JANUARY 1, 1994, DECEMBER 31, 1994 AND DECEMBER 30, 1995
1993 1994 1995 DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA Net sales................................................................................... $521,200 591,575 614,502 Cost of sales............................................................................... 426,921 481,994 515,980 Gross profit........................................................................... 94,279 109,581 98,522 Selling, general and administrative expenses................................................ 81,953 93,911 101,345 Restructuring expense -- NOTE 2............................................................. -- -- 25,120 Operating income (loss)................................................................ 12,326 15,670 (27,943) Other deductions: Interest expense -- NOTE 9................................................................ 5,542 8,939 11,798 Other, net -- NOTE 9...................................................................... 377 1,714 3,685 5,919 10,653 15,483 Earnings (loss) before income taxes.................................................... 6,407 5,017 (43,426) Income tax expense (benefit) -- NOTE 13..................................................... 2,561 709 (18,236) Net earnings (loss).................................................................... $ 3,846 4,308 (25,190) Net earnings (loss) per common share........................................................ $ 0.50 0.56 (3.26) Cash dividends per common share............................................................. $ 0.36 0.36 0.27 Weighted average number of common shares outstanding........................................ 7,685,751 7,696,689 7,720,783
See accompanying notes to consolidated financial statements. 16 LADD FURNITURE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 30, 1994 1995 DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA ASSETS Current assets: Cash........................................................................................... $ 576 1,272 Trade accounts receivable, less allowances for doubtful receivables, discounts, returns and allowances of $4,294 and $4,057, respectively -- NOTES 4 AND 15......................... 52,735 38,288 Inventories -- NOTE 5.......................................................................... 122,083 89,466 Prepaid expenses and other current assets -- NOTE 13........................................... 10,053 13,663 Total current assets...................................................................... 185,447 142,689 Property, plant and equipment, net -- NOTES 6 AND 14............................................. 109,522 82,586 Businesses held for sale, net -- NOTE 2.......................................................... -- 8,052 Intangible and other assets, net -- NOTES 2 AND 7................................................ 83,847 79,659 $378,816 312,986 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt -- NOTE 9............................................... $ 687 309 Short-term bank borrowings -- NOTE 9........................................................... 5,000 3,037 Trade accounts payable......................................................................... 28,360 28,419 Accrued expenses and other current liabilities -- NOTES 2, 8 AND 13............................ 27,715 31,396 Total current liabilities................................................................. 61,762 63,161 Long-term debt, excluding current installments -- NOTE 9......................................... 143,584 112,598 Deferred compensation and other liabilities -- NOTES 11, 12 AND 14............................... 6,316 6,593 Deferred income taxes -- NOTE 13................................................................. 15,248 5,437 Total liabilities......................................................................... 226,910 187,789 Shareholders' equity -- NOTE 10: Preferred stock of $100 par value. Authorized 500,000 shares; no shares issued................. -- -- Common stock of $.30 par value. Authorized 50,000,000 shares; issued 7,700,151 shares and 7,726,993 shares, respectively.............................................................. 2,310 2,318 Additional paid-in capital..................................................................... 49,516 49,905 Currency translation adjustment................................................................ (208) -- Retained earnings.............................................................................. 101,105 73,829 152,723 126,052 Less unamortized value of restricted stock..................................................... (817) (855) Total shareholders' equity................................................................ 151,906 125,197 Commitments and contingencies -- NOTES 14 AND 15 $378,816 312,986
See accompanying notes to consolidated financial statements. 17 LADD FURNITURE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JANUARY 1, 1994, DECEMBER 31, 1994 AND DECEMBER 30, 1995
1993 1994 1995 DOLLAR AMOUNTS IN THOUSANDS CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss)......................................................................... $ 3,846 4,308 (25,190) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation of property, plant and equipment............................................. 10,508 14,143 12,671 Amortization.............................................................................. 2,554 3,669 3,758 Restructuring expense..................................................................... -- -- 25,120 Provision for losses on trade accounts receivable......................................... 2,056 1,521 2,898 Gain on sales of property, plant and equipment............................................ (155) (89) (314) Provision for deferred income taxes....................................................... 214 (1,204) (13,419) Increase in deferred compensation and other liabilities................................... 1,840 1,388 1,297 Change in assets and liabilities, net of effects from acquisition and divestures and classification of businesses held for sale: Increase in trade accounts receivable.................................................. (5,188) (2,517) (7,988) (Increase) decrease in inventories..................................................... (5,063) (10,709) 8,126 (Increase) decrease in prepaid expenses and other current assets....................... 61 (1,886) (2,084) Increase (decrease) in trade accounts payable.......................................... 310 (2,496) 3,608 Increase (decrease) in accrued expenses and other current liabilities.................. (2,239) (3,313) 2,607 Total adjustments......................................................................... 4,898 (1,493) 36,280 Net cash provided by operating activities.............................................. 8,744 2,815 11,090 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Pilliod Furniture, net of cash acquired -- NOTE 3.......................... -- (23,847) -- Additions to property, plant and equipment................................................ (24,666) (31,825) (11,560) Proceeds from sales of property, plant and equipment...................................... 425 962 191 Proceeds from sales of businesses -- NOTE 2............................................... -- -- 28,004 Additions to intangible and other assets.................................................. (724) (1,150) (3,715) Net cash provided by (used in) investing activities.................................... (24,965) (55,860) 12,920 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings........................................................ 19,654 136,666 330 Proceeds from (repayments of) short-term bank borrowings.................................. -- 5,000 (1,963) Proceeds from sales of trade accounts receivable.......................................... -- 32,485 3,515 Proceeds from sale leaseback of equipment................................................. -- 14,566 6,691 Proceeds from sale leaseback of other assets.............................................. -- 1,360 -- Principal payments of long-term debt...................................................... (1,155) (135,020) (29,743) Proceeds from common stock issued......................................................... 94 23 8 Dividends paid............................................................................ (2,767) (2,771) (2,086) Net cash provided by (used in) financing activities.................................... 15,826 52,309 (23,248) EFFECT OF EXCHANGE RATE CHANGES ON CASH..................................................... (81) (38) (66) Net increase (decrease) in cash........................................................... (476) (774) 696 Cash at beginning of year................................................................... 1,826 1,350 576 Cash at end of year......................................................................... $ 1,350 576 1,272
See accompanying notes to consolidated financial statements. 18 LADD FURNITURE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED JANUARY 1, 1994, DECEMBER 31, 1994 AND DECEMBER 30, 1995
UNAMORTIZED NUMBER ADDITIONAL CURRENCY VALUE OF OF SHARES COMMON PAID-IN TRANSLATION RETAINED RESTRICTED ISSUED STOCK CAPITAL ADJUSTMENT EARNINGS STOCK DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA BALANCE AT JANUARY 2, 1993...................... 7,674,508 $2,302 48,681 (89) 98,489 (659) Shares issued in connection with incentive stock option plan.......................... 3,890 1 90 -- -- -- Shares issued in connection with and amortization of employee restricted stock awards............................... 10,321 3 415 -- -- (128) Currency translation adjustment............... -- -- -- (81) -- -- Net earnings.................................. -- -- -- -- 3,846 -- Dividends paid................................ -- -- -- -- (2,767) -- BALANCE AT JANUARY 1, 1994...................... 7,688,719 2,306 49,186 (170) 99,568 (787) Shares issued in connection with incentive stock option plan.......................... 782 -- 19 -- -- -- Repurchase of restricted stock................ (6,142) (1 ) (170) -- -- 170 Shares issued in connection with and amortization of employee restricted stock awards............................... 16,792 5 481 -- -- (200) Currency translation adjustment............... -- -- -- (38) -- -- Net earnings.................................. -- -- -- -- 4,308 -- Dividends paid................................ -- -- -- -- (2,771) -- BALANCE AT DECEMBER 31, 1994.................... 7,700,151 2,310 49,516 (208) 101,105 (817) Repurchase of restricted stock................ (2,452) (1 ) (68) -- -- 68 Shares issued in connection with and amortization of employee restricted stock awards............................... 29,294 9 457 -- -- (106) Currency translation adjustment............... -- -- -- (66) -- -- Reclassification to businesses held for sale....................................... -- -- -- 274 -- -- Net loss...................................... -- -- -- -- (25,190) -- Dividends paid................................ -- -- -- -- (2,086) -- BALANCE AT DECEMBER 30, 1995.................... 7,726,993 $2,318 49,905 -- 73,829 (855) TOTAL SHAREHOLDERS' EQUITY (NOTE 10) BALANCE AT JANUARY 2, 1993...................... 148,724 Shares issued in connection with incentive stock option plan.......................... 91 Shares issued in connection with and amortization of employee restricted stock awards............................... 290 Currency translation adjustment............... (81) Net earnings.................................. 3,846 Dividends paid................................ (2,767) BALANCE AT JANUARY 1, 1994...................... 150,103 Shares issued in connection with incentive stock option plan.......................... 19 Repurchase of restricted stock................ (1) Shares issued in connection with and amortization of employee restricted stock awards............................... 286 Currency translation adjustment............... (38) Net earnings.................................. 4,308 Dividends paid................................ (2,771) BALANCE AT DECEMBER 31, 1994.................... 151,906 Repurchase of restricted stock................ (1) Shares issued in connection with and amortization of employee restricted stock awards............................... 360 Currency translation adjustment............... (66) Reclassification to businesses held for sale....................................... 274 Net loss...................................... (25,190) Dividends paid................................ (2,086) BALANCE AT DECEMBER 30, 1995.................... 125,197
See accompanying notes to consolidated financial statements. 19 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Following the completion of the restructuring described in note 2, the Company continues to be one of the largest residential furniture manufacturers in the United States with 20 manufacturing facilities in eight states. The Company's products consist principally of casegoods and upholstery furniture in a wide range of styles for bedrooms, family rooms, dining rooms and living rooms in the low-medium to high-medium price ranges for the residential and contract (principally hotel/motel) markets. Residential casegoods, residential upholstery and contract products comprised approximately 46%, 20% and 11%, respectively, of the Company's 1995 net sales. The Company currently sells to more than 8,000 customers, including retail furniture chains, national general retailers, department stores, independent furniture retailers, major hotel chains and others located throughout the United States and overseas. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of LADD Furniture, Inc. and its subsidiaries, all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. FISCAL YEAR The Company's fiscal year ends on the Saturday nearest the end of December. Fiscal year 1993 ended January 1, 1994; fiscal year 1994 ended December 31, 1994; and fiscal year 1995 ended December 30, 1995. INVENTORIES Approximately 66% in 1994 and 71% in 1995 of the Company's inventories are valued using the last-in, first-out (LIFO) cost method, which is not in excess of market. All other inventories in 1994 and 1995 are valued at the lower of first-in, first-out (FIFO) cost or market (net realizable value). PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation of plant and equipment is provided over the estimated useful lives of the respective assets on the straight-line method. Estimated useful lives are 10 to 35 years for buildings and improvements and 3 to 13 years for machinery and equipment. The Company accounts for any impairment of property, plant and equipment under the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. REVENUE RECOGNITION Sales are recognized when products are shipped and invoiced to customers. Monthly provision is made for doubtful receivables, discounts, returns and allowances. Substantially all of the Company's accounts receivable are due from retailers described above. Management periodically performs credit evaluations of its customers and generally does not require collateral. The Company has no concentrated credit risk with any individual customer. FOREIGN CURRENCY TRANSLATION Assets and liabilities of a foreign subsidiary being held for sale are translated at year-end rates of exchange, and revenues and expenses are translated at the average rates of exchange for the year. Gains and losses resulting from translation were accumulated in a separate component of shareholders' equity until June 1995, at which time the balance was transferred to businesses held for sale. Gains and losses resulting from foreign currency transactions are included in net earnings (loss). INCOME TAXES Deferred tax assets and liabilities are recognized for the temporary differences between the financial statement carrying amounts and the tax bases of the Company's assets, liabilities, and loss and tax credit carryforwards at income tax rates 20 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED expected to be in effect when such amounts are realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. EARNINGS PER SHARE On May 12, 1995, shareholders approved a one-for-three reverse split of the Company's common stock which became effective May 16, 1995. All share and per share data presented in the accompanying consolidated financial statements have been restated for this one-for-three stock split. Earnings per share are calculated based upon the weighted average number of common shares outstanding during each fiscal year, as restated for the reverse stock split. The effect of dilutive stock options on the calculation is insignificant in each of the fiscal years presented. INTANGIBLE ASSETS Intangible assets consist principally of values assigned to patents, furniture designs, trade names and the excess of cost over the assigned value of net assets acquired. These assets are being amortized using the straight-line method over periods of 15 to 40 years. The Company assesses the recoverability of the excess of cost over the assigned value of net assets acquired by determining whether the amortization of the balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operations. The assessment of the recoverability of the excess of cost over the assigned value of net assets acquired will be impacted if estimated future operating cash flows are not achieved. PENSION AND OTHER POSTRETIREMENT PLANS The Company and several of its subsidiaries have defined benefit pension plans covering qualified salaried and hourly employees. The benefits are based on years of service and the employee's final average compensation before retirement. The cost of these programs is being funded currently. The Company also provides certain health care benefits for certain retired employees. The Company measures the costs of its obligation based on its best estimate. The net periodic costs are recognized as employees render the services necessary to earn the postretirement benefits. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash, trade accounts receivable, prepaids and other current assets, short-term bank borrowings, trade accounts payable and accrued expenses and other current liabilities approximates fair value because of the short maturity of these financial instruments. The fair value of the Company's long-term debt is estimated by discounting the future cash flows at rates currently offered to the Company for similar debt instruments of comparable maturities. The fair value of the Company's long-term debt approximates the face value of the debt due to the variable interest rates on the majority of long-term debt at December 30, 1995. USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. NOTE 2: RESTRUCTURING AND PLANNED DIVESTITURES During the second quarter of 1995, the Company recorded a $25,696,000 non-cash restructuring charge as a result of the Company's plan to divest four operating companies (Brown Jordan Company, Fournier Furniture, Daystrom Furniture and Lea Lumber & Plywood), close four Company-owned retail stores, and reorganize the remaining companies to improve operating performance. During the fourth quarter of 1995, the Company recorded a $2,121,000 net decrease in restructuring expense as a result of finalizing sales of two of the operating companies and the revision of the fair value of the remaining two operating companies. Also, during the fourth quarter of 1995, the Company recorded additional charges of $1,264,000 21 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 2: RESTRUCTURING AND PLANNED DIVESTITURES -- CONTINUED for executive severance resulting from the Company's decision to realign management for its casegoods, upholstery and contract operations and $281,000 of other miscellaneous expenses. The net restructuring charge of $25,120,000 for the year ended December 30, 1995 consisted of: (a) $17,379,000 to write-down businesses sold or held for sale to the estimated fair value, net of disposition expenses; (b) $3,699,000 to increase reserves for costs associated with closing four retail stores; (c) $2,614,000 to provide for severance expense and other costs; and (d) $1,428,000 to write-down selected machinery to estimated fair value because of changes in manufacturing processes. On December 29, 1995, the Company sold its wholly-owned subsidiary Brown Jordan Company (Brown Jordan) and certain related intellectual property rights, for $24,000,000 in cash and a 12% interest, on a fully diluted basis, in the purchaser. The 12% interest in the purchaser, valued at $2,200,000, is recorded at the lower of cost or market and is included in intangible and other assets in the accompanying December 30, 1995 consolidated balance sheet. On December 29, 1995, the Company also sold substantially all of the assets of its Lea Lumber & Plywood (LL&P) division, for cash of approximately $4,004,000 and a $1,000,000 subordinated note, which is included in intangible and other assets in the accompanying December 30, 1995 consolidated balance sheet. The Company used the net cash proceeds from the above divestitures to pay down its long-term debt. The noncash proceeds were pledged by the Company as partial collateral for long-term debt payable to its syndicate of banks. The Company has signed sales contracts for the remaining two operating companies held for sale which are scheduled to close during the first quarter of 1996. The following information shows the components included in businesses held for sale:
DECEMBER 30, 1995 IN THOUSANDS Trade accounts receivable, net.......................................................... $ 9,114 Inventories, net........................................................................ 10,400 Other current assets.................................................................... 413 Property, plant and equipment, net...................................................... 9,186 Current liabilities..................................................................... (4,454) Long-term debt.......................................................................... (1,951) Currency translation adjustment......................................................... 274 Total assets, net....................................................................... 22,982 Less adjustment to write-down businesses held for sale to the estimated fair value...... (14,930) $ 8,052
On February 26, 1996, the Company sold its wholly-owned subsidiary Fournier Furniture, Inc. for cash and a subordinated note totalling approximately $10.0 million and the purchaser's assumption of approximately $1.9 million of Industrial Revenue Bonds. The amount of the subordinated note is subject to finalization of a post-closing working capital adjustment. Businesses held for sale are valued using management's best estimate of the amounts expected to be realized on the sale of the two operating companies. However, the amount the Company will ultimately realize could differ materially from the amounts assumed in arriving at the loss on the write-down to the estimated fair value. The following unaudited pro forma information shows consolidated operating results for the periods presented as though the Company had divested the four operating companies and closed four company-owned retail stores as of January 2, 1993, excluding the restructuring expense recorded during 1995:
1993 1994 1995 IN THOUSANDS (UNAUDITED) Net sales....................................................................... $413,955 475,605 498,747 Earnings (loss) before interest and income taxes................................ 10,331 11,486 (3,973)
22 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 2: RESTRUCTURING AND PLANNED DIVESTITURES -- CONTINUED The costs charged against restructuring reserves associated with items (b) and (c) in the first paragraph of the footnote above include the following:
1995 IN THOUSANDS Restructuring reserve, beginning.................................................................... $ 6,313 Write-off of excess of cost over the assigned value of net assets acquired.......................... (1,037) Write-off of leasehold improvements................................................................. (215) Lease termination costs............................................................................. (406) Write-down of equipment............................................................................. (90) Severance........................................................................................... (184) Other............................................................................................... (417) Restructuring reserve, December 30, 1995............................................................ $ 3,964
NOTE 3: ACQUISITION On January 31, 1994, the Company acquired The Pilliod Cabinet Company, a manufacturer of promotionally priced casegoods furniture, by purchasing all of the common stock of its parent company, Pilliod Holding Company (Pilliod), for $24,259,000 cash (including acquisition expenses), the repayment of Pilliod debt of $29,893,000, and the assumption of other long-term debt of $247,000. The excess of cost over the assigned value of net assets acquired was approximately $32,826,000 and is being amortized using the straight-line method over 40 years. The acquisition was accounted for as a purchase and accordingly, the net assets and operations of Pilliod have been included in the Company's consolidated financial statements beginning on the acquisition date. NOTE 4: ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM During fiscal year 1994, the Company entered into a revolving accounts receivable facility. The facility was revised in March 1995 and provides for the true sale of a defined pool of trade accounts receivable through a wholly-owned subsidiary to a third-party purchaser. Under the revised agreement, which expires in March 1996, the maximum amount of the purchaser's investment can be $40,000,000 and is subject to change based on the level of eligible receivables and concentrations of receivables. At December 31, 1994 and December 30, 1995, the defined pool of trade accounts receivable totaled approximately $42,848,000 and $46,430,000, respectively, and the purchaser's investment totaled $32,485,000 and $36,000,000, respectively. The purchaser's average investment for 1994 and 1995 was approximately $28,969,000 and $35,011,000, respectively. The net cash proceeds from the sales of trade accounts receivable are reported as financing activities in the accompanying consolidated statements of cash flows for the years ended December 31, 1994 and December 30, 1995. The purchaser's investment is reflected as a reduction of trade accounts receivables in the accompanying consolidated balance sheets. At December 31, 1994 and December 30, 1995, the Company retained an ownership interest in the receivables pool of approximately $10,363,000 and $10,430,000, respectively, of which approximately $8,090,000 and $9,065,000, respectively, was subordinate to that of the purchaser. The Company maintains reserves which approximate the risk of loss relating to its interest in the receivables. The Company's ongoing obligations with respect to the receivables pool are limited to the subordinated portion of its ownership interest. A portion of the cost of the accounts receivable securitization program is based on the purchaser's level of investment and borrowing costs. The total cost of the program, which aggregated $1,458,000 and $2,585,000 in 1994 and 1995, respectively, is included in selling, general and administrative expenses in the accompanying 1994 and 1995 consolidated statements of operations. 23 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 5: INVENTORIES A summary of inventories follows:
DECEMBER 31, DECEMBER 30, 1994 1995 IN THOUSANDS Inventories on the FIFO cost method: Finished goods..................................................................... $ 65,046 50,847 Work in process.................................................................... 23,084 17,165 Raw materials and supplies......................................................... 47,997 33,140 Total inventories on FIFO cost method......................................... 136,127 101,152 Less adjustments of certain inventories to the LIFO cost method...................... (14,044) (11,686) $122,083 89,466
NOTE 6: PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment follows:
DECEMBER 31, DECEMBER 30, 1994 1995 IN THOUSANDS Land and improvements................................................................ $ 6,592 4,356 Buildings and improvements........................................................... 78,381 70,780 Machinery and equipment.............................................................. 87,480 69,389 Construction in progress............................................................. 8,343 5,173 180,796 149,698 Less accumulated depreciation........................................................ (71,274) (67,112) $109,522 82,586
NOTE 7: INTANGIBLE AND OTHER ASSETS A summary of intangible and other assets follows:
DECEMBER 31, DECEMBER 30, 1994 1995 IN THOUSANDS Excess of cost over the assigned value of net assets acquired........................ $ 57,038 54,879 Trade names.......................................................................... 26,031 21,700 Furniture designs and patents........................................................ 9,750 8,815 Other................................................................................ 3,041 7,460 95,860 92,854 Less accumulated amortization........................................................ (12,013) (13,195) $ 83,847 79,659
24 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 8: ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES A summary of accrued expenses and other current liabilities follows:
DECEMBER 31, DECEMBER 30, 1994 1995 IN THOUSANDS Payrolls, commissions and employee benefits.......................................... $ 15,291 16,775 Other................................................................................ 12,424 14,621 $ 27,715 31,396
NOTE 9: SHORT-TERM BANK BORROWINGS AND LONG-TERM DEBT Short-term bank borrowings under a revolving credit facility with a bank totaled $5,000,000 and $3,037,000 at December 31, 1994 and December 30, 1995, respectively. Borrowings under the facility bear interest at a rate based on the availability of bank funds, and the average borrowing rate in 1994 and 1995 was 4.85% and 6.70%, respectively. Long-term debt consists of the following:
DECEMBER 31, DECEMBER 30, 1994 1995 IN THOUSANDS Term loan due at various dates through October 19, 1999.............................. $ 75,000 48,100 Revolving credit loan, due October 19, 1999.......................................... 61,100 59,000 Other indebtedness, primarily fixed-rate industrial revenue bonds, due through 2009............................................................................... 8,171 5,807 Total long-term debt............................................................ 144,271 112,907 Less current installments of long-term debt.......................................... 687 309 Long-term debt, excluding current installments.................................. $143,584 112,598
On October 19, 1994, the Company entered into an amended and restated credit agreement with a syndicate of banks which provided a $75,000,000 five-year term loan and a $115,000,000 five-year revolving credit loan. At December 30, 1995, the Company had available approximately $53,000,000 for future borrowings under the revolving credit loan. Effective August 14, 1995, the credit agreement was further amended (the Amended Facility). The term loan portion of the Amended Facility requires quarterly repayment of $3,607,500 commencing March 1997, with a final payment of the outstanding balance on October 19, 1999. In connection with amending the credit agreement, the Company in 1995 charged to operations approximately $525,000 in unamortized financing fees. The pricing of the Amended Facility is determined by a ratio of debt levels to cash flows, as specified. At December 30, 1995, borrowings under the Amended Facility bear interest at LIBOR (5.625%) plus 2 1/8%, prime (8.50%) plus 1 1/8%, or at a lesser rate based on the availability of bank funds, and the Company pays a commitment fee of 1/2% per annum on the unused portion of the revolving credit loan. However, if prior to April 1, 1996 the Company reduces its term loan balance by an additional $13,100,000, the interest rate on the Amended Facility will be reduced by 1/8%. Borrowings under the Amended Facility are unsecured but will become subject to a lien on substantially all the assets of the Company effective March 30, 1996 if the term loan component of the facility has not been reduced to $35,000,000 by that date. The Amended Facility requires the maintenance of certain ratios pertaining to shareholders' equity and operating earnings and contains covenants which relate to future borrowings, liens on assets, specified amounts of consolidated net worth and capital spending, and the operations of the Company. At December 30, 1995, the Company was in compliance with all covenants under the Amended Facility. The industrial revenue bonds are secured by property, plant and equipment with a depreciated cost of approximately $4,923,000 at December 30, 1995. 25 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 9: SHORT-TERM BANK BORROWINGS AND LONG-TERM DEBT -- CONTINUED The aggregate annual maturities of long-term debt during each of the five fiscal years subsequent to December 30, 1995 are approximately as follows: $309,000 in 1996; $14,678,000 in 1997; $14,742,000 in 1998; $78,330,000 in 1999; and $4,763,000 in 2000. Interest paid by the Company in 1993, 1994 and 1995 amounted to approximately $4,995,000, $8,014,000 and $12,218,000, respectively. NOTE 10: EMPLOYEE STOCK PLANS STOCK OPTION PLAN Under incentive stock option plans, the Company grants nontransferable stock options to officers, key management employees and nonemployee directors. Options are generally granted at fair market value on the dates of grant. All optionees were employees or directors of the Company on the date of grant and throughout the term of the option except in the case of death, retirement, or disability. A total of 788,889 shares were reserved for option under the previous and current plans. Options granted prior to 1991 are generally exercisable at the cumulative rate of 20% per year after one year from the date of grant. Options granted subsequent to 1990 are exercisable at the cumulative rate of 25% per year after one year from the date of grant. Options expire over a period not to exceed ten years from the date of grant. Stock option activity during 1993, 1994 and 1995 follows:
NUMBER OF OPTION PRICE SHARES PER SHARE Outstanding at January 2, 1993..................................................... 183,218 $18.00 - $68.28 Granted in 1993.................................................................... 45,367 $34.50 - $44.55 Exercised in 1993.................................................................. (3,890 ) $18.00 - $34.89 Cancelled in 1993.................................................................. (27,234 ) $18.00 - $68.28 Outstanding at January 1, 1994..................................................... 197,461 $21.75 - $48.39 Granted in 1994.................................................................... 188,645 $17.25 - $33.00 Exercised in 1994.................................................................. (782 ) $ 24.00 Cancelled in 1994.................................................................. (46,670 ) $17.25 - $43.14 Outstanding at December 31, 1994................................................... 338,654 $17.25 - $48.39 Granted in 1995.................................................................... 40,882 $13.25 - $17.34 Cancelled in 1995.................................................................. (127,358 ) $17.25 - $48.39 Outstanding at December 30, 1995................................................... 252,178 $13.25 - $44.55 Exercisable at December 30, 1995................................................... 98,871 $17.25 - $44.55
RESTRICTED STOCK AWARDS The board of directors periodically awards restricted common stock to key management employees. Vesting of such awards is subject to future service requirements of five years from the date of each award. The difference between cash paid by the employee for the awarded shares, generally par value, and the market value of the shares as of the award date is amortized over the five-year service requirement periods. During 1993, 1994 and 1995, the board of directors awarded and issued 10,321, 16,792 and 29,294 shares, respectively. NOTE 11: EMPLOYEE BENEFIT PLANS DEFINED BENEFIT PENSION PLANS The Company and several of its subsidiaries have noncontributory defined benefit pension plans covering qualified salaried and hourly employees. The plans covering qualified salaried employees provide pension benefits based on the participant's final average salary before retirement. The plans covering qualified hourly employees provide pension benefits based on years of service. The Company's policy is to fund normal costs and amortization of prior service costs. 26 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 11: EMPLOYEE BENEFIT PLANS -- CONTINUED In addition to the qualified plans, the Company has a nonqualified retirement plan covering certain salaried employees. At December 31, 1994 and December 30, 1995, the Company had approximately $450,000 and $538,000, respectively, of assets available to fund future obligations of the nonqualified plan. These assets are included in intangible and other assets, and the related liability is included in deferred compensation and other liabilities in the accompanying consolidated balance sheets. The liability for the nonqualified retirement plan is reflected in the reconciliation of the funded status of the plans below. The following sets forth the funded status of the plans:
DECEMBER 30, DECEMBER 31, 1994 1995 ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS ASSETS BENEFITS IN THOUSANDS Actuarial present value of benefit obligations: Vested benefit obligation.......................................... $ (30,247) (973) (21,463) Accumulated benefit obligation..................................... $ (30,819) (1,442) (21,797) Projected benefit obligation for service rendered to date.......... (36,968) (2,384) (27,958) Less plan assets at fair value, primarily equity and fixed income investment funds.......................................... 35,798 -- 25,921 Projected benefit obligation in excess of plan assets.............. (1,170) (2,384) (2,037) Unrecognized net obligation (asset) at transition being amortized over 15 years.................................................... (572) -- 73 Unrecognized net (gain) loss....................................... (1,023) 589 (1,214) Unrecognized prior service cost.................................... 1,933 534 1,396 Adjustment required to recognize minimum liability................. -- (181) -- Pension liability recognized in the consolidated balance sheets........................................................... $ (832) (1,442) (1,782) ACCUMULATED BENEFITS EXCEED ASSETS Actuarial present value of benefit obligations: Vested benefit obligation.......................................... (18,623) Accumulated benefit obligation..................................... (19,037) Projected benefit obligation for service rendered to date.......... (20,901) Less plan assets at fair value, primarily equity and fixed income investment funds.......................................... 17,384 Projected benefit obligation in excess of plan assets.............. (3,517) Unrecognized net obligation (asset) at transition being amortized over 15 years.................................................... (568) Unrecognized net (gain) loss....................................... 2,315 Unrecognized prior service cost.................................... 644 Adjustment required to recognize minimum liability................. (527) Pension liability recognized in the consolidated balance sheets........................................................... (1,653)
Net pension expense for the plans for 1993, 1994 and 1995 included the following components:
1993 1994 1995 IN THOUSANDS Service costs-benefits earned during the period.................................................. $ 1,915 2,374 2,047 Interest cost on projected obligation............................................................ 2,644 3,101 3,186 Return on assets................................................................................. (4,737) (121) (9,036) Amortization of unrecognized net obligation (asset) at transition and net deferrals.............. 2,166 (2,522) 6,038 Net pension expense.............................................................................. $ 1,988 2,832 2,235
The Company also recorded in 1995 a net curtailment gain resulting from the Brown Jordan and LL&P divestitures totalling approximately $692,000. This curtailment gain was included in determining the restructuring expense in the 1995 consolidated statement of operations. The projected benefit obligation at December 31, 1994 and December 30, 1995 was determined using an assumed discount rate of 8.50% and 7.25%, respectively. The salary plans assume a long-term rate of increase in compensation of 4.50% to age 60, and 3% thereafter. The assumed long-term rate of return on plan assets is 8.5%. DEFINED CONTRIBUTION PLANS The Company has savings plans for certain employees which qualify under Section 401(k) of the Internal Revenue Code. The plans allow eligible employees to contribute up to a fixed percentage of their compensation, with the Company matching a portion of each employee's contributions. Company contributions under the plans aggregated approximately $687,000 in 1993, $635,000 in 1994, and $549,000 in 1995. 27 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 12: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company has plans which provide for postretirement health care benefits for certain employees. These benefits include major medical insurance with deductible and coinsurance provisions. The Company pays all benefits on a current basis and the plans are not funded. The components of the net postretirement benefit cost for 1993, 1994 and 1995 are as follows:
1993 1994 1995 IN THOUSANDS Service costs...................................................................................... $ 439 286 232 Interest costs of benefit obligation............................................................... 1,611 1,132 1,252 Amortization of transition obligation.............................................................. 1,031 759 759 $3,081 2,177 2,243
The plans' funded status as of December 31, 1994 and 1995 was as follows:
1994 1995 IN THOUSANDS Accumulated postretirement benefit obligation: Retirees.................................................................................. $ (9,758) (10,329) Active participants eligible to retire.................................................... (3,739) (4,191) Other active participants................................................................. (1,921) (2,480) (15,418) (17,000) Unrecognized net (gain) loss................................................................ (1,078) 338 Unrecognized transition obligation being amortized over 20 years............................ 13,665 12,906 Accrued postretirement benefit cost......................................................... $ (2,831) (3,756)
During 1994, the Company amended its retiree health care plan to limit the Company's contributions and to eliminate benefits for certain employees. The effect of these amendments was to reduce the December 31, 1994 accumulated postretirement benefit obligation and the unrecognized transition obligation by approximately $5,163,000. Additionally, the effect of the change was to reduce the net postretirement cost by approximately $801,000 in both 1994 and 1995. The postretirement benefit obligation was determined by application of the terms of the various plans using relevant actuarial assumptions. Health care costs are projected to increase at annual rates ranging from 8.00% in 1995 down to 5.50% in 1997 and thereafter. A one percent annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation at December 30, 1995 by approximately $788,000 and the service and interest cost components of the net postretirement benefit cost for 1995 would be approximately the same. The assumed discount rate used in determining the accumulated postretirement benefit obligation at December 31, 1994 and December 30, 1995 was 8.50% and 7.25%, respectively. 28 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 13: INCOME TAXES Components of income tax expense (benefit) for 1993, 1994 and 1995 are as follows:
1993 1994 1995 IN THOUSANDS Current: Federal......................................................................................... $1,855 1,769 (4,650) State........................................................................................... 492 144 (167) 2,347 1,913 (4,817) Deferred: Federal......................................................................................... 199 (1,034) (11,521) State........................................................................................... 15 (170) (1,898) 214 (1,204) (13,419) $2,561 709 (18,236)
The effective income tax rate on earnings (loss) before income taxes for the years ended January 1, 1994, December 31, 1994 and December 30, 1995 was 40.0%, 14.1% and 42.0%, respectively. The actual income tax expense (benefit) differs from the "expected" income tax expense (benefit) computed by applying the Federal income tax rate of 34% to earnings (loss) before income taxes for the years ended January 1, 1994, December 31, 1994 and December 30, 1995 as follows:
1993 1994 1995 IN THOUSANDS Computed "expected" income tax expense (benefit)................................................. $2,178 1,706 (14,765) Increases (reductions) due to: Restructuring and reorganization charges....................................................... -- -- (1,664) State income taxes, net of Federal income tax benefit.......................................... 335 28 53 Amortization of the excess of cost over the assigned value of net assets acquired.............. 250 463 587 Expenses subject to percentage limitations..................................................... 45 130 117 Utilization of capital loss carryforwards to offset income tax expense of realized capital gains............................................................................... -- (913) (1,655) Tax credits, net............................................................................... (92) (230) (571) Donation of appreciated property............................................................... -- (170) -- Foreign trade income exemptions................................................................ (99) (154) (193) Other.......................................................................................... (56) (151) (145) Actual income tax expense (benefit).............................................................. $2,561 709 (18,236)
During 1993, the effect of enacted changes in tax rates was to increase deferred income tax expense by approximately $469,000. During the years ended January 1, 1994 and December 31, 1994, the Company paid income taxes (net of refunds received) amounting to approximately $1,863,000 and $2,030,000, respectively. During the year ended December 30, 1995, the Company received refunds (net of taxes paid) of approximately $188,000. The Company expects to receive refunds of income taxes paid in the three prior years as a result of the allowable carryback of the net operating loss sustained in 1995. 29 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 13: INCOME TAXES -- CONTINUED The tax effects of temporary differences and tax loss carryforwards that give rise to significant portions of deferred tax assets and liabilities consist of the following:
DECEMBER 31, DECEMBER 30, 1994 1995 IN THOUSANDS Deferred tax liabilities: Inventories........................................................................ $ (7,226) (7,092) Property, plant and equipment...................................................... (8,315) (10,304) Intangible and other assets........................................................ (8,420) (7,201) Other.............................................................................. (2,428) (2,249) Total deferred tax liabilities.................................................. (26,389) (26,846) Deferred tax assets: Accounts receivable................................................................ 1,727 1,854 Inventories........................................................................ 668 3,145 Liabilities and reserves........................................................... 7,212 10,465 Restructuring and reorganization................................................... -- 8,064 Capital loss carryforwards......................................................... 1,674 -- Net operating loss carryforwards................................................... 1,885 1,885 Other.............................................................................. 435 409 Gross deferred tax assets....................................................... 13,601 25,822 Valuation allowances............................................................... (3,540) (1,885) Total deferred tax assets....................................................... 10,061 23,937 Net deferred tax liability........................................................... $(16,328) (2,909)
Deferred taxes are classified in the accompanying consolidated balance sheets as follows:
DECEMBER 31, DECEMBER 30, 1994 1995 IN THOUSANDS Prepaid expenses and other current assets............................................ $ -- 2,528 Accrued expenses and other current liabilities....................................... (1,080) -- Deferred income taxes................................................................ (15,248) (5,437) $(16,328) (2,909)
A valuation allowance was provided for the deferred tax assets related to capital loss carryforwards existing as of December 31, 1994. At that date, the Company had approximately $4,225,000 of capital loss carryforwards available to offset future capital gains, for which there was a $1,655,000 valuation allowance. The full amount of the capital loss carryforwards were utilized in 1995 to offset a like amount of realized capital gains, and the full valuation allowance of $1,655,000 was reduced accordingly. In 1994, a valuation allowance was also provided for the deferred tax assets related to acquired subsidiary net operating loss (NOL) carryforwards. With the purchase of the Pilliod stock in January 1994, the Company recorded a deferred tax asset of approximately $2,339,000 for Pilliod's NOL carryforwards along with a valuation allowance of a like amount. NOL carryforwards of approximately $1,150,000 were utilized later in 1994, and the valuation allowance was reduced accordingly. The excess of cost over the assigned value of net assets acquired decreased in 1994 approximately $453,000 in recognition of the tax benefits resulting from the utilization of the NOL carryforwards. The remaining NOL's of approximately $4,761,000 may be carried forward up to 13 more years to offset future earnings, subject to normal annual limitations prescribed by tax law. A valuation allowance of $1,885,000 remains in deferred taxes for these unexpired NOL carryforwards. Tax benefits recognized subsequent to 1995 relating to the valuation allowance for deferred tax assets at December 30, 1995 will be applied to reduce the excess of cost over the assigned value of Pilliod's net assets acquired. 30 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 13: INCOME TAXES -- CONTINUED The Company believes that it is more likely than not the results of future operations will generate sufficient taxable income to realize the remaining deferred tax assets. NOTE 14: LEASES The Company leases manufacturing facilities, various warehouses, sales offices and showrooms, as well as manufacturing, transportation and data processing equipment under operating leases which expire at various dates through 2026. Future minimum lease payments under noncancelable operating leases as of December 30, 1995 are:
IN THOUSANDS Fiscal year: 1996.................................................................................... $ 10,489 1997.................................................................................... 9,298 1998.................................................................................... 7,602 1999.................................................................................... 6,752 2000.................................................................................... 4,474 Thereafter.............................................................................. 3,028 Total.............................................................................. $ 41,643
In 1994 and 1995, the Company entered into sale leaseback agreements for certain manufacturing equipment located at several of its manufacturing facilities. These transactions have been recorded as sales. The cash proceeds from the sales of approximately $14,566,000 and $6,691,000, respectively, were used to repay long-term debt. The gains from the sales of approximately $683,000 and $323,000, respectively, have been recorded in the accompanying consolidated balance sheets as deferred income and are being amortized into operations over the term of the leases. Under the agreements, the Company will lease the equipment over 69 months. The Company has the option to purchase the equipment at the end of the lease terms. In February 1996, the Company repurchased $4,648,000 of leased equipment utilizing long-term debt in connection with the divestiture of Fournier Furniture. Rental expense for cancelable and noncancelable operating leases charged to operations was as follows:
IN THOUSANDS Fiscal year: 1993.................................................................................... $ 10,275 1994.................................................................................... 11,459 1995.................................................................................... 14,870
Rental expense includes contingent rentals based upon usage of transportation equipment under cancelable and noncancelable operating leases which totaled approximately $650,000 in 1993, $762,000 in 1994, and $618,000 in 1995. NOTE 15: DEALER FINANCING ARRANGEMENT The Company has a cancelable financing arrangement whereby certain notes receivable from furniture dealers are assigned with recourse to a bank. The terms of the notes receivable, which are collateralized by inventories held by the furniture dealers, range from 12 to 48 months with interest rates ranging from 6% to prime plus 1 1/4%. Upon cancellation of the financing arrangement, the bank retains the previously assigned notes receivable and, as such, the notes receivable and related obligations under the dealer financing arrangement are not recorded in the December 31, 1994 and December 30, 1995 consolidated balance sheets. Total notes receivable assigned during fiscal 1993, 1994 and 1995 were approximately $7,503,000, $4,286,000 and $2,703,000, respectively. At December 30, 1995, the Company was contingently liable for approximately $4,336,000 of receivables transferred with recourse to the bank under the dealer financing arrangement for which the Company maintains a $2,800,000 letter of credit agreement to fund any liabilities which might arise under the program. In the opinion of management, adequate provision for potential losses under the dealer financing arrangement has been included in the allowances for doubtful receivables, discounts, returns and allowances in the accompanying consolidated balance sheets. 31 LADD FURNITURE, INC. AND SUBSIDIARIES SELECTED QUARTERLY DATA DOLLAR AND SHARE DATA IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
FISCAL 1994 FISCAL 1995 4TH 3RD 2ND 1ST 4TH 3RD 2ND QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER OPERATING STATEMENT DATA Net sales................................... $146,172 153,182 153,182 139,039 152,981 159,144 148,989 Cost of sales............................... 122,242 123,640 122,657 113,455 125,379 130,549 133,492 Gross profit.............................. 23,930 29,542 30,525 25,584 27,602 28,595 15,497 Selling, general and administrative expenses.................................. 24,784 23,562 23,996 21,569 25,792 23,402 28,335 Restructuring expense....................... -- -- -- -- (576 ) -- 25,696 Operating income (loss)................... (854) 5,980 6,529 4,015 2,386 5,193 (38,534) Other deductions (income): Interest expense.......................... 2,771 2,328 2,206 1,634 3,152 2,997 2,846 Other (net)............................... 793 445 524 (48 ) 661 163 2,687 Earnings (loss) before income taxes......... (4,418) 3,207 3,799 2,429 (1,427 ) 2,033 (44,067) Income tax expense (benefit)................ (2,121) 962 1,094 774 (1,645 ) 142 (16,744) Net earnings (loss)....................... $ (2,297) 2,245 2,705 1,655 218 1,891 (27,323) Depreciation................................ $ 3,896 3,626 3,476 3,145 2,780 2,677 3,555 Amortization................................ 1,205 864 893 707 804 755 1,304 Cash dividends paid......................... 693 693 692 693 348 348 695 Weighted average shares outstanding......... 7,700 7,700 7,697 7,690 7,729 7,726 7,725 PER SHARE DATA Net sales................................... $ 18.98 19.89 19.90 18.08 19.79 20.60 19.29 Net earnings (loss)......................... (0.30) 0.29 0.35 0.22 0.03 0.24 (3.54) Cash dividends.............................. 0.09 0.09 0.09 0.09 0.05 0.05 0.09 Quarter-end book value...................... 19.73 20.11 19.89 19.63 16.20 16.21 16.00 BALANCE SHEET DATA Net working capital......................... $123,685 92,421 96,349 104,454 79,528 84,929 89,109 Net property, plant and equipment........... 109,522 121,364 117,780 113,580 82,586 82,567 83,826 Total assets................................ 378,816 402,213 394,373 390,716 312,986 336,868 337,075 Long-term debt.............................. 143,584 125,782 126,967 130,635 112,598 140,182 145,287 Shareholders' equity........................ 151,906 154,821 153,138 151,104 125,197 125,224 123,578 RATIOS Gross profit margin......................... 16.4% 19.3 19.9 18.4 18.0 18.0 10.4 Operating profit (loss) margin.............. (0.6) 3.9 4.3 2.9 1.6 3.3 (25.9) Return (loss) on sales...................... (1.6) 1.5 1.8 1.2 0.1 1.2 (18.3) Effective income tax rate................... 48.0 30.0 28.8 31.9 N/M N/M 38.0 Long-term debt to capitalization............ 45.3 42.1 42.5 43.4 45.1 50.7 51.8 STOCK DATA High........................................ $ 19.50 24.00 27.75 35.25 13.63 14.13 16.88 Low......................................... 14.63 17.63 18.00 24.75 12.88 12.88 12.25 Close....................................... 19.50 18.00 21.00 26.25 13.13 13.00 13.00 Trading volume (shares)..................... 2,859 1,613 778 1,223 1,203 1,423 2,523 1ST QUARTER OPERATING STATEMENT DATA Net sales................................... 153,388 Cost of sales............................... 126,560 Gross profit.............................. 26,828 Selling, general and administrative expenses.................................. 23,816 Restructuring expense....................... -- Operating income (loss)................... 3,012 Other deductions (income): Interest expense.......................... 2,803 Other (net)............................... 174 Earnings (loss) before income taxes......... 35 Income tax expense (benefit)................ 11 Net earnings (loss)....................... 24 Depreciation................................ 3,659 Amortization................................ 895 Cash dividends paid......................... 695 Weighted average shares outstanding......... 7,705 PER SHARE DATA Net sales................................... 19.91 Net earnings (loss)......................... 0.00 Cash dividends.............................. 0.09 Quarter-end book value...................... 19.57 BALANCE SHEET DATA Net working capital......................... 133,260 Net property, plant and equipment........... 109,014 Total assets................................ 389,056 Long-term debt.............................. 153,102 Shareholders' equity........................ 151,176 RATIOS Gross profit margin......................... 17.5 Operating profit (loss) margin.............. 2.0 Return (loss) on sales...................... 0.0 Effective income tax rate................... 31.4 Long-term debt to capitalization............ 47.0 STOCK DATA High........................................ 19.88 Low......................................... 13.88 Close....................................... 14.63 Trading volume (shares)..................... 4,450
NOTES: Long-term debt excludes current installments. Pilliod Furniture included in consolidated results from its January 31, 1994 acquisition by LADD. Stock price and volume data for calendar quarters. N/M = Not Meaningful. All stock data has been adjusted to reflect the 1 for 3 reverse stock split effective May 16, 1995. 32 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No changes in accountants or disagreements with accountants on accounting or financial disclosure occurred in fiscal years 1995 and 1994. PART III Part III is omitted as the Company intends to file with the Commission within 120 days after the end of the Company's fiscal year a definitive proxy statement pursuant to Regulation 14A which will involve the election of directors. With the exception of the information specifically required by Items 10, 11, 12 and 13 of this Part III contained in the Company's proxy statement, the Company's proxy statement is not incorporated by reference nor deemed to be filed as a part of this report, including without limitation the Board Compensation Committee Report on Executive Compensation required by Item 402(k) of Regulation S-K and the Performance Graph required by Item 402(l) of Regulation S-K. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See reference to definitive proxy statement under Part III. See pages 4-5; 15 in the Company's definitive proxy statement. ITEM 11. EXECUTIVE COMPENSATION See reference to definitive proxy statement under Part III. See pages 9-14 in the Company's definitive proxy statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See reference to definitive proxy statement under Part III. See pages 2-3 in the Company's definitive proxy statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See reference to definitive proxy statement under Part III. See pages 13-14 in the Company's definitive proxy statement. 33 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE(S) IN THIS FORM 10-K (a) The following documents are filed as part of this report: (1) Financial Statements Consolidated Statements of Operations for the years ended January 1, 1994, December 31, 1994, and December 30, 1995.................................................................................. 16 Consolidated Balance Sheets as of December 31, 1994 and December 30, 1995.......................... 17 Consolidated Statements of Cash Flows for the years ended January 1, 1994, December 31, 1994, and December 30, 1995.................................................................................. 18 Consolidated Statements of Shareholders' Equity for the years ended January 1, 1994, December 31, 1994, and December 30, 1995........................................................................ 19 Notes to Consolidated Financial Statements......................................................... 20-31 Independent Auditors' Report....................................................................... 15 (2) Index to Financial Statement Schedule: Independent Auditors' Report For the years ended January 1, 1994, December 31, 1994, and December 30, 1995........................................................................................... (F-1) II -- Valuation and Qualifying Accounts and Reserves............................................... (F-2) All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (3) List of Executive Compensation Plans LADD Furniture, Inc. 1994 Incentive Stock Option Plan Employee Restricted Stock Purchase Agreements for the named executive officers of the registrant as required by Item 402(a)(2) of Regulation S-K Executive Employment Agreements with each of Richard R. Allen, Fred L. Schuermann, Jr., William S. Creekmuir, Kenneth E. Church, Donald L. Mitchell, and Michael P. Haley LADD Furniture, Inc. Supplemental Retirement Income Plan LADD Furniture, Inc. Long-Term Incentive Plan (1994) LADD Furniture, Inc. Long-Term Incentive Plan (1995) LADD Furniture, Inc. Long-Term Incentive Plan (1996) LADD Furniture, Inc. 1996 Management Incentive Plan (b) No reports on Form 8-K were filed in the last quarter of fiscal 1995. (c) Exhibits 3. Articles of Incorporation and Amendments. (Previously filed as Exhibit 10 to Item 14 of the Company's Annual Report on Form 10-K for the year ended December 29, 1990, filed with the Commission on March 28, 1991 and as Exhibit 10.1 to Item 6 of the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 1995, filed with the Commission on August 15, 1995) Enclosed as Exhibit 3.1 to this Annual Report on Form 10-K for the year ended December 30, 1995 3.1 Bylaws (as amended March 5, 1996) 10. LADD Furniture, Inc. 1994 Incentive Stock Option Plan (Previously filed as Exhibit 10.1 to Item 6 of the Company's Quarterly Report on Form 10-Q for the quarter ended July 2, 1994, filed with the Commission on August 16, 1994)
34 Employee Restricted Stock Purchase Agreement between the Company and Fred L. Schuermann, Jr. dated February 25, 1993 Employee Restricted Stock Purchase Agreement between the Company and William S. Creekmuir dated February 25, 1993 (Previously filed as Exhibit 10 to Item 14 to the Company's Annual Report on Form 10-K for the year ended January 2, 1993, filed with the Commission on March 30, 1993) Employee Restricted Stock Purchase Agreement between the Company and Fred L. Schuermann, Jr. dated February 24, 1994 Employee Restricted Stock Purchase Agreement between the Company and William S. Creekmuir dated February 24, 1994 (Previously filed as Exhibits 10.3 and 10.4 to the Company's Annual Report on Form 10-K for the year ended January 1, 1994, filed with the Commission on March 31, 1994) Employee Restricted Stock Purchase Agreement between the Company and Fred L. Schuermann, Jr. dated March 2, 1995 Employee Restricted Stock Purchase Agreement between the Company and William S. Creekmuir dated March 2, 1995 (Previously filed as Exhibits 10.2 and 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, filed with the Commission on March 30, 1995.) Enclosed as Exhibits 10.1 - 10.6 to this Annual Report on Form 10-K for the year ended December 30, 1995 10.1 Employee Restricted Stock Purchase Agreement between the Company and Kenneth E. Church dated February 28, 1991. 10.2 Employee Restricted Stock Purchase Agreement between the Company and Kenneth E. Church dated February 25, 1993. 10.3 Employee Restricted Stock Purchase Agreement between the Company and Kenneth E. Church dated February 24, 1994. 10.4 Employee Restricted Stock Purchase Agreement between the Company and Kenneth E. Church dated March 2, 1995. 10.5 Employee Restricted Stock Purchase Agreement between the Company and Michael P. Haley dated June 23, 1994. 10.6 Employee Restricted Stock Purchase Agreement between the Company and Michael P. Haley dated March 2, 1995. Executive Employment Agreement between the Company and Fred L. Schuermann, Jr. dated October 28, 1994 (Previously filed as Exhibit 10.2 to Item 6 of the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 1994, filed with the Commission on November 15, 1994) Enclosed as Exhibits 10.7 - 10.10 to this Annual Report on Form 10-K for the year ended December 30, 1995 10.7 Executive Employment Agreement between the Company and William S. Creekmuir dated December 1, 1995. 10.8 Executive Employment Agreement between the Company and Kenneth E. Church dated May 22, 1995. 10.9 Executive Employment Agreement between the Company and Donald L. Mitchell dated January 1, 1996. 10.10 Executive Employment Agreement between the Company and Michael P. Haley dated March 5, 1996. Asset Purchase Agreement, dated as of June 1, 1989, among the Company, Maytag Corporation, The BJC Company and The Gunlocke Company (Previously filed as Exhibit 10(a) to the Company's Current Report on Form 8-K, dated as of June 1, 1989, filed with the Commission on June 2, 1989)
35 First Amendment and Waiver to Asset Purchase Agreement, dated as of July 7, 1989, by and among the Company, Pennsylvania House, Inc., The McGuire Furniture Company, The Kittinger Company, Charter Furniture, Inc., Brown Jordan Company and The Gunlocke Company, a North Carolina corporation, and Maytag Corporation, The Gunlocke Company, a Delaware corporation, and The BJC Company (Previously filed as Exhibit 10 to the Company's Current Report on Form 8-K, filed with the Commission on July 21, 1989, as amended by Form 8 filed with the Commission on September 18, 1989) LADD Furniture, Inc. Supplemental Retirement Income Plan (Previously filed as Exhibit 10 to the Company's Annual Report on Form 10-K, for the year ended December 30, 1989, filed with the Commission on March 30, 1990) Enclosed as Exhibit 10.11 - 10.13 to this Annual Report on Form 10-K for the year ended December 30, 1995 10.11 LADD Furniture, Inc. Long-Term Incentive Plan (1994) 10.12 LADD Furniture, Inc. Long-Term Incentive Plan (1995) 10.13 LADD Furniture, Inc. Long-Term Incentive Plan (1996) Amended and Restated Credit Agreement, dated as of October 19, 1994, between the Company, NationsBank of North Carolina, N.A. as agent, and each of the banks signatory to the Credit Agreement (Previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, dated October 19, 1994, filed with the Commission on November 14, 1994) First Amendment to Amended and Restated Credit Agreement dated as of February 16, 1995, between the Company, NationsBank, N.A., as agent and each of the banks signatory thereto. (Previously filed as Exhibit 10.4 to the Company's Report on Form 10-K for the year ended December 31, 1994, filed with the Commission on March 30, 1995). Second Amendment to Amended and Restated Credit Agreement dated as of March 30, 1995, between the Company, NationsBank, N.A., as agent, and each of the banks signatory thereto. (Previously filed as Exhibit 10.4 to Item 6 of the Company's Quarterly Report on Form 10-Q for the quarter ended April 1, 1995, filed with the Commission on May 10, 1995) Third Amendment to Amended and Restated Credit Agreement dated as of August 14, 1995, between the Company, NationsBank, N.A., as agent, and each of the banks signatory thereto. (Previously filed as Exhibit 10.4 of Item 6 of the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 1995, filed with the Commission on August 15, 1995.) Equipment Leasing Agreement dated as of December 15, 1994 between BOT Financial Corporation and the Company Equipment Leasing Agreement dated as of December 15, 1994 between UnionBanc Leasing Corporation and the Company (Previously filed as Exhibits 10.1 and 10.2 to Item 7 of the Company's Current Report on Form 8-K, dated December 28, 1994, filed with the Commission on January 15, 1995) Amendment No. 1 dated as of June 7, 1995 to the Equipment Leasing Agreement dated as of December 15, 1994 between Unionbanc Leasing Corporation and the Company. Amendment No. 1 dated as of June 7, 1995 to the Equipment Leasing Agreement dated as of December 15, 1994 between BOT Financial Corporation and the Company. Amendment No. 1 dated as of June 15, 1995 amending Lease Supplement No. One to the Equipment Leasing Agreement dated as of December 15, 1994 between BOT Financial Corporation and the Company. (Previously filed as Exhibits 10.2 - 10.4 to Item 6 of the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 1995, filed with the Commission on August 15, 1995) Transfer and Administration Agreement dated as of March 30, 1995, between Enterprise Funding Corporation, LADD Funding Corp., and LADD Furniture, Inc.
36 Receivables Purchase Agreement dated as of March 30, 1995, between LADD Funding Corp. and LADD Furniture, Inc. Receivables Purchase Agreement dated as of March 30, 1995, between LADD Furniture, Inc., Clayton-Marcus Company, Inc., Barclay Furniture Co., and Pilliod Furniture, Inc. (Previously filed as Exhibits 10.1 - 10.3 to Item 6 of the Company's Quarterly Report on Form 10-Q for the quarter ended April 1, 1995, filed with the Commission on May 10, 1995) Stock Purchase Agreement dated November 7, 1995 between LADD Furniture, Inc. and BJCL, Inc. First Amendment to Stock Purchase Agreement dated December 29, 1995 among LADD Furniture, Inc., BJCL, Inc. and BJ Acquisition Corp. Agreement of Sale between BJIP, Inc. and Cherry Grove, Inc. dated December 29, 1995. Asset Purchase Agreement dated November 6, 1995 between LADD Furniture, Inc. and Lea Lumber & Plywood, L.L.C. First Amendment to Asset Purchase Agreement dated December 29, 1995 between LADD Furniture, Inc. and Lea Lumber & Plywood, L.L.C. (Previously filed as Exhibits 2.1 - 2.5 to the Company's Current Report on Form 8-K dated December 29, 1995 filed with the Commission on January 16, 1996) Stock Purchase Agreement dated January 5, 1996 among LADD Furniture, Inc., Fournier Furniture, Inc. and Fournier Acquisition Co. First Amendment to Stock Purchase Agreement dated February 26, 1996 among LADD Furniture, Inc., Fournier Furniture, Inc., Fournier Acquisition Co., and Furniture Acquisition Co. (Previously filed as Exhibits 2.1 and 2.2 to the Company's Current Report on Form 8-K dated February 26, 1996, filed with the Commission on March 12, 1996.) Enclosed as Exhibit 10.14 to this Annual Report on Form 10-K for the year ended December 30, 1995 10.14 1996 Management Incentive Plan 22. Subsidiaries of Registrant American Drew, Inc., a North Carolina corporation American Furniture Company, Incorporated, a Virginia corporation Barclay Furniture Co., a Mississippi corporation Cherry Grove, Inc., a Delaware corporation (in process of being dissolved) Clayton-Marcus Company, Inc., a North Carolina corporation Kenbridge Furniture, Inc., a North Carolina corporation LFI Capital Management, Inc., a Delaware corporation LADD Contract Sales Corporation, a North Carolina corporation LADD Funding Corp., a Delaware corporation LADD International Sales Corp., a Barbados corporation LADD Transportation, Inc., a North Carolina corporation Lea Industries, Inc., a North Carolina corporation Lea Industries, Inc., a Tennessee corporation Lea Industries of Virginia, Inc., a Virginia corporation Lea Lumber and Plywood Co., a Virginia corporation Pennsylvania House, Inc., a North Carolina corporation Pilliod Furniture, Inc., a North Carolina corporation
37 Enclosed as Exhibit 24.1 to this Annual Report on Form 10-K for the year ended December 30, 1995 24.1 Consent of KPMG Peat Marwick LLP Enclosed as Exhibit 27.1 to this Annual Report on Form 10-K for the year ended December 27.1 Financial Data Schedule (EDGAR version only)
38 SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LADD FURNITURE, INC. (Registrant) By: /s/ WILLIAM S. CREEKMUIR 3/28/96 WILLIAM S. CREEKMUIR (DATE) EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER, SECRETARY, AND TREASURER (PRINCIPAL FINANCIAL OFFICER) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /S/ DON A. HUNZIKER 3/28/96 /S/ RICHARD R. ALLEN 3/28/96 DON A. HUNZIKER (DATE) RICHARD R. ALLEN (DATE) DIRECTOR DIRECTOR /S/ O. WILLIAM FENN, JR. 3/28/96 /S/ DARYL B. ADAMS 3/28/96 O. WILLIAM FENN, JR. (DATE) DARYL B. ADAMS (DATE) DIRECTOR VICE PRESIDENT, CORPORATE CONTROLLER, ASSISTANT SECRETARY, AND ASSISTANT TREASURER (PRINCIPAL ACCOUNTING OFFICER) /S/ THOMAS F. KELLER 3/28/96 /S/ JAMES H. CORRIGAN, JR. 3/28/96 THOMAS F. KELLER (DATE) JAMES H. CORRIGAN, JR. (DATE) DIRECTOR DIRECTOR /S/ WILLIAM B. CASH 3/28/96 /S/ L. GLENN ORR, JR. 3/28/96 WILLIAM B. CASH (DATE) L. GLENN ORR, JR. (DATE) DIRECTOR DIRECTOR /S/ FRED L. SCHUERMANN, JR. 3/28/96 /S/ WILLIAM S. CREEKMUIR 3/28/96 FRED L. SCHUERMANN, JR. (DATE) WILLIAM S. CREEKMUIR (DATE) PRESIDENT, CHIEF EXECUTIVE OFFICER AND EXECUTIVE VICE PRESIDENT, CHIEF DIRECTOR FINANCIAL OFFICER, SECRETARY, AND TREASURER (PRINCIPAL FINANCIAL OFFICER)
39 EX-3 2 EXHIBIT 3.1 EXHIBIT 3.1 AMENDED AND RESTATED BYLAWS OF LADD FURNITURE, INC. Amended and Restated February 28, 1991 Amended October 9, 1991 Amended February 25, 1993 Amended March 5, 1996 TABLE OF CONTENTS ARTICLE I
OFFICES 1. Principal Office . . . . . . . . . . . . . . . . . . . . . . . 1 2. Registered Office . . . . . . . . . . . . . . . . . . . . . . . 1 3. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II MEETINGS OF SHAREHOLDERS 1. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . 1 2. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . 1 3. Substitute Annual Meeting . . . . . . . . . . . . . . . . . . . 1 4. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . 2 5. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . 2 6. Shareholders List . . . . . . . . . . . . . . . . . . . . . . . 3 7. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8. Voting of Shares and Voting Groups . . . . . . . . . . . . . . 3 9. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 10. Inspectors of Election . . . . . . . . . . . . . . . . . . . . 4 ARTICLE III DIRECTORS 1. General Powers . . . . . . . . . . . . . . . . . . . . . . . . 5 2. Number, Term, and Qualification . . . . . . . . . . . . . . . . 5 3. Election of Directors . . . . . . . . . . . . . . . . . . . . . 5 4. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6. Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 6 8. Executive and Other Committees . . . . . . . . . . . . . . . . 6 ARTICLE IV MEETINGS OF DIRECTORS 1. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . 8 2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . 8 3. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . 8 4. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 5. Manner of Acting . . . . . . . . . . . . . . . . . . . . . . . 8 6. Informal Action by Directors . . . . . . . . . . . . . . . . . 9 7. Attendance by Telephone . . . . . . . . . . . . . . . . . . . . 9 ARTICLE V OFFICERS 1. Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2. Appointment and Term . . . . . . . . . . . . . . . . . . . . . 10 3. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 10 5. President . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 6. Executive Vice Presidents, Senior Vice Presidents, and Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . 10 7. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 9. Assistant Secretaries and Treasurers . . . . . . . . . . . . . 11 10. Corporate Controller and Assistant Controllers . . . . . . . . 12 11. Executive Officers . . . . . . . . . . . . . . . . . . . . . . 12 12. Chairman Emeritus . . . . . . . . . . . . . . . . . . . . . . . 12 13. Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 14. Voting Upon Stocks . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE VI CERTIFICATES FOR AND TRANSFER OF SHARES 1. Certificates for Shares . . . . . . . . . . . . . . . . . . . . 12 2. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . 13 3. Transfer Agent and Registrar . . . . . . . . . . . . . . . . . 13 4. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5. Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . 14 6. Holder of Record . . . . . . . . . . . . . . . . . . . . . . . 14 7. Shares held by Nominees . . . . . . . . . . . . . . . . . . . . 14 8. Acquisition by Corporation of its Own Shares . . . . . . . . . 15 9. Shareholder Protection Act . . . . . . . . . . . . . . . . . . 15 10. Control Share Acquisition Act . . . . . . . . . . . . . . . . . 15 ARTICLE VII INDEMNIFICATION AND REIMBURSEMENT OF DIRECTORS AND OFFICERS 1. Indemnification for Expenses and Liabilities . . . . . . . . . 15 2. Advance Payment of Expenses . . . . . . . . . . . . . . . . . . 16 3. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE VIII GENERAL PROVISIONS 1. Distributions . . . . . . . . . . . . . . . . . . . . . . . . . 17 2. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4. Effective Date of Notice. . . . . . . . . . . . . . . . . . . . 17 5. Corporate Records . . . . . . . . . . . . . . . . . . . . . . . 17 6. Bylaw Amendments . . . . . . . . . . . . . . . . . . . . . . . 18 7. Amendments to Articles of Incorporation . . . . . . . . . . . . 18 AMENDED AND RESTATED BYLAWS OF LADD FURNITURE, INC. ARTICLE I OFFICES 1. Principal Office. The principal office of the Corporation shall be located in High Point, Guilford County, North Carolina or such other place as is designated by the Board of Directors. 2. Registered Office. The registered office of the Corporation required by law to be maintained in the State of North Carolina may be, but need not be, identical with the principal office. 3. Other Offices. The Corporation may have offices at such other places, either within or without the State of North Carolina, as the Board of Directors may from time to time determine or as the affairs of the Corporation may require. ARTICLE II MEETINGS OF SHAREHOLDERS (Amended March 5, 1996) 1. Place of Meetings. All meetings of shareholders shall be held at the principal office of the Corporation or at such other place, either within or without the State of North Carolina, as shall be designated in the notice of the meeting or agreed upon by a majority of the shareholders entitled to vote thereat. 2. Annual Meeting. The annual meeting of the shareholders shall be held at the principal office of the Corporation or at such other place, either within or without the State of North Carolina, on such day and at such time during the second quarter of the Corporation's fiscal year as the Board of Directors shall from time to time determine, for the purpose of electing Directors of the Corporation and for the transaction of such other business as may be properly brought before the meeting. 3. Substitute Annual Meeting. If the annual meeting shall not be held on the day designated by these Bylaws, a substitute annual meeting may be called in accordance with the provisions of Paragraph 4 of this Article II. A meeting so called shall be designated and treated for all purposes as the annual meeting. 4. Special Meetings. Special meetings of the shareholders may be called at any time by the Chairman of the Board, the President, the Secretary, or the Board of Directors of the Corporation. 5. Notice of Meetings. (a) Written or printed notice stating the time and place of the meeting shall be delivered not less than ten nor more than sixty days before the date thereof, either personally or by telegraph, teletype or other form of wire or wireless communication, or by facsimile transmission, mail, or by private carrier, or by any other means permitted by law, by or at the direction of the Chairman of the Board, Board of Directors, President, Secretary, or other person calling the meeting, to each shareholder of record entitled to vote at such meeting, provided that such notice must be given to all shareholders, including nonvoting shareholders, with respect to any meeting at which a merger, share exchange, sale of assets other than in the regular course of business, or voluntary dissolution is to be considered and in such other instances as required by law. If a new record date for the adjourned meeting is fixed pursuant to Paragraph 4 of Article VII, notice of the adjourned meeting shall be given to persons who are shareholders as of the new record date. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the record of shareholders of the Corporation, with postage thereon prepaid. (b) In the case of an annual or substitute annual meeting, the notice of meeting need not specifically state the business to be transacted thereat unless it is a matter, other than election of Directors, on which the vote of the shareholders is expressly required by the provisions of the North Carolina Business Corporation Act or notice of such purpose is otherwise required by law to be provided. In the case of a special meeting, the notice of meeting shall specifically state the purpose or purposes for which the meeting is called. (c) When a meeting is adjourned for more than one hundred twenty days or a new record date is or must be fixed as required by law, notice of the adjourned meeting shall be given as in the case of an original meeting. When a meeting is adjourned for one hundred twenty days or less in any one adjournment, it shall not be necessary to give any notice of the new date, time and place of the adjourned meeting or of the business to be transacted thereat other than by announcement at the meeting at which the adjournment is taken. (d) A shareholder in a signed writing may waive notice of any meeting before or after the date and time stated in the notice by delivering such waiver to the Corporation for inclusion in the minutes. Attendance by a shareholder at a meeting constitutes a waiver of notice of such meeting, unless at the beginning of the meeting the shareholder objects to holding the meeting or transacting business at the meeting, or objects to considering a matter not within the purpose or purposes described in the meeting notice before it is voted on. 2 6. Shareholders List. After fixing the record date for a meeting, the Secretary of the Corporation shall prepare an alphabetical list of the shareholders entitled to notice of such meeting or any adjournment thereof, arranged by voting group, class and series, with the address of and number of shares held by each. Such list shall be kept on file at the principal office of the Corporation, or at a place identified in the meeting notice in the city where the meeting will be held, beginning two business days after notice of such meeting is given and continuing through the meeting, and on written demand shall be subject to inspection or copying by any shareholder, his agent or attorney at any time during regular business hours. This list shall also be produced and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder, his agent or attorney during the entire time of the meeting or any adjournment. 7. Quorum. (a) Unless otherwise provided by law, a majority of the votes entitled to be cast on a matter by a separate voting group shall constitute a quorum of such voting group on that matter at a meeting of shareholders. Abstentions and broker non-votes shall be counted for purposes of determination of the presence of a quorum. A separate voting group may only take action on a matter at a meeting if a quorum of those shares are present with respect to that matter. In the absence of a quorum at the opening of any meeting of shareholders, such meeting may be adjourned from time to time by the vote of a majority of the shares voting on the motion to adjourn, but no other business may be transacted until and unless a quorum is present. When a quorum is present at any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. If a quorum is present at the original meeting, a quorum need not be present at an adjourned meeting to transact business. (b) At a meeting at which a quorum is present, a separate voting group may continue to do business until adjournment, notwithstanding the withdrawal of sufficient shareholders to leave less than a quorum of the separate voting group. 8. Voting of Shares and Voting Groups. (a) Except as otherwise provided by the Articles of Incorporation or by law, each outstanding share having voting rights shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. All shares entitled to vote and be counted together collectively on a matter as provided by the Articles of Incorporation or by the North Carolina Business Corporation Act shall constitute a single voting group. Additional required voting groups shall be determined in accordance with the Articles of Incorporation, the Bylaws, and the North Carolina Business Corporation Act. (b) Except in the election of Directors, at a shareholder meeting duly held and at which a quorum is present, action on a matter by a voting group shall be approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the vote by a greater number is required by law or by the Articles of 3 Incorporation or Bylaws of the Corporation. For such actions, abstentions and broker non-votes shall not be treated as negative votes and shall only be counted for purposes of determining whether a quorum is present at the meeting. Corporate action on such matters shall be taken only when approved by each and every voting group entitled to vote as a separate voting group on such matter as provided by the Articles of Incorporation or Bylaws or by the North Carolina Business Corporation Act. (c) Voting on all matters except the election of Directors shall be by voice vote or by a show of hands, unless prior to the voting on any matter, the chairman of the meeting directs that voting on such matter shall be by ballot. (d) Absent special circumstances, shares of the Corporation shall not be entitled to vote if they are owned, directly or indirectly, by another corporation in which the Corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation; provided that this provision does not limit the power of the Corporation to vote its own shares held by it in a fiduciary capacity. 9. Proxies. Shares may be voted either in person or by one or more agents authorized by a written proxy executed by the shareholder or by his duly authorized attorney-in-fact. A proxy shall not be valid after the expiration of eleven months from the date of its execution, unless the person executing it specifies therein the length of time for which it is to continue in force, or limits its use to a particular meeting. Any proxy shall be revocable by the shareholder unless the written appointment expressly and conspicuously provides that it is irrevocable and the appointment is coupled with an interest as required by law. The shareholder may revoke the proxy by filing with the Secretary of the Corporation either a written instrument of revocation or a duly executed proxy bearing a later date or by attending the meeting and voting his shares in person. 10. Inspectors of Election. (a) Appointment of Inspectors of Election. In advance of any meeting of shareholders, the Board of Directors may appoint any persons, other than nominees for office, as inspectors of election to act at such meeting or any adjournment thereof. If inspectors of election are not so appointed, the chairman of any such meeting may appoint inspectors of election at the meeting. The number of inspectors shall be either one or three. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the Board of Directors in advance of the meeting or at the meeting by the person acting as chairman. (b) Duties of Inspectors. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine the result and do 4 such acts as may be proper to conduct the election or vote with fairness to all shareholders. The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. (c) Vote of Inspectors. If there are three inspectors of election, the decision, act, or certificate of a majority shall be effective in all respects as the decision, act, or certificate of all. (d) Report of Inspectors. On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge or question or matter determined by them and shall execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated therein. ARTICLE III DIRECTORS (Amended February 25, 1993 and March 5, 1996) 1. General Powers. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed by, the Board of Directors or by such committees as the Board of Directors may establish pursuant to these Bylaws. 2. Number, Term, and Qualification. The number of Directors of the Corporation shall be not less than three nor more than nine as may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or by the Board of Directors. If the number of Directors so determined within such range is to be increased or decreased by the Board of Directors, then notice of the meeting at which such action is proposed to be taken shall be given, stating that a purpose of the meeting is such increase or decrease; or all of the Directors then in office shall be present at such meeting; or those not present at any time shall waive notice thereof in writing. Each Director shall hold office until his death, resignation, retirement, removal, disqualification or his successor is elected and qualifies. Directors need not be residents of the State of North Carolina or shareholders of the Corporation. 3. Election of Directors. Except as provided in Paragraph 5 of this Article III, Directors shall be elected at the annual meeting of shareholders; and those persons who receive the highest number of votes at a meeting at which a quorum is present shall be deemed to have been elected. If any shareholder so demands, election of Directors shall be by ballot. 4. Removal. Directors may be removed from office with or without cause by a vote of shareholders at a shareholders' meeting duly held at which a quorum is present, provided 5 the notice of the shareholders' meeting at which such action is to be taken states that a purpose of the meeting is removal of the director and the number of votes cast to remove the Director exceeds the number of votes cast not to remove him. If a Director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If any Directors are so removed, new Directors may be elected at the same meeting. 5. Vacancies. A vacancy occurring in the Board of Directors, including, without limitation, a vacancy created by an increase in the authorized number of Directors or resulting from the shareholders' failure to elect the full authorized number of Directors, may be filled by the Board of Directors or, if the Directors remaining in office constitute less than a quorum of the Directors, by the affirmative vote of a majority of all remaining Directors or by the sole remaining Director. If the vacant office was held by a Director elected by a voting group, only the remaining Director or Directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. A Director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. The shareholders may elect a Director at any time to fill any vacancy not filled by the Directors. 6. Chairman. The Board of Directors shall elect from their number a Chairman of the Board at any meeting of the Board of Directors. The position of Chairman of the Board shall be a non-officer position. The Chairman of the Board shall preside at all meetings of the Board of Directors and shareholders, and, in consultation with the President, shall plan and develop the agenda for such meetings. He shall have the power to call the regular and any special meetings of the Board of Directors. The Chairman of the Board shall be available to the President for consultation with respect to the formulation and implementation of corporate strategic plans and goals. When requested by the Board or the President, he shall assist in recruiting and appraising compatible companies for acquisition and mergers which would increase the profitability and growth of the Corporation. Together with the President, he shall represent the Corporation to external groups such as shareholders, consumer groups, the business community, industry organizations, the general public and federal, state and local governments. He shall assist appropriate committees of the Board in the evaluation, selection and recruitment of directors. 7. Compensation. The Board of Directors may provide for the compensation of Directors for their services as such and may provide for the payment of any and all expenses incurred by the Directors in connection with such services. 8. Executive and Other Committees. (a) The Board of Directors, by resolution adopted by a majority of the number of Directors then in office, may designate from among its members an Executive Committee and one or more other committees, each consisting of two or more Directors and each of which, to the extent authorized by law or provided in the resolution, shall have and may exercise all of the authority of the Board of Directors, except no such committee may: 6 (1) authorize distributions; (2) approve or propose to shareholders action that is required to be approved by shareholders under the North Carolina Business Corporation Act or any successor to such statutes; (3) fill vacancies on the Board of Directors or on any of its committees; (4) amend the Articles of Incorporation; (5) adopt, amend, or repeal these Bylaws; (6) approve a plan of merger not requiring shareholder approval; (7) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; or (8) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that the Board of Directors may authorize a committee (or a senior executive officer of the Corporation) to do so within limits specifically prescribed by the Board of Directors. (b) Any resolutions adopted or other action taken by any such committee within the scope of the authority delegated to it by the Board of Directors shall be deemed for all purposes to be adopted or taken by the Board of Directors. The designation of any committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility or liability imposed upon it or him by law. (c) Regular meetings of any such committee may be held without notice at such time and place as such committee may fix from time to time by resolution. Special meetings of any such committee may be called by any member thereof upon not less than one day's notice stating the place, date and hour of such meeting, which notice may be written or oral and if mailed, shall be deemed to be delivered when deposited in the United States mail addressed to any member of the committee at his business address. Any member of any committee may in a signed writing waive notice of any meeting, and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of any committee need not state the business proposed to be transacted at the meeting. (d) A majority of the members of any such committee shall constitute a quorum for the transaction of business at any meeting thereof, and actions of such committee must be authorized by the affirmative vote of a majority of the members of such committee. (e) Any member of any such committee may be removed at any time with or without cause by resolution adopted by a majority of the Board of Directors, and vacancies in the membership of a committee resulting from death, resignation, disqualification or removal shall be filled by a majority of the Board of Directors. (f) Any such committee shall elect a presiding officer from among its members and may fix its own rules of procedure which shall not be inconsistent with these Bylaws. It shall keep regular minutes of its proceedings and report the same to the Board of Directors for its information at the meeting thereof held next after the proceedings shall have been taken. 7 (g) In the event the Board of Directors desires to establish a committee composed of outside directors, the term "outside directors" shall be deemed to mean any director who has never served as an officer of the Corporation. ARTICLE IV MEETINGS OF DIRECTORS (Amended February 25, 1993 and March 5, 1996) 1. Regular Meetings. A regular meeting of the Board of Directors shall be held immediately after, and at the same place as, the annual meeting of shareholders. In addition, the Board of Directors may provide, by resolution, the time and place, either within or without the State of North Carolina, for the holding of additional regular meetings. 2. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the President, or any two Directors. Such meetings may be held either within or without the State of North Carolina. 3. Notice of Meetings. (a) Regular meetings of the Board of Directors may be held without notice. (b) The person or persons calling a special meeting of the Board of Directors shall, at least two days before the meeting, give notice thereof either personally or by telephone, telegraph, teletype or other form of wire or wireless communication or by facsimile transmission, mail or private carrier or by any other means permitted by law. Such notice need not specify the business to be transacted at, or the purpose of, the meeting that is called. Notice of an adjourned meeting need not be given if the time and place are fixed at the meeting adjourning and if the period of adjournment does not exceed ten days in any one adjournment. (c) A Director, in a signed writing, may waive notice of any meeting before or after the date and time stated in the notice. Attendance by a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened and does not vote for or assent to action taken at the meeting. 4. Quorum. A majority of the Directors in office immediately before the meeting shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. 8 5. Manner of Acting. (a) Except as otherwise provided in this paragraph, the act of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless a greater number is required by law, the Articles of Incorporation, or a Bylaw adopted by the shareholders. (b) A Director who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his contrary vote is recorded or his dissent is otherwise entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right of dissent shall not apply to a Director who voted in favor of such action. (c) The vote of a majority of the number of Directors then in office shall be required to adopt a resolution constituting an Executive Committee or other committee of the Board of Directors. The vote of a majority of the Directors then holding office shall be required to adopt, amend or repeal a Bylaw or to adopt a resolution dissolving the Corporation without action by the shareholders in circumstances authorized by law. Vacancies in the Board of Directors may be filled as provided in Paragraph 5 of Article III of these Bylaws. 6. Informal Action by Directors. Action taken by the Directors or members of a committee of the Board of Directors without a meeting is nevertheless Board or committee action if written consent to the action in question is signed by all of the Directors or members of the committee, as the case may be, and filed with the minutes of the proceedings of the Board of Directors or committee, whether done before or after the action so taken. Such action will become effective when the last Director or committee member signs the consent, unless the consent specifies a different date. Such consent will have the same force and effect as a unanimous vote of the Board of Directors or the committee, as the case may be. 7. Attendance by Telephone. Any one or more Directors or members of a committee may participate in a meeting of the Board of Directors or committee by means of a conference telephone or similar communications device which allows all persons participating in the meeting to hear each other simultaneously, and such participation in the meeting shall be deemed presence in person at such meeting. 9 ARTICLE V OFFICERS (Amended October 9, 1991, February 25, 1993 and March 5, 1996) 1. Number. The officers of the Corporation shall consist of a President, a Secretary, a Treasurer, and such Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers as the Board of Directors may from time to time appoint. Any two or more offices, other than that of President and Secretary, may be held by the same person. In no event, however, may an officer act in more than one capacity where action of two or more officers is required. 2. Appointment and Term. The officers of the Corporation shall be appointed by the Board of Directors. Such appointment may be held at any regular or special meeting of the Board of Directors. Each officer shall hold office until his death, resignation, retirement, removal, disqualification, or his successor is appointed and qualifies. If so authorized by the Board of Directors, the President may appoint one or more officers or assistant officers as he deems necessary. 3. Removal. Any officer or agent appointed by the Board of Directors may be removed by the Board with or without cause; but such removal shall be without prejudice to the contract rights, if any, of the person so removed. 4. Compensation. The compensation of all officers of the Corporation shall be fixed by the Board of Directors or by an officer designated by the Board of Directors for such purpose. 5. President. The President shall be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, shall supervise and control the management of the Corporation. As chief executive officer of the Corporation, the President shall be responsible for the overall sales and profit growth of the Corporation in accordance with the mission, policies, goals and objectives of the Corporation established by the Board of Directors. He shall be responsible for the development of corporate strategies and the goals with respect to the Corporation's operations, personnel, financial performance and growth. He shall be responsible for the Corporation's acquisition activities and for communications with the financial community. He, or any Executive Vice Presidents or Senior Vice Presidents and Vice Presidents shall sign, with any other proper officer, certificates for shares of the Corporation and any deeds, mortgages, bonds, contracts, or other instruments which may be lawfully executed on behalf of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be delegated by the Board of Directors to some other officer or agent; and, in general, he shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. 10 6. Executive Vice Presidents, Senior Vice Presidents, and Vice Presidents. The Executive Vice Presidents and Senior Vice Presidents shall be superior in authority to all other Vice Presidents and shall have such duties and responsibilities as may be assigned by the Board of Directors from time to time. The Executive Vice President or Executive Vice Presidents, if more than one, may be designated by the Board of Directors as the chief operating officer(s) of various business groups and/or business functions the Corporation. The Executive Vice President or Executive Vice Presidents, if more than one, may supervise and control the day-to-day operation of such business groups and/or business functions of the Corporation in accordance with the direction of the President and these Bylaws and shall have such direct responsibility for the supervision and control of various business groups and/or business functions of the Corporation as may be designated from time to time by the Board of Directors. The Executive Vice Presidents, Senior Vice Presidents and Vice Presidents, in the order of their appointment, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of that office and shall have authority to sign, with any other proper officer, certificates for shares of the Corporation and any deeds, mortgages, bonds, contracts, or other instruments which may be lawfully executed on behalf of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be delegated by the Board of Directors to some other officer or agent. In addition, they shall perform such other duties and have such other powers as the President or the Board of Directors shall prescribe. The Board of Directors may designate one or more Vice Presidents to be responsible for certain functions, including, without limitation, Marketing, Finance, Manufacturing and Personnel. 7. Secretary. The Secretary shall keep accurate records of the acts and proceedings of all meetings of shareholders, Directors and committees. He shall give all notices required by law and by these Bylaws. He shall have general charge of the corporate books and records and of the corporate seal, and he shall affix the corporate seal to any lawfully executed instrument requiring it. He shall have general charge of the stock transfer books of the Corporation and shall keep, at the registered or principal office of the Corporation, a record of shareholders showing the name and address of each shareholder and the number and class of the shares held by each. He shall deliver to the Secretary of State of North Carolina for filing annual reports as required under the provisions contained in Section 55-16-22 of the North Carolina Business Corporation Act or any successor to such statute. He shall sign such instruments as may require his signature, and, in general, attest the signature or certify the incumbency or signature of any other officer of the Corporation and shall perform all duties incident to the office of Secretary and such other duties as may be assigned him from time to time by the President or by the Board of Directors. 8. Treasurer. The Treasurer shall have custody of all funds and securities belonging to the Corporation and shall receive, deposit or disburse the same under the direction of the Board of Directors. He shall keep full and accurate accounts of the finances of the Corporation in books especially provided for that purpose, which may be consolidated or combined statements of the Corporation and one or more of its subsidiaries as appropriate, 11 that include a balance sheet as of the end of the fiscal year, an income statement for that year, and a statement of cash flows for the year unless that information appears elsewhere in the financial statements. If financial statements are prepared for the Corporation on the basis of generally accepted accounting principles, the annual financial statements must also be prepared on that basis. The Corporation shall mail the annual financial statements, or a written notice of their availability, to each shareholder within one hundred twenty days of the close of each fiscal year. The Treasurer shall, in general, perform all duties incident to his office and such other duties as may be assigned to him from time to time by the President or by the Board of Directors. 9. Assistant Secretaries and Treasurers. The Assistant Secretaries and Assistant Treasurers shall, in the absence or disability of the Secretary or the Treasurer, perform the respective duties and exercise the respective powers of those offices, and they shall, in general, perform such other duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the President or by the Board of Directors. 10. Corporate Controller and Assistant Controllers. The Corporate Controller, if one has been appointed, shall have charge of the accounting affairs of the Corporation and shall have such other powers and perform such other duties as the Board of Directors shall designate. Each Assistant Controller shall have such powers and perform such duties as may be assigned by the Board of Directors, and the Assistant Controllers shall exercise the powers of the Corporate Controller during that officer's absence or inability to act. 11. Executive Officers. Except as otherwise designated by the Board of Directors, the Corporation's executive officers, being those persons in policy-making functions of the Corporation, shall consist of the President, and such of the Executive, Senior, and other Vice Presidents responsible for major corporate functions as the Board of Directors may from time to time specifically designate as executive officers. 12. Chairman Emeritus. The Board of Directors may, by a resolution duly adopted, appoint a Chairman Emeritus of the Board of Directors in recognition for having provided outstanding contributions to the Corporation. Such position shall be honorary with duties and responsibilities limited to those assigned by the Board or the President from time to time. The Chairman Emeritus shall advise and consult with the President as requested from time to time and shall be entitled to reimbursement for reasonable expenses incurred in connection with the performance of the duties of this office. The Chairman Emeritus may be, but is not required to be, an employee of the Corporation. 13. Bonds. The Board of Directors, by resolution, may require any or all officers, agents and employees of the Corporation to give bond to the Corporation, with sufficient sureties, conditioned on the faithful performance of the duties of their respective offices or positions, and to comply with such other conditions as may from time to time be required by the Board of Directors. 12 14. Voting Upon Stocks. Unless otherwise ordered by the Board of Directors, the President shall have full power and authority on behalf of the Corporation to attend, act, and vote at meetings of the shareholders of any corporation in which this Corporation may hold stock, and at such meetings shall possess and may exercise any and all rights and powers incident to the ownership of such stock and which, as the owner, the Corporation might have possessed and exercised if present. The Board of Directors may by resolution from time to time confer such power and authority upon any other person or persons. ARTICLE VI CERTIFICATES FOR AND TRANSFER OF SHARES (Amended March 5, 1996) 1. Certificates for Shares. Shares of the capital stock of the Corporation shall be represented by certificates. Such certificates shall be in such form as required by law and as determined by the Board of Directors and shall be issued to every shareholder for the fully paid shares owned by him. Each certificate shall be signed by the President, any Senior or Executive Vice President, and by the Secretary, Assistant Secretary, Treasurer, or Assistant Treasurer and may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of any such officers upon a certificate may be facsimiles or may be engraved or printed. In case any officer who has signed or whose facsimile or other signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue. The certificates shall be consecutively numbered or otherwise identified; and the name and address of the persons to whom they are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. 2. Transfer of Shares. Transfer of shares shall be made on the stock transfer books of the Corporation only upon surrender of the certificates for the shares sought to be transferred by the record holder thereof or by his duly authorized agent, transferee, or legal representative. All certificates surrendered for transfer shall be canceled before new certificates for the transferred shares shall be issued. 3. Transfer Agent and Registrar. The Board of Directors may appoint one or more transfer agents and one or more registrars of transfer and may require all stock certificates to be signed or countersigned by the transfer agent and registered by the registrar of transfers. 4. Record Date. (a) For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof or entitled to receive payment of any dividend or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may fix in advance a date as the record date for any such 13 determination of shareholders, such date in any case not to be more than seventy days before the meeting or action requiring a determination of shareholders. (b) If no record date is fixed by the Board of Directors for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders or of shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. (c) When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this paragraph, such determination shall apply to any adjournment thereof unless the Board of Directors fixes a new record date, which it shall do if the meeting is adjourned to a date more than one hundred twenty days after the date fixed for the original meeting. 5. Lost Certificates. The Board of Directors may authorize the issuance of a new share certificate in place of a certificate claimed to have been lost or destroyed, upon receipt of an affidavit of such fact from the person claiming the loss or destruction. When authorizing such issuance of a new certificate, the Board of Directors may require the claimant to give the Corporation a bond in such sum as it may direct to indemnify the Corporation against loss from any claim with respect to the certificate claimed to have been lost or destroyed; or the Board of Directors may, by resolution reciting that the circumstances justify such action, authorize the issuance of the new certificate without requiring such a bond. 6. Holder of Record. Except as otherwise required by law, the Corporation may treat the person in whose name the shares stand of record on its books as the absolute owner of the shares and the person exclusively entitled to receive notification and distributions, to vote, and otherwise to exercise the rights, powers, and privileges of ownership of such shares. 7. Shares held by Nominees. (a) The Corporation shall recognize the beneficial owner of shares registered in the name of a nominee as the owner and shareholder of such shares for certain purposes if the nominee in whose name such shares are registered files with the Secretary of the Corporation a written certificate in a form prescribed by the Corporation, signed by the nominee and indicating the following: (1) the name, address, and taxpayer identification number of the nominee; (2) the name, address, and taxpayer identification number of the beneficial owner; (3) the number and class or series of shares registered in the name of the nominee as to which the beneficial owner shall be recognized as the shareholder; and (4) the purposes for which the beneficial owner shall be recognized as the shareholder. (b) The purposes for which the Corporation shall recognize a beneficial owner as the shareholder may include the following: (1) receiving notice of, voting at and otherwise 14 participating in shareholders' meetings; (2) executing consents with respect to the shares; (3) exercising dissenters' rights under Article 13 of the North Carolina Business Corporation Act; (4) receiving distributions and share dividends with respect to the shares; (5) exercising inspection rights; (6) receiving reports, financial statements, proxy statements, and other communications from the Corporation; (7) making any demand upon the Corporation required or permitted by law; and (8) exercising any other rights or receiving any other benefits of a shareholder with respect to the shares. (c) The certificate shall be effective ten business days after its receipt by the Corporation and until it is changed by the nominee, unless the certificate specifies a later effective time or an earlier termination date. (d) If the certificate affects less than all of the shares registered in the name of the nominee, the Corporation may require the shares affected by the certificate to be registered separately on the books of the Corporation and be represented by a share certificate that bears a conspicuous legend stating that there is a nominee certificate in effect with respect to the shares represented by that share certificate. 8. Acquisition by Corporation of its Own Shares. The Corporation may acquire its own shares and shares so acquired shall constitute authorized but unissued shares. Unless otherwise prohibited by the Articles of Incorporation, the Corporation may reissue such shares. If reissue is prohibited, the Articles of Incorporation shall be amended to reduce the number of authorized shares by the number of shares so acquired. Such required amendment may be adopted by the Board of Directors without shareholder action. 9. Shareholder Protection Act. The provisions of Article 9 of Chapter 55 of the General Statutes of North Carolina, as such Article may be amended from time to time, shall not apply to the Corporation. 10. Control Share Acquisition Act. The provisions of Article 9A of Chapter 55 of the General Statutes of North Carolina, as such Article may be amended from time to time, shall not apply to the Corporation. ARTICLE VII INDEMNIFICATION AND REIMBURSEMENT OF DIRECTORS AND OFFICERS 1. Indemnification for Expenses and Liabilities. (a) Any person who at any time serves or has served: (1) as a director, officer, employee or agent of the Corporation, (2) at the request of the Corporation as a director, 15 officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or (3) at the request of the Corporation as a trustee or administrator under an employee benefit plan, shall have a right to be indemnified by the Corporation to the fullest extent from time to time permitted by law against Liability and Expenses in any Proceeding (including without limitation a Proceeding brought by or on behalf of the Corporation itself) arising out of his status as such or activities in any of the foregoing capacities or results from him being called as a witness at a time when he was not a named defendant or respondent to any Proceeding. (b) The Board of Directors of the Corporation shall take all such action as may be necessary and appropriate to authorize the Corporation to pay the indemnification required by this provision, including, without limitation, to the extent needed, making a good faith evaluation of the manner in which the claimant for indemnity acted and of the reasonable amount of indemnity due him. (c) Any person who at any time serves or has served in any of the aforesaid capacities for or on behalf of the Corporation shall be deemed to be doing or to have done so in reliance upon, and as consideration for, the rights provided for herein. Any repeal or modification of these indemnification provisions shall not affect any rights or obligations existing at the time of such repeal or modification. The rights provided for herein shall inure to the benefit of the legal representatives of any such person and shall not be exclusive of any other rights to which such person may be entitled apart from this provision. (d) The rights granted herein shall not be limited by the provisions contained in Sections 55-8-51 through 55-8-56 of the North Carolina Business Corporation Act or any successor to such statutes. 2. Advance Payment of Expenses. The Corporation shall (upon receipt of an undertaking by or on behalf of the Director, officer, employee or agent involved to repay the Expenses described herein unless it shall ultimately be determined that he is not entitled to be indemnified by the Corporation against such Expenses) pay Expenses incurred by such Director, officer, employee or agent in defending a Proceeding or appearing as a witness at a time when he has not been named as a defendant or a respondent with respect thereto in advance of the final disposition of such Proceeding. 3. Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, or agent of another domestic or foreign corporation, partnership, joint venture, trust, or other enterprise or as a trustee or administrator under an employee benefit plan against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him or her against such liability. 16 4. Definitions. The following terms as used in this Article shall have the following meanings. "Proceeding" means any threatened, pending or completed action, suit, or proceeding and any appeal therein (and any inquiry or investigation that could lead to such action, suit, or proceeding), whether civil, criminal, administrative, investigative or arbitrative and whether formal or informal. "Expenses" means expenses of every kind, including counsel fees. "Liability" means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), reasonable expenses incurred with respect to a Proceeding and all reasonable expenses incurred in enforcing the indemnification rights provided herein. "Director," "officer," "employee," and "agent" include the estate or personal representative of a Director, officer, employee, or agent. "Corporation" shall include any domestic or foreign predecessor of this Corporation in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction. ARTICLE VIII GENERAL PROVISIONS (Amended February 25, 1993) 1. Distributions. The Board of Directors may from time to time declare, and the Corporation may pay, distributions and share dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and by its Articles of Incorporation. 2. Seal. The corporate seal shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. Such seal may be an impression or stamp and may be used by the officers of the Corporation by causing it, or a facsimile thereof, to be impressed or affixed or in any other manner reproduced. In addition to any form of seal adopted by the Board of Directors, the officers of the Corporation may use as the corporate seal a seal in the form of a circle containing the name of the Corporation and the state of its incorporation (or an abbreviation thereof) on the circumference and the word "Seal" in the center. 3. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors. 4. Effective Date of Notice. Except as provided in Paragraph 5(a) of Article II, written notice shall be effective at the earliest of the following: (1) when received; (2) five days after its deposit in the United States mail, as evidenced by the postmark, if mailed with postage thereon prepaid and correctly addressed; (3) upon confirmation of receipt by answerback code, if sent by facsimile transmission; (4) upon transmission, if sent by telegraph or teletype; or (5) on the date shown on the return receipt, if sent by registered or certified 17 mail, return receipt requested and the receipt is signed by or on behalf of the addressee. Oral notice is effective when actually communicated to the person entitled thereto. 5. Corporate Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on or be in the form of punch cards, magnetic tape, photographs, microphotographs or any other information storage device; provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. The Corporation shall maintain at its principal office the following records: (1) Articles of Incorporation or Restated Articles of Incorporation and all amendments thereto; (2) Bylaws or Restated Bylaws and all amendments thereto; (3) resolutions by the Board of Directors creating classes or series of shares and affixing rights, preferences or limitations to shares; (4) minutes of all shareholder meetings or action taken without a meeting for the past three years; (5) all written communications to shareholders for the past three years, including financial statements; (6) a list of the names and business addresses of its current directors and officers; and (7) the Corporation's most recent annual report filed with the North Carolina Secretary of State. 6. Bylaw Amendments. (a) Except as otherwise provided herein, these Bylaws may be amended or repealed and new Bylaws may be adopted by the affirmative vote of a majority of the Directors present at any regular or special meeting of the Board of Directors at which a quorum is present or by affirmative vote of a majority of the shares entitled to vote on the matter represented at any regular or special meeting of shareholders at which a quorum is present. (b) The Board of Directors shall have no power to adopt a Bylaw: (1) changing the statutory requirement for a quorum of Directors or action by Directors or changing the statutory requirement for a quorum of shareholders or action by shareholders; (2) providing for the management of the Corporation otherwise than by the Board of Directors or the committees thereof; (3) increasing or decreasing the fixed number for the size of the Board of Directors or range of Directors, or changing from a fixed number to a range, or vice versa; or (4) classifying and staggering the election of Directors. (c) No Bylaw adopted, amended or repealed by the shareholders may be readopted, amended or repealed by the Board of Directors, except to the extent that the Articles of Incorporation or a Bylaw adopted by the shareholders authorizes the Board of Directors to adopt, amend or repeal that particular Bylaw or the Bylaws generally. 7. Amendments to Articles of Incorporation. To the extent permitted by law, the Board of Directors may amend the Articles of Incorporation without shareholder approval to (1) delete the initial directors' names and addresses; (2) change the initial registered agent or office in any state in which it is qualified to do business, provided such change is on file with 18 the respective Secretary of State; (3) change each issued and unissued share of an outstanding class into a greater number of whole shares, provided that class is the Corporation's only outstanding share class; (4) change the corporate name by substituting "corporation," "incorporated," "company," "limited," or the abbreviations therefor for a similar word or abbreviation or by adding, deleting or changing a geographic designation in the name; (5) make any other change expressly permitted by the North Carolina Business Corporation Act to be made without shareholder action. All other amendments to the Articles of Incorporation must be approved by the appropriate voting group or groups as required by law. The foregoing Amended and Restated Bylaws were adopted by the Board of Directors at a meeting held on February 28, 1991 and further amended on October 9, 1991, February 25, 1993, and March 5, 1996 and ordered attested by the Secretary and filed as part of the minutes of the meeting. Secretary 19
EX-10 3 EXHIBIT 10.1 EXHIBIT 10.1 EMPLOYEE RESTRICTED STOCK PURCHASE AGREEMENT Agreement, made this 28th day of February, 1991, between LADD Furniture, Inc., a North Carolina corporation (the "Company"), and Kenneth E. Church (the "Employee"). For valuable consideration, receipt of which is acknowledged, the parties agree as follows: 1. Purchase of Shares. The Employee subscribes for and, upon acceptance, shall purchase, subject to the terms and conditions set forth in this Agreement, 10,000 shares (the "Shares") of common stock ("common stock"), $.10 par value, of the Company at a purchase price of $.10 per share. The aggregate purchase price of the Shares shall be paid by the Employee by check, payable to the order of the Company, or such other method as may be acceptable to the Company. Upon the Company's receipt of payment for the Shares, the Company shall issue to the Employee one or more certificates in the name of the Employee for that number of Shares purchased by the Employee. The Employee agrees that the Shares shall be subject to the Re-purchase Option set forth in Section 2 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement. 2. Re-purchase Option. (a) If the Employee ceases to be employed by the Company for any reason other than death or disability or ceases to be employed by the Company in an appropriate executive capacity (as determined by the Company in its sole discretion), prior to January 1, 1996 the Company shall have the right and option (the "Re-purchase Option") to purchase any or all of the Shares from the Employee at the same price as the Employee paid for the Shares. (b) For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company. 3. Exercise of Re-purchase Option and Closing. (a) The Company may exercise the Re-purchase Option by delivering or mailing to the Employee in accordance with Section 14, written notice of exercise within 60 days after the termination of the employment of the Employee with the Company or the date upon which the Employee ceases to be employed in an appropriate executive capacity (as determined by the Company in its sole discretion). This notice shall specify the number of Shares to be purchased. If and to the extent the Re-purchase Option is not exercised within the 60-day period, the Re-purchase Option shall automatically expire, effective upon the expiration of the 60-day period. (b) Within 10 days after his receipt of the Company's notice of the exercise of the Re-purchase Option pursuant to Subsection 3(a), the Employee shall tender to the Company at its principal offices the certificate or certificates representing the Shares that the Company has elected to purchase, duly endorsed in blank by the Employee or with duly endorsed stock powers attached, all in form suitable for the transfer of the Shares of the Company. Upon its receipt of these Shares, the Company shall deliver or mail to the Employee a check in the amount of the aggregate Option Price. (c) After the time when any Shares are required to be delivered to the Company for transfer to it pursuant to Subsection 3(b), the Company shall not pay any dividend to the Employee on account of those Shares, or permit the employee to exercise any of the privileges or rights of a stockholder with respect to those shares, but shall, insofar as permitted by law, treat the Company as the owner of the Shares. (d) The Option Price may be payable, at the discretion of the company, in cancellation of all or a portion of any outstanding indebtedness of the Employee to the Company, or in cash (by check), or both. 2 4. Restrictions on Transfer: (a) Except as otherwise provided in Subsection 4(b), the Employee shall not, during the term of the Re-purchase Option, sell, assign, transfer, pledge, hypothecate, or otherwise dispose of, by operation of law or otherwise (collectively "transfer"), any of the Shares, or any interest therein, unless the Shares are no longer subject to the Re-purchase Option. (b) Notwithstanding the foregoing, the Employee may transfer Shares to or for the benefit of any spouse, child or grandchild, or to a trust for their benefit, provided that those Shares shall remain subject to this Agreement, including without limitation the restrictions on transfer set forth in this Section 4 and the Re-purchase Option, and the permitted transferee shall, as a condition to the transfer, deliver to the Company a written instruction confirming that the transferee shall be bound by all of the terms and conditions of this Agreement. 5. Effect of Prohibited Transfer. The Company shall not be required: (a) To transfer on its books any of the Shares that shall have been sold or transferred in violation of any of the provisions set forth in this Agreement; or (b) To treat as owner of those Shares or to pay dividend to any transferee to whom any of those Shares shall have been sold or transferred. 3 6. Restricted Legend. All certificates representing Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under federal or state securities laws: The shares of stock represented by this certificate are subject to restrictions on transfer and an option to purchase set forth in a Stock Restriction Agreement between the corporation and the registered owner of this certificate (or his predecessor in interest). This Agreement is available for inspection without charge at the office of the Secretary of the corporation. 7. Investment Representations. The Employee represents, warrants, and covenants as follows: (a) The Employee is purchasing the Shares for his own account for investment only, and not with a view to, or for sale in connection with, any distribution of the Shares in violation of the Securities Act of 1933 (the "Securities Act"), or any rule or regulation under the Securities Act. (b) He has had an opportunity he deems adequate to obtain from representatives of the Company the information necessary to permit him to evaluate the merits and risks of his investment in the Company. (c) He has sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to that purchase. (d) He can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding the Shares for an indefinite period. 4 (e) He understands that: (i) The Shares have not been registered under the Securities Act and are "restricted securities" within the meaning of Rule 144 under the Securities Act; (ii) The Shares cannot be sold, transferred, or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) In any event, the exemption from registration under Rule 144 will not be available for at least two years and even then will not be available unless a public market then exists for the Common Stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and (iv) The Company has no obligation or current intention to register the Shares under the Securities Act. (f) A legend substantially in the following form will be placed on the certificate representing the Shares: The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred or otherwise disposed of in the absence of an effective registration statement under the Act or an opinion of counsel satisfactory to the corporation to the effect that registration is not required. 8. Adjustments. If from time to time during the term of the Re-purchase Option there is any stock split, stock dividend, stock distribution, or other reclassification of the Common Stock of the Company, or any merger, consolidation, or sale of substantially all of the assets of the Company, any and all new, substituted, or additional securities to which the Employee is entitled by reason of his ownership of the Shares shall be subject immediately to: The Re-purchase Option (and be included as "Shares"), the restrictions on transfer, and other provisions of this Agreement in the same manner and to the same extent as the Shares, and the Option Price shall be adjusted appropriately. 5 9. Withholding Taxes. (a) The Employee acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Employee any federal, state or local taxes of any kind required by law to be withheld with respect to the purchase of the Shares by the Employee. (b) If the Employee elects, in accordance with Section 83(b) of the Internal Revenue Code of 1954, as amended, to recognize ordinary income in the year of acquisition of the Shares, the Company will require at the time of that election an additional payment for withholding tax purposes based on the difference, if any between the purchase price for the Shares and the fair market value of the Shares as of the day immediately preceding the date of the purchase of the Shares by the Employee. 10. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. 11. Waiver. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company. 12. Binding Effect. This Agreement shall be binding upon, and inure to the benefit of, the Company and the Employee and their respective heirs, executors, administrators, legal representatives, successors, and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement. 13. No Rights to Employment. Nothing contained in this Agreement shall be construed as giving the Employee any right to be retained, in any position, as an employee of the Company. 6 14. Notice. All notices required or permitted hereunder shall be in writing and deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown beneath his or its respective signature to this Agreement, or at such other address or addresses as either party shall designate to the other in accordance with this Section 14. 15. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine, or neuter forms. The singular form of nouns and pronouns shall included the plural, and the plural form of nouns and pronouns shall include the singular. 16. Entire Agreement. This Agreement constitutes the entire agreement between the parties, and supersedes all prior agreements and understandings relating to the subject matter of this Agreement. 17. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 18. Governing Law. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of North Carolina. 7 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. COMPANY LADD FURNITURE, INC. By:__________________________________ Chairman and Chief Executive Officer Address: P. O. Box HP-3 High Point, NC 27261 EMPLOYEE ------------------------------------- Address:_____________________________ ----------------------------- Social Sec. No._______________________ 8 EX-10 4 EXHIBIT 10.2 EXHIBIT 10.2 EMPLOYEE RESTRICTED STOCK PURCHASE AGREEMENT Agreement, made this 25th day of February, 1993, between LADD Furniture, Inc., a North Carolina corporation (the "Company"), and Kenneth E. Church (the "Employee"). For valuable consideration, receipt of which is acknowledged, the parties agree as follows: 1. Purchase of Shares. The Employee subscribes for and, upon acceptance, shall purchase, subject to the terms and conditions set forth in this Agreement, 1,759 shares (the "Shares") of common stock ("common stock"), $.10 par value, of the Company at a purchase price of $.10 per share. The aggregate purchase price of the Shares shall be paid by the Employee by check, payable to the order of the Company, or such other method as may be acceptable to the Company. Upon the Company's receipt of payment for the Shares, the Company shall issue to the Employee one or more certificates in the name of the Employee for that number of Shares purchased by the Employee. The Employee agrees that the Shares shall be subject to the Re-purchase Option set forth in Section 2 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement. 2. Re-purchase Option. (a) If the Employee ceases to be employed by the Company for any reason other than death or disability or ceases to be employed by the Company in an appropriate executive capacity (as determined by the Company in its sole discretion), prior to January 1, 1998 the Company shall have the right and option (the "Re-purchase Option") to purchase any or all of the Shares from the Employee at the same price as the Employee paid for the Shares. (b) For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company. 3. Exercise of Re-purchase Option and Closing. (a) The Company may exercise the Re-purchase Option by delivering or mailing to the Employee in accordance with Section 14, written notice of exercise within 60 days after the termination of the employment of the Employee with the Company or the date upon which the Employee ceases to be employed in an appropriate executive capacity (as determined by the Company in its sole discretion). This notice shall specify the number of Shares to be purchased. If and to the extent the Re-purchase Option is not exercised within the 60-day period, the Re-purchase Option shall automatically expire, effective upon the expiration of the 60-day period. (b) Within 10 days after his receipt of the Company's notice of the exercise of the Re-purchase Option pursuant to Subsection 3(a), the Employee shall tender to the Company at its principal offices the certificate or certificates representing the Shares that the Company has elected to purchase, duly endorsed in blank by the Employee or with duly endorsed stock powers attached, all in form suitable for the transfer of the Shares of the Company. Upon its receipt of these Shares, the Company shall deliver or mail to the Employee a check in the amount of the aggregate Option Price. (c) After the time when any Shares are required to be delivered to the Company for transfer to it pursuant to Subsection 3(b), the Company shall not pay any dividend to the Employee on account of those Shares, or permit the employee to exercise any of the privileges or rights of a stockholder with respect to those shares, but shall, insofar as permitted by law, treat the Company as the owner of the Shares. (d) The Option Price may be payable, at the discretion of the company, in cancellation of all or a portion of any outstanding indebtedness of the Employee to the Company, or in cash (by check), or both. 2 4. Restrictions on Transfer: (a) Except as otherwise provided in Subsection 4(b), the Employee shall not, during the term of the Re-purchase Option, sell, assign, transfer, pledge, hypothecate, or otherwise dispose of, by operation of law or otherwise (collectively "transfer"), any of the Shares, or any interest therein, unless the Shares are no longer subject to the Re-purchase Option. (b) Notwithstanding the foregoing, the Employee may transfer Shares to or for the benefit of any spouse, child or grandchild, or to a trust for their benefit, provided that those Shares shall remain subject to this Agreement, including without limitation the restrictions on transfer set forth in this Section 4 and the Re-purchase Option, and the permitted transferee shall, as a condition to the transfer, deliver to the Company a written instruction confirming that the transferee shall be bound by all of the terms and conditions of this Agreement. 5. Effect of Prohibited Transfer. The Company shall not be required: (a) To transfer on its books any of the Shares that shall have been sold or transferred in violation of any of the provisions set forth in this Agreement; or (b) To treat as owner of those Shares or to pay dividend to any transferee to whom any of those Shares shall have been sold or transferred. 3 6. Restricted Legend. All certificates representing Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under federal or state securities laws: The shares of stock represented by this certificate are subject to restrictions on transfer and an option to purchase set forth in a Stock Restriction Agreement between the corporation and the registered owner of this certificate (or his predecessor in interest). This Agreement is available for inspection without charge at the office of the Secretary of the corporation. 7. Investment Representations. The Employee represents, warrants, and covenants as follows: (a) The Employee is purchasing the Shares for his own account for investment only, and not with a view to, or for sale in connection with, any distribution of the Shares in violation of the Securities Act of 1933 (the "Securities Act"), or any rule or regulation under the Securities Act. (b) He has had an opportunity he deems adequate to obtain from representatives of the Company the information necessary to permit him to evaluate the merits and risks of his investment in the Company. (c) He has sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to that purchase. (d) He can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding the Shares for an indefinite period. 4 (e) He understands that: (i) The Shares have not been registered under the Securities Act and are "restricted securities" within the meaning of Rule 144 under the Securities Act; (ii) The Shares cannot be sold, transferred, or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) In any event, the exemption from registration under Rule 144 will not be available for at least two years and even then will not be available unless a public market then exists for the Common Stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and (iv) The Company has no obligation or current intention to register the Shares under the Securities Act. (f) A legend substantially in the following form will be placed on the certificate representing the Shares: The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred or otherwise disposed of in the absence of an effective registration statement under the Act or an opinion of counsel satisfactory to the corporation to the effect that registration is not required. 8. Adjustments. If from time to time during the term of the Re-purchase Option there is any stock split, stock dividend, stock distribution, or other reclassification of the Common Stock of the Company, or any merger, consolidation, or sale of substantially all of the assets of the Company, any and all new, substituted, or additional securities to which the Employee is entitled by reason of his ownership of the Shares shall be subject immediately to: The Re-purchase Option (and be included as "Shares"), the restrictions on transfer, and other provisions of this Agreement in the same manner and to the same extent as the Shares, and the Option Price shall be adjusted appropriately. 5 9. Withholding Taxes. (a) The Employee acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Employee any federal, state or local taxes of any kind required by law to be withheld with respect to the purchase of the Shares by the Employee. (b) If the Employee elects, in accordance with Section 83(b) of the Internal Revenue Code of 1954, as amended, to recognize ordinary income in the year of acquisition of the Shares, the Company will require at the time of that election an additional payment for withholding tax purposes based on the difference, if any between the purchase price for the Shares and the fair market value of the Shares as of the day immediately preceding the date of the purchase of the Shares by the Employee. 10. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. 11. Waiver. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company. 12. Binding Effect. This Agreement shall be binding upon, and inure to the benefit of, the Company and the Employee and their respective heirs, executors, administrators, legal representatives, successors, and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement. 13. No Rights to Employment. Nothing contained in this Agreement shall be construed as giving the Employee any right to be retained, in any position, as an employee of the Company. 6 14. Notice. All notices required or permitted hereunder shall be in writing and deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown beneath his or its respective signature to this Agreement, or at such other address or addresses as either party shall designate to the other in accordance with this Section 14. 15. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine, or neuter forms. The singular form of nouns and pronouns shall included the plural, and the plural form of nouns and pronouns shall include the singular. 16. Entire Agreement. This Agreement constitutes the entire agreement between the parties, and supersedes all prior agreements and understandings relating to the subject matter of this Agreement. 17. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 18. Governing Law. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of North Carolina. 7 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. COMPANY LADD FURNITURE, INC. By:____________________________________ Chairman and Chief Executive Officer Address: P. O. Box HP-3 High Point, NC 27261 EMPLOYEE --------------------------------------- Address:________________________________ -------------------------------- Social Sec. No.___________________________ 8 EX-10 5 EXHIBIT 10.3 EXHIBIT 10.3 EMPLOYEE RESTRICTED STOCK PURCHASE AGREEMENT Agreement, made this 24th day of February, 1994, between LADD Furniture, Inc., a North Carolina corporation (the "Company"), and Kenneth E. Church (the "Employee"). For valuable consideration, receipt of which is acknowledged, the parties agree as follows: 1. Purchase of Shares. The Employee subscribes for and, upon acceptance, shall purchase, subject to the terms and conditions set forth in this Agreement, 2,500 shares (the "Shares") of common stock ("common stock"), $.10 par value, of the Company at a purchase price of $.10 per share. The aggregate purchase price of the Shares shall be paid by the Employee by check, payable to the order of the Company, or such other method as may be acceptable to the Company. Upon the Company's receipt of payment for the Shares, the Company shall issue to the Employee one or more certificates in the name of the Employee for that number of Shares purchased by the Employee. The Employee agrees that the Shares shall be subject to the Re-purchase Option set forth in Section 2 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement. 2. Re-purchase Option. (a) If the Employee ceases to be employed by the Company for any reason other than death or disability or ceases to be employed by the Company in an appropriate executive capacity (as determined by the Company in its sole discretion), prior to January 1, 1999 the Company shall have the right and option (the "Re-purchase Option") to purchase any or all of the Shares from the Employee at the same price as the Employee paid for the Shares. 1 (b) For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company. 3. Exercise of Re-purchase Option and Closing. (a) The Company may exercise the Re-purchase Option by delivering or mailing to the Employee in accordance with Section 14, written notice of exercise within 60 days after the termination of the employment of the Employee with the Company or the date upon which the Employee ceases to be employed in an appropriate executive capacity (as determined by the Company in its sole discretion). This notice shall specify the number of Shares to be purchased. If and to the extent the Re-purchase Option is not exercised within the 60-day period, the Re-purchase Option shall automatically expire, effective upon the expiration of the 60-day period. (b) Within 10 days after his receipt of the Company's notice of the exercise of the Re-purchase Option pursuant to Subsection 3(a), the Employee shall tender to the Company at its principal offices the certificate or certificates representing the Shares that the Company has elected to purchase, duly endorsed in blank by the Employee or with duly endorsed stock powers attached, all in form suitable for the transfer of the Shares of the Company. Upon its receipt of these Shares, the Company shall deliver or mail to the Employee a check in the amount of the aggregate Option Price. (c) After the time when any Shares are required to be delivered to the Company for transfer to it pursuant to Subsection 3(b), the Company shall not pay any dividend to the Employee on account of those Shares, or permit the employee to exercise any of the privileges or rights of a stockholder with respect to those shares, but shall, insofar as permitted by law, treat the Company as the owner of the Shares. (d) The Option Price may be payable, at the discretion of the company, in cancellation of all or a portion of any outstanding indebtedness of the Employee to the Company, or in cash (by check), or both. 4. Restrictions on Transfer: (a) Except as otherwise provided in Subsection 4(b), the Employee shall not, during the term of the Re-purchase Option, sell, assign, transfer, pledge, hypothecate, or otherwise dispose of, by operation of law or otherwise (collectively "transfer"), any of the Shares, or any interest therein, unless the Shares are no longer subject to the Re-purchase Option. (b) Notwithstanding the foregoing, the Employee may transfer Shares to or for the benefit of any spouse, child or grandchild, or to a trust for their benefit, provided that those Shares shall remain subject to this Agreement, including without limitation the restrictions on transfer set forth in this Section 4 and the Re-purchase Option, and the permitted transferee shall, as a condition to the transfer, deliver to the Company a written instruction confirming that the transferee shall be bound by all of the terms and conditions of this Agreement. 5. Effect of Prohibited Transfer. The Company shall not be required: (a) To transfer on its books any of the Shares that shall have been sold or transferred in violation of any of the provisions set forth in this Agreement; or (b) To treat as owner of those Shares or to pay dividend to any transferee to whom any of those Shares shall have been sold or transferred. 3 6. Restricted Legend. All certificates representing Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under federal or state securities laws: The shares of stock represented by this certificate are subject to restrictions on transfer and an option to purchase set forth in a Stock Restriction Agreement between the corporation and the registered owner of this certificate (or his predecessor in interest). This Agreement is available for inspection without charge at the office of the Secretary of the corporation. 7. Investment Representations. The Employee represents, warrants, and covenants as follows: (a) The Employee is purchasing the Shares for his own account for investment only, and not with a view to, or for sale in connection with, any distribution of the Shares in violation of the Securities Act of 1933 (the "Securities Act"), or any rule or regulation under the Securities Act. (b) He has had an opportunity he deems adequate to obtain from representatives of the Company the information necessary to permit him to evaluate the merits and risks of his investment in the Company. (c) He has sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to that purchase. (d) He can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding the Shares for an indefinite period. 4 (e) He understands that: (i) The Shares have not been registered under the Securities Act and are "restricted securities" within the meaning of Rule 144 under the Securities Act; (ii) The Shares cannot be sold, transferred, or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) In any event, the exemption from registration under Rule 144 will not be available for at least two years and even then will not be available unless a public market then exists for the Common Stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and (iv) The Company has no obligation or current intention to register the Shares under the Securities Act. (f) A legend substantially in the following form will be placed on the certificate representing the Shares: The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred or otherwise disposed of in the absence of an effective registration statement under the Act or an opinion of counsel satisfactory to the corporation to the effect that registration is not required. 8. Adjustments. If from time to time during the term of the Re-purchase Option there is any stock split, stock dividend, stock distribution, or other reclassification of the Common Stock of the Company, or any merger, consolidation, or sale of substantially all of the assets of the Company, any and all new, substituted, or additional securities to which the Employee is entitled by reason of his ownership of the Shares shall be subject immediately to: The Re-purchase Option (and be included as "Shares"), the restrictions on transfer, and other provisions of this Agreement in the same manner and to the same extent as the Shares, and the Option Price shall be adjusted appropriately. 5 9. Withholding Taxes. (a) The Employee acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Employee any federal, state or local taxes of any kind required by law to be withheld with respect to the purchase of the Shares by the Employee. (b) If the Employee elects, in accordance with Section 83(b) of the Internal Revenue Code of 1954, as amended, to recognize ordinary income in the year of acquisition of the Shares, the Company will require at the time of that election an additional payment for withholding tax purposes based on the difference, if any between the purchase price for the Shares and the fair market value of the Shares as of the day immediately preceding the date of the purchase of the Shares by the Employee. 10. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. 11. Waiver. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company. 12. Binding Effect. This Agreement shall be binding upon, and inure to the benefit of, the Company and the Employee and their respective heirs, executors, administrators, legal representatives, successors, and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement. 13. No Rights to Employment. Nothing contained in this Agreement shall be construed as giving the Employee any right to be retained, in any position, as an employee of the Company. 6 14. Notice. All notices required or permitted hereunder shall be in writing and deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown beneath his or its respective signature to this Agreement, or at such other address or addresses as either party shall designate to the other in accordance with this Section 14. 15. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine, or neuter forms. The singular form of nouns and pronouns shall included the plural, and the plural form of nouns and pronouns shall include the singular. 16. Entire Agreement. This Agreement constitutes the entire agreement between the parties, and supersedes all prior agreements and understandings relating to the subject matter of this Agreement. 17. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 18. Governing Law. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of North Carolina. 7 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. COMPANY LADD FURNITURE, INC. By:____________________________________ Chairman and Chief Executive Officer Address: P. O. Box HP-3 High Point, NC 27261 EMPLOYEE --------------------------------------- Address:________________________________ -------------------------------- Social Sec. No.___________________________ 8 EX-10 6 EXHIBIT 10.4 EXHIBIT 10.4 EMPLOYEE RESTRICTED STOCK PURCHASE AGREEMENT Agreement, made this 2nd day of March, 1995, between LADD Furniture, Inc., a North Carolina corporation (the "Company"), and Kenneth E. Church (the "Employee"). For valuable consideration, receipt of which is acknowledged, the parties agree as follows: 1. Purchase of Shares. The Employee subscribes for and, upon acceptance, shall purchase, subject to the terms and conditions set forth in this Agreement, 4,884 shares (the "Shares") of common stock ("common stock"), $.10 par value, of the Company at a purchase price of $.10 per share. The aggregate purchase price of the Shares shall be paid by the Employee by check, payable to the order of the Company, or such other method as may be acceptable to the Company. Upon the Company's receipt of payment for the Shares, the Company shall issue to the Employee one or more certificates in the name of the Employee for that number of Shares purchased by the Employee. The Employee agrees that the Shares shall be subject to the Re-purchase Option set forth in Section 2 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement. 2. Re-purchase Option. (a) If the Employee ceases to be employed by the Company for any reason other than death or disability or ceases to be employed by the Company in an appropriate executive capacity (as determined by the Company in its sole discretion), prior to March 1, 2000 the Company shall have the right and option (the "Re-purchase Option") to purchase any or all of the Shares from the Employee at the same price as the Employee paid for the Shares. (b) For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company. 3. Exercise of Re-purchase Option and Closing. (a) The Company may exercise the Re-purchase Option by delivering or mailing to the Employee in accordance with Section 14, written notice of exercise within 60 days after the termination of the employment of the Employee with the Company or the date upon which the Employee ceases to be employed in an appropriate executive capacity (as determined by the Company in its sole discretion). This notice shall specify the number of Shares to be purchased. If and to the extent the Re-purchase Option is not exercised within the 60-day period, the Re-purchase Option shall automatically expire, effective upon the expiration of the 60-day period. (b) Within 10 days after his receipt of the Company's notice of the exercise of the Re-purchase Option pursuant to Subsection 3(a), the Employee shall tender to the Company at its principal offices the certificate or certificates representing the Shares that the Company has elected to purchase, duly endorsed in blank by the Employee or with duly endorsed stock powers attached, all in form suitable for the transfer of the Shares of the Company. Upon its receipt of these Shares, the Company shall deliver or mail to the Employee a check in the amount of the aggregate Option Price. (c) After the time when any Shares are required to be delivered to the Company for transfer to it pursuant to Subsection 3(b), the Company shall not pay any dividend to the Employee on account of those Shares, or permit the employee to exercise any of the privileges or rights of a stockholder with respect to those shares, but shall, insofar as permitted by law, treat the Company as the owner of the Shares. (d) The Option Price may be payable, at the discretion of the company, in cancellation of all or a portion of any outstanding indebtedness of the Employee to the Company, or in cash (by check), or both. 2 4. Restrictions on Transfer: (a) Except as otherwise provided in Subsection 4(b), the Employee shall not, during the term of the Re-purchase Option, sell, assign, transfer, pledge, hypothecate, or otherwise dispose of, by operation of law or otherwise (collectively "transfer"), any of the Shares, or any interest therein, unless the Shares are no longer subject to the Re-purchase Option. (b) Notwithstanding the foregoing, the Employee may transfer Shares to or for the benefit of any spouse, child or grandchild, or to a trust for their benefit, provided that those Shares shall remain subject to this Agreement, including without limitation the restrictions on transfer set forth in this Section 4 and the Re-purchase Option, and the permitted transferee shall, as a condition to the transfer, deliver to the Company a written instruction confirming that the transferee shall be bound by all of the terms and conditions of this Agreement. 5. Effect of Prohibited Transfer. The Company shall not be required: (a) To transfer on its books any of the Shares that shall have been sold or transferred in violation of any of the provisions set forth in this Agreement; or (b) To treat as owner of those Shares or to pay dividend to any transferee to whom any of those Shares shall have been sold or transferred. 6. Restricted Legend. All certificates representing Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under federal or state securities laws: The shares of stock represented by this certificate are subject to restrictions on transfer and an option to purchase set forth in a Stock Restriction Agreement between the corporation and the registered owner of this certificate (or his predecessor in 3 interest). This Agreement is available for inspection without charge at the office of the Secretary of the corporation. 7. Investment Representations. The Employee represents, warrants, and covenants as follows: (a) The Employee is purchasing the Shares for his own account for investment only, and not with a view to, or for sale in connection with, any distribution of the Shares in violation of the Securities Act of 1933 (the "Securities Act"), or any rule or regulation under the Securities Act. (b) He has had an opportunity he deems adequate to obtain from representatives of the Company the information necessary to permit him to evaluate the merits and risks of his investment in the Company. (c) He has sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to that purchase. (d) He can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding the Shares for an indefinite period. (e) He understands that: (i) The Shares have not been registered under the Securities Act and are "restricted securities" within the meaning of Rule 144 under the Securities Act; (ii) The Shares cannot be sold, transferred, or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) In any event, the exemption from registration under Rule 144 will not be available for at least two years and even 4 then will not be available unless a public market then exists for the Common Stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and (iv) The Company has no obligation or current intention to register the Shares under the Securities Act. (f) A legend substantially in the following form will be placed on the certificate representing the Shares: The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred or otherwise disposed of in the absence of an effective registration statement under the Act or an opinion of counsel satisfactory to the corporation to the effect that registration is not required. 8. Adjustments. If from time to time during the term of the Re-purchase Option there is any stock split, stock dividend, stock distribution, or other reclassification of the Common Stock of the Company, or any merger, consolidation, or sale of substantially all of the assets of the Company, any and all new, substituted, or additional securities to which the Employee is entitled by reason of his ownership of the Shares shall be subject immediately to: The Re-purchase Option (and be included as "Shares"), the restrictions on transfer, and other provisions of this Agreement in the same manner and to the same extent as the Shares, and the Option Price shall be adjusted appropriately. 9. Withholding Taxes. (a) The Employee acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Employee any federal, state or local taxes of any kind required by law to be withheld with respect to the purchase of the Shares by the Employee. 5 (b) If the Employee elects, in accordance with Section 83(b) of the Internal Revenue Code of 1954, as amended, to recognize ordinary income in the year of acquisition of the Shares, the Company will require at the time of that election an additional payment for withholding tax purposes based on the difference, if any between the purchase price for the Shares and the fair market value of the Shares as of the day immediately preceding the date of the purchase of the Shares by the Employee. 10. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. 11. Waiver. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company. 12. Binding Effect. This Agreement shall be binding upon, and inure to the benefit of, the Company and the Employee and their respective heirs, executors, administrators, legal representatives, successors, and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement. 13. No Rights to Employment. Nothing contained in this Agreement shall be construed as giving the Employee any right to be retained, in any position, as an employee of the Company. 14. Notice. All notices required or permitted hereunder shall be in writing and deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown beneath his or its respective signature to this Agreement, or at such other address or addresses as either party shall designate to the other in accordance with this Section 14. 6 15. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine, or neuter forms. The singular form of nouns and pronouns shall included the plural, and the plural form of nouns and pronouns shall include the singular. 16. Entire Agreement. This Agreement constitutes the entire agreement between the parties, and supersedes all prior agreements and understandings relating to the subject matter of this Agreement. 17. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 18. Governing Law. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of North Carolina. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. COMPANY LADD FURNITURE, INC. By:____________________________________ Chairman and Chief Executive Officer Address: P. O. Box HP-3 High Point, NC 27261 EMPLOYEE --------------------------------------- Address:________________________________ -------------------------------- Social Sec. No.___________________________ 7 EX-10 7 EXHIBIT 10.5 EXHIBIT 10.5 EMPLOYEE RESTRICTED STOCK PURCHASE AGREEMENT Agreement, made this 23rd day of June, 1994, between LADD Furniture, Inc., a North Carolina corporation (the "Company"), and Michael P. Haley (the "Employee"). For valuable consideration, receipt of which is acknowledged, the parties agree as follows: 1. Purchase of Shares. The Employee subscribes for and, upon acceptance, shall purchase, subject to the terms and conditions set forth in this Agreement,3,000 shares (the "Shares") of common stock ("common stock"), $.10 par value, of the Company at a purchase price of $.10 per share. The aggregate purchase price of the Shares shall be paid by the Employee by check, payable to the order of the Company, or such other method as may be acceptable to the Company. Upon the Company's receipt of payment for the Shares, the Company shall issue to the Employee one or more certificates in the name of the Employee for that number of Shares purchased by the Employee. The Employee agrees that the Shares shall be subject to the Re-purchase Option set forth in Section 2 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement. 2. Re-purchase Option. (a) If the Employee ceases to be employed by the Company for any reason other than death or disability or ceases to be employed by the Company in an appropriate executive capacity (as determined by the Company in its sole discretion), prior to July 1, 1999 the Company shall have the right and option (the "Re-purchase Option") to purchase any or all of the Shares from the Employee at the same price as the Employee paid for the Shares. (b) For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company. 3. Exercise of Re-purchase Option and Closing. (a) The Company may exercise the Re-purchase Option by delivering or mailing to the Employee in accordance with Section 14, written notice of exercise within 60 days after the termination of the employment of the Employee with the Company or the date upon which the Employee ceases to be employed in an appropriate executive capacity (as determined by the Company in its sole discretion). This notice shall specify the number of Shares to be purchased. If and to the extent the Re-purchase Option is not exercised within the 60-day period, the Re-purchase Option shall automatically expire, effective upon the expiration of the 60-day period. (b) Within 10 days after his receipt of the Company's notice of the exercise of the Re-purchase Option pursuant to Subsection 3(a), the Employee shall tender to the Company at its principal offices the certificate or certificates representing the Shares that the Company has elected to purchase, duly endorsed in blank by the Employee or with duly endorsed stock powers attached, all in form suitable for the transfer of the Shares of the Company. Upon its receipt of these Shares, the Company shall deliver or mail to the Employee a check in the amount of the aggregate Option Price. (c) After the time when any Shares are required to be delivered to the Company for transfer to it pursuant to Subsection 3(b), the Company shall not pay any dividend to the Employee on account of those Shares, or permit the employee to exercise any of the privileges or rights of a stockholder with respect to those shares, but shall, insofar as permitted by law, treat the Company as the owner of the Shares. (d) The Option Price may be payable, at the discretion of the company, in cancellation of all or a portion of any outstanding indebtedness of the Employee to the Company, or in cash (by check), or both. 2 4. Restrictions on Transfer: (a) Except as otherwise provided in Subsection 4(b), the Employee shall not, during the term of the Re-purchase Option, sell, assign, transfer, pledge, hypothecate, or otherwise dispose of, by operation of law or otherwise (collectively "transfer"), any of the Shares, or any interest therein, unless the Shares are no longer subject to the Re-purchase Option. (b) Notwithstanding the foregoing, the Employee may transfer Shares to or for the benefit of any spouse, child or grandchild, or to a trust for their benefit, provided that those Shares shall remain subject to this Agreement, including without limitation the restrictions on transfer set forth in this Section 4 and the Re-purchase Option, and the permitted transferee shall, as a condition to the transfer, deliver to the Company a written instruction confirming that the transferee shall be bound by all of the terms and conditions of this Agreement. 5. Effect of Prohibited Transfer. The Company shall not be required: (a) To transfer on its books any of the Shares that shall have been sold or transferred in violation of any of the provisions set forth in this Agreement; or (b) To treat as owner of those Shares or to pay dividend to any transferee to whom any of those Shares shall have been sold or transferred. 6. Restricted Legend. All certificates representing Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under federal or state securities laws: The shares of stock represented by this certificate are subject to restrictions on transfer and an option to purchase set forth in a Stock Restriction Agreement between the corporation and the 3 registered owner of this certificate (or his predecessor in interest). This Agreement is available for inspection without charge atthe office ofthe Secretary ofthe corporation. 7. Investment Representations. The Employee represents, warrants, and covenants as follows: (a) The Employee is purchasing the Shares for his own account for investment only, and not with a view to, or for sale in connection with, any distribution of the Shares in violation of the Securities Act of 1933 (the "Securities Act"), or any rule or regulation under the Securities Act. (b) He has had an opportunity he deems adequate to obtain from representatives of the Company the information necessary to permit him to evaluate the merits and risks of his investment in the Company. (c) He has sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to that purchase. (d) He can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding the Shares for an indefinite period. (e) He understands that: (i) The Shares have not been registered under the Securities Act and are "restricted securities" within the meaning of Rule 144 under the Securities Act; (ii) The Shares cannot be sold, transferred, or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; 4 (iii) In any event, the exemption from registration under Rule 144 will not be available for at least two years and even then will not be available unless a public market then exists for the Common Stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and (iv) The Company has no obligation or current intention to register the Shares under the Securities Act. (f) A legend substantially in the following form will be placed on the certificate representing the Shares: The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred or otherwise disposed of in the absence of an effective registration statement under the Act or an opinion of counsel satisfactory to the corporation to the effect that registration is not required. 8. Adjustments. If from time to time during the term of the Re-purchase Option there is any stock split, stock dividend, stock distribution, or other reclassification of the Common Stock of the Company, or any merger, consolidation, or sale of substantially all of the assets of the Company, any and all new, substituted, or additional securities to which the Employee is entitled by reason of his ownership of the Shares shall be subject immediately to: The Re-purchase Option (and be included as "Shares"), the restrictions on transfer, and other provisions of this Agreement in the same manner and to the same extent as the Shares, and the Option Price shall be adjusted appropriately. 9. Withholding Taxes. (a) The Employee acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Employee any federal, state or local taxes of any kind required by law to be withheld with respect to the purchase of the Shares by the Employee. 5 (b) If the Employee elects, in accordance with Section 83(b) of the Internal Revenue Code of 1954, as amended, to recognize ordinary income in the year of acquisition of the Shares, the Company will require at the time of that election an additional payment for withholding tax purposes based on the difference, if any between the purchase price for the Shares and the fair market value of the Shares as of the day immediately preceding the date of the purchase of the Shares by the Employee. 10. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. 11. Waiver. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company. 12. Binding Effect. This Agreement shall be binding upon, and inure to the benefit of, the Company and the Employee and their respective heirs, executors, administrators, legal representatives, successors, and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement. 13. No Rights to Employment. Nothing contained in this Agreement shall be construed as giving the Employee any right to be retained, in any position, as an employee of the Company. 14. Notice. All notices required or permitted hereunder shall be in writing and deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown beneath his or its respective signature to this Agreement, or at such other address or addresses as either party shall designate to the other in accordance with this Section 14. 6 15. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine, or neuter forms. The singular form of nouns and pronouns shall included the plural, and the plural form of nouns and pronouns shall include the singular. 16. Entire Agreement. This Agreement constitutes the entire agreement between the parties, and supersedes all prior agreements and understandings relating to the subject matter of this Agreement. 17. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 18. Governing Law. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of North Carolina. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. COMPANY LADD FURNITURE, INC. By:____________________________________ Chairman and Chief Executive Officer Address: P. O. Box HP-3 High Point, NC 27261 EMPLOYEE --------------------------------------- Address:________________________________ -------------------------------- Social Sec. No.___________________________ 7 EX-10 8 EXHIBIT 10.6 EXHIBIT 10.6 EMPLOYEE RESTRICTED STOCK PURCHASE AGREEMENT Agreement, made this 2nd day of March 1995, between LADD Furniture, Inc., a North Carolina corporation (the "Company"), and Michael P. Haley (the "Employee"). For valuable consideration, receipt of which is acknowledged, the parties agree as follows: 1. Purchase of Shares. The Employee subscribes for and, upon acceptance, shall purchase, subject to the terms and conditions set forth in this Agreement, 4,302 shares (the "Shares") of common stock ("common stock"), $.10 par value, of the Company at a purchase price of $.10 per share. The aggregate purchase price of the Shares shall be paid by the Employee by check, payable to the order of the Company, or such other method as may be acceptable to the Company. Upon the Company's receipt of payment for the Shares, the Company shall issue to the Employee one or more certificates in the name of the Employee for that number of Shares purchased by the Employee. The Employee agrees that the Shares shall be subject to the Re-purchase Option set forth in Section 2 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement. 2. Re-purchase Option. (a) If the Employee ceases to be employed by the Company for any reason other than death or disability or ceases to be employed by the Company in an appropriate executive capacity (as determined by the Company in its sole discretion), prior to March 1, 2000, the Company shall have the right and option (the "Re-purchase Option") to purchase any or all of the Shares from the Employee at the same price as the Employee paid for the Shares. (b) For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company. 3. Exercise of Re-purchase Option and Closing. (a) The Company may exercise the Re-purchase Option by delivering or mailing to the Employee in accordance with Section 14, written notice of exercise within 60 days after the termination of the employment of the Employee with the Company or the date upon which the Employee ceases to be employed in an appropriate executive capacity (as determined by the Company in its sole discretion). This notice shall specify the number of Shares to be purchased. If and to the extent the Re-purchase Option is not exercised within the 60-day period, the Re-purchase Option shall automatically expire, effective upon the expiration of the 60-day period. (b) Within 10 days after his receipt of the Company's notice of the exercise of the Re-purchase Option pursuant to Subsection 3(a), the Employee shall tender to the Company at its principal offices the certificate or certificates representing the Shares that the Company has elected to purchase, duly endorsed in blank by the Employee or with duly endorsed stock powers attached, all in form suitable for the transfer of the Shares of the Company. Upon its receipt of these Shares, the Company shall deliver or mail to the Employee a check in the amount of the aggregate Option Price. (c) After the time when any Shares are required to be delivered to the Company for transfer to it pursuant to Subsection 3(b), the Company shall not pay any dividend to the Employee on account of those Shares, or permit the employee to exercise any of the privileges or rights of a stockholder with respect to those shares, but shall, insofar as permitted by law, treat the Company as the owner of the Shares. (d) The Option Price may be payable, at the discretion of the company, in cancellation of all or a portion of any outstanding indebtedness of the Employee to the Company, or in cash (by check), or both. 2 4. Restrictions on Transfer: (a) Except as otherwise provided in Subsection 4(b), the Employee shall not, during the term of the Re-purchase Option, sell, assign, transfer, pledge, hypothecate, or otherwise dispose of, by operation of law or otherwise (collectively "transfer"), any of the Shares, or any interest therein, unless the Shares are no longer subject to the Re-purchase Option. (b) Notwithstanding the foregoing, the Employee may transfer Shares to or for the benefit of any spouse, child or grandchild, or to a trust for their benefit, provided that those Shares shall remain subject to this Agreement, including without limitation the restrictions on transfer set forth in this Section 4 and the Re-purchase Option, and the permitted transferee shall, as a condition to the transfer, deliver to the Company a written instruction confirming that the transferee shall be bound by all of the terms and conditions of this Agreement. 5. Effect of Prohibited Transfer. The Company shall not be required: (a) To transfer on its books any of the Shares that shall have been sold or transferred in violation of any of the provisions set forth in this Agreement; or (b) To treat as owner of those Shares or to pay dividend to any transferee to whom any of those Shares shall have been sold or transferred. 6. Restricted Legend. All certificates representing Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under federal or state securities laws: The shares of stock represented by this certificate are subject to restrictions on transfer and an option to purchase set forth in a Stock Restriction Agreement between the corporation and the registered owner of this certificate (or his predecessor in interest).This Agreement is available for inspection without charge at the office of the Secretary of the corporation. 3 7. Investment Representations. The Employee represents, warrants, and covenants as follows: (a) The Employee is purchasing the Shares for his own account for investment only, and not with a view to, or for sale in connection with, any distribution of the Shares in violation of the Securities Act of 1933 (the "Securities Act"), or any rule or regulation under the Securities Act. (b) He has had an opportunity he deems adequate to obtain from representatives of the Company the information necessary to permit him to evaluate the merits and risks of his investment in the Company. (c) He has sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to that purchase. (d) He can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding the Shares for an indefinite period. (e) He understands that: (i) The Shares have not been registered under the Securities Act and are "restricted securities" within the meaning of Rule 144 under the Securities Act; (ii) The Shares cannot be sold, transferred, or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) In any event, the exemption from registration under Rule 144 will not be available for at least two years and even then will not be available unless a public market then exists for the Common Stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and 4 (iv) The Company has no obligation or current intention to register the Shares under the Securities Act. (f) A legend substantially in the following form will be placed on the certificate representing the Shares: The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred or otherwise disposed of in the absence of an effective registration statement under the Act or an opinion of counsel satisfactory to the corporation to the effect that registration is not required. 8. Adjustments. If from time to time during the term of the Re-purchase Option there is any stock split, stock dividend, stock distribution, or other reclassification of the Common Stock of the Company, or any merger, consolidation, or sale of substantially all of the assets of the Company, any and all new, substituted, or additional securities to which the Employee is entitled by reason of his ownership of the Shares shall be subject immediately to: The Re-purchase Option (and be included as "Shares"), the restrictions on transfer, and other provisions of this Agreement in the same manner and to the same extent as the Shares, and the Option Price shall be adjusted appropriately. 9. Withholding Taxes. (a) The Employee acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Employee any federal, state or local taxes of any kind required by law to be withheld with respect to the purchase of the Shares by the Employee. (b) If the Employee elects, in accordance with Section 83(b) of the Internal Revenue Code of 1954, as amended, to recognize ordinary income in the year of acquisition of the Shares, the Company will require at the time of that election an additional payment for 5 withholding tax purposes based on the difference, if any between the purchase price for the Shares and the fair market value of the Shares as of the day immediately preceding the date of the purchase of the Shares by the Employee. 10. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. 11. Waiver. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company. 12. Binding Effect. This Agreement shall be binding upon, and inure to the benefit of, the Company and the Employee and their respective heirs, executors, administrators, legal representatives, successors, and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement. 13. No Rights to Employment. Nothing contained in this Agreement shall be construed as giving the Employee any right to be retained, in any position, as an employee of the Company. 14. Notice. All notices required or permitted hereunder shall be in writing and deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown beneath his or its respective signature to this Agreement, or at such other address or addresses as either party shall designate to the other in accordance with this Section 14. 15. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine, or neuter forms. The singular 6 form of nouns and pronouns shall included the plural, and the plural form of nouns and pronouns shall include the singular. 16. Entire Agreement. This Agreement constitutes the entire agreement between the parties, and supersedes all prior agreements and understandings relating to the subject matter of this Agreement. 17. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 18. Governing Law. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of North Carolina. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. COMPANY LADD FURNITURE, INC. By:____________________________________ Chairman and Chief Executive Officer Address: P. O. Box HP-3 High Point, NC 27261 EMPLOYEE --------------------------------------- Address:________________________________ -------------------------------- Social Sec. No.___________________________ 7 EX-10 9 EXHIBIT 10.7 EXHIBIT 10.7 NORTH CAROLINA ) ) EXECUTIVE EMPLOYMENT AGREEMENT GUILFORD COUNTY ) THIS AGREEMENT, made and entered into the 1st day of December, 1995, and effective as of December 1, 1995, by and between LADD Furniture, Inc., a North Carolina corporation ("Company"), and William S. Creekmuir, an individual resident of North Carolina ("Executive"); WITNESSETH: WHEREAS, Company is engaged in the manufacture, distribution, and sale of furniture; and WHEREAS, Company desires to employ Executive as its Senior Vice President and Executive desires to accept such employment on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties agree as follows: 1. Employment. Company hereby employs Executive, and Executive hereby accepts employment and agrees to remain in the employ of the company during the term of this Agreement, on the terms and conditions hereinafter set forth. 2. Term of Employment. Subject to the provisions in Section 9 below, the term of this Agreement shall be for a two-year period beginning on the date hereof and terminating on November 30, 1997, unless otherwise terminated as provided herein. 3. Nature of Employment. Executive is employed as Senior Vice President of Company. Consistent with such position, Executive shall, subject to the direction of the Chief Executive Officer and the Board of Directors of Company, direct and manage the affairs of the Company as assigned. Executive shall report to and be responsible to the Chief Executive Officer. During the term of this Agreement and any extensions or renewals thereof, Executive shall have no other employment of any nature whatsoever without the prior consent of Company. Accordingly, unless otherwise approved by Company, Executive agrees to devote his full working time to the business of Company; provided, however, nothing herein contained shall restrict or prevent Executive from personally and for his own account owning and dealing in stocks, bonds, securities, real estate, commodities, or other investment properties for his own benefit or the benefit of his family. Further, nothing herein contained shall restrict or prevent Executive from serving on the Board of Directors of any entity which does not directly of indirectly compete with Company. 4. Compensation. (a) Base Salary. Compensation to Executive for the services rendered on behalf of Company during the term of this Agreement shall be no less than Two Hundred Thousand Dollars $200,000.00) per year, payable in equal monthly installments. From time to time during the term of this Agreement, Executive's compensation may be increased if approved by the Board of Directors of Company, but shall in no event be decreased from the amount of the base salary in effect at that time. Company shall review Executive's compensation hereunder at least on an annual basis. (b) Incentive Compensation. In addition to Executive's base salary, Executive shall be entitled to participate in incentive compensation plans and programs generally available to executives of the Company, provided that performance goals and award targets used in the computation of awards to the Executive hereunder shall be no less favorable than those which are used in the computation of awards to other executives of the Company and shall recognize the level of responsibility of the Executive. The annual incentive opportunity shall have a maximum no less than one hundred percent (100%) of Executive's then current base salary. 5. Expenses. Executive is authorized to incur reason able expenses in connection with the business of Company, including expenses for travel and similar items. Company will reimburse Executive for all such expenses upon the presentation by Executive, from time to time, of an itemized account of expenditures. 6. Vacation. Executive shall be entitled to paid vacations during each calendar year of the term of this Agreement at such times and for such duration as may be determined by the Chief Executive Officer of the Company, taking into consideration the needs and requirements of Company for Executive's services; provided, however, the minimum paid vacation to which Executive shall be entitled in any calendar year is four (4) weeks. 7. Death During Employment. If Executive dies during the term of this Agreement, Company shall pay to the estate of Executive the compensation to which he would otherwise be entitled through the end of the month in which death occurs in accordance with Section 4(a) above, plus the sum of Five Thousand Dollars ($5,000.00) as an additional death benefit. Company shall also pay to the estate of Executive an amount equal to any bonus or other incentive payments which would otherwise have been due to Executive had Executive been employed as of fiscal year end, pro-rated to date of death. This Agreement shall thereupon terminate, and Company shall have no further obligation to the estate of Executive. 8. Permanent Disability During Employment. If Executive becomes permanently disabled during the term of this Agreement, Company shall pay to Executive the compensation, in accordance with Section 4(a) above, to which he would otherwise be entitled to the end of the month in which such permanent disability occurs. Thereafter, the Executive shall continue to receive his then base salary, minus any payments provided by the Company's benefit plans and by any government sponsored program, for a twenty-four (24) month period from the 2 date of permanent disability. This Agreement shall thereupon terminate and Company shall have no further obligation to Executive except as may be provided under Company's short-term and long-term disability plans during the term of such disability and any prorata portion of any bonus or incentive plan. Permanent disability for purposes of this Agreement shall mean a physical or mental condition of Executive that renders Executive incapable of performing the essential duties of his job and which condition shall be medically determined to be of permanent duration as same is construed under Company's disability plans. 9. Renewal. Executive's term of employment shall be automatically extended upon the same terms and conditions contained herein for successive one-year periods unless a written notice of termination is given by either party at least 90 days before the end of the term of employment or any renewals or extensions thereof. In the event the Company gives timely notice to terminate this Agreement, the severance provision of Section 11 pertaining to termination without cause shall become effective. 10. Termination for Cause. Company may terminate Executive's employment at any time "for cause". The term "for cause" shall mean (i) a material default or other breach by Executive of his obligations under this Agreement, (ii) material failure by Executive to diligently and competently perform his duties under this Agreement, which shall be determined by Company's Board of Directors in its reasonable discretion, (iii) insubordination or other act or acts by Executive detrimental to Company or damaging to Company's relationships with customers, suppliers or employees or (iv) fraud, dishonesty, misappropriation of Company's assets, or conviction of a felony. Upon the occurrence of (i), (ii) or (iii) above, Company shall be entitled to terminate the employment relationship hereunder upon thirty (30) days prior written notice to Executive, which notice shall state the reason for such termination and shall provide Executive an opportunity to remedy or cure such cause during such period. If such cause is not remedied or cured during such period, Company may terminate Executive's employment immediately. In the event of a termination for cause, Company shall have no obligation or liability to Executive under this Agreement except for the compensation to which he is entitled through the end of the month of termination in accordance with Section 4(a) above. 11. Termination Without Cause. Company shall be entitled to terminate the employment relationship hereunder without cause at any time upon thirty (30) days prior written notice to Executive. In such event, Executive, if requested by Company, shall continue to render his services up to the date of termination and shall be paid the compensation to which he is entitled through the end of the month of termination in accordance with Section 4(a) above. In addition, if Company terminates this Agreement for any reason other than for cause, as specified in Section 10 above, the Executive shall be entitled to receive in twenty-four (24) equal monthly payments in an amount equal to two times the sum of (i) his then current base salary in accordance with Section 4(a) above and (ii) the average annual incentive payments to the Executive during the preceding three (3) years less earned income received during the 24-month severance period. Further, Executive shall be deemed to be One Hundred Percent (100%) vested in the Supplemental Retirement Income Plan for Salaried Employees of LADD Furniture, Inc.("SERP"). Payments under this Section 11 are in addition to and not in lieu of any benefits 3 under the SERP or other benefit programs of the Company. The Company shall thereafter have no other obligation or liability to Executive under this Agreement. 12. Termination upon Change of Control. In the event of a "change in control" of the Company (as hereinafter defined), the Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following events during the twelve (12) months immediately preceding or following the effective date of a change in control of the Company: (a) a material change in the scope of the Executive's assigned duties and responsibilities from those in effect immediately prior to a change in control of the Company or the assignment of duties or responsibilities that are inconsistent with the Executive's status in the Company; (b) a reduction by the Company in the Executive's base salary or incentive compensation as in effect on the date of a change in control; (c) the Company's requirement that the Executive be based anywhere other than the Company's office at which he was based prior to the change in control of the Company; or (d) the failure by the Company to continue to provide the Executive with benefits substantially similar to those specified in Section 14 of this Agreement. If the Executive shall terminate his employment for Good Reason, then the Company shall pay him a lump sum severance payment in an amount equal to two times the sum of (i) his then current base salary and (ii) the average annual incentive payments to the Executive during the preceding three (3) years. Further, upon termination for Good Reason, the Executive shall immediately become 100% vested in the SERP, all outstanding stock options shall become immediately exercisable and all restrictions under Restricted Stock Agreements shall be eliminated. For purposes of this Agreement, a "change in control" shall be deemed to have occurred when (i) any person, corporation, or group of associated persons, excluding affiliates of the Company, acquires a beneficial ownership of an aggregate of more than fifty percent (50%) of the then outstanding shares of voting stock of the Company or (ii) a merger or consolidation to which the Company is a party and where the Company is not a surviving or continuing entity has been completed. 4 13. Property of Company. Executive agrees that upon the termination of his employment he will turn over to Company all property of Company which has come into his possession while an Executive of Company. 14. Additional Benefits. During the term of this Agreement and any renewals or extensions thereof, Company shall keep and maintain, for the benefit of Executive, life insurance having a death benefit of not less one hundred percent (100%) of base pay (not to exceed $300,000) and disability insurance that will provide Executive a benefit of not less than sixty-percent (60%) of base pay per month during the term of any disability. Executive and, as applicable, the Executive's family shall also have the right to participate in any Executive benefit plans or other fringe benefits adopted by Company for its officers and/or other key management employees or as a part of Company's regular compensation structure for its employees, including any group hospitalization, medical, dental, accidental death and disability and long-term disability income replacement insurance plans and any retirement income and capital accumulation plans. All such benefits shall be in addition to the compensation payments provided by this Agreement. 15. Covenants by Executive. (a) Non-competition. During the term of employment under this Agreement including any renewals or extensions thereof, and for a period of two (2) years thereafter, Executive shall not, without the prior written approval of Company, directly or indirectly, as employer, employee, partner, stockholder, joint venturer or otherwise, enter into or in any manner take part in any business or other endeavor which would be in competition with Company in the continental United States as such business is conducted at the time of termination. (b) Respect for Economic Relationships. Executive will not, during the term of his employment under this Agreement including any renewals or extensions thereof, and for a period of two (2) years thereafter, in any fashion, form, or manner, either directly or indirectly, solicit, interfere with, or endeavor to entice away from Company any customer or person, firm or corporation, regularly dealing with Company or directly or indirectly interfere with, entice away, or cause any other entity to employ any other employee of Company. (c) Validity of Covenants. Executive agrees that the covenants contained in this Section are reasonably necessary to protect the legitimate interests of Company, are reasonable with respect to time, territory and scope, and do not interfere with the interests of the public. Executive further agrees that the descriptions of the covenants contained in this Section are sufficiently accurate and definite to inform Executive of the scope of such covenants. Executive acknowledges that prior to entering into this Agreement he was employed "at will", and agrees that the term of employment and termination provisions contained in Sections 2, 9, 10 and 11 above constitute fully adequate and sufficient consideration for the covenants contained in Sections 15 and 17 of this Agreement. 5 (d) Specific Performance. Executive agrees that a breach or violation of any of the covenants under this Section will result in immediate and irreparable harm to Company in an amount which will be impossible to ascertain at the time of the breach or violation and that the award of monetary damages will not be adequate relief to Company. Therefore, the failure on the part of Executive to perform all of the covenants established by this Section shall give rise to a right to Company to obtain enforcement of this Section in a court of equity by a decree of specific performance or other injunctive relief. This remedy, however, shall be cumulative and in addition to any other remedy Company may have. 16. Patent, Trade Dress and Trademark Assignment. Executive agrees without additional compensation to assign promptly to Company all rights, title, and interest in and to any and all trade secrets, inventions, letters patent, applications for letters patent, trade dress, and trademarks whether or not subject to state or federal trademark during the term of employment hereunder if related to the then current products and activities of Company, such activities to include, without limitation, product development by Company, or if developed or made with the use of its facilities, equipment, materials, personnel, or trade secrets, or result directly from any work performed by Executive for Company. Executive further agrees to disclose promptly to Company any such trade secrets, inventions, letters patent, applications for letters patent, trade dress, and trademarks, and, at the request and expense of Company, to apply for letters patent or registration thereon in every jurisdiction designated by Company. 17. Confidential Information. Executive agrees both during the term of this Agreement and thereafter to keep secret and confidential all information labeled confidential or not generally known which is heretofore or hereafter acquired concerning the business and affairs of Company, including without limitation, information regarding trade secrets, trade dress, proprietary processes, confidential business plans, market research data and financial data, and further agrees not to disclose any such information to any person, firm, or corporation or use the same in any manner other than in furtherance of the business or affairs of Company or unless such information shall become public knowledge by other means. Executive agrees that such information is a valuable, special, and unique asset of Company. Upon the termination of Executive's employment with Company, Executive shall immediately return to Company all documents, records, notebooks, and similar repositories of information relating to confidential information of Company and/or the development of any inventions. 18. Waiver of Breach. The waiver by Company or Executive of any breach of a provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by the parties. 19. Notice. All notices, requests, demands, payments, or other communications hereunder shall be deemed to have been duly given if in writing and hand delivered or sent by certified or registered mail, return receipt requested, to the appropriate address indicated below or to such other address as may be given in a notice sent to all parties hereto: 6 (a) If to Company, to: LADD Furniture, Inc. One Plaza Center P. O. Box HP-3 High Point, NC 27261 Attn: Chief Executive Officer b) If to Executive, to: William S. Creekmuir 11 Heathrow Court Greensboro, NC 27410 20. Entire Agreement. This Agreement supersedes any and all other understandings and agreements, either oral or in writing, between the parties hereto with respect to the subject matter hereof and constitutes the sole and only agreement between the parties with respect to said subject matter. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied herein, and that no agreement, statement, or promise not contained in this Agreement shall be valid or binding or of any force or effect. No change or modification of this Agreement shall be valid or binding upon the parties hereto unless such change or modification is in writing and is signed by the parties hereto. 21. Severability. If any one or more of the provisions contained in this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, that invalidity, illegality, or unenforceability shall not affect any other provisions hereof, and this Agreement shall be construed as if that invalid, illegal, or unenforceable provision had never been contained herein. 22. Parties Bound. The terms, promises, covenants, and agreements contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement may not be assigned by Company or Executive without the prior written consent of the other party. 23. Consolidation, Merger or Sale of Assets. Nothing in this Agreement shall preclude the Company from consolidating or merging into, or with, or transferring all or substantially all of its assets to another corporation which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation or merger, the use of the word "Company" herein shall mean such other corporation, and this Agreement shall continue in full force and effect. 7 24. Survival. The provisions of Sections 15 and 17 of this Agreement shall survive the termination of this Agreement and shall continue for the terms set forth in Sections 15 and 17. 25. Captions. Captions to the Sections of this Agreement are inserted solely for the convenience of the parties, are not a part of this Agreement, and in no way define, limit, extend or describe the scope thereof or the intent of any of the provisions. 26. Applicable Law. This Agreement shall be construed and the legal relationship between the parties determined in accordance with the laws of the State of North Carolina. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the day and year first above written, the corporate party acting through duly authorized officers. ATTEST: LADD Furniture, Inc. ___________________________ By:_______________________________ Secretary Chairman of the Board and Chief Executive Officer (Corporate Seal) ___________________________ ____________________________(SEAL) (Witness) William S. Creekmuir 8 EX-10 10 EXHIBIT 10.8 EXHIBIT 10.8 NORTH CAROLINA ) ) EXECUTIVE EMPLOYMENT AGREEMENT GUILFORD COUNTY ) THIS AGREEMENT, made and entered into the 22nd day of May, 1995, and effective as of May 1, 1995, by and between LADD Furniture, Inc., a North Carolina corporation ("Company"), and Kenneth E. Church, an individual resident of North Carolina ("Executive"); WITNESSETH: WHEREAS, Company is engaged in the manufacture, distribution, and sale of furniture; and WHEREAS, Company desires to employ Executive as its Vice President and Executive desires to accept such employment on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties agree as follows: 1. Employment. Company hereby employs Executive, and Executive hereby accepts employment and agrees to remain in the employ of the company during the term of this Agreement, on the terms and conditions hereinafter set forth. 2. Term of Employment. Subject to the provisions in Section 9 below, the term of this Agreement shall be for a two-year period beginning on the effective date hereof and terminating on April 30, 1997, unless otherwise terminated as provided herein. 3. Nature of Employment. Executive is employed as Vice President of Company and President of the Company's wholly-owned subsidiary, Clayton Marcus Company, Inc. ("Clayton Marcus"). Consistent with such position, Executive shall, subject to the direction of the Chairman and Chief Executive Officer of the Company, President and Chief Operating Officer of the Company and the Board of Directors of Clayton Marcus, direct and manage the affairs of Clayton Marcus and the Company as assigned. Executive shall report to and be responsible to the Chief Operating Officer of the Company. During the term of this Agreement and any extensions or renewals thereof, Executive shall have no other employment of any nature whatsoever without the prior consent of Company. Accordingly, unless otherwise approved by Company, Executive agrees to devote his full working time to the business of Company; provided, however, nothing herein contained shall restrict or prevent Executive from personally and for his own account owning and dealing in stocks, bonds, securities, real estate, commodities, or other investment properties for his own benefit or the benefit of his family. Further, nothing herein contained shall restrict or prevent Executive from serving on the Board of Directors of any entity which does not directly or indirectly compete with Company. 4. Compensation. (a) Base Salary. Compensation to Executive for the services rendered on behalf of Company during the term of this Agreement shall be no less than Two Hundred Ten Thousand Dollars ($ 210,000.00) per year, payable in equal monthly installments. From time to time during the term of this Agreement, Executive's compensation may be increased if approved by the Board of Directors of Company, but shall in no event be decreased from the amount of the base salary in effect at that time. Company shall review Executive's compensation hereunder at least on an annual basis. (b) Incentive Compensation. In addition to Executive's base salary, Executive shall be entitled to participate in incentive compensation plans and programs generally available to executives of the Company, provided that performance goals and award targets used in the computation of awards to the Executive hereunder shall be no less favorable than those which are used in the computation of awards to other comparably placed executives of the Company and shall recognize the level of responsibility of the Executive. The annual incentive opportunity shall have a maximum no less than eighty percent (80%) of Executive's then current base salary. 5. Expenses. Executive is authorized to incur reasonable expenses in connection with the business of Company, including expenses for travel and similar items. Company will reimburse Executive for all such expenses upon the presentation by Executive, from time to time, of an itemized account of expenditures. 6. Vacation. Executive shall be entitled to paid vacations during each calendar year of the term of this Agreement at such times and for such duration as may be determined by the Chief Executive Officer of the Company, taking into consideration the needs and requirements of Company for Executive's services; provided, however, the minimum paid vacation to which Executive shall be entitled in any calendar year is three (3) weeks. 7. Death During Employment. If Executive dies during the term of this Agreement, Company shall pay to the estate of Executive the compensation to which he would otherwise be entitled through the end of the month in which death occurs in accordance with Section 4(a) above, plus the sum of Five Thousand Dollars ($5,000.00) as an additional death benefit. Company shall also pay to the estate of Executive an amount equal to any bonus or other incentive payments which would otherwise have been due to Executive had Executive been employed as of fiscal year end, pro-rated to date of death. This Agreement shall thereupon terminate, and Company shall have no further obligation to the estate of Executive. 8. Permanent Disability During Employment. If Executive becomes permanently disabled during the term of this Agreement, Company shall pay to Executive the compensation, in accordance with Section 4(a) above, to which he would otherwise be entitled to the end of the month in which such permanent disability occurs. Thereafter, the Executive shall continue to receive his then base salary, minus any payments provided by the Company's benefit 2 plans and by any government sponsored program, for a twenty-four (24) month period from the date of permanent disability. This Agreement shall thereupon terminate and Company shall have no further obligation to Executive except as may be provided under Company's short-term and long-term disability plans during the term of such disability and any prorata portion of any bonus or incentive plan. Permanent disability for purposes of this Agreement shall mean a physical or mental condition of Executive that renders Executive incapable of performing the essential duties of his job and which condition shall be medically determined to be of permanent duration as same is construed under Company's disability plans. 9. Renewal. Executive's term of employment shall be automatically extended upon the same terms and conditions contained herein for successive one-year periods unless a written notice of termination is given by either party at least 90 days before the end of the term of employment or any renewals or extensions thereof. In the event the Company gives timely notice to terminate this Agreement, the severance provision of Section 11 pertaining to termination without cause shall become effective. 10. Termination for Cause. Company may terminate Executive's employment at any time "for cause". The term "for cause" shall mean (i) a material default or other breach by Executive of his obligations under this Agreement, (ii) material failure by Executive to diligently and competently perform his duties under this Agreement, which shall be determined by Company's Board of Directors in its reasonable discretion, (iii) insubordination or other act or acts by Executive detrimental to Company or damaging to Company's relationships with customers, suppliers or employees or (iv) fraud, dishonesty, misappropriation of Company's assets, or conviction of a felony. Upon the occurrence of (i), (ii) or (iii) above, Company shall be entitled to terminate the employment relationship hereunder upon thirty (30) days prior written notice to Executive, which notice shall state the reason for such termination and shall provide Executive an opportunity to remedy or cure such cause during such period. If such cause is not remedied or cured during such period, Company may terminate Executive's employment immediately. In the event of a termination for cause, Company shall have no obligation or liability to Executive under this Agreement except for the compensation to which he is entitled through the end of the month of termination in accordance with Section 4(a) above. 11. Termination Without Cause. Company shall be entitled to terminate the employment relationship hereunder without cause at any time upon thirty (30) days prior written notice to Executive. In such event, Executive, if requested by Company, shall continue to render his services up to the date of termination and shall be paid the compensation to which he is entitled through the end of the month of termination in accordance with Section 4(a) above. In addition, if Company terminates this Agreement for any reason other than for cause, as specified in Section 10 above, the Executive shall be entitled to receive in twenty-four (24) equal monthly payments in an amount equal to two times the sum of (i) his then current base salary in accordance with Section 4(a) above and (ii) the average annual incentive payments to the Executive during the preceding three (3) years less earned income received during the 24-month severance period. Further, Executive shall be deemed to be One Hundred Percent (100%) vested in the Supplemental Retirement Income Plan for Salaried Employees of LADD Furniture, 3 Inc.("SERP"). Payments under this Section 11 are in addition to and not in lieu of any benefits under the SERP or other benefit programs of the Company. The Company shall thereafter have no other obligation or liability to Executive under this Agreement. 12. Termination upon Change of Control. In the event of a "change in control" of the Company (as hereinafter defined), the Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following events during the twelve (12) months immediately preceding or following the effective date of a change in control of the Company: (a) a material change in the scope of the Executive's assigned duties and responsibilities from those in effect immediately prior to a change in control of the Company or the assignment of duties or responsibilities that are inconsistent with the Executive's status in the Company; (b) a reduction by the Company in the Executive's base salary or incentive compensation as in effect on the date of a change in control; (c) the Company's requirement that the Executive be based anywhere other than the Company's office at which he was based prior to the change in control of the Company; or (d) the failure by the Company to continue to provide the Executive with benefits substantially similar to those specified in Section 14 of this Agreement. If the Executive shall terminate his employment for Good Reason, then the Company shall pay him a lump sum severance payment in an amount equal to two times the sum of (i) his then current base salary and (ii) the average annual incentive payments to the Executive during the preceding three (3) years. Further, upon termination for Good Reason, the Executive shall immediately become 100% vested in the SERP, all outstanding stock options shall become immediately exercisable and all restrictions under Restricted Stock Agreements shall be eliminated. For purposes of this Agreement, a "change in control" shall be deemed to have occurred when (i) any person, corporation, or group of associated persons, excluding affiliates of the Company, acquires a beneficial ownership of an aggregate of more than fifty percent (50%) of the then outstanding shares of voting stock of the Company or (ii) a merger or consolidation to which the Company is a party and where the Company is not a surviving or continuing entity has been completed. 4 13. Property of Company. Executive agrees that upon the termination of his employment he will turn over to Company all property of Company which has come into his possession while an Executive of Company. 14. Additional Benefits. During the term of this Agreement and any renewals or extensions thereof, Company shall keep and maintain, for the benefit of Executive, life insurance having a death benefit of not less one hundred percent (100%) of base pay (not to exceed $300,000) and disability insurance that will provide Executive a benefit of not less than sixty-percent (60%) of base pay per month during the term of any disability. Executive and, as applicable, the Executive's family shall also have the right to participate in any Executive benefit plans or other fringe benefits adopted by Company for its officers and/or other key management employees or as a part of Company's regular compensation structure for its employees, including any group hospitalization, medical, dental, accidental death and disability and long-term disability income replacement insurance plans and any retirement income and capital accumulation plans. All such benefits shall be in addition to the compensation payments provided by this Agreement. 15. Covenants by Executive. (a) Non-competition. During the term of employment under this Agreement including any renewals or extensions thereof, and for a period of two (2) years thereafter, Executive shall not, without the prior written approval of Company, directly or indirectly, as employer, employee, partner, stockholder, joint venturer or otherwise, enter into or in any manner take part in any business or other endeavor which would be in competition with Company in the continental United States as such business is conducted at the time of termination. (b) Respect for Economic Relationships. Executive will not, during the term of his employment under this Agreement including any renewals or extensions thereof, and for a period of two (2) years thereafter, in any fashion, form, or manner, either directly or indirectly, solicit, interfere with, or endeavor to entice away from Company any customer or person, firm or corporation, regularly dealing with Company or directly or indirectly interfere with, entice away, or cause any other entity to employ any other employee of Company. (c) Validity of Covenants. Executive agrees that the covenants contained in this Section are reasonably necessary to protect the legitimate interests of Company, are reasonable with respect to time, territory and scope, and do not interfere with the interests of the public. Executive further agrees that the descriptions of the covenants contained in this Section are sufficiently accurate and definite to inform Executive of the scope of such covenants. Executive acknowledges that prior to entering into this Agreement he was employed "at will", and agrees that the term of employment and termination provisions contained in Sections 2, 9, 10 and 11 above constitute fully adequate and sufficient consideration for the covenants contained in Sections 15 and 17 of this Agreement. 5 (d) Specific Performance. Executive agrees that a breach or violation of any of the covenants under this Section will result in immediate and irreparable harm to Company in an amount which will be impossible to ascertain at the time of the breach or violation and that the award of monetary damages will not be adequate relief to Company. Therefore, the failure on the part of Executive to perform all of the covenants established by this Section shall give rise to a right to Company to obtain enforcement of this Section in a court of equity by a decree of specific performance or other injunctive relief. This remedy, however, shall be cumulative and in addition to any other remedy Company may have. 16. Patent, Trade Dress and Trademark Assignment. Executive agrees without additional compensation to assign promptly to Company all rights, title, and interest in and to any and all trade secrets, inventions, letters patent, applications for letters patent, trade dress, and trademarks whether or not subject to state or federal trademark during the term of employment hereunder if related to the then current products and activities of Company, such activities to include, without limitation, product development by Company, or if developed or made with the use of its facilities, equipment, materials, personnel, or trade secrets, or result directly from any work performed by Executive for Company. Executive further agrees to disclose promptly to Company any such trade secrets, inventions, letters patent, applications for letters patent, trade dress, and trademarks, and, at the request and expense of Company, to apply for letters patent or registration thereon in every jurisdiction designated by Company. 17. Confidential Information. Executive agrees both during the term of this Agreement and thereafter to keep secret and confidential all information labeled confidential or not generally known which is heretofore or hereafter acquired concerning the business and affairs of Company, including without limitation, information regarding trade secrets, trade dress, proprietary processes, confidential business plans, market research data and financial data, and further agrees not to disclose any such information to any person, firm, or corporation or use the same in any manner other than in furtherance of the business or affairs of Company or unless such information shall become public knowledge by other means. Executive agrees that such information is a valuable, special, and unique asset of Company. Upon the termination of Executive's employment with Company, Executive shall immediately return to Company all documents, records, notebooks, and similar repositories of information relating to confidential information of Company and/or the development of any inventions. 18. Waiver of Breach. The waiver by Company or Executive of any breach of a provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by the parties. 19. Notice. All notices, requests, demands, payments, or other communications hereunder shall be deemed to have been duly given if in writing and hand delivered or sent by certified or registered mail, return receipt requested, to the appropriate address indicated below or to such other address as may be given in a notice sent to all parties hereto: 6 (a) If to Company, to: LADD Furniture, Inc. One Plaza Center P. O. Box HP-3 High Point, NC 27261 Attn: Chief Executive Officer b) If to Executive, to: Kenneth E. Church 26 W. Highland Avenue Granite Falls, NC 28630 20. Entire Agreement. This Agreement supersedes any and all other understandings and agreements, either oral or in writing, between the parties hereto with respect to the subject matter hereof and constitutes the sole and only agreement between the parties with respect to said subject matter. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied herein, and that no agreement, statement, or promise not contained in this Agreement shall be valid or binding or of any force or effect. No change or modification of this Agreement shall be valid or binding upon the parties hereto unless such change or modification is in writing and is signed by the parties hereto. 21. Severability. If any one or more of the provisions contained in this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, that invalidity, illegality, or unenforceability shall not affect any other provisions hereof, and this Agreement shall be construed as if that invalid, illegal, or unenforceable provision had never been contained herein. 22. Parties Bound. The terms, promises, covenants, and agreements contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement may not be assigned by Company or Executive without the prior written consent of the other party. 23. Consolidation, Merger or Sale of Assets. Nothing in this Agreement shall preclude the Company from consolidating or merging into, or with, or transferring all or substantially all of its assets to another corporation which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation or merger, the use of the word "Company" herein shall mean such other corporation, and this Agreement shall continue in full force and effect. 7 24. Survival. The provisions of Sections 15 and 17 of this Agreement shall survive the termination of this Agreement and shall continue for the terms set forth in Sections 15 and 17. 25. Captions. Captions to the Sections of this Agreement are inserted solely for the convenience of the parties, are not a part of this Agreement, and in no way define, limit, extend or describe the scope thereof or the intent of any of the provisions. 26. Applicable Law. This Agreement shall be construed and the legal relationship between the parties determined in accordance with the laws of the State of North Carolina. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the day and year first above written, the corporate party acting through duly authorized officers. ATTEST: LADD Furniture, Inc. - -------------------------------- By:___________________________ Secretary Chairman of the Board and Chief Executive Officer (Corporate Seal) -------------------------------- _________________________________ (SEAL) (Witness) Kenneth E. Church 8 EX-10 11 EXHIBIT 10.9 EXHIBIT 10.9 NORTH CAROLINA ) ) EXECUTIVE EMPLOYMENT AGREEMENT GUILFORD COUNTY ) THIS AGREEMENT, made and entered into the 1st day of January, 1996, and effective as of January 1, 1996, by and between LADD Furniture, Inc., a North Carolina corporation ("Company"), and Donald L. Mitchell, an individual resident of North Carolina ("Executive"); WITNESSETH: WHEREAS, Company is engaged in the manufacture, distribution, and sale of furniture; and WHEREAS, Company desires to employ Executive as its Executive Vice President and Executive desires to accept such employment on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties agree as follows: 1. Employment. Company hereby employs Executive, and Executive hereby accepts employment and agrees to remain in the employ of the company during the term of this Agreement, on the terms and conditions hereinafter set forth. 2. Term of Employment. Subject to the provisions in Section 9 below, the term of this Agreement shall be for a two-year period beginning on the date hereof and terminating on January 1, 1998, unless otherwise terminated as provided herein. 3. Nature of Employment. Executive is employed as Vice President of Company. Consistent with such position, Executive shall, subject to the direction of the Chief Executive Officer and the Board of Directors of Company, direct and manage the affairs of the Company as assigned. Executive shall report to and be responsible to the Chief Executive Officer. During the term of this Agreement and any extensions or renewals thereof, Executive shall have no other employment of any nature whatsoever without the prior consent of Company. Accordingly, unless otherwise approved by Company, Executive agrees to devote his full working time to the business of Company; provided, however, nothing herein contained shall restrict or prevent Executive from personally and for his own account owning and dealing in stocks, bonds, securities, real estate, commodities, or other investment properties for his own benefit or the benefit of his family. Further, nothing herein contained shall restrict or prevent Executive from serving on the Board of Directors of any entity which does not directly of indirectly compete with Company. 4. Compensation. (a) Base Salary. Compensation to Executive for the services rendered on behalf of Company during the term of this Agreement shall be no less than Two Hundred Seventy-Five Thousand Dollars ($ 275,000.00) per year, payable in equal monthly installments. From time to time during the term of this Agreement, Executive's compensation may be increased if approved by the Board of Directors of Company, but shall in no event be decreased from the amount of the base salary in effect at that time. Company shall review Executive's compensation hereunder at least on an annual basis. (b) Incentive Compensation. In addition to Executive's base salary, Executive shall be entitled to participate in incentive compensation plans and programs generally available to executives of the Company, provided that performance goals and award targets used in the computation of awards to the Executive hereunder shall be no less favorable than those which are used in the computation of awards to other executives of the Company and shall recognize the level of responsibility of the Executive. The annual incentive opportunity shall have a maximum no less than eighty hundred percent (80%) of Executive's then current base salary. 5. Expenses. Executive is authorized to incur reason able expenses in connection with the business of Company, including expenses for travel and similar items. Company will reimburse Executive for all such expenses upon the presentation by Executive, from time to time, of an itemized account of expenditures. 6. Vacation. Executive shall be entitled to paid vacations during each calendar year of the term of this Agreement at such times and for such duration as may be determined by the Chief Executive Officer of the Company, taking into consideration the needs and requirements of Company for Executive's services; provided, however, the minimum paid vacation to which Executive shall be entitled in any calendar year is four (4) weeks. 7. Death During Employment. If Executive dies during the term of this Agreement, Company shall pay to the estate of Executive the compensation to which he would otherwise be entitled through the end of the month in which death occurs in accordance with Section 4(a) above, plus the sum of Five Thousand Dollars ($5,000.00) as an additional death benefit. Company shall also pay to the estate of Executive an amount equal to any bonus or other incentive payments which would otherwise have been due to Executive had Executive been employed as of fiscal year end, pro-rated to date of death. This Agreement shall thereupon terminate, and Company shall have no further obligation to the estate of Executive. 8. Permanent Disability During Employment. If Executive becomes permanently disabled during the term of this Agreement, Company shall pay to Executive the compensation, in accordance with Section 4(a) above, to which he would otherwise be entitled to the end of the month in which such permanent disability occurs. Thereafter, the Executive shall continue to receive his then base salary, minus any payments provided by the Company's benefit plans and by any government sponsored program, for a twenty-four (24) month period from the 2 date of permanent disability. This Agreement shall thereupon terminate and Company shall have no further obligation to Executive except as may be provided under Company's short-term and long-term disability plans during the term of such disability and any prorata portion of any bonus or incentive plan. Permanent disability for purposes of this Agreement shall mean a physical or mental condition of Executive that renders Executive incapable of performing the essential duties of his job and which condition shall be medically determined to be of permanent duration as same is construed under Company's disability plans. 9. Renewal. Executive's term of employment shall be automatically extended upon the same terms and conditions contained herein for successive one-year periods unless a written notice of termination is given by either party at least 90 days before the end of the term of employment or any renewals or extensions thereof. In the event the Company gives timely notice to terminate this Agreement, the severance provision of Section 11 pertaining to termination without cause shall become effective. 10. Termination for Cause. Company may terminate Executive's employment at any time "for cause". The term "for cause" shall mean (i) a material default or other breach by Executive of his obligations under this Agreement, (ii) material failure by Executive to diligently and competently perform his duties under this Agreement, which shall be determined by Company's Board of Directors in its reasonable discretion, (iii) insubordination or other act or acts by Executive detrimental to Company or damaging to Company's relationships with customers, suppliers or employees or (iv) fraud, dishonesty, misappropriation of Company's assets, or conviction of a felony. Upon the occurrence of (i), (ii) or (iii) above, Company shall be entitled to terminate the employment relationship hereunder upon thirty (30) days prior written notice to Executive, which notice shall state the reason for such termination and shall provide Executive an opportunity to remedy or cure such cause during such period. If such cause is not remedied or cured during such period, Company may terminate Executive's employment immediately. In the event of a termination for cause, Company shall have no obligation or liability to Executive under this Agreement except for the compensation to which he is entitled through the end of the month of termination in accordance with Section 4(a) above. 11. Termination Without Cause. Company shall be entitled to terminate the employment relationship hereunder without cause at any time upon thirty (30) days prior written notice to Executive. In such event, Executive, if requested by Company, shall continue to render his services up to the date of termination and shall be paid the compensation to which he is entitled through the end of the month of termination in accordance with Section 4(a) above. In addition, if Company terminates this Agreement for any reason other than for cause, as specified in Section 10 above, the Executive shall be entitled to receive in twenty-four (24) equal monthly payments in an amount equal to two times the sum of (i) his then current base salary in accordance with Section 4(a) above and (ii) the average annual incentive payments to the Executive during the preceding three (3) years less earned income received during the 24-month severance period.The Company shall thereafter have no other obligation or liability to Executive under this Agreement. 3 12. Termination upon Change of Control. In the event of a "change in control" of the Company (as hereinafter defined), the Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following events during the twelve (12) months immediately preceding or following the effective date of a change in control of the Company: (a) a material change in the scope of the Executive's assigned duties and responsibilities from those in effect immediately prior to a change in control of the Company or the assignment of duties or responsibilities that are inconsistent with the Executive's status in the Company; (b) a reduction by the Company in the Executive's base salary or incentive compensation as in effect on the date of a change in control; (c) the Company's requirement that the Executive be based anywhere other than the Company's office at which he was based prior to the change in control of the Company; or (d) the failure by the Company to continue to provide the Executive with benefits substantially similar to those specified in Section 14 of this Agreement. If the Executive shall terminate his employment for Good Reason, then the Company shall pay him a lump sum severance payment in an amount equal to two times the sum of (i) his then current base salary and (ii) the average annual incentive payments to the Executive during the preceding three (3) years. Further, upon termination for Good Reason, all outstanding stock options shall become immediately exercisable. For purposes of this Agreement, a "change in control" shall be deemed to have occurred when (i) any person, corporation, or group of associated persons, excluding affiliates of the Company, acquires a beneficial ownership of an aggregate of more than fifty percent (50%) of the then outstanding shares of voting stock of the Company or (ii) a merger or consolidation to which the Company is a party and where the Company is not a surviving or continuing entity has been completed. 13. Property of Company. Executive agrees that upon the termination of his employment he will turn over to Company all property of Company which has come into his possession while an Executive of Company. 14. Additional Benefits. During the term of this Agreement and any renewals or extensions thereof, Company shall keep and maintain, for the benefit of Executive, life insurance having a death benefit of not less one hundred percent (100%) of base pay (not to 4 exceed $300,000) and disability insurance that will provide Executive a benefit of not less than sixty-percent (60%) of base pay per month during the term of any disability. Executive and, as applicable, the Executive's family shall also have the right to participate in any Executive benefit plans or other fringe benefits adopted by Company for its officers and/or other key management employees or as a part of Company's regular compensation structure for its employees, including any group hospitalization, medical, dental, accidental death and disability and long-term disability income replacement insurance plans and any retirement income and capital accumulation plans. All such benefits shall be in addition to the compensation payments provided by this Agreement. 15. Covenants by Executive. (a) Non-competition. During the term of employment under this Agreement including any renewals or extensions thereof, and for a period of two (2) years thereafter, Executive shall not, without the prior written approval of Company, directly or indirectly, as employer, employee, partner, stockholder, joint venturer or otherwise, enter into or in any manner take part in any business or other endeavor which would be in competition with Company in the continental United States as such business is conducted at the time of termination. (b) Respect for Economic Relationships. Executive will not, during the term of his employment under this Agreement including any renewals or extensions thereof, and for a period of two (2) years thereafter, in any fashion, form, or manner, either directly or indirectly, solicit, interfere with, or endeavor to entice away from Company any customer or person, firm or corporation, regularly dealing with Company or directly or indirectly interfere with, entice away, or cause any other entity to employ any other employee of Company. (c) Validity of Covenants. Executive agrees that the covenants contained in this Section are reasonably necessary to protect the legitimate interests of Company, are reasonable with respect to time, territory and scope, and do not interfere with the interests of the public. Executive further agrees that the descriptions of the covenants contained in this Section are sufficiently accurate and definite to inform Executive of the scope of such covenants. Executive acknowledges that prior to entering into this Agreement he was employed "at will", and agrees that the term of employment and termination provisions contained in Sections 2, 9, 10 and 11 above constitute fully adequate and sufficient consideration for the covenants contained in Sections 15 and 17 of this Agreement. (d) Specific Performance. Executive agrees that a breach or violation of any of the covenants under this Section will result in immediate and irreparable harm to Company in an amount which will be impossible to ascertain at the time of the breach or violation and that the award of monetary damages will not be adequate relief to Company. Therefore, the failure on the part of Executive to perform all of the covenants established by this Section shall give rise to a right 5 to Company to obtain enforcement of this Section in a court of equity by a decree of specific performance or other injunctive relief. This remedy, however, shall be cumulative and in addition to any other remedy Company may have. 16. Patent, Trade Dress and Trademark Assignment. Executive agrees without additional compensation to assign promptly to Company all rights, title, and interest in and to any and all trade secrets, inventions, letters patent, applications for letters patent, trade dress, and trademarks whether or not subject to state or federal trademark during the term of employment hereunder if related to the then current products and activities of Company, such activities to include, without limitation, product development by Company, or if developed or made with the use of its facilities, equipment, materials, personnel, or trade secrets, or result directly from any work performed by Executive for Company. Executive further agrees to disclose promptly to Company any such trade secrets, inventions, letters patent, applications for letters patent, trade dress, and trademarks, and, at the request and expense of Company, to apply for letters patent or registration thereon in every jurisdiction designated by Company. 17. Confidential Information. Executive agrees both during the term of this Agreement and thereafter to keep secret and confidential all information labeled confidential or not generally known which is heretofore or hereafter acquired concerning the business and affairs of Company, including without limitation, information regarding trade secrets, trade dress, proprietary processes, confidential business plans, market research data and financial data, and further agrees not to disclose any such information to any person, firm, or corporation or use the same in any manner other than in furtherance of the business or affairs of Company or unless such information shall become public knowledge by other means. Executive agrees that such information is a valuable, special, and unique asset of Company. Upon the termination of Executive's employment with Company, Executive shall immediately return to Company all documents, records, notebooks, and similar repositories of information relating to confidential information of Company and/or the development of any inventions. 18. Waiver of Breach. The waiver by Company or Executive of any breach of a provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by the parties. 19. Notice. All notices, requests, demands, payments, or other communications hereunder shall be deemed to have been duly given if in writing and hand delivered or sent by certified or registered mail, return receipt requested, to the appropriate address indicated below or to such other address as may be given in a notice sent to all parties hereto: 6 (a) If to Company, to: LADD Furniture, Inc. One Plaza Center P. O. Box HP-3 High Point, NC 27261 Attn: Chief Executive Officer b) If to Executive, to: Donald L. Mitchell 2228 Setliff Dr. High Point, NC 27265 20. Entire Agreement. This Agreement supersedes any and all other understandings and agreements, either oral or in writing, between the parties hereto with respect to the subject matter hereof and constitutes the sole and only agreement between the parties with respect to said subject matter. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied herein, and that no agreement, statement, or promise not contained in this Agreement shall be valid or binding or of any force or effect. No change or modification of this Agreement shall be valid or binding upon the parties hereto unless such change or modification is in writing and is signed by the parties hereto. 21. Severability. If any one or more of the provisions contained in this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, that invalidity, illegality, or unenforceability shall not affect any other provisions hereof, and this Agreement shall be construed as if that invalid, illegal, or unenforceable provision had never been contained herein. 22. Parties Bound. The terms, promises, covenants, and agreements contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement may not be assigned by Company or Executive without the prior written consent of the other party. 23. Consolidation, Merger or Sale of Assets. Nothing in this Agreement shall preclude the Company from consolidating or merging into, or with, or transferring all or substantially all of its assets to another corporation which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation or merger, the use of the word "Company" herein shall mean such other corporation, and this Agreement shall continue in full force and effect. 7 24. Survival. The provisions of Sections 15 and 17 of this Agreement shall survive the termination of this Agreement and shall continue for the terms set forth in Sections 15 and 17. 25. Captions. Captions to the Sections of this Agreement are inserted solely for the convenience of the parties, are not a part of this Agreement, and in no way define, limit, extend or describe the scope thereof or the intent of any of the provisions. 26. Applicable Law. This Agreement shall be construed and the legal relationship between the parties determined in accordance with the laws of the State of North Carolina. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the day and year first above written, the corporate party acting through duly authorized officers. ATTEST: LADD Furniture, Inc. ___________________________ By:_______________________________ Secretary President (Corporate Seal) ___________________________ ____________________________(SEAL) (Witness) Donald L. Mitchell 8 EX-10 12 EXHIBIT 10.10 EXHIBIT 10.10 NORTH CAROLINA ) ) EXECUTIVE EMPLOYMENT AGREEMENT GUILFORD COUNTY ) THIS AGREEMENT, made and entered into the 5th day of March, 1996, and effective as of March 5, 1996, by and between LADD Furniture, Inc., a North Carolina corporation ("Company"), and Michael P. Haley, an individual resident of Virginia ("Executive"); WITNESSETH: WHEREAS, Company is engaged in the manufacture, distribution, and sale of furniture; and WHEREAS, Company desires to employ Executive as its Executive Vice President and Executive desires to accept such employment on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties agree as follows: 1. Employment. Company hereby employs Executive, and Executive hereby accepts employment and agrees to remain in the employ of the company during the term of this Agreement, on the terms and conditions hereinafter set forth. 2. Term of Employment. Subject to the provisions in Section 9 below, the term of this Agreement shall be for a two-year period beginning on the date hereof and terminating on January 1, 1998, unless otherwise terminated as provided herein. 3. Nature of Employment. Executive is employed as Executive Vice President of Company. Consistent with such position, Executive shall, subject to the direction of the Chief Executive Officer and the Board of Directors of Company, direct and manage the affairs of the Company as assigned. Executive shall report to and be responsible to the Chief Executive Officer. During the term of this Agreement and any extensions or renewals thereof, Executive shall have no other employment of any nature whatsoever without the prior consent of Company. Accordingly, unless otherwise approved by Company, Executive agrees to devote his full working time to the business of Company; provided, however, nothing herein contained shall restrict or prevent Executive from personally and for his own account owning and dealing in stocks, bonds, securities, real estate, commodities, or other investment properties for his own benefit or the benefit of his family. Further, nothing herein contained shall restrict or prevent Executive from serving on the Board of Directors of any entity which does not directly of indirectly compete with Company. 4. Compensation. (a) Base Salary. Compensation to Executive for the services rendered on behalf of Company during the term of this Agreement shall be no less than two hundred twenty-five dollars ($225,000) per year, payable in equal monthly installments. From time to time during the term of this Agreement, Executive's compensation may be increased if approved by the Board of Directors of Company, but shall in no event be decreased from the amount of the base salary in effect at that time. Company shall review Executive's compensation hereunder at least on an annual basis. (b) Incentive Compensation. In addition to Executive's base salary, Executive shall be entitled to participate in incentive compensation plans and programs generally available to executives of the Company, provided that performance goals and award targets used in the computation of awards to the Executive hereunder shall be no less favorable than those which are used in the computation of awards to other executives of the Company and shall recognize the level of responsibility of the Executive. The annual incentive opportunity shall have a maximum no less than eighty hundred percent (80%) of Executive's then current base salary. 5. Expenses. Executive is authorized to incur reason able expenses in connection with the business of Company, including expenses for travel and similar items. Company will reimburse Executive for all such expenses upon the presentation by Executive, from time to time, of an itemized account of expenditures. 6. Vacation. Executive shall be entitled to paid vacations during each calendar year of the term of this Agreement at such times and for such duration as may be determined by the Chief Executive Officer of the Company, taking into consideration the needs and requirements of Company for Executive's services; provided, however, the minimum paid vacation to which Executive shall be entitled in any calendar year is four (4) weeks. 7. Death During Employment. If Executive dies during the term of this Agreement, Company shall pay to the estate of Executive the compensation to which he would otherwise be entitled through the end of the month in which death occurs in accordance with Section 4(a) above, plus the sum of Five Thousand Dollars ($5,000.00) as an additional death benefit. Company shall also pay to the estate of Executive an amount equal to any bonus or other incentive payments which would otherwise have been due to Executive had Executive been employed as of fiscal year end, pro-rated to date of death. This Agreement shall thereupon terminate, and Company shall have no further obligation to the estate of Executive. 8. Permanent Disability During Employment. If Executive becomes permanently disabled during the term of this Agreement, Company shall pay to Executive the compensation, in accordance with Section 4(a) above, to which he would otherwise be entitled to the end of the month in which such permanent disability occurs. Thereafter, the Executive shall continue to receive his then base salary, minus any payments provided by the Company's benefit plans and by any government sponsored program, for a twenty-four (24) month period from the 2 date of permanent disability. This Agreement shall thereupon terminate and Company shall have no further obligation to Executive except as may be provided under Company's short-term and long-term disability plans during the term of such disability and any prorata portion of any bonus or incentive plan. Permanent disability for purposes of this Agreement shall mean a physical or mental condition of Executive that renders Executive incapable of performing the essential duties of his job and which condition shall be medically determined to be of permanent duration as same is construed under Company's disability plans. 9. Renewal. Executive's term of employment shall be automatically extended upon the same terms and conditions contained herein for successive one-year periods unless a written notice of termination is given by either party at least 90 days before the end of the term of employment or any renewals or extensions thereof. In the event the Company gives timely notice to terminate this Agreement, the severance provision of Section 11 pertaining to termination without cause shall become effective. 10. Termination for Cause. Company may terminate Executive's employment at any time "for cause". The term "for cause" shall mean (i) a material default or other breach by Executive of his obligations under this Agreement, (ii) material failure by Executive to diligently and competently perform his duties under this Agreement, which shall be determined by Company's Board of Directors in its reasonable discretion, (iii) insubordination or other act or acts by Executive detrimental to Company or damaging to Company's relationships with customers, suppliers or employees or (iv) fraud, dishonesty, misappropriation of Company's assets, or conviction of a felony. Upon the occurrence of (i), (ii) or (iii) above, Company shall be entitled to terminate the employment relationship hereunder upon thirty (30) days prior written notice to Executive, which notice shall state the reason for such termination and shall provide Executive an opportunity to remedy or cure such cause during such period. If such cause is not remedied or cured during such period, Company may terminate Executive's employment immediately. In the event of a termination for cause, Company shall have no obligation or liability to Executive under this Agreement except for the compensation to which he is entitled through the end of the month of termination in accordance with Section 4(a) above. 11. Termination Without Cause. Company shall be entitled to terminate the employment relationship hereunder without cause at any time upon thirty (30) days prior written notice to Executive. In such event, Executive, if requested by Company, shall continue to render his services up to the date of termination and shall be paid the compensation to which he is entitled through the end of the month of termination in accordance with Section 4(a) above. In addition, if Company terminates this Agreement for any reason other than for cause, as specified in Section 10 above, the Executive shall be entitled to receive in twenty-four (24) equal monthly payments in an amount equal to two times the sum of (i) his then current base salary in accordance with Section 4(a) above and (ii) the average annual incentive payments to the Executive during the preceding three (3) years less earned income received during the 24-month severance period. The Company shall thereafter have no other obligation or liability to Executive under this Agreement. 3 12. Termination upon Change of Control. In the event of a "change in control" of the Company (as hereinafter defined), the Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following events during the twelve (12) months immediately preceding or following the effective date of a change in control of the Company: (a) a material change in the scope of the Executive's assigned duties and responsibilities from those in effect immediately prior to a change in control of the Company or the assignment of duties or responsibilities that are inconsistent with the Executive's status in the Company; (b) a reduction by the Company in the Executive's base salary or incentive compensation as in effect on the date of a change in control; (c) the Company's requirement that the Executive be based anywhere other than the Company's office at which he was based prior to the change in control of the Company; or (d) the failure by the Company to continue to provide the Executive with benefits substantially similar to those specified in Section 14 of this Agreement. If the Executive shall terminate his employment for Good Reason, then the Company shall pay him a lump sum severance payment in an amount equal to two times the sum of (i) his then current base salary and (ii) the average annual incentive payments to the Executive during the preceding three (3) years. Further, upon termination for Good Reason, all outstanding stock options shall become immediately exercisable. For purposes of this Agreement, a "change in control" shall be deemed to have occurred when (i) any person, corporation, or group of associated persons, excluding affiliates of the Company, acquires a beneficial ownership of an aggregate of more than fifty percent (50%) of the then outstanding shares of voting stock of the Company or (ii) a merger or consolidation to which the Company is a party and where the Company is not a surviving or continuing entity has been completed. 13. Property of Company. Executive agrees that upon the termination of his employment he will turn over to Company all property of Company which has come into his possession while an Executive of Company. 14. Additional Benefits. During the term of this Agreement and any renewals or extensions thereof, Company shall keep and maintain, for the benefit of Executive, life insurance having a death benefit of not less one hundred percent (100%) of base pay (not to 4 exceed $300,000) and disability insurance that will provide Executive a benefit of not less than sixty-percent (60%) of base pay per month during the term of any disability. Executive and, as applicable, the Executive's family shall also have the right to participate in any Executive benefit plans or other fringe benefits adopted by Company for its officers and/or other key management employees or as a part of Company's regular compensation structure for its employees, including any group hospitalization, medical, dental, accidental death and disability and long-term disability income replacement insurance plans and any retirement income and capital accumulation plans. All such benefits shall be in addition to the compensation payments provided by this Agreement. 15. Covenants by Executive. (a) Non-competition. During the term of employment under this Agreement including any renewals or extensions thereof, and for a period of two (2) years thereafter, Executive shall not, without the prior written approval of Company, directly or indirectly, as employer, employee, partner, stockholder, joint venturer or otherwise, enter into or in any manner take part in any business or other endeavor which would be in competition with Company in the continental United States as such business is conducted at the time of termination. (b) Respect for Economic Relationships. Executive will not, during the term of his employment under this Agreement including any renewals or extensions thereof, and for a period of two (2) years thereafter, in any fashion, form, or manner, either directly or indirectly, solicit, interfere with, or endeavor to entice away from Company any customer or person, firm or corporation, regularly dealing with Company or directly or indirectly interfere with, entice away, or cause any other entity to employ any other employee of Company. (c) Validity of Covenants. Executive agrees that the covenants contained in this Section are reasonably necessary to protect the legitimate interests of Company, are reasonable with respect to time, territory and scope, and do not interfere with the interests of the public. Executive further agrees that the descriptions of the covenants contained in this Section are sufficiently accurate and definite to inform Executive of the scope of such covenants. Executive acknowledges that prior to entering into this Agreement he was employed "at will", and agrees that the term of employment and termination provisions contained in Sections 2, 9, 10 and 11 above constitute fully adequate and sufficient consideration for the covenants contained in Sections 15 and 17 of this Agreement. (d) Specific Performance. Executive agrees that a breach or violation of any of the covenants under this Section will result in immediate and irreparable harm to Company in an amount which will be impossible to ascertain at the time of the breach or violation and that the award of monetary damages will not be adequate relief to Company. Therefore, the failure on the part of Executive to perform all of the covenants established by this Section shall give rise to a right 5 to Company to obtain enforcement of this Section in a court of equity by a decree of specific performance or other injunctive relief. This remedy, however, shall be cumulative and in addition to any other remedy Company may have. 16. Patent, Trade Dress and Trademark Assignment. Executive agrees without additional compensation to assign promptly to Company all rights, title, and interest in and to any and all trade secrets, inventions, letters patent, applications for letters patent, trade dress, and trademarks whether or not subject to state or federal trademark during the term of employment hereunder if related to the then current products and activities of Company, such activities to include, without limitation, product development by Company, or if developed or made with the use of its facilities, equipment, materials, personnel, or trade secrets, or result directly from any work performed by Executive for Company. Executive further agrees to disclose promptly to Company any such trade secrets, inventions, letters patent, applications for letters patent, trade dress, and trademarks, and, at the request and expense of Company, to apply for letters patent or registration thereon in every jurisdiction designated by Company. 17. Confidential Information. Executive agrees both during the term of this Agreement and thereafter to keep secret and confidential all information labeled confidential or not generally known which is heretofore or hereafter acquired concerning the business and affairs of Company, including without limitation, information regarding trade secrets, trade dress, proprietary processes, confidential business plans, market research data and financial data, and further agrees not to disclose any such information to any person, firm, or corporation or use the same in any manner other than in furtherance of the business or affairs of Company or unless such information shall become public knowledge by other means. Executive agrees that such information is a valuable, special, and unique asset of Company. Upon the termination of Executive's employment with Company, Executive shall immediately return to Company all documents, records, notebooks, and similar repositories of information relating to confidential information of Company and/or the development of any inventions. 18. Waiver of Breach. The waiver by Company or Executive of any breach of a provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by the parties. 19. Notice. All notices, requests, demands, payments, or other communications hereunder shall be deemed to have been duly given if in writing and hand delivered or sent by certified or registered mail, return receipt requested, to the appropriate address indicated below or to such other address as may be given in a notice sent to all parties hereto: 6 (a) If to Company, to: LADD Furniture, Inc. One Plaza Center P. O. Box HP-3 High Point, NC 27261 Attn: Chief Executive Officer b) If to Executive, to: Michael P. Haley 928 Mulberry Rd. Martinsville, VA 24112 20. Entire Agreement. This Agreement supersedes any and all other understandings and agreements, either oral or in writing, between the parties hereto with respect to the subject matter hereof and constitutes the sole and only agreement between the parties with respect to said subject matter. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied herein, and that no agreement, statement, or promise not contained in this Agreement shall be valid or binding or of any force or effect. No change or modification of this Agreement shall be valid or binding upon the parties hereto unless such change or modification is in writing and is signed by the parties hereto. 21. Severability. If any one or more of the provisions contained in this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, that invalidity, illegality, or unenforceability shall not affect any other provisions hereof, and this Agreement shall be construed as if that invalid, illegal, or unenforceable provision had never been contained herein. 22. Parties Bound. The terms, promises, covenants, and agreements contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement may not be assigned by Company or Executive without the prior written consent of the other party. 23. Consolidation, Merger or Sale of Assets. Nothing in this Agreement shall preclude the Company from consolidating or merging into, or with, or transferring all or substantially all of its assets to another corporation which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation or merger, the use of the word "Company" herein shall mean such other corporation, and this Agreement shall continue in full force and effect. 7 24. Survival. The provisions of Sections 15 and 17 of this Agreement shall survive the termination of this Agreement and shall continue for the terms set forth in Sections 15 and 17. 25. Captions. Captions to the Sections of this Agreement are inserted solely for the convenience of the parties, are not a part of this Agreement, and in no way define, limit, extend or describe the scope thereof or the intent of any of the provisions. 26. Applicable Law. This Agreement shall be construed and the legal relationship between the parties determined in accordance with the laws of the State of North Carolina. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the day and year first above written, the corporate party acting through duly authorized officers. ATTEST: LADD Furniture, Inc. ___________________________ By:_______________________________ Secretary President (Corporate Seal) ___________________________ ____________________________(SEAL) (Witness) Michael P. Haley 8 EX-10 13 EXHIBIT 10.11 EXHIBIT 10.11 LADD FURNITURE, INC. 1994 LONG-TERM INCENTIVE PLAN PLAN HIGHLIGHTS 1. The Long-Term Incentive Plan consists of an annual award of the following three elements: - Incentive Stock Options - Restricted Stock Grants - Performance Units convertible to cash at the end of a 3-year planning period; par value is $100 per unit 2. Award levels are based on a percentage of the participant's base salary in effect at the beginning of the planning period as follows: a) Chairman, Vice Chairman and Executive Vice President % of Salary Incentive Stock Options 30.0% Restricted Stock Grants 18.8% Performance Units 18.7% Total 67.5% b) Division Presidents, Chief Financial Officer, VP Human Resources, VP Market Development % of Salary Incentive Stock Options 12.5% Restricted Stock Grants 12.5% Performance Units 25.0% Total 50.0% c) Selected Division & Corporate Key Management % of Salary Incentive Stock Options 10.0% Restricted Stock Grants 10.0% Performance Units 20.0% Total 40.0% 3. Performance Unit payments will be based on the achievement of sales growth and return on investment goals as follows: a) For Corporate Participants LADD 3-Year Average ROE 55% LADD 3-Year Sales Growth 45% Total 100% b) For Division Participants Divisional 3-Year Average ROIC 55% Divisional 3-Year Sales Growth 45% Total 100% 4. Valuation of Performance Units at the end of the 3-year planning period will be based on the following performance levels: ROE ROIC Sales Growth Minimum Incentive 8% 12% Industry Growth Rate* Target Incentive 12% 16% Industry Growth Rate* + 1.5% Maximum Incentive 15% 20% Industry Growth Rate* + 3% *Industry Growth Rate defined to be U.S. Commerce Department Furniture Growth Index. The Board reserves the right to change or modify the index if experience shows the index not to be a good measure of the Industry's performance. 2 5. Payout per Performance Unit will be on a graduated scale with a value of $50 to $150 per unit. Minimum performance levels are required to receive any payment. - Minimum incentive - $50 per unit - Target incentive - $100 per unit - Maximum incentive - $150 per unit Payments of Performance Units earned for 1994 - 1996 will be made by June 1, 1997. 6. Incentive Stock Options will be granted at market price on the day of the grant, and, as long as the participant remains an employee of LADD, will be vested as follows: After 1 Year 25% After 2 Years 50% After 3 Years 75% After 4 Years 100% 7. Restricted Stock Grants will permit a participant to purchase LADD shares for $.10 per share. The shares may be repurchased by LADD at the same price if the participant ceases to be an employee of LADD before 5 years have elapsed. 8. The participant must be an employee at the end of the planning period to receive any payment for the Performance Units. If the participant changes LADD business units during the planning period, a pro-rata share of the earned Performance Units will be granted for the period the individual participated in the Long-Term Incentive Plan in the respective business units. 9. Participants who enter the plan other than at the beginning of the planning period will receive stock options, restricted stock and performance units as recommended by management and approved by the Compensation Committee and the Board of Directors. 10. When a plan participant retires (minimum age 55), dies or becomes disabled during a three-year plan period, the Compensation Committee and the Board of Directors will determine the amount and terms of payment of performance units earned and the amount of stock to be repurchased. February 24, 1994 3 EX-10 14 EXHIBIT 10.12 EXHIBIT 10.12 LADD FURNITURE, INC. 1995 LONG-TERM INCENTIVE PROGRAM PLAN HIGHLIGHTS 1. The Long-Term Incentive Program consists of an annual award of the following three elements: - Incentive Stock Options - Restricted Stock Grants - Performance Units convertible to cash at the end of a 3-year planning period (1995-1997); par value is $100 per unit 2. Award levels are based on a percentage of the participant's base salary in effect when the award is granted as follows: a) LADD Chief Executive Officer and Chief Operating Officer % of Salary Incentive Stock Options 30.0% Restricted Stock Grants 18.8% Performance Units 18.7% Total 67.5% b) Operating Company Presidents & LADD Chief Financial Officer, VP Human Resources, VP Market Development, VP Manufacturing Services % of Salary Incentive Stock Options 12.5% Restricted Stock Grants 12.5% Performance Units 25.0% Total 50.0% 3. Performance Unit payments will be based on the achievement of sales growth and return on investment goals as follows: a) For Corporate Participants 3-Year Average ROE for LADD 55% 3-Year Sales Growth for LADD 45% Total 100% b) For Operating Company Participants 3-Year Average ROIC for Operating Company 55% 3-Year Sales Growth for Operating Company 45% Total 100% 4. Valuation of Performance Units at the end of the 3-year planning period will be based on the following performance criteria: ROE ROIC Sales Growth Minimum Incentive 8% 12% Industry Growth Rate* Target Incentive 12% 16% Industry Growth Rate*+1.5% Maximum Incentive 15% 20% Industry Growth Rate*+3% *Industry Growth Rate defined to be U.S. Commerce Department Furniture Growth Index. The Board reserves the right to change or modify the index if experience shows the index not to be a good measure of the Industry's performance. 5. Each Performance Unit will be valued at the end of the performance period using a graduated scale ranging between $50 and $150 per unit. Minimum performance levels are required to receive any payment. - Minimum incentive - $50 per unit - Target incentive - $100 per unit - Maximum incentive - $150 per unit Payments for Performance Units earned for 1995 - 1997 performance period will be made in cash by June 1, 1998. 2 6. Incentive Stock Options will be granted at market price on the day of the grant, and, as long as the participant remains an employee of LADD, will be vested as follows: After 1 Year 25% After 2 Years 50% After 3 Years 75% After 4 Years 100% 7. Restricted Stock Grants will permit a participant to purchase LADD shares for $.10 per share. The shares may be repurchased by LADD at the same price if the participant ceases to be an employee of LADD before 5 years have elapsed. 8. The participant must be an employee at the end of the planning period to receive any payment for the Performance Units. If the participant changes LADD business units during the planning period, a pro-rata share of the earned Performance Units will be granted for the period the individual participated in the Long-Term Incentive Program in the respective business units. 9. Participants who enter the plan other than at the beginning of the planning period will receive stock options, restricted stock and performance units as recommended by management and approved by the Compensation Committee and the Board of Directors. 10. When a plan participant retires (minimum age 55), dies or becomes disabled during a three-year plan period, the Compensation Committee and the Board of Directors will determine the amount and terms of payment of performance units earned and the amount of stock to be repurchased. March 2, 1995 3 EX-10 15 EXHIBIT 10.13 EXHIBIT 10.13 PROPOSED LADD FURNITURE, INC. 1996 LONG-TERM INCENTIVE PROGRAM PLAN HIGHLIGHTS 1. The Long-Term Incentive Program consists of an annual award of the following two elements: - Stock Option Grants - Performance Bonus payable in cash and stock at the end of a 3- year planning period (1996-1998). 2. Award levels are based on a percentage of the participant's base salary in effect when the award is granted as follows: a) LADD President (CEO) and Executive Vice Presidents % of Salary Stock Options 40.0% Performance Bonus 25.0% Total 65.0% b) Operating Company Presidents, VP Human Resources, VP Market Development % of Salary Stock Options 25.0% Performance Bonus 25.0% Total 50.0% 3. Valuation of Performance Bonus at the end of the 3-year planning period will be based on the following performance criteria achieved by LADD Furniture, Inc. AGGREGATE EPS FOR 1997 AND 1998 Minimum Incentive $ 1.80 Target Incentive $ 2.45 Maximum Incentive $ 2.90 4. The Performance Bonus will be valued at the end of the performance period using a graduated scale ranging between 12.5% and 37.5% of base salary. Minimum performance levels are required to receive any payment. Minimum Incentive - 12.5% of Base Salary Target Incentive - 25.0% of Base Salary Maximum incentive - 37.5% of Base Salary Payments for Performance Bonus earned will be made by June 1, 1999. Payments will be made 50% in cash and 50% in shares of LADD stock. 5. Stock Options will be granted at market price on the day of the grant, and, as long as the participant remains an employee of LADD, will be vested as follows: After 1 Year 25% After 2 Years 50% After 3 Years 75% After 4 Years 100% 6. The participant must be an employee at the end of the planning period to receive any payment for the Performance Bonus. If the participant changes LADD business units during the planning period, a pro-rata share of the earned Performance Bonus will be granted for the period the individual participated in the Long-Term Incentive Program in the respective business units. 7. Participants who enter the plan other than at the beginning of the planning period will receive stock options and performance bonus as recommended by management and approved by the Compensation Committee and the Board of Directors. 2 8. When a plan participant retires (minimum age 55), dies or becomes disabled during a three-year plan period, the Compensation Committee and the Board of Directors will determine the amount and terms of payment of performance bonus earned. 9. The company has the sole right to exclude from the operating profits of each organizational unit items such as, but not limited to, extraordinary income from the sale of assets, litigation recoveries, income or expenses attributable to changes in accounting methods, bad debt charges and inventory valuations and similar items. Such determinations will be made without recourse by an Incentive Plan participant as to the effect, if any, on the incentive payment amount. 10. The earned performance bonus paid in stock will be restricted from sale for a period of 2 years from issue date. March 4, 1996 3 EX-10 16 EXHIBIT 10.14 EXHIBIT 10.14 LADD FURNITURE, INC. 1996 MANAGEMENT INCENTIVE PLAN PLAN HIGHLIGHTS 1. Incentive payments based on financial performance and individual performance as follows: For Corporate Participants achievement of PAT target achievement of ROAE target (selected management) achievement of individual objectives For Operating Company Participants achievement of PBT targets achievement of ROIC targets (presidents only) achievement of individual objectives 2. No incentive payments will be made to any individual if the operating unit to which the individual is assigned does not achieve minimum PBT or PAT targets. Incentive payment expense will be accrued in results before calculation of profit. 3. Total of 172 officers and key managers to participate in the plan (Exhibit I). Maximum incentives range from 10% to 100% of January 1, 1996 base salary. Incentive payments are based on achieving performance criteria established by senior management. 4. Program includes $50,000 discretionary incentive pool for extraordinary performance by LADD employees not covered by the Management Incentive Plan. 5. Estimated incentive payout at planned performance levels is $1.4 million. 6. Incentives earned in 1996 will be paid in cash after completion of annual audit (not later than March 31, 1997). 7. In the event of a transfer of a participant during the fiscal year to an operating unit other than the unit in which originally a Plan participant, an appropriate adjustment will be made in Incentive Plan eligibility pro-rata for the time worked in each unit. 8. In the event of a promotion of a participant within the same operating unit, an appropriate adjustment will be made in Incentive Plan eligibility pro-rata. In the event of a demotion which would place participants in a position substantially different from that in which they were nominated as a participant, an appropriate adjustment may be made as to the amount of incentive payment for which they are eligible as determined by the Compensation Committee of the Board of Directors. 9. Participants will forfeit all income from plan if employment is terminated prior to January 1, 1997 for any reason other than death, disability or retirement (over 55). 10. The 1996 Management Incentive Plan only applies to fiscal year 1996. EX-24 17 EXHIBIT 24.1 EXHIBIT 24.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors LADD Furniture, Inc.: We consent to incorporation by reference in the Registration Statement (No. 33-53341) on Form S-8 of LADD Furniture, Inc. of our reports dated February 16, 1996, except for paragraph 4 of Note 2, which is as of February 26, 1996, relating to the consolidated balance sheets of LADD Furniture, Inc. and subsidiaries as of December 30, 1995 and December 31, 1994, and the related consolidated statements of operations, shareholders equity and cash flows and related schedule for each of the years in the three-year period ended December 30, 1995 which reports appear in the December 30, 1995 annual report on Form 10-K of LADD Furniture, Inc. contained in the Appendix to the Proxy Statement for the 1996 Annual Shareholders Meeting. KPMG Peat Marwick LLP Greensboro, North Carolina March 28, 1996 F-1 INDEPENDENT AUDITORS REPORT The Board of Directors LADD Furniture, Inc.: Under date of February 16, 1996, except for paragraph 4 of Note 2, which is as of February 26, 1996, we reported on the consolidated balance sheets of LADD Furniture, Inc. and subsidiaries as of December 30, 1995 and December 31, 1994 and the related consolidated statements of operations, shareholders equity and cash flows for each of the years in the three-year period ended December 30, 1995, as contained in the Appendix to the Proxy Statement for the 1996 Annual Shareholders Meeting. These consolidated financial statements and our report thereon are included in the annual report on Form 10-K for the year ended December 30, 1995, also contained in the Appendix to the Proxy Statement for the 1996 Annual Shareholders Meeting. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the company s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Greensboro, North Carolina February 16, 1996, except for paragraph 4 of Note 2, which is as of February 26, 1996 F-2 Schedule II LADD FURNITURE, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves (dollar amounts in thousands)
Charged Balance at (credited) Balance at beginning of to costs and Charged to Deductions end of Description year expenses other accounts (c) year ---------------- ----------------- ---------------------------------- ------------- Year ended December 30, 1995 Doubtful receivables $2,831 2,898 (1,085) (a) (2,091) 2,553 Discounts 0 123 (d) - - 123 Returns and allowances 1,462 (36) (d) (45) (a) - 1,381 ================ ================= ============= ================ ============= $4,293 2,985 (1,130) (2,091) 4,057 ================ ================= ============= ================ ============= Year ended December 31, 1994 Doubtful receivables $3,316 1,521 338 (b) (2,344) 2,831 Returns and allowances 862 294 (d) 306 (b) - 1,462 ================ ================= ============= ================ ============= $4,178 1,815 644 (2,344) 4,293 ================ ================= ============= ================ ============= Year ended January 1, 1994 Doubtful receivables $2,763 2,056 - (1,503) 3,316 Discounts 23 - (d) - (23) 0 Returns and allowances 731 131 (d) - - 862 ================ ================= ============= ================ ============= $3,517 2,187 - (1,526) 4,178 ================ ================= ============= ================ =============
Notes (a)Represents businessess divested or reclassified to businesses held for sale. (b)Represents initial reserves of acquired business. (c)Represents uncollectible receivables written-off, net of recoveries. (d)Represent net increase (decrease) in required reserve. EX-27 18 EXHIBIT 27.1
5 12-MOS DEC-30-1995 DEC-30-1995 1,272 0 38,288 4,057 89,466 142,689 82,586 67,112 312,986 63,161 112,598 0 0 2,318 122,879 312,986 614,502 614,502 515,980 515,980 141,948 2,898 11,798 (43,426) (18,236) (25,190) 0 0 0 (25,190) (3.26) (3.26)
-----END PRIVACY-ENHANCED MESSAGE-----